EXHIBIT 10.20
ADVANCED AESTHETICS, INC.
ANUSHKA PBG ACQUISITION SUB, LLC
ANUSHKA BOCA ACQUISITION SUB, LLC
WILD HARE ACQUISITION SUB, LLC
XXXXXXXX CORPORATION
ADVANCED K, LLC
NOTE AND WARRANT PURCHASE AGREEMENT
THIS NOTE AND WARRANT PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of March 31, 2004, by and among Advanced Aesthetics, Inc., a
Delaware corporation (the "Parent") and each of Anushka PBG Acquisition Sub,
LLC, a Delaware limited liability company ("Anushka PBG"), Anushka Boca
Acquisition Sub, LLC, a Delaware limited liability company ("Anushka Boca"),
Wild Hare Acquisition Sub, LLC, a Delaware limited liability company ("Wild Hare
Acquisition"), XxXxxxxx Corporation, a Florida corporation ("XxXxxxxx"), and
Advanced K, LLC, a Delaware limited liability company ("Advanced K, LLC" and
each of Advanced K, LLC, Anushka PBG, Anushka Boca, Wild Hare Acquisition and
XxXxxxxx being herein called a "Co-Borrower"), Technology Investment Capital
Corp., as Collateral Agent (in such capacity, the "Collateral Agent") and each
of those persons and entities, severally and not jointly, whose names are set
forth on the Schedule of Purchasers attached hereto as Schedule I (which
entities and any successors thereto are hereinafter collectively referred to as
the "Purchasers" and each individually as a "Purchaser").
RECITALS
WHEREAS, the Co-Borrowers and the Guarantors (other than the Parent)
are direct or indirect wholly owned Subsidiaries of the Parent;
WHEREAS, the Obligors seek financing, and the Purchasers desire to
provide such financing and to purchase from the Co-Borrowers of secured
promissory notes and from the Parent of warrants, for an aggregate purchase
price of Ten Million Dollars ($10,000,000);
WHEREAS, the proceeds will be used to finance (a) payment of interest
on the secured promissory notes for a two year period, (b) payment of $4,000,000
representing the cash portion of the purchase price under the GK Acquisition
Documents and (c) general corporate purposes.
NOW THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
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1. DEFINITIONS.
When used in this Agreement, the following terms have the meaning set
forth the below (such meanings being equally applicable to both the singular and
plural forms of the terms defined):
"Additional Equity Contribution" shall mean at least $8,000,000 gross
cash proceeds from the sale of shares of Series D Preferred Stock, par value
$0.01 per share, of the Parent pursuant to the Securities Purchase Agreement,
dated November 4, 2003, between L Capital and the Parent or a similarly situated
investor reasonably acceptable to the Purchaser.
"Affiliate", as applied to any Person, means any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities or
by contract or otherwise. For purposes of this definition, (a) a Person shall be
deemed to be "controlled by" a Person if such Person possesses, directly or
indirectly, power to vote 10% or more of the securities having ordinary voting
power for the election of directors of such Person, provided that in no event
shall any Obligor be deemed to be controlled by TICC, (b) members of the
immediate family of a Person shall be deemed to be Affiliates of such Person and
(c) members of the board of directors or board of managers or similar body of
the Parent and of the Co-Borrowers and each Obligor shall be deemed to be
Affiliates of the Obligors.
"Amortization Date" shall have the meaning assigned thereto in Section
2.2.
"Amortization Payment" shall have the meaning assigned thereto in
Section 2.2.
"Anushka Boca" shall have the meaning given to it in the recitals,.
"Anushka PBG" shall have the meaning given to it in the recitals.
"Anushka Seller Note" shall mean the subordinated promissory note in
the principal amount of $400,000, dated November 25, 2003, delivered by Anushka
PBG in connection with the Asset Contribution and Exchange Agreement, dated
November 4, 2003, among the Parent, Anushka PBG, Lord & Foursight, LLC, d/b/a
Anushka Spa and Sanctuary, Xxxxxx Worth, Xxx Xxxx, Ford X. Xxxxxx and Xxxxxxx,
Inc. and shall include such note as restructured pursuant to Section 5.21.
"Benefit Arrangement" shall have the meaning assigned thereto in
Section 3.20.
"Balance Sheet" has the meaning assigned thereto in Section 3.12(a).
"Business Day" means any day other than a Saturday, Sunday or any other
day on which commercial banks in New York, New York are authorized or required
to close.
"Capital Expenditures" means, for any period, additions to property and
equipment and other capital expenditures of the Parent and its Subsidiaries
which, in conformity with GAAP,
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are included as "additions to property, plant or equipment" or similar items
which would be reflected in the consolidated statement of cash flow of the
Parent, including without limitation, property and equipment which are the
subject of Capital Leases.
"Capital Lease" means any lease (or other agreement conveying the right
to use property) the obligations of which are required to be capitalized on the
balance sheet of a Person in accordance with GAAP.
"Capital Units" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether voting or nonvoting) of corporate stock,
including each class of common stock and preferred stock of such Person and (ii)
with respect to any Person that is not a corporation, any and all general
partnership, limited partnership, membership or other equity interests of such
Person.
"Cash" means money, currency or a credit balance in any demand or
deposit account.
"Cash Equivalents" means, as at any date of determination, (i)
marketable securities (a) issued or directly and unconditionally guaranteed as
to interest and principal by the government of the United States of America or
(b) issued by any agency of the United States of America the obligations of
which are backed by the full faith and credit of the United States of America,
in each case maturing within one year after such date; (ii) marketable direct
obligations issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof, in each
case maturing within one year after such date and having, at the time of the
acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from
Xxxxx'x; (iii) commercial paper maturing no more than one year from the date of
creation thereof and having, at the time of the acquisition thereof, a rating of
at least A-1 from S&P or at least P-1 from Xxxxx'x; and (iv) certificates of
deposit or bankers' acceptances maturing within one year after such date and
issued or accepted by any Purchaser or by any commercial bank organized under
the laws of the United States of America or any state thereof or the District of
Columbia that (a) is at least "adequately capitalized" (as defined in the
regulations of its primary Federal banking regulator) and (b) has Tier 1 capital
(as defined in such regulations) of not less than $100,000,000.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. 9601 et seq.), as amended from time
to time, and any successor statute thereto.
"Change of Control" means, at any time, after the date hereof (i) any
Person or any Persons acting together that would constitute a "group" for
purposes of Section 13(d) under the Exchange Act, or any successor provision
thereto, excluding the Founders and/or the Existing Investor, shall acquire
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act,
or any successor provision thereto) in a single transaction or a series of
related transactions, of more than 50% of the aggregate voting power of the
Parent or any Obligor; or (ii) the Parent or any Obligor merges into or
consolidates with any other Person, or any Person merges into or consolidates
with the Parent or any Obligor, except in each case any merger or consolidation
permitted under this Agreement; or (iii) any Obligor sells or transfers its
assets, as an entirety or substantially as an entirety, to another Person except
in a sale or transfer to another
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Obligor expressly permitted by this Agreement; or (iv) any "change of control"
or similar event under any loan agreement, mortgage, indenture or other
agreement relating to any Indebtedness shall occur or (iv) the Parent shall
cease to own free of all Liens (other than under the Security Agreement and
Permitted Liens) all the outstanding Capital Units directly or indirectly of all
other Obligors, including the Co-Borrowers; or (v) the Existing Investors in the
aggregate fail to own at least 90% of the Capital Units of the Parent that the
Existing Investors owned in the aggregate on the Closing Date.
"Closing" shall have the meaning assigned thereto in Section 2.3(c).
"Closing Date" shall have the meaning assigned thereto in Section
2.3(c).
"Closing Date Commitment Fee" shall have the meaning assigned thereto
in Section 2.4.
"Co-Borrowers" shall have the meaning assigned thereto in the preamble.
"Co-Borrowers' Percentage" has the meaning specified in Section 6.4(d).
"Collateral Agent" means the Person, initially TICC, serving as
Collateral Agent pursuant to Section 11.8.
"Collateral and Guarantee Requirement" shall mean means the requirement
that:
(a) the Collateral Agent shall have received (i) from each
Obligor a counterpart of each of the Guaranty, the Security Agreement
and the Indemnity, Subrogation and Contribution Agreement duly
executed and delivered on behalf of such Obligor (ii) in the case of
any Person that becomes an Obligor after the Closing Date, a
supplement to each such document, in the form specified therein, duly
executed and delivered on behalf of such Obligor;
(b) all outstanding Capital Units owned by or on behalf of any
Obligor shall have been pledged pursuant to the Security Agreement,
and the Collateral Agent shall have received certificates or other
instruments representing all such Capital Units, together with stock
powers or other instruments of transfer with respect thereto endorsed
in blank;
(c) each promissory note evidencing any Indebtedness of any
Obligor to any Obligor shall have been pledged pursuant to the
Security Agreement and the Collateral Agent shall have received all
such promissory notes, together with instruments of transfer with
respect thereto endorsed in blank;
(d) all documents and instruments, including Uniform
Commercial Code financing statements, required by law or reasonably
requested by the Collateral Agent to be filed, registered or recorded
to create the Liens intended to be created by the Security Documents
and perfect such Liens to the extent required by, and with the
priority required by, the Security Documents, shall have been filed,
registered or recorded or delivered to the Collateral Agent for
filing, registration or recording;
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(e) subject to the Collateral Exception, the Collateral Agent
shall have received, if applicable (i) counterparts of a Mortgage
with respect to any real property owned by such Obligor duly executed
and delivered by the record owner of such Mortgaged Property, (ii) a
policy or policies of title insurance issued by a nationally
recognized title insurance company insuring the Lien of each such
Mortgage as a valid first Lien on the mortgaged property described
therein, free of any other Liens (other than Permitted Liens),
together with such endorsements, coinsurance and reinsurance as the
Collateral Agent or the Majority Purchasers may reasonably request,
and (iii) such surveys, abstracts, appraisals, legal opinions and
other documents as the Collateral Agent or the Majority Purchasers
may reasonably request with respect to any such mortgage or mortgaged
property;
(f) subject to the Collateral Exception, the Collateral Agent
shall have received, after the Closing, the GK Acquisition Date, or
closing date of any other Permitted Acquisition, as applicable, a
Landlord Agreement with respect to any real property leased by an
Obligor, duly executed and delivered by such Landlord; and
(g) each Loan Party shall have obtained all material consents
and approvals required to be obtained by it in connection with the
execution and delivery of all Security Documents to which it is a
party, the performance of its obligations thereunder and the granting
by it of the Liens thereunder.
"Collateral Exception" means with respect to any requirement relating
to Collateral to be satisfied by a particular date, that such requirement shall
be construed only to require the applicable Obligor to use reasonable efforts to
comply with such requirement and such Obligor shall not be required to undertake
any such efforts prior to the Closing Date, the GK Acquisition Date, or closing
date of any other Permitted Acquisition, as applicable.
"Common Units" has the meaning assigned thereto in Section 3.2.
"Company Intellectual Property" has the meaning assigned thereto in
Section 3.21(a).
"Consolidated EBITDA" means, for any period, Consolidated Net Income,
plus (i) to the extent deducted determining Consolidated Net Income, the sum of
(A) Consolidated Interest Expense, (B) provisions for corporate taxes, (C) total
depreciation expense, (D) total amortization expense, and (E) other non-cash
items reducing Consolidated Net Income (including, if applicable, management
ownership allocation charge and, non-cash deferred compensation and including
management fees to the extent such fees are accrued and not paid), minus (ii)
the sum of (A) other non-cash items (increasing Consolidated Net Income, (B)
management fees to the extent such fees are paid in cash but were accrued in
prior periods, and (C) non-recurring items that may not be extraordinary items
in nature but which the parties may agree in good faith are excludable for
purposes of calculating Consolidated EBITDA). All the foregoing categories shall
be determined in accordance with GAAP applied on a consistent basis.
"Consolidated Interest Expense" means, for any period, the consolidated
gross interest expense of the Parent determined in accordance with GAAP applied
on a consistent basis.
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"Consolidated Net Income" means, for any period, the net income (or net
loss) of the Parent on a consolidated basis for such period determined in
accordance with GAAP applied on a consistent basis.
"Consolidated Senior Debt" means, as at any date of determination, the
aggregate principal amount of all Senior Debt of the Parent determined on a
consolidated basis in accordance with GAAP.
"Consolidated Senior Debt Ratio" shall mean, as of any date of
determination, the ratio of (a) Senior Debt as of such date to (b) Consolidated
EBITDA for the four fiscal quarters ending on such date.
"Consolidated Total Debt" means, as at any date of determination, the
aggregate principal amount of all Indebtedness of the Parent determined on a
consolidated basis in accordance with GAAP, excluding the Seller Notes, the L
Capital Note, the GK Acquisition Note and the KCO Note.
"Cosmo Seller Note" means the secured subordinated promissory note in
the principal amount of $1,300,000, dated June 30, 2003, delivered by Advanced
Aesthetics, LLC, as reduced to a principal outstanding amount of $500,000
because of payments received as evidenced by the Acknowledgment dated December
2, 2003, in connection with the Amended and Restated Stock Contribution and
Exchange Agreement, dated as of May 29, 2003, among the Parent, Advanced
Aesthetics, the Xxxxx XxXxxxxx Living Trust Dated July 9, 2002, as the sole
shareholder of XxXxxxxx Corporation, and Xxxxx XxXxxxxx and shall include such
note as restructured pursuant to Section 5.21.
"Default" means an Event of Default or an event that with notice or
lapse of time specified in Section 9.1 both would, unless cured or waived,
become an Event of Default.
"XxXxxxxx" shall have the meaning given to it in the recitals.
"Disclosure Schedule" has the meaning assigned thereto in the second
sentence of Section 3.
"Earnings Forecast" has the meaning assigned thereto in Section
3.12(c) and, for clarity, the Earnings Forecast does not include any updates
thereof provided pursuant to Section 5.15(d).
"Environmental Law" shall mean the Resource Conservation and Recovery
Act ("RCRA"), CERCLA, the Superfund Amendments and Reauthorization Act of 1986
("XXXX"), the Federal Clean Water Act, the Federal Clean Air Act, the Toxic
Substances Control Act, or any state or local statute, regulation, ordinance,
order or decree relating to health, safety or the environment.
"Escrow Account" means the Account No. 0000000 of Advanced Aesthetics,
LLC (as nominee of the Co-Borrowers) at Fidelity Federal Bank & Trust, West Palm
Beach, Florida,
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which is subject to a control agreement blocking all access to funds therein
without the prior written consent of TICC.
"Escrow Account Control Agreement" means an agreement among the
Co-Borrowers, the Escrow Bank and TICC providing blocking control of the
disposition of funds in the Escrow Account to TICC.
"Escrow Bank" means Fidelity Federal Bank & Trust, West Palm Beach,
Florida.
"Event of Default" has the meaning assigned thereto in Section 9.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Investors" means, collectively, Seapine Investments, LLC,
Xxxxxx Family Limited Partnership, Xxxxxx X. Xxxxxx, Xxxxxxx Xxxxxxxx, XxXxxxx
Family Limited Partnership, Xxxxxxx Xxxx, Xxxxxxxxx X. Xxxx Grantor Trust, Xxxx
X. Xxxx Trust, Xxxxxx X. Xxxx Trust, Sand Dollar Partners, L.P., Xxxxxxx
Xxxxxxx, Xxxxxxxx Xxxxxx, Xxxxxx Xxxxxxxx, Xxxxxxx Xxxxx, Xxxxxx Xxxxxxx,
Xxxxxxxx Xxxxxx, Xxxxxx Xxxxx, Xxxxx Xxxxxx, Xxxxx Xxxxxxx, and L Capital
Management SAS.
"Financial Statements" has the meaning assigned thereto in Section
3.12(d).
"Five Year Rate" shall mean, as of any specified date, the yield of the
5-year United States Treasury Note with a maturity date closest to the fifth
anniversary of the specified date, rounded upwards to the nearest 1/100th of 1%.
The Five Year Rate shall be determined by TICC and any such determination,
absent manifest error, shall be final and conclusive.
"GAAP" means those generally accepted accounting principles in the
United States of America, as in effect from time to time; provided, however, for
purposes of computing financial covenants GAAP means generally accepted
accounting principles in the United States of America in effect on March 31,
2004. If any changes in accounting principles from those in effect on March 31,
2004, are hereafter occasioned by promulgation of rules, regulations,
pronouncements or opinions by or are otherwise required by the Financial
Accounting Standards Board or the American Institute of Certified Public
Accountants (or successors thereto or agencies with similar functions), and any
of such changes results in a change in the method of calculation of, or affects
the results of such calculation of, any of the financial covenants, standards or
terms found herein, then the parties hereto agree to enter into and diligently
pursue negotiations in order to amend such financial covenants, standards or
terms so as to equitably reflect such changes, with the desired result that the
parties shall be in substantially the same position from an economic standpoint
with respect to the matters covered thereby after the adoption or implementation
of such change as before the implementation or adoption of such change.
"GK Acquisition" means the acquisition of the Target Business.
"GK Acquisition Company" shall have the meaning assigned thereto in the
recitals.
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"GK Acquisition Conditions" shall mean all of the following conditions:
(a) the GK Acquisition shall satisfy all of the conditions set
forth in clauses (a) through (f) of the definition of Permitted
Acquisition, provided that the Collateral and Guarantee Requirement
shall be satisfied on or prior to the date of consummation of the GK
Acquisition except to the extent subject to the Collateral Exceptions
or as otherwise agreed by the Purchasers in writing;
(b) the aggregate consideration payable by the Obligors shall
consist of (i) no more than $4,000,000 of cash payable by any
Obligor, subject to adjustments, acceptable to the Purchasers in
their sole discretion, set forth in the GK Acquisition Documents,
(ii) the GK Acquisition Note and (iii) Capital Units of the Parent;
(c) the representations and warranties in Section 3 of this
Agreement shall be true and correct after giving effect to the
consummation of the GK Acquisition except as otherwise set forth in a
certificate of the Co-Borrowers delivered at least five (5) Business
Days' prior the date of consummation of the GK Acquisition and such
exceptions shall be acceptable to the Purchasers;
(d) the GK Acquisition Documents are reasonably satisfactory
to the Purchasers; and
(e) the GK Acquisition shall have been consummated
substantially in accordance with the terms of the GK Acquisition
Documents on or before 5:00 p.m., New York time, on December 31,
2004.
"GK Acquisition Documents" means the asset purchase agreement to be
entered into between GK Acquisition, the Parent, Advanced K, the GK Seller and
the owners of the GK Seller, and all documents, agreements, certificates
executed and delivered in connection therewith.
"GK Acquisition Note" means the unsecured subordinated promissory note
to be issued by the Parent to the GK Seller in an amount not in excess of
$1,000,000 aggregate principal amount in connection with the GK Acquisition,
which note shall be either: (i) substantially in accordance with the form
furnished to the Purchasers on or before the Closing Date; or (ii) acceptable to
the Purchaser in their sole discretion and which shall satisfy the Permitted
Financing Conditions.
"GK Reserve Amount" has the meaning assigned thereto in Section 2.4.
"GK Seller" means Xxxxxxxxx Xxxxxxx, Inc.
"Governmental Authority" means any federal, state, municipal, foreign
or other a government, governmental department, commission, board, bureau,
agency or instrumentality, or any private or public court or tribunal.
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"Guarantee" as applied to any Person, shall mean any direct or indirect
liability, contingent or otherwise, of that Person: (i) with respect to any
underlying Indebtedness, lease, dividend or other obligation of another Person
if the primary purpose or intent of the Person incurring such liability, or the
primary effect thereof, is to provide assurance to the obligee of such liability
that the underlying Indebtedness, lease, dividend or other obligation will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such liability will be protected (in whole or in
part) against loss with respect thereto; (ii) with respect to any letter of
credit issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings; or (iii) under any foreign
exchange contract, currency swap agreement, interest rate swap agreement or
other similar agreement or arrangement designed to alter the risks of that
Person arising from fluctuations in currency values or interest rates.
