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SECURITIES PURCHASE AGREEMENT

Stock Purchase Agreement

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FAST EDDIE RACING STABLES, INC.

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Title: SECURITIES PURCHASE AGREEMENT
Date: 3/15/2005
Law Firm: Cohen Tauber Spievack Wagner LLP    

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                                                                     EXHIBIT 4.1

 

                         FAST EDDIE RACING STABLES, INC.

 

                          SECURITIES PURCHASE AGREEMENT

 

                                  March 9, 2005

 

<PAGE>

 

                                 TABLE OF CONTENTS

 

                                                                            Page

                                                                            ----

 

1.     Agreement to Sell and Purchase...........................................1

 

2.     Fees and Warrant.........................................................1

 

3.     Closing, Delivery and Payment............................................2

      3.1      Closing..........................................................2

      3.2      Delivery.........................................................2

 

4.     Representations and Warranties of the Company............................3

      4.1      Organization, Good Standing and Qualification....................3

      4.2      Subsidiaries.....................................................4

      4.3      Capitalization; Voting Rights....................................4

      4.4      Authorization; Binding Obligations...............................5

      4.5      Liabilities......................................................5

      4.6      Agreements; Action...............................................5

      4.7      Obligations to Related Parties...................................6

      4.8       Changes..........................................................7

      4.9      Title to Properties and Assets; Liens, Etc.......................8

      4.10     Intellectual Property............................................8

      4.11     Compliance with Other Instruments................................9

      4.12     Litigation.......................................................9

      4.13     Tax Returns and Payments.........................................9

      4.14     Employees.......................................................10

      4.15     Registration Rights and Voting Rights...........................10

      4.16     Compliance with Laws; Permits...................................11

      4.17     Environmental and Safety Laws...................................11

      4.18     Valid Offering..................................................11

      4.19     Full Disclosure.................................................11

      4.20     Insurance.......................................................12

      4.21     SEC Reports.....................................................12

      4.22     Listing.........................................................12

      4.23     No Integrated Offering..........................................12

      4.24     Stop Transfer...................................................13

      4.25     Dilution........................................................13

      4.26     Patriot Act.................................................... 12

 

5.     Representations and Warranties of the Purchaser.........................13

      5.1      No Shorting.....................................................13

      5.2      Requisite Power and Authority...................................14

      5.3      Investment Representations......................................14

      5.4      Purchaser Bears Economic Risk...................................14

      5.5      Acquisition for Own Account.....................................14

      5.6      Purchaser Can Protect Its Interest..............................14

      5.7      Accredited Investor.............................................15

      5.8      Legends.........................................................15

      5.9      Limitation on Acquisition of Common Stock of the Company........14

 

 

                                       i

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6.     Covenants of the Company................................................16

      6.1      Stop-Orders.....................................................16

      6.2      Listing.........................................................16

      6.3      Market Regulations..............................................16

      6.4      Reporting Requirements..........................................16

      6.5      Use of Funds....................................................16

      6.6      Access to Facilities............................................17

      6.7      Taxes...........................................................17

      6.8      Insurance.......................................................17

      6.9      Intellectual Property...........................................18

      6.10     Properties......................................................18

      6.11     Confidentiality.................................................19

      6.12     Required Approvals..............................................19

      6.13     Reissuance of Securities........................................20

      6.14     Opinion.........................................................20

      6.15     Margin Stock....................................................19

      6.16     Restricted Cash Disclosure......................................19

      6.17     Financing Right of First Refusal................................19

 

7.     Covenants of the Purchaser..............................................21

      7.1      Confidentiality.................................................21

      7.2      Non-Public Information..........................................21

       7.3      Other...........................................................20

      7.4      No Shorting.....................................................20

      7.5      Limitation on Acquisition of Common Stock of Company............20

 

8.     Covenants of the Company and Purchaser Regarding Indemnification........22

      8.1      Company Indemnification.........................................22

      8.2      Purchaser's Indemnification.....................................22

 

9.     Conversion of Convertible Note..........................................22

      9.1      Mechanics of Conversion.........................................22

 

10.    Registration Rights.....................................................24

      10.1     Registration Rights Granted.....................................24

      10.2     Offering Restrictions...........................................24

 

