-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WqR/yDkL4jgzuVHQW5zNnmBZb8BKv2HtlAf+fS9X5eTFH0pSegwY6WUCbEUSEyBW v43l0Wz2lZEAmxoK8KS7vA== 0001019056-04-000914.txt : 20040707 0001019056-04-000914.hdr.sgml : 20040707 20040707140900 ACCESSION NUMBER: 0001019056-04-000914 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040630 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040707 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DONINI INC CENTRAL INDEX KEY: 0001129900 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 223768426 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-32133 FILM NUMBER: 04904077 BUSINESS ADDRESS: STREET 1: 4555 BOUL DES GRANDES PRAIRIES #30 STREET 2: ST LEONARD CITY: MONTREAL QUE ZIP: H1R 1A5 BUSINESS PHONE: 9732264600 MAIL ADDRESS: STREET 1: 425 EAGLE ROCK AVENUE STREET 2: SUITE 200 CITY: ROSELAND STATE: NJ ZIP: 07068 FORMER COMPANY: FORMER CONFORMED NAME: PRS SUB VI INC DATE OF NAME CHANGE: 20001213 8-K/A 1 donini_8ka.txt FORM 8K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ================================================================================ FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 ================================================================================ DATE OF REPORT: June 30, 2004 ------------- DONINI, INC. (formerly PRS Sub VI, Inc.) ------------------------------------------------------ (Exact name of Registrant as specified in its Charter) NEW JERSEY ---------------------------------------------- (State or Other Jurisdiction of Incorporation) 0-32133 ------------------------ (Commission File Number) 22-3768426 ------------------------------------ (IRS Employer Identification Number) 4555 boul, des Grandes Prairies, #304 St. Leonard, Montral, Quebec, Canada H1R1A5 --------------------------------------------------- (Address of Principal Executive offices) (Zip Code) (514) 327-6006 ------------------------------ Registrant's Telephone Number, Including Area Code ITEM 1. CHANGES IN CONTROL OF REGISTRANT. Not Applicable. ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. Not Applicable. ITEM 3. BANKRUPTCY OR RECEIVERSHIP. Not Applicable. ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT. There has been no change in the accountants for the Company. ITEM 5. OTHER EVENTS The Registrant has undergone the following significant event: On June 7, 2004, the Company entered into a Security Purchase Agreement with Global Capital Funding Group, L.P., of Cumming, Georgia, (Global) whereby Global purchased a $1,500,000 convertible Note from the Company. The Note was purchased at 80% of par and has a three year term. The Note is redeemable and convertible at a price to be determined at any time ninety (90) days after closing. The Note is secured by the Company's accounts receivable, general intangibles, inventory, fixed assets and equipment. The Company also issued a Warrant to purchase 500,000 shares of Common Stock exercisable at 110% of the closing bid price of the Common Stock on the day prior to closing. ITEM 6. RESIGNATION OF OFFICERS AND DIRECTORS. Not Applicable. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. Exhibit 99.1 Form of Stock Purchase Agreement dated June 7, 2004. Exhibit 99.2 Form of Common Stock Purchase Warrant dated June 7, 2004. Exhibit 99.3 Form of Security Agreement dated June 7, 2004. ITEM 8. CHANGE IN FISCAL YEAR. Not Applicable. 2 ================================================================================ Signatures Pursuant to the requirements of the Securities Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Donini, Inc. June 30, 2004 By: /s/ PETER DEROS ------------------------------------ President and Chief Executive Officer ================================================================================ 3 EX-99.1 2 ex99_1.txt EXHIBIT 99.1 SECURITIES PURCHASE AGREEMENT dated as of June 7, 2004 by and between Donini, Inc. as the Issuer, and GLOBAL CAPITAL FUNDING GROUP, L.P. Schedule 2.2 Allocation of Purchase Price 1. $1,500,000 Principal Amount Convertible Note for a purchase price equal to $______________. 2. Warrant to purchase 500,000 shares of Common Stock of the Company for a purchase price equal to $____________. TABLE OF CONTENTS
ARTICLE I. DEFINITIONS.....................................................................1 Section 1.1 Definitions..............................................................1 Section 1.2 Accounting Terms and Determinations......................................9 ARTICLE II. PURCHASE AND SALE OF SECURITIES.................................................9 Section 2.1 Purchase and Sale of Convertible Note....................................9 Section 2.2 Purchase Price...........................................................9 Section 2.3 Closing and Mechanics of Payment.........................................9 ARTICLE III. PAYMENT TERMS OF CONVERTIBLE NOTE..............................................10 Section 3.1 Payment of Principal; Payment Mechanics.................................10 Section 3.2 Intentionally Omitted...................................................10 Section 3.3 Voluntary Redemption....................................................10 Section 3.4 Mandatory Redemption....................................................10 Section 3.5 Redemption Procedures...................................................11 ARTICLE IV. REPRESENTATIONS AND WARRANTIES..................................................12 Section 4.1 Organization and Qualification..........................................12 Section 4.2 Authorization and Execution.............................................12 Section 4.3 Capitalization .........................................................12 Section 4.4 Governmental Authorization..............................................13 Section 4.5 Issuance of Shares......................................................13 Section 4.6 No Conflicts............................................................13 Section 4.7 Financial Information...................................................14 Section 4.8 Litigation..............................................................14 Section 4.9 Compliance with ERISA and other Benefit Plans...........................14 Section 4.10 Environmental Matters...................................................15 Section 4.11 Taxes...................................................................15 Section 4.12 Investments, Joint Ventures.............................................15 Section 4.13 Not an Investment Company...............................................16 Section 4.14 Full Disclosure.........................................................16 Section 4.15 No Solicitation; No Integration with Other Offerings....................16 Section 4.16 Permits.................................................................16 Section 4.17 Leases..................................................................16 Section 4.18 Absence of Any Undisclosed Liabilities or Capital Calls.................16 Section 4.19 Public Utility Holding Company..........................................17 Section 4.20 Intellectual Property Rights............................................17 Section 4.21 Insurance...............................................................17 Section 4.22 Title to Properties.....................................................17 Section 4.23 Internal Accounting Controls............................................17 Section 4.24 Foreign Practices.......................................................17
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ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER.....................................18 Section 5.1 Purchaser...............................................................18 ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES..................................19 Section 6.1 Conditions Precedent to Purchaser's Obligations to Purchase.............19 Section 6.2 Conditions to the Company's Obligations.................................21 ARTICLE VII. AFFIRMATIVE COVENANTS..........................................................21 Section 7.1 Information.............................................................21 Section 7.2 Payment of Obligations..................................................22 Section 7.3 Maintenance of Property; Insurance......................................22 Section 7.4 Maintenance of Existence................................................22 Section 7.5 Compliance with Laws....................................................22 Section 7.6 Inspection of Property, Books and Records...............................23 Section 7.7 Investment Company Act..................................................23 Section 7.8 Use of Proceeds.........................................................23 Section 7.9 Compliance with Terms and Conditions of Material Contracts..............23 Section 7.10 Reserved Shares and Listings............................................23 Section 7.11 Transfer Agent Instructions.............................................24 Section 7.12 Maintenance of Reporting Status; Supplemental Information...............24 Section 7.13 Form D; Blue Sky Laws...................................................25 ARTICLE VIII. NEGATIVE COVENANTS.............................................................25 Section 8.1 Limitations on Debt or Other Liabilities................................25 Section 8.2 Transactions with Affiliates............................................25 Section 8.3 Merger or Consolidation.................................................25 Section 8.4 Limitation on Asset Sales...............................................26 Section 8.5 Restrictions on Certain Amendments......................................26 Section 8.6 Restrictions on Issuances of Securities.................................26 Section 8.7 Limitation on Stock Repurchases.........................................27 Section 8.8 No Short Sales..........................................................27 ARTICLE IX. RESTRICTIVE LEGENDS............................................................28 Section 9.1 Restrictions on Transfer................................................28 Section 9.2 Legends.................................................................28 Section 9.3 Notice of Proposed Transfers............................................28 ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES........................................28 Section 10.1 Liquidated Damages......................................................28 Section 10.2 Conversion Notice.......................................................29 Section 10.3 Conversion Limit........................................................29 Section 10.4 Registration Rights.....................................................30
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ARTICLE XI. ADJUSTMENT OF FIXED PRICE......................................................31 Section 11.1 Reorganization..........................................................31 Section 11.2 Share Reorganization....................................................31 Section 11.3 Rights Offering.........................................................32 Section 11.4 Special Distribution....................................................33 Section 11.5 Capital Reorganization..................................................33 Section 11.6 Purchase Price Adjustments..............................................34 Section 11.7 Adjustment Rules........................................................34 Section 11.8 Certificate as to Adjustment............................................35 Section 11.9 Notice to Holders.......................................................35 ARTICLE XII. EVENTS OF DEFAULT..............................................................36 Section 12.1 Events of Default.......................................................36 Section 12.2 Powers and Remedies Cumulative..........................................38 ARTICLE XIII. MISCELLANEOUS..................................................................38 Section 13.1 Notices.................................................................38 Section 13.2 No Waivers; Amendments..................................................38 Section 13.3 Indemnification.........................................................39 Section 13.4 Expenses: Documentary taxes............................................41 Section 13.5 Payment.................................................................41 Section 13.6 Successors and Assigns..................................................41 Section 13.7 Brokers.................................................................41 Section 13.8 New Jersey Law; Submission to Jurisdiction; Waiver of Jury Trial; Appointment of Agent....................................................42 Section 13.9 Entire Agreement........................................................42 Section 13.10 Survival; Severability..................................................42 Section 13.11 Title and Subtitles.....................................................42 Section 13.12 Reporting Entity for the Common Stock. ................................42 Section 13.13 Publicity...............................................................42
iii LIST OF SCHEDULES Schedule 2.2 Allocation of Purchase Price Schedule 4.3 Capitalization Schedule 4.7 Financial Information Schedule 4.8 Litigation Schedule 4.12 Investments, Joint Ventures Schedule 7.8 Use of Proceeds Schedule 8.2 Transactions with Affiliates iv LIST OF EXHIBITS Exhibit A Form of Convertible Note Exhibit B Form of Registration Rights Agreement Exhibit C Form of Solvency Certificate Exhibit D Form of Officer's Certificate Exhibit E Form of Common Stock Purchase Warrant v SECURITIES PURCHASE AGREEMENT AGREEMENT, dated as of June 7, 2004, between Donini, Inc. (the "Company") and Global Capital Funding Group, L.P. ("Purchaser"). R E C I T A L S: WHEREAS, the Company desires to sell and issue to Purchaser, and Purchaser desires to purchase from the Company a $1,500,000 principal amount Convertible Note due May 28, 2007 (the "Convertible Note") in accordance with the terms and conditions as set forth in the form of Convertible Debenture attached hereto as Exhibit A; WHEREAS, the Convertible Note will be convertible into shares of the Company's common stock, $.001 par value per share (the "Common Stock"); WHEREAS, in order to induce the Purchaser to enter into the transactions described in this Agreement, the Company desires to issue to the Purchaser a warrant to purchase 500,000 shares of Common Stock upon the Closing (as defined herein) on the terms and conditions described in the form of the common stock purchase warrant attached hereto as Exhibit E (the "Warrants"); and WHEREAS, Purchaser will have certain registration rights with respect to such shares of Common Stock issuable as interest under, and upon conversion of, the Convertible Note (the "Note Shares") and upon exercise of the Warrants (the "Warrant Shares," the Note Shares and the Warrant Shares being collectively referred to herein as the "Conversion Shares") as set forth in the Registration Rights Agreement in the form attached hereto as Exhibit B; NOW, THEREFORE, in consideration of the foregoing premises and the covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I. DEFINITIONS Section 1.1 Definitions. The following terms, as used herein, have the following meanings: "Additional Shares of Common Stock" has the meaning set forth in Section 11.6. "Affiliate" means, with respect to any Person (the "Subject Person"), (i) any other Person (a "Controlling Person") that directly, or indirectly through one or more intermediaries, Controls the Subject Person or (ii) any other Person (other than the Subject Person or a Consolidated Subsidiary of the Subject Person) which is Controlled by or is under common Control with a Controlling Person. "Agreement" means this Securities Purchase Agreement, as amended, supplemented or otherwise modified from time to time in accordance with its terms. "Asset Sale" has the meaning set forth in Section 8.4. 1 "Balance Sheet Date" has the meaning set forth in Section 4.7. "Benefit Arrangement" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by the Company. "Benefit Plans" has the meaning set forth in Section 4.9(b). "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law to close. "Capital Reorganization" has the meaning set forth in Section 11.5. "Change in Control" means (i) after the date of this Agreement, any person or group of persons (within the meaning of Sections 13 and 14 of the Exchange Act and the rules and regulations of the Commission relating to such sections) other than Purchaser shall have acquired beneficial ownership (within the meaning of Rules 13d-3 and 13d-5 promulgated by the Commission pursuant to the Exchange Act) of 331/3% or more of the outstanding shares of Common Stock of the Company without the prior written consent of Purchaser; (ii) from the Closing Date and continuing for a period of six (6) months thereafter, any sale or other disposition, in a single transaction or in the aggregate, (other than by reason of death or disability) to any Person of more than 75,000 shares of Common Stock of the Company by any executive officers and/or employee directors of the Company without the prior written consent of Purchaser; (iii) individuals constituting the Board of Directors of the Company on the date hereof (together with any new Directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of at least 50.1% of the Directors still in office who are either Directors as of the date hereof or whose election or nomination for election was previously so approved), cease for any reason to constitute at least two-thirds of the Board of Directors of the Company then in office. "Closing Bid Price" shall mean for any security as of any date, the lowest closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the principal securities exchange or trading market where such security is listed or traded or, if the foregoing does not apply, the lowest closing bid price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no lowest trading price is reported for such security by Bloomberg, then the average of the bid prices of any market makers for such securities as reported in the "Pink Sheets" by the National Quotation Bureau, Inc. If the lowest closing bid price cannot be calculated for such security on such date on any of the foregoing bases, the lowest closing bid price of such security on such date shall be the fair market value as mutually determined by Purchaser and the Company for which the calculation of the closing bid price requires, and in the absence of such mutual determination, as determined by the Board of Directors of the Company in good faith. "Closing Date" means the date on which all of the conditions set forth in Sections 6.1 and 6.2 shall have been satisfied and the Convertible Note is issued by the Company to Purchaser. 2 "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission or any entity succeeding to all of its material functions. "Common Stock" means common stock, $.001 par value per share, of the Company. "Company" means Donini, Inc., a New Jersey corporation, and its successors. "Company Corporate Documents" means the certificate of incorporation and bylaws of the Company. "Consolidated Net Worth" means at any date the total shareholder's equity which would appear on a consolidated balance sheet of the Company prepared as of such date. "Consolidated Subsidiary" means at any date with respect to any Person or Subsidiary or other entity, the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date. "Control" (including, with correlative meanings, the terms "Controlling," "Controlled by" and under "common Control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities, by contract or otherwise. "Conversion Date" shall mean the date of delivery (including delivery via telecopy) of a Notice of Conversion for all or a portion of a Convertible Note by the holder thereof to the Company as specified in the Convertible Note. "Conversion Price" has the meaning set forth in the Convertible Note. "Conversion Shares" has the meaning set forth in the Recitals. "Convertible Note" means the Company's Convertible Note substantially in the form set forth as Exhibit A hereto. "Deadline" has the meaning set forth in Section 10.1. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, Note, notes, or other similar instruments issued by such Person, (iii) all obligations of such Person as lessee which (y) are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback transactions, (iv) all reimbursement obligations of such Person in respect of letters of credit or other similar instruments, (v) all Debt of others secured 3 by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person and (vi) all Debt of others Guaranteed by such Person. "Default" means any event or condition which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Derivative Securities" has the meaning set forth in Section 8.6. "Discounted Equity Offerings" has the meaning set forth in Section 8.6. "Directors" means the individuals then serving on the Board of Directors or similar such management council of the Company. