CONVERTIBLE LOAN AGREEMENT
DATED JUNE 12, 1998
BY AND AMONG
SIMTEK CORPORATION
AS BORROWER
AND
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
AND
RENAISSANCE US GROWTH & INCOME TRUST, PLC
AS LENDERS
AND
RENAISSANCE CAPITAL GROUP, INC.
AS AGENT FOR THE LENDERS
TABLE OF CONTENTS
Page
----
ARTICLE I - DEFINITION OF TERMS................................................................................ 1
Section 1.01. Definitions............................................................................. 1
Section 1.02. Other Definition Provisions............................................................. 7
ARTICLE II - LOAN PROVISIONS................................................................................... 7
Section 2.01. The Loan................................................................................ 7
Section 2.02. Obligations of Lenders.................................................................. 8
Section 2.03. Interest Rate and Interest Payments..................................................... 8
Section 2.04. Maturity................................................................................ 8
Section 2.05. Mandatory Principal Repayment........................................................... 8
Section 2.06. Redemption.............................................................................. 9
Section 2.07. Fees and Expenses....................................................................... 9
Section 2.08. Finder's Fees........................................................................... 9
Section 2.09. Taxes................................................................................... 9
Section 2.10. Conversion Rights....................................................................... 10
Section 2.11. Collateral, Security Agreements......................................................... 10
ARTICLE III - CONDITIONS PRECEDENT............................................................................. 10
Section 3.01. Document Requirements................................................................... 10
Section 3.02. Other Conditions........................................................................ 12
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BORROWER........................................................ 12
Section 4.01. Organization and Good Standing.......................................................... 12
Section 4.02. Authorization and Power................................................................. 12
Section 4.03. No Conflicts or Consents................................................................ 12
Section 4.04. Enforceable Obligations................................................................. 13
Section 4.05. No Liens................................................................................ 13
Section 4.06. Financial Condition..................................................................... 13
Section 4.07. No Default.............................................................................. 13
Section 4.08. Material Agreements..................................................................... 13
Section 4.09. No Litigation........................................................................... 14
Section 4.10. Taxes................................................................................... 14
Section 4.11. Capitalization.......................................................................... 14
Section 4.12. Use of Proceeds......................................................................... 15
Section 4.13. Employee Matters........................................................................ 15
Section 4.14. Employee Benefit Plans.................................................................. 16
Section 4.15. Compliance with Laws.................................................................... 16
Section 4.16. Licenses and Permits.................................................................... 16
Section 4.17. Contracts............................................................................... 17
Section 4.18. Shares Issuable Upon Conversion......................................................... 17
Section 4.19. Insider................................................................................. 17
Section 4.20. Subsidiaries............................................................................ 17
Section 4.21. Casualties.............................................................................. 18
Section 4.22. Investment Company Act.................................................................. 18
Section 4.23. Sufficiency of Capital.................................................................. 18
Section 4.24. Corporate Names......................................................................... 18
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Section 4.25. Insurance............................................................................... 18
Section 4.26. Intellectual Property................................................................... 18
Section 4.27. Real Property........................................................................... 19
Section 4.28. Environmental........................................................................... 19
Section 4.29. Survival of Representations and Warranties.............................................. 21
Section 4.30. Full Disclosure......................................................................... 21
ARTICLE V - AFFIRMATIVE COVENANTS OF BORROWER.................................................................. 21
Section 5.01. Financial Statements, Reports and Documents............................................. 21
Section 5.02. Preparation of Budgets.................................................................. 22
Section 5.03. Payment of Taxes and Other Indebtedness................................................. 23
Section 5.04. Maintenance of Existence and Rights; Conduct of Business................................ 23
Section 5.05. SEC Filings............................................................................. 23
Section 5.06. Notice.................................................................................. 23
Section 5.07. Compliance with Loan Documents.......................................................... 24
Section 5.08. Compliance with Material Agreements..................................................... 24
Section 5.09. Operations and Properties............................................................... 24
Section 5.10. Books and Records; Access............................................................... 24
Section 5.11. Compliance with Law..................................................................... 24
Section 5.12. Insurance............................................................................... 24
Section 5.13. Authorizations and Approvals............................................................ 25
Section 5.14. ERISA Compliance........................................................................ 25
Section 5.15. Further Assurances...................................................................... 25
Section 5.16. Indemnity by Borrower................................................................... 25
Section 5.17. Reservation of Shares................................................................... 26
Section 5.18. Incentive Compensation Plan and Senior Management....................................... 26
Section 5.19. Retention of Stock Ownership............................................................ 27
ARTICLE VI - NEGATIVE COVENANTS OF BORROWER.................................................................... 27
Section 6.01. Limitation on Indebtedness.............................................................. 27
Section 6.02. Limitation on Liens..................................................................... 27
Section 6.03. Limitation on Investments............................................................... 27
Section 6.04. Alteration of Material Agreements....................................................... 28
Section 6.05. Transactions with Affiliates............................................................ 28
Section 6.06. Limitations on Acquisition of Nonrelated Business....................................... 28
Section 6.07. Limitation on Sale of Properties........................................................ 28
Section 6.08. Fiscal Year and Accounting Method....................................................... 28
Section 6.09. Liquidation............................................................................. 29
Section 6.10. Material Amendments to Articles of Incorporation or Bylaws.............................. 29
Section 6.11. Executive Compensation.................................................................. 29
Section 6.12. Restricted Payments..................................................................... 29
Section 6.13. Consolidation or Merger................................................................. 29
ARTICLE VII - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS.................................................. 30
Section 7.01. Financial Ratios........................................................................ 30
ARTICLE VIII - EVENTS OF DEFAULT............................................................................... 30
Section 8.01. Events of Default....................................................................... 30
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Section 8.02. Remedies Upon Event of Default.......................................................... 31
Section 8.03. Performance by the Lenders.............................................................. 32
Section 8.04. Payment of Expenses Incurred by the Lenders............................................. 32
ARTICLE IX - REGISTRATION RIGHTS............................................................................... 32
Section 9.01. "Piggy-Back" Registration.............................................................. 32
Section 9.02. Shelf Registration..................................................................... 34
Section 9.03. Obligations of Borrower................................................................ 34
Section 9.04. Furnish Information.................................................................... 35
Section 9.05. Expenses of Registration............................................................... 36
Section 9.06. Indemnification Regarding Registration Rights.......................................... 36
Section 9.07. Reports Under the 1934 Act............................................................. 38
Section 9.08. Assignment of Registration Rights...................................................... 39
Section 9.09. Other Matters.......................................................................... 39
ARTICLE X - BOARD OF DIRECTORS................................................................................. 40
Section 10.01. Board of Directors Representation or Attendance by Observer............................ 40
Section 10.02. Limitation of Authority of Persons Designated as a Director Nominee.................... 40
Section 10.03. Nonliability of the Lenders............................................................ 40
ARTICLE XI - AGENCY AND INTER-LENDER PROVISIONS................................................................ 41
Section 11.01. The Lenders' Representations and Warranties to Other Lenders........................... 41
Section 11.02. Waiver of Loan Provisions or Interest or Principal Payments............................ 41
Section 11.03. Agency................................................................................. 41
ARTICLE XII - MISCELLANEOUS.................................................................................... 43
Section 12.01. Strict Compliance...................................................................... 43
Section 12.02. Waivers and Modifications.............................................................. 43
Section 12.03. Limitation on Liability................................................................ 43
Section 12.04. Choice of Forum; Consent to Service of Process and Jurisdiction........................ 43
Section 12.05. Arbitration............................................................................ 44
Section 12.06. Invalid Provisions..................................................................... 46
Section 12.07. Maximum Interest Rate.................................................................. 46
Section 12.08. Participations and Assignments of the Debentures....................................... 47
Section 12.09. Confidentiality........................................................................ 47
Section 12.10. Binding Effect......................................................................... 48
Section 12.11. No Third Party Beneficiary............................................................. 48
Section 12.12. Entirety............................................................................... 48
Section 12.13. Headings............................................................................... 48
Section 12.14. Survival............................................................................... 48
Section 12.15. Multiple Counterparts.................................................................. 48
Section 12.16. Knowledge of Borrower.................................................................. 49
Section 12.17. Notices................................................................................ 49
Section 12.18. Governing Law.......................................................................... 51
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AGREEMENT
THIS AGREEMENT, dated as of June 12, 1998, by and among Simtek
Corporation, a Colorado corporation, as borrower ("Borrower"), Renaissance
Capital Growth & Income Fund III, Inc., a Texas corporation, and Renaissance US
Growth & Income Trust, PLC, a public limited company registered in England and
Wales, (individually referred to as Renaissance III and Renaissance PLC,
respectively, and together with any permitted assignees or successors in
interest individually referred to as each or any "Lender" and collectively
referred to as the "Lenders"), and Renaissance Capital Group, Inc., a Texas
corporation, as agent for the Lenders (the "Agent"). All references herein to
Borrower shall include the Subsidiaries, unless the context otherwise requires.
WITNESSETH:
WHEREAS, Borrower seeks to obtain One Million Five Hundred Thousand
Dollars ($1,500,000) from the Lenders through the issuance of Debentures to be
used by the Borrower for acquisitions, working capital and general corporate
purposes in accordance with Section 2.02 hereof; and
WHEREAS, Borrower has requested that the Lenders provide such loan as
herein provided, and that the Lenders are willing to furnish such to Borrower
upon the terms and subject to the conditions and for the considerations
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises herein
contained and for other valuable consideration, receipt and sufficiency of which
is acknowledged, the parties hereto agree as follows:
ARTICLE I - DEFINITION OF TERMS
-------------------------------
Section 1.01. Definitions.
-------------------------
For the purposes of this Agreement, the following terms shall have the
respective meanings assigned to them in this Article I or in the section or
recital referred to below:
"Acquisition Indebtedness" shall mean Indebtedness or
mandatorily redeemable preferred stock of Borrower or a Subsidiary incurred in
connection with, or to provide all or any portion of the funds or credit support
utilized to consummate, the transaction or series of related transactions
pursuant to which such Subsidiary became a Subsidiary or was acquired by
Borrower.
"Affiliate" with respect to any Person shall mean a person
that directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, such Person.
"Capital Expenditure" shall mean an expenditure for assets
that is properly classifiable as a capital expenditure in accordance with GAAP.
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"Capital Lease" shall mean any lease of property, real or
personal, which would be properly classifiable as a capital lease in accordance
with GAAP.
"Common Stock" shall mean Borrower's common stock, $.01 par
value.
"Conversion " or "Conversion Rights" shall mean exchange of,
or the rights to exchange, the Principal Amount of the Loan, or any part
thereof, for fully paid and nonassessable Common Stock on the terms and
conditions provided in the Debenture.
"Current Liabilities" shall mean all liabilities classified in
accordance with GAAP as current liabilities.
"Current Ratio" shall mean, for any Person as of any date, the
ratio of such Person's Consolidated Current Assets to Consolidated Current
Liabilities as of such date.
"Debentures" shall mean the Debentures executed by Borrower
and delivered pursuant to the terms of this Agreement, together with any
renewals, extensions or modifications thereof.
"Debtor Laws" shall mean all applicable liquidation,
conservatorship, bankruptcy, moratorium, arrangement, receivership, insolvency,
reorganization or similar laws from time to time in effect affecting the rights
of creditors or debtors generally.
"Default" or "Event of Default" shall mean any of the events
specified in Article VIII.
"Dividends," in respect of any corporation, shall mean (i)
cash distributions or any other distributions on, or in respect of, any class of
capital stock of such corporation, except for distributions made solely in
shares of stock of the same class, and (ii) any and all funds, cash and other
payments made in respect of the redemption, repurchase or acquisition of such
stock, unless such stock shall be redeemed or acquired through the exchange of
such stock with stock of the same class.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, together with all rules and regulations issued pursuant
thereto.
"Fixed Charge Coverage Ratio" shall mean for Borrower for the
immediately preceding twelve (12)-month period ended on such date, the ratio of
(a) consolidated trailing twelve months free cash flow, to (b) Borrower's total
scheduled payments of principal on Indebtedness for the same 12 (twelve)-month
period, excluding Indebtedness under Borrower's revolving credit loans and
mandatory redemption payments as set forth herein.
"GAAP" shall mean United States generally accepted accounting
principles applied on a consistent basis, set forth in the Opinions of the
Accounting Principles Board of the American Institute of Certified Public
Accountants or the Financial Accounting Standards Board or their successors,
which are applicable in the circumstances as of the date in question. The
requirement that such principles be applied on a consistent basis shall mean
2
that the accounting principles observed in a current period are comparable in
all material respects to those applied in a preceding period.
"Governmental Authority" shall mean any government (or any
political subdivision or jurisdiction thereof), court, bureau, agency or other
governmental authority having jurisdiction over Borrower or a Subsidiary or any
of its or their businesses, operations or properties.
"Guaranty" of any Person shall mean any contract, agreement or
understanding of such Person pursuant to which such Person in effect guarantees
the payment of any Indebtedness of any other Person (the "Primary Obligor") in
any manner, whether directly or indirectly, including, without limitation,
agreements: (i) to purchase such Indebtedness or any property constituting
security therefor; (ii) to advance or supply funds primarily for the purpose of
assuring the holder of such Indebtedness of the ability of the Primary Obligor
to make payment; or (iii) otherwise to assure the holder of the Indebtedness of
the Primary Obligor against loss in respect thereof, except that "Guaranty"
shall not include the endorsement by Borrower or a Subsidiary in the ordinary
course of business of negotiable instruments or documents for deposit or
collection.
"Holder" shall mean the owner of Registrable Securities.
"Indebtedness" shall mean, with respect to any Person, without
duplication, the following indebtedness, obligations and liabilities of such
Person: (i) indebtedness for borrowed money; (ii) all obligations of such Person
in respect of any Guaranty; (iii) all obligations of such Person in respect of
any Capital Lease, (iv) all obligations, indebtedness and liabilities secured by
any lien or any security interest on any property or assets of such Person, but
only to the extent so secured; and (v) all preferred stock of such Person which
is subject, at the time of calculation of Indebtedness, to a mandatory
redemption requirement, valued at the greater of its involuntary redemption
price or liquidation preference plus accrued and unpaid dividends, and all
extensions, renewals, modifications and amendments thereto.
"Investment" in any Person shall mean any investment, whether
by means of share purchase, loan, advance, capital contribution or otherwise, in
or to such Person, the Guaranty of any Indebtedness of such Person, or the
subordination of any claim against such Person to other Indebtedness of such
Person; provided however, that "Investment" shall not include (i) any demand
deposits in a duly chartered state or national bank or other cash equivalent
investments (ii) any loans permitted by Section 6.12, or (iii) any acquisitions
of equity in any other Person.
"IRS Code" shall mean the Internal Revenue Code of 1986, as
amended, together with all rules and regulations issued thereunder.
"Lien" shall mean any lien, mortgage, security interest, tax
lien, pledge, encumbrance, conditional sale or title retention arrangement, or
any other interest in property designed to secure the repayment of Indebtedness,
whether arising by agreement or under any statute or law, or otherwise.
"Loan" shall mean the money lent to Borrower pursuant to this
Agreement, along with any accrued, unpaid interest thereon.
3
"Loan Closing" or "Loan Closing Date" shall mean the
disbursement of Loan funds.
"Loan Documents" shall mean this Agreement, the Debentures and
any other agreements or documents required to be executed or delivered by
Borrower pursuant to the terms of this Agreement (and any amendments or
supplements hereto or modifications hereof).
"Lock-Up Agreement" shall mean the "lock-up" agreements to be
executed by the executive officers, directors and principal shareholders of
Borrower pursuant to Section 5.19 of this Agreement.
"Material Adverse Effect" or "Material Adverse Change" shall
mean (i) any change, factor or event that shall (a) have a material adverse
effect upon the validity or enforceability of any Loan Documents, (b) have a
material adverse effect upon the financial condition, results of operations,
business, properties, operations or assets of Borrower or its Subsidiaries taken
as a whole or (c) have a material adverse effect upon the ability of Borrower to
fulfill its obligations under the Loan Documents, or (ii) any event that causes
an Event of Default or which, with notice or lapse of time or both, could become
an Event of Default.
"Obligation" shall mean: (i) all present and future
Indebtedness, obligations and liabilities of Borrower to the Lenders arising
pursuant to this Agreement, regardless of whether such Indebtedness, obligations
and liabilities are direct, indirect, fixed, contingent, joint, several, or
joint and several; (ii) all present and future Indebtedness, obligations and
liabilities of Borrower to the Lenders arising pursuant to or represented by the
Debentures and all interest accruing thereon, and reasonable attorneys' fees
incurred in the enforcement or collection thereof; (iii) all present and future
indebtedness, obligations and liabilities of Borrower and any Subsidiary
evidenced by or arising pursuant to any of the Loan Documents; (iv) all costs
incurred by the Lenders or Agent, including, but not limited to, reasonable
attorneys' fees and legal expenses related to this transaction and (v) all
renewals, extensions and modifications of the indebtedness referred to in the
foregoing clauses, or any part thereof.
