EXHIBIT 99.1
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is made and entered into effective as
of this 16th day of July, 2003 (the "Execution Date"), by and among GEXA CORP.,
a Texas corporation ("Borrower"), and THE CATALYST FUND, LTD., a Texas limited
partnership ("Lender").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Borrower desires to borrow the amount of THREE MILLION and No/100
DOLLARS ($3,000,000.00) in two draws from Lender (the "Lender Loan") for the
purpose of providing working capital; and
WHEREAS, Lender is further willing to and Borrower desires that Lender
provide business counsel and advice to Borrower from time to time to assist
Borrower in its business strategies and growth plans as more fully described in
that certain Consulting Agreement of even date herewith between Borrower and
Lender; provided that under no circumstances shall Borrower be required to
follow the counsel and advice of Lender nor shall Lender be deemed to have
controlled any of the business activities of Borrower;
NOW, THEREFORE, in consideration of the premises, the provisions whereof,
and the mutual benefits to be derived therefrom, Lender and Borrower agree as
follows:
SECTION 1. ADDITIONAL DEFINITIONS AND INTERPRETATION
1.1 Terms Defined. As used in this Agreement, the following terms have the
respective meanings set forth below or set forth in this Section or paragraph
following such term:
1933 Act - the Securities Act of 1933, as amended, and any successor
statute.
Accounts Receivable - all of Borrower's accounts receivable, instruments,
contract rights, chattel paper, documents, general intangibles, book debts and
all amounts due to Borrower from a factor, arising from Borrower's sale of goods
or rendition of services in the ordinary course of Borrower's business, whether
now existing or hereinafter created, and all returned, reclaimed, refused or
repossessed goods, and all books and records pertaining to the foregoing and the
cash and non-cash proceeds resulting therefrom and all security and guarantees
therefor.
Affiliate - with respect to a Person, any other Person that directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, such Person; provided, however, that neither
Lender nor any affiliate thereof shall be deemed to be an Affiliate of Borrower
or its Subsidiaries. The term "control" as used in the foregoing sentence means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.
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Assignment of Life Insurance Policy - The Assignment of Life Insurance
Policy delivered pursuant to Section 6.15(d).
Borrower GEXA Corp., a Texas corporation.
Business - the business of Borrower as described in Section 2.5.
Business Day - each Monday, Tuesday, Wednesday, Thursday, or Friday that is
not a day on which banking institutions in the State of Texas are authorized or
obligated by law to close.
Change in Control - when (i) any "person" (as such term is used in Section
13(d) of the Exchange Act) becomes a beneficial owner, directly or indirectly,
of Securities of Borrower representing more than 50% of the combined voting
power of Borrower's then outstanding Securities; (ii) individuals who were
directors, managers or general partners of Borrower immediately prior to a
meeting of the shareholders, members or partners of Borrower involving a contest
for the election of directors, managers or general partners do not constitute a
majority of the directors, managers or general partners following such election;
(iii) the shareholders, members or partners of Borrower approve an agreement to
merge or consolidate, or otherwise reorganize, with or into one or more entities
which are not Subsidiaries, as a result of which less than 50% of the
outstanding voting securities or partnership interests of the surviving or
resulting entity are, or are to be, owned by former shareholders, members or
partners of Borrower; or (iv) the shareholders, members or partners of Borrower
approve the sale of substantially all of Borrower's business and/or assets to a
Person that is not a Subsidiary.
Code - the Internal Revenue Code of 1986, as amended, and any successor
statute.
Collateral - the Property described in the Security Agreement securing
Borrower's obligations under the Subject Documents and the key man life
insurance policy referred to in Section 6.15.
Common Stock - all issued and outstanding shares of common stock of GC.
Consulting Agreement - the agreement of even date herewith between Lender
and Borrower wherein Lender agrees to provide business counsel and advice to
Borrower in exchange for the remuneration described therein.
Current Assets - the aggregate amount of all assets which would, in
accordance with GAAP, properly be defined as "current assets," including all
cash, those Customers' Accounts Receivables and other receivables due within
twelve (12) months from their statement date (net of any appropriate reserves
for collectability), inventory, deposits, marketable securities, and prepaid
expenses to be consumed within twelve (12) months from their statement date.
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Current Liabilities - the aggregate amount of all liabilities which would,
in accordance with GAAP, properly be defined as "current liabilities," including
all amounts due or to become due for payment on or before twelve (12) months
from their statement date and excluding all amounts due or to become due for
payment after twelve (12) months from their statement date.
Current Ratio - the ratio of Current Assets to Current Liabilities,
provided that the expenses set forth on Schedule 1.1 shall not be included in
calculating the Current Ratio.
Customers - the account debtors obligated on the Accounts Receivable.
Debt - with respect to any Person, without duplication, all obligations
required by GAAP to be classified upon such Person's balance sheet as
liabilities, including amounts due Lender.
Default - an event or condition the occurrence of which, with the lapse of
time or the giving of notice or both, would become an Event of Default.
Default Rate - a rate of interest equal to 18% per annum.
Distribution - except as otherwise contemplated by this Agreement, any
dividend or other distribution on account of shares of Common Stock, partnership
interests, Member Interests, or other equity interests in Borrower; any
acquisition by Borrower of shares of Common Stock, Member Interests, a
partnership or other equity interests in Borrower or of warrants, rights, or
other options to purchase shares of Common Stock, Member Interests, a
partnership or other equity interests in Borrower; or any loan or advance
(excluding advances to employees for expenses to be reimbursed) to a
shareholder, member, partner or other direct or indirect holder of an equity
interest in Borrower.
EBITDA - when determined, the following, calculated on a consolidated basis
for Borrower in accordance with GAAP (in each case, for the most recently
completed twelve (12) month period):
(a) net income (excluding extraordinary gains and
losses), plus
(b) interest expense (including that portion of any
lease payment under a lease or sublease that has been (or
under GAAP should be) capitalized on a balance sheet which
would be treated as interest under GAAP), plus
(c) non-cash charges, such as depreciation and
amortization expense, plus
(d) income taxes.
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Environmental Laws - all federal, regional, state, county or local laws,
statutes, ordinances, decisional law, rules, regulations, codes, orders,
decrees, directives and judgments relating to pollution, damage to or protection
of the environment, releases or threatened releases of hazardous substances into
the environment, or the use, manufacture, processing, distribution, treatment,
storage, generation, disposal, transport or handling of hazardous substances,
including without limitation, the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. ss.9601 et seq. Hazardous substances
shall mean any pollutants, toxic substances, hazardous wastes or hazardous
substances defined in or regulated under any applicable Environmental Law.
ERISA - the Employee Retirement Income Security Act of 1974, as amended
from time to time.
ERISA Affiliate - any Person described in section 4001(b)(1) of ERISA with
respect to Borrower or any Subsidiary, excluding, however, Lender and Persons
that would not be ERISA Affiliates of Borrower or any Subsidiary but for the
fact that Lender or any transferee(s) thereof are owners of equity Securities in
Borrower.
Event of Default - as defined in Section 8.1.
Exchange Act - the Securities Exchange Act of 1934, as amended and any
successor statutes.
Execution Date - the date on which this Agreement becomes executed by both
Borrower and Lender.
Fixed Charge Ratio - the ratio of (historical EBITDA for the previous four
quarters) to (current maturities on long-term debt as reported on the Borrower's
balance sheet, plus scheduled payments on capital leases for the ensuing four
quarters, plus scheduled interest expense on term debt for the ensuing four
quarters, plus interest expense on revolving debt for the previous four
quarters, plus permitted cash dividends on the Preferred Stock and Distributions
for the ensuing four quarters).
Force Majeure - acts of God, strikes, lock-outs, industrial disturbances,
acts of the public enemy, wars, blockades, insurrections, riots, epidemics,
landslides, lightning, earthquakes, fires, storms, floods, wash-outs, tornadoes,
hurricanes, windstorms, arrest and restraint of rulers and people, civil
disturbances, boycotts, explosions, breakage or accident to machinery or
equipment, and any other causes similar to those above, which are not within the
reasonable control of the party claiming force majeure, and which by the
exercise of due diligence such party is unable to overcome.
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Funded Debt - when determined, the following, calculated for Borrower in
accordance with GAAP: (a) all obligations for borrowed money (whether as a
direct obligor on a promissory note, a reimbursement obligor on a letter of
credit, a guarantor or otherwise), plus (but without duplication) (b) all lease
or sublease obligations that have been (or under GAAP should be) capitalized on
a balance sheet.
GAAP - generally accepted accounting principles of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the Financial Accounting Standards Board that are applicable from time to time.
GC - GEXA Corp.
GC Related Participants - Xxxx Xxxxxxx, Xxxxx Xxx, Xxx Xxxx, and Xxxxxx
Investment Trust Partnership, who will enter into the Loan Participation
Agreement with Lender pursuant to which they will contribute $500,000.00 of the
Lender Loan for the rights described therein.
JTS - JTS Enterprises, Inc., a Texas corporation.
JTS Note - that certain promissory note dated of even date herewith,
executed by Borrower and payable to JTS in the original principal sum of
$650,000.00.
Xxxxxxx - Xxxx Xxxxxxx, the Chief Executive Officer of GC.
Xxxxxxx Affiliates - Boxer Capital, Ltd., a Texas limited partnership,
Sundowner Holdings, Inc., a Texas corporation, and Xxxxxxx'x spouse and
children.
Lender Loan - the loan from Lender to Borrower contemplated herein and
evidenced by the Lender Notes.
Lender Note 1 - that certain promissory note of even date herewith executed
by Borrower in the original principal sum of $1,500,000.00, and delivered to
Lender evidencing the first disbursal of the Lender Loan and bearing interest at
the rate of 12.5% per annum.
Lender Note 2 - that certain promissory note evidencing the second
disbursal of the Lender Loan, to be executed by Borrower on or about August 15,
2003, provided the Borrower satisfies the conditions thereto as provided in
Section 3.3, and containing the terms and provisions described in Section 4.3
hereof, and being in substantially the same form as Lender Note 1.
Lender Notes - Lender Note 1 and Lender Note 2.
Lien - any interest in Property securing an obligation owed to, or a claim
by, a Person other than the owner of the Property, whether such interest is
based on law, statute, or contract, and including, without limitation, the
security interest or lien arising from a mortgage, encumbrance, pledge,
conditional sale, or trust receipt or a lease, consignment or bailment for
security purposes (it being understood that an operating lease does not
constitute a Lien).
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Loan Participation Agreement - that certain Non-Recourse Loan Participation
and Collateral Agency Agreement by and between Lender, the GC Related
Participants, and JTS delivered pursuant to Section 3.2(p).
Material Effect - any material and adverse effect on or change in the
Business, Properties, operations or financial position of Borrower, taken as a
whole, or the ability of Borrower to perform its obligations under this
Agreement, the Lender Notes, the Warrants or any of the other Subject Documents.
Member Interests - all of the issued and outstanding ownership/equity
interests in GCL.
Officer's Certificate - a certificate signed by (a) the Chairman of the
Board, the President, or the Chief Executive Officer of Borrower, and (b) the
Chief or Principal Financial Officer of Borrower.
Organizational Documents - with respect to a limited partnership, its
partnership agreement and certificate of limited partnership; with respect to a
corporation, its articles or certificate of incorporation and bylaws; with
respect to a limited liability company, its articles of organization and
operating agreement/regulations; with respect to a Person, any other
organizational documents of such Person; and in each case including all
amendments thereto and restatements thereof.
Person - any individual, partnership, corporation, limited liability
company, trust, unincorporated organization, or other legal entity, or any
government or agency or political subdivision thereof.
Preferred Stock - the shares of outstanding Series A preferred stock of GC
described in and governed by GC's Statement of Designation, Preferences, Rights
and Limitations of the Series A Convertible Preferred Stock, a true and correct
copy of which is attached hereto as Exhibit "A."
Property or Properties - any assets, whether real, personal or mixed, or
tangible or intangible, or any interest therein.
SBA Documents - SBA Form 480, SBA Form 652, SBA Form 1031, SBA Form 722,
SBA Form 793, and any other documents required by the Small Business
Administration to be executed.