11.    Miscellaneous...........................................................24

      11.1     Governing Law...................................................24

      11.2     Survival........................................................25

      11.3     Successors......................................................25

      11.4     Entire Agreement................................................26

      11.5     Severability....................................................26

      11.6     Amendment and Waiver............................................26

      11.7     Delays or Omissions.............................................26

      11.8     Notices.........................................................26

      11.9     Attorneys' Fees.................................................27

      11.10    Titles and Subtitles............................................27

      11.11    Facsimile Signatures; Counterparts..............................27

      11.12    Broker's Fees...................................................28

 

 

                                       ii

 

<PAGE>

 

      11.13    Construction....................................................28

 

                                LIST OF EXHIBITS

--------------------------------------------------------------------------------

Form of Convertible Term Note...................................      Exhibit A

Form of Warrant.................................................      Exhibit B-1

Form of Option                                                        Exhibit B-2

Form of Opinion.................................................      Exhibit C

Form of Escrow Agreement........................................      Exhibit D

 

 

                                      iii

<PAGE>

 

                          SECURITIES PURCHASE AGREEMENT

 

      THIS SECURITIES   PURCHASE AGREEMENT (this "Agreement") is made and entered

into as of March 9, 2005,   by and between   FAST EDDIE   RACING   STABLES,   INC., a

Florida   corporation   (the   "Company"),   and Laurus Master Fund,   Ltd., a Cayman

Islands company (the "Purchaser").

 

                                    RECITALS

 

      WHEREAS,   the   Company   has   authorized   the   sale to the   Purchaser   of a

Convertible Term Note in the aggregate principal amount of Three Million Dollars

($3,000,000)   (as   amended,   modified   or   supplemented   from time to time,   the

"Note"),   which Note is convertible   into shares of the Company's   common stock,

$0.01 par value per share (the "Common   Stock") at an initial   fixed   conversion

price of $ 0.83 per share of Common Stock ("Fixed Conversion Price");

 

      WHEREAS,   the Company   wishes to issue (x) a warrant to the   Purchaser   to

purchase   up to   1,084,338   shares of the   Company's   Common   Stock   (subject to

adjustment   as set forth   therein)   and (y) an option to   purchase up to 643,700

shares   of the   Company's   Common   Stock   (subject   to   adjustment   as set forth

therein) in connection with Purchaser's purchase of the Note;

 

      WHEREAS, Purchaser desires to purchase the Note, the Option (as defined in

Section 2) and the Warrant (as defined in Section 2) on the terms and conditions

set forth herein; and

 

      WHEREAS,   the Company   desires to issue and sell the Note,   the Option and

Warrant to Purchaser on the terms and conditions set forth herein.

 

                                    AGREEMENT

 

         NOW,   THEREFORE,   in   consideration   of the foregoing   recitals and the

mutual promises, representations, warranties and covenants hereinafter set forth

and for other good and valuable   consideration,   the receipt and   sufficiency of

which are hereby acknowledged, the parties hereto agree as follows:

 

      1.   Agreement to Sell and Purchase.   Pursuant to the terms and   conditions

set forth in this Agreement,   on the Closing Date (as defined in Section 3), the

Company   agrees to sell to the   Purchaser,   and the   Purchaser   hereby agrees to

purchase   from   the   Company,   a   Note   in the   aggregate   principal   amount   of

$3,000,000   convertible in accordance   with the terms thereof into shares of the

Company's   Common   Stock   in   accordance   with   the   terms   of the Note and this

Agreement.   The   Note   purchased   on the   Closing   Date   shall   be   known as the

"Offering."   A form of the Note is   annexed   hereto as   Exhibit A. The Note will

mature on the Maturity   Date (as defined in the Note).   Collectively,   the Note,

the Option and Warrant and Common   Stock   issuable in payment of the Note,   upon

conversion   of the Note and upon   exercise   of the   Warrant   and the   Option are

referred to as the "Securities."

 

      2. Fees, Option and Warrant. On the Closing Date:

 

            (a) The Company will issue and deliver to the Purchaser a Warrant to

      purchase up to   1,084,338   shares of Common Stock in   connection   with the

      Offering (as

 

 

                                      D-1

<PAGE>

 

      amended,   modified   or   supplemented   from   time to time,   the   "Warrant")

      pursuant to Section 1 hereof. The Warrant must be delivered on the Closing

      Date.   A form of   Warrant   is   annexed   hereto   as   Exhibit   B-1.   All the

      representations, covenants, warranties, undertakings, and indemnification,

      and other rights made or granted to or for the benefit of the Purchaser by

      the Company are hereby also made and granted in respect of the Warrant and

      shares of the Company's Common Stock issuable upon exercise of the Warrant

      (the "Warrant Shares").