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes into the environment, including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes or the cleanup or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA Group" means the Company and each Subsidiary and all members of a controlled group of corporation and all trades or businesses (whether or not incorporated) under common control which, together with the Company or any Subsidiary, are treated as a single employer under the Code. "Event of Default" has the meaning set forth in Article XII hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Financing" means a public or private financing consummated (meaning closing and funding) through the issuance of debt or equity securities (or securities convertible into or exchangeable for debt or equity securities) of the Company, other than Permitted Financings. "Fixed Price(s)" has the meaning set forth in Section 11.1. 4 "GAAP" has the meaning set forth in Section 1.2. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing (whether by virtue of partnership arrangements, by agreement to keep well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain a minimum net worth, financial ratio or similar requirements, or otherwise) any Debt of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or (ii) entered into for the purpose of assuring in any other manner the holder of such Debt of the payment thereof or to protect such holder against loss in respect thereof (in whole or in part); provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term Guarantee used as a verb has a corresponding meaning. "Hazardous Materials" means any hazardous materials, hazardous wastes, hazardous constituents, hazardous or toxic substances or petroleum products (including crude oil or any derivative or fraction thereof), defined or regulated as such in or under any Environmental Laws. "Intellectual Property" has the meaning set forth in Section 4.20. "Investment" means any investment in any Person, whether by means of share purchase, partnership interest, capital contribution, loan, time deposit or otherwise. "Lien" means any lien, mechanic's lien, materialmen's lien, lease, easement, charge, encumbrance, mortgage, conditional sale agreement, title retention agreement, agreement to sell or convey, option, claim, title imperfection, encroachment or other survey defect, pledge, restriction, security interest or other adverse claim, whether arising by contract or under law or otherwise (including, without limitation, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing). "Majority Holders" means (i) as of the Closing Date, Purchaser and (ii) at any time thereafter, the holders of more than 50% in aggregate principal amount of the Convertible Note outstanding at such time. "Market Price" shall mean the Closing Bid Price of the Common Stock preceding the date of determination. "Maturity Date" shall mean the date of maturity of the Convertible Note. "Maximum Number of Shares" shall mean that percentage that the Company may issue without shareholder approval under the applicable rules of a National Market or equivalent entity, of the then issued and outstanding shares of Common Stock of the Company as of the applicable date of determination, or such greater 5 number of shares as the stockholders of the Company may have previously approved. "NASD" has the meaning set forth in Section 7.10. "Nasdaq Small Cap" means the Nasdaq Small Cap Market. "National Market" means the Nasdaq Market, the Nasdaq Small Cap Market, the New York Stock Exchange, Inc. or the American Stock Exchange, Inc. "Net Cash Proceeds" means, with respect to any transaction, the total amount of cash proceeds received by the Company or any Subsidiary less (i) reasonable underwriters' fees, brokerage commissions, reasonable professional fees and other customary out-of-pocket expenses payable in connection with such transaction, and (ii) in the case of dispositions of assets, (A) actual transfer taxes (but not income taxes) payable with respect to such dispositions, and (B) the amount of Debt, if any, secured by a Lien on the asset or assets disposed of and required to be, and actually repaid by the Company or any Subsidiary in connection therewith, and any trade payables specifically relating to such asset or assets sold by the Company or any Subsidiary that are not assumed by the purchaser of such asset or assets. "Notice of Conversion" means the form to be delivered by a holder of the Convertible Note upon conversion of all or a portion thereof to the Company substantially in the form of Exhibit A to the form of Convertible Note. "Notice of Exercise" means the form to be delivered by a holder of a Warrant upon exercise of all or a portion thereof to the Company substantially in the form of Exhibit A to the Warrant. "Officer's Certificate" shall mean a certificate executed by the president, chief executive officer or chief financial officer of the Company in the form of Exhibit D attached hereto. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Permits" means all domestic and foreign licenses, franchises, grants, authorizations, permits, easements, variances, exemptions, consents, certificates, orders and approvals necessary to own, lease and operate the properties of, and to carry on the business of the Company and the Subsidiaries. "Permitted Financings" has the meaning set forth in Section 8.6. "Person" means an individual, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock Company, government (or any agency or political subdivision thereof) or other entity of any kind. 6 "Plan" means at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under the Code and either (i) is maintained, or contributed to, by any member of the ERISA group for employees of any member of the ERISA group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA group for employees of the Person which was at such time a member of the ERISA Group. "Purchase Price" means the purchase price for the Securities set forth in Section 2.2 hereof. "Purchaser" means the entity listed on the signature page hereto and its successors and assigns, including holders from time to time of the Convertible Note. "Recourse Financing" means Debt of the Company or any Subsidiary which, by its terms, does not bar the lender thereof from action against the Company or any Subsidiary, as borrower or guarantor, if the security value of the project or asset pledged in respect thereof falls below the amount required to repay such Debt. "Redemption Event" has the meaning set forth in Section 3.4. "Registrable Securities" has the meaning set forth in Section 10.4(a). "Registration Default" has the meaning set forth in Section 10.4(e). "Registration Statement" has the meaning set forth in Section 10.4(b). "Registration Rights Agreement" means the agreement between the Company and Purchaser dated the date hereof substantially in the form set forth in Exhibit B attached hereto. "Required Effectiveness Date" has the meaning set forth in Section 10.4(b). "Reserved Amount" has the meaning set forth in Section 7.10(a). "Restricted Payment" means, with respect to any Person, (i) any dividend or other distribution on any shares of capital stock of such Person (except dividends payable solely in shares of capital stock of the same or junior class of such Person and dividends from a wholly-owned direct or indirect Subsidiary of the Company to its parent corporation), (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of such Person's capital stock or (b) any option, warrant or other right to acquire shares of such Person's capital stock or (iii) any loan, or advance or capital contribution to any Person (a "Stockholder") owning any capital stock of such Person other than relocation, travel or like advances to officers and employees in the ordinary course of business, and other than reasonable compensation as determined by the Board of Directors. "Rights Offering" has the meaning set forth in Section 11.3. 7 "Sale Event" has the meaning set forth in Section 3.4. "SEC Reports" has the meaning set forth in Section 7.1(a). "Securities" means the Convertible Note, the Warrants and, as applicable, the Conversion Shares. "Securities Act" means the Securities Act of 1933, as amended. "Security Agreement" has the meaning set forth in the recitals. "Share Reorganization" has the meaning set forth in Section 11.2. "Solvency Certificate" shall mean a certificate executed by the chief financial officer or treasurer of the Company as to the solvency of the Company, the adequacy of its capital and its ability to pay its debts, all after giving effect to the issuance and sale of the Convertible Note and the completion of the offering (including without limitation the payment of any fees or expenses in connection therewith), which such Solvency Certificate shall be in the form of Exhibit C attached hereto. "Special Distribution" has the meaning set forth in Section 11.4. "Subsidiary" means, with respect to any Person, any corporation or other entity of which (x) a majority of the capital stock or other ownership interests having ordinary voting power to elect a majority of the Board of Directors or other persons performing similar functions are at the time directly or indirectly owned by such Person or (y) the results of operations, the assets and the liabilities of which are consolidated with such Person under GAAP. "Subsidiary Corporate Documents" means the certificates of incorporation and bylaws of each Subsidiary. "Trading Day" shall mean any Business Day in which the National Market or other automated quotation system or exchange on which the Common Stock is then traded is open for trading for at least four (4) hours. "Transaction Agreements" means this Agreement, the Convertible Note, the Warrants, the Registration Rights Agreement and the other agreements contemplated by this Agreement. "Transfer" means any disposition of Securities that would constitute a sale thereof under the Securities Act. "Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the present value of all benefits under Plan 8 exceeds (ii) the fair market value of all Plan assets allocable to such benefits (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "Warrant" means the Common Stock Purchase Warrant substantially in the form set forth in Exhibit E hereto. Section 1.2 Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with generally accepted accounting principles as in effect from time to time, applied on a consistent basis (except for changes concurred in by the Company's independent public accountants) ("GAAP"). All references to "dollars," "Dollars" or "$" are to United States dollars unless otherwise indicated. ARTICLE II. PURCHASE AND SALE OF SECURITIES Section 2.1 Purchase and Sale of Convertible Note. (a) Subject to the terms and conditions set forth herein, the Company agrees to issue and sell to Purchaser, and Purchaser agrees to purchase from the Company, the Convertible Note. (b) Purchaser shall acquire the Convertible Note on the Closing Date in an aggregate principal amount of One Million Five Hundred Thousand Dollars ($1,500,000.00). (c) In connection with the Purchaser's agreement to purchase the Convertible Note specified in this Article II, the Company shall issue and deliver to the Purchaser on the Closing Date a Warrant to purchase an aggregate of 500,000 shares of Common Stock. Section 2.2 Purchase Price. The purchase price (the "Purchase Price") for the Convertible Note and the Warrants on the Closing Date shall be $1,200,000.00 and shall be allocated as set forth in Schedule 2.2. Section 2.3 Closing and Mechanics of Payment. (a) The Purchase Price shall be paid on the Closing Date by wire transfer of immediately available funds. (b) The Convertible Note and Warrants issued on the Closing Date shall be dated the date hereof. 9 ARTICLE III. PAYMENT TERMS OF CONVERTIBLE NOTE Section 3.1 Payment of Principal; Payment Mechanics. The Company will pay all amounts due on the Convertible Note by the method and at the address specified for such purpose by Purchaser in writing, without the presentation or surrender of the Convertible Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of this Convertible Note, the holder shall surrender the Convertible Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office. Prior to any sale or other disposition of the Convertible Note, the holder thereof will, at its election, either endorse thereon the amount of principal paid thereon or surrender the Convertible Note to the Company in exchange for a new Convertible Note. The Company will afford the benefits of this Section 3.1 to any direct or indirect transferee of the Convertible Note purchased under this Agreement and that has made the same agreement relating to this Convertible Note as Purchaser has in this Section 3.1; provided, that such transferee is an "accredited investor" under Rule 501 of the Securities Act. Section 3.2 Intentionally Omitted. Section 3.3 Voluntary Redemption. For so long as no Event of Default shall have occurred or is continuing, the Company may, at its option, repay, in whole or in part, the Convertible Note, as set forth in Section 3 of Exhibit A hereto, following at least seven (7) Business Days prior written notice to Purchaser (the day of expiration of such seven (7) Business Day period being referred to as the "prepayment date"); provided, however, that if such date is not a Business Day, the prepayment date shall be the next Business Day thereafter. Section 3.4 Mandatory Redemption. (a) Upon (i) the occurrence of a Change in Control of the Company, (ii) a transfer of all or substantially all of the assets of the Company to any Person in a single transaction or series of related transactions, or (iii) a consolidation, merger or amalgamation of the Company with or into another Person in which the Company is not the surviving entity (other than a merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock) (each of items (i), (ii) and (iii) being referred to as a "Sale Event"), then, in each case, the Company shall, upon request of the Majority Holders, redeem the Convertible Note and Warrant, in accordance with Section 5 of the Convertible Note and Section 14 of the Warrant, respectively. The redemption price payable upon any such redemption shall be the redemption price in Section 5 of the Convertible Note and Section 14 of the Warrant, respectively (referred to herein as the "Formula Price"). (b) Upon the issuance of the Maximum Number of Shares and the failure within 90 days of such issuance to obtain shareholder approval to issue additional shares of Common Stock (the "Redemption 10 Event"), the Company shall redeem the outstanding balance of the Convertible Note and Warrant for the applicable Note and Warrant Formula Price. Section 3.5 Redemption Procedures. (a) Any redemption of the Convertible Note and Warrant, as applicable pursuant to Sections 3.3 or 3.4 above shall be deemed to be effective and consummated (for purposes of determining the redemption price, the Formula Price and the time at which Purchaser shall thereafter not be entitled to deliver a Notice of Conversion for the Convertible Note) as follows: (i) A voluntary redemption pursuant to Section 3.3, seven days following date of the Notice of Redemption delivered by the Company to Purchaser; (ii) A mandatory redemption pursuant to Section 3.4(a), the date of consummation of the applicable Sale Event; and (iii) A redemption pursuant to Section 3.4(b), the date specified in the Convertible Note. (b) On the Maturity Date and on the effective date of a redemption of the Convertible Note and Warrants as specified in Section 3.5(a) above, the Company shall deliver by wire transfer of funds the redemption price to Purchaser of the Convertible Note and Warrants subject to redemption. Should Purchaser not receive payment of any amounts due on redemption of its Convertible Note and Warrants by reason of the Company's failure to make payment at the times prescribed above for any reason, the Company shall pay to the applicable holder on demand (x) interest on the sums not paid when due at an annual rate equal to 12%, until the applicable holder is paid in full and (y) all costs of collection, including, but not limited to, reasonable attorneys' fees and costs, whether or not suit or other formal proceedings are instituted. (c) Should any Convertible Note and Warrants required to be redeemed under the terms hereof not be redeemed solely by reason of limitations imposed by law, the applicable Convertible Note and Warrants shall be redeemed on the earliest possible dates thereafter to the maximum extent permitted by law. (d) Any Notice of Conversion delivered by Purchaser (including delivery via telecopy) to the Company prior to the (x) Maturity Date or (y) effective date of a voluntary redemption pursuant to Section 3.3 or a mandatory redemption pursuant to Section 3.4 as specified in Section 3.5(a) above), shall be honored by the Company and the conversion of the Convertible Note shall be deemed effected on the Conversion Date. In addition, between the effective date of a voluntary redemption pursuant to Section 3.3 or a mandatory redemption pursuant to Section 3.4 as specified in Section 3.5(a) above and the date the 11 Company is required to deliver the redemption proceeds in full to Purchaser, Purchaser may deliver a Notice of Conversion to the Company. Such notice will be (x) of no force or effect if the Company timely pays the redemption proceeds to Purchaser when due or (y) honored on or as of the date of the Notice of Conversion if the Company fails to timely pay the redemption proceeds to Purchaser when due. ARTICLE IV. REPRESENTATIONS AND WARRANTIES The Company represents and warrants to Purchaser, as of the Closing Date, the following: Section 4.1 Organization and Qualification. The Company and each Subsidiary is a corporation (or other legal entity) duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, with full power and authority to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. The Company is qualified to conduct business as a foreign corporation and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except where such failure would not have a Material Adverse Effect. A "Material Adverse Effect" means any material adverse effect on the operations, results of operations, properties, assets or condition (financial or otherwise) of the Company or the Company and its Subsidiaries, taken as a whole, or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith. Section 4.2 Authorization and Execution. (a) The Company has all requisite corporate power and authority to enter into and perform each Transaction Agreement and to consummate the transactions contemplated hereby and thereby and to issue the Securities in accordance with the terms hereof and thereof. (b) The execution, delivery and performance by the Company of each Transaction Agreement and the issuance by the Company of the Securities have been duly and validly authorized and no further consent or authorization of the Company, its Board of Directors or its shareholders is required. (c) This Agreement has been duly executed and delivered by the Company. (d) This Agreement constitutes, and upon execution and delivery thereof by the Company, each of the Transaction Agreements will constitute, a valid and binding agreement of the Company, in each case enforceable against the Company in accordance with its respective terms. 12 Section 4.3 Capitalization. As of the date hereof, the authorized, issued and outstanding capital stock of the Company is as set forth on Schedule 4.3 hereto and except as set forth on Schedule 4.3 no other shares of capital stock of the Company will be outstanding as of the Closing Date. All of such outstanding shares of capital stock are, or upon issuance will be, duly authorized, validly issued, fully paid and nonassessable. No shares of capital stock of the Company are subject to preemptive rights or similar rights of the stockholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. Other than as set forth on Schedule 4.3 hereto, as of the date hereof, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, and (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries are obligated to register the sale of any of its or their securities under the Securities Act (except pursuant to the Registration Rights Agreement) and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Convertible Note or Conversion Shares. The Company has furnished to Purchaser true and correct copies of the Company's Corporate Documents, and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto. Section 4.4 Governmental Authorization. The execution and delivery by the Company of the Transaction Agreements does not and will not, the issuance and sale by the Company of the Securities does not and will not, and the consummation of the transactions contemplated hereby and by the other Transaction Agreements will not, require any action by or in respect of, or filing with, any governmental body, agency or governmental official except (a) such actions or filings that have been undertaken or made prior to the date hereof and that will be in full force and effect (or as to which all applicable waiting periods have expired) on and as of the date hereof or which are not required to be filed on or prior to the Closing Date, (b) such actions or filings that, if not obtained, would not result in a Material Adverse Effect, and (c) the filing of a "Form D" as described in Section 7.13 below. Section 4.5 Issuance of Shares. Upon conversion in accordance with the terms of the Convertible Note and exercise of the Warrants, the Conversion Shares shall be duly and validly issued and outstanding, fully paid and nonassessable, free and clear of any taxes, Liens and charges with respect to issuance and shall not be subject to preemptive rights or similar rights of any other stockholders of the Company. Assuming the representations and warranties of Purchaser herein are true and correct in all material respects, each of the Securities will have been issued in material compliance with all applicable U.S. federal and state securities laws. The Company understands and acknowledges that, in certain circumstances, the issuance of Conversion Shares could dilute the ownership interests of other stockholders of the Company. 