EXHIBIT 10.1
LOAN AGREEMENT
THIS LOAN AGREEMENT is made and entered into as of March 19, 1998, by and
among Coyote Sports, Inc., a Nevada corporation whose principal executive
offices are located at 0000 Xxxxxxxx Xxxxxx, Xxxxxxx, Xxxxxxxx 00000 (the
"Borrower"), Xxx X. Xxxxxxxxxxx, the Chief Executive Officer and a director of
the Borrower ("Xxxxxxxxxxx"), Xxxxx X. Xxxxxx, the President and a director of
the Borrower ("Xxxxxx" and, jointly with Xxxxxxxxxxx, the "Shareholders"), and
Paragon Coyote Texas Ltd., a Texas limited partnership whose principal executive
offices are located at 000 Xxxx Xxxxxxx Xxxxxx, Xxxxx 0000, Xxxx Xxxxx, Xxxxx
00000 (the "Lender").
In consideration of the mutual covenants and agreements herein contained
and of the loan hereinafter referred to, the Borrower, the Shareholders and the
Lender hereby agree as follows:
ARTICLE 1
GENERAL TERMS
Section 1.01 Certain Definitions. As used in this Agreement, the
following terms shall have the meanings respectively ascribed to them below
unless the context clearly requires otherwise:
"Action" shall mean any claim, demand, action, suit, proceeding,
hearing or investigation, either at law or in equity, or before any
Governmental Authority, now pending, threatened or proposed.
"Agreement" shall mean this Loan Agreement, as the same may from time
to time be amended or supplemented.
"Balance Sheet" shall mean the audited consolidated balance sheet of
the Borrower and its Subsidiaries for the Borrower's fiscal year ended
December 31, 1996.
"Business Day" shall mean any day other than a Saturday, Sunday or day
on which commercial banks are authorized or required to be closed under the
laws of the State of Colorado.
"CERCLA" shall mean the Comprehensive Environmental Response
Compensation and Liability Act, as amended.
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended.
"Collateral Shares" shall mean the Xxxxxxxxxxx Collateral Shares and
the Xxxxxx Collateral Shares.
"Commission" shall mean the United States Securities and Exchange
Commission.
"Common Stock" shall mean the Borrower's common stock, par value
$0.001 per share.
"Consideration Shares" shall mean the Initial Consideration Shares and
the Contingent Issuance Shares.
"Contingent Issuance Shares" shall mean all of the shares of the
Common Stock contingently issuable to the Borrower after the Closing on the
terms and conditions set forth herein as part of an origination fee in
connection with the Loan.
"Contract" shall mean any contract, agreement, understanding,
arrangement, document or instrument to which the Borrower or any Subsidiary
is a party or by which the Borrower or any Subsidiary or any of their
respective Properties is or may be bound or affected.
"Damages" shall mean any and all liabilities, obligations, losses,
damages (including without limitation consequential and punitive damages)
and costs and expenses (including without limitation interest, court costs,
expert witness fees, attorneys fees and the cost and expenses of
investigating and asserting any of the foregoing or of enforcing an
indemnity).
"EEOC" shall mean the United States Equal Employment Opportunity
Commission.
"Environmental Laws" shall mean any and all applicable Governmental
Requirements relating to pollution or protection of the environment,
including without limitation Governmental Requirements relating to
emissions, discharges, generation, storage, releases or threatened releases
of Waste into the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Waste including,
without limitation, the Clean Water Act, the Clean Air Act, the Resource
Conservation and Recovery Act, the Toxic Substances Control Act and CERCLA,
and their respective foreign, state and local counterparts.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
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"Event of Default" shall mean the occurrence of any of the events
specified in Section 6.01 hereof, provided that any requirement for notice
or lapse of time or any other condition precedent has been satisfied.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Expenses" shall include, without limitation, any and all court costs,
attorneys' fees (including, without limitation, for trial, appellate or
other proceedings), fees of auditors and accountants and investigation and
pre-litigation expenses that the Lender may incur, directly or indirectly,
together with interest at the post-maturity rate specified in the Note on
each such amount from the date of written demand or request by the Lender
for reimbursement until the date of reimbursement to the Lender.
"Financial Statements" shall mean the audited consolidated annual
financial statements of the Borrower and its Subsidiaries for the
Borrower's fiscal year ended December 31, 1996, and the unaudited
consolidated interim financial statements of the Borrower and its
Subsidiaries for the Borrower's fiscal quarter ended September 30, 1997
(including all related schedules and notes thereto) that are included
within the Borrower's Form 10-QSB for the fiscal quarter ended September
30, 1997 filed with the Commission.
"GAAP" shall mean United States generally-accepted accounting
principles.
"Governmental Authority" shall mean any domestic or foreign federal,
state, county, regional, municipal or other government, department,
commission, board, court, agency or tribunal, and any instrumentality of
any of the foregoing.
"Governmental Requirement" shall mean any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction, Permit,
standard, specification or other directive or requirement (including,
without limitation, any of the foregoing that relate to environmental
standards or controls, energy regulations and occupational, safety and
health standards or controls) of any Governmental Authority that exercises
jurisdiction over the Borrower or any of its Property or of any Subsidiary
or any of such Subsidiary's Property.
"Guaranty" shall mean each and every guaranty instrument or agreement
executed and delivered to the Lender by any Person to secure any
Indebtedness.
"Indebtedness" shall, mean any and all amounts, liabilities and
obligations owing or to be owing by the Borrower to the Lender in
connection with this Agreement, the Note and any Security Instruments
(together with any and all renewals, extensions, amendments and
restatements of all or part of any of the above), whether principal,
interest or otherwise, and all other amounts, liabilities and obligations
of the Borrower to the Lender from time to time existing, whether in
connection with this or any other transaction.
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"Initial Consideration Shares" shall mean such number of validly-
issued, fully-paid and nonassessable shares of Common Stock that have not
been registered under the Securities Act issued to the Borrower at the
Closing as are equal to (a) $1,000,000 divided by (b) the per-share Common
Stock closing price as quoted on the NASDAQ Small Cap market system on the
last trading day immediately preceding the date of the Closing.
"Insurance Policies" shall mean all policies of fire, liability,
product liability, workers compensation, health and other forms of
insurance presently in effect with respect to the business and Properties
of the Borrower and its Subsidiaries.
"Lender Shares" shall mean the Collateral Shares in the hands of the
Lender following foreclosure, the Initial Consideration Shares and the
Contingent Issuance Shares.
"Lien" shall mean any security agreement, financing statement filed
with an appropriate Governmental Authority, conditional sale or other title
retention agreement, mortgage, lien, security interest, claim, pledge,
power (including without limitation a power of attorney), license, equity,
community or other marital property interest, option, assessment, levy,
easement, covenant, reservation, right of reenty, possibility of reverter,
encroachment, restriction, right-of-way, exception, limitation, charge or
encumbrance, lease, consignment or bailment given for security purposes,
preemptive right (whether contractual or statutory), right of first
refusal, adverse interest, constructive trust or other trust, claim,
attachment, exception to or defect in title or other ownership interest of
any kind.
"Loan" shall mean the $6,000,000 loan made by the Lender to the
Borrower pursuant to this Agreement and the Note.
"Material Adverse Effect" shall mean any material and adverse effect
on (i) the Property, liabilities, financial condition, business,
operations, affairs or circumstances of the Borrower or any Subsidiary
individually (or of the Borrower and its Subsidiaries on a consolidated
basis) from those reflected in the Financial Statements or from the facts
represented or warranted in this Agreement or in any Security Instrument,
or (ii) the ability of the Borrower or any Subsidiary individually (or of
the Borrower and its Subsidiaries on a consolidated basis) to carry out its
business as at the date of this Agreement or as proposed at the date of
this Agreement to be conducted or to perform its obligations under and in
accordance with this Agreement or any Other Transaction Document in full
and on a timely basis.
"Note" shall mean the promissory note evidencing the Loan made by the
Borrower in favor of the Lender in form and substance satisfactory to the
Lender, together with any and all renewals, extensions, increases or
rearrangements thereof.
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"Other Transaction Documents" shall mean the Note, the Security
Instruments and the Registration Rights Agreement.
"Permits" shall mean any and all permits, licenses, franchises,
certificates, authorizations, approvals and consents issued or granted by
any Governmental Authority, and any and all certifications and
qualifications issued or granted by any trade or industry organization or
association.
"Permitted Liens" shall mean: (i) Liens for taxes, assessments or
other governmental charges or levies not yet due and payable or that are
being diligently contested in good faith by appropriate action by or on
behalf of the Borrower or any Subsidiary and for which adequate reserves
have been established and (ii) Liens in existence on the date hereof of
which the Lender has been fully informed and (iii) Liens in favor of the
Lender or otherwise specifically permitted or contemplated by this
Agreement or by any Other Transaction Document.
"Person" shall mean any individual, corporation, partnership, limited
partnership, limited liability company, joint venture, joint stock company,
association, trust, unincorporated organization, or federal, state or local
government (domestic or foreign) or any agency or political subdivision
thereof, or any other form of entity.
"Personal Property" shall mean all personal Property owned or leased
(as lessee) by the Borrower and its Subsidiaries.
"Plan" shall mean any plan subject to Title IV of ERISA and maintained
by the Borrower or any Subsidiary, or any such plan to which the Borrower
or any Subsidiary is required to contribute on behalf of its employees.
"Potential Default" shall mean the occurrence of any of the events
specified in Section 6.01 hereof, whether or not any requirement for notice
or lapse of time or other condition precedent has been satisfied.
"Xxxxxx" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"Xxxxxx Collateral Shares" shall mean the 1,170,000 shares of the
Common Stock owned of record and beneficially by Xxxxxx that are pledged to
the Lender as collateral for the Loan pursuant to the Xxxxxx Security
Agreement.
"Xxxxxx Security Agreement" shall mean the security agreement in form
and substance satisfactory to the Lender entered into between the Lender as
secured party and Xxxxxx as debtor.
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"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
"Real Property" shall mean all real Property owned or leased (as
lessee) by the Borrower and its Subsidiaries.
"Registration Rights Agreement" shall mean that certain registration
rights agreement of even date herewith by and among, inter alia, the Lender
and the Borrower that provides registration rights for the Lender Shares
under federal and state securities laws.
"Repurchase Rights" shall have the meaning set forth in Section 2.05.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Security Instruments" shall mean collectively (a) the Xxxxxxxxxxx
Security Agreement, the irrevocable stock power pertaining to the
Xxxxxxxxxxx Collateral Shares and all financing statements executed in
connection therewith, (b) the Xxxxxx Security Agreement, the irrevocable
stock power pertaining to the Xxxxxx Collateral Shares and all financing
statements executed in connection therewith and (c) any and all other
agreements or instruments now or hereafter executed and delivered by the
Borrower or by any other Person in connection with, or as security for the
payment or performance of, any Indebtedness (including, without limitation,
the Indebtedness represented by the Note and any and all financing,
continuation and termination statements related thereto), as such
agreements and instruments may be amended from time to time.
