Exhibit
10.1


 


EQUIFIN,
INC.


 


SECURITIES
PURCHASE AGREEMENT


 


December    , 2003


 

















 


TABLE OF
CONTENTS


 


	
  1.

  	
  AGREEMENT TO SELL AND
  PURCHASE

  	
  1

  
	
   

  	
   

  	
   

  
	
  2.

  	
  FEES AND WARRANTS

  	
  2

  
	
   

  	
   

  	
   

  
	
  3.

  	
  CLOSING, DELIVERY
  AND PAYMENT

  	
  2

  
	
   

  	
  3.1

  	
  Closing

  	
  2

  
	
   

  	
  3.2

  	
  Delivery

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  REPRESENTATIONS AND
  WARRANTIES OF THE COMPANY

  	
  3

  
	
   

  	
  4.1

  	
  Organization, Good Standing and Qualification

  	
  3

  
	
   

  	
  4.2

  	
  Subsidiaries

  	
  3

  
	
   

  	
  4.3

  	
  Capitalization; Voting Rights

  	
  3

  
	
   

  	
  4.4

  	
  Authorization;
  Binding Obligations

  	
  4

  
	
   

  	
  4.5

  	
  Liabilities

  	
  5

  
	
   

  	
  4.6

  	
  Agreements; Action

  	
  5

  
	
   

  	
  4.7

  	
  Obligations
  to Related Parties

  	
  5

  
	
   

  	
  4.8

  	
  Changes

  	
  6

  
	
   

  	
  4.9

  	
  Title to
  Properties and Assets; Liens, Etc.

  	
  7

  
	
   

  	
  4.10

  	
  Intellectual Property

  	
  7

  
	
   

  	
  4.11

  	
  Compliance with Other
  Instruments

  	
  8

  
	
   

  	
  4.12

  	
  Litigation

  	
  8

  
	
   

  	
  4.13

  	
  Tax Returns and Payments

  	
  8

  
	
   

  	
  4.14

  	
  Employees

  	
  9

  
	
   

  	
  4.15

  	
  Registration Rights and Voting Rights

  	
  9

  
	
   

  	
  4.16

  	
  Compliance with Laws; Permits

  	
  9

  
	
   

  	
  4.17

  	
  Environmental and Safety
  Laws

  	
  10

  
	
   

  	
  4.18

  	
  Valid Offering

  	
  10

  
	
   

  	
  4.19

  	
  Full Disclosure

  	
  10

  
	
   

  	
  4.20

  	
  Insurance

  	
  10

  
	
   

  	
  4.21

  	
  SEC Reports

  	
  10

  
	
   

  	
  4.22

  	
  Listing

  	
  11

  
	
   

  	
  4.23

  	
  No Integrated Offering

  	
  11

  
	
   

  	
  4.24

  	
  Stop Transfer

  	
  11

  
	
   

  	
  4.25

  	
  Dilution

  	
  11

  



 


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  5.

  	
  REPRESENTATIONS
  AND WARRANTIES OF THE PURCHASERS

  	
  12

  
	
   

  	
  5.1

  	
  No Shorting

  	
  12

  
	
   

  	
  5.2

  	
  Requisite Power and Authority

  	
  12

  
	
   

  	
  5.3

  	
  Investment Representations

  	
  12

  
	
   

  	
  5.4

  	
  Purchaser Bears Economic Risk

  	
  13

  
	
   

  	
  5.5

  	
  Acquisition
  for Own Account

  	
  13

  
	
   

  	
  5.6

  	
  Purchaser Can Protect Its Interest

  	
  13

  
	
   

  	
  5.7

  	
  Accredited Investor

  	
  13

  
	
   

  	
  5.8

  	
  Legends

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  COVENANTS OF THE
  COMPANY

  	
  14

  
	
   

  	
  6.1

  	
  Stop-Orders

  	
  14

  
	
   

  	
  6.2

  	
  Listing

  	
  14

  
	
   

  	
  6.3

  	
  Market Regulations

  	
  15

  
	
   

  	
  6.4

  	
  Reporting
  Requirements

  	
  15

  
	
   

  	
  6.5

  	
  Use of Funds

  	
  15

  
	
   

  	
  6.6

  	
  Access to Facilities

  	
  15

  
	
   

  	
  6.7

  	
  Taxes

  	
  15

  
	
   

  	
  6.8

  	
  Insurance

  	
  16

  
	
   

  	
  6.9

  	
  Intellectual
  Property

  	
  16

  
	
   

  	
  6.10

  	
  Properties

  	
  16

  
	
   

  	
  6.11

  	
  Confidentiality

  	
  16

  
	
   

  	
  6.12

  	
  Required
  Approvals

  	
  16

  
	
   

  	
  6.13

  	
  Reissuance of Securities.

  	
  16

  
	
   

  	
  6.14

  	
  Opinion

  	
  17

  
	
   

  	
  6.15

  	
  Encumbrances

  	
  17

  
	
   

  	
  6.16

  	
  Defense of Collateral

  	
  17

  
	
   

  	
  6.17

  	
  Commercial Tort Claims

  	
  17

  
	
   

  	
  6.18

  	
  Books and Records

  	
  17

  
	
   

  	
  6.19

  	
  Valid Security Interest

  	
  17

  
	
   

  	
  6.20

  	
  Collateral Value

  	
  17

  
	
   

  	
  6.21

  	
  Equipment

  	
  18

  
	
   

  	
  6.22

  	
  Borrowing
  Base Certificate

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  COVENANTS OF THE COMPANY

  	
  18

  



 


ii

















 


	
   

  	
  7.1

  	
  Confidentiality

  	
  18

  
	
   

  	
  7.2

  	
  Non-Public Information

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  COVENANTS OF THE
  COMPANY AND PURCHASERS REGARDING INDEMNIFICATION

  	
  18

  
	
   

  	
  8.1

  	
  Company
  Indemnification

  	
  18

  
	
   

  	
  8.2

  	
  Purchaser’s Indemnification

  	
  18

  
	
   

  	
  8.3

  	
  Procedures

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  CONVERSION
  OF CONVERTIBLE NOTES

  	
  19

  
	
   

  	
  9.1

  	
  Mechanics of Conversion

  	
  19

  
	
   

  	
  9.2

  	
  Maximum Conversion

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  REGISTRATION
  RIGHTS

  	
  20

  
	
   

  	
  10.1

  	
  Registration
  Rights Granted

  	
  20

  
	
   

  	
  10.2

  	
  Indemnification and Contribution

  	
  20

  
	
   

  	
  10.3

  	
  Offering Restrictions

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  MISCELLANEOUS

  	
  23

  
	
   

  	
  11.1

  	
  Governing Law

  	
  23

  
	
   

  	
  11.2

  	
  Survival

  	
  23

  
	
   

  	
  11.3

  	
  Successors and Assigns

  	
  23

  
	
   

  	
  11.4

  	
  Entire Agreement

  	
  23

  
	
   

  	
  11.5

  	
  Severability

  	
  24

  
	
   

  	
  11.6

  	
  Amendment and Waiver

  	
  24

  
	
   

  	
  11.7

  	
  Delays or Omissions

  	
  24

  
	
   

  	
  11.8

  	
  Notices

  	
  24

  
	
   

  	
  11.9

  	
  Attorneys’ Fees

  	
  24

  
	
   

  	
  11.10

  	
  Titles
  and Subtitles

  	
  25

  
	
   

  	
  11.11

  	
  Counterparts

  	
  25

  
	
   

  	
  11.12

  	
  Broker’s Fees

  	
  25

  
	
   

  	
  11.13

  	
  Construction

  	
  25

  



 


iii

















 


THIS SECURITIES PURCHASE AGREEMENT IS
SUBJECT TO THE SUBORDINATION PROVISIONS SET FORTH IN THE CERTAIN SUBORDINATION
AND INTERCREDITOR AGREEMENT DATED DECEMBER      ,
2003, AMONG EACH OF EQUINOX BUSINESS CREDIT CORPORATION (“DEBTOR”),
EQUIFIN, INC., WELLS FARGO FOOTHILL, INC. AND LAURUS MASTER FUND, LTD., A COPY
OF WHICH IS ON FILE AT THE OFFICE OF DEBTOR AND IS AVAILABLE FOR INSPECTION AT
SUCH OFFICE.


