(Insert Name of Issuer) TO: The Investors listed in Schedule A hereto. (Insert name of issuer) (the “Company”) hereby agrees (jointly and severally referred to as the “Investors”) as follows: ARTICLE ONE ISSUE OF SECURITIES 1.1 Issue of Debentures. The Company will sell to you and you agree to purchase at par a series of (insert interest rate) % Debentures (with Limited Subordination) authorized in an aggregate amount of up to (insert amount) Debentures to be in the form designated as Exhibit 1.1 (the Debentures being hereinafter referred to as the “Debt Securities”). Warrants. The Company shall also sell to you an issue of its Warrants which shall entitle the holder(s) thereof to purchase an aggregate of up to (insert number) shares of the Common Stock of the Company at a price (insert price) per share, said Warrants to be in the form designated Exhibit. 1.2. Each investor will pay 1¢ per share for each warrant. The warrants will be issued pro rata so that upon completion of this sale warrants for (insert number) shares will have been issued. The above described Debt Securities and Warrants are sometimes hereinafter referred to jointly and severally as the “Securities.” The amount of Securities to be purchased by and sold to each Investor is set forth on Schedule A hereto. 1.3 Right of First Offer. Each Investor who intends to offer for sale any Securities issued hereunder shall given the Company at least 30 days notice in writing of its intention stating the price at which it intends to make such offer. The Company and its principal stockholder shall have the right to accept such offer from the Investor to purchase such Securities during such period. In the event the Company does not accept such offer, the Investor may at any time during a period of (insert number) months after such rejection sell the Securities but only on terms at least as advantageous to it as those offered to the Company or its principal stockholder. In the event the Securities are not sold prior to the expiration of the period, the foregoing procedure shall be repeated prior to any sale by an Investor. This provision shall terminate if any of the Company’s securities are publicly owned. Put and Call Provisions. If any securities of the Company are publicly owned, this Section 1.4 shall be null and void. The Warrants and the underlying shares issued upon exercise of the Warrants shall be subject to a right of repurchase by the Company (“Call”) and the right of mandatory repurchase at the demand of the holder (“Put”) on the following terms and conditions:
1.2
1.4
(a) The purchase price in all events shall be determined by appraisal by an appraiser selected by the Company (and approved by the Investors as provided in Section 9.1) as follows: the appraiser shall be selected from one of the following firms: (insert names). In the event the Investors reject appointees from all but the last firm selected by the Company, the Company’s appointee from the last firm must be accepted by the Investors. The parties may agree to the appointment of a person not affiliated with any of the firms abovementioned. The appraiser shall determine the value of the shares to be purchased: if under (b)1 below, at the price (net of commissions) that the Investor would have received in the appraiser’s opinion if the shares were offered to the public pursuant to an offering registered with the SEC or made after exemption provided in Regulation A; if under any other provision of this Section 1.4, the value of the shares, assuming the anti-dilution and registration rights then in effect, assuming the Company will continue as a going concern and considering the effect of the shares being retired as a function of consolidation of control by the other shareholders. All fees and costs of appraisal paid to third parties shall be paid by the Company in the event appraisal is made to permit the Company to repurchase the shares in lieu of complying with the holder’s first demand for registration as provided in Section 8.2(b); at the holder’s expense in the event purchase is to be made in lieu of complying with the holder’s second or third demand for registration or pursuant to demand under (b)3 below. (b) The Company shall repurchase the Warrants and shares issued: 1. upon its option as provided in Section 8.2(b); 2. upon its option, on or after (insert date) but before (insert date) on at least (insert number) days prior written notice, and 3. at the holder’s option, within the same period as set forth in (b) above upon at least (insert number) days prior written notice. (c) the purchase price shall be paid: 1. all in cash on closing if purchased pursuant to (b)2 above; and 2. in all other events by delivery of a series of notes providing for the aggregate purchase price to be paid in (insert number) equal quarterly installments with interest payable quarterly computed at the rate of (insert rate) per annum. The notes shall provide: (i) the first payment shall be made on date of issue;
(ii) the note may be prepaid, without penalty, in whole or in part at any time (ratably to all holders of notes if a series of notes is issued); any prepayment to be credited against installments due in inverse order of maturity; (iii)default in payment of any amount due on any note shall entitle the holders of all notes to accelerate the due date of the balance of the notes; and (iv) the aggregate amount to be paid on the notes in any one fiscal year shall be no more than one-half of the Company’s after tax earnings for such year, and in the event the amount paid shall be less than the next installment(s) due, and the amount unpaid shall be added to and be payable with the last installment. (d) The Company may not purchase less than all of the Warrants if it exercises its rights under (b)2 above or less than all the shares sought to be registered if it exerci ses its rights under (b)1 above. (e) The Debt Securities need not be prepaid but the Company must be in good standing and compliance under this Agreement and under the Debt Securities at the time of its giving of any notice under (b)1 above. (f) If at any time its surplus is not adequate to pay for any securities at the time such payment is required by the terms of this Agreement, then the Company will take all action necessary to increase its capital surplus to enable it to carry out its obligations to the sellers under the terms of this Agreement. (g) The Company agrees that all payments made under this agreement shall be distributed on a pro rata basis based on the existing balances of the respective obligations then due to each seller of securities hereunder. (h) In the event of notice from the Company pursuant to (b)2, the Company shall also warrant and represent that it is not then engaged in any negotiation for its acquisition by, or merger into, any other company or business, or the sale of its business whether by way of sale of all or substantially all of its assets or sale of all or substantially all of its stock by its principal stockholders. Notwithstanding the foregoing, seller(s) of Securities which shall have been purchased pursuant to a demand under (b)2 shall have the right to cancel that transaction if at any time prior to one year after the purchase date, the Company or its principal stockholder(s) agrees to or engages in any such transaction. Upon any such cancellation, seller shall return the full consideration received by it to the Company and seller shall, in exchange, receive its pro rata part of the consideration in cash or kind, as, if and when received by the Company or its stockholders, as the case may be, pro rated as if the seller had been a stockholder (assuming exercise of all warrants held by it) at the time of the payment of the consideration.
(i) The report of the appraiser shall be deemed an arbitration decision but as to purchase price only, enforceable as a judgment by and in any court of record. ARTICLE TWO CLOSING The company will sell and, subject to the terms and conditions hereof and in reliance upon the written representations and warranties of the Company, each of the Investors will purchase, at one or more closings, the Securities set forth opposite its name as set forth in Schedule A hereto. The first Closing shall be held on the date of this Agreement or on another day designated by the Investors on at least 3 days prior notice to the Company (the “Closing Date”) at the office of the Company, or such other place as the parties shall mutually agree upon. In the event that at least (insert amount) of Debentures are not sold by (insert date), this Agreement at the Company’s option shall be null and void in which event the Company shall on said date rescind all sales and return all moneys paid to it plus interest accrued as provided in the Debt Securities. In the event the Company determines to retain the funds paid for the Securities sold, the number of shares to which the warrant-holders shall in the aggregate be entitled to acquire shall be reduced pro rata from (insert maximum amount of warrants) (that is the number if (insert maximum amount) of Debt Securities as provided in Section 1.1, is purchased) and the number of directors as provided in Section 5.6 shall be reduced pro rata. The instruments evidencing the Securities delivered to the Investor on each Closing Date will be in such denominations and issued in the names of the Investors set forth in Schedule A or in such other name or names as may be specified by written notice to the Company prior to the Closing Date. In the event that there is more than one closing, the date of the Securities shall remain the same but the price of the Debt Securities shall be its original cost plus interest accrued to date of purchase. ARTICLE THREE CONDITIONS TO CLOSING The purchase of and payment for the Securities sold and delivered is subject to the accuracy of all representations and warranties by the Company contained herein and to the performance by the Company of all the terms and conditions on its part to be performed hereunder on or prior to each Closing Date and to the satisfaction on or prior to each Closing Date of the following conditions precedent: 3.1 3.2 Opinion of Company’s Counsel. The Investors shall have received a favorable opinion of counsel to the Company (Exhibit 3.1). Officer’s Certificate. The Company shall deliver on the Closing Date a Certificate of its President (Exhibit 3.2) stating that there does not exist at the Closing Date any state of facts which would constitute an event of default under this Agreement or would, with notice or lapse of time as provided herein, constitute such an event of default and no default has been declared by or against the Company under the terms and conditions
of any indenture, mortgage, deed of trust, and any other material agreement or instrument binding upon the Company. 3.3 Corporate Resolution. A certified copy of a resolution adopted by the Company’s directors authorizing and approving this Agreement, the issuance of the Securities to be issued hereunder and the transactions contemplated hereby shall have been delivered (Exhibit 3.3). Proceedings and Documents. All proceedings taken or to be taken in connection with the transactions contemplated by this Agreement to be consummated at or prior to the Closing Date, and all documents, schedules, exhibits, opinions and certificates delivered in connection therewith shall each be reasonably satisfactory in form and substance to the Investors and the Investors shall have received copies of all documents which each shall have reasonably requested in connection with said transaction and of all corporate proceedings in connection therewith, in form and substance reasonably satisfactory to the Investors. Purchase Permitted by Applicable Laws. The purchase of and payment for the Securities to be purchased by the Investors on the Date of Closing shall not be prohibited by any applicable law or governmental regulation and shall not subject the Investor to any penalty or other onerous condition under or pursuant to any applicable law or governmental regulation. Authorized and Issued Shares. The Company’s Certificate of Incorporation (Exhibit 3.13-A) shall provide, among other things, for the authorization to issue up to (insert number) shares and the Company shall at the closing have issued or reserved shares of its stock so as to effect the capitalization set forth in Exhibit 3.6. Other Borrowings. At the Closing Date the Company shall not be obligated for or in respect of any indebtedness for borrowed funds, except (i) borrowing in the total original principal of (insert amount) from (insert name of lender) evidenced by Exhibit 3.7-A; (ii) a series of convertible notes in the aggregate principal amount of (insert amount), a schedule and specimen copy of which are designated Exhibit 3.7-B; and (iii) any additional borrowings to which the Investors have given their specific approval thereto in writing referenced to this Section (Exhibit 3.7-C). All consents and approvals necessary or desirable from the creditors of the Company so as to render this Agreement effective and not in violation of any other agreement, arrangement or understanding to which the Company is a party shall have been delivered as Exhibit 3.7-D. Brokerage Indemnity. Receipts and releases (Exhibit 3.8) shall be delivered at the Closing executed by the Company and by (insert name of broker, finder, etc.) so as to indemnify the Investors against liability for finders’ fees, brokerage fees and similar fees and expenses incurred or claimed in connection with the transactions contemplated by this Agreement.
