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Exhibit 99.1
This BRIDGE LOAN AGREEMENT, dated as of June 29, 2001 (the
"Agreement"), is entered into by and between GLOBAL ELECTION SYSTEMS INC., a
company organized under the laws of the Province of British Columbia, Canada, as
borrower ("Borrower"), and DIEBOLD, INCORPORATED, an Ohio corporation, as lender
("Lender").
RECITALS
A. Lender and Borrower have executed a letter of intent dated as of
June 19, 2001 (the "LOI") pursuant to which Lender and Borrower have agreed to
consider a possible business combination transaction pursuant to which Lender
would acquire all of Borrower Common Stock in exchange for shares of Lender's
common stock at a price of U.S.$1.50 per share of Borrower Common Stock (the
"Merger").
B. In consideration of Borrower's covenants and agreements in the LOI
and this Agreement, Lender has agreed to extend credit to Borrower in an amount
up to U.S. $5,000,000 to provide short-term financing for Borrower's business on
the terms and conditions set forth in this Agreement.
Now, therefore, for good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged, Borrower and each of the
other Loan Parties agree as follows:
I. DEFINITIONS
1.1 Definitions. (a) As used in this Agreement, the following terms
used in this Agreement with initial capital letters will have the respective
meanings set forth in this Section 1.1:
"Affiliate": with respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of such Person, whether through the ownership of voting securities,
by agreement or otherwise; provided that beneficial ownership of 20% or more of
the voting securities of a Person shall be deemed to be control.
"Affiliate Transaction": as defined in Section 6.5.
"Agreement": as defined in the preamble hereto.
"Borrower": as defined in the preamble hereto.
"Borrower Benefit Plans": as defined in Section 3.15(a).
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"Xxxxxxxx Xxxxxx Xxxxx": as defined in Section 3.3(a).
"Borrower Disclosure Letter": as defined in the preamble to Article
III.
"Borrower Financial Statements": as defined in Section 3.7(b).
"Borrower Preferred Stock": as defined in Section 3.3(a).
"Borrower Reports": as defined in Section 3.7(a).
"Business Day": a day other than Saturday, Sunday or a day on which
banks in New York, New York are authorized or required to be closed.
"Canadian Competition Laws": as defined in Section 3.5(b).
"Capital Lease Obligations": any indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
"Capital Stock": with respect to any Person, any shares of a series or
class of stock or any other interest or participation of such Person that
confers the right to receive a share of the profits and losses of, or
distribution of assets of, such Person.
"Code": the Internal Revenue Code of 1986, as amended from time to time
and the Income Tax Act (Canada), as amended from time to time.
"Collateral": the assets and property of the Loan Parties securing the
Liabilities, as more fully described in the Collateral and Guarantee Agreement.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
Property is bound.
"Conversion Price": a price per share of Borrower Common Stock equal to
the lesser of (i) $1.50 (subject to adjustment pursuant to Article IV) (the
"Fixed Conversion Price") or (ii) 85% of the Fair Market Value of the Borrower
Common Stock.
"Convertible Securities": as defined in Section 4.4(b).
"Debt": as defined in Section 2.3 hereof.
"Environmental Laws": any and all laws, rules, orders, regulations,
statutes, ordinances, guidelines, codes, decrees, or other legally enforceable
requirements (including, without limitation, common law) of any United States,
Canadian, state, local, provincial, municipal or other Governmental Authority,
regulating, relating to or imposing liability or standards of conduct concerning
protection of the environment or of human health, or employee health and safety,
as has been, is now, or may at any time hereafter be, in effect.
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"Environmental Permits": any and all permits, licenses, approvals,
registrations, notifications, exemptions and any other authorization required
under any Environmental Law.
"Equity Interests": Capital Stock and all warrants, options or other
rights to acquire Capital Stock.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time, and its Canadian equivalent.
"Event of Default": any of the events specified in Section 7.1,
provided that any requirement for the giving of notice, the lapse of time, or
both, has been satisfied.
"Exchange Act": as defined in Section 3.7(a).
"Existing Indebtedness": the aggregate principal amount of secured and
perfected Indebtedness of Borrower and its Subsidiaries (other than Indebtedness
under this Agreement) in existence on the Closing Date, until such amounts are
repaid.
"Fair Market Value": of a share of Borrower Common Stock will be deemed
to be the weighted average of the trading prices during the five consecutive
trading days immediately prior to the date of mailing of the Notice of
Conversion as reported by Bloomberg Financial LP using the AQR function.
"GAAP": United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants, the statements and
pronouncements of the Financial Accounting Standards Board and such other
statements by such other entities as have been approved by a significant segment
of the accounting profession, which are applicable at the Closing Date.
"Governmental Authority": any nation or government, any state,
provincial or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory, or administrative functions of or
pertaining to government, including, without limitation, any quasi-governmental,
supranational, statutory, environmental entity and any stock exchange, court or
arbitral body.
"Guarantee": a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hazardous Substances": as defined in Section 3.14(b).
"Indebtedness": with respect to any Person, without duplication, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing
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Capital Lease Obligations or the balance deferred and unpaid of the purchase
price of any Property, as well as all Indebtedness of others secured by a Lien
on any asset of such Person (whether or not such Indebtedness is assumed by such
Person) and to the extent not otherwise included, the Guarantee by such Person
of any Indebtedness of any other Person. The amount of any Indebtedness
outstanding as of any date shall be (i) the face amount thereof, in the case of
any Indebtedness with respect to acceptances, letters of credit and similar
facilities, (ii) the accreted value thereof, in the case of any Indebtedness
that does not require current payments of interest, and (iii) the principal
amount thereof, together with any interest thereon that is past due, in the case
of any other Indebtedness, provided, however, that in each case, with respect to
any Indebtedness of any Person secured by a Lien on any asset of such Person and
non-recourse to such Person, the amount of such Indebtedness shall be the lesser
of (A) the principal amount thereof and (B) the fair market value of the
Property subject to such Lien.
"Indemnitee": as defined in Section 8.5(a).
"Initial Closing Date": as defined in Section 2.8 hereof.
"Intellectual Property": as defined in Section 3.17(a)(i).
"Intellectual Property of Borrower": as defined in Section 3.17(a)(ii).
"Knowledge": the actual knowledge of the Persons listed on Schedule 1
and any director or officer of Borrower, if any, not so listed, in each case
after due inquiry.
"Law": as defined in Section 3.5(a).
"Leased Properties": as defined in Section 3.12(a).
"Lender": as defined in the preamble hereto.
"Lender Designee": as defined in Section 5.7.
"Liabilities": all of Borrower's liabilities, obligations and
indebtedness to Lender of any and every kind and nature, whether now or
hereafter owing, arising, due or payable and however evidenced, created,
incurred, acquired or owing, whether primary, secondary, direct, contingent,
fixed or otherwise (including obligations of performance) and whether arising or
existing under written agreement, oral agreement or operation of law, arising
from Borrower's indebtedness and obligations to Lender under this Agreement or
any other Loan Document.
"Lien": with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
any asset and any filing of or agreement
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to give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Loan Amount": as defined in Section 2.1.
"Loan Documents": this Agreement, the Collateral and Guarantee
Agreement, the Warrant, the Registration Rights Agreement, the Stockholder
Indemnity Agreement and the Director and Officer Indemnity Agreement, in each
case executed by the parties thereto and any financing statements, filings or
documents required to be delivered or filed pursuant to any of the foregoing.
"Loan Parties": (i) Borrower and (ii) Borrower's direct and indirect
Subsidiaries as of the Closing Date who are parties to a Collateral and
Guarantee Agreement in their joint and several capacity as guarantors.
"LOI": as defined in the recitals hereto.
"Losses": as defined in Section 8.5(a).
"Material Adverse Effect": any change, effect, violation, inaccuracy,
event or condition that, individually or together with all such changes,
effects, violations, inaccuracies, events or conditions, has had or could
reasonably be expected to (a) have a material adverse effect on the business,
prospects, operations, property or condition (financial or otherwise) of
Borrower and its Subsidiaries, taken as a whole, (b) have a material adverse
effect on the validity or enforceability of this Agreement or any of the other
Loan Documents or the rights or remedies, taken as a whole, of Lender hereunder
or thereunder, or (c) prevent or materially delay any of the Loan Party's or
Lender's ability to consummate the transactions contemplated herein or in any
other Loan Document.
"Material Contracts": as defined in Section 3.13(a).
"Maturity Date": the date that is 180 calendar days after the Closing
Date.
"Measurement Date": as defined in Section 3.3(b).
"Merger": as defined in the recitals hereto.
"Multiemployer Plan": as defined in Section 3.15(c).
"New York Court": as defined in Section 8.14(a).
"Notice of Conversion": as defined in Section 4.1.
"Order": as defined in Section 3.5(a).
"Permits": as defined in Section 3.6.
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"Person": any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, Governmental Authority or any other entity.
"Property": any right or interest in or to property, of any kind
whatsoever, whether real, personal or mixed and whether tangible or intangible,
including, without limitation, Equity Interests.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any Law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its Property or to which such Person or
any of its Property is subject.
"Restricted Payments": as defined in Section 6.1.
"Sale Transaction": any transaction or series of transactions involving
or which would result in (i) the consolidation, merger or other form of
corporate reorganization of the Borrower in which the stockholders of Borrower
immediately prior to such transaction fail to hold such number of shares of
Capital Stock as would represent a majority of the voting power of Borrower or
the surviving entity, as the case may be, following such transaction, (ii) a
sale, lease or exchange by Borrower of all or substantially all of its assets
(including Borrower's Subsidiaries) to a third party, or (iii) the transfer of
more than 50% of the Capital Stock of Borrower to any Person not an Affiliate of
Borrower prior to such transfer.
"Securities Act": as defined in Section 3.7(a).