 

            (b) The Company will issue and deliver to the Purchaser an Option to

      purchase   up to   643,700   shares of Common   Stock in   connection   with the

      Offering   (as amended,   modified or   supplemented   from time to time,   the

       "Option")   pursuant to Section 1 hereof.   The Option must be   delivered on

      the Closing   Date. A form of the Option is annexed   hereto as Exhibit B-2.

      All   the   representations,    covenants,    warranties,    undertakings,   and

      indemnification, and other rights made or granted to or for the benefit of

      the   Purchaser   by the Company are hereby also made and granted in respect

      of the Option and   shares of the   Company's   Common   Stock   issuable   upon

      exercise of the Option (the "Option Shares").

 

            (b) Subject to the terms of Section   2(d) below,   the Company   shall

      pay to Laurus Capital   Management,   LLC, the manager of the   Purchaser,   a

      closing   payment in an amount   equal to three and three   quarters   percent

      (3.75%) of the aggregate   principal   amount of the Note. The foregoing fee

      is referred to herein as the "Closing Payment."

 

            (c) The Company shall   reimburse   the   Purchaser for its   reasonable

      expenses   (including legal fees and expenses)   incurred in connection with

      the   preparation   and   negotiation   of   this   Agreement   and   the   Related

      Agreements (as hereinafter   defined),   and expenses incurred in connection

      with   the   Purchaser's   due   diligence   review   of   the   Company   and   its

      Subsidiaries (as defined in Section 4.2) and all related matters.   Amounts

      required   to be paid under this   Section   2(c) will be paid on the Closing

      Date and shall be $52,500 for such   expenses   referred to in this   Section

      2(c).

 

            (d)   The   Closing   Payment   and   the   expenses   referred   to in   the

      preceding   clause (c) (net of   deposits   previously   paid by the   Company)

      shall be paid at closing out of funds held pursuant to a Escrow   Agreement

      (as defined below) and a disbursement letter (the "Disbursement Letter").

 

      3. Closing, Delivery and Payment.

 

            3.1 Closing. Subject to the terms and conditions herein, the closing

of the transactions contemplated hereby (the "Closing"), shall take place on the

date   hereof,   at such time or place as the Company and   Purchaser   may mutually

agree (such date is hereinafter referred to as the "Closing Date").

 

            3.2 Delivery.   Pursuant to the Escrow   Agreement,   at the Closing on

the Closing Date, the Company will deliver to the Purchaser, among other things,

a Note in the form attached as Exhibit A   representing   the aggregate   principal

amount of $3,000,000, a Warrant in

 

 

                                        2

<PAGE>

 

the form attached as Exhibit B-1 in the Purchaser's name representing   1,084,338

Warrant Shares, an Option in the form attached as Exhibit B-2 in the Purchaser's

name   representing   643,700   Option Shares and the Purchaser will deliver to the

Company, among other things, the amounts set forth in the Disbursement Letter by

certified   funds or wire transfer (it being   understood   that   $2,500,000 of the

proceeds   of the Note shall be placed in the   Restricted   Account (as defined in

the Restricted   Account Agreement   referred to below) on the Closing Date and up

to $500,000 of the proceeds of the Note will be utilized   for expenses   incurred

in connection   with the   transactions   referred to in this   Agreement,   with the

remainder of such $500,000 of proceeds to be provided to the Company for working

capital purposes).

 

      4.   Representations   and   Warranties   of the Company.   The Company   hereby

represents and warrants to the Purchaser as follows (which   representations   and

warranties   are   supplemented   by the   Company's   filings   under the   Securities

Exchange Act of 1934 made prior to the date of this Agreement (collectively, the

"Exchange Act Filings"), copies of which have been provided to the Purchaser):

 

            4.1   Organization,   Good   Standing   and   Qualification.   Each of the

Company and each of its   Subsidiaries   is a corporation,   partnership or limited

liability company,   as the case may be, duly organized,   validly existing and in

good standing under the laws of its   jurisdiction of   organization.   Each of the

Company and each of its   Subsidiaries   has the corporate   power and authority to

own and   operate   its   properties   and   assets,   to execute and deliver (i) this

