PROMISSORY NOTE AND WARRANT PURCHASE AGREEMENT

 

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                 PROMISSORY NOTE AND WARRANT PURCHASE AGREEMENT

 

                                  by and among

 

                            Critical Home Care, Inc.

 

                                       and

 

              the parties named herein on Schedule 1, as Purchasers

 

 

 

 

 

 

 

 

 

 

 

                               September 21, 2004

 

 

 

 

 

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        This PROMISSORY NOTE AND WARRANT PURCHASE AGREEMENT (this "AGREEMENT")

is dated as of September 21, 2004, among Critical Home Care, Inc., a Nevada

corporation (the "COMPANY"), and the purchasers identified on SCHEDULE 1 hereto

(each a "PURCHASER" and collectively the "PURCHASERS").

 

        WHEREAS, subject to the terms and conditions set forth in this Agreement

and pursuant to Section 4(2) of the Securities Act (as defined below), and Rule

506 promulgated thereunder, the Company desires to issue and sell to the

Purchasers, and the Purchasers, severally and not jointly, desire to purchase

from the Company in the aggregate, $5,000,000 principal amount of the Seller's

6% Promissory Notes and Warrants to purchase 3,150,000 shares of Common Stock.

 

        NOW, THEREFORE, in consideration of the mutual covenants contained in

this Agreement, and for other good and valuable consideration the receipt and

adequacy of which are hereby acknowledged, the Company and each Purchaser agree

as follows:

 

                                    ARTICLE I

 

                                   DEFINITIONS

 

        1.1      DEFINITIONS.

 

        In addition to the terms defined elsewhere in this Agreement, for all

purposes of this Agreement, the following terms have the meanings indicated in

this Section 1.1:

 

        "ACTION" shall have the meaning ascribed to such term in Section 3.1(j).

 

        "AFFILIATE" means any Person that, directly or indirectly through one or

more intermediaries, controls or is controlled by or is under common control

with a Person, as such terms are used in and construed under Rule 144. With

respect to a Purchaser, any investment fund or managed account that is managed

on a discretionary basis by the same investment manager as such Purchaser will

be deemed to be an Affiliate of such Purchaser.

 

        "AGREEMENT" shall have the meaning ascribed to such term in the

Preamble.

 

        "BUSINESS DAY" means any day except Saturday, Sunday and any day which

shall be a federal legal holiday or a day on which banking institutions in the

State of Michigan are authorized or required by law or other governmental action

to close.

 

        "CLOSING" shall have the meaning ascribed to such term in Section

2.1(a).

 

        "CLOSING DATE" shall have the meaning ascribed to such term in Section

2.1(a).

 

        "COMMISSION" means the Securities and Exchange Commission.

 

        "COMMON STOCK" means the common stock of the Company, $0.01 par value

per share, and any securities into which such common stock may hereafter be

reclassified.

 

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        "COMMON STOCK EQUIVALENTS" means any securities of the Company or the

Subsidiaries which would entitle the holder thereof to acquire at any time

Common Stock, including without limitation, any debt, preferred stock, rights,

options, warrants or other instrument that is at any time convertible into or

exchangeable for, or otherwise entitles the holder thereof to receive, Common

Stock.

 

        "COMPANY" shall have the meaning ascribed to such term in the Preamble.

 

        "DISCLOSURE SCHEDULES" means the Disclosure Schedules concurrently

delivered herewith.

 

        "EFFECTIVE DATE" means the date that the Registration Statement is first

declared effective by the Commission.

 

        "ENVIRONMENTAL LAWS" shall have the meaning ascribed to such term in

Section 3.1(y).

 

        "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

 

        "GAAP" shall have the meaning ascribed to such term in Section 3.1(h).

 

        "GOVERNMENTAL AUTHORIZATIONS" shall have the meaning ascribed to such

term in Section 3.1(m).

 

        "HAZARDOUS SUBSTANCES" shall have the meaning ascribed to such term in

Section 3.1(y).

 

        "INDEMNIFIED PARTY" shall have the meaning ascribed to such term in

Section 5.3.

