EXHIBIT 10.1
SELECT COMFORT CORPORATION
NOTE PURCHASE AGREEMENT
June 1, 2001
To Each of the Persons Named in
Schedule 1 to this Agreement
(collectively, the "Purchasers"
and individually, a "Purchaser")
Ladies and Gentlemen:
In consideration of the agreement of the Purchasers to purchase the Notes
and the Warrants (as hereinafter defined), as provided for herein, the
undersigned, Select Comfort Corporation, a Minnesota corporation (the
"Company"), hereby agrees with each of the Purchasers as follows:
1. AUTHORIZATION OF SECURITIES. The Company proposes to authorize, issue
and sell an aggregate of up to $11,000,000 principal amount of its senior
secured convertible notes, to be in substantially the form set forth as Exhibit
1 to this Agreement. The term "Notes", as used herein, shall mean the senior
secured convertible notes to be delivered pursuant to this Agreement and all
notes of the Company issued in exchange or substitution therefor.
The Notes shall be convertible into shares of the Company's Common Stock
(as hereinafter defined) (such shares of Common Stock into which the Notes are
convertible, together with all stock or other securities issued in exchange or
substitution therefor, or in a stock split or reclassification thereof, or as a
stock dividend or other distribution thereon, or otherwise in respect thereof,
being hereinafter sometimes referred to as the "Conversion Stock"), initially at
the rate of one share of Conversion Stock for each $1.00 of outstanding
principal amount of the Notes (subject to adjustment as provided in the Notes).
The Notes shall be guarantied by each Subsidiary (as hereinafter defined) of the
Company pursuant to a Guaranty, to be substantially in the form set forth as
Exhibit 2 to this Agreement (as amended, modified or supplemented from time to
time, the "Guaranty"), and shall be secured (i) by substantially all of the
personal property of the Company pursuant to a Security Agreement-Parent, to be
substantially in the form set forth as Exhibit 3 to this Agreement (as amended,
modified or supplemented from time to time, the "Parent Security Agreement"),
and a Patent and Trademark Security Agreement-Parent, to be in substantially the
form set forth as Exhibit 4 to this Agreement (as amended, modified or
supplemented from time to time, the "Parent Patent and Trademark Security
Agreement"), (ii) by substantially all of the personal property of each
Subsidiary pursuant to a Security Agreement-Subsidiaries, to be substantially in
the form set forth as Exhibit 5 to this Agreement (as amended, modified or
supplemented from time to time, the "Subsidiary Security Agreement"), and (iii)
by all of the capital stock of each Subsidiary pursuant to a Pledge Agreement,
to be substantially in the form set forth as Exhibit 6 to this Agreement (as
amended, modified or supplemented from time to time, the "Pledge Agreement").
The Company also proposes to authorize, issue and sell to the Purchasers
warrants to purchase an aggregate of up to 4,400,000 shares of Common Stock at
an initial exercise price of $1.00 per share (subject to adjustment as provided
in such warrants), such warrants to be substantially in the form of Exhibit 7
hereto. The term "Warrants", as used herein, shall mean the warrants to be
delivered pursuant to this Agreement and all warrants issued in exchange or
substitution therefor; and the term "Warrant Stock", as used herein, shall mean
the shares of Common Stock issuable upon exercise of the Warrants, together with
all stock or other securities issued in exchange or substitution therefor, or in
a stock split or reclassification thereof, or as a stock dividend or other
distribution thereon, or otherwise in respect thereof.
2. SALE AND PURCHASE OF SECURITIES. Subject to the terms and conditions
hereof, the Company agrees to sell to each Purchaser, and each Purchaser agrees
to purchase from the Company, the aggregate principal amount of Notes and
Warrants to purchase the number of shares of Warrant Stock set forth opposite
such Purchaser's name in Schedule 1 hereto, at the purchase price set forth
opposite such Purchaser's name in Schedule 1 hereto. The parties hereto agree
that of such purchase price, $.01 per share of Warrant Stock covered by the
Warrants shall be allocated to the purchase of the Warrants.
3. CLOSING.
(a) The closing of the sale to, and purchase by, the Purchasers of the
Notes and the Warrants (the "Closing") shall occur at the offices of Faegre &
Xxxxxx LLP, 2200 Xxxxx Fargo Center, 00 Xxxxx Xxxxxxx Xxxxxx, Xxxxxxxxxxx,
Xxxxxxxxx, at the hour of 9:00 A.M., Minneapolis time, on the first business day
to occur after satisfaction or waiver of all conditions set forth in Section 7
hereof, or on such other day or at such other time or place as the Purchasers
and the Company shall mutually agree. The date on which the Closing shall occur
is herein called the "Closing Date".
(b) At the Closing, the Company will deliver to each Purchaser the Notes
and the Warrants being purchased by such Purchaser, registered in its name as
stated in Schedule 1 hereto (or in the name of its nominee as may be specified
to the Company at least 24 hours prior to the Closing Date), against payment by
such Purchaser of the purchase price therefor by check, wire transfer of funds
and/or, in the case of St. Xxxx Venture Capital VI, LLC ("St. Xxxx"), conversion
in full of the principal balance of and accrued and unpaid interest on that
certain Demand Note of the Company dated May 1, 2001 payable to the order of
such Purchaser in the original principal amount of $2,000,000 (the "Demand
Note").
(c) Each of the Purchasers acknowledges and agrees that during the period
commencing with the Closing Date and ending two weeks after the Closing Date the
Company may sell an additional aggregate principal amount of senior secured
convertible notes, not to exceed the difference between $12,000,000 and the
aggregate principal amount of the Notes issued at the Closing, and additional
warrants to purchase an additional number of shares of Common Stock, not to
exceed the difference between 4,800,000 and the number of shares of Warrant
Stock issuable upon exercise of the Warrants issued at the Closing, to
additional purchasers who qualify as accredited investors within the meaning of
Rule 501 under the Securities Act (as hereinafter defined) on the same terms as
the sale of the Notes and the Warrants to the Purchasers at the Closing, upon
execution of counterparts of this Agreement by
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such additional purchasers who shall thereupon become bound by and entitled to
the benefits of this Agreement. Such additional purchasers shall, by executing
counterparts of this Agreement, become Purchasers for all purposes of this
Agreement and the Collateral Documents (as hereinafter defined), and Schedule 1
hereto shall be deemed to be appropriately amended. The senior secured
convertible notes of the Company thus sold to such additional purchasers,
together with all notes of the Company issued in exchange or substitution
therefor, shall be deemed to be Notes as such term is defined in this Agreement
and the Collateral Documents, and the warrants of the Company thus sold to such
additional purchasers, together with all warrants issued in substitution or
exchange therefor, shall be deemed to be Warrants as that term is defined in
this Agreement. The sale of such additional securities may be subject to such
conditions as are consistent with those set forth in Section 7 hereof and are
agreed to among the Company and such additional purchasers. Each of the
Purchasers also acknowledges and agrees that such additional purchasers, upon
execution by them of counterparts of the Registration Rights Agreement (as
hereinafter defined), shall become Note Holders as that term is defined in the
Registration Rights Agreement and shall be bound by and entitled to the benefits
of the Registration Right Agreement. The senior secured convertible notes of the
Company thus sold to such additional purchasers, together with all notes of the
Company issued in exchange or substitution therefor, shall be deemed to be
Convertible Notes as such term is defined in the Registration Rights Agreement,
and the warrants of the Company thus sold to such additional purchasers,
together with all warrants issued in substitution or exchange therefor, shall be
deemed to be Note Holder Warrants as that term is defined in the Registration
Rights Agreement.
4. RESTRICTION ON TRANSFER OF SECURITIES.
4.1 RESTRICTIONS. The Notes and the Conversion Stock, and the Warrants
and the Warrant Stock, are transferable only pursuant to (a) a public
offering registered under the Securiities Act of 1933, as amended (the
"Securities Act"), (b) Rule 144 (or any similar rule then in effect)
adopted under the Securities Act ("Rule 144"), if such Rule is available,
and (c) subject to the conditions elsewhere specified in this Section 4,
any other legally available means of transfer; provided, however, that the
transferee of such securities agrees in writing to be bound by the terms of
this Agreement unless such securities will not, immediately following such
transfer, constitute Purchased Securities (as hereinafter defined).
4.2 LEGEND.
(a) Each Note and each of the Warrants shall be endorsed with the
following legend:
"The securities evidenced hereby may not be transferred without
(i) the opinion of counsel reasonably satisfactory to the Company that
such transfer may be lawfully made without registration under the
Federal Securities Act of 1933 and all applicable state securities
laws or (ii) such registration."
Upon the conversion of any Notes or upon the exercise of any Warrant,
unless the Company receives an opinion of counsel from the holder of such a
security reasonably satisfactory to the Company to the effect that a sale,
transfer, assignment, pledge or distribution of the Conversion
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Stock or Warrant Stock issuable upon such conversion or exercise may be
made without registration, or unless such Conversion Stock or Warrant Stock
is being disposed of pursuant to registration under the Securities Act and
any applicable state act, the same legend shall be endorsed on the
certificate evidencing such Conversion Stock or Warrant Stock.
(b) The aforesaid legend shall be removed with respect to securities
held for at least two years (including, with respect to the Conversion
Stock and any Warrant Stock issued upon the exercise of the Conversion
Right described in paragraph 12 of the Warrants, the period during which
the related converted Notes or Warrants had been held) by a person who has
not been an affiliate of the Company (as defined in Rule 144) during the
three months preceding the request for removal of such legend. The
foregoing legend removal requirement is based on Rule 144(k) under the
Securities Act as currently in force, and assumes that such Rule (or a
successor thereto) in substantially its current form shall be in effect at
the time of any such request for legend removal.
(c) A stop transfer order shall be placed with the Company's transfer
agent preventing transfer of any of the securities referred to in paragraph
(a) above pending compliance with the conditions set forth in any such
legend (except as otherwise provided in this Section 4.2).
4.3 REMOVAL OF LEGEND. Any legend endorsed on a certificate or
instrument evidencing a security pursuant to Section 4.2 hereof shall be
removed, and the Company shall issue a certificate or instrument without
such legend to the holder of such security, (a) in accordance with Section
4.2(b) hereof, (b) if such security is being disposed of pursuant to
registration under the Securities Act and any applicable state acts or
pursuant to Rule 144, or (c) if such holder provides the Company with an
opinion of counsel reasonably satisfactory to the Company to the effect
that a sale, transfer, assignment, offer, pledge or distribution for value
of such security may be made without registration and that such legend is
not required to satisfy the applicable exemption from registration.
4.4 REGISTER OF SECURITIES. The Company or its duly appointed agent
shall maintain a separate register for the Notes and the Warrants in which
it shall register the issuance and transfer of all Notes and Warrants. All
transfers of Notes and Warrants shall be recorded on the register
maintained by the Company or its agent, and the Company shall be entitled
to regard the registered holder of such securities as the actual owner of
the securities so registered until the Company or its agent is required to
record a transfer of such securities on its register. The Company or its
agent shall be required to record any such transfer when it receives (a)
the security to be transferred duly and properly endorsed by the registered
holder thereof or by its attorney duly authorized in writing, and (b) the
opinion of counsel referred to in Sections 4.2 and 4.3 hereof or evidence
of compliance with the registration provisions referred to in those
Sections.
5. REPRESENTATIONS AND WARRANTIES BY COMPANY. The Company represents and
warrants to the Purchasers that:
5.1 ORGANIZATION, STANDING, ETC. Each of the Company and the
Subsidiaries (as hereinafter defined) is a corporation duly organized,
validly existing and in good standing
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under the laws of the State of Minnesota, and has the requisite corporate
power and authority to own its properties and to carry on its business as
it is now being conducted. The Company has the requisite corporate power
and authority to issue the Notes and the Conversion Stock, and the Warrants
and the Warrant Stock, and to otherwise execute, deliver and perform its
obligations under the Transaction Documents (as hereinafter defined) to
which it is or will be a party. Each of the Subsidiaries has the requisite
corporate power and authority to execute, deliver and perform its
obligations under each of the Transaction Documents to which it will be a
party. The copies of the Articles of Incorporation and Bylaws of each of
the Company and the Subsidiaries delivered to the Purchasers or their
agents prior to the execution of this Agreement are true and complete
copies of the duly and legally adopted Articles of Incorporation and Bylaws
of such person in effect as of the date of this Agreement. The Company does
not have any direct or indirect equity interest in any firm, corporation,
partnership, limited liability company, joint venture association or other
business organization other than Select Comfort Retail Corporation, Select
Comfort Direct Corporation, Select Comfort SC Corporation, Direct Call
Centers, Inc. and xxxxxxxxxxxxx.xxx corporation, all of the outstanding
equity interests and rights to acquire equity interest of which are
directly or indirectly owned, of record and beneficially, by the Company,
free and clear of all pledges, liens, charges, security interests,
restrictions and encumbrances (except for restrictions on transfer thereof
other than in compliance with federal and state securities laws).
5.2 QUALIFICATION. Each of the Company and the Subsidiaries is duly
qualified or licensed as a foreign corporation in good standing in each
jurisdiction wherein the nature of its activities or of its properties
owned or leased makes such qualification or licensing necessary and failure
to be so qualified or licensed would, individually or in the aggregate, (a)
have a material adverse effect on the business, assets, condition
(financial or otherwise), operations or results of operations of the
Company and the Subsidiaries, taken as a whole, (b) have a material adverse
effect on the legality, validity or enforceability of any of the
Transaction Documents, or (c) materially and adversely impair the ability
of any of the Company or the Subsidiaries to fully perform on a timely
basis its obligations under the Transactions Documents to which it is or
will be a party (collectively or individually, any of clause (a), (b) or
(c) being referred to in this Agreement as a "Material Adverse Effect").
5.3 CORPORATE ACTS AND PROCEEDINGS. Each of the Transaction Documents
to which the Company is or will be a party has been duly authorized by all
necessary corporate action on behalf of the Company, and has been or at the
Closing will be duly executed and delivered by authorized officers of the
Company, and all corporate action necessary to the authorization, creation,
issuance and delivery of the Notes and the Conversion Stock, and the
Warrants and the Warrant Stock, has been taken on the part of the Company.
Each of the Transaction Documents to which any Subsidiary will be a party
has been duly authorized by all necessary corporate action on behalf of
such Subsidiary, and at the Closing will be duly executed and delivered by
authorized officers of such Subsidiary. This Agreement is, and each of the
other Transaction Documents to which the Company will be a party when
executed and delivered pursuant to the terms of this Agreement will be, a
valid and binding agreement of the Company enforceable against the Company
in accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium, fraudulent conveyance or
transfer, reorganization or other similar laws affecting the enforcement of
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creditors' rights generally and by general principles of equity. Each of
the Transaction Documents to which a Subsidiary will be a party when
executed and delivered pursuant to the terms of this Agreement will be a
valid and binding agreement of such Subsidiary enforceable against such
Subsidiary in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, moratorium, fraudulent
conveyance or transfer, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of
equity.
