EXHIBIT 2
SELECT COMFORT CORPORATION
NOTE PURCHASE AGREEMENT
June 1, 2001
To Each of the Persons Named in
Schedule 1 to this Agreement
(collectively, the "Purchasers"
and individually, a "Purchaser")
Ladies and Gentlemen:
In consideration of the agreement of the Purchasers to purchase the
Notes and the Warrants (as hereinafter defined), as provided for herein, the
undersigned, Select Comfort Corporation, a Minnesota corporation (the
"Company"), hereby agrees with each of the Purchasers as follows:
1. AUTHORIZATION OF SECURITIES. The Company proposes to authorize,
issue and sell an aggregate of up to $11,000,000 principal amount of its senior
secured convertible notes, to be in substantially the form set forth as Exhibit
1 to this Agreement. The term "Notes", as used herein, shall mean the senior
secured convertible notes to be delivered pursuant to this Agreement and all
notes of the Company issued in exchange or substitution therefor.
The Notes shall be convertible into shares of the Company's Common
Stock (as hereinafter defined) (such shares of Common Stock into which the Notes
are convertible, together with all stock or other securities issued in exchange
or substitution therefor, or in a stock split or reclassification thereof, or as
a stock dividend or other distribution thereon, or otherwise in respect thereof,
being hereinafter sometimes referred to as the "Conversion Stock"), initially at
the rate of one share of Conversion Stock for each $1.00 of outstanding
principal amount of the Notes (subject to adjustment as provided in the Notes).
The Notes shall be guarantied by each Subsidiary (as hereinafter defined) of the
Company pursuant to a Guaranty, to be substantially in the form set forth as
Exhibit 2 to this Agreement (as amended, modified or supplemented from time to
time, the "Guaranty"), and shall be secured (i) by substantially all of the
personal property of the Company pursuant to a Security Agreement-Parent, to be
substantially in the form set forth as Exhibit 3 to this Agreement (as amended,
modified or supplemented from time to time, the "Parent Security Agreement"),
and a Patent and Trademark Security Agreement-Parent, to be in substantially the
form set forth as Exhibit 4 to this Agreement (as amended, modified or
supplemented from time to time, the "Parent Patent and Trademark Security
Agreement"), (ii) by substantially all of the personal property of each
Subsidiary pursuant to a Security Agreement-Subsidiaries, to be substantially in
the form set forth as Exhibit 5 to this Agreement (as amended, modified or
supplemented from time to time, the "Subsidiary Security Agreement"), and (iii)
by all of the capital stock of each Subsidiary pursuant to a Pledge Agreement,
to be substantially in the form set forth as Exhibit 6 to this Agreement (as
amended, modified or supplemented from time to time, the "Pledge Agreement").
The Company also proposes to authorize, issue and sell to the
Purchasers warrants to purchase an aggregate of up to 4,400,000 shares of Common
Stock at an initial exercise price of $1.00 per share (subject to adjustment as
provided in such warrants), such warrants to be substantially in the form of
Exhibit 7 hereto. The term "Warrants", as used herein, shall mean the warrants
to be delivered pursuant to this Agreement and all warrants issued in exchange
or substitution therefor; and the term "Warrant Stock", as used herein, shall
mean the shares of Common Stock issuable upon exercise of the Warrants, together
with all stock or other securities issued in exchange or substitution therefor,
or in a stock split or reclassification thereof, or as a stock dividend or other
distribution thereon, or otherwise in respect thereof.
2. SALE AND PURCHASE OF SECURITIES. Subject to the terms and conditions
hereof, the Company agrees to sell to each Purchaser, and each Purchaser agrees
to purchase from the Company, the aggregate principal amount of Notes and
Warrants to purchase the number of shares of Warrant Stock set forth opposite
such Purchaser's name in Schedule 1 hereto, at the purchase price set forth
opposite such Purchaser's name in Schedule 1 hereto. The parties hereto agree
that of such purchase price, $.01 per share of Warrant Stock covered by the
Warrants shall be allocated to the purchase of the Warrants.
3. CLOSING.
(a) The closing of the sale to, and purchase by, the Purchasers of the
Notes and the Warrants (the "Closing") shall occur at the offices of Faegre &
Xxxxxx LLP, 2200 Xxxxx Fargo Center, 00 Xxxxx Xxxxxxx Xxxxxx, Xxxxxxxxxxx,
Xxxxxxxxx, at the hour of 9:00 A.M., Minneapolis time, on the first business day
to occur after satisfaction or waiver of all conditions set forth in Section 7
hereof, or on such other day or at such other time or place as the Purchasers
and the Company shall mutually agree. The date on which the Closing shall occur
is herein called the "Closing Date".