"Solvent": when used with respect to any Person, means that, as of any
date of determination, (a) the amount of the "present fair saleable value" of
the assets of such Person will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise", as of such date, as such
quoted terms are determined in accordance with applicable Laws governing
determinations of the insolvency of debtors, (b) the "present fair saleable
value", as such quoted term is determined in accordance with applicable Laws
governing determinations of the insolvency of debtors, of the assets of such
Person will, as of such date, be greater than the amount that will be required
to pay the liability, of such Person on its debts as such debts become absolute
and matured, (c) such Person will not have, as of such date, an unreasonably
small amount of capital with which to conduct its business, and (d) such Person
will be able to pay its debts as they mature. For purposes of this definition,
(i) "debt" means liability on a "claim" and (ii) "claim" means any (x) right to
payment, whether or not such a right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured or (y) right to an equitable remedy for
breach of performance if such breach gives rise to a right to payment, whether
or not such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured or unmatured, disputed, undisputed, secured or unsecured.
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"Stock Option Plans": as defined in Section 3.3(b).
"Subsidiary": with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person and (ii) any partnership, one or more of the general partners or managing
general partners of which is such Person or an entity described in clause (i)
and related to such Person.
"Tax Authority": as defined in Section 3.11(b).
"Taxes": as defined in Section 3.11(b).
"Tax Return": as defined in Section 3.11(b).
(b) Unless otherwise specified therein, all terms defined in this
Agreement shall have the defined meanings when used in the other Loan Documents
or any certificate or other document made or delivered pursuant hereto or
thereto.
(c) As used herein and in the other Loan Documents, and any certificate
or other document made or delivered pursuant hereto or thereto, accounting
terms, to the extent not otherwise defined in Section 1.1, shall have the
respective meanings given to them under GAAP.
(d) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(e) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
II. LOAN OBLIGATIONS AND REPAYMENT
2.1 Loan Amount.
(a) Lender hereby agrees, upon and subject to the terms and
conditions of this Agreement, to lend and make available to Borrower up to the
aggregate principal sum of FIVE MILLION DOLLARS (U.S. $5,000,000) (the "Loan
Amount").
(b) Subject to the delivery of the items identified in Section
2.8 hereof, (i) $1,550,000 of the Loan Amount (less a $250,000 origination fee
and $100,000 in respect of Lender's fees and expenses pursuant to Section 8.1,
which will be deducted by Lender from the portion of the Loan Amount to be paid
to Borrower) will be paid to Borrower on the first Business Day immediately
following the Initial Closing Date, and (ii) the balance of the Loan Amount will
be paid to Borrower on the first Business Day following satisfaction of the
conditions set forth in Section 2.9 hereof.
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2.2 Interest. Interest (computed on the basis of a 360-day year or the
actual days elapsed) will accrue on the unpaid balance of the Loan Amount at a
rate per annum of 12%. Such interest shall be payable (i) on the last Business
Day of any calendar quarter, (ii) upon repayment of the Loan Amount pursuant to
Section 2.3, and (iii) if the Loan Amount is to be converted pursuant to Article
IV, on the date of such conversion. All overdue outstanding principal and
interest or other overdue amounts shall bear interest at a rate per annum of 15%
payable on demand.
2.3 Repayment. Subject to Article IV, Borrower shall repay the
aggregate unpaid principal amount of the Loan Amount then owing by Borrower to
Lender, and interest accrued thereon (at the rate specified in Section 2.2
above), together with any costs and expenses or other amounts owing by Borrower
to Lender pursuant to the Loan Documents (together, the "Debt") on the Maturity
Date (or, if earlier, immediately upon demand by Lender following the occurrence
of an Event of Default) to such account of Lender as Lender may designate by
notice to Borrower in writing. All amounts repaid under this Agreement shall be
credited first to interest and then to principal.
2.4 Optional Prepayment. Borrower, at any time, may prepay all or a
portion of the unpaid principal amount of the Loan Amount and interest thereon
prior to the Maturity Date, upon one Business Day's prior notice to Lender, at a
cash price equal to the higher of (i) 145% of the principal amount thereof plus
accrued and unpaid interest or (ii) 145% of the value of the conversion rights
with respect to the principal amount thereof plus accrued and unpaid interest
set forth in Article IV.
2.5 Mandatory Prepayment. Borrower will, simultaneously with the
execution of an agreement constituting a Sale Transaction, prepay the unpaid
principal amount of the Loan Amount at a cash price equal to the higher of (i)
145% of the principal amount thereof plus accrued and unpaid interest or (ii)
145% of the value of the conversion rights with respect to the principal amount
thereof plus accrued and unpaid interest set forth in Article IV.
2.6 No Withholdings. All sums payable by Borrower to Lender under this
Agreement shall be paid without any Lien, set-off, counterclaim, withholding,
deduction or similar claim whatsoever unless required by law, in which event,
Borrower will, simultaneously with the making of the relevant payment under this
Agreement, pay to Lender such additional amount as will result in the receipt by
Lender of the full amount which would otherwise have been receivable and will
supply Lender promptly with evidence satisfactory to Lender that Borrower has
accounted to the relevant authority for the sum withheld or deducted.
2.7 Use of Proceeds. Borrower will use proceeds from the Loan Amount to
finance its working capital needs up through and including the date of the
consummation of the Merger.
2.8 Initial Closing Documentation. On the date hereof (the "Initial
Closing Date"), Lender shall have received each of the following, in form and
substance satisfactory to
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Lender and its counsel, duly executed by each of the parties thereto, and each
such document shall be in full force and effect:
(a) the Collateral and Guarantee Agreement in the form of Exhibit A
attached hereto, together with the certificates representing the shares of
Capital Stock of each of Borrower's Subsidiaries, as well as stock powers with
respect thereto endorsed in blank, and the UCC-1 financing statements;
(b) the Registration Rights Agreement, in the form of Exhibit B
attached hereto;
(c) the Stockholder Indemnity Agreement, in the form of Exhibit C
attached hereto;
(d) the resolutions of the Borrower's Board of Directors relating to
the removal of a member of Borrower's Board and the appointment of Lender's
Designee;
(e) the Hibernia Letter Agreement, in the form of Exhibit D attached
hereto;
(f) the Xxxxxxxx, Xxxxx Letter Agreement, in the form of Exhibit E
attached hereto;
(g) the Warrant, in the form of Exhibit F attached hereto, for 77,500
shares of Borrower Common Stock;
(h) a certificate, executed by the President and Chief Operating
Officer of Borrower, certifying that the representations and warranties set
forth in Article III are true and correct;
(i) resolutions of the Board of Directors of each Loan Party
authorizing (i) the execution, delivery and performance of the Loan Documents to
which such Loan Party is a party, (ii) the consummation of the transactions
contemplated by the Loan Documents to which such Loan Party is a party, and
(iii) all other actions to be taken by each Loan Party in connection with the
Loan Documents to which such Loan Party is a party;
(j) a certificate, executed by the Secretary or Assistant Secretary of
each Loan Party, dated as of the Closing Date, as to (i) the incumbency, and
containing the specimen signature or signatures, of the Person or Persons
authorized to execute the Loan Documents to which such Loan Party is a party,
together with evidence of the incumbency of such Secretary or Assistant
Secretary, and (ii) the authenticity and completeness of the certificate of
incorporation and by-laws (or similar governing documents) of each Loan Party;
(k) certificates of status or good standing of Borrower from the
Registrar of Companies of British Columbia, Canada dated not earlier than seven
days prior to the Closing Date, and of each state or other jurisdiction in which
Borrower is qualified to do business dated not earlier than 14 days prior to the
Closing Date;
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(l) certificates of status or good standing of each of Borrower's
Subsidiaries from the office of the Secretary of State (or similar Governmental
Authority) of the jurisdiction of such Subsidiary's jurisdiction of
incorporation dated not earlier than seven days prior to the Closing Date, and
of each state or other jurisdiction in which such Subsidiary is qualified to do
business dated not earlier than 14 days prior to the Closing Date; and
(m) a legal opinion of United States and Canadian counsel to Borrower
addressed to Lender and dated as of the Closing Date.
2.9 Closings; Conditions to Closings.
(a) The closing of the first installment of the Loan Amount (the
"Initial Closing") will take place at the offices of Xxxxxxxx Xxxxxxxx & Xxxxxx
located at 5400 Renaissance Tower, 0000 Xxx Xxxxxx, Xxxxxx, Xxxxx 00000-0000, at
10:00 a.m. Dallas time.
(b) The closing of the remaining portion of the Loan Amount (the
"Subsequent Closing") will take place at the offices of Xxxxxxxx Xxxxxxxx &
Xxxxxx, at 10:00 a.m. Dallas time, on the Business Day following satisfaction or
waiver of the following conditions:
(i) Written approval from the Toronto Stock Exchange
concerning the transactions contemplated in the Loan Documents, including
without limitation, the Warrant;
(ii) Completion of Lender's due diligence review of Borrower
to Lender or its representatives to Lender's satisfaction in its sole
discretion. The Loan Parties acknowledge and agree that Lender's consummation of
the Initial Closing is not intended to charge Lender with knowledge of any
diligence materials (including the Schedules hereto) prepared and forwarded to
Lender and its representatives on or before the date of such Initial Closing and
that neither Lender nor its representatives was afforded adequate time with
which to digest, investigate and make inquiries concerning the materials
furnished on or prior to the date of the Initial Closing. The Loan Parties
further acknowledge and agree that Lender's consummation of the Initial Closing
does not act as a waiver of Lender's rights to forego consummation of the
Subsequent Closing on the basis of this condition precedent;
(iii) (A) The representations and warranties of the Loan
Parties made in any of the Loan Documents shall be true and correct in all
respects (or, if any such representation is not expressly qualified by
"materiality," "Material Adverse Effect" or words of similar import, then in all
material respects), as of the date of the Subsequent Closing as though made as
of the date of the Subsequent Closing and (B) the Loan Parties shall have
performed and complied in all material respects with all terms, agreements and
covenants contained in this Agreement or in any of the other Loan Documents
required to be performed or complied with by any of the Loan Parties on or
before the date of the Subsequent Closing;
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(iv) No action, suit or proceeding challenging this Agreement
or any of the other Loan Documents or the transactions contemplated hereby or
thereby or seeking to prohibit, alter, prevent or materially delay the
Subsequent Closing or seeking material damages will have been instituted or
threatened by any Person;
(v) No provision of any applicable Law and no Order of any
Governmental Authority will be in effect which will prohibit the consummation of
the Subsequent Closing;
(vi) Prior to the date of the Subsequent Closing, no event
shall have occurred which, individually or when considered together with all
other matters, has had, or could reasonably be expected to have, a Material
Adverse Effect; and
(vii) Lender shall have received a Warrant, in the form of
Exhibit F, for 172,500 shares of Borrower Common Stock.
III. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender as of the Closing
Date that, except as set forth in a letter delivered to Lender simultaneously
with the execution of this Agreement signed by Borrower's President and Chief
Operating Officer and making specific reference to the applicable Section of
this Agreement to which such disclosure relates (the "Borrower Disclosure
Letter"), as follows:
3.1 Existence; Good Standing; Corporate Authority. Each of the Loan
Parties is a corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. Each of the
Loan Parties is extraprovincially registered or otherwise duly licensed or
qualified to do business as a foreign corporation and is in good standing under
the laws of each jurisdiction in which the character of the properties owned or
leased by it or in which the transaction of its business makes such
qualification necessary, except where the failure to be so qualified or to be in
good standing could not reasonably be expected to have a Material Adverse
Effect. Each of the Loan Parties has all requisite corporate power and authority
to own, operate and lease its properties and carry on its business as now
conducted. The copies of the constituent documents of the Loan Parties
previously delivered to Lender are true, correct and complete.
3.2 Authorization, Validity and Effect of Loan Documents. Each Loan
Party has the requisite corporate power and authority to execute and deliver the
Loan Documents to which it is a party. Each of the Loan Documents to which each
Loan Party is a party and the consummation by any of the Loan Parties of the
transactions contemplated hereby and thereby have been duly authorized by all
requisite corporate action on behalf of each Loan Party. Each of the Loan
Documents has been duly and validly executed and delivered by the Loan Parties,
as applicable and constitutes the valid and binding obligations of the Loan
Parties, enforceable against each Loan Party in accordance with their respective
terms, except that (i) such enforceability may be subject to applicable
bankruptcy, insolvency or other similar laws now or hereinafter in
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effect affecting creditors' rights generally, (ii) the availability of the
remedy of specific performance or injunctive or other forms of equitable relief
may be subject to equitable defenses and would be subject to the discretion of
the court before which any proceeding therefor may be brought, and (iii) rights
to indemnification may be limited by public policy considerations.
3.3 Capitalization. (a) The authorized Capital Stock of Borrower
consists of 100,000,000 shares of common stock with no par value per share (the
"Borrower Common Stock") and 20,000,000 shares of convertible voting preferred
stock with no par value per share (the "Borrower Preferred Stock"). The
authorized Capital Stock of each Subsidiary is described on Section 3.3 of the
Borrower Disclosure Letter. Borrower owns all of the issued and outstanding
shares of Capital Stock and Equity Interests of its Subsidiaries, free and clear
of all Liens.
(b) As of the close of business on the last Business Day immediately
preceding the date hereof (the "Measurement Date"), (i) 20,695,340 shares of
Borrower Common Stock were issued and outstanding, each of which was duly
authorized, validly issued, fully paid and nonassessable and issued free of any
preemptive rights, (ii) no shares of Borrower Preferred Stock were issued and
outstanding, and (iii) options to purchase not more than 1,980,000 shares of
Borrower Common Stock in the aggregate were outstanding under Borrower's stock
option plans, each of which is listed on Section 3.3 of the Borrower Disclosure
Letter (the "Stock Option Plans") (including the holders thereof, the expiration
date, the exercise prices thereof and the dates of grant).
(c) Since the Measurement Date, no additional shares of Capital Stock
of Borrower or any of its Subsidiaries have been issued and no Equity Interests
in relation thereto have been granted. Except as set forth on Section 3.3 of the
Borrower Disclosure Letter, neither Borrower nor any Subsidiary has any
outstanding bonds, debentures, notes or other securities or obligations the
holders of which have the right to vote or which are or were convertible into or
exercisable for its respective Capital Stock. There are not at the date of this
Agreement any Equity Interests which obligate Borrower or any of its
Subsidiaries to issue, exchange, transfer or sell any shares of Capital Stock of
Borrower or any of its Subsidiaries, other than shares of Borrower Common Stock
issuable under the Stock Option Plans or awards granted pursuant thereto. There
are no outstanding Contractual Obligations of Borrower or any of its
Subsidiaries (x) to repurchase, redeem or otherwise acquire any shares of
Capital Stock of Borrower or any of its Subsidiaries, or (y) to vote or to
dispose of any shares of the Capital Stock of Borrower or any of its
Subsidiaries. Except as contemplated by this Agreement or as described in this
Section 3.3, none of Borrower or any of its Subsidiaries has any obligation to
issue, transfer or sell any shares of its Capital Stock.
3.4 Other Interests. Except for interests in Borrower's Subsidiaries,
neither Borrower nor any of its Subsidiaries owns, directly or indirectly, any
Capital Stock or interest or investment (whether equity or debt) in any domestic
or foreign corporation, company, partnership, joint venture, business, trust or
other Person.
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3.5 No Conflict; Required Filings and Consents. (a) The execution,
delivery and performance of each Loan Document to which any Loan Party is a
party do not, and the consummation by such Loan Party of the transactions
contemplated hereby and thereby will not, (i) conflict with or violate such Loan
Party's organizational documents, (ii) subject to the making of the filings,
notifications or registrations and obtaining any approvals identified in Section
3.5 of the Borrower Disclosure Letter, conflict with or violate any domestic or
foreign statute, rule, regulation or other legal requirement ("Law") or order,
judgment, injunction or decree ("Order") applicable to any Loan Party or by
which any Property or asset of any Loan Party is bound or affected, or (iii)
result in any material breach of or constitute a default (or an event which with
or without notice or lapse of time or both would become a default) under, result
in the loss of a material benefit under, or give to others any right of purchase
or sale, or any right of termination, amendment, acceleration, increased
payments or cancellation of, or result in the creation of a Lien on any Property
or asset of any Loan Party pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
Contractual Obligation to which any Loan Party is a party or by which any Loan
Party or any Property or asset of any Loan Party is bound or affected.
(b) The execution, delivery and performance of each Loan Document to
which any of the Loan Parties is a party do not, and the consummation by any of
the Loan Parties of the transactions contemplated hereby and thereby will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority, except (i) for (A) the applicable
notification requirements of the Investment Canada Act, as amended, or the
Competition Act (Canada), as amended, if any under either such statute, and the
rules, regulations and policies promulgated thereunder (collectively, the
"Canadian Competition Laws"),and (B) the consents, approvals and authorizations
set forth in Section 3.5 of the Borrower Disclosure Letter, and (ii) where the
failure to obtain any such consent, approval, authorization or permit, or to
make any such filing or notification, could not reasonably be expected to have a
Material Adverse Effect.
3.6 Compliance with Laws. Neither Borrower nor any of its Subsidiaries
is in conflict with, or in default or material violation of, (a) any Law or
Order applicable to Borrower or any of its Subsidiaries or by which any Property
or asset of Borrower or any of its Subsidiaries is bound or affected or (b) any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or Contractual Obligation to which Borrower or any
of its Subsidiaries is a party or by which Borrower or any of its Subsidiaries
or any property or asset of Borrower or any of its Subsidiaries is bound or
affected, and to the Knowledge of Borrower, neither Borrower nor any of its
Subsidiaries is under review or investigation with respect to or has been
threatened to be charged with or given notice of any violation of any Law or
Order. Borrower and its Subsidiaries hold all licenses, permits, orders,
registrations and other authorizations ("Permits") and have taken all actions
required by applicable Law or regulations of any Governmental Authority in
connection with their respective business as now conducted.
3.7 SEC Documents. (a) Borrower has timely filed all forms, reports and
documents required to be filed by it with the Securities and Exchange Commission
(the
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"SEC") since January 1, 1998 (collectively, the "Borrower Reports"). As of their
respective dates, the Borrower Reports (i) complied in all material respects
with the applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and the rules and regulations thereunder and the securities
legislation of the Provinces of British Columbia, Xxxxxx and Ontario, Canada and
(ii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading. The representation in clause (ii) of the preceding sentence does not
apply to any misstatement or omission in any Borrower Report filed prior to the
date of this Agreement which was superseded by a subsequent Borrower Report
filed prior to the date of this Agreement. No Subsidiary of Borrower is required
to file any periodic reports with the SEC or any Canadian securities regulatory
authority under the Exchange Act.
(b) Each of the financial statements included in or incorporated by
reference into the Borrower Reports (including the related notes and schedules)
(the "Borrower Financial Statements") presents fairly, in all material respects,
the consolidated financial position of Borrower and its Subsidiaries as of its
date and, to the extent applicable, the results of operations, retained earnings
or cash flows, as the case may be, of Borrower and its Subsidiaries for the
periods set forth therein (subject, in the case of unaudited statements, to
normal recurring year-end audit adjustments, none of which will be material in
kind or amount), in each case in accordance with GAAP during the periods
involved, except as may be noted therein.
3.8 No Undisclosed Material Liabilities. There are no material
liabilities or obligations of Borrower or any of its Subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise that would result in such a liability, other than (a) liabilities or
obligations disclosed in the Borrower Financial Statements and (b) liabilities
or obligations incurred in the ordinary course of business consistent with past
practices since January 1, 2001, none of which could reasonably be expected to
have a Material Adverse Effect.
3.9 Litigation. There are no actions, suits or proceedings pending,
publicly announced or, to the Knowledge of Borrower, threatened against or
affecting Borrower or any of its Subsidiaries and there are no Orders of any
Governmental Authority outstanding against Borrower or any of its Subsidiaries.