13 Section 4.6 No Conflicts. The execution and delivery by the Company of the Transaction Agreements to which it is a party did not and will not, the issuance and sale by the Company of the Securities did not and will not and the consummation of the transactions contemplated hereby and by the other Transaction Agreements will not, contravene or constitute a default under or violation of (i) any provision of applicable law or regulation, (ii) the Company Corporate Documents, (iii) any agreement, judgment, injunction, order, decree or other instrument binding upon the Company or any Subsidiary or any of their respective assets, or result in the creation or imposition of any Lien on any asset of the Company or any Subsidiary. The Company and each Subsidiary is in compliance with and conforms to all statutes, laws, ordinances, rules, regulations, orders, restrictions and all other legal requirements of any domestic or foreign government or any instrumentality thereof having jurisdiction over the conduct of its businesses or the ownership of its properties, except where such failure would not have a Material Adverse Effect. Section 4.7 Financial Information. Since February 29, 2004 (the "Balance Sheet Date"), except as disclosed in Schedule 4.7, there has been (x) no material adverse change in the assets or liabilities, or in the business or condition, financial or otherwise, or in the results of operations or prospects, of the Company and its Subsidiaries, whether as a result of any legislative or regulatory change, revocation of any license or rights to do business, fire, explosion, accident, casualty, labor trouble, flood, drought, riot, storm, condemnation, act of God, public force or otherwise and (y) no material adverse change in the assets or liabilities, or in the business or condition, financial or otherwise, or in the results of operations or prospects, of the Company and its subsidiaries except in the ordinary course of business; and no fact or condition exists or is contemplated or threatened which might cause such a change in the future. The audited and unaudited consolidated balance sheets of the Company and its Subsidiaries for the periods ending May 31, 2002 and 2003, and the related consolidated statements of income, changes in stockholders' equity and changes in cash flows for the periods then ended, including the footnotes thereto, except as indicated therein, (i) complied in all material respects with applicable accounting requirements and (ii) have been prepared in accordance with GAAP consistently applied throughout the periods indicated, except that the unaudited financial statements do not contain notes and may be subject to normal audit adjustments and normal annual adjustments. Such financial statements fairly present the financial condition of the Company and its Subsidiaries at the dates indicated and the consolidated results of their operations and cash flows for the periods then ended and, except as indicated therein, reflect all claims against and all Debts and liabilities of the Company and its Subsidiaries, fixed or contingent. Section 4.8 Litigation. Except as set forth on Schedule 4.8, there is no action, suit or proceeding pending or, to the knowledge of the Company, threatened against the Company or any Subsidiary, before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company or which challenges the validity of any Transaction Agreements. 14 Section 4.9 Compliance with ERISA and other Benefit Plans. (a) Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Code in respect of any Plan, (ii) failed to make any required contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which as resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. (b) The benefit plans not covered under clause (a) above (including profit sharing, deferred compensation, stock option, employee stock purchase, bonus, retirement, health or insurance plans, collectively the "Benefit Plans") relating to the employees of the Company are duly registered where required by, and are in good standing in all material respects under, all applicable laws. All required employer and employee contributions and premiums under the Benefit Plans to the date hereof have been made, the respective fund or funds established under the Benefit Plans are funded in accordance with applicable laws, and no past service funding liabilities exist thereunder. (c) No Benefit Plans have any unfunded liabilities, either on a "going concern" or "winding up" basis and determined in accordance with all applicable laws and actuarial practices and using actuarial assumptions and methods that are reasonable in the circumstances. No event has occurred and no condition exists with respect to any Benefit Plans that has resulted or could reasonably be expected to result in any pension plan having its registration revoked or wound up (in whole or in part) or refused for the purposes of any applicable laws or being placed under the administration of any relevant pension benefits regulatory authority or being required to pay any taxes or penalties (in any material amounts) under any applicable laws. Section 4.10 Environmental Matters. The costs and liabilities associated with Environmental Laws (including the cost of compliance therewith) are unlikely to have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company or any Subsidiary. Each of the Company and the Subsidiaries conducts its businesses in compliance in all material respects with all applicable Environmental Laws. Section 4.11 Taxes. All United States federal, state, county, municipality, local or foreign income tax returns and all other material tax returns (including foreign tax returns) which are required to be filed by or on behalf of the Company and each Subsidiary have been filed and all material taxes due pursuant to such returns or pursuant to any assessment received by the Company and each Subsidiary have been paid except those being disputed in good faith and for which adequate reserves have been established. The charges, accruals and reserves on the books of the Company and each Subsidiary in respect of taxes and other governmental charges have been established in accordance with GAAP. 15 Section 4.12 Investments, Joint Ventures. Other than as set forth in Schedule 4.12, the Company has no Subsidiaries or other direct or indirect Investment in any Person, and the Company is not a party to any partnership, management, shareholders' or joint venture or similar agreement. Section 4.13 Not an Investment Company. Neither the Company nor any Subsidiary is an "Investment Company" within the meaning of Investment Company Act of 1940, as amended. Section 4.14 Full Disclosure. The information heretofore furnished by the Company to Purchaser for purposes of or in connection with this Agreement or any transaction contemplated hereby does not, and all such information hereafter furnished by the Company or any Subsidiary to Purchaser will not (in each case taken together and on the date as of which such information is furnished), contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they are made, not misleading. Section 4.15 No Solicitation; No Integration with Other Offerings. No form of general solicitation or general advertising was used by the Company or, to the best of its actual knowledge, any other Person acting on behalf of the Company, in connection with the offer and sale of the Securities. Neither the Company, nor, to its knowledge, any Person acting on behalf of the Company, has, either directly or indirectly, sold or offered for sale to any Person (other than Purchaser) any of the Securities or, within the six months prior to the date hereof, any other similar security of the Company except as contemplated by this Agreement, and the Company represents that neither itself nor any Person authorized to act on its behalf (except that the Company makes no representation as to Purchaser and their Affiliates) will sell or offer for sale any such security to, or solicit any offers to buy any such security from, or otherwise approach or negotiate in respect thereof with, any Person or Persons so as thereby to cause the issuance or sale of any of the Securities to be in violation of any of the provisions of Section 5 of the Securities Act. The issuance of the Securities to Purchaser will not be integrated with any other issuance of the Company's securities (past, current or future) which requires stockholder approval under the rules of the Nasdaq Small Cap Market. Section 4.16 Permits. (a) Each of the Company and its Subsidiaries has all material Permits; (b) all such Permits are in full force and effect, and each of the Company and its Subsidiaries has fulfilled and performed all material obligations with respect to such Permits; (c) no event has occurred which allows, or after notice of lapse of time would allow, revocation or termination by the issuer thereof or which results in any other material impairment of the rights of the holder of any such Permit; and (d) the Company has no reason to believe that any governmental body or agency is considering limiting, suspending or revoking any such Permit. Section 4.17 Leases. Neither the Company nor any Subsidiary is a party to any capital lease obligation with a value greater than $250,000 or to any operating lease with an aggregate annual rental greater than $250,000 during the life of such lease. 16 Section 4.18 Absence of Any Undisclosed Liabilities or Capital Calls. There are no liabilities of the Company or any Subsidiary of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, and there is no existing condition, situation or set of circumstances which would reasonably be expected to result in such a liability, other than (i) those liabilities provided for in the financial statements delivered pursuant to Section 4.7 and (ii) other undisclosed liabilities which, individually or in the aggregate, would not have a Material Adverse Effect. Section 4.19 Public Utility Holding Company. Neither the Company nor any Subsidiary is, or will be upon issuance and sale of the Securities and the use of the proceeds described herein, subject to regulation under the Public Utility Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate Commerce Act or to any federal or state statute or regulation limiting its ability to issue and perform its obligations under any Transaction Agreement. Section 4.20 Intellectual Property Rights. Each of the Company and its Subsidiaries owns, or is licensed under, and has the rights to use, all material patents, trademarks, trade names, copyrights, technology, know-how and processes (collectively, "Intellectual Property") used in, or necessary for the conduct of its business; no claims have been asserted by any Person to the use of any such Intellectual Property or challenging or questioning the validity or effectiveness of any license or agreement related thereto. To the best of Company's and its Subsidiaries' knowledge, there is no valid basis for any such claim and the use of such Intellectual Property by the Company and its Subsidiaries will not infringe upon the rights of any Person. Section 4.21 Insurance. The Company and its Subsidiaries maintain, with financially sound and reputable insurance companies, insurance in at least such amounts and against such risks such that any uninsured loss would not have a Material Adverse Effect. All insurance coverages of the Company and its Subsidiaries are in full force and effect and there are no past due premiums in respect of any such insurance. Section 4.22 Title to Properties. The Company and its Subsidiaries have good and marketable title to all their respective properties free and clear of all Liens. Section 4.23 Internal Accounting Controls. The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company's Board of Directors, to provide reasonable assurance that (i) transactions are executed in accordance with managements' general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Section 4.24 Foreign Practices. Neither the Company nor any of its Subsidiaries nor, to the Company's knowledge, any employee or agent of the Company or any Subsidiary has made any payments of funds of the Company or 17 Subsidiary, or received or retained any funds, in each case in violation of any law, rule or regulation. ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER Section 5.1 Purchaser. Purchaser hereby represents and warrants to the Company that: (a) Purchaser is an "accredited investor" within the meaning of Rule 501(a) under the Securities Act and the Securities to be acquired by it pursuant to this Agreement are being acquired for its own account and, as of the date hereof, not with a view toward, or for sale in connection with, any distribution thereof except in compliance with applicable United States federal and state securities law; provided that the disposition of Purchaser's property shall at all times be and remain within its control; (b) the execution, delivery and performance of this Agreement and the purchase of the Securities pursuant thereto are within Purchaser's corporate or partnership powers, as applicable, and have been duly and validly authorized by all requisite corporate or partnership action; (c) this Agreement has been duly executed and delivered by Purchaser; (d) the execution and delivery by Purchaser of the Transaction Agreements to which it is a party does not, and the consummation of the transactions contemplated hereby and thereby will not, contravene or constitute a default under or violation of (i) any provision of applicable law or regulation, or (ii) any agreement, judgment, injunction, order, decree or other instrument binding upon Purchaser; (e) Purchaser understands that the Securities have not been registered under the Securities Act and may not be transferred or sold except as specified in this Agreement or the remaining Transaction Agreements; (f) this Agreement constitutes a valid and binding agreement of Purchaser enforceable in accordance with its terms, subject to (i) applicable bankruptcy, insolvency or similar laws affecting the enforceability of creditors rights generally and (ii) equitable principles of general applicability; (g) Purchaser has such knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Securities and Purchaser is capable of bearing the economic risks of such investment; 18 (h) Purchaser is knowledgeable, sophisticated and experienced in business and financial matters; Purchaser fully understands the limitations on transfer described herein; Purchaser has been afforded access to information about the Company and the financial condition, results of operations, property, management and prospects of the Company sufficient to enable it to evaluate its investment in the Securities; Purchaser has been afforded the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and the risks of investing in the Securities; and Purchaser has been afforded the opportunity to obtain such additional information which the Company possesses or can acquire that is necessary to verify the accuracy and completeness of the information given to Purchaser concerning the Company. The foregoing does not in any way relieve the Company of its representations and other undertakings hereunder, and shall not limit Purchaser's ability to rely thereon; and (i) no part of the source of funds used by Purchaser to acquire the Securities constitutes assets allocated to any separate account maintained by Purchaser in which any employee benefit plan (or its related trust) has any interest. ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES Section 6.1 Conditions Precedent to Purchaser's Obligations to Purchase. The obligation of Purchaser hereunder to purchase the Convertible Note at the Closing is subject to the satisfaction, on or before the Closing Date, of each of the following conditions, provided that these conditions are for Purchaser's sole benefit and may be waived by Purchaser at any time in its sole discretion: (a) The Company shall have duly executed this Agreement, the Convertible Note, the Warrant, the Registration Rights Agreement and delivered the same to Purchaser; (b) The Company shall have delivered to Purchaser duly executed certificates representing the Convertible Note and Warrants in accordance with Section 2.3 hereof; (c) The Company shall have delivered the Solvency Certificate; (d) The representations and warranties of the Company contained in each Transaction Agreement shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at such time (except for representations and warranties that speak as of a specified date) and the Company shall have performed, satisfied and complied with all covenants, agreements and conditions required by such Transaction Agreements to be performed, satisfied or complied with by it at or prior to the Closing Date. Purchaser shall have received an Officer's Certificate executed by the chief executive officer of the Company, dated as of the Closing Date, 19 to the foregoing effect and as to such other matters as may be reasonably requested by Purchaser, including but not limited to certificates with respect to the Company Corporate Documents, resolutions relating to the transactions contemplated hereby and the incumbencies of certain officers and directors of the Company. The form of such certificate is attached hereto as Exhibit D; (e) The Company shall have received all governmental, Board of Directors, shareholders and third party consents and approvals necessary or desirable in connection with the issuance and sale of the Securities and the consummation of the transactions contemplated by the Transaction Agreements; (f) All applicable waiting periods in respect to the issuance and sale of the Securities shall have expired without any action having been taken by any competent authority that could restrain, prevent or impose any materially adverse conditions thereon or that could seek or threaten any of the foregoing; (g) No law or regulation shall have been imposed or enacted that, in the judgment of Purchaser, could adversely affect the transactions set forth herein or in the other Transaction Agreements, and no law or regulation shall have been proposed that in the reasonable judgment of Purchaser could reasonably have any such effect; (h) Purchaser shall have received an opinion, dated the Closing Date, of counsel to the Company, in form and substance satisfactory to Purchaser; (i) All fees and expenses due and payable by the Company on or prior to the Closing Date shall have been paid; (j) The Company Corporate Documents and the Subsidiary Corporate Documents, if any, shall be in full force and effect and no term or condition thereof shall have been amended, waived or otherwise modified without the prior written consent of Purchaser; (k) There shall have occurred no material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company or any Subsidiary since the Balance Sheet Date; (l) There shall exist no action, suit, investigation, litigation or proceeding pending or threatened in any court or before any arbitrator or governmental instrumentality that challenges the validity of or purports to affect this Agreement or any other Transaction Agreement, or other transaction contemplated hereby or thereby or that could reasonably be expected to have a Material Adverse Effect, or any material adverse effect on the enforceability of the Transaction Agreements or the Securities or the rights of the holders of the Securities or Purchaser hereunder; 20 (m) There shall not have occurred any disruption or adverse change in the financial or capital markets generally, or in the market for the Common Stock (including but not limited to any suspension or delisting), which Purchaser reasonably deems material in connection with the purchase of the Securities; (n) Immediately before and on the Closing Date, no Default or Event of Default shall have occurred and be continuing; (o) Purchaser shall have received all other opinions, resolutions, certificates, instruments, agreements or other documents as they shall reasonably request; (p) Company shall have delivered to Purchaser the Use of Proceeds Schedule 7.8. Section 6.2 Conditions to the Company's Obligations. The obligations of the Company to issue and sell the Securities to Purchaser pursuant to this Agreement are subject to the satisfaction, at or prior to the Closing Date, of the following conditions: (a) The representations and warranties of Purchaser contained herein shall be true and correct in all material respects on the Closing Date and Purchaser shall have performed and complied in all material respects with all agreements required by this Agreement to be performed or complied with by Purchaser at or prior to the Closing Date; (b) The issue and sale of the Securities by the Company shall not be prohibited by any applicable law, court order or governmental regulation; (c) Receipt by the Company of duly executed counterparts of this Agreement and the Registration Rights Agreement signed by Purchaser; (d) The Company shall