 


SECURITIES
PURCHASE AGREEMENT


 


THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”)
is made and entered into as of December       ,
2003, by and between EQUIFIN, INC., a Delaware corporation (the “Company”), and EQUINOX BUSINESS CREDIT CORP., a New Jersey corporation
(the “Subsidiary”) and Laurus Master Fund, Ltd., a Cayman Islands company (the
“Purchaser”).
(The Company and the Subsidiary are collectively referred to herein as the
“Borrower”)


 


RECITALS


 


WHEREAS, the Subsidiary has authorized the
sale to the Purchaser of a Convertible Term Note in the aggregate principal
amount of $1,100,000 (the “Note”), which Note is convertible into
shares of the Company’s common stock, $0.01 par value per share (the “Common Stock”)
at a fixed conversion price of $0.62 per share of Common Stock (“Fixed Conversion Price”);


 


WHEREAS,  the Company wishes to issue
a warrant to the Purchaser to purchase up to 532,257 shares of the Company’s
Common Stock in connection with Purchaser’s purchase of the Note, which number
of shares is equal to thirty percent (30%) of the number of shares of Common
Stock that the original principal amount of the note is convertible into at the
fixed conversion price in effect in the date hereof;


 


WHEREAS, Purchaser desires to purchase the
Note and Warrant on the terms and conditions set forth herein; and


 


WHEREAS, the Company desires to issue and
sell the Note and Warrant to Purchaser on the terms and conditions set forth
herein.


 


AGREEMENT


 


NOW, THEREFORE, in consideration of the
foregoing recitals and the mutual promises, representations, warranties and
covenants hereinafter set forth and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:


 


1.                                      AGREEMENT TO SELL AND PURCHASE.  Pursuant to the terms and conditions set forth in this
Agreement, on the Closing Date (as defined in Section 3), the Borrower agrees
to sell to the Purchaser, for the face amount thereof, and the Purchaser hereby
agrees to purchase from the Borrower,  a
Note in the amount of $1,100,000 convertible in accordance with the terms 


 


1

















 


thereof into shares of
the Company’s Common Stock in accordance with the terms of the Note and this
Agreement.  The Note purchased on the
Closing Date shall be known as the “Offering.”  A form of the Note is annexed hereto as
Exhibit A.  The Note will have a
Maturity Date (as defined in the Note) thirty six (36) months from the date of
issuance. Collectively, the Note and Warrant (as defined in Section 2) and
Common Stock issuable in payment of the Note, upon conversion of the Note and
upon exercise of the Warrant are referred to as the “Securities”.


 


2.                                      FEES AND WARRANT.   On the Closing Date:


 


(a)          The Company will issue
and deliver to the Purchaser a Warrant to purchase 532,257 shares of Common
Stock in connection with the Offering (the “Warrant”)
pursuant to Section 1 hereof (which number of shares is equal to thirty percent
(30%) of the number of shares of Common Stock that the original principal
amount of the note is convertible into at the fixed conversion price in effect
in the date hereof).  The Warrant must
be delivered on the Closing Date.  A
form of Warrant is annexed hereto as Exhibit B. All the representations,
covenants, warranties, undertakings, and indemnification, and other rights made
or granted to or for the benefit of the Purchaser by the Company are hereby
also made and granted in respect of the Warrant and shares of the Company’s
Common Stock issuable upon exercise of the Warrant (the “Warrant Shares”).


 


(b)         Upon execution and
delivery of this Agreement by the Company and Purchaser, the Company shall pay
to Laurus Capital Management, LLC, manager of Purchaser a closing payment in an
amount equal $105,000, which payment is in consideration of a credit facility
that shall permit borrowings (in accordance with that certain letter agreement,
dated as of the date hereof, between Borrower and Purchaser (the “Letter
Agreement”)) of up to $3,000,000. The foregoing fee is referred to herein as
the “Closing Payment”. The Company
agrees to pay legal fees of $5,000 for each additional draw made pursuant the
terms and conditions of the Letter Agreement, but no additional Closing
Payments will be due and payable in connection therewith.


 


(c)           The Company shall
reimburse the Purchaser for its reasonable legal fees not to exceed $20,000 for
services rendered to the Purchaser in preparation of this Agreement and the
Related Agreements (as hereinafter defined), and expenses in connection with
the Purchaser’s due diligence review of the Company and relevant matters.


 


(d)          The Closing Payment, legal
fees and due diligence fees (net of the $10,000 deposit previously paid by the
Company on November 15, 2003) shall be paid at closing out of funds held
pursuant to a Funds Escrow Agreement of even date herewith among the company,
Purchaser, and an Escrow Agent (the “Funds
Escrow Agreement”) and a disbursement letter (the “Disbursement Letter”).


 


3.                                      CLOSING, DELIVERY AND PAYMENT.


 


3.1                               Closing.  Subject to
the terms and conditions herein, the closing of the transactions contemplated
hereby (the “Closing”), shall take
place on the date hereof, at such time or place as the Company and Purchaser
may mutually agree (such date is hereinafter referred to as the “Closing Date”).


 


2

















 


3.2                               Delivery.  Pursuant
to the Funds Escrow Agreement in the form attached hereto as Exhibit C, at the
Closing on the Closing Date, the Borrower will deliver to the Purchaser, among
other things, a Note in the form attached as Exhibit A representing the
principal amount of $1,100,000 and a Warrant in the form attached as Exhibit B
in the Purchaser’s name representing 532,257 Warrant Shares and the Related
Agreements (defined below) and the Purchaser will deliver to the Company, among
other things, the amounts set forth in the Disbursement Letter by certified
funds or wire transfer.


 


4.                                      REPRESENTATIONS AND WARRANTIES OF THE
BORROWER .


 


Each of the Company and the Subsidiary hereby jointly
and severally represents and warrants to the Purchaser as of the date of this
Agreement as set forth below which disclosures are supplemented by, and subject
to the Company’s filings under the Securities Exchange Act of 1934
(collectively, the “Exchange Act Filings”),
copies of which have been provided to the Purchaser or were otherwise made
available via the website of the Securities and Exchange Commission at
www.sec.gov..


 


4.1                               Organization, Good Standing and Qualification.  Each of the Company and the Subsidiary (a)
is a corporation duly organized, validly existing and in good standing under
the laws of its incorporation; and (b) has the corporate power and authority to
own and operate its properties and assets, to execute and deliver this
Agreement, and the Note and the Warrant to be issued in connection with this
Agreement, the Security Agreement relating to the Note dated as of December
     , 2003 between the Borrower and the Purchaser the
Registration Rights Agreement relating to the Securities dated as of December
     , 2003 (the “Registration Rights Agreement”)
between the Company and the Purchaser and all other agreements referred to
herein (collectively, the “Related Agreements”), to issue and sell the
Note and the shares of Common Stock issuable upon conversion of the Note (the “Note Shares”),
to issue and sell the Warrant and the Warrant Shares, and to carry out the
provisions of this Agreement and the Related Agreements and to carry on its
business as presently conducted.  Each
of the Company and the Subsidiary is duly qualified and is authorized to do business
and is in good standing as a foreign corporation in all jurisdictions in which
the nature of its activities and of its properties (both owned and leased)
makes such qualification necessary, except for those jurisdictions in which
failure to do so would not have a material adverse effect on the Company or the
subsidiary or their respective businesses.


 


4.2                               Subsidiaries.  The Company owns eighty one percent (81%) all
of the issued and outstanding capital stock of the Subsidiary Equinox Business
Credit Corp. Except as set forth on Schedule 4.2 hereof or otherwise disclosed
in the Exchange Act Filings, the Company does not own or control any
equity security or other interest of any other corporation, limited partnership
or other business entity.


 


4.3                               Capitalization; Voting Rights.


 


(a)          The authorized capital
stock of the Company, as of the date hereof consists of 25,000,000 shares, of
which 20,000,000 are shares of Common Stock, par value $0.01 per
share,7,637,000 shares of which are issued and outstanding, and 5,000,000 are
shares of preferred stock, par value $.01 per share of which 1,000,925 shares
are issued outstanding.


 


3

















 


The authorized capital stock of the Subsidiary, as of the date hereof
consists of 200 shares, of which 200 are shares of Common Stock, no par value
per share, 100 shares of which are issued and outstanding, and no shares of
preferred stock.


 


(b)         Except as disclosed on Schedule
4.3 and in the Exchange Act Filings, other than (i) the shares
reserved for issuance under the Borrower’s stock option plans; and (ii) shares
which may be granted pursuant to this Agreement and the Related Agreements,
there are no outstanding options, warrants, rights (including conversion or
preemptive rights and rights of first refusal), proxy or stockholder
agreements, or arrangements or agreements of any kind for the purchase or
acquisition from the Borrower of any of its securities. Except as disclosed on Schedule
4.3, neither the offer, issuance or sale of any of the Note or Warrant, or
the issuance of any of the Note Shares or Warrant Shares, nor the consummation
of any transaction contemplated hereby will result in a change in the price or
number of any securities of the Borrower outstanding, under anti-dilution or
other similar provisions contained in or affecting any such securities.


 


(c)          All issued and
outstanding shares of the Company’s Common Stock (i) have been duly
authorized and validly issued and are fully paid and nonassessable and
(ii) were issued in compliance with all applicable state and federal laws
concerning the issuance of securities.


 


(d)         The rights, preferences,
privileges and restrictions of the shares of the Common Stock are as stated in
the Company’s Articles of Incorporation (the “Charter”). The Note Shares
and Warrant Shares have been duly and validly reserved for issuance.  When issued in compliance with the
provisions of this Agreement and the Company’s Charter, the Securities will be
validly issued, fully paid and nonassessable, and will be free of any liens or
encumbrances; provided, however, that the Securities may be subject to
restrictions on transfer under state and/or federal securities laws as set
forth herein or as otherwise required by such laws at the time a transfer is
proposed.