Agreement,   (ii) the Note, the Option and the Warrant to be issued in connection

with this Agreement,   (iii) the Master   Security   Agreement dated as of the date

hereof   between   the   Company,   certain   Subsidiaries   of the   Company   and   the

Purchaser (as amended,   modified or supplemented   from time to time, the "Master

Security   Agreement"),   (iv) the Registration   Rights Agreement   relating to the

Securities dated as of the date hereof between the Company and the Purchaser (as

amended,   modified or supplemented from time to time, the   "Registration   Rights

Agreement"),   (v) the   Subsidiary   Guaranty   dated as of the date hereof made by

certain   Subsidiaries of the Company (as amended,   modified or supplemented from

time to time, the "Subsidiary Guaranty"),   (vi) the Stock Pledge Agreement dated

as of the date hereof among the Company, certain Subsidiaries of the Company and

the   Purchaser   (as amended,   modified or   supplemented   from time to time,   the

"Stock   Pledge   Agreement"),   (vii) the   Escrow   Agreement   dated as of the date

hereof   among the   Company,   the   Purchaser   and the escrow   agent   referred   to

therein,   substantially in the form of Exhibit D hereto (as amended, modified or

supplemented from time to time, the "Escrow   Agreement"),   (viii) the Restricted

Account   Agreement dated as of the date hereof among the Company,   the Purchaser

and North Fork Bank (as amended, modified or supplemented from time to time, the

"Restricted Account Agreement"), (ix) the Restricted Account Side Letter related

to the   Restricted   Account   Agreement   dated as of the date hereof   between the

Company and the Purchaser   (as amended,   modified or   supplemented   from time to

time, the "Restricted Account Side Letter") and (x) all other agreements related

to this   Agreement   and the Note and referred to herein (the   preceding   clauses

(ii) through (x), collectively, the "Related Agreements"), to issue and sell the

Note and the shares of Common Stock   issuable   upon   conversion of the Note (the

"Note   Shares"),   to issue and sell the   Option   and the   Option   Shares and the

Warrant   and the Warrant   Shares,   to issue and sell the Warrant and the Warrant

Shares,   and to carry   out the   provisions   of this   Agreement   and the   Related

Agreements   and to carry on its   business as   presently   conducted.   Each of the

Company and each of its   Subsidiaries   is duly qualified and is authorized to do

business and is in good standing as a

 

 

                                       3

<PAGE>

 

foreign   corporation,   partnership or limited liability company, as the case may

be, in all   jurisdictions   in which   the   nature   of its   activities   and of its

properties (both owned and leased) makes such   qualification   necessary,   except

for   those   jurisdictions   in   which   failure   to do so has not,   or   could   not

reasonably be expected to have,   individually   or in the   aggregate,   a material

adverse effect on the business,   assets,   liabilities,   condition   (financial or

otherwise),    properties,   operations   or   prospects   of   the   Company   and   its

Subsidiaries, taken individually and as a whole (a "Material Adverse Effect").

 

            4.2   Subsidiaries.   Each   direct   and   indirect   Subsidiary   of   the

Company,   the   direct   owner of such   Subsidiary   and its   percentage   ownership

thereof,   is set forth on Schedule   4.2.   For the purpose of this   Agreement,   a

"Subsidiary"   of any person or entity   means (i) a   corporation   or other entity

whose shares of stock or other ownership   interests having ordinary voting power

(other than stock or other ownership   interests having such power only by reason

of the happening of a contingency)   to elect a majority of the directors of such

corporation,   or other persons or entities performing similar functions for such

person or entity, are owned, directly or indirectly, by such person or entity or

(ii) a corporation or other entity in which such person or entity owns, directly

or indirectly, more than 50% of the equity interests at such time.

 

            4.3 Capitalization; Voting Rights.

 

            (a) The   authorized   capital   stock of the   Company,   as of the date

      hereof consists of 100,000,000   shares,   all of which are shares of Common

      Stock,   par value $0.01 per share.   The   authorized   capital stock of each

      Subsidiary of the Company is set forth on Schedule 4.2.