5.4 NO CONFLICTS. None of the execution, delivery or performance by
any of the Company or the Subsidiaries of the Transaction Documents to
which it is or will be a party, nor the consummation by any of the Company
or the Subsidiaries of the transactions contemplated thereby, (a) will
conflict with, or, with or without the giving of notice or passage of time,
or both, result in any breach of, or constitute a default under, or result
in the imposition of any lien or encumbrance upon any asset or property of
any of the Company or the Subsidiaries pursuant to, any applicable law,
administrative regulation or judgment, order or decree of any court or
governmental body, or any agreement or other instrument to which any of the
Company or the Subsidiaries is a party or by which any of them or any of
their properties, assets or rights is bound or affected (except that the
Company will be required, pursuant to the terms of the Revolving Credit
Program Agreement (as hereinafter defined) to fund the Reserve Account (as
hereinafter defined) with up to $750,000 of the net proceeds received by
the Company from the sale of the Notes and Warrants and to grant Conseco
Bank, Inc. a security interest therein), or (b) will violate the Articles
of Incorporation or Bylaws of any of the Company or the Subsidiaries.
5.5 CONVERSION STOCK; WARRANTS AND WARRANT STOCK. The Warrants, when
issued and paid for pursuant to the terms of this Agreement, will be duly
authorized, validly issued and outstanding, fully paid, nonassessable and
free and clear of all pledges, liens, encumbrances and restrictions, except
as set forth in Section 4 hereof. The shares of Conversion Stock and
Warrant Stock issuable upon conversion of the Notes or exercise of the
Warrants have been reserved for issuance based upon the initial Conversion
Price or Purchase Price (each as hereinafter defined), as the case may be,
and, when issued upon conversion of the Notes or exercise of the Warrants
in accordance with the terms thereof, will be duly authorized, validly
issued and outstanding, fully paid, nonassessable and free and clear of all
pledges, liens, encumbrances and restrictions, except as set forth in
Section 4 hereof. The Warrants to be delivered by the Company hereunder,
and the certificates representing the Conversion Stock and Warrant Stock to
be delivered upon the conversion of the Notes or exercise of the Warrants,
will be genuine, and the Company has no knowledge of any fact which would
impair the validity thereof.
5.6 CAPITAL STOCK. The authorized capital stock of the Company
consists of (a) 95,000,000 shares of common stock, par value $.01 per
share, of which 18,126,265 shares are issued and outstanding and 23,120,964
shares are reserved for issuance, and (b) 5,000,000 shares of preferred
stock, par value $.01 per share (all of which are undesignated as to class
or series), of which no shares are issued and outstanding or reserved for
issuance. All of the outstanding shares of capital stock of the Company
were duly authorized and validly issued and are fully paid and
nonassessable. There are no outstanding subscriptions, options, warrants,
calls, contracts, demands, commitments, Convertible Securities (as
hereinafter defined) or other agreements or
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arrangements of any character or nature whatever, except as otherwise
disclosed in Section 5.6 of the Disclosure Schedule of the Company dated
the date hereof (the "Disclosure Schedule"), a copy of which has been
delivered to the Purchasers, or as contemplated by this Agreement, under
which the Company is or may be obligated to issue capital stock or other
securities of any kind representing an ownership interest or contingent
ownership interest in the Company. Neither the offer nor the issuance or
sale of the Notes or the Conversion Stock, or the Warrants or the Warrant
Stock, constitutes an event, under any anti-dilution provisions of any
securities issued or issuable by the Company or any agreements with respect
to the issuance of securities by the Company, which will either increase
the number of shares issuable pursuant to such provisions or decrease the
consideration per share to be received by the Company pursuant to such
provisions, except as otherwise disclosed in Section 5.6 of the Disclosure
Schedule. No holder of any security of the Company is entitled to any
preemptive or similar rights to purchase securities from the Company;
provided, however, that nothing in this Section 5.6 shall affect, alter or
diminish any rights granted to the holders of the Purchased Securities in
this Agreement. All outstanding securities of the Company have been issued
in compliance in all material respects with an exemption or exemptions from
the registration and prospectus delivery requirements of the Securities Act
and from the registration and qualification requirements of all applicable
state securities laws, or in compliance with such requirements.
5.7 SECURITIES LAWS. Based in part upon the representations and
warranties contained in Section 6 hereof, no consent, authorization,
approval, permit or order of or filing with any governmental or regulatory
authority is required under current laws and regulations in connection with
the execution and delivery of any of the Transaction Documents or the
offer, issuance, sale or delivery of the Notes or the Warrants or the offer
of the Conversion Stock or the Warrant Stock other than the filing of a
Form D with the Securities Exchange Commission (the "SEC") and the filing
of any notification required by any state securities laws, which filings
have been or will be effected on a timely basis. The Company has not,
directly or through an agent, offered the Notes or the Conversion Stock, or
the Warrants or the Warrant Stock, or any similar securities for sale to,
or solicited any offers to acquire such securities from, persons other than
the Purchasers and other accredited investors. Under the circumstances
contemplated hereby, the offer, issuance, sale and delivery of the Notes
and the Warrants and the offer of the Conversion Stock and the Warrant
Stock will not under current laws and regulations require compliance with
the registration or prospectus delivery requirements of the Securities Act
or with the registration or qualification requirements of any applicable
state securities laws.
5.8 SEC REPORTS; FINANCIAL STATEMENTS.
(a) The Company has made available to each of the Purchasers, if
requested, in the form filed with the SEC (including without limitation
exhibits and annexes thereto), its (i) Annual Report on Form 10-K for each
of the fiscal years ended January 1, 1999, December 31, 1999 and December
30, 2000, (ii) all proxy statements relating to the Company's meetings of
shareholders (whether annual or special) held since January 2, 1999, and
(iii) all other reports, registration statements and other filings
(including all amendments to previously filed documents) filed by the
Company with the SEC since January 2, 1999 (all such reports, proxy
statements, registration statements and filings being collectively called
the "SEC Reports" and individually called a "SEC Report"). As of their
respective dates, the SEC Reports (including any documents incorporated by
reference therein) did not contain any untrue
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statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading, and each SEC Report at the time of its filing complied as to
form in all material respects with all applicable requirements of the
Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the SEC. Except as
disclosed in Section 5.8 of the Disclosure Schedule, since January 2, 1999,
the Company has filed in a timely manner (after giving effect to
appropriate extensions) all reports that it was required to file with the
SEC under the Exchange Act and the rules and regulations of the SEC.
(b) The consolidated financial statements contained in the SEC Reports
were prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes thereto or, in the case of unaudited interim
financial statements, as may be permitted by the SEC on Form 10-Q under the
Exchange Act) and fairly present, in all material respects, the
consolidated financial position of the Company and the Subsidiaries as at
the respective dates thereof and the consolidated results of operations and
consolidated cash flows of the Company and the Subsidiaries for the
respective periods indicated, subject, in the case of interim financial
statements, to normal year-end adjustments.
(c) But for the late filing described in Section 5.8 of the Disclosure
Schedule, the Company would be currently eligible to register with the SEC
securities for resale in a secondary offering under Form S-3 (as
hereinafter defined).
5.9 NO CHANGES. Except for the transactions contemplated by this
Agreement and as disclosed in Section 5.9 of the Disclosure Schedule or in
the SEC Reports filed prior to the date of this Agreement, since December
30, 2000 there has been no material adverse change in the business, assets,
condition (financial or otherwise), operations or results of operations of
the Company and the Subsidiaries, taken as a whole, and neither the Company
nor any Subsidiary has: (a) incurred any material debts, obligations or
liabilities, absolute, accrued or contingent and whether due or to become
due, except current liabilities incurred in the ordinary course of business
and the debt evidenced by the Demand Note; (b) paid any material obligation
or liability other than, or discharged or satisfied any material liens or
encumbrances other than those securing, current liabilities, in each case
in the ordinary course of business; (c) declared or made any payment or
distribution to its shareholders as such, or purchased or redeemed any of
its shares of capital stock or other securities, or obligated itself to do
so; (d) mortgaged, pledged or subjected to lien, charge, security interest
or other encumbrance any of its material assets, tangible or intangible,
except for Permitted Liens (as hereinafter defined) arising in the ordinary
course of business and liens securing the Demand Note; (e) sold,
transferred or leased any of its material assets, except for sales of
inventory and obsolete or worn-out equipment in the ordinary course of
business; (f) cancelled or compromised any material debt or claim, or
waived or released any right of material value; (g) suffered any physical
damage, destruction or loss (whether or not covered by insurance)
materially and adversely affecting, individually or in the aggregate, the
business, assets, condition (financial or otherwise), operations or results
of operations of the Company and the Subsidiaries, taken as a whole; (h)
entered into any material transaction other than in the ordinary course of
business; (i) encountered any material labor difficulties or labor union
organizing activities; (j) issued or sold any shares of capital stock or
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other securities (other than shares of Common Stock issued upon the
exercise or conversion of options, warrants or convertible securities
outstanding on December 30, 2000 or granted thereafter and disclosed on
Schedule 5.9 hereto) or granted any options, warrants, convertible
securities or other purchase rights with respect thereto; (k) made any
acquisition or disposition of any material assets or become involved in any
other material transaction, other than for fair value in the ordinary
course of business; (l) increased substantially any compensation or
benefits payable to any officers, directors or employees of the Company or
any Subsidiary other than consistent with past practices; or (m) agreed to
do any of the foregoing.
5.10 TAX RETURNS AND AUDITS. All required federal and material state,
local and foreign tax returns or appropriate extension requests of each of
the Company and the Subsidiaries have been filed, all such returns are
accurate and complete in all material respects, and all federal and
material state, local and foreign taxes required to be paid with respect to
such returns, and all additional material assessments due or claimed to be
due by the Company or any Subsidiary, have been paid or due provision for
the payment thereof has been made, except as disclosed in Section 5.10 of
the Disclosure Schedule. Except as disclosed in Section 5.10 of the
Disclosure Schedule, neither the Company nor any Subsidiary has received
notice of any tax deficiency proposed or assessed against it that remains
unresolved, or has executed any waiver of any statute of limitations on the
assessment or collection of any tax. Except as disclosed in Section 5.10 of
the Disclosure Schedule, none of the tax returns of any of the Company or
the Subsidiaries are, to the knowledge of the Company, the subject of
pending audits by governmental authorities. Neither the Company nor any
Subsidiary has any material tax liabilities except those reflected in the
most recent consolidated balance sheet included in the SEC Reports filed
prior to the date of this Agreement and those incurred in the ordinary
course of business since the date of such balance sheet.
5.11 TITLE TO PROPERTIES AND ENCUMBRANCES. Each of the Company and the
Subsidiaries has good and marketable title to all its owned properties and
assets, including without limitation the properties and assets reflected in
the most recent consolidated balance sheet included in the SEC Reports
filed prior to the date of this Agreement, except for property disposed of
in the ordinary course of business since the date of such balance sheet,
which properties and assets are not subject to any mortgage, pledge, lease,
lien, charge, security interest or encumbrance, except Permitted Liens and
liens securing the Demand Note. The plant, offices and equipment owned and
leased by each of the Company and the Subsidiaries have been kept in good
condition and repair (ordinary wear and tear excepted), and neither the
Company nor any Subsidiary has been threatened with any material action or
proceeding under any building or zoning ordinance, law or regulation.
5.12 LITIGATION; GOVERNMENTAL PROCEEDINGS. There are no legal actions,
suits, arbitrations or other legal, administrative or governmental
proceedings or investigations pending or, to the knowledge of the Company,
threatened against any of the Company or the Subsidiaries, or their
respective properties, assets or business, (a) that seek to enjoin or
otherwise challenge the consummation of the transactions contemplated by
this Agreement, or (b) except as described in the SEC Reports filed prior
to the date of this Agreement or as set forth in Section 5.12 of the
Disclosure Schedule, that, if decided adversely to the Company or such
Subsidiary, could be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect. Neither
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the Company nor any Subsidiary is in default in any material respect with
respect to any judgment, order or decree of any court or any governmental
agency or instrumentality.
5.13 COMPLIANCE WITH APPLICABLE LAWS AND OTHER INSTRUMENTS. The
business and operations of each of the Company and its Subsidiaries have
been and are being conducted in accordance with all applicable laws, rules
and regulations of all governmental authorities, except to the extent
noncompliance therewith has not had and would not be reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect. Neither
the Company nor any Subsidiary is in violation of its Articles of
Incorporation or its Bylaws.
5.14 PATENTS AND OTHER INTANGIBLE RIGHTS. Except as set forth in
Section 5.14 of the Disclosure Schedule, each of the Company and the
Subsidiaries (a) owns or has the right to use and enforce (which right is
exclusive in the case of any patents), free and clear of all liens, claims
and restrictions (other than Permitted Liens and liens securing the Demand
Note), all material patents, trademarks, service marks, trade names,
copyrights, licenses and rights with respect to the foregoing used in the
conduct of its business as now conducted, (b) is not obligated or under any
liability whatsoever to make any payments of a material nature by way of
royalties, fees or otherwise to any owner of, licensor of, or other
claimant to, any patent, trademark, trade name, copyright or other
intangible asset with respect to the use thereof or in connection with the
conduct of its business or otherwise (except pursuant to a written license
or other agreement included or incorporated by reference in any SEC Reports
filed prior to the date of this Agreement, and except as set forth in
Section 5.14 of the Disclosure Schedule), (c) owns or has the unrestricted
right to use all material trade secrets, know-how, inventions, designs,
processes, computer programs and technical data necessary to the
development, operation and sale of all products and services presently sold
by it (and has no reason to believe that it will not own or have the
unrestricted right to use all material trade secrets, know-how, inventions,
designs, processes, computer programs and technical data necessary to the
development, operation and sale of all products and services, if any,
presently proposed to be sold by it), free and clear of any liens, rights
or claims of others (other than Permitted Liens and liens securing the
Demand Notes), and (d) is not using any material confidential information
or trade secrets of others (except pursuant to a written license or other
agreement included or incorporated by reference in any SEC Reports filed
prior to the date of this Agreement). Neither the Company nor any
Subsidiary is infringing in any material respect upon any right or claimed
right of any person under or with respect to any patents, trademarks,
service marks, trade names, copyrights, licenses or rights with respect to
the foregoing, nor has the Company or any Subsidiary received any notice
with respect thereto. To the knowledge of the Company, no person is
infringing upon any right or claimed right of the Company or any Subsidiary
under or with respect to any patents, trademarks, service marks, trade
names, copyrights, licenses or rights with respect to the foregoing, except
for infringements that have not had and would not be reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect.