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Security - the meaning given such term in Section 2(1) of the 1933 Act.
Security Agreement - the Commercial Security Agreement of even date
herewith delivered pursuant to Section 3.2(g), as amended from time to time as
permitted thereby.
Senior Debt - (i) an aggregate amount not to exceed as of the date hereof
an amount equal to 400,000 megawatt hours (MWH) from TXU Corp. to Borrower which
shall be in the form of a secured line of credit, and (ii) a certain revolving
line of credit up to the amount of $1,800,000.00 from XX Xxxxxx Chase Bank,
N.A..
Senior Lenders - TXU Corp., or its Affiliates, and XX Xxxxxx Xxxxx Bank,
N.A., or such other lenders as agreed upon by the parties or any other
institution of the Borrower's choice.
Senior Lender Documents - the documents signed by Borrower governing and
evidencing the Senior Debt and those documents securing the Senior Debt,
including but not limited to any loan agreement, promissory note, security
agreement and guarantee agreement, copies of which are attached hereto as
Exhibits "B-1" and "B-2."
Stock - the shares of stock of Borrower now owned and any shares hereafter
issued to Xxxxxxx and Xxxxxxx'x Affiliates, except for those shares owned
through the Borrower's 401(k) Plan and shares now owned by Xxxxxxx'x children.
Subject Documents - any of this Agreement (and all attached Schedules and
Exhibits), the Lender Notes, the Security Agreement, the Consulting Agreement,
the Warrants, the relevant SBA documents, and the other documents, instruments,
and certificates delivered or to be delivered by Borrower or any of its
Affiliates pursuant to the foregoing or in connection with the transactions
contemplated thereby, as amended from time to time as permitted thereby.
Subsidiary - any corporation, limited liability company, or other entity
(other than a partnership or joint venture) of which Borrower owns, directly or
indirectly, 50% or more of the voting power or in which Borrower has a 50% or
greater economic interest or, with respect to which, in accordance with GAAP,
the financial statements of such corporation, limited liability company or other
entity are required to be consolidated with the financial statements of
Borrower, or any partnership or joint venture with respect to which Borrower is
or has liability as a partner (other than solely as a limited partner) and that
is controlled or managed by Borrower, and with respect to which, in accordance
with GAAP, the financial statements of such partnership or joint venture are
required to be consolidated with the financial statements of Borrower, but
expressly excluding arrangements that exist as a partnership only for tax
purposes.
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Tangible Net Worth - as of any date, Borrower's net worth on a consolidated
basis, excluding all intangible assets, as reflected on Borrower's balance sheet
required to be provided Lender under Section 7 calculated in accordance with
GAAP.
Warrants - those certain warrants described in the Consulting Agreement
which provide Lender the option to purchase 450,000 shares of GC which as of the
Execution Date represents ownership of no less than, but approximately 5.0% of
the outstanding shares of Borrower, as determined on a fully diluted basis after
considering all issued but not exercised options and warrants.
Xxxxxxx - Xxxxxx Xxxxxxx, the President and Principal Financial Officer of
GC.
1.2 Accounting Principles. Where the character or amount of any asset or
liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, this shall be done in accordance with GAAP at the
time of effect, to the extent applicable.
1.3 Directly or Indirectly. Where any provision in this Agreement refers to
action to be taken by any Person, or where such Person is prohibited from taking
such action, such provision shall be applicable whether such action is taken
directly or indirectly by such Person.
1.4 Knowledge. Except as specifically provided otherwise, any statement in
this Agreement or any Subject Document that is expressed in terms of the
knowledge or awareness of Borrower or any other Person, is intended to and shall
be deemed to mean the actual present knowledge of any officer of Borrower or
such other Person.
1.5 References. Unless otherwise provided herein, all references herein to
one gender shall include the others, all references to the singular shall
include the plural, and vice versa. Unless otherwise expressly provided, all
references to "Schedules" and "Exhibits" are to the Schedules and Exhibits
attached hereto, each of which is made a part hereof for all purposes.
1.6 Compliance with Usury Law. It is expressly stipulated and agreed to be
the intention of Borrower and Lender to comply at all times with applicable law
governing the maximum rate or amount of interest payable on or in connection
with the Lender Notes. Accordingly, if any of the transactions contemplated by
or in connection with the Subject Documents or any other document or instrument
would be usurious under applicable law now or hereafter governing the interest
payable hereunder (including applicable United States federal law or applicable
state law, to the extent not preempted by United States federal law), then in
that event, notwithstanding anything to the contrary in the Subject Documents or
otherwise, it is agreed as follows: (a) the aggregate of all consideration that
constitutes interest under applicable law that is contracted for, charged,
taken, reserved, or received under the Lender Notes or any of the other Subject
Documents or otherwise in connection with the Lender Notes with respect thereto
under no circumstances shall exceed the maximum amount of interest allowed by
applicable law, and any excess shall be credited on such Lender Notes by the
holder thereof (or if such shall have been paid in full, refunded to the
Borrower); and (b) in the event that maturity of the Lender Notes are
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accelerated by reason of an election by the holder thereof resulting from any
default hereunder or otherwise, or in the event of any required or permitted
prepayment or conversion, then such consideration that constitutes interest may
never include more than the maximum amount allowed by applicable law, and excess
interest, if any, provided for in such Lender Notes or otherwise shall be
canceled automatically as of the date of such acceleration or prepayment and, if
theretofore prepaid, shall be credited on such Lender Notes (or if such Lender
Notes shall have been paid in full, refunded to Borrower), and the provisions of
such Lender Notes and any other Subject Documents or other document or
instrument shall immediately be deemed reformed and the amounts thereafter
collectible hereunder and thereunder reduced accordingly, without the necessity
of the execution of any new document, so as to comply with the then applicable
law. Determination of the rate of interest for purposes of determining whether
this transaction is usurious under any applicable laws, to the full extent
permitted by applicable law, shall be made by amortizing, prorating, allocating,
and spreading throughout the full stated term hereof until payment in full, all
sums at any time contracted for, charged, taken, reserved, or received from
Borrower for the use, forbearance, or detention of money in connection herewith.
To the extent that Chapter 303 of the Texas Finance Code is relevant to Lender
for the purpose of determining the maximum rate of interest permitted by
applicable law, Lender hereby elects to determine the applicable rate ceiling
under such Chapter by the weekly ceiling from time to time in effect, subject to
Lender's right subsequently to change such method in accordance with applicable
law.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF BORROWER
Except as expressly provided herein to the contrary, each representation
and warranty herein shall apply to Borrower, and Borrower shall make each
representation and warranty as to itself and the other Borrower. Borrower makes
all of the representations and warranties set out in this Section 2. Xxxxxxx
joins in the making of all representations and warranties contained in all of
Sections 2.2(a), 2.6, 2.8, 2.18, and 2.22
2.1 Organization. GC is a corporation duly formed, validly existing and in
good standing under the laws of the State of Texas. GCL is a limited liability
company duly formed, validly existing and in good standing under the laws of the
State of Texas. Each Borrower has all requisite corporate power and authority to
own and operate its Properties, to conduct its business as such business now is,
or presently is proposed to be, conducted, and to enter into this Agreement and
the other Subject Documents to which it is, or is to become, a party and the
transactions contemplated thereby and is duly qualified to do business in each
other jurisdiction where the character of its Properties or business there
conducted makes such qualification necessary, unless the failure to so qualify
would not have a Material Effect. The states in which Borrower is qualified to
do business are listed on Schedule 2.1.
2.2 Capitalization.
(a) Upon execution hereof, the ownership of the capital stock of Borrower
shall be as specified on Schedule 2.2(a) attached hereto. Schedule 2.2(a)
discloses the shares of capital stock that are owned by (i) relatives of
Xxxxxxx, including his spouse, children, parents, and siblings ("Xxxxxxx'x
Relatives"), (ii) trusts in which Xxxxxxx or any of Xxxxxxx'x Relatives are
trustees or beneficiaries, and (iii) corporations, partnerships, limited
liability companies or any other entities in which Xxxxxxx or any of Xxxxxxx'x
Relatives are officers, equity holders, directors, managers or partners. Except
for the Warrants and as disclosed on Schedule 2.2(a) hereto, no warrants,
options or any other agreements are outstanding that would permit any other
party other than Lender to purchase any shares of common stock or other equity
Security of Borrower or any other Security convertible into any of the
foregoing.
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(b) Except as disclosed on Schedule 2.2(b), Borrower does not own any
Subsidiaries or have any Affiliates, nor does it own an equity or ownership
interest in any corporation, partnership, limited liability company, trust,
unincorporated organization or other legal entity.
2.3 Authorization and Enforceability. Borrower has all necessary corporate
power and authority (whether under its Organizational Documents, applicable law,
or otherwise) to execute and deliver this Agreement, the Lender Notes, and the
other Subject Documents and to perform all of its obligations hereunder and
thereunder. The execution, delivery, and performance of this Agreement, the
Lender Notes, and the other Subject Documents by Borrower have been duly
authorized by all requisite corporate action on the part of Borrower. This
Agreement has been duly executed and delivered by Borrower and constitutes, with
the Lender Notes and other Subject Documents when executed and delivered in
accordance with the terms of this Agreement, a valid and binding obligation of
Borrower, enforceable against Borrower in accordance with their terms, except
for the effect of bankruptcy, insolvency, moratorium, and other similar laws
affecting creditors' rights generally and of general equitable principles
(regardless of whether arising in a proceeding in equity or law).
2.4 Financial Statements. The balance sheets, the statements of operations
and retained earnings, and the statements of cash flows dated December 31, 2002,
and March 31, 2003, presented on a consolidated basis, fairly present in all
material respects, in accordance with GAAP applied on a consistent basis except
as disclosed in the notes thereto, the financial position and the results of
operations of Borrower as at the dates and for the periods therein set forth,
subject to changes resulting from year end adjustments as they relate only to
the March 31, 2003 financials, as consistently applied by the Borrower in prior
years. To the best of Borrower's knowledge and belief, no material changes or
adjustments need to be made to the interim balance sheet and the statements of
operations and retained earnings, and cash flows dated May 31, 2003, except
normal year-end closing adjustments and the absence of footnotes. Except as
disclosed to Lender in any Schedule hereto or as otherwise disclosed in
connection with this transaction, there are no Debts, liabilities or
obligations, whether absolute, accrued, contingent or otherwise, of the Borrower
as of the Execution Date that are not fully reflected in the May 31, 2003,
balance sheet and that are reasonably likely, in one case or in the aggregate,
to have a Material Effect, and, since such dates there has been no Material
Effect. With respect to Debt in the ordinary course of business, Borrower is
current on all such Debt, except as disclosed to the Lender on Schedule 2.4.
2.5 Business. Borrower is in the business principally of procuring and
marketing electricity to be provided primarily to residential and small
commercial users in the State of Texas, and related operations as previously
disclosed to Lender by Borrower. All real estate owned by Borrower is described
on Schedule 2.5. Borrower has one (1) leased location. Schedule 2.5 sets forth
for the leased location (i) the identity of the owner, (ii) the business
address, and (iii) a summary of the lease terms, amount of rent and an estimate
of the cost to Borrower of occupancy by year. Borrower is not in default under
the lease covering said leased location and all rental payments due thereunder
are current.
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2.6 Pending Litigation. Except as disclosed on Schedule 2.6, there is no
action, suit, proceeding, arbitration, investigation, or material dispute
pending against or with Borrower or, to the knowledge of Borrower, (i)
threatened against Borrower, or (ii) affecting any of Borrower's Properties, or
(iii) against any officer or director of Borrower, in his capacity as such, or
relating to his activities with Borrower, or in the case of Xxxxxxx and Xxxxxxx,
in any personal or business capacity, in the case, that would reasonably be
expected to result in a Material Effect. Except as disclosed in Schedule 2.6,
Borrower is not in default with respect to any order of any court, other
governmental agency, or arbitrator.