"Permits" shall have the meaning set forth in Section 4.16.
"Permitted Indebtedness" shall mean Indebtedness outstanding
as of the date hereof or incurred in compliance with Section 6.01 and the other
terms of this Agreement that constitutes (i) Senior Obligations, (ii)
obligations under Capital Leases, (iii) letters of credit, (iv) Current
Liabilities, (v) debt associated with Permitted Liens, (vi) any other
Subordinated Debt, (vii) Acquisition Indebtedness, (viii) purchase money
Indebtedness, (ix) Indebtedness of foreign Subsidiaries, (x) intercompany
Indebtedness, (xi) Indebtedness under this Agreement or the Debentures, and
(xii) any refunding, refinancing or extension of any of the above.
"Permitted Liens" shall mean: (i) Liens (if any) granted for
the benefit of the Lenders; (ii) Liens to secure the Permitted Indebtedness;
(iii) pledges or deposits made to secure payment of worker's compensation
insurance (or to participate in any fund in connection with worker's
compensation insurance), unemployment insurance, pensions or social security
programs; (iv) Liens imposed by mandatory provisions of law such as for
carriers', landlord's, materialmen's, mechanics', warehousemen's, vendors' and
other like Liens arising in the ordinary course of business, securing
Indebtedness whose payment is made within thirty (30) days of the date such Lien
arises, or that are being contested in good faith by appropriate proceedings as
to which adequate
4
reserves have been established to the extent required by GAAP; (v) Liens for
taxes, assessments and governmental charges or levies imposed upon a Person or
upon such Person's income or profits or property, if the same are not yet due
and payable or if the same are being contested in good faith and as to which
adequate cash reserves have been provided or if an extension is obtained with
respect thereto; (vi) Liens arising from good faith deposits in connection with
tenders, leases, bids or contracts (other than contracts involving the borrowing
of money), pledges or deposits to secure public or statutory obligations and
deposits to secure (or in lieu of) surety, stay, appeal or customs bonds and
deposits to secure the payment of taxes, assessments, customs duties or other
similar charges; (vii) encumbrances consisting of zoning restrictions,
easements, reservations, licenses, covenants and other minor irregularities of
title or other restrictions on the use of real property (whether owned or
leased), provided that such items do not materially impair the intended use of
such property, and none of which is violated by Borrower's existing structures
or land use; (viii) mortgages, financing statements, equipment leases or other
encumbrances incurred in connection with the acquisition of property or
equipment or the replacement of existing property or equipment, provided that
such liens shall be limited to the property or equipment then being acquired;
(ix) Liens which secure Senior Obligations; and (x) Liens listed in Schedule
4.05.
"Person" shall include an individual, a corporation, a joint
venture, a general or limited partnership, a trust, an unincorporated
organization or a government or any agency or political subdivision thereof.
"Plan" shall mean an employee benefit plan or other plan
maintained by Borrower for employees of Borrower and/or any Subsidiaries and
covered by Title IV of ERISA, or subject to the minimum funding standards under
Section 412 of the IRS Code.
"Principal Amount" shall mean, as of any time, the then
aggregate outstanding face amount of the Debentures after any conversions or
redemptions and after giving effect to any installment payments received by the
Lenders.
"Registrable Securities" shall mean (i) the Common Stock
issuable upon Conversion of the Debentures, and (ii) any Common Stock issued
upon exercise of any warrant, right or other security that is issued with
respect to the Common Stock by way of (a) stock dividend; (b) any other
distribution with respect to, or in exchange for, or in replacement of Common
Stock; (c) stock split; and (d) in connection with a combination of shares,
recapitalization, merger, or consolidation excluding in all cases, however, any
Common Stock that is not a Restricted Security and any Registrable Securities
sold or transferred by a Person in a transaction in which the rights under this
Agreement are not assigned.
"Registrable Securities Then Outstanding" shall mean an amount
equal to the number of Registrable Securities outstanding which have been issued
pursuant to the Conversion of the Debentures.
"Renaissance III" shall mean Renaissance Capital Growth &
Income Fund III, Inc., a Texas corporation.
5
"Renaissance PLC" shall mean Renaissance US Growth & Income
Trust PLC, a public limited company registered in England and Wales.
"Renaissance Group" shall mean Renaissance Capital Group,
Inc., a Texas corporation.
"Restricted Security" shall mean a security that has not been
(i) registered under the 1933 Act or (ii) distributed to the public pursuant to
Rule 144 (or any similar provisions that are in force) under the 0000 Xxx.
"SEC" shall mean the Securities and Exchange Commission, or
any other federal agency at the time administering the 1933 Act and the 1934
Act.
"1933 Act" shall refer to the Securities Act of 1933, as
amended, or any similar federal statute and rules and regulations promulgated
thereunder, all as the same may be in effect from time to time.
"1934 Act" shall refer to the Securities Exchange Act of 1934,
as amended, or any similar federal statute and rules and regulations promulgated
thereunder, all as the same may be in effect from time to time.
"1940 Act" shall refer to the Investment Company Act of 1940,
as amended, or any similar federal statute and rules and regulations promulgated
thereunder, all as the same may be in effect from time to time.
"Senior Documents" means all loan documents evidencing the
Senior Obligations, as each may now or hereafter be amended, modified,
supplemented, renewed or extended from time to time.
"Senior Obligations" means one or more senior debt facilities
(including loans and other extensions of credit under the Senior Documents) or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, capital expenditure loans, receivables
financings (including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, as now existing or hereafter incurred, and in
each case, as amended, restated, modified, renewed or extended from time to
time.
"Solvent" shall mean, with respect to any Person on a
particular date, that on such date: (i) the fair value of the assets of such
Person is greater than the total amount of liabilities of such Person; (ii) the
estimated present fair salable value, in the ordinary course of business, of the
assets of such Person is not less than the amount that will be required to pay
the probable liability of such Person on its debts as they become absolute and
matured; (iii) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business; (iv) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature; and (v) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person's assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
6
"Subordinated Debt" shall mean any indebtedness of Borrower or
any Subsidiaries, now existing or hereafter incurred, which indebtedness is, by
its terms, junior in right of repayment to the payment of the Debentures.
"Subsidiary" or "Subsidiaries" shall mean any or all
corporations or entities whether now existing or hereafter acquired of which
over fifty percent (50%) the Voting Shares or equity interests are owned,
directly or indirectly, by Borrower.
"Total Capitalization" shall mean for any Person, total
Indebtedness plus shareholders' equity as defined in accordance with GAAP.
"Voting Shares" of any corporation shall mean shares of any
class or classes (however designated) having ordinary voting power for the
election of at least a majority of the members of the board of directors (or
other governing bodies) of such corporation, other than shares having such power
only by reason of the happening of a contingency.
Section 1.02. Other Definition Provisions.
-----------------------------------------
(a) All terms defined in this Agreement shall have the above-defined
meanings when used in the Debentures or any other Loan Documents, certificate,
report or other document made or delivered pursuant to this Agreement, unless
the context therein shall otherwise require.
(b) Defined terms used herein in the singular shall import the plural
and vice versa.
(c) The words "hereof," "herein," "hereunder" and similar terms when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement.
(d) References to financial statements and reports shall be deemed to
be a reference to such statements and reports prepared in accordance with GAAP.
(e) Accounting terms not specifically defined above in this Agreement
shall be construed in accordance with GAAP.
ARTICLE II - LOAN PROVISIONS
----------------------------
Section 2.01. The Loan.
----------------------
(a) Subject to the terms and conditions of this Agreement, and the
compliance with such terms and conditions by all parties, at the Loan Closing
each Lender agrees to lend to Borrower, and Borrower agrees to borrow from the
Lenders, the aggregate sum of One Million Five Hundred Thousand Dollars
($1,500,000) as follows:
7
Renaissance Capital Growth & Income III, Inc. $750,000
Renaissance US Growth & Income Trust, PLC $750,000
(b) The Loan shall be evidenced by the Debentures. The Debentures shall
rank pari passu with all Indebtedness of Borrower, other than the Senior
Obligations and the Subordinated Debt.
(c) The proceeds of the Loan shall be used by the Borrower for
acquisitions, corporate and working capital purposes.
(d) Unless otherwise mutually agreed, the Loan Closing shall be at the
offices of Renaissance Capital Group, Inc., 0000 Xxxxx Xxxxxxx Xxxxxxxxxx, Xxxxx
000, Xxxxxx, Xxxxx.
Section 2.02. Obligations of Lenders.
------------------------------------
If, within ten (10) days of the date of this Agreement, (i) Borrower
has failed to comply with the conditions precedent to the First Disbursement as
specified herein (unless compliance with such conditions in whole or in part has
been waived or modified by the Lenders in their sole discretion) or (ii) the
First Disbursement has not occurred (unless the date of such First Disbursement
has been mutually extended), other than as a result of any failure of Lenders to
comply with the terms of this Agreement, then, in either such case, the
obligations of the Lenders under this Agreement shall terminate; provided,
however, that Borrower shall be obligated for payment of the fees and expenses
provided in Section 2.07 due and payable as of such date of termination.
Section 2.03. Interest Rate and Interest Payments.
-------------------------------------------------
Interest on the Principal Amount outstanding from time to time shall
accrue at the rate of nine percent (9.00%) per annum, with the first installment
of accrued, unpaid interest being due and payable on July 1, 1998 and subsequent
payments of accrued, unpaid interest being due and payable on the first (1st)
day of each month thereafter. Overdue principal and interest on the Debentures
shall bear interest at the maximum rate permitted by applicable law. Interest on
the Principal Amount of each Debenture shall be calculated, from time to time,
on the basis of the actual days elapsed in a year consisting of three hundred
sixty-five (365) days.
Section 2.04. Maturity.
----------------------
If not sooner redeemed or converted, the Debentures shall mature on
June 12, 2005, at which time all the remaining unpaid principal, interest and
any other charges then due under this Agreement shall be due and payable in
full. The Debentures shall be prepaid pro rata with any prepayments of
Indebtedness (other than Senior Obligations) which is pari passu with or
subordinated to the Debentures.
Section 2.05. Mandatory Principal Repayment.
-------------------------------------------
The Debentures shall be subject to mandatory principal repayment as
provided in the Debentures.
8
Section 2.06. Redemption.
------------------------
The Debentures shall be subject to redemption as provided in the
Debentures.
Section 2.07. Fees and Expenses.
-------------------------------
(a) Upon Loan Closing:
(i) Borrower shall pay to Agent a Loan Closing fee of one
percent (1.0%) of the Loan.
(ii) Borrower shall pay all unpaid fees and expenses required
to be paid by Borrower on or before the Loan Closing under the Preliminary
Outline of Terms dated April 2, 1998 among the parties, including the fees and
expenses of Lender's legal counsel.
(b) Borrower shall also pay to the Agent monthly a monitoring fee of
$1,000 per month for consulting and monitoring services, and Borrower shall
reimburse Agent for its reasonable travel and out-of-pocket expenses in
monitoring Borrower's compliance with this Agreement.
Section 2.08. Finder's Fees.
---------------------------
Borrower represents to the Lenders that, except as set forth in
Schedule 2.08, no placement fees, commissions, brokerage or finder's fees were
incurred by Borrower in connection with this Agreement or the Debentures.
Borrower shall be responsible for the payment of all such placement fees,
commissions, brokerage or finder's fees.
Section 2.09. Taxes.
-------------------
(a) Each Debenture shall be convertible into shares of Common Stock and
on such terms as are stated in the Debentures. Such conversion shall be made
without deduction for any present or future taxes, duties, charges or
withholdings, (excluding, in the case of the Lenders, any foreign taxes, any
federal, state or local income taxes and any franchise taxes or taxes imposed
upon them by the jurisdiction, or any political subdivision thereof, under which
the Lenders are organized or are qualified to do business), and all liabilities
with respect thereto (herein "Taxes") shall be paid by Borrower. If Borrower
shall be required by law to deduct any Taxes for which Borrower is responsible
under the preceding sentence from any sum payable hereunder to the Lenders: (i)
the sum payable shall be increased so that after making all required deductions,
the Lenders shall receive an amount equal to the sum it would have received had
no such deductions been made; (ii) Borrower shall make such deductions; and
(iii) Borrower shall pay the full amount deducted to the relevant taxing
authority or other authority in accordance with applicable law. Borrower shall
be entitled to any refunds or returns from any such taxing authority.
(b) Except as otherwise set forth in this Agreement or the other Loan
Documents, Borrower shall pay any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies which arise
9
from any payment made hereunder or under the Loan Documents or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or the other Loan Documents (hereinafter referred to as "Other
Taxes").
(c) Borrower shall indemnify the Lenders for the full amount of Taxes
and Other Taxes reasonably paid by the Lenders or any liability (including any
penalties or interest assessed because of Borrower's defaults) arising therefrom
or with respect thereto, whether or not such Taxes or Other Taxes were correctly
or legally asserted. This indemnification shall be made within thirty (30) days
from the date the Lenders make written demand therefor. The Lenders shall
subrogate any and all rights and claims relating to such Taxes and Other Taxes
to Borrower upon payment of said indemnification.
(d) Without prejudice to the survival of any other agreement of
Borrower hereunder, the agreements and obligations of Borrower in this Section
2.09 shall survive the payment in full of the Obligation.
(e) Borrower shall have no liability or obligation with respect to
taxes on income recognized by the Lenders with respect to the Debentures.
Section 2.10. Conversion Rights.
-------------------------------
Each Debenture shall be convertible into shares of Common Stock on such
terms and in such amounts as are stated in the Debenture. The holders of the
shares issued upon exercise of the right of conversion as provided in said
Debenture shall be entitled to all the rights of the Lenders as stated in this
Agreement or the other Loan Documents, to the extent such rights are
specifically stated to survive the surrender of the Debenture for conversion as
therein provided.
Section 2.11. Collateral, Security Agreements.
---------------------------------------------
The due and prompt performance of the obligations of Borrower to the
Lenders under the Loan Agreement and the Debentures shall be secured by all
tangible and intangible assets of Borrower shall be evidenced by a Security
Agreement executed by and between the Lenders and the Borrower. Financing
statements shall be executed in favor of the Lenders by Borrower. There shall be
no prior security interests on any such assets, except for the security
interests set forth on Schedule 4.05.
ARTICLE III - CONDITIONS PRECEDENT
----------------------------------
Section 3.01. Document Requirements.
-----------------------------------
The obligation of the Lenders to advance funds at the Loan Closing is
subject to the condition precedent that, on or before the date of such advance,
the Lenders shall have received the following:
(a) DEBENTURES. Duly executed Debentures from Borrower in the Principal
Amounts of each disbursement as requested by the Lenders, styled "Compass Bank
10
FBO Renaissance Capital Growth and Income Fund III, Inc.," and "Compass Bank FBO
Renaissance U.S. Growth and Income Trust PLC," which shall be in form and
substance acceptable to the Lenders and their counsel.
(b) BORROWER'S SECURITY AGREEMENT. Duly executed Security Agreement and
UCC-1 financing statements from Borrower, which shall be in form and substance
acceptable to the Lenders and their counsel.
(c) OFFICER'S CERTIFICATE. True and correct certificate signed by a
duly authorized officer of Borrower and dated as of the Loan Closing Date
stating that, to the best knowledge and belief of such officer, after reasonable
and due investigation and review of matters pertinent to the subject matter of
such certificate: (i) all of the representations and warranties contained in
Article IV hereof and the other Loan Documents are true and correct in all
material respects as of the Loan Closing Date; and (ii) no event has occurred
and is continuing, or would result from the Loan, which constitutes, or with
notice or lapse of time or both would constitute, a Default or an Event of
Default.
