EXHIBIT 4(h)
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT (this "Agreement") is made as of the 21st
day of November, 1996 by and among: (i) PICO PRODUCTS, INC., a New York
corporation (the "Parent"); (ii) PICO MACOM, INC., a Delaware corporation
("PMI"), PICO MACOM TAIWAN CO., LTD., a Taiwan corporation ("Taiwan"), PICO
(ST. KITTS) LTD., a St. Xxxxxxxxxxx and Nevis corporation ("St. Kitts"), PICO
(BERMUDA) LTD., a Bermuda corporation ("Bermuda"), PICO PRODUCTS ASIA
LIMITED, a Hong Kong corporation ("Asia") and PICOMACOM PRODUTOS DE
TELECOMMUNICACAO LTDA., a Brazil limited liability company ("Brazil") (PMI,
Taiwan, St. Kitts, Bermuda, Asia and Brazil are hereinafter collectively
referred to as "Subsidiaries") (the Parent and the Subsidiaries are
hereinafter collectively referred to as "Borrowers"); and (iii) ALLIED
CAPITAL CORPORATION, ALLIED INVESTMENT CORPORATION, ALLIED INVESTMENT
CORPORATION II, and ALLIED CAPITAL CORPORATION II, each a Maryland
corporation (collectively, "Allied").
RECITALS:
A. Allied wishes to invest the aggregate sum of Five Million Dollars
in Borrowers, in exchange for certain secured subordinated debentures and
warrants to purchase shares of the Common Stock of the Parent.
B. The parties desire to set forth herein their understandings and
agreements pertaining to this transaction.
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants contained herein, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Allied and the
respective successors and assigns of Allied with respect to any of the
Debentures or any of the Equity Interest (as these terms are hereinafter
defined) (individually, a "Holder" and collectively, the "Holders") and the
Borrowers hereby agree as follows:
ARTICLE I: DEFINITIONS
1.01 DEFINITIONS. In addition to the terms defined elsewhere herein,
when used herein, the following capitalized terms shall have the meanings
indicated:
"ACT OF BANKRUPTCY," when used in reference to any Person, shall mean
the occurrence of any of the following with respect to such Person: (i) such
Person shall have made an assignment for the benefit of his or its creditors;
(ii) such Person shall have admitted in writing his or its inability to pay his
or its debts as they become due; (iii) such Person shall have filed a voluntary
petition in bankruptcy; (iv) such Person shall have been adjudicated a bankrupt
or insolvent; (v) such Person shall have filed any petition or answer seeking
for himself or itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future Applicable Law pertinent to such circumstances; (vi) such Person shall
have filed or shall file any answer admitting or not contesting the material
allegations of a bankruptcy, insolvency or similar petition filed against such
Person; (vii) such Person shall have sought or consented to, or acquiesced in,
the appointment of any trustee, receiver, or liquidator of such Person or of all
or any substantial part (20% or more) of the properties of such Person;
(viii) 60 days shall have elapsed after the commencement of an action against
such Person seeking reorganization, arrangement, composition, readjustment or
similar relief under any present or future Applicable Law without such action
having been dismissed or without all orders or proceedings thereunder affecting
the operations or the business of such Person having been stayed, or if a stay
of
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any such order or proceedings shall thereafter be set aside and the action
setting it aside shall not be timely appealed; or (ix) 60 days shall have
expired after the appointment, without the consent or acquiescence of such
Person of any trustee, receiver or liquidator of such Person or of all or any
substantial part of the assets and properties of such Person without such
appointment having been vacated.
"ACT OF DISSOLUTION," when used in reference to any Person (other than
an individual) shall mean the occurrence of any action initiating, or any event
that results in, the dissolution, liquidation, winding-up or termination of such
Person.
"AFFILIATE," when used in reference to any Person, shall mean any
Person that, directly or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, the Person in
question.
"APPLICABLE LAW(S)," when used in the singular, shall mean any
applicable federal, state or local law, ordinance, order, regulation, rule or
requirement of any governmental or quasi-governmental agency, instrumentality,
board, commission, bureau or other authority having jurisdiction, and, when used
in the plural, shall mean all such applicable federal, state and local laws,
ordinances, orders, regulations, rules and requirements.
"APPLICABLE UCC" shall mean the Uniform Commercial Code, as enacted in
the State of Maryland, as amended through the date hereof.
"BASIC WARRANTS" shall mean, collectively, all those separate and
detachable stock purchase warrants described in Section 2.08(a) hereof.
"BUSINESS" shall mean the design, manufacture and distribution of
products that receive, distribute, process and secure satellite, broadcast and
cable television signals, the business currently operated by Borrowers.
"CHATTEL PAPER" shall mean, collectively, all of the Parent's and
PMI's now owned and hereafter acquired "chattel paper," as that term is defined
in Section 9-105(1)(b) of the Applicable UCC.
"COLLATERAL" shall mean, collectively, all of the now-owned and
hereafter acquired tangible and intangible property of the Parent and PMI,
including all of the following: (i) all Receivables; (ii) all Chattel Paper,
(iii) all Equipment; (iv) all Goods; (v) all Instruments; (vi) all Inventory;
(vii) all General Intangibles; (viii) all Proceeds; (ix) all Real Property; (x)
all books and records of the Parent and PMI, including those relating to any of
the foregoing; (xi) all monies, deposit accounts, and rights to money of any
kind; (xii) all additions or accessions to any of the foregoing; (xiii) all
substitutions for any of the foregoing; and (xiv) all replacements, products and
proceeds of the foregoing.
"COMMON STOCK" shall mean any or all (as the context may require) of
the shares of the authorized common stock of the Parent.
"CONTINGENT WARRANTS" shall mean, collectively, all those separate and
detachable stock purchase warrants described in Section 2.08(b) hereof.
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"ELIGIBLE INVENTORY" shall mean all Inventory of PMI consisting of raw
materials and finished goods reduced by (i) any Inventory of PMI as to which a
representation or warranty with respect thereto set forth in the Senior Loan
Agreement is not, or does not continue to be, true and accurate, and (ii) any
Inventory of PMI which is otherwise unacceptable to Senior Holder in its
reasonable credit judgment.
"EQUIPMENT" shall mean all of Parent's and PMI's now owned and
hereafter acquired equipment and fixtures, and all replacements and
substitutions therefor and thereof, and all accessions thereto, including,
without limitation, every item which is or may be necessary or convenient in
relation to the operation of the Business.
"EQUITY INTEREST" shall mean, collectively, all of the Warrants and
all of the Warrant Shares.
"GAAP" shall mean generally accepted accounting principles, for the
period or periods in question.
"GOODS" shall mean, collectively, all of the Parent's and PMI's now
owned and hereafter acquired "goods," as that term is defined in Section
9-105(1)(h) of the Applicable UCC.
"GENERAL INTANGIBLES" shall mean, collectively, all of the Parent's
and PMI's now owned and hereafter acquired general intangibles, including
without limitation, all of the Licenses; all rights under governmental
ordinances or agreements with Governmental Authorities; things in action;
contractual rights; goodwill; literary rights; rights to performance; and all of
the Intellectual Property.
"GOVERNMENTAL AUTHORITY(IES)," when used in the singular, shall mean
any federal, state or local governmental or quasi-governmental instrumentality,
agency, board, commission or department or any regulatory agency, bureau,
commission or authority and, when used in the plural, shall mean all such
entities.
"INELIGIBLE RECEIVABLES" shall mean any Receivable of PMI that does
not meet the eligibility requirements as set forth in the Senior Loan Agreement
from time to time and any other Receivables which the Senior Holder has
determined to be unsatisfactory, but shall in any event include the following
Receivables: (i) any Receivable which has remained unpaid for more than 90
days; (ii) any Receivable as to which any one or more of the following events
occurs: any party directly or indirectly liable for the payment of a Receivable
shall die or be judicially declared incompetent; any such party is the subject
of an Act of Dissolution or an Act of Bankruptcy; (iii) all Receivables owed by
an account debtor if PMI or Parent either owns in whole or material part, or
directly or indirectly controls, such account debtor; and (iv) any Receivable
which is unenforceable against the account debtor for any reason.
"INSTRUMENTS" shall mean, collectively, all of the Parent's and PMI's
now owned or hereafter acquired instruments, notes, items of payment, negotiable
documents, and documents of title.
"INTELLECTUAL PROPERTY" shall mean, collectively, all of the Parent's
or PMI's now owned and hereafter acquired intellectual property, including,
without limitation the following: (a) all patents (including all rights
corresponding thereto throughout the world, and all improvements thereon);
(b) all trademarks (including service marks, trade names and trade secrets, and
all goodwill associated therewith), (c) all
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copyrights (including all renewals, extensions and continuations thereof); (d)
all applications for patents, trademarks or copyrights and all applications
otherwise relating in any way to the subject matter of such patents, copyrights
and trademarks; (e) all patents, copyrights, trademarks or applications therefor
arising after the date of this Agreement; (f) all reissues, continuations,
continuations-in-part and divisions of the property described in the preceding
clauses (a), (b), (c), (d), and (e), including, without limitation, any claims
by the Parent or PMI against third parties for infringement thereof; and (g) all
rights to xxx for past, present and future infringements or violations of any
such patents, trademarks, and copyrights.
"INVENTORY" shall mean, collectively, all of the Parent's and PMI's
now owned and hereafter acquired inventory and all products, replacements, and
substitutions therefor and thereof, and all accessions thereto, and all books,
records, computer software and logs relating to and necessary or appropriate to
the conduct of the Business.
"INVENTORY BORROWING BASE" shall mean, the lesser of: (i) $5,500,000
or (ii) at the time of computation, 65% of the dollar value of Eligible
Inventory, such dollar value to be calculated at the lower of actual cost or
market value and accounted for on a "first in, first out" basis, less the amount
of any reserves established by the Senior Holder with respect thereto.
"INVESTMENT DOCUMENTS" shall mean, collectively, this Agreement, the
Debentures, the Security Documents, the Warrants, and all other instruments and
documents executed and delivered in connection with the Investment.
"LICENSES" shall mean, collectively, all rights, licenses, permits and
authorizations now or hereafter issued by any Governmental Authority in
connection with the operation or conduct of the Business.
"OBLIGATIONS" shall mean, collectively, all of the Borrowers'
indebtedness, liabilities and obligations arising under this Agreement, each of
the Security Documents and each of the other Investment Documents and any
renewals, modifications, and extensions thereof, including, but not limited to,
the principal, interest, late charges and other sums due and owing under the
Debentures and the Security Documents, and any other obligations of the
Borrowers to any of the Holders, including such other or additional financing
that any of the Holders may extend to the Borrowers at any time in the Holders'
sole discretion.
"PERMITTED ENCUMBRANCES" shall mean any lien, mortgage, security
interest or other encumbrance that results from any of the following: (i) this
Agreement and the other Investment Documents; (ii) taxes and assessments not
delinquent or actively being contested in good faith by any Borrower and for
which such Borrower has adequate reserves; (iii) deposits or pledges for goods
or services made in the ordinary course of the Business; (iv) a lease with a
bona fide lessor of tangible personal property to any Borrower or an agreement
with a bona fide seller of tangible personal property to any Borrower (where the
lease or sale is not made in contravention of the terms of this Agreement);
(v) purchase money obligations (where the purchase money obligation is not
undertaken in contravention of the terms of this Agreement); (vi) the Senior
Debt, but any such lien, mortgage, security interest or other encumbrance may
exist only against the assets and capital stock of PMI; (vii) obligations
resulting from the upgrade of the Borrowers' computer system in an amount not to
exceed $250,000; and (viii) other obligations in an amount not to exceed
$100,000 per year.