(b) At the Closing, the Company will deliver to each Purchaser the
Notes and the Warrants being purchased by such Purchaser, registered in its name
as stated in Schedule 1 hereto (or in the name of its nominee as may be
specified to the Company at least 24 hours prior to the Closing Date), against
payment by such Purchaser of the purchase price therefor by check, wire transfer
of funds and/or, in the case of St. Xxxx Venture Capital VI, LLC ("St. Xxxx"),
conversion in full of the principal balance of and accrued and unpaid interest
on that certain Demand Note of the Company dated May 1, 2001 payable to the
order of such Purchaser in the original principal amount of $2,000,000 (the
"Demand Note").
(c) Each of the Purchasers acknowledges and agrees that during the
period commencing with the Closing Date and ending two weeks after the Closing
Date the Company may sell an additional aggregate principal amount of senior
secured convertible notes, not to exceed the difference between $12,000,000 and
the aggregate principal amount of the Notes issued at the Closing, and
additional warrants to purchase an additional number of shares of Common Stock,
not to exceed the difference between 4,800,000 and the number of shares of
Warrant Stock issuable upon exercise of the Warrants issued at the Closing, to
additional purchasers who qualify as accredited investors within the meaning of
Rule 501 under the Securities Act (as hereinafter defined) on the same terms as
the sale of the Notes and the Warrants to the Purchasers at the Closing, upon
execution of counterparts of this Agreement by
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such additional purchasers who shall thereupon become bound by and entitled to
the benefits of this Agreement. Such additional purchasers shall, by executing
counterparts of this Agreement, become Purchasers for all purposes of this
Agreement and the Collateral Documents (as hereinafter defined), and Schedule 1
hereto shall be deemed to be appropriately amended. The senior secured
convertible notes of the Company thus sold to such additional purchasers,
together with all notes of the Company issued in exchange or substitution
therefor, shall be deemed to be Notes as such term is defined in this Agreement
and the Collateral Documents, and the warrants of the Company thus sold to such
additional purchasers, together with all warrants issued in substitution or
exchange therefor, shall be deemed to be Warrants as that term is defined in
this Agreement. The sale of such additional securities may be subject to such
conditions as are consistent with those set forth in Section 7 hereof and are
agreed to among the Company and such additional purchasers. Each of the
Purchasers also acknowledges and agrees that such additional purchasers, upon
execution by them of counterparts of the Registration Rights Agreement (as
hereinafter defined), shall become Note Holders as that term is defined in the
Registration Rights Agreement and shall be bound by and entitled to the benefits
of the Registration Right Agreement. The senior secured convertible notes of the
Company thus sold to such additional purchasers, together with all notes of the
Company issued in exchange or substitution therefor, shall be deemed to be
Convertible Notes as such term is defined in the Registration Rights Agreement,
and the warrants of the Company thus sold to such additional purchasers,
together with all warrants issued in substitution or exchange therefor, shall be
deemed to be Note Holder Warrants as that term is defined in the Registration
Rights Agreement.
4. RESTRICTION ON TRANSFER OF SECURITIES.
4.1 RESTRICTIONS. The Notes and the Conversion Stock, and the
Warrants and the Warrant Stock, are transferable only pursuant to (a) a public
offering registered under the Securities Act of 1933, as amended (the
"Securities Act"), (b) Rule 144 (or any similar rule then in effect) adopted
under the Securities Act ("Rule 144"), if such Rule is available, and (c)
subject to the conditions elsewhere specified in this Section 4, any other
legally available means of transfer; provided, however, that the transferee of
such securities agrees in writing to be bound by the terms of this Agreement
unless such securities will not, immediately following such transfer, constitute
Purchased Securities (as hereinafter defined).
4.2 LEGEND.
(a) Each Note and each of the Warrants shall be endorsed with
the following legend:
"The securities evidenced hereby may not be
transferred without (i) the opinion of counsel reasonably
satisfactory to the Company that such transfer may be
lawfully made without registration under the Federal
Securities Act of 1933 and all applicable state securities
laws or (ii) such registration."
Upon the conversion of any Notes or upon the exercise of any Warrant, unless the
Company receives an opinion of counsel from the holder of such a security
reasonably satisfactory to the Company to the effect that a sale, transfer,
assignment, pledge or distribution of the Conversion
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Stock or Warrant Stock issuable upon such conversion or exercise may be made
without registration, or unless such Conversion Stock or Warrant Stock is being
disposed of pursuant to registration under the Securities Act and any applicable
state act, the same legend shall be endorsed on the certificate evidencing such
Conversion Stock or Warrant Stock.
