<PAGE>
FOURTH AMENDED
NOTE AND WARRANT PURCHASE AGREEMENT
This Fourth Amended Note and Warrant Purchase Agreement amends
and
completely replaces the prior version of
this Agreement. It remains effective as
of the dates originally signed as to each
Purchaser.
NOTE AND WARRANT PURCHASE AGREEMENT, dated effective as of the
date
noted by their signature as to each
Purchaser, by and among Integral Vision,
Inc., a Michigan corporation (the
"Company"), those purchasers listed on Exhibit
A (each individually a "Purchaser " and
collectively, the "Purchasers", which
term shall include Class 1 Purchasers,
Class 2 Purchasers and Class 3
Purchasers, as defined below, successors
and assigns and any permitted
transferees of the Notes or the Warrants)
and Warren Cameron Asciutto &
Blackmer, P.C., as Agent.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements
set forth herein and for other good and
valuable consideration, the receipt and
sufficiency of which are hereby
acknowledged, the parties agree as follows:
SECTION 1. SALE AND PURCHASE OF NOTES AND
WARRANTS
(a) The
Company agrees to sell to the Purchasers and, subject to
the terms and conditions hereof and in
reliance upon the representations and
warranties of the Company contained herein
or made pursuant hereto, the
Purchasers agree to purchase from the
Company on the Closing Date specified in
Section 2 hereof, (i) a Note or Notes in
the aggregate principal amount set
forth opposite such Purchaser's name on
Exhibit A hereto and (ii) upon the
purchase of a Class 1 or Class 2 Note, a
Warrant or Warrants for the number of
shares of the Company's Common Stock set
forth opposite such Purchaser's name on
Exhibit A. The number of Class 2 Warrants
purchased by a Class 2 Purchaser will
be determined based on the amount of its
Class 2 Note and the length of time
such Note is outstanding, as more fully
explained in Section 1(d), below. In
addition, Class 2 Purchasers may elect to
take interest of 12% per annum on
their Class 2 Note instead of acquiring a
Class 2 Warrant or Warrants. The
aggregate purchase price to be paid to the
Company by the Purchasers for such
Notes and such Warrants is 100% of the
principal amount of the Notes to be
purchased by the Purchasers, which amount
will be allocated in accordance with
Section 2(d) hereof.
(b) As used
herein, "Notes" means either "Class 1 Notes," "Class 2
Notes" or "Class 3 Notes" in a total
aggregate amount outstanding at any time
not to exceed $5,500,000,, however such
$5,500,000 shall be decreased by the
principal amount of any Class 1 Notes
surrendered to exercise warrants, and any
Class 3 Notes converted, to purchase the
Company's common stock
i.
"Class 1 Notes" means the aggregate in principal
amount of the Company's 10% Secured Notes
substantially in the form of the Note set forth as
Exhibit B hereto. Interest on the Notes shall accrue
from the Closing Date and, except as provided in
Section 1(c), below, shall be payable quarterly on
the 30th day of March, June, September and December
of each year (the "Quarterly Payment Dates"),
commencing as to each Purchaser on June 30, 2004
(which first interest payment shall be
<PAGE>
for the period from and including the Closing Date
specified in Section 2 hereof through and including
June 30, 2004) at the interest rates and in the
manner specified in the forrn of Note attached hereto
as Exhibit B. Principal on the Notes shall be paid in
quarterly installments on the Quarterly Payment Dates
beginning June 30, 2004. Notwithstanding the previous
two sentences, in the event the Company's
shareholders approve the proposal to increase the
Company's authorized common stock to 30,000,000
shares as provided in Section 1(j), below, the
initial interest payment on the Class 1 Notes shall
be due, except as provided in Section 1(c), below, on
April 1, 2005 and quarterly principal payments would
be eliminated, with all principal to be paid at
maturity. All Notes issued on or before April 15,
2002, in the total amount of $1,050,000 are Class 1
Notes. Class 1 Notes issued after April 15, 2002 will
be subordinated to the Class 1 Notes issued on or
before April 15, 2002 in their rights to receive
payment under the Collateral Assignment, as defined
below.
ii. "Class 2
Notes" means the aggregate in principal
amount of the Company's 10% Secured Working Capital
Notes due at the time the Accounts Receivable or the
Letter of Credit proceeds on the orders specified in
such Class 2 Note is received by the Company (or, in
the case of the Subject Class 2 Notes, as defined in
Section 1(h), below, at the earlier of the time the
Accounts Receivable or the Letter of Credit proceeds
on the orders specified in such Class 2 Note is
received by the Company or December 31, 2005). Each
Class 2 Note will be substantially in the form of the
Class 2 Note set forth as Exhibit D hereto. Interest
on the Class 2 Notes shall accrue from the Closing
Date at the rate of 10% (12% if elected and no Class
2 Warrant is received). Class 2 Notes will be issued
to fund working capital needs to enable the Company
to manufacture and ship specified orders and will be
paid as the accounts receivable of the Letter of
Credit proceeds on those specified orders are
received. Payments will be applied first to accrued
interest and then to principal. Where a Class 2
Purchaser
holds more than one outstanding Class 2
Note secured by the same collateral, payments on such
Notes will be applied first to the Class 2 Notes(s)
having Warrants with the highest exercise price. In
the event the Class 2 Notes are not paid by the
Company out of receivables or Letter of Credit
Proceeds and the Company defaults on its obligations
on the Class 2 Notes, the Class 2 Notes will have
rights to payment under the Collateral Assignment, as
defined below, but such rights will be subordinate to
the rights of the Class 1 Purchasers who purchased on
or before April 15, 2002 and will be on a par with
the Class 1 Purchasers who purchase after April 15,
2002. (The immediately
preceding sentence applies to
all Class 2 Notes, no matter when issued.) Class 2
Purchasers will have the right to payment out of the
additional security granted to them in the Security
Agreement in the Accounts and Inventory of the
Company only in the event the Company voluntarily or
involuntarily becomes subject to any proceedings
under the Bankruptcy Code. At the time their Class 2
Note is issued or at any time their notes are
outstanding, Class 2 Noteholders will have the option
to elect to cease
<PAGE>
accruing Class 2 Warrants, as defined below, and to
instead begin receiving interest on their Class 2
Note at the rate of 12%.
iii.
"Class 3 Notes" means the aggregate in principal
amount of the Company's 8% Secured Convertible Notes
due on the dates specified in Sections 1(c)-(g),
below, or on such other date as may be established by
the Company's board of directors. Each Note will be
substantially in the form of the Note set forth as
Exhibit F hereto. Interest on the Notes shall accrue
from the Closing Date and shall be payable
semi-annually on the first day of July and January of
each year (the "Semi-Annual Payment Dates"),
commencing April 1, 2005 in the manner specified in
the forrn of Note attached hereto as Exhibit F.
Principal on the Notes shall be paid at maturity,
unless sooner called
by the Company or converted into
common stock of the Company at the option of the
Holder. Except as provided in Sections 1(c)-(h),
below, the conversion rate for Class 3 Notes shall be
set at the time of their issuance by the Company's
board of directors. Class 3 Notes will be
subordinated to the Class 1 Notes issued on or before
April 15, 2002 and will be on a par with Class 1
Notes issued after April 15, 2002 and Class 2 Notes
in their rights to receive payment under the
Collateral
Assignment, as defined below.
(c) Accrued
interest on outstanding Class 1 Notes as of December
31, 2003 will be exchanged for Class 3 Notes due July 3, 2006
and
convertible into common stock of the Company at the rate of $0.75
per
share.
(d) Class 1
Purchasers who surrender their Class 1 Notes in
payment of the exercise price of their associated Class 1
Warrants
on or before June 30, 2004, may elect to receive Class 3 Notes
for
payment of the accrued interest due them on the surrendered Class
1
Notes. Such Class 3 Notes will be due July 3, 2006 and shall be
convertible into common stock of the Company at the rate of
$0.75
per share. The Company will have the option to require the
electing
Class 1 Purchasers to accept immediate cash payment of the
accrued
interest on the surrendered Class 1 Notes in lieu of issuing
the
Class 3 Notes. If no election is made by the Class 1 Purchaser
upon
surrender of the Class 1 Notes, the accrued interest on the
surrendered Class 1 Notes shall be due on April 1, 2005.
(e) It is
acknowledged that Class 1 Notes numbered 1 through 18
were originally issued with Warrants which were exercisable at
prices in excess of $0.25, but that the exercise price of those
Warrants were subsequently reduced to $0.25 in return for
concessions from the Noteholders Notes 1 through 18 therefor
have
principal amounts in excess of the amount necessary to exercise
their related Warrants in the cumulative amount of $330,000.
The
$330,000 principal amount of Notes 1 through 18, together with
the
accrued interest on such principal amount from January 1, 2004
through the date of exchange, will be exchanged for Class 3
Notes
due February 27, 2007 and shall be convertible into common stock
of
the Company at the rate of $0.75 per share.
<PAGE>
(f) It is
acknowledged that as of February 29, 2004 the Company is
indebted to Maxco, Inc. ("Maxco") in the amount of $138,854.90.
Within 14 days of the date of this Fourth Amendment, Maxco
shall
convert such debt according to either, or a combination of, the
following options:
(a) Such debt
shall be exchanged for Class 3
Notes due July 3, 2006 and convertible into
common stock of the Company at the rate of
$0.75 per share.
(b) Such debt shall be
exchanged for unsecured
notes due July 1, 2005, with interest at
prime plus .5%, which notes may be exchanged
any time after June 30, 2004, at the option
of Maxco, for Class 3 Notes due December 31,
2005 and with a conversion rate of $0.75 per
share.
(g) It is
acknowledged that as of January 31, 2004, the Company is
indebted to Warren Cameron Asciutto & Blackmer, P.C.
("Warren
Cameron") in the amount of $353,991.56. Within 14 days of the
date
of this Fourth Amendment, Warren Cameron shall convert such
debt
according to either, or a combination of, the following
options:
(a) Such debt
shall be exchanged for Class 3
Notes due July 3, 2006 and convertible into
common stock of the Company at the rate of
$0.75 per share.
(b) Up to one
half of such debt shall be
exchanged for
unsecured notes due July 1,
2005, with interest at 6.75%, which notes
may be exchanged any time after June 30,
2004, at the option of Warren Cameron, for
Class 3 Notes due December 31, 2005 and with
a conversion rate of $0.75 per share.
(h) Class 2
Notes outstanding at February 29, 2004 (except Class 2
Note Number 24) (the "Subject Class 2 Notes"), plus the
interest
then accrued on the Subject Class 2 Notes, may be exchanged for
Class 3 Notes due December 31, 2005 any time after June 30,
2004.
The Class 2 Purchasers electing such an exchange must give the
Company 60 days advance notice of such election, during which
60
day period the Company may repay all or any portion of such
Subject
Class 2 Notes. The Class 3 Notes issued pursuant to this
Section
1.h would have a conversion rate of $0.75 per share.
(i) If all or
a portion of (i) the principal amount of the Notes,
(ii) the interest payable thereon or (iii) any fee or other
amount
payable hereunder or under any other Loan Document shall not be
paid when due (whether at the stated maturity, by acceleration
or
otherwise), such overdue amount shall bear interest at a rate
per
annum equal to the
Default Rate from the date of such nonpayment
until paid in full (both before and after judgment).
(j) In the
event the shareholders do not approve the increase in
the Company's authorized stock, it is acknowledged that there
may
be insufficient shares to issue all of the Class 3 Notes
pursuant
to Sections 1(c)-(h), above, if additional shares of common
stock,
or equity convertible into stock is not approved, it is agreed
that
the available shares will be allocated according to the
following
priority:
<PAGE>
(a) New
purchasers of common stock or equity
convertible into common stock, including the
Class 3 Notes;
(b) Shares
issuable on exercise of current
Warrants, including any additional warrants
necessitated due to the anti-dilution
provisions of the 1997 Warrants and the
Class 2 Warrants presently being accrued
pursuant to the outstanding Class 2 Notes;
(c) Pro-rata
to issue, to the full extent
possible, the Class 3 Notes pursuant to
Sections 1(c)-(g), above; and
(d) Pro-rata
to issue, to the full extent
possible, the Class 3 Notes pursuant to
Section 1(h), above.