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"PERSON" shall mean any individual, corporation, partnership, joint
venture, limited liability company, unincorporated association, trust, or other
legal entity.
"PROCEEDS" shall mean all cash and noncash proceeds (including
insurance proceeds) resulting from any complete or partial Transfer of the
Collateral or any portion thereof or otherwise relating to or generated by, any
of the Collateral.
"REAL PROPERTY" shall mean, collectively, all real property owned by
the Parent or PMI or in which the Parent or PMI has a leasehold interest and all
real property hereafter acquired by the Parent or PMI in fee or by means of a
leasehold interest, including all real property on which the Business is now or
hereafter conducted, together with all goods located on any such real property
that are or may become "fixtures" under the law of the jurisdiction in which
such real property is located.
"RECEIVABLE" shall mean all of Parent's and PMI's now owned and
hereafter acquired rights to payment for goods sold or leased or for services
rendered.
"RECEIVABLES BORROWING BASE" shall mean, at the time of its
computation, an amount up to 85% the aggregate amount of the outstanding
Receivables of PMI (adjusted with respect to any discounts, allowances, credits,
rebates, or adjustments granted by PMI with respect to such Receivables) less
the amount of Ineligible Receivables and any reserves established by Senior
Holder with respect thereto.
"SECURITY DOCUMENTS" shall have the meaning given to it in Section
2.02 below.
"SENIOR DEBT" shall have the meaning given to it in Section 2.03
below.
"SENIOR HOLDER" shall have the meaning given to it in Section 2.03
below.
"SENIOR LOAN" shall have the meaning given to it in Section 2.03
below.
"SENIOR LOAN AGREEMENT" shall mean that certain Loan and Security
Agreement dated as of May 25, 1994, by and between PMI and HSBC Business Loans,
Inc., as amended from time to time, or any another agreement with respect to the
Senior Loan in effect from time to time.
"TRANSFER" shall mean the sale, assignment, lease, transfer,
mortgaging, encumbering or other disposition, whether voluntary or involuntary,
and whether or not consideration is received therefor.
"TRANSFER OF THE BUSINESS" shall mean one or a series of transactions
undertaken by the Borrowers resulting in either: (i) the Transfer of all or
substantially all of the assets of all of the Borrowers to any other Person,
other than transfers between or among Borrowers; (ii) a merger or consolidation
of the Parent with another Person where the Parent is not the surviving or
successor entity (other than a merger or consolidation of the Parent into or
with another Borrower, or a merger the primary purpose of which is the change in
state of incorporation of a Borrower); or (iii) the acquisition in one or a
series of transactions which results in one or more Persons either beneficially
owning in excess of 50% of the outstanding capital stock of the Parent or any
successor, or being able to elect a majority of the board of directors of the
Parent or any successor.
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"WARRANTS" shall mean, collectively, all those separate and detachable
stock purchase warrants being issued to Allied pursuant to the terms hereof.
"WARRANT SHARE(S)," when used in the singular, shall mean any share of
Common Stock acquired by a Holder pursuant to such Holder's exercise of its
rights under any of the Warrants, and, when used in the plural, shall mean,
collectively, all such shares.
ARTICLE II: TERMS OF INVESTMENT
2.01 FUNDING. At the closing under this Agreement (the
"Closing"), the Borrowers will borrow, and the Holders will invest in the
Borrowers, the aggregate sum of FIVE MILLION AND 00/100 DOLLARS ($5,000,000)
(the "Investment"), such indebtedness to be evidenced by, and to be repaid
according to the terms of, four Subordinated-Secured Debentures
(collectively, the "Debentures") in form and substance acceptable to Holders.
The entire principal sum will be advanced at Closing. The principal
indebtedness under the Debentures will be advanced by, and allocated among,
the Holders as follows:
Allied Capital Corporation $700,000
Allied Investment Corporation 2,300,000
Allied Investment Corporation II 1,450,000
Allied Capital Corporation II 550,000
TOTAL: $5,000,000
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2.02 COLLATERAL. Repayment of the Debentures and other Obligations
shall be secured ratably by second priority liens on, and security interests in,
all of the Collateral. To evidence and create the above-described liens and
security interests, the Borrowers, as appropriate, shall execute and deliver to
Allied at Closing all of the following documents and such additional documents
as Allied or its counsel may reasonably deem to be necessary or appropriate
(collectively, the "Security Documents"):
(a) A security agreement in form and substance acceptable to
Holders covering all of the Collateral, except as specifically covered by the
other Security Documents;
(b) UCC-1 Financing Statements in form and substance acceptable
to Holders to be filed in each of offices in each of the jurisdictions described
in the Security Agreement;
(c) A collateral assignment of the lease for premises in
Lakeview Terrace, California held by PMI and any renewals or extensions thereof
or substitutions or replacements therefor, pursuant to an instrument in form and
substance acceptable to Holders, with the consent of the lessor thereto as set
forth therein;
(d) A collateral assignment of a life insurance policy in the
initial amount of One Million Dollars ($1,000,000) insuring the life of Xxxxxxx
Xxxxx, which policy shall name the Holders jointly as beneficiaries (to the
extent of net proceeds required to satisfy the Obligations), together with a
binder for an additional policy in the amount of One Million Five Hundred
Thousand Dollars ($1,500,000);
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(e) Stock pledge agreements, pledging all shares of capital
stock of the Subsidiaries; and
(f) a Guaranty of the Obligations by Pico (St. Xxxxxxx) Ltd.
The liens and security interests in the Collateral created by the Security
Documents shall be continuing in nature, and shall attach when: (i) each
Borrower has executed and delivered the Security Documents; (ii) any Borrower
has acquired rights in the Collateral; and (iii) any of the Holders has made a
complete or partial disbursement of proceeds under the Debentures to the
Borrowers, the Borrowers' designated payee, or an escrow agent.
2.03 SENIOR DEBT. The Allied Investment and Allied's rights under
the Debentures and this Investment Agreement and the Security Documents shall be
subordinate, as to lien priority and right of payment with respect to Collateral
common to both, only to the following senior debt (the "Senior Debt"): (a) that
certain senior loan (as such loan may be modified, renewed, extended and
refinanced, the "Senior Loan") from HSBC Business Loans, Inc. ("HSBC") in an
outstanding principal amount not to exceed the sum of (A) the Receivables
Borrowing Base, plus (B) the Inventory Borrowing Base. (HSBC or any bank or
other lender which assumes or refinances the Senior Loan being referred to
herein as the "Senior Holder"); and (b) those certain capitalized lease
obligations not to exceed Five Hundred Thousand Dollars ($500,000) in the
aggregate, as more fully described in EXHIBIT 2.03 attached hereto. In
connection with the Senior Loan, the Senior Holder and Allied shall enter into,
at or prior to Closing, a subordination agreement in form and substance
acceptable to Holders (the "Senior Loan Subordination Agreement").
2.04 PRIORITY OF LIEN AND SECURITY INTERESTS. Allied's liens on, and
security interests in, the Collateral shall be prior to all other liens,
security interests or encumbrances, except for the liens, security interests and
encumbrances against the assets and capital stock of PMI, securing the rights of
the holders of the Senior Debt.
2.05 PREPAYMENT. The Debentures may be prepaid at any time, in whole
or in part, without premium or penalty.
2.06 DUE ON SALE. The Borrowers' obligations under the Debentures
and this Agreement are not assumable, and the Debentures and all of the other
Obligations are payable in full immediately upon a Transfer of the Business.
2.07 ATTORNEY-IN-FACT. Each Borrower hereby appoints Allied Capital
International Corporation as its attorney-in-fact, in the name of such Borrower
and on its behalf, for the sole purpose of signing financing statements,
continuation statements or other recordable documents reasonably necessary to
provide notice of the security interest granted herein in the applicable public
records. This power is coupled with an interest and is irrevocable so long as
any Obligations remain outstanding. This appointment may be discharged by any
officer or attorney of Allied Capital International Corporation.
2.08 WARRANTS.
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(a) BASIC WARRANTS. At Closing, the Parent will issue and sell
to Allied warrants entitling the Holders to purchase, in the aggregate, up to
779,313 shares of Common Stock, subject to adjustment as provided therein (the
"Basic Warrants"). The Basic Warrants shall be in form and substance acceptable
to Allied. The aggregate purchase price for the Basic Warrants shall be Fifty
Dollars ($50.00), and the exercise price for the Basic Warrants shall be $1.81
per share, subject to adjustment as set forth in the Basic Warrant.
(b) CONTINGENT WARRANTS. At Closing, the Parent will issue and
sell to Allied warrants entitling the Holders to purchase, in the aggregate, up
to 15% of the number of shares of Common Stock (i) resulting from the exercise
from time to time by employees of options heretofore granted (including all
options approved by the stockholders in December 1996), and (ii) into which the
"Second Warrants" (as such term is defined in the Investment Agreement dated as
of February 10, 1993, by and among the Parent and the Investors named therein)
are convertible, in the event the Second Warrants are issued, subject to
adjustment as provided therein (the "Contingent Warrants"). The Contingent
Warrants shall be in form and substance acceptable to Allied. The aggregate
purchase price for the Contingent Warrants shall be Fifty Dollars ($50.00), and
the exercise price for the Contingent Warrants shall be $1.81 per share, subject
to adjustment as set forth in the Contingent Warrant.
(c) EXPIRATION. The Warrants shall expire on that date which is
the later of: (i) three years from the date on which all Obligations with
respect to the Debentures are satisfied in full; or (ii) six years from the date
hereof.
2.09 REGISTRATION RIGHTS. The Parent shall grant certain
registration rights to the Holders on the terms and conditions of a Registration
Rights Agreement, dated as of the date hereof, by and among the Parent, Allied
and the other parties named therein (the "Registration Rights Agreement"). The
Registration Rights Agreement shall be in form and substance acceptable to
Allied.
2.10 CLOSING. Closing must occur on or before the close of business
on the date hereof, unless extended in writing by Allied, in Allied's sole
discretion.
2.11 CONDITIONS PRECEDENT TO HOLDERS' OBLIGATIONS. The obligation of
Allied to make the Investment is subject to the satisfaction of the following
conditions precedent at or prior to the Closing (unless waived in writing by
Allied prior to Closing):
(a) Each of the representations and warranties contained in this
Agreement must be true and accurate in all material respects as of the date of
Closing, and each Borrower must have performed all of its respective obligations
hereunder, including execution and delivery of all of the documents,
instruments, opinions and certificates required by this Agreement in such forms
as are satisfactory to Allied and its counsel;
(b) Allied shall have completed a due diligence report that
reflects favorably on the Borrowers, its management, and the market for the
Business generally. In this regard, each Borrower covenants and agrees to
furnish to Allied such information as Allied may request in order to enable
Allied to complete the required due diligence;
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(c) Allied shall have received written evidence satisfactory to
it that The Xxxxxxx Corporation has made an investment in the Borrowers
evidenced by the purchase of shares of the Parent's Series A Redeemable
Preferred Stock for a purchase price of not less than $1,000,000 (the "Junior
Investment"); and
(d) Allied shall have received each of the following items:
(i) the Debentures, duly executed by each Borrower;
(ii) each of the Security Documents, duly executed by
each Borrower, as appropriate;
(iii) an opinion of counsel, duly executed by counsel to
the Borrowers, in form and substance acceptable to Allied;
(iv) the Senior Loan Subordination Agreement, duly
executed by the Senior Holder;
(v) the Basic Warrants, duly executed by the Parent;
(vi) the Contingent Warrants, duly executed by the
Parent;
(vii) the Registration Rights Agreement, duly executed by
the Parent and each of the other parties named therein; and
(viii) an Officer's Certificate, certifying as to (a) the
Borrowers' Constituent Documents, as defined in Section 3.01, (b) the
resolutions of each Borrower authorizing the transactions contemplated in this
Agreement and the other Investment Documents, and (c) the incumbency and
specimen signatures of certain officers of the Borrowers.