3.4
3.5
3.6
3.7
3.8
3.9
Material Contracts. Any and every material contract of the Company which has been made or assumed whether or not in the ordinary course of business and which is to be performed in whole or in part at or after the date hereof and not otherwise specifically and expressly disclosed herein shall have been disclosed to the Investors by a summary schedule thereof (Exhibit 3.9). The Company shall not have breached or violated any material term or provision of each such contract and the execution and delivery of, performance under or compliance with this Agreement will not result in any such violation or constitute a default under any such term or provision. The Company shall not be in violation of any applicable law, statute or regulation of any federal, state, municipal or other governmental or quasi-governmental agency, board, bureau or body relating to the conduct of its business and maintenance and operation of its properties, the violation of which would have an adverse impact upon the business or financial condition of the Company or be in violation of or in default with respect to any order, license, regulation or demand of any governmental agency, nor shall default have been declared and be continuing under any material indenture, mortgage, lease, agreement or other instrument to which the Company is a party.
3.10 Insurance Policy. The Company shall have procured term life insurance policies insuring the lives of (insert names of persons to be insured) in the aggregate principal balance of the Debentures as provided in the Insurance Assignment (Exhibit 3.10). 3.11 Dividends and Redemptions. The Company shall not have directly or indirectly declared or paid any dividends or declared or made distributions in respect of any of its Common Stock, and, shall not have directly or indirectly, redeemed, purchased or otherwise acquired, any of its Common Stock or agreed to do so, except as expressly disclosed herein. 3.12 SBA Forms. Small Business Administration Form 480, entitled “Size Status Declaration” (Exhibit 3.12-A), SBA Form 652-D (Exhibit 3.12-B) and partially completed SBA Form 1031 (Exhibit 3.12-C) shall have been delivered to those Investors who are SBICs. 3.13 Organization, Good Standing and Authority. The Company shall be a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation and have all requisite corporate power and authority so as to permit it to conduct its business as it is now conducted or proposed to be conducted, to enter into and carry out the provisions of this Agreement and to issue the Securities to be issued hereunder. Copies of its Certificate of Incorporation and any Certificate(s) of Amendment, and a Certificate of Good Standing of recent date, all certified by the appropriate official of its state of incorporation (Exhibit 3.13-A) and a copy of its ByLaws, certified by its secretary (Exhibit 3.13-B) shall have been delivered. The Company shall have complied with and shall not be in violation of each term and provision of its Certificate of Incorporation and By-Laws. The Company shall be qualified to do business or the nature of its activities, present or proposed, requires such qualification. Copies of certificates of qualification issued by the appropriate government officials shall be delivered as Exhibit 3.13-C.
3.14 Financial Statements. The Company shall have delivered the following financial statements and reports: certified balance sheet and income statement as at and for the (insert period) ending (insert date) prepared by and entitled (insert title and preparer) (Exhibit 3.14). 3.15 Proceeds and Use. The proceeds of the sale of the Securities sold to the Investors hereunder shall be used for (insert specific purpose or purposes, if applicable) and working capital. No portion of the proceeds of the Securities sold will be used (or will replace other funds) for any purpose contrary to the public interest within the meaning of Section 107.1001 of Title 13 of the Code of Federal Regulations. 3.16 No Material Adverse Change. There shall have been no material adverse change, in the opinion of the Investors, in the assets, liabilities, financial or business condition of the Company from that set forth in the financial statement (Exhibit 3.14) and that obtaining on the Closing Date. 3.17 Securities Law Matters; Investment Representatives. (a) Each Investor shall deliver to the Company a consent to this agreement including an investment representation in the form designated Exhibit 3.17. (b) Each Investor shall deliver to the Company an investment representation, in the form designated Exhibit 3.17B. (c) The Company shall not at the Closing be in violation of any provision of the Federal or State securities laws applicable to this transaction, except to the extent that such violation results from the untruth, inaccuracy or incompleteness of the investment representation delivered pursuant to paragraph (a) or (b) above, or any other actions or statements of each Investor or any of its affiliates. 3.18 No Litigation. There shall be no action, proceeding or investigation pending (or, to the knowledge of the Company threatened) against it which in the opinion of the Company or its counsel might result in any material adverse change in the business prospects or condition (financial or otherwise) of the Company or in any of its properties or assets, held by it or to be acquired upon closing. 3.19 Co-Sale Agreement. The Company and its principal shareholder(s) shall have entered into the Co-Sale Agreement designated Exhibit 3.19. ARTICLE FOUR REPRESENTATIONS AND WARRANTIES The Company represents and warrants, as of the date hereof and as of each Closing Date, that each of its representations and warranties contained herein shall be true. 4.1 Existence and Rights. The Company is a corporation duly organized and existing under the laws of the state of its incorporation without limit as to the duration of its
existence. The Company has the corporate powers and adequate authority, rights and franchises to own its property and carry on its business as now conducted and proposed to be conducted and is now or will from time to time hereinafter promptly become and remain duly qualified and in good standing in each state or other jurisdiction in which, in the Company’s counsel’s opinion, the character of the properties owned by it therein or the conduct of its present or proposed business makes such qualification necessary or desirable; and the Company has the corporate power and adequate authority to enter into and perform this Agreement and to issue the Securities to be issued hereunder. 4.2 4.3 Business. The company will continue to engage in the business of (insert present and any intended future business of issuer). Agreement Authorized. Neither the execution and delivery of this Agreement nor the performance of any of the provisions of this Agreement by the Company is in contravention of or in conflict with any law or regulation or any term or provision of the Company’s Certificate of Incorporation or By-laws; is duly authorized; and does not require the consent or approval of any governmental body or other regulatory authority. All corporate action and all necessary or appropriate approvals and consents for the due execution and delivery of this Agreement by the Company, including the authorization, issuance and sale of the Securities and the performance of all other transactions contemplated hereby, have been duly and validly obtained or taken. No right of any of the Company’s stockholders or creditors is illegally impaired or infringed upon by this Agreement. This Agreement and the Securities issued hereunder will each constitute a valid and binding obligation of the Company enforceable against the Company in accordance with its respective terms except as limited by applicable laws regarding creditors’ rights generally. Capitalization. The Company’s authorized capital stock consists of (insert number) shares of common stock, (insert amount) per value, of which (insert number) are validly issued, fully paid and non-assessable. The Common Stock to be issued upon exercise of any Warrant shall, when so issued, be validly issued, fully paid and nonassessable, free from all taxes, liens and charges. The Company will take all such action as may be necessary to assure that the stock may be so issued without violation of any applicable law or regulation. The shares of Common Stock necessary to permit full exercise of all Warrants will at all times be reserved from the authorized but unissued shares of the Company’s Common Stock. There are no outstanding warrants, options or other rights to subscribe for or purchase any of the capital stock of the Company which are binding upon the Company except (insert number) shares are reserved for issuance upon exercise of stock options granted or to be granted under a qualified stock option plan; (insert number) shares are reserved for issuance upon exercise of options issued to key employees on a non-qualified basis; and (insert number) shares are reserved for issuance upon conversion of a series of convertible notes (Exhibit 3.7-B). Subsidiaries; Other Investments. The Company has no active subsidiaries as defined herein, or other investment in any other corporation except as listed in Exhibit 4.5. In the event the Company creates or controls any subsidiaries or any present subsidiary
4.4
4.5
becomes active, the Company shall cause such subsidiary to agree to comply with the terms of this Agreement as if it were party hereto. 4.6 Litigation. There is no litigation or other proceeding pending or, to the best knowledge of the Company, threatened against the Company, which could have an adverse material affect on the Company and it is not in default with respect to any order, writ, injunction, decree or demand of any court or other governmental or regulatory authority. Financial Statements; Changes. The Company represents and warrants that each financial statement included in Exhibit 3.14 is correct and complete and fairly presents the financial condition of the Company and the results of its operation as at the date thereof and for the period ending that date. At each financial statement date the Company had no material contingent liabilities which were not disclosed in said financial statement or the notes thereto. The Company represents since each date aforesaid there has been no material adverse change in the assets, liabilities (actual or contingent, including any pending, threatened, or probable litigation) or financial condition of its business other than changes in the ordinary course of business, the effect of which has not been in any case or in the aggregate materially adverse. All reserves are adequate and reasonable. The Company has not authorized, agreed to pay or paid any dividends or made any other payments in material amount other than in the ordinary course of business except amounts payable on account of the transaction provided for herein. Title to Properties. The Company has good title to all of its assets; and said assets are not and will not be subject to any liens or encumbrances except liens disclosed herein (Exhibit 3.7-A) and except those permitted by Section 6.3 hereof or other encumbrances and liens (which do not materially interfere with the use or materially affect the value of such property and assets). Such properties and assets include all of the fixed assets used in or necessary to the operation of the business of the Company as such business is presently conducted or proposed to be conducted and all such assets are in good condition and repair. Trademarks, Patents. The Company possesses all necessary foreign and domestic trademarks, trade names, copyrights, patents, patent rights and licenses to conduct its present and proposed business, without any known conflict with the valid trademarks, trade names, copyrights, patents and license rights of others.