Guarantees shall include (a) the direct or indirect guaranty, endorsement (other
than for collection or deposit in the ordinary course of business), co-making,
discounting with recourse or sale with recourse by such Person of the obligation
of another, (b) the obligation to make take-or-pay or similar payments if
required regardless of nonperformance by any other party or parties to an
agreement, or to maintain working capital or equity capital of such other Person
or otherwise to maintain the net worth or solvency of such other Person, (c) any
liability of such Person for the obligations of another through any agreement to
purchase, repurchase or otherwise acquire such obligation or any property
constituting security therefor, to provide funds for the payment or discharge of
such obligation or to maintain the solvency, financial condition or any balance
sheet item or level of income of another, and (d) otherwise to assure or hold
harmless the owner of such obligation against loss in respect thereof. The
amount of any Guarantee shall be equal to the amount of the obligation so
guaranteed or otherwise supported or, if not a fixed and determined amount, the
maximum amount so guaranteed.
"Guarantor" means each of the Parent and each existing and future
Subsidiary of the Parent (other than the Co-Borrowers), but shall, in any event,
include (a) Anushka PBG, LLC, a Delaware limited liability company, (b) Anushka
Boca, LLC, a Delaware limited liability company, (c) Wild Hare, LLC, a Delaware
limited liability company, (d) Advanced Aesthetics Sub, Inc., a Delaware
corporation, and (e) Advanced Aesthetics, LLC, a Delaware limited liability
company.
"Guaranty Agreement" mean the Guaranty Agreement, dated as of March 31,
2004, by the Guarantors in favor of the Collateral Agent for the benefit of the
Purchasers, as amended, supplemented, restated or otherwise modified from time
to time.
"Hazardous Materials" shall mean (i) any "hazardous substance", as
defined by CERCLA, (ii) any "hazardous waste", as defined by RCRA, (iii) any
petroleum product, or (iv) any pollutant or contaminant or hazardous, dangerous
or toxic chemical, material or substance regulated by any Environmental Laws.
"Hedging Agreement" means any interest rate swap, collar, cap, floor or
forward rate agreement or other agreement regarding the hedging of interest rate
risk exposure executed in connection with hedging the interest rate exposure of
any Person and any confirming letter executed pursuant to such agreement, all as
amended, supplemented, restated or otherwise modified from time to time.
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"Indebtedness" means, without duplication, as to any Person or Persons
(a) indebtedness for borrowed money; (b) indebtedness for the deferred purchase
price of property or services; (c) indebtedness evidenced by bonds, debentures,
notes or other similar instruments; (d) obligations and liabilities secured by a
Lien, other than a Permitted Lien, upon property owned by such Person, whether
or not owing by such Person and even though such Person has not assumed or
become liable for the payment thereof; (e) obligations and liabilities directly
or indirectly Guaranteed by such Person; (f) obligations or liabilities created
or arising under any conditional sales contract or other title retention
agreement with respect to property used and/or acquired by such Person; (g) net
liabilities of such Person under Hedging Agreements and foreign currency
exchange agreements, as calculated on a basis satisfactory to the Majority
Purchasers and in accordance with accepted practice; (h) all obligations of such
Person in respect of bankers' acceptances and (i) all obligations, contingent or
otherwise of such Person as an account party or applicant in respect of letters
of credit.
"Intellectual Property" means all (i) trademarks and service marks,
logos, trade dress, product configurations, trade names and other indications of
origin, applications or registrations in any jurisdiction pertaining to the
foregoing and all goodwill associated therewith; (ii) inventions (whether or not
patentable), discoveries, improvements, ideas, know-how, formula methodology,
research and development, business methods, processes, technology, software
(including password unprotected interpretive code or source code, object code,
development documentation, programming tools, drawings, specifications and data)
and applications or patents in any jurisdiction pertaining to the foregoing,
including re-issues, continuations, divisions, continuations-in-part, renewals
or extensions; (iii) trade secrets, including confidential information and the
right in any jurisdiction to limit the use or disclosure thereof; (iv)
copyrights in writings, designs, software, mask works or other works,
applications or registrations in any jurisdiction for the foregoing and all
moral rights related thereto; (v) database rights; (vi) Internet Web sites, Web
pages, domain names and applications and registrations pertaining thereto; and
(vii) all rights under agreements relating to the foregoing.
"Interest Rate Adjustment Date" shall mean March 31, 2006 and each
annual anniversary of such date thereafter.
"Investment" means, for any Person: (a) the acquisition (whether for
cash, property, services or securities or otherwise) of capital stock, bonds,
notes, debentures, partnership or other ownership interests or other securities
of any other Person or any agreement to make any such acquisition (including,
without limitation, any "short sale" or any sale of any securities at a time
when such securities are not owned by the Person entering into such sale); (b)
the making of any deposit with, or advance, loan or other extension of credit
to, any other Person (including the purchase of property from another Person
subject to an understanding or agreement, contingent or otherwise, to resell
such property to such Person), but excluding any such advance, loan or extension
of credit having a term not exceeding 90 days arising in connection with the
sale of inventory or supplies by such Person in the ordinary course of business;
(c) the entering into of any guarantee of, or other contingent obligation with
respect to, Indebtedness or other liability of any other Person and (without
duplication) any amount committed to be advanced, lent or extended to such
Person; or (d) the entering into of any Hedging Agreement.
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"KCO Note" means the Parent's unsecured Promissory Note dated June 30,
2003 issued in favor of Xxxx & Company, LLC in the principal amount of
$5,905,085.82 and shall include such note as restructured pursuant to Section
5.21.
"L Capital" means FCPR L Capital represented by L Capital Management
SAS.
"L Capital Note" means the Parent's Subordinated Convertible Promissory
Note in the principal amount of $13,300,000, dated June 30, 2003, issued in
favor of L Capital, as amended on the Closing Date.
"Landlord Agreement" means an agreement reasonably satisfactory to the
Collateral Agent between the Collateral Agent and the owner and landlord
("owner") of any real estate leased by the Parent or any Subsidiary pursuant to
which (i) such owner agrees to give the Collateral Agent reasonable access to
the leased properties in order to permit the exercise of remedies by the Lenders
with respect to Collateral located therein (including rights of removal upon an
Event of Default) and (ii) if the leasehold interest of the Parent or any
Subsidiary is subject to a Mortgage, such owner recognizes and consents to the
Lien of the Collateral Agent pursuant to such Mortgage and agrees to the
exercise of rights and remedies by the Lenders with respect to the leasehold
interest upon and during the continuance of an Event of Default.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any of the foregoing).
"Listed Intellectual Property" shall have the meaning assigned thereto
in Section 3.21(b).
"Majority Purchasers" means at any given time the Purchasers holding
more than fifty percent (50%) of the then outstanding principal amount of the
Notes.
"Management Fee Agreements" means (i) the Consulting Services
Agreement, dated November 4, 2003, between L Capital Management SAS and the
Parent, and (ii) the Advisory Services Agreement, dated November 4, 2003,
between Xxxx & Company, LLC and the Parent.
"Material Adverse Effect" means a material adverse effect on (i) the
business, properties, assets, liabilities, prospects, profits, results of
operations or condition (financial or otherwise) of the Parent and its
Subsidiaries, taken as a whole or (ii) the ability of the Co-Borrowers or any
other Obligor to perform its obligations under any of the Transaction Documents.
"Material Agreement" shall have the meaning assigned thereto in Section
3.15(a).
"Maturity Date" shall have the meaning assigned thereto in Section
2.2(b).
"Moody's" means Xxxxx'x Investors Services, Inc. and any successor
entity.
"Mortgage" means a mortgage, deed of trust, assignment of leases and
rents, leasehold mortgage or other security document granting a Lien on any
Mortgaged Property to secure the
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Obligations. Each Mortgage shall be in the form satisfactory in form and
substance to the Collateral Agent.
"Mortgaged Property" means, each parcel of real property and
improvements thereto with respect to which a Mortgage is granted in favor of the
Collateral Agent for the benefit of the Purchasers pursuant to Section 5.20.
"Obligations" means all principal, interest (including interest
accrued after the filing of a bankruptcy or similar petition whether or not a
claim therefor is enforceable), fees, expenses and indemnities payable from time
to time by any Obligor under the Transaction Documents, including indemnity
payments and reimbursements under Section 11.
"Obligors" means, collectively, the Co-Borrowers and the Guarantors.
"Officer" means, with respect to any Person, the Chairman of the Board
of Directors, the Chief Executive Officer, the President, any Vice President,
the Chief Financial Officer, the Treasurer, the Controller, or the Secretary of
such Person, or any other officer designated by the Board of Directors of such
Person serving in a similar capacity.
"Officers' Certificate" means a certificate signed by any Officer of
the Parent and the Co-Borrowers.
"Organizational Documents" has the meaning assigned thereto in Section
3.1(a).
"Parent" has the meaning assigned to it in the preamble.
"Permitted Acquisition" shall mean any acquisition (by merger or
otherwise) by any Co-Borrower of all or substantially all the assets of, or all
the Capital Units in, a Person or individual operation location (e.g., salon) of
a Person or division or line of business of a Person, if (a) immediately after
giving effect thereto, no Default has occurred and is continuing or would result
therefrom, (b) such acquired Person or business is predominately engaged in a
Related Business and is organized under a state of the United States, (c) each
Subsidiary resulting from such acquisition (and which survives such acquisition)
shall be an Obligor and all the Capital Units of each such Subsidiary shall be
owned directly by the Parent or a Co-Borrower or a Subsidiary of a Co-Borrower
and shall, within five Business Days after such acquisition, have been pledged
pursuant to the Security Agreement, (d) the Collateral and Guarantee Requirement
shall, within five Business Days after such acquisition, have been satisfied
with respect to each such Subsidiary, (e) the Parent and the Co-Borrowers are in
compliance, on a pro forma basis after giving effect to such acquisition
(without giving effect to operating expense reductions), with the financial
covenants set forth in Section 7, to the extent then applicable, as if such
acquisition had occurred on the first day of the relevant period for testing
compliance; (f) the Co-Borrowers have delivered to the Collateral Agent at least
5 Business Days prior to consummation of such acquisition a general description
thereof, the date of proposed consummation of such acquisition, copies of final
forms of the acquisition documents and an officer's certificate to the effect
set forth in clauses (a), (b), (c), (d) and (e) above, together with all
relevant financial information for the Person or assets acquired and reasonably
detailed calculations demonstrating satisfaction of the requirement set forth in
clause (e) above, and (g) (i) if the acquisition (by merger or
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otherwise) requires payment of consideration (including (i) consideration
consisting of cash, notes, fair market value of assets and fair market value of
Capital Units and (ii) consideration payable at or after closing, including
"earn-outs") of $5,000,000 or more by one or more Obligors in the aggregate of
all or substantially all the assets of, or all the Capital Units in, a Person or
division or line of business of a Person, the Purchasers shall have approved the
Permitted Acquisition in writing. The GK Acquisition shall constitute a
Permitted Acquisition only if the GK Acquisition Conditions are satisfied.
"Permitted Affiliate Transactions" means any of the following:
(a) reasonable fees and compensation paid to and indemnity
provided on behalf of, officers, directors, employees, consultants or
agents of the Parent or any of its Subsidiaries as determined in good
faith by the Parent's Board of Directors or senior management;
(b) transactions between or among the Parent and its wholly
owned Subsidiaries or between or among such wholly owned
Subsidiaries; provided that such transactions are not otherwise
prohibited under this Agreement and such Subsidiaries are Guarantors
or Co-Borrowers; and
(c) any agreement as in effect as of the Closing Date, as set
forth on Schedule 3.15(a) hereto, or any amendment thereto or any
transaction contemplated thereby (including pursuant to any amendment
thereto) or in any replacement agreement thereto so long as any such
amendment or replacement agreement is not more disadvantageous to the
Purchasers in any material respect than the original agreement as in
effect on the Closing Date.
"Permitted Distributions" shall mean:
(a) cash payments after the first anniversary of the Closing
Date on any Management Agreement as in effect on the Closing Date;
(b) cash payments of regularly scheduled interest on the L
Capital Note; provided that such cash payments do not exceed, if no
additional equity contributions are made in accordance therewith, the
required cash payments thereunder as in effect on the Closing Date
(i.e., 2% per annum) or, if L Capital purchases the Investor Series D
Shares from the Parent in accordance with (and as defined in) that
certain Securities Purchase Agreement dated as of November 4, 2003
between the Parent and L Capital, the required cash payments under
the L Capital Note as in effect as of such purchase (i.e., 3.23% per
annum);
(c) cash payments of regularly scheduled interest under the
Anushka Seller Note and the Cosmo Seller Note not to exceed 5% per
annum;
(d) cash payments after the second anniversary of the Closing
Date of regularly scheduled interest accruing after the second
anniversary of the Closing Date not to exceed 5% per annum on each
Subordinated Note; and
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(e) as for each Obligor (other than the Parent) that is a
"pass-through" tax entity for United States federal income tax
purposes, distributions declared and paid by such Obligor to its
members, or which could have been declared and paid by such Obligor,
in an amount not to exceed the amount of state and federal income tax
paid or to be paid by such Obligor's members on taxable income earned
by such Obligor and attributable to such Obligor's members as a
result of such Obligor's "pass-through" tax status.
"Permitted Financing Conditions" means with respect to any Indebtedness
of an Obligor that such Indebtedness (a) is subordinated to the final payment in
full in cash of the Obligations of such Obligor under the Transaction Documents
on terms acceptable to the Purchasers in their sole discretion, (b) does not
require any payment of principal, interest or other amount, whether through
mandatory prepayment, scheduled amortization, mandatory repurchase or offer to
purchase or otherwise, prior to 120 days after the Maturity Date, (c) does not
permit acceleration of the maturity thereof or the enforcement of any remedy
thereunder while the Obligations remain outstanding and (d) is unsecured and (e)
does not contain any provisions in conflict with the Transaction Documents.
"Permitted Indebtedness" means and includes:
(a) Indebtedness to the Purchasers hereunder;
(b) Indebtedness existing on the date hereof and set forth on
the Schedule attached hereto as Schedule II (prior to any amendment,
modifications, extensions thereof or supplements thereto after the
date hereof), provided that the Seller Notes shall not constitute
Permitted Indebtedness from and after May 30, 2004 unless
restructured in accordance with Section 5.21;
(c) Indebtedness evidenced by the Subordinated Five-Year Note
which may be issued pursuant to Section 3.1(b) of the L Capital Note
provided that such Indebtedness is subject to standstill and
subordination provisions at least as favorable to the Purchasers as
those contained in the L Capital Note;
(d) Indebtedness consisting of the Subordinated Notes issued
by the Parent Notes; and
(e) Indebtedness incurred by the Obligors pursuant to
equipment financing; provided, that the Obligors shall at the time of
such incurrence be in compliance with its financial covenants on a
pro forma basis and the aggregate outstanding principal amount of
such Indebtedness does not exceed $400,000 at any time.
"Permitted Investments" means: (a) direct obligations of the United
States of America, or of any agency thereof, or obligations guaranteed as to
principal and interest by the United States of America, or of any agency
thereof, in either case maturing not more than 90 days from the date of
acquisition thereof; (b) certificates of deposit issued by any bank or trust
company organized under the laws of the United States of America or any State
thereof and having capital, surplus and undivided profits of at least
$500,000,000, maturing not more than 90 days from the date of acquisition
thereof; and (c) commercial paper rated A-1 or better or P-1 by S&P or
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Moody's, respectively, maturing not more than 90 days from the date of
acquisition thereof; in each case so long as the same (x) provide for the
payment of principal and interest (and not principal alone or interest alone)
and (y) are not subject to any contingency regarding the payment of principal or
interest.
"Permitted Liens" means:
(a) Liens imposed by law for taxes that are not yet due or are
being contested in compliance with Section 5.10;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not
overdue by more than 30 days or that are being contested in good
faith and by appropriate proceedings;
(c) pledges and deposits made in the ordinary course of
business in compliance with workers' compensation, unemployment
insurance and other social security laws or regulations;
(d) deposits to secure the performance of bids, trade
contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each
case in the ordinary course of business; and
(e) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the
ordinary course of business that do not secure any monetary
obligations and do not materially detract from the value of the
affected property or interfere with the ordinary conduct of business
of the Parent or any of its Subsidiaries;
(f) Liens to secure Indebtedness consisting solely of
Permitted Indebtedness of the type described in clause (b) of the
definition thereof and which is described on Schedule II-B attached
hereto; provided that Liens under this clause (f) shall not
constitute Permitted Liens from and after May 30, 2004;
(g) Liens to secure Indebtedness consisting solely of
Permitted Indebtedness of the type described in clause (e) of the
definition thereof secured solely by the equipment purchased with the
proceeds of such Indebtedness, provided that such Liens shall not
secure Indebtedness permitted by such clause (e);
(h) Liens in favor of the Purchasers and/or their agents as
are contemplated hereunder and/or under any of the Transaction
Documents; and
provided that the term "Permitted Liens" other than those set forth under
clauses (f) and (g) and (h) shall not include any Lien securing Indebtedness.
"Person" shall be construed in the broadest sense and means and
includes any natural person, a partnership, a corporation, an association, a
joint stock company, a limited liability
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company, a trust, a joint venture, an unincorporated organization and other
entity or Governmental Authority.
"Plan" has the meaning assigned thereto in Section 3.2.
"Preferred Units" has the meaning assigned thereto in Section 3.2.
"Proprietary Software" shall have the meaning assigned thereto in
Section 3.22.
"Purchaser's Percentage" has the meaning specified in Section 6.4(d).
"Quarterly Interest Payment Date" shall mean the last day of each
March, June, September and December, commencing June 30, 2004.
"Quarterly Perfection Certificate Update" means a certificate,
substantially in the form of Exhibit G hereto, of an Officer of the Parent.
"Related Businesses" shall have the meaning assigned thereto in
Section 6.7.
"Registration Rights Agreement" shall have the meaning assigned thereto
in Section 2.3(b).
"Related Business" has the meaning assigned thereto in Section 6.7.
"Restricted Payment" has the meaning assigned thereto in Section
6.5(a).
"Securities Act" means the Securities Act of 1933, as amended.
"Subordinated Note" means each of the Anushka Seller Note, the Cosmo
Seller Note, the KCO Note (including any such note as restructured pursuant to
Section 5.21), and any other promissory note of the Parent meeting the Permitted
Financing Conditions.
"Security Agreement" means the Pledge and Security Agreement dated as
of March 31, 2004 by the Parent, the Co-Borrowers and the Guarantors in favor of
the Collateral Agent, as amended, supplemented, restated or otherwise modified
from time to time.
"Security Documents" means the Security Agreement, the Pledge Agreement
and any other document, agreement or instrument delivered in connection with
this Agreement creating a Lien on any assets of the Obligors.
"Seller Notes" means (i) the Anushka Seller Note and (ii) the Cosmo
Seller Note.
"Senior Debt" shall mean the Notes.
"Senior Secured Interest Expense" shall mean, for any period, all
interest expense for such period on Senior Debt, all as computed in accordance
with GAAP.
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"Series A Preferred Units" means Series A Preferred Units, par value
$0.01 per share of the Parent.
"Series B Preferred Units" means Series B Preferred Units, par value
$0.01 per share of the Parent.
"Series C Preferred Units" means Series C Preferred Units, par value
$0.01 per share of the Parent.
"Series E Preferred Units" means Series E Preferred Units, par value
$0.01 per share of the Parent.
"Shareholders Agreement" shall have the meaning assigned thereto in
Section 2.3(b).
"Specified Amount" has the meaning specified in Section 6.4(d).
"S&P" means Standard & Poor's Ratings Services and any successor
entity.
"Subsidiary" means, with respect to any Person, (i) any corporation of
which the outstanding Capital Units having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person, (ii) any
other Person (other than a partnership) of which at least a majority of the
voting interest under ordinary circumstances is at the time, directly or
indirectly, owned by such Person or (iii) any partnership (a) the sole general
partner or the managing general partner of which is such Person or a Subsidiary
of such Person or (b) the only general partners of which are such Person or one
or more Subsidiaries of such Person (or any combination thereof).