5.15 CONTRACTS. All "material contracts" (as such term is defined in
Item 601(b)(10) of Regulation S-K promulgated by the SEC) to be performed
in whole or in part by the Company or any of the Subsidiaries after the
date of this Agreement ("Material Contracts") have been included or
incorporated by reference in the SEC Reports filed prior to the date of
this Agreement. Each Material Contract is in full force and effect and
enforceable according to its terms (except as the enforceability thereof
may be limited by bankruptcy,
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insolvency, moratorium, fraudulent conveyance or transfer, reorganization
or similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity). None of the Company or any Subsidiary
or, to the knowledge of the Company, any other party is in breach in any
material respect of or in default in any material respect under any of the
Material Contracts.
5.16 INSURANCE COVERAGE. There are in full force policies of insurance
issued by insurers of recognized responsibility insuring each of the
Company and the Subsidiaries, and their respective properties and business,
against such losses and risks and in such amounts as in the Company's best
judgment, after advice from its insurance broker, are acceptable for the
nature and extent of the business of the Company and the Subsidiaries and
the resources of the Company and the Subsidiaries. Neither the Company nor
any Subsidiary is in default in any material respect under any material
provision contained in any insurance policy, or has failed to give any
notice or present any material existing claims it has under any insurance
policies in a timely fashion.
5.17 NO BROKERS OR FINDERS. No person, firm or corporation has or will
have, as a result of any act or omission of any of the Company or the
Subsidiaries, any right, interest or valid claim against or upon any of the
Company, the Subsidiaries or the Purchasers for any commission, fee or
other compensation as a finder or broker, or in any similar capacity, in
connection with the transactions contemplated by this Agreement, except as
disclosed in Section 5.17 of the Disclosure Schedule. The Company will
indemnify and hold harmless each Purchaser against any and all liability
with respect to any such commission, fee or other compensation (including
without limitation those arising under the arrangements described in
Section 5.17 of the Disclosure Schedule) which may be payable or determined
to be payable in connection with the transactions contemplated by this
Agreement.
5.18 CONFLICTS OF INTEREST. Except as disclosed in the SEC Reports
filed prior to the date of this Agreement, no officer or director of any of
the Company or the Subsidiaries, or any person who is known by the Company
to be the beneficial owner of more than 5% of the Company's Common Stock
(as determined in accordance with Rule 13d-3 under the Exchange Act), or
any affiliate of any such person (other than St. Xxxx or any affiliate of
St. Xxxx), has any direct or indirect interest (a) in any entity which does
business with any of the Company or the Subsidiaries, or (b) in any
property, asset or right which is used by any of the Company or the
Subsidiaries in the conduct of its business, or (c) in any contractual
relationship with any of the Company or the Subsidiaries other than as an
employee. For the purpose of this Section 5.18, there shall be disregarded
any interest which arises solely from the ownership of less than a 1%
equity interest in a corporation whose stock is regularly traded on any
national securities exchange or in the over-the-counter market.
5.19 LICENSES. Each of the Company and the Subsidiaries possesses from
the appropriate agency, commission, board and government body and
authority, whether federal, state, local or foreign, all licenses, permits,
authorizations, approvals, franchises and rights which are necessary for it
to engage in the business currently conducted by it and which, if not
possessed by the Company or such Subsidiary, would be reasonably expected
to have, individually or in the aggregate, a Material Adverse Effect. The
Company has no knowledge that would lead it to believe that either it or
any of the Subsidiaries will not be able to obtain all
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licenses, permits, authorizations, approvals, franchises and rights that
may be required for any business the Company or any Subsidiary presently
proposes to conduct if the failure to obtain the same would be reasonably
expected to have, individually or in the aggregate, a Material Adverse
Effect.
5.20 REGISTRATION RIGHTS. Other than under (a) this Agreement, (b)
that certain Amended and Restated Registration Rights Agreement dated as of
December 28, 1995, as heretofore amended, among the Company and certain of
its shareholders (as heretofore amended, the "Existing Registration Rights
Agreement"), a true and correct copy of which has been delivered to the
Purchasers, and (c) the Existing GE Warrant (as hereinafter defined), a
true and correct copy of which has been delivered to the Purchasers, the
Company has not agreed to register any of its authorized or outstanding
securities under the Securities Act.
5.21 EMPLOYEE BENEFITS.
(a) With respect to each employee benefit plan (as such term is
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) maintained by the Company or an "ERISA
Affiliate" (as defined below) or to which the Company or an ERISA Affiliate
contributes or is under any obligation to contribute (an "Employee Benefit
Plan"): (i) such plan has been administered and operated in compliance with
its terms and the applicable requirements of ERISA and the Internal Revenue
Code of 1986, as amended (the "Code"), except with respect to matters that,
individually or in the aggregate, could not be reasonably expected to
result in material liability; (ii) no event has occurred and there exists
no circumstance under which the Company or any ERISA Affiliate could be
reasonably expected to incur material liability under ERISA or the Code
(other than for contributions or benefits paid or payable in the ordinary
course of operation of such plan); (iii) there are no actions, suits or
claims pending or, to the knowledge of the Company, threatened with respect
to any Employee Benefit Plan or against the assets or a fiduciary of any
Employee Benefit Plan (other than routine claims for benefits in the
ordinary course); (iv) no "prohibited transaction" (as defined in Section
406 of ERISA or Section 4975 of the Code) which is not covered by an
applicable exemption and which could be reasonably expected to result in
material liability has occurred; (v) no "reportable event" (as defined in
Section 4043 of ERISA) has occurred; (vi) all material contributions and
premiums due have been paid on a timely basis; and (vii) all material
contributions made under any Employee Benefit Plan intended to be tax
deductible meet the requirements for deductibility under the Code. As used
herein, the term "ERISA Affiliate" refers to any organization that is (x) a
member of a "controlled group" of which the Company is a member or (y)
under "common control" with the Company within the meaning of,
respectively, Sections 414(b) and (c) of the Code.
(b) Each Employee Benefit Plan that is intended to qualify under
Section 401(a) of the Code has received a favorable letter of determination
from the Internal Revenue Service that it so qualifies and that its related
trust is exempt from taxation under Section 501(a) of the Code. No event
has occurred that will or could reasonably be expected to give rise to
disqualification or loss of tax-exempt status of any such Employee Benefit
Plan or trust under Section 401(a) or 501(a) of the Code.
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(c) No Employee Benefit Plan is a "defined benefit plan" within the
meaning of Section 3(35) of ERISA. Neither the Company nor any Subsidiary
has at any time been a party to or contributed to any "multiemployer plan"
within the meaning of Section 3(37) of ERISA or any "multiple employer
plan" within the meaning of Section 413 of the Code (each, a "Multiemployer
Plan").
(d) Neither the approval or execution of this Agreement nor the
consummation of the transactions contemplated by this Agreement will (i)
entitle any officer, director or employee of or consultant to the Company
or any Subsidiary to severance pay, or (ii) accelerate the time of payment
or vesting of, or increase the amount of, compensation due to any such
person.
5.22 ENVIRONMENTAL AND SAFETY LAWS.
(a) Neither the Company nor any Subsidiary is, in any material
respect, in violation of any applicable statute, law or regulation relating
to the environment or occupational health and safety, and no material
expenditures are, or are reasonably anticipated to be, required in order
for the Company or any Subsidiary to comply with any such existing statute,
law or regulation.
(b) Except as disclosed in Section 5.22 of the Disclosure Schedule,
during the period that the Company or a Subsidiary has owned or leased any
facility and, to the knowledge of the Company, in the case of any currently
owned or leased facility, at all times prior thereto, (i) there have been
no material disposals, releases or threatened releases of Hazardous
Materials (as defined below) by any of the Company or the Subsidiaries or,
to the knowledge of the Company, any other person on, from or under such
facility, and (ii) other than normal office products and cleaning supplies,
there has not been used, generated, manufactured or stored on, under or
about such facility or transported to or from such facility by the Company
or any Subsidiary or, to the knowledge of the Company, any other person,
any Hazardous Materials.
(c) There is no pending or, to the knowledge of the Company,
threatened claim, litigation or administrative agency proceeding against
any of the Company or the Subsidiaries arising out of circumstances that
form the basis of or are alleged to form the basis of, nor has the Company
or any of the Subsidiaries received written notice from any governmental
entity that alleges, violation in any material respect of any material
applicable statute, law or regulation relating to the environment or
occupational health and safety.
(d) For purposes of this Agreement, (i) the terms "disposal,"
"release" and "threatened release" shall have the definitions assigned
thereto by the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Section 9601, et. seq. as amended
("CERCLA"), and (ii) "Hazardous Materials" shall mean any hazardous or
toxic substance, material or waste, which is regulated under, or defined as
a "hazardous substance," "pollutant," "contaminant," "toxic chemical,"
"hazardous material," "toxic substance" or "hazardous chemical" under (A)
CERCLA; (B) the Emergency Planning and Community Right-to-Know Act, 42
U.S.C. Section 11001, et. seq.; (C) the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, et. seq.; (D) the Toxic Substance Control Act,
15 U.S.C. Section 2601, et. seq.; (E) the Occupational Safety and Health
Act of 1970, 00 X.X.X.
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Xxxxxxx 000, xx. seq.; (F) regulations promulgated under any of the above
statutes; or (G) any applicable state or local statute, ordinance, rule or
regulation that has a scope or purpose similar to those statutes identified
above.
5.23 EMPLOYEES. To the Company's knowledge, no executive officer of
the Company, and no employee of the Company or any Subsidiary whose annual
compensation is in excess of $100,000, has any plans to terminate his or
her employment with the Company or such Subsidiary. Neither the Company nor
any Subsidiary is involved in any material labor dispute nor, to the
knowledge of the Company, is any such dispute threatened. Neither the
Company nor any Subsidiary is a party to or bound by any collective
bargaining agreement. Each of the Company and the Subsidiaries has complied
in all material respects with all laws relating to the employment of labor,
including without limitation provisions relating to wages, hours, equal
opportunity, collective bargaining and payment of Social Security and other
taxes, and neither the Company nor any Subsidiary has encountered any
material labor difficulties.
5.24 ABSENCE OF RESTRICTIVE AGREEMENTS. To the knowledge of the
Company, no employee of the Company or any Subsidiary is subject to any
secrecy or non-competition agreement or any agreement or restriction of any
kind that would impede in any material respect the ability of such employee
to carry out fully all activities of such employee in furtherance of the
business of the Company and the Subsidiaries. To the best of the Company's
knowledge, no employer or former employer of any employee of the Company or
any Subsidiary has any claim of any kind whatsoever in respect of any of
the rights described in Section 5.14 hereof.
5.25 INVESTMENT COMPANY. Neither the Company nor any Subsidiary is, or
will be as a result of consummation of the transactions contemplated by
this Agreement, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
5.26 LISTING AND MAINTENANCE REQUIREMENTS. Except as disclosed in
Section 5.26 of the Disclosure Schedule, the Company has not, since the
inclusion of its Common Stock for listing on the NASDAQ National Market,
received written notice from such market to the effect that the Company is
not in compliance with the listing or maintenance requirements of such
market.
5.27 DISCLOSURE. The Company has not knowingly withheld from the
Purchasers any material facts relating to the business, assets, condition
(financial or otherwise), operations or results of operations of any of the
Company or the Subsidiaries. No representation or warranty in this
Agreement or in any certificate, schedule, statement or other document
furnished or to be furnished to any Purchaser pursuant hereto or in
connection with the transactions contemplated hereby contains or will
contain any untrue statement of a material fact or omits or will omit to
state any material fact required to be stated herein or therein or
necessary to make the statements herein or therein not misleading.
6. REPRESENTATIONS AND WARRANTIES OF PURCHASERS. Each of the Purchasers
severally represents and warrants for itself that:
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6.1 INVESTMENT INTENT. The Notes and the Warrants being acquired by
such Purchaser hereunder are being purchased, and the Conversion Stock and
the Warrant Stock acquired by such Purchaser upon conversion of such Notes
or exercise of such Warrants will be acquired, for such Purchaser's own
account and not with the view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the
Securities Act. Such Purchaser understands that the Notes and the
Conversion Stock, and the Warrants and the Warrant Stock, have not been
registered under the Securities Act or any applicable state laws by reason
of their issuance or contemplated issuance in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act and
such laws, and that the reliance of the Company and others upon this
exemption is predicated in part upon this representation and warranty. Such
Purchaser further understands that the Notes and Conversion Stock, and the
Warrants and the Warrant Stock, may not be transferred or resold without
(a) registration under the Securities Act and any applicable state
securities laws, or (b) an exemption from the registration requirements of
the Securities Act and applicable state securities laws.
Such Purchaser understands that any sales of securities pursuant to
Rule 144 may only be made in full compliance with the provisions of Rule
144, and that it may not sell any securities pursuant to Rule 144 prior to
the expiration of a one-year period after such Purchaser has acquired the
securities.
6.2 LOCATION OF PRINCIPAL OFFICE AND QUALIFICATION AS ACCREDITED
INVESTOR. The state in which such Purchaser's principal office (or
domicile, if such Purchaser is an individual) is located is set forth in
such Purchaser's address in Schedule 1 hereto. Unless otherwise indicated
on such Purchaser's Certification attached to this Agreement, such
Purchaser qualifies as an accredited investor within the meaning of Rule
501 under the Securities Act for the reasons specified on such
Certification. Such Purchaser has such knowledge and experience in
financial and business matters that such Purchaser is capable of evaluating
the merits and risks of the investment to be made hereunder by such
Purchaser. Such Purchaser has and has had access to all of the Company's
material books and records and access to the Company's executive officers
has been provided to such Purchaser or to such Purchaser's qualified
agents.
6.3 ACTS AND PROCEEDINGS. Each of the Transaction Documents to which
such Purchaser is or will be a party has been duly authorized by all
necessary action on the part of such Purchaser and has been or at the
Closing will be duly executed and delivered by such Purchaser. This
Agreement is, and each of the other Transaction Documents to which such
Purchaser will be a party when executed and delivered pursuant to the terms
of this Agreement will be, a valid and binding agreement of such Purchaser
enforceable against such Purchaser in accordance with its terms, except as
the enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, fraudulent conveyance or transfer, reorganization or similar
laws affecting the enforcement of creditors' rights generally and by
general principles of equity.
6.4 NO BROKERS OR FINDERS. No person, firm or corporation has or will
have, as a result of any act or omission by such Purchaser, any right,
interest or valid claim against the Company or any Subsidiary for any
commission, fee or other compensation as a finder or broker, or in any
similar capacity, in connection with the transactions contemplated by this
Agreement. Such Purchaser will indemnify and hold harmless each of the
Company and the Subsidiaries against any and all liability with respect to
any such commission, fee or other compensation
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which may be payable or determined to be payable as a result of the actions
of such Purchaser in connection with the transactions contemplated by this
Agreement.