ARTICLE III: REPRESENTATIONS AND WARRANTIES
To induce Holders to enter into this transaction, the Borrowers,
jointly and severally, represent and warrant to Holders as follows, except as
disclosed in the Parent's Form 10-K for the fiscal year ended July 31, 1996 (the
"Form 10-K"), which representations and warranties shall survive the execution
and delivery of this Agreement and the funding of the Investment:
3.01 ORGANIZATION; SUBSISTENCE. Each Borrower is a corporation duly
formed, validly organized and subsisting in the jurisdiction of its formation.
True, correct and complete copies of the articles of incorporation, by-laws, all
other constituent documents of each Borrower, and all amendments and supplements
to any of the foregoing (collectively, the "Borrowers' Constituent Documents")
have been previously delivered to Allied, and all of the Borrowers' Constituent
Documents are in full force and effect as of the date hereof.
3.02 QUALIFICATION. Each Borrower is duly qualified to conduct
business as it is currently being conducted and is subsisting as a foreign
corporation in all jurisdictions in which the nature of its business or
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location of its owned and leased property and assets requires such qualification
(evidence of which has been previously delivered), except where the failure to
so qualify or subsist would not have a material adverse effect on such Borrower,
its business, or its prospects.
3.03 POWER AND AUTHORITY. Each Borrower has full power and authority
to enter into this Agreement and each of the other Investment Documents, to
incur the Obligations as contemplated hereby and to carry out the provisions of
this Agreement and each of the other Investment Documents. The Parent has full
power and authority to issue the Warrants and Warrant Shares. Each of the
Parent and PMI have taken all corporate action necessary for the execution and
delivery of this Agreement and each of the other Investment Documents and for
the performance by such Borrower of each of its obligations hereunder and
thereunder, as evidenced by corporate resolution(s) or other authorization
previously delivered.
3.04 ENFORCEABILITY. Upon execution and delivery by each of the
parties thereto, this Agreement and each of the other Investment Documents shall
be the legal, valid and binding obligations of each Borrower, to the extent such
Borrower is a party thereto, and shall be enforceable against such Borrower in
accordance with their respective terms.
3.05 LITIGATION. No Borrower is currently a party to or, to its
knowledge, threatened by any suits, actions, claims, investigations by
Governmental Authorities or legal, administrative, arbitration or mediation
proceedings, except as set forth in the schedule of litigation attached hereto
as EXHIBIT 3.05 (the "Litigation Schedule"). No Borrower knows of any basis or
grounds for any such suit, action, claim, investigation or proceeding. No
Borrower has initiated any litigation against any third parties (other than
where a Borrower is a creditor seeking collection of one or more Receivables),
except as set forth on EXHIBIT 3.05.
3.06 ORDERS; DECREES; JUDGMENTS. There are no outstanding orders,
judgments, writs, injunctions or decrees of any court, Governmental Authority or
arbitration or mediation panel or tribunal against or affecting any Borrower,
any of the Collateral, or any of the other properties, assets or business of the
Borrowers.
3.07 NON-CONTRAVENTION. Except for matters set out in the Litigation
Schedule, no Borrower is in breach of, default under, or in violation of: (a)
any Applicable Law, decree, or order which may materially and adversely affect
them; or (b) any deed, lease, loan agreement, commitment, bond, note, deed of
trust, restrictive covenant, license, indenture, contract, or other agreement,
instrument or obligation to which any of them is a party or by which any of them
is bound or to which any of their respective assets (including, but not limited
to, the Collateral) are subject. Neither the execution and delivery of this
Agreement and the Investment Documents nor the performance by any Borrower of
its respective obligations hereunder and thereunder will cause any such breach,
default or violation or will require the consent or approval of any court or
Governmental Authority, except as expressly contemplated by the terms of this
Agreement.
3.08 BORROWERS' BUSINESS. [INTENTIONALLY DELETED]
3.09 TITLE. Each Borrower has good, complete, indefeasible and
marketable title to, and ownership of, all of the Collateral and to all other
real or personal property it purports to own (if any), free and clear of all
liens, defects, claims, security interests and encumbrances other than the
Permitted Encumbrances.
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3.10 TAXES. Except as set forth on EXHIBIT 3.10 attached hereto,
each Borrower has filed all federal, state and local tax returns which are
required to be filed, and each Borrower has duly paid or fully reserved for all
taxes or installments thereof (including any interest or penalties) as and when
due pursuant to the filed returns or pursuant to any levy or assessment received
by such Borrower.
3.11 FINANCIAL CONDITION. A true and complete copy of the Form 10-K,
including the audited consolidated financial statements summarizing the
financial condition and results of operations of the Parent, as consolidated,
for the fiscal year ended July 31, 1996 (the "Audited Financials"), has been
provided to Allied by the Borrowers. The Audited Financials were prepared in
accordance with GAAP, are true and correct in all material respects, and fairly
present the Parent's financial condition and results of operations of the
Parent, as consolidated, at such dates and for the periods then ended. The
auditors have issued an unqualified opinion to the Parent concerning the Audited
Financials, a copy of which is included with the Audited Financials.
3.12 SOLVENCY. As of the date hereof, giving effect to the
transactions contemplated by this Agreement, the present fair saleable value of
the Borrowers' assets is greater than the amount required to pay the Borrowers'
total indebtedness (contingent or otherwise), and is greater than the amount
that will be required to pay such indebtedness as it matures and as it becomes
absolute and matured. The transactions contemplated hereby were effectuated
without actual intent to hinder, delay or defraud present or future creditors of
the Borrowers; it is the Borrowers' express intention that they will maintain a
solvent financial condition on a consolidated basis, giving effect to the
Obligations incurred hereunder, as long as any of the Obligations remain
outstanding or any Borrower is obligated to the Holders in any other manner
whatsoever. Upon consummation of the Investment, each Borrower will have
sufficient capital to carry on its business and transactions as planned to be
conducted in the future.
3.13 MATERIAL LEASES. Attached hereto as EXHIBIT 3.13 is an accurate
and complete list of all leases of Real Property and all other material leases
to which any Borrower is a party or by which any Borrower or any of the assets
of any Borrower is bound, together with all amendments or supplements thereto
(collectively, the "Leases"). True and complete copies of each of the Leases
have been provided or made available to Allied prior to the date hereof. Each
of the Leases is valid, binding and enforceable in accordance with its terms and
remains in full force and effect. No Borrower is in default or alleged to be in
default with respect to any of its obligations under any of the Leases (nor
would be in default or alleged to be in default with the giving of notice,
passage of time, or both), and, to the best of the Borrowers' knowledge, no
party other than a Borrower is in default with respect to such party's
obligations under any of the Leases (or would be in default or alleged to be in
default with the giving of notice, passage of time, or both). No Borrower's
possession of any property leased by it has been disturbed, nor has any claim
been asserted against any Borrower that is or could be adverse to such
Borrower's interests under any of the Leases. None of the Leases is subject to
any rights of set-off, recoupment or similar deduction or offset and, except as
noted on EXHIBIT 3.13 attached hereto, the collateral assignment of the
Borrowers' rights under each of the Leases will not impair or conflict with the
validity or enforceability of any of the Leases. No Borrower has assigned or
encumbered any of its rights, title or interest in or under any of the Leases
nor agreed to any oral modifications of any of the provisions of any of the
Leases.
3.14 MATERIAL CONTRACTS. Attached hereto as EXHIBIT 3.14 is an
accurate and complete list of all material contracts (including all those
representing 20% or more of the Borrowers' total revenue, profit or volume) to
which any Borrower is a party or by which any Borrower or the
11
assets of any Borrower is bound (collectively, the "Contracts"). True and
complete copies of each of the Contracts have been provided or made available to
Allied prior to the date hereof. Each of the Contracts is valid, binding and
enforceable in accordance with its terms and remains in full force and effect.
No Borrower is in default or alleged to be in default with respect to any of its
obligations under any of the Contracts (nor would be in default or alleged to be
in default with the giving of notice, passage of time, or both), and, to the
best of the Borrowers' knowledge, no party other than the Borrowers is in
default with respect to such party's obligations under any of the Contracts (or
would be in default or alleged to be in default with the giving of notice,
passage of time, or both). No claim has been asserted against any Borrower that
is or could be adverse to such Borrower's interests under any of the Contracts.
None of the Contracts is subject to any rights of set-off, recoupment or similar
deduction or offset and, except as noted on EXHIBIT 3.14 attached hereto, the
collateral assignment of the Borrowers' rights under each of the Contracts will
not impair or conflict with the validity or enforceability of any of the
Contracts. No Borrower has assigned or encumbered any of its rights, title or
interest in or under any of the Contracts nor agreed to any oral modifications
of any of the provisions of any of the Contracts.
3.15 INFORMATION MEMORANDUM; DUE DILIGENCE QUESTIONNAIRES. The
Borrowers have previously provided true, correct and complete copies of the
Borrowers' Information Memorandum dated July 16, 1996, as updated and
supplemented by information provided through the Closing Date (the "Information
Memorandum") and completed due diligence questionnaires (collectively, the "Due
Diligence Questionnaires").
3.16 PROJECTIONS. The Borrowers have previously provided five-year
projections for the Borrowers and have made certain projections for the
Borrowers in the Information Memorandum and in certain reports filed pursuant to
the Securities Exchange Act of 1934 (collectively, the "Projections"). All
Projections are based upon assumptions which the Borrowers believe to be
reasonable under the circumstances.
3.17 DISCLOSURE. Excluding Projections, which are subject to Section
3.16 above, neither (i) the Information Memorandum; (ii) this Agreement and all
Exhibits hereto; nor (iii) any reports or information filed by the Borrowers
pursuant to the Securities Exchange Act of 1934 during the 18 months preceding
the Closing Date (upon which Allied is entitled to rely in making the investment
pursuant to this Investment Agreement), contains any untrue statement of
material fact or omits to state a material fact necessary to make the statements
therein not misleading.
3.18 OTHER DEBTS. Except for the liabilities included in the Audited
Financials, no Borrower has any indebtedness, liabilities or obligations of any
nature (whether liquidated or unliquidated, mature or not yet mature, absolute
or contingent, secured or unsecured), arising out of any transaction entered
into or any state of facts existing prior hereto, including, without limitation,
liabilities or obligations on account of taxes or government charges, penalties,
interest or fines thereon or in respect thereof, and no Borrower knows, or has
reasonable grounds to know, of any basis for any claim against any Borrower as
of the date of this Agreement or of any debt, liability or obligation.