"Target Business" shall mean substantially all the assets of the GK
Seller consisting generally of the assets listed on Schedule 1.1 pursuant to the
GK Acquisition Documents.
"Test Period" has the meaning specified in Section 6.4(d).
"TICC" means Technology Investment Capital Corp. and its successors and
assigns.
"Transaction Documents" means this Agreement, the Escrow Account
Control Agreement, the Shareholders Agreement, the Security Agreement, the
Notes, the Warrants, the Registration Rights Agreement, the Guaranty Agreement
and all other documents executed or delivered by the Parent, the Co-Borrowers or
any other Obligor in connection with the transaction contemplated herein.
"Unit" shall mean an individual operating location of an Obligor.
"Unit Depreciation and Amortization" shall mean, for any period,
depreciation and amortization attributable to a Unit in accordance with GAAP.
"Unit EBITDAR" shall mean, for any period, the sum of Unit Level
Contribution plus Unit Depreciation and Amortization plus Unit Occupancy
Expense, in each case, for such period.
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"Unit Fixed Charge Ratio" shall mean, for any period, the ratio of (a)
Unit EBITDAR to (b) Unit Fixed Charges, in each case, for such period.
"Unit Fixed Charges" shall mean, for any period, Senior Secured
Interest Expense plus Unit Occupancy Expense, in each case, for such period.
"Unit Level Contribution" shall mean, for any period, the net income
attributable to a Unit in accordance with GAAP, excluding interest and taxes.
"Unit Occupancy Expense" shall mean, for any period, the total of all
rent (including all payments under Capital Leases), property maintenance, real
estate taxes and similar realty-related payments attributable to a Unit for such
period.
"Warrant" shall have the meaning assigned thereto in Section 2.3(a).
"Warrant Units" means the Common Units into which the Warrants are
convertible.
"Wild Hare" shall have the meaning given to it in the recitals.
"Works" shall have the meaning assigned thereto in Section 3.22.
This Agreement contains covenants, representations and warranties and events of
default that are applicable to Obligors, including Obligors not a party to this
Agreement. The Co-Borrowers shall be bound by all such provisions, including the
effects of a failure of any Obligor not a party to this Agreement, to comply
with such provisions. To the extent a covenant or agreement is applicable to an
Obligor not a party hereto, the Co-Borrowers and Parent agree to cause such
Person to comply with such covenant or agreement, whether or not the ability to
do so is in the control of the Co-Borrowers or the Parent.
2. PURCHASE AND SALE OF NOTES AND WARRANTS.
2.1 Sale and Issuance of Notes. Subject to the terms and
conditions hereof, the Co-Borrowers jointly and severally agree agrees to issue
and sell to each Purchaser on the Closing Date (as defined below), and each
Purchaser hereby agrees, severally and not jointly, to purchase for face value
on the Closing Date a senior secured promissory note containing the terms and
conditions set forth herein and in the form of note attached hereto as Exhibit A
(each a "Note" and collectively, the "Notes"), payable to the order of such
Purchaser in the principal amount specified opposite such Purchaser's name on
Schedule I attached hereto. The aggregate principal amount of all such Notes
issued on the Closing Date shall be Ten Million Dollars ($10,000,000).
2.2 Notes.
-----
(a) Security. Each Note and the obligations of the
Co-Borrowers and the Guarantors under the Transaction Documents shall be secured
in accordance with the terms of a Pledge and Security Agreement, a form of which
is set forth as Exhibit B hereto (the "Security Agreement"), which shall be
executed and delivered by the parties thereto at the
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Closing, and pursuant to which the Parent, the Co-Borrowers and each Guarantor
will grant the Purchasers a security interest in all of such Person's tangible
and intangible assets and property.
(b) Maturity Date. The entire unpaid principal amount of the
Notes and any accrued and unpaid interest thereon shall be due and payable on
the fifth anniversary of the Closing Date, i.e., March 31, 2009 (the "Maturity
Date"), unless such amounts become due and payable earlier upon acceleration in
accordance with the terms hereof or otherwise.
(c) Intentionally Omitted.
---------------------
(d) Interest.
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(i) Interest. The outstanding principal amount of each
Note (i) shall bear interest at a rate per annum equal to twelve percent
(12.00%) during the period commencing on the date of issuance and continuing to
and including the first Interest Rate Adjustment Date, which interest shall be
payable in arrears on the last day of each Quarterly Interest Payment Date, and
(ii) shall bear interest from and including each Interest Rate Adjustment Date
to but not including the next Interest Rate Adjustment Date at a rate per annum
equal 9.00% plus the Five Year Rate; provided, that (X) in no event shall the
stated interest rate, as adjusted pursuant to this clause (d)(i) but without
regard to the effect of the method of computation in clause (d)(iii) below or
additional interest payable under clause (d)(ii) below, be greater than 14.00%
per annum or less than 11.00% per annum and (Y) in no event shall any adjustment
on any Interest Rate Adjustment Date increase the stated interest rate then in
effect by more than 1.00%. Interest shall be payable in arrears on each
Quarterly Interest Payment Date, on the date of each prepayment as to the amount
prepaid and on the Maturity Date.
(ii) Post-Default Interest. Notwithstanding clause (i)
above, upon the occurrence and during the continuance of any Event of Default,
the outstanding principal amount on each Note shall bear interest on each day at
a rate per annum equal to twelve percent (12.00%) plus the then Five Year Rate
in effect for such day. Interest payable under this clause (d)(ii) shall be
payable on demand therefor.
(iii) Computation. All computations of interest payable
hereunder shall be on the basis of a 360 day year consisting of twelve 30-day
months and actual days elapsed in the period of which such interest is payable.
2.3 Issuance of Warrants.
--------------------
(a) Subject to the terms and conditions of this Agreement,
the Parent hereby agrees to issue and sell to each Purchaser at the Closing, as
part of its inducement to purchase the Note, a warrant entitling such Purchaser
to purchase such number of Common Units specified opposite such Purchaser's name
on Schedule I at an exercise price of $0.01 per Common Unit, and containing the
same additional terms and conditions, and with the same exercise features, as
set forth in the form of warrant attached hereto as Exhibit C (individually, a
"Warrant," collectively, the "Warrants").
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(b) Each Purchaser shall be granted certain registration
rights with respect to the Common Units issuable upon exercise of the Warrants,
in accordance with the terms of the Registration Rights Agreement, a form of
which is set forth as Exhibit D hereto (the "Registration Rights Agreement"),
which shall be executed and delivered by the parties thereto at the Closing.
Each Purchaser and the Parent shall become a party to the Shareholders
Agreement, a form of which is set forth as Exhibit H hereto (the "Shareholders
Agreement").
2.4 Closing; Escrow Arrangements. The closing of the purchase and
sale of the Notes and Warrants to the Purchasers hereunder (the "Closing") shall
take place at the offices of Xxxxxxx Xxxx & Xxxxxxxxx LLP, 000 Xxxxxxx Xxxxxx,
Xxx Xxxx, XX, at 10:00 A.M. on March 31, 2004 (the "Closing Date"), or at such
other time and place as the Parent, the Co-Borrowers and the Purchasers mutually
agree upon orally or in writing. At the Closing, (a) the Co-Borrowers shall
deliverer to each Purchaser a Note, pursuant to Section 2.1(a), representing the
principal amount specified opposite such Purchaser's name on Schedule I attached
hereto, (b) the Parent shall deliver to each Purchaser a Warrant, pursuant to
Section 2.3, to purchase such number of Common Units specified opposite such
Purchaser's name on Schedule I attached hereto and such Purchaser shall cause to
be delivered the purchase price for the Notes and the Warrants to be purchased
by such Purchaser set forth opposite such Purchaser's name on Schedule I
attached hereto by wire transfer immediately available funds (i) in the amount
of $3,600,000 to the account of Advanced Aesthetics, LLC (as nominee for the
Co-Borrowers) (Account No. 0000000) at the Escrow Bank, (ii) in the amount of
$2,400,000 to the Escrow Account, and (iii) in the amount of $4,000,000 to the
Escrow Account (the "GK Reserve Amount"), and (c) the Co-Borrowers shall deliver
to each Purchaser by wire transfer of immediately available funds to such
Purchaser's account, a commitment fee equal to 2.00% of the aggregate principal
amount of the Notes less the GK Reserve Amount (i.e., $120,000), which fee shall
be fully earned and non-refundable (the "Closing Date Commitment Fee"). Upon
release of the GK Reserve Amount to the Co-Borrowers on the GK Escrow Release
Date, the Co-Borrowers shall deliver to each Purchaser by wire transfer of
immediately available funds to such Purchaser's account, a commitment fee equal
to 2.00% of the GK Reserve Amount (i.e., $80,000), which fee shall be fully
earned and non-refundable
The funds in the Escrow Account shall be subject to
disbursement only with the prior written consent of TICC and may be disbursed by
TICC to TICC upon any of the following circumstances:
(a) during the continuance of any Event of Default, all or any
portion of the Escrow Funds may be disbursed to the Purchasers to be
applied to the payment of the Obligations, first, to the payment or
reimbursement of any fees, expenses or indemnity payments payable under
any of the Transaction Documents, second, to the payment of any unpaid
interest or premium in respect of the Notes, third, to the payment of
the principal of the Notes and fourth, to the payment of any other
Obligations;
(b) on any date on which any payment of interest on or
premium, if any, is payable (including any date after payment was
originally due if not made on such date) with respect to the Notes,
such portion of the Escrow Funds as is necessary to make such payment,
in each case without consent from any Obligor and
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(c) (i) if the GK Acquisition Conditions have been satisfied
on or before December 31, 2004, as determined in good faith by the
Collateral Agent, the GK Reserve Amount shall be transferred on the
date of consummation of the GK Acquisition by wire of immediately
available funds to the account of GK Acquisition specified by it to the
Purchasers, and (ii) if the GK Acquisition Conditions have not been
satisfied on or before December 31, 2004, as determined in good faith
by the Collateral Agent, the GK Reserve Amount shall be applied at any
time thereafter selected by the Collateral Agent as a mandatory
prepayment of the Notes pursuant to Section 2.5(b).
Funds in the Escrow Account shall be invested in Permitted
Investments selected by the Collateral Agent but the Collateral Agent shall not
be liable under any circumstances for any losses resulting from any such
investments or in the event that a higher rate of return might have been
obtained from selection of investments other than those selected by the
Collateral Agent. In addition, upon any prepayment of the principal of, premium,
if any, and interest on the Notes in full, together with payment of all other
Obligations then due, the Collateral Agent will direct the Escrow Bank to
release all remaining funds to the account specified by the Co-Borrowers. Upon
any prepayment of less than the entire principal amount of the Notes, so long as
no Default or Event of Default shall have occurred and be continuing, at the
request of the Co-Borrowers the Collateral Agent will direct the Escrow Bank to
release such portion of the remaining funds in the Escrow Account as is not, in
the good faith determination of the Collateral Agent, necessary to provide for
the timely payment of interest on the remaining principal amount of the Notes
or, if prior to the GK Escrow Release Date, for the release of the GK Reserve
Amount.
The Co-Borrowers agree and, by execution and delivery of the
Guarantee, each Guarantor agrees that the accounts to which the proceeds from
the Notes were wired pursuant to the first paragraph of this Section 2.4 are in
the name of Advanced Aesthetics, LLC solely as nominee for the Parent, to the
extent such funds are ultimately determined to be allocable to the purchase
price of the Warrant, and as nominee for the Co-Borrowers, to the extent of the
remaining funds (including, for clarity, all funds wired to the Escrow Account).
2.5 Prepayment.
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(a) Optional Prepayment. The Co-Borrowers may prepay the
Notes in aggregate multiples of $500,000, provided that, with respect to any
voluntary prepayments made by the Co-Borrowers (and as provided in Section
9.2(d)), the Co-Borrowers shall pay a premium on the amount of principal prepaid
of (i) 12.00% with respect to any prepayment made on or prior to the first
anniversary of the Closing Date, (ii) 6.00% with respect to any prepayment made
after the first anniversary of the Closing Date and on or prior to the second
anniversary of the Closing Date and (iii) 0% at any time thereafter, plus in
each case accrued and unpaid interest on the amount of any principal prepaid.
The Co-Borrowers shall pay to each holder of a Note a pro rata portion of the
aggregate amount paid under this clause (a) based on the respective original
principal amounts of the Notes. Notwithstanding the foregoing, if TICC shall
transfer all or a portion of the Notes to a Person other than an Affiliate of
TICC, the Co-Borrowers shall be entitled to prepay the portion of the Note to be
transferred without payment of the foregoing premium provided such prepayment is
made within sixty (60) days after the earlier of (i) notice
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from TICC to the Co-Borrowers of the intent of TICC to transfer the Note or
portion thereof, which notice shall specify the proposed transferee, and (ii)
the actual date of transfer of the Note or portion thereof.
(b) Mandatory Prepayment; Repurchase of Warrant. The
Co-Borrowers shall prepay the Notes in an amount equal to the net proceeds
received by any Obligor (whether or not such funds are made available to the
Co-Borrowers) upon the occurrence of any of the following events:
(i) any public offering;
(ii) any incurrence of bank or similar Indebtedness of
any Obligor (other than Indebtedness permitted under this Agreement); or
(iii) any proceeds from insurance proceeds in excess of
an aggregate of $500,000 during the term of the Notes; and
(iv) any proceeds from sales or other dispositions
outside the ordinary course of business (it being understood that nothing in
this Section 2.5(b) shall authorize any sale or other disposition not expressly
permitted by Section 6.6);
(v) any proceeds constituting indemnity payments under
the GK Acquisition Documents in excess of $250,000 in the aggregate.
In addition, the Co-Borrowers shall prepay the Notes in an amount (i) equal to
the GK Reserve Amount in the event the Acquisition Conditions are not satisfied
on or prior to 5:00 p.m., New York time, on December 31, 2004 and (ii) specified
by Section 6.4(d) at the time specified therein..
2.6 Application of Payments. All payments hereunder shall first
be applied to costs and expenses, then to interest and then to principal,
including any premium payable in connection with such prepayment.
2.7 Payments Generally.
------------------
(a) All payments hereunder and under each other Transaction
Document to any Purchaser shall be made in the lawful money of the United States
of America, in immediately available funds and without set-off, defense,
deduction or counterclaim to the account of such Purchaser most recently
designated to the Parent by such Purchaser for such purpose.
(b) If the due date of any payment under this Agreement
would otherwise fall on a day that is not a Business Day, such date shall be
extended to the next succeeding Business Day, and interest shall be payable for
any principal so extended for the period of such extension.
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(c) The Co-Borrowers shall pay accrued interest on the
principal amount of any Note prepaid or repaid.
2.8 Pro Rata Sharing. If any Purchaser shall obtain from the
Co-Borrowers or any Guarantor payment of any principal of or interest on any
Note owing to it or payment of any other amount under this Agreement or any
other Transaction Document or the Guaranty Agreement through the exercise of any
right of set-off, banker's lien or counterclaim or similar right or otherwise,
and, as a result of such payment, such Purchaser shall have received a greater
percentage of the principal of or interest on the Notes or such other amounts
then due hereunder or thereunder by the Co-Borrowers or any Guarantor to such
Purchaser than the percentage received by any other Purchaser, it shall promptly
purchase from such other Purchasers participations in (or, if and to the extent
specified by such Purchaser, direct interests in) the Notes or such other
amounts, respectively, owing to such other Purchasers (or in interest due
thereon, as the case may be) in such amounts, and make such other adjustments
from time to time as shall be equitable, to the end that all the Purchasers
shall share the benefit of such excess payment (net of any expenses that may be
incurred by such Purchaser in obtaining or preserving such excess payment) pro
rata in accordance with the unpaid principal of and/or interest on the Notes or
such other amounts, respectively, owing to each of the Purchasers. To such end
all the Purchasers shall make appropriate adjustments among themselves (by the
resale of participations sold or otherwise) if such payment is rescinded or must
otherwise be restored.
2.9 Set-off. Each Co-Borrower agrees that, in addition to (and
without limitation of) any right of set-off, banker's lien or counterclaim a
Purchaser may otherwise have, each Purchaser shall be entitled, at its option
(to the fullest extent permitted by law), to set off and apply any deposit
(general or special, time or demand, provisional or final), or other
indebtedness, held by it for the credit or account of such Co-Borrower at any of
its offices, in any currency, against any principal of or interest on any of
such Purchaser's Notes or any other amount payable to such Purchaser hereunder,
that is not paid when due (regardless of whether such deposit or other
indebtedness is then due to such Co-Borrower), in which case it shall promptly
notify such Co-Borrower and the other Purchasers thereof, provided that such
Purchaser's failure to give such notice shall not affect the validity thereof.
2.10 Transfer of the Notes and Warrants.
----------------------------------
(a) Except as otherwise provided herein, a Purchaser may
transfer its Notes and Warrants in whole or in part without the consent of the
Parent, any Obligor or any other Purchasers in accordance with this Section
2.10, provided, however, that so long as no Default or Event of Default shall
have occurred and be continuing the Purchaser shall give the Parent at least ten
(10) Business Days prior notice prior to transferring the Notes or Warrants to
another Person other than to an Affiliate of the Purchaser.
(b) Upon surrender of any Note at the principal executive
office of the Parent or the office of any paying agent located in the United
States designated by the Parent on behalf of the Co-Borrowers for registration
of transfer or exchange (and in the case of a surrender for registration of
transfer, accompanied by a written instrument of transfer duly executed by the
registered holder of such Note or such holder's attorney duly authorized in
writing and accompanied by the address for notices of each transferee of such
Note or part
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thereof), the Co-Borrowers shall execute and deliver (within five Business
Days), at the Co-Borrowers' expense (except as provided below), one or more new
Notes (as requested by the holder thereof) in exchange therefor, in an aggregate
principal amount equal to the unpaid principal amount of the surrendered Note.
Each such new Note shall be payable to such Person as such holder may request.
Each such new Note shall be dated and bear interest from the date to which
interest shall have been paid on the surrendered Note or dated the date of the
surrendered Note if no interest shall have been paid thereon. The Co-Borrowers
may require payment by such holder or transferee of a sum sufficient to cover
any stamp tax or governmental charge imposed in respect of any such transfer of
Notes. Notes shall not be transferred in denominations of less than $500,000,
provided that if necessary to enable the registration of transfer by a holder of
its entire holding of Notes, one Note may be in a denomination of less than
$500,000. Any transferee, by its acceptance of a Note registered in its name (or
the name of its nominee), shall be deemed to have made the representations set
forth in Section 4.
(c) Upon surrender of any Warrant (or Warrant Units) at the
principal executive office of the Parent or the office of any agent located in
the United States designated by the Parent for registration of transfer or
conversion (and in the case of a surrender for registration of transfer,
accompanied by a written instrument of transfer duly executed by the registered
holder of such Warrant or such holder's attorney duly authorized in writing and
accompanied by the address for notices of each transferee of such Warrant or
Warrant Units or part thereof), the Parent shall execute and deliver (within
five Business Days), at the Parent's expense (except as provided below), one or
more new Warrants or certificates evidencing the Warrant Units (as requested by
the holder thereof) in exchange therefor, convertible, in the case of the
transfer of a Warrant, into an aggregate principal amount of Warrant Units equal
to the amount of Warrant Units into which the surrendered Warrant was
convertible; provided, however, that in no event shall the Parent be obligated
to issue a new Warrant exercisable for fewer than 50,000 Warrant Units or the
remaining Units held by the Purchaser. Each such new Warrant or Warrant Unit, as
the case may be, shall be in the name of such Person as such holder may request.
The Parent may require payment by such holder or transferee of a sum sufficient
to cover any stamp tax or governmental charge imposed in respect of any such
transfer of Warrants or Warrant Units. Any transferee, by its acceptance of a
Warrant or Warrant Units registered in its name (or the name of its nominee),
shall be deemed to have made the representations set forth in Section 4.