(k) As used
herein, "Warrants" means either "Class 1 Warrants" or
"Class 2 Warrants."
(a) "Class 1
Warrants" means the aggregate of
Common Stock Purchase Warrants (specifically
including Warrants to purchase 240,000
Shares issued as a part of this offering in
March 2001) evidenced by certificates
substantially in the form of Exhibit C
hereto, together with all Warrants issued in
exchange therefor or replacement thereof.
Such Warrants in the aggregate initially
entitle the holders thereof to purchase the
specified number of shares of Common Stock
of the Company, no par value, for each $1 in
value of the Notes issued to such holder at
a specified purchase price per share, as set
forth on Exhibit A hereto as to each
Purchaser, such number and such price being
subject to adjustment as provided in the
form of Warrant attached hereto as Exhibit
C. All Warrants issued on or before April
15, 2002 are Class 1 Warrants.
(b) "Class 2
Warrants" means the aggregate of
Class 2 Common Stock Purchase Warrants
evidenced by certificates substantially in
the form of Exhibit E hereto, together with
Class 2 Warrants issued in exchange therefor
or replacement thereof. Such Class 2
Warrants in the aggregate initially entitle
the holders thereof to purchase one share of
Common Stock of the Company, no par value,
for each $1 in value of the Class 2 Notes
issued to such Class 2 Purchaser multiplied
by a fraction, the numerator of which is the
number of days such Class 2 Note is
outstanding and the denominator of which is
365, at a specified purchase price per share
which shall be approximately 150% of the
recent fair market value of the Company's
Common Stock as agreed by the parties as of
the date of the issuance of the
corresponding Class 2 Note or such other
price as the Board of Directors shall
determine is appropriate based on the
circumstances at the time, as set forth on
Exhibit A hereto as to each Class 2
Purchaser, such number and such price being
subject to
adjustment as provided in the
form of Warrant attached hereto as Exhibit
E.
(l)
Anti-Dilution Provision for Class 3 Notes and Class 2 Warrants
Issued Pursuant to Class 2 Notes Issued After January 1, 2004. In
the
event the Company issues, after February 29, 2004, any common
stock, or
any Preferred Stock, Warrant or Note convertible into common
stock,
which has a share price, or an exercise or conversion
<PAGE>
rate, lower than the exercise price for Class 2 Warrants issued
pursuant to Class 2 Notes issued after January 1, 2004, or the
conversion rate for Class 3 Notes, then the exercise price for
such
Class 2 Warrants issued pursuant to Class 2 Notes issued after
January
1, 2004 and all Class 3 Notes shall be reduced to such lower rate,
but
in no event will the exercise price/conversion rate be reduced to
less
than $0.25 per
share. This provision will not be triggered by shares
issued for existing stock options under the Company's stock
option
plans or for the exercise of existing warrants.
(m) Amendment
of Class 1 and Class 2 Warrants. It is agreed that
Section 2.2 of the Class 1 and Class 2 Warrants including issued
and
outstanding warrants, shall be amended by deleting the current
Section
2.2(d) and adding the following:
Exclusions from the Adjustment for Additional Stock Issuances.
No adjustment of the current exercise price under Section
2.2(b) hereof shall be made as a result of or in connection
with:
(a)
the
issuance of Shares upon exercise of the
Warrants or Class 3 Notes;
(b) the
issuance of Warrants or Notes pursuant
to this Agreement;
(c) the
exercise of options to purchase shares
of the Company's Common Stock pursuant to
options granted to certain employees or
agents of the Company pursuant to the
Company's stock option plans; or
(d) the
issuance by the Company of up to
$1,000,000 in any common stock, or any
Preferred Stock, Warrant or Note convertible
into common stock (or any combination
thereof) at less than Market Price on or
before September 30, 2004.
SECTION 2. THE CLOSING
(a) Subject to
the terms and conditions hereof, the closing (the
"Closing") of the purchase and sale of the
Notes and Warrants will take place at
the offices of Warren Cameron Asciutto
& Blackmer, P.C. at such time and date as
shall be mutually agreed to by the Company
and the Purchasers. Such times and
dates are herein referred to as the
"Closing Dates" and individually as a
"Closing Date."
(b) Subject to
the terms and conditions hereof, on each Closing
Date (i) the Company will deliver to each
Purchaser (A) a Note or Notes,
substantially in the form of Exhibit B
hereto for Class 1, Exhibit D for Class 2
and Exhibit F for Class 3, payable to such
Purchaser (or its nominee as notified
to the Company), and dated the Closing
Date, in the aggregate principal amount
set forth opposite such Purchaser's name on
Exhibit A, and (B) for Class 1 and
Class 2, a Warrant or Warrants evidenced by
certificates substantially in the
form of Exhibit C hereto for Class 1 and
dated the Closing Date, for the number
of shares of the Company's Common Stock set
forth opposite such Purchaser's name
on Exhibit A, and (ii) upon such
Purchaser's receipt thereof, such Purchaser
will deliver to the Company by wire
transfer an amount equal to the purchase
price for such Notes and Warrants (as
specified in Section 1(a) hereof) payable
to the order of the Company in immediately
available funds. Class 2 Warrants, if
elected, substantially in the form of
Exhibit E will be dated the Closing Date,
but will not be determined as to number of
shares or delivered until the
applicable Class 2 Note has been repaid by
the Company.
<PAGE>
(c) As an
alternative to Section 2(b), upon receipt of a
Purchaser's signed copy of this Agreement,
the Company will sign the Agreement,
the Note and the Warrants, as applicable,
and will instruct the Agent to
communicate to the Purchaser that such
documents have been signed and the Agent
has obtained a perfected interest in the
Collateral. Thereafter, upon the
Company's receipt by wire transfer of the
purchase price for the Note and
Warrants, the Company will deliver the
signed Agreement, Note and Warrants, as
applicable, to the Purchaser.
(d) The
Purchasers acknowledge that the Notes and the Warrants
constitute an investment unit" within the
meaning of Section 1273(c)(2) of the
Code and that the Company will allocate the
"issue price" (within the meaning of
Section 1273(b) of the Code) of such
investment unit, for all Income Tax
purposes, between the Notes and Warrants as
required by applicable tax law. Each
Purchaser agrees to abide by Treasury
Regulation Section 1. 1273-2(h)(2) with
respect to such allocation of the issue
price. For all Notes and Warrants issued
under this Purchase Agreement after
December 31, 2001, the Company and its tax
advisors have determined that the limited
marketability of the Company's Common
Stock does not provide a reasonable basis
for the Company and its advisors to
determine a value for the Warrants issued
or the conversion rights. Therefore,
all warrants issued by the Company pursuant
to this Agreement, shall have only a
minimal or negligible value ascribed to
them. It is understood, however, that in
the event market conditions change such
that the warrants again have value, the
Company and its tax advisors will determine
an appropriate value for warrants
issued thereafter with no need to amend
this Agreement.
SECTION 3. DEFINITIONS
(a) For
purposes of the Loan Documents, the following definitions
shall apply (such definitions to be equally
applicable to both the singular and
plural forms of the terms defined):
"Accountants" means Rehmann Robson or another independent
certified
public accounting firm selected by the
Company and reasonably satisfactory to
the Majority Noteholders.
"Affiliate", when used with respect to any Person, means (i) if
such
Person is a corporation, any officer or
director thereof (other than a director
nominated by one of the Purchasers) and any
Person (other than one of the
Purchasers) which is, directly or
indirectly, the beneficial owner of more than
ten percent (10%) of the Voting Stock
thereof, and, if such beneficial owner is
a partnership, any partner thereof, or if
such beneficial owner is a
corporation, any Person, directly or
indirectly through one or more
intermediaries, controlling, controlled by
or under common control with such
beneficial owner, or any officer or
director of such beneficial owner or of any
corporation occupying any such control
relationship, (ii) if such Person is a
partnership, any partner thereof, (iii) in
all cases, any Person (other than one
of the Purchasers) which, directly or
indirectly through one or more
intermediaries, controls or is controlled
by or is under common control with
such Person, and (iv) in all cases, any
Person 10% or more of whose Voting Stock
is beneficially owned, directly or
indirectly through one or more
intermediaries, by such Person. For
purposes of this definition, "control"
(including the correlative terms
"controlling", "controlled by" and "under
common control with"), with respect to any
Person, shall mean possession,
directly or indirectly, of the power to
direct or cause the
<PAGE>
direction of the management and policies of
such Person, whether through the
ownership of voting securities or by
contract or otherwise.
"Agent" means Warren Cameron Asciutto & Blackmer, P.C. or any
successor
agent appointed pursuant to Section 21.7
hereof
"Aggregate Net Income" means the aggregate amount of positive
annual
net income after taxes for each fiscal year
of the Company and its Subsidiary on
a consolidated basis, as determined in
accordance with GAAP, beginning with the
fiscal year ending December 31, 2001
through the date of determination, without
any offset for any negative net income
during such period. Aggregate Net Income
will only be adjusted as of the last day of
each fiscal year.
"Agreement" means this Agreement (together with exhibits and
schedules)
as from time to time assigned, supplemented
or amended or as the terms hereof
may be waived.
"Bankruptcy Code" means the United States Bankruptcy Code and
any
successor thereto, and the rules and
regulations issued thereunder.
"Board" or "Board of Directors" means, with respect to any Person
which
is a corporation, a business trust or other
entity, the board of directors or
other group, however designated, which is
charged with legal responsibility for
the management of such Person, or any
committee of such board of directors or
group, however designated, which is
authorized to exercise the power of such
board or group in respect of the matter in
question.
"Business" means the business conducted by the Company in the
vision
industry and all other activities ancillary
or related thereto.
"Business Day" means any day other than a Saturday, Sunday or other
day
on which banks in Detroit, Michigan are
required to close.
"Capital Expenditures" means for any period, the amount of all
payments
made by the Company during such period for
the lease, purchase, improvement,
construction or use of any Property, the
value or cost of which under GAAP is
required to be capitalized and appears on
the Company's balance sheet in the
category of property, plant or equipment,
without regard to the manner in which
such payments or the instrument pursuant to
which they are made is characterized
by the Company or any other Person, and
shall include, without limitation, the
principal components of payments for the
installment purchase of Property and
payments under Capitalized Leases.
"Capitalized Leases" means any lease to which the Company or
the
Subsidiary is party as lessee, or by which
it is bound, under which it leases
any property (real, personal or mixed) from
any lessor other than the Company or
the Subsidiary, and which is required to be
capitalized in accordance with GAAP,
but also including any such lease, whether
or not so capitalized, where the
Company or a Subsidiary is treated as the
owner of the leased property under the
Code.
"Claims" has the meaning set forth in the definition of
"Environmental
Claim."
"Class 1 Note" has the meaning set forth in Section 1(b)(i)
hereof.
<PAGE>
"Class 2 Note" has the meaning set forth in Section 1(b)(ii)
hereof.
"Class 3 Note" has the meaning set forth in Section 1(b)(iii)
hereof.
"Class 1 Purchaser" means a purchaser of Class 1 Notes and Class
1
Warrants.
"Class 2 Purchaser" means a purchaser of Class 2 Notes and Class
2
Warrants, if elected.
"Class 3 Purchaser" means a purchaser of Class 3 Notes.
"Class 1 Warrants" has the meaning set forth in Section 1(d)(i)
hereof.
"Class 2 Warrants" has the meaning set forth in Section
1(d)(ii)
hereof.
"Closing" has the meaning set forth in Section 2(a) hereof.