3.10 Absence of Certain Changes. From January 1, 2001 through the date
of this Agreement, Borrower and its Subsidiaries have conducted their respective
businesses in the ordinary course consistent with past practice and there has
not been any Material Adverse Effect, except in either case as have been
disclosed in Borrower's periodic reports filed with the SEC. Since January 1,
2001, Borrower has not taken, and has not permitted any of its Subsidiaries to
take, any of the following actions:
(i) other than dividends and distributions (including
liquidating distributions) by a direct or indirect wholly owned
Subsidiary of Borrower to its
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parent, (i) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its Capital Stock, (ii)
split, combine or reclassify any of its Capital Stock, or (iii)
purchase, redeem or otherwise acquire any shares of Capital Stock of
Borrower or any of its Subsidiaries or any other securities thereof or
any Equity Interests to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber any
shares of its Capital Stock, other than pursuant to the Stock Option
Plans;
(iii) amend its organizational documents;
(iv) acquire by merging or consolidating with, or by
purchasing all or substantially all of the assets of, or in any other
manner, any business or material assets or stock of any Person or
division thereof in a transaction or series of related transactions;
(v) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its Properties or
assets other than the sale of Inventory in the ordinary course of
business; or
(vi) incur or Guarantee any Indebtedness, issue or sell any
debt securities or warrants or other rights to acquire any debt
securities of Borrower or any of its Subsidiaries.
3.11 Taxes. (a) Each of Borrower and its Subsidiaries and any
consolidated, combined, unitary or aggregate group for tax purposes of which
Borrower or any Subsidiary of Borrower is or has been a member has timely filed
all Tax Returns required to be filed by it (after giving effect to any extension
properly granted by a Tax Authority having authority to do so) and has timely
paid (or Borrower has timely paid on its behalf) all Taxes required to be paid
by it (whether or not shown on such Tax Returns), except Taxes that are being
contested in good faith by appropriate proceedings and for which Borrower or the
applicable Subsidiary of Borrower shall have set aside on its books adequate
reserves. Each such Tax Return is complete and accurate in all material
respects. The most recent financial statements contained in the Borrower Reports
reflect an adequate reserve for all material Taxes payable by Borrower and its
Subsidiaries for all taxable periods and portions thereof through the date of
such financial statements. Neither Borrower nor any of its Subsidiaries has
incurred any material liability for Taxes other than in the ordinary course of
business. No event has occurred, and no condition or circumstance exists, which
would present a risk that any material Tax described in the preceding sentence
will be imposed upon Borrower or any Subsidiary of Borrower. No material
deficiencies for any Taxes have been proposed, asserted or assessed against
Borrower or any Subsidiary of Borrower, and no requests for waivers of the time
to assess any such Taxes are pending and no extensions of time to assess any
such Taxes are in effect and no Tax Returns of Borrower or any of its
Subsidiaries are currently being audited by any applicable Tax Authority or are
threatened with any such audit. All material Taxes required to be
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withheld, collected and paid over to any Tax Authority by Borrower and any
Subsidiary of Borrower have been timely withheld, collected and paid over to the
proper Tax Authority. No Tax Authority has imposed a Lien against Borrower or
any of its Subsidiaries or any of their respective Properties for any Taxes
payable pending actions or proceedings by any Tax Authority for assessment or
collection of any Tax. Complete copies of all national, provincial, federal,
state and local income or franchise Tax Returns that have been filed by Borrower
and each Subsidiary of Borrower for all taxable years beginning on or after
January 1, 1994, all extensions filed with any Tax Authority that are currently
in effect and all written communications with a Tax Authority relating thereto
have been made available to Purchaser and its representatives. No written claim
has been made by a Tax Authority in a jurisdiction where Borrower or any
Subsidiary of Borrower does not file Tax Returns that it is or may be subject to
taxation by the jurisdiction. Neither Borrower nor any Subsidiary of Borrower is
party to, nor has any liability under (including liability with respect to any
predecessor entity), any indemnification, allocation or sharing agreement with
respect to Taxes.
(b) For purposes of this Agreement, (i) "Taxes" means all taxes,
charges, fees, levies or other assessments imposed by any federal, state, or
local taxing authority (including any non-U.S. taxing authority), including, but
not limited to, income, gross receipts, excise, property, sales, use, transfer,
payroll, license, ad valorem, value added, withholding, social security,
national insurance (or other similar contributions or payments), franchise,
estimated, severance, stamp, and other taxes (including any interest, fines,
penalties or additions attributable to or imposed on or with respect to any such
taxes, charges, fees, levies or other assessments), (ii) "Tax Return" means any
return, report, information return or other document (including any related or
supporting information and, where applicable, profit and loss accounts and
balance sheets) with respect to Taxes, and (iii) "Tax Authority" shall mean the
Internal Revenue Service and any other domestic or foreign bureau, department,
entity, agency or other Governmental Authority responsible for the
administration of any Tax, including, without limitation the Canada Customs and
Revenue Agency.
3.12 Properties. (a) Neither Borrower nor any of its Subsidiaries owns
any real property. Borrower or one of its Subsidiaries has a valid leasehold
interest in the real properties identified in Section 3.12 of the Borrower
Disclosure Letter (collectively with all buildings, structures and other
improvements thereon, the "Leased Properties" and each, collectively with all
buildings, structures and other improvements thereon, a "Leased Property"),
which are all of the real properties that are leased by Borrower and its
Subsidiaries as of the date hereof. None of the Leased Properties is subject to
any rights of way, written agreements, Laws, ordinances and regulations
affecting building use or occupancy or reservations of an interest in title that
could, individually or in the aggregate, materially interfere with the present
use of any of the Leased Properties subject thereto or affected thereby or
otherwise materially impair business operations conducted by Borrower and its
Subsidiaries.
(b) Neither Borrower nor any of its Subsidiaries has received written
notice of any violation of any Law with respect to any of the Leased Properties.
Neither Borrower nor any of its Subsidiaries has received any written notice
with respect to any the
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Leased Properties to the effect that any condemnation or rezoning proceedings
are pending or threatened.
3.13 Contracts; Debt Instruments. (a) There have been delivered to
Lender true, correct and complete copies of all of the following contracts to
which Borrower or any of its Subsidiaries is a party or by which any of them or
their respective Properties is bound (collectively, the "Material Contracts"):
(i) agreements pursuant to which Borrower or its Subsidiaries holds or grants a
leasehold interest in or otherwise has an economic interest in any real
property; (ii) contracts with any current or former officer or director of
Borrower or any of its Subsidiaries; (iii) contracts (A) for the sale of any of
the material assets of Borrower or any of its Subsidiaries or the acquisition of
any material amount of assets by Borrower or any of its Subsidiaries or (B) for
the grant to any Person of any rights to purchase any of its material assets;
(iv) contracts which restrict Borrower or any of its Subsidiaries from competing
in any line of business or with any person in any geographical area in any
material manner or which restrict any other Person from competing with Borrower
or any of its Subsidiaries in any line of business or in any geographical area
in any material manner; (v) loan commitments, indentures, credit agreements,
security agreements, guarantees, promissory notes, letters of credit, hedging
obligations, capitalized lease obligations, take or pay contracts and other
contracts relating to Indebtedness (whether owed by or held by Borrower or any
Subsidiary); (vi) all joint venture agreements; (vii) sales agency and reseller
agreements; and (viii) any material contract not made in the ordinary course of
business.
(b) All of the Material Contracts are in full force and effect and are
the legal, valid and binding obligations of Borrower and/or its Subsidiaries,
enforceable against them in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws
affecting creditors' rights and remedies generally and to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity). Neither Borrower nor any of its Subsidiaries is in breach or default
under any Material Contract nor, to the Knowledge of Borrower, is any other
party to any Material Contract in breach or default thereunder.
3.14 Environmental Matters. (a) None of Borrower or any of its
Subsidiaries nor, to the Knowledge of Borrower, any other Person has caused or
permitted (i) the presence of any Hazardous Substances on any of the Leased
Properties or (ii) any spills, releases, discharges or disposal of Hazardous
Substances to have occurred or be presently occurring on or from the Leased
Properties. Borrower and its Subsidiaries have complied in all material respects
with all applicable Environmental Laws, including all regulations, ordinances
and administrative and judicial orders relating to the generation, recycling,
reuse, sale, storage, handling, transport and disposal of any Hazardous
Substances. Borrower and its Subsidiaries have obtained, currently maintain and,
as currently operating are in compliance in all material respects with, all
Environmental Permits for the conduct of the business and operations of Borrower
and its Subsidiaries in the manner now conducted. To the Knowledge of Borrower,
there are no actions or proceedings pending or threatened to revoke or
materially modify such Environmental Permits. No Hazardous Substances have been
used, stored,
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manufactured, treated, processed or transported to or from any such Leased
Property by Borrower and its Subsidiaries, except in compliance in all material
respects with Environmental Laws and in a manner that does not result in
liability under applicable Environmental Laws. None of Borrower or any of its
Subsidiaries has received any written notice of potential responsibility, letter
of inquiry or written notice of alleged liability from any Person regarding such
Leased Property or the business conducted thereon. No investigation, action or
review is pending or, to the Knowledge of Borrower, threatened by any
Governmental Authority or other Person against Borrower or any of its
Subsidiaries under any Environmental Law. For the purposes of this Section 3.14
only, "Leased Properties" shall be deemed to include all property formerly
owned, operated or leased by Borrower or its current or former Subsidiaries,
solely, however, as to the period of time when such property was so owned,
operated or leased by Borrower or its current or former Subsidiaries. Borrower
has previously delivered to Purchaser complete copies of all final versions of
environmental investigations and testing or analysis that are in the possession,
custody or control of any of Borrower or any of its Subsidiaries with respect to
the environmental condition of the Leased Properties.