(d) For all transfers of Notes or Warrants contemplated by
this Section 2.10, and notwithstanding anything to the contrary herein, no
transfer of a Note or Warrant shall be permitted unless the (i) Parent shall
have received an opinion or opinions of counsel (obtained at the transferor's
expense), to the effect that (A) the proposed transfer may be effected without
registration under the Securities Act and any applicable state securities laws
and (B) the proposed transfer will not cause the Parent to become a publicly
traded partnership within the meaning of Section 7704 of the Internal Revenue
Code, and (ii) the transferee thereof agrees in writing to be bound by the
restrictions set forth in this clause (c); provided, however, that the Parent
may, in its sole discretion, waive some or all of these requirements in
connection with any proposed transfer.
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2.11 Nature of Obligations of Co-Borrowers. The Obligations shall
constitute the joint and several obligations of the Co-Borrowers. Such
Obligations are absolute and unconditional. Each Co-Borrower waives all defenses
available to a surety other than the defense of full and final payment. The
provisions of Sections 2(e), 3, 4, 5 and 6 of the Guaranty Agreement are
incorporated herein by reference with each Co-Borrower being treated as a
guarantor of the obligation of each other Co-Borrower.
3. REPRESENTATIONS AND WARRANTIES OF OBLIGORS
In order to induce the Purchasers to enter into this Agreement
and consummate the transactions contemplated hereby, the Parent and the
Co-Borrowers jointly and severally make to the Purchasers the representations
and warranties contained in this Section 3. Such representations and warranties
are subject to the qualifications and exceptions set forth in the disclosure
schedule delivered to the Purchasers in connection herewith (the "Disclosure
Schedule"). References to the knowledge or awareness of the Obligors are deemed
to include the actual knowledge of any officer or director of the Parent and the
Co-Borrowers after due inquiry.
3.1 Organization.
------------
(a) The Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. XxXxxxxx
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Florida. Each other Co-Borrower is a limited liability
company, respectively, duly organized, validly existing and in good standing
under the laws of the State of Delaware. Each other Guarantor is a company or
corporation duly organized and validly existing in good standing under the laws
of the State of Delaware. Attached hereto as Exhibit E are true and complete
copies of the Certificate of Formation and the Limited Liability Company
Operating Agreement and, if applicable, bylaws, of the Parent, the Co-Borrower
and each other and each Obligor, each as amended through the date hereof
(collectively, the "Organizational Documents"), and no Obligor is in violation
of any term thereof.
(b) Each Obligor has all requisite power and authority and
has all necessary approvals, licenses, permits and authorization to own its
properties and to carry on its business as now conducted and as presently
contemplated to be conducted except where the failure to have any such
approvals, licenses, permits and authorizations would not result in a Material
Adverse Effect. Each Obligor has all requisite power and authority to execute
and deliver the Transaction Documents and to perform its obligations hereunder
and thereunder.
(c) Each Obligor has filed all necessary documents to
qualify to do business as a foreign corporation in, and each Obligor is in good
standing under, the laws of each jurisdiction in which the conduct of the
Parent's business as now conducted and as presently contemplated to be conducted
or the nature of the property owned requires such qualification, except where
the failure to so qualify would not have a Material Adverse Effect.
3.2 Capitalization. All of the issued and outstanding Capital
Units of the Parent have been duly authorized and validly issued and are owned
by the Parent. All the issued
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and outstanding Capital Units of each Obligor (other than the Parent) have been
duly authorized and validly issued and are owned by another Obligor. All of the
outstanding Capital Units and warrants of the Parent have been validly issued in
compliance with applicable state and federal securities laws. Upon the
consummation of the transactions contemplated hereby and effective as of the
Closing, the authorized capital of the Parent will consist of 30,000,000 shares
of common stock ("Common Units"), and (b) 1,000,000 shares of preferred stock
("Preferred Units"). There are no declared but unpaid distributions or
undeclared distribution arrearages on any Common Units of the Parent, any
Co-Borrower or any other Obligor. Immediately prior to giving effect to the
consummation of the transactions contemplated by this Agreement, the only units
of the Parent issued and outstanding and reserved for issuance or committed to
be issued will be as follows:
(a) 9,265,003 Common Units, duly and validly issued and
outstanding;
(b) 4,700 Series A Preferred Units duly and validly issued
and outstanding, and 235,000 shares of Common Units reserved for issuance
upon conversion of the Series A Preferred Units;
(c) 1,900 Series B Preferred Units duly and validly issued
and outstanding,;
(d) 1,300 Series C Preferred Units duly and validly issued
and outstanding, and 130,000 shares of Common Units reserved for issuance
upon conversion of the Series C Preferred Units;
(e) Zero (0) Series D Preferred Units duly and validly
issued and outstanding, and 3,678,559 shares of Common Units reserved for
issuance upon conversion of the Series D Preferred Units;
(f) 500 Series E Preferred Units duly and validly issued and
outstanding, and 25,000 shares of Common Units reserved for issuance upon
conversion of the Series E Preferred Units;
(g) 5,966,444 Common Units reserved for issuance upon
conversion of the L Capital Note;
(h) 545,000 Common Units reserved for issuance upon
conversion of the warrants issued prior to the date hereof;
(i) 2,000,000 Common Units are authorized by the Parent's
stock incentive plan (the "Plan"); total options granted under the Plan as
of the Closing cover 1,590,000 Common Units; of which total options
exercised cover 0 Common Units, and hence, unexercised options outstanding
as of the Closing cover 1,590,000 Common Units (Common Units issued upon
exercise of the options have been included in (a) above); and
(j) in addition to the above, Schedule 3.2 hereto contains a
complete and accurate list of each other right, warrant, option or
agreement (including any convertible security) to acquire any Common Unit
from the Parent.
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3.3 Obligor Proceedings, etc. All company or corporate actions of
each Obligor necessary for the authorization, execution, and delivery of this
Agreement and the Transaction Documents, the performance of all obligations of
each Obligor hereunder and thereunder, and the authorization, issuance (or
reservation for issuance), and delivery of the Notes, the Warrants and the
Warrant Units (the Warrants and Warrant Units being herein collectively called
the "Securities") have been taken or will be taken prior to the Closing. This
Agreement, the Transaction Documents, the Notes and the Warrants constitute the
valid and legally binding obligations of the Obligor party thereto, enforceable
in accordance with their respective terms, except as limited by (a) applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, (b) laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (c) state and federal securities laws with respect to
rights to indemnification or contribution.
3.4 Consents and Approvals. Except for the filing of financing
statements (which filings will be made within three (3) Business Days after the
Closing Date or, with respect to any grant of a security interest or acquisition
of collateral thereafter, within three (3) Business Days of any requirement for
filing to perfect the applicable security interest) and any filings or notices
required under applicable state securities laws, the execution and delivery by
each Obligor of the Transaction Documents, the performance by each Obligor of
its obligations hereunder and thereunder and the consummation by each Obligor of
the transactions contemplated hereby and thereby do not require any Obligor to
obtain any consent, approval or action of, or make any filing with or give any
notice to, any corporation, person or firm or any public, governmental or
judicial authority.
3.5 Valid Issuance of Securities and Notes. The Securities when
authorized, issued, sold and delivered in accordance with the terms hereof for
the consideration expressed herein, will be duly and validly issued and, based
in part upon the representations of the Purchasers in this Agreement, the
Securities and Notes will be issued in compliance with all applicable federal
and state securities laws.
3.6 Parent Operations. The Parent is a passive holding company
and does not engage in any activity other than owning the Capital Units of other
Obligors and issuing equity securities the proceeds of which are contributed to
other Obligors.
3.7 Absence of Defaults. The execution and delivery of the
Transaction Documents and the performance of its obligations hereunder and
thereunder (including the issuance and sale of the Securities and the Notes)
will not result in a breach of any of the terms, conditions or provisions of, or
constitute a default under, or permit the acceleration of rights under or
termination of, any material indenture, mortgage, deed of trust, credit
agreement, note or other evidence of indebtedness, or other material agreement
of any Obligor, or the Organizational Documents. No event has occurred and no
condition exists which, upon notice or the passage of time (or both), would
constitute a default under any of the foregoing or a violation of any license,
permit or authorization to which any Obligor is a party or by which it may be
bound, the violation of which would have a Material Adverse Effect.
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3.8 Litigation. There is no action, suit, proceeding or
investigation pending or, to the Parent's knowledge, currently threatened
against any Obligor that questions the validity of this Agreement, the Notes,
the Warrants or any other Transaction Document or the right of any Obligor to
enter into them, or to consummate the transactions contemplated hereby or
thereby, or that might result, either individually or in the aggregate, in a
Material Adverse Effect, nor is any Obligor aware that there is any basis for
the foregoing. None of the Obligors is a party or subject to the provisions of
any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality. There is no action, suit, proceeding or investigation
by any Obligor currently pending or which any Obligor intends to initiate.
3.9 Solvency. Immediately after the Closing and after giving
effect to the purchase and sale of the Notes and Warrants, (a) the fair value of
the assets of all of the Obligors, taken as a whole, at a fair valuation, will
exceed their consolidated debts and liabilities, subordinated, contingent or
otherwise; (b) the present fair saleable value of the property of all of the
Obligors, taken as a whole, will be greater than the amount that will be
required to pay the probable liability of their consolidated debts and other
liabilities, subordinated, contingent or otherwise, as such debts and other
liabilities become absolute and matured; (c) the Obligors, taken as a whole,
will be able to pay their consolidated debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and
matured; and (d) the Obligors, taken as a whole, will not have unreasonably
small capital with which to conduct the businesses in which they are engaged as
such businesses are now conducted and are proposed to be conducted following the
Closing.
3.10 Subsidiaries. Except as set forth on Schedule 3.10, the
Parent does not have any Subsidiaries.
3.11 Status of Security Interests. The security interest
purported to be created by the Security Agreement and each Control Agreement
constitutes a first priority security interest in the collateral specified
therein, subject to no other Liens except Permitted Liens.
3.12 Financial Statements; Earnings Forecast.
---------------------------------------
Attached as Schedule 3.12 are true and complete copies of:
(a) the unaudited consolidated balance sheet of the Parent
as at January 31, 2004 and the unaudited consolidated statements of income and
cash flow for the two month period ended on such date, together with notes, if
any, thereto;
(b) a pro forma consolidated earnings forecast of the Parent
for the five year period commencing July 1, 2004 and ending on June 30, 2009
(the "Earnings Forecast").
(c) The financial statements described in clause (a) of this
Section 3.12, including the notes thereto, are referred to herein as the
"Financial Statements". The Financial Statements (i) were prepared in accordance
with GAAP (except in the case of unaudited statements for the absence of notes
and subject to year end adjustments), (ii) present fairly the consolidated
financial position, results of operations and changes in financial position
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of the Parent and its Subsidiaries as at such date and for the period then
ended, (iii) are complete and correct in accordance with the books of account
and records of the Obligors, and (iv) can be legitimately reconciled with the
financial statements and the financial records maintained and the accounting
methods applied by the Parent and its Subsidiaries for federal income tax
purposes. The unaudited financial statements included in the Financial
Statements indicate all adjustments, which consist of only normal recurring
accruals, necessary for such fair presentations. The statement of income
included in the Financial Statements does not contain any items of special or
nonrecurring income except as expressly specified therein, and the balance sheet
included in the Financial Statements does not reflect any write-up or
revaluation increasing the book value of any assets. The books and accounts of
the Parent and its Subsidiaries are complete and correct in all material
respects and fairly reflect all of the material transactions, items of income
and expense and all assets and liabilities of the Obligors consistent with prior
practices of the Parent. The Earnings Forecast is reasonable in light of the
historical operations and results of the Parent, represents management's good
faith best estimate of the future operating performance of the Parent and its
Subsidiaries and was prepared on an accounting basis consistent with the
Financial Statements. Except as set forth on Schedule 3.12(d), the Financial
Statements and the Earnings Forecast reflect all adjustments recommended by the
independent certified public accountants, Xxxxx Xxxxxxxx LLP.
3.13 Absence of Certain Developments. Since January 31, 2004,
there has been not been:
(a) any change in the business, financial condition,
properties, operations or prospects of any Obligor from that reflected in the
Financial Statements, other than changes in the ordinary course of business,
none of which individually or in the aggregate has had or is expected to have a
Material Adverse Effect;
(b) any resignation or termination of any officers or key
employees of any Obligor, and the Obligors have no knowledge of any impending
resignation or termination of employment of any such officer of key employee;
(c) any material change, except in the ordinary course of
business, in the contingent obligations of any Obligor by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) any damage, destruction or loss, whether or not covered
by insurance, which has had a Material Adverse Effect;
(e) any waiver by any Obligor of a valuable right or of a
material debt owed to it;
(f) any direct or indirect loans made by any Obligor to any
unit holder, employee, officer or director of any Obligor, other than advances
made in the ordinary course of business;
(g) any material change in any compensation arrangement or
agreement with any employee, officer, director or unit holder;
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(h) any declaration or payment of any dividend or other
distribution of the assets of any Obligor;
(i) to each Obligor's knowledge, any labor organization
activity with respect to any Obligor's employees;
(j) any debt, obligation or liability incurred, assumed or
guaranteed by any Obligor, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(k) any sale, assignment or transfer or any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(l) any change in any Material Agreement that would have a
Material Adverse Effect;
(m) any satisfaction or discharge of any Lien or payment of
any obligation by any Obligor, except in the ordinary course of business and
that is not material to the business, properties, financial condition,
operations or prospects of any Obligor;
(n) any Lien on any Asset of any Obligor except Permitted
Liens;
(o) any action, suit, proceeding or investigation against
any Obligor, except any such action, suit, proceeding or investigation that (i)
is not material to the business, properties, financial condition, operations or
prospects of any Obligor or (ii) is set forth on Schedule 3.13(o);
(p) any written communication received by any Obligor
alleging that any Obligor or any of its products has violated any of the patents
or patent related licenses and other proprietary rights and processes of any
other Person; or
(q) any other events or conditions of any character that,
either individually or cumulatively, have resulted in a Material Adverse Effect.
3.14 Compliance with Law.
-------------------
(a) No Obligor is in material violation of any laws,
ordinances, governmental rules or regulations to which it is subject, including,
without limitation, laws or regulations relating to the environment or to
occupational health and safety, and no material expenditures are or will be
required in order to cause its current operations or properties to comply with
any such laws, ordinances, governmental rules or regulations.
(b) Each Obligor has all licenses, permits, franchises or
other governmental authorizations necessary for the ownership of its property or
to the conduct of its business as now conducted and as presently contemplated to
be conducted, which if violated or not obtained might have a Material Adverse
Effect. No Obligor has finally been denied any application for any such
licenses, permits, franchises or other governmental authorizations
-30-
necessary to its business. There has not been, and there is no proceeding
pending, served or threatened to suspend, revoke or limit such license, and
there is no circumstance that exists which with notice or passage of time or
both, will result in such revocation, suspension or limitation.
3.15 Material Agreements; Customers and Suppliers.
--------------------------------------------
(a) Schedule 3.15(a) sets forth a true and complete list of
each contract, agreement, instrument, commitment and other arrangement to which
any Obligor is a party or is otherwise bound which is material to the ongoing
operations, financial condition or prospects of any of the Obligors (each, a
"Material Agreement"). Each Material Agreement is valid, binding and enforceable
against the applicable Obligor, in full force and effect and, to the Obligors'
knowledge, the other parties thereto, in accordance with its terms, except as
limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium,
and other laws of general application affecting enforcement of creditors' rights
generally, (b) laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (c) state and federal
securities laws with respect to rights to indemnification or contribution. No
Obligor is in default or breach under any of the Material Agreements, nor, to
the knowledge of the any Obligor, is any other party thereto in default or
breach thereunder, nor are there facts or circumstances which have occurred
which, with or without the giving of notice or the passage of time or both,
would constitute a material default or breach under any of the Material
Agreements.
(b) The relationships of each Obligor with its suppliers are
commercial working relationships and no material customer or material supplier
has canceled or otherwise terminated its relationship with any Obligor since
January 31, 2004. No Obligor has notice that any material customer intends to
cancel or materially curtail its relationship with any Obligor.
3.16 Environmental Matters. Neither any Obligor nor, to any
Obligor's knowledge, any other Person has ever caused or permitted any Hazardous
Material to be disposed of in violation of any applicable Environment Laws on or
under any real property now or previously owned, leased or operated by any
Obligor. None of Obligors has any liability with respect to Hazardous Materials,
and no facts or circumstances exist which could give rise to liabilities with
respect to Hazardous Materials which could reasonably be expected to result in a
liability to any Obligor in excess of $100,000.
3.17 Employees.
---------
(a) Except as set forth on Schedule 3.17(a), each Obligor is
in full compliance with all laws regarding employment, wages, hours, equal
opportunity, collective bargaining and payment of social security and other
taxes except to the extent that noncompliance would not, in the aggregate, have
a Material Adverse Effect. No Obligor is engaged in any unfair labor practice or
discriminatory employment practice and no complaint of any such practice against
any Obligor is filed or, to the best of the Obligors' knowledge,
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threatened to be filed with or by the National Labor Relations Board, the Equal
Employment Opportunity Commission or any other administrative agency, federal or
state, that regulates labor or employment practices, nor is any grievance filed
or, to the best of each Obligor's knowledge, threatened to be filed, against any
Obligor by any employee pursuant to any collective bargaining or other
employment agreement to which any Obligor is a party or is bound. Except as set
forth on Schedule 3.17(a), each Obligor is in compliance with all applicable
foreign, federal, state and local laws and regulations regarding occupational
safety and health standards except to the extent that noncompliance will not
have a Material Adverse Effect, and has received no complaints from any foreign,
federal, state or local agency or regulatory body alleging violations of any
such laws and regulations.
(b) Schedule 3.17(b) sets forth a true and complete list of
all employees representing executive management of the Obligors and all
independent contractors or consultants hired or engaged by any Obligor as of the
date hereof. Except as set forth on Schedule 3.17(b), the employment of all
Persons and officers employed by each Obligor in connection with the preceding
sentence is terminable at will without any penalty or severance obligation of
any kind on the part of the employer. Except as set forth on Schedule 3.17(b),
all sums due for employee compensation and benefits and all vacation time owing
to any employees of any of the Obligors have been duly and adequately accrued on
the accounting records of the Obligors.
(c) None of the Obligors is aware that any of its employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of such
employee's best efforts to promote the interests of the Obligors or that would
conflict with the Obligors' business as proposed to be conducted.
(d) There are no strikes, stoppages, slowdowns or other
labor disputes against any Obligor pending or threatened that (individually or
in the aggregate) could reasonably be expected to have a Material Adverse
3.18 Minute Books. The minute books of the Obligors made
available to the Purchasers contain a complete summary of all meetings of
directors and unit holders since the time of formation or incorporation.
3.19 Tax Matters. There are no federal, state, county or local
taxes due and payable by any Obligor which have not been paid except withholding
taxes and taxes included in rent payments which, in each case, will be paid on a
timely basis. The provisions for taxes on the Balance Sheet are sufficient for
the payment of all accrued and unpaid federal, state, county and local taxes of
the Obligors whether or not assessed or disputed as of the respective dates of
such balance sheets. The Obligors have made provision for the payment of all
taxes which, to the knowledge of any Obligor, are expected to become due with
respect to the Obligors' business, properties and operations. Each Obligor has
duly filed all federal, state, county and local tax returns required to have
been filed by it and there are in effect no waivers of applicable statutes of
limitations with respect to taxes for any year. No Obligor has not been subject
to a federal or state tax audit of any kind.