 

         "INDEMNIFYING PARTY" shall have the meaning ascribed to such term in

Section 5.3.

 

        "INTELLECTUAL PROPERTY" shall have the meaning ascribed to such term in

Section 3.1(o).

 

        "INVESTOR RIGHTS AGREEMENT" means the Investor Rights Agreement, dated

as of the date of this Agreement, between the Company and each of the

Purchasers, in the form of EXHIBIT A hereto.

 

        "LIEN" means a lien, charge, security interest, encumbrance, right of

first refusal or other restriction, except for a lien for current taxes not yet

due and payable and a minor imperfection of title, if any, not material in

nature or amount and not materially detracting from the value or impairing the

use of the property subject thereto or impairing the operations or proposed

operations of the Company.

 

        "MATERIAL ADVERSE EFFECT" shall have the meaning ascribed to such term

in Section 3.1(b).

 

        "PERSON" means an individual or corporation, partnership, trust,

incorporated or unincorporated association, joint venture, limited liability

company, joint stock company, government (or an agency or subdivision thereof)

or other entity of any kind.

 

        "PREMISES" shall have the meaning ascribed to such term in Section

3.1(y).

 

 

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        "PROMISSORY NOTES" means the 6% Promissory Notes of the Seller, which

shall be in the form attached as EXHIBIT B hereto.

 

        "PURCHASER" shall have the meaning ascribed to such term in the

Preamble.

 

        "REGISTRATION STATEMENT" means a registration statement meeting the

requirements set forth in the Investor Rights Agreement and covering the resale

by the Purchasers of the Warrant Shares.

 

        "RIGHTS" shall have the meaning ascribed to such term in Section 3.1(o).

 

        "RULE 144" means Rule 144 promulgated by the Commission pursuant to the

Securities Act, as such Rule may be amended from time to time, or any similar

rule or regulation hereafter adopted by the Commission having substantially the

same effect as such Rule.

 

         "SEC REPORTS" shall have the meaning ascribed to such term in Section

3.1(h).

 

        "SECURITIES" means the Promissory Notes, the Warrants and the Warrant

Shares.

 

        "SECURITIES ACT" means the Securities Act of 1933, as amended.

 

        "SUBSCRIPTION AMOUNT" means, as to each Purchaser, the amount set forth

beside such Purchaser's name on SCHEDULE 1 hereto, in United States dollars and

in immediately available funds.

 

        "SUBSIDIARY" means, with respect to any entity, any corporation or other

organization of which securities or other ownership interest having ordinary

voting power to elect a majority of the board of directors or other persons

performing similar functions, are directly or indirectly owned by such entity or

of which such entity is a partner or is, directly or indirectly, the beneficial

owner of 50% or more of any class of equity securities or equivalent profit

participation interests.

 

        "TRADING DAY" means (i) a day on which the Common Stock is traded on a

Trading Market, or (ii) if the Common Stock is not listed on a Trading Market, a

day on which the Common Stock is traded on the over-the-counter market, as

reported by the OTC Bulletin Board, or (iii) if the Common Stock is not quoted

on the OTC Bulletin Board, a day on which the Common Stock is quoted in the

over-the-counter market as reported by the National Quotation Bureau

Incorporated (or any similar organization or agency succeeding to its functions

of reporting prices); provided, that in the event that the Common Stock is not

listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day

shall mean a Business Day.

 

        "TRADING MARKET" means the following markets or exchanges, if any, on

which the Common Stock is listed or quoted for trading on the date in question:

the American Stock Exchange, the New York Stock Exchange, the Nasdaq National

Market or the Nasdaq SmallCap Market.

 

        "TRANSACTION DOCUMENTS" means this Agreement, the Investor Rights

Agreement, the Promissory Notes, the Warrants and any other documents or

agreements executed in connection with the transactions contemplated hereunder.

 

 

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        "WARRANTS" means the Common Stock Purchase Warrants, in the form of

EXHIBIT C hereto.

 

        "WARRANT SHARES" means the shares of Common Stock issuable upon exercise

of the Warrants.