 


4.4                               Authorization; Binding Obligations.  All corporate action on the part of the
Borrower , its officers and directors necessary for the authorization of this
Agreement and the Related Agreements, the performance of all obligations of the
Borrower hereunder at the Closing and, the authorization, sale, issuance and
delivery of the Note and Warrant has been taken or will be taken prior to the
Closing. The Agreement and the Related Agreements, when executed and delivered
and to the extent it is a party thereto, will be valid and binding obligations
of the Borrower enforceable in accordance with their terms, except (a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors’ rights,
and (b) general principles of equity that restrict the availability of
equitable or legal remedies.  The sale
of the Note and the subsequent conversion of the Note into Note Shares are not
and will not be subject to any preemptive rights or rights of first refusal
that have not been properly waived or complied with. The issuance of the
Warrant and the subsequent exercise of the Warrant for Warrant Shares are not
and will not be subject to any preemptive rights or rights of first refusal
that have not been properly waived or complied with.


 


4

















 


4.5                               Liabilities. 
The Borrower, to the best of its knowledge, has no material contingent
liabilities, except current liabilities incurred in the ordinary course of
business and liabilities disclosed in any Exchange Act Filings.


 


4.6                               Agreements; Action.  Except as set forth on Schedule
4.6 or as disclosed in any Exchange Act Filings:


 


(a)          Except for that certain
Loan and Security Agreement by and among the Subsidiary and Foothill Capital
Corporation (“Foothill”) dated as
of December 19, 2001, as the same may be amended, revised or supplemented
thereafter (the “Foothill Agreement”)
pursuant to which, among other things, Foothill agreed to make revolving credit
advances to the Subsidiary based upon the Subsidiary’s Borrowing Base (as such
term is defined in the Foothill Agreement) there are no agreements,
understandings, instruments, contracts, proposed transactions, judgments,
orders, writs or decrees to which the Borrower is a party or to its knowledge
by which it is bound which may involve (i) obligations (contingent or
otherwise) of, or payments to, the Borrower in excess of $50,000 (other than
obligations of, or payments to, the Borrower arising from purchase or sale
agreements and loan agreements entered into in the ordinary course of
business), or (ii) the transfer or license of any patent, copyright, trade
secret or other proprietary right to or from the Borrower (other than licenses
arising from the purchase of “off the shelf” or other standard products), or
(iii) provisions restricting the development, manufacture or distribution
of the Borrower’s products or services, or (iv) indemnification by the
Borrower with respect to infringements of proprietary rights.


 


(b)         Since September 30, 2003,
the Borrower has not (i) declared or paid any dividends, or authorized or
made any distribution upon or with respect to any class or series of its
capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities (other than ordinary course obligations, including, without
limitation, money borrowed from Foothill Capital Corp. (“Foothill”) pursuant to
the Loan and Security Agreement dated as of December 19, 2001 between the
Subsidiary and Foothill ) individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000, in excess of
$100,000 in the aggregate, (iii) made any loans or advances to any person
not in excess, individually or in the aggregate, of $100,000, other than ordinary
advances for travel expenses and loans or advances made in the ordinary course
of business pursuant to loan or purchase and sale agreements, or
(iv) sold, exchanged or otherwise disposed of any of its assets or rights,
other than the sale of its inventory in the ordinary course of business and
loans or advances made, or participations entered into,  in the ordinary course of business pursuant
to loan, purchase and sale or participation agreements.


 


(c)          For the purposes of
subsections (a) and (b) above, all indebtedness, liabilities, agreements,
understandings, instruments, contracts and proposed transactions involving the
same person or entity (including persons or entities the Borrower has reason to
believe are affiliated therewith) shall be aggregated for the purpose of
meeting the individual minimum dollar amounts of such subsections.


 


4.7                               Obligations to Related Parties.  Except as set forth on Schedule 4.7 or in
the Exchange Act Filings, there are no obligations of the Borrower to
officers, directors, stockholders or employees of the Borrower other than
(a) for payment of salary for services


 


5

















 


rendered and for bonus payments, (b) reimbursement for reasonable
expenses incurred on behalf of the Borrower, (c) for other standard
employee benefits made generally available to all employees (including stock
option agreements outstanding under any stock option plan approved by the
Boards of Directors of the Borrower) and (d) obligations listed in the
Borrower’s financial statements or disclosed in any of its Exchange Act
Filings.  Except as described above or
set forth on Schedule 4.7, or in the Exchange Act Filings none of the
officers, directors or, to the best of the Borrower’s knowledge, key employees
or stockholders of the Borrower or any members of their immediate families, are
indebted to the Borrower, individually or in the aggregate, in excess of
$50,000 or have any direct or indirect ownership interest in any firm or
corporation with which the Borrower is affiliated or with which the Borrower
has a business relationship, or any firm or corporation which competes with the
Borrower, other than passive investments in publicly traded companies
(representing less than 1% of such company) which may compete with the Borrower.  Except as described above, no officer, director or stockholder, or
any member of their immediate families, is, directly or indirectly, interested
in any material contract with the Borrower and no agreements, understandings or
proposed transactions are contemplated between the Borrower and any such
person.  Except as set forth on Schedule
4.7 or in the Exchange Act Filings, the Borrower is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.


 


4.8                               Changes.  Since
September 30, 2003, except as disclosed in any Exchange Act Filings or in any
Schedule to this Agreement or to any of the Related Agreements, there has not
been:


 


(a)          Any change in the
assets, liabilities, financial condition,  prospects or operations of the Borrower,
other than changes in the ordinary course of business, none of which
individually or in the aggregate has had or is reasonably expected to have a
material adverse effect on such assets, liabilities, financial condition,
prospects or operations of the Borrower;


 


(b)         Any resignation or
termination of any officer, key employee or group of employees of the Borrower;


 


(c)          Any material change,
except in the ordinary course of business, in the contingent obligations of the
Borrower by way of guaranty, endorsement, indemnity, warranty or otherwise;


 


(d)         Any damage, destruction
or loss, whether or not covered by insurance, materially and adversely
affecting the properties, business or prospects or financial condition of the
Borrower;


 


(e)          Any waiver by the
Borrower of a valuable right or of a material debt owed to it;


 


(f)            Any direct or indirect
material loans made by the Borrower to any stockholder, employee, officer or
director of the Borrower, other than advances made in the ordinary course of
business;


 


(g)         Any material change in
any compensation arrangement or agreement with any employee, officer, director
or stockholder;


 


6

















 


(h)         Any declaration or
payment of any dividend or other distribution of the assets of the Borrower;


 


(i)             Any labor
organization activity related to the Borrower;


 


(j)             Any debt, obligation
or liability incurred, assumed or guaranteed by the Borrower, except those for
immaterial amounts and for current liabilities incurred in the ordinary course
of business;


 


(k)          Any sale, assignment or
transfer of any patents, trademarks, copyrights, trade secrets or other
intangible assets;


 


(l)             Any change in any
material agreement to which the Borrower is a party or by which it is bound
which may materially and adversely affect the business, assets, liabilities,
financial condition, operations or prospects of the Borrower;


 


(m)       Any other event or
condition of any character that, either individually or cumulatively, has or is
reasonably likely to materially and adversely affect the business, assets,
liabilities, financial condition, prospects  or operations of the Borrower; or


 


(n)         Any arrangement or
commitment by the Borrower to do any of the acts described in subsection (a)
through (m) above.


 


4.9                               Title to Properties and Assets; Liens, Etc.
Except as set forth on Schedule 4.9 or described in the Exchange Act
Filings (“Permitted Liens”), the
Borrower has good and marketable title to its properties and assets, and good
title to its leasehold estates, in each case subject to no mortgage, pledge,
lien, lease, encumbrance or charge, other than (a) those resulting from
taxes which have not yet become delinquent, (b) minor liens and
encumbrances which do not materially detract from the value of the property subject
thereto or materially impair the operations of the Borrower, and (c) those
that have otherwise arisen in the ordinary course of business.  All facilities, machinery, equipment,
fixtures, vehicles and other properties owned, leased or used by the Borrower
are in good operating condition and repair and are reasonably fit and usable
for the purposes for which they are being used.  Except as set forth on Schedule 4.9 or described in the
Exchange Act Filings, the Borrower is in compliance with all material terms
of each lease to which it is a party or is otherwise bound.


 


4.10                        Intellectual Property.


 


(a)          The Borrower owns or
possesses sufficient legal rights to all patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes necessary for its business as now conducted
and to the Borrower’s knowledge as presently proposed to be conducted (the “Intellectual
Property”), without any known infringement of the rights of others.
There are no outstanding options, licenses or agreements of any kind relating
to the foregoing proprietary rights, nor is the Borrower bound by or a party to
any options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes of any other person or
entity other than such licenses or agreements arising from the purchase of “off
the shelf” or standard products.