4.7
4.8
4.9
4.10 No Materially Adverse Contracts, etc. Unless otherwise described in a writing delivered to the Investors referenced to this Section (Exhibit 4.10-A), the Company is not obligated under any contract or agreement (except loan agreements described in Exhibit 3.7-A) or under any law, regulation, or decree or subject to any restriction in its Certificate of Incorporation or By-laws, which materially and adversely affects its business, properties, prospects, assets or condition, financial or otherwise. Neither the execution nor the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, nor the fulfillment of the terms hereof, will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, either
the Certificate of Incorporation or By-laws of the Company, or of any material agreement, instrument, lien, charge or encumbrance under which the Company is bound or obligated. 4.11 Compliance with Other Instruments, etc. Unless otherwise described in a writing delivered to the Investors referenced to this Section (Exhibit 4.11), the Company is not in violation in any material respect of its Certificate of Incorporation or By-laws, as amended, or of any applicable law, statute or regulation of any federal, state, municipal or other governmental or quasi-governmental agency, board, bureau or body relating to the conduct of its business and maintenance and operation of its properties or in violation or default in any material respect with respect to any other, license, regulation or demand of any governmental agency, or in default in any material respect under any indenture, mortgage, lease, agreement or other instrument under which the Company is obligated. 4.12 Use of Proceeds. The proceeds of the sale of Securities sold by the Company will be used solely for the purpose described in Section 3.15. 4.13 Taxes. The Company has filed all federal, state, local and foreign tax returns required as of this date to be filed and has paid all taxes required to be paid. All representations and warranties contained in this agreement shall survive the consummation of the transactions contemplated herein. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto or in connection with the transactions contemplated herein shall constitute representations and warranties by the Company hereunder. The foregoing representations and warranties do not contain any materially untrue statement of fact or omit to state any material fact necessary to make the statements therein not misleading. ARTICLE FIVE AFFIRMATIVE COVENANTS The Company covenants and agrees that, so long as any of the Debt Securities is outstanding, it will, unless the Investors or holders of such Debt Securities shall otherwise consent as provided in Section 9.1, comply (and any subsidiary will so comply unless the context requires otherwise) with the following provisions: 5.1 5.2 Payment. The Company will duly and timely make all payments of interest and repayment of principal provided in the Debt Securities. Taxes and other Liabilities. The Company will promptly pay and discharge all lawful taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any of its property, real, personal or mixed; provided, however, that the Company shall not be required to pay or cause to be paid any such tax, assessment, charge or levy if the same shall not at the time be due and payable or if the validity thereof shall concurrently be contested in good faith by appropriate proceedings and if the Company shall have established adequate reserves on its books
with respect to such tax, assessment, charge or levy; provided further, however, that the Company will pay all such taxes, assessments, charges or levies forthwith whenever, as the result of proceedings to foreclose any lien which attached as security therefore, foreclosure on such lien appears imminent, or (at the Company’s election) will obtain a surety bond or take such other steps as will prevent such foreclosure. 5.3 Maintain Corporate Rights and Facilities. The Company will maintain and preserve its corporate existence and all rights, franchises, qualification to do business and other authority adequate to the conduct of its business and ownership of its properties. Insurance. The Company has obtained and will maintain insurance against such liabilities, hazards and risks and in at least such amounts as is usually carried by persons engaged in the same or a similar business. Such insurance shall at least include coverage against such risks in such amounts as are presently maintained as set forth in Exhibit 5.4. All such insurance shall be effected under valid and enforceable policies issued by insurances of recognized responsibility, except that the Company may effect workmen’s compensation or similar insurance in respect of operations in any state or other jurisdictions through an insurance fund operated by such state or other jurisdiction. Notice of Claims and Litigation. The Company will give prompt notice to the Investors of any claim or action at law or in equity, or before any governmental, administrative or regulatory body or arbitration panel involving a claim against the Company (not covered by insurance), for damages in excess of (insert amount) or which, if concluded adversely to the Company, could materially and adversely affect the business or assets of the Company. Board of Directors. (a) The Investors shall be entitled to elect (insert percentage) or such lesser percentage as set forth in Article 2 (but no less than one) of the directors of the Company and the Company shall obtain the agreement of the holders of the requisite percentage of its shares of common stock (Exhibit 3.19) to vote the shares held by them to effect such election from time to time. The Company shall provide for compensation, indemnification and reimbursement of its directors as set forth in its By-laws (Exhibit 3.13-B). (b) Directors’ meetings shall be held no less frequently than once every (insert number) months provided meetings may be held less frequently so long as the By-laws of the Company provided that a special meeting will be held at the request of any one director. Each holder of record of at least 5% of the Warrants shall receive no less than three days prior notice of the time and place of all directors’ meetings and any other holder of record of 5% or more of the Warrants then outstanding shall be permitted to attend each directors’ meetings. This provision shall terminate after the Company stock or if the total number of shares of common stock or if the total number of shares to which the holders of all outstanding warrants are entitled to acquire is less than 10% of the total number of the Company’s outstanding shares of stock.