3.19 NO MATERIAL CHANGE. Since the ending date of the Annual
Financials, no Borrower has: (i) suffered any material change in its condition
(financial or otherwise) or its overall business prospects; (ii) entered into
any material transactions or incurred any debt, obligation or liability (whether
liquidated or unliquidated, mature or not yet mature, absolute or contingent,
secured or unsecured) other than the Obligations; (iii) sustained any material
loss or damage to its Real Property or personal property, whether or not
insured; (iv) suffered any material interference with its business or
operations, present or proposed; and (v) made any
12
Transfer, abandonment or other disposition of any of its Real Property or
personal property or any interest therein or relating thereto, that is material
to the financial position or prospects of such Borrower.
3.20 NO SIDE AGREEMENTS. No Borrower, nor any of the officers,
directors, shareholders or managers of such Borrower are party to any agreement,
either written or oral, with any Person (including any of the Holders) whereby
such Borrower, or any of the officers, directors, shareholders or managers of
such Borrower, acting in such capacities, have agreed to do anything beyond the
requirements of formal, written contracts executed by such Borrower. Other than
this Agreement, the other Investment Documents, and any documents relating to
the Permitted Encumbrances, no Borrower, nor any of the officers, directors,
shareholders or managers of such Borrower is a party to any agreement calling
for any action by any Borrower or such party outside the ordinary course of
their respective businesses. To the best of the Borrowers' knowledge, there
exists no agreement or understanding calling for any payment or consideration
from a customer or supplier of any Borrower to an officer, director, shareholder
or manager of such Borrower with respect to any transaction between such
Borrower and such supplier or customer. No Affiliate of any Borrower, directly
or indirectly, transacts any business with any Borrower, except for employment
arrangements as disclosed on EXHIBIT 3.27 below and arrangements disclosed in
reports filed pursuant to the Securities Exchange Act of 1934.
3.21 SBA FORMS AND REPRESENTATIONS. The Parent has previously
delivered accurate and complete copies of the Size Status Declaration (SBA Form
480), the Assurance of Compliance for Non-Discrimination (SBA Form 652), the
Portfolio Financing Report (SBA Form 1031), and the Economic Impact Assessment
(collectively, the "SBA Forms"). Each of the representations, statements and
certifications made in each of the SBA Forms is accurate and complete and does
not fail to state a material fact necessary to make such representations,
statements and certifications not misleading. The Parent is a "small business
concern" as defined in the Small Business Investment Act of l958, as amended
(the "SBA Act"), and the rules and regulations of the U.S. Small Business
Administration (the "SBA") issued or promulgated thereunder. There exists no
agreement, expressed or implied, no condition, state of facts or relationship
between the Parent and any other entity or entities which would prevent it from
qualifying as a "small business concern" under the SBA Act.
3.22 INVESTMENT COMPANY ACT REPRESENTATIONS. No Borrower is, or
intends to become, an "investment company", as such term is defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), and no Borrower,
nor any of the respective officers, directors, partners or controlling persons
of any of them is an "associate" of any Holder, as such terms are defined in
Section 107.3 of the amended Regulations promulgated under the SBA Act, nor an
"affiliated person" of any Holder, as such term is defined in Section 2(a)(3) of
the 1940 Act.
3.23 GENERAL LEGAL COMPLIANCE. No Borrower is in violation of any
Applicable Law that would apply to it or to its business, the violation of which
would have a material adverse effect either individually or in the aggregate on
any Borrower, its business, or its prospects.
3.24 ENVIRONMENTAL LEGAL COMPLIANCE. Without limiting the generality
of the representation and warranty made in Section 3.23 above, no Borrower is in
violation of any applicable Environmental Law (as defined below), which
violation would have a material adverse effect either individually or in the
aggregate on any Borrower or its business or prospects, and no Borrower has been
notified of any action, suit, proceeding or investigation which calls into
question compliance by any Borrower with any Environmental Laws or which
13
seeks to suspend, revoke or terminate any license, permit or approval necessary
for the generation, handling, storage, treatment or disposal of any Hazardous
Material, in each case, except as set forth in EXHIBIT 3.24 attached hereto. As
used in this Agreement, the term "Environmental Law" shall mean, collectively,
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601 ET SEQ. ("CERCLA"); the Solid Waste
Disposal Act, as amended, 42 U.S.C. Section 6901 ET SEQ.("SWDA") including the
Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. Section
6901 ET SEQ. ("RCRA"); the Clean Water Act, as amended, 42 U.S.C. Section 1251
ET SEQ.("CWA"); the Clean Air Act, as amended, 42 U.S.C. Section 7401 ET SEQ.;
any "superfund" or "superlien" law; and any other Applicable Law regulating,
relating to, or imposing liability or standards of conduct concerning, any
hazardous, toxic or dangerous waste, substance or material, and the term
"Hazardous Material" shall mean and include any hazardous, toxic or dangerous
waste, substance or material, the generation, handling, storage, disposal,
treatment or emission of which is subject to any Environmental Law.
3.25 EMPLOYEE BENEFIT MATTERS. Except as set forth on EXHIBIT 3.25
attached hereto, there is no existing single-employer plan defined in Section
4021(a) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") as to which any Borrower is an "employer" or a "substantial employer"
as defined in Sections 3(5) and 4001(a)(2) of ERISA, respectively. EXHIBIT 3.25
is an accurate and complete list of each plan described in Section 4021(a) of
ERISA as to which any Borrower is liable to make contributions or for the
payment of benefits. Each Borrower has delivered or made available to Allied
true and complete copies of each of the plans listed on EXHIBIT 3.25. To the
best knowledge of the Borrowers, there have been no "reportable events" as set
forth in Section 4043(b) of ERISA with respect to any such plan, and no
termination of any such plan since the effective date of ERISA which could
result in any tax, penalty or liability being imposed upon any Borrower. No
Borrower has participated in, and the execution and delivery of this Agreement
by each Borrower will not involve, any "prohibited transaction" (as defined in
Section 4975 of the Internal Revenue Code of 1986, as amended) that could
subject any Borrower to any tax or penalty imposed by Section 4975 of the
Internal Revenue Code of 1986, as amended. To the best knowledge of the
Borrowers, no predecessor-in-interest to any Borrower has participated in any
"prohibited transaction" (as defined in Section 4975 of the Internal Revenue
Code of 1986, as amended) that could subject any Borrower to any tax or penalty
imposed by Section 4975 of the Internal Revenue Code of 1986, as amended. Since
the effective date of ERISA, no Borrower, nor any predecessor-in-interest to any
Borrower, has incurred any "accumulated funding deficiency", as such term is
defined in Section 302 of ERISA, to which any Borrower could be subject or for
which it might be liable. No Borrower is a party to, and none of the operations
of any Borrower is covered by, a "multi-employer plan", as defined in Section
3(37) of ERISA.
3.26 COLLECTIVE BARGAINING. No Borrower is a party to or subject to
any collective bargaining agreements or union contracts. There are no labor
disputes pending or threatened against any Borrower or, to the best knowledge of
the Borrowers, between any Borrower and its employees which have affected, or so
far as the Borrowers can reasonably foresee may affect, materially and adversely
the business or condition of the Borrowers or the Business.
3.27 EMPLOYEES. Attached hereto as EXHIBIT 3.27 is an accurate and
complete list of all employment and compensation contracts, including all
retirement benefit agreements not disclosed on EXHIBIT 3.25, between the
Borrowers and officers and executives of the Borrowers. The Borrowers have
delivered to the Holders accurate and complete copies of all such contracts. No
officer, executive or other key employee of any
14
Borrower has advised such Borrower (orally or in writing) that he or she intends
to terminate employment with such Borrower.
3.28 INSURANCE. Attached hereto as EXHIBIT 3.28 is an accurate and
complete list of all insurance policies and binders presently providing coverage
to any Borrower or any assets of any Borrower, including all insurance providing
coverage with respect to any of the Collateral. The Borrowers have furnished or
made available to Allied appropriate insurance certificates and accurate and
complete copies of the insurance binders or policies for all of the insurance
listed in EXHIBIT 3.28. The coverage provided by such insurance is adequate for
the conduct of the Business.
3.29 LICENSES. Attached hereto as EXHIBIT 3.29 is an accurate and
complete list of the Licenses held by the Borrowers. The Licenses held by the
Borrowers constitute all licenses, permits, approval and authorizations needed
to properly operate the Business. No Borrower is in default or in noncompliance
with respect to any License.
3.30 BROKERS. No Borrower has any knowledge of any investment
banking, brokerage, or finders fees due for the transactions contemplated
hereby, except for (i) the fees due Xxxxxxx Xxxxx Capital Partners, LP (all of
which shall be paid by the Parent) and (ii) the fees due Xxxxxxxx Capital (all
of which shall be paid by Allied). Each Borrower will indemnify the Holders for
any claims with respect to any such fees, other than claims relating to the fees
due Xxxxxxxx Capital.
3.31 SUBSIDIARIES. Attached hereto as EXHIBIT 3.31 is an accurate
and complete list of all direct or indirect subsidiaries of any Borrower,
designating certain subsidiaries as inactive (collectively, the "Inactive
Entities"). Except for director-qualifying shares, all shares of subsidiaries
are owned by a Borrower and are validly issued, fully paid and non-assessable.
The Inactive Entities have no material assets and conduct no business
operations, and Borrowers have no intention of causing any Inactive Entity to
obtain any material assets or conduct any business operations.
3.32 EQUITY. No Borrower has granted any pre-emptive rights relating
to any of its securities. The shares issuable upon exercise of the Warrants
have been duly authorized and reserved and, upon exercise, will be fully paid
and non-assessable.
3.33 SECURITIES LAWS. The issuance and sale of the Warrants and the
Debentures hereunder, and the issuance of shares issuable under the Warrants,
complies and will comply, as the case may be, with all federal and state
securities laws and regulations.
3.34 CAPITALIZATION. Set forth on EXHIBIT 3.34 attached hereto is an
accurate and complete list of the following information for each Borrower: (i)
the authorized capitalization of such Borrower as of the date hereof; (ii) the
number of shares of each class of such Borrower's issued capital stock and the
number of outstanding shares thereof; and (iii) a description of all convertible
securities and all options, warrants and similar rights held with respect to
such Borrower's capital stock. All shares of capital stock of each Borrower and
all convertible securities, options, warrants and similar rights held with
respect to such Borrower's capital stock have been duly authorized and validly
issued, and are fully paid and nonassessable (in the case of capital stock).
Except as listed in EXHIBIT 3.34 attached hereto, there are no outstanding
options, warrants, convertible securities or other stock purchase rights issued
by any of the Borrowers as of the date hereof.
15
B. To induce the Borrowers to enter into this transaction, Allied
represents and warrants to the Borrowers as set forth below (which
representations and warranties shall survive the execution and delivery of this
Agreement and the funding of this transaction).
B-3.01 INVESTMENT INTENT. Allied: (i) is acquiring the Warrants and
Debentures being purchased by it hereunder and will, upon conversion of the
Warrants, acquire the Warrant Shares, for its own account for the purpose of
investment and not with a view to or for sale in connection with any
distribution thereof; (ii) understands that the Warrants, the Debentures and the
Warrant Shares have not been registered under the Securities Act by reason of
their issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof and may not be offered or sold
except pursuant to an effective registration statement or an available exemption
from the registration requirements under the Securities Act; and (iii) is an
"accredited investor" as defined in Regulation D as promulgated under the
Securities Act. Allied agrees that the certificates representing the
Debentures, the Warrants and the Warrant Shares will bear restrictive legends to
the effect of clause (ii) of the preceding sentence and that the Parent may
require an opinion of counsel, in form and substance reasonably satisfactory to
the Parent, to the effect that any proposed transfer will not result in any
violation of the Securities Act and the rules and regulations thereunder.