 


7

















 


(b)         The Borrower has not
received any communications alleging that the Borrower has violated any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity, nor is the Borrower
aware of any basis therefor.


 


(c)          The Borrower does not
believe it is or will be necessary to utilize any inventions, trade secrets or
proprietary information of any of its employees made prior to their employment by
the Borrower, except for inventions, trade secrets or proprietary information
that have been rightfully assigned to the Borrower.


 


4.11                        Compliance with Other Instruments.  Except as set forth on Schedule 4.11 and
the Exchange Act Filings, the Borrower is not in violation or default of
any term of its Charter or Bylaws, or of any material provision of any
mortgage, indenture, contract, agreement, instrument or contract to which it is
party or by which it is bound or of any judgment, decree, order or writ.  Except as set forth on Schedule 4.11 hereto,
the execution, delivery and performance of and compliance with this Agreement
and the Related Agreements to which it is a party, and the issuance and sale of
the Note by the Subsidiary and the other Securities by the Company each
pursuant hereto, will not, with or without the passage of time or giving of
notice, result in any such material violation, or be in conflict with or
constitute a default under any such term or provision, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Borrower or the suspension, revocation, impairment,
forfeiture or nonrenewal of any permit, license, authorization or approval
applicable to the Borrower, its business or operations or any of its assets or
properties.


 


4.12                        Litigation. 
Except as set forth on Schedule 4.12 hereto, there is no action,
suit, proceeding or investigation pending or, to the Borrower’s knowledge,
currently threatened against the Borrower that prevents the Borrower to enter
into this Agreement or the Related Agreements, or to consummate the
transactions contemplated hereby or thereby, or which might  result, either individually
or in the aggregate, in any material adverse change in the assets, condition,
affairs or prospects of the Borrower, financially or otherwise, or any change
in the current equity ownership of the Borrower, nor is the Borrower aware that
there is any basis for any of the foregoing. The Borrower is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no material action,
suit, proceeding or investigation by the Borrower currently pending or which
the Borrower intends to initiate.


 


4.13                        Tax Returns and Payments.  The Borrower has timely filed all tax returns (federal, state and
local) required to be filed by it. All taxes shown to be due and payable on
such returns, any assessments imposed, and to the Borrower’s knowledge all other
taxes due and payable by the Borrower on or before the Closing, have been paid
or will be paid prior to the time they become delinquent except for such taxes
and assessments bring contested in good faith in accordance with Section 6.7
hereof.  Except as set forth on Schedule 4.13, the
Borrower has not been advised (a) that any of its returns, federal, state
or other, have been or are being audited as of the date hereof, or (b) of
any deficiency in assessment or proposed judgment to its federal, state or
other taxes. The Borrower has no knowledge of any liability of any tax to be
imposed upon its properties or assets as of the date of this Agreement that is
not adequately provided for.


 


8

















 


4.14                        Employees.  Except
as set forth on Schedule  4.14, the Borrower has no collective
bargaining agreements with any of its employees.  There is no labor union organizing activity pending or, to the
Borrower’s knowledge, threatened with respect to the Borrower.  Except as disclosed in the Exchange Act Filings or on Schedule 4.14,
the Borrower is not a party to or bound by any currently effective
employment contract, deferred compensation arrangement, bonus plan, incentive
plan, profit sharing plan, retirement agreement or other employee compensation
plan or agreement. To the Borrower’s knowledge, no employee of the Borrower,
nor any consultant with whom the Borrower has contracted, is in violation of
any term of any employment contract, proprietary information agreement or any
other agreement relating to the right of any such individual to be employed by,
or to contract with, the Borrower because of the nature of the business to be
conducted by the Borrower; and to the Borrower’s knowledge the continued
employment by the Borrower of its present employees, and the performance of the
Borrower’s contracts with its independent contractors, will not result in any
such violation. The Borrower is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with their duties to
the Borrower.  The Borrower has not
received any notice alleging that any such violation has occurred. Except for
employees who have a current effective employment agreement with the Borrower,
no employee of the Borrower has been granted the right to continued employment
by the Borrower or to any material compensation following termination of
employment with the Borrower. Except as set forth on Schedule 4.14, the
Borrower is not aware that any officer, key employee or group of employees
intends to terminate his, her or their employment with the Borrower, nor does
the Borrower have a present intention to terminate the employment of any
officer, key employee or group of employees.


 


4.15                        Registration Rights and Voting Rights.  Except
as set forth on Schedule 4.15 and Schedule 7(b) of the Registration
Rights Agreement, and except as disclosed in Exchange Act Filings, the
Borrower is presently not under any obligation, and has not granted any rights,
to register any of the Borrower’s presently outstanding securities or any of
its securities that may hereafter be issued. 
Except as set forth on Schedule 4.15 and except as disclosed in
Exchange Act Filings, to the Borrower’s knowledge, no stockholder of the
Borrower has entered into any agreement with respect to the voting of equity
securities of the Borrower.


 


4.16                        Compliance with Laws; Permits.  Except as set forth on Schedule 4.16,
to its knowledge, the Borrower is not in violation in any material respect of
any applicable statute, rule, regulation, order or restriction of any domestic
or foreign government or any instrumentality or agency thereof in respect of
the conduct of its business or the ownership of its properties which violation
would materially and adversely affect the business, assets, liabilities,
financial condition, operations or prospects of the Borrower. No governmental
orders, permissions, consents, approvals or authorizations are required to be
obtained and no registrations or declarations are required to be filed with any
governmental authority in connection with the execution and delivery of this
Agreement and the issuance of any of the Securities, except such as has been
duly and validly obtained or filed, or with respect to any filings that must
be, or as contemplated by this Agreement and the Related Agreements will be
made after the Closing, as will be filed in a timely manner. The Borrower has
all material franchises, permits, licenses and any similar authority necessary
for the conduct of its business as


 


9

















 


now being conducted by it, the lack of which would materially and
adversely affect the business, properties, prospects or financial condition of
the Borrower.


 


4.17                        Environmental and Safety Laws.  The Borrower is not in violation of any
applicable statute, law or regulation relating to the environment or occupational
health and safety, and to its knowledge, no material expenditures are or will
be required in order to comply with any such existing statute, law or
regulation. Except as set forth on Schedule 4.17, no Hazardous Materials
(as defined below) are used or have been used, stored, or disposed of by the
Borrower or, to the Borrower’s knowledge, by any other person or entity on any
property owned, leased or used by the Borrower. For the purposes of the
preceding sentence, “Hazardous Materials” shall mean (a) materials
which are listed or otherwise defined as “hazardous” or “toxic” under any applicable
local, state, federal and/or foreign laws and regulations that govern the
existence and/or remedy of contamination on property, the protection of the
environment from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building materials, or
(b) any petroleum products or nuclear materials.


 


4.18                        Valid Offering. 
Assuming the accuracy of the representations and warranties of the
Purchaser contained in this Agreement, the offer, sale and issuance of the
Securities will be exempt from the registration requirements of the Securities
Act of 1933, as amended (the “Securities Act”), and will have been
registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.


 


4.19                        Full Disclosure. 
The Borrower has provided the Purchaser with all information requested
by the Purchaser in connection with its decision to purchase the Note and
Warrant, including all information the Borrower believes is reasonably
necessary to make such investment decision. Neither this Agreement, the
exhibits and schedules hereto, the Related Agreements nor any other document
delivered by the Borrower to Purchaser or its attorneys or agents in connection
herewith or therewith or with the transactions contemplated hereby or thereby,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances in which they are made, not misleading. Any
financial projections and other estimates provided to the Purchaser by the Borrower
were based on the Borrower’s experience in the industry and on assumptions of
fact and opinion as to future events which the Borrower, at the date of the
issuance of such projections or estimates, believed to be reasonable.


 


4.20                        Insurance.  The
Borrower has general commercial,  fire
and casualty insurance policies with coverages which the Borrower believes are
customary for companies similarly situated to the Borrower in the same or
similar business.


 


4.21                        SEC Reports.  Except
as set forth on Schedule 4.21, the Borrower has filed all proxy
statements, reports and other documents required to be filed by it under the
Exchange Act. The Borrower has furnished the Purchaser with, or otherwise made
available via the website of the Securities and Exchange Commission at
www.sec.gov, copies of (i) its Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2002 and (ii) its Quarterly Reports on Form 10-QSB for the
fiscal quarters ended March 31, 2003, 
June 30, 2003, and September 30, 2003, and the Form 8-K filings which
have been made during 2003 to date


 


10

















 


(collectively, the “SEC Reports”). Except as set forth on Schedule
4.21, each SEC Report was, at the time of its filing, in substantial
compliance with the requirements of its respective form and none of the SEC
Reports, nor the financial statements (and the notes thereto) included in the
SEC Reports, as of their respective filing dates, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.