"Stock Rights" shall mean any and all rights, plans, options, warrants
or agreements for the purchase or acquisition (whether or not contingent)
of any capital stock or any other form of equity interest.
"Xxxxxxxxxxx" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"Xxxxxxxxxxx Collateral Shares" shall mean the 1,430,000 shares of the
Common Stock owned of record and beneficially by Xxxxxxxxxxx that are
pledged to the Lender as collateral for the Loan pursuant to the
Xxxxxxxxxxx Security Agreement.
"Xxxxxxxxxxx Security Agreement" shall mean the security agreement in
form and substance satisfactory to the Lender entered into between the
Lender as secured party and Xxxxxxxxxxx as debtor.
"Subsidiary" shall mean any Person of which issued and outstanding
securities representing more than fifty percent (50%) of the aggregate
voting power for the ordinary
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election of directors (or others with analogous power and authority) is
owned or controlled, directly or indirectly, by the Borrower.
"Taxes" shall mean and include any and all income, ad valorem, excise,
profits, franchise, occupation, Property, payroll, sales, use, gross
receipts, value added and other taxes, levies and assessments (including
any and all interest and penalties) imposed by any Governmental Authority,
whether or not disputed.
"Trade Rights" shall mean and include: (i) all trademark rights,
business identifiers, trade dress, service marks, trade names and brand
names, all registrations thereof and applications therefor and all goodwill
associated with the foregoing; (ii) all copyrights, copyright registrations
and copyright applications, and all other rights associated with the
foregoing and the underlying works of authorship; (iii.) all patents and
patent applications, and all international proprietary rights associated
therewith; (iv) all contracts or agreements granting any right, title,
license or privilege under the intellectual property rights of any third
party; (v) all inventions, mask works and mask work registrations, know-
how, discoveries, improvements, designs, trade secrets, shop and royalty
rights, employee covenants and agreements respecting intellectual property
and non-competition and all other types of intellectual property; and (vi)
all claims for infringement or breach of any of the foregoing.
"Unifiber" shall mean Unifiber Corporation, a California corporation.
"Unifiber Purchase Agreement" shall mean that certain Stock Purchase
Agreement dated as of February 3, 1998 by and among, inter alia, the
Borrower and Unifiber.
"Unifiber Shareholder Agreement" shall mean that certain Shareholder
Agreement, the form of which is set forth as Exhibit 2.1 to the Unifiber
Purchase Agreement.
"Waste" shall mean any and all pollutants, contaminants, chemicals or
industrial, toxic, hazardous or petroleum or petroleum-based substances or
wastes.
Section 1.02 Accounting Principles. Any and all determinations of the
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character or amount of any asset or liability or item of income or expense
required to be determined or any consolidation or other accounting computation
required to be made under this Agreement shall be made in accordance with GAAP
applied on a basis consistent with the Financial Statements, except to the
extent that such principles are inconsistent with the requirements of this
Agreement. All determinations of financial amounts on the consolidated basis of
the Borrower and its Subsidiaries shall make due allowance for any minority
stock interest in such Subsidiaries.
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ARTICLE 2
TERMS OF LOAN
Section 2.01 Lender's Agreement to Make Loan. Subject to the terms and
-------------------------------
conditions and relying materially on each and every representation and warranty
of the Borrower, Xxxxxxxxxxx and Xxxxxx contained in this Agreement, the Lender
agrees to make, on the date hereof, the Loan, which shall be evidenced by the
Borrower's issuance, execution and delivery of the Note.
Section 2.02 Payment Procedures. All of the Borrower's payments and
------------------
prepayments under the Note or this Agreement shall be made to the Lender at its
principal executive offices in immediately available funds before 5:00 p.m.,
Fort Worth, Texas time. Any payment that the Lender may receive and accept
after such time shall be considered for all purposes (including, to the extent
permitted by law, the calculation of interest) as having been made on the
Lender's next-following Business Day. If the date for any Loan payment or
prepayment hereunder falls on a day that is not a Business Day, then for all
purposes of the Note and this Agreement the same shall be deemed to have fallen
on the next-following Business Day, and such extension of time shall in such
case be included in the calculation of interest.
Section 2.03 Loan Prepayment at Lender's Option. At the Lender's option
----------------------------------
(but, in the case of an underwritten offering, subject to the approval of the
Borrower's lead underwriter, which approval the Borrower shall use its best
efforts to obtain), the Borrower shall be required to prepay the Loan to the
extent of any cash proceeds that the Borrower receives from any sale of Borrower
securities.
Section 2.04 Collateral for the Loan. The Loan shall be secured by a
-----------------------
perfected first-priority security interest in the Collateral Shares.
Section 2.05 Borrower's Assignment of Certain Rights. In payment of an
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origination fee to the Lender with respect to the Loan, the Borrower hereby
unconditionally and irrevocably assigns to the Lender the Borrower's rights
under Section 3 of the Shareholder Agreement (the "Repurchase Rights") effective
upon the closing under the Unifiber Purchase Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement, the Borrower,
Xxxxxxxxxxx and Xxxxxx jointly and severally represent and warrant to the Lender
(with each such representation and warranty's being conclusively and
independently deemed material and relied upon by the Lender irrespective of
whether such materiality and/or reliance actually exists) as follows:
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Section 3.01 Corporate Existence. The Borrower is a corporation duly
-------------------
organized, validly existing and in good standing under the laws of the State of
Nevada and is duly qualified to transact business as a foreign corporation in
all domestic and foreign jurisdictions (including, without limitation, the State
of Colorado) in which the Property owned or leased, or the business transacted
by, it makes such qualification necessary or desirable. Each Subsidiary is a
corporation or limited liability company, as the case may be, duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization and is duly qualified to transact business as a foreign corporation
or limited liability company, as the case may be, in all domestic and foreign
jurisdictions in which the Property owned or leased, or the business transacted
by, it makes such qualification necessary or desirable.
Section 3.02 Corporate Power and Authorization. The Borrower is duly
---------------------------------
authorized and empowered to create and issue the Note, to execute, deliver and
perform its obligations under this Agreement, and to execute, deliver and
perform its obligations under the Other Transaction Documents to which it is a
party. All corporate action on the Borrower's part necessary for the due
creation and issuance of the Note and for the due execution, delivery and
performance of this Agreement and of the Other Transaction Documents to which it
is a party has been duly and effectively taken.
Section 3.03 Binding Obligations. This Agreement, the Note and the Other
-------------------
Transaction Documents to which the Borrower is a party constitute valid and
binding obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms. This Agreement and each Other
Transaction Document to which a Shareholder is a party constitutes its valid and
binding obligations, enforceable against it in accordance with its terms.
Section 3.04 No Violations. The Borrower's execution, delivery and
-------------
performance of the Note, this Agreement and the Other Transaction Documents to
which the Borrower is a party does not violate, and is not inconsistent with,
any provisions of its articles of incorporation, bylaws or any Contract or
Governmental Requirement to which the Borrower is subject, or result in the
creation or imposition of, or obligation to create, any Lien upon any Property
of the Borrower, other than any Lien permitted by this Agreement or by any Other
Transaction Document. Each Shareholder's execution, delivery and performance of
the Other Transaction Documents to which it is a party does not violate, and is
not inconsistent with, any provision of any Contract or Governmental Requirement
to which it is subject, or result in the creation or imposition of, or
obligation to create, any Lien upon any Property of such Shareholder, other than
any Lien permitted by this Agreement or by any Other Transaction Document.
Section 3.05 No Required Consents or Approvals. The Borrower's
---------------------------------
execution, delivery and performance of the Note, this Agreement and the Other
Transaction Documents to which it is a party does not require the consent or
approval of any other Person. Each Shareholder's execution, delivery and
performance of this Agreement and the Other Transaction Documents to which it is
a party does not require the consent or approval of any other Person.
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Section 3.06 Capitalization.
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(a) The Borrower's issued and outstanding capital stock consists
solely of the capital stock set forth in Schedule 3.06 hereto. The
Borrower has not issued, or agreed to issue, any Shares or any securities
convertible into, or exchangeable with, Shares or entered into, issued or
granted, or agreed to enter into, issue or grant, any Stock Rights other
than as set forth in such Schedule 3.06. All of the Borrower's issued and
outstanding capital stock (including but not limited to the Collateral
Shares) was duly authorized and validly issued and is fully-paid and
nonassessable. All of the Borrower's issuances of its capital stock and
Stock Rights were made in compliance with all applicable laws and with all
NASDAQ rules and regulations.
(b) Except as to Sierra Materials LLC and ICE*USA, LLC, of which the
Borrower owns beneficially and of record 80% of the issued and outstanding
equity interests, respectively, and as to Pentiumatics Sdn.Bhd, of which
the Borrower owns beneficially and of record 77% of the issued and
outstanding equity interests, the Borrower owns, directly or indirectly,
100% of the issued and outstanding equity interests of all of the
Subsidiaries. All of the equity interests of each Subsidiary was duly
authorized and validly issued and is fully-paid and nonassessable. No
Subsidiary has issued, or agreed to issue, any equity interests (including
without limitation shares of capital stock) or any securities convertible
into, or exchangeable with, such equity interests or entered into, issued
or granted, or agreed to enter into, issue or grant, any Stock Rights.
Section 3.07 Financial Statements. The Financial Statements have been
--------------------
delivered to the Lender, have been prepared in accordance with GAAP,
consistently applied on a basis consistent with past practice, and fully and
accurately present the financial condition and changes in financial position of
the Borrower and its Subsidiaries as at the date or dates and for the period or
periods therein stated, subject only to typical year-end audit adjustments.
Neither the Borrower nor any Subsidiary has made any investment in, advance to
or guarantee of the obligations of any Person except those the material details
of which are disclosed in the Financial Statements.
Section 3.08 No Undisclosed Liabilities. Except for liabilities incurred
--------------------------
in the ordinary course of business that could not have a Material Adverse
Effect, neither the Borrower nor any Subsidiary has any liabilities, direct or
contingent, except those the material details of which are set forth in the
Financial Statements or in Exhibit 4.5 to the Unifiber Purchase Agreement. No
unusual or unduly burdensome restriction, restraint or hazard exists relating to
the business or Property of the Borrower or any Subsidiary.
Section 3.09 Absence of Certain Changes. Since the date of the Balance
---------------------------
Sheet, no event has occurred with respect to the Property, operations, business,
condition (financial or otherwise) or prospects of the Borrower or any
Subsidiary that could have a Material Adverse Effect.
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Section 3.10 No Litigation. There are no Actions, and there are no
-------------
circumstances that could form the basis for any such Action, involving the
Borrower or any Subsidiary or either Shareholder, or any Property of any of
them.
Section 3.11 Taxes.
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(a) Provision for Taxes. The provision made for Taxes on the Balance
-------------------
Sheet is sufficient for the payment of all Taxes at the date thereof and
for all years and periods prior thereto. Since the date of the Balance
Sheet, neither the Borrower nor any Subsidiary has incurred any Taxes other
than Taxes incurred in the ordinary course of business consistent in type
and amount with past practice and experience.