ARTICLE IV: AFFIRMATIVE COVENANTS
Until the Debentures are repaid in full and each of the other
Obligations has been satisfied in full and discharged (other than those
Obligations arising from the Warrants), and until the Warrants expire (with
respect to Sections 4.18 and 4.19 only), each Borrower covenants and agrees with
the Holders to do all of the following:
4.01 MONTHLY FINANCIALS. The Borrowers shall forward, or cause to be
forwarded to Holders, the Parent's consolidated monthly and year-to-date
financial statements, comparing actual to budgeted performance, prepared in
accordance with GAAP (including a monthly and year-to-date balance sheet, profit
and loss statement and cash flow statement) within 45 days following the end of
each month (other than a month marking the Borrowers' fiscal year end), together
with a monthly one-page management summary description of operations.
4.02 CERTIFICATION OF NON-DEFAULT. The Borrowers shall provide to
the Holders in writing each fiscal quarter an officer's certificate, signed by
the President or Chief Financial Officer, certifying that no Event of Default
has occurred under this Agreement, or if any such Event of Default exists,
stating the nature of such Event of Default.
4.03 CERTIFICATION OF OPTIONS EXERCISED BY EMPLOYEES. The Borrowers
shall provide to the Holders in writing each fiscal quarter an officer's
certificate, signed by the President or Chief Financial Officer, certifying the
number of shares of Common Stock issued during such quarter upon the exercise of
options held by employees.
4.04 ANNUAL AUDIT. The Borrowers shall forward, or cause to be
forwarded, to Holders the Parent's consolidated audited year-end balance sheet,
profit and loss statement and cash flow statement, without
16
qualification thereof, within 90 days of such fiscal year-end, which shall be
prepared at the Borrowers' sole expense by an independent accounting firm
acceptable to the Holders according to GAAP. For purpose of this Agreement,
unless notice is expressly given to the contrary by Holders, all national and
regional firms shall be considered acceptable to the Holders.
4.05 PROJECTED FINANCIALS. Prior to each fiscal year-end, the
Borrowers shall provide the Holders with projected financial statements for the
Borrowers for the coming three years and monthly projections for the Borrowers
for the coming year, in the same format as used for the financial statements
required pursuant to Section 4.01 above.
4.06 NOTICE OF FILINGS. Within 30 days of filing, the Borrowers
shall provide the Holders with copies of all material returns and documents
filed by any Borrower with any Governmental Authority, including, without
limitation, the U.S. Internal Revenue Service, the U.S. Environmental Protection
Agency, the U.S. Occupational Safety and Health Administration, the SBA, and the
U.S. Securities and Exchange Commission (the "SEC").
4.07 NOTICE OF LITIGATION. The Borrowers shall notify the Holders of
any litigation involving a claim for damages in excess of $100,000 to which any
Borrower is a party by mailing to the Holders, by U.S. registered mail, within
30 days of receipt thereof, a copy of the Complaint, Motion for Judgment or
other such pleadings served on or by any Borrower; PROVIDED, HOWEVER, that the
Borrowers shall not be obliged by this Section 4.07 to give notice of suits
where a Borrower is a creditor seeking collection of one or more Receivables.
Borrowers shall also notify the Holders of any litigation of which the Borrower
has knowledge and to which any Borrower is not a party but which could
substantially affect the Collateral or the operation of the Business, by mailing
to the Holders, by U.S. registered mail, a copy of all pleadings obtained by the
Borrowers in regard to such litigation, or if no pleadings are obtained, a
letter setting out the facts known about the litigation within 30 days of
receipt thereof.
4.08 NOTICE OF DEFAULTS OR JUDGMENTS. The Borrowers shall give the
Holders notice of any default declared with respect to any Lease, Contract, or
loan of any Borrower or any judgment entered against any Borrower, by mailing an
accurate and complete copy thereof to Holders within 10 days of receipt thereof
by such Borrower.
4.09 FINANCIAL COVENANTS.
(a) PMI shall maintain each of the following levels of financial
performance, measured in accordance with GAAP:
(i) Net Working Capital of not less than $3,500,000, determined
at the end of each fiscal quarter;
(ii) Working Capital Ratio of not less than 1.30:1, determined
at the end of each fiscal quarter;
(iii) Tangible Net Worth of not less than $7,500,000, determined
at the end of each fiscal quarter;
17
(iv) Debt to Tangible Net Worth ratio of not more than 2.25:1,
determined at the end of each fiscal quarter;
(v) Net Income After Taxes of not less than $900,000, for each
fiscal year;
As used in this Section 4.09(a), the following terms shall have the
meanings indicated with respect to PMI:
(1) "NET WORKING CAPITAL" shall mean the amount by which current assets
(excluding any Intangible Assets, as defined below) exceed current liabilities;
(2) "WORKING CAPITAL RATIO" shall mean the ratio of current assets
(excluding any Intangible Assets) to current liabilities;
(3) "TANGIBLE NET WORTH" shall mean the (i) the sum of stockholders' equity
and the principal balance of any debt subordinate to the Senior Debt, less (ii)
the book value of Intangible Assets;
(4) "DEBT TO TANGIBLE NET WORTH" shall mean the ratio of total liabilities,
excluding the principal balance of any debt that is subordinate to the Senior
Debt, to Tangible Net Worth;
(5) "NET INCOME AFTER TAXES" shall mean, with respect to any fiscal year,
net income after provisions for taxes for such fiscal year; and
(6) "INTANGIBLE ASSETS" shall mean (i) all loans or advances to, and other
receivables owing from, any officers, employees, subsidiaries and other
affiliates, (ii) all investments, whether in a subsidiary, a joint venture or
otherwise, (iii) goodwill, (iv) any other assets deemed intangible under GAAP;
and (v) any other assets determined to be intangible by Holders in its
reasonable credit judgment.
(b) Parent shall maintain each of the following levels of
financial performance, measured on a consolidated basis in accordance with GAAP:
(i) The ratio of EBITDA to Total Interest Expense shall be equal
to or greater than 1.0:1, determined for the quarter ending on July
31, 1997; the ratio of EBITDA to Total Interest Expense shall be equal
to or greater than 1.3:1, determined for the quarter ending on January
31, 1998, and semi-annually thereafter for the immediately preceding
quarter; and
(ii) The ratio of Total Long Term Debt to EBITDA shall be less
than or equal to 4.5:1, determined for the four-quarter period ending
January 31, 1998, and semi-annually thereafter for the immediately
preceding four-quarter period.
As used in this Section 4.09(b), the following terms shall have the
meanings indicated with respect to the Parent, on a consolidated basis:
18
(1) "EBITDA" shall mean earnings before interest expense (excluding
interest on any trade debt incurred as permitted under Section 5.08), tax
expense on federal and state income taxes, depreciation expense, and
amortization expense;
(2) "TOTAL INTEREST EXPENSE" shall mean the aggregate amount of installment
interest payments paid or payable in respect of the Debentures and the
instruments evidencing the Senior Debt; and
(3) "Total Long-Term Debt" shall mean total long-term liabilities.
4.10 INSURANCE. At all times until all of the Obligations have been
satisfied in full, the Borrowers shall maintain all insurance listed in EXHIBIT
3.28 or equivalent replacement insurance in full force and effect.
4.11 USE OF PROCEEDS. The Borrowers shall use the proceeds of the
Investment for the purposes set forth below:
Working Capital for U.S. operations $1,700,000
Investment in St. Kitts operations 300,000
Working Capital for Asian operations 200,000
Investment in Brazil operations 100,000
Investment in Taiwan operations 200,000
Technology Development for U.S. operations 1,800,000
U.S. Infrastructure Upgrade 400,000
Estimated Transaction Costs 300,000
Total: $5,000,000
From time to time following the Closing, upon the request of Allied,
the Borrowers shall furnish to Allied a written certification of the Borrowers,
signed by the President or Chief Financial Officer, certifying that the net
proceeds of the Investment either (i) have been used for the purposes permitted
by the terms of this Section 4.11, or (ii) pending application of such funds as
set forth above, are being used as working capital for the U.S. operations.
Each Borrower hereby authorizes Allied and its designated representatives to
conduct a review of such Borrower's books and records sufficient to satisfy
Allied, in the exercise of Allied's reasonable discretion, that the proceeds of
the Investment are being used for the purposes permitted by the terms of this
Section 4.11.
4.12 PAYMENTS AND OBLIGATIONS. The Borrowers shall make all payments
of principal, interest and other charges as and when due under the Debentures,
shall timely make all payments of any other monetary Obligations, shall perform
or comply with, as the case may be, all of the other Obligations, and shall
perform and comply in all respects with all applicable terms, conditions and
covenants of all this Agreement and the other Investment Documents.
4.13 INFORMATION REQUESTS. The Borrowers shall furnish from time to
time to Holders all information Holders may reasonably request to enable Holders
to prepare and file any form required of Holders by the SEC or any other
Governmental Authority.
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4.14 CREDIT CHECKS; ACCESS TO RECORDS. The Borrowers shall permit
any authorized representative(s) of Holders and their attorney(s) and
accountant(s) to obtain credit and other background information on each Borrower
and its management, and to inspect, examine and make copies and abstracts of the
books of account and records of such Borrower at reasonable times during normal
business hours. The Borrowers shall allow Holders or their agent(s) to
interview the Borrowers' outside accountants, who, by this covenant, are hereby
irrevocably instructed to respond to such inquiries as fully as if made by the
Borrowers themselves.
4.15 MAINTAIN COPIES; FINANCING STATEMENTS. The Borrowers shall
maintain an original or a true copy of this Agreement and any modifications
hereof, which shall be available for inspection as called for herein or in the
Debentures. The Borrowers agree that a photographic or other reproduction of
this Agreement or of a financing statement is sufficient as a financing
statement.
4.16 MAINTAIN EXISTENCE. The Borrowers shall take or cause to be
taken all steps and perform or cause to be performed all actions necessary or
appropriate to preserve and keep in full force and effect their existence as
corporations and their right to conduct their business in a prudent and lawful
manner in all jurisdictions in which they currently conduct business, other than
in connection with a merger the primary purpose of which is the change in state
of incorporation of a Borrower.
4.17 PROTECT THE COLLATERAL. The Borrowers shall take or cause to be
taken all steps and perform or cause to be performed all actions necessary and
appropriate to administer, supervise, preserve and protect the Collateral and to
maintain the Holders' perfected security interest in the Collateral.
4.18 COMMON STOCK RESERVES. The Parent shall maintain such shares of
Common Stock as authorized but unissued, as may be necessary to permit the
Holders of the Warrants to acquire all of the Warrant Shares at any time.
4.19 REPLACEMENT OF WARRANTS. The Parent shall perform all acts
required under the Warrants, including the re-issuance or replacement of
Warrants to any of the Holders upon transfer, exchange, loss or destruction
thereof.