"Closing Date" has the meaning set forth in Section 2(a)
hereof.
"Code" means the Internal Revenue Code of 1986, as amended from
time to
time, and the regulations and
interpretations thereunder.
"Collateral" means the Property upon which the Agent is granted
the
Security Interests, pursuant to the terms
of the Collateral Assignment. In the
case of the Class 2 Purchasers,
"Collateral" also includes all of the following
assets and rights of the Company, wherever
located, whether now owned or
hereafter acquired or arising: Accounts;
Letters of Credit; Letter-of-credit
rights; Inventory, including Work in
Progress; Supporting obligations; and all
Proceeds and products of the foregoing.
"Collateral Assignment" means the Collateral Assignment of
Proprietary
Rights and Security Agreement dated March
29, 2001 by the Company and the Agent.
"Commission" means the Securities and Exchange Commission and any
other
similar or successor agency of the federal
government administering the
Securities Act or the Securities Exchange
Act.
"Common Stock" means that class of stock or other equivalent
evidences
of ownership of the Company, the holders of
which are entitled to vote generally
to elect the Board of Directors.
"Company" means Integral Vision, Inc., a Michigan corporation,
its
successors and permitted assigns and also
includes Integral Vision, Ltd., the
wholly owned subsidiary of the Company.
"Company's Obligations" means all loans, debts, principal,
interest
(including any interest that, but for the
provisions of the Bankruptcy Code,
would have accrued), premiums, liabilities,
obligations (including the
performance of the covenants of the Company
contained herein or in the Loan
Documents), fees, lease payments,
guaranties, covenants, and duties owing by the
<PAGE>
Company to the Purchasers or the Agent of
any kind and description (whether
pursuant to or evidenced by this Agreement,
any of the other Loan Documents, or
any other note or other instrument, or by
any other agreement between the
Purchasers or the Agent and the Company,
and whether or not for the payment of
money), whether direct or indirect,
absolute or contingent, due or to become
due, now existing or hereafter arising, and
including any debt, liability, or
obligation owing from the Company to others
that the Purchasers or the Agent may
have obtained by assignment or otherwise,
and further including all interest not
paid when due.
"Consolidated," when used with reference to any financial term in
this
Agreement, means the aggregate for the
Company and the Subsidiary of the amounts
signified by such term for all such
Persons, with intercompany items eliminated,
and, with respect to earnings, after
eliminating the portion of earnings
properly attributable to minority
interests, if any, in the capital of any such
Person (other than in the capital of the
Company) and otherwise as determined in
accordance with GAAP.
"Consolidated Cash Flow" means for any period, the Consolidated
Net
Income plus each of the following items, to
the extent deducted from the
revenues of the Company in the calculation
of net income for such period: (i)
Depreciation; (ii) amortization and other
noncash charges; (iii) interest
expense incurred and fees paid to the
Senior Lender pursuant to the Loan
Agreement; and (iv) Income Taxes determined
as the accrued liability of the
Company and the Subsidiary in respect of
such period, regardless of what portion
of such expense has actually been paid by
the Company and the Subsidiary during
such period; and after deduction for (A)
Income Taxes, to the extent actually
paid during such period; (B) all noncash
income items recognized; (C) gain on
the sale of property, plant or equipment;
and (D) all Capital Expenditures paid
by the Company and the Subsidiary.
"Consolidated Coverage Ratio" means, as of any date of
determination,
the ratio of Consolidated Cash Flow to
Consolidated Interest Expense.
"Consolidated Interest Expense" means, for any period, the
total
interest payable during such period by the
Company and the Subsidiary on account
of Indebtedness.
"Consolidated Liabilities" means, at any time, the total
liabilities of
the Company and its Subsidiary, determined
in accordance with GAAP and after
eliminating intercompany transactions among
the Company and the Subsidiary.
"Consolidated Net Income" means, for any period for which the
amount
thereof is to be determined, the net income
(net of any losses or expenses) or
loss of the Company and the Subsidiary on a
consolidated basis, during such
period (such net income to be determined in
accordance with GAAP) after Income
Taxes actually paid, but excluding:
(a) the
earnings during such period of any Person to which the
assets of the Company or any Subsidiary shall have been sold,
transferred or disposed of, or into which the Company or such
Subsidiary shall have merged, prior to the date of such
transaction;
(b) any
extraordinary gain or loss during such period arising from
the sale, exchange or other disposition of capital assets
(such term to include all fixed assets, whether
<PAGE>
tangible or intangible, and all inventory sold in conjunction
with the disposition of fixed assets);
(c) any gain
or loss during such period arising from the write-up
or write-down of any asset; and
(d) any
earnings or gains during such period resulting from the
receipt of
any proceeds of any life insurance policy.
"Consolidated Assets" means, at any time, the total assets of
the
Company and its Subsidiaries determined in
accordance with GAAP.
"Consolidated Net Worth " means, at any time, Consolidated Assets
minus
Consolidated Liabilities.
"Contingent Liabilities" of any person means, as of any date,
all
obligations of such person or of others for
which such person is contingently
liable, as obligor, guarantor, surety or in
any other capacity, or in respect of
which obligations such person assures a
creditor against loss or agrees to take
any action to prevent any such loss (other
than endorsements of negotiable
instruments for collection in the ordinary
course of business), including all
reimbursement obligations of such person in
respect of any letters of credit,
surety bonds or similar obligations and all
obligations of such person to
advance funds to, or to purchase assets,
property or services from, any other
person in order to maintain the financial
condition of such other person.
"Default Rate" means a per annum rate equal to the interest rate on
the
Notes plus four percent (4%).
"Depreciation" means, in respect of any period, all depreciation
on
Property taken during such period, as
determined in accordance with GAAP.
"Earnings Available for Dividends" means the excess of (A) the sum
of
(x) 50% of aggregate Consolidated Net
Income, if positive, for each fiscal year
commencing on or after January 1, 2001 less
100% of aggregate Consolidated Net
Income, if negative, for each fiscal year
commencing on or after January 1, 2001
plus (y) net proceeds from the sale by the
Company of Common Stock (other than
pursuant to the Warrants) minus (B) all
Restricted Payments and Restricted
Investments made since the Closing
Date.
"Environment" means all air, surface water, groundwater, or
land,
including land surface or subsurface,
including all fish, wildlife, biota and
all other natural resources.
"Environmental
Claim" means any and all administrative or judicial
actions, suits, orders, claims, liens,
notices, notices of violations,
investigations, complaints, requests for
information, proceedings, or other
communication (written or oral), whether
criminal or civil, (collectively,
"Claims") pursuant to or relating to any
applicable Environmental Law by any
person (including but not limited to any
Governmental or Regulatory Authority,
private person and citizens' group) based
upon, alleging, asserting, or claiming
any actual or potential (i) violation of or
liability under any Environmental
Law, (ii) violation of any Environmental
Permit, or (iii) liability for
<PAGE>
investigatory costs, cleanup costs, removal
costs, remedial costs, response
costs, natural resource damages, property
damage, personal injury, fines, or
penalties arising out of, based on,
resulting from, or related to the presence,
or Release into the Environment, of any
Hazardous Materials at any location,
including but not limited to any off-site
location to which Hazardous Materials
or materials containing Hazardous Materials
were sent forth for handling,
storage, treatment or disposal.
"Environmental Clean-up Site" means any location which is listed
or
proposed for listing on the National
Priorities List, the Comprehensive
Environmental Response, Compensation and
Liability Information System, or on any
similar state list of sites requiring
investigation or cleanup, or which is the
subject of any pending or threatened
action, suit, proceeding, or investigation
related to or arising from any alleged
violation of any Environmental Law or the
presence or Release of a Hazardous
Material.
"Environmental Law" means any and all current and future,
federal,
state, local, provincial and foreign, civil
and criminal laws, statutes,
ordinances, orders, codes, rules,
regulations, Environmental Permits, policies,
guidance documents, judgments, decrees,
injunctions, or agreements with any
Governmental or Regulatory Authority,
relating to the protection of health and
the Environment, worker health and safety,
and/or governing the handling, use,
generation, treatment, storage,
transportation, disposal, manufacture,
distribution, formulation, packaging,
labeling, or Release of Hazardous
Materials, whether now existing or
subsequently amended or enacted, including
but not limited to: the Clean Air Act, 42
U.S.C. Section 7401 et seq.; the
Comprehensive Environmental Response,
Compensation and Liability Act of 1980
("CERCLA"), 42 U.S.C. Section 9601 et seq.;
the Federal Water Pollution Control
Act, 33 U.S.C. Section 1251 et seq; the
Hazardous Material Transportation Act 49
U.S.C. Section 1801 et seq.; the Federal
Insecticide, Fungicide and Rodenticide
Act 7 U.S.C. Section 136 et seq.; the
Resource Conservation and Recovery Act of
1976 ("RCRA"), 42 U.S.C. Section 6901 et
seq.; the Toxic Substances Control Act,
15 U.S.C. Section 2601 et seq.; the
Occupational Safety & Health Act of 1970, 29
U.S.C. Section 651 et seq.; the Oil
Pollution Act of 1990, 33 U.S.C. Section
2701 et seq.; and the state analogies
thereto, all as amended or superseded from
time to time; and any common law doctrine,
including but not limited to,
negligence, nuisance, trespass, personal
injury, or property damage related to
or arising out of the presence, Release, or
exposure to a Hazardous Material.
"Environmental Permit" means any federal, state, local, provincial,
or
foreign permits, licenses, approvals,
consents or authorizations required by any
Governmental or Regulatory Authority under
or in connection with any
Environmental Law and includes any and all
orders, consent orders or binding
agreements issued or entered into by a
Governmental or Regulatory Authority
under any applicable Environmental Law.
"ERISA" shall
mean the Employee Retirement Income Security Act of 1974,
as amended, or any successor statute.
"ERISA Affiliate" means each "person" (as defined in Section 3(9)
of
ERISA) which is under "common control" with
the Company or any of its
Subsidiaries (within the meaning of Section
414(b), (c), (m) or (o) of the
Code).
"Event of Default" has the meaning set forth in Section 14
hereof.
<PAGE>
"Fair Market Value" of any property means the fair market sale
value
which a willing buyer at retail would pay a
willing seller, each under no
compulsion to buy or sell and in full
possession of all relevant facts.
"GAAP" means generally accepted accounting principles, as in
effect
from time to time, which shall include the
official interpretations thereof by
the Financial Accounting Standards Board or
any successor thereto, consistently
applied.
"General Intangibles" means all of the Company's and the
Subsidiary's
present and future general intangibles and
other personal Property (including
without limitation, any and all rights of
the Company and the Subsidiary to all
choses or things in action, tax refund
claims, credits, claims, demands,
goodwill, licenses, franchise agreements,
subscription costs, patents, trade
names, trademarks, service marks,
copyrights, rights to royalties, blueprints,
drawings, customer lists, purchase orders,
computer programs, computer discs,
computer tapes, literature, reports,
catalogs, methods, sales literature, video
tapes, confidential information and trade
secrets, consulting agreements,
employment agreements, leasehold interests
in real and personal Property,
insurance policies, deposits with insurers
relating to workers' compensation
liabilities, deposit accounts, tax refunds
and proprietary rights in any
equipment), other than "Equipment,"
"Inventory," "Accounts" and "Negotiable
Instruments," as each such term is defined
in the UCC, as well as the Company's
and the Subsidiary's books and records of
any kind relating to any of the
foregoing, and all products and proceeds of
the foregoing.
"Governmental Regulations" means any and all laws, statutes,
ordinances, rules, regulations, judgments,
writs, injunctions, decrees, orders,
awards and standards, or any similar
requirement, of the government of the
United States or any foreign government or
any state, province, municipality or
other political subdivision thereof or
therein or any court, agency,
instrumentality, regulatory authority or
commission of any of the foregoing.