(b) Tax Returns Filed. No Tax returns of the Borrower or of any
-----------------
Subsidiary have been audited by the United States Internal Revenue Service
or any other Governmental Authority, and neither the Borrower nor any
Subsidiary has received any notice from any Governmental Authority of any
underpayment or deficiency of Taxes that has not been paid in full or any
objection to any Tax return or report that has not been cured. There are
no outstanding agreements or waivers extending the statutory period of
limitations applicable to any such Tax return or report.
(c) Other Tax Matters. Since January 1, 1993, neither the Borrower
-----------------
nor any Subsidiary has (i) filed any consent or agreement under Section
341(f) of the Code, (ii) applied for any Tax ruling, (iii) entered into a
closing agreement with any Governmental Authority, (iv) filed an election
under Code Sections 338(g) or 338(h)(10) (nor has any deemed election under
Code Section 338(e) occurred), (v) made any payments, or been a party to an
agreement (including this Agreement) that could obligate it to make
payments that will not be deductible because of Code Section 280G or (f)
been a party to any Tax allocation agreement or Tax sharing agreement. The
Borrower is not a "United States real property holding company" within the
meaning of Code Section 897.
Section 3.12 Title to and Condition of Property.
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(a) Personal Property. Each of the Borrower and each Subsidiary has
-----------------
good and marketable title to all of its Personal Property free and clear of
all Liens other than Permitted Liens. Neither the Borrower nor any
Subsidiary leases (as lessor) any personal Property. The Borrower and each
Subsidiary owns or leases (as lessee) all personal Property used to carry
on its business.
(b) Condition of Personal Property. The Personal Property of the
------------------------------
Borrower and of each Subsidiary is in good operating condition and repair,
normal wear and tear excepted, free from any material defect, has been
maintained consistent with the standards generally followed in the industry
and is sufficient as of the date hereof to carry on the business of the
Borrower or such Subsidiary, as the case may be.
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(c) Real Property. The Borrower and each Subsidiary has good and
-------------
marketable title to all of its Real Property free and clear of all Liens
other than Permitted Liens. Neither the Borrower nor any Subsidiary leases
(as lessor) any real Property. The Borrower and each Subsidiary owns or
leases (as lessee) all real Property used to carry on its business.
(d) Condition of Real Property. All Real Property is in good
--------------------------
operating condition and repair, normal wear and tear excepted, free from
any material defect, has been maintained consistent with the standards
generally followed in the industry and is sufficient to carry on the
business of the Borrower or such Subsidiary, as the case may be. All
buildings, plants and other structures and improvements in, on or under the
Real Property ("Improvements") are in good condition and repair and have no
structural defects or defects affecting plumbing, electrical, sewerage or
heating, ventilating or air conditioning systems, normal wear and tear
excepted.
(e) Governmental Requirements pertaining to Real Property. There are
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now in full force and effect duly issued certificates of occupancy
permitting the Real Property and Improvements to be legally used and
occupied as the same are now used and occupied. All of the Real Property
has permanent rights of access to dedicated public highways or roads. No
fact or condition exists that could prohibit or adversely affect the
ordinary rights of access to and from the Real Property from and to the
existing highways and roads and there is no pending or overtly threatened
restriction or denial, by any Governmental Authority or otherwise, with
respect to such ingress and egress. There is not (i) any claim of adverse
possession or prescriptive rights involving any of the Real Property, (ii)
any Improvement that encroaches on or over the boundaries of neighboring or
adjacent real property or (iii) any building, plant or other structure or
improvement of any other party that encroaches on or over the boundaries of
any of such Real Property. None of the Real Property is located in a flood
plain, flood hazard area, wetland or lakeshore erosion area within the
meaning of any Governmental Requirement. No public improvements have been
commenced, planned or proposed that could result in special assessments
against or otherwise materially adversely affect any Real Property. No
portion of any of the Real Property (other than a marl hole at the United
Kingdom facility of a Subsidiary) has been used by the Borrower or any
Subsidiary or by any other Person as a landfill or for storage or disposal
of hazardous or toxic materials. There is no (i) planned or proposed
increase in assessed valuations of any Real Property or Improvement, (ii)
Governmental Requirement that requires repair, alteration or correction of
any existing condition affecting any Real Property or Improvement or any
condition or defect that could give rise to a Governmental Requirement in
such regard, (iii) underground storage tanks, or any structural,
mechanical, or other defects of material significance affecting any Real
Property or Improvement (including, without limitation, inadequacy for
normal use of mechanical systems or disposal or water systems at or serving
the Real Property), or (iv) work that has been done or labor or materials
that has or have been furnished to any Real Property during the period of
six (6) months immediately preceding the date of this Agreement for
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which liens could be filed against any of the Real Property or
Improvements.
(f) No Condemnation or Expropriation. No portion of the Personal
--------------------------------
Property or the Real Property of the Company or any Subsidiary is subject
to any order to be sold or is being condemned, expropriated or otherwise
taken by any Governmental Authority with or without payment of compensation
therefor, nor has any such condemnation, expropriation or taking been
proposed.
Section 3.13 Contracts. No party is in default, nor has any event or
---------
circumstance occurred that, with the passage of time or the giving of notice or
both would constitute a default, under any Contract. Neither the Borrower nor
any Subsidiary has guaranteed the payment or performance of any Person or agreed
to indemnify, act as a surety or otherwise be contingently or secondarily liable
for the obligations of any Person other than the Borrower or a Subsidiary.
Neither the Borrower nor any Subsidiary is a party to or is bound by any
Contract requiring it to assign any interest in any trade secret or proprietary
information, or prohibiting or restricting it from competing in any business or
geographical area or soliciting customers or otherwise restricting it from
carrying on its business anywhere in the world.
Section 3.14 Casualties; Taking of Property. Since the date of the
------------------------------
Balance Sheet, neither the business nor the Property of the Borrower or any
Subsidiary have been materially and adversely affected as a result of any fire,
explosion, earthquake, flood, drought, windstorm, accident, strike or other
labor disturbance, embargo, requisition or taking of Property or cancellation of
contracts, permits or concessions by any domestic or foreign government or any
agency thereof, riot, activities of armed forces or acts of God or of any public
enemy.
Section 3.15 Compliance with Governmental Requirements. Neither the
-----------------------------------------
Borrower nor any Subsidiary is in violation of any Governmental Requirement or
has failed to meet any Governmental Requirement necessary to or desirable in
connection with the ownership of any of its Property or the conduct of its
business.
Section 3.16 Employment Benefit Plans.
------------------------
(a) Disclosure. True and correct copies of all pension, thrift,
----------
savings, profit sharing, retirement, incentive bonus or other bonus,
medical, dental, life, accident insurance, benefit, employee welfare,
disability, group insurance, stock purchase, stock option, stock
appreciation, stock bonus, executive or deferred compensation,
hospitalization and other similar fringe or employee benefit plans,
programs and arrangements, and any employment or consulting contracts,
"golden parachutes," collective bargaining agreements, severance agreements
or plans, vacation and sick leave plans, programs, arrangements and
policies, including, without limitation, all "employee benefit plans" (as
defined in Section 3(3) of ERISA), all employee manuals, and all written or
binding oral statements of policies, practices or understandings relating
to employment (each an "Employee Plans/Agreement"), that are provided to,
for the benefit of, or relate
13
to, any persons ("Employees") employed by Borrower and its Subsidiaries,
including all amendments thereto, have heretofore been provided to the
Lender. Each of the Employee Plans/Agreements is one or more of the
following: an "employee pension benefit plan" (as defined in Section 3(2)
of ERISA), a "defined benefit plan" (as defined in Section 414 of the
Code), an "employee welfare benefit plan" (as defined in Section 3(1) of
ERISA), and/or as a plan intended to be qualified under Section 401 of the
Code. No Employee Plan/Agreement is a "multiemployer plan" (as defined in
Section 4001 of ERISA), and neither Borrower nor any Subsidiary has ever
contributed nor been obligated to contribute to any such multiemployer
plan.
(b) Terminations. Proceedings and Penalties. With respect to each
---------------------------------------
employee benefit plan (including, without limitation, the Employee
Plans/Agreements) that is subject to the provisions of Title IV of ERISA
("Plan") and with respect to which the Borrower or any Subsidiary or any of
their respective Properties may, directly or indirectly, be subject to any
liability, contingent or otherwise, or the imposition of any Lien (whether
by reason of the complete or partial termination of any such Plan, the
funded status of any such Plan, any "complete withdrawal" (as defined in
Section 4203 of ERISA) or "partial withdrawal" (as defined in Section 4205
of ERISA) by any person from any such Plan, or otherwise):
(i) no such Plan has been terminated so as to subject, directly
or indirectly, any Property of the Borrower or of any Subsidiary to
any liability, contingent or otherwise, or the imposition of any lien
under Title IV of ERISA;
(ii) no proceeding has been initiated or threatened by any person
(including the Pension Benefit Guaranty Corporation ("PBGC")) to
terminate any such Plan;
(iii) no condition or event exists or is anticipated that
could subject, directly or indirectly, any Property of the Borrower or
any Subsidiary to any liability, contingent or otherwise, or the
imposition of any Lien under Title IV of ERISA, whether to the PBGC or
to any other person or otherwise on account of the termination of any
such Plan;
(iv) if any such Plan were to be terminated as of the date
hereof, no Property of the Borrower or of any Subsidiary would be
subject, directly or indirectly, to any liability, contingent or
otherwise, or the imposition of any Lien under Title IV of ERISA;
(v) no "reportable event" (as defined in Section 4043 of ERISA)
has occurred with respect to any such Plan;
(vi) no such Plan that is subject to Section 302 of ERISA or
to Code
14
Section 412 has incurred any "accumulated funding deficiency" (as
defined in Section 302 of ERISA and Code Section 412, respectively),
whether or not waived; and
(vii) no such Plan is a multiemployer plan or a plan described
in Section 4064 of ERISA.
(c) Prohibited Transactions. There have been no "prohibited
-----------------------
transactions" within the meaning of Sections 406 or 407 of ERISA or Code
Section 4975 for which a statutory or administrative exemption does not
exist with respect to any Employee Plan/Agreement, and no event or omission
has occurred in connection with which the Borrower or any Subsidiary or any
of their respective Properties or any Employee Plan/Agreement, directly or
indirectly, could be subject to any liability under ERISA, the Code or any
other Governmental Requirement applicable to any Employee Plan/Agreement,
or under any agreement, instrument, law or order pursuant to or under which
the Borrower or any Subsidiary has agreed to indemnify or is required to
indemnify any person against liability incurred under any such Governmental
Requirement.
(d) Full Funding. The funds available under each Employee
------------
Plan/Agreement that is intended to be a funded plan exceed the amounts
required to be paid, or that would be required to be paid if such Employee
Plan/Agreement were terminated, on account of rights vested or accrued as
of the date hereof (using the actuarial methods and assumptions then used
by the actuaries of the Borrower or of a Subsidiary, as the case may be, in
connection with the funding of such Employee Plan/Agreement).