5.4
5.5
5.6
5.7
Financial Reports, etc. (a) The Company shall maintain a standard and modern system of accounting in accordance with generally accepted accounting principles (as defined herein) applied on a consistent basis and shall maintain current books and records. (b) As soon as available, and in any event within (insert number) days after the end of each fiscal year, the Company shall furnish to each Investor, and each registered Holder of at least 5% of the Debt Securities issued hereunder, a balance sheet of the Company (and its subsidiaries, if any) for the fiscal year then ended, accompanied by an unqualified or other certification satisfactory to the Investors addressed to the Company by independent certified public accountants. Such financial statements shall also be accompanied by a certificate of the Chief Executive or Financial Officer of the Company certifying that the statement is true and complete in all material respects and stating whether or not, to the knowledge of the signer, the Company is in default in the performance of any covenant, agreement or condition contained in this Agreement or any material agreement and whether or not the Company is in good standing under Article 7 hereof and if not, specifying the violation thereof. (c) The Company shall furnish to the persons described in (b) no later than (insert number) days after the end of each fiscal quarter, a balance sheet of the Company (and its subsidiaries, if any) as of the end of the quarter and a statement of income of the Company (and its subsidiaries, if any) for such quarter and for the period from the beginning of the fiscal year to the end of such quarter, all in reasonable detail. (Each such financial report shall be presented on a consolidated basis and shall be accompanied by consolidating statements, if any subsidiaries are active, in support thereof.) Each report shall state in comparative forms (i) the figures as at and for the same period of the previous fiscal year and (ii) the results for the same quarter during the previous fiscal year. Each such report shall be accompanied by a certificate of the President or the principal financial officer of the Company to the effect that such financial statements have been prepared in accordance with generally accepted accounting principles subject to year-end audit adjustments, consistently applied and stating whether or not the Company is in violation of this Agreement and any other material agreement to which the Company is a party, and, if in violation, specifying each such violation of which the signer may have knowledge and the actions proposed to be taken to cure such violation (which term includes any violation of Article 7). (d) The Company also covenants that within 5 days of any officer of the Company obtaining knowledge of any event violating Article 7 of this Agreement or violating any other material agreement or obligation of the Company, it will deliver to the persons described in (b) above, a certificate of one of its principal officers specifying the nature thereof and the period of existence thereof. (e) The Company will deliver to the persons described in (b) above, within 10 days of preparation or occurrence, all communications with shareholders generally or with the financial community, including proxy statements and such other financial statements and any other reports filed by the Company or any of its officers with the
Securities and Exchange Commission (or any governmental authority at any time substituted therefor) or any security exchange. (f) At the Investor’s cost, the Company shall also furnish each Investor and any other holder of at least 5% of the Debt Securities issued hereunder, with reasonable promptness, such other information relating to the affairs of the Company or its financial data may from time to time reasonably request; and file such forms and reports as may be required to be filed with regulatory agencies or governmental authorities containing the requested information. (g) All information, reports, certificates and notices furnished pursuant to (a) through (f) above, and any additional or supplemental information, will be true and correct in all material respects when furnished. (h) In the event the Company fails for a period of two consecutive quarters and after at least 30 days prior written notice to deliver timely any annual or interim financial statements required to be delivered to the investors hereunder, the Investors may cause such statements to be prepared and delivered and the Company shall pay the Investors the cost thereof on demand. 5.8 Information for SBIC Investors. The Company will upon request furnish from time to time to each Investor who is an SBIC promptly (and in any event within 10 days of the request) all information necessary in the reasonable opinion of the SBIC Investor to enable the SBIC to prepare and file SBA Form 684 and any other information requested or required by any governmental agency asserting jurisdiction over the SBIC Investor(s). Inspection. Each Investor and each holder of at least 5% of the Debt Securities then outstanding (and any person designated by an Investor or any such holder) shall have the right upon reasonable notice and at its expense to visit and inspect any of the properties, books, and records of the Company (and to make copies and take extracts therefrom), to discuss the Company’s (and any subsidiary’s) affairs, finances and accounts with, and be advised of the same by, its directors, officers and employees at such reasonable times and intervals as the Investor or any other such holder may desire.
5.9
5.10 Maintain Properties. The Company shall keep its properties to good repair, working order and conditions, and from time to time make all needful and proper repairs, replacements, extensions, additions, betterments and improvements thereto, so that the business carried on may be properly conducted at all times in accordance with prudent business management. 5.11 Notice of Violation. The Company will promptly notify each Investor in writing of the occurrence of any violation of Article 7 of this Agreement or of any event which would upon notice or the lapse of time become a violation of Article 7. 5.12 Guarantees. The Company will cause all present and future active subsidiary corporations to the extent permitted by law, to issue general continuing guarantees of payment of principal and interest on the Debt Securities, which guarantees shall be
subordinated to any obligation of the corporation to (insert name of senior lender) or other bank or similar financial institution. 5.13 Conduct of Business. The Company will conduct its business as described in Section 4.2 in an ordinary manner without voluntary interruption and in accordance in all material respects with all applicable provisions of federal, state and local laws. 5.14 Executive Insurance. The Company will obtain and maintain policies of term life insurance in compliance with Exhibit 3.10. ARTICLE SIX COMPANY’S NEGATIVE COVENANTS The Company covenants and agrees that so long as any of the Debt Securities is outstanding, unless the Investors or holders of such Debt Securities shall have otherwise consented as provided in Section 9.1, the Company (and each subsidiary of the Company unless the context otherwise requires) will not: 6.1 Change in Type of Business. Make any substantial change in the character of its business as presently conducted or proposed to be conducted on the date of the execution of this Agreement, or conduct its business other than in the normal and ordinary course. Dividends, Stock Payments. Declare or pay any dividend payable in cash or property or make or authorize any other distribution (except a stock dividend) directly or indirectly on its Common Stock now outstanding or hereafter issued; or except as provided herein, purchase or otherwise acquire or redeem or retire any of its securities or agree to do any of the foregoing. Liens and Encumbrances. Except as set forth in Exhibit 3.7 or to another bank or similar financial institution, will not create, incur or assume any mortgage, deed of trust, pledge, encumbrance, lien or charge of any kind (including the charge upon the property at any time purchased or acquired under conditional sale or other title retention agreement) upon any property or other asset now owned or hereafter acquired by it, other than liens for current taxes not delinquent or other encumbrances and liens (which do not materially interfere with the use or in the aggregate materially affect the value of the company’s property and assets). Subsidiaries, Loans and Investments. (a) Make any loan or advance to any person or other entity other than in the ordinary and normal course of its business; (b) guarantee or otherwise become liable (contingently or otherwise) upon the obligation of any person or other entity, except by endorsement of negotiable instruments for deposit or collection in the ordinary and normal course of its business; or (c) purchase any stock or property from any officer (except in the event of his death if the funds are provided by insurance proceeds) or loan, purchase, acquire or hold the stock or obligation of, or in any other manner invest in any other person except as set forth herein and except that the Company may invest in general obligations of the United States of America or any
6.2
6.3
6.4
State or purchase prime commercial paper or certificates of deposit or securities issued by so-called money-market funds which are publicly owned and none of which shall have a maturity date later than one year, it being understood that sales on open account or other preferred payment basis in the ordinary course of business shall not be deemed to be prohibited pursuant to the foregoing provisions. 6.5 Acquisition or Sale of Business; Merger or Consolidation. Except as otherwise expressly permitted by this Agreement, purchase or otherwise acquire the stock, shares, or other securities of or the assets or business of any person or other entity. Further the Company will not liquidate, dissolve, merge or consolidate, reorganize, recapitalize or otherwise alter its legal status or commence any proceedings therefore; or sell, transfer, or dispose of, in any way, any chattel or real property assets in excess of (insert amount or percentage of assets) in the aggregate in any one year including patents, trademarks or license agreements, except transfers of its assets in the ordinary and normal course of its business; or sell, lease, assign or transfer any substantial part of its business or fixed assets, or any property or other assets necessary for the continuance of its business as now conducted, including without limitation the selling of any property or other asset accompanied by the leasing back of the same. 6.6 Change Capital Structure. Except as otherwise expressly permitted by this Agreement, increase or decrease the authorized number or vary or alter the terms, per value or rights of shares of any class or type of stock or issue warrants or options or other securities; create any new class of stock; issue any shares of stock, including Treasury stock of any class, type or series, except upon exercise of the Warrants or except upon exercise of stock options or conversion privileges now outstanding or exercise of employee stock options hereafter granted; or issue any other warrants or grant any options or rights to purchase or convert, exchange or exercise any right to purchase stock or other securities of the Company. Officers’ Salaries and Loans. Make any loans to any officer except for advances for expenses in the normal course. The salaries to be paid to each officer of the Company shall not exceed reasonable compensation for services rendered by him to the Company; and shall not pay as to any principal officer (and any member(s) of his immediate family) annual compensation in excess of (insert amount) plus an annual bonus not to exceed (insert percentage) of the Company’s earnings before provision for taxes above (insert amount) but below (insert amount) and (insert percentage) of any amount above (insert amount) in any one year unless specifically approved by twothirds of the directors of the Company. Lease Liabilities. Incur rental liability under leases of property of any kind, real, personal or mixed, for payment in any one fiscal year of rental or other obligations in an aggregate amount in excess of (insert amount) including lease liabilities as set forth in the schedule of lease liabilities (Exhibit 6.8) unless specifically approved by twothirds of the directors of the Company. Employment Arrangements. Except as expressly provided herein, enter into or assume any employment or consulting contracts for officers or other management