 


4.22                        Listing. Except as disclosed in the the Exchange Act
Filings or on Schedule 4.22, the Company’s Common Stock is listed for trading
on the American Stock Exchange (“AMEX”) and satisfies all requirements for the
continuation of such trading. Except as disclosed in the Exchange Act Filings
or on Schedule 4.22, the Company has not received any notice that its Common
Stock will be delisted from AMEX or that its Common Stock does not meet all
requirements for continued listing.


 


4.23                        No Integrated Offering.  Neither the Borrower, nor any of its affiliates, nor any person
acting on its or their behalf, has directly or indirectly made any offers or
sales of any security or solicited any offers to buy any security under
circumstances that would cause the offering of the Securities pursuant to this
Agreement to be integrated with prior offerings by the Borrower for purposes of
the Securities Act which would prevent the Borrower from selling the Securities
pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions, nor will the Borrower or any
of its affiliates or subsidiaries take any action or steps that would cause the
offering of the Securities to be integrated with other offerings which would
prevent the Borrower from selling the Securities pursuant to Rule 506 under the
Securities Act, or any applicable exchange-related stockholder approval
provisions.


 


4.24                        Stop Transfer. 
The Securities are restricted securities as of the date of this
Agreement.  The Company will not issue
any stop transfer order or other order impeding the sale and delivery of any of
the Securities at such time as the Securities are registered for public sale or
an exemption from registration is available, except as required by state and
federal securities laws.


 


4.25                        Dilution.  The
Company specifically acknowledges that its obligation to issue the shares of
Common Stock upon conversion of the Note and exercise of the Warrant is binding
upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.


 


4.26                           All
of the Collateral (as such term is defined in the Security Agreement dated as
of the date hereof between the Subsidiary and the Purchaser (the “Security
Agreement”)  (i) is owned by the
Subsidiary free and clear of all Liens (including any claims of infringement)
except those in Purchaser’s favor and Permitted Liens and “Permitted
Encumbrances” (as such term is defined in the Security Agreement) and (ii) is
not subject to any agreement prohibiting the granting of a lien or requiring notice
of or consent to the granting of a Lien, except for such agreements as have
been waived or such consents obtained with respect to Subsidiary’s granting a
security interest in the Collateral to Purchaser pursuant to the Security
Agreement..


 


4.27                           The
liens granted pursuant to the Security Agreement, upon completion of the
filings and other actions (which, in the case of all filings and other
documents requested by


 


11

















 


Purchaser have been delivered to Purchaser in duly executed form)
constitute valid perfected security interests in all of the Collateral in favor
of Purchaser as security for the prompt and complete payment and performance of
the all of the obligations of the Company and the Subsidiary to the Purchaser
hereunder, pursuant to the Note and the Related Agreements (the “Obligations”), enforceable in accordance
with the terms hereof against any and all creditors of and any purchasers from
the Company and the Subsidiary, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors’ rights, and (b) general principles of
equity that restrict the availability of equitable or legal remedies, and such
security interest is subject to all other Permitted Liens and Permitted
Encumbrances in existence on the date hereof.


 


4.26                        To
the Company’s knowledge, except for liens held by Foothill , no effective
security agreement, mortgage, deed of trust, financing statement, equivalent
security or lien instrument or continuation statement covering all or any part
of the Collateral is or will be on file or of record in any public office,
except those relating to Permitted Liens and Permitted Encumbrances or those
that would fail to have a material adverse effect .


 


5.                                      REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.


 


The Purchaser hereby represents and warrants to the
Borrower as follows (such representations and warranties do not lessen or
obviate the representations and warranties of the Company set forth in this
Agreement):


 


5.1                               No Shorting.  The Purchaser or any of its
affiliates and investment partners will not and will not cause any
person or entity, directly or indirectly, to engage in “short sales” of the
Company’s Common Stock as long as the Note shall be outstanding.


 


5.2                               Requisite Power and Authority.  Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
corporate action on Purchaser’s part required for the lawful execution and
delivery of this Agreement and the Related Agreements have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except (a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors’ rights,
and (b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.


 


5.3                               Investment Representations. Purchaser understands
that the Securities are being offered and sold pursuant to an exemption from
registration contained in the Securities Act based in part upon Purchaser’s
representations contained in the Agreement, including, without limitation, that
the Purchaser is an “accredited investor” within the meaning of Regulation D
under the Securities Act of 1933, as amended (the “Securities Act”).  The
Purchaser confirms that it has received or has had full access to all the
information it considers necessary or appropriate to make an informed
investment decision with respect to the Note and the Warrant to be purchased by
it under this Agreement and the Note Shares and the Warrant


 


12

















 


Shares acquired by it upon the conversion of the Note and the exercise
of the Warrant, respectively. The Purchaser further confirms that it has had an
opportunity to ask questions and receive answers from the Company regarding the
Company’s business, management and financial affairs and the terms and
conditions of the Offering, the Note, the Warrant and the Securities and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Purchaser or to which the
Purchaser had access.


 


5.4                               Purchaser Bears Economic Risk.   Purchaser has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect its
own interests.  Purchaser must bear the
economic risk of this investment until the Securities are sold pursuant to (i)
an effective registration statement under the Securities Act, or (ii) an
exemption from registration is available with respect to such sale.


 


5.5                               Acquisition for Own Account.  Purchaser is acquiring the Note and Warrant
and the Note Shares and the Warrant Shares for Purchaser’s own account for
investment only, and not as a nominee or agent and not with a view towards or
for resale in connection with their distribution.


 


5.6                               Purchaser Can Protect Its Interest.   Purchaser represents that by reason of its,
or of its management’s, business and financial experience, Purchaser has the
capacity to evaluate the merits and risks of its investment in the Note, the
Warrant and the Securities and to protect its own interests in connection with
the transactions contemplated in this Agreement, and the Related Agreements.  Further, Purchaser is aware of no
publication of any advertisement in connection with the transactions
contemplated in the Agreement or the Related Agreements.


 


5.7                               Accredited Investor.  
Purchaser represents that it is an accredited investor within the meaning
of Regulation D under the Securities Act.


 


5.8                               Legends.


 


(a)          The Note shall bear
substantially the following legend:


 


“THIS NOTE AND THE COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS.  THIS NOTE AND THE COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
NOTE OR SUCH SHARES UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY


 


13

















 


SATISFACTORY TO EQUIFIN, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED.”


 


(b)         The Note Shares and the
Warrant Shares,  shall bear a legend
which shall be in substantially the following form until such shares are
covered by an effective registration statement filed with the SEC:


 


“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO EQUIFIN, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.”


 


(c)          The Warrant shall bear
substantially the following legend:


 


“THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE
COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK UNDER
SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO EQUIFIN, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.”


 


6.                                      COVENANTS OF THE COMPANY.    The Company and the Subsidiary jointly and severally
covenants and agrees, as applicable with the Purchaser as follows:


 


6.1                               Stop-Orders. The Company will advise the Purchaser,
promptly after it receives notice of issuance by the Securities and Exchange
Commission (the “SEC”), any state securities commission or any other regulatory
authority of any stop order or of any order preventing or suspending any
offering of any securities of the Company, or of the suspension of the
qualification of the Common Stock of the Company for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.


 


6.2                               Listing.   The
Company shall promptly secure the listing of the shares of Common Stock
issuable upon conversion of the Note and upon the exercise of the Warrant on


 


14

















 


the AMEX or other exchange or trading market upon which the Common
Stock is then listed and /or traded ( for purposes of this Agreement,
“Principal Market” shall mean NASD OTC Bulletin Board, NASDAQ SmallCap Market,
NASDAQ National Market System, AMEX or New York Stock Exchange) (subject to
official notice of issuance) and shall maintain such listing so long as any
other shares of Common Stock shall be so listed.  The Company will maintain the trading of its Common Stock on a
Principal Market, and will comply in all material respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers (“NASD”) and such exchanges, as
applicable.


 


6.3                               Market Regulations.   The Company, if required by law, shall notify the SEC,  and applicable state authorities, in
accordance with their requirements, of the transactions contemplated by this
Agreement, and shall take all other necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation, for the legal
and valid issuance of the Securities to Purchaser and promptly provide copies
thereof to Purchaser.


 


6.4                               Reporting Requirements.   The Company will timely file with the SEC
all reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file
reports thereunder even if the Exchange Act or the rules or regulations
thereunder would permit such termination.


 


6.5                               Use of Funds.   The
Borrower agrees that it will use the proceeds of the sale of the Note and
Warrant for general corporate purposes only, which shall include, in addition
to repayments to Foothill of amounts outstanding under the Foothill Loan and
Security Agreement, the repayment of certain indebtedness of the Company
outstanding on the Closing Date in an amount equal to up to forty percent (40%)
of the original principal amount of the Note.


 


6.6                               Access to Facilities.  The Borrower will permit any representatives designated by the
Purchaser (or any successor of the Purchaser), upon reasonable notice and
during normal business hours, at such person’s expense and accompanied by a
representative of the Borrower , to (a) visit and inspect any of the properties
of the Borrower, (b) examine the corporate and financial records of the
Borrower (unless such examination is not permitted by federal, state or local
law or by contract) and make copies thereof or extracts therefrom and (c)
discuss the affairs, finances and accounts of the Borrower with the directors,
officers and independent accountants of the Borrower. Notwithstanding the
foregoing, the Borrower will not provide any material, non-public information
to the Purchaser unless the Purchaser signs a confidentiality agreement and
otherwise complies with Regulation FD, under the federal securities laws.