 

             (b) Except as disclosed on Schedule 4.3,   other than: (i) the shares

      reserved for issuance   under the Company's   stock option   plans;   and (ii)

      shares   which may be granted   pursuant to this   Agreement   and the Related

      Agreements,   there are no outstanding options, warrants, rights (including

      conversion or   preemptive   rights and rights of first   refusal),   proxy or

      stockholder agreements,   or arrangements or agreements of any kind for the

      purchase or acquisition from the Company of any of its securities.   Except

      as disclosed on Schedule 4.3,   neither the offer,   issuance or sale of any

      of the Note, the Option or the Warrant, or the issuance of any of the Note

      Shares,   the Option Shares or Warrant Shares,   nor the consummation of any

      transaction   contemplated   hereby   will result in a change in the price or

      number of any securities of the Company   outstanding,   under anti-dilution

      or other similar provisions contained in or affecting any such securities.

 

            (c) All issued and outstanding shares of the Company's Common Stock:

      (i) have been duly   authorized   and validly   issued and are fully paid and

      nonassessable;   and (ii) were   issued in   compliance   with all   applicable

      state and federal laws concerning the issuance of securities.

 

            (d) The rights,   preferences,   privileges   and   restrictions   of the

      shares of the Common Stock are as stated in the Company's   Certificate   of

      Incorporation   (the   "Charter").   The Note Shares,   the Option   Shares and

      Warrant   Shares have been duly and validly   reserved   for   issuance.   When

      issued and paid for in compliance   with the   provisions of this   Agreement

      and the Company's Charter, the Securities will be validly issued, fully

 

 

                                       4

<PAGE>

 

      paid and   nonassessable,   and will be free of any   liens or   encumbrances;

      provided,   however,   that the Securities may be subject to restrictions on

      transfer under state and/or federal securities laws as set forth herein or

      as otherwise required by such laws at the time a transfer is proposed.

 

            4.4 Authorization;   Binding Obligations. All corporate,   partnership

or   limited   liability   company,   as the case may be,   action on the part of the

Company and each of its   Subsidiaries   (including   the   respective   officers and

directors)   necessary for the   authorization   of this   Agreement and the Related

Agreements,    the   performance   of   all   obligations   of   the   Company   and   its

Subsidiaries   hereunder   and under the other   Related   Agreements at the Closing

and, the authorization,   sale, issuance and delivery of the Note, the Option and

Warrant has been taken or will be taken prior to the Closing. This Agreement and

the Related   Agreements,   when   executed and delivered and to the extent it is a

party thereto,   will be valid and binding obligations of each of the Company and

each of its   Subsidiaries,   enforceable   against each such person in   accordance

with their terms, except:

 

            (a) as limited by applicable bankruptcy, insolvency, reorganization,

      moratorium or other laws of general application   affecting   enforcement of

      creditors' rights; and

 

            (b) general   principles of equity that restrict the   availability of

      equitable or legal remedies.

 

The sale of the Note and the subsequent   conversion of the Note into Note Shares

are not and will not be   subject   to any   preemptive   rights   or rights of first

refusal that have not been properly waived or complied with. The issuance of the

Warrant and the   subsequent   exercise of the Warrant for Warrant   Shares and the

issuance of the Option and the subsequent   exercise of the Option for the Option

Shares   are not and will not be subject   to any   preemptive   rights or rights of

first refusal that have not been properly waived or complied with.

 

            4.5 Liabilities. Neither the Company nor any of its Subsidiaries has

any contingent liabilities,   except current liabilities incurred in the ordinary

course of business and liabilities disclosed in any Exchange Act Filings.

 

            4.6 Agreements; Action. Except as set forth on Schedule 4.6 or as

disclosed in any Exchange Act Filings:

 

            (a) there are no agreements, understandings, instruments, contracts,

      proposed   transactions,   judgments,   orders, writs or decrees to which the

      Company   or any of its   Subsidiaries   is a party   or by   which it is bound

      which may   involve:   (i)   obligations   (contingent   or   otherwise)   of, or

      payments to, the Company in excess of $50,000 (other than   obligations of,

      or   payments   to, the Company   arising   from   purchase or sale   agreements

      entered into in the ordinary course of business);   or (ii) the transfer or

      license of any patent, copyright,   trade secret or other proprietary right

      to or from the Company   (other than licenses   arising from the purchase of

      "off   the   shelf"   or   other   standard   products);    or   (iii)   provisions

      restricting the development,   manufacture or distribution of the Company's

      products or services; or (iv) indemnification by

 

 

                                       5

<PAGE>

 

      the Company with respect to infringements of proprietary rights.