2.7 Compliance with Law and Other Instruments. On the basis of what
Borrower actually knows after due inquiry, (i) the business and operations of
Borrower have been and are being conducted in accordance with all judgments,
orders, and decrees and in all material respects all laws, rules, and
regulations to which it or its Properties is subject, including without
limitation, all franchising laws, (ii) Borrower has obtained all licenses,
permits, franchises, and other governmental authorizations required in
connection with the ownership of its Properties or the conduct of its business
except, in each case, where the failure to so comply or obtain would not have a
Material Effect, (iii) Borrower has performed in all material respects all
obligations it is required to perform to date and is not in violation of or in
default under any of its Organizational Documents or any loan agreement,
promissory note, mortgage, lease, contract, commitment, or agreement to which it
is a party or by which it or any of its Properties may be bound, (iv) no event
or condition has occurred and is continuing that constitutes, or, with the
giving of notice or passage of time, or both, would constitute a violation or
default by it under any of the foregoing except, in each case, where failure to
so perform or not be in violation or default or where the occurrence of any such
event or condition would not have a Material Effect, and (v) all reports and
filings required to be made by Borrower with the Securities and Exchange
Commission and all state securities commissions with which Borrower has
registered its securities have been made by Borrower and Borrower is not in
violation of any federal or state securities laws or regulations.
2.8 No Defaults. No condition or event has occurred and is continuing that
constitutes a Default or an Event of Default.
2.9 Governmental Consents; Offering of Notes. On the basis of what Borrower
actually knows after due inquiry, the execution, delivery, and performance by
Borrower of this Agreement, the Lender Notes, the Warrants, and the other
Subject Documents, and the use of the proceeds of the Lender Notes, with or
without the giving of notice or the passage of time or both, will not (i)
violate any provision of any law, rule, regulation, judgment, order, or decree
of any court, other governmental agency, or arbitrator to which Borrower or any
of its respective Properties is subject, or any provision of its Organizational
Documents, or (ii) result in the breach by it of or constitute a default by it
under any indenture, contract, or other agreement, document, or instrument to
which Borrower is a party or by which it or any of its Properties may be bound,
except where any such breach or default would not have a Material Effect, or
(iii) result in the creation or imposition of any Lien of any nature whatsoever
upon any Properties of Borrower. No consent, authorization, approval, permit, or
order of, or declaration to or filing with, any court, governmental agency, or
arbitrator is or will be required by Borrower in connection with the execution,
delivery, and performance of this Agreement and the other Subject Documents by
Borrower or the offer, issuance, sale, or delivery of the Lender Notes. None of
Borrower, its Affiliates, and any Persons acting on behalf of any of them has,
directly or indirectly, sold or offered for sale, or solicited any offers to
buy, the Lender Notes, or otherwise approached or negotiated with any Person, so
as to subject the offer or sale of the Lender Notes to the provisions of Section
5 of the 1933 Act or to comparable registration provisions of any applicable
state securities laws; however, Lender and Borrower acknowledge that the GC
Related Participants will participate in the funding of the Lender Loan with
Lender.
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2.10 Taxes. Borrower has prepared and duly and timely filed with the
appropriate governmental agencies all federal, state, and local income,
franchise, real and personal property, excise, severance, payroll, and other tax
returns and reports required to be filed, except where failure to so file would
not have a Material Effect and, except as permitted by Section 6.5, has paid all
taxes shown to be due thereon. Borrower has made timely estimated payments of
federal and state income tax liabilities through the Execution Date. Borrower
has not executed or filed with the Internal Revenue Service any agreement
extending the period for assessment and collection of any federal tax or is not
a party to any action or proceeding by any governmental authority for assessment
and collection of taxes, and no claim for assessment and collection of taxes
that has been asserted against Borrower remains unpaid. Borrower has provided
Lender with copies of its federal tax returns for the fiscal years ended
December 31, 2001, and 2002, except for the 2002 return of GCL, which has not
yet been filed, but which GCL has obtained an appropriate filing date extension.
2.11 Use of Proceeds. Simultaneous with the execution hereof, Borrower will
use the proceeds of the Lender Notes solely for the purposes of (i) providing
working capital for the Borrower's Business, and (ii) for closing costs. No such
proceeds shall be used in violation of any law, rule, regulation, judgment,
order, or decree of any court, other governmental agency, or arbitrator, and no
Default or Event of Default shall exist immediately following the use of such
proceeds on account of such use. None of the transactions contemplated by this
Agreement or any other Subject Document will violate or result in violation of
Section 7 of the Exchange Act or any regulation issued pursuant thereto,
including, without limitation, Regulations U (12 C.F.R. ss. 221, as amended), T
(12 C.F.R. ss. 220, as amended), and X (12 C.F.R. ss. 224, as amended) of the
Board of Governors of the Federal Reserve System, or any law or regulation
concerning foreign investment, and Borrower neither owns nor intends to carry or
purchase with the proceeds any "margin security" within the meaning of said
Regulation U or X, including margin securities originally issued by it.
2.12 Insurance Coverage. Borrower maintains all the insurance required to
be maintained by it to satisfy Borrower's obligations under Section 6.15. All
required premiums currently due as to all insurance policies maintained by
Borrower have been paid and all such policies are in full force and effect. The
insurance coverage maintained by Borrower has been obtained by Borrower in such
amounts as similar assets are customarily insured by companies of established
reputation which own similar assets.
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2.13 Properties. Borrower has sufficient rights to use (pursuant to leases,
easements, license, or otherwise) all Properties it is now using in its
Business, in each case free and clear of any Lien not permitted by Section 6.8
including, without limitation, interests in trademarks and trade names, and
technology and other know-how. Borrower has good title to each item of the
Collateral set forth in the Security Agreement free and clear of any Lien not
permitted by Section 6.8.
2.14 Restrictions on Borrower. Except for documents and agreements
elsewhere disclosed herein and those described on Schedule 2.14, Borrower is
not: (a) a party to any contract or agreement, or subject to any corporate or
other restriction, that could reasonably be expected to have a Material Effect,
(b) a party to any material contract or agreement that restricts the right or
ability of Borrower to incur Debt, other than this Agreement, the other Subject
Documents, and all agreements with Senior Lenders pertaining to Senior Debt, and
except for the Liens granted to the Lender and Senior Lenders, Borrower has not
agreed or consented to cause or permit in the future (upon the happening of a
contingency or otherwise) any Lien upon any Property of Borrower, whether now
owned or hereafter acquired.
2.15 ERISA Matters. Except as disclosed on Schedule 2.15:
(a) neither Borrower nor any ERISA Affiliate sponsors, maintains, or
contributes to, or has at any time in the six-year period preceding the date
hereof sponsored, maintained, or contributed to, any "employee pension benefit
plan," as such term is defined in Section 3(2) of ERISA, that is intended to be
qualified under sections 401 and 501 of the Code; and without limiting the scope
of the foregoing, neither Borrower nor any ERISA Affiliate sponsors, maintains,
or contributes to, or has at any time in the six-year period preceding the date
hereof sponsored, maintained, or contributed to, (i) any employee pension
benefit plan that is subject to title IV of ERISA or (ii) any "multiemployer
plan," as such term is defined in Section 3(37) or 4001(a)(3) of ERISA;
(b) no act or transaction has occurred that could result in imposition on
Borrower or any ERISA Affiliate (either directly or indirectly by reason of any
indemnification or hold-harmless agreement) of a material tax or penalty imposed
pursuant to Section 4975 of the Code or Section 502 of ERISA;
(c) neither Borrower nor any ERISA Affiliate sponsors, maintains, or
contributes to any "employee welfare benefit plan," as such term is defined in
Section 3(1) of ERISA, or to any other plan which provides benefits to former
employees thereof, that may not be terminated by such Borrower in its sole
discretion at any time without any material liability to it (except for claims
in the ordinary cause of business, run off coverage under a health plan or as
may be mandated by law); and
(d) Borrower is not delinquent with respect to the funding of any plans
subject to ERISA.
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2.16 Regulatory Status. Borrower is not a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of any of the
foregoing or a "public-utility company," as such terms are defined in the Public
Utility Holding Company Act of 1935, as amended, or regulated as a utility or
common carrier under any other federal, state, or local law. Borrower is not an
"investment company" or a company "controlled" by an "investment company," as
such terms are defined in the Investment Company Act of 1940, as amended, and
Borrower is not an open-end investment company, unit investment trust or
face-amount certificate company that is or is required to be registered under
Section 8 of such Act.
2.17 Brokers and Finders. No Person has any right, interest, or valid claim
against Lender, Borrower, or any Affiliate of Borrower because of any agreement,
undertaking, act or omission of Borrower or any Affiliate of Borrower or other
Person acting on behalf of Borrower or any Affiliate of Borrower for any
commission, fee, or other compensation as a result of the transactions
contemplated by this Agreement or the Subject Documents.
2.18 Disclosure. The information furnished in writing by or on behalf of
Borrower or any Affiliate of Borrower to Lender pursuant to or in connection
with this Agreement or the transactions contemplated hereby, which information
addresses or otherwise relates to the subject matter hereof or of any of the
other Subject Documents, does not contain any untrue statement of a material
fact or fail to disclose any material fact necessary to make the statements
contained therein or herein not misleading in light of the circumstances under
which they are made and taking into account any update thereof; provided,
however, that in the case of projections, Borrower represents and warrants only
the factual information serving as a basis for such projections and not the
assumptions and estimates therein. There is no fact or circumstance that
Borrower knows or reasonably should have known and that is not disclosed to
Lender in writing, that would have a Material Effect.
2.19 Permits, Leases and Contracts. A list of all permits, leases and
contracts to which Borrower is a party as of the date hereof which require
payments by Borrower, in excess of $10,000 on an annual basis, other than the
Subject Documents and other than purchase and sale orders in the ordinary course
of business, is set forth on Schedule 2.19.
2.20 Receipt of Reasonably Equivalent Value. Borrower has received
reasonably equivalent value in exchange for its obligations under this Agreement
and the other Subject Documents to which Borrower may be a party.
2.21 Warrants. The number of shares of GC that may be purchased pursuant to
the Warrants is 450,000, which represents no less than, but approximately 5.0%
of the fully diluted outstanding stock of GC as of the Execution Date.
2.22 Affiliate Transactions. Except as disclosed on Schedule 2.22 hereto,
Borrower is not a party to any transaction (including, without limitation, the
purchase, sale, lease or exchange of Property or the rendering of any service)
with any Affiliate, employee, consultant, advisor, director, officer or
shareholder of Borrower or of any Affiliate of Borrower. All transactions
disclosed on Schedule 2.22 were made in the ordinary course of business and upon
fair and reasonable terms no less favorable to Borrower than it could have
obtained in a comparable arm's-length transaction with a Person not an
Affiliate, employee, consultant, advisor, director, officer or shareholder.
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2.23 Location of Collateral. There is no Collateral under the Security
Agreement that is located outside of the State of Texas except as disclosed on
Schedule 2.23.
2.24 Small Business Concern. Borrower, together with its "affiliates" (as
that term is deemed in Xxxxx 00, Xxxxxx Xxxxxx Code of Federal Regulations
Section 121.401) is a "Small Concern" within the meaning of Section 107.700 of
Title 13 of the United States Code of Federal Regulations. The information to be
included in the forms referred to in Section 3.2(l) hereof, when such forms are
completed and executed by Borrower, will be accurate and complete in all
respects. Neither Borrower nor any Subsidiary of Borrower shall use directly or
indirectly the proceeds of the Lender Notes for any purpose for which a Small
Business Investment Company is prohibited from providing funds by the Small
Business Investment Act of 1958 and the regulations thereunder, including
Sections 107.720 and 107.730 of Title 13 of the United States Code of Federal
Regulations.
2.25 Senior Lender Documents. The copies of the Senior Lender Documents
attached hereto as Exhibit "B" are true, accurate and complete copies of the
Senior Lender Documents now in effect.
2.26 Board Approval of Policy. The Board of Directors of GC has (i) adopted
the corporate policy contained in Exhibit "C" hereof, and (ii) approved the
Borrower's covenant in Section 6.19.
2.27 Securities Issuances. GC issued shares of its common stock pursuant to
its Private Placement Memorandum dated June 2001 and the Preferred Stock
pursuant to a Private Placement Memorandum in 2002. These issuances of
securities were conducted lawfully in accordance with applicable federal and
state securities laws. These securities were not registered under the 1933 Act
or State securities laws because these issuances were exempt from the
registration requirements of said laws.