"Governmental or Regulatory Authority" means any court,
tribunal,
arbitrator, authority, agency, commission,
official or other instrumentality of
the United States, any foreign country or
any domestic or foreign state, county,
city or other political subdivision.
"Hazardous Materials" means petroleum, petroleum hydrocarbons
or
petroleum products, petroleum by-products,
radioactive materials, underground
storage tanks, asbestos or
asbestos-containing materials, gasoline, diesel fuel,
pesticides, radon, urea formaldehyde, lead
or lead-containing materials,
polychlorinated biphenyls, ionizing and
non-ionizing radiation including radon
and electromagnetic frequency radiation;
and any other chemicals, materials,
substances or wastes in any amount or
concentration which are now or hereafter
become defined as or included in the
definition of "hazardous substances,"
"hazardous materials," "hazardous wastes,"
"extremely hazardous waste,"
"restricted hazardous wastes," "toxic
substances," "toxic pollutants
"pollutants" "regulated substances," "solid
wastes," or "contaminants" or words
of similar import, under any Environmental
Law.
"Income Taxes" means all federal, state, local or foreign
income,
taxes, assessments, duties, fees, levies or
other governmental charges, whether
disputed or not, together with any
interest, penalties, additions to tax or
additional amounts with respect
thereto.
<PAGE>
"Indebtedness" means all liabilities, obligations and reserves,
contingent or otherwise, which in
accordance with GAAP, would be reflected as a
liability on a balance sheet or would be
required to be disclosed in a financial
statement, including, without duplication:
(i) all Indebtedness for Borrowed
Money, (ii) all obligations secured by any
Lien upon Property owned by the
Company, irrespective of whether such
obligation or liability is assumed; (iii)
any obligation of the Company guaranteeing
or intended to guarantee (whether
guaranteed, endorsed, co-made, discounted,
or sold with recourse to the Company,
but exclusive of obligations arising as the
result of the endorsement by the
Company of checks or other negotiable
instruments in the ordinary course of the
Company's business for purposes of
depositing such items) any indebtedness,
lease, dividend, letter of credit, or other
obligation of any other Person; and
(iv) liabilities in respect of unfunded
vested benefits under any Single
Employer Plan or in respect of withdrawal
liabilities incurred under ERISA by
the Company or any ERISA Affiliate to any
Multiemployer Plan.
"Indebtedness for Borrowed Money" means without duplication,
all
Indebtedness (i) in respect of money
borrowed, (ii) evidenced by a note,
debenture or other like written obligation
to pay money (including, without
limitation, all of the Company's
Obligations and the Permitted Senior
Indebtedness, and all reimbursement or
other obligations of the Company in
respect of letters of credit (except for
commercial letters of credit up to
$500,000), letter of credit guaranties,
bankers acceptances, interest rate
swaps, controlled disbursement accounts, or
other financial products (except
hedging transactions); (iii) in respect of
Capitalized Leases or for the
deferred purchase price of Property (other
than trade payables arising in the
ordinary course of business that are not
represented by promissory notes or by
other written evidence other than
invoices); or (iv) in respect of obligations
under conditional sales or other title
retention agreements, and all guaranties
of any or all of the foregoing.
"Indemnified Persons" has the meaning set forth in Section 18.2
hereof.
"Investment" means, with respect to any Person:
(i) the amount
paid or committed to be paid, or the value of
property (excluding stock of the Company) or services
contributed or committed to be contributed, by the Company for
or in connection with the acquisition by the Company of any
stock, bonds, notes, debentures, partnership or other
ownership interests or other securities of such Person; and
(ii)
the amount of any advance, loan or extension of credit to, or
guaranty or other similar obligation with respect to any
Indebtedness of such Person by the Company and (without
duplication) any amount committed to be advanced, loaned, or
extended to, or the payment of which is committed to be
assured by
a guaranty or similar obligation for the benefit
of, such Person by the Company.
"Joint Venture" means a corporation, limited partnership or
other
limited liability business entity, formed
in the ordinary course of business by
the Company or any Subsidiary with Persons
other than Affiliates.
<PAGE>
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit
arrangement, encumbrance, lien (statutory
or other), or preference, priority or
other security interest of any kind or
nature whatsoever (including, without
limitation, any conditional sale or other
title retention agreement and any
financing lease or Capitalized Lease having
substantially the same effect as any
of the foregoing and any assignment or
other conveyance of any right to receive
income).
"Loan Documents" mean, collectively, the
i.
Agreement;
ii. Notes;
iii.
Warrants;
iv. Collateral
Assignment;
v.
Security
Agreement;
vi. UCC
financing statements; and
vii.
such other instruments and documents as Purchasers may require
to evidence and perfect the Security Interests and the Notes,
and individually any one of them.
As to each of the foregoing, together with all alterations,
amendments, changes, extensions, modifications, refinancings,
refundings, renewals, replacements, restatements or supplements
thereto.
"Losses" have the meaning set forth in Section 18.2 hereof.
"Majority Noteholders" means the holders of Notes evidencing
more than 50% of the principal amount of all Notes then
outstanding.
"Market Price" per share of the Company's Common Stock means
the average of the daily closing prices for the period specified.
The
closing price for each day shall be the last reported sale price
or, in
case no such sale takes place on such day, the average of the
closing
bid and asked prices, in either case on the principal national
United
States securities exchange on which the Company's Common Stock
is
listed or admitted to trading, or if the Company's Common Stock is
not
listed or admitted to trading on any such national securities
exchange,
the average of the highest reported bid and lowest reported
asked
prices as furnished by the National Association of Securities
Dealers
Inc., Automated Quotation System Level I, the Over-the-Counter
Bulletin
Board or comparable system. If the closing price cannot be so
determined, the Market Price shall be determined:
(x) by the
written agreement of the Company and the
holders of the affected Class 3 Notes or Warrants representing
a majority of the Shares then obtainable
<PAGE>
from the conversion of such Class 3 Notes or the exercise of
such outstanding Warrants (the "Majority Holders"); or
(y) in the
event that no such agreement is reached within
fifteen (15) days after the event giving rise to the need to
determine the Market Price, by a nationally recognized U.S.
investment banking firm, selected by the Company ("Company
Appraiser") not more than 5 Business Days after the end of
such 15 day period. Any appraiser appointed pursuant to this
paragraph shall be instructed to make its determination as
promptly as possible and in any event within 30 days of
appointment. If no such selection is made within such period,
then the Majority Holders shall as promptly as possible select
such a firm whose determination shall be final and binding. If
such selection is timely made by the Company, and the Majority
Holders do not object to the Market Price as determined by the
Company Appraiser within 10 days of receipt of notice thereof
by all holders of Warrants, then the Market Price as
determined by the Company Appraiser shall be the Market Price.
If the Majority Holders do so object to the Company
Appraiser's determination of Market Price, then the Majority
Holders can select a nationally recognized U.S. investment
banking firm ("Alternate Appraiser") to review the Company
Appraiser's report and other relevant information. Within 10
days after receipt by the Alternate Appraiser of such report
and such other information as is reasonably requested by the
Alternate Appraiser, the Company Appraiser and Alternate
Appraiser shall communicate and/or meet to resolve any
questions or differences with respect to the Market Price. If
such appraisers agree on a Market Price, such Market Price
shall be the Market Price. If no agreement is reached then the
Company Appraiser and Alternate Appraiser shall select a third
nationally recognized firm ("Third Appraiser"). If the Company
Appraiser and the Alternate Appraiser cannot agree on a Third
Appraiser within 20 days of the end of such 10 day period,
either may apply to the American Arbitration Association to
appoint the Third Appraiser. The Third Appraiser shall, within
30 days of its hire, issue a report with its determination of
Market Price which shall be conclusive and binding. All
expenses of the Company Appraiser shall be borne by the
Company. All expenses of the Alternate Appraiser shall be
borne by
the holders of the Warrants. All expenses of the
Third Appraiser shall be borne equally by the Company and the
holders of the Warrants.
Market Price shall be determined on the basis of the fair
market value of the Company as if it were sold as a going
concern on the date of valuation and without regard to the
lack of any trading market for, or the lack of liquidity in,
the Common Stock of the Company.
The Company shall cooperate, and shall provide all necessary
information and assistance, to permit any determination under
the preceding clause (x) or (y). Each Appraiser shall be
instructed to use its best efforts to give the Company and all
holders reasonable advance notice of the Market Price and the
contents of its report (by delivering a draft report) before
the report is delivered in final form. Any communications or
reports by an Appraiser to either the Company or any of
<PAGE>
the holders regarding Market Price shall be given
simultaneously to both the Company and all of the holders.
"Material Adverse Effect" means (i) a material adverse effect on
the
assets, properties, liabilities, business,
affairs, results of operations,
condition (financial or otherwise) or
prospects of the Company and the
Subsidiary on a consolidated basis, (ii) an
effect which is prejudicial in any
material respect to the holders of the
Notes or the Warrants or (iii) an effect
on the ability of the Company or the
Subsidiary to perform its obligations under
this Agreement, any Loan Document, the
Notes or the Warrants.
"Multiemployer Plan" shall mean any multiemployer plan (within
the
meaning of section 3(37) of ERISA) to which
either the Company, the Subsidiary,
or any ERISA Affiliate has an obligation to
contribute.
"Note" or "Notes" has the meaning set forth in Section l(b)
hereof.
"Outstanding" or "outstanding" means, when used with reference to
the
Notes or Warrants as of a particular time,
all Notes or Warrants, as the case
may be, theretofore duly issued except (i)
Notes or Warrants theretofore
reported as lost, stolen, mutilated or
destroyed or surrendered for transfer,
exchange or replacement, in respect of
which new or replacement Notes or
Warrants have been issued by the Company,
(ii) Notes theretofore paid in full,
(iii) Warrants theretofore fully exercised
and (iv) Notes theretofore canceled
by the Company, whether upon exercise of a
Warrant in whole or in part or
otherwise; except that for the purpose of
determining whether holders of the
requisite principal amount of Notes or
Warrants have made or concurred in any
declaration, waiver, consent, approval,
notice, annulment of acceleration or
other communication under this Agreement or
under any Notes or Warrants, Notes
or Warrants registered in the name of, as
well as Notes or Warrants owned
beneficially by, the Company, the
Subsidiary or any of their Affiliates (other
than one of the Purchasers) shall not be
deemed to be outstanding.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permits" has the meaning set forth in Section 4.10 hereof
"Permitted Liens" means any of the following Liens:
(i) the
Security Interests;
(ii)
Liens for taxes not delinquent or for taxes being contested in
good faith by appropriate proceedings and as to which adequate
financial reserves have been established on its books and
records;
(iii) A
lien by the State of Michigan related to past due Single
Business Tax for which the Company has agreed to make periodic
payment;
(iv)
Liens (other than any Lien imposed by ERISA) created and
maintained in the ordinary course of business which are not
material in the aggregate, and which would not constitute or
result in a Material Adverse Effect, and which constitute
<PAGE>
(A) pledges or deposits under worker's compensation laws,
unemployment insurance laws or similar legislation, (B) good
faith deposits in connection with bids, tenders, contracts or
leases to which the Company or a Subsidiary is a party for a
purpose other than borrowing money or obtaining credit,
including rent security deposits, (C) Liens imposed by law,
such as those of carriers, warehousemen and mechanics, if
payment of the obligation secured thereby is not yet due or if
such Liens are discharged within sixty (60) days of the date
they are imposed, (D) Liens securing taxes, assessments or
other governmental charges or levies not yet subject to
penalties for nonpayment, and (E) pledges or deposits to
secure public or statutory obligations of a Company or a
Subsidiary, or surety, customs or appeal bonds to which the
Company or a Subsidiary is a party;
(v) Liens
affecting real property which constitute minor survey
exceptions or defects or irregularities in title, minor
encumbrances, easements or reservations of, or rights of
others for, rights of way, sewers, electric lines, telegraph
and telephone lines and other similar purposes, or zoning or
other restrictions as to the use of such real property;
provided, however, that all of the foregoing, in the
aggregate, do not at any time materially detract from the
value of said properties or materially impair their use in the
operation of the businesses of the Company or the Subsidiary,
as the case may be; and
(vi)
Purchase Money Liens securing purchase money Indebtedness;
provided, however, that the aggregate outstanding amount of
Indebtedness and secured by all such Purchase Money Liens for
the Company and all Subsidiaries shall not exceed, on an
aggregate basis, $500,000 at any time.