 

                                   ARTICLE II

 

                                PURCHASE AND SALE

 

        2.1      CLOSING.

 

        (a)      The closing of the transactions contemplated under this

Agreement (the "CLOSING") will take place as promptly as practicable, but no

later than five (5) Business Days following satisfaction or waiver of the

conditions set forth in Sections 2.2 and 2.3 (other than those conditions which

by their terms are not to be satisfied or waived until the Closing), at the

offices of Wiggin and Dana LLP, 400 Atlantic Street, Stamford, CT 06901 (or

remotely via exchange of documents and signatures) or at such other place or day

as may be mutually acceptable to the Purchasers and the Company. The date on

which the Closing occurs is the "CLOSING DATE".

 

        (b)      At the Closing, the Purchasers shall purchase, severally and not

jointly, and the Company shall issue and sell, in the aggregate, $5,000,000

principal amount of Promissory Notes and Warrants to purchase 3,150,000 shares

of Common Stock on the Closing Date. Each Purchaser shall purchase from the

Company, and the Company shall issue and sell to each Purchaser, Promissory

Notes in a principal amount equal to such Purchaser's Subscription Amount and a

Warrant to purchase the number of Shares as indicated on SCHEDULE 1 for such

Purchaser.

 

        2.2      CONDITIONS TO OBLIGATIONS OF PURCHASERS TO EFFECT THE CLOSING.

 

        The obligations of each Purchaser to effect the Closing and the

transactions contemplated by this Agreement shall be subject to the satisfaction

at or prior to the Closing of each of the following conditions, any of which may

be waived, in writing, by such Purchaser:

 

        (a)      At the Closing (unless otherwise specified below) the Company

shall deliver or cause to be delivered to each Purchaser the following:

 

                (i)      this Agreement, duly executed by the Company;

 

                (ii)     a certificate evidencing the Promissory Note in the

principal amount equal to such Purchaser's Subscription Amount as set forth on

SCHEDULE 1 hereto, registered in the name of such Purchaser;

 

                (iii)    a Warrant, registered in the name of such Purchaser,

pursuant to which such Purchaser shall have the right to acquire up to the

number of shares of Common Stock as set forth on SCHEDULE 1 hereto;

 

                (iv)     the Investor Rights Agreement, duly executed by the

Company;

 

 

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                (v)      a legal opinion of Kerr, Russell and Weber, PLC, counsel

to the Company, in the form of EXHIBIT D hereto; and

 

                (vi)     a legal opinion of Marquis & Aurbach, Nevada counsel to

the Company, in the form of EXHIBIT E hereto; and

 

                (vii)    a certificate of the Secretary of the Seller (the

"SECRETARY'S CERTIFICATE"), attaching a true copy of the Certificate of

Incorporation and Bylaws of the Seller, as amended to the Closing Date, and

attaching true and complete copies of the resolutions of the Board of Directors

of the Seller authorizing the execution, delivery and performance of this

Agreement and the other Transaction Documents.

 

                (viii)   A wire transfer representing the Purchasers' reasonable

legal fees and other expenses as described in Section 6.1 hereof; such fee may,

at the election of the Purchasers, be paid out of the funds due from the

Purchasers at the Closing.

 

        (b)      All representations and warranties of the Company contained

herein shall remain true and correct as of the Closing Date as though such

representations and warranties were made on such date (except those

representations and warranties that address matters only as of a particular date

will remain true and correct as of such date).

 

        (c)      As of the Closing Date, there shall have been no Material

Adverse Effect with respect to the Company since the date hereof.

 

        (d)      From the date hereof to the Closing Date, trading in the Common

Stock shall not have been suspended by the Commission (except for any suspension

of trading of limited duration agreed to by the Company, which suspension shall

be terminated prior to the Closing), and, at any time prior to the Closing Date,

trading in securities generally as reported by Bloomberg Financial Markets shall

not have been suspended or limited, or minimum prices shall not have been

established on securities whose trades are reported by such service, or on any

Trading Market, nor shall a banking moratorium have been declared either by the

United States or New York State authorities.