3.20 Employee Benefit Plans. No Obligor has any employee benefit
plans (as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974) covering former and current employees of the Obligors, or under which
any Obligor has any obligation or
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liability. Schedule 3.20 lists all material bonus, commission, profit-sharing,
saving, stock option, insurance, deferred compensation, or fringe or employee
benefit plans or arrangements maintained or provided by any Obligor to its
employees or under which any Obligor has any obligation or liability (each, a
"Benefit Arrangement"). True and complete copies of all written Benefit
Arrangements have been provided or made available to the Purchasers prior to the
date hereof. The Benefit Arrangements are and have been administered in
substantial compliance with their terms and with the requirements of applicable
law.
3.21 Intellectual Property.
---------------------
(a) The Co-Borrowers own all right, title and interest in
and to, or has a valid and enforceable license to use, all the Intellectual
Property used by it in connection with the Obligors' business as presently
conducted (the "Company Intellectual Property"), which represents all
intellectual property rights necessary to the conduct of the Obligors' business
as now conducted and as presently contemplated to be conducted. The Co-Borrowers
are in compliance with the contractual obligations relating to the protection of
such of the Company Intellectual Property that it uses pursuant to license
agreements. To the knowledge of the Obligors, there are no conflicts with or
infringements by any third party of any Company Intellectual Property. To the
Obligors' knowledge, the conduct of the Obligors' business as currently
conducted or as currently contemplated to be conducted does not conflict with or
infringe any proprietary right of any third party. There is no material claim,
suit, action or proceeding pending or, to the knowledge of the Obligors,
threatened against any Obligor: (i) alleging any such conflict or infringement
with any third party's proprietary rights; or (ii) challenging the Obligors'
ownership or use of, or the validity or enforceability of any Company
Intellectual Property.
(b) Schedule 3.21(b) sets forth a complete and current list
of all patents, patent applications, registered trademarks (and applications
therefor) and registered copyrights (and applications therefor) used by any
Obligor in connection with its business as presently conducted ("Listed
Intellectual Property") and the owner of record, date of application or issuance
and relevant jurisdiction as to each. Except as described in Schedule 3.21(b),
all Listed Intellectual Property is owned by the Co-Borrowers, free and clear of
security interests, liens, encumbrances or claims of any nature. Except as
listed in Schedule 3.21(b), no Listed Intellectual Property is the subject of
any legal or governmental proceeding before any governmental, registration or
other authority in any jurisdiction, including any office action or other form
of preliminary or final refusal of registration.
(c) Schedule 3.21(c) sets forth a complete list of all: (i)
licenses, sublicenses and other agreements in which any Obligor or any
sublicensee of the Obligors has granted to any person the right to use the
Company Intellectual Property; and (ii) all other consents, indemnifications,
forbearances to xxx, settlement agreements and licensing or cross-licensing
arrangements to which any Obligor is a party relating to the Intellectual
Property or the proprietary rights of any third party, other than
"off-the-shelf" software and the like licensed by any Obligor as licensee.
Except as set forth in Schedule 3.21(c), none of the Obligors is under any
obligation to pay royalties or other payments in connection with any license,
sublicense or other agreement, nor restricted from assigning its rights under
any sublicense or agreement
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respecting the Company Intellectual Property nor will any Obligor otherwise be,
as a result of the execution and delivery of this Agreement or the performance
of its obligations under this Agreement, in breach of any license, sublicense or
other agreement relating to the Company Intellectual Property.
(d) No present or former employee, officer or director of
any Obligor, or agent or outside contractor of any Obligor, holds any right,
title or interest, directly or indirectly, in whole or in part, in or to any
Company Intellectual Property.
(e) Except as set forth on Schedule 3.21(e), to the
Obligors' knowledge: (i) none of the Company Intellectual Property has been
used, divulged, disclosed or appropriated to the detriment of the Obligors for
the benefit of any Person other than the Obligors; and (ii) no employee,
independent contractor or agent of any Obligor has misappropriated any trade
secrets or other confidential information of any other Person in the course of
the performance of his or her duties as an employee, independent contractor or
agent of the Obligors.
(f) To the Obligors' knowledge, each Obligor's transmission,
use, modification (including, but not limited to, framing, if applicable),
linking and other practices in respect of content proprietary to any other
Person do not infringe or violate any proprietary or other right of any such
Person and, to the Obligors' knowledge, no claim in respect of any such
infringement or violation is threatened or pending.
3.22 Software. The operating and applications computer software
programs and databases used by any Obligor that are material to the conduct of
the Obligors' business as now conducted and as presently contemplated to be
conducted, other than "off-the-shelf" software and the like licensed by any
Obligor as licensee (collectively, the "Software") are listed on Schedule 3.22
hereto. The Co-Borrowers: (i) holds valid licenses to use, reproduce, modify,
distribute and sublicense all copies of the Software, other than (a)
off-the-shelf software or (b) any portion thereof (collectively, the
"Proprietary Software") that was developed by or under contract with the
Obligors and (ii) either owns, or has a perpetual, royalty-free license to use,
reproduce, modify, distribute and sublicense the Proprietary Software and,
except as listed on Schedule 3.22, the Obligors have not sold, licensed, leased
or otherwise transferred or granted any interest or rights in or to any portion
thereof. To the knowledge of the Obligors, none of the Software used by any
Obligor, nor any use thereof, conflicts with, infringes upon or violates any
intellectual property or other proprietary right of any other Person and, to the
knowledge of the Obligors, no claim, suit, action or other proceeding with
respect to any such infringement or violation is threatened or pending. Except
as set forth on Schedule 3.22, the Obligors have taken the steps reasonably
necessary to protect its right, title and interest in and to the Proprietary
Software, including, without limitation, the execution of appropriate
confidentiality agreements.
The Co-Borrowers possess or have access to the original and all copies
of all documentation and all source code or password protected code, as
applicable, for all the Proprietary Software it owns. Upon consummation of the
transactions contemplated by this Agreement, the Co-Borrowers will continue to
own all the Proprietary Software owned by it, free and clear of all claims,
liens, encumbrances, obligations and liabilities other than Permitted Liens and,
with respect to all agreements for the lease or license of Proprietary Software
which require
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consents or other actions as a result of the consummation of the transactions
contemplated by this Agreement in order for the Obligors to continue to use and
operate such Software after the Closing Date, the Co-Borrowers will have
obtained such consents or taken such other actions so required.
Any material programs, modifications, enhancements or other inventions,
improvements, discoveries, methods or works of authorship ("Works") that were
created by employees of the Obligors were made in the regular course of such
employees' employment or service relationships with the Obligors using the
Obligors' facilities and resources and, as such, constitute works made for hire.
Each such employee who has created Works or any employee who in the regular
course of his employment may create Works and all consultants have signed an
assignment or similar agreement with the Co-Borrowers confirming the
Co-Borrowers' ownership or, in the alternate, transferring and assigning to a
Co-Borrower all right, title and interest in and to such programs,
modifications, enhancements or other inventions including copyright and other
intellectual property rights therein.
3.23 Title to Tangible Assets. Each Obligor has good title to its
properties and assets and good title to all its leasehold estates, in each case
subject to no Liens other than Permitted Liens.
3.24 Condition of Properties. All facilities, machinery,
equipment, fixtures, vehicles and other properties owned, leased or used by any
Obligor (a) are in good operating condition and repair, reasonably fit and
usable for the purposes for which they are being used and are presently
contemplated to be used, and adequate and sufficient for such Obligor's business
as now conducted and as presently contemplated to be conducted, subject in all
cases to ordinary wear and tear and retirement and (b) conform in all material
respects with all applicable ordinances, regulations and laws.
3.25 Insurance. The Obligors' properties are insured, in the
reasonable judgment of the Obligors, against such losses and with such insurers
as are prudent when considered in light of the nature of the properties and the
business of the Obligors as now conducted and as presently contemplated to be
conducted. Schedule 3.25 sets forth a true and complete listing of the insurance
policies of the Obligors as in effect on the date hereof, including in each case
the applicable coverage limits, deductibles and the policy expiration dates. No
notice of any termination or threatened termination of any of such policies has
been received and such policies are in full force and effect. Except as set
forth in Schedule 3.25, there is no material claim by any Obligor pending under
such policies.
3.26 Transactions with Related Parties. Except as disclosed on
Schedule 3.26, no Obligor is not a party to any agreement with any of the
managers, officers or members of any Obligor or any Affiliate or family member
of any of the foregoing under which it: (i) leases any real or personal property
(either to or from such Person), (ii) licenses technology (either to or from
such Person), (iii) is obligated to purchase any tangible or intangible asset
from or sell such asset to such Person, (iv) purchases products or services from
such Person or (v) has borrowed money from or lent money to such Person. Except
as set forth in Schedule 3.26, none of the Obligors employs as an employee or
engage as a consultant any immediate family member of any of the Obligor's
directors, officers or unit holders. Except as set forth in Schedule 3.26,
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to the knowledge of each Obligor, there exist no agreements among unit holders
of any Obligor to act in concert with respect to their voting or holding of any
Obligor's securities.
3.27 Interest in Competitors. Neither any Obligor nor any of such
Obligor's officers or, to the best of its knowledge, directors, has any
interest, either by way of contract or by way of investment (other than as
holder of not more than 2% of the outstanding capital stock of a publicly traded
Person) or otherwise, directly or indirectly, in any Person other than the
Obligors that (i) provides any services or designs, produces or sells any
product or product lines or engages in any activity competitive with any
activity currently proposed to be conducted by the Parent or any of its
Subsidiaries or (ii) has any direct or indirect interest in any asset or
property, real or personal, tangible or intangible, of any Obligor.
3.28 Registration Rights. Except as provided in Schedule 3.28 and
except as provided in the Transaction Documents, none of the Obligors is under
any obligation to register under the Securities Act any of its outstanding
securities or any of its securities that may be issued subsequently. The
Obligors may enter into future agreements to register outstanding securities
under the Securities Act pursuant to terms consistent with those provided by the
agreements listed on Schedule 3.28.
3.29 Exchange Act Registration. None of the Obligors' securities
are registered, or required to be registered, under Section 12 of the Exchange
Act.
3.30 Private Offering. Neither the Parent nor any Co-Borrower nor
anyone acting on their behalf has sold or has offered any of the Notes or
Warrants for sale to, or solicited offers to buy from, or otherwise approached
or negotiated with respect thereto with, any prospective purchaser, other than
the Purchasers. Neither the Parent, any Co-Borrower nor anyone acting on their
behalf shall offer the Notes or Warrants for issue or sale to, or solicit any
offer to acquire any of the same from, anyone so as to bring the issuance and
sale of such Notes or Warrants or shares of Common Units issuable upon exercise
of the Warrants, or any part thereof, within the provisions of Section 5 of the
Securities Act. Based upon the representations of the Purchasers set forth in
Section 5 of this Agreement, the offer, issuance and sale of the Notes and
Warrants and Warrant Units issuable upon exercise of the Warrants are and will
be exempt from the registration and prospectus delivery requirements of the
Securities Act and have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws.
3.31 Brokerage. Except as set forth in Schedule 3.31, there are
no claims for brokerage commissions or finder's fees or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement made by or on behalf of the Parent or any Obligor, and the Parent
and the Co-Borrowers jointly and severally agree to indemnify and hold the
Purchasers harmless against any costs or damages incurred as a result of any
such claim.
3.32 Illegal or Unauthorized Payments; Political Contributions.
Neither any Obligor nor, to the Obligors' knowledge (after reasonable inquiry of
its officers and directors), any of any Obligor's officers, directors,
employees, agents or other representatives of any Obligor has, directly or
indirectly, made or authorized any payment, contribution or gift
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of money, property, or services, whether or not in contravention of applicable
law, (a) as a kickback or bribe to any Person or (b) to any political
organization, or the holder of or any aspirant to any elective or appointive
public office except for personal political contributions not involving the
direct or indirect use of funds of any Obligor.
3.33 Internal Accounting Controls. Each Obligor has established
or is in the process of establishing a system of internal accounting controls
sufficient to provide reasonable assurance that: (i) transactions are executed
in accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
3.34 Material Facts. This Agreement, the schedules furnished
contemporaneously herewith, and the certificates or written statements required
hereunder to be furnished to the Purchasers at the Closing by or on behalf of
the Obligors, taken as a whole, do not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
contained therein or herein, in light of the circumstances in which they were
made, not misleading. The Earnings Forecast were made by management of the
Obligors in good faith based on factual assumptions believed to be true, it
being understood that actual results may differ from the projections contained
therein.
3.35 Foreign Assets Control Regulations, etc. Neither the payment
by the Purchasers to the Parent and the Co-Borrowers contemplated hereunder nor
their use of the proceeds of the Securities or the Notes will violate the
Trading with the Enemy Act, as amended, or any of the foreign assets control
regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended) or any enabling legislation or executive order relating
thereto. Without limiting the foregoing, neither the Parent, any Co-Borrower or
any Subsidiary of the Parent (i) is or will become a blocked person described in
Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and
Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support
Terrorism (66 Fed. Reg. 49079 (2001)) or (ii) knowingly engages or will engage
in any dealings or transactions, or be otherwise associated, with any such
blocked person.
No part of the proceeds from the Securities or the Notes hereunder will
be used, directly or indirectly, for any payments to any governmental official
or employee, political party, official of a political party, candidate for
political office, or anyone else acting in an official capacity, in order to
obtain, retain or direct business or obtain any improper advantage, in violation
of the United States Foreign Corrupt Practices Act of 1977, as amended.
3.36 Other Acquisitions. Except for the Seller Notes and the
Cosmo Seller Note, the purchase price payable under all acquisition documents
existing on the Closing Date of the Obligors has been paid in full, including
any post closing adjustments or earnouts.
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4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser on behalf of itself and not as to any other
Purchaser or Person hereby severally and not jointly represents and warrants to
the Co-Borrowers and the Parent as follows:
4.1 Corporate Power. It has all requisite legal and corporate
power and authority to execute and deliver this Agreement and to carry out and
perform its obligations hereunder.
4.2 Authorization. It has taken all corporate action required to
make all its obligations in this Agreement the valid and enforceable obligations
they purport to be, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting the
enforcement of creditors' rights and (ii) as limited by general principles of
equity that restrict the availability of equitable remedies.
4.3 Purchaser Bears Economic Risk. It has substantial experience
in evaluating and investing in private placement transactions of securities in
companies similar to the Parent and the Co-Borrowers so that it is capable of
evaluating the merits and risks of its investment in the Parent and the
Co-Borrowers and has the capacity to protect its own interests. It acknowledges
that investment in the private placement transactions involves a high degree of
risk, and represents that it is able, without materially impairing its financial
condition, to hold the Notes and Securities for a long period of time and to
suffer a complete loss of its investment.
4.4 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, each Purchaser further agrees not
to make any disposition of all or any portion of the Notes or Warrants unless
and until:
(a) There is then in effect a Registration Statement under
the Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) The Purchaser shall have satisfied the terms and
conditions of Section 2.10, including, without limitation, subsection (c)
thereof, prior to the proposed disposition. 4.5 Accredited Investor Status. It
is an "accredited investor" as such term is defined in Rule 501 under the
Securities Act.
4.6 Acquisition for Own Account. It is acquiring the Notes and
Warrants for its own account and beneficial interest for investment and not for
sale or with a view to distribution of the Notes or Warrants or any part
thereof, has no present intention of selling (in connection with a distribution
or otherwise), granting any participation in, or otherwise distributing the
same, and does not presently have reason to anticipate a change in such
intention.
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5. AFFIRMATIVE COVENANTS OF THE OBLIGORS.
The Parent and the Co-Borrowers jointly and severally covenant and
agree with the Purchasers that, so long as any amount due under the Notes is
outstanding and until payment in full of all amounts payable by the Co-Borrowers
hereunder:
5.1 Payment of Notes. The Co-Borrowers shall pay the principal of
and interest on the Notes on the dates and in the manner provided in the Notes
and in this Agreement.
5.2 Conduct of Business. The Parent and each Co-Borrower shall
remain duly formed, validly existing, and in good standing as a domestic
corporation or company, as applicable, under the laws of its state of formation.
The Parent and each Subsidiary of the Parent shall remain duly formed or
incorporated, validly existing and in good standing as a domestic corporation in
its jurisdiction of incorporation or formation and maintain all requisite
authority to conduct its business in those jurisdictions in which its business
is conducted. The Co-Borrowers shall maintain an office or agency where (a)
Notes may be presented or surrendered for registration of transfer or for
exchange, (b) Notes may be presented or surrendered for payment, (c) Warrants
may be presented for conversion and (d) notices and demands to or upon the
Obligors in respect of the Notes, Warrants and this Agreement may be served. The
Co-Borrowers shall give prior written notice to the Purchasers of the location,
and any change in the location, of such office or agency.
5.3 Notice of Adverse Change. The Co-Borrowers shall promptly
notify the Purchasers in writing of (a) any change in the business or the
operations any Obligor which could reasonably be expected to have a Material
Adverse Effect, and (b) any information which indicates that any financial
statements which are the subject of any representation contained in this
Agreement, or which are furnished to the Purchasers pursuant to this Agreement,
fail, in any material respect, to present fairly, as of the date thereof and for
the period covered thereby, the financial condition and results of operations
purported to be presented therein, disclosing the nature thereof.
5.4 Notice of Default. The Co-Borrowers shall promptly notify the
Purchasers of any Default or Event of Default which shall have occurred, which
notice shall include a written statement as to such occurrence, specifying the
nature thereof and the action (if any) which is proposed to be taken with
respect thereto.
5.5 Notice of Litigation. The Co-Borrowers shall promptly notify
the Purchasers of any action, suit or proceeding at law or in equity or by or
before any governmental instrumentality or other agency which, if adversely
determined against any Obligor on the basis of the allegations and information
set forth in the complaint or other notice of such action, suit or proceeding,
or in the amendments thereof, if any, could reasonably be expected to have a
Material Adverse Effect or in which the amount in controversy exceeds $500,000.
5.6 Reserved.
5.7 Compliance Certificates. The Co-Borrowers shall deliver to
the Purchasers, within 20 days after the end of each fiscal quarter, an
Officers' Certificate (which shall include a Quarterly Perfection Certificate
Update) as to such Officers' knowledge, of the Co-Borrowers's compliance with
all conditions and covenants under this Agreement (without
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regard to any period of grace or requirement of notice provided hereunder) and
in the event any Default or Event of Default exists, such Officer shall specify
the nature of such Default or Event of Default. Such certificate shall provide
computations in reasonable detail demonstrating compliance with the financial
covenants in Section 7. Each such Officers' Certificate shall also notify the
Purchasers of any change in the Co-Borrowers's fiscal year-end.
So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the annual financial
statements delivered pursuant to this Agreement shall be accompanied by a
written report of the Co-Borrowers's independent certified public accountants
(who shall be a firm of established national reputation reasonably acceptable to
the Majority Purchasers) stating (A) that their audit examination has included a
review of the terms of this Agreement and the form of the Note as they relate to
accounting matters, and (B) whether, in connection with their audit examination,
any Default or Event of Default has come to their attention and if such a
Default or Event of Default has come to their attention, specifying the nature
and period of existence thereof; provided, however, that, without any
restriction as to the scope of the audit examination, such independent certified
public accountants shall not be liable by reason of any failure to obtain
knowledge of any such Default or Event of Default that would not be disclosed in
the course of an audit examination conducted in accordance with generally
accepted auditing standards
5.8 Board of Directors. The Parent shall cause its Board of
Directors to hold meetings at least quarterly.
5.9 Security. The Co-Borrowers shall and shall cause the Parent
and each Subsidiary of the Parent to promptly take any and all actions necessary
to execute any definitive documentation (which documentation shall include
customary representations, warranties, covenants, conditions and agreements, and
any UCC financing statements) reasonably requested by the Purchasers, for
obtaining the benefits of the Security Agreement, subject to the terms and
conditions stated therein.
5.10 Taxes. Each Obligor will pay when due all taxes, assessments
and governmental charges and levies upon it or its income, profits or property,
except those that are being contested in good faith by appropriate proceedings
and with respect to which adequate reserves have been set aside.