7. CONDITIONS OF EACH PURCHASER'S OBLIGATION. The obligation to purchase
and pay for the Notes and the Warrants which each Purchaser has agreed to
purchase at the Closing is subject to the fulfillment prior to or at the Closing
of the following conditions. In the event that any such condition is not
fulfilled to the satisfaction of each Purchaser, or in the event that any of the
Purchasers does not proceed with the purchase of the number of Notes or Warrants
it has committed to purchase, then no Purchaser shall be obligated to proceed
with the purchase of such Notes or Warrants.
7.1 REPRESENTATIONS. The representations and warranties of the Company
under this Agreement shall be true in all material respects as of the date
of this Agreement and as of the Closing Date with the same effect as though
made on and as of the Closing Date.
7.2 COMPLIANCE WITH AGREEMENT. The Company shall have performed and
complied in all material respects with all agreements or conditions
required by this Agreement to be performed and complied with by it prior to
or as of the Closing.
7.3 CERTIFICATE OF OFFICERS. The Company shall have delivered to the
Purchasers a certificate, dated the Closing Date, executed by the chief
executive officer and chief financial officer of the Company on behalf of
the Company and certifying to the satisfaction of the conditions specified
in Sections 7.1, 7.2 and 7.5 hereof.
7.4 OPINION OF COMPANY'S COUNSEL. The Company shall have delivered to
each of the Purchasers opinions of Xxxxxxxxxxx Xxxxx & Xxxxxxxx LLP and of
Xxxx Xxxxxxx, each dated the Closing Date, in substantially the forms set
forth as, respectively, Exhibits 8 and 9 hereto.
7.5 NO EVENT OF DEFAULT. There shall exist at the time of Closing no
condition or event which, immediately after the Closing, would, with or
without notice or lapse of time, or both, constitute an Event of Default
(as hereinafter defined).
7.6 FAIRNESS OPINION. The Company shall have received an opinion from
Duff & Xxxxxx, LLC that the issuance and sale of the Notes and Warrants on
the terms provided for in this Agreement are fair to the shareholders of
the Company from a financial point of view.
7.7 SUPPORTING DOCUMENTS. The Purchasers shall have received the
following:
(a) a copy of resolutions of the Board of Directors of each of the
Company and the Subsidiaries, evidencing compliance with the requirements
of Section 302A.255, Subdivision 1(c) of the Minnesota Business Corporation
Act and otherwise in form and substance reasonably satisfactory to the
Purchasers, authorizing and approving the transactions contemplated by this
Agreement, all such resolutions to be certified by the Secretary of such
entity;
(b) a certificate of the Secretary of each of the Company and the
Subsidiaries certifying the names, titles and signatures of the officers of
such entity authorized to execute the
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Transaction Documents to which such entity is or will be a party and
further certifying that the Articles of Incorporation and By-Laws of such
entity delivered to the Purchasers prior to the date hereof have been
validly adopted, are in full force and effect, and have not been amended or
modified;
(c) good standing certificates for each of the Company and the
Subsidiaries issued by the Secretary of State of the State of Minnesota,
and, if such entity is qualified to do business therein as a foreign
corporation, the Secretaries of State of the States of South Carolina and
Utah, as of a date no more than 15 days prior to the Closing Date; and
(d) such additional supporting documentation and other information
with respect to the transactions contemplated hereby as any of the
Purchasers may reasonably request.
7.8 LIEN SEARCHES. The Purchasers shall have received Uniform
Commercial Code, judgment and tax lien searches from the Secretary of State
of the State of Minnesota and appropriate officials of such other states
and/or counties as any of the Purchasers may reasonably request at least
ten days prior to the Closing Date, as of a date no more than 15 days prior
to the Closing Date, certified by a reporting service satisfactory to the
Purchasers and disclosing no liens, charges, security interests or
encumbrances on the assets of the Company or any of its Subsidiaries other
than Permitted Liens or liens securing the Demand Note.
7.9 COLLATERAL DOCUMENTS. The Purchasers shall have received the
Parent Security Agreement, the Parent Patent and Trademark Security
Agreement and the Pledge Agreement duly executed by the Company, and the
Guaranty and the Subsidiary Security Agreement duly executed by each
Subsidiary.
7.10 ACTIONS TO PERFECT LIENS. The Purchasers shall have received all
certificates, documents and instruments, in form and substance reasonably
satisfactory to them, including without limitation duly executed financing
statements on Form UCC-1 and the stock certificates evidencing all of the
outstanding capital stock of each Subsidiary accompanied by undated stock
powers duly executed in blank, necessary or, in the opinion of any of the
Purchasers, desirable to perfect the liens created by any of the Security
Agreements (as hereinafter defined).
7.11 INSURANCE. The Purchasers shall have received standard lenders'
loss payable endorsements in favor of the Purchasers with respect to
insurance policies or other instruments or documents evidencing insurance
coverage on the properties of the Company and its Subsidiaries in
compliance with Section 8.16 hereof and the terms of the Parent Security
Agreement and Subsidiary Security Agreement, and standard endorsements to
all liability insurance policies of the Company or any of its Subsidiaries
naming the Purchasers as additional insureds thereunder.
7.12 LISTING. Listing and trading of the Common Stock on the NASDAQ
National Market shall not have been suspended.
7.13 REGISTRATION RIGHTS AGREEMENT. The Company shall have delivered
to the Purchasers a Registration Rights Agreement, in substantially the
form set forth as Exhibit 10
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hereto (the "Registration Rights Agreement"), duly executed by the Company
and each of the other parties thereto (other than the Purchasers) who is an
affiliate of the Company or whose execution thereof is necessary to
effectively block the exercise of registration rights under the Existing
Registration Rights Agreement.
7.14 CANCELLATION OF EXISTING GE WARRANT. The Company shall have
delivered to the Purchasers evidence reasonably satisfactory to the
Purchasers that the Series A Warrant dated effective March 31, 1998 to
initially purchase 1,309,583 shares of Common Stock at an initial exercise
price of $8.82 per share (the "Existing GE Warrant") has been cancelled in
exchange for a new warrant to initially purchase 135,000 shares of Common
Stock at an initial exercise price of $1.00 per share (the "New GE
Warrant"), which New GE Warrant shall be in substantially the form of the
Existing GE Warrant except that such New GE Warrant shall modify the
registration rights contained in the Existing GE Warrant so that they do
not conflict with the exercise by the Purchasers of any of their rights
under the Registration Rights Agreement.
8. AFFIRMATIVE COVENANTS. The Company covenants and agrees that, as long as
any of the Notes remain outstanding and, in the case of Sections 8.6, 8.9, 8.10,
8.11 and 8.12, as long as any of the Notes or Conversion Stock, or any of the
Warrants or Warrant Stock, remain outstanding:
8.1 CORPORATE EXISTENCE. The Company will maintain and cause each
Subsidiary to maintain its corporate existence in good standing (except
that the corporate existence and good standing of any Subsidiary may be
terminated pursuant to a merger permitted under Section 9.2 hereof) and
comply in all material respects with all applicable laws and regulations of
the United States or of any state or states thereof or of any political
subdivision thereof and of any governmental authority.
8.2 BOOKS OF ACCOUNT AND RESERVES. The Company will, and will cause
each of its Subsidiaries to, keep books of record and account in which
full, true and correct entries are made of all of its and their respective
dealings, business and affairs, in accordance with generally accepted
accounting principles. The Company will employ certified public accountants
of nationally recognized standing selected by the Board of Directors of the
Company (the "Board of Directors") who are "independent" within the meaning
of the accounting regulations of the SEC, and have annual audits made by
such independent public accountants in the course of which such accountants
shall make such examinations, in accordance with generally accepted
auditing standards, as will enable them to give such reports or opinions
with respect to the consolidated financial statements of the Company and
its Subsidiaries as will satisfy the requirements of the SEC in effect at
such time with respect to certificates and opinions of accountants.
8.3 FURNISHING OF FINANCIAL STATEMENTS AND INFORMATION. Upon request,
the Company will make available to each holder of a Purchased Security:
(a) as soon as practicable, but in any event within 45 days after the
close of each fiscal quarter, unaudited consolidated balance sheets of the
Company and its Subsidiaries as of the end of such fiscal quarter, together
with related unaudited consolidated statements of operations and cash flows
for such fiscal quarter, setting forth in comparative form figures for
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the corresponding fiscal quarter of the previous year, all in reasonable
detail and certified by an authorized accounting officer of the Company;
(b) as soon as practicable, but in any event within 90 days after the
end of each fiscal year, a consolidated balance sheet of the Company and
its Subsidiaries, as of the end of such fiscal year, together with the
related consolidated statements of operations, stockholders' equity and
cash flow for such fiscal year, setting forth in comparative form figures
for the previous fiscal year, all in reasonable detail and duly certified
by the Company's independent certified public accountants, which
accountants shall have given the Company an opinion, unqualified as to the
scope of the audit, regarding such statements;
(c) concurrently with the delivery in each year of the financial
statements referred to in paragraph (b) of this Section 8.3, a statement
and report signed by the independent certified public accountants who
certified such financial statements to the effect that they have read this
Agreement and that in the course of the audit of the consolidated financial
statements of the Company they became aware of no condition or event which
constituted an Event of Default or which, after notice or lapse of time, or
both, would constitute an Event of Default, or if such accountants did
become aware of any such condition or event, specifying the nature and
period of existence thereof;
(d) promptly upon transmission thereof, copies of all reports, proxy
statements, registration statements and notifications filed by it with the
SEC pursuant to any act administered by the SEC or furnished to
shareholders of the Company or to any national securities exchange or
market; and
(e) with reasonable promptness, such other financial data relating to
the business, affairs and financial condition of any of the Company and the
Subsidiaries as is available to the Company and as from time to time any
holder of a Purchased Security may reasonably request.
8.4 INSPECTION. The Company will permit each holder of a Purchased
Security and any of its partners, officers or employees, or any outside
representatives designated by such holder and reasonably satisfactory to
the Company, to visit and inspect at such holder's expense any of the
properties of the Company or its Subsidiaries, including their books and
records (and to make photocopies thereof or make extracts therefrom), and
to discuss their affairs, finances, and accounts with their officers,
lawyers and accountants, except with respect to trade secrets and similar
confidential information, all to such reasonable extent and at such
reasonable times and intervals as such holder may reasonably request.
Except as otherwise required by laws or regulations applicable to such
holder, each holder of a Purchased Security shall maintain, and shall
require its representatives to maintain, all information obtained pursuant
to this Section 8.4 or any other provision of this Agreement or the other
Transaction Documents on a confidential basis.
8.5 PREPARATION AND APPROVAL OF BUDGETS. At least one month prior to
the beginning of each fiscal year of the Company, the Company shall prepare
and submit to its Board of Directors, for its review and approval, an
annual plan for such year, which shall include monthly capital and
operating expense budgets, cash flow statements and profit and loss
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projections itemized in such detail as the Board of Directors may
reasonably request. Each annual plan shall be modified as often as is
necessary in the judgment of the Board of Directors to reflect changes
required as a result of operating results and other events that occur, or
may be reasonably expected to occur, during the year covered by the annual
plan, and copies of each such modification shall be submitted to the Board
of Directors. The Company will, simultaneously with the submission thereof
to the Board of Directors, deliver a copy of each such annual plan and
modification thereof to each holder of a Purchased Security.
8.6 REPLACEMENT OF NOTES OR WARRANTS OR CERTIFICATES REPRESENTING
CONVERSION STOCK OR WARRANT STOCK. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation
of any Notes or Warrants or certificates representing Conversion Stock or
Warrant Stock and, in the case of any such loss, theft or destruction, upon
delivery of an indemnity agreement reasonably satisfactory to the Company,
or, in the case of any such mutilation, upon surrender and cancellation of
the Notes or Warrants or certificates representing Conversion Stock or
Warrant Stock, as the case may be, the Company will issue new Notes or
Warrants or certificates representing Conversion Stock or Warrant Stock, as
the case may be, of like tenor, in lieu of such lost, stolen, destroyed or
mutilated Notes or Warrants or certificates representing Conversion Stock
or Warrant Stock, as the case may be.
8.7 EXCHANGE OF NOTES. The Company will at any time, at the Company's
expense (except for any transfer tax payable), at the written request of
the holder of a Note and upon surrender of such Note for such purpose,
issue a new Note or Notes in exchange therefor in the denomination of
$50,000, or any multiple thereof specified by such holder, in an aggregate
principal amount equal to the then unpaid principal amount of the Note
surrendered and substantially in the form of Exhibit 1 to this Agreement
with appropriate insertions and variations.
8.8 APPLICATION OF PROCEEDS. The net proceeds received by the Company
from the sale of the Notes and Warrants shall be used substantially for
working capital purposes, to prepay any portion of the Demand Note which is
not converted by St. Xxxx at the Closing in payment of the purchase price
hereunder for its Notes and Warrants, and to fund up to $750,000 of the
Reserve Account. Pending use of the proceeds in the business, they shall be
invested in accordance with the Company's investment policy in effect on
the date hereof, a true and correct copy of which has been delivered to the
Purchasers.
8.9 REPORTS UNDER THE EXCHANGE ACT. With a view to making available to
the holders of the Purchased Securities the benefits of Rule 144 and any
other rule or regulation of the SEC that may at any time permit such a
holder to sell securities of the Company to the public without registration
or pursuant to a registration on Form S-3, the Company agrees to use all
commercially reasonable efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(b) take such action as is necessary to enable the holders of the
Purchased Securities to utilize Form S-3 for the sale of the Purchased
Securities (as defined in the Registration Rights Agreement) as
contemplated by the Registration Rights Agreement;
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(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act; and
(d) furnish promptly to any holder of Purchased Securities, upon
request (i) a written statement by the Company that it has complied with
the reporting requirements of Rule 144, the Securities Act and the Exchange
Act, or that it qualifies as a registrant whose securities may be resold in
a secondary offering pursuant to Form S-3, (ii) a copy of the most recent
annual or quarterly reports of the Company and such other reports and
documents so filed by the Company, (iii) all press releases and other
statements made available by the Company to the public concerning material
developments related to the Company or any of its Subsidiaries, and (iv)
such other information as may be reasonably requested in availing any such
holder of any rule or regulation of the SEC which permits the selling of
any such securities without registration or under such form.
8.10 RULE 144A.
(a) The Company agrees that, upon the request of any holder of
Purchased Securities, or any prospective purchaser of Purchased Securities,
the Company shall promptly provide (but in any case within 15 days of a
request) to such holder or potential purchaser the following information:
(a) a brief statement of the nature of the business of the Company and its
Subsidiaries and the products and services they offer; (b) the Company's
most recent consolidated balance sheets and profit and loss and retained
earnings statements, and similar financial statements for such part of the
two preceding fiscal years prior to such request as the Company has been in
operation (which financial information shall be audited, to the extent
reasonably available); and (c) such other information about the Company,
its Subsidiaries and their business, financial condition and results of
operations as the requesting person shall request in order to comply with
Rule 144A promulgated under the Securities Act and the antifraud provisions
of the federal and state securities laws.