(b) For purposes of this Agreement, the term "Hazardous Substances"
means: (A) those materials, pollutants and/or substances defined in or regulated
under any Environmental Law, including the following national Canadian statutes
and their provincial counterparts, as each may be amended from time to time, and
all rules regulations and policies promulgated thereunder: Canadian
Environmental Protection Act, 1999, the Fisheries Act, the Transportation of
Dangerous Goods Act, 1992, the British Columbia Drinking Water Protection Act,
the British Columbia Health Act, the British Columbia Pesticide Control Act and
the British Columbia Waste Management Act; (B) those materials, pollutants
and/or substances defined in or regulated under the following United States
federal statutes and their state counterparts, as each may be amended from time
to time, and all rules, regulations and policies promulgated thereunder: the
Hazardous Materials Transportation Act of 1980, the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Atomic
Energy Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Toxic
Substances Control Act and the Clean Air Act; (C) petroleum and petroleum
products including crude oil and any fractions thereof; (D) natural gas,
synthetic gas and any mixtures thereof; (E) radon; (F) asbestos; (G) any other
contaminant; and (H) any materials, pollutants and/or substance with respect to
which any Governmental Authority requires environmental investigation,
monitoring, reporting or remediation.
3.15 Borrower Benefit Plans; ERISA Compliance. (a) Except for
Borrower's mandatory participation in the Canada Pension Plan or Quebec Pension
Plan, Employment Insurance Program and applicable provincial workers'
compensation programs, there are no compensation, bonus, pension, profit
sharing, deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option or other stock related rights, fringe benefit,
retirement, vacation, disability, death benefit, supplemental unemployment
benefits, hospitalization, medical, dental, life, severance, post-employment
benefits or other plan, agreement, arrangement, policies or
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understanding, or employment severance, retention, consulting, change of control
or similar agreement whether formal or informal, oral or written, providing
benefits to any current or former employee, officer, director or shareholder of
Borrower or any of its Subsidiaries or to which Borrower or any of its
Subsidiaries contributes or is or was obligated to contribute (collectively, the
"Borrower Benefit Plans," which will include each "employee benefit plan"
(within the meaning of Section 3(3) of ERISA or its Canadian equivalent),
whether or not subject to ERISA, but shall not include any Multiemployer Plan
(as defined below)). Section 3.15(a) of the Borrower Disclosure Letter contains
a true and complete list of all agreements or plans providing for termination or
severance pay to any officer, director or employee of Borrower.
(b) Each Borrower Benefit Plan has been administered in all material
respects in accordance with its terms and all applicable Laws, including ERISA,
the Code, and their respective Canadian equivalents. Each Borrower Benefit Plan
is in compliance with all applicable Laws, including the applicable provisions
of ERISA, the Code and any similar Canadian statute. Each Borrower Benefit Plan
that is intended to be qualified under Section 401(a) or 401(k), of the Code (or
its Canadian equivalent) is so qualified and each trust established in
connection with any Borrower Benefit Plan that is intended to be exempt from
federal income taxation under Section 501(a) of the Code (or its Canadian
counterpart) is so exempt. No fact or event has occurred which is reasonably
likely to affect adversely the qualified status of any such Borrower Benefit
Plan or the exempt status of any such trust. All contributions to, and payments
from, each Borrower Benefit Plan and Multiemployer Plan that are required to be
made in accordance with such Plans and applicable Laws (including ERISA, the
Code and their respective Canadian equivalents) have been timely made.
(c) No Borrower Benefit Plan is or at any time was (i) subject to Title
IV of ERISA (or its Canadian equivalent) or (ii) subject to the minimum funding
standards of Section 302 of ERISA or Section 412 of the Code (or their
respective Canadian equivalents). Neither Parent nor any of its Subsidiaries
contributes to any "multiemployer plan" within the meaning of Section 3(37) of
ERISA or a "multiple employer plan" within the meaning of Section 3(40) of ERISA
or their Canadian equivalents (each a "Multiemployer Plan").
(d) No Borrower Benefit Plan provides medical benefits (whether or not
insured) with respect to current or former employees, officers or directors
after retirement or other termination of service.
(e) The consummation of the transactions contemplated by this Agreement
will not, either alone or in combination with another event, (i) entitle any
current or former employee, officer or director of Borrower to severance pay,
unemployment compensation or any other payment or (ii) accelerate the time of
payment or vesting, or increase the amount of compensation, equity rights or
benefits due any such employee, officer or director.
(f) With respect to each Borrower Benefit Plan, Borrower has delivered
to Lender a true and complete copy of: (A) each writing constituting a part of
such Borrower Benefit Plan, including without limitation all Borrower Benefit
Plan documents and trust
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agreements; (B) the most recent Annual Report (Form 5500 Series) and
accompanying schedule (and Canadian equivalents), if any; (C) the most recent
annual financial report, if any; (D) the most recent actuarial report, if any;
(E) the most recent determination letter from the IRS (and Canadian equivalent),
if any.
(g) With respect to each Borrower Benefit Plan, there have been no
prohibited transactions or breaches of any of the duties imposed on
"fiduciaries" (within the meaning of Section 3(21) of ERISA or its Canadian
equivalent) by ERISA (or its Canadian equivalent) with respect to Borrower
Benefit Plans that would result in any liability or excise tax under ERISA, the
Code or their respective Canadian equivalents.
(h) There has been no amendment to, written interpretation of or
announcement (whether or not written) by Borrower or any of its Subsidiaries
relating to, or change in employee participation or coverage under, any Borrower
Benefit Plan which would increase materially the expense of maintaining such
Borrower Benefit Plan above the level of the expense incurred in respect thereof
for the 12 months ended on the date of the most recent balance sheet for
Borrower and its Subsidiaries.
(i) All contributions and payments due under each Borrower Benefit Plan
have either been discharged and paid or are adequately reflected as a liability
on the most recent balance sheet for Borrower and its Subsidiaries in accordance
with GAAP.
(j) Neither Borrower nor any of its Subsidiaries is a party to or
subject to any organizing drive, certification, union contract or collective
bargaining agreement, (ii) Borrower and its Subsidiaries are in compliance in
all material respects with all currently applicable domestic or Canadian
national or provincial laws respecting employment and employment practices,
terms and conditions of employment and wages and hours, and are not engaged in
any unfair labor practice that would affect Borrower in any material respect,
and (iii) there is no unfair labor practice complaint pending or, to the
Knowledge of Borrower, threatened against Borrower or any of its Subsidiaries
before the National Labor Relations Board (or its Canadian national or
provincial counterpart) that would affect Borrower in any material respect.
3.16 Related Party Transactions. Except for such of the following as
were described in Borrower's Annual Report on Form 10-KSB for the year ended
June 30, 2000, neither Borrower nor any of its Subsidiaries has any Contractual
Obligation or arrangement with any Person who is an officer, director or
Affiliate of Borrower or any of its Subsidiaries, or any lineal descendent of
any of the foregoing, or any entity in which any of the foregoing has an
economic interest (excluding ownership of stock of publicly owned companies)
that would be required to be disclosed under Section 404 of Regulation S-K
promulgated under the Securities Act.
3.17 Intellectual Property. (a) For purposes of this Agreement, the
following terms have the following meanings:
(i) "Intellectual Property" includes without limitation any or
all of the following and all rights associated therewith: (A) all
registered domestic and
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foreign patents and applications therefor and all reissues, divisions,
renewals, extensions, continuations and continuations-in-part thereof;
(B) all inventions (whether patentable or not), invention disclosures,
improvements, trade secrets, proprietary information, know how,
technology, technical data and customer lists, rights of privacy and
publicity, and all documentation relating to any of the foregoing; (C)
all copyrights, copyright registrations and applications therefor, and
all other rights corresponding thereto throughout the world; (D) all
mask works, mask work registrations and applications therefor; (E) all
industrial designs and any registrations and applications therefor; (F)
all trade names, logos, common law trademarks and service marks,
trademark and service xxxx registrations and applications therefor and
all goodwill associated therewith; and (G) all computer software
including all source code, object code, firmware, development tools,
files, records and data, all media on which any of the foregoing is
recorded, and all documentation related to any of the foregoing.
(ii) "Intellectual Property of Borrower" means any Intellectual
Property that: (A) is owned by or exclusively licensed to
Borrower or any Subsidiary or (B) is used in the operation of
the businesses of Borrower or any Subsidiary, including the
design and use of the products of Borrower or any Subsidiary
as they currently operate.
(b) Section 3.17 of the Borrower Disclosure Letter lists all
registrations of Intellectual Property of Borrower and all applications for
registration of Intellectual Property of Borrower. Such registrations, to the
extent completed and fully registered, are subsisting, all necessary
registration and renewal fees in connection with such registrations have been
made and all necessary documents and certificates in connection with such
registrations have been filed with the relevant patent, copyrights and trademark
authorities in the United States or other foreign jurisdiction for the purposes
of maintaining such Intellectual Property registrations. No Person has any
rights to use any of the Intellectual Property of Borrower or, to the Knowledge
of Borrower, is infringing or misappropriating any of the Intellectual Property
of Borrower, (ii) neither Borrower nor any Subsidiary has granted to any Person,
nor authorized any Person to retain, any rights in the Intellectual Property of
Borrower, and (iii) Borrower or any Subsidiary owns and has good and exclusive
title to each item of owned Intellectual Property of Borrower, free and clear of
any Lien, except Liens permitted by Section 6.3 hereof, or Borrower or any
Subsidiary, and has the right, pursuant to a valid Contract to use or operate
under, all other Intellectual Property of Borrower. The operation of the
businesses of Borrower or any Subsidiary as they currently are conducted does
not infringe the Intellectual Property rights of any other Person, and neither
Borrower nor any Subsidiary has received notice from any Person that the
operation of its respective businesses infringes the Intellectual Property
rights of any Person. There are no Contracts between Borrower or any other
Subsidiary and any other Person with respect to the Intellectual Property of
Borrower in respect of which there is any dispute known to Borrower or any
Subsidiary regarding the scope of such agreement, or performance under such
Contract, including with respect to any payments to be made or received by
Borrower or any Subsidiary.
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3.18 Solvent Financial Condition. Each Loan Party is, after giving
effect to the transactions contemplated herein and in the other Loan Documents,
Solvent.