"Permitted Senior Indebtedness" means the interests of the lessor
under
any Capitalized Leases permitted to exist
hereunder.
"Person" means an individual, corporation, partnership, firm,
limited
liability company, association, trust,
unincorporated organization, government,
governmental body or political subdivision
thereof.
"Plan" shall mean any employee benefit plan (within the meaning
of
section 3(3) of ERISA) maintained or
contributed to by the Company, any
Subsidiary, or any ERISA Affiliate, other
than a Multiemployer Plan.
"Potential Default" means a condition or event which, with notice
or
lapse of time or both, would constitute an
Event of Default.
"Prohibited Transaction" means any transaction involving any Plan
which
is proscribed by Section 406 of ERISA or
Section 4975 of the Code.
"Property" means all types of real, personal or mixed property and
all
types of tangible or intangible
property.
"Purchase Money Liens" means Liens securing purchase money
Indebtedness
incurred in connection with the acquisition
of capital assets by the Company in
the ordinary course of
<PAGE>
business; provided that (a) such Liens do
not extend to or cover assets or
properties other than those purchased in
connection with the purchase in which
such Indebtedness was incurred and (b) the
obligation secured by any such Lien
so created shall not exceed 100% of the
cost of the property including
transportation and installation costs,
covered thereby.
"Purchaser(s)" has the meaning set forth in the first paragraph
hereof.
"Real Estate" means all real estate and improvements located
thereon
owned by the Company.
"Registration Demand" has the meaning set forth in Section 17
hereof.
"Release" means any spilling, leaking, pumping, pouring,
emitting,
emptying, discharging, injecting, escaping,
leaching, dumping, or disposing of a
Hazardous Material into the
Environment.
"Representative" means The Klonoff Company, Inc. or any
successor
Representative in its capacity as agent for
the Class 2 Purchasers as Secured
Party under the Security Agreement.
"Reportable Event" shall mean, with respect to any Single
Employer
Plan, an event described in section 4043(b)
of ERISA, other than an event as to
which the notice requirement is waived
under applicable PBGC regulations.
"Restricted Investment" means any Investment other than (1)
obligations
of the United States government due within
one year, (2) certificates of deposit
and bankers acceptances due within one year
of a United States domiciled
commercial bank having capital funds of at
least $100 million and whose
long-term unsecured debt obligations have
been given a rating of at least A by
Standard & Poor's or A2 by Moody's, (3)
commercial paper rated P-1 by Moody's or
A-1 by Standard & Poor's and maturing
not more than 270 days from the date of
creation thereof, (4) debt of any state or
political subdivision that is rated
AA or better by Moody's or Aa2 or better by
Standard and Poor's and maturing in
less than one year, (5) investments in, and
loans and advances to, Subsidiaries
or entities that will, concurrently with
such investment become Subsidiaries,
(6) trade credit extended in the ordinary
course of the Company's business, (7)
loans and advances made in the ordinary
course of business to officers and
employees of Company for relocation
expenses, travel advances and similar
expenses relating to their employment, (8)
endorsements of instruments or items
of payment for deposit to the Company's
bank accounts, and (9) additional
Investments not to exceed $500,000 in the
aggregate.
"Restricted Payment" means (i) every direct or indirect dividend
or
other distribution paid, made or declared
by the Company on or in respect of any
class of its capital stock or in respect of
any partnership or Joint Venture, in
all cases whether now or hereafter
outstanding, interests and any payment under
or with respect to anti-dilution provisions
of any capital stock of the Company,
(ii) every payment in connection with the
redemption, purchase, retirement or
other acquisition, direct or indirect, by
or on behalf of the Company of any
shares of the Company's capital stock,
whether or not owned by the Company or
any partnership or Joint Venture interests
of the Company, or any warrants,
rights or options to acquire such stock or
partnership interests, (iii) every
payment by or on behalf of the Company
(whether as repayment
<PAGE>
or prepayment of principal or as interest
or otherwise) on or with respect to
any obligation to any Person, of any
Affiliate of the Company or of any other
holder of shares of the Company's Common
Stock, which obligation is assumed or
guaranteed by the Company; provided,
however, (a) that the restrictions of the
foregoing clauses (i) and (ii) shall not
apply to any dividend, distribution, or
other payment to the extent payable in
shares of the Common Stock of the Company
or in options, warrants or other rights to
purchase such Common Stock, (b) that
none of the foregoing clauses shall apply
to any payments from a Subsidiary to
the Company, (c) that none of the foregoing
clauses shall apply to any purchases
by the Company from a Wholly-Owned
Subsidiary of additional capital stock of
such Subsidiary and (d) that none of the
foregoing clauses shall apply to any
payments, distributions or other transfers
or actions on or with respect to the
Notes or Warrants. For purposes of this
definition, "capital stock" shall also
include warrants (other than the Warrants)
and other rights and options to
acquire shares of capital stock.
"Securities Act" means the Securities Act of 1933, as amended, and
the
rules, regulations and interpretations
thereunder.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as
amended, and the rules, regulations and
interpretations thereunder.
"Security Agreement" means the Security Agreement dated May 1,
2002
between the Representative and the
Company.
"Security Interest" means the Liens granted to the Agent for
the
benefit of the Purchasers pursuant to this
Agreement and the Loan Documents.
"Share" or "Shares" means shares of the Company's Common Stock,
or
other securities, which can be obtained or
have been obtained by an exercise in
whole or in part of any Warrant or the
exchange of a Warrant for shares of the
Company's Common Stock pursuant to the
terms of the Warrants. In the event that
any Shares are sold either in a public
offering pursuant to an effective
registration statement under Section 6 of
the Securities Act or pursuant to Rule
144 (but if sold under Rule 144, only if
sold in "brokers' transactions" within
the meaning of Rule 144), then the
transferees of such Shares shall not be
entitled to any benefits under this
Agreement with respect to such Shares and
such Shares shall no longer be considered
to be "Shares" for purposes of this
Agreement.
"Single Employer Plan" shall mean any Plan that is subject to Title
IV
of ERISA.
"Solvent" has the meaning set forth in Section 4.19 hereto.
"Subsidiary" means any corporation in which at least a majority of
the
shares (other than any directors'
qualifying shares required by law) of each
class of the capital stock (other than
preferred stock), at the time as of which
any determination is being made, is owned,
beneficially and of record, directly
or indirectly, by the Company or its
Subsidiary, or both.
"UCC" means the Uniform Commercial Code as in effect on the date
hereof
in the State of Michigan, as amended, or as
in effect in any jurisdiction in
which Collateral is located.
<PAGE>
"Voting Stock" means capital stock or a partnership or membership
of
any class or classes of a corporation,
partnership or other limited liability
entity, respectively, the holders of which
are ordinarily entitled to elect the
directors, or persons performing similar
functions, of such corporation,
partnership or entity.
"Warrant" or "Warrants" has the meaning set forth in Section
l(d)
hereof.
"1997 Warrants" means warrants for the purchase of up to
2,582,264
shares of the Company's common stock at
$3.72 per share (as adjusted at December
31, 2003) through June 30, 2005.
"Wholly-Owned Subsidiary" means any Subsidiary, all of the
equity
securities of which (other than directors'
qualifying shares) are owned by the
Company or one or more other Wholly-Owned
Subsidiary of the Company.
(e) For all
purposes of the Loan Documents, except as otherwise
expressly provided or unless the context
otherwise requires:
(i) the words
"herein", "hereof" and "hereunder" and
other words of similar import refer to the particular Loan
Document as a whole and not to any particular Section or other
subdivision thereof,
(ii)
all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with GAAP;
(iii) all
computations provided for herein, if any, shall
be made in accordance with GAAP, unless another method of
computation is herein specified;
(iv)
any uses of the masculine, feminine or neuter gender
shall also be deemed to include any other gender, as
appropriate; and
(v) the
exhibits and schedules to this Agreement shall be
deemed a part of this Agreement and any Exhibit, Annex or
Schedule to any other Loan Document shall be deemed a part of
such other Loan Document, as the case may be.
SECTION 4. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants as follows as of the date
hereof
and as of the Closing Date:
4. 1. Corporate Existence and Power. The Company is a corporation
duly
organized, validly existing and in good
standing under the laws of the
jurisdiction of its incorporation, and is
duly qualified to do business, and is
in good standing, in all additional
jurisdictions where such qualification is
necessary under applicable law. The Company
has all requisite corporate power to
own or lease the properties used in its
business and to carry on its business as
now being conducted and as proposed to be
conducted, and to execute and deliver
this Agreement and the
<PAGE>
other Loan Documents to be executed and to
engage in the transactions
contemplated hereby and thereby.
4.2. Corporate Authority. The execution, delivery and performance
by
the Company of this Agreement and the other
Loan Documents have been duly
authorized by all necessary corporate
action and are not in contravention of any
applicable Governmental Regulation, or of
the terms of the Company's charter or
by-laws, or of any contract or undertaking
to which the Company is a party or by
which the Company or its property may be
bound or affected and do not result in
the imposition of any Lien, except for
Permitted Liens.
4.3. Binding Effect. This Agreement is, and each of the Loan
Documents
to which the Company is a party when
delivered hereunder will be, legal, valid
and binding obligations of the Company,
enforceable against the Company in
accordance with their respective terms.
4.4. Subsidiaries. The only Subsidiary of the Company is
Integral
Vision Ltd., a company organized under the
laws of England and Wales. The
Company directly owns all of the issued and
outstanding shares of the
Subsidiary.
4.5. Financial Condition. The financial statements included in
the
documents delivered pursuant to Section
10.6, copies of which have been
furnished to the Purchasers, fairly
present, and the financial statements
delivered pursuant to Section 7.4 will
fairly present, the financial position of
the Company and the Subsidiary as at the
respective dates thereof, and the
results of operations of the Company and
the Subsidiary for the respective
periods indicated, all on a consolidated
basis in accordance with GAAP (subject,
in the case of interim statements, to
normal, immaterial year-end audit
adjustments). There is no material
Contingent Liability of the Company or the
Subsidiary that is not reflected in such
consolidated statements or in the notes
thereto.
4.6. Use of Loans. The Company will use the proceeds of the sale of
the
Notes and the Warrants for working capital
and other general corporate purposes.
The Company does not extend or maintain, in
the ordinary course of business,
credit for the purpose, whether immediate,
incidental, or ultimate, of buying or
carrying margin stock (within the meaning
of Regulation U of the Board of
Governors of the Federal Reserve System),
and no part of the proceeds of any
Note will be used for the purpose, whether
immediate, incidental, or ultimate,
of buying or carrying any such margin stock
or maintaining or extending credit
to others for such purpose.
4.7. Consents, Etc. Except for such consents, approvals,
authorizations, declarations, registrations
or filings delivered by the Company
at or prior to the Closing pursuant to
Section 10.5, if any, each of which is in
full force and effect, no consent, approval
or authorization of or declaration,
registration or filing with any
governmental authority or any nongovernmental
person, including any creditor, lessor or
shareholder of the Company or any
Subsidiary, is required on the part of the
Company or any Subsidiary in
connection with the execution, delivery and
performance of this Agreement and
the other Loan Documents or the
transactions contemplated hereby or thereby or
as a condition to the legality, validity or
enforceability of this Agreement and
the other Loan Documents.