have received payment of Purchase Price. ARTICLE VII. AFFIRMATIVE COVENANTS The Company hereby agrees that, from and after the date hereof for so long as any portion of the Convertible Note remains outstanding and for the benefit of Purchaser: Section 7.1 Information. The Company will deliver to each holder of the Convertible Note: (a) promptly upon the filing thereof, copies of (i) all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent), and (ii) all reports of Forms 10-K, 10-Q and 8-K (or other equivalents) which the Company or any Subsidiary has filed with the Commission (collectively, "SEC Reports"); 21 (b) simultaneously with the delivery of each item referred to in clause (a) above, a certificate from the chief financial officer of the Company certifying the accuracy of the financial statements contained in the Company's reports on Forms 10-K and 10-Q (or other equivalents) and stating that no Default or Event of Default has occurred and is continuing, or, if as of the date of such delivery a Default shall have occurred and be continuing, a certificate from the Company setting forth the details of such Default or Event of Default and the action which the Company is taking or proposes to take with respect thereto; (c) within three (3) Business Days after any officer of the Company obtains knowledge of a Default or Event of Default, or that any Person has given any notice or taken any action with respect to a claimed Default hereunder, a certificate of the chief financial officer of the Company setting forth the details thereof and the action which the Company is taking or proposed to take with respect thereto; (d) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed and any other document generally distributed to shareholders; (e) at least two (2) Business Days prior to the consummation of any Financing or other event requiring a repayment of the Convertible Note under Section 3.4, notice thereof together with a summary of all material terms thereof and copies of all documents and instruments associated therewith; (f) notice promptly upon the occurrence of any event by which the Reserved Amount becomes less than 1.5 times the maximum number of Conversion Shares issuable pursuant to the Transaction Agreements; and (g) promptly following the commencement thereof, notice and a description in reasonable detail of any litigation or proceeding to which the Company or any Subsidiary is a party in which the amount involved is $250,000 or more and not covered by insurance or in which injunctive or similar relief is sought. Section 7.2 Payment of Obligations. The Company will, and will cause each Subsidiary to, pay and discharge, at or before maturity, all their respective material obligations, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings and will maintain, in accordance with GAAP, appropriate reserves for the accrual of any of the same. Section 7.3 Maintenance of Property; Insurance. The Company will, and will cause each Subsidiary to, keep all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. In addition, the Company and each Subsidiary will maintain insurance in at least such amounts and against such risks as it has insured against as of the Closing Date. 22 Section 7.4 Maintenance of Existence. The Company will, and will cause each Subsidiary to, continue to engage in business of the same general type as now conducted by the Company and such Subsidiaries, and will preserve, renew and keep in full force and effect its respective corporate existence and their respective material rights, privileges and franchises necessary or desirable in the normal conduct of business. Section 7.5 Compliance with Laws. The Company will, and will cause each Subsidiary to, comply, in all material respects, with all federal, state, municipal, local or foreign applicable laws, ordinances, rules, regulations, municipal by-laws, codes and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) except (i) where compliance therewith is contested in good faith by appropriate proceedings or (ii) where non-compliance therewith could not reasonably be expected, in the aggregate, to have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company or such Subsidiary. Section 7.6 Inspection of Property, Books and Records. The Company will, and will cause each Subsidiary to, keep proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to their respective businesses and activities; and will permit, during normal business hours, Purchaser' Representative or an affiliate thereof, as representatives of Purchaser, and representatives of the Small Business Administration to visit and inspect any of their respective properties, upon reasonable prior notice, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective executive officers and independent public accountants (and by this provision the Company authorizes its independent public accountants to disclose and discuss with Purchaser the affairs, finances and accounts of the Company and its Subsidiaries in the presence of a representative of the Company; provided, however, that such discussions will not result in any unreasonable expense to the Company, without Company consent), all at such reasonable times. Section 7.7 Investment Company Act. The Company will not be or become an open-end investment trust, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act of 1940, as amended. Section 7.8 Use of Proceeds. The proceeds from the issuance and sale of the Convertible Note by the Company shall be used in accordance with Schedule 7.8 attached hereto. None of the proceeds from the issuance and sale of the Convertible Note by the Company pursuant to this Agreement will be used directly or indirectly for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any "margin stock" within the meaning of Regulation G of the Board of Governors of the Federal Reserve System. Section 7.9 Compliance with Terms and Conditions of Material Contracts. The Company will, and will cause each Subsidiary to, comply, in all respects, with all terms and conditions of all material contracts to which it is subject. 23 Section 7.10 Reserved Shares and Listings. (a) The Company shall at all times have authorized, and reserved for the purpose of issuance, a sufficient number of shares of Common Stock to provide for the full conversion of the outstanding Convertible Note and exercise of the Warrants and issuance of the Conversion Shares (based on the conversion price of the Convertible Note in effect from time to time and the exercise price of the Warrants, respectively) (the "Reserved Amount"). The Company shall not reduce the Reserved Amount without the prior written consent of Purchaser. If at any time the number of shares of Common Stock authorized and reserved for issuance is below the number of Conversion Shares issued or issuable upon conversion of the Convertible Note and exercise of the Warrants, the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including, without limitation, either (x) calling a special meeting of shareholders to authorize additional shares, in the case of an insufficient number of authorized shares or (y) in lieu thereof, consummating the immediate repurchase of the Convertible Note and the Warrants contemplated in Section 3.4(c) hereof. (b) The Company will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the Nasdaq Small Cap Market or the National Association of Securities Dealers, Inc. (the "NASD"), as applicable. The Company shall promptly provide to Purchaser copies of any notices it receives regarding the continued eligibility of the Common Stock for listing on the Nasdaq Small Cap Market or any National Market. Section 7.11 Transfer Agent Instructions. Upon receipt of a Notice of Conversion or Notice of Exercise, as applicable, the Company shall immediately direct the Company's transfer agent to issue certificates, registered in the name of Purchaser or its nominee, for the Conversion Shares, in such amounts as specified from time to time by Purchaser to the Company upon proper conversion of the Convertible Note or exercise of the Warrants. Upon conversion of the Convertible Note in accordance with their terms and/or exercise of any Warrants in accordance with their terms, the Company will, and will use its best lawful efforts to cause its transfer agent to, issue one or more certificates representing shares of Common Stock in such name or names and in such denominations specified by a Purchaser in a Notice of Conversion or Notice of Exercise, as the case may be. As long as the Registration Statement contemplated by the Registration Rights Agreement shall remain effective, the shares of Common Stock issuable upon conversion of the Convertible Note or exercise of the Warrants shall be issued to any transferee of such shares from Purchaser without any restrictive legend upon appropriate evidence of transfer in compliance with the Securities Act and the rules and regulations of the Commission; provided that for so long as the Registration Statement is effective, no opinion of counsel will be required to effect any such transfer. The Company further warrants and agrees that no instructions other than these instructions have been or will be given to its transfer agent. Nothing in this Section 7.11 shall affect in any way a Purchaser's obligation to comply with all securities laws applicable to Purchaser upon resale of such shares of Common Stock, including any prospectus delivery requirements. 24 Section 7.12 Maintenance of Reporting Status; Supplemental Information. So long as any of the Securities are outstanding, the Company shall timely file all reports required to be filed with the Commission pursuant to the Exchange Act. The Company shall not terminate its status as an issuer required to file reports under the Exchange Act, even if the Exchange Act or the rules and regulations thereunder would permit such termination. If at anytime the Company is not subject to the requirements of Section 13 or 15(d) of the Exchange Act, the Company will promptly furnish at its expense, upon request, for the benefit of the holders from time to time of Securities, and prospective purchasers of Securities, information satisfying the information requirements of Rule 144 under the Securities Act. Section 7.13 Form D; Blue Sky Laws. The Company agrees to file a "Form D" with respect to the Securities as required under Regulation D of the Securities Act and to provide a copy thereof to Purchaser promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to Purchaser at the Closing pursuant to this Agreement under applicable securities or "blue sky" laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to Purchaser on or prior to the Closing Date. ARTICLE VIII. NEGATIVE COVENANTS The Company and Purchaser hereby agree (as applicable) that after the date hereof for so long as any portion of the Convertible Note remains outstanding and for the benefit of Purchaser and the Company, as applicable; Section 8.1 Limitations on Debt or Other Liabilities. Neither the Company nor any Subsidiary will create, incur, assume or suffer to exist (at any time after the Closing Date, after giving effect to the application of the proceeds of the issuance of the Securities) any Debt except (x) Debt incurred in a Permitted Financing, (y) Debt incurred in connection with equipment leases to which the Company or its Subsidiaries are a party incurred in the ordinary course of business; and (z) Debt incurred in connection with trade accounts payable, imbalances and refunds arising in the ordinary course of business. Section 8.2 Transactions with Affiliates. The Company and each Subsidiary will not, directly or indirectly, pay any funds to or for the account of, make any investment (whether by acquisition or stock or indebtedness, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, and Debt, or otherwise) in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect any transaction in connection with any joint enterprise or other joint arrangement with, any Affiliate, except, (1) pursuant to those agreements specifically identified on Schedule 8.2 attached hereto (with a copy of such agreements annexed to such Schedule 8.2) and (2) on terms to the Company or such Subsidiary no less favorable than terms that could be obtained by the Company or such Subsidiary from a Person that is not an Affiliate of the Company upon negotiation at arms' length, as determined in good 25 faith by the Board of Directors of the Company; provided that no determination of the Board of Directors shall be required with respect to any such transactions entered into in the ordinary course of business. Section 8.3 Merger or Consolidation. The Company will not, in a single transaction or a series of related transactions (i) consolidate with or merge with or into any other Person, or (ii) permit any other Person to consolidate with or merge into it, unless the Company shall be the survivor of such merger or consolidation and (x) immediately before and immediately after given effect to such transaction (including any indebtedness incurred or anticipated to be incurred in connection with the transaction), no Default or Event of Default shall have occurred and be continuing; and (y) the Company has delivered to Purchaser an Officer's Certificate stating that such consolidation, merger or transfer complies with this Agreement, and that all conditions precedent in this Agreement relating to such transaction have been satisfied. Section 8.4 Limitation on Asset Sales. Neither the Company nor any Subsidiary will consummate an Asset Sale of material assets of the Company or any Subsidiary without the prior written consent of Purchaser, which consent shall not be unreasonably withheld. As used herein, "Asset Sale" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) or sales of capital stock of a Subsidiary (other than directors' qualifying shares), property or other assets (each referred to for the purpose of this definition as a "disposition"), including any disposition by means of a merger, consolidation or similar transaction other than a disposition of property or assets at fair market value in the ordinary course of business. Section 8.5 Restrictions on Certain Amendments. Neither the Company nor any Subsidiary will waive any provision of, amend, or suffer to be amended, any provision of such entity's existing Debt, any material contract or agreement previously or hereafter filed by the Company with the Commission as part of its SEC Reports, any Company Corporate Document or Subsidiary Corporate Document if such amendment, in the Company's reasonable judgment, would materially adversely affect Purchaser or the holders of the Securities without the prior written consent of Purchaser. Section 8.6 Restrictions on Issuances of Securities. (a) In addition to and not in lieu of the covenant specified in Section 8.1 above: (1) Beginning on the Closing Date and continuing until 180 days following the date on which the Registration Statement becomes effective, the Company agrees that it will not, without the prior written consent of Purchaser, issue any of its equity securities (or securities convertible into or exchangeable or exercisable for equity securities (the "Derivative Securities")) on terms that allow a holder thereof to acquire such equity securities (or Derivative Securities) at a discount to the Market Price of the Common Stock at the time of issuance or, in the case of Derivative Securities, at a conversion price based on any formula (other than standard anti-dilution provisions) based on the Market Price on a date later than the date of issuance which is below the Market Price on the date of issuance (each such event, a "Discounted Equity Offering") other than (i) borrowings under conventional credit facilities existing as of the date hereof, (ii) stock issued or credit facilities to be established in connection with acquisitions, (iii) equity securities or Derivative Securities in connection with employee and director stock option and stock purchase plans on those certain option agreements set forth on Schedule ___ and (iv) securities issued under the Convertible Note or Warrants. As used herein, "discount" shall include, but not be limited to, (i) any warrant, right or other security granted or offered in connection with such issuance which, on the applicable date of grant, is offered with an exercise or conversion price, as the case may be, at less than the then current Market Price of the Common Stock or, if such security has an exercise or conversion price based on any formula (other than standard 26 anti-dilution provisions) based on the Market Price on a date later than the date of issuance, then at a price below the Market Price on such date of exercise or conversion, as the case may be, or (ii) any commissions, fees or other allowances paid in connection with such issuances (other than customary underwriter or placement agent commissions, fees or allowances). For the purposes of determining the Market Price at which Common Stock is acquired under this Section, normal underwriting commissions and placement fees (including underwriters' warrants) shall be excluded. Notwithstanding the foregoing, the Company may enter into the following types of transactions (collectively referred to as "Permitted Financings"): (1) "permanent financing" transactions, which would include any form of debt or equity financing (other than an underwritten offering), which is followed by a reduction of the said financing commitment to zero and payment of all related fees and expenses; (2) "project financing" which provide for the issuance of recourse debt instruments in connection with the operation of the Company's business as presently conducted or as proposed to be conducted; (3) an underwritten offering of Common Stock, provided that such offering provides for the registration of the Conversion Shares if the Registration Statement has not been declared effective; and (4) other financing transactions specifically consented to in writing by the Purchaser. (2) The 180-day restrictive period set forth in paragraph (1) of this Section 8.6(a) shall be increased by one day for each day a Registration Default has occurred and not been cured by the Company. (b) Until such time as all of the Convertible Note has been either redeemed or converted into Conversion Shares in full, the Company agrees it will not issue any of its equity securities (or Derivative Securities), unless any shares of Common Stock issued or issuable in connection therewith are "restricted securities." As used herein "restricted securities" shall mean securities which may not be sold prior to twelve (12) months following the date of issuance of such securities by virtue of contractual restrictions imposed by the Company or otherwise. 27 Section 8.7 Limitation on Stock Repurchases. Except as otherwise set forth in the Convertible Note and the Warrants, the Company shall not, without the written consent of the Majority Holders, redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) any shares of capital stock of the Company or any warrants, rights or options to purchase or acquire any such shares. Section 8.8 No Short Sales. Purchaser and its Affiliates have not, within the thirty (30) day period prior to the Closing Date, and each agree that it will not, directly or indirectly, engage in any securities transactions to "short" the Company's Common Stock prior to any conversion of the Convertible Note. ARTICLE IX. RESTRICTIVE LEGENDS Section 9.1 Restrictions on Transfer. From and after their respective dates of issuance, none of the Securities shall be transferable except upon the conditions specified in this Article IX, which conditions are intended to ensure compliance with the provisions of the Securities Act in respect of the Transfer of any of such Securities or any interest therein. Purchaser will use its best efforts to cause any proposed transferee of any Securities held by it to agree to take and hold such Securities subject to the provisions and upon the conditions specified in this Article IX. Section 9.2 Legends. The Conversion Shares, upon resale by the Purchaser pursuant to the Registration Statement, shall be freely tradeable and unrestricted. Section 9.3 Notice of Proposed Transfers. Prior to any proposed Transfer of the Securities (other than a Transfer (i) registered or exempt from registration under the Securities Act, (ii) to an affiliate of a Purchaser which is an "accredited investor" within the meaning of Rule 501(a) under the Securities Act, provided that any such transferee shall agree to be bound by the terms of this Agreement and the Registration Rights Agreement, or (iii) to be made in reliance on Rule 144 under the Securities Act), the holder thereof shall give written notice to the Company of such holder's intention to effect such Transfer, setting forth the manner and circumstances of the proposed Transfer, which shall be accompanied by (A) an opinion of counsel reasonably acceptable to the Company, confirming that such transfer does not give rise to a violation of the Securities Act, (B) representation letters in form and substance reasonably satisfactory to the Company to ensure compliance with the provisions of the Securities Act and (C) letters in form and substance reasonably satisfactory to the Company from each such transferee stating such transferee's agreement to be bound by the terms of this Agreement and the Registration Rights Agreement. Such proposed Transfer may be effected only if the Company shall have received such notice of transfer, opinion of counsel, representation letters and other letters referred to in the immediately preceding sentence, whereupon the holder of such Securities shall be entitled to Transfer such Securities in accordance with the terms of the notice delivered by the holder to the Company. 