(d) SECRETARY'S CERTIFICATE. Signed certificate of the Secretary of
Borrower which shall certify (i) a copy of the Articles of Incorporation of
Borrower and all amendments thereto, certified by the Secretary of State of the
state of incorporation and dated within ten (10) days prior to the Loan Closing;
(ii) a copy of the Bylaws of Borrower and all amendments thereto certified by
the Secretary of Borrower as of the date of such certification; (iii) copies of
resolutions, as adopted by Borrower's Board of Directors, approving the
execution, delivery and performance, as applicable, of this Agreement, the
Debentures and the other Loan Documents, including the transactions contemplated
herein, stating that such resolutions have been duly adopted, are true and
correct, have not been altered or repealed and are in full force and effect;
(iv) certificates of good standing (or other similar instrument) for Borrower
issued by the appropriate official of the state of incorporation of Borrower and
certificates of qualification and good standing for Borrower issued by the
appropriate official of each of the states for which Borrower is required to be
qualified to do business as a foreign corporation, dated within ten (10) days
prior to Loan Closing; and (v) the names of the officers of Borrower authorized
to sign the Loan Documents to be executed by such officer, together with the
true signatures of each of such officers. It is herewith stipulated and agreed
that the Lenders may thereafter rely conclusively on the validity of this
certificate as a representation of the officers of Borrower duly authorized to
act with respect to the Loan Documents until such time as the Lenders shall
receive a further certificate of the Secretary or Assistant Secretary of
Borrower canceling or amending the prior certificate and submitting the
signatures of the officers thereupon authorized in such further certificate.
(e) LEGAL OPINION. Legal opinion from counsel to Borrower, in form and
substance satisfactory to the Lenders and their counsel.
(f) "LOCK-UP" AGREEMENT. "Lock-Up" Agreements, pursuant to Section
5.19(b) of this Agreement, in form and substance satisfactory to the Lenders and
their counsel.
(g) OTHER DOCUMENTS. Such other information, documents and agreements
as may reasonably be required by the Lenders and the Lenders' counsel to
substantiate Borrower's compliance with the requirements of this Agreement and
the Lenders' compliance with the 1940 Act.
11
Section 3.02. Other Conditions.
------------------------------
The obligation of the Lenders to advance funds at the Loan Closing Date
hereof is subject to the satisfaction, on or before the date of such advance, of
the following conditions:
(a) The Borrower shall have executed and delivered a three (3)-year
employment agreement with Xxxxxxx X. Xxxxxxxx as President and Chief Executive
Officer of the Borrower acceptable to the Lenders; and
(b) Borrower shall have granted to Xxxxxxx X. Xxxxxxxx additional stock
options in such amounts and on such terms and conditions acceptable to the
Lenders.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BORROWER
All references in this Article to Borrower shall include the
Subsidiaries, if any, unless the context otherwise requires. To induce the
Lenders to make the Loan hereunder, Borrower represents and warrants to the
Lenders that:
Section 4.01. Organization and Good Standing.
--------------------------------------------
Borrower is duly organized and existing in good standing under the laws
of the state of its incorporation, is duly qualified as a foreign corporation
and in good standing in all states in which failure to qualify would have a
Material Adverse Effect, and has the corporate power and authority to own its
properties and assets and to transact the business in which it is engaged and is
qualified in those states wherein it currently proposes to transact material
business operations in the future if the failure to so qualify would have a
Material Adverse Effect.
Section 4.02. Authorization and Power.
-------------------------------------
Borrower has the corporate power and requisite authority to execute,
deliver and perform the Loan Documents to be executed by Borrower. Borrower has
duly authorized and has taken all corporate action necessary to authorize,
execute, deliver and perform the Loan Documents executed by Borrower. Borrower
is and will continue to be duly authorized to perform the Loan Documents
executed by Borrower.
Section 4.03. No Conflicts or Consents.
--------------------------------------
Except as disclosed on Schedule 4.03, neither the execution and
delivery of the Loan Documents, nor the consummation of any of the transactions
therein contemplated, nor compliance with the terms and provisions thereof, will
contravene or materially conflict with any judgment, license, order or permit
applicable to Borrower, or any indenture, loan agreement, mortgage, deed of
trust, or other agreement or instrument to which Borrower is a party or by which
Borrower is bound, or to which Borrower is subject, or violate any provision of
the charter or bylaws of Borrower or trigger any preemptive rights or rights of
first refusal of any third party. No consent, approval, authorization or order
of any court or governmental authority or third party is required in connection
12
with the execution and delivery by Borrower of the Loan Documents or to
consummate the transactions contemplated hereby or thereby except those that
have been obtained.
Section 4.04. Enforceable Obligations.
-------------------------------------
The Loan Documents have been duly executed and delivered by Borrower
and are the legal, valid and binding obligations of Borrower, enforceable in
accordance with their respective terms.
Section 4.05. No Liens.
----------------------
Except for Permitted Liens, all of the properties and assets owned or
leased by Borrower are free and clear of all Liens and other adverse claims of
any nature, and Borrower has good and marketable title to such properties and
assets. A true and complete list of all known or recorded liens for borrowed
money is disclosed on Schedule 4.05.
Section 4.06. Financial Condition.
---------------------------------
Borrower has delivered to the Lenders the balance sheet of Borrower as
of December 31, 1997, and the related statement of income, stockholders' equity
and statement of cash flow for the year then ended, audited by its independent
certified public accountant and unaudited financial statements as of March 31,
1998 and for the quarter then ended. Such financial statements fairly present
the financial condition of Borrower as of such dates and have been prepared in
accordance with GAAP (except that unaudited financial statements omit certain
footnotes); and as of the date hereof, there are no obligations, liabilities or
Indebtedness (including contingent and indirect liabilities and obligations) of
Borrower which are (separately or in the aggregate) material and are not
reflected in such financial statements or otherwise disclosed herein or in the
Schedules. Since the date of the above-referenced year end financial statements
and quarterly financial statements, there have not been, except as disclosed in
Schedule 4.06: (i) any Material Adverse Change; (ii) any Dividend declared or
paid or distribution made on the capital stock of Borrower or any capital stock
thereof redeemed or repurchased; (iii) any incurrence of long-term debt by
Borrower; (iv) any salary, bonus or compensation increases to any officers, key
employees or agents of Borrower, other than in the ordinary course of business
and consistent with past practice; or (v) any other material transaction entered
into by Borrower, except in the ordinary course of business and consistent with
past practice.
Section 4.07. No Default.
------------------------
No event has occurred and is continuing which constitutes, or with
notice or lapse of time or both, would constitute, a Default or an Event of
Default under this Agreement.
Section 4.08. Material Agreements.
---------------------------------
To the best of Borrower's knowledge, neither Borrower nor any
Subsidiary nor any other party is in default, and no event has occurred and is
continuing which, with notice or lapse of time or both, would constitute a
default, under any contract, lease, loan agreement, indenture, mortgage,
security agreement, license agreement or other agreement or obligation to which
it is a party or by which any of its properties is subject, except as described
13
on Schedule 4.08. To the best knowledge of Borrower, it is not a party to, or
bound by, any contract or agreement, the faithful performance of which is so
onerous so as to create or to likely create a Material Adverse Effect on the
business, operations or financial condition of Borrower.
Section 4.09. No Litigation.
---------------------------
Except as disclosed on Schedule 4.09, there are no actions, suits,
investigations, arbitrations or administrative proceedings pending or, to the
best knowledge of Borrower, threatened, against Borrower, and there has been no
change in the status of any of the actions, suits, investigations, litigation or
proceedings disclosed to the Lenders which could reasonably be expected have a
Material Adverse Effect on Borrower or on any transactions contemplated by any
Loan Document. Borrower has not received any claim that Borrower currently
violates any federal, state or local law, ordinance, rule or regulation, which
could have an adverse effect on its business and, to the best of Borrower's
knowledge, no such claim is or has been threatened; and, except as disclosed on
Schedule 4.09, there have been no developments adverse to Borrower with respect
to any pending or threatened claim, action or proceeding of an administrative or
judicial nature.
Section 4.10. Taxes.
-------------------
All tax returns required to be filed by Borrower in any jurisdiction
have been filed and all taxes (including mortgage recording taxes), assessments,
fees and other governmental charges upon Borrower or upon any of its properties,
income or franchises now due have been paid, in each case, except where the same
are being contested in good faith by appropriate proceedings, as disclosed on
Schedule 4.10.
Except as disclosed on Schedule 4.10, Borrower has not received any
notice of deficiency or other adjustment from any taxing authority that is
unresolved as of the Loan Closing. No audit or examination, claim or proposed
assessment by any taxing authority is pending or, to the best knowledge of
Borrower, threatened against Borrower or any of its properties. To the best
knowledge of Borrower, all ad valorem and other property taxes imposed on
Borrower, or that may become a lien on Borrower's assets and that are due and
payable, have been paid in full. Borrower has withheld or collected from each
payment made to each of its U.S. employees the amount of all taxes (including
federal income taxes, Federal Insurance Contributions Act ("FICA") taxes, and
state and local income, payroll, and wage taxes, among others) required to be
withheld or collected.
Section 4.11. Capitalization.
----------------------------
The authorized capital stock of Borrower consists of 80,000,000 shares
of Common Stock, $.01 par value, of which 28,745,226 shares of Common Stock are
issued and outstanding as of May 31, 1998. All of such outstanding shares have
been duly authorized and validly issued are fully paid and nonassessable, and
were not issued in violation of the preemptive rights or rights of first refusal
of any person. Schedule 4.11 sets forth all stock options, warrants, conversion
rights, subscription rights, preemptive rights, rights of first refusal and
other rights or agreements to acquire securities of Borrower and any shares held
in treasury or reserved for issue upon exercise of such stock options, warrants
or conversion rights, subscription rights and other rights or agreements to
acquire securities, including the date of termination of such rights and the
consideration therefor. As of the Loan Closing Date, Borrower does not have
class of securities with respect to which a member of a national securities
14
exchange, broker, or dealer may extend or maintain credit to or for a customer
pursuant to rules or regulation adopted by the Board of Governors of the Federal
Reserve System under Section 7 of the 1934 Act. Borrower has, and will continue
to have as long as the Debentures remain outstanding, authorized and reserved an
adequate number of shares of Common Stock to permit Conversion of the
Debentures.
Section 4.12. Use of Proceeds.
-----------------------------
Borrower intends to use proceeds from the Loan as disclosed in Section
2.01 hereof.
Section 4.13. Employee Matters.
------------------------------
(a) Except as set forth on Schedule 4.13, Borrower is not a party to
any collective bargaining agreement and is not aware of any activities of any
labor union that is currently seeking to represent or organize its employees;
(b) To the best knowledge of Borrower, Borrower is in compliance with
all federal, state and municipal laws respecting employment and employment
practices, occupational health and safety, and wages and hours, and is not
engaged in any unfair labor practice, and there are no arrears in the payment of
wages or social security taxes;
(c) there is no unfair labor practice complaint against Borrower
pending before the National Labor Relations Board or any state or local agency;
(d) to the best knowledge of Borrower, there is no pending labor strike
or other material labor trouble affecting Borrower (including, without
limitation, any organizational drive);
(e) to the best knowledge of Borrower, there is no material labor
grievance pending against Borrower;
(f) there is no pending representation question respecting the
employees of Borrower before any local, state or federal agency;
(g) except as set forth on Schedule 4.13, there are no pending
proceedings arising out of or under any collective bargaining agreement to which
Borrower is a party, or to the best knowledge of Borrower, any basis for which a
claim may be made under any collective bargaining agreement to which Borrower is
a party; and
(h) there are no pending proceedings arising out of any employment
discrimination claim or any basis for which any such claim may be made.
15
Section 4.14. Employee Benefit Plans.
------------------------------------
Schedule 4.14 lists (i) all "employee benefit plans" as described in
the Employee Retirement Income Security Act of 1974, as amended, and the rules
and regulations promulgated thereunder ("ERISA") (other than a defined
contribution pension plan not requiring any contribution by Borrower, paid
time-off policy or vacation/holiday/sick leave policy, and employee group life
and health plans that are fully funded through commercial insurance) and (ii)
all defined benefit "employee pension benefit plans" (as defined in ERISA).
Neither Borrower nor, to the best knowledge of Borrower, any other person has
engaged in a transaction with respect to any employee benefit plan listed or
required to be listed on Schedule 4.14 which could subject any such plan,
Borrower or the Lenders to a penalty under ERISA or a tax under the Internal
Revenue Code of 1986, as amended (the "Code"), except for those transactions
which could not reasonably be expected to have a Material Adverse Effect. Each
of the employee benefit plans listed or required to be listed on Schedule 4.14
has been operated and administered in accordance with applicable law, including
without limitation ERISA, except for any such failure which would not subject
Borrower or the Lenders to any penalty or other liability and except for any
such failure which would not have an adverse effect upon the applicable plan or
any participant therein. Borrower has not incurred nor presently expects to
incur any liability under Title IV of ERISA that could result in liability to
the Lenders or Borrower. Each employee benefit plan listed or required to be
listed on Schedule 4.14 that is a group health plan within the meaning of
Section 5000(b)(1) of the Code is in compliance with the provisions of Section
4980B(f) of the Code, except for any such non-compliance which would not subject
Borrower or the Lenders to any penalty or liability and except for any such
failure which would not have an adverse effect upon the applicable plan or any
participant therein. There is not any pending or, to the best knowledge of
Borrower, threatened claim by or on behalf of any employee benefit plan, by any
employee covered under any such plan, or otherwise involving any employee
benefit plan (other than routine non-contested claims for benefits).
Section 4.15. Compliance with Laws.
----------------------------------
Each of Borrower and the Subsidiaries has all requisite licenses,
permits and certificates, including environmental, health and safety permits,
from federal, state and local authorities necessary to conduct its business and
own and operate its assets (collectively, the "Permits"). Except as set forth on
Schedule 4.15, neither Borrower nor any Subsidiary is in violation of any law,
regulation or ordinance relating to its business, operations and properties,
which individually or in the aggregate could have a Material Adverse Effect, and
the business and operations of Borrower or any Subsidiary do not violate, in any
material respect, any federal, state, local or foreign laws, regulations or
orders. Except as set forth on Schedule 4.15, Borrower and the Subsidiaries have
not received any notice or communication from any federal, state or local
governmental or regulatory authority or otherwise of any such violation or
noncompliance. To the best of their knowledge, Borrower and the Subsidiaries
have not engaged in any practices in violation of any antitrust law or
regulation of any federal, state or local Governmental Authority.
16
Section 4.16. Licenses and Permits.
----------------------------------
Borrower and the Subsidiaries have all licenses and permits relating to
the operation of their respective businesses as are necessary and required for
such ownership and operation, all of which are in good standing and, except as
expressly set forth on Schedule 4.16, are not subject to renewal within less
than one (1) year.
Section 4.17. Contracts.
-----------------------
Schedule 4.17 lists all contracts to which Borrower or the Subsidiaries
are a party involving obligations in respect of the business for payment,
performance of services or delivery of goods in excess of $10,000 or which
require Borrower to continue to perform for a period of longer than twelve (12)
months (the "Scheduled Contracts"). Borrower has delivered to the Lenders true
and correct copies of all the Scheduled Contracts. All of such Scheduled
Contracts are valid and binding obligations of Borrower or the Subsidiaries, are
in full force and effect and are enforceable against the parties thereto in
accordance with their respective terms. Borrower or the Subsidiaries have not
received any notice that the other parties to the Scheduled Contracts are (i) in
default under such Scheduled Contracts or (ii) consider Borrower to be in
default thereunder. Except as expressly noted in Schedule 4.17, to the best
knowledge of Borrower or the Subsidiaries, no party to any of the Scheduled
Contracts intends to terminate or adversely modify its agreement(s) with respect
thereto or adversely change the volume of business done thereunder.
Section 4.18. Shares Issuable Upon Conversion.
---------------------------------------------
The shares of Common Stock of Borrower when issued to the Lenders upon
conversion of the Debentures will be duly and validly issued, fully paid and
nonassessable and in compliance with all applicable securities laws. Such
issuance will not give rise to preemptive rights, rights of first refusal or
similar rights by any other security holder of Borrower.
Section 4.19. Insider.
---------------------
(a) Neither Borrower nor any Person having "control" (as that term is
defined in the 1940 Act or in the regulations promulgated pursuant thereto) of
Borrower is an "executive officer," "director," or "principal shareholder" (as
those terms are defined in the 0000 Xxx) of any Lender.
(b) All agreements between Borrower and any of its officers, directors,
and principal shareholders, including employment agreements, are listed on
Schedule 4.19.
Section 4.20. Subsidiaries.
--------------------------
Except as disclosed on Schedule 4.20, Borrower does not own any capital
stock, equity, or other interest in, or long-term debt of, any Person, or any
right or option to acquire any such interest in any such Person.
17
Section 4.21. Casualties.
------------------------
Except as disclosed on Schedule 4.21, neither the business nor the
properties of Borrower is currently affected by any fire, explosion, accident,
strike, lockout or other labor dispute, drought, storm, hail, earthquake,
embargo, act of God or other casualty (whether or not covered by insurance) or,
to the best knowledge of Borrower, any environmental hazard.
Section 4.22. Investment Company Act.