<PAGE>
4.8. Taxes. Each of the Company and the Subsidiary has filed all
tax
returns (federal, state and local) required
to be filed and have paid all taxes
shown thereon to be due, including interest
and penalties, or has established
adequate financial reserves on its books
and records for payment thereof. The
Company does not know of any actual or
proposed tax assessment or any basis
therefor, and no extension of time for the
assessment of deficiencies in any
federal or state tax has been granted to
the Company.
4.9. Title to Properties. Except as otherwise disclosed in the
latest
consolidated balance sheet delivered
pursuant to Section 4.5, the Company and
the Subsidiary have a valid and
indefeasible ownership interest in all of the
properties and assets reflected in the
consolidated balance sheet of the Company
and the Subsidiary or subsequently acquired
by the Company or the Subsidiary.
All of such properties and assets are free
and clear of any Lien, except for
Permitted Liens.
4.10. Compliance with Governmental Relations. To the best of
the
Company's knowledge, the Company and the
Subsidiary is in compliance in all
material respects with all Governmental
Regulations (including Environmental
Laws) applicable to such person or its
business or properties. Without limiting
the generality of the foregoing, all
licenses, permits, orders or approvals
which are required under any Governmental
Regulation in connection with any of
the businesses or properties of the Company
or the Subsidiary ("Permits") are in
full force and effect, no notice of any
violation has been received in respect
of any such Permits and no proceeding is
pending or, to the knowledge of the
Company, threatened to terminate, revoke or
limit any such Permits.
4.11. ERISA. To the best of the Company's knowledge, the Company
and
its Plans are in compliance in all material
respects with those provisions of
ERISA and of the Code which are applicable
with respect to any Plan. No
Prohibited Transaction and no Reportable
Event has occurred with respect to any
such Plan. The Company is not an employer
with respect to any Multiemployer
Plan. The Company has met the minimum
funding requirements under ERISA and the
Code with respect to its Plans, if any, and
has not incurred any liability to
the PBGC or any Plan. There is no material
unfunded benefit liability,
determined in accordance with Section 400 1
(a)(1 8) of ERISA, with respect to
any Plan of the Company.
4.12. Environmental Matters. Without limiting the generality of
Section
4.10:
(a) No written
demand, claim, notice, suit, suit in
equity, action, administrative action, investigation
or inquiry whether brought by any governmental
authority, private person or otherwise, arising
under, relating to or in connection with any
Environmental Laws is pending or, to the best of the
Company's knowledge, threatened against Company, the
Subsidiary any Property or any past or present
operation of the Company or the Subsidiary which
could result in a Material Adverse Effect.
(b) The
Company does not have any knowledge that any
other person has ever received any notice, claim or
allegation of any violation, and the Company is not
aware of any existing violation, of Environmental
Laws at or about any Property, and the Company does
not have any knowledge of any actions commenced or
threatened by any party for or related to or arising
<PAGE>
out of non-compliance with Environmental Laws which
apply to any Property, activities at any Property or
Hazardous Materials at, from or affecting any
Property.
(c) None of
the Property appears on the National Priority
List (as defined under federal law) or any state
listing which identifies sites for remedial clean-up
or investigatory actions. To the best of the
Company's knowledge, none of the Property has been
contaminated with substances which give rise to a
clean-up obligation under any Environmental Law or
common law.
4.13. Investment Company Act. Neither Company nor the Subsidiary is
an
"investment company" or a company
"controlled" by an "investment company,"
within the meaning of the Investment
Company Act of 1940, as amended.
4.14. Disclosure. No report or other information furnished in
writing
by or on behalf of the Company to any
Purchaser in connection with the
negotiation or administration of this
Agreement contains any material
misstatement of fact or omits to state any
material fact or any fact necessary
to make the statements contained therein
not misleading. Neither this Agreement,
the other Loan Documents, nor any other
document, certificate, or report or
statement or other information furnished to
any Purchaser by or on behalf of the
Company in connection with the transactions
contemplated hereby contains any
untrue statement of a material fact or
omits to state a material fact in order
to make the statements contained herein and
therein not misleading. There is no
fact known to the Company which materially
and adversely affects, or which in
the future may (so far as the Company can
now foresee) materially and adversely
affect, the business, properties,
operations, condition, financial or otherwise,
or prospects of the Company or the
Subsidiary, which has not been set forth in
this Agreement or in the other documents,
certificates, statements, reports or
other information furnished in writing to
any Purchaser by or on behalf of the
Company in connection with the transactions
contemplated hereby.
4.15. Stock Ownership. The authorized capital stock of the
Company
consists of (i) 25,000,000 shares of Common
Stock, without par value, of which
9,429,901 shares are outstanding, and (ii)
400,000 shares of Preferred Stock,
without par value, none of which are
outstanding. Such outstanding shares of
Common Stock are duly authorized, validly
issued and outstanding and fully paid
and nonassessable. Except for the Warrants,
the 1997 Warrants, the Class 3 Notes
and options to purchase shares of Common
Stock granted to employees, directors
or agents of the Company pursuant to the
Company's stock option plans, there are
no outstanding options, warrants, rights,
convertible securities or other
agreements or plans under which the Company
may become obligated to issue, sell
or transfer shares of its capital stock or
other securities.
4.16. No Defaults or Conflicts.
(a) No Event
of Default or Potential Default has occurred
and is
continuing.
(b) The
execution, delivery and performance by the
Company of this Agreement and of the Loan Documents to which
it is a party and any of the
<PAGE>
transactions contemplated hereby or thereby (including,
without limitation, the issuance of the Notes, the Warrants
and the Shares as contemplated herein or therein) do not and
will not (i) violate or conflict with, with or without the
giving of notice or the passage of time or both, any provision
of (A) the Articles of Incorporation or By-Laws of the Company
or (B) any law, rule, regulation, order, judgment, writ,
injunction, decree, agreement, indenture or other instrument
applicable to the Company or the Subsidiary or any of their
respective properties (or to which the Company of the
Subsidiary is a
party or by which any of their respective
properties may be bound), (ii) other than pursuant to this
Agreement or the Loan Documents, result in the creation of any
Lien upon any of the Company's or the Subsidiary's Properties,
(iii) require the consent, waiver, approval, order or
authorization of, or declaration, registration, qualification
or filing with, any Person (whether or not a governmental
authority and including, without limitation any shareholder
approval) other than (A) the consent of the Senior Lender (B)
any registration, qualification or filing with the Securities
and Exchange Commission or any state securities commission
necessary in connection with the Company's obligations under
Section 17 hereof and (C) the Company's routine filing
obligations under the Securities Exchange Act or (iv) cause
anti-dilution clauses of any outstanding securities to become
operative or give rise to any preemptive rights. No such
provision referred to in the preceding clause (i) will have a
Material Adverse Effect.
4.17. Offering of Notes. Neither the Company nor any agent nor
any
other Person acting on their behalf,
directly or indirectly, (i) offered any of
the Notes, Warrants or any similar security
of the Company (A) by any form of
general solicitation or general advertising
(within the meaning of Regulation D
under the Securities Act) or (B) for sale
to or solicited offer to buy any
thereof from, or otherwise approached or
negotiated with respect thereto with,
any Person other than the Purchasers and
additional potential investors who,
either alone or with their Purchaser
Representatives(s) (as defined in
Regulation D under the Securities Act) have
such knowledge and experience in
financial and business matters that they
are capable of evaluation the merits
and risks of the prospective investment and
who are able to bear the economic
risks of the investment or (ii) has done,
or caused to be done (or has omitted
to do or to cause to be done) any act which
act (or which omission) would result
in bringing the issuance or sale of the
Notes, Warrants or Shares within the
provisions of Section 5 of the Securities
Act.
4.18. Outstanding Securities. All securities (as defined in the
Securities Act) of the Company have been
offered, issued, sold and delivered in
compliance with, or pursuant to exemptions
from, all applicable federal and
state laws, and the rules and regulations
of federal and state regulatory bodies
governing the offering, issuance, sale and
delivery of securities. The Company's
common stock is currently traded on the
Nasdaq Stock Market. However, the
Company has been notified by Nasdaq that it
no longer qualifies for listing, and
the Company expects that it will soon be
required to move to the Over the
Counter Bulletin Board.
4.19. Solvency. The Company is and has been experiencing cash
flow
difficulties such that it would likely not
meet a definition of "solvency"
meaning that it can pay its debts as they
mature. However, the assets of the
Company, at a fair valuation, exceed its
total liabilities.
<PAGE>
4.20. Chief Executive Office. The chief executive office of the
Company
and its records with respect to the
Collateral are located at Farmington Hills,
Michigan.
SECTION 5. REPRESENTATIONS OF THE
PURCHASERS
Each Purchaser severally represents and warrants, but only as
to
itself, to the Company that:
5. 1. Power and Authority. Such Purchaser has all requisite
power,
authority and legal right to execute,
deliver, enter into, consummate and
perform this Agreement and the Loan
Documents to which it is a party. The
execution, delivery and performance of this
Agreement and the Loan Documents to
which it is a party by such Purchaser have
been duly authorized by all required
corporate and other actions. Such Purchaser
has duly executed and delivered this
Agreement and the Loan Documents to which
it is a party, and this Agreement and
the Loan Documents to which it is a party
constitute the legal, valid and
binding obligation of such Purchaser
enforceable against such Purchaser in
accordance with their respective terms,
subject to bankruptcy, insolvency,
reorganization, moratorium and other
similar laws relating to the rights of
creditors generally and subject to the
availability of equitable remedies and
the application of equitable
principles.
5.2. Purchase for Investment. Such Purchaser is capable of
evaluating
the risk of its investment in the Notes and
Warrants being purchased by it and
is able to bear the economic risk of such
investment. Such Purchaser is
purchasing the Notes and Warrants to be
purchased by it for its own account, and
the Notes and Warrants are being purchased
by it for investment and not with a
present view to any distribution
thereof.
It is understood that the disposition of such Purchaser's
property
shall, subject to the terms of this
Agreement, at all times be within such
Purchaser's control. If such Purchaser
should in the future decide to dispose of
any of its Notes, Warrants or Shares, it is
understood that it may do so only in
compliance with the Securities Act and this
Agreement.
SECTION 6. PREPAYMENTS
6.1. Optional Prepayments of Class 1 Notes.
(a) At any time after one year from the Closing Date for a
Purchaser
(but not before) the Company may at its
option (subject to the other provisions
of this Section 6.1) prepay all or part of
the principal amount of Class 1 Notes
outstanding for more than one year, at a
price equal to the aggregate principal
amount of the Notes to be prepaid plus
accrued interest thereon to the date of
prepayment.
(b) The aggregate amount of each prepayment of the principal amount
of
Class 1 Notes pursuant to this Section 6.1
shall be allocated among all Class 1
Notes at the time outstanding for more than
one year, in proportion, as nearly
as practicable, to the respective unpaid
principal amounts of such Class 1
Notes.
(c) The right of the Company to prepay Class 1 Notes pursuant to
this
Section 6.1 shall be conditioned upon its
giving notice of prepayment, signed by
an officer, to the holders of Class 1
<PAGE>
Notes not less than thirty (30) days and
not more than sixty (60) days prior to
the date upon which the prepayment is to be
made specifying (i) the registered
holder of each Class 1 Note to be prepaid,
(ii) the aggregate principal amount
being prepaid, (iii) the date of such
prepayment (which must be a Business Day),
(iv) the accrued and unpaid interest (to
but not including the date upon which
the prepayment is to be made) and (v) that
the prepayment of Class 1 Notes is
being made pursuant to this Section 6.1.
Notice of prepayment having been so
given, the aggregate principal amount of
the Class 1 Notes so specified in such
notice, and all accrued and unpaid interest
thereon, shall become due and
payable on the specified prepayment date,
but the right to apply any or all of
the Class 1 Notes as payment to exercise
any Class 1 Warrant or Warrants shall
continue to, but not including, the date of
such prepayment. Notwithstanding,
the above, Class 1 Notes purchased after
April 15, 2002 are subordinate in the
right of payment to those Class 1 Notes
purchased on or before April 15, 2002,
and are on a par in the right of payment
with Class 2 Notes.