4.20 BOARD MEETINGS; BOARD REPRESENTATIVE; BOARD OBSERVATION RIGHTS.
(a) The Parent shall hold meetings of its board of directors at
its offices or another designated location on an as-needed basis, but not less
frequently than four times per fiscal year. Holders shall be notified in
writing of the date and time for each board meeting at least two weeks prior
thereto. If the Parent schedules a board meeting without two weeks notice,
Holders shall be notified of the date and time for such board meeting as soon
after the scheduling as possible.
(b) The Holders, as a group, shall be entitled to have one
designated representative attend and observe each board meeting at the Parent's
expense.
4.21 LIFE INSURANCE. Within 30 days of Closing, the Borrowers shall
deliver a life insurance policy in the amount of $1,500,000 insuring the life of
Xxxxxxx Xxxxx, which policy shall name the Holders jointly as beneficiaries (to
the extent of net proceeds required to satisfy the Obligations, together with a
fully
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executed collateral assignment of such policy. Allied hereby acknowledges that
the aggregate amount of life insurance collaterally assigned to Holders may be
decreased from time to time to an amount not less than 50% of the aggregate
principal amount outstanding under the Debentures.
4.22 DELIVERY OF SECURITY DOCUMENTS. In the event Allied waives the
condition precedent set forth in Section 2.11(d)(ii) with respect to the
delivery of certain Security Documents, the Borrowers shall deliver to Allied
such Security Documents, fully executed, within 30 days of Closing.
4.23 RATIFICATION OF ACTION. Within 30 days of Closing, each
Borrower (other than the Parent and PMI) shall take all corporate action
necessary for the ratification of the execution and delivery of this Agreement
and each of the other Investment Documents and for the performance by such
Borrower of each of its obligations hereunder and thereunder.
4.24 BORROWERS' BUSINESS. From and after the Closing, the Borrowers
will be primarily engaged in the operation of the Business and no other business
or businesses.
ARTICLE V: NEGATIVE COVENANTS
Until the Debentures are repaid in full and each of the other
Obligations has been satisfied in full and discharged (other than those
Obligations arising from the Warrants), and (solely with respect to Section 5.03
below) until each of the Holders no longer holds any Warrants or has the right
to receive any Warrants, each Borrower jointly and severally covenants and
agrees with the Holders NOT to do any of the following, without the prior
written consent of the Holders (which consent may be withheld by Holders in
Holders' discretion for any reason whatsoever):
5.01 CONSOLIDATION, MERGER AND SALE OF ALL ASSETS. The Parent will
not, nor will it permit any of its Subsidiaries to, merge or consolidate into or
with any other Person or convey, sell, lease or otherwise dispose of all or
substantially all of its assets to another Person, or permit any Person to merge
or consolidate into or with the Parent or any Subsidiary or convey, sell, lease
or otherwise dispose of all or substantially all of its assets to the Parent or
any Subsidiary; provided that (i) any Subsidiary may merge into, or convey,
sell, lease or dispose of its assets to the Parent or another Subsidiary, (ii)
the Parent may merge into any Subsidiary or any subsidiary formed solely for the
purpose of changing the Parent's state of incorporation, (iii) a Person other
than a Subsidiary may merge into, or convey, sell, lease or dispose of its
assets to, the Parent, if the Parent is the surviving or acquiring corporation,
and (iv) a Person other than the Parent or a Subsidiary may merge into, or
convey, sell, lease or dispose of its assets to, a Subsidiary if (A) such
Subsidiary is the surviving or acquiring corporation or (B) the surviving or
acquiring entity, if not such Subsidiary, becomes a wholly-owned subsidiary of
the Parent (so long as such surviving or acquiring entity becomes a party to
this Agreement and the Parent pledges the stock of such entity); in each case,
so long as in any such transaction the rights and powers of the Holders will
not, in their reasonable discretion, be adversely affected thereby and
immediately after such transaction no Event of Default shall exist hereunder.
For the purposes of this Section 5.01, the failure of Holders to object within
10 business days following the receipt of notice of any such proposed
transaction shall be deemed an acknowledgment that Holders are not adversely
affected thereby.
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5.02 SALE OF ASSETS; LIQUIDATION.
(a) The Parent will not, nor will it permit any of its subsidiaries
to, convey, sell, lease or otherwise dispose of any assets, directly or
indirectly, in a single transaction or in a series of transactions occurring
during any one fiscal year of the Parent, except (i) as permitted under Section
5.01 hereof, or (ii) for sales or other dispositions of property in the ordinary
course of business.
(b) The Parent will not, nor will it permit any of its subsidiaries
to, liquidate, dissolve or wind up its affairs nor institute, consent to or fail
promptly to contest proceedings for any such purpose, provided however, that any
such subsidiary may be liquidated into the Parent or into a wholly-owned
subsidiary of the Parent in a transaction permitted by Section 5.01 or by this
Section 5.02, and any Inactive Entity may be liquidated or dissolved.
5.03 DISTRIBUTIONS. No Borrower shall make or cause to be made any
redemption or repurchase of any capital stock or rights with respect thereto or
securities exchangeable for any capital stock or any distribution of cash,
capital stock or other property of such Borrower to any of its shareholders
(whether such distribution would be characterized as a dividend or otherwise),
other than (i) to another Borrower in such Borrower's capacity as a shareholder
of a Subsidiary; (ii) to the holder of the Junior Investment in order to redeem
the Parent's Series A Redeemable Preferred Stock or in the form of dividends, in
accordance with the terms thereof, provided that (A) only scheduled redemptions
and dividends shall be permitted and (B) in no event shall any redemption or
dividend occur if an Event of Default has occurred or would occur as a result of
such action; and (iii) in any transaction in which Holders may participate pro
rata in such transaction based upon the number of Warrant Shares held or
eligible to be acquired upon exercise of the Warrants, and such Borrower has
provided Holders with 10 business days' notice of such transaction.
5.04 NO ENCUMBRANCES. No Borrower shall permit to exist against any
of the Collateral or any of its other material assets (if any) any lien,
mortgage, pledge, security interest, title retention device, or other
encumbrance junior or senior to the liens and security interests of Holders
under the Security Documents, except for the Permitted Encumbrances.
5.05 INSIDE TRANSACTIONS. No Borrower shall purchase or sell any
property or services, or borrow or lend money or property from or to, or co-
invest in, any transaction with any officer, director, shareholder, employee or
Affiliate of any Borrower, except on terms no more favorable than a Borrower
would offer to a third party.
5.06 CHANGE OF BUSINESS. No Borrower shall: (i) change the primary
nature of its business operations; (ii) expend or invest any funds in any manner
not related to such Borrower's business operations; (iii) establish any
subsidiary or invest in or transfer assets to an "inactive" subsidiary (unless
such subsidiary becomes a party to this Agreement and such Borrower pledges the
stock of such subsidiary); or (iv) make any investment in any Affiliate which
would, in the reasonable discretion of Holders, adversely affect the rights and
powers of Holders. No provision of this Section 5.06 shall be interpreted as
limiting the ability of the Parent to make investments in the Subsidiaries in
the ordinary course of business. For the purposes of this Section 5.06, the
failure of Holders to object within 10 business days following the receipt of
notice of any such proposed investment under clause (iv) shall be deemed an
acknowledgment that Holders are not adversely affected thereby.
22
5.07 JUDGMENTS. No Borrower shall permit any judgment in excess of
$100,000, or any series of judgments aggregating in excess of $100,000, obtained
against such Borrower to remain unpaid for over 20 days without obtaining a stay
of execution or appropriate surety bond.
5.08 ADDITIONAL DEBTS AND LIABILITIES. No Borrower shall incur any
additional indebtedness or liabilities, purchase any additional life insurance
from business income or assets (other than in connection with the compensation
of employees, as approved by the board of directors), or create or incur any
contingent liability (including guaranties or endorsements) other than: (i)
trade debt incurred in the normal and ordinary course of such Borrower's
business; (ii) depositing checks and other instruments for the payment of money
acquired in the ordinary course of business; and (iii) indebtedness relating to
the Permitted Encumbrances. For the purposes of this Section 5.08, the term
"indebtedness" shall include all obligations for borrowed money, obligations
arising from installment purchases of property or services, capitalized lease
obligations, and the face amount of letters of credit and all drafts drawn
thereunder.
5.09 NO ADVERSE ACTIONS. No Borrower shall, by amendment to such
Borrower's Constituent Documents or through any reorganization,
reclassification, consolidation, merger, sale of assets, Act of Dissolution,
issuance or Transfer of securities or any other action, avoid or seek to avoid
the observance or performance of any of the terms, covenants and conditions of
this Agreement or any of the other Investment Documents, but shall at all times
carry out in good faith all such terms and take all such actions as may be
necessary or appropriate to protect the rights of the Holders hereunder and
under each of the Investment Documents.
ARTICLE VI: FEES, EXPENSES AND INDEMNIFICATION
6.01 FEES AND EXPENSES OF ALLIED. The Borrowers shall pay:
(a) A commitment fee to Holders, shared ratably among the
Holders, of One Hundred Thousand Dollars ($100,000);
(b) All reasonable fees and disbursements for work done for the
Holders by the Holders' attorneys and legal staff, not to exceed Fifty Thousand
Dollars ($50,000); and
(c) A processing fee equal to all out-of-pocket costs and
expenses incurred by the Holders or Allied Capital Advisers, Inc. in connection
with performing a due diligence examination of the Borrowers and the Business.
All amounts described in this Section 6.01 shall be due and payable in
full by the Borrowers at the Closing. Allied acknowledges receipt of a deposit
of Twenty-Five Thousand Dollars ($25,000) from the Borrowers, which will be
applied at Closing to the fees and expenses described in this Section 6.01.
6.02 OTHER FEES AND EXPENSES. The Borrowers shall pay, as and when
due, all of the following fees and expenses: (a) the fees and expenses of their
own counsel; (b) any recordation, transfer, documentary or other taxes or costs
of, or incidental to, any recording or filing of any of the Security Documents
(including any financing statements) concerning the Collateral; and (c) any
income, excise, franchise or other taxes incident to the transactions described
herein.
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6.03 INDEMNIFICATION. In addition to its indemnification provisions
contained elsewhere herein and in the other Investment Documents, the Borrowers
agree to indemnify, defend and hold harmless each of the Holders and each of
their respective officers, directors, partners, employees, agents and
controlling persons (collectively, the "Indemnified Parties") from and against
any and all losses, claims, damages, liabilities and related expenses, including
attorneys' fees and expenses, asserted by any third parties unaffiliated with
the Holders against any of the Indemnified Parties arising out of, in any way in
connection with, or as a result of: (i) this Agreement and the other Investment
Documents, (ii) the performance by the Holders of their obligations hereunder
and thereunder and consummation of the transactions contemplated hereby and
thereby; (iii) the occurrence of any Event of Default hereunder or any event
that would constitute an Event of Default but for the giving of notice and/or
passage of time; (iv) any federal, state or local transfer or recording taxes or
filing fees which may become payable in connection with this transaction; (v)
the spilling, leaking, pumping, pouring, unsettling, discharging, leaching or
releasing of any Hazardous Materials on any of the Real Property or any other
property owned by any Borrower; (vi) any violations by the Borrowers of any
other Environmental Law, regulation or ordinance; or (vii) any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any of the Indemnified Parties is a party thereto; PROVIDED,
HOWEVER, any such indemnity shall not apply to any such losses, claims, damages,
liabilities or related expenses arising from (i) the gross negligence or willful
misconduct of any of the Holders, or (ii) the violation by any of the Holders of
any Applicable Law or contractual restriction with any third party governing the
Investment.