 

        (e)      John Elliott and Lawrence Kuhnert shall have executed an

agreement, in form and substance acceptable to the Purchasers, waiving their

preemptive rights with respect to the issuance by the Seller of the Securities.

 

        2.3.     CONDITIONS TO OBLIGATIONS OF THE COMPANY TO EFFECT THE CLOSING.

 

        (a)      The obligations of the Company to effect the Closing and the

transactions contemplated by this Agreement shall be subject to the satisfaction

at or prior to the Closing of each of the following conditions, any of which may

be waived, in writing, by the Company. At the Closing, each Purchaser shall

deliver or cause to be delivered to the Company the following:

 

                (i)      this Agreement, duly executed by such Purchaser;

 

                (ii)     such Purchaser's Subscription Amount, by wire transfer

of immediately available funds as provided in the Closing Escrow Agreement; and

 

 

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                (iii)    the Investor Rights Agreement, duly executed by such

Purchaser.

 

        (b)      All representations and warranties of each of the Purchasers

contained herein shall remain true and correct as of the Closing Date as though

such representations and warranties were made on such date.

 

                                   ARTICLE III

 

                         REPRESENTATIONS AND WARRANTIES

 

        3.1      REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

        Except as set forth under the corresponding section of the Disclosure

Schedules delivered concurrently herewith, the Company hereby makes the

following representations and warranties as of the date hereof and as of the

Closing Date to each Purchaser:

 

        (A)      SUBSIDIARIES. Except as listed in the SEC Reports, the Company

has no direct or indirect Subsidiaries.

 

        (B)      ORGANIZATION AND QUALIFICATION. Each of the Company and the

Subsidiaries is an entity duly incorporated or otherwise organized, validly

existing and in good standing under the laws of the jurisdiction of its

incorporation or organization (as applicable), with the requisite corporate

power and authority to own and use its properties and assets and to carry on its

business as currently conducted. Neither the Company nor any Subsidiary is in

violation of any of the provisions of its respective certificate or articles of

incorporation, bylaws or other organizational or charter documents. Each of the

Company and the Subsidiaries is duly qualified to conduct business and is in

good standing as a foreign corporation or other entity in each jurisdiction in

which the nature of the business conducted or property owned by it makes such

qualification necessary, except where the failure to be so qualified or in good

standing, as the case may be, would not have or result in (i) a material adverse

effect on the legality, validity or enforceability of any Transaction Document,

(ii) a material adverse effect on the business or financial condition of the

Company and the Subsidiaries, taken as a whole, or (iii) a material adverse

effect on the Company's ability to perform in any material respect on a timely

basis its obligations under any Transaction Document (any of (i), (ii) or (iii),

a "MATERIAL ADVERSE EFFECT").

 

        (C)      AUTHORIZATION; ENFORCEABILITY. The Company has the requisite

corporate power and authority to enter into and to consummate the transactions

contemplated by each of the Transaction Documents and otherwise to carry out its

obligations thereunder. The execution and delivery of each of the Transaction

Documents by the Company and the consummation by it of the transactions

contemplated thereby have been duly authorized by all necessary action on the

part of the Company and no further action is required by the Company in

connection therewith. Each Transaction Document has been (or upon delivery will

have been) duly executed by the Company and, when delivered in accordance with

the terms hereof, will constitute the valid and binding obligation of the

Company enforceable against the Company in accordance with its terms, subject to

laws of general application relating to bankruptcy, insolvency, reorganization,

moratorium or other similar laws affecting creditors' rights generally and rules

of law governing specific performance, injunctive relief, or other equitable

remedies.