28 ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES Section 10.1 Liquidated Damages. (a) The Company shall cause its transfer agent to, issue and deliver shares of Common Stock consistent with Section 7.11 hereof within four (4) New York Stock Exchange Trading Days of delivery of a Notice of Conversion or Notice of Exercise, as applicable (the "Deadline") to Purchaser (or any party receiving Securities by transfer from Purchaser) at the address of Purchaser set forth in the Notice of Conversion or Notice of Exercise, as the case may be. The Company understands that a delay in the issuance of such certificates after the Deadline could result in economic loss to Purchaser. (b) Without in any way limiting Purchaser's right to pursue other remedies, including actual damages and/or equitable relief, the Company agrees that if delivery of the Conversion Shares is more than one (1) Business Day after the Deadline (other than a failure due to the circumstances described in Section 4.3 of the Convertible Note, which failure shall be governed by such Section) the Company shall pay to Purchaser, as liquidated damages and not as a penalty, $500 for each $100,000 of Convertible Note then outstanding per day in cash, for each of the first ten (10) days beyond the Deadline, and $1,000 for each $100,000 of Convertible Note then outstanding per day in cash for each day thereafter that the Company fails to deliver such Common Stock. Such cash amount shall be paid to Purchaser upon demand, or at the option of Purchaser (by written notice to the Company by the first day of the week following the week in which it has accrued), shall be added to the principal amount of the Convertible Note (if then outstanding) payable to Purchaser. Section 10.2 Conversion Notice. The Company agrees that, in addition to any other remedies which may be available to Purchaser, including, but not limited to, the remedies available under Section 10.1, in the event the Company fails for any reason (other than as a result of actions taken by a Purchaser in breach of this Agreement) to effect delivery to a Purchaser of certificates with or without restrictive legends as contemplated by Article IX representing the shares of Common Stock on or prior to the Deadline after conversion of any Convertible Note or exercise of the Warrants, Purchaser will be entitled, if prior to the delivery of such certificates, to revoke the Notice of Conversion or Notice of Exercise, as applicable, by delivering a notice to such effect to the Company whereupon the Company and Purchaser shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion or Notice of Exercise, as the case may be. Section 10.3 Conversion Limit. Notwithstanding the conversion rights under the Convertible Note, unless Purchaser delivers a waiver in accordance with the immediately following sentence, in no event shall Purchaser be entitled to convert any portion of the Convertible Note, in excess of that portion of the Convertible Note, as applicable, of which the sum of (i) the number of shares of Common Stock beneficially owned by Purchaser and its Affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Convertible Note 29 or other Derivative Securities convertible into or exchangeable for shares of Common Stock which contain a limitation similar to that set forth in this Section 10.3), and (ii) the number of shares of Common Stock issuable upon the conversion of the portion of the Convertible Note with respect to which this determination is being made, would result in beneficial ownership by Purchaser and its Affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of Section 10.3(i) beneficial ownership shall be determined in accordance with Rule 13d-3 of the Exchange Act and Regulations 13 D-G thereunder, except as otherwise provided in this Section 10.3. The foregoing limitation shall not apply and shall be of no further force or effect (i) immediately preceding and upon the occurrence of any voluntary or mandatory redemption or repayment transaction described herein or in the Convertible Note, (ii) immediately preceding and upon any Sale Event, (iii) on the Maturity Date or (iv) following the occurrence of any Event of Default which is not cured for a period of ten (10) calendar days. Section 10.4 Registration Rights. (a) The Company shall grant Purchaser registration rights covering the Conversion Shares (the "Registrable Securities") on the terms set forth in the Registration Rights Agreement and herein. (b) The Company shall prepare and file within forty-five (45) days following the Closing Date (the "Filing Date") a registration statement (the "Registration Statement") covering the resale of the Registrable Securities. The Company shall use its best efforts to cause the Registration Statement to be declared effective by the Commission to be filed on the earlier of (i) 120 days of the Closing Date, (ii) ten business days following the receipt of a "No Review" Letter from the Commission or (iii) the first day following the day the Commission determines the Registration Statement eligible to be declared effective (the "Required Effectiveness Date"). The Company shall pay all expenses of registration (other than underwriting fees and discounts, if any, in respect of Registrable Securities offered and sold under each registration statement by Purchaser). (c) If the Registration Statement is not declared effective by the Required Effectiveness Date, the Company shall pay to Purchaser, as liquidated damages and not as a penalty, an amount equal to two percent (2%) of the principal amount of Convertible Note outstanding for each 30-day period (prorated) until the Registration Statement is declared effective by the Commission through the 360th day following the Closing Date. In the event the Company fails to obtain a valid registration statement by the 360th day following the Closing Date, the Purchaser may require the Company to redeem the Convertible Note and the Warrants as set forth in Section 5 of the Convertible Note and Section 13 of the Warrants, respectively. (d) Any such liquidated damages shall be paid in cash by the Company to Purchaser by wire transfer in immediately available funds on the last day of each calendar week following the event requiring its payment. 30 (e) If, following the declaration of effectiveness of the Registration Statement (or any prospectus or supplemental prospectus contained therein) shall cease to be effective for any reason (including, but not limited to the occurrence of any event that results in any prospectus or supplemental prospectus containing an untrue statement of a material fact or omitting 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), the Company fails to file required amendments to the Registration Statement in order to allow the Purchaser to exercise its rights to receive unrestricted, unlegended, freely tradeable shares of Common Stock, or if for any reason there are insufficient shares of such shares of Common Stock registered under the then current Registration Statement to effect full conversion of the Convertible Note or exercise of the Warrants (each, a "Registration Default"), the Company shall immediately take all necessary steps to cause the Registration Statement to be amended or supplemented so as to cure the Registration Default. Failure to cure a Registration Default within ten (10) Business Days shall result in the Company paying to Purchaser liquidated damages at the rate of one percent (1%) of the outstanding principal amount of Convertible Note for each 30-day period (prorated) the Registration Default remains uncured. (f) In the event that there is an insufficient number of authorized, issuable, unlegended and freely tradeable shares of Common Stock registered under the Registration Statement filed by the Company to fully convert the Convertible Note and exercise all Warrants held by Purchaser and sell such shares issued thereon, then the Company shall immediately file an amendment to the then current registration statement to register a sufficient number of such shares to convert said Convertible Note and Warrants. The failure of the Company to register a sufficient number of such shares to fully convert said Convertible Note and exercise such Warrants shall be a Registration Default under Section 10.4(e). ARTICLE XI. ADJUSTMENT OF FIXED PRICE Section 11.1 Reorganization. The Conversion Price and the exercise price of the Warrants (collectively, the "Fixed Prices") shall be adjusted, as applicable, as hereafter provided. Section 11.2 Share Reorganization. If and whenever the Company shall: (i) subdivide the outstanding shares of Common Stock into a greater number of shares; (ii) consolidate the outstanding shares of Common Stock into a smaller number of shares; (iii) issue Common Stock or securities convertible into or exchangeable for shares of Common Stock as a stock dividend to all or substantially all the holders of Common Stock; or 31 (iv) make a distribution on the outstanding Common Stock to all or substantially all the holders of Common Stock payable in Common Stock or securities convertible into or exchangeable for Common Stock; any of such events being herein called a "Share Reorganization," then in each such case the applicable Fixed Price shall be adjusted, effective immediately after the record date at which the holders of Common Stock are determined for the purposes of the Share Reorganization or, if no record date is fixed, the effective date of the Share Reorganization, by multiplying the applicable Fixed Price in effect on such record or effective date, as the case may be, by a fraction of which: (I) the numerator shall be the number of shares of Common Stock outstanding on such record or effective date (without giving effect to the transaction); and (II) the denominator shall be the number of shares of Common Stock outstanding after giving effect to such Share Reorganization, including, in the case of a distribution of securities convertible into or exchangeable for shares of Common Stock, the number of shares of Common Stock that would have been outstanding if such securities had been converted into or exchanged for Common Stock on such record or effective date. Section 11.3 Rights Offering. If and whenever the Company shall issue to all or substantially all the holders of Common Stock, rights, options or warrants under which such holders are entitled, during a period expiring not more than 45 days after the record date of such issue, to subscribe for or purchase Common Stock (or Derivative Securities), at a price per share (or, in the case of securities convertible into or exchangeable for Common Stock, at an exchange or conversion price per share at the date of issue of such securities) of less than 95% of the Market Price of the Common Stock on such record date (any such event being herein called a "Rights Offering"), then in each such case the applicable Fixed Price shall be adjusted, effective immediately after the record date at which holders of Common Stock are determined for the purposes of the Rights Offering, by multiplying the applicable Fixed Price in effect on such record date by a fraction of which: (i) the numerator shall be the sum of: (I) the number of shares of Common Stock outstanding on such record date; and (II) a number obtained by dividing: (A) either, (x) the product of the total number of shares of Common Stock so offered for subscription or purchase and the price at which such shares are so offered, or (y) the product of the maximum number of shares of Common Stock into or for which the convertible or exchangeable securities so offered for subscription or purchase may be converted or exchanged and the conversion or exchange price of such securities, or, as the case may be, by 32 (B) the Market Price of the Common Stock on such record date; and (ii) the denominator shall be the sum of: (I) the number of shares of Common Stock outstanding on such record date; and (II) the number of shares of Common Stock so offered for subscription or purchase (or, in the case of Derivative Securities, the maximum number of shares of Common Stock for or into which the securities so offered for subscription or purchase may be converted or exchanged). To the extent that such rights, options or warrants are not exercised prior to the expiry time thereof, the applicable Fixed Price shall be readjusted effective immediately after such expiry time to the applicable Fixed Price which would then have been in effect upon the number of shares of Common Stock (or Derivative Securities) actually delivered upon the exercise of such rights, options or warrants. Section 11.4 Special Distribution. If and whenever the Company shall issue or distribute to all or substantially all the holders of Common Stock: (i) shares of the Company of any class, other than Common Stock; (ii) rights, options or warrants; or (iii) any other assets (excluding cash dividends and equivalent dividends in shares paid in lieu of cash dividends in the ordinary course); and if such issuance or distribution does not constitute a Share Reorganization or a Rights Offering (any such event being herein called a "Special Distribution"), then in each such case the applicable Fixed Price shall be adjusted, effective immediately after the record date at which the holders of Common Stock are determined for purposes of the Special Distribution, by multiplying the applicable Fixed Price in effect on such record date by a fraction of which: (I) the numerator shall be the difference between: (A) the product of the number of shares of Common Stock outstanding on such record date and the Market Price of the Common Stock on such date; and (B) the fair market value, as determined by the Directors (whose determination shall be conclusive), to the holders of Common Stock of the shares, rights, options, warrants, evidences of 33 indebtedness or other assets issued or distributed in the Special Distribution (net of any consideration paid therefor by the holders of Common Stock), and (II) the denominator shall be the product of the number of shares of Common Stock outstanding on such record date and the Market Price of the Common Stock on such date. Section 11.5 Capital Reorganization. If and whenever there shall occur: (i) a reclassification or redesignation of the shares of Common Stock or any change of the shares of Common Stock into other shares, other than in a Share Reorganization; (ii) a consolidation, merger or amalgamation of the Company with, or into another body corporate; or (iii) the transfer of all or substantially all of the assets of the Company to another body corporate; (any such event being herein called a "Capital Reorganization"), then in each such case the holder who exercises the right to convert Convertible Note after the effective date of such Capital Reorganization shall be entitled to receive and shall accept, upon the exercise of such right, in lieu of the number of shares of Common Stock to which such holder was theretofore entitled upon the exercise of the conversion privilege, the aggregate number of shares or other securities or property of the Company or of the body corporate resulting from such Capital Reorganization that such holder would have been entitled to receive as a result of such Capital Reorganization if, on the effective date thereof, such holders had been the holder of the number of shares of Common Stock to which such holder was theretofore entitled upon conversion; provided, however, that no such Capital Reorganization shall be consummated in effect unless all necessary steps shall have been taken so that such holders shall thereafter be entitled to receive such number of shares or other securities of the Company or of the body corporate resulting from such Capital Reorganization, subject to adjustment thereafter in accordance with provisions the same, as nearly as may be possible, as those contained above. Section 11.6 Purchase Price Adjustments. In case at any time and from time to time the Company shall issue any shares of Common Stock or Derivative Securities convertible or exercisable for shares of Common Stock (the number of shares so issued, or issuable upon conversion or exercise of such Derivative Securities, as applicable, being referred to as "Additional Shares of Common Stock") for consideration less than the then Market Price at the date of issuance of such shares of Common Stock or such Derivative Securities, in each such case the Conversion Price shall, concurrently with such issuance, be adjusted by multiplying the Conversion Price immediately prior to such event by a fraction: (i) the numerator of which shall be the number of shares of Common 34 Stock outstanding immediately prior to the issuance of such Additional Shares of Common Stock plus the number of shares of Common Stock that the aggregate consideration received by the Company for the total number of such Additional Shares of Common Stock so issued would purchase at the Market Price and (ii) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of Additional Shares of Common Stock plus the number of such Additional Shares of Common Stock so issued or sold. Section 11.7 Adjustment Rules. The following rules and procedures shall be applicable to adjustments made in this Article XI: (a) no adjustment in the applicable Fixed Price shall be required unless such adjustment would result in a change of at least 1% in the applicable Fixed Price then in effect, provided, however, that any adjustments which, but for the provisions of this clause would otherwise have been required to be made, shall be carried forward and taken into account in any subsequent adjustment; (b) if any event occurs of the type contemplated by the adjustment provisions of this Article XI but not expressly provided for by such provisions, the Company will give notice of such event as provided herein, and the Company's board of directors will make an appropriate adjustment in the Fixed Price so that the rights of the holders of the applicable Security shall not be diminished by such event; and (c) if a dispute shall at any time arise with respect to any adjustment of the applicable Fixed Price, such dispute shall be conclusively determined by the auditors of the Company or, if they are unable or unwilling to act, by a firm of independent chartered accountants selected by the Directors and any such determination shall be binding upon the Company and Purchaser. Section 11.8 Certificate as to Adjustment. The Company shall from time to time promptly after the occurrence of any event which requires an adjustment in the applicable Fixed Price deliver to Purchaser a certificate specifying the nature of the event requiring the adjustment, the amount of the adjustment necessitated thereby, the applicable Fixed Price after giving effect to such adjustment and setting forth, in reasonable detail, the method of calculation and the facts upon which such calculation is based. Section 11.9 Notice to Holders. If the Company shall fix a record date for: (a) any Share Reorganization (other than the subdivision of outstanding Common Stock into a greater number of shares or the consolidation of outstanding Common Stock into a smaller number of shares), (b) any Rights Offering, 35 (c) any Special Distribution, (d) any Capital Reorganization (other than a reclassification or redesignation of the Common Stock into other shares), (e) Sale Event; or (f) any cash dividend, the Company shall, not less than 10 days prior to such record date or, if no record date is fixed, prior to the effective date of such event, give to Purchaser notice of the particulars of the proposed event or the extent that such particulars have been determined at the time of giving the notice. ARTICLE XII. EVENTS OF DEFAULT Section 12.1 Events of Default. If one or more of the following events (each an "Event of Default") shall have occurred and be continuing: (a) failure by the Company to pay or repay when due, all or any part of the principal on any of the Convertible Note (whether by virtue of the agreements specified in this Agreement or the Convertible Note); (b) failure by the Company to pay (i) within five (5) Business Days of the due date thereof any Default Interest on the Convertible Note or (ii) within five (5) Business Days following the delivery of notice to the Company of any fees or any other amount payable (not otherwise referred to in (a) above or this clause (b)) by the Company under this Agreement or any other Transaction Agreement; (c) failure by the Company to timely comply with the requirements of Section 7.11 or 10.1 hereof, which failure is not cured within five (5) Business Days of such failure; (d) failure on the part of the Company to observe or perform any covenant contained in Article VIII of this Agreement; (e) failure on the part of the Company to observe or perform any covenant or agreement contained in any Transaction Agreement (other than those covered by clauses (a), (b), (c), or (d) above) for 30 days from the date of such occurrence; (f) the trading in the Common Stock shall have been suspended by the Commission, Nasdaq Small Cap Market or any National Market (except for any suspension of trading of limited duration solely to permit dissemination of material information regarding the Company and except if, at the time there is any suspension on any National Market, the Common