6.04 SURVIVAL; TIMING OF PAYMENTS. The provisions of this Article VI
and any other indemnification provisions contained in this Agreement and the
other Investment Documents shall survive and remain operative and in full force
and effect regardless of the termination of this Agreement or expiration of the
term of this Agreement, the consummation of the transactions contemplated
hereby, the repayment of the Debentures and satisfaction and discharge of the
other Obligations, the invalidity or unenforceability of any term or provision
of this Agreement, the Debentures or any Security Documents, or any
investigation made by or on behalf of any of the Holders. Except as provided to
the contrary, all amounts due under this Article VI shall be payable on written
demand therefor.
ARTICLE VII: DEFAULT PROVISIONS
The occurrence of any of the events specified below in this Article
VII (any such, an "Event of Default") shall constitute an immediate breach of,
and default under, this Agreement entitling the Holders to exercise all of the
rights and remedies specified in this Agreement, in the Security Documents, in
any other Investment Document, and under all Applicable Laws, without the
obligation to furnish any further notice or opportunity to cure (beyond that
specified in the applicable sections of this Article VII), all of which are
hereby expressly waived by each Borrower:
7.01 MONETARY DEFAULTS. Any installment payment of principal,
interest or other charge under any of the Debentures is not received by the
Holders when due, or any other monetary Obligation is not fully paid and
discharged when due.
7.02 OTHER BREACHES. Any Borrower shall fail to comply with its
affirmative or negative covenants, agreements and undertakings in this
Agreement, the Debentures or any of the Security Documents
24
and (i) if such failure relates to a financial covenant, such failure shall
continue for a period of 10 calendar days from the date of the delivery of
written notice thereof from Holders, or (ii) if such failure relates to a non-
financial covenant, such failure shall continue for a period of 30 calendar days
from the date of the delivery of written notice thereof from Holders.
7.03 MISREPRESENTATION. Any representation or warranty made by any
Borrower in this Agreement, in any of the Security Documents, any of the other
Investment Documents, or in any other writing supplied to Holders by the
Borrowers or on the Borrowers' behalf shall be untrue in any material respect
when made.
7.04 ACT OF BANKRUPTCY OR DISSOLUTION. Any Act of Bankruptcy shall
have occurred with respect to any Borrower, or any Act of Dissolution shall have
occurred without the Holders' prior written consent to any Borrower.
7.05 OTHER INVESTMENT DOCUMENT DEFAULTS. Any Borrower shall be in
default under any of the other Investment Documents (after taking into account
the giving of any notice and the expiration of the applicable cure period (if
any) required pursuant to the applicable terms of such other Investment Document
or Investment Documents).
7.06 SPECIFIED CROSS DEFAULTS. Any default shall have been declared
or shall have otherwise occurred (after giving effect to any applicable notice
and/or grace periods) under the Senior Loan Agreement.
7.07 OTHER CROSS-DEFAULTS GENERALLY. Any default shall have been
declared under any loan, Lease, debt, Contract or obligation of any of the
Borrowers (other than the Obligations and the debts and obligations specified in
Section 7.06 above) and the failure to cure such default could be expected to
have a material adverse effect on the financial condition, operations or
prospects of the Borrowers taken as a whole.
ARTICLE VIII: CERTAIN REMEDIES
Upon the occurrence of an Event of Default under this Agreement,
Holders shall be entitled to exercise any or all of the following rights and
remedies, in addition to such other rights and remedies as may be provided for
in the other Investment Documents or as may be available at law or in equity,
subject to the provisions of the Senior Loan Subordination Agreement:
8.01 ACCELERATION. Following the occurrence of an Event of Default,
Holders may, at their option, accelerate the maturity of each of the Debentures
and all other Obligations and demand immediate payment in full of all amounts
payable under the Debentures and all of the Obligations, without presentment,
demand, protest, or further notice by Holders to the Borrowers, all of which are
hereby expressly waived by each Borrower.
8.02 SALE OF COLLATERAL. Following the occurrence of an Event of
Default, Holders may sell, assign, and deliver the whole or any part of the
Collateral, as more fully described in the Security Agreement or other documents
related thereto.
25
8.03 COLLECTIONS, COMPROMISES, ETC. Following the occurrence of an
Event of Default, Holders are empowered to collect or cause to be collected or
otherwise to be converted into money all or any part of the Collateral, by suit
or otherwise, and to surrender, compromise, release, renew, extend, exchange or
substitute any item of the Collateral in transactions with any Borrower or any
third party, irrespective of any assignment thereof by such Borrower, and
without prior notice to or consent of such Borrower or any assignee.
8.04 COSTS. The Borrowers shall pay all reasonable expenses of any
nature, whether incurred in or out of court, and whether incurred before or
after the Debentures shall become due at their maturity date or otherwise
(including, but not limited to, reasonable attorneys' fees and costs) which
Holders may deem necessary or proper in connection with the collection of any of
the Obligations or the administration, supervision, preservation, protection of
(including, but not limited to, the maintenance of adequate insurance) or the
realization upon, any of the Collateral. The Holders are authorized to pay at
any time and from time to time any or all of such expenses, to add the amount of
such payment to the amount of principal outstanding under the Debentures, and to
charge interest thereon at the rate specified in the Debentures.
8.05 REMEDIES NON-EXCLUSIVE. None of the rights, remedies,
privileges or powers of the Holders expressly provided for herein shall be
exclusive, but each of them shall be cumulative with, and in addition to, every
other right, remedy, privilege and power now or hereafter existing in favor of
the Holders, whether pursuant to the other Investment Documents, at law or in
equity, by statute or otherwise.
ARTICLE IX: MISCELLANEOUS
9.01 NON-WAIVER. No course of dealing between a Holder and any other
party hereto or any failure or delay on the part of Holders in exercising any
rights or remedies hereunder shall operate as a waiver of any rights or remedies
of Holders under this or any other applicable instrument. No single or partial
exercise of any rights or remedies hereunder shall operate as a waiver or
preclude the exercise of any other rights or remedies hereunder.
9.02 SECURITY INTEREST NOT IMPAIRED. The security interest of the
Holders and their assigns shall not be impaired by Holders' sale, hypothecation
or re-hypothecation of a Debenture or any item of the Collateral, or by any
indulgence, including, but not limited to:
(a) Any renewal, extension, or modification which Holders may
grant with respect to the Obligations or any part thereof;
(b) Any surrender, compromise, release, renewal, extension,
exchange, or substitution which Holders may grant with respect to the Collateral
or any portion thereof; or
(c) Any indulgence granted in respect of any endorser, guarantor
or surety.
The purchaser, assignee, transferee or pledgee of the any Debenture,
Collateral, or other Investment Document sold, assigned, transferred, pledged or
repledged shall forthwith become vested with, and entitled to exercise, all
powers and rights given by this Agreement to Holders, as if said purchaser,
assignee, transferee or pledgee were originally named in this Agreement in place
of the Holders.
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9.03 NOTICES. All notices or communications under this Agreement or
the Debentures shall be mailed, postage prepaid, or delivered to the following
addresses (or to such other address as shall at any time be designated by any
party in writing to the other parties):
To Holders: Allied Capital Corporation
- and -
Allied Investment Corporation
- and -
Allied Investment Corporation II
- and -
Allied Capital Corporation II
c/o Allied Capital Corporation
0000 X Xxxxxx, X.X., Xxxxx Xxxxx
Xxxxxxxxxx, X.X. 00000
Attention: Xxxx X. Xxxxxxx, Senior Vice President
With a copy to Piper & Marbury L.L.P.
0000 Xxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attention: Xxxxxxx X. Xxxxxxx, Esquire
To the Borrowers: Pico Products, Inc.
00000 Xxxxxxxx Xxxx.
Xxxxxxxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx Xxxxx, Chief Executive Officer
with a copy to: Saul, Ewing, Xxxxxx & Xxxx
0000 Xxxxxx Xxxxxx Xxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx, Xx., Esquire
Rejection or other refusal to accept, or the inability to deliver because
of a changed address of which no notice was given, shall not affect the
effectiveness or the date of delivery for any notice sent in accordance with the
foregoing provisions. Each such notice, request or other communication shall be
deemed sufficiently given, served, sent and received for all purposes at such
time as it is delivered to the addressee (with the return receipt, the delivery
receipt, the affidavit of the messenger or the answer back being deemed
conclusive (but not exclusive) evidence of such delivery) or at such time as
delivery is refused by addressee upon presentation.
9.04 BINDING AGREEMENT. This Agreement shall bind and inure to the
benefit of each of the Holders, the Borrowers and, except as otherwise expressly
provided to the contrary herein, their respective heirs, successors and assigns.
9.05 ENTIRE AGREEMENT; INTEGRATION CLAUSE. This Agreement, the
Exhibits hereto, and the other Investment Documents set forth the entire
agreements and understandings of the parties hereto with respect to this
transaction, and any prior agreements are hereby merged herein and terminated.
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9.06 NO ORAL MODIFICATION OR WAIVERS. The terms herein may not be
modified or waived orally, but only by an instrument in writing signed by the
party against which enforcement of the modification or waiver (as the case may
be) is sought.
9.07 RELATIONSHIP OF THE PARTIES; ADVICE OF COUNSEL. This Agreement
provides for the making of an investment by Holders, in their capacity as
investors, to the Borrowers, and for the payment of interest and repayment of
principal by the Borrowers to Holders. The provisions herein for compliance
with financial covenants and delivery of financial statements are intended
solely for the benefit of the Holders to protect their interests as lenders in
assuring payments of interest and repayment of principal, and nothing contained
in this Agreement shall be construed as permitting or obligating the Holders to
act as financial or business advisors or consultants to the Borrowers, as
permitting or obligating Holders to control the Borrowers or to conduct the
Borrowers' operations, as creating any fiduciary obligation on the part of the
Holders to the Borrowers, or as creating any joint venture, agency or other
relationship between the parties other than as explicitly and specifically
stated in this Agreement. A Holder is not (and shall not be construed as) a
partner, joint venturer, alter-ego, manager, controlling person, operator or
other business participant of any kind of any Borrower; neither Holders nor the
Borrowers intend that the Holders assume such status, and, accordingly, the
Holders shall not be deemed responsible for (or a participant in) any acts or
omissions of any of the Borrowers. Each Borrower represents and warrants to the
Holders that it has had the advice of experienced counsel of its own choosing in
connection with the negotiation and execution of this Agreement and with respect
to all matters contained herein.
9.08 CONTROLLING LAW. This Agreement and each of the other
Investment Documents shall be governed by, and interpreted and construed in
accordance with, the internal laws of the State of Maryland (without regard to
its conflicts of law principles).
9.09 VENUE; PERSONAL JURISDICTION; FULL FAITH AND CREDIT; PERSONAL
SERVICE.