2.28 Spectrum Consulting Agreement. Borrower has entered into a consulting
agreement with Spectrum Risk Decisions, a true and accurate copy of which is
attached hereto as Exhibit "D."
2.29 GC Directors. The individual GC Participants are currently members of
the Board of Directors of Borrower.
2.30 Accredited Investors. JTS and Xxxxxx Investment Trust Partnership are
accredited investors as defined in Regulation D promulgated under the 1933 Act.
15
SECTION 3. LENDER LOAN
3.1 Lender Loan - Subject to the terms and conditions herein, Lender agrees
to make the Lender Loan to Borrower.
3.2 Lender's Conditions for Lender Note 1 - Lender's obligation to make the
portion of the Lender Loan represented by Lender Note 1 pursuant to Section 3.1
shall be subject to the satisfaction or waiver by it in writing of the following
conditions precedent:
(a) Representations and Warranties True - each of the representations and
warranties made by Borrower in this Agreement, any other Subject Document, or
any certificate delivered pursuant hereto or thereto shall be true and complete
in all material respects (except that those representations and warranties
herein that contain a materiality qualifier shall not be further qualified by
the materiality qualifier of this sentence) as of the Execution Date;
(b) Compliance with this Agreement - Borrower shall have performed and
complied with all agreements and conditions on its part required to be performed
or complied with pursuant to this Agreement and the other Subject Documents on
or before the Execution Date;
(c) No Material Effect - no event shall have occurred and no condition
shall exist that has resulted or, in Lender's good-faith judgment, will result
in a Material Effect;
(d) Officers' Certificates - Lender shall have received Officers'
Certificates from Borrower dated the Execution Date, in a form mutually
acceptable to Borrower and Lender, certifying that (i) the conditions specified
in Section 3.2(a), (b) and (c) have been fulfilled, and (ii) no event has
occurred and no condition exists that has resulted in or, in such officers'
good-faith judgment, will result in a Material Effect;
(e) Secretary's Certificates - the Secretary of Borrower shall have
delivered to Lender (i) certified copies of Borrower's Organizational Documents
and of resolutions of Borrower's board of directors and, if required, by its
shareholders authorizing Borrower's execution, delivery, and performance of this
Agreement, the Lender Notes, and the other Subject Documents to which it is or
is to become a party, and (ii) a certificate of incumbency dated the Execution
Date with respect to each individual executing this Agreement, the Lender Notes,
or any other Subject Document on Borrower's behalf;
(f) Lender Note 1 - Borrower shall have executed Lender Note 1 dated the
Execution Date and delivered it to Lender;
(g) Security Agreement and Financing Statements - Borrower shall have
executed and delivered to Lender the Security Agreement, together with as many
executed copies as may be reasonably required by Lender of all financing
statements required to be filed and all registrations required to be noted to
perfect the Liens created pursuant thereto;
16
(h) Opinion of Counsel - Xxxxxx & Xxxxxx, L.L.P., counsel for Borrower,
shall have delivered to Lender an opinion in form and substance reasonably
satisfactory to Lender and Lender's counsel;
(i) Proceedings Satisfactory - all proceedings taken in connection with the
issuance of Lender Note 1 and the execution and delivery of all Subject
Documents shall be reasonably satisfactory to Lender and Lender's counsel, and
Lender and Lender's counsel shall have received copies of such closing documents
as they may reasonably request in connection therewith, all in form and
substance satisfactory to Lender and Lender's counsel;
(j) Insurance - Borrower shall have delivered to Lender on the Execution
Date a summary of all insurance maintained by Borrower with respect to its
Properties and businesses including, without limitation, liability, health and
medical, property and casualty insurance, such summary to be set forth on
Schedule 3.2(j) attached hereto;
(k) Due Diligence Fee and Other Expenses - Lender shall have received from
Borrower on or before the Execution Date one-half of the total due diligence fee
of two percent (2.0%) of the Lender Loan, such total amount being equal to sixty
thousand and No/100 Dollars ($60,000.00), $10,000.00 of which Lender has
previously received, and $20,000.00 of which shall be due and payable on the
Execution Date, with the balance thereof being due at the time of the funding of
Lender Note 2; Lender may withhold such fee, its legal expenses described in
Section 3.5, and the $7,500.00 owed by GC to Lender's Affiliate, Catalyst/Hall
Growth Capital Management Co. LLC under the letter agreement between said
parties dated June 16, 2003, from the Lender Loan proceeds;
(l) SBA Documents - Borrower shall deliver to Lender on the Execution Date
all of the SBA Documents executed by Borrower as required;
(m) Consulting Agreement - GC shall have executed and delivered to Lender
the Consulting Agreement and the Warrants described therein;
(n) Employment Agreement - Xxxxxxx shall have executed and delivered to
Lender a copy of an Employment Agreement in substantially the form attached
hereto as Exhibit "E";
(o) Certificates of Existence and Good Standing - Borrower shall have
provided an original Certificate of Existence and Certificate of Good Standing
for Borrower;
(p) Loan Participation Agreement - the GC Loan Participants and JTS shall
have executed and delivered to Lender the Loan Participation Agreement; and the
GC Participants shall have wire transferred to Lender $500,000.00 cash as
required in the Loan Participation Agreement;
(q) Stock Transfer Restrictions - Xxxxxxx shall have delivered to Lender
copies of all of his stock certificates representing the Stock containing a
legend reflecting the transfer and other restrictions imposed on Xxxxxxx under
Section 6.17(d) hereof;
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(r) Certificates of Xxxxxxx Affiliates. Borrower shall have delivered to
Lender appropriate resolutions certified by the general partner of Boxer
Capital, Ltd., and the Secretary of Sundowner Holdings, Inc. authorizing the
execution of this Agreement by said entities and Xxxxxxx in his individual
capacity shall join in the signing of all certificates required under this
paragraph.
3.3 Lender's Conditions for Lender Note 2. Lender's obligation to make the
portion of the Lender Loan represented by Lender Note 2 pursuant to Section 3.1
shall be subject to the satisfaction or waiver by it in writing of the following
conditions precedent:
(a) Representations and Warranties True - each of the representations and
warranties made by Borrower in this Agreement, any other Subject Document, or
any certificate delivered pursuant hereto or thereto shall be true and complete
in all material respects (except that those representations and warranties
herein that contain a materiality qualifier shall not be further qualified by
the materiality qualifier of this sentence) as of the date on which Lender Note
2 is executed;
(b) No Material Effect - no event shall have occurred and no condition
shall exist that has resulted or, in Lender's good-faith judgment, will result
in a Material Effect;
(c) Officers' Certificates - Lender shall have received Officers'
Certificates from Borrower dated the date of Note 2, in a form mutually
acceptable to Borrower and Lender, certifying that (i) the conditions specified
in Section 3.3(a) and (b) have been fulfilled, and (ii) no event has occurred
and no condition exists that has resulted in or, in such officers' good-faith
judgment, will result in a Material Effect;
(d) Lender Note 2 - Borrower shall have executed and delivered to Lender
Note 2;
(e) SBA Documents - Borrower shall deliver to Lender on the Execution Date
all of the SBA Documents executed by Borrower as required;
(f) No Event of Default - No Event of Default shall have occurred.
If these conditions are satisfied, then Lender shall fund the portion of the
Lender Loan represented by Lender Note 2 on or before August 1, 2003. If these
conditions are not satisfied on or before said date, then Lender shall not be
required to fund this portion of the Lender Loan.
3.4 Investment. Lender represents to Borrower that it is an "accredited
investor," as such term is defined in Rule 501 of Regulation D under the 1933
Act and that it is, with the exception of the $500,000.00 participation sold to
the GC Related Participants pursuant to the Loan Participation Agreement,
acquiring the Lender Notes and the Warrants for its own account for the purpose
of investment and not with a view to resale or distribution thereof in violation
of any securities law, and, other than as described in the referenced Loan
Participation Agreement, Lender has no present intention of selling or
distributing the Lender Notes or the Warrants in violation of any securities
law. It is understood that, in making its representations and warranties in
Section 2.9, Borrower is relying, to the extent applicable, upon the
representations in this Section 3.3.
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3.5 Expenses. Borrower shall pay on the Execution Date (a) all reasonable
fees and expenses of Page, Xxxxxxxx, Xxxxxx & Xxxxxx, P. L. L.C., Lender's
counsel, in connection with the negotiation, preparation, delivery and execution
of the Subject Documents and any subsequent related amendment, waiver, consent
or UCC continuation or amendment statement, and (b) after an Event of Default,
all reasonable out-of-pocket costs, fees and expenses of Lender paid or incurred
by Lender in connection with the enforcement of the obligations of the Borrower
arising under the Subject Documents (including, but not limited to, reasonable
attorneys' fees, expenses and court costs).
SECTION 4. PAYMENTS
4.1 Direct Payment. Borrower shall pay all amounts payable with respect to
the Lender Notes (without any presentment of such Lender Notes and without any
notation of such payment being made thereon, subject to the provisions of
Section 8) in immediately available funds, for credit prior to the close of
business, Houston time on the date such payment is due. Lender agrees that in
the event it shall sell or transfer the Lender Notes in accordance with the
provisions of Section 5, prior to delivering such Lender Notes to the purchaser
or transferee, it shall make a notation thereon of all principal, if any, paid
on such Lender Notes and will also note thereon the date to which interest has
been paid on such Lender Notes, and (b) it promptly shall notify Borrower in
writing of the name and address of the transferee of such Lender Note; provided,
however, that failure to comply with the preceding provisions of this sentence
shall not relieve Borrower of its obligations to make payments under such Lender
Notes as and when the same become due.
4.2 Mandatory Repayments. Borrower shall repay principal and interest on
the Lender Notes, subject to the other provisions of this Section 4, as follows:
(a) Beginning on August 1, 2003, and on or before the 1st day (or if such
day is not a Business Day, the first Business Day thereafter) of each calendar
month thereafter through and including December 1, 2003, Borrower shall make
five (5) installments of accrued but unpaid interest.
(b) Beginning on January 1, 2004, and on the first day of each of the next
seventeen (17) calendar quarters thereafter (or if such day is not a Business
Day, the first Business Day thereafter), Borrower shall make a payment of
principal in the amount of $166,666.67, plus accrued interest, with the final
such installment being due on April 1, 2008.
4.3 Voluntary Prepayment. As of any Business Day, but only if Borrower
shall have notified Lender specifying the date therefor no later than the second
day before such date, Borrower may prepay all or part of the principal amount
outstanding under the Lender Notes; provided, however, that in connection with
any prepayment following the Execution Date, to the extent any prepayment is
made from any cash source other than operating cash flow, Borrower shall pay
Lender a prepayment fee equal to three percent (3%) of the amount prepaid during
the first two years after the Execution Date. Any prepayment of principal must
be in the amount of at least $100,000.00. After the second anniversary of the
Execution Date, Borrower may from time to time prepay all or part of the
principal amount outstanding under the Lender Notes, so long as such payment is
at least $100,000.00, without penalty or premium of any kind, but with accrued
interest to the date of prepayment on the amount so prepaid. Any prepayments of
principal shall be applied to the principal installments due on the Lender Notes
in inverse order of their maturities.
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4.4 Application of Payments. All payments received in respect of the Lender
Notes, this Agreement, or the Subject Documents shall be applied first to the
unpaid costs and expenses for which Borrower is liable to Lender under the
Subject Documents and for which Borrower has been billed by Lender, next to
interest on the Lender Notes, and next to principal on the Lender Notes.
4.5 Interest. Interest on the Lender Notes shall be twelve and one-half
percent (12.5%) per annum and shall be computed on a daily basis consisting of a
360-day year. Interest on obligations of Borrower pursuant to this Agreement
(other than obligations of Borrower pursuant to the Lender Notes) shall bear
interest if not paid when due at the Default Rate.