6.7
6.8
6.9
employees, or amend or modify existing consulting agreements in any manner which will increase the benefits thereunder to a cost of (insert amount) in any one instance without the specific approval of two-thirds of the Directors. 6.10 Amend, or Violate Charter, etc. Amend or change its Certificate of Incorporation or By-laws affecting adversely any right of the Investors or their designated director(s); or violate or breach any of the provisions thereof. 6.11 Agreements Restricting Payments on Debentures. Become a party to or in any way be or become bound to any understanding, agreement or arrangement which by its terms, express or implied, would or might make it impossible or would or might restrict the Company’s ability to comply with this Agreement including, without limitation, the Company’s ability and right to pay interest and repay principal to the holders of Debt Securities, it being understood that entering into agreement with the Holder(s) of Senior Debt providing for subordination of the Debt Securities as provided in Exhibit 1.1 shall not violate the provision. 6.12 Close Stock Transfer Books. Except as expressly permitted in this Agreement, close its books against conversion or exercise of any right the Investors have to acquire shares of Common Stock, or to transfer any such right to any person. 6.13 Purchase of Property. Purchase or acquire any property other than property useful in and related to, the business conducted or proposed to be conducted by the Company. 6.14 Compliance with Securities Laws. Directly or indirectly, sell or offer, or attempt to offer or dispose of, any shares or other securities of the Company, or solicit any offer to buy any shares or other securities of the Company, or otherwise approach or negotiate in respect thereof with any person in such circumstances or in such manner as to bring the issue and sale of any of the Securities issued in pursuance of this Agreement or any other securities offering within the provisions of Section 5 of the 1933 Act unless there is compliance with such provisions, or an exemption is available thereunder. 6.15 Dealings with Insiders. Unless two-thirds of the Directors vote in favor of such action, cause, suffer or permit an officer to have directly or indirectly, (i) an interest in any corporation, partnership, proprietorship, association or other person or entity which furnishes or sell services or products which are furnished or sold by the Company, or (ii) a beneficial interest in any contract or agreement to which the Company is a party or by which the Company may be bound. For the purposes of clause (i), there shall be disregarded any interest which arises solely from the ownership of less than a 5% equity interest in a corporation whose stock is regularly traded on any national securities exchange or in the over-the-counter market. 6.16 Maximum Investment. Make any loan, investment, advance, guarantee, purchase and any other financial arrangement or transaction of any kind in which the Company expends or is or may be liable for an amount in excess of (insert amount) except with prior specific approval of the Board of Directors. ARTICLE SEVEN
DEFAULT To the extent permitted by applicable law and subject to the provisions of Section 9.2 hereof, upon the occurrence of any event of default hereunder or under any Debt Security the Investors may, at their opinion, do any or all of the following: declare all sums of principal and interest then remaining unpaid on Debt Securities then outstanding and all other amounts payable hereunder immediately due and payable, all without demand, presentment or notice, all of which hereby are expressly waived; and upon such occurrence each security holder shall immediately be entitled to any and all remedies or combination of remedies (including those provided in the Debt Security in the event of default) and including rescission (to the extent available) or compensation for any and all damages resulting directly or indirectly from such event. The rights of each Investor are subject to the provisions regarding requirements of joint action of the holders of the Debt Securities. If any holder(s) of Debt Securities shall demand payment thereof or take any other action in respect of any event of default, the Company will forthwith give written notice thereof, specifying such action and the nature of the event of default, to each other holder of record of the Debt Securities outstanding. No course of dealing between the Company and any Investor or other holder of Debt Securities or any delay on the part of any Investor or other holder of any Debt Securities in exercising any right(s) hereunder or thereunder shall operate as a waiver of any right(s) of any Investor or other holder. No remedy herein conferred upon the Investors or Debt Security-holders is intended to be exclusive of any other remedy and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. ARTICLE EIGHT REGISTRATION 8.1 Definitions and Restrictions. (a) The following constitute definitions of certain of the terms used in this Article: A. “Act” means the Securities Act of 1933 as amended from time to time, the Rules of Regulations promulgated thereunder and other similar Federal statutes in force in the future; B. “Commission” means the Securities and Exchange Commission;
C. “Holder” means the Holder of any “Securities” as herein defined and each such Holder’s respective successor(s), transferee(s) and assign(s); D. “Securities” means, for purposes of this Article 8, the Warrants issued pursuant to this Agreement (or any other securities issued pursuant to the anti-dilution provisions of the Warrants, convertible or exchangeable into or otherwise entitling the
holder thereof to acquire shares of common stock of the Company) and the underlying common stock issued upon exercise of the Warrants or exercise or conversion of such other securities. For purposes of computing percentage of Securities, each share of Common Stock to be registered (or entitled to be registered hereunder for purposes of Section 8.3) shall be counted as one vote and the Warrant shall be entitled to the number of votes equal to the number of shares of Common Stock into which the same is exchangeable. “Unrestricted Securities” shall not be included in “Securities” for purposes of this Article. As herein used, the term “Unrestricted Securities” shall mean at any time securities that either (i) have theretofore been registered for a public offering or distribution, or (ii) have theretofore been sold or transferred without registration under said Act in a transaction in which (in the opinion of counsel for the transferor) such registration was not required and which did not involve any investment representation or investment undertaking by the transferee with respect to such securities. E. “Registration,” “register” and like words mean compliance with all of the laws, rules, regulations and provisions of agreements and corporate documents pertaining to lawful and unconditional transfer of securities including registration of any offering of securities on any Form issued for that purpose at the Securities & Exchange Commission. (b) Securities shall not be transferable except upon the conditions specified in this Article 8, which conditions are intended to insure compliance with the provisions of the Act in respect of each transfer. Restrictive Legends. Unless and until otherwise permitted by this Article, each instrument evidencing a Security shall be endorsed or otherwise imprinted with a suitable legend in substantially the following form: “This security has been acquired for investment and not with a view to, or for sale in connection with any distribution thereof within the meaning of the Securities Act of 1933, as amended. Notwithstanding any other provisions contained herein, no transfer of this security or of other securities issuable upon conversion of or exercise of any rights under this security or of any interest in either thereof shall be made unless the conditions specified in Article 8 of the Agreement providing for the issuance of this security have been fulfilled, a copy of which Agreement is on file and available for inspection at the principal office of the Company. The Company is hereby authorized to place “stop transfer” instructions on its records or to instruct any transfer agent to prevent the transfer of Securities except in conformity with this agreement. 8.2 Restriction on Transfer. (a) A Holder may transfer any Securities provided such transfer will not violate any federal or state securities laws (and the Holder shall deliver an agreement indemnifying the Company against any loss or expense arising solely and directly from a violation caused by the Investor’s transfer) and will not result in the Company becoming a publicly held company subject to the reporting requirement of
(c)
the Securities Exchange Act of 1934. Any transfer permitted by the preceding sentence shall not be effected until the transferor has first given written notice to the Company describing briefly the manner of any such proposed transfer and until (a) the Company has received from Holder’s counsel an opinion, reasonably satisfactory to counsel for the Company, that such transfer can be made without compliance with the registration provisions of the Act and without the necessity of perfection of an exemption pursuant to Regulation A adopted pursuant to the Act, or (b) the Company and the Holder shall have complied with Rule 144 promulgated under the Act (and in this connection the Company shall so comply, as hereinafter provided, upon request of the Holder), or (c) a registration statement filed by the Company is declared effective by the Commission or steps necessary to perfect an exemption from registration under Regulation A or otherwise are completed. (b) (to be inserted only if there is a “call” right) The Company may satisfy its obligations under Section 8.3 to register Securities upon the Holder’s demand by agreeing within 10 days of demand to repurchase the Securities as to which registration has been demanded provided the repurchase shall be on the terms and conditions set forth in Section 1.4. 8.3 Requested Registration (a) If, at any time and from time to time, but after the expiration of (insert period if applicable) from date, any Holder(s) shall notify the Company (i) that it, or any other person(s) who shall then hold any of the Securities (any such other person(s) being Article 8 in this sometimes called a “Subsequent Holder(s)”), proposes to sell or transfer any of such Securities, and (ii) that, in the opinion of counsel for the Holder or such Subsequent Holder(s) (a copy of which opinion shall be furnished to the Company), the Securities proposed to be so sold or transferred by the Holder(s) or such Subsequent Holder(s) are not Unrestricted Securities (as defined in Section 8.1 hereof) and it is necessary or desirable in connection with the sale or transfer of such Securities to effect a registration thereof pursuant to the Act, or to qualify any thereof under the securities or Blue Sky laws of any one or more states, then on each occasion when the Company shall be requested by a Holder or Holders to effect a registration of any of the Common Stock under the Act, to which request the Holders of at least (insert percentage) of the Securities consent (a Holder may consent but need not request registration of any or all Securities held by it) the Company shall promptly give written notice of such request to all other Holders and proceed to perform as provided in (b) below. The percentage aforesaid shall be (insert percentage) so long as the Company’s Common Stock has not previously been the subject of any effective registration. The Holder(s) making the request shall agree on or before the Registration Statement’s becoming effective to exercise so much of the Warrants or other Securities so that only Common Stock will be registered. No demand for registration shall be effective under this provision unless the gross proceeds of the sale of the securities to be registered exceeds (insert amount) and the Holders demanding same so represent in writing if the Company shall so request.