Stock is then listed and approved for trading on another National Market within ten (10) Trading Days thereof); 36 (g) reserved; (h) the Company shall have its Common Stock delisted from the Nasdaq Small Cap Market or a National Market for at least ten (10) consecutive Trading Days and is unable to obtain a listing on a National Market within such ten (10) Trading Days; (i) the effectiveness of the Registration Statement shall not be maintained, which results in the Company incurring liquidated damages or a default fee for a period in excess of 30 days; (j) the Company or any Subsidiary has commenced a voluntary case or other proceeding seeking liquidation, winding-up, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency, moratorium or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or has consented to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or has made a general assignment for the benefit of creditors, or has failed generally to pay its debts as they become due, or has taken any corporate action to authorize any of the foregoing; (k) an involuntary case or other proceeding has been commenced against the Company or any Subsidiary seeking liquidation, winding-up, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency, moratorium or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days, or an order for relief has been entered against the Company or any Subsidiary under the federal bankruptcy laws as now or hereafter in effect; (l) default in any provision (including payment) or any agreement governing the terms of any Debt of the Company or any Subsidiary in excess of $1,500,000, which has not been cured within any applicable period of grace associated therewith; (m) judicial judgments or orders for the payment of money which in the aggregate at any one time exceed $500,000 and are not covered by insurance have been rendered against the Company or any Subsidiary by a court of competent jurisdiction and such judgments or orders shall continue unsatisfied and unstayed for a period of 60 days; or (n) any representation, warranty, certification or statement made by the Company in any Transaction Agreement or which is contained in any certificate, document or financial or other statement 37 furnished at any time under or in connection with any Transaction Agreement shall prove to have been untrue in any material respect when made. then, and in every such occurrence, Purchaser may, with respect to an Event of Default specified in paragraphs (a) or (b), and the Majority Holders may, with respect to any other Event of Default, by notice to the Company, declare the Convertible Note to be, and the Convertible Note shall thereon become immediately due and payable; provided that in the case of any of the Events of Default specified in paragraph (j) or (k) above with respect to the Company or any Subsidiary, then, without any notice to the Company or any other act by Purchaser, the entire amount of the Convertible Note shall become immediately due and payable, provided, further, if any Event of Default has occurred and is continuing, and irrespective of whether any Convertible Note has been declared immediately due and payable hereunder, any Purchaser of Convertible Note may proceed to protect and enforce the rights of Purchaser by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Convertible Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise, and provided further, in the case of any Event of Default, the amount declared due and payable on the Convertible Note shall be the Formula Price, plus all accrued and unpaid Default Interest. Section 12.2 Powers and Remedies Cumulative. No right or remedy herein conferred upon or reserved to Purchaser is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Every power and remedy given by the Convertible Note or by law may be exercised from time to time, and as often as shall be deemed expedient, by Purchaser. ARTICLE XIII. MISCELLANEOUS Section 13.1 Notices. All notices, demands and other communications to any party hereunder shall be in writing (including telecopier or similar writing) and shall be given to such party at its address set forth on the signature pages hereof, or such other address as such party may hereafter specify for the purpose to the other parties. Each such notice, demand or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified on the signature page hereof, (ii) if given by mail, four days after such communication is deposited in the mail with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in or pursuant to this Section. 38 Section 13.2 No Waivers; Amendments. (a) No failure or delay on the part of any party in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. (b) Any provision of this Agreement may be amended, supplemented or waived if, but only if, such amendment, supplement or waiver is in writing and is signed by the Company and the Majority Holders; provided, that without the consent of each holder of any Convertible Note affected thereby, an amendment or waiver may not (a) reduce the aggregate principal amount of Convertible Note whose holders must consent to an amendment or waiver, (b) reduce the rate or extend the time for payment of interest on any Convertible Note, (c) reduce the principal amount of or extend the stated maturity of any Convertible Note or (d) make any Convertible Note payable in money or property other than as stated in such Convertible Note. In determining whether the holders of the requisite principal amount of Convertible Note have concurred in any direction, consent, or waiver as provided in any Transaction Agreement, Convertible Note which are owned by the Company or any other obligor on or guarantor of the Convertible Note, or by any Person Controlling, Controlled by, or under common Control with any of the foregoing, shall be disregarded and deemed not to be outstanding for the purpose of any such determination; and provided further that no such amendment, supplement or waiver which affects the rights of Purchaser and their affiliates otherwise than solely in their capacities as holders of Convertible Note shall be effective with respect to them without their prior written consent. Section 13.3 Indemnification. (a) The Company agrees to indemnify and hold harmless Purchaser, its Affiliates, and each Person, if any, who controls Purchaser, or any of its Affiliates, within the meaning of the Securities Act or the Exchange Act (each, a "Controlling Person"), and the respective partners, agents, employees, officers and Directors of Purchaser, their Affiliates and any such Controlling Person (each an "Indemnified Party") and collectively, the "Indemnified Parties"), from and against any and all losses, claims, damages, liabilities and expenses (including, without limitation and as incurred, reasonable costs of investigating, preparing or defending any such claim or action, whether or not such Indemnified Party is a party thereto, provided that the Company shall not be obligated to advance such costs to any Indemnified Party other than Purchaser unless it has received from such Indemnified Party an undertaking to repay to the Company the costs so advanced if it should be determined by final judgment of a court of competent jurisdiction that such Indemnified Party was not entitled to indemnification hereunder with respect to such costs) which may be incurred by such Indemnified Party in connection with any investigative, administrative or judicial proceeding brought or threatened that relates to or arises out of, or is in connection with any activities contemplated by any Transaction Agreement or any other services rendered in connection herewith; provided that the Company will not be responsible for any claims, liabilities, 39 losses, damages or expenses that are determined by final judgment of a court of competent jurisdiction to result from such Indemnified Party's gross negligence, willful misconduct or bad faith. (b) If any action shall be brought against an Indemnified Party with respect to which indemnity may be sought against the Company under this Agreement, such Indemnified Party shall promptly notify the Company in writing and the Company, at its option, may, assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party and payment of all reasonable fees and expenses. The failure to so notify the Company shall not affect any obligations the Company may have to such Indemnified Party under this Agreement or otherwise unless the Company is materially adversely affected by such failure. Such Indemnified Party shall have the right to employ separate counsel in such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party, unless (i) the Company has failed to assume the defense and employ counsel or (ii) the named parties to any such action (including any impleaded parties) include such Indemnified Party and the Company, and such Indemnified Party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the Company, in which case, if such Indemnified Party notifies the Company in writing that it elects to employ separate counsel at the expense of the Company, the Company shall not have the right to assume the defense of such action or proceeding on behalf of such Indemnified Party, provided, however, that the Company shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be responsible hereunder for the reasonable fees and expenses of more than one such firm of separate counsel, in addition to any local counsel, which counsel shall be designated by Purchaser. The Company shall not be liable for any settlement of any such action effected without the written consent of the Company (which shall not be unreasonably withheld) and the Company agrees to indemnify and hold harmless each Indemnified Party from and against any loss or liability by reason of settlement of any action effected with the consent of the Company. In addition, the Company will not, without the prior written consent of Purchaser, settle or compromise or consent to the entry of any judgment in or otherwise seek to terminate any pending or threatened action, claim, suit or proceeding in respect to which indemnification or contribution may be sought hereunder (whether or not any Indemnified Party is a party thereto) unless such settlement, compromise, consent or termination includes an express unconditional release of Purchaser and the other Indemnified Parties, satisfactory in form and substance to Purchaser, from all liability arising out of such action, claim, suit or proceeding. (c) If for any reason the foregoing indemnity is unavailable (otherwise than pursuant to the express terms of such indemnity) to an Indemnified Party or insufficient to hold an Indemnified Party harmless, then in lieu of indemnifying such Indemnified Party, the Company shall contribute to the amount paid or payable by such Indemnified Party as a result of such claims, 40 liabilities, losses, damages, or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and by Purchaser on the other from the transactions contemplated by this Agreement or (ii) if the allocation provided by clause (i) is not permitted under applicable law, in such proportion as is appropriate to reflect not only the relative benefits received by the Company on the one hand and Purchaser on the other, but also the relative fault of the Company and Purchaser as well as any other relevant equitable considerations. Notwithstanding the provisions of this Section 13.3, the aggregate contribution of all Indemnified Parties shall not exceed the amount of interest and fees actually received by Purchaser pursuant to this Agreement. It is hereby further agreed that the relative benefits to the Company on the one hand and Purchaser on the other with respect to the transactions contemplated hereby shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of material fact or the omission or alleged omission to state a material fact related to information supplied by the Company or by Purchaser and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (d) The indemnification, contribution and expense reimbursement obligations set forth in this Section 13.3 (i) shall be in addition to any liability the Company may have to any Indemnified Party at common law or otherwise; (ii) shall survive the termination of this Agreement and the other Transaction Agreements and the payment in full of the Convertible Note and (iii) shall remain operative and in full force and effect regardless of any investigation made by or on behalf of Purchaser or any other Indemnified Party. (e) The Purchaser agrees to indemnify the Company and the respective partners, agents, employees, officers and Directors of Company from and against any and all losses, claims, damages, liabilities and expenses which may be incurred by any aforementioned Person in connection with any investigative, administrative or judicial proceeding that solely relates to or arises out of, or is in connection with any breach by Purchaser of Article V herein. Section 13.4 Expenses: Documentary taxes. The Company has incurred an application fee of $60,000.00 which shall be payable at Closing to the Purchaser's general partner, Global Capital Management Services, Inc. Furthermore, the Company agrees to pay a placement agent fee of $120,000 to vSource 1, Inc. and a consulting fee equal to 1.5% which will be paid by the Company in Common Stock and a warrant for 50,000 shares of Common Stock on the same terms as the Warrant herein. In addition, the Company agrees to pay to Global Capital Advisors, LLC, on the Closing Date, a fee of $15,000.00 (the "Out of Pocket Fee") in full satisfaction of all obligations of the Company to Purchaser and its agents in connection with the negotiation and preparation of the Transaction Agreements, relevant out of pocket due diligence, and legal fees and disbursements. In addition, the Company agrees to pay any and all stamp, transfer and other similar taxes, assessments or charges payable in connection 41 with the execution and delivery of any Transaction Agreement or the issuance of the Securities to Purchaser, excluding their assigns. Section 13.5 Payment. The Company agrees that, so long as Purchaser shall own any Convertible Note purchased by it from the Company hereunder, the Company will make payments to Purchaser of all amounts due thereon by wire transfer by 4:00 P.M. (E.S.T.). Section 13.6 Successors and Assigns. This Agreement shall be binding upon the Company and upon Purchaser and its respective successors and assigns; provided that the Company shall not assign or otherwise transfer its rights or obligations under this Agreement to any other Person without the prior written consent of the Majority Holders. All provisions hereunder purporting to give rights to Purchaser and its affiliates or to holders of Securities are for the express benefit of such Persons and their successors and assigns. Section 13.7 Brokers. Except for vSource 1, Inc., the Company represents and warrants that it has not employed any broker, finder, financial advisor or investment banker who would be entitled to any brokerage, finder's or other fee or commission payable by the Company or Purchaser in connection with the sale of the Securities. Section 13.8 New Jersey Law; Submission to Jurisdiction; Waiver of Jury Trial; Appointment of Agent. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW JERSEY. EACH PARTY HERETO HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR NEW JERSEY AND OF ANY FEDERAL DISTRICT COURT SITTING IN NEW JERSEY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS SET FORTH HEREIN. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. EACH PARTY WAIVES ITS RIGHT TO A TRIAL BY JURY. Section 13.9 Entire Agreement. This Agreement, the Exhibits or Schedules hereto, which include, but are not limited to the Convertible Note, the Warrant and the Registration Rights Agreement, set forth the entire agreement and understanding of the parties relating to the subject matter hereof and supersedes all prior and contemporaneous agreements, negotiations and 42 understandings between the parties, both oral and written relating to the subject matter hereof. The terms and conditions of all Exhibits and Schedules to this Agreement are incorporated herein by this reference and shall constitute part of this Agreement as is fully set forth herein. Section 13.10 Survival; Severability. The representations, warranties, covenants and agreements of the parties hereto shall survive the Closing hereunder. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that such severability shall be ineffective if it materially changes the economic benefit of this Agreement to any party. Section 13.11 Title and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. Section 13.12 Reporting Entity for the Common Stock. The reporting entity relied upon for the determination of the trading price or trading volume of the Common Stock on any given Trading Day for the purposes of this Agreement and all Exhibits shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of the Purchaser and the Company shall be required to employ any other reporting entity. Section 13.13 Publicity. The Company and the Purchaser shall consult with each other in issuing any press releases or otherwise making public statements with respect to the transactions contemplated hereby and no party shall issue any such press release or otherwise make any such public statement without the prior written consent of the other parties, which consent shall not be unreasonably withheld or delayed, except that no prior consent shall be required if such disclosure is required by law, in which such case the disclosing party shall provide the other parties with prior notice of such public statement. Notwithstanding the foregoing, the Company shall not publicly disclose the name of Purchaser without the prior written consent of Purchaser, except to the extent required by law, in which case the Company shall provide Purchaser with prior written notice of such public disclosure. [signature page follows] 43 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers, as of the date first above written. DONINI, INC. By: /s/ PETER DEROS -------------------------------- Name: Peter Deros Title: President Address: Donini, Inc. 17 Fulton Street Newark, NJ 07106 Fax: Telephone: GLOBAL CAPITAL FUNDING GROUP, L.P. By its General Partner, Global Capital Management Services, Inc. By: /s/ LEWIS N. LESTER -------------------------------- Name: Lewis N. Lester Title: President Address: 106 Colony Park Drive Suite 900 Cumming, Georgia 30040 Fax: 678-947-6499 Tel.: 678-947-0028 Securities Purchase Agreement 44 EX-99.2 3 ex99_2.txt EXHIBIT 99.2 EXHIBIT 99.2 EXHIBIT F --------- FORM OF COMMON STOCK PURCHASE WARRANT THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS COMMON STOCK PURCHASE WARRANT, AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT ("PURCHASE AGREEMENT"), DATED THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH LIMIT THE EXERCISE RIGHTS OF THE HOLDER AND SPECIFY MANDATORY REDEMPTION OBLIGATIONS OF THE COMPANY. --------------------------------------- DONINI, INC. COMMON STOCK PURCHASE WARRANT - -------------------------------------------------------------------------------- No. 1 Number of shares: 500,000 Holder: Global Capital Funding Group L.P. 106 Colony Park Drive Expiration Date: June 7, 2009 Suite 900 Cumming, GA 30040 Purchase Price Per Share: $______ For identification only. The governing terms of this Warrant are set forth below. - -------------------------------------------------------------------------------- Donini, Inc., a New Jersey corporation (the "Company"), hereby certifies that, for value received, Global Capital Funding Group, L.P. or assigns ("Holder"), is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time after the date hereof and prior to the third anniversary hereof (the "Exercise Period"), at the Purchase Price hereinafter set forth, Five Hundred Thousand (500,000) shares of the fully paid and nonassessable shares of common stock of the Company, $.001 par value per share (the "Common Stock"). The number and character of such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein. The purchase price per share of Common Stock issuable upon exercise of this Warrant (the "Purchase Price") shall initially be equal to 110% of the 2 closing bid price for the Common Stock, as reported on Bloomberg L.P., on the trading day immediately prior to the Closing Date; provided, however, that the Purchase Price shall be adjusted from time to time as provided herein. (a) Certain Defined Terms. Capitalized terms used herein not otherwise defined shall have the meanings ascribed thereto in the Purchase Agreement. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Donini, Inc. and any corporation that shall succeed or assume the obligations of such corporation hereunder. (b) The term "Common Stock" includes (a) the Company's common stock, $.001 par value per share, (b) any other capital stock of any class or classes (however designated) of the Company, authorized on or after such date, the holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and the holders of which shall ordinarily, in the absence of contingencies, be entitled to vote for the election of a majority of directors of the Company (even though the right so to vote has been suspended by the happening of such a contingency) and (c) any other securities into which or for which any of the securities described in (a) or (b) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) that the Holder of this Warrant at any time shall be entitled to receive, or shall have received, on the exercise of this Warrant, in lieu of or in addition to Common Stock, or that at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise. 1. Exercise of Warrant. ------------------- 2.1 Method of Exercise. ------------------ (a) This warrant may be exercised in whole or in part (but not as to a fractional share of Common Stock), at any time and from time to time during the Exercise Period by the Holder hereof by delivery of a notice of exercise (a "Notice of Exercise") substantially in the form attached hereto as Exhibit A via facsimile to the Company. Promptly thereafter the Holder shall surrender this Warrant to the Company at its principal office, accompanied by payment of the Purchase Price multiplied by the number of shares of Common Stock for which this Warrant is being exercised (the "Exercise Price"). Payment of the Exercise Price shall be made, at the option of the Holder, (i) by check or bank draft payable to the order of the Company, or (ii) by wire transfer to the account of the Company. Upon exercise, the Holder shall be entitled to receive, promptly refund the excess to the Holder. Upon exercise, the Holder shall be entitled to receive, promptly after payment in full, one or more certificates, issued in the Holder's name 3 or in such name or names as the Holder may direct, subject to the limitations on transfer contained herein, for the number of shares of Common Stock so purchased. The shares of Common Stock so purchased shall be deemed to be issued as of the close of business on the date on which the Company shall have received from the Holder payment in full of the Exercise Price (the "Exercise Date"). (b) Notwithstanding anything to the contrary set forth herein, upon exercise of all or a portion of this Warrant in accordance with the terms hereof, the Holder shall not be required to physically surrender this Warrant to the Company. Rather, records showing the amount so exercised and the date of exercise shall be maintained on a ledger substantially in the form of Annex B attached hereto (a copy of which shall be delivered to the Company or transfer agent with each Notice of Exercise). It is specifically contemplated that the Holder hereof shall act as the calculation agent for all exercises of this Warrant. In the event of any dispute or discrepancies, such records maintained by the Holders shall be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following an exercise of a portion of this Warrant, the number of shares of Common Stock represented by this Warrant will be the amount indicated on Annex B attached hereto (which may be less than the amount stated on the face hereof). 2.2 Regulation D Restrictions. The Holder hereof represents and warrants to the Company that it has acquired this Warrant and anticipates acquiring the shares of Common Stock issuable upon exercise of the Warrant solely for its own account for investment purposes and not with a view to or for resale of such securities unless such resale has been registered with the Commission or an applicable exemption is available therefore. At the time this Warrant is exercised, the Company may require the Holder to state in the Notice of Exercise such representations concerning the Holder as are necessary or appropriate to assure compliance by the Holder with the Securities Act. 2.3 Company Acknowledgment. The Company will, at the time of the exercise of this Warrant, upon request of the Holder hereof, acknowledge in writing its continuing obligation to afford to such Holder the registration rights to which such Holder shall continue to be entitled after such exercise in accordance with the provisions of a Registration Rights Agreement dated the date hereof (the "Registration Rights Agreement"). If the Holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford such Holder any such rights. 2.4 Limitation on Exercise. Notwithstanding the rights of the Holder to exercise all or a portion of this Warrant as described herein, such exercise rights shall be limited, solely to the extent set forth in the Purchase Agreement as if such provisions were specifically set forth herein. In addition, the number of shares of Common Stock issuable upon exercise of this Warrant is subject to reduction as specified in Section 10.3 of the Purchase Agreement. 2. Delivery of Stock Certificates, etc., on Exercise. As soon as practicable after the exercise of this Warrant, and in any event within four (4) Trading Days thereafter, the Company at its expense (including the payment by it 4 of any applicable issue, stamp or transfer taxes) will cause to be issued in the name of and delivered to the Holder thereof, or, to the extent permissible hereunder, to such other person as such Holder may direct, a certificate or certificates for the number of fully paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such Holder would otherwise be entitled, cash equal to such fraction multiplied by the then applicable Purchase Price, together with any other stock or other securities and property (including cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 2 or otherwise. 3. Adjustment for Extraordinary Events. The Purchase Price to be paid by the Holder upon exercise of this Warrant, and the consideration to be received upon exercise of this Warrant, shall be adjusted in case at any time or from time to time pursuant to Article XI of the Purchase Agreement as if such provisions were specifically set forth herein. 4. No Impairment. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of this Warrant above the amount payable therefor on such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and unassessable shares of stock on the exercise of this Warrant, and (c) will not transfer all or substantially all of its properties and assets to any other person (corporate or otherwise), or consolidate with or merge into any other person or permit any such person to consolidate with or merge into the Company (if the Company is not the surviving person), unless such other person shall expressly assume in writing and will be bound by all the terms of this Warrant. 5. Accountant's Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of this Warrant, the Company at its expense will promptly cause independent certified public accountants of national standing selected by the Company to compute such adjustment or readjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such issue or sale and as adjusted and readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the Holder of this Warrant, and will, on the written request at any time of the Holder of this Warrant, furnish to such Holder a like certificate setting forth the Purchase Price at the time in effect and showing how it was calculated. 5 6. Notices of Record Date, etc. In the event of --------------------------- (a) any taking by the Company of a record of the holders of any class or securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into any other person, or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, then and in each such event the Company will mail or cause to be mailed to the Holder of this Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, and (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any, as of which the holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for then and in each such event the Company will mail or cause to be mailed to the Holder of this Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount of character of such dividend, distribution or right, and (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any, as of which the holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for securities or other property deliverable on such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up. Such notice shall be mailed at least 20 days prior to the date specified in such notice on which any action is to be taken. 7. Reservation of Stock, etc. Issuable on Exercise of Warrant. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of this Warrant, all shares of Common Stock (or Other Securities) from time to time issuable on the exercise of this Warrant. 8. Exchange of Warrant. ------------------- (a) On surrender for exchange of this Warrant, properly endorsed and in compliance with the restrictions on transfer set forth in the legend on the face of this Warrant, to the Company, the Company at its expense will issue and deliver to or on the order of the Holder thereof a new Warrant of like tenor, in the name of such Holder or as such Holder (on payment by such Holder of any applicable transfer taxes) may direct, calling in the aggregate on 6 the face or faces thereof for the number of shares of Common Stock called for on the face of the Warrant so surrendered. (b) Upon written notice from the Purchasers that the Purchasers have elected to transfer amongst each other a portion of this Warrant, and on surrender for amendment and restatement of this Warrant, the Company at its expense will issue and deliver to or on the order of the Holder thereof a new Warrant of like tenor, in the name of such Holder as the Purchasers (on payment by such Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock as set forth in such notice reflecting such transfer. 9. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 10. Remedies. The Company stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 11. Negotiability, etc.. This Warrant is issued upon the following terms, to all of which each Holder or owner hereof by the taking hereof consents and agrees: (a) title to this Warrant may be transferred by endorsement and delivery in the same manner as in the case of a negotiable instrument transferable by endorsement and delivery. (b) any person in possession of this Warrant properly endorsed is authorized to represent himself as absolute owner hereof and is empowered to transfer absolute title hereto by endorsement and delivery hereof to a bona fide purchaser hereof for value; each prior taker or owner waives and renounces all of his equities or rights in this Warrant in favor of such bona fide purchaser, and each such bona fide purchaser shall acquire absolute title hereto and to all rights represented hereby; (c) until this Warrant is transferred on the books of the Company, the Company may treat the registered Holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary; and (d) notwithstanding the foregoing, this Warrant may not be sold, transferred or assigned except pursuant to an effective registration statement under the Securities Act or pursuant to an applicable exemption therefrom. 7 12. Registration Rights. The Company is obligated to register the shares of Common Stock issuable upon exercise of this Warrant in accordance with the terms of the Registration Rights Agreement. 13. Warrant Redemption. Upon occurrence of the events described in Sections 3.4 and 10.4(c) of the Purchase Agreement, the Company, at the request of Holder, shall redeem all outstanding Warrants that remain unexercised at a redemption price equal to the greater of (x) an appraised value of the Warrants, as determined by Black Sholes, on the date they are called for redemption and (y) the number of Warrants being redeemed multiplied by the excess of (A) the average Closing Bid Price of the Common Stock for the five Trading Days immediately prior to the date that the Warrants are called for redemption over (B) the exercise price of the Warrants. 14. Notices, etc.. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder or, until any such Holder furnishes to the Company any address, then to, and at the address of, the last Holder of this Warrant who has so furnished an address to the Company. 15. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be construed and enforced in accordance with and governed by the internal laws of the State of New Jersey. The headings in this Warrant are for the purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. [Signature Page Follows] 8 DATED as of June 8, 2004. DONINI, INC. By: /s/ PETER DEROS ----------------------------------------- Name: Peter Deros Title: President [Corporate Seal] Attest: By: -------------------------------- Secretary 9 EXHIBIT A FORM OF NOTICE EXERCISE - WARRANT (To be executed only upon exercise of the Warrant in whole or in part) To ____________________________________________ The undersigned registered Holder of the accompanying Warrant, hereby exercises such Warrant or portion thereof for, and purchases thereunder, __________(1) shares of Common Stock (as defined in such Warrant) and herewith makes payment therefor in the amount and manner set forth below, as of the date written below. The undersigned requests that the certificates for such shares of Common Stock be issued in the name of, and delivered to, whose address is ________________________________________. The Exercise Price is paid as follows: [ ] Bank draft payable to the Company in the amount of $_____________. [ ] Wire transfer to the account of the Company in the amount of $___________. Upon exercise pursuant to this Notice of Exercise, the Holder will be in compliance with the Limitation on Exercise (as defined in the Securities Purchase Agreement pursuant to which this Warrant was issued). Date:___________________________ ___________________________________________ (Name must conform to name of Holder as specified on the face of the Warrant) By: ________________________________________ Name: _________________________________ Title: _________________________________ Address of Holder: _________________________ _________________________ _________________________ Date of exercise:____________________ - ----------------- (1) Insert the number of shares of Common Stock as to which the accompanying Warrant is being exercised. In the csase of a partial exercise, a new Warrant or Warrants will be issued and delivered, representing the unexercised portion of the accompanying Warrant, to the Holder surrendering the same. 10 ANNEX B WARRANT EXERCISE LEDGER
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11 EX-99.3 4 ex99_3.txt EXHIBIT 99.3 EXHIBIT 99.3 SECURITY AGREEMENT THIS SECURITY AGREEMENT (this "Agreement") is made as of June 7, 2004 by and between Donini, Inc. a New Jersey corporation ("Debtor") and Global Capital Funding Group, L.P., a Delaware limited partnership ("Secured Party"). 1. Definitions. ----------- (a) Certain Defined Terms. The following terms, as used herein, have the meanings set forth below: "Accounts" means all of the following: (a) accounts receivable, contract rights, book debts, notes, drafts and other obligations and indebtedness arising from the sale, lease or exchange of goods or other property and/or the performance of services; (b) rights in, to and under all purchase orders for goods, services or other property; (c) rights to any goods, services or other property represented by any of the foregoing (including returned or repossessed goods and unpaid sellers' rights of rescission, replevin, reclamation and rights to stoppage in transit); (d) monies due to or to become due under all contracts for the sale, lease or exchange of goods or other property and/or the performance of services (whether or not yet earned by performance); and (e) Proceeds of any of the foregoing and all collateral security and guaranties of any kind given by any Person with respect to any of the foregoing. "Collateral" has the meaning assigned to that term in Section 3. "Documents" means all "documents" (as defined in the UCC) or other receipts covering, evidencing or representing goods. "Equipment" means all "equipment" (as defined in the UCC), including, without limitation, all machinery, motor vehicles, trucks, trailers, vessels, aircraft and rolling stock and all parts thereof and all additions and accessions thereto and replacements therefore. "Event of Default" has the meaning assigned to that term in Section 9. "Fixtures" means all plant fixtures, business fixtures, other fixtures and storage office facilities and all additions and accessions thereto and replacements therefore. "General Intangibles" means all "general intangibles" (as defined in the UCC), including, without limitation: (a) all agreements, leases, licenses and contracts to which Debtor is or may become a party; (b) all obligations or indebtedness owing to Debtor (other than Accounts) from whatever source arising; 1 (c) all tax refunds; (d) all intellectual property; (e) all choses in action and causes of action; and (f) all trade secrets and other confidential information relating to the business of Debtor. "Instruments" means all "instruments," "chattel paper" or "letters of credit" (each as defined in the UCC) including, but not limited to, promissory notes, drafts, bills of exchange and trade acceptances. "Inventory" means all "inventory" (as defined in the UCC), including, without limitation, finished goods, raw materials, work in process and other materials and supplies (including packaging and shipping materials) used or consumed in the manufacture or production thereof and returned and repossessed goods. "Investment Property" means all "investment property" (as defined in the UCC), including certificated and uncertificated securities, security entitlements, securities accounts, commodity contracts and commodity accounts (each as defined in the UCC). "Note" - means that certain Secured Promissory Note of even date herewith, in the original principal amount of $1,500,000, made and executed by Debtor and issued to Secured Party, and all amendments and supplements thereto, restatements thereof and renewals, extensions, restructuring and refinancings thereof. "Person" - means and includes natural persons, corporations, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions thereof. "Proceeds" - means all proceeds of, and all other profits, rentals or receipts, in whatever form, arising from the collection, sale, lease, exchange, assignment, licensing or other disposition of, or realization upon, any Collateral including, without limitation, all claims against third parties for loss of, damage to or destruction of, or for proceeds payable under, or unearned premiums with respect to, policies of insurance with respect to any Collateral, and any condemnation or requisition payments with respect to any Collateral, in each case whether now existing or hereafter arising. "Secured Obligations" - has the meaning assigned to that term in Section 4. "Security Interests" - means the security interests granted pursuant to Section 3, as well as all other security interests created or assigned as additional security for the Secured Obligations pursuant to the provisions of this Agreement. "Securities Purchase Agreement" - means that certain Securities Purchase Agreement of even date herewith, by and between Debtor and Secured Party. 2 "UCC" - means the Uniform Commercial Code as in effect on the date hereof in the State of New Jersey, provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the Security Interest in any Collateral or the availability of any remedy hereunder is governed by the Uniform Commercial Code as in effect on or after the date hereof in any other jurisdiction, "UCC" means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection or availability of such remedy. 2. Other Definition Provisions. References to "Sections", "subsections", "Exhibits" and "Schedules" shall be to Sections, subsections, Exhibits and Schedules, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined in Section 1(a) may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. All references to statutes and related regulations shall include (unless otherwise specifically provided herein) any amendments of same and any successor statutes and regulations. 3. Grant of Security Interests --------------------------- In order to secure the payment and performance of the Secured Obligations in accordance with the terms thereof, Debtor hereby grants to Secured Party, a continuing security interest in and to all right, title and interest of Debtor in the collateral (and any Proceeds therefrom) described on Exhibit A hereto, whether now owned or existing or hereafter acquired or arising (all being collectively referred to as the "Collateral"). 4. Security for Obligations ------------------------ This Agreement secures the payment and performance of the Securities Purchase Agreement and the Note, and all renewals, extensions, restructuring and refinancings thereof (the "Secured Obligations"). 