5.11 Insurance. Each Obligor will all times maintain with
financially sound and reputable insurance companies insurance covering its
assets and its businesses in such amounts and covering such risks (including,
without limitation, hazard, business interruption and public liability) as is
consistent with sound business practice and as may be obtained at commercially
reasonable rates. The insurance policies will comply with the provisions of
Section 11 of the Security Agreement.
5.12 Compliance with Laws. Each Obligor will comply with all
laws, rules, regulations, orders, writs, judgments, injunctions, decrees or
awards to which it may be subject except where the failure to so comply could
not reasonably be expected to have a Material Adverse Effect.
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5.13 Maintenance and Properties. Each Obligor will use
commercially reasonable efforts to do all things necessary to maintain,
preserve, protect and keep its properties in good repair, working order and
condition, subject in all cases to ordinary wear and tear and retirement, and
use commercially reasonable efforts to make all necessary and proper repairs,
renewals and replacements so that its business carried on in connection
therewith may be properly conducted.
5.14 Inspection. Each Obligor will permit each Purchaser, by its
representatives and agents, to inspect any of the properties, licenses,
corporate books and financial records of each Obligor, to examine and make
copies of the books of accounts and other financial records of each Obligor and
to discuss the affairs, finances and accounts of the Obligors with, and to be
advised as to the same by, their respective offices at such reasonable times and
intervals on reasonable advance written notice to the Co-Borrowers.
5.15 Financial Statements, Etc. The Parent shall deliver to each
Purchaser the following financial statements as and when indicated below,
provided, however, that, with respect to all financial statements otherwise due
in accordance with this Section 5.15 within the first 6 months after the Closing
Date, the Parent shall have an additional 30 days to deliver any such
statements:
(a) Flash Reports. As soon as available and in any event
within 20 days after the end of each month, flash reports of the Parent and its
Subsidiaries which shall include such information as may be available to the
Parent from time to time.
(b) Monthly Financials. As soon as available and in any
event within 20 days after the end of each of month, a consolidated and
consolidating statement of income of the Parent and its Subsidiaries for such
monthly period and for the period from the beginning of the respective fiscal
year to the end of such period and the related consolidated and consolidating
balance sheet of the Parent and its Subsidiaries as at the end of such period,
setting forth in each case in comparative form (i) the corresponding
consolidated and consolidating statements of income and cash flows for the
corresponding period in the preceding fiscal year to the extent such financial
statements are available and (ii) the corresponding budget or plan for such
period.
(c) Quarterly Financials. As soon as available and in any
event within 45 days after the end of each quarterly fiscal periods of each
fiscal year, a consolidated and consolidating statement of income and cash flows
of the Parent and its Subsidiaries for such period and for the period from the
beginning of the respective fiscal year to the end of such period, and the
related consolidated and consolidating balance sheet of the Parent and its
Subsidiaries as at the end of such period, setting forth in each case in
comparative form (i) the corresponding consolidated and consolidating statements
of income and cash flows for the corresponding period in the preceding fiscal
year to the extent such financial statements are available and (ii) the
corresponding budget or plan for such period.
(d) Annual Financials. As soon as available and in any event
within 90 days after the end of each fiscal year, audited consolidated and
consolidating statements of income and cash flows of the Parent and its
Subsidiaries for such year and the related audited consolidated and consolidated
balance sheet of the Parent and its Subsidiaries at the end of such
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year, setting forth in each case in comparative form (i) the corresponding
information as of the end of and for the preceding fiscal year to the extent
such financial statements are available and (ii) the corresponding budget or
plan for such period, accompanied by an opinion, without a going concern or
similar qualification or exception as to scope or other material qualification
or exception, thereon of the Parent's auditors (which auditors shall be
reasonably acceptable to the Majority Purchasers), which opinion shall state, in
substance, that said financial statements fairly present in all material
respects the consolidated and consolidating financial condition, results of
operations and cash flows of the Parent and its Subsidiaries as at the end of,
and for, such fiscal year in conformity with GAAP. The Parent and each
Co-Borrower shall supply such additional information and detail as to any item
or items contained on any such statement that the Majority Purchasers may
reasonably require. All such information will be prepared in conformity with
GAAP consistently applied.
(e) Annual Budgets and Projections. As soon as practicable
and in any event by June 30 of each year, an annual budget and operating plans
for the Parent and its Subsidiaries such the following fiscal year (and as soon
as available, any subsequent revisions thereto). If requested by the Purchaser,
the Parent shall provide an explanation for variances between the materials
provided under this clause (d) and the Earnings Forecast.
(f) Regulatory and Intellectual Property Filings and
Notices. As soon as reasonably practicable but in any event within three (3)
Business Days, upon receipt or delivery, copies of any and all material notices
and other material communications from and to any federal or state regulatory
body with jurisdiction over any Obligor's products, business and/or processes
(i) with respect to any Obligor or any of the Obligors' products or practices
and (ii) with respect to the Company's Intellectual Property with counsel to any
of the Obligors (including any non-infringement opinions of counsel or advisors
to the Obligors or any other Person), the United States Patent & Trademark
Office and any other Person. The Co-Borrowers shall as soon as reasonably
practicable, notify the Purchasers of any infringement or threatened
infringement of the Company Intellectual Property may at any time come to its
notice.
5.16 Use of Proceeds. The proceeds from the sale of the Notes
shall be used (i) to fund the Interest Escrow Account, (ii) to fund the Escrow
Account to hold the payment of $4,000,000 representing the cash portion of the
purchase price under the GK Acquisition Documents, subject to adjustments as
provided in the GK Acquisition Documents (iii) to pay for the fees and expenses
incurred in connection with this Agreement and (iv) for general corporate
purposes. None of the proceeds will be used for the purpose, direct or ultimate,
of buying or carrying "Margin Stock" within the meaning of Regulations T, U and
X of the Board of Governors of the Federal Reserve System of the United States
of America, and no part of the proceeds of any extension of credit hereunder
will be used to buy or carry any "Margin Stock".
5.17 Intellectual Property. At its own expense, the Obligors
shall make, execute, endorse, acknowledge file and/or deliver any documents and
take all actions necessary or required to maintain its ownership rights in the
material Company Intellectual Property, including, without limitation, (i) any
action reasonably required to protect the Intellectual Property in connection
with any infringement, suspected infringement, passing off, act of unfair
competition or other unlawful interference with the rights of any Obligor in and
to the Company
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Intellectual Property, and (ii) any registrations with the United States Patent
& Trademark Office and any corresponding foreign patent and/or trademark office
required for any of the Obligors to carry on its business as presently conducted
and as presently proposed to be conducted. Except for non-exclusive licenses
granted in the ordinary course of business, the Obligors shall not transfer,
assign or otherwise convey the Intellectual Property, any registrations or
applications thereof and all goodwill associate therewith, to any person or
entity. Nothing herein shall prevent the Company from abandoning software not
necessary for the prudent conduct of the business of the Obligors.
5.18 Further Assurances. At the Purchaser's reasonable request,
each Obligor shall, at its own expense, make, execute, endorse, acknowledge,
file and/or deliver to the Purchasers from time to time such other
documentation, consents, authorizations and approvals in form and substance
reasonably satisfactory to the Purchasers as the Purchasers shall reasonably
deem necessary or appropriate to consummate the transactions contemplated in any
of the Transaction Documents. In no way limiting the foregoing, upon the
exercise by the Purchasers of any power, right, privilege or remedy pursuant to
any Transaction Document which requires any consent, approval, registration,
qualification or authorization of any Governmental Authority, each Obligor shall
execute and deliver all applications, certifications, instrument and other
documents and papers that the Purchasers may be so required to obtain.
5.19 Certain Changes and Conduct of Business. From and after the
date of this Agreement and until the Notes are no longer outstanding, the
Obligors shall inform the Purchasers of all material developments, including
without limitation (i) any issuance of debt securities by any Obligor, (ii) the
incurrence of any Indebtedness by any Obligor, (iii) a change in the number of
the Board of Directors of such Obligor, (iv) a sale, lease or transfer of any
material portion of the assets of any Obligor and (v) any change in ownership of
Capital Units of any Obligor (specifying the details of any such change,
including the identity and ownership amount of any new owner). Each Obligor
shall provide the Purchasers with any written information provided to the board
of directors or board of managers (or similar body) of such Obligor in their
respective capacities as such.
5.20 Additional Subsidiaries. If any additional Subsidiary of the
Parent is formed or acquired (and such Subsidiary has assets in excess of
$10,000 or acquires assets in excess of $10,000) after the Closing Date, the
Parent and the Co-Borrowers will, within three Business Days after such
Subsidiary is formed or acquired, notify the Collateral Agent and the Purchasers
thereof and within such period cause the Collateral and Guarantee Requirement to
be satisfied with respect to such Subsidiary and with respect to any Capital
Units in or Indebtedness of such Subsidiary owned by or on behalf of any Obligor
and shall deliver to the Collateral Agent a legal opinion of counsel to such
Subsidiary as to such Subsidiary as to matters covered by the opinion delivered
by counsel pursuant to Section 8.5. To the extent any portion of the Collateral
and Guarantee Requirements is subject to the Collateral Exception, the Obligors
shall use reasonable efforts to satisfy such portion of the Collateral and
Guarantee Requirement but the failure to actually satisfy such portion shall not
constitute a Default or Event of Default.
5.21 Restructuring of KCO Note, Cosmo Seller Note and Anushka
Seller Note. On or before May 30, 2004, the Obligors will arrange for the
restructuring of the KCO
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Note, the Cosmo Seller Note and the Anushka Seller Note so that each note (a
"Restructured Note") satisfies the Permitted Financing Conditions; provided,
that, subject to the terms of subordination to be contained therein and Section
6.4, the Cosmo Seller Note and the Anushka Seller Note as restructured may
provide for and the Parent may make the current payment of cash interest thereon
at a rate not to exceed 5% per annum and the payments of cash on the KCO Note
specified in Section 6.4(d).
6. NEGATIVE COVENANTS OF THE OBLIGORS.
The Parent and the Co-Borrowers jointly and severally covenant and
agree with the Purchasers that, so long as any amount due under the Notes is
outstanding and until payment in full of all amounts payable by the Co-Borrowers
hereunder and, solely in the case of Section 6.11, so long as any Warrants
remain outstanding:
6.1 Limitation on Additional Indebtedness and Liens.
-----------------------------------------------
(a) Neither the Parent nor any of its Subsidiaries shall
incur or permit to exist any Indebtedness other than Permitted Indebtedness. The
Parent will not incur or permit to exist any Indebtedness other than Permitted
Indebtedness outstanding on the Closing Date.
(b) The Parent and the Co-Borrowers shall not and shall not
permit any of the Parent's Subsidiaries to create, incur, assume or suffer to
exist any Lien upon any of its property, whether now owned or hereafter acquired
other than (i) Liens created pursuant to the Security Agreement, (ii) those
Liens that exist immediately prior to the date hereof as set forth in the
Disclosure Schedules and (iii) Permitted Liens. The Parent and the Co-Borrowers
shall not and shall not permit any of the Parent's Subsidiaries to be bound by
any agreement which limits the ability of the Parent, the Co-Borrowers or any of
the Parent's Subsidiaries to grant Liens other than restrictions (x) as to
property permitted under this Agreement to be sold, on such property pending
sale and (y) as to property subject to purchase money liens constituting a
Permitted Lien, on such property so long as such Permitted Indebtedness secured
thereby is outstanding.
6.2 Limitation on Transactions with Affiliates. The Parent and
the Co-Borrowers shall not and shall not permit any of the Parent's Subsidiaries
to, directly or indirectly, enter into or permit to exist any transaction or
series of related transactions (including, without limitation, the purchase,
sale, lease or exchange of any property or the rendering of any service) with,
or for the benefit of, any of its Affiliates, other than Permitted Affiliate
Transactions.
6.3 Limitation on Capital Expenditures. The aggregate amount of
Capital Expenditures made by the Obligors as a whole shall not exceed (i)
$7,000,000 in the aggregate for the fiscal year ended June 30, 2005, (ii)
$8,000,000 in the aggregate for the fiscal year ended June 30, 2006, (iii)
$8,000,000 in the aggregate for the fiscal year ended June 30, 2007, (iv)
$9,000,000 in the aggregate for the fiscal year ended June 30, 2008, and (v)
$10,000,000 in the aggregate for the fiscal year ended June 30, 2009.
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6.4 Dividends and Redemptions.
-------------------------
(a) The Parent shall not and shall not permit any of its
Subsidiaries to, directly or indirectly, declare or pay any dividends on account
of any shares of class of any of its Capital Units now or hereafter outstanding,
or set aside or otherwise deposit or invest any sums for such purpose, or
redeem, retire, defease, purchase or otherwise acquire any shares of any class
of its Capital Units (or set aside or otherwise deposit or invest any sums for
such purpose) for any consideration or apply or set apart any sum, or make any
other distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing (each of the foregoing is herein
called a "Restricted Payment"); provided, that any Subsidiary directly or
indirectly wholly owned by a Co-Borrower may pay dividends on its Capital Units;
and, provided further, that the Obligors may make distributions in accordance
with this Section 6.4.
(b) So long as no Default or Event of Default has occurred
and is continuing or would occur after giving effect to the Restricted Payment
contemplated by this clause (b), the Obligors taken as a whole may make
distributions to the Parent to fund its operating expenses of the Parent
incurred in the ordinary course of business.
(c) Notwithstanding the subordination provisions of any
Subordinated Note or any provision herein but so long as no Default or Event of
Default has occurred and is continuing or would occur after giving effect to the
Restricted Payment contemplated by this clause (c), the Obligors may make
Permitted Distributions directly or indirectly to the Parent so long as the
Parent concurrently uses the proceeds of such Permitted Distribution for the
purpose specified in the definition thereof.
(d) Notwithstanding the subordination provisions of any
Subordinated Note or any provision herein but so long as no Default or Event of
Default has occurred and is continuing or would occur after giving effect to the
Restricted Payment contemplated by this clause (d), the Obligors may make
distributions from and after September 30, 2006 in the Co-Borrowers' Percentage
of the Specified Amount to enable the Parent to make payments of principal and
accrued and unpaid interest in respect of such principal payment (but not other
accrued interest) in respect of the KCO Note if all of the following conditions
are satisfied: (i) the Consolidated EBITDA for the four quarters ended
immediately prior to the making of the Restricted Payment shall be at least the
amount specified in Section 7.1, (ii) simultaneously with such distribution the
Co-Borrowers shall make a prepayment of principal and accrued interest on the
Notes equal in the aggregate to the Purchaser's Percentage of amount of the
Restricted Payment being made under this clause (d), and (iii) at least ten (10)
days prior to the making of the Restricted Payment contemplated by this clause
(d), the Co-Borrowers shall provide to the Purchasers the compliance certificate
for the Test Period contemplated by Section 5.7 which certificate shall state
the date of the proposed Restricted Payment and shall provide a computation in
reasonable detail of the Specified Amount. The term "Specified Amount", as of
any date, means the difference, if positive of (x) Consolidated EBITDA of the
Parent and its Subsidiaries for the period (the "Test Period") commencing
October 1, 2005 through the end of the fiscal quarter immediately prior to the
date of the proposed Restricted Payment less (y) the sum of (i) Consolidated
Interest Expense for the Test Period, plus (ii) consolidated Capital
Expenditures of the Parent and its Subsidiaries for the Test Period plus (iii)
Restricted Payments made during the Test Period plus (iv) any mandatory payments
of principal on any Indebtedness during four fiscal quarters immediately
following the end of the Test Period. As used herein,
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the term "Borrowers' Percentage" of the Specified Amount means (a) until the
principal amount of the Notes shall have been reduced below $5,000,000
(including through prepayments required under this clause (d) or otherwise), 50%
and (b) at all other times, 75% and the term "Purchaser's Percentage" shall
mean, at any time, 100% minus the Borrowers' Percentage. For clarity, the
aggregate prepayment of the Notes plus the aggregate Restricted Payment pursuant
to this clause (d) shall not exceed, in the aggregate the Specified Amount.
(e) No distribution may be made under this Section 6.4 if a
Default or Event of Default shall have occurred at the time of or after giving
effect to such distribution.
6.5 Fundamental Changes; Disposition of Assets; Acquisitions. The
Parent and the Co-Borrowers shall not, and they shall not permit all Subsidiary
of the Parent to (i) enter into any transaction of merger or consolidation, or
liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, lease or sub-lease (as lessor or sublessor),
transfer or otherwise dispose of, in one transaction or a series of
transactions, any of its business, assets or property of any kind whatsoever,
whether real, personal or mixed and whether tangible or intangible, whether now
owned or hereafter acquired, other than for sales of inventory in the ordinary
course of business, sales of obsolete equipment not to exceed $250,000 aggregate
gross cash proceeds for sales by all Obligors during the term of this Agreement,
or (ii) acquire by purchase or otherwise (other than purchases or other
acquisitions of real property, inventory, materials and equipment in the
ordinary course of business) the business, property or fixed assets of, or stock
or other evidence of beneficial ownership of, any Person or any division or line
of business or other business unit of any Person; provided, however, that GK
Acquisition Company may consummate the GK Acquisition if the GK Acquisition
Conditions are satisfied, and the Co-Borrowers may consummate other Permitted
Acquisitions.
6.6 Limitation on Lines of Business. The Co-Borrowers shall, and
shall cause each Subsidiary of the Co-Borrowers to, directly or indirectly,
engage primarily in a Related Business. For the purposes of this Section 6.6,
"Related Businesses" shall mean businesses that consist primarily of, or are
related to, cosmetic surgery, cosmetic dentistry and dermatology clinical care,
as well as spa and beauty-enhancement services. The Parent and the other
Obligors (other than the Co-Borrowers and their Subsidiaries which shall be
bound by the first sentence of this Section 6.6) shall not engage in any
activity other than as set forth in Section 3.6 and the Parent will contribute
to the capital of the Co-Borrowers within one Business Day after receipt all net
cash proceeds from the issuance of any equity issued by it or Indebtedness
issued to third parties incurred by the Parent.
6.7 Investments. No Obligor shall make or own any Investment in
any Person, including without limitation any joint venture, other than:
(a) Permitted Investments;
(b) operating deposit accounts with banks;
(c) Hedging Agreements entered into in the ordinary course
of the Co-Borrowers' financial planning and not for speculative purposes;
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(d) investments by the Obligors existing on the date hereof
in the capital stock, units, membership interests or other equity interests of
its Subsidiaries who are Obligors and additional contributions after the date
hereof in such Obligors;
(e) Permitted Acquisitions;
(f) any convertible note tax loan deemed to be made under
Section 5(b) of the L Capital Note and any promissory note issued to the Parent
in connection therewith;
(g) (i) intercompany advances and repayments in the ordinary
course among Co-Borrowers, another Obligor that is an operating entity and (so
long as the proceeds of such advances are deposited by Advanced Aesthetics, LLC
in a deposit account subject to a control agreement referred to in Section 6.13)
Advanced Aesthetics, LLC, and (ii) intercompany advances by an Obligor to the
Parent so long as such advance, if made as a Restricted Payment, would have been
permitted under Section 6.4 hereof and the provisions of Section 6.4 are
complied with as if such payment were a Restricted Payment; and
(h) investments by the Obligors in newly created
subsidiaries in connection with any Permitted Acquisition, provided that the
Collateral and Guarantee Requirement is satisfied in connection therewith,
taking into account the portion thereof subject to Collateral Exceptions.
6.8 Sales and Lease-Backs. Neither the Parent, any Co-Borrower or
any Subsidiary of the Parent shall, directly or indirectly, become or remain
liable as lessee or as a guarantor or other surety with respect to any lease of
any property (whether real, personal or mixed), whether now owned or hereafter
acquired, which any (a) has sold or transferred or is to sell or to transfer to
any other Person, or (b) intends to use for substantially the same purpose as
any other property which has been or is to be sold or transferred by any Obligor
to any Person in connection with such lease.