 

 

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        (D)      NO CONFLICTS. The execution, delivery and performance of the

Transaction Documents by the Company and the consummation by the Company of the

transactions contemplated thereby do not and will not (i) conflict with or

violate any provision of the Company's or any Subsidiary's certificate or

articles of incorporation, bylaws or other organizational or charter documents,

or (ii) conflict with, or constitute a default (or an event that with notice or

lapse of time or both would become a default) under, or give to others any

rights of termination, amendment, acceleration or cancellation (with or without

notice, lapse of time or both) of, any agreement, credit facility, debt or other

instrument (evidencing a Company or Subsidiary debt or otherwise) or other

understanding to which the Company or any Subsidiary is a party or by which any

property or asset of the Company or any Subsidiary is bound or affected, or

(iii) result in a violation of any law, rule, regulation, order, judgment,

injunction, decree or other restriction of any court or governmental authority

to which the Company or a Subsidiary is subject (including federal and state

securities laws and regulations), or by which any property or asset of the

Company or a Subsidiary is bound or affected, except, in the cases of clause

(ii), where such conflict, default or violation would not have or result in a

Material Adverse Effect.

 

        (E)      FILINGS, CONSENTS AND APPROVALS. The Company is not required to

obtain any consent, waiver, authorization or order of, give any notice to, or

make any filing or registration with, any court or other federal, state, local

or other governmental authority or other Person in connection with the

execution, delivery and performance by the Company of the Transaction Documents,

other than (a) the filing with the Commission of the Registration Statement, the

application(s) to each Trading Market for the listing of the Warrant Shares for

trading thereon in the time and manner required thereby, Form D and applicable

Blue Sky filings and (b) such as have already been obtained or such exemptive

filings as are required to be made under applicable securities laws.

 

        (F)      ISSUANCE OF THE SECURITIES. The Securities are duly authorized

and, when issued and paid for in accordance with the Transaction Documents, will

be duly and validly issued, fully paid and nonassessable, free and clear of all

Liens, other than any Liens created by or imposed on the holders thereof through

no action of the Company. The Company has reserved from its duly authorized

capital stock the maximum number of shares of Common Stock issuable pursuant to

the Warrants, including, without limitation, such number of shares as would be

issuable pursuant to the Warrants upon the occurrence of the contingencies

described in Section 15 of the Warrants.

 

        (G)      CAPITALIZATION.

 

                (i)      The authorized and outstanding capitalization of the

Company is as described in the Company's most recent periodic report filed with

the Commission. The Company has not issued any capital stock since such filing,

other than pursuant to the exercise of employee stock options under the

Company's stock option plans and pursuant to the conversion or exercise of

Common Stock Equivalents outstanding on the date thereof. All shares of the

Company's issued and outstanding capital stock have been duly authorized, are

validly issued and outstanding, and are fully paid and nonassessable. No

securities issued by the Company from May 7, 2004 to the date hereof were issued

in violation of any statutory or common law preemptive rights. There are no

dividends which have accrued or been declared but are unpaid on the capital

stock of the Company. All taxes required to be paid by the Company in connection

with the issuance and any transfers of the Company's capital stock have been

paid. Since May 7, 2004 all securities of

 

 

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the Company have been issued in all material respects in accordance with the

provisions of all applicable securities and other laws.

 

                (ii)     Except as described on Schedule 3(g)(ii), no Person has

any right of first refusal, preemptive right, right of participation, or any

similar right to participate in the transactions contemplated by the Transaction

Documents. Except as disclosed on Schedule 3(g)(ii) and as a result of the

purchase and sale of the Securities, there are no outstanding options, warrants,

rights to subscribe to, calls or commitments of any character whatsoever

relating to, or securities, rights or obligations convertible into or

exchangeable for, or giving any Person any right to subscribe for or acquire,

any shares of Common Stock, or contracts, commitments, understandings or

arrangements by which the Company or any Subsidiary is or may become bound to

issue additional shares of Common Stock, or securities or rights convertible or

exchangeable into shares of Common Stock. The issue and sale of the Securities

will not obligate the Company to issue shares of Common Stock or other

securities to any Person (other than the Purchasers) and will not result in a

right of any holder of Company securities to adjust the exercise, conversion,

exchange or reset price under such securities.

 

        (H)      SEC REPORTS; FINANCIAL STATEMENTS; LIABILITIES.