------------------------------------
Borrower is not an "investment company," as defined in Section 3 of the
1940 Act, nor a company that would be an investment company, except for the
exclusions from the definition of an investment company in Section 3(C) of the
1940 Act, and Borrower is not controlled by such a company.
Section 4.23. Sufficiency of Capital.
------------------------------------
Borrower is, and after consummation of this Agreement and giving effect
to all Indebtedness incurred and transactions contemplated in connection
herewith will be, solvent.
Section 4.24. Corporate Names.
-----------------------------
Borrower has not, during the preceding five (5) years, done business
under or used any assumed, fictitious or trade names.
Section 4.25. Insurance.
-----------------------
All of the insurable properties of Borrower are insured for its benefit
under valid and enforceable policies issued by insurers of recognized
responsibility in amounts and against such risks and losses as is customary in
Borrower's industry. Schedule 4.25 sets forth all of Borrower's property
insurance policies.
Section 4.26. Intellectual Property.
-----------------------------------
Borrower owns or is licensed to use all material trademarks, service
marks, trade names, patents and copyrights presently used to conduct its
business. Borrower has the right to use such intellectual property rights
without infringing or violating the rights of any third parties. No claim has
been asserted by any person to the ownership of or right to use any such rights
or challenging or questioning the validity or effectiveness of any such license
or agreement. Borrower is not in default of any such license agreements in any
material respect, and no event has occurred and is continuing which, with notice
or lapse of time or both, would constitute a material default. Each license
agreement is enforceable in accordance with its terms and has not been canceled,
abandoned or terminated, nor has Borrower received notice thereof. There are no
claims for trademark or copyright infringement pending or threatened against
Borrower or the Subsidiaries or their respective officers or directors. Neither
Borrower nor any Subsidiary is currently using copyrightable material for which
Borrower or any Subsidiary needs, but does not have, a license to conduct its
existing business. To the best knowledge of Borrower, neither Borrower nor any
Subsidiary is currently using any trademarks for which Borrower or any
18
Subsidiary needs, but does not have, a valid character or trademark license to
conduct its existing business.
Section 4.27. Real Property.
---------------------------
(a) Set forth on Schedule 4.27 is a list of the addresses of each
parcel of real property leased to Borrower, as indicated on the Schedule.
Borrower owns no real property.
(b) Borrower has delivered to the Lenders true and correct copies of
all of its leases or subleases and all related amendments, supplements and
modifications and related documents (the "Scheduled Lease Documents"), which
require payments or contingent payments by Borrower of any of the Subsidiaries
subsequent to the date hereof in excess of $5,000. There are no other
agreements, written or oral, between Borrower and any third parties claiming an
interest in Borrower's interest in the Scheduled Leases or otherwise relating to
Borrower's use and occupancy of any leased real property. All such leases are
valid and binding obligations of the parties thereto, are in full force and
effect and enforceable against the parties thereto in accordance with their
terms; and no event has occurred including, but not limited to, the executed,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby which (whether with or without notice, lapse of
time or both) would constitute a default thereunder. No property leased under
any lease which the Lenders have agreed to assume is subject to any lien,
encumbrance, easement, right-of-way, building or use restriction, exception,
variance, reservation or limitation as might in any respect interfere with or
impair the present and continued use thereof in the usual and normal conduct of
Borrower's business.
Section 4.28. Environmental.
---------------------------
(a) Borrower is currently in compliance with all Environmental Laws (as
defined below) which compliance includes, but is not limited to, the possession
by Borrower of all permits and other governmental authorization required under
applicable Environmental Laws, and compliance in all material respects with the
terms and conditions thereof, except in any case where the failure to be in
compliance would not have a Material Adverse Effect.
(b) Except as set forth on Schedule 4.28, Borrower has not stored,
disposed of or arranged for disposal of any Materials of Environmental Concern
(as defined below) on any of the real property, except in compliance with
applicable Environmental Laws.
(c) Borrower has not received any communication (written or oral),
whether from a governmental authority, citizens group, employee or otherwise,
that alleges that Borrower is not in full compliance with Environmental Laws,
and there are no circumstances that may prevent or interfere with such full
compliance in the future. There is no Environmental Claim (as defined below)
pending or, to Borrower's best knowledge, threatened against, or which has been
made known to, Borrower.
(d) Except as set forth on Schedule 4.28, during the period the
facilities have been held by Borrower, its affiliates or, to Borrower's best
knowledge, its predecessors in interest, there have been no actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the generation, handling, transportation, treatment, storage, release, emission,
19
discharge, presence or disposal of any Hazardous Substance (as defined below),
that could form the basis of any Environmental Claim against Borrower under any
Environmental Law in effect at, or at any time prior to, the Loan Closing.
(e) Without in any way limiting the generality of the foregoing, (i)
there are no underground storage tanks located on the property owned or leased
by Borrower or the Subsidiaries, (ii) there is no asbestos contained in or
forming part of any building, building component, structure or office space
owned or leased by Borrower or the Subsidiaries, and (iii) no polychlorinated
biphenyls ("PCBs") are used or stored at any property owned or leased by
Borrower or the Subsidiaries.
The following terms shall have the following meanings:
"Environmental Claim" means any claim, action, cause of
action, investigation or notice (written or oral) by any person or entity
alleging potential liability (including, without limitation, potential liability
for investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries or penalties) arising out
of, based on or resulting from (a) the presence, or release into the
environment, of any Hazardous Substances at any location, whether or not owned
or operated by Borrower or (b) circumstances forming the basis of any violation,
or alleged violation, of any Environmental Law.
"Environmental Laws" means the federal, state and local
environmental, health or safety laws, regulations, ordinances, rules and
policies and common law in effect on the date hereof and the Loan Closing Date
relating to the use, refinement, handling, treatment, removal, storage,
production, manufacture, transportation or disposal, emissions, discharges,
releases or threatened releases of materials of environmental concern, or
otherwise relating to protection of the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), as the same may be amended or modified to the date hereof and the Loan
Closing Date, including, without limitation, the statutes listed below:
Federal Resources Conservation and Recovery Act of 1976, 42
U.S.C. ss. 6901, et seq.
Federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, 42 U.S.C. ss. 9601, et seq.
Federal Clean Air Act, 42 U.S.C. ss. 7401, et seq.
Federal Water Pollution Control Act, Federal Clean Water Act
of 1977, 33 U.S.C. ss. 1251, et seq.
Federal Insecticide, Fungicide and Rodenticide Act, Federal
Pesticide Act of 1978, 7 U.S.C. ss. 136, et seq.
Federal Hazardous Materials Transportation Act, 48 U.S.C.
ss. 1801, et seq.
Federal Toxic Substances Control Act, 15 U.S.C. ss. 2601, et
seq.
Federal Safe Drinking Water Act, 42 U.S.C. ss. 300f, et seq.
20
"Hazardous Substances" means any toxic or hazardous waste,
pollutants or substances, including, without limitation, asbestos, PCBs,
petroleum products and byproducts, substances defined or listed as "hazardous
substance," "toxic substance," "toxic pollutant" or similarly identified
substance or mixture, in or pursuant to any Environmental Law.
Section 4.29. Survival of Representations and Warranties.
--------------------------------------------------------
All representations and warranties of Borrower herein shall survive the
Loan Closing and the delivery of the Debentures, and any investigation at any
time made by or on behalf of the Lenders shall not diminish the Lenders' right
to rely on Borrower's representations and warranties as herein set forth.
Section 4.30. Full Disclosure.
-----------------------------
Neither the representations, warranties, schedules, financial
statements referenced in Section 4.06, nor any business plan, offering
memorandum, certificate, document or written statement to be delivered or caused
to be delivered by Borrower or any of its agents or representatives to the
Lenders in connection with this Agreement, contains, as of the date thereon, any
untrue statement of a material fact or omits or will omit to state any material
fact necessary to keep the statements contained herein or therein from being
misleading in any material respect.
ARTICLE V - AFFIRMATIVE COVENANTS OF BORROWER
---------------------------------------------
So long as any part of the Debentures remains unpaid or has not been
redeemed or converted hereunder, and until such payment, redemption or
conversion in full, unless the Lenders shall otherwise consent in writing,
Borrower agrees that:
Section 5.01. Financial Statements, Reports and Documents.
---------------------------------------------------------
(a) Borrower shall accurately and fairly maintain its books of account
in accordance with GAAP, retain Xxxx + Associates LLP, or other such firm of
independent certified public accountants, requested by Borrower and approved by
the Lenders, to make annual audits of its accounts in accordance with generally
accepted auditing standards.
(b) Borrower shall provide the following reports and information to
each Lender:
(i) As soon as available, and in any event within thirty (30)
days after the close of each month, Borrower's monthly financial statements.
(ii) As soon as available, and in any event within forty-five
(45) days after the close of each fiscal quarter, Borrower's quarterly reports.
21
(iii) As soon as available, and in any event within ninety
(90) days after the close of each fiscal year, Borrower's annual reports.
(iv) Each fiscal quarter, concurrent with the periodic report
required above, a certificate executed by the Chief Financial Officer or Chief
Executive Officer of Borrower, (A) stating that a review of the activities of
Borrower during such fiscal period has been made under his supervision and that
Borrower has observed, performed and fulfilled each and every obligation and
covenant contained herein and is not in default under any of the Loan Documents
or, if any such default shall have occurred, specifying the nature and status
thereof, and (B) stating that Borrower and the Subsidiaries are in compliance as
of the end of such fiscal quarter with the agreed minimum financial ratios and
standards set forth in Schedule 7.01 to this Agreement.
(v) Promptly (but in any event within ten (10) business days)
upon becoming aware of the existence of any condition or event which constitutes
a Default or which, with notice or the passage of time or both would become a
Default or an Event of Default, written notice specifying the nature and period
of existence thereof and the action which Borrower is taking or proposes to take
with respect thereto.
(vi) Promptly (but in any event within ten (10) business days)
upon the receipt thereof by Borrower or the Board of Directors of Borrower (the
"Board of Directors"), copies of all reports, all management letters and other
detailed information submitted to Borrower or the Board of Directors by
independent accountants in connection with each annual or interim audit or
review of the accounts or affairs of Borrower made by such accountants.
(vii) Promptly (but in any event within ten (10) business
days), such other information relating to the finances, budgets, properties,
business and affairs of Borrower and each Subsidiary, as the Lenders or the
Agent may reasonably request from time to time.
(viii) Promptly upon its becoming available, one copy of each
financial statement, report, press release, notice or proxy statement sent by
Borrower to stockholders generally, and of each regular or periodic report,
registration statement or prospectus filed by Borrower with any securities
exchange or the SEC or any successor agency, and of any order issued by any
Governmental Authority in any proceeding to which Borrower is a party.
Section 5.02. Preparation of Budgets.
------------------------------------
(a) Prior to the beginning of Borrower's fiscal year Borrower agrees to
prepare and submit to the Board of Directors and furnish to each Lender a copy
of, an annual plan for such year which shall include, without limitation, plans
for expansion, if any, plans for incurrences of Indebtedness and projections
regarding other sources of funds, quarterly projected capital and operating
expense budgets, cash flow statements, profit and loss statements and balance
sheet projections, itemized in such detail as the Board of Directors may
request.
(b) Borrower shall furnish to the Lenders monthly financial reports,
including budgets (as currently used by management in the conduct of business)
within thirty (30) days of the end of each month.
22
(c) Borrower agrees that it will review its operations with Agent. Such
operations reviews will be in such depth and detail as Agent shall reasonably
request and will be held as reasonably necessary, generally once a fiscal
quarter.
Section 5.03. Payment of Taxes and Other Indebtedness.
-----------------------------------------------------
Borrower shall, and shall cause its Subsidiaries to, pay and discharge
(i) all taxes, assessments and governmental charges or levies imposed upon it or
upon its income or profits, or upon any property belonging to it, before
delinquent, (ii) all lawful claims (including claims for labor, materials and
supplies), which, if unpaid, will give rise to a Lien upon any of its property,
other than a Permitted Lien, and (iii) all of its other Indebtedness in
accordance with their respective terms, except as prohibited hereunder;
provided, however, that Borrower and its Subsidiaries, if any, shall not be
required to pay any such tax, assessment, charge, levy or other claim if and so
long as the amount, applicability or validity thereof shall currently be
contested in good faith by appropriate proceedings and appropriate accruals and
reserves therefor have been established in accordance with GAAP.
Section 5.04. Maintenance of Existence and Rights; Conduct of Business.
----------------------------------------------------------------------
Subject to Section 6.13, Borrower shall, and shall cause its operating
Subsidiaries to, preserve and maintain their respective corporate existence and
all of their respective material rights and privileges necessary in the normal
conduct of their respective businesses, and to conduct their respective
businesses in an orderly and efficient manner consistent with good business
practices and in accordance with all valid regulations and orders of any
Governmental Authority. Borrower shall keep its principal place of business
within the United States.
Section 5.05. SEC Filings.
-------------------------
If Borrower has a class of securities which become registered pursuant
to Section 12 of the 1934 Act, Borrower shall duly file, when due, all reports
and proxy statements required of a company whose securities are registered for
public trading under and pursuant to the 1934 Act and any rules and regulations
issued thereunder, and to preserve and maintain its registration thereunder.
Section 5.06. Notice.
--------------------
Borrower shall promptly notify the Lenders of (i) any Material Adverse
Change, (ii) any default under any Senior Obligations, other Indebtedness having
an aggregate principal amount in excess of $25,000, material agreement, contract
or other instrument to which it is a party or by which any of its properties are
bound, or any acceleration of the maturity of any Indebtedness having an
aggregate principal amount in excess of $25,000, if any, (iii) any material
adverse claim against or affecting Borrower or its Subsidiaries, if any, or any
of its properties, and (iv) the commencement of, and any determination in, any
material litigation with any third party or any proceeding before any
Governmental Authority.
23
Section 5.07. Compliance with Loan Documents.
--------------------------------------------
Borrower shall, and shall cause each of its Subsidiaries to, promptly
comply with any and all covenants and provisions of the Loan Documents.
Section 5.08. Compliance with Material Agreements.
-------------------------------------------------
Borrower shall, and shall cause each of its Subsidiaries to, comply in
all material respects with all material agreements, indentures, mortgages or
documents binding on it or affecting its properties or business.
Section 5.09. Operations and Properties.
---------------------------------------
Borrower shall, and shall cause each of its Subsidiaries to, act
prudently and in accordance with customary industry standards in managing or
operating its assets, properties, business and investments. Borrower shall, and
shall cause each of its Subsidiaries to, keep in good working order and
condition, ordinary wear and tear excepted, all of its assets and properties
which are necessary to the conduct of its business.
Section 5.10. Books and Records; Access.
---------------------------------------
Borrower shall, and shall cause each of its Subsidiaries to, maintain
complete and accurate books and records of its transactions in accordance with
good accounting practices. Borrower shall give each duly authorized
representative of the Lenders access during all normal business hours, upon
reasonable notice, to, and shall permit such representative to examine, copy or
make excerpts from, any and all books, records and documents in the possession
of Borrower and its Subsidiaries and relating to its affairs, and to inspect any
of the properties of Borrower and its Subsidiaries; provided that the Lender
agrees that any such inspection will be performed so as not to interfere with
Borrower's normal business operations. Borrower shall make a copy of this
Agreement, along with any waivers, consents, modifications or amendments,
available for review at its principal office by the Lenders or the Lenders'
representatives.
Section 5.11. Compliance with Law.
---------------------------------
Borrower shall, and shall cause each of its Subsidiaries to, comply in
all material respects with all applicable laws, rules, regulations, ordinances
and all orders and decrees of any Governmental Authority applicable to it or any
of its properties, businesses, or operations.
Section 5.12. Insurance.
-----------------------
Borrower shall, and shall cause each of its Subsidiaries to, maintain
such worker's compensation insurance, liability insurance and insurance on its
properties, assets and business, now owned or hereafter acquired, against such
casualties, risks and contingencies, and in such types and amounts, as are
consistent with customary practices and standards of companies engaged in
similar businesses.
24
Section 5.13. Authorizations and Approvals.
------------------------------------------
Borrower shall, and shall cause each of its Subsidiaries to, promptly
obtain, from time to time at its own expense, all such governmental licenses,
authorizations, consents, permits and approvals as may be required to enable it
to comply with its obligations hereunder and under the other Loan Documents.
Section 5.14. ERISA Compliance.
------------------------------
Borrower shall (i) at all times, make prompt payment of all
contributions required under all Plans, if any, and shall meet the minimum
funding standards set forth in ERISA with respect to its Plans subject to ERISA,
if any, (ii) notify the Lenders immediately of any fact in connection with any
of its Plans, which might constitute grounds for termination thereof by the
Pension Benefit Guaranty Corporation or for the appointment by the appropriate
United States District Court of a trustee to administer such Plan, together with
a statement, if requested by the Lenders, as to the reason therefor and the
action, if any, proposed to be taken with respect thereto, and (iii) furnish to
the Lenders, upon their request, such additional information concerning any of
its Plans as may be reasonably requested.