6.9 Litigation. Neither the Parent nor any Co-Borrower shall, and
shall cause each Subsidiary of the Parent not to, settle, or agree to indemnify
or defend third parties against, any material lawsuit, (i) except as may be
required by judicial or regulatory order or by agreements entered into prior to
the date hereof on a basis consistent with past practice or (ii), in the case of
a settlement, unless the terms of the settlement require any Obligor to make
aggregate transfers of less than $500,000. For the purpose of this section 6.9,
a material lawsuit shall be any lawsuit in which the amount in controversy
exceeds $500,000.
6.10 Sufficiency of Shares for Warrant Exercise. For so long as
the Warrants are outstanding, the Parent shall take all measures reasonably
requested by the Majority Purchasers to make available or authorize sufficient
Warrant Units issuable upon exercise of the Warrants.
6.11 Limitation on Amendments of Operating Agreement, Charter
Documents and Material Agreements. No Obligor shall amend its operating
agreement, bylaws, certificate of incorporation or other charter document or
permit any other Obligor to do so in a manner adverse to the Purchasers in their
capacity as purchasers of the Notes. Neither
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the Parent, any Co-Borrower or any of the Parent's Subsidiaries will amend any
Material Agreement if the amendment is reasonably likely to have a Material
Adverse Effect.
6.12 Further Assurances. At the Majority Purchasers' reasonable
request, each Obligor shall, at its own expense, make, execute, endorse,
acknowledge, file and/or deliver to the Purchasers from time such other
documentation, consents, authorizations and approvals in form and substance
reasonably satisfactory to the Majority Purchasers as the Majority Purchasers
shall reasonably deem necessary or appropriate to consummate the transactions
contemplated in any of the Transaction Documents. In no way limiting the
foregoing, upon the exercise by the Majority Purchasers of any power, right,
privilege or remedy pursuant to any Transaction Document which requires any
consent, approval, registration, qualification or authorization of any
Governmental Authority, each Obligor shall execute and deliver all applications,
certifications, instrument and other documents and papers that the Majority
Purchasers may be so required to obtain.
6.13 Cash Management System. The Parent and its Subsidiaries will
not (a) alter the cash management system described on Schedule 6.13, or (b)
permit more than the Maximum Amount at any time to be held in bank accounts in
the aggregate as to which there are no control agreement or agreements providing
the Collateral Agent with "control" as such term is defined in Section 9-104 of
the Uniform Commercial Code of the State of New York. The Maximum Amount on any
date is the product of $150,000 times the number of Units on such date.
Notwithstanding the foregoing, the Obligors' concentration account (which shall
be maintained as an account of a Co-Borrower or Advanced Aesthetics, LLC) and
the Escrow Account shall at all times be subject to a control agreement
satisfactory to the Purchasers.
7. FINANCIAL COVENANTS OF THE CO-BORROWERS.
7.1 Minimum Consolidated EBITDA. The Co-Borrowers shall not, at
the end of any fiscal quarter, permit Consolidated EBITDA for the four fiscal
quarters ended on such date to be less than the amount set forth below for such
period:
Four Fiscal Quarters Ended Minimum Consolidated EBITDA
---------------------------------------------------- ---------------------------
June 30, 2006 $3,000,000
---------------------------------------------------- ---------------------------
September 30, 2006 $4,000,000
---------------------------------------------------- ---------------------------
December 31, 2006 $6,000,000
---------------------------------------------------- ---------------------------
March 31, 2007 and each fiscal quarter thereafter $6,500,000
---------------------------------------------------- ---------------------------
7.2 Consolidated Total Debt to Consolidated EBITDA. For each
fiscal quarter, commencing June 30, 2006, the Co-Borrowers shall not permit the
ratio of Consolidated Total Debt to Consolidated EBITDA as of the end of any
fiscal quarter set forth below to be greater than the ratio set forth below:
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Four Fiscal Quarters Ended Consolidated Total Debt to
Consolidated EBITDA Ratio
--------------------------------------------------------------------------------
June 30, 2006 4.00 to 1.00
--------------------------------------------------------------------------------
September 30, 2006 3.25 to 1.00
--------------------------------------------------------------------------------
December 31, 2006 2.25 to 1.00
--------------------------------------------------------------------------------
March 31, 2007 and each fiscal quarter thereafter 2.00 to 1.00
--------------------------------------------------------------------------------
7.3 Consolidated Senior Debt Ratio. The Co-Borrowers shall not
permit the Consolidated Senior Debt ratio as of the end of any fiscal quarter
set forth below to be greater than the ratio set forth below:
Fiscal Quarter Ended Minimum Consolidated
Senior Debt Ratio
--------------------------------------------------------------------------------
June 30, 2006 3.34 to 1.00
--------------------------------------------------------------------------------
September 30, 2006 2.50 to 1.00
--------------------------------------------------------------------------------
December 31, 2006 and each fiscal quarter thereafter 2.00 to 1.00
--------------------------------------------------------------------------------
7.4 Minimum Unit EBITDAR. The Co-Borrowers shall not, at the end
of any fiscal quarter, permit Unit EBITDAR for any fiscal quarter to be less
than the amount set forth below for such fiscal quarter:
Fiscal Quarter Ended Minimum Unit EBITDAR
--------------------------------------------------------------------------------
December 31, 2004 $800,000
--------------------------------------------------------------------------------
March 31, 2005 $900,000
--------------------------------------------------------------------------------
June 30, 2005 $1,100,000
--------------------------------------------------------------------------------
September 30, 2005 $1,300,000
--------------------------------------------------------------------------------
December 31, 2005 $1,500,000
--------------------------------------------------------------------------------
March 31, 2006 $1,900,000
--------------------------------------------------------------------------------
June 30, 2006 and each fiscal quarter thereafter $2,500,000
--------------------------------------------------------------------------------
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7.5 Minimum Unit Fixed Charge Coverage Ratio. The Co-Borrowers
shall not permit the Unit Fixed Charge Coverage Ratio for any fiscal quarter to
be less than the amount set forth below for such fiscal quarter:
Fiscal Quarter Ending Minimum Unit Fixed Charge Coverage Ratio
----------------------------------- --------------------------------------------
December 31, 2004 1.00 to 1.00
----------------------------------- --------------------------------------------
March 31, 2005 1.25 to 1.00
----------------------------------- --------------------------------------------
June 30, 2005 1.50 to 1.00
----------------------------------- --------------------------------------------
September 30, 2005 1.75 to 1.00
----------------------------------- --------------------------------------------
December 31, 2005 2.00 to 1.00
----------------------------------- --------------------------------------------
March 31, 2006 2.25 to 1.00
----------------------------------- --------------------------------------------
June 30, 2006 and each fiscal 2.50 to 1.00
quarter thereafter
----------------------------------- --------------------------------------------
8. PURCHASERS' CLOSING CONDITIONS.
The obligation of the Purchasers to purchase and pay for the Notes and
the Warrants on the Closing Date, as provided in Section 2 hereof, shall be
subject to the performance by the Obligors of their agreements theretofore to be
performed hereunder and to the satisfaction, prior thereto or concurrently
therewith, of the following further conditions:
8.1 Representations and Warranties. The representations and
warranties of the Obligors contained in the Transaction Documents shall be true
and correct in all respects on the date hereof and on and as of the Closing Date
as though such warranties and representations were made at and as of such date,
except as otherwise affected by the transactions contemplated hereby.
8.2 Compliance with Agreement, No Default or Event of Default. Te
Obligors shall each have performed and complied with all agreements, covenants
and conditions contained in each Transaction Document which are required to be
performed or complied with by it prior to or on the Closing Date. No Default or
Event of Default shall exist prior to or after giving effect to the transactions
contemplated on the Closing Date.
8.3 Officer's Certificate. Each of the Purchasers shall have
received a certificate, dated the Closing Date, signed by each of the President
and the Chief Financial Officer of the Parent and each Co-Borrower, certifying
that the conditions specified in the foregoing Sections 8.1 and 8.2 hereof have
been fulfilled.
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8.4 Injunction. There shall be no effective injunction, writ,
preliminary restraining order or any order of any nature issued by a court of
competent jurisdiction directing that the transactions provided for herein or
any of them not be consummated as herein provided.
8.5 Counsel's Opinion. The Purchasers shall have received from
the Obligors' counsel, Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP, dated the Closing
Date, substantially in the form of Exhibit F hereto.
8.6 Adverse Development. There shall have been no developments in
the business of any of the Obligors, including the Target Business, which in the
opinion of the Purchasers could have a Material Adverse Effect.
8.7 Approval of Proceedings. All proceedings to be taken in
connection with the transactions contemplated by this Agreement, and all
documents incident thereto, shall be satisfactory in form and substance to the
Purchasers and their special counsel, Xxxxxxx Xxxx & Xxxxxxxxx LLP; and the
Purchasers shall have received copies of all documents or other evidence which
they and Xxxxxxx Xxxx & Xxxxxxxxx LLP may request in connection with such
transactions and of all records of corporate proceedings in connection therewith
in form and substance satisfactory to the Purchasers and Xxxxxxx Xxxx &
Xxxxxxxxx LLP.
8.8 UCC File Watch Agreement. If requested by the Purchasers,
each Obligor shall have delivered to the Purchasers a copy of a UCC File
Watch/Continuation Tracker Services Agreement (the "UCC File Watch Agreement")
executed by each Obligor, the Collateral Agent and Access Information, Inc. or
other service company selected by the Purchasers.
8.9 Closing Date Commitment Fee. The Co-Borrowers shall have paid
to the Purchasers the Closing Date Commitment Fee.
8.10 Other Fees and Expenses. The Co-Borrowers shall have paid to
the Purchasers all other amounts payable by any Obligor hereunder, including the
payment of the fees and expenses of Xxxxxxx Xxxx & Xxxxxxxxx LLP, counsel to
TICC, and paid the amounts for costs and expenses relating to UCC and other
collateral searches and filings.
8.11 Security Interests. The Escrow Account shall have been
established. The Escrow Bank, the Co-Borrowers and the Collateral Agent shall
have executed and delivered the Escrow Account Control Agreement. All action
necessary or determined by the Purchasers to be desirable to create and perfect
the security interests purported to be created by the Security Agreement or the
Escrow Account Control Agreement shall have been taken or completed, including
the filing of Uniform Commercial Code financing statements, delivery of
instruments or securities and delivery of "control" agreements necessary to
establish control of deposit accounts and securities accounts as contemplated by
Articles 8 and 9 of the Uniform Commercial Code. Each Obligor shall have
executed and delivered to the Purchasers a duly executed counterpart of the
Security Agreement and shall have otherwise satisfied the Collateral and
Guarantee Requirements except as to the portion thereof subject to the
Collateral Exception.
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8.12 Insurance. The Purchasers shall have received evidence that
the insurance required to be maintained under this Agreement and Section 10 of
the Security Agreement is in full force and effect and that the Purchasers (or
their agent) has been named as loss payee or additional insured, as appropriate,
under the applicable insurance policies.
8.13 Amendment of Management Agreements. The Management
Agreements shall have been amended to provide that all management fees
thereunder shall accrue and not be paid in cash prior to the second anniversary
of the Closing Date, and the Purchasers shall received true and correct copies
thereof certified by an officer of the Parent.
8.14 Secretary's Certificate. Each of the Purchasers shall have
received a certificate, dated the Closing Date, signed by the Secretary or
Assistant Secretary, as the case may be, of the Parent, each Co-Borrower, and
each Guarantor certifying that (i) its certificate of incorporation or
certificate of formation, as the case may be, annexed thereto is in full force
and effect without any amendment, (ii) the by-laws or the limited liability
company agreement, as the case may be, annexed thereto are correct and complete
as in effect on the date thereof; and (iii) the resolutions annexed thereto
approving the transactions contemplated herein have been duly approved by the
Board of Directors or the members of such Person, as the case may be, and remain
in full force and effect.
8.15 L Capital Note. The Purchasers shall have received
confirmation from the Parent and the holder of the L Capital Note that the
Obligations constitute Senior Indebtedness under the Note and that the Note has
been amended to preclude any right to accelerate the maturity of or enforce the
payments under the L Capital Note prior to the final payment of the Obligations
without the consent of the Purchasers.
8.16 Shareholders Agreement; Registration Rights Agreement and
Warrant. The Parent shall have executed and delivered to the Purchaser the
Shareholders Agreement, the Warrant and the Registration Rights Agreement.
9. DEFAULT AND REMEDIES.
9.1 Events of Defaults. An "Event of Default" shall exist if one
or more of the following conditions or event shall occur and be continuing
(whether or not any of the following are within the control of the Parent, any
Co-Borrower or any Obligor):
(i) any Obligor shall fail to pay when due (whether at
stated maturity or at a date fixed for optional or mandatory prepayment or
otherwise) any payment of principal, interest, fee or any other amount on or
under any of the Notes or any other Transaction Document;
(ii) any representation or warranty made or deemed made
by or on behalf of the Parent, any Co-Borrower or any Subsidiary of the Parent
in or in connection with any Transaction Document or any amendment or
modification thereof or waiver thereunder, or in any report, certificate,
financial statement or other document furnished pursuant to or in
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connection with any Transaction Document or any amendment or modification
thereof or waiver thereunder, shall prove to have been false or misleading when
made or deemed made;
(iii) the Parent, any Co-Borrower or any Subsidiary of
the Parent shall fail to observe or perform any covenant, condition or agreement
contained in any of the Transaction Documents and, except in the case of any
covenant contained in Sections 5.15, 5.21, 6 or 7 hereof, such failure shall
continue unremedied for a period of 30 days;
(iv) the Parent, any Co-Borrower or any Subsidiary of
the Parent shall become unable, fail generally or admit in writing its inability
to pay its debts as they become due;
(v) the Parent, any Co-Borrower or any Subsidiary of the
Parent shall (a) voluntarily commence any proceeding or file any petition
seeking liquidation, reorganization or other relief under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or hereafter in
effect, (b) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or petition described in clause (vi) of this
Section, (c) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Parent, any
Co-Borrower or any Subsidiary of the Parent or for all or a substantial part of
its assets, (d) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (e) make a general assignment for the
benefit of creditors or (f) take any action for the purpose of effecting any of
the foregoing;
(vi) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (a) liquidation, reorganization or
other relief in respect of the Parent, any Co-Borrower or any Subsidiary of the
Parent or its debts, or of all or a substantial part of its assets, under any
Federal, state or foreign bankruptcy, insolvency, receivership or similar law
now or hereafter in effect or (b) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Parent, any
Co-Borrower or any Subsidiary of the Parent or for all or a substantial part of
its assets, and, in any such case, such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering any of the
foregoing shall be entered;
(vii) any event or condition shall occur that results in
any Indebtedness of the Parent, any Co-Borrower or any Subsidiary of the Parent
exceeding in the aggregate $500,000 becoming due prior to its scheduled maturity
or that enables or permits (with or without the giving of notice, the lapse of
time or both) the holder or holders of any such Indebtedness or any trustee or
agent on its or their behalf to cause any such Indebtedness to become due, or to
require the prepayment, repurchase, redemption or defeasance thereof, prior to
its scheduled maturity;
(viii) the Parent, any Co-Borrower or any Subsidiary of
the Parent shall fail to observe or perform any material covenant, condition or
agreement contained in any Material Agreement and such failure shall continue
unremedied for a period equal to the lesser of (a) 30 days and (b) any
applicable cure period set forth in such Material Agreement, if in any event
such failure could reasonably be expected to have a Material Adverse Effect;
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(ix) any Material Agreement shall be cancelled or
terminated, other than by the Parent, any Co-Borrower or any Subsidiary of the
Parent acting with the consent of the Parent, any Co-Borrower or any Subsidiary
of the Parent in the ordinary course of business, if such cancellation or
termination could reasonably be expected to have a Material Adverse Effect;
(x) any Liens created by the Security Agreement shall at
any time not constitute a valid and perfected Lien on the collateral intended to
be covered thereby (to the extent perfection by filing, registration,
recordation or possession is required herein or therein) in favor of the
Purchasers, free and clear of all other Liens (other than Liens permitted under
Section 6.1(b) or under the Security Agreement), or, except for expiration in
accordance with its terms, the Security Agreement shall for whatever reason be
terminated or cease to be in full force and effect, or the enforceability
thereof or any other Transaction Document shall be contested by the Parent, any
Co-Borrower or any Subsidiary of the Parent or any other obligor thereunder;
(xi) except for expiration or termination in accordance
with its terms, the Guaranty Agreement shall for whatever reason be terminated
or cease to be in full force and effect, or the enforceability thereof shall be
contested by any Guarantor;
(xii) one or more judgments for the payment of money in
an aggregate amount in excess of $500,000 shall be rendered against the Parent,
any Co-Borrower or any Subsidiary of the Parent, or any combination thereof and
the same shall remain undischarged for a period of 30 consecutive days during
which execution shall not be effectively stayed, or any action shall be legally
taken by a judgment creditor to attach or levy upon any assets of the Parent,
any Co-Borrower or any Subsidiary of the Parent to enforce any such judgment;
(xiii) a Change in Control shall have occurred;
(xiv) any Material Adverse Effect which, in the good
faith determination of the Purchasers, is reasonably likely to impair the
ability of the Co-Borrowers to repay the Notes on a timely basis shall have
occurred; or
(xv) the Parent shall fail to have received by December
31, 2004 the Additional Equity Contribution.
9.2 Remedies.
--------
(a) If any Event of Default described in clause (v) or (vi)
of Section 9.1 shall have occurred (taking into account all grace periods), the
principal on and under the Notes then outstanding, together with accrued
interest thereon and all fees and other obligations of the Co-Borrowers accrued
hereunder and under the other Transaction Documents, shall automatically become
due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Obligors, and the obligation of the
Purchasers to purchase Notes on any Closing Date shall automatically terminate.
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(b) If any other Event of Default described in Section 9.1
shall have occurred (which, for clarity, is after taking into account all grace
periods set forth in Section 9.1), and at any time thereafter during the
continuance of such Event of Default, the Majority Purchasers may, by notice to
the Co-Borrowers, declare the principal on and under the Notes then outstanding
to be due and payable in whole, and thereupon the principal on and under the
Notes so declared to be due and payable, together with accrued interest thereon
and all fees and other obligations of the Co-Borrowers accrued hereunder and
under the other Transaction Documents, shall become due and payable immediately,
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Co-Borrowers and the obligation of the Purchasers to
purchase Notes on any Closing Date shall automatically terminate.
(c) No course of dealing and no delay on the part of any
holder of any Note in exercising any right, power or remedy shall operate as a
waiver thereof or otherwise prejudice such holder's rights, powers or remedies.
No right, power or remedy conferred by this Agreement or by any other
Transaction Document upon any Purchaser shall be exclusive of any other right,
power or remedy referred to herein or therein or now or hereafter available at
law, in equity, by statute or otherwise.
(d) In the event of any Event of Default as a result of any
intentional act by any Obligor, the Co-Borrowers shall be obligated to pay, in
addition to any other amount due under this Section 9, the premium, if any,
payable pursuant to Section 2.5(a) on the date of acceleration of the maturity
of the Notes as if the Co-Borrowers were making an optional prepayment of the
Notes pursuant to Section 2.5(a).
10. INDEMNIFICATION.
10.1 Indemnification of the Purchasers. The Co-Borrowers jointly
and severally shall indemnify and hold harmless each Purchaser and its officers,
directors, stockholders, partners, members and trustees, employees, agents,
representatives and affiliates against any and all out-of-pocket losses,
damages, liabilities and expenses incurred in connection with any and all
breaches (except for gross negligence or willful misconduct committed by any
Purchaser or any of its representatives), actions, suits, proceedings including
investigations and claims of any kind arising out of or in connection with the
execution or delivery of, any advance made under, the indebtedness evidenced by,
or any amendment, waiver or consent (whether or not such amendment, waiver or
consent becomes effective) relating to all or any of the Transaction Documents
or the Guaranty Agreement, including (without limitation) all out-of-pocket
costs and expenses (including, without limitation, attorneys' fees) in
connection with: (i) any breach or Event of Default under or with respect to any
Transaction Document, (ii) enforcing, defending or declaring any rights or
remedies under the Transaction Documents; and (iii) responding to any subpoena
or other legal process or participating (whether voluntarily or involuntarily)
in any legal or other proceeding or investigation of any nature; and any
insolvency or bankruptcy of any Obligor or any affiliate thereof. Without
limiting the generality of the foregoing, the Co-Borrowers jointly and severally
shall, upon demand, pay or reimburse each indemnitee for all indemnified costs
and expenses (including attorneys' fees and expenses) incurred thereby. The
Co-Borrowers' obligations under this Section 10.1 shall survive the
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payment, transfer, conversion, cancellation, enforcement, amendment, waiver or
release of the Transaction Documents.