3.19 Board Approval of the LOI and Merger. The Board of Directors of
Borrower at a duly held meeting has approved and authorized (i) the Borrower to
proceed with the Merger, (ii) the provisions of the LOI that are binding as to
Borrower, and (iii) the Board to recommend to the Borrower's stockholders the
approval of the Merger, subject to the exercise of the Board's fiduciary duties.
3.20 No Brokers. Neither Borrower nor any of its Subsidiaries has
entered into any contract, arrangement or understanding with any Person or firm
which may result in the obligation of Borrower, any of Borrower's Subsidiaries
or Lender to pay any investment banker's or finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to any of the Loan Documents or the consummation of the transactions
contemplated hereby or thereby.
3.21 Statements True and Correct. The representations made by Borrower
in this Agreement do not contain as of the date made any untrue statement of
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
IV. CONVERSION
4.1 Conversion. Lender may elect at any time, upon two Business Days'
prior written notice to Borrower (the "Notice of Conversion"), to convert all or
any portion of the then outstanding and unpaid Loan Amount into Borrower Common
Stock at the Conversion Price as of the date of mailing of the Notice of
Conversion; provided, however, that Lender shall not be entitled, without the
prior approval of Borrower's stockholders, to convert such amount of the then
outstanding and unpaid Loan Amount as would cause Borrower to issue more than
19.9% of the total issued and outstanding shares of Borrower Common Stock as of
the date of such conversion.
4.2 Adjustments. If Borrower shall, at any time during which this
Agreement is in effect, (i) pay a stock dividend or make a distribution to
holders of Borrower Common Stock in shares of its Borrower Common Stock, (ii)
subdivide its outstanding shares of Borrower Common Stock, (iii) combine its
outstanding shares of Borrower Common Stock into a smaller number of shares, or
(iv) issue by reclassification of its shares of Borrower Common Stock any shares
of Capital Stock of Borrower, then thereafter the Fixed Conversion Price after
such change shall in case of an increase in the number of shares be
proportionately decreased, and in case of a decrease in the number of shares be
proportionately increased.
4.3 Reorganization, Reclassification, Share Exchange or Merger. (a) If
at any time during which this Agreement is in effect Borrower is a party to any
agreement providing for (i) any capital reorganization or reclassification of
the Capital Stock of Borrower or (ii) any share exchange or merger of Borrower
with another corporation, in such a way that holders of Borrower Common Stock
shall be entitled to receive cash,
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shares of stock or securities or assets (collectively, and regardless of whether
received in connection with a merger or some other form of corporate
reorganization, the "Merger Consideration") with respect to or in exchange for
Borrower Common Stock, then, as a condition to such reorganization,
reclassification, share exchange or merger, the successor entity (if other than
Borrower) resulting from such transaction shall assume by written instrument the
obligation to deliver to the Lender, upon conversion of the Loan Amount, such
cash, shares of stock or securities or assets as the Lender would have been
entitled to receive had the Lender converted the Loan Amount immediately prior
to the closing of such transaction.
(b) In connection with any capital reorganization or reclassification
of the Capital Stock of Borrower or any share exchange or merger of Borrower
with another person, if Borrower shall fix a record date for the making of a
distribution to holders of Borrower Common Stock of (i) assets (other than cash
dividends or cash distributions payable out of consolidated net income or earned
surplus or dividends payable in Borrower Common Stock), (ii) evidences of
indebtedness or other securities of Borrower or of any person (except for
Borrower Common Stock), or (iii) subscription rights, options or warrants to
purchase any of the foregoing assets or securities, whether or not such rights,
options or warrants are immediately exercisable, to the extent such rights,
options or warrants have not expired, then Borrower shall make provisions for
the Lender to receive, and the Lender shall be entitled upon conversion of the
Loan Amount, evidences of indebtedness, securities or such other rights, options
or warrants, as if the Lender had converted the Loan Amount on or before such
record date.
4.4 Notification to Lender. (a) Upon each adjustment to the Fixed
Conversion Price pursuant to this Agreement, Borrower shall give written notice
thereof to the Lender within ten days after the date of such adjustment, which
notice shall set forth the calculation of the Fixed Conversion Price before and
after such adjustment and the facts upon which such calculations are based.
(b) If at any time:
(i) Borrower shall offer for subscription pro rata to the holders of
its Borrower Common Stock any additional shares of stock of any class or other
rights;
(ii) the Board of Directors (or any committee thereof) shall authorize
or approve any capital reorganization, or reclassification of the capital stock
of Borrower, or share exchange or merger of Borrower with, or sale, disposition
or other conveyance of all or substantially all of its assets to, any Person;
(iii) Borrower (or any other party) shall institute any proceeding
seeking an order for relief under any United States or Canadian bankruptcy laws
or seeking to adjudicate Borrower as bankrupt or insolvent, or seeking
dissolution, liquidation or winding up of Borrower or seeking reorganization
under any law relating to bankruptcy or insolvency;
then, within ten days of the date of any such occurrence, Borrower
shall give the Lender written notice describing in reasonable detail such
occurrence.
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4.5 Certain Events. If any event occurs as to which the provisions of
this Article IV are not strictly applicable or, if strictly applicable would not
fairly protect the rights of the Lender in accordance with the essential intent
and principles of such provisions, then Borrower and the Lender shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect the Lender's rights as
aforesaid.
V. AFFIRMATIVE COVENANTS
Borrower hereby agrees that, so long as any Liabilities are owing to
Lender hereunder, Borrower shall, and shall cause each of its Subsidiaries to:
5.1 Certificates; Other Information. Furnish to Lender:
(a) at the request of Lender, a certificate of an executive officer of
Borrower stating that to the best of such officer's Knowledge, Borrower and its
Subsidiaries during such period has observed or performed all of its covenants
and other agreements, and satisfied every condition, contained in this Agreement
and the other Loan Documents to which it is a party to be observed, performed or
satisfied by it, and that such officer has obtained no Knowledge of any Event of
Default except as specified in such certificate; and
(b) promptly, such financial and other information as Lender may from
time to time reasonably request.
5.2 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
material Contractual Obligations of whatever nature, except where the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect thereto have been
provided on the books of Borrower or its Subsidiaries, as the case may be.
5.3 Conduct of Business and Maintenance of Existence, etc. (a) (i)
Preserve, renew and keep in full force and effect its corporate existence and
(ii) take all reasonable action to maintain all rights, privileges and
franchises necessary or desirable in the normal conduct of its business; and (b)
comply with all Contractual Obligations and requirements of Law except to the
extent that failure to comply therewith could not, in the aggregate, reasonably
be expected to have a Material Adverse Effect.
5.4 Maintenance of Property; Insurance. (a) Keep all material Property
and systems useful and necessary in its business in good working order and
condition, ordinary wear and tear and damage occurring as a result of a casualty
event excepted and (b) maintain with financially sound and reputable insurance
companies insurance on all its Property in at least such amounts and against at
least such risks (but including in any event public liability, product liability
and business interruption) as are usually insured against in the same general
area by companies engaged in the same or a similar business.
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5.5 Inspection of Property; Books and Records; Discussions. (a) Keep
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all requirements of Law shall be made of all dealings
and transactions in relation to its business and activities and (b) permit
representatives of Lender to visit and inspect any of its Properties and examine
and make abstracts from any of its books and records at any reasonable time and
as often as may reasonably be desired and to discuss the business, operations,
properties and financial and other condition of Borrower and its Subsidiaries
with officers and employees of Borrower and its Subsidiaries and with its
independent certified public accountants.
5.6 Notices. Promptly give notice to Lender of:
(a) the occurrence of any Event of Default or any event that could
reasonably be expected to result in an Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of Borrower or any of its Subsidiaries or (ii) litigation, proceeding
or, to the Knowledge of Borrower, investigation which may exist at any time
between Borrower or any of its Subsidiaries and any Governmental Authority,
which in either case, if not cured or if adversely determined, as the case may
be, could reasonably be expected to have a Material Adverse Effect;
(c) the following events, as soon as possible and in any event within
five Business Days after Borrower knows or has reason to have Knowledge thereof:
(i) the occurrence of any reportable event with respect to any Borrower Benefit
Plan, a failure to make any required contribution to a Borrower Benefit Plan,
the creation of any Lien on the assets of a Borrower Benefit Plan or any
withdrawal from, or the termination, ERISA reorganization or insolvency of, any
Multiemployer Plan or (ii) the institution of proceedings or the taking of any
other action by Borrower or any Affiliate or any Multiemployer Plan with respect
to the withdrawal from, or the termination, ERISA reorganization or insolvency
of, any Borrower Benefit Plan; and
(d) any development, change, condition or event which has had or could
reasonably be expected to have a Material Adverse Effect.
Each notice pursuant to this Section shall be accompanied by a
statement of an executive officer of Borrower setting forth details of the
occurrence referred to therein and stating what action Borrower or the relevant
Subsidiary proposes to take with respect thereto.
5.7 Lender's Board Designee. In the event that the Loan Amount remains
outstanding for more than 130 days following the Closing Date, Lender will be
entitled to designate one member (the "Lender Designee") to Borrower's Board of
Directors for so long as any Liabilities are owing to Lender hereunder. In the
event that the Loan Amount remains outstanding for more than 130 days following
the Closing Date, Borrower will cause its Board of Directors to hold a meeting
on the next Business Day for the purposes of: (i) approving and adopting the
resolutions referenced in Section
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2.8(d) hereof, (ii) authorizing Borrower to enter into a Director and Officer
Indemnity Agreement in favor of the Lender Designee in the form attached hereto
as Exhibit G, and (iii) authorizing Borrower to cause the Lender Designee to be
covered under a directors' and officers' liability insurance policy.
5.8 Merger Documents; Board Approval of the Merger. As promptly as
practicable following the Closing Date, Borrower will work in good faith with
Lender to negotiate and prepare the definitive agreements relating to the Merger
and the taking of all requisite actions to consummate the Merger. Subject to the
exercise of its fiduciary duties under applicable Law, the Board of Directors of
Borrower shall include, in any required communication with Borrower's
stockholders relating to the Merger, its unanimous recommendation that the
Merger should be approved by its stockholders.