 


6.7                               Taxes.    The Borrower will promptly pay and discharge,
or cause to be paid and discharged, when due and payable, all lawful taxes,
assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Borrower; provided, however, that any such
tax, assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Borrower shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Borrower will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings
to foreclose any lien which may have attached as security therefor.


 


15

















 


6.8                               Insurance.    The
Borrower will keep its assets which are of an insurable character insured by
financially sound and reputable insurers against loss or damage by fire,
explosion and other risks customarily insured against by companies in similar
business similarly situated as the Borrower; and the Borrower will maintain,
with financially sound and reputable insurers, insurance against other hazards
and risks and liability to persons and property to the extent and in the manner
which the Borrower reasonably believes is customary for companies in similar business
similarly situated as the Borrower and to the extent available on commercially
reasonable terms.


 


6.9                               Intellectual Property.    The Borrower shall maintain in full force and effect
its corporate existence, rights and franchises and all licenses and other
rights to use Intellectual Property owned or possessed by it and reasonably
deemed to be necessary to the conduct of its business.


 


6.10                        Properties.   The
Borrower will keep its properties in good repair, working order and condition,
reasonable wear and tear excepted, and from time to time make all needful and
proper repairs, renewals, replacements, additions and improvements thereto; and
the Borrower will at all times comply with each provision of all leases to
which it is a party or under which it occupies property if the breach of such
provision could reasonably be expected to have a material adverse effect.


 


6.11                        Confidentiality. 
The Borrower agrees that it will not disclose, and will not include in
any public announcement, the name of the Purchaser, unless expressly agreed to
by the Purchaser or unless and until such disclosure is required by law or
applicable regulation or applicable securities exchange rules, and then only to
the extent of such requirement.


 


6.12                        Required Approvals.  For so long as 25% of the
principal amount of the Note is outstanding, the Borrower, without the
prior written consent of the Purchaser, shall not:


 


(a)          directly or indirectly
declare or pay any dividends, other than dividends with respect to its
preferred stock;


 


(b)         liquidate, dissolve or
effect a material reorganization;


 


(c)          become subject to
(including, without limitation, by way of amendment to or modification of) any
agreement or instrument which by its terms would (under any circumstances)
restrict the Borrower’s right to perform the provisions of this Agreement or
any of the agreements contemplated thereby; or


 


(d)         materially alter or
change the nature of the business of the Borrower.


 


6.13                        Reissuance of Securities.  The Company agrees to reissue certificates representing the
Securities without the legends set forth in Section 5.8 above at such time as
(a) the holder thereof is permitted to dispose of such Securities pursuant to
Rule 144(k) under the Securities Act, or (b) upon resale subject to an
effective registration statement after such Securities are registered under the
Securities Act.  The Company agrees to
cooperate with the Purchaser in connection with all resales pursuant to Rule
144(d) and Rule 144(k) and provide


 


16

















 


legal opinions necessary to allow such resales provided the Company and
its counsel receive reasonably requested representations from the selling
Purchaser and broker, if any.


 


6.14                        Opinion. On the Closing Date, the Company will deliver to
the Purchaser an opinion acceptable to the Purchaser from the Company’s legal
counsel.  The Company will provide, at
the Company’s expense, such other legal opinions in the future as are
reasonably necessary for the conversion of the Note and exercise of the
Warrant.


 


6.15                        Encumbrances.  Except
for Permitted Liens and Permitted Encumbrances, neither the Company nor the
Subsidiary shall encumber, mortgage, pledge, assign or grant any lien in any
Collateral of the Subsidiary any of the Subsidiary’s other assets to anyone
other than Purchaser .


 


6.16                        Defense of Collateral. 
Each of the Company and the Subsidiary shall, subject to the right
of holders of Permitted Liens and the Permitted Encumbrances, defend the right,
title and interest of Purchaser in and to the Collateral against the claims and
demands of all persons whomsoever, and take such actions, including (i) all
actions necessary to grant Purchaser “control” of the Collateral, with any
agreements establishing control to be in form and substance satisfactory to
Purchaser, (ii) the prompt (but in no event later than five (5) Business Days
following Purchaser’s request therefor) delivery to Purchaser of all original
instruments, chattel paper, and negotiable documents which are part of the
Collateral and owned by the Company or the Subsidiary (in each case,
accompanied by stock powers, allonges or other instruments of transfer executed
in blank), (iii) notification of Purchaser’s interest in Collateral at
Purchaser’s request, and (iv) the institution of litigation against third
parties as shall be prudent in order to protect and preserve the Company’s, the
Subsidiary’s and Purchaser’s respective and several interests in the
Collateral.


 


6.17                        Commercial Tort Claims. 
Each of the Company and the Subsidiary shall promptly, and in any
event within four (4) Business Days after the same is acquired by it, notify
Purchaser of any commercial tort claim (as defined in the UCC), directly
related to the Collateral, acquired by it and unless otherwise consented by
Purchaser, the Company and or the Subsidiary shall enter into a supplement to
this Agreement granting to Purchaser a lien in such commercial tort claim.


 


6.18                        Books and Records. 
The Company and the Subsidiary shall place notations upon their
books and records and any consolidated or consolidating financial statement of
Company to disclose Purchaser’s lien on the Collateral.


 


6.19                        Valid Security Interest. 
The Company and the Subsidiary shall perform in a reasonable time
all other steps requested by Purchaser to create and maintain in Purchaser’s
favor a valid perfected second lien in all Collateral subject only to Permitted
Liens and the Permitted Encumbrances.


 


6.20                        Collateral Value. 
The Company and/or the Subsidiary shall notify Laurus promptly and
in any event within five (5) Business Days after obtaining actual knowledge of
any loss or diminution in the value of any of the Collateral if such loss or
diminution would have a material adverse effect.


 


17

















 


6.21                        Equipment.  Each
of the Company and the Subsidiary shall keep and maintain its equipment in good
operating condition, except for ordinary wear and tear, and shall make all
necessary repairs and replacements thereof so that the value and operating
efficiency shall, consistent with industry practices, at all times be
maintained and preserved.  Each of the
Company the Subsidiary shall use its best efforts to avoid having any such
items become a fixture to real estate or accessions to other personal property.


 


6.22                        Borrowing Base Certificate.  The Company hereby agrees to deliver to
Purchaser no less than once per business day, the form of borrowing base
certificate that the Subsidiary is required to deliver to Foothill along with
an statement of all amounts then outstanding under the Foothill Loan and
Security Agreement.


 


7.                                      COVENANTS OF THE
PURCHASER.   The Purchaser covenants and
agrees with the Company as follows:


 


7.1                               Confidentiality.. 
The Purchaser agrees that it will not disclose, and will not include in
any public announcement, the name of the Company or the Subsidiary, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.


 


7.2                               Non-Public Information. 
The Purchaser agrees not to
effect any sales in the shares of the Company’s Common Stock while in
possession of material, non-public information regarding the Company if such
sales would violate applicable securities law.


 


8.                                      COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION.



 


8.1                               Borrower Indemnification.   The Borrower agrees to indemnify, hold
harmless, reimburse and defend Purchaser, each of Purchaser’s officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon
the Purchaser which results, arises out of or is based upon (i) any
misrepresentation by Borrower or breach of any warranty by Borrower in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement, or (ii) any breach or default in performance by Borrower of any
covenant or undertaking to be performed by Borrower hereunder, or any other
agreement entered into by the Borrower and Purchaser relating hereto.


 


8.2                               Purchaser’s Indemnification.  Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Borrower and each of the Borrower’s
officers, directors, agents, affiliates, control persons and principal
shareholders, at all times against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Borrower which results, arises out of or is
based upon (i) any misrepresentation by Purchaser or breach of any warranty by
Purchaser in this Agreement or in any exhibits or schedules attached hereto or
any Related Agreement; or (ii) any breach or default in performance by
Purchaser of any covenant or undertaking to be performed by Purchaser
hereunder, or any other agreement entered into by the Borrower and Purchaser
relating hereto.


 


18

















 


8.3                               Procedures.  The
procedures and limitations set forth in Section 10.2(c) and (d) shall apply to
the indemnifications set forth in Sections 8.1 and 8.2 above.