Section 5.15. Further Assurances.
--------------------------------
Borrower shall, and shall cause each of its Subsidiaries to, make,
execute or endorse, and acknowledge and deliver or file or cause the same to be
done, all such notices, certifications and additional agreements, undertakings,
transfers, assignments, or other assurances, and take any and all such other
action, as the Lenders may, from time to time, deem reasonably necessary or
proper in connection with any of the Loan Documents, or the obligations of
Borrower or its Subsidiaries, if any, thereunder, which the Lenders may request
from time to time.
Section 5.16. Indemnity by Borrower.
-----------------------------------
Borrower shall indemnify, save, and hold harmless the Lenders and their
directors, officers, lenders, attorneys, and employees (singularly or
collectively, the "Indemnitee") from and against (i) any and all claims,
demands, actions or causes of action that are asserted against any Indemnitee if
the claim, demand, action or cause of action directly or indirectly relates to
this Agreement and the other Loan Documents, the Loan or the relationship of
Borrower and the Lenders under this Agreement or any transaction contemplated
pursuant to this Agreement, (ii) any administrative or investigative proceeding
by any Governmental Authority directly or indirectly related to a claim, demand,
action or cause of action described in clause (i) above, and (iii) any and all
liabilities, losses, costs, or expenses (including reasonable attorneys' fees
and disbursements) that any Indemnitee suffers or incurs as a result of any of
the foregoing; provided, however, that Borrower shall have no obligation under
this Section 5.16 to the Lenders with respect to any of the foregoing arising
out of the gross negligence or willful misconduct of the Lenders or their
assignees or the breach by any Lender or their assignees of this Agreement or
any other Loan Document or other document executed in connection with any of the
aforesaid, the breach by the Lenders or their assignees of any intercreditor or
participation agreement or commitment with other parties, the violation or
alleged violation of any law, rule or regulation by the Lenders or their
assignees, or from the transfer or disposition by the Lenders of any Debenture
or the Common Stock issued upon conversion of the Debenture. If any claim,
25
demand, action or cause of action is asserted against any Indemnitee, such
Indemnitee shall promptly notify Borrower, but the failure to so promptly notify
Borrower shall not affect Borrower's obligations under this Section unless such
failure materially prejudices Borrower's right or ability to participate in the
contest of such claim, demand, action or cause of action, as hereinafter
provided. In the event that such Indemnitee's failure to properly notify
Borrower materially prejudices Borrower's right or ability to participate in the
contest of such claim, demand, action, or cause of action, then said Indemnitee
shall have no right to receive, and Borrower shall have no obligation to pay,
any indemnification amounts hereunder. Borrower may elect to defend any such
claim, demand, action or cause of action (at its own expense) asserted against
said Indemnitee and, if requested by Borrower in writing and so long as no
Default or Event of Default shall have occurred and be continuing, such
Indemnitee (at Borrower's expense) shall in good faith contest the validity,
applicability and amount of such claim, demand, action or cause of action and
shall permit Borrower to participate in such contest. Any Indemnitee that
proposes to settle or compromise any claim or proceeding for which Borrower may
be liable for payment to or on behalf of an Indemnitee hereunder shall give
Borrower written notice of the terms of such proposed settlement or compromise
reasonably in advance of settling or compromising such claim or proceeding and
shall obtain Borrower's written concurrence thereto. In the event that said
Indemnitee fails to obtain Borrower's prior written consent to any such
settlement or compromise, said Indemnitee shall have no right to receive and
Borrower shall have no obligation to pay any indemnification amounts hereunder.
Each Indemnitee may employ counsel, which counsel shall be reasonably acceptable
to Borrower, in enforcing its rights hereunder and in defending against any
claim, demand, action, or cause of action covered by this Section 5.16;
provided, however, that each Indemnitee shall endeavor in connection with any
matter covered by this Section 5.16 which also involves any other Indemnitee,
use reasonable efforts to avoid unnecessary duplication of effort by counsel for
all Indemnitees, including by allowing Borrower to select one lawyer for all
parties, such selection to be subject to the approval of such parties, which
approval shall not be unreasonably withheld. Any obligation or liability of
Borrower to any Indemnitee under this Section 5.16 shall survive the expiration
or termination of this Agreement and the repayment of the Debentures.
Section 5.17. Reservation of Shares.
-----------------------------------
Borrower shall at all times reserve and keep available sufficient
authorized and unissued shares of Common Stock to effect the conversion of the
Debentures.
Section 5.18. Incentive Compensation Plan and Senior Management.
---------------------------------------------------------------
Within twelve (12) months from the date of this Agreement:
(a) Borrower shall have adopted an incentive compensation plan for
senior management indexed to specific profitability objectives and acceptable to
the Lenders; and
(b) Borrower shall have employed a Chief Financial Officer acceptable
to the Lenders.
26
Section 5.19. Retention of Stock Ownership.
------------------------------------------
(a) Borrower shall not offer, sell or otherwise dispose of any shares
of Common Stock or securities exercisable or convertible into shares of Common
Stock for a period of twelve (12) months following the Loan Closing, without the
written approval of the Lenders, other than (i) Common Stock issued upon the
conversion of any of the Debentures; (ii) Common Stock issued upon exercise of
any outstanding warrants, options or convertible debt instruments; (iii) Common
Stock issued by Borrower in a registered public offering; and (iv) up to 500,000
shares of Common Stock issuable upon exercise of options or warrants to be
granted to employees under its employee stock option and stock compensation
plans.
(b) Xxxxxxx X. Xxxxxxxx and Xxxxxxx Xxxxxxx will execute and deliver
Lock-Up Agreements at the Loan Closing which shall provide that for a period of
one (1) year from the date of issue of the Debentures or, if earlier, the period
the Debentures remain outstanding, they will not offer, sell or otherwise
dispose of the shares of Common Stock beneficially owned or controlled by them
(including subsequently acquired shares or securities exercisable or convertible
into shares), except for intra-family transfers or estate planning purposes,
without the consent of the Lenders. Thereafter, each such person shall only sell
such securities pursuant to Rule 144, except for intra-family transfer or estate
planning purposes, until the Debentures have been paid in full.
ARTICLE VI - NEGATIVE COVENANTS OF BORROWER
-------------------------------------------
So long as any part of the Debentures has not been redeemed or
converted hereunder, and until such redemption or conversion in full, unless the
Lenders shall otherwise consent in writing, Borrower agrees that:
Section 6.01. Limitation on Indebtedness.
----------------------------------------
At Loan Closing, Borrower and its Subsidiaries shall not have any
outstanding Indebtedness, except Indebtedness arising under this Agreement, the
Debentures, the Guaranties, Permitted Indebtedness or as set forth in Schedule
6.01. Borrower and its Subsidiaries will not incur or guarantee any Indebtedness
senior to or pari passu with the Debentures, without the consent of the Lenders,
except for bank debt and asset-based loans for Borrower's operations and
acquisitions.
Section 6.02. Limitation on Liens.
---------------------------------
Borrower shall not, and shall not permit its Subsidiaries to, create,
cause, incur, permit, suffer to exist any Lien upon any of its properties or
assets, other than Permitted Liens.
Section 6.03. Limitation on Investments.
---------------------------------------
Borrower shall not, and shall not permit its Subsidiaries to, make or
have outstanding any Investments in any Person, except for Borrower's or any
Subsidiary's acquisition or ownership of stock of or other equity interests in
Subsidiaries (including Persons that will be Subsidiaries after giving effect to
such Investments), loans and other transactions between Borrower and any
Subsidiaries, short term bank deposits, money market investments,
investment-grade commercial paper, government securities and such other "cash
27
equivalent" investments as the Lenders may from time to time approve, and
customer obligations and receivables arising out of sales or leases made or the
rendering of services in the ordinary course of business.
Section 6.04. Alteration of Material Agreements.
-----------------------------------------------
Borrower shall not, and shall not permit its Subsidiaries to, consent
to or permit any alteration, amendment, modification, release, waiver or
termination of any material agreement to which it is party, other than in the
ordinary course of business.
Section 6.05. Transactions with Affiliates.
------------------------------------------
Except as disclosed in Schedule 6.05, Borrower shall not, and shall not
permit its Subsidiaries to, enter into any transaction not in the ordinary
course of business with, or pay any management fees to, any Affiliate, except
for intercompany transactions, without the consent of the Lenders, unless the
terms thereof (i) are no less favorable to Borrower or such Subsidiary than
those that could be obtained at the time of such transaction in arm's-length
dealings with a Person who is not an Affiliate, or (ii) if such transaction
involves an amount less than $15,000, are set forth in writing and have been
approved by a majority of the members of the Board of Directors having no
personal stake in the transaction. Notwithstanding the foregoing, Borrower may
grant options to employees or directors if otherwise permitted under this
Agreement.
Section 6.06. Limitations on Acquisition of Nonrelated Business.
---------------------------------------------------------------
Borrower shall not, and shall not permit its Subsidiaries to, engage in
any line of business or acquire any new product lines or business or acquire any
companies unless such new product line or business of Borrower acquired is
primarily involved in, or substantially similar or related to, Borrower's
current lines of business.
Section 6.07. Limitation on Sale of Properties.
----------------------------------------------
Borrower shall not, and shall not permit its Subsidiaries to, (i) sell,
assign, convey, exchange, lease or otherwise dispose of any of its properties,
rights, assets or business (including the capital stock of its operating
Subsidiaries), whether now owned or hereafter acquired, without the consent of
the Lenders, except in the ordinary course of business, or (ii) sell, assign or
discount any accounts receivable, except in the ordinary course of business
(which shall include receivable financing or securitization), in each case
without the consent of the Lenders; provided, however, that Borrower may sell
its securities to unaffiliated third parties for fair market value and to
employees under its existing stock option plan.
Section 6.08. Fiscal Year and Accounting Method.
-----------------------------------------------
Borrower shall not, and shall not permit its Subsidiaries to, change
its fiscal year or method of accounting, except as permitted by GAAP.
28
Section 6.09. Liquidation.
-------------------------
Borrower shall not, and shall not permit its Subsidiaries to, (i)
dissolve or liquidate (except for dissolution or liquidation of inactive
Subsidiaries in the ordinary course of business) or (ii) enter into any other
transaction that has a similar effect.
Section 6.10. Material Amendments to Articles of Incorporation or Bylaws.
------------------------------------------------------------------------
Borrower shall not, and shall not permit its Subsidiaries to, amend its
Certificate or Articles of Incorporation (or other charter document) or bylaws
in any material respect, without the consent of the Lenders.
Section 6.11. Executive Compensation.
------------------------------------
(a) Borrower will not increase the salary, bonus, or other compensation
programs (whether in cash, securities, or other property, and whether payment is
deferred or current) of its five most senior executive officers, unless such
compensation increase is approved by a majority of the Board of Directors or a
Compensation Committee of the Board of Directors, a majority of whom shall be
nonemployee directors.
(b) Borrower shall not implement any bonus, profit sharing or other
incentive plans, until such plans are formally adopted by the majority of the
Board of Directors or a Compensation Committee of the Board of Directors, a
majority of whom shall be nonemployee directors. Borrower's executive
compensation shall be consistent with the general compensation policies adopted
by the Compensation Committee of the Board of Directors.
Section 6.12. Restricted Payments.
---------------------------------
Borrower shall not (i) without the consent of the Lenders, declare or
pay any Dividend (other than stock dividends) or make any other cash
distribution on (a) any Common Stock, (b) any Preferred Stock, if at the time of
such declaration or payment, Borrower is in Default with respect to the Loan,
(ii) purchase, redeem, or otherwise acquire any shares of Common Stock or any
shares of Preferred Stock, without the consent of the Lenders, (iii) make any
payments of Indebtedness (other than Senior Obligations) which are pari passu or
subordinated to the Debentures, if at the time of such payment, Borrower is in
Default with respect to the Loan, or (iv) make any prepayments of Indebtedness
(other than Senior Obligations) which are pari passu or subordinated to the
Debentures, unless the Debentures are prepaid on a pro rata basis, without the
consent of the Lenders. Borrower shall not permit its Subsidiaries to enter into
any agreements restricting the payment of dividends from the Subsidiaries to
Borrower, without the consent of the Lenders.
Section 6.13. Consolidation or Merger.
-------------------------------------
Borrower shall not consolidate with or merge into any other
corporation, unless the surviving corporation after such merger or consolidation
will not be in Default and the surviving corporation becomes a party to this
Agreement. Subsidiaries shall only consolidate with or merge into Borrower or
another Subsidiary; provided, however, that a Subsidiary may merge or
29
consolidate with any other entity as long as such Subsidiary is the surviving
corporation of such merger or consolidation, and Borrower is not in Default.
ARTICLE VII - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS
-------------------------------------------------------------
Section 7.01. Financial Ratios.
------------------------------
So long as any of the Debentures have not been redeemed or converted
hereunder, and until such redemption or conversion has been made in full, or
unless the Lenders shall otherwise consent in writing, Borrower, on a
consolidated basis, shall be in compliance with the agreed minimum financial
ratios and standards provided in Schedule 7.01, as of the end of each fiscal
quarter of Borrower and as set forth in its most recent quarterly compliance
certificates delivered pursuant to Section 5.01.
ARTICLE VIII - EVENTS OF DEFAULT
--------------------------------
Section 8.01. Events of Default.
-------------------------------
An "Event of Default" shall exist if any one or more of the following
events (herein collectively called "Events of Default") shall occur and be
continuing:
(a) Borrower shall fail to pay when due (or shall state in writing an
intention not to pay or its inability to pay) any installment of interest on or
principal of, any Debenture or any fee, expense or other payment required
hereunder;
(b) Any representation or warranty made under this Agreement, or any of
the other Loan Documents, or in any certificate or statement furnished or made
to Agent pursuant hereto or in connection herewith or with the Loans hereunder
shall prove to be untrue or inaccurate in any material respect as of the date on
which such representation or warranty was made;
(c) Default shall occur in the performance of any of the covenants or
agreements of Borrower or of its Subsidiaries contained herein, or in any of the
other Loan Documents and the Company shall remain in default for a period of
forty-five (45) days;
(d) Default shall occur in the payment of any Senior Obligations or in
the payment of any other Indebtedness having an aggregate principal amount in
excess of $25,000, or nonmonetary default shall occur in respect of any note,
loan agreement or credit agreement relating to any Indebtedness having an
aggregate principal amount in excess of $25,000, and such default continues for
more than the period of grace, if any, specified therein or any Indebtedness
having an aggregate principal amount in excess of $25,000, shall become due
before its stated maturity by acceleration of the maturity, or any indebtedness
having an aggregate principal amount in excess of $25,000, shall become due by
its terms and shall not be promptly paid or extended;
(e) Any of the Loan Documents shall cease to be legal, valid and
binding agreements enforceable against Borrower in accordance with the
respective terms, or shall in any way be terminated or become or be declared by
30
any court or by Borrower or any Subsidiary in any legal proceeding to be
ineffective or inoperative, or shall in any way whatsoever cease to give or
provide the respective rights, titles, interests, remedies, powers or privileges
stated therein to be created thereby;
(f) Borrower or any of its Subsidiaries holding a substantial portion
of the total consolidated assets of the Company shall (i) apply for or consent
to the appointment of a receiver, trustee, custodian, intervenor or liquidator
of itself, or of all or substantially all of such Person's assets, (ii) file a
voluntary petition in bankruptcy, admit in writing that such Person is unable to
pay such Person's debts as they become due or generally not pay such Person's
debts as they become due, (iii) make a general assignment for the benefit of
creditors, (iv) file a petition or answer seeking reorganization or an
arrangement with creditors or to take advantage of any bankruptcy or insolvency
laws, (v) file an answer admitting the material allegations of, or consent to,
or default in answering, a petition filed against such Person in any bankruptcy,
reorganization or insolvency proceeding, or (vi) take corporate action for the
purpose of effecting any of the foregoing;
(g) An involuntary petition or complaint shall be filed against
Borrower or any of its Subsidiaries seeking bankruptcy or reorganization of such
Person or the appointment of a receiver, custodian, trustee, intervenor or
liquidator of such Person, or all or substantially all of such Person's assets,
and such petition or complaint shall not have been dismissed within sixty (60)
days of the filing thereof or an order, order for relief, judgment or decree
shall be entered by any court of competent jurisdiction or other competent
authority approving a petition or complaint seeking reorganization of Borrower
or its subsidiary or appointing a receiver, custodian, trustee, intervenor or
liquidator of such Person, or of all or substantially all of such Person's
assets;
(h) Any final judgment(s) for the payment of money in excess of the sum
of $50,000 in the aggregate shall be rendered against Borrower or any Subsidiary
and such judgment or judgments shall not be satisfied or discharged prior to the
date on which any of its assets could be lawfully sold to satisfy such judgment;
or
(i) Borrower shall fail to issue and deliver shares of Common Stock as
provided herein upon conversion of the Debentures.