5.9 Use of Proceeds. Borrower will use the proceeds from the portion of
the Loan Amount paid to Borrower on the Initial Closing Date to pay its
Contractual Obligations to trade creditors as of the Initial Closing Date and
Borrower will use the remaining proceeds of the Loan Amount to finance its
working capital needs up through and including the date of consummation of the
Merger.
5.10 No Dilutive Issuances. Until the later of the date (i) the Warrant
has been exercised in full or the exercise period thereunder has expired and
(ii) this Agreement has terminated and the entire principal amount of the Loan
paid in full or converted into Borrower Common Stock, Borrower will not:
(a) issue or sell any shares of Borrower Common Stock, including any
treasury shares, for less than U.S.$1.50 per share;
(b) except pursuant to the Borrower's Stock Option Plans, issue or sell
any rights to subscribe for or to purchase, or any warrants or options for the
purchase of Borrower Common Stock or securities convertible into or exchangeable
for shares of Borrower Common Stock (each, a "Convertible Security") for an
amount which, when added to the amount payable upon the exercise, conversion or
exchange of such Convertible Security, would be less than U.S.$1.50 per share of
Borrower Common Stock;
(c) pay a stock dividend or make a distribution to holders of Borrower
Common Stock in shares of its Borrower Common Stock;
(d) subdivide its outstanding shares of Borrower Common Stock;
(e) combine its outstanding shares of Borrower Common Stock into a
smaller number of shares, or
(f) issue by reclassification of its shares of Borrower Common Stock
any shares of capital stock of Borrower.
5.11 Reformation of Agreement. In the event that (i) the Warrant or any
of the other Loan Documents needs to be modified in order to obtain the written
approval of TSE or (ii) any court of competent jurisdiction holds any provision
of any of the Loan
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Documents unenforceable, Borrower and Lender agree that the Loan Documents will
be amended to the minimum extent necessary to achieve such approval or
enforceability, as the case may be, and any requisite modifications to the Loan
Documents will be made in the sole discretion of Lender and its counsel.
5.12 Further Assurances. Execute and deliver, or cause to be executed
and delivered, such additional instruments, certificates or documents, and take
all such actions, as Lender may reasonably request, for the purposes of
implementing or effectuating the provisions of this Agreement and the other Loan
Documents. Upon the exercise by Lender of any power, right, privilege or remedy
pursuant to this Agreement or the other Loan Documents which requires any
consent, approval, recording, qualification or authorization of any Governmental
Authority, Borrower will execute and deliver, or will cause the execution and
delivery of, all applications, certifications, installments and other documents
and papers that Lender may be required to obtain from the Borrower or any of its
Subsidiaries for such governmental consent, approval, recording, qualification
or authorization.
VI. NEGATIVE COVENANTS
Borrower hereby agrees that, so long as any Liabilities are owing to
Lender hereunder, Borrower shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly:
6.1 Limitation on Restricted Payments. (a) (i) Declare or pay any
dividend or make any other payment or distribution on account of Borrower's or
any of its Subsidiaries' Equity Interests; (ii) purchase, redeem or otherwise
acquire or retire for value any Equity Interests of Borrower or its
Subsidiaries; or (iii) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness of
Borrower, except a payment of interest or principal at its stated maturity (all
such payments and other actions set forth in clauses (i) through (iii) above
being collectively referred to as "Restricted Payments").
(b) The foregoing provisions shall not prohibit (i) the payment of any
dividend or distribution by a Subsidiary to the holders of its common Equity
Interests so long as Borrower or a Subsidiary receives at least its pro rata
share of such dividend or distribution in accordance with its Equity Interests,
(ii) the repurchase, redemption or other acquisition or retirement for value of
any Equity Interests of Borrower or any Affiliates of Borrower that are held by
any member of Borrower's (or any of its Subsidiaries) management pursuant to the
Stock Option Plans, or (iii) payments to Affiliates of Borrower in amounts equal
to the amounts required for such Affiliates to pay any federal, provincial,
state or local or foreign income Taxes to the extent that such income Taxes are
attributable to the income of Borrower and/or its Subsidiaries; provided,
however, that at the time of, and after giving effect to, any Restricted Payment
permitted above, no Event of Default shall have occurred and be continuing or
would occur as a consequence thereof.
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6.2 Limitation on Incurrence of Indebtedness and Issuance of Preferred
Stock. Create, incur, issue, assume, Guarantee or otherwise become directly or
indirectly liable, contingently or otherwise, with respect to any Indebtedness
(other than Existing Indebtedness) and Borrower will not issue any Borrower
Preferred Stock and will not permit any of its Subsidiaries to issue any shares
of its preferred stock (other than to Borrower or another wholly-owned
Subsidiary of Borrower).
6.3 Limitation on Liens. Create, incur, assume or otherwise cause or
suffer to exist or become effective any Lien of any kind securing Indebtedness
or trade payables upon any of their Property or assets, now owned or hereafter
acquired.
(a) Liens in favor of the Lender;
(b) Liens incurred in connection with Existing Indebtedness;
(c) Encumbrances consisting of minor easements, zoning
restrictions, or other restrictions on the use of real property that do not
(individually or in the aggregate) materially affect the value of the assets
encumbered thereby or materially impair the ability of the Loan Parties to use
such assets in their respective businesses, and none of which is violated in any
material respect by existing or proposed structures or land use;
(d) Liens for Taxes, assessments, or other governmental
charges which are not delinquent or which are being contested in good faith and
for which adequate reserves have been established;
(e) Liens of mechanics, materialmen, warehousemen, carriers or
other similar statutory Liens securing obligations that are not yet due and are
incurred in the ordinary course of business;
(f) Financing statements filed in connection with operating
lease transactions; and
(g) Liens resulting from good faith deposits to secure
payments of workmen's compensation or other social security programs or to
secure the performance of tenders, statutory obligations, surety and appeal
bonds, bids, or contracts (other than for payment of Indebtedness), or leases
made in the ordinary course of business.
6.4 Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. Create or otherwise cause or suffer to exist or become effective
any encumbrance or restriction on the ability of any Subsidiary to (i)(x) pay
dividends or make any other distributions to Borrower or any of its Subsidiaries
(1) on its Capital Stock or (2) with respect to any other interest or
participation in, or measured by, its profits, or (y) pay any Indebtedness owed
to Borrower or any of its Subsidiaries, (ii) make loans or advances to the
Borrower or any of its Subsidiaries, on (iii) transfer any of its Properties or
assets to Borrower or any of its Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (a) Existing Indebtedness
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as in effect on the Closing Date, (b) this Agreement and the Liabilities, (c) by
reason of customary non-assignment provisions in leases entered into in the
ordinary course of business, (d) purchase money obligations for Property
acquired in the ordinary course of business, or (e) applicable Law or any
applicable rule, regulation or Order.
6.5 Limitation on Transactions with Affiliates. Make any payment to, or
sell, lease, transfer or otherwise dispose of any Properties or assets to, or
purchase any Property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate of any such Person (each of the
foregoing, an "Affiliate Transaction"), unless such Affiliate Transaction is on
terms that are no less favorable to Borrower or the relevant Subsidiary than
those that would have been obtained in a comparable transaction by Borrower or
such Subsidiary with an unrelated Person; provided, that none of the following
shall be deemed to be Affiliate Transactions: (1) any employment agreement
entered into by Borrower or any of its Subsidiaries in the ordinary course of
business, (2) transactions between or among any of Borrower and/or its
wholly-owned Subsidiaries, (3) Restricted Payments that are permitted by Section
6.1, (4) fees and compensation paid to members of the Boards of Directors of
Borrower and its Subsidiaries in their capacity as such, to the extent such fees
and compensation are reasonable and customary, and (5) fees and compensation
paid to, and indemnity provided on behalf of, officers, directors or employees
of the Borrower or any of its Subsidiaries, as determined by the Board of
Directors of Borrower or of any such Subsidiary, to the extent such fees,
compensation and indemnities are reasonable and customary.
6.6 Limitation on Sales or Issuances of Capital Stock of Subsidiaries.
(i) Transfer, convey, sell, lease or otherwise dispose of any Equity Interests
in any Subsidiary to any Person (other than Borrower or a wholly-owned
Subsidiary of Borrower), or (ii) permit any of its Subsidiaries to issue any of
its Equity Interests to any Person (other than to Borrower or a wholly-owned
Subsidiary of Borrower).
6.7 Limitation on Lines of Business. Enter into any business, either
directly or through any Subsidiary, except for any activities that constitute
their respective lines of business as of the Initial Closing Date.
6.8 Limitation on Changes to Constituent Documents. Amend any provision
of its certificate of incorporation or by-laws (or similar governing documents).
VII. EVENTS OF DEFAULT
7.1 Events of Default. The following shall be Events of Default
("Events of Default") hereunder:
(a) the nonpayment when due of any part of the Debt and the
continuation of such nonpayment for more than three Business Days;
(b) the making by Borrower or any of its Subsidiaries of an assignment
of this Agreement for the benefit of creditors;
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(c) the appointment of a trustee or receiver for Borrower or any of its
Subsidiaries or for any of their respective Property;
(d) the commencement of any proceedings by or against Borrower or any
of its Subsidiaries under any existing or future Law of any jurisdiction
relating to bankruptcy, reorganization, arrangement of debt, insolvency,
readjustment of debt, receivership, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts; provided, that any
such proceeding involuntarily commenced against Borrower or any of its
Subsidiaries (and not voluntarily by Borrower or any of its Subsidiaries) shall
not have been dismissed within 60 calendar days of such commencement;
(e) any statement, representation or warranty made by Borrower or its
Subsidiaries, as applicable, in this Agreement, in any officer's certificate or
otherwise made to Lender in connection with this Agreement being inaccurate in
any material respect on the date made, and the failure of Borrower to cure such
breach within five Business Days after written notice from Lender;
(f) the failure by Borrower or its Subsidiaries to observe or comply
with any agreement or covenant contained in any Loan Document, and the failure
of Borrower to cure or cause to be cured such failure with five Business Days
after written notice from Lender;
(g) the security granted by Borrower or its Subsidiaries to Lender
under any Loan Document ceasing to be valid or enforceable or of the same effect
and priority as purported to be created thereby;
(h) any Loan Document ceasing to be valid and enforceable in any
respect or Borrower or its Subsidiaries challenging the validity or
enforceability of any Loan Document or any terms hereof or thereof; and
(i) the rendering of any judgment, Order or decree for the payment of
money in the aggregate in excess of U.S.$50,000 against Borrower or its
Subsidiaries which remains unpaid for 30 calendar days.