SECTION 5. CERTAIN PROVISIONS REGARDING THE LENDER NOTES
5.1 Transfer of Lender Notes. Following any transfer of the Lender Notes by
Lender, or any merger or other change in Lender's name or identity, upon
surrender of such Lender Notes at the address of Borrower described in Section
9.1, Borrower, at the request of Lender and at Lender's expense, shall execute
and deliver a new note or notes in exchange therefor in an aggregate principal
amount equal to the unpaid principal amount of the surrendered Lender Notes.
Each such new note shall be payable to such Person as Lender may request and
shall be a note substantially in the form of the Lender Notes, as applicable,
and dated the date upon which the Lender Notes were surrendered. Lender agrees
that it will not transfer the Notes to any Person who is engaged in a business
that is in competition with the Business.
5.2 Replacement of Lender Notes. Upon receipt by Borrower of evidence
reasonably satisfactory to it of the ownership of the Lender Notes and that Note
1 or Note 2 has been lost, stolen, destroyed, or mutilated and (i) in the case
of loss, theft or destruction, of indemnity reasonably satisfactory to Borrower,
or (ii) in the case of mutilation, upon surrender thereof, Borrower at Lender's
expense, will execute and deliver in lieu thereof a new note in the form and the
denomination of, issued in the name of Lender, and dated the date of such lost,
stolen, destroyed, or mutilated Lender Notes, which former Lender Notes shall be
deemed canceled. Every new note issued pursuant to this Section 5.2 in lieu of
any destroyed, lost, stolen, or mutilated Lender Notes shall constitute an
original contractual obligation of Borrower, and Lender shall be entitled to all
the benefits of this Agreement; provided, however that Lender shall indemnify
and hold harmless Borrower from any liability that might arise from issuance of
a replacement Lender Notes.
SECTION 6. BORROWER'S BUSINESS COVENANTS
Borrower covenants that on and after the date hereof and until the
expiration date provided in Section 6.21:
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6.1 Payment of Lender Notes, Etc. Borrower shall punctually pay or cause to
be paid the principal and interest to become due in respect of the Lender Notes
according to the terms thereof. Borrower shall perform its respective
obligations under all other Subject Documents to which it is or becomes a party.
6.2 Use of Proceeds. Borrower shall use the proceeds of the Lender Notes
for the purposes described in Section 2.11. No proceeds from the Lender Notes
shall be used for any purpose other than those described in Section 2.11 without
the prior written consent of Lender, such consent not to be unreasonably
withheld or delayed.
6.3 Business. Borrower shall not engage in any business other than the
activities described in Section 2.5.
6.4 Maintenance of Existence and Status. Borrower shall (a) do or cause to
be done all things necessary to preserve and keep in full force and effect its
corporate or other applicable existence, (b) qualify or register as a foreign
corporation, limited partnership or other entity, as applicable, in each
jurisdiction in which the nature of its Properties or business makes such
qualification necessary, and (c) cause the representations and warranties in
Section 2.1 to remain true and correct.
6.5 Payment of Taxes and Claims. Borrower shall pay as they become due, and
in all cases before they become delinquent:
(a) all relevant taxes, assessments, and governmental charges or levies
imposed upon it or its Property, and
(b) all claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords, and other like Persons that, if unpaid, might result in
the creation of a Lien upon its Property; provided, however, that any of the
foregoing items need not be paid (i) while being contested in good faith and by
appropriate proceedings or while levy and execution thereon have been stayed,
and so long as adequate book reserves or other action required by GAAP have been
established with respect thereto, (ii) payment thereof is covered in full
(subject to the customary deductible) by insurance, or (iii) so long as the
failure to pay timely any such items, singly or in the aggregate, does not have
a Material Effect.
6.6 Sale or Transfer of Assets, Merger, etc. (a) Borrower shall not sell,
lease, transfer, or otherwise dispose of any of its Properties without the prior
written consent of Lender except for (i) sales of goods in the ordinary course
of business, (ii) sales, discounts or transfers of delinquent accounts
receivable in the ordinary course of business for purposes of collection, (iii)
occasional sales of non-material assets for consideration not less than fair
market value, (iv) dispositions of assets that are obsolete or have negligible
fair market value, (v) sales of equipment for fair and adequate consideration
(but if replacement equipment is necessary for the proper operation of the
business of the Borrower, the Borrower must promptly replace the sold
equipment), and (vi) transfers or dispositions that do not exceed the amount of
$100,000.00 in aggregate per annum and that do not have a Material Effect.
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(b) Borrower shall not sell all or substantially all of its Properties or
consolidate with or merge into any other Person.
(c) Lender shall have the right to condition its consent under this Section
6.6 to having the Lender Notes paid in full and the obligations of Borrower
under the Warrants being satisfied.
6.7 Debt. Borrower shall not have or incur any Debt other than (a) the
indebtedness evidenced by the Lender Notes; (b) obligations to financial
institutions arising out of the endorsement and deposit of checks; (c) current
liabilities incurred in the ordinary course of business; (d) Debt incurred or
existing by virtue of changes, from and after the date of this Agreement, in any
requirements of GAAP; (e) Senior Debt; (f) the JTS Note, and (g) provided that
no Default or Event of Default has occurred and is continuing at the time of
incurrence thereof, (i) purchase money Debt and (ii) obligations that would be
characterized as capital leases by GAAP for equipment and vehicles not to exceed
$200,000.00 in any calendar year.
6.8 Liens and Encumbrances. Borrower shall not cause, permit, or agree or
consent to cause in the future (upon the happening of a contingency or
otherwise), any of its Property, whether now owned or hereafter acquired, to be
subject to a Lien, except:
(a) Liens securing taxes, assessments, or governmental charges or levies or
the claims or demands of materialmen, mechanics, carriers, warehousemen,
landlords, and other like Persons, provided the payment thereof is not at the
time required by Section 6.5;
(b) Liens incurred or deposits made in the ordinary course of business (i)
in connection with workers' compensation, unemployment insurance, social
security, and other like laws or (ii) to secure the performance of letters of
credit, bids, tenders, contracts, leases, statutory obligations, surety, appeal,
and performance bonds, and other similar obligations not incurred in connection
with the borrowing of money, or the obtaining of advances, or the payment of the
deferred purchase price of Property; but only to the extent in each such case
Borrower is in substantial compliance with the material obligations relating to
the foregoing;
(c) attachments, judgments, and other similar Liens arising in connection
with court proceedings, including, without limitation, adverse judgments on
appeal provided the execution or other enforcement of such Liens is effectively
stayed within 60 days after the entry thereof and the claims secured thereby are
being contested in good faith and by appropriate proceedings, or as long as
adequate book reserves or other action required by GAAP have been established
with respect thereto, or payment thereof is covered in full (subject to the
customary deductible) by insurance;
(d) Liens securing the Lender Notes and other obligations under the Subject
Documents;
22
(e) purchase money Liens on and transactions that would be characterized as
capital leases by GAAP covering equipment and vehicles related to permitted Debt
as described in Section 6.7 herein, not to exceed $200,000.00 in any calendar
year;
(f) other Liens that arise by operation of law;
(g) with respect to any particular trade vendor of any Borrower, Liens on
inventory supplied by that certain trade vendor securing amounts owed to that
trade vendor that arise in the ordinary course of business;
(h) encumbrances and restrictions on the use of real property which do not
materially impair the use thereof;
(i) any interest or title of a lessor in assets being leased to Borrower;
and,
(j) Liens securing the Senior Debt.
6.9 Borrower's Financial Covenants. (a) Borrower's consolidated EBITDA and
Borrower's consolidated gross revenues, as calculated from amounts reflected on
Borrower's unaudited income statements with respect to the covenants as of each
six month period ending June 30th and December 31st and audited as to all fiscal
year covenants prepared in accordance with GAAP for the periods indicated below
shall, at a minimum, be as follows:
Date EBITDA REVENUES
---- ------ --------
Full Year Ended December 31, 2003 $ 5,000,000 $ 90,000,000
Six Months Ended June 30, 2004 2,500,000 45,000,000
Six Months Ended December 31, 2004 3,500,000 60,000,000
Total: Fiscal Year 2004 6,000,000 105,000,000
Six Months Ended June 30, 2005 3,000,000 50,000,000
Six Months Ended December 31, 2005 4,000,000 65,000,000
Total: Fiscal Year 2005 7,000,000 115,000,000
Such amounts and values stated above for the six month period ended December 31,
2005, shall remain the benchmark for all six month periods thereafter until all
of Borrower's obligations to Lender arising out of or relating to this
Agreement are fully extinguished.
(b) Borrower's Fixed Charge Ratio, measured quarterly on a consolidated
basis beginning with the quarter ending September 30, 2003, shall not be less
than 1.75 for the quarter ending September 30, 2003, and shall not be less than
2.0 for all quarters ending thereafter.
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(c) Borrower's Current Ratio, measured quarterly on a consolidated basis
beginning with the month ending June 30, 2003, shall not be less than 1.20,
except that for the quarter ended June 30, 2003, the Current Ratio shall be not
less than 1.0.
(d) Borrower's ratio of Funded Debt to Tangible Net Worth, measured
quarterly on a consolidated basis beginning with the month ending September 30,
2003, must be no greater than the following:
Date Ratio
----
From Execution Date through September 30, 2003 3.5:1
September 30, 2003 through September 30, 2004 3.0:1
September 30, 2004 through September 30, 2005 2.0:1
September 30, 2005 and thereafter 1.5:1
6.10 Distributions. Borrower may not declare, make or permit (or incur any
liability to make, declare or permit) any Distribution, except for permitted
dividends on the outstanding Preferred Stock; however, Borrower shall be
permitted to purchase shares of its stock from its employees (excluding Xxxxxxx
and Xxxxxxx), but Borrower cannot purchase more than 20,000 shares from any
employee.
6.11 Compliance with Laws. Borrower shall conduct its business and affairs
and maintain its Properties in compliance with all applicable laws, rules,
regulations, judgments, orders, and decrees (including Environmental Laws) the
failure to comply with which would have a Material Effect.
6.12 ERISA Compliance. Except to the extent necessary to operate the
Borrower's 401K plan, Borrower shall not, and shall not permit any ERISA
Affiliate to:
(a) engage in any non-exempt "prohibited transaction," as such term is
defined in section 406 of ERISA or section 4975 of the Code;
(b) sponsor, maintain, or contribute to any "employee pension benefit
plan," as such term is defined in section 3(2) of ERISA, that is subject to
title IV of ERISA;
(c) contribute to or assume an obligation to contribute to any
"multi-employer plan," as such term is defined in section 3(37) or 4001(a)(4) of
ERISA; or
(d) acquire an interest in a Person that causes such Person to become an
ERISA Affiliate if such Person sponsors, maintains, or contributes to, or at any
time in the six-year period preceding such acquisition has sponsored,
maintained, or contributed to, (i) any multiemployer pension plan or (ii) any
employee pension benefit plan that is subject to title IV of ERISA that could
have a Material Effect.
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6.13 Transactions with Affiliates. Except for transactions in the ordinary
course of business with Borrower's Subsidiaries and Affiliates disclosed herein
and transactions not exceeding an aggregate of $20,000.00 per Person, Borrower
shall not enter into any transaction (including the purchase, sale, lease, or
exchange of Property or the rendering of any service), or amend or extend any
existing contractual arrangement, with any Affiliate, employee, consultant,
advisor, director, officer or shareholder of Borrower or of any Affiliate of
Borrower without the prior written consent of Lender. For all such transactions
that Lender approves, Borrower agrees to provide Lender with (i) a monthly
written report reflecting the amount of money and other consideration exchanged
by the parties to such transactions, which shall be due within 30 days after the
close of the applicable month, and (ii) upon the request of Lender monthly
financial statements of any Affiliate with which Borrower engages in
transactions described in this Section 6.13.