Section 8.02. Remedies Upon Event of Default.
--------------------------------------------
(a) If an Event of Default shall have occurred and be continuing, then
the Lenders may exercise any one or more of the following rights and remedies,
and any other remedies provided in any of the Loan Documents, as the Lenders in
their sole discretion may deem necessary or appropriate:
(i) declare the unpaid Principal Amount (after application of
any payments or installments received by the Lenders) of, and all interest then
accrued but unpaid on, the Debentures and any other liabilities hereunder to be
forthwith due and payable, whereupon the same shall forthwith become due and
payable without presentment, demand, protest, notice of default, notice of
acceleration or of intention to accelerate or other notice of any kind, all of
which Borrower hereby expressly waives, anything contained herein or in the
Debentures to the contrary notwithstanding;
31
(ii) reduce any claim to judgment; and
(iii) without notice of default or demand, pursue and enforce
any of the Lenders' rights and remedies under the Loan Documents, or otherwise
provided under or pursuant to any applicable law or agreement, all of which
rights may be specifically enforced.
(b) In the event of a violation by Borrower of the negative covenants
set forth in Article VI, the Lenders may, in their sole discretion, (i) waive
compliance with the covenants, provided Borrower is in compliance with Section
7.01 hereof; or (ii) require Borrower to redeem the Debentures at the higher of
market value or the unpaid principal amount of the Debentures, together with an
amount equal to an eighteen percent (18%) annual yield on the principal amount
through the Redemption Date, whichever is greater.
Section 8.03. Performance by the Lenders.
----------------------------------------
Should Borrower or any Subsidiary fail to perform any covenant, duty or
agreement contained herein or in any of the other Loan Documents, any Lender or
Agent may perform or attempt to perform such covenant, duty or agreement on
behalf of Borrower. In such event, Borrower shall, at the request of any Lender
or Agent, promptly pay any amount reasonably expended by any Lender or Agent in
such performance or attempted performance to any Lender or Agent at its
principal office, together with interest thereon, at the interest rate specified
in the Debenture, from the date of such expenditure until paid. Notwithstanding
the foregoing, it is expressly understood that any Lender or Agent assumes no
liability or responsibility for the performance of any duties of Borrower or any
Subsidiary hereunder or under any of the other Loan Documents.
Section 8.04. Payment of Expenses Incurred by the Lenders.
---------------------------------------------------------
Upon the occurrence of a Default or an Event of Default, which
occurrence is not cured within the notice provisions, if any, provided herein,
Borrower agrees to pay and shall pay all costs and expenses (including
attorneys' fees and expenses) incurred by any Lender or Agent in connection with
the preservation and enforcement of the Lenders' rights under this Agreement,
the Debentures or any other Loan Document.
ARTICLE IX - REGISTRATION RIGHTS
Section 9.01. "Piggy-Back" Registration.
----------------------------------------
If Borrower proposes to register any of its capital stock under the
1933 Act in connection with the public offering of such securities for its own
account or for the account of its security holders, other than Holders of
Registrable Securities pursuant hereto (a "Piggy-Back Registration Statement"),
except for (i) a registration relating solely to the sale of securities to
participants in Borrower's stock plans or employee benefit plans or (ii) a
registration relating solely to an transaction for which Form S-4 may be used,
then:
(a) Borrower shall give written notice of such determination to each
Holder of Registrable Securities, and each such Holder shall have the right to
request, by written notice given to Borrower within fifteen (15) days of the
date that such written notice was mailed by Borrower to such Holder, that a
32
specific number of Registrable Securities held by such Holder be included in the
Piggy-Back Registration Statement (and related underwritten offering, if any);
(b) If the Piggy-Back Registration Statement relates to an underwritten
offering, the notice given to each Holder shall specify the name or names of the
managing underwriter or underwriters for such offering. In addition, such notice
shall also specify the number of securities to be registered for the account of
Borrower and for the account of its shareholders (other than the Holders of
Registrable Securities), if any;
(c) If the Piggy-Back Registration Statement relates to an underwritten
offering, each Holder of Registrable Securities to be included therein must
agree (i) to sell such Holder's Registrable Securities on the same basis as
provided in the underwriting arrangement approved by Borrower, and (ii) to
timely complete and execute all questionnaires, powers of attorney, indemnities,
hold-back agreements, underwriting agreements and other documents required under
the terms of such underwriting arrangements or by the SEC or by any state
securities regulatory body;
(d) If the managing underwriter or underwriters for the underwritten
offering under the Piggy-Back Registration Statement determines that inclusion
of all or any portion of the Registrable Securities in such offering would
materially adversely affect the ability of the underwriters for such offering to
sell all of the securities requested to be included for sale in such offering at
the best price obtainable therefor, the aggregate number of Registrable
Securities that may be sold by the Holders shall be limited to such number of
Registrable Securities, if any, that the managing underwriter or underwriters
determine may be included therein without such adverse effect as provided below.
If the number of securities proposed to be sold in such underwritten offering
exceeds the number of securities that may be sold in such offering, there shall
be included in the offering, first, up to the maximum number of securities to be
sold by Borrower for its own account and for the account of other stockholders
(other than Holders of Registrable Securities), as they may agree among
themselves, and second, as to the balance, if any, Registrable Securities
requested to be included therein by the Holders thereof (pro rata as between
such Holders based upon the number of Registrable Securities initially proposed
to be registered by each), or in such other proportions as the managing
underwriter or underwriters for the offering may require; provided, however,
that in the event that the number of securities proposed to be sold in such
underwritten offering exceeds the number of securities that may be sold in such
offering pursuant to the terms and conditions set forth above and the Piggy-Back
Registration Statement is a result of public offering by Borrower of its
securities for its own account, there shall be included in the offering, first,
up to the maximum number of securities to be sold by Borrower for its own
account and second, as to the balance, if any, securities to be sold for the
account of Borrower's stockholders (both the Holders of Registrable Securities
requested and such other stockholders of Borrower requested to be included
therein) on a pro rata basis; provided, that the Holders shall be permitted to
sell an aggregate of not less than fifteen percent (15%) of the securities to be
offered in the Borrower's initial public offering to satisfy the underwriters'
over-allotment option;
(e) Holders of Registrable Securities shall have the right to withdraw
their Registrable Securities from the Piggy-Back Registration Statement, but if
the same relates to an underwritten offering, they may only do so during the
time period and on the terms agreed upon among the underwriters for such
underwritten offering and the Holders of Registrable Securities;
33
(f) The exercise of the registration rights of the Holders with respect
to any specific underwritten offering shall be subject to a ninety (90)-day
delay at the request of the managing underwriter; and
(g) All demand and piggy-back registration rights of the Holders shall
terminate when all of the Registrable Securities Then Outstanding may be sold
pursuant to Rule 144(k).
Section 9.02. Shelf Registration.
---------------------------------
Borrower shall file a "shelf" registration statement under the 1933 Act
(the "Shelf Registration") covering all of the Registrable Securities within 180
days of the date of issue of the Debentures, and Borrower shall use its best
efforts to cause the Shelf Registration to be declared effective and to keep the
Shelf Registration continuously effective until all of the Registrable
Securities registered therein cease to be Registrable Securities. The securities
shall cease to be Registrable Securities (a) when the Shelf Registration shall
have become effective under the 1933 Act and such securities shall have been
disposed of pursuant to the Shelf Registration, or (b) such securities shall
have been sold as permitted by Rule 144 under the 1933 Act or the date on which
the Registrable Securities may be sold pursuant to Rule 144(k), whichever is the
first to occur. The holders of the Debentures shall utilize Rule 144 in their
sole discretion to the extent it meets their distribution requirements. Borrower
agrees, if necessary, to supplement or amend the Shelf Registration, as required
by the registration form utilized by Borrower or by the instructions applicable
to such registration form or by the 1933 Act, and Borrower agrees to furnish to
the holders of the Registrable Securities copies of any such supplement or
amendment prior to its being used.
Section 9.03. Obligations of Borrower.
--------------------------------------
Whenever required to effect the registration of any Registrable
Securities pursuant to this Agreement, Borrower shall, as expeditiously as
reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect
to such Registrable Securities and use all reasonable efforts to cause such
registration statement to become effective, and keep such registration statement
effective until the sooner of all such Registrable Securities having been
distributed, or until one hundred twenty (120) days have elapsed since such
registration statement became effective (subject to extension of this period as
provided below);
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
1933 Act with respect to the disposition of all securities covered by such
registration statement, or one hundred twenty (120) days have elapsed since such
registration statement became effective (subject to the extension of this period
as provided below);
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them;
34
(d) Use all reasonable efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that Borrower shall not be required in connection therewith or as a
condition thereto to qualify as a broker-dealer in any states or jurisdictions
or to do business or to file a general consent to service of process in any such
states or jurisdictions;
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement with the managing
underwriter of such offering, in usual and customary form reasonably
satisfactory to Borrower and the Holders of a majority of the Registrable
Securities to be included in such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such an
agreement;
(f) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto and
covered by such registration statement is required to be delivered under the
1933 Act, of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing; and
(g) In the event of the notification provided for in Section 9.03(f)
above, Borrower shall use its best efforts to prepare and file with the SEC (and
to provide copies thereof to the Holders) as soon as reasonably possible an
amended prospectus complying with the 1933 Act, and the period during which the
prospectus referred to in the notice provided for in Section 9.03(f) above
cannot be used and the time period prior to the use of the amended prospectus
referred to in this Section 9.03(g) shall not be counted in the one hundred
twenty (120)-day period of this Section 9.03.
Section 9.04. Furnish Information.
----------------------------------
(a) It shall be a condition precedent to the obligations of Borrower to
take any action pursuant to this Article IX that the selling Holders shall
furnish to Borrower any and all information reasonably requested by Borrower,
its officers, directors, employees, counsel, agents or representatives, the
underwriter or underwriters, if any, and the SEC or any other Governmental
Authority, including, but not limited to: (i) such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities, as shall be required to effect the registration
of their Registrable Securities; and (ii) the identity of and compensation to be
paid to any proposed underwriter or broker-dealer to be employed in connection
therewith.
(b) In connection with the preparation and filing of each registration
statement registering Registrable Securities under the 1933 Act, Borrower shall
give the Holders of Registrable Securities on whose behalf such Registrable
Securities are to be registered and their underwriters, if any, and their
respective counsel and accountants, at such Holders' sole cost and expense
(except as otherwise set forth herein), such access to copies of Borrower's
records and documents and such opportunities to discuss the business of Borrower
with its officers and the independent public accountants who have certified its
financial statements as shall be reasonably necessary in the opinion of such
35
Holders and such underwriters or their respective counsel, to conduct a
reasonable investigation within the meaning of the 1933 Act.
Section 9.05. Expenses of Registration.
---------------------------------------
All expenses, other than underwriting discounts and commissions
applicable to the Registrable Securities sold by selling Holders, incurred in
connection with the registration of the Registrable Securities pursuant to this
Article, including, without limitation, all registration, filing and
qualification fees, printer's expenses, and accounting and legal fees and
expenses of Borrower and the selling Holders, shall be borne by Borrower.
Section 9.06. Indemnification Regarding Registration Rights.
------------------------------------------------------------
If any Registrable Securities are included in a registration statement
under this Article:
(a) To the extent permitted by law, Borrower will indemnify and hold
harmless each Holder, the officers and directors of each Holder, any underwriter
(as defined in the 0000 Xxx) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the 1933 Act or the
1934 Act, against any losses, claims, damages, liabilities (joint or several) or
any legal or other costs and expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action to which they may become subject under the 1933 Act, the 1934 Act or
state law, insofar as such losses, claims, damages, costs, expenses or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (each a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact with respect
to Borrower or its securities contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements therein; (ii) the omission or alleged omission to
state therein a material fact with respect to Borrower or its securities
required to be stated therein or necessary to make the statements therein not
misleading; or (iii) any violation or alleged violation by Borrower of the 1933
Act, the 1934 Act, any state securities law or any rule or regulation
promulgated under the 1933 Act, the 1934 Act or any state securities law.
Notwithstanding the foregoing, the indemnity agreement contained in this Section
9.06(a) shall not apply and Borrower shall not be liable (i) in any such case
for any such loss, claim, damage, costs, expenses, liability or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person, or (ii) for amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
prior written consent of Borrower, which consent shall not be unreasonably
withheld.
(b) To the extent permitted by law, each Holder who participates in a
registration pursuant to the terms and conditions of this Agreement shall
indemnify and hold harmless Borrower, each of its directors and officers who
have signed the registration statement, each Person, if any, who controls
Borrower within the meaning of the 1933 Act, the 1934 Act, any state securities
law or any rule or regulation promulgated under the 1933 Act, the 1934 Act or
any state securities law, each of Borrower's employees, agents, counsel and
representatives, any underwriter and any other Holder selling securities in such
registration statement, or any of its directors or officers, or any person who
controls such Holder, against any losses, claims, damages, costs, expenses,
36
liabilities (joint or several) to which Borrower or any such director, officer,
controlling person, employee, agent, representative, underwriter, or other such
Holder, or director, officer or controlling person thereof, may become subject,
under the 1933 Act, the 1934 Act or other federal or state law, only insofar as
such losses, claims, damages, costs, expenses or liabilities or actions in
respect thereto arise out of or are based upon any Violation, in each case to
the extent and only to the extent that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such. Each such Holder will indemnify any legal or
other expenses reasonably incurred by Borrower or any such director, officer,
employee, agent representative, controlling person, underwriter or other Holder,
or officer, director or of any controlling person thereof, in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section
9.06(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, costs, expenses, liability or action if such settlement is effected
without the prior written consent of the Holder, which consent shall not be
unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this Section
9.06 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 9.06, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
of such counsel to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential conflict of interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action shall not
relieve the indemnifying party of its obligations under this Section 9.06,
except to the extent that the failure results in a failure of actual notice to
the indemnifying party and such indemnifying party is materially prejudiced in
its ability to defend such action solely as a result of the failure to give such
notice.
(d) If the indemnification provided for in this Section 9.06 is
unavailable to an indemnified party under this Section in respect of any losses,
claims, damages, costs, expenses, liabilities or actions referred to herein,
then each indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, costs, expenses, liabilities or actions
in such proportion as is appropriate to reflect the relative fault of Borrower,
on the one hand and of the Holder, on the other, in connection with the
Violation that resulted in such losses, claims, damages, costs, expenses,
liabilities or actions. The relative fault of Borrower, on the one hand, and of
the Holder, on the other, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of the material fact or
the omission to state a material fact relates to information supplied by
Borrower or by the Holder, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
37
(e) Borrower, on the one hand, and the Holders, on the other, agree
that it would not be just and equitable if contribution pursuant to this Section
9.06 were determined by a pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of losses, claims, damages, costs, expenses,
liabilities and actions referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses incurred by such indemnified party in connection with
defending any such action or claim. Notwithstanding the provisions of this
Section 9.06, neither Borrower nor the Holders shall be required to contribute
any amount in excess of the amount by which the total price at which the
securities were offered to the public exceeds the amount of any damages which
Borrower or each such Holder has otherwise been required to pay by reason of
such Violation. No person guilty of fraudulent misrepresentations (within the
meaning of Section 11(f) of the 0000 Xxx) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation.
Section 9.07. Reports Under the 1934 Act.
-----------------------------------------
If Borrower has a class of securities registered pursuant to Section 12
of the 1934 Act, with a view to making available to the Holders the benefits of
Rule 144 promulgated under the 1933 Act ("Rule 144") and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
Borrower to the public without registration or pursuant to a registration on
Form S-3, if applicable, Borrower agrees to use its reasonable efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(b) File with the SEC in a timely manner all reports and other
documents required of Borrower under the 1933 Act and the 1934 Act;
(c) Use its best efforts to include all Common Stock covered by such
registration statement on NASDAQ if the Common Stock is then quoted on NASDAQ;
or list all Common Stock covered by such registration statement on such
securities exchange on which any of the Common Stock is then listed; or, if the
Common Stock is not then quoted on NASDAQ or listed on any national securities
exchange, use its reasonable efforts within eighteen (18) months from the date
of this Agreement to have such Common Stock covered by such registration
statement quoted on NASDAQ or, at the option of Borrower, listed on a national
securities exchange; and
(d) Furnish to any Holder, so long as the Holder owns any Registrable
Securities, (i) forthwith upon request a copy of the most recent annual or
quarterly report of Borrower and such other SEC reports and documents so filed
by Borrower, and (ii) such other information (but not any opinion of counsel) as
may be reasonably requested by any Holder seeking to avail himself of any rule
or regulation of the SEC which permits the selling of any such securities
without registration or pursuant to such form.