(b) The Company hereby represents and warrants to any such requesting
person that the information provided by the Company pursuant to this
Section 8.10 will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
made, in light of the circumstances under which they were made, not
misleading.
8.11 LISTING. The Company shall, as promptly as practicable after the
Closing, secure the listing of all Conversion Stock and Warrant Stock upon
each securities exchange and automated quotation system (including the
NASDAQ National Market), if any, upon which shares of Common Stock of the
Company are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed,
such listing of all Conversion Stock and Warrant Stock. The Company shall
use all commercially reasonable efforts to maintain the Common Stock's
listing on either the NASDAQ National Market, a national securities
exchange or other national market or interdealer quotation system
(including without limitation the NASDAQ SmallCap Market and the OTC
Bulletin Board). The Company shall promptly offer to provide the holders of
the Purchased Securities copies of any notice it receives from the NASDAQ
National Market or any securities exchange or other market or interdealer
quotation system regarding the continued eligibility of the Common Stock
for listing
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on such market, securities exchange or system, provided that the Company
shall not be required to offer to provide, or to provide, such notices if
the Company reasonably determines that such notices contain material
non-public information. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 8.11.
8.12 RIGHTS TO PURCHASE ADDITIONAL SECURITIES.
(a) If the Company should decide to issue and sell additional shares
of any capital stock of the Company or any options, warrants or other
rights to subscribe for or to purchase any capital stock of the Company or
any securities convertible into capital stock of the Company, other than
(i) shares of Common Stock sold to the public pursuant to a registration
statement filed under the Securities Act, if such offering is underwritten
on a firm commitment basis by an underwriter, or group of underwriters
represented by an underwriter or underwriters, which is a member of the New
York Stock Exchange, (ii) options to purchase Common Stock or awards of
Common Stock granted to employees or directors of the Company or to
consultants to the Company or to the Company's employee stock purchase
plan, as approved from time to time by the Board of Directors or a
committee thereof, and shares of Common Stock issued upon the exercise of
such options, (iii) shares of Common Stock issued upon the exercise of
options, warrants or Convertible Securities outstanding at the Closing that
were approved by the Board of Directors or a committee thereof (including
without limitation the New GE Warrant), (iv) shares of Common Stock issued
upon conversion of the Notes or exercise of the Warrants, (v) shares of
Common Stock issued in a stock split or reclassification of, or as a stock
dividend or other distribution on, then outstanding shares of Common Stock,
(vi) shares of Common Stock issued in connection with any bona fide
business acquisition by the Company or any Subsidiary which has been
approved by the Board of Directors and is permitted by the terms of this
Agreement, and (vii) shares of Common Stock, or options or warrants to
purchase shares of Common Stock, issued to vendors or lessors of the
Company or any Subsidiary, or shares of Common Stock issued upon the
exercise of such options or warrants, provided that the issuance of such
shares, options or warrants has been approved by the Board of Directors and
is for other than primarily equity financing purposes, and further provided
that the sum of the number of shares of Common Stock issued pursuant to
this clause (vii) (other than upon the exercise of options or warrants),
plus the number of shares of Common Stock subject to options or warrants
issued pursuant to this clause (vii), in any 12-month period shall not
exceed one percent of the shares of Common Stock outstanding on the date of
this Agreement (appropriately adjusted to reflect stock splits, stock
dividends, reorganizations, consolidations and similar changes hereafter
effected) (all such capital stock, warrants, securities convertible into
capital stock and other rights, other than securities referred to in
clauses (i), (ii), (iii), (iv), (v), (vi) and (vii) above, being
hereinafter sometimes collectively referred to as "Additional Securities"),
the Company shall first offer to sell to each holder of Purchased
Securities, upon the same terms and conditions as the Company is proposing
to issue and sell such Additional Securities to others, such holder's pro
rata share (as defined below) of such Additional Securities. Such offer
shall be made by written notice given to each such holder and specifying
therein the amount of the Additional Securities being offered, the purchase
price and other terms of such offer. Each such holder shall have a period
of 15 days from and after the date of receipt by it of such notice within
which to accept such offer. If a holder of Purchased Securities elects to
accept such offer in whole or in part, such holder shall so accept by
written notice to the Company given within such 15-day period. If a holder
of Purchased Securities fails to accept such offer in whole or in part
within such 15-day period, any
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of such Additional Securities not purchased by such holder pursuant to such
offer may be offered for sale to others by the Company for a period of 120
days from the last day of such 15-day period, but only on the same terms
and conditions as set forth in the initial offer to such holder, free and
clear of the restrictions imposed by this Section 8.12.
(b) For purposes of the previous paragraph, a holder's "pro rata
share" is the number of shares of Additional Securities (rounded to the
nearest whole share) as is equal to the product of (i)(A) the number of
shares of Common Stock issued, or issuable upon the exercise or conversion
of rights, options, warrants or Convertible Securities without the payment
of any additional cash consideration or with the payment of a nominal cash
consideration, as the case may be (collectively, "Fully Paid Securities"),
to such holder immediately prior to the issuance of the Additional
Securities being offered divided by (B) the total number of Fully Paid
Securities issued or issuable by the Company immediately prior to the
issuance of the Additional Securities, multiplied by (ii)(A) if so approved
by the affirmative vote of the holders of a Majority in Interest of the
Purchased Securities, that portion of the offering of Additional Securities
that remains after considering binding commitments to purchase that have
been received from persons other than the holders of the Purchased
Securities, or (B) if not so approved, the entire offering of Additional
Securities.
(c) The rights of a holder of Purchased Securities under this Section
8.12 to acquire a pro rata share of any Additional Securities (i) may be
assigned in whole or in part by such holder to any of its affiliates, and
(ii) shall terminate at the close of business on the fifth anniversary of
the Closing Date.
8.13 EMPLOYEE BENEFIT PLANS. The Company will maintain and cause each
ERISA Affiliate to maintain each Employee Benefit Plan in compliance in all
material respects with all applicable requirements of ERISA and of the Code
and with all applicable rulings and regulations issued under the provisions
of ERISA and of the Code, and will not and not permit any of the ERISA
Affiliates to (a) engage in any transaction in connection with which the
Company or any of the ERISA Affiliates would be subject to either a civil
penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by
Section 4975 of the Code, in either case in an amount exceeding $100,000,
(b) fail to make full payment when due of all amounts which, under the
provisions of any Employee Benefit Plan, the Company or any ERISA Affiliate
is required to pay as contributions thereto, or permit to exist any
accumulated funding deficiency (as such term is defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived, with respect to
any Employee Benefit Plan in an aggregate amount exceeding $100,000, or (c)
fail to make any payments in an aggregate amount exceeding $100,000 to any
Multiemployer Plan that the Company or any of the ERISA Affiliates may be
required to make under any agreement relating to such Multiemployer Plan or
any law pertaining thereto.
8.14 INSURANCE. The Company will, and will cause each Subsidiary to,
obtain and maintain in force such property damage, public liability,
business interruption, worker's compensation, indemnity bonds and other
types of insurance as the Company's executive officers, after consultation
with an accredited insurance broker, shall determine to be necessary or
appropriate to protect the Company and its Subsidiaries from the insurable
hazards or risks associated with the conduct of the business of the Company
and its Subsidiaries. The Company's executive officers shall periodically
report to the Board of Directors on the status of
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such insurance coverage. All insurance shall be maintained in at least such
amounts and to such extent as shall be determined to be reasonable by the
Board of Directors; and all such insurance shall be effected and maintained
in force under a policy or policies issued by insurers of recognized
responsibility, except that the Company or any Subsidiary may effect
worker's compensation or similar insurance in respect of operations in any
state or other jurisdiction either through an insurance fund operated by
such state or other jurisdiction or by causing to be maintained a system or
systems of self-insurance which is in accord with applicable laws.
8.15 PAYMENT OF TAXES, ETC. The Company will, and will cause each
Subsidiary to, pay and discharge promptly, or cause to be paid and
discharged promptly, when due and payable, all material taxes, assessments
and governmental charges or levies imposed upon it or upon its income or
upon any of its properties, as well as all material claims of any kind
(including claims for labor, material and supplies) which, if unpaid, might
by law become a lien or charge upon its property; provided, however, that
neither the Company nor any Subsidiary shall be required to pay any such
tax, assessment, charge, levy or claim if the amount, applicability or
validity thereof is being contested in good faith by appropriate
proceedings promptly initiated and diligently conducted and adequate
reserves have been established therefor in accordance with generally
accepted accounting principles.
8.16 LANDLORD'S WAIVERS. The Company shall use all commercially
reasonable efforts to obtain and deliver to each of the Purchasers as
promptly as practicable after the Closing a landlord's waiver, in the form
approved by counsel for the Purchasers prior to the Closing or such other
form as any of the Purchasers shall reasonably request, duly executed by
each of the landlords of the facilities operated by the Company and its
Subsidiaries other than the landlords of retail stores.
8.17 SHAREHOLDER APPROVAL. The Company shall use all commercially
reasonable efforts to obtain as promptly as is practical after the Closing
approval of the shareholders of the Company, by the vote specified under
Section 4350(i) of the National Association of Securities Dealers Manual &
Notice to Members, of those terms of the Notes which, pursuant to the
provisions of the Notes, are fully effective only upon receipt of such
approval.
9. NEGATIVE COVENANTS. Without the approval of the holders of a Majority in
Interest of the Purchased Securities, the Company will not and will not permit
any Subsidiary to, as long as any of the Notes remain outstanding and, in the
case of Section 9.4, as long as any of the Notes or Conversion Stock, or any of
the Warrants or Warrant Stock, remain outstanding until such securities cease to
be Purchased Securities:
9.1 SALES OF ASSETS. Sell, lease, license on an exclusive basis or
otherwise dispose of any of the assets of the Company and its Subsidiaries,
provided that (a) until the revocation by the holder or holders of at least
67% of the aggregate principal amount of the Notes then outstanding, which
may be effected upon the occurrence and during the continuance of any Event
of Default, the Company and the Subsidiaries may sell inventory and
obsolete or worn-out equipment in the ordinary course of business, (b) any
Subsidiary may sell, lease, license or otherwise dispose of all or a
substantial part of its assets to the Company or another wholly-owned
Subsidiary, (c) the Company or any Subsidiary may dispose of cash in the
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payment of its obligations, and (d) so long as no Event of Default, or
condition or event which, after notice or lapse of time, or both, would
constitute an Event of Default, shall then exist, the Company or any
Subsidiary may sell, lease, license or otherwise dispose of assets if (i)
the net book value of such assets, when added to the net book value of all
other assets disposed of by the Company or any Subsidiary pursuant to this
clause (d) within the immediately preceding 36-month period, does not
exceed ten percent of the consolidated net book value of the assets of the
Company determined as of the end of the most recently completed fiscal
quarter, and (ii) such assets, together with all other assets disposed of
by the Company or any Subsidiary pursuant to this clause (d) within the
immediately preceding 36-month period, have not contributed more than ten
percent of consolidated net earnings of the Company for any of the three
most recently completed fiscal years. Upon any sale of assets permitted
under clause (d) of this Section 9.1, or upon any sale of obsolete or
worn-out equipment permitted under clause (a) of this Section 9.1, the
Purchasers shall, at the expense of the Company, execute such documents and
take such actions as the Company or the Collateral Agent (as hereinafter
defined) shall reasonably request to release, or to authorize the release
of, the liens on such assets securing the Notes.
9.2 FUNDAMENTAL CHANGES. Wind-up, liquidate or dissolve, or
consolidate with or merge into any other person, or permit any other person
to consolidate with or merge into the Company or any Subsidiary, or enter
into a plan of exchange with any other person, or otherwise acquire all or
substantially all of the assets of any other business operation (or any
division thereof), provided that any wholly-owned Subsidiary may be merged
into the Company if the Company is the surviving corporation or with
another wholly-owed Subsidiary.
9.3 DIVIDENDS ON OR REDEMPTION OF CAPITAL STOCK. Declare or pay any
dividend or make any other distribution on any shares of its capital stock,
or purchase, redeem or otherwise acquire for any consideration, or set
aside a sinking fund or other fund for the redemption or repurchase of, any
shares of its capital stock or any warrants, rights or options to purchase
shares of its capital stock (collectively, "Restricted Payments"), provided
that (a) any Subsidiary may make Restricted Payments to the Company or any
other wholly-owned Subsidiary, (b) the Company may issue shares of its
Common Stock as dividends on its issued and outstanding Common Stock, and
(c) so long as there exists no Event of Default or any event or condition
which, with notice or lapse of time, or both, would constitute an Event of
Default, the Company may redeem shares of its capital stock pursuant to
employment agreements with its employees which are approved by the
Company's Board of Directors.
9.4 FUTURE REGISTRATION RIGHTS. Except pursuant to the Registration
Rights Agreement, the Existing Registration Rights Agreement and the GE
Warrant, and except to the extent subordinated to the registration rights
of the holders of the Purchased Securities under the Registration Rights
Agreement, agree with the holders of any securities issued or to be issued
by the Company to register such securities under the Securities Act or
grant any incidental registration rights.
9.5 INDEBTEDNESS. Borrow money, issue evidences of indebtedness or
create, assume or suffer to exist indebtedness in addition to the Notes
(including without limitation as indebtedness capitalized lease
obligations), except (a) indebtedness incurred in connection with the
acquisition of machinery and equipment, which indebtedness is secured by
conditional sales
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contracts, title retention agreements, capitalized leases or other purchase
money security interests, provided that the indebtedness secured by any
such security interest shall not exceed the fair market value of the
machinery or equipment acquired subject thereto and such security interest
shall not encumber any property of the Company or any Subsidiary other than
the machinery or equipment acquired subject thereto (or the refinancing of
any such indebtedness, provided that no such refinancing shall increase the
outstanding principal amount of such indebtedness and any replacement lien
given to secure such refinancing shall be limited to the machinery and
equipment securing such indebtedness), (b) existing indebtedness described
in Section 9.5 of the Disclosure Schedule (provided that all such
indebtedness shall be repaid in accordance with its terms with no
extension, renewal or other modification), (c) indebtedness of the Company
to banks or other financial institutions, provided that the aggregate
principal amount of such indebtedness outstanding at any time shall not
exceed $5,000,000 ("Bank Debt"), (d) unsecured indebtedness of the Company
which is subordinated in right of payment to the Notes pursuant to terms
and conditions reasonably satisfactory to St. Xxxx, provided that the
aggregate principal amount of such indebtedness outstanding at any time
shall not exceed $100,000, (e) indebtedness of wholly-owned Subsidiaries
which arises out of loans or advances permitted by Section 9.8(a), (f)
guarantees of indebtedness permitted by Section 9.7, (g) obligations of the
Company under the Revolving Credit Program Agreement, and (h) indebtedness
or liabilities, other than Indebtedness for Borrowed Money (as hereinafter
defined), incurred or arising in the ordinary course of business. Upon the
incurrence by the Company of any Bank Debt, each of the holders of the
Notes shall execute and deliver agreements, in form and substance
reasonably satisfactory to St. Xxxx, subordinating the Notes in right of
payment to such Bank Debt and subordinating the liens on the assets of the
Company and its Subsidiaries securing the Notes to the liens on such assets
securing the Bank Debt.