6.14 Board of Directors. For so long as (i) the Lender Notes remain
outstanding or (ii) Lender holds at least 100,000 shares of Common Stock issued
on exercise of the Warrants (or Warrants to purchase 100,000 shares of Common
Stock), Borrower agrees to present annually for shareholder election one
designee of Lender to serve on its board of directors. Regardless if Lender's
designee is elected to the board, he shall have access to the same information
as all other members of the Board of Directors of Borrower, and if elected
Borrower agrees to appoint such person to the corporate governance committee and
its subcommittee, the compensation committee, of its Board of Directors. In the
event that Lender's designee does not occupy a seat on the Board of Directors,
he shall nevertheless be invited to all meetings of the Board, whether held in
person, telephonically, or otherwise, as well as compensation committee and
audit committee meetings, and will receive copies of all communications
pertaining to the Board and these committees until such time as the Lender Notes
are paid in full and all obligations in the Subject Documents are satisfied. In
the event that the Lender assigns or conveys the Lender Notes to a third-party
participant, such third-party participant shall have the right to designate a
person for presentation to the shareholders as provided above, but only if
Lender relinquishes such right and the outstanding balance of the Lender Notes
exceeds $1,000,000.00. Borrower shall use commercially reasonable best efforts
to cause the designee of Lender or its assignee to become a member of the Board
of Directors of Borrower.
6.15 Insurance.
(a) Property. Borrower will maintain insurance in full force and effect
with insurance companies of recognized standing on all of its properties of an
insurable nature in the manner and amounts and against the casualties and
contingencies indicated on Schedule 3.2(j);
(b) General Liability, Worker's Compensation, Health, Medical, etc.
Borrower shall also maintain in full force and effect with insurance companies
of recognized standing (or, as to workers' compensation or similar insurance,
with an insurance fund authorized by the jurisdiction in which it operates)
general liability, health, medical, automobile, and such other insurance as is
customarily maintained by similar companies in the industry in the same
geographic region in which Borrower operates the Business; further, Borrower
agrees to obtain worker's compensation insurance within 30 days after the
Execution Date;
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(c) Fidelity Bonding. Borrower shall obtain within 30 days after the
Execution Date, and shall thereafter maintain for the term of the Lender Loan,
officer fidelity bonding in the amount of at least $500,000.00, however, such
amount shall be subject to reasonable change based on review of the cost of such
premiums; and,
(d) "Key Man" Life Insurance. Within 30 days after the Execution Date
Borrower will (i) obtain and deliver to Lender a "key man" life insurance policy
covering Xxxx Xxxxxxx in an amount of at least $3,000,000.00, and (ii)
collaterally assign this policy to Lender pursuant to that certain Assignment of
Life Insurance Policy as collateral under terms reasonably acceptable to Lender
and providing that any proceeds paid thereunder to the Lender be applied to the
payment of the Lender Notes, and shall have a guaranteed renewal such that
coverage is in effect for a period of at least eight (8) years from the
Execution Date.
The Borrower shall cause such policies to remain in full force and effect
until the obligations of the Borrower under the Lender Notes have been paid in
full and shall promptly notify Lender if any such policy is canceled. At the
close of the transactions contemplated by this Agreement, Borrower will deliver
to Lender Schedule 3.2(j), which is a written summary of all insurance held by
Borrower. Additionally, at reasonable intervals and from time to time, Borrower
will furnish evidence of all insurance required by this Section 6.15 to Lender
upon reasonable request by Lender.
6.16 Additional Prohibitions. Borrower shall not, without the prior written
consent of Lender:
(a) increase the aggregate existing base remuneration of the officers and
directors of Borrower listed on Schedule 6.16(a) by an amount in excess of five
percent (5%) per annum;
(b) acquire, or enter into any contracts contemplating the acquisition of a
majority of the assets and Properties or ownership interest of any Person or a
merger with any Person, excluding any such acquisitions that do not exceed
$100,000.00 in the aggregate per annum;
(c) except for any renewal of Borrower's existing real property leases or a
comparable real property lease at fair market value, enter into any material
contract, lease or agreement (including without limitation, any financing, or
operating lease, or any lease of real property), providing for the payment by
Borrower, in each case, of amounts in excess of $100,000.00 during any year;
(d) cause or make capital expenditures (excluding expenditures in
subparagraph (b) above) greater than $200,000.00 in aggregate during any
calendar year;
(e) change or alter the locations or nature of any of its business
(provided that Borrower may open new facilities without first receiving the
consent of Lender thereto); or
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(f) alter any of the terms and conditions of the Senior Debt pertaining to
maturity dates, interest rates, or collateral, or increase the maximum principal
amount available to Borrower under the Senior Debt; or
(g) alter or amend any of Borrower's Organizational Documents;
(h) release any Person from a noncompetition agreement in favor of Borrower
or fail to take reasonable action to prevent or stop any Person from engaging in
conduct that violates a noncompetition agreement in favor of Borrower.
(i) file in an office of public records a UCC-3 form or other document
releasing or terminating a security interest in favor of Lender covering any
Collateral unless and until all obligations of Borrower contained herein and in
the Subject Documents have been satisfied; or
(j) file in an office of public records a UCC-3 or other document amending
a UCC Financing Statement.
6.17 Covenants of Xxxxxxx. Xxxxxxx makes the following covenants:
(a) Xxxxxxx agrees to abide by all terms of his Employment Agreement with
Borrower, a copy of which is attached hereto as Exhibit "D."
(b) As additional consideration for and to induce Lender to enter this
Agreement, Xxxxxxx agrees not to compete in the same or similar business in
which Borrower is now engaged, whether as an employee, partner, owner,
stockholder, director, trustee, or in any other capacity until the expiration of
five (5) years after the Execution Date or the Lender Notes have been paid in
full, whichever comes first. This personal covenant is effective and applies
within any geographic market in which Borrower now engages or hereafter engages
during any period in which this covenant is in effect. If the provisions of this
paragraph are violated in whole or in part, Lender shall be entitled upon
application to any court of proper jurisdiction to enjoin Xxxxxxx from such
further violation without prejudice to any other remedies that Lender may have
at law or in equity. Further, in the event that the provisions of this Section
should ever be deemed to exceed the time or geographic limitations permitted by
the applicable law, the parties agree that such provisions shall be reformed to
the maximum time and geographical limitations permitted by applicable law. The
restrictions against competition in this paragraph shall not be applicable if
Borrower terminates Xxxxxxx'x employment without cause under Section 5 of the
Employment Agreement described in Exhibit "E" attached hereto. Notwithstanding
the foregoing, Xxxxxxx shall be permitted to purchase shares of stock in
publicly traded companies that do not aggregate more than 2% of the outstanding
shares of any such company.
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(c) Xxxxxxx and the Xxxxxxx Affiliates will not sell, transfer, pledge, or
otherwise assign or encumber any of their Stock in Borrower without the prior
written consent of Lender. Lender is expressly authorized to condition its
consent to a transfer or sale by Xxxxxxx and the Xxxxxxx Affiliates to Xxxxxxx'x
and the Xxxxxxx Affiliates' first offering Lender the opportunity for a period
of at least 30 days to participate in such sale with respect to the shares
represented by the Warrants on the same terms and conditions offered to Xxxxxxx
and the Xxxxxxx Affiliates. In the event that Lender elects to participate in
such sale and the third party purchaser elects to purchase less than all of the
offered units, then the units to be sold to the third party by Xxxxxxx, the
Xxxxxxx Affiliates and Lender shall be determined on a pro rata basis. All
certificates representing the Stock shall reference the restrictions in this
paragraph. The covenants of this paragraph will expire on the earlier to occur
of (i) when Lender's put option in the Warrants covers 100,000 or fewer shares
of Common Stock, or (ii) upon the consummation of a public offering of shares of
the common stock of Borrower whereby at least $10,000,000.00 of net proceeds are
received by Borrower, and a put offering market capitalization for Borrower
exists of at least $50,000,000.00 for a period of 30 days (market capitalization
defined as average trading price multiplied by the number of registered and
tradable shares held by non-Affiliates of Borrower) such that a liquid and
public market exists for the trading of the common stock, provided that the
Lender's shares are freely tradable by virtue of a registration of the shares by
Borrower. Upon the termination of Xxxxxxx'x employment with Borrower without
cause by Borrower, Lender shall have no right to object to a sale or other
disposition by Xxxxxxx or the Xxxxxxx Affiliates of their stock in Borrower, but
Lender's rights in this paragraph to participate in any such sale or disposition
shall remain in force and effect.
(d) Xxxxxxx recognizes his responsibilities as an officer of Borrower to
take appropriate action to insure Borrower's compliance with its covenant in
Sections 6.19 and 6.21.
(e) Xxxxxxx and Xxxxxxx'x Affiliates will not purchase any shares of
Borrower's stock except for their benefit and in connection with the Borrower's
401(k) plan.
6.18 Senior Debt and JTS Note. Borrower shall punctually pay or cause to be
paid the principal and interest to become due in respect of the Senior Debt and
the JTS Note according to the terms thereof. Borrower shall perform all of its
obligations under the Senior Lender Documents.
6.19 Adherence to Board Policy. Borrower shall at all times adhere to the
policy contained in Exhibit "C" in all material respects.
6.20 Employment of Additional Personnel. Borrower acknowledges that Xxx
Xxxxxxxxx is the primary employee of GC devoted to managing and executing
Borrower's functions relating to power demand forecasting and the procurement of
power related to the forecast of demand. Borrower agrees that within 45 days
after the Effective Date, GC will hire at least one and possibly two additional
employees with business background and experience necessary to assist Xxx
Xxxxxxxxx in the performance of these functions by creating human redundancy
and/or backup to him and to expand the particular reservoir of skills needed for
this key company function.
6.21 Disaster Recovery Plan. Borrower agrees to improve its disaster
recovery plan within 120 days after the Execution Date by implementing a backup
processing center in a co-location facility located in either Houston or Austin,
Texas, to serve as a failover for the existing Midtown Atlanta server system.
Standard procedures for disaster recovery and switchover to the new center will
be developed and drills performed to insure readiness in case of a disaster.
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6.22 JTS Warrant. Simultaneous with or after the execution of this
Agreement, Borrower will issue a stock warrant to JTS to purchase 81,000 shares
of Borrower's common stock in substantially the form attached hereto as Exhibit
"F."
6.23 JTS Note. Within 20 days after the Execution Date, Borrower shall
deliver to Lender the original JTS Note endorsed to Lender and shall make all
payments due under the JTS Note to Lender or other subsequent holder of the JTS
Note.
6.24 Expiration of Covenants. Except as provided in Sections 6.14, 6.15 and
6.17(b) and (c), and in the second sentence of this paragraph, all covenants of
Borrower and Xxxxxxx contained in this Section 6 will expire only after the
indebtedness and obligations of Borrower evidenced by the Lender Notes and the
other Subject Documents (including the Warrants) have been satisfied in full.
The covenants of Borrower and Xxxxxxx contained in Sections 6.1, 6.2, 6.6, 6.7,
6.8, 6.9, 6.13, 6.15, 6.16, 6.17(b), 6.18 and 6.20 will expire at such time as
the Lender Notes have been paid in full, and the covenants of Borrower described
in Section 6.10 will expire at such time as the number of shares of common stock
of Borrower held by Lender on exercise of the Warrants or subject to the
Warrants are less than 100,000 cumulatively.
SECTION 7. INFORMATION AS TO BORROWER
Borrower covenants that on and after the date hereof and as long thereafter
as any of the indebtedness evidenced by the Lender Notes or any other Subject
Document is outstanding:
7.1 Financial and Business Information. Borrower shall deliver, or shall
cause to be delivered, to Lender, in such quantities as it reasonably may
request:
(a) Monthly Statements - promptly after preparation and in any event on or
before the 30th day after the last day of each calendar month as to items (i)
and the statements of operations in (ii) below and the 40th day after the last
day of each calendar month as to the cash flows in items (ii), (iii) and (iv)
below:
(i) the balance sheet of Borrower as at the end of such month,
(ii) the statements of operations and of cash flows of Borrower for
such month and for the portion of the fiscal year ending with
such month,
(iii) a one or two page written summary analysis in memorandum form
prepared by Borrower's management of the results of Borrower's
business and analysis of any variances from the Board approved
budget and any significant developments relating thereto, during
the previous month;
29
(iv) any and all monthly reports provided to TXU; and
(v) a written report in form and content satisfactory to Lender,
showing a listing and aging of Accounts of $5,000.00 or more,
along with a summary page for all Accounts and a list of Accounts
sent to Borrower's attorneys for collection and such other
information as Lender may request in writing from time to time.