(a) Venue for the adjudication of any claim or dispute arising
out of this Agreement or any of the other Investment Documents shall be proper
only in the state or federal courts of the State of Maryland, and all parties to
this Agreement and the other Investment Documents hereby consent to such venue
and agree that it shall not be not inconvenient and not subject to review by any
court other than such courts in Maryland;
(b) Each Borrower intends and agrees that the courts of the
jurisdictions in which such Borrower is formed and in which such Borrower
conducts its business should afford full faith and credit to any judgment
rendered by a court of the State of Maryland against such Borrower under this
Agreement and the other Investment Documents, and each Borrower under this
Agreement and the other Investment Documents intends and agrees that such courts
should hold that the Maryland courts have jurisdiction to enter a valid, IN
PERSONAM judgment against such Borrower;
(c) Each Borrower agrees that service of any summons and
complaint, and other process which may be served in any suit, action or other
proceeding, may be made by mailing via U.S. certified or registered mail or by
hand-delivering a copy of such process to the Parent at its address specified
above; and
(d) Each Borrower expressly acknowledges and agrees that the
provisions of this Section 9.09 are reasonable and made for the express benefit
of each of the Holders.
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9.10 WAIVER OF TRIAL BY JURY. Each party to this Agreement agrees
that any suit, action or proceeding, whether claim, defense or counterclaim,
brought or instituted by any party hereto or any successor or assign of any
party on or with respect to this Agreement or any other Investment Document or
which in any way relates, directly or indirectly, to the Debentures or any
event, transaction or occurrence arising out of or in any way connected with
this Agreement, the other Investment Documents or the dealings of the parties
with respect thereto, shall be tried only by a court and not by a jury. EACH
PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT,
ACTION OR PROCEEDING, AND ACKNOWLEDGES THAT THIS IS A WAIVER OF A LEGAL RIGHT
AND THAT IT MAKES THIS WAIVER VOLUNTARILY AND KNOWINGLY AFTER CONSULTATION WITH,
OR THE OPPORTUNITY TO CONSULT WITH, COUNSEL OF ITS CHOICE.
9.11 COSTS AND FEES RELATED TO ENFORCEMENT OR A SUCCESSFUL DEFENSE.
Without limiting the Holders' entitlements under Section 8.04 above or under the
terms of any of the other Investment Documents, each Borrower (each, a
"Reimbursing Party"), hereby agrees to reimburse the Holders for any and all
costs and fees, including reasonable attorneys' fees and expenses, incurred by
any of the Holders or their Affiliates in connection with: (i) any suit,
action, claim or other activity of the Holders to collect the Obligations or any
portion thereof or to enforce any of the provisions of this Agreement or any
other Investment Document against such Reimbursing Party; and (ii) any suit,
action, claim or other liability asserted against any of the Holders or their
Affiliates by such Reimbursing Party in any case in which such Reimbursing Party
does not prevail with respect to substantially all of its or his claim.
9.12 INDEPENDENT COVENANT TO MAKE PAYMENTS. The payment and
performance by each Borrower of all of the Obligations shall be absolute and
unconditional, irrespective of any defense or any rights of set-off, recoupment
or counterclaim such Borrower might otherwise have against any of the Holders,
and each Borrower shall pay and perform all of the Obligations (to the extent
applicable to it), free of any deductions and without abatement, diminution,
recoupment, counterclaim or set-off. Until payment in full of all of the
Obligations, no Borrower shall: (a) suspend or discontinue any payments
required pursuant to the Debentures, this Agreement or any other Investment
Documents; or (b) fail to perform and observe all of the other terms and
provisions of all of the Investment Documents.
9.13 NOTICE OF CLAIM; WAIVER. To allow the Holders to mitigate any
alleged breach of this Agreement, the other Investment Documents, or Holders'
other duties to the Borrowers, each Borrower hereby agrees to give the Holders
written notice of any claim or defense any of them has against the Holders,
whether in tort, contract or otherwise, relating to any act or omission by any
of the Holders under this Agreement, the other Investment Documents or the
transactions related thereto, or of any defense to the payment or performance of
any of the Obligations for any reason. Each Borrower hereby agrees to provide
such notice to Holders within 60 days after such Borrower first has knowledge of
such defense.
9.14 HEADINGS. The headings of the paragraphs and sub-paragraphs of
this Agreement and the other Investment Documents are inserted for convenience
only and shall not be deemed to constitute a part of this Agreement or the other
Investment Documents.
9.15 SEVERABILITY. To the extent any provision herein violates any
applicable law, that provision shall be considered void and the balance of this
Agreement shall remain unchanged and in full force and effect.
29
9.16 COUNTERPARTS. This Agreement may be executed in as many
counterpart copies as may be required. It shall not be necessary that the
signature of, or on behalf of, each party appear on each counterpart, but it
shall be sufficient that the signature of, or on behalf of, each party appear on
one or more of the counterparts. All counterparts shall collectively constitute
a single agreement. It shall not be necessary in any proof of this Agreement to
produce or account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all of the parties.
9.17 DELIVERIES TO HOLDERS. To the extent the terms of this
Agreement or any of the other Investment Documents requires any Borrower to
deliver any documents or other materials to any or all of the Holders, then,
until such time as Allied (or one or more Affiliates of Allied) shall no longer
hold complete title to each of the Debentures, the Borrowers may fully satisfy
and discharge such requirement by delivering a single copy of the document(s) or
other material(s) in question to the Holders' notice party identified in Section
9.03 above in lieu of separate deliveries to each of the Holders. Following a
complete or partial Transfer by Allied of any its right, title or interest in
and to any of the Debentures to one or more Persons that is not an Affiliate of
Allied, then the Borrowers shall be required to deliver copies of the
document(s) or other material(s) in question to each of the Holders separately.
9.18 CONSENT AND APPROVAL OF HOLDERS. To the extent the terms of
this Agreement or any of the other Investment Documents requires the Borrowers
to obtain the consent or approval of each of the Holders, then, until such time
as Allied (or one or more Affiliates of Allied) shall no longer hold complete
title to each of the Debentures and to each of the Warrants (or if exercised,
the Common Stock purchaseable thereunder), the Borrowers may fully satisfy and
discharge such requirement by obtaining the consent or approval (in writing if
necessary) of the holder of not less than 55% of the outstanding principal
balance of the Debentures in lieu of the separate consent or approval of each of
the Holders, or if the Debentures have been repaid, the consent or approval of
the holder of not less than 55% of the Warrants or 55% of the Common Stock
purchaseable thereunder (as the case may be). Following a complete or partial
Transfer by Allied of any its right, title or interest in and to any of the
Debentures, to any of the Warrants, or to any of the Common Stock purchaseable
thereunder to one or more Persons that is not an Affiliate of Allied, then the
Borrowers shall be required to obtain the consent or approval (in writing if
necessary) of 55% of the interests held by Allied, as a group, and 55% of the
interests held by the transferees, as a group.
9.19 ENFORCEMENT ACTION BY HOLDERS. To the extent the terms of this
Agreement or any of the other Investment Documents permit the Holders to
exercise any right or remedy, then, until such time as Allied (or one or more
Affiliates of Allied) shall no longer hold complete title to each of the
Debentures and to each of the Warrants (or if exercised, the Common Stock
purchaseable thereunder), the Holders shall take any such action only upon the
approval of not less than 55% of the outstanding principal balance of the
Debentures, or if the Debentures have been repaid, the approval of the holder of
not less than 55% of the Warrants or 55% of the Common Stock purchaseable
thereunder (as the case may be). Following a complete or partial Transfer by
Allied of any its right, title or interest in and to any of the Debentures, to
any of the Warrants, or to any of the Common Stock purchaseable thereunder to
one or more Persons that is not an Affiliate of Allied, then Allied, as a group,
may take any such action only upon the approval of not less than 55% of the
interests held by Allied, and the transferees, as a group, may take any such
action only upon the approval of not less than 55% of the interests held by the
transferees.
{SIGNATURES NEXT PAGE}
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IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the date first above written.
WITNESS/ATTEST: "BORROWERS":
PICO PRODUCTS, INC.
a New York corporation
By: /s/ Xxxxxx X. Xxxxxxxx By: /s/ Xxxxxxx Xxxxx (SEAL)
----------------------------------- ----------------------------------------
Xxxxxx X. Xxxxxxxx, Asst Secretary Xxxxxxx Xxxxx, Chief Executive Officer
PICO MACOM, INC.
a Delaware corporation
By: /s/ Xxxxxx X. Xxxxxxxx By: /s/ Xxxxxxx Xxxxx (SEAL)
----------------------------------- ----------------------------------------
Xxxxxx X. Xxxxxxxx, Secretary Xxxxxxx Xxxxx, President
PICO MACOM TAIWAN CO., LTD.
a Taiwan corporation
By: /s/ Xxxxxx X. Xxxxxxxx By: /s/ Xxxxxxx Xxxxx (SEAL)
----------------------------------- ----------------------------------------
Xxxxxx X. Xxxxxxxx, Secretary Xxxxxxx Xxxxx, President
PICO (ST. KITTS) LTD.
a St. Xxxxxxxxxxx and Nevis corporation
By: /s/ Xxxxxx X. Xxxxxxxx By: /s/ Xxxxxxx Xxxxx (SEAL)
----------------------------------- ----------------------------------------
Xxxxxx X. Xxxxxxxx, Asst. Secretary Xxxxxxx Xxxxx, President
PICO (BERMUDA) LTD.
a Bermuda corporation
By: /s/ Xxxxxx X. Xxxxxxxx By: /s/ Xxxxxxx Xxxxx (SEAL)
----------------------------------- ----------------------------------------
Xxxxxx X. Xxxxxxxx, Asst. Secretary Xxxxxxx Xxxxx, President
31
PICO PRODUCTS ASIA LIMITED
a Hong Kong corporation
By: /s/ Xxxxxx X. Xxxxxxxx By: /s/ Xxxxxxx Xxxxx (SEAL)
----------------------------------- ----------------------------------------
Xxxxxx X. Xxxxxxxx, Asst. Secretary Xxxxxxx Xxxxx, President
PICOMACOM PRODUTOS DE
TELECOMMUNICACAO LTDA.
a Brazil limited liability company
By: /s/ Xxxxxx X. Xxxxxxxx By: /s/ Xxxxxxx Xxxxx (SEAL)
----------------------------------- ----------------------------------------
Xxxxxx X. Xxxxxxxx, Secretary Xxxxxxx Xxxxx, President
"ALLIED":
ALLIED CAPITAL CORPORATION,
a Maryland corporation
By: /s/ Xxxxxx Xxxxxxx By: /s/ Xxxx X. Xxxxxxx (SEAL)
----------------------------------- ----------------------------------------
Xxxxxx Xxxxxxx, Under Power of Attorney Xxxx X. Xxxxxxx, Senior Vice President
ALLIED INVESTMENT CORPORATION,
a Maryland corporation
By: /s/ Xxxxxx Xxxxxxx By: /s/ Xxxx X. Xxxxxxx (SEAL)
----------------------------------- ----------------------------------------
Xxxxxx Xxxxxxx, Under Power of Attorney Xxxx X. Xxxxxxx, Senior Vice President
ALLIED INVESTMENT CORPORATION II,
a Maryland corporation
By: /s/ Xxxxxx Xxxxxxx By: /s/ Xxxx X. Xxxxxxx (SEAL)
----------------------------------- ----------------------------------------
Xxxxxx Xxxxxxx, Under Power of Attorney Xxxx X. Xxxxxxx, Senior Vice President
32
ALLIED CAPITAL CORPORATION II,
a Maryland corporation
By: /s/ Xxxxxx Xxxxxxx By: /s/ Xxxx X. Xxxxxxx (SEAL)
----------------------------------- ----------------------------------------
Xxxxxx Xxxxxxx, Under Power of Attorney Xxxx X. Xxxxxxx, Senior Vice President
33