(e) Payments and Compliance. With respect to each Employee
-----------------------
Plan/Agreement, (i) all payments due from the Borrower or a Subsidiary, as
the case may be, to date have been made and all amounts properly accrued to
date as liabilities that have not been paid have been properly recorded on
the books of the Borrower or such Subsidiary, as the case may be, and are
reflected in the Balance Sheet; (ii) Borrower and each Subsidiary has
complied with, and each such Employee Plan/Agreement conforms in form and
operation to, all applicable Governmental Requirements, including but not
limited to ERISA and the Code, in all respects and all reports and
information relating to such Employee Plan/Agreement required to be filed
with any Governmental Authority have been timely filed; (iii) all reports
and information relating to each such Employee Plan/Agreement required to
be disclosed or provided to participants or their beneficiaries have been
timely disclosed or provided; (iv) each such Employee Plan/Agreement that
is intended to qualify under Section 401 of the Code has received a
favorable determination letter from the Internal Revenue Service with
respect to such qualification, its related trust has been determined to be
exempt from taxation under Section 501(a) of the Code and nothing has
occurred since the date of such letter that has or could adversely affect
such qualification or exemption; (iv) there are no Actions (other than
routine claims for benefits) pending or threatened with respect to such
Employee Plan/Agreement or against the
15
Property of such Employee Plan/Agreement; and (v) no Employee
Plan/Agreement is a plan that is established and maintained outside the
United States primarily for the benefit of individuals substantially all of
whom are nonresident aliens.
(f) Post-Retirement Benefits. No Employee Plan/Agreement provides
------------------------
benefits, including, without limitation, death or medical benefits (whether
or not insured) with respect to current or former employees of the Borrower
or its Subsidiaries beyond their retirement or other termination of service
other than (i) coverage mandated by applicable law, (ii) death or
retirement benefits under any Employee Plan/Agreement that is an employee
pension benefit plan, (iii) deferred compensation benefits accrued as
liabilities on the books and records of Borrower (including the Balance
Sheet) or its Subsidiaries, (iv) disability benefits under any Employee
Plan/ Agreement that is an employee welfare benefit plan that have been
fully provided for by insurance or otherwise or (v) benefits in the nature
of severance pay.
(g) No Triggering of Obligations. The consummation of the
----------------------------
transactions contemplated by this Agreement will not (i) entitle any
current or former employee of the Borrower or any Subsidiary to severance
pay, unemployment compensation or any other payment, (ii) accelerate the
time of payment or vesting, or increase the amount of compensation due to
any such employee or former employee or (iii) result in any prohibited
transaction described in Section 406 of ERISA or Section 4975 of the Code
for which an exemption is not available.
(h) Delivery of Documents. There has been delivered to the Lender,
---------------------
with respect to each Employee Plan/Agreement:
(i) a copy of the annual report, if required under ERISA,
with respect to each such Employee Plan/Agreement for the last two
years;
(ii) a copy of the summary plan description, together with
each summary of material modifications, required under ERISA with
respect to such Employee Plan/Agreement, all material employee
communications relating to such Employee Plan/Agreement, and, unless
the Employee Plan/Agreement is embodied entirely in an insurance
policy to which the Borrower or a Subsidiary is a party, a true and
complete copy of such Employee Plan/Agreement;
(iii) if the Employee Plan/Agreement is funded through a trust
or any third-party funding vehicle (other than an insurance policy), a
copy of the trust or other funding agreement and the latest fmancial
statements thereof; and
(iv) the most recent determination letter received from the
Internal Revenue Service with respect to each Employee Plan/Agreement
that is intended to be a "qualified plan" under Section 401 of the
Code.
16
With respect to each Employee Plan/Agreement for which an annual report has
been filed and delivered to Buyer pursuant to clause (i) hereof, no
material adverse change has occurred with respect to the matters covered by
the latest such annual report since the date thereof.
(i) Future Commitments. Neither the Borrower nor any Subsidiary has
------------------
announced any plan or legally-binding commitment to create any additional
Employee Plans/Agreements or to amend or modify any existing Employee
Plan/Agreement.
Section 3.17 Securities Law and SRO Requirements.
-----------------------------------
(a) The Borrower has timely filed with the Commission all reports and
information required by the Exchange Act. None of the filings that the
Borrower has made with the Commission (whether pursuant to the Securities
Act, the Exchange Act or otherwise) contained or contains any misstatement
of a material fact or omitted or omits to state a material fact necessary
to make the statements contained therein not misleading in light of the
circumstances under which they were made.
(b) The Borrower is, and has at all times since the listing of its
Common Stock on the NASDAQ Small Cap market system been, in compliance with
all of the rules and regulations of the National Association of Securities
Dealers, Inc. and with the terms and conditions of the Borrower's listing
agreement.
Section 3.18 Trade Rights. The Borrower has disclosed to the Lender all
------------
Trade Rights in which the Borrower or any Subsidiary has any interest. All
Trade Rights owned and registered by the Borrower or any Subsidiary have been
properly registered, all pending registrations and applications by the Borrower
and its Subsidiaries have been properly made and filed and all annuity,
maintenance, renewal and other fees relating to registrations or applications
are current. Neither the Borrower nor any Subsidiary requires any Trade Rights
that it does not already have in order to conduct its business as currently
conducted. Neither the Borrower nor any Subsidiary is infringing or has
infringed any Trade Rights of another in the operation of its business, nor is
any other person infringing any Trade Rights of the Borrower or any Subsidiary.
Neither the Borrower nor any Subsidiary has granted any license or made any
assignment of any of its Trade Rights, nor does the Borrower or any Subsidiary
pay any royalties or other consideration for the right to use any Trade Rights
of others. All Trade Rights of the Borrower and its Subsidiaries are enforceable
and there are no equitable defenses to enforcement based on any act or omission
of the Borrower or any Subsidiary. The consummation of the transactions
contemplated hereby will not impair any Trade Rights of the Borrower or any
Subsidiary.
Section 3.19 Permits. The Borrower and each Subsidiary has all Permits
-------
necessary or desirable for the conduct of the business (as presently conducted).
All such Permits are in full force and effect, and there are no present
conditions or events that could result in the revocation or nonrenewal of any
such Permit. The Borrower and each Subsidiary is and has been in
17
compliance with all such Permits.
Section 3.20 Labor Matters. Within the last five years, neither the
-------------
Borrower nor any Subsidiary has experienced any union or syndicate organization
attempts, any work stoppage due to labor disagreements or any other material
labor disputes in connection with its business. The Borrower and each
Subsidiary is in compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and is not engaged in any unfair labor practice. Within the last five years,
there has been no overt or threatened unfair labor practice charge or complaint
against the Borrower or any Subsidiary and there is no basis for any such
charge or complaint. There is no labor strike, material labor dispute, request
for representation, slowdown or stoppage pending or threatened against or
affecting the Borrower or any Subsidiary nor any secondary boycott with respect
to any products of the Borrower or any Subsidiary. No question concerning union
representation or collective bargaining has been raised or is threatened
respecting the employees of the Borrower or of any Subsidiary. No grievance
that might have a Material Adverse Effect on the Borrower or any Subsidiary,
individually or in the aggregate, nor any arbitration proceeding arising out of
or under union or syndicate collective bargaining agreements, is pending or
threatened. Within the last five years, there have been no overt or threatened
administrative charges or court complaints against the Borrower or any
Subsidiary concerning alleged employment discrimination or other employment
related matters before the EEOC or any other Government Authority.
Section 3.21 Accounts Receivable. All accounts receivable of the
-------------------
Borrower and of each Subsidiary reflected on the Balance Sheet, and as incurred
since the date thereof represent arm's length sales actually made in the
ordinary course of business, and are collectible (net of the reserve recorded in
the Balance Sheet for doubtful accounts) in the ordinary course of business.
Section 3.22 Inventory. All inventory of the Borrower and each
---------
Subsidiary consists of a quality and quantity useable and salable in the
ordinary course of business and is valued in accordance with GAAP at the lower
of cost (on a FIFO basis) or market.
Section 3.23 Insurance. All Insurance Policies are valid, outstanding
---------
and enforceable policies. No notice of cancellation or termination has been
received with respect to any such Insurance Policy, and there has been no act or
omission that could result in cancellation of any such Insurance Policy prior to
its scheduled expiration date. There is no claim by the Borrower or any
Subsidiary pending under any Insurance Policy as to which coverage has been
denied or disputed by the underwriters thereof. Neither the Borrower nor any
Subsidiary has received any written notice that it has not provided to the
Lender from or on behalf of any issuer of any Insurance Policy that insurance
rates therefor will hereafter be substantially increased (except to the extent
that insurance rates may be increased for all similarly situated risks) or that
there will hereafter be a cancellation or an increase in a deductible (or an
increase in premiums in order to maintain an existing deductible) or nonrenewal
of any such policy. The Insurance Policies are sufficient to enable the
Borrower and its Subsidiaries to comply with the requirements of all contracts
to which any of them is a party.
18
Section 3.24 Environmental Matters. The Borrower and each Subsidiary is
---------------------
in compliance with all limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
applicable Environmental Laws or contained in any regulations, code, plan,
order, decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder. There is no Action against the Borrower or
any Subsidiary relating to any Environmental Laws or any order issued, entered,
promulgated or approved thereunder. There are no past or present events,
conditions, circumstances, activities, practices, incidents, actions, omissions
or plans that could interfere with or prevent the compliance and continued
compliance by the Borrower and its Subsidiaries with any Environmental Laws or
with any order issued, entered, promulgated or approved thereunder, or that
could give rise to any liability, including, without limitation, liability under
CERCLA or under any other Environmental Laws, or otherwise form the basis of any
Action or notice of violation based on or related to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling, or the emission, discharge, release or threatened release into the
environment, of any Waste.
Section 3.25 Ownership of Collateral Shares.
------------------------------
(a) Xxxxxxxxxxx is the sole record and beneficial owner of the Xxxxxxxxxxx
Collateral Shares, which he owns free and clear of any and all Liens. Upon
delivery of the Xxxxxxxxxxx Collateral Shares to the Lender at the Closing, the
Lender will take possession of, and will have a perfected first-priority
security interest in, the Xxxxxxxxxxx Collateral Shares free and clear of any
and all Liens other than Liens in favor of the Lender as contemplated hereby.
(b) Xxxxxx is the sole record and beneficial owner of the Xxxxxx Collateral
Shares, which he owns free and clear of any and all Liens. Upon delivery of the
Xxxxxx Collateral Shares to the Lender at the Closing, the Lender will take
possession of, and will have a perfected first-priority security interest in,
the Xxxxxx Collateral Shares free and clear of any and all Liens other than
Liens in favor of the Lender as contemplated hereby.
Section 3.26 Value of Repurchase Rights. The aggregate value of the
--------------------------
Repurchase Rights is no greater than $60,000.