 


9.                                      CONVERSION OF CONVERTIBLE NOTE.


 


9.1                               Mechanics of Conversion.


 


(a)          Provided the Purchaser
has notified the Company of the Purchaser’s intention to sell the Note Shares
and the Note Shares are included in an effective registration statement or are
otherwise exempt from registration when sold: 
(i) Upon the conversion of the Note or part thereof, the Company shall,
at its own cost and expense, take all necessary action (including the issuance
of an opinion of counsel) to assure that the Company’s transfer agent shall
issue shares of the Company’s Common Stock in the name of the Purchaser (or its
nominee) or such other persons as designated by the Purchaser in accordance
with Section 9.1(b) hereof and in such denominations to be specified
representing the number of Note Shares issuable upon such conversion; and (ii)
the Company warrants that no instructions other than these instructions have
been or will be given to the transfer agent of the Company’s Common Stock and
that after the Effective Date (as hereinafter defined) the Note Shares issued
will be freely transferable subject to the prospectus delivery requirements of
the Securities Act and the provisions of this Agreement, and will not contain a
legend restricting the resale or transferability of the Note Shares.


 


(b)         Purchaser will give
notice of its decision to exercise its right to convert the Note or part
thereof by telecopying or otherwise delivering an executed and completed notice
of the number of shares to be converted to the Company (the “Notice of
Conversion”). The Purchaser will not be required to surrender the
Note until the Purchaser receives a credit to the account of the Purchaser’s
prime broker through the DWAC system (as defined below), representing the Note
Shares or until the Note has been fully satisfied.  Each date on which a Notice of Conversion is telecopied or
delivered to the Company in accordance with the provisions hereof shall be
deemed a “Conversion
Date.”  Pursuant to the terms
of the Notice of Conversion, and provided that the shares to be issued in
connection therewith are covered by a currently effective registration
statement, the Borrower will issue instructions to the transfer agent
accompanied by an opinion of counsel within one (1) business day of the date of
the delivery to Borrower of the Notice of Conversion and shall use best efforts
to cause the transfer agent to transmit the certificates representing the Conversion
Shares to the Holder by crediting the account of the Purchaser’s prime broker
with the Depository Trust Company (“DTC”)
through its Deposit Withdrawal Agent Commission (“DWAC”) system within three (3) business days after receipt by
the Company of the Notice of Conversion (the “Delivery Date”).


 


(c)          The Company understands
that a delay in the delivery of the Note Shares in the form required pursuant
to Section 9 hereof beyond the Delivery Date could result in economic loss to
the Purchaser. In the event that the Company fails to direct its transfer agent
to deliver the Note Shares to the Purchaser via the DWAC system within the time
frame set forth in Section 9.1(b) above and the Note Shares are not delivered
to the Purchaser by the Delivery Date, as compensation to the Purchaser for
such loss, the Company agrees to pay late payments to the Purchaser for late
issuance of the Note Shares in the form required pursuant to Section 9 hereof
upon conversion of the Note in the amount equal to the greater of (i) $500 per
business


 


19

















 


day after the Delivery Date or (ii) the Purchaser’s actual damages from
such delayed delivery. Notwithstanding the foregoing, the Company will not owe
the Purchaser any late payments if the delay in the delivery of the Note Shares
beyond the Delivery Date is solely out of the control of the Company and the
Company is actively trying to cure the cause of the delay.  The Company shall pay any payments incurred
under this Section in immediately available funds upon demand and, in the case
of actual damages, accompanied by reasonable documentation of the amount of
such damages. Such documentation shall show the number of shares of Common
Stock the Purchaser is forced to purchase (in an open market transaction) which
the Purchaser anticipated receiving upon such conversion, and shall be
calculated as the amount by which (A) the Purchaser’s total purchase price
(including customary brokerage commissions, if any) for the shares of Common
Stock so purchased exceeds (B) the aggregate principal and/or interest amount
of the Note, for which such Conversion Notice was not timely honored.


 


Nothing contained herein
or in any document referred to herein or delivered in connection herewith shall
be deemed to establish or require the payment of a rate of interest or other
charges in excess of the maximum permitted by applicable law.  In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
amount permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to a Purchaser and thus refunded
to the Company.


 


9.2                               Maximum Conversion. 
The Purchaser shall not be entitled to convert on a Conversion Date, nor
shall the Company be permitted to require the Purchaser to accept, that amount
of a Note in connection with that number of shares of Common Stock which would
be in excess of the sum of (i) the number of shares of Common Stock
beneficially owned by the Purchaser on a Conversion Date, and (ii) the number
of shares of Common Stock issuable upon the conversion of the Note with respect
to which the determination of this proviso is being made on a Conversion Date,
which would result in beneficial ownership by the Purchaser of more than 4.99%
of the outstanding shares of Common Stock of the Company on such Conversion
Date.  For the purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and Regulation 13d-3
thereunder. Upon an Event of Default under the Note, the conversion limitation
in this Section 9.2 shall become null and void.


 


10.                               REGISTRATION RIGHTS. 


 


10.1                        Registration Rights Granted.  The Company hereby grants registration
rights to the Purchaser pursuant to a Registration Rights Agreement dated as of
even date herewith between the Company and the Purchaser.


 


10.2                        Indemnification. 


 


(a)          In the event of a
registration of any Registrable Securities under the Securities Act pursuant to
the Registration Rights Agreement, the Company will indemnify and hold harmless
the Purchaser, and its officers, directors and each other person, if any, who
controls the Purchaser within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which the Purchaser, or
such persons may become subject under the Securities Act or otherwise, insofar
as such losses, claims, damages or


 


20

















 


liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable Securities
were registered under the Securities Act pursuant to the Registration Rights
Agreement, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Purchaser, and each such person for any reasonable legal or
other expenses incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made
in conformity with information furnished by or on behalf of the Purchaser or
any such person in writing specifically for use in any such document.


 


(b)         In the event of a
registration of the Registrable Securities under the Securities Act pursuant to
the Registration Rights Agreement, the Purchaser will indemnify and hold
harmless the Company, and its officers, directors and each other person, if
any, who controls the Company within the meaning of the Securities Act, against
all losses, claims, damages or liabilities, joint or several, to which the
Company or such persons may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the registration
statement under which such Registrable Securities were registered under the
Securities Act pursuant to the Registration Rights Agreement, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading or that arise out of any failure
of the Purchaser to comply with applicable prospectus delivery requirements or
its covenants and agreements contained in this Agreement or the Registration
Rights Agreement, and will reimburse the Company and each such person for any
reasonable legal or other expenses incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that other than with respect to any failure of the Purchaser
to comply with applicable prospectus delivery requirements or its covenants and
agreements contained in this Agreement or the Registration Rights Agreement,
the Purchaser will be liable in any such case if and only to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished in writing to the Company by or
on behalf of the Purchaser specifically for use in any such document.


 


(c)          Promptly after receipt
by an indemnified party hereunder of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party hereunder, notify the indemnifying party in
writing thereof, but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to such indemnified party other
than under this Section 10.2 and shall only relieve it from any liability which
it may have to such indemnified party under this Section 10.2 if and to the
extent the indemnifying party is prejudiced by such omission. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party


 


21

















 


of the commencement thereof, the indemnifying party shall be entitled
to participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not
be liable to such indemnified party under this Section 10.2 for any legal
expenses subsequently incurred by such indemnified party in connection with the
defense thereof; if the indemnified party retains its own counsel, then the
indemnified party shall pay all fees, costs and expenses of such counsel,
provided, however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified party
shall have the right to select one separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by the indemnifying party as
incurred. The indemnifying party shall not be liable for any settlement of any
such action effected without its written consent, which consent shall not be
unreasonably withheld.


 


(d)         In order to provide for
just and equitable contribution in the event of joint liability under the
Securities Act in any case in which either (i) the Purchaser, or any
controlling person of the Purchaser, makes a claim for indemnification pursuant
to this Section 10.2 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 10.2 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of the
Purchaser or controlling person of the Purchaser in circumstances for which
indemnification is provided under this Section 10.2; then, and in each such
case, the Company and the Purchaser will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Purchaser is responsible only for
the portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, provided,
however, that, in any such case, (A) the Purchaser will not be required to
contribute any amount in excess of the public offering price of all such
securities offered by it pursuant to such registration statement; and (B) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 10 of the Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.


 


10.3                        OFFERING RESTRICTIONS. Except as previously
disclosed in the SEC Reports or in the Exchange Act Filings, or stock or stock
options granted to employees or directors of the Company; or shares of
preferred stock issued to pay dividends in respect of the Company’s preferred
stock; or equity or debt issued in connection with an acquisition of a business
or assets by the Company; or the issuance by the Company of stock in connection
with the establishment of a joint venture partnership or licensing arrangement
(these exceptions hereinafter referred to as the “Excepted Issuances”), the
Company will not issue any securities with a continuously variable/floating
conversion feature which are or could be (by conversion or


 


22

















 


registration) free-trading securities (i.e. common stock subject to a
registration statement) prior to the full repayment or conversion of the Note
(the “Exclusion
Period”).