11. MISCELLANEOUS.
11.1 Assignments; Parties in Interest. Each of the Transaction
Documents shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors, administrators of the parties hereto and shall inure
to the benefit of and be enforceable by each person who shall be a holder of the
Notes from time to time. No Obligor may assign any of the Transaction Documents
or any of its rights, interests, or obligations thereunder. Each Purchaser may
assign any of its rights under any of the Transaction Documents; provided,
however, that the transferee (i) agrees to be bound by, and entitled to the
benefits of, such Transaction Document as an original party thereto and (ii) is
acquiring a Note or Notes in the aggregate principal amount of $1,000,000 and/or
a Warrant or Warrants exercisable for an aggregate of 50,000 Common Units or, in
each case, such lesser amount if such lesser amount constitutes all the Notes or
Warrants then owned by such Purchaser. Any such assignment by a Purchaser to any
of its Affiliates shall not be subject to any rights of first refusal or co-sale
rights.
11.2 Confidentiality.
---------------
(a) Each party shall use its best efforts to keep
confidential, in accordance with its customary procedures for handling
confidential information, any non-public information supplied to it by any other
party pursuant to the Transaction Documents; provided that nothing contained
herein shall limit the disclosure of any such information (i) to the extent
required by statute, rule or regulation or by any subpoena or court order or
similar legal process, (ii) to the extent any such information is already public
or disclosed through no fault of such party or its affiliates, directors,
officers, employees, successors, assigns, agents or advisors, (iii) to any of
its affiliates, directors, officers, employees, successors, assigns, agents or
advisors, (iv) with the consent of such other party, (v) by any party in
connection with the exercise of any remedies hereunder or under any other
Transaction Document or the Guaranty Agreement or any suit, action or proceeding
relating hereto or thereto or the enforcement of rights hereunder or thereunder,
(vi) by any party subject to an agreement containing provisions substantially
the same as those of this Section, to (x) any assignee of or participant in, or
any prospective assignee of or participant in, any of its rights or obligations
under this Agreement or (y) any actual or prospective counterparty (or its
advisors) to any swap or derivative transaction relating to any Obligor and its
obligations.
(b) Notwithstanding any other provision contained herein,
the Purchasers shall have the right to issue a press release or other public
statement, in form and substance as shall be determined by the Purchasers in
their sole discretion, with respect to the transactions contemplated by this
Agreement and the Transaction Documents, provided that any such press release or
other public statement shall be approved in form and content by the Parent prior
to any dissemination thereof which approval will not be unreasonably withheld or
delayed. The Purchasers shall also have the right to list each the Parent only
as a portfolio company of the Purchasers on the web site or sites owned and
maintained by the Purchasers and in any other marketing materials as the
Purchasers, in their sole discretion, shall determine.
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11.3 Counterparts. This Agreement may be executed in two (2) or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.4 Titles and Subtitles. The titles and subtitles used in the
Transaction Documents are used for convenience only and are not to be considered
in construing or interpreting the Transaction Documents.
11.5 Notices. Any notice, request, demand or other communication
required or permitted under the Transaction Documents shall be given in writing
and shall be deemed effectively given upon personal delivery to the party to be
notified, upon the date of transmittal of services via telecopy to the party to
whom notice is given, or on the third day after deposit in the United States
Post Office, by registered or certified mail, with postage and fees prepaid. All
communications to the Obligors shall be sent to the Parent at the address set
forth below and to a Purchaser at the address set forth on Schedule I attached
hereto or at such other address as the Company or such Purchaser may designate
by ten (10) days' advance written notice to the other parties hereto.
Advanced Aesthetics, Inc.
000 Xxxxx Xxxxxxx Xxxxx, X-000
Xxxx Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xx. Xxxxxx Xxxxxx
Telephone: 000-000-0000
Telecopy: 000-000-0000
with a copy to:
Xxxxxx X. Xxxxxxx Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP The
Chrysler Building 000 Xxxxxxxxx Xxxxxx Xxx Xxxx, Xxx Xxxx
00000 Telephone: 000-000-0000 Telecopy: 212-704-6160
Any notice to any Obligor shall be given solely to the Parent at the address
provided pursuant to this Section 11.5. Any notice given pursuant to the last
paragraph of Section 11.5(b) may be given orally by telephone and shall be
effective when given.
11.6 Expenses. The Co-Borrowers jointly and severally agree to
pay or reimburse the Purchasers, for: (a) all costs and expenses relating to UCC
and other collateral searches and filings, and all costs and expenses of the
Purchasers including the fees and disbursements of Xxxxxxx Xxxx & Xxxxxxxxx LLP,
joint special counsel for the Purchasers, incurred in connection with the
negotiation, preparation, execution and delivery of this
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Agreement and the other Transaction Documents and the other instruments and
agreements entered into pursuant hereto and thereto; (b) all costs and expenses
of the Purchasers including the fees and disbursements of joint special counsel
for the Purchasers, incurred in connection with the negotiation, preparation,
execution and delivery of any modification, supplement or waiver of this
Agreement and any other Transaction Documents (whether or not consummated); (c)
all expenses of the Purchasers including the fees and disbursements of joint
special counsel in connection with (i) any Default and any enforcement or
collection proceedings resulting therefrom, including, without limitation, all
manner of participation in or other involvement with (x) bankruptcy, insolvency,
receivership, foreclosure, winding up or liquidation proceedings, (y) judicial
or regulatory proceedings and (z) workout, restructuring or other negotiations
or proceedings (whether or not the workout, restructuring or transaction
contemplated thereby is consummated) and (ii) the enforcement of this Section
11.6; and (d) all transfer, stamp, documentary or other similar taxes,
assessments or charges levied by any governmental or revenue authority in
respect of this Agreement or any of the other Transaction Documents or any other
document referred to herein or therein and all costs, expenses, taxes,
assessments and other charges incurred in connection with any filing,
registration, recording or perfection of any security interest contemplated by
the Security Agreement or any other document referred to therein. Additionally,
the Co-Borrowers jointly and severally agree to pay or reimburse the Purchasers
for all costs, expenses and other charges in respect of any UCC searches
performed by a service firm, to be chosen by Purchasers in their sole
discretion, in connection with the transactions contemplated by this Agreement.
Payments under this Section shall be made promptly and in any case no later than
10 days after written demand therefor.
11.7 Amendments and Waivers. The terms of this Agreement may be
amended, modified or waived only upon the written consent of the Parent, the
Co-Borrowers and the Majority Purchasers; provided that no such amendment,
modification or waiver shall, in each case without the prior written consent of
each affected Purchaser, (i) reduce in any manner the amount of, or change the
currency for, any payment of principal or interest, (ii) extend the time for
payment or prepayment of any amount payable under this Agreement, (iii) reduce
the rate of interest on any amount payable under this Agreement or the method of
computation thereof, (iv) change the definition of "Majority Purchasers" in
Section 1 or (iv) amend any of Sections 2.7 or 11.7.
11.8 Purchaser Consent. Each Purchaser hereby consents to the
provisions of Schedule III attached hereto.
11.9 Entire Agreement; Severability. The Transaction Documents
contain the entire understanding of the parties with respect to the subject
matter hereof and thereof and supersede all prior agreements and understandings
among the parties with respect to such subject matter. If any provision of any
Transaction Document is invalid, illegal or unenforceable, the balance of the
Transaction Document shall remain in effect, and if any provision is
inapplicable to any person or circumstance, it shall nevertheless remain
applicable to all other persons and circumstances.
11.10 Survival. Any term or condition set forth in this Agreement
which by its terms or context survives any Closing Date will survive and be
enforceable on and after the
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Closing Date. In no way limiting the foregoing it is expressly acknowledged and
agreed by each Obligor this Agreement is also intended as a loan agreement
governing certain aspects of the Notes and, therefore, all of the covenants,
representations, warranties, obligations and conditions undertaken by any
Obligor hereunder shall survive for the benefit of each Purchaser for at least
as long as any Note remains outstanding and, without limiting the survival of
any other Sections hereunder pursuant to its terms, in the case of Sections 10,
11.1, 11.2, 11.5, 11.6, 11.7, 11.8, 11.12 and 11.13 as well as this Section
11.10, shall survive indefinitely.
11.11 Allocations. The Obligors and the Purchasers, having
adverse interests and as a result of arm's length bargaining, agree that (i)
neither the Purchasers nor any of their affiliates has rendered or has agreed to
render any services to any of the Obligors in connection with the issuance of
the Notes and Warrants; and (ii) the Warrants shall not be issued as
compensation. The Parent, the Co-Borrowers and the Purchasers agree that the
fair market value of the Purchasers' right hereunder to the issued Warrants will
be determined by them after the Closing Date and endeavor to do so by April 20,
2004. Any such agreement will be set forth in a written agreement among the
Purchasers, the Co-Borrowers and the Parent and such Persons agree to adhere to
such agreed value for tax purposes.
11.12 Governing Law; Consent to Jurisdiction; Waiver of Damages.
Each of the Transaction Documents shall be governed by and construed under the
law of the State of New York (other than those conflict of law rules that would
defer to the substantive laws of another jurisdiction). Without in any way
limiting the preceding choice of law, the parties elect to be governed by New
York law in accordance with, and are relying (at least in part) on Section
5-1401 of the General Obligations Law of the State of New York, as amended, or
any corresponding or succeeding provisions thereof. Each Obligor hereby agrees
that any suit for the enforcement of the Transaction Documents may be brought in
the Courts of the State of New York, the courts of the United States for the
Southern District of New York, appellate courts from any thereof and consents to
the non-exclusive jurisdiction of such courts. Each Obligor hereby waives any
objection that it may now or hereafter have to the venue of any such suit or any
such court or that such suit is brought in an inconvenient court. Without in any
way limiting the preceding consents to jurisdiction and venue, the parties agree
to submit to the jurisdiction of such New York courts in accordance with Section
5-1402 of the General Obligations Law of the State of New York, as amended, or
any corresponding or succeeding provisions thereof. Each party to this Agreement
irrevocably consents to service of process in the manner provided for notices in
Section 11.5. Nothing in this Agreement will affect the right of any party to
this Agreement to serve process in any other manner permitted by law. Each
Obligor hereby waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to in
this Section any special, exemplary, punitive or consequential damages.
11.13 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ITS
RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED
UPON THIS AGREEMENT OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT,
BREACH OF DUTY AND ALL OTHER CLAIMS. EACH PARTY HAS REVIEWED THIS WAIVER WITH
ITS COUNSEL.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned have hereunto set their
hands to this Note and Warrant Purchase Agreement as of the day and year first
above written.
ADVANCED AESTHETICS, INC.
By: /s/ Xxxxxx X. Xxxxxx
---------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Vice President
ANUSHKA PBG ACQUISITION SUB, LLC
By: /s/ Xxxxxx X. Xxxxxx
---------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Vice President
ANUSHKA BOCA ACQUISITION SUB, LLC
By: /s/ Xxxxxx X. Xxxxxx
---------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Vice President
WILD HARE ACQUISITION SUB, LLC
By: /s/ Xxxxxx X. Xxxxxx
---------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Vice President
XXXXXXXX CORPORATION
By: /s/ Xxxxxx X. Xxxxxx
---------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Vice President
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ADVANCED K, LLC
By: /s/ Xxxxxx X. Xxxxxx
---------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Vice President
TECHNOLOGY INVESTMENT CAPITAL CORP.
By: /s/ Xxxx X. Xxxxxxxxx
---------------------------------
Name: Xxxx X. Xxxxxxxxx
Title: Chief Operating Officer
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SCHEDULES AND EXHIBITS
----------------------
SCHEDULE
NUMBER SCHEDULE NAME
I Purchasers
II-A Indebtedness
II-B Liens
III Collateral Agent
1.1 GK Assets
3.2 Capitalization
3.10 Subsidiaries
3.12 Financial Statements and Earnings Forecast
3.12(d) Completeness of Financial Statements
3.13(o) Material Actions, Suits or Proceedings
3.15(a) Material Agreements
3.17(a) Compliance with Employment Laws
3.17(b) Employees representing Executive Management Employment
Agreements; Employee Compensation
3.20 Benefit Arrangements
3.21(b) Listed Intellectual Property
3.21(c) Licenses, Sublicenses and Royalties
3.21(e) Intellectual Property Disclosures, Misappropriations, Etc. 3.22
Proprietary Software 3.25 Description of Insurance; Description of any Material
Claims
Pending Under Insurance Policies
3.26 Transactions with Related Parties
3.31 Brokerage Commissions, Finders' Fees, Etc.
6.13 Cash Management System
EXHIBIT EXHIBIT NAME
A Note
B Security Agreement
C Warrant
D Registration Rights Agreement
E Organizational Documents
F Opinion of Counsel to the Obligors
G Quarterly Perfection Certificate Update
H Shareholders Agreement
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Exhibit A
-63-
Exhibit B
-00-
Xxxxxxx X
-00-
Xxxxxxx X
-66-
Exhibit E
-67-
Exhibit F
-68-
Exhibit G
-69-
Exhibit H
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SCHEDULE I
SCHEDULE OF PURCHASERS
Investor Name and Address Principal Amount of Notes Amount of Warrants
------------------------- ------------------------- ------------------
Technology Investment Capital Corp. $10,000,000
0 Xxxxx Xxxxx Xxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxxxx 00000
Attention:
with a copy to:
Xxxxxxx Xxxx & Xxxxxxxxx LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx
Total: $10,000,000
---------------------------------------------------------------------------------------------
SCHEDULE II
INDEBTEDNESS
SCHEDULE III
The Collateral Agent
Each of the Purchasers hereby irrevocably appoints Technology
Investment Capital Corp., a Delaware corporation, as its agent (the "Collateral
Agent") and authorizes the Collateral Agent to take such actions on its behalf
and to exercise such powers as are delegated to the Collateral Agent by the
terms hereof and of the other Transaction Documents, together with such actions
and powers as are reasonably incidental thereto.
The Person serving as the Collateral Agent hereunder shall have the
same rights and powers in its capacity as a Purchaser as any other Purchaser and
may exercise the same as though it were not the Collateral Agent, and such
Person and its Affiliates may accept deposits from, lend money to and generally
engage in any kind of business with the Parent or any of its Subsidiaries or
other Affiliate thereof or any Guarantor as if it were not the Collateral Agent
hereunder.
The Collateral Agent shall not have any duties or obligations except
those expressly set forth herein and in the other Transaction Documents. Without
limiting the generality of the foregoing, (a) the Collateral Agent shall not be
subject to any fiduciary or other implied duties, regardless of whether a
Default or Event of Default has occurred and is continuing, (b) the Collateral
Agent shall not have any duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly
contemplated hereby and by the other Transaction Documents that the Collateral
Agent is required to exercise in writing as directed by the Majority Purchasers
(or such other number or percentage of the Purchasers as shall be necessary
under the circumstances), and (c) except as expressly set forth herein, the
Collateral Agent shall not have any duty to disclose, and shall not be liable
for the failure to disclose, any information relating to the Parent, any of its
Subsidiaries or any of the Guarantors that is communicated to or obtained by the
Person serving as Collateral Agent or any of its Affiliates in any capacity. The
Collateral Agent shall not be liable for any action taken or not taken by it
with the consent or at the request of the Majority Purchasers (or such other
number or percentage of the Purchasers as shall be necessary under the
circumstances) or in the absence of its own gross negligence or willful
misconduct. The Collateral Agent shall be deemed not to have knowledge of any
Default or Event of Default unless and until written notice thereof is given to
the Collateral Agent by the Parent or a Purchaser, and the Collateral Agent
shall not be responsible for or have any duty to ascertain or inquire into (i)
any statement, warranty or representation made in or in connection with this
Agreement or the other Transaction Documents, (ii) the contents of any
certificate, report or other document delivered hereunder or in connection
herewith or therewith, (iii) the performance or observance of any of the
covenants, agreements or other terms or conditions set forth herein or therein,
(iv) the validity, enforceability, effectiveness or genuineness of the Purchase
Agreement or any other Transaction Document or any other agreement, instrument
or document or (v) the satisfaction of any condition set forth in Section 8 or
elsewhere herein or therein, other than to confirm receipt of items expressly
required to be delivered to the Collateral Agent.
The Collateral Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other
writing believed by it to be genuine and to have been signed or sent by the
proper Person. The Collateral Agent also may rely upon any statement made to it
orally or by telephone and believed by it to be made by the proper Person, and
shall not incur any liability for relying thereon. The Collateral Agent may
consult with legal counsel (who may be counsel for the Parent or any Guarantor),
independent accountants and other experts selected by it, and shall not be
liable for any action taken or not taken by it in accordance with the advice of
any such counsel, accountants or experts.
The Collateral Agent may perform any and all its duties and exercise
its rights and powers by or through any one or more sub-agents appointed by the
Collateral Agent and shall not be responsible for the negligence or misconduct
of any such sub-agents selected by it in good faith.
Subject to the appointment and acceptance of a successor Collateral
Agent as provided in this paragraph, the Collateral Agent may resign at any time
by notifying the Purchasers and the Parent. Upon any such resignation, the
Majority Purchasers shall have the right to appoint a successor. If no successor
shall have been so appointed by the Majority Purchasers and shall have accepted
such appointment within 30 days after the retiring Collateral Agent gives notice
of its resignation, then the retiring Collateral Agent may, on behalf of the
Purchasers, appoint a successor Collateral Agent which shall be a Person with an
office in New York, New York. Upon the acceptance of its appointment as
Collateral Agent hereunder by a successor, such successor shall succeed to and
become vested with all the rights, powers, privileges and duties of the retiring
Collateral Agent, and the retiring Collateral Agent shall be discharged from its
duties and obligations hereunder. After the Collateral Agent's resignation
hereunder, the provisions of this Schedule shall continue in effect for the
benefit of such retiring Collateral Agent in respect of any actions taken or
omitted to be taken by any of them while it was acting as Collateral Agent.
Each Purchaser acknowledges that it has, independently and without
reliance upon the Collateral Agent or any other Purchaser and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Purchaser also
acknowledges that it will, independently and without reliance upon the
Collateral Agent or any other Purchaser and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any related agreement or any document furnished hereunder or thereunder.
If the Collateral Agent receives conflicting instructions from
Purchasers under circumstances under which each Purchaser is entitled to give
instructions to the Collateral Agent, the Collateral Agent may, but shall not be
required, to take action directed by any Purchaser providing such instructions;
provided, however, notwithstanding the foregoing, in the event that any such
Purchaser does so instruct the Collateral Agent to exercise remedies under this
Agreement, the Purchasers and the Collateral Agent hereby agree to work together
and cooperate in good faith to maximize the value to be obtained in connection
therewith for all Purchasers in connection with such actions (it being
understood that this proviso is meant solely for the benefit of the Purchasers
and not the Parent or any Guarantor).
To the extent not indemnified by any Obligor (or any Obligor fails to
pay any amount payable by it pursuant to such indemnity), the Purchasers hereby
severally in proportion to the outstanding principal amount of the Notes owned
by them indemnify the Collateral Agent and agree to hold it harmless against all
fees, expenses and liabilities (including reasonable attorneys fees and
expenses) incurred or payable by the Collateral Agent in such capacity arising
under or in connection with the Transaction Documents other than those
determined by a final unappealable decision of a court of competent jurisdiction
to have resulted from the gross negligence or willful misconduct of the
Collateral Agent.