Section 3.27 Product Warranties and Product Liability. Except as stated
----------------------------------------
in the written policies of the Borrower or its Subsidiaries with respect to
credits, returns and allowances and the standard warranty or warranties for
sales of Products or as existing under any Governmental Requirement, there are
no warranties, commitments or obligations of the Borrower or any Subsidiary with
respect to the granting of credits or the return or replacement of Products.
None of the Products has been the subject of any recall campaign by the Borrower
or any Subsidiary and no facts or conditions exist that could result in such a
recall campaign. Neither the Borrower nor any Subsidiary has introduced into
commerce any "adulterated" or "misbranded" product (as those terms are defined
in the Food, Drug and Cosmetic Act of 1938, as amended). The Borrower and each
Subsidiary follows manufacturing processes and practices that are sufficient to
prevent the
19
introduction of "adulterated" products into commerce. The Products have been
formulated and manufactured so as to, and do, meet and comply with all
applicable Government Requirements. All Products have met all Governmental
Requirements necessary or desirable to allow their sale and intended use.
Section 3.28 Unifiber Purchase Agreement. All of the representations and
---------------------------
warranties of all parties to the Unifiber Purchase Agreement are true and
correct in all respects.
Section 3.29 Benefit of the Loan to the Shareholders.
---------------------------------------
(a) Xxxxxxxxxxx acknowledges and agrees that, inasmuch as he is the Chief
Executive Officer, a director and a significant shareholder of the Borrower, the
Loan will benefit him at least to the extent of the value of the Xxxxxxxxxxx
Collateral Shares.
(b) Xxxxxx acknowledges and agrees that, inasmuch as he is the President,
a director and a significant shareholder of the Borrower, the Loan will benefit
him at least to the extent of the value of the Xxxxxx Collateral Shares.
Section 3.30 Brokers. All negotiations relative to the Loan and to the
-------
other transactions contemplated hereby have been carried on without the
involvement of any Person as the result of any act of the Borrower or either
Shareholder that would give rise to any claim against the Lender for any
brokerage commission, finders fee, or other like payments, other than Xxxxxx
Brothers, whose fees and commissions are and shall remain the Borrower's sole
responsibility.
Section 3.31 No Material Misstatements or Omissions. No information that
--------------------------------------
the Borrower or either Shareholder has furnished, directly or indirectly, to the
Lender in any form in connection with the negotiation of this Agreement or the
transactions contemplated hereby contained or contains any misstatement of a
material fact or omitted or omits to state a material fact necessary to make the
statements contained therein not misleading in light of the circumstances under
which they were made.
Section 3.32 No Usury. Without limiting the generality of any other
--------
representation or warranty set forth herein or in any Other Transaction
Document, the Loan is not usurious under the laws of the State of Colorado
(including without limitation Colorado Revised Statutes Section 5-12-103).
ARTICLE 4
AFFIRMATIVE COVENANTS
The Borrower and the Shareholders, as the case may be, shall at all times
comply with the covenants contained in this Article 4:
20
Section 4.01 Financial Statements and Reports. The Borrower shall
--------------------------------
promptly furnish to the Lender from time to time such information regarding the
business and affairs and financial condition of the Borrower and its
Subsidiaries as the Lender may reasonably request, and shall also furnish to the
Lender the following:
(a) Annual Reports. Promptly after becoming available and in any
--------------
event within 140 days after the close of each fiscal year of the Borrower
(or such shorter period of time within which the Borrower must file such
information with the Commission), the audited consolidated and
consolidating balance sheets of the Borrower and its Subsidiaries as at the
end of such year, the audited consolidated and consolidating statements of
profit and loss of the Borrower and its Subsidiaries for such year and the
audited consolidated and consolidating statements of reconciliation of
capital accounts of the Borrower and its Subsidiaries for such year,
setting forth in each case in comparative form the corresponding figures
for the preceding fiscal year, accompanied by the related report of the
Borrower's independent public accountants, which report shall be to the
effect that such statements have been prepared in accordance with GAAP
consistently applied throughout the period indicated except to the extent
stated therein; and
(b) Quarterly Reports. Promptly after becoming available and in any
-----------------
event within 60 (or such shorter period of time within which the Borrower
must file such information with the Commission) days after the end of each
of the first three quarterly periods in each fiscal year of the Borrower,
the consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as at the end of such period, the consolidated and
consolidating statements of profit and loss of the Borrower and its
Subsidiaries for such quarter and for the period from the beginning of the
fiscal year to the close of such quarter, and the consolidated and
consolidating statements of reconciliation of capital accounts of the
Borrower and its Subsidiaries for such quarter and for the period from the
beginning of the fiscal year to the close of such quarter, setting forth in
each case in comparative form the corresponding figures for the
corresponding period of the immediately-preceding fiscal year, certified by
the principal financial officer of the Borrower to have been prepared in
accordance with GAAP consistently applied throughout the period indicated
except to the extent stated therein, subject to typical changes resulting
from year-end adjustments; and
(c) Audit Reports. Promptly upon receipt thereof, one copy of each
-------------
other report submitted to the Borrower or any Subsidiary by independent
accountants in connection with any annual, interim or special audit made by
them of the books of the Borrower or any Subsidiary.
(d) Commission and Other Reports. Promptly upon their becoming
----------------------------
available, one copy of each financial statement, report, notice or proxy
statement sent by the Borrower to stockholders generally, and of each
regular or periodic report and any registration statement, prospectus or
written communication (other than transmittal letters) in respect thereof
filed by the Borrower with, or received by the Borrower in connection
therewith
21
from, any securities exchange (including without limitation the NASDAQ
Small Cap market system) or the Commission.
Section 4.02 Certificates of Compliance. Concurrently with the
--------------------------
furnishing of the annual and quarterly financial statements pursuant to
Subsections 4.01(a) and (b) hereof, the Borrower shall furnish or cause to be
furnished to the Lender a certificate in form and substance satisfactory to the
Lender signed by the principal financial officer of the Borrower stating (i)
that the Borrower has fulfilled its obligations under this Agreement, the Note
and the Security Instruments; and (ii) that all representations made herein and
therein continue to be true and correct (or specifying the nature of any
change), or, if any Potential Default shall have occurred and be continuing,
specifying such Potential Default and the nature and status thereof; and (iii)
containing or accompanied by such financial or other details, information and
material as the Lender reasonably may request to evidence such compliance.
Section 4.03 Taxes and Liens. The Borrower shall pay and discharge
---------------
promptly all Taxes imposed upon the Borrower or any Subsidiary or upon the
income or any Property of the Borrower or any Subsidiary as well as all claims
of any kind (including claims for labor, materials, supplies and rent) that, if
unpaid, might become a Lien upon any or all of the Property of the Borrower or
any Subsidiary; provided, however, that neither the Borrower nor any Subsidiary
shall be required to pay any such tax, assessment, charge, levy or claim if the
amount, applicability or validity thereof shall currently be contested in good
faith by appropriate proceedings diligently conducted by or on behalf of the
Borrower or its Subsidiary, and if the Borrower or its Subsidiary shall have set
up reserves therefor adequate under GAAP.
Section 4.04 Maintenance of Rights and Property. The Borrower shall and
----------------------------------
shall cause each Subsidiary to (a) maintain its corporate existence, rights and
franchises; (b) observe and comply with all Governmental Requirements (other
than any Governmental Requirement the violation of which, either individually or
in the aggregate, would not have a Material Adverse Effect); and (c) maintain
its Property in good operating condition at all times and make all repairs,
replacements, additions, betterments and improvements to its Property as are
necessary or appropriate to enable the Borrower and each Subsidiary to conduct
their respective businesses properly and efficiently at all times.
Section 4.05 Insurance. In the case of any fire, accident or other
---------
casualty causing loss or damage to any Property of the Borrower or a Subsidiary,
the proceeds of such policies shall be used (a) to repair or replace the damaged
Property or (b) to prepay the Indebtedness.
Section 4.06 Accounts and Records. The Borrower shall keep, and shall
--------------------
cause each Subsidiary to keep, books of record and account in which full, true
and correct entries shall be made of all dealings or transactions in relation to
their respective business and activities, in accordance with GAAP, consistently
applied except for changes in accounting principles or practices with which the
Borrower's independent public accountants concur.
22
Section 4.07 Right of Inspection.
-------------------
(a) The Borrower shall permit any officer, employee or agent of the Lender
to visit and inspect any of the Borrower's Property, to examine the Borrower's
books of record and accounts and to take copies and extracts therefrom, and to
discuss the Borrower's affairs, finances and accounts with the Borrower's
officers, accountants and auditors, all at such times and places as the Lender
reasonably may require.
(b) The Borrower shall cause each Subsidiary to permit any officer,
employee or agent of the Lender to visit and inspect any of such Subsidiary's
Property, to examine such Subsidiary's books of record and accounts and to take
copies and extracts therefrom, and to discuss such Subsidiary's affairs,
finances and accounts with such Subsidiary's officers, accountants and auditors,
all at such times and places as the Lender reasonably may require.
Section 4.08 Notice of Certain Events. The Borrower shall notify the
------------------------
Lender promptly if the Borrower learns of the occurrence of:
(a) any event that constitutes a Potential Default, and shall in such
case provide with the notice a detailed statement by a responsible officer
of the Borrower of the steps being taken to cure the effect of such
Potential Default; or
(b) the receipt of any notice from, or the taking of any other action
by, the holder of any promissory note, debenture or other evidence of
indebtedness of the Borrower or any Subsidiary or of any security (as
defined in the Securities Act) of the Borrower or any Subsidiary with
respect to a claimed default, and shall in such case provide with the
notice a detailed statement by a responsible officer of the Borrower
specifying the notice given or other action taken by such holder and the
nature of the claimed default and what action the Borrower or its
Subsidiary is taking or proposes to take with respect thereto; or
(c) any legal, judicial or regulatory proceedings affecting the
Borrower or any Subsidiary or any of their respective Property in which the
amount involved is material and is not covered by insurance or that, if
adversely determined, could have a Material Adverse Effect; or
(d) any pending or threatened dispute between the Borrower or any
Subsidiary and any governmental or regulatory body or any other Person
that, if adversely determined, could have a Material Adverse Effect.
Section 4.09 ERISA Information and Compliance. The Borrower shall
--------------------------------
promptly furnish to the Lender (a), if the Lender requests, copies of each
annual and other report with respect to each Plan or any trust created
thereunder promptly after the filing thereof with the United States Secretary of
Labor or the Pension Benefit Guaranty Corporation and (b), immediately upon
becoming aware of the occurrence of any "reportable event," as such term is
defined in Section
23
4043 of ERISA, or of any "prohibited transaction," as such term is defined in
Section 4975 of the Code, in connection with any Plan or any trust created
thereunder, a written notice signed by the President or the principal financial
officer of the Borrower specifying the nature thereof, what action the Borrower
or any of its Subsidiaries is taking or proposes to take with respect thereto
and, when known, any action taken by the Internal Revenue Service with respect
thereto. The Borrower shall fund, or shall cause its Subsidiaries to fund, all
current service pension liabilities as they are incurred under the provisions of
all Plans from time to time in effect for the benefit of employees of the
Borrower or any of its Subsidiaries, and comply with all applicable provisions
of ERISA.