Borrower shall immediately notify Lender of the assertion by any
account debtor of any set off, defense or claim regarding an
account or any other matter adversely affecting an account in
excess of $10,000.00
in the case of clauses (i) and (ii) above, setting forth as to the income
statement only in comparative form the figures for the corresponding periods in
Borrower's originally prepared budget, all in reasonable detail and certified as
presented fairly in all material respects, on a basis consistent with Borrower's
past practice, subject to changes resulting from year-end adjustments, by the
Chief Executive Officer and Principal Financial Officer of Borrower; and the
items required in (ii) and (iii) above for May 2003 shall not be due until July
25, 2003.
(b) Quarterly Statements - promptly after preparation and in any event on
or before the 45th day after each calendar quarter:
(i) the balance sheet of Borrower as at the end of such calendar
quarter, and
(ii) the statements of operations and cash flow of Borrower for such
calendar quarter; and
(iii) the EBITDA for Borrower for the most recently completed four
fiscal quarters and the then existing Funded Debt and interest
due for the ensuing four quarters, expressed as a coverage ratio;
setting forth in each case in comparative form as to the income statement the
figures for the corresponding periods in Borrower's originally prepared budget,
all in reasonable detail and certified as presented fairly in all material
respects, in accordance with GAAP, subject to changes resulting from year-end
adjustments, by the Chief Executive Officer and Principal Financial Officer of
Borrower; and
(iv) a certificate of compliance with respect to the covenants of
Borrower contained in Section 6 hereof executed by an officer of
Borrower.
(v) certification by the President of Borrower that Borrower is in
compliance with the financial covenants contained in Section 6.9,
along with all calculations related thereto.
(c) Annual Statements - promptly after preparation and in any event on or
before the 120th day thereafter:
(i) an audited balance sheet of Borrower as at the end of such year,
and
30
(ii) audited statements of operations and cash flow of Borrower for
such year, setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail
and accompanied by an opinion on such statements of independent
certified public accountants of recognized standing selected by
Borrower, which opinion shall state that (x) except as expressly
set forth in such opinion, such financial statements of Borrower
and the Subsidiaries fairly present in all material respects the
financial condition and results of operations and cash flow of
Borrower in accordance with GAAP (except for changes in
application in which such accountants concur), and (y) the
examination of such accountants in connection with such financial
statements has been made in accordance with generally accepted
auditing standards and, accordingly, included such tests of the
accounting records and such other auditing procedures as they
considered necessary in the circumstances;
(d) Projections - on or before January 31 of each year, commencing with
the year beginning January 1, 2004, updated and detailed one-year financial
projections prepared by Borrower's management setting forth the projected profit
and loss, balance sheet and cash flow figures for Borrower's business for the
next year, on a monthly or quarterly basis;
(e) Reports and Announcements - (i) promptly upon its becoming available,
and in any event within fifteen (15) days of filing or receipt, as applicable,
copies of each regular or periodic report and any registration statement,
prospectus, or material written communication in respect thereof filed by
Borrower with, or received by Borrower in connection therewith from, any
securities exchange or the Securities and Exchange Commission, state securities
agency, or any successor agency, including proxy statements and quarterly and
annual filings with the Securities and Exchange Commission, or (ii) promptly
after issuance, a copy of any press release intended for distribution by
multiple media sources;
(f) ERISA - promptly upon becoming aware of the occurrence of any
"reportable event," as such term is defined in section 4043 of ERISA for which
reporting has not been waived under applicable regulations, or a material
"prohibited transaction," as such term is defined in section 406 of ERISA or
section 4975 of the Code, in either case in connection with any employee pension
benefit plan or trust created thereunder with respect to Borrower or any ERISA
Affiliate, a written notice specifying the nature thereof, what action is being
taken or is proposed to be taken with respect thereto and, when known, any
action taken by the Internal Revenue Service, the Department of Labor, or the
Pension Benefit Guaranty Corporation with respect thereto which could have a
Material Effect;
(g) Notice of Default or Event of Default - as soon as practicable, but in
any event on or before the fifth (5th) Business Day after becoming aware of the
existence of a Default or an Event of Default, a written notice specifying the
nature and period of existence thereof and what action is being taken or is
proposed to be taken with respect thereto;
31
(h) Bankruptcy Event - immediately following, but in any event on or before
the third (3rd) Business Day, the occurrence of an event of the type described
in Section 8.1(g), (h), or (i), a written notice specifying such event and its
status; and
(i) Requested Information - promptly following request, such other data and
information respecting the business affairs, operations, assets and liabilities
of Borrower and its Subsidiaries and Affiliates not otherwise required to be
kept confidential in accordance with any agreement or applicable law (but only
if any disclosure of such information will not constitute a waiver of any
attorney-client privilege) as from time to time reasonably may be requested by
Lender.
(j) Notice of Claimed Default - as soon as practicable, but in any event on
or before the third Business Day after becoming aware that the holder of any
evidence of Debt or Security of Borrower or any Subsidiary other than Lender has
given notice or taken any other action with respect to a claimed default or
incipient default, a written notice specifying the notice given or action taken
by such Person and the nature of the claimed default or incipient default and
what action is being taken or is proposed to be taken with respect thereto;
(k) Minutes - as soon as available, minutes of the meetings of Borrower's
shareholders and Board of Directors and any subcommittees thereof (including
copies of all written consents in lieu of meetings).
(l) TXU Reports - within 24 hours after Borrower has provided TXU Corp.
with reports required under the Energy Marketing Support Agreement between GC
and TXU Corp., Borrower will provide to Lender copies of all such reports except
to the extent such reports have already been provided to Lender under other
sections of this Section 7.
(m) Other Notices and Reports - as soon as practicable, but in any event on
or before the third business day after the occurrence of the following events:
(i) written notice of any change in the name, identity or structure of Debtor,
or (ii) any charge, lien, security interest, claim or encumbrance asserted
against the Collateral, any litigation against Debtor or the Collateral, or any
theft, loss, injury or similar incident involving the Collateral which
individually or in the aggregate would have a Material Effect. Debtor shall
furnish such other reports, information and data regarding Debtor's financial
condition and operation of the Collateral and such other matters as Secured
Party may reasonably request in writing from time to time.
7.2 Inspection. Upon reasonable notice and at reasonable intervals and at
the Lender's expense, Borrower shall allow Lender or Lender's representative
during business hours or at other reasonable times to inspect any of its
Properties, to review reports, files, and other records not otherwise required
to be kept confidential in accordance with any agreement or applicable law (but
only if any disclosure of such information by Borrower will not constitute
waiver of any attorney-client privilege) and to make and take away copies, and
subject to Section 7.3, to discuss, from time to time, any of its affairs,
conditions, and finances with its directors, officers, controller, director of
finance and certified public accountants.
32
7.3 Confidentiality. From and after the date of this Agreement, Lender
shall hold confidential all information, unless specifically identified by
Borrower as public, heretofore or hereafter obtained in connection with this
Agreement or any Subject Document, or obtained pursuant to the requirements of
this Agreement or any Subject Document (the "Information"); provided, however,
that Lender may make disclosure reasonably required (i) in connection with the
enforcement of Lender's rights under this Agreement and the Subject Documents,
or otherwise in connection with litigation involving Lender's rights under this
Agreement and the Subject Documents (and subject to customary protective
orders); provided, however, that in any such case the Information shall only be
transmitted or disclosed to attorneys and accountants and other advisors of
Lender who "need to know" the Information and who are informed of the
confidential nature of the Information and agree in writing to keep such
Information confidential as set forth in this Section 7.3, (ii) in accordance
with such Lender's customary procedures for handling confidential information of
this nature and in accordance with safe and sound financial practices, to inform
Lender's partners and their advisors from time to time of the nature of
Borrower's business, key personnel, capital structure, and pertinent financial
information about the Borrower's performance, and other relevant data typically
disclosed by Lender to such Persons; provided, that they are informed of the
confidential nature of such information, (iii) in connection with an assignment
of the Lender Notes as allowed under this Agreement; provided, however, that on
or about the date of any such disclosure to any prospective assignee notice
thereof shall be given Borrower, and also provided further that prior to any
such disclosure, each assignee or prospective assignee shall have agreed to be
bound by the provisions of this Section 7.3, and (iv) by any governmental
authority having jurisdiction over Lender or by any applicable rule of law;
provided, however, that in such event Lender shall use its reasonable efforts to
provide Borrower with five (5) Business Days prior written notice of such
disclosure so that Borrower may seek a protective order or other appropriate
remedy, and provided, further, that in the event such protective order or other
remedy is not obtained, or Lender is unable to give Borrower prior notice Lender
will furnish the Information legally required to be provided to such
governmental authority. In no event shall Lender be obligated or required to
return any materials furnished by Borrower; provided, however, each prospective
assignee shall be required to agree that if it does not become an assignee it
shall return upon Borrower's written request all materials furnished to it by
Lender in connection with this Agreement; provided, moreover, that Lender shall
give Borrower prompt written notice of each prospective assignee from whom
Lender does not promptly request such return of materials so that Borrower may
make a request if it chooses. Nothing in this Section 7.3 shall abrogate any
Person's obligations regarding non-public information under any applicable law.
SECTION 8. EVENTS OF DEFAULT
8.1 Nature of Events. An "Event of Default" shall exist if any of the
following occurs and is continuing:
(a) Payments - Borrower fails to make any payment to Lender (whether
principal, interest, or otherwise) on Note 1 or Note 2 within five days after
the date on which such payment is due;
33
(b) Particular Covenant Defaults - except as provided in Section 8.1(a) or
Section 8.1(c), Borrower or Xxxxxxx fails fully and punctually to perform or
comply with any covenant in this Agreement or the other Subject Documents to
which it is or becomes a party;
(c) Other Covenant Defaults - Borrower fails to perform or comply with
Sections 6.3, 6.4, 6.5, 6.7, 6.8, 6.10, 6.11, 6.12, 6.13, 6.14, 6.16, or 6.18
hereof or any of the other Subject Documents, and such failure remains
continuing and uncured for thirty (30) days after Borrower's receipt of written
notice thereof;
(d) Representations or Warranties - any material representation by Borrower
or any Affiliate or Subsidiary of Borrower in this Agreement or any other
Subject Document is materially false or misleading as of the date made;
(e) Default on Senior Debt - an event of default has occurred and is
continuing beyond any period of cure with respect to the Senior Debt or any of
the Senior Lender Documents;
(f) Default on Indebtedness - an event of default has occurred and is
continuing with respect to any Debt permitted to be incurred by Borrower
pursuant to Section 6.7, or any other Debt (other than Senior Debt or trade
accounts payable arising in the ordinary course of business) of Borrower or any
portion thereof, equal to or exceeding $100,000.00 singly or in the aggregate;
provided, however, that no Event of Default shall exist under this Section
8.1(f) if Borrower is contesting in good faith the right of the holder of such
Debt to accelerate the payment of the Debt and has established adequate reserves
therefor;
(g) Involuntary Bankruptcy Proceeding - a receiver, liquidator, custodian,
or trustee of Borrower, or of any material Property thereof is appointed by
court order and such order remains in effect on the ninetieth (90th) day after
its entry; or a petition is filed, a case is commenced, or relief is ordered
against Borrower under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution, or liquidation law of any jurisdiction,
whether now or hereafter in effect, and is not dismissed with (90) days of such
filing, commencement, or order;
(h) Voluntary Petitions - Borrower files a petition commencing a case in
voluntary bankruptcy or seeking relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution, or
liquidation law of any jurisdiction, whether now or hereafter in effect, or
consents to the filing of any petition or the commencement of any case against
it under any such law;
(i) Assignments for Benefit of Creditors - Borrower makes an assignment for
the benefit of its creditors, or consents to the appointment of a receiver,
trustee, custodian, or liquidator thereof, or of all or any material portion of
the Property of any of them;
(j) Undischarged Final Judgments - any final judgment or judgments for the
payment of money or any warrant of sequestration against any assets of Borrower
having a value, in each case, aggregating in excess of $100,000 is or are
outstanding against Borrower and such judgments remain outstanding on the
ninetieth (90th) day after entry and have not been discharged in full or stayed,
or made the subject of pending appeal;
(k) Collateral - except as permitted by Section 6.6, should Borrower cease
to own good and indefeasible title to a material portion of the Collateral for
any reason, or more than $50,000 of the Collateral shall become subject to a
Lien that is prior to Liens in favor of Lender and not permitted by Section 6.8;
34
(l) Dissolution - a dissolution of Borrower occurs;
(m) Change in Control - a Change in Control of Borrower; or,
(n) Criminal Conduct and Statutory Liability - The indictment or conviction
of Borrower or any officer or any director of Borrower for a felony or a crime
of moral turpitude or the commission by an officer or director of Borrower or an
act or omission which is expressly prohibited by state or federal statute which
may reasonably be expected to have a Material Effect.