38
Section 9.08. Assignment of Registration Rights.
------------------------------------------------
Subject to the terms and conditions of this Agreement, and the
Debentures, the right to cause Borrower to register Registrable Securities
pursuant to this Agreement may be assigned by Holder to any transferee or
assignee of such securities; provided that said transferee or assignee is a
transferee or assignee of at least ten percent (10%) of the Registrable
Securities and provided that Borrower is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act; it being the intention that so long as Holder
holds any Registrable Securities hereunder, either Holder or its transferee or
assignee of at least ten percent may exercise the demand right to registration
and piggy-back registration rights hereunder. Other than as set forth above, the
parties hereto hereby agree that the registration rights hereunder shall not be
transferable or assigned and any contemplated transfer or assignment in
contravention of this Agreement shall be deemed null and void and of no effect
whatsoever.
Section 9.09. Other Matters.
----------------------------
(a) Each Holder of Registrable Securities hereby agrees by acquisition
of such Registrable Securities that, with respect to each offering of the
Registrable Securities, whether each Holder is offering such Registrable
Securities in an underwritten or nonunderwritten offering, such Holder will
comply with Regulation M or such other or additional anti-manipulation rules
then in effect until such offering has been completed, and in respect of any
nonunderwritten offering, in writing will inform Borrower, any other Holders who
are selling shareholders, and any national securities exchange upon which the
securities of Borrower are listed, that the Registrable Securities have been
sold and will, upon Borrower's request, furnish the distribution list of the
Registrable Securities. In addition, upon the request of Borrower, each Holder
will supply Borrower with such documents and information as Borrower may
reasonably request with respect to the subject matter set forth and described in
this Section 9.09.
(b) Each Holder of Registrable Securities hereby agrees by acquisition
of such Registrable Securities that, upon receipt of any notice from Borrower of
the happening of any event which makes any statement made in the registration
statement, the prospectus or any document incorporated therein by reference,
untrue in any material respect or which requires the making of any changes in
the registration statement, the prospectus or any document incorporated therein
by reference, in order to make the statements therein not misleading in any
material respect, such Holder will forthwith discontinue disposition of
Registrable Securities under the prospectus related to the applicable
registration statement until such Holder's receipt of the copies of the
supplemented or amended prospectus, or until it is advised in writing by
Borrower that the use of the prospectus may be resumed, and has received copies
of any additional or supplemental filings which are incorporated by reference in
the prospectus.
39
ARTICLE X - BOARD OF DIRECTORS
------------------------------
Section 10.01. Board of Directors Representation or Attendance by Observer.
--------------------------------------------------------------------------
(a) Borrower herewith agrees that Agent shall have the right from time
to time to designate a nominee to serve as a member of the Board of Directors.
In the event of a monetary Default under Section 8.01 hereof, the Agent shall
have the right to designate one (1) additional nominee to serve as a member of
the Board of Directors. Borrower will nominate and use its best efforts to
secure the election of such designee(s) as director(s) of Borrower. During such
time as Agent has not exercised such rights, the Agent shall have the right to
designate an observer, who shall be entitled to attend and participate (but not
vote) in all meetings of the Board of Directors and to receive all notices,
information, correspondence and communications sent by Borrower to members of
the Board of Directors. All costs and expenses incurred in connection therewith
by any such designated director(s) or observer, or by Agent on behalf of such
director(s) or observer, shall be reimbursed by Borrower.
(b) Any such director or observer shall, if requested to do so, absent
himself or herself from the meeting in the event of, and so long as, the Board
of Directors are considering and acting on matters pertaining to any rights or
obligations of Borrower or the Lender under this Agreement, the Debentures, the
other Loan Documents.
Section 10.02. Limitation of Authority of Persons Designated as a Director
--------------------------------------------------------------------------------
Nominee.
--------
It is provided and agreed that the actions and advice of any person
while serving pursuant to Section 10.01 as a director or an observer at meetings
of the Board of Directors shall be construed to be the actions and advice of
that person alone and not be construed as actions of the Lender as to any notice
of requirements or rights of Lender under this Agreement, the Debentures, or the
other Loan Documents nor as actions of the Lender to approve modifications,
consents, amendments or waivers thereof; and all such actions or notices shall
be deemed actions or notices of the Lender only when duly provided in writing
and given in accordance with the provisions of this Agreement.
Section 10.03. Nonliability of the Lenders.
------------------------------------------
The relationship between Borrower and the Lenders is, and shall at all
times remain, solely that of borrower and lender. The Lenders neither undertake
nor assume any responsibility or duty to Borrower to review, inspect, supervise,
pass judgment upon, or inform Borrower of any matter in connection with any
phase of Borrower's business, operations, or condition, financial or otherwise.
Borrower shall rely entirely upon its own judgment with respect to such matters,
and any review, inspection, supervision, exercise of judgment, or information
supplied to Borrower by the Lenders, or any representative or agent of the
Lenders, in connection with any such matter is for the protection of the
Lenders, and neither Borrower nor any third party is entitled to rely thereon.
40
ARTICLE XI - AGENCY AND INTER-LENDER PROVISIONS
-----------------------------------------------
Section 11.01. The Lenders' Representations and Warranties to Other Lenders.
----------------------------------------------------------------------------
Each Lender represents and warrants to the other Lenders and the Agent:
(a) It is legal for it to make its portion of the Loan, and the making
of such portion of the Loan complies with laws applicable to it;
(b) It has made, without reliance upon any other Lenders, its own
independent review (including any desired investigations and inspections) of,
and it accepts and approves, the Loan, this Agreement and the associated
documents and all other matters and information which it deems pertinent. It
acknowledges that the Loan Documents are a complete statement of all
understandings and respective rights and obligations between and among the
Lenders, Subsidiaries and Borrowers regarding the Loan;
(c) None of the Lenders have made any express or implied representation
or warranty to any other Lender with respect to this transaction;
(d) It will, independently and without reliance upon any other Lender,
and based upon such documents and information as it shall deem appropriate at
the time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement, and will make such
investigation as it deems necessary to inform itself as to the Loan, the Loan
Documents, Borrower and any collateral; provided, however, nothing contained in
this Section shall limit Agent's obligation to provide the other Lenders with
the information and documents Agent is expressly required to deliver under this
Agreement;
(e) The relationship of each Lender is, and shall at all times remain,
solely that of each Lender of its respective Loan. The Lenders are not partners
or joint venturers in connection with the Loan; and
(f) The Loan Documents executed by the Lenders are valid and binding
obligations of the Lenders.
Section 11.02. Waiver of Loan Provisions or Interest or Principal Payments.
---------------------------------------------------------------------------
A waiver of an interest or principal payment, a declaration of a
Default or any amendment, modification or waiver of this Agreement or the
Debentures will require the consent of the Lenders.
Section 11.03. Agency.
----------------------
(a) Each of the Lenders hereby designates and appoints Renaissance
Group as its Agent under this Agreement and authorizes the Agent to take such
action on its behalf under the provisions of this Agreement and the other Loan
Documents and to exercise such powers as are set forth herein or therein,
together with such other powers as are reasonable incidental thereto. In
performing its functions and duties under this Agreement, the Agent shall act
solely as agent of the Lenders and does not assume and shall not be deemed to
41
have assumed any obligation toward or relationship of agency or trust with or
for Borrower. The Agent may perform any of its duties under this Agreement, or
under the other Loan Documents, by or through its agents or employees.
(b) The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement, in the other Loan Documents. Except as
expressly provided herein, the duties of the Agent shall be mechanical and
administrative in nature. The Agent shall have and may use its sole discretion
with respect to exercising or refraining from taking any actions which the Agent
is expressly entitled to take or assert under this Agreement, the other Loan
Documents. The Agent shall not have by reason of this Agreement a fiduciary
relationship with respect to the Lenders. Nothing in this Agreement or any of
the other Loan Documents, express or implied, is intended to or shall be
construed to impose upon the Agent any obligations in respect of this Agreement,
any of the other Loan Documents except as expressly set forth herein or therein.
If the Agent seeks the consent or approval of the Lenders to the taking or
refraining from taking any action hereunder, the Agent shall send notice thereof
to the Lenders. The Agent may employ agents, co-agents and attorneys-in-fact and
shall not be responsible to the Lenders or Borrower, except as to money or
securities received by it or its authorized agents, for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care.
(c) Neither the Agent nor any of its officers, directors, employees or
agents shall be liable to the Lenders for any action taken or omitted by it or
any of them under this Agreement, any of the other Loan Documents, or in
connection herewith or therewith, except that no Person shall be relieved of any
liability imposed by law, intentional tort or gross negligence. The Agent shall
not be not be responsible to the Lenders for any recitals, statements,
representations or warranties contained in this Agreement or for the execution,
effectiveness, genuineness, validity, enforceability, collectability, or
sufficiency of this Agreement, any of the other Loan Documents or any of the
transactions contemplated thereby, or for the financial condition of any of
Borrowers. The Agent shall not be required to make any inquiry concerning either
the performance or observance of any of the terms, provisions or conditions of
this Agreement, any of the other Loan Documents or the financial condition of
Borrower, or the existence or possible existence of any Default or Event of
Default. Agent shall give the Lenders notice of any Default or Event of Default
of which Agent has actual notice. The Agent may at any time request instructions
from the Lenders with respect to any actions or approvals which by the terms of
this Agreement or of any of the other Loan Documents the Agent is permitted or
required to take or to grant, and if such instructions are promptly requested,
the Agent shall be absolutely entitled to refrain from taking any action or to
withhold any approval and shall not be under any liability whatsoever to any
Person for refraining from any action or withholding any approval under any of
the Loan until it shall have received such instructions from the Lenders.
Without limiting the foregoing, the Lenders shall not have any right of action
whatsoever against the Agent as a result of the Agent acting or refraining from
acting under this Agreement, any of the other Loan Documents in accordance with
the instructions of the Lenders.
(d) The Agent shall be entitled to rely upon any written notices,
statements, certificates, orders or other documents or any telephone message
believed by it in good faith to be genuine and correct and to have been signed,
sent or made by the proper Person, and with respect to all matters pertaining to
this Agreement, any of the other Loan Documents and its duties hereunder or
thereunder, upon advice of counsel selected by it.
42
(e) To the extent that the Agent is not reimbursed and indemnified by
Borrower, the Lenders will reimburse and indemnify the Agent for and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, advances or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent in any way relating to or arising out of this Agreement, any of the other
Loan Documents or any action taken or omitted by the Agent under this Agreement,
any of the other Loan Documents. The obligations of the Lenders under this
indemnification provision shall survive the payment in full of the Loans and the
termination of this Agreement.
ARTICLE XII - MISCELLANEOUS
---------------------------
Section 12.01. Strict Compliance.
---------------------------------
Any waiver by the Lenders of any breach or any term or condition of
this Agreement, the other Loan Documents shall not be deemed a waiver of any
other breach, nor shall any failure to enforce any provision of this Agreement,
the other Loan Documents operate as a waiver of such provision or of any other
provision, nor constitute nor be deemed a waiver or release of Borrower for
anything arising out of, connected with or based upon this Agreement or the
other Loan Documents.
Section 12.02. Waivers and Modifications.
-----------------------------------------
All modifications, consents, amendments or waivers (herein "Waivers")
of any provision of this Agreement, the Debentures or any other Loan Documents,
and any consent to departure therefrom, shall be effective only if the same
shall be in writing by the Lenders holding a majority of the principal amount of
the Debentures and then shall be effective only in the specific instance and for
the purpose for which given. No notice or demand given in any case shall
constitute a waiver of the right to take other action in the same, similar or
other instances without such notice or demand. No failure to exercise, and no
delay in exercising, on the part of Agent or any Lender, any right hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise any other
right. The rights of any Lender hereunder under the other Loan Documents shall
be in addition to all other rights provided by law.
Section 12.03. Limitation on Liability.
---------------------------------------
The duties, warranties, covenants and promises arising from the Loan
Documents of each Lender to Borrower shall be several and not joint, and
Borrower shall have no legal or equitable cause of action against any Lender (or
its successors or assigns) for any liability of any other Lender (or its
successors or assigns).
Section 12.04. Choice of Forum; Consent to Service of Process and Jurisdiction.
-------------------------------------------------------------------------------
Any suit, action or proceeding against Borrower with respect to this
Agreement or the Debentures or any judgment entered by any court in respect
thereof, may be brought in the courts of the State of Texas, County of Dallas,
or in the United States federal courts located in the State of Texas, as each
Lender in its sole discretion may elect, and Borrower hereby submits to the
43
nonexclusive jurisdiction of such courts for the purpose of any such suit,
action or proceeding. Borrower hereby agrees that service of all writs, process
and summonses in any such suit, action or proceeding brought in the State of
Texas may be brought upon, and Borrower hereby irrevocably appoints, the CT
Corporation System, Dallas, Texas, as its true and lawful attorney-in-fact in
the name, place and stead of Borrower to accept such service of any and all such
writs, process and summonses. Borrower hereby irrevocably waives any objections
which it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any Debenture brought
in such courts, and hereby further irrevocably waives any claim that any such
suit, action or proceeding brought in any such court has been brought in any
inconvenient forum.
Section 12.05. Arbitration.
---------------------------
(a) Upon the demand of the Lenders or Borrower (collectively the
"parties"), made before the institution of any judicial proceeding or not more
than sixty (60) days after service of a complaint, third party complaint,
cross-claim or counterclaim or any answer thereto or any amendment to any of the
above, any Dispute (as defined below) shall be resolved by binding arbitration
in accordance with the terms of this arbitration clause. A "Dispute" shall
include any action, dispute, claim, or controversy of any kind, whether founded
in contract, tort, statutory or common law, equity, or otherwise, now existing
or hereafter occurring between the parties arising out of, pertaining to or in
connection with this Agreement, any document evidencing, creating, governing, or
securing any indebtedness guaranteed pursuant to the terms hereof, or any
related agreements, documents, or instruments (the "Documents"). The parties
understand that by this Agreement they have decided that the Disputes may be
submitted to arbitration rather that being decided through litigation in court
before a judge or jury and that once decided by an arbitrator the claims
involved cannot later be brought, filed, or pursued in court. If Borrower shall
fail to pay (or shall state in writing an intention not to pay or its inability
to pay) not later than three (3) days after the due date, any installment of
interest on or principal of, any Debenture or any fee, expense or other payment
required hereunder, the Lenders may, at their option, enforce their rights
outside the arbitration provision found in this Section 12.05 or any Debenture.
(b) Arbitrations conducted pursuant to this Agreement, including
selection of arbitrators, shall be administered by the American Arbitration
Association ("Administrator") pursuant to the Commercial Arbitration Rules of
the Administrator. Arbitrations conducted pursuant to the terms hereof shall be
governed by the provisions of the Federal Arbitration Act (Title 9 of the United
States Code), and to the extent the foregoing are inapplicable, unenforceable or
invalid, the laws of the State of Texas. Judgment upon any award rendered
hereunder may be entered in any court having jurisdiction; provided, however,
that nothing contained herein shall be deemed to be a waiver by any party that
is a bank of the protections afforded to it under 12 U.S.C. 91 or similar
governing state law. Any party who fails to submit to binding arbitration
following a lawful demand by the opposing party shall bear all costs and
expenses, including reasonable attorneys' fees, incurred by the opposing party
in compelling arbitration of any Dispute.
(c) No provision of, nor the exercise of any rights under, this
arbitration clause shall limit the right of any party to (i) foreclose against
any real or personal property collateral or other security, (ii) exercise
self-help remedies (including repossession and set off rights) or (iii) obtain
provisional or ancillary remedies such as injunctive relief, sequestration,
attachment, replevin, garnishment, or the appointment of a receiver from a court
44
having jurisdiction. Such rights can be exercised at any time except to the
extent such action is contrary to a final award or decision in any arbitration
proceeding. The institution and maintenance of an action as described above
shall not constitute a waiver of the right of any party, including the
plaintiff, to submit the Dispute to arbitration, nor render inapplicable the
compulsory arbitration provisions hereof. Any claim or Dispute related to
exercise of any self-help, auxiliary or other exercise of rights under this
Section shall be a Dispute hereunder.