 

                (i)      The Company has filed all reports required to be filed

by it under the Securities Act and the Exchange Act, including pursuant to

Section 13(a) or 15(d) of the Exchange Act, for the 12 months preceding the date

hereof (or such shorter period as the Company was required by law to file such

material) (the foregoing materials, including the exhibits thereto, being

collectively referred to herein as the "SEC REPORTS"). As of their respective

filing dates, the SEC Reports complied in all material respects with the

requirements of the Securities Act and the Exchange Act, as the case may be, and

the rules and regulations of the Commission promulgated thereunder, as

applicable, and none of the SEC Reports, as of their respective filing dates,

contained any untrue statement of a material fact or omitted to state a material

fact required to be stated therein or necessary in order to make the statements

therein, in light of the circumstances under which they were made, not

misleading.

 

                (ii)     The financial statements of the Company included in the

SEC Reports comply with applicable accounting requirements and the rules and

regulations of the Commission with respect thereto as in effect at the time of

filing. Such financial statements have been prepared in accordance with

generally accepted accounting principles in the United States, applied on a

consistent basis during the periods involved ("GAAP"), except as may be

otherwise specified in such financial statements or the notes thereto and except

that unaudited financial statements may not contain all footnotes required by

GAAP, subject to normal year-end audit adjustments. Such financial statements

fairly present in all material respects the financial position of the Company

and its consolidated subsidiaries, if any, as of and for the dates thereof and

the results of operations and cash flows for the periods then ended, subject, in

the case of unaudited statements, to normal year-end audit adjustments.

 

                (iii)    Except as set forth in the SEC Reports, and except for

liabilities and obligations incurred since June 30, 2004 in the ordinary course

of business, consistent with past practice, as of the date hereof: (i) the

Company and its Subsidiaries do not have any material liabilities or obligations

(absolute, accrued, contingent or otherwise) and (ii) there has not been any

aspect of the prior or current conduct of the business of the Company or its

Subsidiaries

 

 

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which may form the basis for any material claim by any third party which if

asserted could result in a Material Adverse Effect.

 

        (I)      MATERIAL CHANGES. Since June 30, 2004, the Company has conducted

its business only in the ordinary course, consistent with past practice, and

there has not occurred:

 

                 (i)      any event that would have a Material Adverse Effect on

the Company or any of its Subsidiaries;

 

                (ii)     any amendments or changes in the charter documents of

the Company and its Subsidiaries;

 

                (iii)    any damage, destruction or loss, whether or not covered

by insurance, that would, individually or in the aggregate, have or would be

reasonably likely to have, a Material Adverse Effect on the Company and its

Subsidiaries;

 

                (iv)     any:

 

                         (A)      incurrence, assumption or guarantee by the

Company or its Subsidiaries of any debt for borrowed money other than (i)

equipment leases made in the ordinary course of business, consistent with past

practice and (ii) any such incurrence, assumption or guarantee with respect to

an amount of $25,000 or less that has been disclosed in the SEC Reports;

 

                        (B)      issuance or sale of any securities convertible

into or exchangeable for securities of the Company other than to directors,

employees and consultants pursuant to existing equity compensation or stock

purchase plans of the Company;

 

                        (C)      issuance or sale of options or other rights to

acquire from the Company or its Subsidiaries, directly or indirectly, securities

of the Company or any securities convertible into or exchangeable for any such

securities, other than options issued to directors, employees and consultants in

the ordinary course of business, consistent with past practice;

 

                         (D)      issuance or sale of any stock, bond or other

corporate security other than to directors, employees and consultants pursuant

to existing equity compensation or stock purchase plans of the Company;

 

                        (E)       discharge or satisfaction of any material Lien;

 

                        (F)      declaration or making any payment or

distribution to stockholders or purchase or redemption of any share of its

capital stock or other security other than to directors, officers and employees

of the Company or its Subsidiaries as compensation for services rendered to the

Company or its Subsidiary (as applicable) or for reimbursement of expenses

incurred on behalf of the Company or its Subsidiary (as applicable);

 

                         (G)      sale, assignment or transfer of any of its

intangible assets except in the ordinary course of business, consistent with

past practice, or cancellation of any debt or claim except in the ordinary

course of business, consistent with past practice;

 

 

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                        (H)      waiver of any right of substantial value whether

or not in the ordinary course of business;

 

                        (I)      material change in officer compensation, except

in the ordinary course of business and consistent with past practice; or

 

                        (J)      other commitment (contingent or otherwise) to do

any of the foregoing.