 

            (b) Since   December   31,   2004,   neither   the Company nor any of its

      Subsidiaries   has: (i) declared or paid any   dividends,   or   authorized or

      made any   distribution   upon or with respect to any class or series of its

      capital stock;   (ii) incurred any   indebtedness   for money borrowed or any

      other liabilities (other than ordinary course obligations) individually in

      excess of   $50,000   or,   in the case of   indebtedness   and/or   liabilities

      individually   less than $50,000,   in excess of $100,000 in the   aggregate;

      (iii) made any loans or advances to any person not in excess, individually

      or in the aggregate, of $100,000,   other than ordinary course advances for

      travel expenses;   or (iv) sold,   exchanged or otherwise disposed of any of

      its assets or rights, other than the sale of its inventory in the ordinary

      course of business.

 

            (c)   For   the   purposes   of   subsections   (a)   and   (b)   above,   all

      indebtedness,    liabilities,   agreements,    understandings,    instruments,

      contracts   and proposed   transactions   involving the same person or entity

      (including   persons or   entities   the   Company   has reason to believe   are

      affiliated   therewith)   shall be aggregated for the purpose of meeting the

      individual minimum dollar amounts of such subsections.

 

            4.7 Obligations to Related Parties.   Except as set forth on Schedule

      4.7, there are no obligations of the Company or any of its Subsidiaries to

      officers,   directors,   stockholders   or employees of the Company or any of

      its Subsidiaries other than:

 

            (a) for   payment   of   salary   for   services   rendered   and for bonus

      payments;

 

            (b) reimbursement for reasonable   expenses incurred on behalf of the

      Company and its Subsidiaries;

 

            (c) for other standard employee benefits made generally available to

      all employees   (including stock option   agreements   outstanding   under any

      stock option plan approved by the Board of Directors of the Company); and

 

            (d)   obligations   listed in the   Company's   financial   statements or

      disclosed in any of its Exchange Act Filings.

 

Except as described   above or set forth on Schedule   4.7,   none of the officers,

directors   or,   to the   best   of   the   Company's   knowledge,   key   employees   or

stockholders   of the Company or any   members of their   immediate   families,   are

indebted to the Company,   individually or in the aggregate, in excess of $50,000

or have any direct or indirect   ownership   interest   in any firm or   corporation

with which the   Company is   affiliated   or with which the Company has a business

relationship,   or any firm or corporation which competes with the Company, other

than passive   investments in publicly traded companies   (representing   less than

one percent (1%) of such company) which may compete with the Company.   Except as

described   above, no officer,   director or   stockholder,   or any member of their

immediate   families,   is,   directly or   indirectly,   interested   in any material

contract   with   the   Company   and   no   agreements,   understandings   or   proposed

transactions are contemplated between the Company and any such person. Except as

 

 

                                       6

<PAGE>

 

set forth on Schedule   4.7, the Company is not a guarantor or   indemnitor of any

indebtedness of any other person, firm or corporation.

 

            4.8 Changes.   Since   December   31, 2004,   except as disclosed in any

Exchange   Act   Filing   or in any   Schedule   to this   Agreement   or to any of the

Related Agreements, there has not been:

 

            (a) any   change   in the   business,   assets,   liabilities,   condition

      (financial   or   otherwise),   properties,   operations   or   prospects of the

      Company or any of its Subsidiaries, which individually or in the aggregate

      has had, or could   reasonably be expected to have,   individually or in the

      aggregate, a Material Adverse Effect;

 

            (b) any   resignation or termination of any officer,   key employee or

      group of employees of the Company or any of its Subsidiaries;

 

            (c) any material change,   except in the ordinary course of business,

       in the contingent obligations of the Company or any of its Subsidiaries by

      way of guaranty, endorsement, indemnity, warranty or otherwise;

 

            (d) any   damage,   destruction   or loss,   whether   or not   covered by

      insurance,   which   has   had,   or could   reasonably   be   expected   to have,

      individually or in the aggregate, a Material Adverse Effect;

 

            (e)   any   waiver   by the   Company   or any of its   Subsidiaries   of a

      valuable right or of a material debt owed to it;

 

            (f) any direct or   indirect   loans made by the Company or any of its

      Subsidiaries   to any   stockholder,   employee,   officer or   director of the

      Company   or any of its   Subsidiaries,   other   than   advances   made   in the

      ordinary course of business;

 

            (g) any material change in any compensation arrangement or agreement

      with any employee,   officer, director or stockholder of the Company or any

      of its Subsidiaries;