Section 4.10 Use of Proceeds. The proceeds of the Note shall be applied
---------------
by the Borrower only for the following purposes and in the following order:
(a) to fund the Unifiber acquisition pursuant to the Unifiber Purchase
Agreement;
(b) to pay the Borrower's indebtedness as set forth in Schedule 4.11
hereto; and
(c) for working capital and other general corporate purposes.
Section 4.11 NASDAQ Small Cap Exchange Listing. The Borrower shall
---------------------------------
ensure at all times that:
(a) the Lender Shares are listed on the NASDAQ Small Cap market system
or other national securities exchange;
(b) the Borrower is not in default of its listing agreement with
NASDAQ; and
(c) trading in the Common Stock is not suspended for any reason.
Section 4.12 Subsidiary Dividends. In the event that the Borrower has
--------------------
insufficient funds available to pay all amounts then due and payable under the
Note, the Borrower shall cause one or more Subsidiaries to declare and pay to
the Borrower out of the funds legally available therefor dividends in an
aggregate amount to enable the Borrower to pay such amounts in full.
Section 4.13. First Anniversary Reset. In the event that, on the first
-----------------------
anniversary of the Closing, any principal of the Loan remains unpaid and the
aggregate value of the Initial Consideration Shares (the "Aggregate First
Anniversary Reset Value"), based on the per-share closing price of the Common
Stock on the last trading day immediately preceding the first anniversary of the
Closing as quoted on the NASDAQ Small Cap market system (the "Per-Share First
Anniversary Reset Value"), is less than $1,000,000, then the Borrower promptly
shall deliver to the Lender, at the Borrower's option, either (a) an amount in
cash equal to (i) $1,000,000 less (ii) the Aggregate First Anniversary Reset
Value (the "Aggregate First Anniversary Reset Value Difference") or (b), free of
any and all encumbrances (other than restrictions on transfer imposed
24
by applicable securities laws), such number of shares validly-issued, fully-paid
and nonassessable shares of Common Stock as are equal to (i) the Aggregate First
Anniversary Reset Value Difference divided by (ii) the Per-Share First
Anniversary Reset Value.
Section 4.14. Maturity Date Reset. In the event that, on the Maturity
-------------------
Date, the aggregate value of the Initial Consideration Shares (the "Aggregate
Maturity Date Reset Value"), based on the per-share closing price of the Common
Stock on the last trading day immediately preceding the Maturity Date as quoted
on the NASDAQ Small Cap market system (the "Per-Share Maturity Date Reset
Value"), is less than $1,000,000, then the Borrower promptly shall deliver to
the Lender, at the Borrower's option, either (a) an amount in cash equal to (i)
$1,000,000 less (ii) the Aggregate Maturity Date Reset Value less (iii) (A), if
the Lender received a cash payment pursuant to Section 4.13, the amount of such
cash payment or (B), if the Lender received additional shares of Common Stock
pursuant to Section 4.13, an amount equal to (I) the number of such additional
shares that were issued to the Lender pursuant to Section 4.13 multiplied by
(II) the Per-Share Maturity Date Reset Value (the "Aggregate Maturity Date Reset
Value Difference"), or (b), free of any and all encumbrances (other than
restrictions on transfer imposed by applicable securities laws), such number of
shares validly-issued, fully-paid and nonassessable shares of Common Stock as
are equal to (i) the Aggregate Maturity Date Reset Value Difference divided by
(ii) the Per-Share Maturity Date Reset Value. Notwithstanding anything in this
Section 4.14 to the contrary, any Aggregate Maturity Date Reset Value Difference
less than zero shall be deemed to be zero.
Section 4.15. Prepayment Reset. In the event that the Loan is prepaid in
-----------------
full prior to the Maturity Date and the aggregate value of the Initial
Consideration Shares on the date of such prepayment (the "Aggregate Prepayment
Date Reset Value"), based on the per-share closing price of the Common Stock on
the last trading day immediately preceding the date of such prepayment as quoted
on the NASDAQ Small Cap market system (the "Per-Share Prepayment Date Reset
Value"), is less than $1,000,000, then the Borrower promptly shall deliver to
the Lender, at the Borrower's option, either (a) an amount in cash equal to (i)
$1,000,000 less (ii) the Aggregate Prepayment Date Reset Value less (iii) (A),
if the Lender received a cash payment pursuant to Section 4.13, the amount of
such cash payment or (B), if the Lender received additional shares of Common
Stock pursuant to Section 4.13, an amount equal to (I) the number of such
additional shares that were issued to the Lender pursuant to Section 4.13
multiplied by (II) the Per-Share Prepayment Date Reset Value (the "Aggregate
Prepayment Date Reset Value Difference"), or (b), free of any and all
encumbrances (other than restrictions on transfer imposed by applicable
securities laws), such number of shares validly-issued, fully-paid and
nonassessable shares of Common Stock as are equal to (i) the Aggregate
Prepayment Date Reset Value Difference divided by (ii) the Per-Share Prepayment
Date Reset Value. Notwithstanding anything in this Section 4.15 to the
contrary, any Aggregate Prepayment Date Reset Value Difference less than zero
shall be deemed to be zero.
Section 4.16 Voting of Collateral Shares. While any part of the Loan
---------------------------
remains outstanding, each of Xxxxxxxxxxx and Xxxxxx shall vote all of his
Collateral Shares in favor of the
25
election of (and against the removal of, if applicable) a Lender-designated
nominee as a Borrower director.
Section 4.17 Indemnification. From and after the Closing, each of the
---------------
Borrower, Xxxxxxxxxxx and Xxxxxx, jointly and severally, shall indemnify and
hold harmless in full the Lender from and against any and all Damages arising in
connection with the untruth of any representation or warranty set forth in
Article 3 hereof or with the failure of any of them to comply with the covenants
set forth in this Article 4 or in Article 5 hereof.
Section 4.18 Proceeds of Securities Offerings. At the Lender's option
--------------------------------
(but, in the case of an underwritten offering, subject to the approval of the
Borrower's lead underwriter, which approval the Borrower shall use its best
efforts to obtain), the Borrower shall prepay the Loan to the extent of any cash
proceeds that the Borrower receives from any sale of securities of the Borrower.
Section 4.19 Voting of Collateral Shares. Each of Xxxxxxxxxxx and
---------------------------
Xxxxxx, by his execution of this Agreement, hereby grants to the Lender the
exclusive right, and hereby makes, constitutes and appoints the Lender, with
full power of substitution in the premises, his true and lawful attorney-in-fact
and agent, for him and in his name, place and xxxxx, to vote any and all of the
Xxxxxxxxxxx Collateral Shares and the Xxxxxx Collateral Shares, respectively, on
any and all matters that may properly be put to a vote of the Borrower's
shareholders, and to execute any and all written consents to the same effect,
and to do all such other acts and things that the Lender may deem necessary or
appropriate in such regard, in the event that (a) an Event of Default shall have
occurred and be continuing and (b) the Lender shall have chosen not to exercise
its rights under the Security Instruments to foreclose on the Collateral Shares
(each a "Power of Attorney"). Each Power of Attorney shall be deemed
irrevocable and coupled with an interest for so long as any part of the
Indebtedness remains outstanding and shall not be adversely affected by the
incapacity of the grantor thereof. The Borrower agrees that the provisions of
this Section 4.19 are not inconsistent with Section 2.12 of the Borrower's
Bylaws and acknowledges the Lender's exclusive right to vote the Collateral
Shares in accordance with the provisions of this Section 4.19.
ARTICLE 5
NEGATIVE COVENANTS
The Borrower shall at all times comply with the covenants contained in this
Article 5 so long as any part of the Indebtedness remains outstanding:
Section 5.01 Indebtedness.
------------
(a) Without the Lender's prior express written consent in each
instance, the Borrower shall not, and shall not permit any Subsidiary to,
incur, create, assume or suffer
26
to exist any indebtedness or obligation for payment of money (including
obligations for the payment of rentals) other than (i) the Indebtedness and
(ii) any such indebtedness or obligation outstanding on the date hereof of
which the Borrower has fully informed the Lender.
(b) The Borrower shall not, and shall not permit any Subsidiary to,
guarantee or in any way to be or become liable in respect of, or to be
responsible for, any indebtedness or obligation of any other Person in any
way other than in the ordinary course of business.
Section 5.02 Liens. The Borrower shall not, and shall not permit any
-----
Subsidiary to, incur, create, assume or suffer to exist any Lien on any of its
Property (now held or hereafter acquired) other than (a) Liens securing the
payment of any Indebtedness, (b) Permitted Liens and (c) Liens outstanding on
the date hereof of which the Borrower has fully informed the Lender.
Section 5.03 Investments, Loans and Advances. The Borrower shall not,
-------------------------------
and shall not permit any Subsidiary to, make or permit to remain outstanding any
loans or advances to or investments in any Person other than in the ordinary
course of business.
Section 5.04 Grants of Stock Rights, Dividends, Distributions and
----------------------------------------------------
Redemptions. Without the Lender's prior written consent, the Borrower shall not
-----------
grant any Stock Rights that, together with all Stock Rights previously granted,
would represent the right to acquire more than fifteen percent (15%) of the
Company's common equity on a fully-diluted basis. The Borrower shall not
declare or pay any dividend or distribution, or purchase, redeem, retire or
otherwise acquire for value any of its capital stock now or hereafter
outstanding, return any capital to its stockholders, or make any distribution of
its assets to its stockholders as such, or permit any of its Subsidiaries to
purchase or otherwise acquire for value any capital stock of the Borrower.
Section 5.05 Fundamental Transactions. Without the Lender's prior
------------------------
written consent, the Borrower shall not merge or consolidate with, or sell,
assign, lease or otherwise dispose of (whether in one transaction or in a series
of transactions) all, substantially all or an integral portion of its Property
(whether now owned or hereafter acquired) to, any Person, or permit any
Subsidiary to do so, except that any Subsidiary may merge into or consolidate
with or transfer Property to any other Subsidiary and any Subsidiary may merge
into or transfer Property to the Borrower; provided, however, that, in each
case, immediately thereafter and giving effect thereto, no event shall occur and
be continuing that constitutes a Potential Default or an Event of Default and
that, in the case of any such merger or consolidation to which the Borrower is a
party, the Borrower is the surviving corporation.
Section 5.06 Sales and Leasebacks. The Borrower shall not, and shall not
--------------------
permit any subsidiary to, enter into any arrangement, directly or indirectly,
with any Person whereby the Borrower or any Subsidiary shall sell or transfer
any Property, whether now owned or hereafter acquired, and whereby the Borrower
or any Subsidiary shall then or thereafter rent or lease as lessee
27
such Property or any part thereof or other Property which the Borrower or any
Subsidiary intends to use for substantially the same purpose or purposes as the
Property sold or transferred.