8.2 Default Remedies. If an Event of Default exists, Lender may exercise
any right, power, or remedy permitted by law and shall have, in particular,
without limiting the generality of the foregoing, the right to declare the
entire principal and all interest accrued on both Lender Notes to be, and, upon
Lender's sending notice to Borrower of said declaration, the Lender Notes shall
thereupon become, forthwith due and payable, without any presentment, demand,
protest, or other notice of any kind, all of which are hereby expressly waived.
Immediately upon receipt of any such notice, Borrower shall pay to Lender the
entire principal of and interest accrued on both Lender Notes.
8.3 Annulment of Acceleration of Lender Notes. If a declaration is made
pursuant to Section 8.2 by Lender, then and in every such case such declaration
and the consequences thereof may be rescinded and annulled by (and only by)
Lender by written instrument; provided, however, that no such rescission and
annulment shall extend to or affect any subsequent Default or Event of Default
or impair any right consequent thereon.
SECTION 9. MISCELLANEOUS
9.1 Notices. (a) Except as otherwise provided herein or in the Subject
Documents, all communications under the Subject Documents shall be in writing to
the following addresses : (i) if to Lender, at the following addresses or such
other address as Lender shall have furnished Borrower by notice on or before the
fifth (5th) Business Day prior thereto:
The Catalyst Fund, Ltd. and
Southwest/Catalyst Capital, Ltd.
Xxx Xxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxx Xxxxxxx / Xxx Xxxxx
with a copy to: Page, Xxxxxxxx, Xxxxxx & Xxxxxx, P. L. L. X.
Xxx Xxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attn: Xxxxx Xxxxxx
35
(ii) if to Borrower, at the following address or such other address as Borrower
may have furnished by notice to Lender on or before the fifth (5th) Business
Day prior thereto:
GEXA Corp.
00 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attn: Xxxx Xxxxxxx
with a copy to: Xxxxxx & Xxxxxx, L.L.P.
000 Xxxxxxxxx, 00xx Xxxxx
Xxxxxxx, Xxxxx 00000-0000
Attn: Xxxxxx X. Xxxxx
(b) Any communication so addressed and mailed by first-class registered or
certified mail, postage prepaid, shall be deemed to be received on the third
Business Day after so mailed, and if delivered by personal delivery (including
by courier) upon delivery during normal business hours.
9.2 Survival. Each representation, warranty, or covenant made by Borrower
in this Agreement or any other Subject Documents shall survive the Execution
Date and the delivery of the documents and instruments described in Section 3.2,
regardless of any investigation made by Lender or on its behalf. All obligations
of Borrower hereunder shall survive the Execution Date and shall terminate only
upon the later to occur of (i) the payment of the Lender Notes, or (ii) the
fulfillment of all of Borrower's obligations under the Warrants and the
Consulting Agreement. At the Execution Date, Lender has no actual knowledge of
an Event of Default by Borrower.
9.3 Successors and Assigns; Third Party Beneficiaries. Borrower may not
assign any of its rights or delegate any of its duties to any Person without
prior written consent of Lender. This Agreement shall be binding upon the
successors and assigns of each of the parties and, except as expressly set forth
in this Section 9.3, shall inure to the benefit of the successors and permitted
assigns of each of the parties. The provisions of this Agreement are intended to
be for the benefit of all Persons constituting Lender, from time to time, in
accordance with the terms of this Agreement. This Agreement shall not inure to
the benefit of any other third parties and no third parties shall have any right
to enforce any obligations contained herein.
9.4 Amendment and Waiver. This Agreement may be amended, and the observance
of any term of this Agreement may be waived, with and only with the written
consent of Borrower and Lender.
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9.5 Governing Law. THIS AGREEMENT, THE LENDER NOTES, THE OTHER SUBJECT
DOCUMENTS, AND THE LEGAL RELATIONS AMONG THE PARTIES HERETO AND THERETO, AND ALL
RIGHTS AND OBLIGATIONS HEREUNDER AND THEREUNDER, INCLUDING MATTERS OF
CONSTRUCTION, VALIDITY, AND PERFORMANCE, SHALL BE GOVERNED BY AND INTERPRETED,
CONSTRUED, APPLIED, AND ENFORCED IN ACCORDANCE WITH THE LAW OF THE STATE OF
TEXAS AND THE UNITED STATES WITHOUT REFERENCE TO THE LAW OF ANOTHER
JURISDICTION.
9.6 Severability. If any provision in this Agreement or the Lender Notes is
rendered or declared illegal, invalid, or unenforceable by reason of any rule of
law, public policy, or final judicial decision, all other terms and provisions
of this Agreement shall nevertheless remain in full force and effect so long as
the economic or legal substance of the transactions contemplated hereby are not
affected in any manner adverse to Borrower or Lender. Upon such determination
that any term or other provision is invalid, illegal, or incapable of being
enforced, Borrower and Lender shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties hereto as closely
as possible to the end that the transactions contemplated hereby are fulfilled
to the extent possible.
9.7 Entire Agreement; Supersedure. This Agreement and the other Subject
Documents constitute the entire agreement of the parties and the Affiliates with
respect to the matters contained herein and therein and supersede all prior
contracts and agreements with respect thereto, whether written or oral. THIS
WRITTEN LOAN AGREEMENT AND THE OTHER SUBJECT DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
9.8 Multiple Counterparts. The parties may execute more than one
counterpart of this Agreement, each of which shall be an original but all of
which together shall constitute one and the same instrument.
9.9 Arbitration. Any controversy or claim between or among the parties
hereto, including but not limited to those arising out of or relating to this
Agreement or any Subject Documents, including any claim based on or arising from
an alleged tort, shall be determined by binding arbitration to be held in Xxxxxx
County, Texas, in accordance with the Federal Arbitration Act (or if not
applicable, the applicable state law), the rules of practice and procedure for
the arbitration of commercial disputes of the American Arbitration Association
("AAA"), and the "Special Rules" set forth below. In the event of any
inconsistency, the Special Rules shall control. Judgment upon any arbitration
award may be entered in any court having jurisdiction. Any party to this
Agreement may bring an action, including a summary or expedited proceeding, to
compel arbitration of any controversy or claim to which this Agreement applies
in any court having jurisdiction over such action.
37
(a) Special Rules. Prior to the initiation of any arbitration the Parties
agree to submit all claims to mediation to be conducted by a mediator in good
standing with the AAA. Upon submission of a dispute to the AAA, the Borrower and
Lender shall each submit to the rules and regulations of the AAA for the
purposes of conducting such mediation.
(b) Reservation of Rights. Nothing in this Section 9.9 shall be deemed to
(i) limit the applicability of any otherwise applicable statutes of limitation
or repose and any waivers contained in this Agreement; or (ii) be a waiver by
Lender of the protection afforded to it by 12 U.S.C. Sec. 91 or any
substantially equivalent state law; or (iii) limit the right of any party (A) to
exercise self help remedies such as (but not limited to) offset, or (B) to
nonjudicially foreclose against any real or personal property collateral, or (C)
to obtain from a court provisional or ancillary remedies such as (but not
limited to) injunctive relief, writ of possession or the appointment of a
receiver, or (iv) except for limiting the right of judicial foreclosure, limit
the right of any party to enforce its rights under any Subject Document with
respect to matters as to which there is no legal dispute. Any party may exercise
such self help rights, nonjudicially foreclose upon such property, or obtain
such provisional or ancillary remedies before, during or after the pendency of
any arbitration proceeding brought pursuant to this Agreement. Neither the
exercise of self help remedies or any nonjudicial foreclosure, nor the
institution or maintenance of an action for provisional or ancillary remedies
shall constitute a waiver of the right of any party, including the claimant in
any such action, to arbitrate the merits of the controversy or claim occasioning
resort to such remedies. Any attorney-client privilege and other protection
against disclosure of confidential information, including, without limitation,
any protection afforded the work-product of any attorney, that could otherwise
be claimed by any party shall be available to and may be claimed by any such
party in any arbitration proceeding. No party waives any attorney-client
privilege or any other protection against disclosure of confidential information
by reason of anything contained in or done pursuant to or in connection with
this Section 9.9.
9.10 Attorney's Fees. If any litigation or arbitration proceeding is
instituted to enforce or interpret the provisions of this Agreement or the
transactions described herein, the prevailing party in such action shall be
entitled to recover its reasonable attorneys' fees from the other party hereto.
9.11 Drafting. Both parties hereto acknowledge that each party was actively
involved in the negotiation and drafting of this Agreement and that no law or
rule of construction shall be raised or used in which the provisions of this
Agreement shall be construed in favor or against either party hereto because one
is deemed to be the author thereof.
9.12 Lender's Consent. Except as expressly provided to the contrary herein,
whenever the consent of Lender is required herein before Borrower can take
action, Lender will not withhold or delay such consent unreasonably.
9.13 Cooperation. Borrower and Lender shall each deliver or cause to be
delivered to the other after the Closing Date such additional instruments as the
other party may reasonably request for the purpose of carrying out this
Agreement.
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9.14 Interpretation. The headings and titles contained in this Agreement
are for convenience only and shall not be deemed part of this Agreement or be
given any effect in interpreting this Agreement. The use of the masculine,
feminine or neuter gender herein shall not limit any provision of this
Agreement. Whenever the words "include," "includes," or "including" are used
herein, they will be deemed to be followed by the words "without limitation."
When applicable, singular words shall include the plural and vice versa.
EXECUTED as of the date first above written.
BORROWER:
GEXA CORP.,
a Texas corporation
By: /s/ Xxxx Xxxxxxx
--------------------------------------
Xxxx Xxxxxxx, Chief Executive Officer
LENDER:
THE CATALYST FUND, LTD.,
a Texas limited partnership
By: RDR Management I, Inc.,
its general partner
By: /s/ Xxxx Xxxxxxx
--------------------------------------
Xxxx Xxxxxxx, President
The undersigned executes this Agreement only with respect to the provisions
hereof that expressly pertain to him.
/s/ Xxxx Xxxxxxx
-----------------------------------
Xxxx Xxxxxxx
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BOXER CAPITAL, LTD.
By: /s/ Xxxx Xxxxxxx
----------------------------
Name: Xxxx Xxxxxxx
----------------------------
Title: Managing General Partner
----------------------------
SUNDOWNER HOLDINGS, INC.
By: /s/ Xxxx Xxxxxxx
----------------------------
Name: Xxxx Xxxxxxx
----------------------------
Title: Chief Executive Officer
----------------------------
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SCHEDULES
1.1 Excluded Expenses
2.2(a) Ownership of Stock
2.2(b) Subsidiaries and Affiliates
2.4 Noncurrent Debt
2.5 Real Estate and Leases
2.6 Pending Litigation
2.14 Restrictions on Borrower
2.15 ERISA Matters
2.19 Permits, Leases and Contracts
2.22 Affiliate Transactions
2.23 Collateral Outside of Texas
3.2(j) Insurance
6.16(a) Remuneration of Key Management
EXHIBITS
A. Preferred Stock Agreement
B-1. Senior Lender Documents (TXU Corp.)
B-2. Senior Lender Documents (XX Xxxxxx Chase Bank, N.A.)
C. Corporate Policy
D. Spectrum Consulting Agreement
X. Xxxxxxx Employment Agreement
F. JTS Warrant
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