 

            (h) any declaration or payment of any dividend or other distribution

      of the assets of the Company or any of its Subsidiaries;

 

            (i) any labor organization activity related to the Company or any of

      its Subsidiaries;

 

            (j)   any   debt,    obligation   or   liability   incurred,    assumed   or

      guaranteed   by the Company or any of its   Subsidiaries,   except   those for

      immaterial   amounts and for current   liabilities   incurred in the ordinary

      course of business;

 

            (k) any sale,   assignment   or transfer of any   patents,   trademarks,

      copyrights,   trade secrets or other intangible assets owned by the Company

      or any of its Subsidiaries;

 

            (l) any change in any material agreement to which the Company or any

      of its   Subsidiaries   is a party or by which   either the Company or any of

      its Subsidiaries is bound

 

 

                                       7

<PAGE>

 

      which either individually or in the aggregate has had, or could reasonably

      be expected to have,   individually or in the aggregate, a Material Adverse

      Effect;

 

            (m) any other   event or   condition   of any   character   that,   either

      individually or in the aggregate, has had, or could reasonably be expected

      to have, individually or in the aggregate, a Material Adverse Effect; or

 

            (n) any   arrangement   or   commitment   by the   Company   or any of its

      Subsidiaries to do any of the acts described in subsection (a) through (m)

      above.

 

            4.9 Title to Properties and Assets;   Liens, Etc. Except as set forth

on Schedule 4.9, each of the Company and each of its   Subsidiaries   has good and

marketable   title to its properties and assets,   and good title to its leasehold

estates, in each case subject to no mortgage,   pledge, lien, lease,   encumbrance

or charge, other than:

 

            (a) those resulting from taxes which have not yet become delinquent;

 

            (b) minor liens and   encumbrances   which do not   materially   detract

      from the value of the property   subject   thereto or materially   impair the

      operations of the Company or any of its Subsidiaries; and

 

            (c) those   that have   otherwise   arisen   in the   ordinary   course of

      business.

 

All facilities,   machinery,   equipment,   fixtures, vehicles and other properties

owned,   leased or used by the Company and its Subsidiaries are in good operating

condition and repair,   ordinary wear and tear   excepted,   and are reasonably fit

and usable for the purposes   for which they are being used.   Except as set forth

on Schedule 4.9, the Company and its   Subsidiaries   are in   compliance   with all

material terms of each lease to which it is a party or is otherwise bound.

 

            4.10 Intellectual Property.

 

            (a)   Each   of the   Company   and   each   of its   Subsidiaries   owns or

      possesses   sufficient   legal   rights to all patents,   trademarks,   service

      marks, trade names, copyrights,   trade secrets, licenses,   information and

      other proprietary   rights and processes   necessary for its business as now

      conducted   and to the   Company's   knowledge,   as presently   proposed to be

      conducted (the "Intellectual Property"), without any known infringement of

      the   rights of   others.   There are no   outstanding   options,   licenses   or

      agreements of any kind relating to the foregoing   proprietary   rights, nor

      is the   Company   or any of its   Subsidiaries   bound   by or a party   to any

      options,   licenses or   agreements of any kind with respect to the patents,

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

      licenses,   information and other   proprietary   rights and processes of any

      other person or entity other than such licenses or agreements arising from

      the purchase of "off the shelf" or standard products.

 

            (b) Neither the Company nor any of its Subsidiaries has received any

      communications   alleging that the Company or any of its   Subsidiaries   has

      violated   any of the   patents,   trademarks,   service   marks,   trade names,

      copyrights or trade secrets or other

 

 

                                       8

<PAGE>

 

      proprietary   rights of any other   person or entity,   nor is the Company or

      any of its Subsidiaries aware of any basis therefor.

 

            (c) The   Company   does not   believe   it is or will be   necessary   to

      utilize any inventions, trade secrets or proprietary information of any of

      its employees made prior to their   employment by the Company or any of its

      Subsidiaries,    except   for   inventions,    trade   secrets   or   proprietary

      information   that have been   rightfully   assigned to the Company or any of

      its Subsidiaries.