Section 5.07 ERISA Compliance. The Borrower shall not at any time permit
----------------
any Plan maintained by it or any Subsidiary to:
(a) engage in any "prohibited transaction," as such term is defined in
Section 4975 of the Code, as amended;
(b) incur any "accumulated funding deficiency," as such term is
defined in Section 302 of ERISA; or
(c) terminate any such Plan in a manner that could result in the
imposition of a Lien on the Property of the Borrower or any Subsidiary
pursuant to Section 4068 of ERISA.
Section 5.08 Nature of Business. The Borrower shall not, and shall not
------------------
permit any Subsidiary to, materially change the character of its business as
carried on at the date hereof.
Section 5.09 Margin Stock. Neither the Borrower nor any Subsidiary shall
------------
take any action that might cause the Note, this Agreement or any of the Security
Instruments to violate Regulation U of the Board of Governors of the United
States Federal Reserve System (12 C.F.R. Part 221) (the "Federal Reserve Board")
or any other regulation of the Federal Reserve Board or to violate Section 7 of
the Exchange Act or any rule or regulation thereunder, in each case as now in
effect or as the same may hereinafter be in effect.
Section 5.10 NASDAQ Small Cap Exchange Listing. The Borrower shall not
---------------------------------
de-list, or allow the de-listing of, the Common Stock from the NASDAQ Small Cap
market system (unless such de-listing occurs at a time when such Shares are
listed on another nationally-recognized United States securities exchange), and
shall ensure that the Lender Shares are listed thereon at the earliest possible
time.
ARTICLE 6
EVENTS OF DEFAULT
Section 6.01 Events. Any of the following events shall be considered an
------
"Event of Default:"
(a) the Borrower fails to pay when due any installment of principal or
interest on the Note or other Indebtedness; or
(b) any of the Borrower's representations or warranties set forth
herein, in the
28
Note or in any Other Transaction Document to which it is a party, or any of
the representations or warranties of either Shareholder set forth herein or
in any Other Transaction Document to which it is a party, proves to have
been incorrect as of the date hereof or thereof; or
(c) the Borrower fails duly, timely and fully to perform or observe
any of its covenants or agreements or to perform its obligations set forth
in any Other Transaction Document or in the following Sections of this
Agreement: 4.04(a); 4.07; 4.08; 4.09(b); 4.10; 4.11; 4.13; 4.14; 4.15;
4.16; 4.17; 4.18; 4.19; 5.01; 5.04; 5.05; 5.06; 5.07; 5.08; 5.09; and 5.10;
or
(d) the Borrower fails duly, timely and fully to perform or observe
any of its covenants or agreements or to perform its obligations set forth
in this Agreement (other than any such covenants, agreements and
obligations set forth in clause (c) above), and such failure continues
unremedied for a period of 10 days after the earlier of (i) the Lender's
notice thereof to the Borrower and (ii) such failure otherwise becomes
known to the Borrower; or
(e) the Borrower in good xxxxx xxxxx itself insecure with respect to
the Note or any other Indebtedness; or
(f) an involuntary case or other proceeding is commenced against the
Borrower or either Shareholder that seeks liquidation, reorganization or
other relief with respect to it or its debts or other liabilities under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its Property, and
such involuntary case or other proceeding shall remain undismissed or
unstayed for a period of 30 days; or an order for relief against the
Borrower or either Shareholder shall be entered in any such case under the
Federal Bankruptcy Code; or
(g) the Borrower or either Shareholder commences a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts or other liabilities under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its Property, or shall consent to
any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it,
or shall make a general assignment for the benefit of creditors, or shall
fail generally to, or shall admit in writing its inability to, pay its
debts generally as they become due, or shall take any corporate action to
authorize or effect any of the foregoing; or
(h) the Borrower or any Subsidiary discontinues or materially alters
its usual business; or
29
(i) the Borrower fails to make any payment due on any other
indebtedness or obligation for the payment of money; or any event shall
occur or any condition shall exist in respect of any such indebtedness or
obligation, or under any agreement or instrument under or by which any such
indebtedness or obligation is created, evidenced or secured, the effect of
which, with notice, lapse of time, or both, is to cause or to permit any
holder of such indebtedness or obligation to cause such indebtedness or
obligation, or a portion thereof, to become due prior to its stated
maturity or prior to its regularly scheduled dates of payment; or
(j) the Borrower shall fail within 10 days to pay, bond or otherwise
discharge any judgment or order for the payment of money in excess of
$25,000 that is not otherwise being satisfied in accordance with its terms
or is not stayed on appeal; or
(k) any Subsidiary takes, suffers or permits to exist as to such
Subsidiary any of the events or conditions referred to in Subsections
6.01(f), (g), (h), (i) or (j) hereof; or
(l) any Security Instrument shall for any reason, except to the extent
permitted by the terms thereof, cease to be in full force and effect and
valid, binding enforceable in accordance with its terms, or cease to create
a valid and perfected Lien of the priority required thereby on any of the
collateral purported to be covered thereby, or the Borrower or either
Shareholder shall so state in writing; or
(m) any party defaults under the Unifiber Purchase Agreement; or
(n) the Borrower or any Subsidiary shall default (or an event or
condition shall occur that, with notice or the passage of time or both
would constitute a default) under any Contract; or
(o) the Lender ceases at any time to have at least one person that it
has designated serving on the Borrower's Board of Directors (each a
"Lender-designated Director"); or
(p) the Borrower increases the size of its Board of Directors without
the consent of each Lender-designated Director.
Section 6.02 Remedies. Upon the occurrence of any Event of Default
--------
described in Subsection 6.01(f) or (g), hereof, or in Subsection 6.01(k) to the
extent that such Subsection refers to Subsection 6.01(f) or (g) hereof, the
obligations, if any, of the Lender hereunder shall immediately terminate, and
the entire amount of all Indebtedness then outstanding shall become
automatically and immediately due and payable, all without written notice and
without presentment, demand, protest, notice of protest or dishonor, notice of
intention to accelerate, notice of acceleration or any other notice of default
of any kind, all of which are hereby expressly waived by the Borrower. Upon the
occurrence and at any time during the continuance of any
30
other Event of Default, by written notice to the Borrower the Lender may (i)
declare all Indebtedness to be immediately due and payable without presentment,
demand, protest, notice of protest or dishonor, notice of intention to
accelerate or other notice of default of any kind, all of which are hereby
expressly waived by the Borrower, and/or (ii) terminate the obligations, if any,
of the Lender hereunder unless and until the Lender shall reinstate same in
writing and /or (iii) exercise its right under Section 4.19 hereof to vote the
Collateral Shares. Notwithstanding anything in this Agreement to the contrary,
however, the facts and circumstances existing as of the date hereof with respect
to Borrower's default under its royalty agreement with Expedition Trading Co.,
L. C. shall constitute a Potential Default, but shall not constitute an Event of
Default, for a period of six (6) months following the Closing (unless extended
by the Lender in its sole discretion), after which time the special grace period
set forth in this sentence shall be of no further force or effect.
Section 6.03 Right of Set-off. Upon the occurrence and during the
----------------
continuance of any Event of Default, or if the Borrower becomes insolvent,
however evidenced, the Lender is hereby authorized at any time and from time to
time, without notice to the Borrower (any such notice being expressly waived by
the Borrower), to set-off and apply any and all moneys at any time held and
other indebtedness at any time owing by the Lender to the Borrower against any
and all of the Indebtedness of the Borrower, irrespective of whether or not the
Lender shall have made any demand under this Agreement or the Note and although
such obligations may be unmatured. The Lender agrees promptly to notify the
Borrower after any such setoff and application, provided that the failure to
give such notice shall not affect the validity of such set-off and application.
The rights of the Lender under this Section are in addition to other rights and
remedies (including, without limitation, other rights of set-off) that the
Lender may have.
ARTICLE 7
LOAN CLOSING AND CONDITIONS PRECEDENT
The obligation of the Lender to make the Loan is subject to the conditions
precedent stated in this Article 7 wherein each document to be delivered to the
Lender shall be in form and substance satisfactory to it.
Section 7.01 Closing. The closing of the Loan (the "Closing") shall take
-------
place contemporaneously with the execution of this Agreement.
Section 7.02 Conditions Precedent to the Loan. As conditions precedent
--------------------------------
to Lender's making of the Loan, the following shall occur prior to or at the
Closing:
(a) the Borrower shall have duly and validly issued, executed and
delivered the Note to the Lender;
31
(b) the Borrower shall have delivered the Initial Consideration Shares
to the Lender free of any and all Liens and restrictive legends (other than
restrictions on transfer imposed by applicable securities laws and
restrictive legends making reference thereto).
(c) the Borrower shall have effected the appointment or election of
one Lender-designated person to the Borrower's Board of Directors;
(d) the Borrower shall have made the following additional deliveries
to the Lender:
(i) certificates of existence and good standing of the Borrower in the
State of Nevada, and certificates of qualification as a foreign
corporation and good standing in the State of Colorado;
(ii) a certificate of the Borrower's Secretary certifying (A) the
Borrower's charter and bylaws, (B) duly adopted resolutions of the
Borrower's board of directors in form and substance satisfactory to
the Lender with respect to the authorization of this Agreement, the
Note and the Other Transaction Documents to which the Borrower is a
party and (C) specimen signatures of the duly authorized officers of
the Borrower executing this Agreement or any Other Transaction
Document on the Borrower's behalf;
(iii) a legal opinion of counsel to the Borrower and the Shareholders
addressed to the Lender in form and substance satisfactory to the
Lender;
(iv) duly-executed originals (in such number as the Lender reasonably
shall request) of the Registration Rights Agreement; and
(v) duly-executed originals (in such number as the Lender reasonably
shall request) of written evidence satisfactory in form and substance
to the Lender that the Borrower and the Shareholder (as such term is
defined in the Unifiber Shareholder Agreement) have agreed that no
approval by the Borrower's Board of Directors pursuant to Section
3(a)(2) of the Unifiber Shareholder Agreement shall be required upon
the Lender's purchase, if any, of the Shares (as such term is defined
in the Unifiber Shareholder Agreement) subsequent to such assignment;
and
(vi) such other documents and things as the Lender reasonably shall
request.
(e) Xxxxxxxxxxx shall have delivered one or more certificates
representing the Xxxxxxxxxxx Collateral Shares free of any and all Liens
and restrictive legends (other than restrictions on transfer imposed by
applicable securities laws and restrictive legends making reference
thereto), together with one or more irrevocable stock power duly
32
endorsed in blank;
(f) Xxxxxxxxxxx shall have delivered to the Lender (in such number as
the Lender reasonably shall request) UCC-1 financing statements relating to
the Xxxxxxxxxxx Security Agreement and the pledge of the Xxxxxxxxxxx
Collateral Shares;
(g) Xxxxxxxxxxx and the Borrower shall have delivered to each other
duly-executed originals (in such number as the Lender reasonably shall
request) of the Xxxxxxxxxxx Security Agreement;
(h) Xxxxxx shall have delivered one or more certificates representing
the Xxxxxx Collateral Shares free of any and all Liens and restrictive
legends (other than restrictions on transfer imposed by applicable
securities laws and restrictive legends making reference thereto), together
with one or more irrevocable stock power duly endorsed in blank;
(i) Xxxxxx shall have delivered to the Lender (in such number as the
Lender reasonably shall request) UCC-1 financing statements relating to the
Xxxxxx Security Agreement and the pledge of the Xxxxxx Collateral Shares;
and
(j) Xxxxxx and the Borrower shall have delivered to each other duly-
executed originals (in such number as the Lender reasonably shall request)
of the Xxxxxx Security Agreement.