 


11.                               MISCELLANEOUS.


 


11.1                        Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.  ANY
ACTION BROUGHT BY EITHER PARTY AGAINST THE OTHER CONCERNING THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW
YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK.  BOTH PARTIES AND THE INDIVIDUALS EXECUTING
THIS AGREEMENT AND OTHER AGREEMENTS ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO
THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY JURY. IN THE EVENT THAT ANY
PROVISION OF THIS AGREEMENT OR ANY OTHER AGREEMENT DELIVERED IN CONNECTION
HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY APPLICABLE STATUTE OR RULE OF
LAW, THEN SUCH PROVISION SHALL BE DEEMED INOPERATIVE TO THE EXTENT THAT IT MAY
CONFLICT THEREWITH AND SHALL BE DEEMED MODIFIED TO CONFORM WITH SUCH STATUTE OR
RULE OF LAW.  ANY SUCH PROVISION WHICH
MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF ANY OTHER PROVISION OF ANY AGREEMENT.


 


11.2                        Survival.  The
representations, warranties, covenants and agreements made herein shall survive
any investigation made by the Purchaser and the closing of the transactions
contemplated hereby to the extent provided therein. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.


 


11.3                        Successors. 
Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon, the successors, heirs,
executors and administrators of the parties hereto and shall inure to the
benefit of and be enforceable by each person who shall be a holder of the
Securities from time to time, other than the holders of Common Stock which has
been sold by the Purchaser pursuant to Rule 144 or an effective registration
statement. Purchaser may not assign its rights hereunder to a competitor of the
Company.


 


11.4                        Entire Agreement. 
This Agreement, the exhibits and schedules hereto, the Related
Agreements and the other documents delivered pursuant hereto constitute the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and no party shall be liable or bound to any other in any
manner by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.


 


23

















 


11.5                        Severability. 
In case any provision of the Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.


 


11.6                        Amendment and Waiver.


 


(a)          This Agreement may be
amended or modified only upon the written consent of the Company and the
Purchaser.


 


(b)         The obligations of the
Company and the rights of the Purchaser under this Agreement may be waived only
with the written consent of the Purchaser.


 


(c)          The obligations of the
Purchaser and the rights of the Company under this Agreement may be waived only
with the written consent of the Company.


 


11.7                        Delays or Omissions.  It is agreed that no delay or omission to exercise any right,
power or remedy accruing to any party, upon any breach, default or
noncompliance by another party under this Agreement or the Related Agreements,
shall impair any such right, power or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of or in any similar breach, default or noncompliance thereafter
occurring. All remedies, either under this Agreement, the Note or the Related
Agreements, by law or otherwise afforded to any party, shall be cumulative and
not alternative.


 


11.8                        Notices.  All
notices required or permitted hereunder shall be in writing and shall be deemed
effectively given: (a) upon personal delivery to the party to be notified,
(b) when sent by confirmed facsimile if sent during normal business hours
of the recipient, if not, then on the next business day, (c) three (3)
business days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt.  All
communications shall be sent to the Company at the address as set forth on the
signature page hereof, with a copy to Lee A. Albanese, Esq., St. John &
Wayne, L.L.C., Two Penn Plaza East, Newark, New Jersey 07105-2249, facsimile
number. 973-491-3408; and if to the Purchaser at the address set forth on the
signature page hereto for such Purchaser, with a copy in the case of the
Purchaser to John E. Tucker, Esq., 825 Third Avenue, 14th Floor, New
York, New York 10022, facsimile number (212) 541-4434, or at such other address
as the Company or the Purchaser may designate by written notice to the other
parties hereto given in accordance herewith.


 


11.9                        Attorneys’ Fees. 
In the event that any suit or action is instituted to enforce any
provision in this Agreement, the prevailing party in such dispute shall be
entitled to recover from the losing party all fees, costs and expenses of
enforcing any right of such prevailing party under or with respect to this
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.


 


24

















 


11.10                 Titles and Subtitles.  The titles of the sections and subsections of the Agreement are
for convenience of reference only and are not to be considered in construing
this Agreement.


 


11.11                 Facsimile Signatures; Counterparts.  This Agreement may be executed by facsimile
signatures and in any number of counterparts, each of which shall be an
original, but all of which together shall constitute one instrument.


 


11.12                 Broker’s Fees. 
Except as set forth on Schedule 11.12 hereof, each party hereto
represents and warrants that no agent, broker, investment banker, person or
firm acting on behalf of or under the authority of such party hereto is or will
be entitled to any broker’s or finder’s fee or any other commission directly or
indirectly in connection with the transactions contemplated herein. Each party
hereto further agrees to indemnify each other party for any claims, losses or
expenses incurred by such other party as a result of the representation in this
Section 11.12 being untrue.


 


11.13                 Construction. 
Each party acknowledges that its legal counsel participated in the
preparation of this Agreement and the Related Agreements and, therefore,
stipulates that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be applied in the interpretation of this
Agreement to favor any party against the other.


 


25

















 


IN WITNESS WHEREOF, the
parties hereto have executed the SECURITIES PURCHASE AGREEMENT as of the
date set forth in the first paragraph hereof.


 


 


	
  COMPANY:

  	
  SUBSIDIARY:

  
	
   

  	
   

  
	
  EQUIFIN,
  INC.

  	
  EQUINOX
  BUSINESS CREDIT CORP.

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
  Address:1011 Highway 71

  Spring Lake, New Jersey 07762

  	
  Address:

  
	
  Attention: 
  Walter M. Craig, Jr.

  	
   

  
	
  Facsimile No.: 732-282-1811

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  PURCHASER:

  	
   

  
	
   

  	
   

  
	
  LAURUS
  MASTER FUND, LTD.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
	
  Address:

  	
  c/o Ironshore Corporate Services Ltd.

  P.O. Box 1234 G.T., Queensgate House,

  South Church Street

  Grand Cayman, Cayman Islands

  	
   

  
											



 


26

















 


LIST OF
EXHIBITS


 


	
  Form
  of Convertible Term Note

  	
   

  	
  Exhibit
  A

  
	
   

  	
   

  	
   

  
	
  Form
  of Warrant

  	
   

  	
  Exhibit
  B

  
	
   

  	
   

  	
   

  
	
  Form
  of Opinion

  	
   

  	
  Exhibit
  C

  
	
   

  	
   

  	
   

  
	
  Form of Escrow Agreement

  	
   

  	
  Exhibit D

  



 

















 


EXHIBIT A


 


FORM OF
CONVERTIBLE NOTE


 


A-1

















 


EXHIBIT B


 


FORM OF
WARRANT


 


B-1

















 


EXHIBIT C


 


FORM OF
OPINION


 


1.                                       The
Company is a corporation validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own, operate and lease its properties and to carry on its business as it is now
being conducted.


 


2.                                       The
Company has the requisite corporate power and authority to execute, deliver and
perform its obligations under the Agreement and Related Agreements.  All corporate action on the part of the
Company and its officers, directors and stockholders necessary has been taken
for (i) the authorization of the Agreement and Related Agreements and the
performance of all obligations of the Company thereunder at the Closing, and
(ii) the authorization, sale, issuance and delivery of the Securities pursuant
to the Agreement and the Related Agreements. 
The Note Shares and the Warrant Shares, when issued pursuant to and in
accordance with the terms of the Agreement and the Related Documents and upon
delivery shall be validly issued and outstanding, fully paid and non
assessable.


 


3.                                       The
execution, delivery and performance of the Agreement, the Note or the Related
Agreements by the Company and the consummation of the transactions on its part
contemplated by any thereof, will not, with or without the giving of notice or
the passage of time or both:


 


(a)                                  Violate
the provisions of the Charter or bylaws of the company; or


 


(b)                                 To
the best of such counsel’s knowledge, violate any judgment, decree, order or
award of any court binding upon the Company.


 


4.                                       The
Agreement and Related Agreements will constitute, valid and legally binding
obligations of the Company, and are enforceable against the Company in
accordance with their respective terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors’ rights, and (b) general
principles of equity that restrict the availability of equitable or legal
remedies.


 


5.                                       To
such counsel’s knowledge, the sale of the Note and the subsequent conversion of
the Note into Note Shares are not subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with.  To such counsel’s knowledge, the sale of the
Warrant and the subsequent exercise of the Warrant for Warrant Shares are not
subject to any preemptive rights or, to such counsel’s knowledge, rights of
first refusal that have not been properly waived or complied with.


 


6.                                       Assuming
the accuracy of the representations and warranties of the Purchaser contained
in the Agreement, the offer, sale and issuance of the Securities on the Closing
Date will be exempt from the registration requirements of the Securities
Act.  To such


 


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counsel’s knowledge, neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf, has directly or indirectly made
any offers or sales of any security or solicited any offers to buy and security
under circumstances that would cause the offering of the Securities pursuant to
this Agreement to be integrated with prior offerings by the Company for
purposes of the Securities Act which would prevent the Company from selling the
Securities pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions.


 


7.                                       There
is no action, suit, proceeding or investigation pending or, to such counsel’s
knowledge, currently threatened against the Company that prevents the right of
the Company to enter into this Agreement or any of the Related Agreements, or
to consummate the transactions contemplated thereby.  To such counsel’s knowledge, the Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality; nor is there any action,
suit, proceeding or investigation by the Company currently pending or which the
Company intends to initiate.


 


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