 

            4.11 Compliance with Other Instruments.   Neither the Company nor any

of its Subsidiaries is in violation or default of (x) any term of its Charter or

Bylaws,   or (y) of any   provision   of   any   indebtedness,   mortgage,   indenture,

contract,   agreement or   instrument to which it is party or by which it is bound

or of any judgment,   decree,   order or writ, which violation or default,   in the

case of this   clause   (y),   has had,   or could   reasonably   be expected to have,

either   individually   or in   the   aggregate,   a   Material   Adverse   Effect.   The

execution,   delivery and   performance of and compliance   with this Agreement and

the Related   Agreements to which it is a party, and the issuance and sale of the

Note by the Company and the other Securities by the Company each pursuant hereto

and thereto,   will not, with or without the passage of time or giving of notice,

result in any such   material   violation,   or be in conflict with or constitute a

default   under any such term or   provision,   or   result in the   creation   of any

mortgage,   pledge,   lien,   encumbrance   or charge upon any of the   properties or

assets of the Company or any of its Subsidiaries or the suspension,   revocation,

impairment,   forfeiture or nonrenewal of any permit,   license,   authorization or

approval   applicable   to the Company,   its business or   operations or any of its

assets or properties.

 

            4.12 Litigation.   Except as set forth on Schedule 4.12 hereto, there

is no action,   suit,   proceeding or   investigation   pending or, to the Company's

knowledge,   currently   threatened against the Company or any of its Subsidiaries

that   prevents the Company or any of its   Subsidiaries   from   entering into this

Agreement or the other Related Agreements, or from consummating the transactions

contemplated   hereby   or   thereby,   or which   has had,   or could   reasonably   be

expected to have,   either   individually or in the aggregate,   a Material Adverse

Effect or any change in the current   equity   ownership   of the Company or any of

its Subsidiaries, nor is the Company aware that there is any basis to assert any

of the foregoing.   Neither the Company nor any of its Subsidiaries is a party or

subject to the provisions of any order, writ, injunction,   judgment or decree of

any court or government   agency or   instrumentality.   There is no action,   suit,

proceeding or investigation by the Company or any of its Subsidiaries   currently

pending or which the Company or any of its Subsidiaries intends to initiate.

 

            4.13 Tax Returns and   Payments.   Each of the Company and each of its

Subsidiaries   has filed all tax   returns   (federal,   state   and   local)   due and

required   to be filed by it.   All   taxes   shown   to be due and   payable   on such

returns,   any   assessments   imposed,   and all other taxes due and payable by the

Company or any of its   Subsidiaries on or before the Closing,   have been paid or

will be paid prior to the time they   become   delinquent.   Except as set forth on

Schedule 4.13, neither the Company nor any of its Subsidiaries has been advised:

 

            (a) that any of its returns,   federal,   state or other, have been or

      are being audited as of the date hereof; or

 

 

                                       9

<PAGE>

 

                  (b) of any   deficiency in   assessment or proposed   judgment to

            its federal, state or other taxes.

 

The Company has no knowledge of any liability for any tax to be imposed upon its

properties   or assets as of the date of this   Agreement   that is not   adequately

provided for.

 

            4.14   Employees.   Except as set forth on Schedule 4.14,   neither the

Company nor any of its   Subsidiaries   has any collective   bargaining   agreements

with any of its employees.   There is no labor union organizing   activity pending

or, to the Company's knowledge, threatened with respect to the Company or any of

its Subsidiaries. Except as disclosed in the Exchange Act Filings or on Schedule

4.14,   neither the Company nor any of its Subsidiaries is a party to or bound by

any currently effective employment contract,   deferred compensation arrangement,

bonus plan,   incentive plan, profit sharing plan,   retirement agreement or other

employee compensation plan or agreement. To the Company's knowledge, no employee

of the   Company or any of its   Subsidiaries,   nor any   consultant   with whom the

Company or any of its Subsidiaries   has contracted,   is in violation of any term

of any   employment   contract,   proprietary   information   agreement   or any other

agreement   relating to the right of any such individual to be employed by, or to

contract with, the Company or any of its   Subsidiaries   because of the nature of

the business to be conducted by the Company or any of its   Subsidiaries;   and to

the Company's   knowledge   the continued   employment by the Company or any of its

Subsidiaries of its present employees,   and the performance of the Company's and

its Subsidiaries' contracts with its independent contractors, will not result in

any such   violation.   Neither the Company nor any of its   Subsidiaries   is aware

that any of its employees is obligated under any contract   (including   licenses,

covenants or   commitments of any nature) or other   agreement,   or subject to any

judgment,   decree or order of any court or   administrative   agency,   that   would

interfere with their


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