6.2. Optional Prepayments of Class 2 Notes.
Class 2 Notes must be paid at such times as the Company
receives
payment on the specified order(s)
associated with such Notes, with payment being
applied first to accrued interest and then
to principal. Payment from
receivables or letter of credit proceeds on
these specified orders can be made
on the Class 2 Notes even if the Company is
then in default on the Class 1
Notes. In addition, the Company may make
prepayment in full or part on the Class
2 Notes at any time.
6.3. Optional Prepayments of Class 3 Notes.
(a) The Company may at its option (subject to the other provisions
of
this Section 6.3) prepay all or part of the
principal amount of Class 3 Notes,
at a price equal to the aggregate principal
amount of the Notes to be prepaid
plus accrued interest thereon to the date
of prepayment.
(b) The aggregate amount of each prepayment of the principal amount
of
affected Class 3 Notes pursuant to this
Section 6.3 shall be allocated among all
affected Class 3 Notes, in proportion, as
nearly as practicable, to the
respective unpaid principal amounts of such
Class 3 Notes.
(c) The right of the Company to prepay Class 3 Notes pursuant to
this
Section 6.3 shall be conditioned upon its
giving notice of prepayment, signed by
an officer, to the holders of Class 3 Notes
not less than thirty (30) days and
not more than sixty (60) days prior to the
date upon which the prepayment is to
be made specifying (i) the registered
holder of each Class 3 Note to be prepaid,
(ii) the aggregate principal amount being
prepaid, (iii) the date of such
prepayment (which must be a Business Day),
(iv) the accrued and unpaid interest
(to but not including the date upon which
the prepayment is to be made) and (v)
that the prepayment of Class 3 Notes is
being made pursuant to this Section 6.3.
Notice of prepayment having been so given,
the aggregate principal amount of the
Class 3 Notes so specified in such notice,
and all accrued and unpaid interest
thereon, shall become due and payable on
the specified prepayment date, but the
right to convert any or all of the Class 3
Notes to Common Stock shall continue
to, but not including, the date of such
prepayment.
<PAGE>
(d) The right of the Company to prepay Class 3 Notes pursuant to
this
Section 6.3 shall be further conditioned
upon either of the following being met:
(i) fourteen
months shall have elapsed from the Closing
Date for each Class 3 Note affected, the Common Stock
of the Company shall have been trading at an average
Market Price of the greater of $1 per share or 125%
of the conversion price for the Class 3 Notes being
called for the four months prior to the specified
prepayment date and the Common Stock receivable by
the Class 3 Purchasers upon conversion of their Class
3 Notes having been eligible for public market sale,
whether through registration or an exemption
therefrom, for at least four months prior to the
specified prepayment date; or
(ii)
the common stock of the Company shall have been
trading at an average Market Price of the greater of
$1 per share or 200% of the conversion price for the
Class 3 Notes being called for the four month prior
to the specified prepayment date and the Common Stock
receivable by the Class 3 Purchasers upon conversion
of their Class 3 Notes having been eligible for
public market sale, through registration, for at
least four months prior to the specified prepayment
date.
The provisions of this section 6.3(d) shall not be applicable if
the
prepayment by the Company is pursuant to
the sale by the Company of
substantially all of its assets.
6.4. Obligations Unconditional. The Company hereby agrees and
confirms
that its obligations under the Notes shall
be deemed to constitute for all
purposes obligations for the payment of
indebtedness for borrowed money and
shall accordingly be absolute and
unconditional in accordance with the terms of
the Notes and this Agreement and shall not
be affected by (and the Company
agrees not to assert) any right the Company
may now or at any time hereafter
have, including any right to terminate,
cancel, quit or surrender this Agreement
or any Note except in accordance with the
express terms thereof.
SECTION 7. AFFIRMATIVE COVENANTS
The Company covenants and agrees that, until payment in full of
the
principal of and accrued interest on the
Notes and the payment or performance of
all other obligations under the Loan
Documents, the Company shall:
7. 1. Preservation of Corporate Existence; Etc. Do or cause to be
done
all things necessary to preserve, renew and
keep in full force and effect its
legal existence, except to the extent
permitted by Section 8.3, and its
qualification as a foreign corporation in
good standing in each jurisdiction in
which such qualification is necessary under
applicable law, and the rights,
licenses, permits (including those required
under Environmental Laws),
franchises, patents, copyrights, trademarks
and trade names material to the
conduct of its businesses; and defend all
of the foregoing against all claims,
actions, demands, suits or proceedings at
law or in equity or by or before any
governmental instrumentality or other
agency or regulatory authority.
<PAGE>
7.2. Maintenance of Properties; Insurance. Maintain, preserve
and
protect all property that is material to
the conduct of its business and keep
such property in good repair, working order
and condition and from time to time
make, or cause to be made, all needful and
proper repairs, renewals, additions,
improvements and replacements thereto
necessary in order that the business
carried on in connection therewith may be
properly conducted at all times in
accordance with customary and prudent
business practices for similar businesses;
and maintain in full force and effect
insurance with responsible and reputable
insurance companies or associations in such
amounts, on such terms and covering
such risks, including fire and other risks
insured against by extended coverage,
as is usually carried by companies engaged
in similar businesses and owning
similar properties similarly situated and
maintain in full force and effect
public liability insurance, business
interruption insurance, insurance against
claims for personal injury or death or
property damage occurring in connection
with any of its activities or any
properties owned, occupied or controlled by
it, in such amounts as it shall reasonably
deem necessary, and maintain such
other insurance as may be required by
Governmental Regulations or as may be
reasonably requested by the Majority
Noteholders. Upon request, the Company
shall deliver to each Purchaser copies of
all or any of such insurance policies
or the related certificates of
insurance.
7.3. Reporting Requirements. Furnish to each Purchaser the
following:
(a) promptly
and in any event within five (5) calendar days after
becoming aware of the occurrence of (A) any Potential Default or
Event
of Default, (B) the commencement of any material litigation
against, by
or affecting the Company or any Subsidiary, and any material
developments therein, or (C) any development in the business or
affairs
of the Company which
has resulted in or which is likely, in the
reasonable judgment of the Company, to result in a Material
Adverse
Effect, a statement of an officer of the Company setting forth
details
of such Potential Default or Event of Default or such litigation
or
such event or condition and the action which the affected person
has
taken and proposes to take with respect thereto;
(b) as soon as
available and in any event within 45 days after the
end of each fiscal quarter of the Company, the consolidated
balance
sheet of the Company as of the end of each such quarter and
consolidated income statement of the Company for each such quarter
and
for the period commencing at the end of the previous fiscal year
and
ending with the end of such quarter, setting forth in each case
in
comparative form the corresponding figures for the corresponding
date
or period of the preceding fiscal year;
(c) as soon as
available and in any event within 90 days after the
end of each fiscal year of the Company, a copy of the annual
audited
consolidated financial statements of the Company for such fiscal
year;
(d) promptly after
receipt thereof by the Company, copies of any
audit or management reports submitted to it by independent
accountants
in connection with any audit, interim audit or other report
submitted
to the board of directors of the Company;
(e) promptly
after the same are available, copies of each annual
report, proxy or financial statement or other communication sent to
the
Company's stockholders and copies of all annual, regular, periodic
and
special reports and registration statements which the Company may
file
or be required to file with the Securities and Exchange
<PAGE>
Commission or with any securities exchange or the National
Association
of Securities Dealers, Inc.; and
(f) promptly,
such other information respecting the business,
properties, operations or condition, financial or otherwise, of
the
Company as any Purchaser may from time to time reasonably request
upon
reasonable notice.
Each holder of Notes and Warrants hereby acknowledges that it
is aware of the restrictions imposed by federal and state
securities
laws on a person possessing material nonpublic information about
a
company. In this regard, each such holder hereby agrees that (i)
while
it is in possession of material nonpublic information with respect
to
the Company and its Subsidiaries, such holder will not purchase or
sell
any securities
of the Company, or communicate such information to any
third party, in violation of any such laws and (ii) it will keep
all
such nonpublic information confidential.
7.4. Accounting; Access to Records, Books; Etc. Maintain a system
of
accounting established and administered in
accordance with sound business
practices to permit preparation of
financial statements in accordance with GAAP
and to comply with the requirements of this
Agreement and, at any reasonable
time and from time to time, (i) permit the
Agent to examine and make copies of
and abstracts from the records and books of
account of, and visit the properties
of, such person and to discuss the affairs,
finances and accounts of such person
with their respective directors, officers,
employees and independent auditors,
and by this provision the Company does
hereby authorize the same, and (ii)
permit the Agent to conduct a comprehensive
field audit of its books, records,
properties and assets, if there is no Event
of Default or Potential Default
continuing, at the Purchasers' expense,
otherwise at the Company's expense.
7.5. Further Assurances. Execute and deliver promptly after
request
therefor by any Purchaser, all further
instruments and documents and take all
further action that may be necessary or
desirable, or that any Purchaser may
request, in order to give effect to, and to
aid in the exercise and enforcement
of the rights and remedies of any Purchaser
under, this Agreement and the other
Loan Documents.
7.6. Use of Proceeds. The Company will use the net proceeds
realized
from the sale of the Notes and Warrants for
working capital and other general
corporate purposes. No portion of such
proceeds will be used for the purpose,
whether immediate, incidental or ultimate,
of purchasing or carrying, within the
meaning of Regulation U of the Board of
Governors of the Federal Reserve System,
as amended from time to time, any "margin
stock" as defined in said Regulation
U, or any "margin stock" as defined in
Regulation G of the Board of Governors of
the Federal Reserve System, as amended from
time to time, or for the purpose of
purchasing, carrying or trading in
securities within the meaning of Regulation T
of the Board of Governors of the Federal
Reserve System, as amended from time to
time, or for the purpose of reducing or
retiring any indebtedness which was
originally incurred to purchase any such
margin stock or other securities.
7.7. Office for Payment, Exchange and Registration. So long as any
of
the Notes or Warrants are outstanding, the
Company will maintain an office or
agency where Notes or Warrants may be
presented for payment, exchange, exercise
or registration of transfer as provided in
this Agreement or in the Warrants.
Such office or agency initially shall be
the office
<PAGE>
of the Company set forth in Section 22
hereof, which place may from time to time
be changed by notice to the holders of all
Notes and Warrants then outstanding.
7.8. Notices. The Company will give notice to each holder of a Note
or
Warrant promptly after it learns (other
than by notice from all of such holders)
of the existence of any default under any
Senior Indebtedness or any material
default under any other evidence of
Indebtedness or under any indenture,
mortgage or other agreement relating to any
evidence of Indebtedness in respect
of which the Company or any Subsidiary is
liable.
7.9. Fiscal Year. The fiscal year of the Company for tax,
accounting
and any other purposes shall end on
December 31 of each calendar year.
7.10. Communication with Accountants. The Company hereby authorizes
the
Agent (on behalf of the Purchasers) to
communicate directly with the independent
certified public accountants for the
Company and authorizes such accountants to
disclose to the Agent any and all financial
statements and any other information
of any kind that they may have with respect
to the assets, properties,
liabilities, business, affairs, results of
operations, condition (financial or
otherwise) or prospects of the Company;
provided, that the Company be informed
of any such disclosures and participate in
any conversations between such
accountants and the Agent (and the Company
agrees that it will not fail to
cooperate in arranging or unreasonably
delay any such conversations); and
further provided that the Agent shall not
incur charges from such accountants in
exercise of such rights for more than ten
(10) hours per calendar year without
the Company's prior written consent. The
Company shall deliver a letter
addressed to such accountants instructing
them to comply with the provisions of
this Section 7.10.