9.6 LIENS. Create, assume, or suffer to exist any mortgage, pledge,
lease, lien, charge, security interest or encumbrance upon any of its
assets in addition to the liens securing the Notes, except (a) liens
securing indebtedness permitted by Section 9.5(a), (b) the senior interest
of Conseco Bank, Inc. in the Reserve Account (the "Reserve Account"), as
defined in the Revolving Credit Program Agreement dated May 17, 1999, as
amended as of February 20, 2001 and April 13, 2001, between the Company and
Conseco Bank, Inc. (the "Revolving Credit Program Agreement"), a complete
copy of which has been furnished to the Purchasers, securing certain
obligations of the Company to Conseco Bank, Inc. under the Revolving Credit
Program Agreement, provided that the value of the cash, funds and other
deposits in the Reserve Account shall not exceed $1,000,000 at any given
time, (c) liens for taxes and assessments or governmental charges or levies
not at the time due or which are being contested in good faith by
appropriate proceedings promptly initiated and diligently conducted and for
which adequate reserves have been established in accordance with generally
accepted accounting principles, (d) liens in respect of pledges or deposits
under worker's compensation laws or similar legislation, (e) carriers',
warehousemen's, mechanics', laborers', materialmen's, landlord's and
similar statutory liens securing obligations incurred in the ordinary
course of business which are not yet due or which are being contested in
good faith by appropriate proceedings promptly initiated and diligently
conducted and for which adequate reserves have been established in
accordance with generally accepted accounting principles, (f) encumbrances
on real property in the nature of zoning restrictions, easements, rights of
way, encroachments, restrictive covenants and other similar rights or
restrictions, whether or not of record, on the use of real property,
-26-
which encumbrances were not incurred in connection with the borrowing of
money or the obtaining of advances or credits and do not in the aggregate
materially detract from the value of the property subject thereto or
materially impair the use thereof in the operation of the business of the
Company or any Subsidiary, (g) liens securing the Bank Debt, (h) existing
liens described in Section 9.6 of the Disclosure Schedule (provided that
all of the obligations secured by such liens shall be repaid in accordance
with their terms with no extension, renewal or other modification), (i)
licenses, sublicenses, leases or subleases granted by any of the Company or
its Subsidiaries to other persons in the ordinary course of business that
do not materially interfere with the conduct of the business of any of the
Company or its Subsidiaries, and (j) liens arising out of the existence of
judgments or awards in respect of which any of the Company or its
Subsidiaries shall in good faith be prosecuting an appeal or proceedings
for review and in respect of which there shall have been secured a
subsisting stay of execution pending such appeal or proceedings, provided
that the aggregate amount of all cash and the fair market value of all
other property subject to such liens does not at any time exceed $250,000
(all of the foregoing being herein called "Permitted Liens").
9.7 GUARANTEES. Guarantee, endorse or otherwise become contingently
liable for the obligations, securities or dividends of any person other
than the Company or any of its wholly-owned Subsidiaries, except pursuant
to the Revolving Credit Program Agreement, and except that the Company and
any Subsidiary may endorse negotiable instruments for collection in the
ordinary course of business.
9.8 LOANS AND INVESTMENTS. Make loans or advances to any person
(including without limitation to any officer, director or shareholder of
the Company or any Subsidiary), or purchase or invest in the stock or
obligations of, or make capital contribution to, any person, except (a)
loans and advances to wholly-owned Subsidiaries which are parties to the
Guaranty and the Subsidiary Security Agreement, provided such loans and
advances are general obligations of such Subsidiaries which are not
subordinated to any other obligations of such Subsidiaries, (b) advances to
suppliers and employees made in the ordinary course of business, (c)
accounts receivable arising from the ordinary conduct of the business of
the Company or any Subsidiary (including those acquired from Conseco Bank,
Inc. under the Revolving Credit Program Agreement), (d) cash and cash
equivalents (determined in accordance with generally accepted accounting
principles consistent with those applied in connection with the preparation
of the Company's consolidated financial statements), (e) existing
investments described in Section 9.8 of the Disclosure Schedule, provided
that any additional investments made with respect thereto shall be
permitted only if independently allowed under any of the other clauses of
this Section 9.8, (f) investments in any newly created, wholly-owned
subsidiaries provided that the aggregate of all such investments does not
exceed $50,000, and (g) investments (including debt obligations) received
in connection with a bankruptcy or reorganization of a supplier or customer
of the Company or any of its Subsidiaries and in good faith settlement of
delinquent obligations of, or other disputes with, such customer or
supplier arising in the ordinary course of business.
9.9 CHANGE IN NATURE OF BUSINESS. Make any material change in the
nature of its business as carried on at the date of this Agreement.
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9.10 MODIFICATION OF ORGANIZATIONAL DOCUMENTS. Amend, modify or
otherwise change its Articles of Incorporation or By-Laws (or similar
organizational documents), including without limitation by the filing of a
certificate of designation, in any way that would have an adverse impact on
any of the Purchased Securities.
9.11 OPERATIONS PENDING RECEIPT OF SHAREHOLDER APPROVAL. Until the
receipt of the shareholder approval described in Section 8.17 hereof, take
any action (including without limitation the issuance of any shares of
Common Stock or any options, warrants or other rights to purchase Common
Stock or any Convertible Securities) if such action would have resulted,
had such shareholder approval been theretofore obtained, in any adjustment
to the conversion price of the Notes or the number of shares of Common
Stock issuable upon conversion of the Notes which is, pursuant to the terms
of the Notes, either ineffective or only partially effective until receipt
of such shareholder approval.
9.12 ISSUANCE OF PARTICIPATING PREFERRED. So long as any of the
Warrants remain outstanding, issue any capital stock of any class preferred
as to dividends or as to the distribution of assets upon voluntary or
involuntary liquidation, dissolution or winding up, unless the rights of
the holders thereof shall be limited to a fixed sum or percentage of par,
liquidation or redemption value in respect of participation in dividends
and in the distribution of such assets.
10. THE NOTES AND WARRANTS.
10.1 STOCK FULLY PAID; RESERVATION OF SHARES. The Company covenants
and agrees that all Conversion Stock and Warrant Stock that may be issued
upon conversion of the Notes or exercise of the Warrants will be, upon
issuance in accordance with the terms of the Notes or Warrants, as the case
may be, fully paid and nonassessable, and that the issuance thereof shall
not give rise to any preemptive rights on the part of any person or entity.
The Company further covenants and agrees that the Company will at all times
have authorized and reserved a sufficient number of shares of its Common
Stock for the purpose of issue upon the conversion of the Notes and
exercise of the Warrants.
10.2 NO PREPAYMENT WITHOUT CONSENT. The Notes shall be prepayable only
with the prior written consent of the holders of at least 67% of the
aggregate principal amount of the Notes outstanding immediately prior to
such prepayment. All accrued and unpaid interest on any principal amount
being prepaid with such consent shall be paid at the time of such
prepayment.
10.3 PRO RATA PAYMENTS. All payments and prepayments of principal of
and interest on the Notes, and all proceeds recovered under the Guaranty or
upon any foreclosure, sale or other disposition of or realization in any
manner upon all or any part of the collateral under any of the Security
Agreements, shall, after deducting all reasonable and documented expenses
of collection (including without limitation reasonable attorneys' fees and
disbursements), be shared by the holders of the Notes pro rata in
accordance with the respective unpaid principal amounts thereof and accrued
and unpaid lawful interest thereon.
10.4 SENIOR DEBT. The principal of and interest on the Notes, and all
other obligations of the Company under this Agreement or any of the other
Transaction Documents,
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shall constitute "Senior Debt" for purposes of the Convertible Subordinated
Debenture of the Company payable to St. Xxxx Venture Capital V, LLC dated
November 10, 2000 in the original principal amount of $4,000,000.
11. REGISTRATION OF SECURITIES. The holders of the Purchased Securities
shall be entitled to the registration rights provided in the Registration Rights
Agreement.
12. DEFAULT.
12.1 EVENTS OF DEFAULT. Each of the following events shall be an event
of default (an "Event of Default") for purposes of this Agreement:
(a) if default shall be made in the punctual payment of interest on
the Notes, and such default shall have continued for a period of seven days
after written notice thereof to the Company by the holder of any of the
Notes; or
(b) if default shall be made in the punctual payment of the principal
of the Notes, or any installment thereof; or
(c) if the Company or any Significant Subsidiary (as hereinafter
defined) becomes insolvent, or admits in writing its inability to pay its
debts as they mature, or makes an assignment for the benefit of creditors,
or ceases doing business as a going concern, or the Company or any
Significant Subsidiary applies for or consents to the appointment of a
trustee or receiver for the Company or any Significant Subsidiary, or for
the major part of the property of either; or
(d) if a trustee or receiver is appointed for the Company or any
Significant Subsidiary or for the major part of the property of either and
the order of such appointment is not discharged, vacated or stayed within
60 days after such appointment; or
(e) if an order for relief shall be entered in any federal bankruptcy
proceeding in which the Company or any Significant Subsidiary is the
debtor; or if bankruptcy, reorganization, arrangement, insolvency, or
liquidation proceedings, or other proceedings for relief under any
bankruptcy or similar law or laws for the relief of debtors, are instituted
by or against the Company or any Significant Subsidiary and, if instituted
against the Company or any Significant Subsidiary, are consented to or, if
contested by the Company or such Significant Subsidiary, are not dismissed
by the adverse parties or by an order, decree or judgment within 60 days
after such institution; or
(f) if any judgment, writ or warrant of attachment or of any similar
process in an amount in excess of $250,000 shall be entered or filed
against the Company or any Significant Subsidiary or against any of the
property or assets of either and remains unpaid, unvacated, unbonded or
unstayed for a period of 30 days; or
(g) if the Company, any Significant Subsidiary or any ERISA Affiliate
shall have made a complete or partial withdrawal from a Multiemployer Plan
and, as a result of such complete or partial withdrawal, the Company, any
Significant Subsidiary or any ERISA Affiliate incurs a withdrawal liability
in an annual amount exceeding $100,000; or a Multiemployer Plan
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enters reorganization under Section 4241 of ERISA and, as a result thereof,
the Company's, any Significant Subsidiary's or any ERISA Affiliate's
contribution requirement with respect to such Multiemployer Plan increases
by an annual amount exceeding $100,000; or
(h) if the Company or any Significant Subsidiary shall default in any
material respect in the due and punctual performance of any covenant or
agreement in any note, bond, indenture, loan agreement, note agreement,
mortgage, security agreement or other instrument evidencing or related to
Indebtedness for Borrowed Money, and such default shall continue for more
than the period of notice and/or grace, if any, therein specified and shall
not have been waived; or
(i) (i) if any representation or warranty made by the Company in this
Agreement shall prove to have been untrue or incorrect in any material
respect as of the date of this Agreement or as of the Closing Date, or (ii)
if any representation or warranty made by any of the Subsidiaries in the
Guaranty shall prove to have been untrue or incorrect in any material
respect as of the date of the Guaranty, or (iii) if any report,
certificate, financial statement, financial schedule or other instrument
prepared or purported to be prepared by the Company or any officer of the
Company and furnished or delivered under or pursuant to this Agreement on
or after the Closing Date (or any statement made therein) shall prove to be
untrue or incorrect in any material respect as of the date it was made,
furnished or delivered; or
(j) if default shall be made in the due and punctual performance or
observance of any covenant or agreement contained in Section 9 of this
Agreement; or
(k) if default shall be made in the due and punctual performance or
observance of any other covenant or agreement contained in this Agreement,
in the Guaranty or in the Registration Rights Agreement, and such default
shall have continued for a period of 15 days after written notice thereof
to the Company by any holder of a Note; or
(l) if there shall occur any other Event of Default under and as
defined in any of the Security Agreements; or
(m) if a Change in Control (as hereinafter defined) shall have
occurred.
12.2 REMEDIES UPON EVENTS OF DEFAULT. Upon the occurrence of an Event
of Default as herein defined, and so long as such Event of Default
continues unremedied, then the holders of at least 67% of the aggregate
principal amount of the Notes then outstanding shall be entitled by notice
to declare the principal of and any accrued interest on the Notes to be
immediately due and payable, and thereupon the Notes, including both
principal and interest, shall become immediately due and payable (provided,
however, that, when any Event of Default described in Section 12.1(c), (d)
or (e) hereof has occurred, the Notes shall immediately become due and
payable without presentment, demand or notice of any kind).
12.3 NOTICE OF DEFAULTS. When, to its knowledge, any Event of Default
has occurred or exists, the Company agrees to give written notice within
three business days of such Event of Default to the holders of all
outstanding Purchased Securities. If the holder of any Purchased Securities
shall give any notice or take any other actions in respect of a claimed
Event
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of Default, the Company will forthwith give written notice thereof to all
other holders of Purchased Securities at the time outstanding, describing
such notice or action and the nature of the claimed Event of Default.
12.4 REMEDIES CUMULATIVE. No right, power or remedy conferred upon any
holder of Purchased Securities shall be exclusive, and each such right,
power or remedy shall be cumulative and in addition to every other right,
power or remedy, whether conferred hereby or by any such security or now or
hereafter available at law or in equity or by statute or otherwise.
12.5 REMEDIES NOT WAIVED. No course of dealing between the Company and
any Purchaser or the holder of any Purchased Securities, and no delay in
exercising any right, power or remedy conferred hereby or by any such
security or now or hereafter existing at law or in equity or by statute or
otherwise, shall operate as a waiver of or otherwise prejudice any such
right, power or remedy.
12.6 EQUITABLE REMEDIES. The parties agree that money damages or other
remedies at law may not be a sufficient or adequate remedy for any breach
or violation of, or default under, this Agreement by them and that, in
addition to all other remedies available to them, each of them shall be
entitled, to the fullest extent permitted by law, to an injunction
restraining such breach, violation or default or threatened breach,
violation or default and to any other equitable relief, including without
limitation specific performance, without bond or other security being
required.
13. DEFINITIONS. Unless the context otherwise requires, the terms defined
in this Section 13 shall have the meanings herein specified for all purposes of
this Agreement, applicable to both the singular and plural forms of any of the
terms herein defined. All accounting terms defined below shall, except as
otherwise expressly provided, be determined by reference to the Company's books
of account and in conformity with generally accepted accounting principles as
applied to such books of account in the opinion of the independent certified
public accountants selected by the Board of Directors as required under the
provisions of Section 8.2 hereof.
13.1 "Additional Shares of Common Stock" shall mean all shares of
Common Stock of the Company issued by the Company on or after the Closing
Date, except the Conversion Stock and the Warrant Stock.