(b) Thereupon the Company (i) will upon such request as expeditiously as is reasonably possible use its best efforts to effect registration on any form referred to in Section 8.1, Part E (or any form adopted in lieu thereof), under the Act of the Common Stock which the Company has been requested to register including any requests of Holder(s) subsequent to notice from the Company to the Holders as provided in (a) above; (ii) if the offering is pursuant to an underwriting agreement (the underwriter(s) to be the person(s) selected by the holder(s) of the majority of the Securities to be registered) enter into an underwriting agreement said agreement to be in such form as the underwriter shall customarily enter into and enter into indemnification as provided in Section 8.7 hereof; (iii) use its best efforts to have such Registration Statement declared effective; (iv) notify the Holder(s) promptly after it shall receive notice thereof, of the time when such Registration Statement has become effective or any supplement to any prospectus forming a part of such Registration Statement has been filed; (v) notify the Holder(s) promptly of any request by the Commission for the amending or supplementing of such Registration Statement or prospectus or of additional information; (vi) prepare and file with the Commission, promptly upon any Holder’s request, any amendment or supplement to such Registration Statement or prospectus which, in the reasonable opinion of counsel for the Holder(s), may be necessary or advisable in connection with the distribution of the Securities by the Holder(s); (vii) prepare and promptly file with the Commission and promptly notify the Holder(s) of the filing of such amendment or supplement to such Registration Statement or prospectus as may be necessary to correct any statement or omission, if at any time when a prospectus relating to the Securities is required to be delivered under the Act, any event shall have occurred as a result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (viii) in case any Holder(s) or any underwriter(s) for any Holder(s) is (are) required to deliver a prospectus, at a time when the prospectus then in effect may no longer be used under the Act, prepare promptly upon request such amendment or amendments to such Registration Statement and such prospectus or prospectuses as may be necessary to permit compliance with the requirements of Section 10 of the Act subject to clause (xiii) below; (ix) not file any amendment or supplement to the Registration Statement or prospectus to which the majority in interest of such Holder(s) shall reasonably object after having been furnished a copy at a reasonable time prior to the filing thereof, in which event the failure to so file shall not constitute a breach hereunder; (x) advise each Holder promptly after it shall receive notice or obtain knowledge thereof of the issuance of any stop order by the Commission suspending the effectiveness of any such Registration Statement or the initiation or threatening of any proceeding for that purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued; (xi) use its best efforts to qualify the Securities for sale under the securities laws of such states as such Holder(s) may reasonably request except that it shall not be required in connection therewith or a condition thereof to execute a general consent to service or qualify to do business in any such states or otherwise to subject itself to taxation therein and except that the Company shall not be required to pay more than (insert amount) on account of costs in connection with such qualification; and (xii) furnish to each Holder
as soon as available copies of any such Registration Statement and each preliminary or final prospectus, or supplement required to be prepared pursuant to this Article, all in such quantities as each Holder may from time to time reasonably request; (xiii) provided, however, that in no event shall the Company be obligated to keep such Registration Statement effective for a period longer than the sooner of: (1) ninety (90) days plus a number of days equal to the number of days, if any, during which such Holder’s right to offer and sell such Securities shall have been suspended pursuant to the provisions of subsection (c) of Section 8.4; or (2) the expiration of the currency of the financial or other information contained in the prospectus; and the Company may after such period de-register any Securities remaining unsold if the Commission or its staff so requests; and (xiv) if any of the Company’s Securities are then listed on any securities exchange, the Company will cause all shares covered by such Registration Statement to be listed on such exchange(s). No Holder of any Securities shall have a right to participate in any Registration pursuant to Section 8.3 unless such Holder shall agree to sell such Securities as a party to the underwriting arrangement selected by the holders of a majority of the Securities being registered. 8.4 Information to be Furnished by Holder. Each Holder of any Securities to be included in any registration statement filed by the Company in accordance with the provisions of this Article shall be subject to the following conditions: (a) each Holder shall be required to furnish in writing to the Company all information within the Holder’s possession or knowledge required by the applicable rules and regulations of the Commission and by any applicable state securities or Blue Sky Laws concerning the proposed method of sale or other disposition of the Securities, and the identity of and compensation to be paid to any proposed underwriter(s) to be employed in connection therewith; (b) subject to the provisions of clause (xiii) of Section 8.3, if such Holder desires to sell and distribute securities over a period of time, or from time to time, at then prevailing market prices, pursuant to a Registration Statement to be filed by the Company under this Article then such Holder shall execute and deliver to the Company such written undertakings as the Company and its counsel may reasonably require in order to assure full compliance with relevant provisions of the Securities Act and the Securities Exchange Act of 1934, as amended; and; (c) if, during the effectiveness of a Registration Statement filed pursuant to this Article, an intervening event should occur which, in the reasonable opinion of the Company’s counsel, makes the prospectus included in such registration statement no longer comply with the Act, after notice containing the facts and legal conclusions relied upon from the Company to such Holder(s) of the occurrence of such an event, such Holder(s) shall make no further sales or other dispositions, or offers therefor, of Securities under such Registration Statement until it receives from the Company copies of a new, amended or supplemented prospectus complying with the Act as soon as practicable after such notice. The Company shall keep such Holder(s) fully informed as to the status of its efforts which shall be prompt and diligent to cause such new, amended or supplemented prospectus to be available for use by such Holder(s).
8.5
Costs and Expenses (a) The Company will pay all costs and expenses for all registrations under this Article except as provided in paragraphs (b) and (c) of this Section 8.5. The costs and expenses, include, without limitation, the fees and expenses of the Company’s counsel, one special counsel selected by a majority in interest of the offering Holder(s), the fees and expenses of accountants and auditors (provided, however, that if the fiscal year statements for the year immediately preceding the date of initial filing of the registration have been delivered to the Investors within the period specified in Section 5.7, then the Holder(s) will pay for any special auditing fees incurred directly and solely on account of preparation of financial data, whether or not certified, relating to any period after the end of the year stated in the year end financial statements aforementioned) and all other costs and expenses incident to the preparation, printing and filing of any and all documents to be filed under the Act, each prospectus and all amendments and supplements thereof, the costs incurred in connection with the qualification of the Securities and the offering thereof under the laws of various jurisdictions (including fees and disbursements) cost of listing on any exchange, the cost of furnishing to each Holder such copies as the Holder shall reasonably request of any Registration Statement, each preliminary prospectus, the final prospectus and each amendment and supplement thereto and all expenses incident to delivery of the Securities to any underwriter or underwriters; but not the commissions or discounts payable by the Holder(s) to such underwriter(s). (b) Subject to the provisions of Section 1.4, the demand registration rights provided in Section 8.3 may be exercised on only two occasions at the Company’s expense. On the second occasion all of the holders of Securities then entitled to the right of registration under this Article 8 shall join in such request or waive their right to registration at the cost of the Company. (c) The Holder(s) may demand one additional registration provided that such Holder(s) shall pay or reimburse the Company for all actual and direct costs and expenses of such registration. Provided, however, if the Company’s Common Stock is publicly traded and if, and so long as the Company is engaged in negotiations pertaining to merger or other similar transactions which would have to be disclosed in a registration statement, the Company may delay, upon notice to the Holders, the commencement of preparation of a registration statement for a period of up to 3 months from demand; and if, and so long as such negotiations are being carried on and the Company’s Common Stock is not publicly traded, the period of delay which the Company may impose shall be up to 6 months. (d) In the event holder(s) of other securities wish to make an offering of securities held by them as part of the same registration as to which the Holder(s) is (are) bearing the cost pursuant to subparagraph (c), the Company shall require as a condition of such registration that the holder(s) of the other securities pay their share of the cost of registration (pro rated according to the gross offering price of the securities being registered).