5. Representations and Warranties. Debtor represents and warrants as follows: -------------------------------------------------------------- (a) Binding Obligation. This Agreement is the legally valid and binding obligation of Debtor, enforceable against Debtor in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, or similar laws or equitable principles relating to or limiting creditor's rights generally. (b) Ownership of Collateral. Debtor owns the Collateral free and clear of any lien, security interest or encumbrance. No effective financing statement or other form of lien notice covering all or any part of the Collateral is on file in any recording office. (c) Office Locations; Debtor Names. ------------------------------ (i) As of the date hereof, the chief place of business, the chief executive office and the office where Debtor keeps its books and records is located 3 at the place specified on Schedule 5(d)(i) hereto. Except as set forth on Schedule 5(d)(i), Debtor has not maintained any other address at any time during the five years preceding the date hereof. (ii) Debtor does not do business nor, as of the date hereof, has it done business during the past five years under any corporate name, trade name or fictitious business name except for Debtor's corporate name set forth above and except as disclosed on Schedule 5(d)(ii) hereto. (d) Perfection. This Agreement, together with the UCC filings referenced herein, create to secure the Secured Obligations a valid, perfected and first priority security interest in the Collateral, and all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken. (e) Governmental Authorizations; Consents. No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or consent of any other Person is required either (i) for the grant by Debtor of the Security Interests granted hereby or for the execution, delivery or performance of this Agreement by Debtor or (ii) for the perfection of or the exercise by Secured Party of its rights and remedies hereunder (except as may have been taken by or at the direction of Debtor or Secured Party) other than the filing of financing statements in connection with the perfection of the Security Interests. (f) Accurate Information. All information heretofore, herein or hereafter supplied to Secured Party by or on behalf of Debtor with respect to the Collateral is and will be accurate and complete in all material respects. 6. Further Assurances; Covenants ----------------------------- (a) Other Documents and Actions. Debtor will, from time to time, at its expense, promptly execute and deliver all further instruments and documents and take all further action that may be necessary or desirable, or that Secured Party may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, Debtor will: (i) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as Secured Party may reasonably request, in order to perfect and preserve the security interests granted or purported to be granted hereby; (ii) at any reasonable time, upon demand by Secured Party exhibit the Collateral to allow inspection of the Collateral by Secured Party or persons designated by Secured Party; and (iii) upon Secured Party's request, appear in and defend any action or proceeding that may affect Debtor's title to or Secured Party's security interest in the Collateral. (b) Secured Party Authorized. Debtor hereby authorizes Secured Party to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral without the signature of Debtor where permitted by law. 4 (c) Corporate or Name Change. Debtor will notify Secured Party promptly in writing at least 30 days prior to (a) any change in Debtor's name and (b) Debtor's commencing the use of any trade name, assumed name or fictitious name. (d) Business Locations. Debtor shall give Secured Party thirty (30) days' prior written notice of any change in its chief place of business or of any new location of business or any new location for any of the Collateral. With respect to any new location (which in any event shall be within the continental United States), Debtor shall execute such documents and take such actions as Secured Party reasonably deems necessary to perfect and protect the Security Interests. (e) Bailees. No Collateral shall at any time be in the possession or control of any warehouseman, bailee or Debtor's agents or processors without Secured Party's prior written consent and unless Secured Party, if Secured Party has so requested, has received warehouse receipts or bailee letters reasonably satisfactory to Secured Party prior to the commencement of such storage. Debtor shall, upon the request of Secured Party, notify any such warehouseman, bailee, agent or processor of the Security Interests. (f) Insurance. Debtor shall maintain insurance with respect to the Collateral of types and in amounts that are customary for similarly situated businesses. Debtor hereby directs all insurers under such policies of insurance with respect to its assets to pay all material proceeds of such insurance policies to Secured Party. (g) Taxes and Claims. Debtor will pay (i) all taxes, assessments and other governmental charges imposed upon the Collateral before any penalty accrues thereon and (ii) all claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a lien upon any of the Collateral before any penalty or fine is incurred with respect thereto; provided that no such tax, charge or claim need be paid if a Debtor is contesting same in good faith by appropriate proceedings promptly instituted and diligently conducted and if Debtor has established such reserve or other appropriate provision, if any, as shall be required in conformity with generally accepted accounting principles consistently applied. (h) Collateral Description. Debtor will furnish to Secured Party, from time to time, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Secured Party may reasonably request, all in reasonable detail. (i) Use of Collateral. Debtor will not use or permit any Collateral to be used unlawfully or in violation of any provision of this Agreement or any applicable statue, regulation or ordinance or any policy of insurance covering any of the Collateral. (j) Records of Collateral. Debtor shall keep full and accurate books and records relating to the Collateral and shall stamp or otherwise mark such books and records in such manner as Secured Party may reasonably request indicating that the Collateral is subject to the Security Interests. 5 (k) Other Information. Debtor will, promptly upon request, provide to Secured Party all information and evidence it may reasonably request concerning the Collateral to enable Secured Party to enforce the provisions of this Agreement. 7. Secured Party Appointed Attorney-in-Fact. Debtor hereby irrevocably appoints Secured Party as its attorney-in-fact, with full authority in the place and stead of Debtor and in the name of Debtor, Secured Party or otherwise, from time to time in Secured Party's discretion to take any action and to execute any instrument that Secured Party may deem necessary or advisable after the occurrence and during the continuation of an Event of Default to accomplish the purposes of this Agreement, including, without limitation: (a) to obtain and adjust insurance required to be paid to Secured Party; (b) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for monies due and to become due under or in respect of any of the Collateral; (c) to file any claims or take any action or institute any proceedings that Secured Party may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of Secured Party with respect to any of the Collateral; (d) to pay or discharge taxes or liens, levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by Secured Party in its sole discretion, and such payments made by Secured Party to become obligations of Debtor, due and payable immediately without demand and secured by the Security Interests; and (e) generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Secured Party were the absolute owner thereof for all purposes, and to do, at Secured Party's option and Debtor's expense, at any time or from time to time, all acts and things that Secured Party deems necessary to protect, preserve or realize upon the Collateral. Neither Secured Party nor any Person designated by Secured Party shall be liable for any acts or omissions or for any error of judgment or mistake of fact or law other than as a result of Secured Party's or such Person's gross negligence or willful misconduct. This power, being coupled with an interest, is irrevocable so long as this Agreement shall remain in force. 6 8. Transfers and Other Liens ------------------------- Debtor shall not without Secured Party's prior written consent: (a) Sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Collateral. (b) Create or suffer to exist any lien, security interest or other charge or encumbrance upon or with respect to any of the Collateral to secure indebtedness of any Person except for the security interest created by this Agreement. 9. Events of Default. ----------------- The occurrence of any one or more of the following events shall constitute an Event of Default by Debtor under this Agreement: (a) General Default. Debtor shall fail to observe or perform any covenant, obligation, term or condition contained in the Securities Purchase Agreement, the Note, or this Agreement. (b) Nonpayment. Debtor shall fail to pay any principal, interest or other amount owing under the Note or Securities Purchase Agreement when and as the same shall be due and payable. (c) Material Misrepresentations. Any representation or warranty set forth herein shall prove to be false in any material respect. (d) Going Concern. Debtor shall terminate its corporate existence or shall cease to operate as a going concern. (e) Judgments. A judgment shall be entered against either Debtor or a warrant of execution or similar process shall be issued or levied against its property and within thirty (30) days after such judgment, warrant or process shall not have been paid in full or proper appeal of the same made. (f) Debtor Relief - Voluntary. Debtor shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing. 7 (g) Debtor Relief - Involuntary. Any involuntary case or other proceeding shall be commenced against Debtor seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of thirty (30) days; or an order for relief shall be entered against Debtor under the federal bankruptcy laws as now or hereafter in effect. (h) Other. The occurrence any "Event of Default" as that term is defined in Securities Purchase Agreement. 10. Remedies -------- (a) If any Event of Default shall have occurred and be continuing, Secured Party may declare the entire outstanding principal amount of the Note immediately due and payable, provided that upon the occurrence of any Event of Default set forth in Section 9(f) or 9(g), the outstanding principal amount of the Note shall become automatically due and payable, without any notice, demand or other action on the part of Secured Party. (b) If any Event of Default shall have occurred and be continuing, Secured Party may exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the UCC (whether or not the UCC applies to the affected Collateral) and also may: (i) require Debtor to, and Debtor hereby agrees that it will, at its expense and upon request of Secured Party forthwith, assemble all or part of the Collateral as directed by Secured Party and make it available to Secured Party at a place to be designated by Secured Party which is reasonably convenient to both parties; (ii) without notice or demand or legal process, enter upon any premises of Debtor and take possession of the Collateral; (iii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of Secured Party's offices or elsewhere, at such time or times, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as Secured Party may deem commercially reasonable; (iv) notify the obligors on any Accounts or Instruments to make payments thereunder directly to Secured Party; and (v) without notice to Debtor, renew, modify or extend any of the Accounts and Instruments or grant waivers or indulgences with respect thereto or accept partial payment thereof, or substitute any obligor thereon, in any manner as Secured Party may deem advisable, without affecting or diminishing Debtor's continuing obligations hereunder. Debtor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to Debtor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. At any sale of the Collateral, if permitted by law, Secured Party may bid (which bid may be, in whole or in part, in the form of cancellation of indebtedness) for the purchase of the Collateral or any portion thereof for the account of Secured Party. Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefore, and such sale may, without further notice, be made at the time and place to which it was so adjourned. To the extent permitted by law, Debtor hereby specifically waives all rights of redemption, stay or appraisal which it has or may have under any law now existing or hereafter enacted. 8 (c) Upon the occurrence of an Event of Default hereunder, Secured Party shall have the right to enter upon the premises of Debtor where the Collateral is located (or is believed to be located) without any obligation to pay rent to Debtor, or any other place or places where the Collateral is believed to be located and kept, to render the Collateral useable or saleable, to remove the Collateral therefrom to the premises of Secured Party or any agent of Secured Party for such time as Secured Party may desire in order to effectively collect or liquidate the Collateral, and/or to require Debtor to assemble the Collateral and make it available to Secured Party at a place or places to be designated by Secured Party. Upon the occurrence of an Event of Default hereunder, Secured Party shall have the right to take possession of Debtor's original books and records, to obtain access to Debtor's data processing equipment, computer hardware and software relating to the Collateral and to use all of the foregoing and the information contained therein in any manner Secured Party deems appropriate; and Secured Party shall have the right to notify postal authorities to change the address for delivery of Debtor's mail to an address designated by Secured Party and to receive, open and dispose of all mail addressed to Debtor. 11. Limitation on Duty of Secured Party with Respect to Collateral. Beyond the safe custody thereof, Secured Party shall have no duty with respect to any Collateral in its possession or control (or in the possession or control of any agent or bailee) or with respect to any income thereon or the preservation of rights against prior parties or any other rights pertaining thereto. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which it accords its own property. Secured Party shall not be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of any warehouseman, carrier, forwarding agency, consignee or other agent or bailee selected by Secured Party in good faith. 12. Application of Proceeds. Upon the occurrence and during the continuance of an Event of Default, the proceeds of any sale of, or other realization upon, all or any part of the Collateral shall be applied: first, to all fees, costs and expenses incurred by Secured Party with respect to the Collateral; and second, to the Secured Obligations. Secured Party shall pay over to Debtor any surplus and Debtor shall remain liable for any deficiency. 13. Expenses. Debtor agrees to pay all insurance expenses and all expenses of protecting, storing, warehousing, appraising, insuring, handling, maintaining and shipping the Collateral, all costs, fees and expenses of perfecting and maintaining the Security Interests, and any and all excise, property, sales and use taxes imposed by any state, federal or local authority on any of the Collateral, or with respect to periodic appraisals and inspections of the Collateral, or with respect to the sale or other disposition thereof. If Debtor fails promptly to pay any portion of the above expenses when due or to perform any other obligation of Debtor under this Agreement, Secured Party may, at its option, but shall not be required to, pay or perform the same, and Debtor agrees to reimburse Secured Party therefore on demand. All sums so paid or incurred by Secured Party for any of the foregoing, any and all other sums for 9 which Debtor may become liable hereunder and all costs and expenses (including attorneys' fees, legal expenses and court costs) incurred by Secured Party in enforcing or protecting the Security Interests or any of their rights or remedies under this Agreement shall be payable on demand, shall constitute Secured Obligations, shall bear interest until paid at the rate provided in the Note and shall be secured by the Collateral. 14. Termination of Security Interests; Release of Collateral. Upon payment in full of all Secured Obligations, the Security Interests shall terminate and all rights to the Collateral shall revert to Debtor. Upon such termination of the Security Interests or release of any Collateral, Secured Party will, at the expense of Debtor, execute and deliver to Debtor such documents as Debtor shall reasonably request to evidence the termination of the Security Interests or the release of such Collateral, as the case may be. 15. Notices. Each notice, communication and delivery under this Agreement: (a) shall be made in writing signed by the party giving it; (b) shall specify the section of this Agreement pursuant to which given; (c) shall either be delivered in person or by telecopier, a nationally recognized next business day courier service or Express Mail; (d) unless delivered in person, shall be given to the address specified below; (e) shall be deemed to be given (i) if delivered in person, on the date delivered, (ii) if sent by telecopier, on the date of telephonic confirmation of receipt, (iii) if sent by a nationally recognized next business day courier service with all costs paid, on the next business day after it is delivered to such courier, or (iv) if sent by Express Mail (with postage and other fees paid), on the next business day after it is mailed. Such notice shall not be effective unless copies are provided contemporaneously as specified below, but neither the manner nor the time of giving notice to those to whom copies are to be given (which need not be the same as the addressee) shall control the date notice is given or received. The addresses and requirements for copies are as follows: If to Debtor: Donini, Inc. 17 Fulton Street Newark, NJ 07106 Telecopier No. Confirmation No. Attention: Mr. Peter Deros If to Secured Party: Global Capital Funding Group, L.P. 106 Colony Park Drive Suite 900 Cumming, GA 30040 Attn: Lewis N. Lester Telecopier No.678-947-6499 Confirmation No.678-947-0028 10 with a copy to: Global Capital Advisors, LLC P.O. Box 457 Frederiksted, USVI 00841 Attention: Timothy H. Edwards Telecopier No. 340-719-3974 16. Waivers, Non-Exclusive Remedies, Severability. Except as otherwise expressly set forth in any particular provision of this Agreement, any consent or approval required or permitted by this Agreement to be given by Secured Party may be given, and any term of this Agreement or of any other instrument related hereto or mentioned herein may be amended, and the performance or observance by Debtor of any term of this Agreement, the Securities Purchase Agreement or the Note may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written specific consent of Secured Party. No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. No course of dealing or delay or omission on the part of Secured Party in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon Debtor shall entitle Debtor to other or further notice or demand in similar or other circumstances. The rights in this Agreement, the Securities Purchase Agreement and the Note are cumulative and are not exclusive of any other remedies provided by law. The invalidity, illegality or unenforceability of any provision in or obligation under this Agreement shall not affect or impair the validity, legality or enforceability of the remaining provisions or obligations under this Agreement. 17. Successors and Assigns. This Agreement is for the benefit of Secured Party and its successors and assigns, and in the event of an assignment of all or any of the Secured Obligations, the rights hereunder, to the extent applicable to the Secured Obligations so assigned, may be transferred with such Secured Obligations. This Agreement shall be binding on Debtor and its successors and assigns, provided that Debtor shall not assign this Agreement without Secured Party's prior written consent. 18. Changes in Writing. No amendment, modification, termination or waiver of any provision of this Agreement or consent to any departure by Debtor therefrom, shall in any event be effective without the written concurrence of Secured Party and Debtor. 19. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey, without giving effect to the conflicts of law principles thereof. 20. Headings. Cross reference pages and headings contained herein are for convenience of reference only, do not constitute a part of this Agreement, and shall not be deemed to limit or affect any of the provisions hereof. 11 21. Counterparts. This Agreement may be executed by each party upon a separate copy, and in such case one counterpart of this Agreement shall consist of enough of such copies to reflect the signatures of all of the parties. This Agreement may be executed in two or more counterparts, each of which shall be an original, and each of which shall constitute one and the same agreement. Any party may deliver an executed copy of this Agreement and of any documents contemplated hereby by facsimile transmission to another party and such delivery shall have the same force and effect as any other delivery of a manually signed copy of this Agreement or of such other documents. Signature Page Follows 12 DULY EXECUTED and delivered by the parties on the date first written above. DONINI, INC. By: ________________________________________ Name: ______________________________________ Title: _____________________________________ GLOBAL CAPITAL FUNDING GROUP, L.P. By its General Partner, Global Capital Management Services, Inc. By: /s/ LEWIS N. LESTER ---------------------------------------- Name: Lewis N. Lester Title: President 13 EXHIBIT A --------- COLLATERAL All equipment, accounts, general intangibles, inventory, and other fixed assets of the Company, whether owned as of this date of hereafter acquired and any proceeds thereof. 14 SCHEDULE 5(d)(i) 15 SCHEDULE 5.2(d)(ii) 16 -----END PRIVACY-ENHANCED MESSAGE-----