(d) Arbitrator(s) shall resolve all Disputes in accordance with the
applicable substantive law of the State of Texas. Arbitrator(s) may make an
award of attorneys' fees and expenses if permitted by law or the agreement of
the parties. All statutes of limitation applicable to any Dispute shall apply to
any proceeding in accordance with this arbitration clause. Any arbitrator
selected to act as the only arbitrator in a Dispute shall be required to be a
practicing attorney with not less than five (5) years practice in commercial law
in the State of Texas. With respect to a Dispute in which the claims or amounts
in controversy do not exceed five hundred thousand dollars ($500,000), a single
arbitrator shall be chosen and shall resolve the Dispute. In such case the
arbitrator shall have authority to render an award up to but not to exceed five
hundred thousand dollars ($500,000), including all damages of any kind
whatsoever, costs, fees and expenses. Submission to a single arbitrator shall be
a waiver of all parties' claims to recover more than five hundred thousand
dollars ($500,000). A Dispute involving claims or amounts in controversy
exceeding five hundred thousand dollars ($500,000) shall be decided by a
majority vote of a panel of three arbitrators ("Arbitration Panel"), one of whom
must possess the qualifications to sit as a single arbitrator in a Dispute
decided by one arbitrator. If the arbitration is consolidated with one conducted
pursuant to the terms of a guaranty of the Indebtedness, then the Arbitration
Panel shall be one which meets the criteria set forth between the Lenders and
Borrower. Arbitrator(s) may, in the exercise of their discretion, at the written
request of a party, (i) consolidate in a single proceeding any multiple party
claims that are substantially identical and all claims arising out of a single
loan or series of loans, including claims by or against borrower(s), guarantors,
sureties and/or owners of collateral if different from Borrower, and (ii)
administer multiple arbitration claims as class actions in accordance with Rule
23 of the Federal Rules of Civil Procedure. The arbitrator(s) shall be empowered
to resolve any dispute regarding the terms of this Agreement or any Dispute or
any claim that all or any part (including this provision) is void or voidable
but shall have no power to change or alter the terms of this Agreement. The
award of the arbitrator(s) shall be in writing and shall specify the factual and
legal basis for the award.
(e) To the maximum extent practicable, the Administrator, the
arbitrator(s) and the parties shall take any action necessary to require that an
arbitration proceeding hereunder be concluded within one hundred eighty (180)
days of the filing of the Dispute with the Administrator. The arbitrator(s)
shall be empowered to impose sanctions for any party's failure to proceed within
the times established herein. Arbitration proceedings hereunder shall be
conducted in Texas at a location determined by the Administrator. In any such
proceeding a party shall state as a counterclaim any claim which arises out of
the transaction or occurrence or is in any way related to the Loan Documents
which does not require the presence of a third party which could not be joined
as a party in the proceeding, The provisions of this arbitration clause shall
survive any termination, amendment, or expiration of the Loan Documents and
repayment in full of sums owed to the Lenders by Borrower unless the parties
otherwise expressly agree in writing. Each party agrees to keep all Disputes and
arbitration proceedings strictly confidential, except for disclosures of
information required in the ordinary course of business of the parties or as
required by applicable law or regulation.
45
Section 12.06. Invalid Provisions.
----------------------------------
If any provision of any Loan Document is held to be illegal, invalid or
unenforceable under present or future laws during the term of this Agreement,
such provision shall be fully severable; such Loan Document shall be construed
and enforced as if such illegal, invalid or unenforceable provision had never
comprised a part of such Loan Document; and the remaining provisions of such
Loan Document shall remain in full force and effect and shall not be affected by
the illegal, invalid or unenforceable provision or by its severance from such
Loan Document. Furthermore, in lieu of each such illegal, invalid or
unenforceable provision shall be added as part of such Loan Document a provision
mutually agreeable to Borrower and the Lenders as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and be legal,
valid and enforceable. In the event Borrower and the Lenders are unable to agree
upon a provision to be added to the Loan Document within a period of ten (10)
business days after a provision of the Loan Document is held to be illegal,
invalid or unenforceable, then a provision acceptable to independent
arbitrators, such to be selected in accordance with the provisions of the
American Arbitration Association, as similar in terms to the illegal, invalid or
unenforceable provision as is possible and be legal, valid and enforceable shall
be added automatically to such Loan Document. In either case, the effective date
of the added provision shall be the date upon which the prior provision was held
to be illegal, invalid or unenforceable.
Section 12.07. Maximum Interest Rate.
-------------------------------------
(a) Regardless of any provision contained in any of the Loan Documents,
the Lenders shall never be entitled to receive, collect or apply as interest on
the Debentures any amount in excess of interest calculated at the Maximum Rate,
and, in the event that any Lender ever receives, collects or applies as interest
any such excess, the amount which would be excessive interest shall be deemed to
be a partial prepayment of principal and treated hereunder as such; and, if the
principal amount of the Obligation is paid in full, any remaining excess shall
forthwith be paid to Borrower. In determining whether or not the interest paid
or payable under any specific contingency exceeds interest calculated at the
Maximum Rate, Borrower and the Lenders shall, to the maximum extent permitted
under applicable law, (i) characterize any nonprincipal payment as an expense,
fee or premium rather than as interest, (ii) exclude voluntary prepayments and
the effects thereof, and (iii) amortize, pro rate, allocate and spread, in equal
parts, the total amount of interest throughout the entire contemplated term of
the Debentures; provided that, if the Debentures are paid and performed in full
prior to the end of the full contemplated term thereof, and if the interest
received for the actual period of existence thereof exceeds interest calculated
at the Maximum Rate, the Lenders shall refund to Borrower the amount of such
excess or credit the amount of such excess against the principal amount of the
Debentures and, in such event, the Lenders shall not be subject to any penalties
provided by any laws for contracting for, charging, taking, reserving or
receiving interest in excess of interest calculated at the Maximum Rate.
(b) "Maximum Rate" shall mean, on any day, the highest nonusurious rate
of interest permitted by applicable law on such day that at any time, or from
time to time, may be contracted for, taken, reserved, charged or received on the
Indebtedness evidenced by the Debentures under the laws which are presently in
effect of the United States of America and the laws of any other jurisdiction
which are or may be applicable to the holders of the Debentures and such
Indebtedness or, to the extent permitted by law, under such applicable laws of
46
the United States of America and the laws of any other jurisdiction which are or
may be applicable to the holder of the Debentures and which may hereafter be in
effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.
Section 12.08. Participations and Assignments of the Debentures.
----------------------------------------------------------------
(a) The Lenders and the Agent shall have the right to enter into a
participation agreement with any other party or its Affiliates with respect to
the Debentures, or to sell all or any part of the Debentures, but any
participation or sale shall not affect the rights and duties of any such Lender
or the Agent hereunder vis-a-vis Borrower. In the event that all or any portion
of the Loan shall be, at any time, assigned, transferred or conveyed to other
parties, any action, consent or waiver (except for compromise or extension of
maturity), to be given or taken by any Lender or the Agent hereunder (herein
"Action"), shall be such action as taken by the holders of a majority in amount
of the Principal Amount of the Debentures then outstanding, as such holders are
recorded on the books of Borrower and represented by the Agent as described in
subsection (b) below.
(b) Assignment or sale of the Debentures shall be effective on the
books of Borrower only upon (i) endorsement of the Debenture, or part thereof,
to the proposed new holder, along with a current notation of the amount of
payments or installments received and net Principal Amount yet unfunded or
unpaid, and presentment of such Debenture to Borrower for issue of a replacement
Debenture, or Debentures, in the name of the new holder; and (ii) delivery of an
opinion of counsel, reasonably satisfactory to Borrower, that transfer shall not
require registration or qualification under applicable state or federal
securities laws.
(c) The Debentures may be sold, transferred or assigned only to
Affiliates of the Lenders or permitted transferees in multiples of $50,000.
Section 12.09. Confidentiality.
-------------------------------
(a) All financial reports or information that are furnished to the
Lenders or Holders, or their respective director designees or other
representatives, pursuant to this Agreement or pursuant to the Debentures, the
other Loan Documents shall be treated as confidential unless and to the extent
that such information has been otherwise disclosed by Borrower, but nothing
herein contained shall limit or impair the Lenders' or Holders' right to
disclose such reports to any appropriate Governmental Authority, or to use such
information to the extent pertinent to an evaluation of the Obligation, or to
enforce compliance with the terms and conditions of this Agreement, or to take
any lawful action which the Lenders or Holders deem necessary to protect their
respective interests under this Agreement.
(b) The Lenders and the Agent shall use their reasonable efforts to
protect and preserve the confidentiality of such information, except for such
disclosure as shall be required for compliance by the Lenders or their
respective director designees with SEC reporting requirements or any
administrative or judicial proceeding or otherwise as a matter of law. The
provisions of Section 5.01 notwithstanding, Borrower may refuse to provide
information as required pursuant thereto to an assignee or successor in interest
to the Lenders, unless and until such assignee or successor shall have executed
an agreement to maintain the confidentiality of the information as provided
herein.
47
Section 12.10. Binding Effect.
------------------------------
The Loan Documents shall be binding upon and inure to the benefit of
Borrower and the Lenders and their respective successors, assigns and legal
representatives; provided, however, that Borrower may not, without the prior
written consent of the Lenders, assign any rights, powers, duties or obligations
thereunder.
Section 12.11. No Third Party Beneficiary.
------------------------------------------
The parties do not intend the benefits of this Agreement to inure to
any third party, nor shall this Agreement be construed to make or render the
Lenders liable to any materialman, supplier, contractor, subcontractor,
purchaser or lessee of any property owned by Borrower, or for debts or claims
accruing to any such persons against Borrower. Notwithstanding anything
contained herein, in the Debentures, or in any other Loan Document, no conduct
by any or all of the parties hereto, before or after signing this Agreement or
any other Loan Document, shall be construed as creating any right, claim or
cause of action against the Lenders, or any of their respective officers,
directors, agents or employees, in favor of any materialman, supplier,
contractor, subcontractor, purchaser or lessee of any property owned by
Borrower, nor to any other person or entity other than Borrower.
Section 12.12. Entirety.
------------------------
This Agreement and the Debentures, the other Loan Documents, and any
other documents or instruments issued or entered into pursuant hereto and
thereto contain the entire agreement between the parties and supersede all prior
agreements and understandings, written or oral (if any), relating to the subject
matter hereof and thereof.
Section 12.13. Headings.
------------------------
Section headings are for convenience of reference only and, except as a
means of identification of reference, shall in no way affect the interpretation
of this Agreement.
Section 12.14. Survival.
------------------------
All representations and warranties made by Borrower herein shall
survive delivery of the Debentures and the making of the Loans.
Section 12.15. Multiple Counterparts.
-------------------------------------
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same agreement, and any of the
parties hereto may execute this Agreement by signing any such counterpart.
48
Section 12.16. Knowledge of Borrower.
-------------------------------------
As used herein or in any of the other Loan Documents, all references
"to Borrower's best knowledge" or "to the knowledge of Borrower" or words or
phrases of similar import (whether or not modified by any additional phrase)
shall in each case mean the knowledge of Borrower, the Subsidiaries or their
respective executive officers, directors and principal shareholders.
Section 12.17. Notices.
-----------------------
(a) Any notices or other communications required or permitted to be
given by this Agreement or any other documents and instruments referred to
herein must be (i) given in writing and personally delivered, mailed by prepaid
certified or registered mail or sent by overnight service, such as FedEx, or
(ii) made by telex or facsimile transmission delivered or transmitted to the
party to whom such notice or communication is directed, with confirmation
thereupon given in writing and personally delivered or mailed by prepaid
certified or registered mail.
(b) Any notice to be mailed, sent or personally delivered shall be
mailed or delivered to the principal offices of the party to whom such notice is
addressed, as that address is specified herein below. Any such notice or other
communication shall be deemed to have been given (whether actually received or
not) on the day it is mailed, postage prepaid, or sent by overnight service or
personally delivered or, if transmitted by telex or facsimile transmission, on
the day that such notice is transmitted; provided, however, that any notice by
telex or facsimile transmission, received by any Borrower or the Lenders after
4:00 p.m., Standard Time, at the recipient's address, on any day, shall be
deemed to have been given on the next succeeding business day. Any party may
change its address for purposes of this Agreement by giving notice of such
change to the other parties.
If to Borrower to:
Simtek Corporation
0000 Xxxxx Xxxxxxx Xxxx., Xxxxx 000
Xxxxxxxx Xxxxxxx, XX 00000
Attn.: Xxxxxxx X. Xxxxxxxx
President and Chief Executive Officer
719/531-9444
719/000-0000 (fax)
with a copy to:
Xxxxx X. Xxxxxx, Esq.
Holme, Xxxxxxx & Xxxx LLP
0000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000-0000
303/861-7000
303/000-0000 (fax)
49
If to the Lenders to:
Renaissance Capital Growth & Income Fund III, Inc.
Renaissance US Growth & Income Trust PLC
0000 Xxxxx Xxxxxxx Xxxxxxxxxx, Xxxxx 000-XX00
Xxxxxx, Xxxxx 00000
214/891-8294
214/000-0000 (fax)
with a copy to:
Xxxxxx X. Xxxxxx, Esq.
Xxxxx, Xxxxxx & Xxxxxx LLP
0000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
214/939-4906
214/000-0000 (fax)
If to Agent to:
Renaissance Capital Group, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxxxxx, Xxxxx 000-XX00
Xxxxxx, Xxxxx 00000
214/891-8294
214/000-0000 (fax)
with a copy to:
Xxxxxx X. Xxxxxx, Esq.
Xxxxx, Xxxxxx & Xxxxxx LLP
0000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
214/939-4906
214/000-0000 (fax)
Any notice delivered personally in the manner provided herein will be
deemed given to the party to whom it is directed upon the party's (or its
agent's) actual receipt. Any notice addressed and mailed in the manner provided
here will be deemed given to the party to whom it is addressed at the close of
business, local time of the recipient, on the fourth (4th) business day after
the day it is placed in the mail, or, if earlier, the time of actual receipt.
50
Section 12.18. Governing Law.
-----------------------------
THIS LOAN AGREEMENT HAS BEEN PREPARED, IS BEING EXECUTED AND DELIVERED,
AND IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS, AND THE SUBSTANTIVE LAWS
OF SUCH STATE AND THE APPLICABLE FEDERAL LAWS OF THE UNITED STATES OF AMERICA
SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS
LOAN AGREEMENT.
51
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be
executed and delivered, as of the date and year first above written.
BORROWER:
SIMTEK CORPORATION
By:
--------------------------------------
Xxxxxxx X. Xxxxxxxx, President and
Chief Executive Officer
LENDERS:
RENAISSANCE US GROWTH & INCOME TRUST, PLC
By: Renaissance Capital Group, Inc.,
Investment Manager
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
RENAISSANCE CAPITAL GROWTH & INCOME FUND
III, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
AGENT:
RENAISSANCE CAPITAL GROUP, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
52
SCHEDULES TO CONVERTIBLE LOAN AGREEMENT
Schedule 2.08 Schedule of Brokers/Finders
Schedule 4.03 Schedule of Conflicts or Consents
Schedule 4.05 Schedule of Permitted Liens
Schedule 4.06 Schedule of Any Material Adverse Change
Schedule 4.08 Schedule of Material Agreements
Schedule 4.09 Schedule of Litigation
Schedule 4.10 Schedule of Unpaid Taxes
Schedule 4.11 Schedule of Capitalization
Schedule 4.13 Schedule of Employee Matters
Schedule 4.14 Schedule of Employee Benefit Plans
Schedule 4.15 Schedule of Compliance with Laws Matters
Schedule 4.16 Schedule of Licenses and Permits
Schedule 4.17 Schedule of Contracts
Schedule 4.19 Schedule of Agreements between Borrower and any of
its officers, directors, and principal shareholders,
including employment agreements
Schedule 4.20 Schedule of Subsidiaries
Schedule 4.21 Schedule of Casualties
Schedule 4.25 Schedule of Insurance
Schedule 4.27 Schedule of Real Property
Schedule 4.28 Schedule of Environmental Matters
Schedule 6.01 Schedule of Limitation on Indebtedness
Schedule 6.05 Schedule of Transactions with Affiliates
Schedule 7.01 Schedule of Financial Ratios
53
Schedule 7.01
Financial Ratios
1. DEBT TO NET WORTH RATIO. Borrower agrees to maintain a Debt to Net Worth
Ratio of no greater than 3:1.
2. INTEREST EARNED RATIO. Borrower agrees to maintain an Interest Coverage
Ratio of at least 2:1.
3. CURRENT RATIO. Borrower agrees to maintain a Current Ratio of at
least 1:1.