7.2 Consequences of an Event of Default. If any Event of Default shall
occur, then:
(a) the Debt shall, at Lender's option, become at once due and payable
without notice, presentment, demand of payment, protest or notice of dishonor,
each of which is hereby expressly waived; and
(b) Lender shall have all rights and remedies available to it under
applicable Law, including its rights and remedies pursuant to any Loan Document.
VIII. MISCELLANEOUS
8.1 Costs and Expenses. Borrower shall pay to Lender and be liable to
Lender for all reasonable out-of-pocket costs and expenses of every kind
incurred by Lender in
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connection with the preparation, negotiation, execution, amendment and
enforcement of its rights under any of the Loan Documents, including, without
limitation, reasonable attorneys' fees.
8.2 Assignment. This Agreement and the obligations hereunder may not be
assigned by Borrower without the prior written consent of Lender. Borrower
hereby expressly agrees and acknowledges that Lender may at any time, without
the consent of Borrower, assign all or any part of its rights and obligations
under this Agreement to any Affiliate of Lender; provided that such assignment
shall not reduce Lender's obligations or liability under this Agreement.
8.3 Maturity on Business Day. If the Debt becomes due and payable,
whether upon maturity or the occurrence of an Event of Default, or otherwise, on
a day which is not a Business Day, the Debt shall be payable on the next
succeeding Business Day.
8.4 Binding Effect. This Agreement is binding upon Borrower and its
successors and permitted assigns pursuant to Section 8.2.
8.5 Indemnity. (a) Borrower agrees to indemnify, reimburse and hold
Lender, its successors, permitted assigns, officers, directors, employees,
agents and representatives (collectively, the "Indemnitees") harmless from any
and all liabilities, obligations, losses, damages, penalties, claims, demands,
actions, suits, judgments and any and all reasonable fees, costs and expenses
(including reasonable attorneys' fees and expenses) (collectively, "Losses") of
whatsoever kind and nature imposed on, asserted against or incurred by any of
the Indemnitees in any way arising out of, or resulting from, (i) any Loan
Document or in connection with the enforcement of any of the terms of, or the
creation, perfection, preservation or protection of any rights hereunder or
thereunder (including any security interests created thereunder), (ii) the
manufacture, ownership, ordering, purchase, delivery, control, acceptance,
lease, financing, possession, operation, condition, sale, return or other
disposition, or use of the Collateral (including, without limitation, latent or
other defects, whether or not discoverable), or (iii) any misrepresentation by
any Loan Party in any Loan Document, or in any statement or writing contemplated
by or made or delivered pursuant to or in connection therewith; provided, that
no Indemnitee shall be indemnified hereunder for any Losses to the extent caused
by the Indemnitee's intentional violation of any Law. Borrower agrees that upon
written notice by any Indemnitee of the assertion of such Loss, Borrower shall
assume full responsibility for the defense thereof. Each Indemnitee agrees to
promptly notify Borrower of any Losses for which Lender will seek
indemnification pursuant to this Section 8.5; provided that the failure to
deliver such notice will not relieve Borrower of any liability, except to the
extent Borrower was materially prejudiced by the failure to deliver such notice.
(b) If and to the extent that the obligations of Borrower under this
Section 8.5 are unenforceable for any reason, Borrower hereby agrees to make the
maximum contribution to the payment and satisfaction of such Losses which are
permissible under applicable Law.
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(c) The indemnity obligations of Borrower contained in this Section 8.5
shall continue in full force and effect notwithstanding the full repayment of
all amounts owing under or in respect of this Agreement and the payment of all
of the other Liabilities and notwithstanding the discharge thereof.
8.6 No Oral Changes. This Agreement may not be changed orally, but only
in a written instrument signed by Borrower and Lender.
8.7 Notices. Except as otherwise expressly provided herein, all notices
and other communications hereunder shall be in writing (including facsimile
communication) and shall be mailed, faxed or delivered to the parties hereto at
the respective address set forth below and shall be effective when received:
(a) if to Borrower or any Subsidiary, at:
Global Election Systems, Inc.
0000 Xxxxxxx Xxxx
XxXxxxxx, XX 00000
Attention: Xxxxxxx Xxxxxxxxx
Facsimile: (000) 000-0000
(b) if to Lender, at:
Diebold, Incorporated
0000 Xxxxxxx Xxxx
X.X. Xxx 0000
Xxxxx Xxxxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
8.8 Heading Descriptive. The headings of the several Articles and
Sections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
8.9 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered (including by facsimile) shall be an
original, but all of which shall together constitute one and the same
instrument.
8.10 Delay in Enforcement; Remedies Cumulative. No delay on the part of
Lender in exercising any of its options, powers or rights, and no partial or
single exercise thereof, shall constitute a waiver thereof in any other
instance. The options, powers, rights and other remedies of Lender specified
herein are in addition to those otherwise created or existing at law or in
equity or by statute or otherwise.
8.11 Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions
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hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction.
8.12 Governing Law. This Agreement will be construed and enforced in
accordance with, and the rights of the parties will be governed by, the laws of
the State of New York (including for such purpose Sections 5-1401 and 5-1402 of
the General Obligations Law of the State of New York), without regard to the
conflict of law rules of such State.
8.13 Recovery of Litigation Costs. If any legal action or other
proceeding is brought for the enforcement of any Loan Document, or because of an
alleged dispute, breach, default or misrepresentation in connection with any of
the provisions of any Loan Document, the successful or prevailing party or
parties shall be entitled to recover reasonable attorneys' fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be entitled.
8.14 Jurisdiction; Consent to Service of Process. (a) Each party hereby
irrevocably and unconditionally submits, for itself and its property, to the
exclusive jurisdiction of the New York state court located in the Borough of
Manhattan, City of New York or the United States District for the Southern
District of New York (as applicable, a "New York Court"), and any appellate
court from any such court, in any suit, action or proceeding arising out of or
relating to this Agreement, or for recognition or enforcement of any judgment
resulting from any such suit, action or proceeding, and each party hereby
irrevocably and unconditionally agrees that all claims in respect of any such
suit, action or proceeding may be heard and determined in the New York Court.
(b) It will be a condition precedent to each party's right to bring any
such suit, action or proceeding that such suit, action or proceeding, in the
first instance, be brought in the New York Court (unless such suit, action or
proceeding is brought solely to obtain discovery or to enforce a judgment), and
if each such court refuses to accept jurisdiction with respect thereto, such
suit, action or proceeding may be brought in any other court with jurisdiction;
provided that the foregoing will not apply to any suit, action or proceeding by
a party seeking indemnification or contribution pursuant to this Agreement or
any other Loan Document or otherwise in respect of a suit, action or proceeding
against such party by a thirty party if such suit, action or proceeding by such
party seeking indemnification or contribution is brought in the same court as
the suit, action or proceeding against such party.
(c) No party may move to (i) transfer any such suit, action or
proceeding from the New York Court to another jurisdiction, (ii) consolidate any
such suit, action or proceeding brought in the New York Court with a suit,
action or proceeding in another jurisdiction, or (iii) dismiss any such suit,
action or proceeding brought in the New York Court for the purpose of bringing
the same in another jurisdiction.
(d) Each party hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, (i) any objection which it
may now or
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hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement or any other Loan Document in the New York
Court, (ii) the defense of an inconvenient forum to the maintenance of such
suit, action or proceeding in any such court, and (iii) the right to object,
with respect to such suit, action or proceeding, that such court does not have
jurisdiction over such party. Each party irrevocably consents to service of
process in any manner permitted by law.
8.15 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR
COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF
OR IN ANY WAY RELATED TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY.
8.16 No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of each Loan Document. In the event an
ambiguity or question of intent or interpretation arises, each Loan Document
shall be construed as if drafted jointly by the parties hereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of any Loan Document.
8.17 Acknowledgements. Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents to which
it is a party;
(b) Lender does not have any fiduciary relationship with or
duty to Borrower or its Subsidiaries arising out of or in connection with this
Agreement or any of the other Loan Documents, and the relationship between
Borrower and its Subsidiaries, on the one hand, and Lender, on the other hand,
in connection herewith or therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions contemplated hereby
among Borrower and its Subsidiaries and Lender.
8.18 Entire Agreement. The Loan Documents constitute the entire
agreement between the parties pertaining to the subject matter contained in it
and supersedes all prior and contemporaneous agreements, representations and
undertakings of the parties, whether oral or written, with respect to such
subject matter, provided, however, that the LOI will remain in full force and
effect in accordance with its terms to the extent not inconsistent with the
provisions of any Loan Document (including, without limitation, any provision in
the LOI with respect to exclusivity, publicity or the payment by Borrower of any
break-up or termination fee).
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IN WITNESS WHEREOF, each of the undersigned has caused this
Agreement to be executed and delivered by one of its duly authorized
representatives as of the date first written above.
DIEBOLD, INCORPORATED,
as Lender
By: /s/ Xxxxxxx X. Xxxxxxx
-------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: Senior Vice President
and Chief Financial Officer
GLOBAL ELECTION SYSTEMS INC.,
as Borrower
By: /s/ Xxxxx Xxxxxxxxx
-------------------------
Name: Xxxxx Xxxxxxxxx
Title: Secretary and Vice President,
Acquisitions and Mergers
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Schedule 1
PERSONS WITH KNOWLEDGE