Section 7.03 Closing Deliveries of the Lender. At the Closing and
--------------------------------
following the satisfaction or waiver of the conditions precedent set forth in
Section 7.02, the Lender shall deliver the proceeds of the Loan by wire transfer
to such account as the Borrower reasonably shall request in writing at least two
(2) days prior to the Closing.
Section 7.04 Subsequent Delivery. Notwithstanding anything to the
-------------------
contrary in this Article 7, the parties acknowledge and agree that, due to the
necessity of having the Closing occur at the earliest possible time, the
Borrower will not be able to satisfy the condition precedent to the Closing set
forth in Section 7.02(b) with regard to the delivery of the Initial
Consideration Shares prior to or at the Closing. In consideration of the
Lender's willingness to close the Loan without such satisfaction, the Borrower
covenants and agrees that the Borrower shall satisfy such condition precedent
set forth in Section 7.02(b) as soon as possible following the Closing, but in
any event no later than ten (10) days thereafter.
ARTICLE 8
MISCELLANEOUS
Section 8.01 Proof of Indebtedness. The Lender's records shall be prima
---------------------
facie proof as to:
33
(a) the amount of principal, interest or other amounts under the Loan owing
at any time;
(b) the existence of any default in the payment of any amounts under the
Note; and
(c) whether any demand for payment under the Note has been made.
Section 8.02 Time of Essence. Time shall be of the essence of each and
---------------
every provision hereof and of the Note.
Section 8.03 Notices. Any notice required or permitted to be given under
-------
or in connection with this Agreement, the Security Instruments or the Note shall
(except as may otherwise be expressly required therein) be in writing and shall
be delivered (a) by certified mail, return receipt requested, (b) by overnight
delivery service, (c) by facsimile transmission, confirmed telephonically or (d)
personally to an executive officer of the receiving party. All such
communications shall be mailed, sent or delivered as follows:
If to the Borrower:
Coyote Sports, Inc.
0000 Xxxxxxxx Xxxxxx
Xxxxxxx XX 00000
Attention: Chief Executive Officer
Telephone: 303/000-0000
Facsimile: 303/417-1700
With a copy (which shall not constitute notice) to:
Xxxxxxx X. Xxxxxx, Esq.
0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx XX 00000
Telephone: 303/000-0000
Facsimile: 303/447-0556
If to the Lender:
Paragon Coyote Texas Ltd.
c/o Xxxx Xxxxxx
000 Xxxx Xxxxxxx Xxxxxx
Xxxxx 0000
Xxxx Xxxxx XX 00000
Telephone: 817/000-0000
Facsimile: 817/810-0089
34
With a copy (which shall not constitute notice) to:
Xxxxx X. Xxxxxx, Esq.
Xxxxxxxx & Xxxxxx L.L.P.
000 Xxxx Xxxxxx, Xxxxx 000
Xxxx Xxxxx XX 00000
Telephone: 817/000-0000
Facsimile: 817/332-3381
If to Xxxxxxxxxxx:
Xxx X. Xxxxxxxxxxx, Chief Executive Officer
Coyote Sports, Inc.
0000 Xxxxxxxx Xxxxxx
Xxxxxxx XX 00000
Telephone: 303/000-0000
Facsimile: 303/417-1700
If to Xxxxxx:
Xxxxx X. Xxxxxx, President
Coyote Sports, Inc.
0000 Xxxxxxxx Xxxxxx
Xxxxxxx XX 00000
Telephone: 303/000-0000
Facsimile: 303/417-1700
Any communication delivered in accordance with this Section shall be deemed
received (a), if delivered by certified mail, return receipt requested, on the
date of delivery indicated on the return receipt, (b), if delivered by overnight
delivery service, on the following Business Day, (c), if delivered by facsimile
transmission, on the date that the transmission is confirmed telephonically or
(d), if personally to an executive officer of the receiving party, on the date
of such delivery.
Section 8.04 Amendments and Waivers. This Agreement may not be modified,
----------------------
amended or terminated orally and no waiver of compliance with any provision or
condition hereof and no consent provided for herein shall be effective unless
evidenced by an instrument in writing duly executed by the party hereto sought
to be charged with such waiver or consent. No course of dealing on the part of
the Lender, its officers, employees, consultants or agents, nor any failure or
delay by the Lender with respect to exercising any right, power or privilege of
the Lender under this Agreement, the Note or any Security Instrument shall
operate as a waiver thereof. No waiver of any term or provision hereof shall be
construed as a further or continuing waiver of such term or provision or any
other term or provision.
35
Section 8.05 Severability. If any provision of this Agreement or the
------------
application thereof to any Person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provision to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law as long as
the economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party.
Section 8.06 Survival. All covenants and agreements of any party to this
--------
Agreement set forth herein, in the Note or in any other Other Transaction
Document not fully performed before the Closing, and all representations and
warranties made by any party to this Agreement pursuant hereto, to the Note or
to any Other Transaction Document, shall survive the Closing and shall never
terminate.
Section 8.07 Successors and Assigns. All of the Borrower's covenants and
----------------------
agreements set forth in this Agreement, the Note and the Security Instruments
shall bind its successors and assigns and shall inure to the benefit of the
Lender and its successors and assigns; provided, however, that the Borrower may
not assign its rights or obligations under this Agreement or any interest
herein, without in each instance the Lender's prior written consent.
Section 8.08 Renewal, Extension or Rearrangement. All provisions of this
-----------------------------------
Agreement and of the Security Instruments relating to the Note or other
Indebtedness shall apply with equal force and effect to each and all promissory
notes hereafter executed that represent, in whole or in part, a renewal,
extension for any period, increase or rearrangement of any part of the
Indebtedness originally represented by the Note or of any part of such other
Indebtedness.
Section 8.09 Cumulative Rights. The Lender's rights and remedies under
-----------------
this Agreement, the Note and each Security Instrument shall be cumulative, and
the exercise or partial exercise of any such right or remedy shall not preclude
the exercise of any other right or remedy.
Section 8.10 Further Assurances. At the Borrower's sole cost and
------------------
expense, each of the Lender, the Borrower and each Subsidiary covenants and
agrees to execute any and all such further documents and instruments and to do
such further things as the Lender in its sole discretion may deem necessary or
appropriate to implement fully and carry out the intent of this Agreement, the
Note and the Other Transaction Documents.
Section 8.11 Governing Law. This Agreement and the Note are contracts
-------------
made under, and shall be construed in accordance with and governed by, the laws
of the State of Colorado (exclusive of any such laws that pertain to conflicts
of laws).
Section 8.12 Entire Agreement. This Agreement, the Note and the Other
----------------
Transaction Documents embody the entire agreement and understanding between the
Lender and the Borrower with respect to the subject matter hereof and thereof
and supersede all prior agreements and understandings between such parties in
such regard.
36
Section 8.13 Schedules and Exhibits. The schedules and exhibits attached
----------------------
to this Agreement are incorporated herein and shall be considered a part of this
Agreement for the purposes stated herein, except that in the event of any
conflict between any of the provisions of such schedules and exhibits and the
provisions of the text of this Agreement, the provisions of the text of this
Agreement shall prevail.
Section 8.14 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same instrument. Signatures exchanged by facsimile
transmission shall be deemed to constitute original, manually-executed
signatures and shall be fully binding.
Section 8.15 Headings. Headings of the Articles and Sections of this
--------
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
Section 8.16 Usury Savings Clause. The Borrower and the Lender intend to
--------------------
conform strictly to applicable usury laws. Therefore, the total amount of
interest (as defined under applicable law) contracted for, charged or collected
with respect to the Loan shall never exceed the Highest Lawful Rate (as defined
in the Note). In the event that the Lender is found to have contracted for,
charged or received any interest on the Loan in excess of the Highest Lawful
Rate, such occurrence shall be deemed a mistake and the Lender shall
automatically reform the contract or charge to conform to applicable law. In
the event that the Lender is found to have received any interest on the Loan in
excess of the Highest Lawful Rate, the Lender shall either refund such excess
interest to the Borrower or credit the excess interest to the unpaid principal
amount of the Loan. All amounts found to constitute interest on the Loan will
be spread throughout the full term of the Loan in determining whether the
interest contracted for, charged or received thereon exceeds the Highest Lawful
Rate.
[The remainder of this page has intentionally been left blank]
37
IN WITNESS WHEREOF, the parties hereto have entered into this Loan
Agreement as of the date first above written.
BORROWER: COYOTE SPORTS, INC.,
a Nevada corporation
By: /s/ Xxxxx X. Xxxxxx
---------------------------------------------
Name: Xxxxx X. Xxxxxx
-------------------------------------------
Title: President
------------------------------------------
LENDER: PARAGON COYOTE TEXAS LTD.,
a Texas limited partnership
By: Paragon Management Group, Inc.,
a Texas corporation, General Partner
By: /s/ Xxxx Xxxxxx
---------------------------------------
Xxxx Xxxxxx, President
SHAREHOLDERS:
/s/ Xxx X. Xxxxxxxxxxx
------------------------------------------------
XXX X. XXXXXXXXXXX
/s/ Xxxxx X. Xxxxxx
------------------------------------------------
XXXXX X. XXXXXX
38
Schedule 3.06
Capitalization
as of March 19, 1998
4,073,000 issued and outstanding shares of Common Stock
250,000 warrants to purchase an aggregate of 125,000 shares of Common Stock
1,000,000 shares authorized pursuant to the 1997 Stock Option Plan. 565,500
stock options granted under the 1997 Plan to purchase an aggregate of 565,500
shares of Common Stock
1,000,000 shares authorized pursuant to the 1998 Stock Option Plan. No stock
options granted to date.
105,000 warrants to purchase an aggregate of 105,000 shares of Common Stock
39
Schedule 4.11
Indebtedness to be Paid with the Proceeds of the Loan
The amount of $6,000,000 will be wired to the Harrigan, Ruff, Sloardellati and
Xxxxx, Attorney Cient Trust Fund for disbursement and release of the following
liabilities:
Tennent Trust $3,000,000.00
Zurco, Inc. - principal and interest 2,054,667.21
Xxxxx de Oro Bank - principal and 201,928.77
interest
Xxxxxx and Xxxxx Xxxxxxx - 128,228.96
principal and interest
Xxxxxxxx Wertheim & Co. 300,000.00
Tennent Trust 115,000.00
Coyote Sports, Inc. 200,175.06
40