13.2 "Change in Control" shall mean the occurrence of any of the
following: (a) the first day on which a majority of the members of the
Board of Directors are not Continuing Directors (as hereinafter defined),
(b) the consummation of any transaction (including without limitation any
stock sale, merger, consolidation or statutory share exchange) the result
of which is that any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) other than St. Xxxx or any of its affiliates is
the beneficial owner (as defined in Rule 13d-3 promulgated under the
Exchange Act) of 30% or more of the voting power of the outstanding voting
stock of the Company, (c) the sale or other disposition (in one transaction
or a series of related transactions) of all or substantially all of the
assets of the Company and its Subsidiaries, taken as a whole, to any
individual or entity other than the Company or any of its wholly-owned
Subsidiaries, or (d) the adoption of a plan relating to the complete
liquidation or dissolution of
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the Company. For purposes of this provision, "Continuing Directors" means
any member of the Board of Directors who (x) was a member of the Board of
Directors on the date of this Agreement, or (y) was nominated for election
or elected or appointed to the Board of Directors by the Board of Directors
at a time when a majority of the members of the Board of Directors
consisted of Continuing Directors.
13.3 "Collateral Agent" shall mean St. Xxxx, in its capacity as agent
for the holders of the Notes as provided under Section 14 hereof, or any
successor agent.
13.4 "Collateral Agent-Related Person" shall mean the Collateral
Agent, each of its affiliates, and each of the officers, directors,
employees, agents and attorneys-in-fact of the Collateral Agent or any of
its affiliates.
13.5 "Common Stock" shall mean the Company's authorized common shares,
any additional common shares which may be authorized in the future by the
Company, and any stock into which such common shares may hereafter be
changed, and shall also include stock of the Company of any other class
which is not preferred as to dividends or as to distributions of assets on
liquidation, dissolution or winding up of the Company over any other class
of stock of the Company, and which is not subject to redemption.
13.6 "Conversion Price" shall mean such price at which the Notes are
convertible into Common Stock.
13.7 "Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are at any time directly or
indirectly convertible into or exchangeable for Additional Shares of Common
Stock.
13.8 "Indebtedness for Borrowed Money" shall include only indebtedness
of the Company and its Subsidiaries incurred as the result of a direct
borrowing of money and shall not include any other indebtedness including,
but not limited to, indebtedness incurred with respect to trade accounts.
13.9 "Majority in Interest of the Purchased Securities" shall mean at
least 67% of the aggregate principal amount of the Notes outstanding at the
time of calculation and at least 67% of the sum of (a) the number of shares
of Conversion Stock outstanding at the time of calculation, plus (b) the
number of shares of Warrant Stock for which Warrants outstanding at the
time of calculation could then be exercised, plus (c) the number of shares
of Warrant Stock outstanding at the time of calculation.
13.10 "Purchase Price" shall mean such price at which the Warrants are
exercisable for Common Stock.
13.11 "Purchased Securities" shall mean the Notes, the Conversion
Stock, the Warrants and the Warrant Stock (other than any shares of
Conversion Stock or Warrant Stock that have been theretofore registered
under the Securities Act and sold or that have been theretofore sold in an
open market transaction pursuant to Rule 144).
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13.12 "Security Agreements" shall mean the Parent Security Agreement,
the Parent Patent and Trademark Security Agreement, the Subsidiary Security
Agreement, the Pledge Agreement and any other collateral security
agreements hereafter entered into by any of the Company or the Subsidiaries
as security for the Notes or the Guaranty.
13.13 "Significant Subsidiary" shall mean any Subsidiary which
constitutes a significant subsidiary within the meaning of Rule 1-02(w) of
Regulation S-X promulgated by the SEC.
13.14 "Subsidiary" shall mean any corporation, association or other
business entity more than a majority (by number of votes) of the voting
stock or other voting equity interests of which is owned or controlled,
directly or indirectly, by the Company or by one or more of its
Subsidiaries or both.
13.15 "Transaction Documents" shall mean this Agreement, the Notes,
the Warrants, the Guaranty, the Security Agreements and the Registration
Rights Agreement.
14. COLLATERAL AGENT.
14.1 APPOINTMENT AND AUTHORIZATION OF COLLATERAL AGENT. Each holder of
a Note hereby irrevocably (subject to Section 14.09 hereof) appoints,
designates and authorizes the Collateral Agent as its agent to take such
actions on its behalf under or in respect of any of the Guaranty or the
Security Agreements (collectively, the "Collateral Documents") and to
exercise such powers and perform such duties on its behalf as are expressly
delegated to the Collateral Agent by the terms of any of the Collateral
Documents, together with such powers as are reasonably incidental thereto.
The Collateral Agent hereby accepts such appointment. Notwithstanding any
provision to the contrary contained elsewhere herein, the Collateral Agent
shall not have any duties or responsibilities, except those expressly set
forth herein, nor shall the Collateral Agent have or be deemed to have any
fiduciary relationship with any holder of a Note, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be
read into this Agreement or otherwise exist against the Collateral Agent.
Without limiting the generality of the foregoing sentence, the use of the
term "agent" herein with reference to the Collateral Agent is not intended
to connote any fiduciary or other implied (or express) obligations arising
under agency doctrine of any applicable law. Instead, such term is used
merely as a matter of market custom, and is intended to create or reflect
only an administrative relationship between independent contracting
parties.
14.2 DELEGATION OF DUTIES. The Collateral Agent may execute any of its
duties under this Section 14 or under any of the Collateral Documents by or
through agents, employees or attorneys-in-fact and shall be entitled to
advice of counsel and other consultants or experts concerning all matters
pertaining to such duties. The Collateral Agent shall not be responsible
for the negligence or misconduct of any agent or attorney-in-fact that it
selects in the absence of gross negligence or willful misconduct of the
Collateral Agent in such selection.
14.3 LIABILITY OF COLLATERAL AGENT. No Collateral Agent-Related Person
shall be (a) liable for any action taken or omitted to be taken by the
Collateral Agent under this Section 14 or under or in connection with any
of the Collateral Documents (except for its own gross
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negligence or willful misconduct in connection with its duties expressly
set forth herein), or (b) responsible in any manner to any holder of a Note
for any recital, statement, representation or warranty made by the Company
or any of the Subsidiaries, or any officer thereof, contained in any of the
Transaction Documents, or in any certificate, report, statement or other
document referred to or provided for in, or received by the Collateral
Agent or any other holder of a Note under or in connection with, any of the
Transaction Documents, or for the validity, effectiveness, genuineness,
enforceability or sufficiency of any of the Transaction Documents, or for
any failure of the Company or any of the Subsidiaries to perform its
obligations under any of the Transaction Documents. No Collateral
Agent-Related Person shall be under any obligation to any holder of a Note
to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, any of the Transaction
Documents, or to inspect the properties, books or records of the Company or
any of the Subsidiaries.
14.4 RELIANCE BY COLLATERAL AGENT. The Collateral Agent shall be
entitled to rely, and shall be fully protected in relying, upon any
writing, communication, signature, resolution, representation, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or
telephone message, statement or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the
proper person or persons, and upon advice and statements of legal counsel
(including counsel to the Company), independent accountants and other
experts selected by the Collateral Agent. The Collateral Agent shall be
fully justified in failing or refusing to take any action under or in
connection with any of the Collateral Documents unless it shall first
receive such advice or concurrence of the holder or holders of at least 67%
of the aggregate principal amount of the Notes then outstanding (the
"Required Note Holders") as it deems appropriate and, if it so requests, it
shall first be indemnified to its satisfaction by the holders of the Notes
against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Collateral
Agent shall in all cases be fully protected in acting, or in refraining
from acting, under or in connection with any of the Collateral Documents in
accordance with a request or consent of the Required Note Holders, and such
request and any action taken or failure to act pursuant thereto shall be
binding upon all the holders of the Notes. Where this Section 14 expressly
permits or prohibits an action unless the Required Lenders otherwise
determine, the Collateral Agent shall, and in all other instances, the
Collateral Agent may, but shall not be required to, initiate any
solicitation for the consent or a vote of the holders of the Notes.
14.5 NOTICE OF DEFAULT. The Collateral Agent shall not be deemed to
have knowledge or notice of the occurrence of any Event of Default or any
event or condition which, with notice or lapse of time, or both, would
constitute an Event of Default (a "Default"), unless the Collateral Agent
shall have received written notice from a holder of a Note or the Company
referring to this Agreement, describing such Default or Event of Default
and stating that such notice is a "notice of default." The Collateral Agent
shall take such action under any of the Collateral Documents with respect
to such Default or Event of Default as may be directed by the Required Note
Holders; provided, however, that unless and until the Collateral Agent has
received any such direction, the Collateral Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable or
in the best interest of the Required Note Holders.
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14.6 CREDIT DECISION; DISCLOSURE OF INFORMATION BY COLLATERAL AGENT.
Each holder of a Note acknowledges that no Collateral Agent-Related Person
has made any representation or warranty to it, and that no act by the
Collateral Agent hereinafter taken, including any consent to and acceptance
of any assignment or review of the affairs of the Company or any of the
Subsidiaries, shall be deemed to constitute any representation or warranty
by any Collateral Agent-Related Person to any holder of a Note as to any
matter, including whether Collateral Agent-Related Persons have disclosed
material information in their possession. Each holder of a Note represents
to the Collateral Agent that it has, independently and without reliance
upon any Collateral Agent-Related Person and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial
and other condition and creditworthiness of the Company and the
Subsidiaries, and all applicable regulatory laws relating to the
transactions contemplated hereby, and made its own decision to enter into
this Agreement and to extend credit to the Company. Each holder of a Note
also represents that it will, independently and without reliance upon any
Collateral Agent-Related Person and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
analysis, appraisals and decisions in taking or not taking action under the
Transaction Documents, and to make such investigations as it deems
necessary to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of the Company
and the Subsidiaries. The Collateral Agent shall not have any duty or
responsibility to provide any holder of a Note with any credit or other
information concerning the business, prospects, operations, property,
financial and other condition or creditworthiness of the Company or any of
the Subsidiaries which may come into the possession of any Collateral
Agent-Related Person.
14.7 INDEMNIFICATION OF COLLATERAL AGENT. Each holder of a Note shall
indemnify and hold harmless upon demand each Collateral Agent-Related
Person (to the extent not reimbursed by or on behalf of the Company or any
of the Subsidiaries and without limiting the obligation of the Company or
any of the Subsidiaries to do so), pro rata according to such holder's
share of the aggregate principal amount of the Notes then outstanding, from
and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of
any kind or nature whatsoever (collectively, "Losses") which may be imposed
on or incurred by such Collateral Agent-Related Person in any way relating
to or arising out of this Section 14 or any of the Collateral Documents or
any action taken or omitted by the Collateral Agent under this Section 14
or any of the Collateral Documents; provided, however, that no holder of
any Note shall be liable for the payment to any Collateral Agent-Related
Person of any portion of any such Losses to the extent resulting from such
Collateral Agent-Related Person's gross negligence or willful misconduct;
provided, further, however, that no action taken in accordance with the
directions of the Required Note Holders shall be deemed to constitute gross
negligence or willful misconduct for purposes of this Section 14.7. The
undertaking in this Section 14.7 shall survive the payment of the principal
of and interest on the Notes and all other obligations guarantied or
secured by any of the Collateral Documents and the resignation or
replacement of the Collateral Agent.
14.8 COLLATERAL AGENT IN ITS INDIVIDUAL CAPACITY. The Collateral Agent
and its affiliates may make loans to, acquire equity interests in and
generally engage in any kind of business with any of the Company or the
Subsidiaries as though the Collateral Agent were not the Collateral Agent
hereunder and without notice to or consent of the holders of the Notes. In
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addition, the holders of the Notes are aware that certain affiliates of the
Collateral Agent have existing business relationships with the Company and
the Subsidiaries, including relationships arising out of the ownership by
such affiliates of significant debt and equity interests in the Company and
the service on the Board of Directors of the Company of a representative of
such affiliates. The holders of the Notes acknowledge that, pursuant to
such activities and relationships, the Collateral Agent or its affiliates
may receive information regarding the Company or any of the Subsidiaries
(including information that may be subject to confidentiality obligations
in favor of the Company or such Subsidiary) and acknowledge that the
Collateral Agent shall be under no obligation to provide such information
to them. With respect to its Note, the Collateral Agent shall have the same
rights and powers under any of the Transaction Documents as any other
holder of a Note and may exercise such rights and powers as though it were
not the Collateral Agent, and references in this Section 14 and elsewhere
in the Transaction Documents to a holder or holders of Notes include the
Collateral Agent in its individual capacity.
14.9 SUCCESSOR COLLATERAL AGENT. The Collateral Agent may resign as
Collateral Agent upon 30 days' notice to the other holders of the Notes. If
the Collateral Agent resigns under this Agreement, the Required Note
Holders shall appoint from among the holders of the Notes a successor
Collateral Agent for the holders of the Notes which successor Collateral
Agent shall be consented to by the Company at all times other than during
the existence of an Event of Default (which consent of the Company shall
not be unreasonably withheld or delayed). If no successor Collateral Agent
is appointed prior to the effective date of the resignation of the
Collateral Agent, the Collateral Agent may appoint, after consulting with
the other holders of the Notes and the Company, a successor Collateral
Agent from among the holders of the Notes. Upon the acceptance of its
appointment as successor Collateral Agent hereunder, such successor
Collateral Agent shall succeed to all the rights, powers and duties of the
retiring Collateral Agent and the term "Collateral Agent" shall mean such
successor Collateral Agent and the retiring Collateral Agent's appointment,
powers and duties as Collateral Agent shall be terminated. After any
retiring Collateral Agent's resignation hereunder as Collateral Agent, the
provisions of this Section 14 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Collateral Agent under this
Agreement. If no successor Collateral Agent has accepted appointment as
Collateral Agent by the date which is 30 days following a retiring
Collateral Agent's notice of resignation, the retiring Collateral Agent's
resignation shall nevertheless thereupon become effective and the holders
of the Notes shall perform all of the duties of the Collateral Agent
hereunder until such time, if any, as the Required Note Holders appoint a
successor agent as provided for above.
15. CONSENTS; WAIVERS AND AMENDMENTS. Except as otherwise specifically
provided herein, in each case in which approval of the holders of Purchased
Securities is required by the terms of this Agreement, such requirement shall be
satisfied by a vote or the written consent of the holders of at least a Majority
in Interest of the Purchased Securities. With the written consent of the holders
of at least a Majority in Interest of the Purchased Securities, the obligations
of the Company under this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), and with the
same approval the Company may enter into a supplementary agreement for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of any supplemental agreement or
modifying in any manner the rights and obligations of the holders of the
Purchased Securities and of the Company; provided, however, that no such waiver
or supplemental agreement shall
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(a) amend the basic terms of the Notes as to any holder of each Note so affected
who does not consent thereto, or (b) reduce the aforesaid percentage of
Purchased Securities, the holders of which are required to consent to any waiver
or supplemental agreement, without the consent of all of the holders of
Purchased Securities whose rights would be affected by such reduction, or (c)
amend the basic terms of the Warrants as to any holder of each Warrant so
effected who does not consent thereto. Written notice of any such waiver,
consent or agreement of amendment, modification or supplement shall be given to
the holders of the Purchased Securities who have not previously consented
thereto in writing.