7.11. Environmental Matters. The Company agrees to indemnify,
defend,
protect and hold harmless Purchasers, their
officers, directors, shareholders,
employees, and agents from and against any
and all liability, loss, damage, cost
and expense, including, but not limited to,
attorneys' and consultants fees and
disbursements arising from any breach of
representations and warranties set
forth in Section 4.12 or covenants set
forth in Section 7.2 herein, the Release
or presence of Hazardous Materials on,
under, about, adjacent to, from or at any
properties or facilities currently or
previously owned, operated or leased by
the Company or any Subsidiary, any
predecessors of the Company or any Subsidiary
or any entities previously owned by the
Company or any Subsidiary, or at any
off-site location to which Hazardous
Materials generated by the Company or any
Subsidiary, any predecessors of the Company
or any Subsidiary or any entities
previously owned by the Company or any
Subsidiary were sent for handling,
treatment, storage, or disposal or any
violation of any Environmental Law or
Environmental Permit by the Company or any
Subsidiary or any entity previously
owned by the Company or any Subsidiary. The
obligations of the Company under
this Section shall survive the Closing
indefinitely.
7.12. Taxes. All payments to a holder of Notes or to a partner of
a
holder (or to a partner of such a partner)
(any of the foregoing referred to
herein as a "recipient") of principal of,
and interest on, the Notes and all
other amounts payable under this Agreement
and any other Loan Document shall be
made free and clear of, and without
deduction for, any present or future income,
stamp or other taxes, fees, duties,
withholding or other charges of any nature
whatsoever imposed by any taxing authority,
other than taxes imposed on or
measured by the net income of
<PAGE>
such recipient (such non-excluded items
being herein called "Taxes"). In the
event that any withholding or deduction
from any payment to be made hereunder is
required in respect of any Taxes pursuant
to any applicable law, rule or
regulation, then the Company will:
(a) pay to the relevant authority the full amount required to be
so
withheld or deducted; and
(b) promptly forward to such recipient an official receipt or
other
documentation satisfactory to such recipient evidencing such
payment to
such authority.
7.13. Delivery of Information for Rule 144A Transactions. If a
holder
of Notes proposes to transfer any such
Notes pursuant to Rule 144A under the
Securities Act (as in effect from time to
time), the Company agrees to provide
(upon the request of such holder or the
prospective transferee) to such holder
and (if requested) to the prospective
transferee any financial or other
information concerning the Company which is
required to be delivered by such
holder to any transferee of such Notes
pursuant to such Rule 144A.
SECTION 8. NEGATIVE COVENANTS
The Company further covenants and agrees that it will not:
8. 1. Liens. Create, incur, assume or suffer to exist any Lien upon
any
of its Property, whether now owned or
hereafter acquired, except Permitted
Liens.
8.2. Merger and Acquisition. Consolidate with or merge with or into
any
Person, or acquire directly or indirectly
all or substantially all of the
capital stock of any Person; provided that
a merger after which the Company is
the surviving corporation and which does
not cause a Potential Default or Event
of Default shall be permitted if either the
Company is the surviving corporation
or, if not, the surviving corporation
assumes all of the Company's obligations
under the Loan Documents in a manner
satisfactory to the Purchasers.
8.3. Contingent Liabilities. Assume, guarantee, endorse,
contingently
agree to purchase, become liable in respect
of any letter of credit, or
otherwise become liable upon the obligation
of any Person, except (i)
liabilities arising from the endorsement of
letters of credit, notes, drafts,
instruments or documents for deposit or
collection or similar transactions in
the ordinary course of business, (ii)
deposit account guaranties of the
Subsidiaries not in excess of _100,000 in
the aggregate in the United Kingdom,
and (iii) other Contingent Liabilities not
in excess of $500,000 in the
aggregate.
8.4. Restricted Payments. Make any Restricted Payment or
Restricted
Investment, except from Earnings Available
for Dividends.
8.5. Sale or Transfer of Assets. Sell, lease, assign, transfer
or
otherwise dispose of any Collateral except
in the ordinary course of business or
except upon payment to the Purchasers of
50% of the net proceeds received by the
Company from the sale of such Collateral,
up to the full amount of the Company's
Obligations to the Purchasers, except that
Class 3 Purchasers would have the
option to instead convert the portion of
their Class 3 Notes which is proposed
to be paid
<PAGE>
into the common stock of the Company with
the Company retaining that portion of
the proposed payment. If the Company is
successful in its negotiations to sell
its (i) business of developing and
manufacturing inspection systems for the
optical disc industry including an
Identification Code Verification System, a
Screen and Offset Printed Label Inspection
System, a Scanner and an Optical Disc
Orientation System or (ii) its business of
developing and manufacturing a full
bottle inspection system for Coca Cola, a
code and label inspection system for
L'Oreal, and an inspection system for web
based print quality, those assets will
be released from the Collateral Assignment
without any payment from the Company.
It is agreed that the Company may place
source code for software in escrow at
the request of purchasers of its products
without violating this Agreement.
8.6. Amendment of Charter. Amend, modify or waive any term or
provision
of its corporate charter, unless required
by law.
8.7. Corporate Offices; Corporate Name; Corporate Records. Transfer
its
executive offices or change its corporate
name or maintain records (including
computer printouts and programs) with
respect to the Collateral at any locations
other than those at which the same are
presently kept or maintained, except upon
the Majority Noteholders' prior written
consent and after the delivery to the
Agent of financing statements in form
satisfactory to the Noteholders.
8.8. Private Placement Status. Neither the Company nor any agent
nor
any other Person acting on the Company's
behalf will do or cause to be done (or
will omit to do or to cause to be done) any
act which act (or which omission)
would result in bringing the issuance or
sale of the Notes, Warrants or Shares
within the provisions of Section 5 of the
Securities Act (other than in
accordance with a registration and
qualification of Shares under Section 17
hereof).
8.9. Amendments to Other Agreements. Without the prior written
consent
of the Majority Noteholders, which consent
will not be unreasonably withheld,
consent to or request any amendment,
modification, supplement or waiver of any
of the provisions of any agreement or
instrument evidencing (A) the rights of
stockholders' of the Company or (B) the
terms of (including the purchase and
sale of) any form of capital stock of the
Company.
8.10. Transactions with Affiliates. Enter into, or permit or suffer
to
exist, any transaction or arrangement with
any Affiliate, except on terms which
are no less favorable to the Company than
could be obtained from persons who are
not Affiliates.
SECTION 9.
Intentionally Omitted
SECTION 10. CONDITIONS TO PURCHASERS'
OBLIGATIONS
The Purchasers' obligations to purchase a Note or Notes and a
Warrant
or Warrants hereunder is subject to
satisfaction of the following conditions at
the Closing (any of which may be waived by
the Purchasers):
<PAGE>
10. 1. Accuracy of Representations and Warranties. The
representations
and warranties of the Company in this
Agreement and in the Loan Documents or in
any certificate or document delivered
pursuant hereto or thereto shall be
correct and complete on and as of the
Closing Date with the same effect as
though made on and as of the Closing Date
(after giving effect to the
transactions contemplated by this
Agreement).
10.2. Compliance with Agreements; No Defaults. Except as disclosed
on
Exhibit D, the Company performed and
complied in all material respects with all
agreements, covenants and conditions
contained in this Agreement or the Loan
Documents and any other document
contemplated hereby or thereby which are
required to be performed or complied with
by the Company on or before the
Closing Date. On the Closing Date (after
giving effect to the transactions
contemplated hereby), there shall be no
Event of Default or Potential Default.
10.3. Proceedings. All corporate and other proceedings in
connection
with the transactions contemplated by the
Loan Documents, and all documents
incident thereto, shall be in form and
substance satisfactory to the Purchasers
and their counsel, and the Purchasers shall
have received all such originals or
certified or other copies of such documents
as the Purchasers or their counsel
may reasonably request.
10.4. Legality; Governmental and Other Authorization. The purchase
of
and payment for the Notes and Warrants
shall not be prohibited by any law or
governmental order, rule, ruling,
regulation, release, interpretation or opinion
applicable to the Purchasers and shall not
subject the Purchasers to any
penalty, tax, liability or other onerous
condition. Any necessary consents,
approvals, licenses, permits, orders and
authorizations of, and registrations or
qualifications with, any governmental or
administrative agency, or other Person,
with respect to the transactions
contemplated by the Loan Documents shall have
been obtained or made and shall be in full
force and effect. The Company shall
have delivered to the Purchasers, upon
their reasonable request setting forth
what is required, factual certificates or
other evidence, in form and substance
satisfactory to the Purchasers and their
counsel, to enable the Purchasers to
establish compliance with this
condition.
10.5. No Change in Law, etc. No legislation, order, rule, ruling
or
regulation shall have been proposed,
enacted or made by or on behalf of any
governmental body, department or agency,
and no legislation shall have been
introduced in either House of Congress, and
no investigation by any governmental
authority or administrative body shall have
been commenced or threatened, and no
action, suit or proceeding shall have been
commenced before, and no decision
shall have been rendered by, any court,
other governmental body or arbitrator,
which, in any such case, in the Purchasers'
reasonable judgment could adversely
affect, restrain, prevent or change the
transactions contemplated by this
Agreement and the Loan Documents (including
without limitation the issuance of
the Notes and the Warrants hereunder or the
issuance of Shares upon exercise of
the Warrants) or materially and adversely
affect the business, affairs, assets,
properties, liabilities, results of
operations, condition (financial or
otherwise) or prospects of the Company on a
consolidated basis.
10.6. Delivery of Additional Disclosure Documents. The Company
shall
have delivered a copy of its most recent
Form 10-K and any interim reports,
including financial statements, as filed
with the Commission.
<PAGE>
10.7 Related Agreements. The Company shall have delivered to
the
Purchasers executed copies of the
Collateral Assignment.
10.8 Security Interests. All filings of UCC financing statements
and
all other filings and actions necessary to
perfect the Security Interests as
valid and perfected Liens in the Property
covered thereby, subject only to
Permitted Liens in effect on the date
hereof, shall have been filed or taken and
confirmation thereof shall have been
received by the Agent.
10.9 Searches. The results of tax lien, litigation, UCC,
bankruptcy,
and judgment searches with respect to the
Company obtained by the Purchasers
shall be acceptable.
10.10. Material Agreements. Review and approval by the Purchasers,
at
their option and expense, of all material
agreements to which the Company is a
party, including without limitation, all
such documents in respect of the
borrowing of money, all joint venture
agreements, supply agreements or
requirements contracts, royalty agreements,
license agreements,
employment/management incentive agreements,
and product warranties.
10.11 Insurance. The Purchasers shall have received such
evidence
satisfactory to them as they have requested
that the Company and the
Subsidiaries have in effect such casualty,
hazard, public liability, product
liability and other insurance policies
required by the Purchasers, written by
insurers and in amounts and forms
satisfactory to the Purchasers.
10.12 Other Documents and Opinions. The Purchasers shall have
received
such other certificates, documents and
opinions, in form and substance
satisfactory to the Purchasers and their
counsel, relating to matters incident
to the transactions contemplated hereby as
the Purchasers may reasonably
request.
SECTION 11. AMENDMENT AND WAIVER
11.1. Amendments and Waivers. This Agreement and any Loan Document
may
be amended (or any provision hereof or
thereof waived) only with the written
consent of (i) the Majority Noteholders,
and (ii) the holder or holders of
Warrants or Shares representing at least a
majority of the sum of the Shares
then outstanding and the Shares then
obtainable upon the exercise of all
Warrants then outstanding, if any;
provided, however, that no such amendment or
waiver shall (i) change the fixed maturity
of any Note, the rate or the time of
payment of interest thereon, the principal
amount thereof, the premium thereon,
the currency in which the Notes are
payable, the prepayment provisions of
Section 6 hereof, the current exercise
price of a Warrant