(e) Provided, in any event the Company need not register an offering of any of the Securities pursuant to Section 8.3 or 8.6 until the expiration of nine months from the effective date of the last preceding Registration Statement filed by the Company. (f) Provided further, that all rights to registration shall terminate upon the expiration of (insert number) years from date of this Agreement. 8.6 Incidental Registration. If the Company shall at any time or times propose for itself or any other person the registration under the Act of any securities of the Company on any Form including S-1, S-7, S-16 or S-18 or propose an offering under Regulation A or similar regulation (or on any other form for the general registration of securities), the Company shall give written notice of such proposed registration to all of the then Holders of Securities. The Company will include in any such Registration Statement and any related underwriting agreements if the Holder(s) so request such Securities of any Holder who within 30 days after the giving of such notice shall request such inclusion; provided, (a) such Holder(s) propose(s) to convert such Securities which are not shares of Common Stock of the Company into the shares of Common Stock prior to transfer and (b) subject to the provisions of clause (ii) of Section 8.12 hereof. Each such Holder shall be entitled to all the benefits of this Article including the provisions of Section 8.5. The right to registration provided in this Section 8.6 is in addition to and not in lieu of the demand registration rights provided in Section 8.3; all incidental registrations shall be at the Company’s expense as described in Section 8.5(a); such incidental registration shall not be included in determining the registration to which the Holder(s) are entitled at the Company’s expense. The provisions of Section 8.6 apply (i) to an offering of any securities pursuant to a merger, consolidation or acquisition of assets transaction and (ii) even though the Holder(s) requesting incidental registration is (are) or may be free, at the time, to sell any or all of the Securities with respect to which such registration was requested in accordance with either (a) Rule 144 (or any similar rule or regulation) promulgated under the Act, or (b) a transaction exempt under the provisions of Section 8.2. The right to incidental registration shall apply to any registration proposed by the Company notwithstanding that it is proposed subsequent to a demand under Section 8.3 and any registration then in process or effective under Section 8.3 shall be and become a registration under Section 8.6. Indemnification by Company. The Company will, to the maximum extent permitted by law, indemnify and hold harmless each Holder registering an offering of Securities and any underwriter as defined in the Act for such Holder and each person, if any, who controls the Holder or underwriter within the meaning of the Act, against any losses, claims, damages or liabilities, joint or several, to which the Holder or underwriter or such controlling person may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) are caused by any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement registered under the Act, any prospectus contained therein, or any amendment or supplement thereto, or arising out of or based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse each Holder, underwriter and each such controlling person for any legal or other expenses
8.7
incurred by the Holder, underwriter or such controlling person in connection with investigating or defending against any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage, expense or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with written information furnished by the Holder or underwriter in writing specifically for use in the preparation of such Registration Statement or prospectus or if, in respect to any untrue statement, alleged statement, omission or alleged omission, the final prospectus corrected such statement, alleged statement, omission or alleged omission and a copy of such final prospectus had not been sent or given at or prior to the confirmation of the sale with respect to which such loss, claim, damage, expense or liability relates. 8.8 Indemnification by Holder. Each Holder registering an offering of Securities will to the maximum extent permitted by law indemnify and hold harmless the Company, each of its directors, each of its officers who has signed said Registration Statement, and any underwriter and each person, if any, who controls the Company or the underwriter, within the meaning of the Act, against any loss, claim, damage or liability to which the Company, or any such director, officer, underwriter or controlling person may be or become subject under the Act or otherwise, insofar as such loss, claim, damage, or liability (or action in respect thereof) is caused by any untrue or alleged untrue statement of any material fact contained in said Registration Statement, said prospectus, or amendment or supplement thereto, or arises out of or is based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was so made in reliance upon and in conformity with written information furnished by the Holder for use in the preparation of the Registration Statement or prospectus; or arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any such preliminary prospectus and if, in respect to such statement, alleged statement, omission or alleged omission, the final prospectus corrected such statement, alleged statement, omission or alleged omission and a copy of such final prospectus had not been sent or given at or prior to the confirmation of the sale with respect to which such loss, claim, damage, expense or liability relates. Notice to Indemnitor. Promptly after receipt by an indenmified party of notice of the commencement of any action which may give rise to a claim for indemnity hereunder, such indemnified party will, if a claim thereof is to be made against the indemnifying party pursuant thereto, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party. In case such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with any other indemnifying party, similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party. If the indemnitor undertakes the defense of any matter for which indemnity is claimed, and if
8.9
the indemnified party wishes nevertheless to retain counsel to represent it in such matter, the fees of such counsel shall be the responsibility solely of the party retaining such counsel. 8.10 Additional Obligations. If in order to effect a registration statement any Securities require declaration of or registration with or approval of any Federal or State governmental official or authority (other than registration under the Act or qualification or registration under state securities or Blue Sky laws) before such Securities may be sold, the Company at its own expense (but not to exceed (insert amount)) shall take all reasonable action in connection with such registration, declaration or approval and will use its best efforts to cause such Securities to be duly registered or approved as may be required; provided, however, that in connection therewith or as a condition thereof, the Company shall not be required to execute a general consent to service or to qualify to do business in any such state. 8.11 Rule 144 Covenants. With a view to making available to each Holder the benefits of Rule 144 promulgated under the Act (which term as used herein includes the present Rule 144 and any other, additional, substitute, supplemental, or analogous rule or regulation of the Commission which may at any time permit a Holder to sell securities to the public without registration), the Company agrees to register its securities under section 12(g) or 15(d) of the Securities Exchange Act of 1934, as amended, if and when required by law, but in no event later than 120 days from the date any of such securities first are publicly traded in any established market system (including OTC trading whether or not listed on NASDAQ) and thereafter (i) to file with the Commission in a timely manner all reports and other documents required to be filed by an issuer of securities registered under the Securities Exchange Act of 1934, as amended so as to maintain the availability of Rule 144 to the Holders, notwithstanding that the Company would not have to maintain such filing but for this provision of the Agreement; (ii) at its expense, forthwith upon any Holder’s request, to deliver to any Holder a certificate, signed by one of the Company’s principal officers, stating (A) Company’s name, address and telephone number (including area code), (B) Company’s Internal Revenue Service identification number, (C) Company’s Securities and Exchange Commission file number, (D) the number of shares of Common Stock outstanding as shown by the most recent report or statement published by Company and (E) stating whether Company has filed the reports required to be filed under the Securities Exchange Act of 1934, as amended, for a period of at least 90 days prior to the date of such certificate and in addition has filed the most recent annual report required to be filed thereunder and such other or additional information as shall be necessary to make available to the Holder the ability to offer and sell the maximum number of shares under Rule 144; and (iii) when Rule 144 is being complied with, to deliver securities not bearing the legend prescribed by Section 1 of this Article or any other legend restricting transfer for such Securities, as may be requested from time to time by any Holder. 8.12 Holders’ Covenants. Each Holder agrees by accepting the securities issued hereunder that: (i) it will not sell any common stock of the Company for a period of 90 days after the effective date of a public offering of the Company’s shares of Common Stock, if such offering is underwritten on a firm commitment or best efforts basis; and (ii) unless
the Holders agree otherwise, each Holder is entitled to participate in each registration under this Article pro rata to the proportion which its holdings of Securities bears to all of the then holdings of Securities of the other Holder(s) who are registering Securities as part of such registration. 8.13 Registration Provisions for Other Securityholders. (a) In the event a registration is effective as provided in Sections 3 or 6 of this Article, the Company shall not permit or cause any additional registrations of an offering of its securities for itself or any securityholder to become effective for a period of 90 days after the completion of an offering by the Holders registered under either Section. (b) The Company shall not grant other securityholders the right to demand registration of an offering of any securities of the Company, unless the Holders consent thereto and the right granted is subject to the irrevocable right of the Holders hereunder to participate in such offering and registration statement on a basis pro rata to the Holders’ and the other securityholders’ respective holdings of the Company’s Common Stock at the time that the registration becomes effective. (c) The Company agrees that it will obtain the same covenant as set forth in Section 8.12 of this Article from all its present and future securityholders. (d) The Company will obtain and enforce covenants from any and all of its securityholders (present and future) that such securityholder shall not be entitled to more advantageous “incidental” or “piggy-back” registration rights than those agreed upon in this Agreement. ARTICLE NINE ADDITIONAL PROVISIONS 9.1 Consents to Modification of Agreement. Any provision in this Agreement to the contrary notwithstanding, changes in, modifications of or additions to this Agreement (including any terms or provisions of the Debt Securities (including any terms or provisions of the Debt Securities issued pursuant to this Agreement) may be made or compliance with any covenant of the Company or condition herein set forth may be omitted, if the Company: (a) shall obtain written consent thereto of holder(s) holding an aggregate of at least (insert percentage) of the principal amount of Debt Securities issued hereunder and then outstanding; and (b) shall deliver a copy of such consent to all holders of record of Debt Securities who did not execute the same. To the extent that such consent would change the principal amount, repayment schedule or interest rate payable on Debt Securities; or to reduce the percentage or the number of Holders of the Debt Securities whose consent is required to effect any action under this Section 9.1, then the percentage required shall be (insert percentage) instead of the (insert percentage) stated above. No consent under this Section 9.1 shall be effective as to any Investor or holder of any Debt Securities not expressly consenting thereto if the Investor or holder is not treated the same as all persons holding such securities in
connection with the action to which the consent relates. Otherwise any consent given in accordance with this Section 9.1 shall be binding upon all of the Investors or upon all the holders of the Securities affected thereby. For purposes of computing the percentage provided above, in the event the Debt Securities are repaid in full, then the warrants described in Section 1.2 shall be substituted for the Debt Securities; if any warrants have been exercised, the holder(s) of the warrant and the Common Shares shall be considered as equal to the number of warrants exercised. “Consent” as used in this Agreement, including, without limitation, as used in this Section 9.1, means and includes any and all waivers, consents, amendments, permissions, indulgences or other acts or decisions by which the Company is permitted to take any action or act on its part prohibited by this Agreement or by which the Company omits to take any act or action required under this Agreement and as to which the Company requests the Investors or such holders to consent or to waive compliance therewith, or any other amendment or modification of this Agreement.