16. CHANGES, WAIVERS, ETC. Neither this Agreement nor any provision hereof
may be changed, waived, discharged or terminated orally, but only by a statement
in writing in a manner consistent with the requirements set forth in Section 15.
17. PAYMENT OF FEES AND EXPENSES OF PURCHASERS. Upon the consummation of
the sale of Notes and Warrants anticipated by this Agreement or upon failure by
the Company to consummate such sale, the Company will pay the expenses incurred
by the Purchasers in connection with the transactions herein contemplated and
the expenses incurred by St. Xxxx in connection with the Company's negotiation
of unconsummated financing arrangements prior to the date hereof, including
without limitation the reasonable fees and disbursements of Faegre & Xxxxxx LLP
for their services as special counsel to St. Xxxx in connection with the
transactions herein contemplated and as special counsel to St. Xxxx in
connection with such unconsummated financing arrangements. The Company will also
pay (a) all expenses incurred by the holders of Purchased Securities (including
without limitation reasonable attorneys' fees and disbursements) with respect to
any amendments or waivers requested by the Company (whether or not the same
become effective) under or in respect of this Agreement or the agreements
contemplated hereby, and (b) all expenses incurred by the holders of Purchased
Securities (including without limitation reasonable attorneys' fees and
disbursements), whether or not litigation is commenced, with respect to the
protection or enforcement of the rights granted under this Agreement or the
agreements contemplated hereby.
18. UNDERSTANDING AMONG PURCHASERS. The determination by each of the
Purchasers to purchase Notes and Warrants pursuant to this Agreement has been
made by such Purchaser independent of the other Purchasers, and independent of
any statements or opinions as to the advisability of such purchase or as to the
properties, business, prospects, operations, results of operations or condition
(financial or otherwise) of the Company or any Subsidiary which may have been
made or given by the other Purchasers or by any agent or employee of the other
Purchasers. In addition, it is acknowledged by each of the Purchasers that the
other Purchasers have not acted as such Purchaser's agent in connection with
making its investment hereunder and that the other Purchasers will not be acting
as such Purchaser's agent in connection with monitoring such Purchaser's
investment hereunder.
19. NOTICES. All notices, demands, requests and other communications given
to or made upon a party pursuant to this Agreement shall be in writing and shall
be mailed (by certified mail, postage prepaid and return receipt requested),
sent by overnight courier, telecopied or hand delivered to such party:
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(a) in the case of any Purchaser, at the address of such Purchaser
specified on Schedule 1 hereto or at such other address as such Purchaser
may specify by written notice to the Company, or
(b) in the case of any other holder of Purchased Securities, at the
address of such holder shown on the books of the Company or at such other
address as such holder may specify by written notice to the Company, or
(c) in the case of the Company, at the address specified below its
signature at the end of this Agreement or at such other address as the
Company may specify by written notice to the holders of the Purchased
Securities.
All such notices, demands, requests and communications shall be effective and
deemed to have been given and received (i) if sent by certified mail, postage
prepaid and return receipt requested, when received or three business days after
mailing, whichever first occurs, (ii) if sent by overnight courier, one business
day after delivery to such courier, (iii) if telecopied, when transmitted and a
confirmation is received, provided the same is on a business day and, if not, on
the next business day, or (iv) if hand delivered, upon delivery, provided that
the same is on a business day and, if not, on the next business day.
20. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All representations
and warranties contained herein shall survive the execution and delivery of this
Agreement, any investigation at any time made by the Purchasers or on their
behalf, and the sale and purchase of the Notes and the Warrants and payment
therefor. All statements contained in any certificate, instrument or other
writing delivered by or on behalf of the Company pursuant hereto or in
connection with or contemplation of the transactions herein contemplated (other
than legal opinions) shall constitute representations and warranties by the
Company hereunder.
21. PARTIES IN INTEREST. All the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors and assigns, whether so expressed
or not, and, in particular, shall inure to the benefit of and be enforceable by
the holder or holders at the time of any of the Purchased Securities.
22. HEADINGS. The headings of the Sections and paragraphs of this Agreement
have been inserted for convenience of reference only and do not constitute a
part of this Agreement.
23. CHOICE OF LAW. It is the intention of the parties that the substantive
laws of Minnesota shall govern the validity of this Agreement, the construction
of its terms and the interpretation of the rights and duties of the parties.
24. COUNTERPARTS. This Agreement may be executed concurrently in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
25. CONSTRUCTION. In this Agreement and the other Transaction Documents,
except as otherwise expressly provided:
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(a) the term "business day" shall mean every day other than a Saturday,
Sunday or a day which is a statutory holiday under the laws of the United States
or the State of Minnesota;
(b) the term "person" shall mean an individual, a partnership, a limited
liability company, a joint venture, a corporation, a trust, an unincorporated
association, and a government or any department or agency thereof; and
(c) the term "affiliate" shall have the meaning ascribed thereto in Rule
405 under the Securities Act.
26. CONSENT TO JURISDICTION; WAIVER OF TRIAL BY JURY. THE COMPANY AGREES
THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT OR ANY
OF THE OTHER TRANSACTION DOCUMENTS TO WHICH THE COMPANY IS A PARTY SHALL BE
TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY
OF HENNEPIN, STATE OF MINNESOTA OR, AT THE SOLE OPTION OF ANY HOLDER OF
PURCHASED SECURITIES, IN ANY OTHER COURT IN WHICH SUCH HOLDER SHALL INITIATE
LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER
THE MATTER IN CONTROVERSY AND PERSONAL JURISDICTION OVER THE COMPANY. THE
COMPANY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT IT MAY
HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 26, AND THE
COMPANY WAIVE ITS RIGHT TO TRIAL BY JURY.
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
undersigned, whereupon this letter shall become a binding contract among you and
the undersigned.
Very truly yours,
SELECT COMFORT CORPORATION
By: /s/ Xxxx X. Xxxxxxx
-------------------------------------------
Name: Xxxx X. Xxxxxxx
-----------------------------------------
Title: Senior Vice President
----------------------------------------
Address: 0000 Xxxxxxx Xxxx Xxxxx
Xxxxx 000
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Chief Financial Officer
Fax No.: (000) 000-0000
-39-
The foregoing Agreement is hereby
accepted as of the date first above written.
ST. XXXX VENTURE CAPITAL VI, LLC
By: SPVC MANAGEMENT VI, LLC
Its: Managing Member
By: /s/ Xxxxxxx X. Xxxx
--------------------------------------------
Name: Xxxxxxx X. Xxxx
--------------------------------------
Title: Managing Director
-------------------------------------
Address: 00000 Xxxxxx Xxxxx
Xxxxx 000
Xxxx Xxxxxxx, XX 00000
Telephone No.: 000-000-0000
Fax No.: 000-000-0000
PRINTWARE, INC.
By: /s/ Xxxx Xxxxxxxxxxx
--------------------------------------------
Name: Xxxx Xxxxxxxxxxx
Its: Chief Financial Officer
Address: 0000 Xxxxx Xxxxxxxxxx Xxxx
Xx. Xxxx, XX 00000
Telephone No.: 000-000-0000
Fax No.: 000-000-0000
/s/ Xxxx X. Xxxxxx
-----------------------------------------------
Xxxx X. Xxxxxx
Address: 0000 Xxxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxxxx, XX 00000
Telephone No.: 000-000-0000
Fax No.:
--------------------------
/s/ Xxxxxx X. Xxxxxxx
-----------------------------------------------
Xxxxxx X. Xxxxxxx
Address: 0000 Xxxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxxxx, XX 00000
Telephone No.: 000-000-0000
Fax No.:
--------------------------
-40-
LIBERTY DIVERSIFIED
By: /s/ Xxxxx Xxxxxx
--------------------------------------------
Its: Executive Vice President
-------------------------------------------
Address: 0000 Xxxxx Xxxxxxx 000
Xxxxxxxxxxx, XX 00000
Telephone No.: 000-000-0000
Fax No.: 000-000-0000
STANDARD FUSEE CORPORATION
By: /s/ C.Xxx XxXxxxxxxx
--------------------------------------------
Its: President and CEO
-------------------------------------------
Address: 00000 Xx. Xxxxxxx'x Xxxx
X.X. Xxx 0000
Xxxxxx, XX 00000
Telephone No.: 0-000-000-0000
Fax No.: 000-000-0000
/s/ X.X. Xxxxxx
-----------------------------------------------
X.X. Xxxxxx
Address: 00 Xxxx 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Telephone No.: 212-683-2626 ext. 22
Fax No.: 000-000-0000
/s/ Xxxxxx X. Xxxxxx
-----------------------------------------------
Xxxxxx X. Xxxxxx
Address: 00 Xxxxxx Xxx
Xxxxxxxxx, XX 00000
Telephone No.: 000-000-0000
Fax No.: 000-000-0000
-41-
/s/ Xxxxx X. Xxxxxx
-----------------------------------------------
Xxxxx X. Xxxxxx
Address: 00 Xxxxxxxxx Xxxxx
Xxxxxx, XX 00000
Telephone No.: 000-000-0000 (home)
Telephone No.: 000-000-0000 (office)
Fax No.: 000-000-0000
/s/ Xxxx-Xxxxxx Xxxxxxx
-----------------------------------------------
Xxxx-Xxxxxx Xxxxxxx
Address: 00 Xxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Telephone No.: 000-000-0000 (home)
Telephone No.: 000-000-0000 (office)
Fax No.: 000-000-0000
BFSUS SPECIAL OPPORTUNITIES TRUST PLC
By: /s/ Xxxxxxx Xxxxxxxxx
--------------------------------------------
Its: Director
-------------------------------------------
Address: Renaissance Capital Group, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxxxxx
Xxxxx 000-XX 00
Xxxxxx, XX 00000
Telephone No.: 000-000-0000
Fax No.: 000-000-0000
RENAISSANCE US GROWTH & INCOME
TRUST PLC
By: /s/ Xxxxxxx Xxxxxxxxx
--------------------------------------------
Its: Director
-------------------------------------------
Address: Renaissance Capital Group, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxxxxx
Xxxxx 000-XX 00
Xxxxxx, XX 00000
Telephone No.: 000-000-0000
Fax No.: 000-000-0000
-00-
XXXXXXX XXXXXXX, X.X.
By: /s/ Xxxxxxx X. Xxxx
--------------------------------------------
Its: Managing Director
-------------------------------------------
Address: 0000 Xxxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Telephone No.: 000-000-0000
Fax No.: 000-000-0000
BAYSTAR INTERNATIONAL, LTD.
By: /s/ Xxxxxxx X. Xxxx
--------------------------------------------
Its: Managing Director
-------------------------------------------
Address: 0000 Xxxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Telephone No.: 000-000-0000
Fax No.: 000-000-0000
-43-
SCHEDULE 1
SCHEDULE 1
------------------------------ -------------------- -------------------- --------------------
NAMES AND ADDRESSES OF ORIGINAL PRINCIPAL NUMBER OF SHARES PURCHASE PRICE
PURCHASERS AMOUNT OF NOTES OF WARRANT STOCK
------------------------------ -------------------- -------------------- --------------------
St. Xxxx Venture Capital VI, $4,100,000 1,640,000 $4,100,000
LLC
00000 Xxxxxx Xxxxx
Xxxxx 000
Xxxx Xxxxxxx, XX 00000
Attention: Xxxx Xxxxxx
Fax No.: (000) 000-0000
------------------------------ -------------------- -------------------- --------------------
Printware, Inc. $1,500,000 600,000 $1,500,000
c/o Xxxx Xxxxxxxxxxx, CFO
0000 Xxxxx Xxxxxxxxxx Xxxx
Xx. Xxxx, XX 00000
------------------------------ -------------------- -------------------- --------------------
Xxxx X. Xxxxxx $100,000 40,000 $100,000
0000 Xxxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxxxxx, XX 00000
------------------------------ -------------------- -------------------- --------------------
Xxxxxx X. Xxxxxxx $100,000 40,000 $100,000
0000 Xxxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxxxxx, XX 00000
------------------------------ -------------------- -------------------- --------------------
Liberty Diversified $1,000,000 400,000 $1,000,000
0000 Xxxxx Xxxxxxx 000
Xxxxxxxxxxx, XX 00000
Attn: Xxxxx Xxxxxx and Xxxx
Xxxxxxxxx, CFO
------------------------------ -------------------- -------------------- --------------------
Standard Fusee Corporation $1,000,000 400,000 $1,000,000
00000 Xx. Xxxxxxxx Xxxx
XX Xxx 0000
Xxxxxx, XX 00000
------------------------------ -------------------- -------------------- --------------------
X. X. Xxxxxx $50,000 20,000 $50,000
00 Xxxx 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
------------------------------ -------------------- -------------------- --------------------
Xxxxxx X. Xxxxxx $50,000 20,000 $50,000
Summer Address:
Mail:
00 Xxxxxx Xxx
X.X. Xxx 000
Xxxxxxxxxx, XX 00000
Overnight:
00 Xxxxxx Xxx
Xxxxxxxxx, XX 00000
------------------------------ -------------------- -------------------- --------------------
Xxxxx X. Xxxxxx $50,000 20,000 $50,000
00 Xxxxxxxxx Xxxxx
Xxxxxx, XX 00000
------------------------------ -------------------- -------------------- --------------------
Xxxx-Xxxxxx Xxxxxxx $50,000 20,000 $50,000
00 Xxxxx Xxxxxx
Xxxxxxxxx, XX 00000
------------------------------ -------------------- -------------------- --------------------
BFSUS Special Opportunities $500,000 200,000 $500,000
Trust PLC
0000 Xxxxx Xxxxxxx Xxxxxxxxxx
Xxxxx 000-XX 00
Xxxxxx, XX 00000
------------------------------ -------------------- -------------------- --------------------
Renaissance Capital Growth & $500,000 200,000 $500,000
Income Fund III, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxxxxx
Xxxxx 000-XX 00
Xxxxxx, XX 00000
------------------------------ -------------------- -------------------- --------------------
BayStar Capital, L.P. $1,500,000 600,000 $1,500,000
0000 Xxxx Xxxxxx Xxxxxx
Xxxxx 000
Xxxxxx, XX 00000
------------------------------ -------------------- -------------------- --------------------
BayStar International, Ltd. $500,000 200,000 $500,000
0000 Xxxx Xxxxxx Xxxxxx
Xxxxx 000
Xxxxxx, XX 00000
------------------------------ -------------------- -------------------- --------------------
TOTAL $11,000,000 4,400,000 $11,000,000
------------------------------ -------------------- -------------------- --------------------
-2-