 

                (v)      any creation, sufferance or assumption by the Company or

any of its Subsidiaries of any Lien on any asset or any making of any loan,

advance or capital contribution to or investment in any Person, in an aggregate

amount which exceeds $25,000 outstanding at any time;

 

                (vi)     any entry into, amendment of, relinquishment,

termination or non-renewal by the Company or its Subsidiaries of any material

contract, license, lease, transaction, commitment or other right or obligation,

other than in the ordinary course of business, consistent with past practice; or

 

                (vii)    any transfer or grant of a right with respect to the

patents, trademarks, trade names, service marks, trade secrets, copyrights or

other intellectual property rights owned or licensed by the Company or its

Subsidiaries, except as among the Company and its Subsidiaries.

 

        (J)      LITIGATION. There is no action, suit, inquiry, notice of

violation, proceeding or investigation pending or, to the knowledge of the

Company, threatened against the Company, any Subsidiary or any of their

respective properties before or by any court, arbitrator, governmental or

administrative agency or regulatory authority (federal, state, county, local or

foreign) (collectively, an "ACTION") which (i) adversely affects or challenges

the legality, validity or enforceability of any of the Transaction Documents or

the Securities or (ii) would, if there were an unfavorable decision, have or

result in a Material Adverse Effect. Neither the Company nor any Subsidiary,

nor, to the knowledge of the Company, any director or officer thereof, is or has

been the subject of any Action involving a claim of violation of or liability

under federal or state securities laws or a claim of breach of fiduciary duty.

To the knowledge of the Company, there has not been and there is not pending or

contemplated, any investigation by the Commission involving the Company or any

current or former director or officer of the Company. The Commission has not

issued any stop order or other order suspending the effectiveness of any

registration statement filed by the Company or any Subsidiary under the Exchange

Act or the Securities Act.

 

        (K)      LABOR RELATIONS. No material labor dispute exists or, to the

knowledge of the Company, is imminent with respect to any of the employees of

the Company which would have or result in a Material Adverse Effect.

 

        (L)      COMPLIANCE. Neither the Company nor any Subsidiary (i) is in

default under or in violation of (and no event has occurred that has not been

waived that, with notice or lapse of time or both, would result in a default by

the Company or any Subsidiary under), nor has the Company or any Subsidiary

received notice of a claim that it is in default under or that it is in

violation of, any indenture, loan or credit agreement or any other agreement or

instrument to which it is a party or by which it or any of its properties is

bound (whether or not such default or

 

 

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violation has been waived), (ii) is in violation of any order of any court,

arbitrator or governmental body, or (iii) is or has been in violation of any

statute, rule or regulation of any governmental authority, including without

limitation all foreign, federal, state and local laws applicable to its

business, except in the case of clauses (i) and (iii) as would not have or

reasonably be expected to result in a Material Adverse Effect.

 

        (M)      LICENSES; COMPLIANCE WITH REGULATORY REQUIREMENTS. The Company

holds all material authorizations, consents, approvals, franchises, licenses and

permits required under applicable law or regulation for the operation of the

business of the Company and its Subsidiaries as presently operated (the

"GOVERNMENTAL AUTHORIZATIONS"). All the Governmental Authorizations have been

duly issued or obtained and are in full force and effect, and the Company and

its Subsidiaries are in material compliance with the terms of all the

Governmental Authorizations. The Company and its Subsidiaries have not engaged

in any activity that, to the Company's knowledge, would cause revocation or

suspension of any such Governmental Authorizations. The Company has no knowledge

of any facts which would reasonably be expected to cause the Company to believe

that the Governmental Authorizations will not be renewed by the appropriate

governmental authorities in the ordinary course. Neither the execution, delivery

nor performance of this Agreement shall adversely affect the status of any of

the Governmental Authorizations.