9.2
Notices from Investors. Any demand or notice herein provided to be made or given by Investors under Article 7 may only be made or given by holder(s) in aggregate of not less than (insert percentage) of the principal amount of the Debt Securities (or warrants if the Debt Securities have been fully repaid) then outstanding. Any demand or notice made or given shall be effective hereunder as to the Investor(s) giving or making such notice or demand. Expenses (a) Legal Expenses. The Company agrees that, on the Closing Date, it will pay the reasonable fees and disbursements of Investors’ counsel not to exceed (insert amount), incident to this Agreement and the transactions contemplated hereunder. (b) Stamps and Issue Taxes. The Company further agrees to pay all governmental charges, stamp, issuance or other taxes (other than transfer taxes and any income or capital gain taxes payable by the Investor or any holder in respect of the purchase or sale of any of the securities) that might be imposed, rated or determined at any time to be payable under any existing or hereafter adopted federal or other law in connection with the existence, execution, issuance or delivery of this Agreement or the issuance by the Company of any of the Securities to be issued hereunder, and any shares of Common Stock or other securities at any time issued or delivered upon any exercise of rights under the Warrants or in connection with any modification, amendment or alteration of any of the terms and provisions thereof, and to save each Investor and any other holder of any of the securities issued hereunder or any shares of Common Stock or other securities issued or delivered upon any exercise of rights under the Warrants, harmless against any and all liability with respect to, or resultant from any delay in paying any such fees, taxes, or expenses, all of which agreements of the Company shall survive payment of the Debt Securities, exercise of Warrants, and issuance of the shares of Common Stock upon such exercise.
9.3
(c) Expenses of Collection or Enforcement. If the Company shall at any time default in making any payment of principal of or interest on any of the Debt Securities, or shall default in performance of its obligations including upon any exercise of any Warrants, the Company agrees that it will, to the full extent permitted by law, pay to any holder of any of the Debt Securities or Warrants, in addition to any other amounts that may be due from the Company to such holder, an additional amount equal to the costs and expenses of collection or enforcement incurred by such holder, including attorneys’ reasonable fees incurred by such holder in such connection. (d) Expenses of Investors’ Correction of Default. In the event of any default by the company in the full or waive compliance with any such provision, or in the event the Company requests Investors to consent to any modification or amendment of this Agreement, then, and in each such case, the Company agrees to pay to the Investors promptly the out-of-pocket expenses reasonably incurred by the Investors (including the fees and disbursements of the Investors’ counsel) in connection with such consent or waiver, or such modification or amendment, as the case may be. 9.4 Survival of Representations. All agreements, representations and warranties made by the Company herein or in any other document or certificate delivered to Investors in connection with the transactions contemplated by this Agreement, shall survive the delivery of the Securities issued hereunder, and shall continue in full force and effect so long as any of the Securities are outstanding, and, in the case of the covenants contained in Article 8 hereof (Registration), shall continue in full force and effect after all Debt Securities and Warrants have been paid or exercised, as the case may be, in full so long as said covenants have any application by their terms. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns. This Agreement shall inure to the benefit of each Investor, its successors and assigns, and except as otherwise expressly provided in any particular provision hereof, any subsequent Holder(s) of any Securities issued hereunder. Notices. All notices, demands and communications provided for herein or made hereunder shall be delivered, or mailed first class, registered or certified mail, with postage prepaid, or telegraphed, addressed in each case as follows, until some other address shall have been designated in a written notice given in like manner, and shall be deemed to have been given or made when so delivered or mailed or telegraphed: (a) (b) if to the Company: (insert address); or if to the Investors: (insert address).
9.5
9.6
All notices and information required to be given to a specified percentage of the holders of any securities or class or type of securities shall be given to each of the holders regardless of the amount of such securities held by such holder. 9.7(a) Definitions. (a) “Agreement” means this document and each Exhibit referred to herein.
(b) “Certificate of Incorporation” and “By-laws” of the Company means such document, as last amended or restated on or before the Closing Date. (c) The terms “subsidiary” and “subsidiaries” means any and each corporation, the securities of which corporation entitling the owner to elect a majority of such corporation’s board of directors are owned, controlled or voted by the Company directly or through one or more subsidiaries. 9.7(b) No Waiver, Remedies Cumulative. No delay on the part of any Investor or any other holder of any of the Securities issued hereunder in exercising any right, power or privilege under this Agreement or under the Security shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude other or further exercise thereof, or the exercise of any other right, power or privilege. The rights and remedies provided in this Agreement are cumulative and are in addition to all rights or remedies which each Investor and such other holder otherwise may have in law or in equity or by statute or otherwise. Without limiting the generality of the foregoing, nothing in this Agreement shall be deemed to preclude or be in lieu of any right or remedy which such Investor or other holder of Securities may have in law or in equity or by statute or otherwise against the Company or any other person based upon any fraud (whether or not the matter to which the fraud relates also constitutes an Event of Default hereunder). 9.8 Amendments and Waivers. This Agreement may not be changed or amended orally, and no waiver hereunder may be oral, but any change or amendment hereto or any waiver hereunder must be in writing and signed by the party or parties against whom such change, amendment or waiver is sought to be enforced, provided, however, that a change, amendment or waiver in writing effected under Section 9.1 hereof, and consented to by the requisite holders of Securities as provided in said Section shall be binding on all Investors and other holders and their respective successors, representatives and assigns. Mutilated or Missing Certificates. In case any certificate or other document evidencing a Security shall be mutilated, lost, stolen, or destroyed, the Company shall issue and deliver in exchange and substitution for and upon cancellation of the mutilated certificate or other document or in lieu of and substitution for the document or certificate lost, stolen or destroyed, a new certificate or other document of like tenor and representing an equivalent right or interest, but only upon receipt of evidence satisfactory to the Company of such loss, theft or destruction; the affidavit of the holder of record provided it is an original holder or an institution, without bond but with a promise of indemnity, shall be satisfactory unless the Investors request or consent otherwise. The applicant for such replacement instrument or certificate shall also comply with such other reasonable regulations and pay such other reasonable charges as the Company may prescribe.
9.9
9.10 Integration. This instrument, the Exhibits hereto and documents expressly referred to herein contain the entire agreement between the Company and the Investors with respect to the transactions contemplated herein; and none of the parties shall be bound
by nor shall be deemed to have made any representations and/or warranties except those contained herein and therein. 9.11 Accounting Calculations. Where the character or amount of any asset or liability or item of income or expense is required to be determined or where any accounting computation is required to be made for the purposes of this Agreement, such determination or calculation shall be made in accordance with generally accepted accounting principles, applied in a manner consistent with the application of the principles in the financial statements referred to in Section 3.14, except where this Agreement expressly provides otherwise and except that if because of a change in generally accepted accounting principles, the Company would have to alter a previously utilized accounting method or policy in order to remain in compliance with generally accepted accounting principles, such determination, consolidation, or calculation shall continue to be made in accordance with the Company’s previous accounting method or policy until and unless the Investors otherwise consent in writing, and the Company shall, at the Investors’ request, furnish financial statements pursuant to Section 5.7 prepared according to the Company’s previous accounting method or policy, its altered method or policy, or both, and, at the Investors’ request, furnish the Investors with a reconciliation between the financial statements furnished pursuant to Section 5.7 and the figures used in making such determination, consolidation or calculation. 9.12 Separability. If any provision of this Agreement is held for any reason to be unenforceable by a court of competent jurisdiction, the remainder of this Agreement shall, nevertheless, remain in full force and effect in such jurisdiction. 9.13 Headings. The headings in this agreement are intended solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 9.14 Governing Law. This Agreement is made in the State of (insert jurisdiction) and shall be governed by and construed in accordance with the laws of said State. 9.15 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (insert name of issuer) By: President