 

        (N)      TITLE TO ASSETS. The Company and the Subsidiaries do not own any

real property, and have good and marketable title to all personal property owned

by them that is material to the business of the Company and the Subsidiaries,

taken as a whole, in each case free and clear of all Liens, except those, if

any, reflected in the Company's financial statements or disclosed on Schedule

3.1(n). Any real property and facilities held under lease by the Company and the

Subsidiaries are held by them under valid, subsisting and enforceable leases

(subject to laws of general application relating to bankruptcy, insolvency,

reorganization, moratorium or other similar laws affecting creditors' rights

generally and rules of law governing specific performance, injunctive relief, or

other equitable remedies) with which the Company and the Subsidiaries are in

material compliance.

 

        (O)      INTELLECTUAL PROPERTY.

 

                (i)      The Company or a Subsidiary thereof has the right to use

or is the sole and exclusive owner of all right, title and interest in and to

all foreign and domestic patents, patent rights, trademarks, service marks,

trade names, brands and copyrights (whether or not registered and, if

applicable, including pending applications for registration) owned, used or

controlled by the Company and its Subsidiaries (collectively, the "RIGHTS") and

in and to each material invention, software, trade secret, technology, product,

composition, formula and method of process used by the Company or its

Subsidiaries (the Rights and such other items, the "INTELLECTUAL PROPERTY"),

and, to the Company's knowledge, has the right to use the same, free and clear

of any claim or conflict with the rights of others;

 

                (ii)     other than as set forth in the SEC Reports, no royalties

or fees (license or otherwise) are payable by the Company or its Subsidiaries to

any Person by reason of the ownership or use of any of the Intellectual

Property;

 

 

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                (iii)    there have been no claims made against the Company or

its Subsidiaries asserting the invalidity, abuse, misuse, or unenforceability of

any of the Intellectual Property, and, to the best of the Company's knowledge,

there are no reasonable grounds for any such claims;

 

                (iv)     neither the Company nor its Subsidiaries have made any

claim of any violation or infringement by others of its rights in the

Intellectual Property, and to the best of the Company's knowledge, no reasonable

grounds for such claims exist; and

 

                (v)      neither the Company nor its Subsidiaries have received

notice that it is in conflict with or infringing upon the asserted rights of

others in connection with the Intellectual Property.

 

        (P)      INSURANCE. The Company and the Subsidiaries are insured by

insurers of recognized financial responsibility against such losses and risks

and in such amounts as are prudent and customary in the businesses in which the

Company and the Subsidiaries are engaged. All of the insurance policies of the

Company and its Subsidiaries are in full force and effect and are valid and

enforceable in accordance with their terms, and the Company and its Subsidiaries

have complied with all material terms and conditions thereof. Neither the

Company nor any Subsidiary has any reason to believe that it will not be able to

renew its existing insurance coverage as and when such coverage expires or to

obtain similar coverage from similar insurers as may be necessary to continue

its business without a significant increase in cost.

 

        (Q)      TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. None of the officers

or directors of the Company and, to the knowledge of the Company, none of the

employees of the Company is presently a party to any transaction with the

Company or any Subsidiary (other than for services as employees, officers and

directors), including any contract, agreement or other arrangement providing for

the furnishing of services to or by, providing for rental of real or personal

property to or from, or otherwise requiring payments to or from any officer,

director or such employee or, to the knowledge of the Company, any entity in

which any officer, director, or any such employee has a substantial interest or

is an officer, director, trustee or partner, other than (a) for payment of

salary or consulting fees for services rendered, (b) reimbursement for expenses

incurred on behalf of the Company and (c) for other employee benefits, including

stock option agreements and other stock awards under any equity compensation

plan of the Company.

 

        (R)      INTERNAL ACCOUNTING CONTROLS. The Company and each of the

Subsidiaries maintains a system of internal accounting controls sufficient in

the judgment of the Company's