(b) The aforesaid legend shall be removed with respect to
securities held for at least two years (including, with respect to the
Conversion Stock and any Warrant Stock issued upon the exercise of the
Conversion Right described in paragraph 12 of the Warrants, the period during
which the related converted Notes or Warrants had been held) by a person who has
not been an affiliate of the Company (as defined in Rule 144) during the three
months preceding the request for removal of such legend. The foregoing legend
removal requirement is based on Rule 144(k) under the Securities Act as
currently in force, and assumes that such Rule (or a successor thereto) in
substantially its current form shall be in effect at the time of any such
request for legend removal.
(c) A stop transfer order shall be placed with the Company's
transfer agent preventing transfer of any of the securities referred to in
paragraph (a) above pending compliance with the conditions set forth in any such
legend (except as otherwise provided in this Section 4.2).
4.3 REMOVAL OF LEGEND. Any legend endorsed on a certificate or
instrument evidencing a security pursuant to Section 4.2 hereof shall be
removed, and the Company shall issue a certificate or instrument without such
legend to the holder of such security, (a) in accordance with Section 4.2(b)
hereof, (b) if such security is being disposed of pursuant to registration under
the Securities Act and any applicable state acts or pursuant to Rule 144, or (c)
if such holder provides the Company with an opinion of counsel reasonably
satisfactory to the Company to the effect that a sale, transfer, assignment,
offer, pledge or distribution for value of such security may be made without
registration and that such legend is not required to satisfy the applicable
exemption from registration.
4.4 REGISTER OF SECURITIES. The Company or its duly appointed
agent shall maintain a separate register for the Notes and the Warrants in which
it shall register the issuance and transfer of all Notes and Warrants. All
transfers of Notes and Warrants shall be recorded on the register maintained by
the Company or its agent, and the Company shall be entitled to regard the
registered holder of such securities as the actual owner of the securities so
registered until the Company or its agent is required to record a transfer of
such securities on its register. The Company or its agent shall be required to
record any such transfer when it receives (a) the security to be transferred
duly and properly endorsed by the registered holder thereof or by its attorney
duly authorized in writing, and (b) the opinion of counsel referred to in
Sections 4.2 and 4.3 hereof or evidence of compliance with the registration
provisions referred to in those Sections.
5. REPRESENTATIONS AND WARRANTIES BY COMPANY. The Company represents
and warrants to the Purchasers that:
5.1 ORGANIZATION, STANDING, ETC. Each of the Company and the
Subsidiaries (as hereinafter defined) is a corporation duly organized, validly
existing and in good standing
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under the laws of the State of Minnesota, and has the requisite corporate power
and authority to own its properties and to carry on its business as it is now
being conducted. The Company has the requisite corporate power and authority to
issue the Notes and the Conversion Stock, and the Warrants and the Warrant
Stock, and to otherwise execute, deliver and perform its obligations under the
Transaction Documents (as hereinafter defined) to which it is or will be a
party. Each of the Subsidiaries has the requisite corporate power and authority
to execute, deliver and perform its obligations under each of the Transaction
Documents to which it will be a party. The copies of the Articles of
Incorporation and Bylaws of each of the Company and the Subsidiaries delivered
to the Purchasers or their agents prior to the execution of this Agreement are
true and complete copies of the duly and legally adopted Articles of
Incorporation and Bylaws of such person in effect as of the date of this
Agreement. The Company does not have any direct or indirect equity interest in
any firm, corporation, partnership, limited liability company, joint venture
association or other business organization other than Select Comfort Retail
Corporation, Select Comfort Direct Corporation, Select Comfort SC Corporation,
Direct Call Centers, Inc. and xxxxxxxxxxxxx.xxx corporation, all of the
outstanding equity interests and rights to acquire equity interest of which are
directly or indirectly owned, of record and beneficially, by the Company, free
and clear of all pledges, liens, charges, security interests, restrictions and
encumbrances (except for restrictions on transfer thereof other than in
compliance with federal and state securities laws).
5.2 QUALIFICATION. Each of the Company and the Subsidiaries is
duly qualified or licensed as a foreign corporation in good standing in each
jurisdiction wherein the nature of its activities or of its properties owned or
leased makes such qualification or licensing necessary and failure to be so
qualified or licensed would, individually or in the aggregate, (a) have a
material adverse effect on the business, assets, condition (financial or
otherwise), operations or results of operations of the Company and the
Subsidiaries, taken as a whole, (b) have a material adverse effect on the
legality, validity or enforceability of any of the Transaction Documents, or (c)
materially and adversely impair the ability of any of the Company or the
Subsidiaries to fully perform on a timely basis its obligations under the
Transactions Documents to which it is or will be a party (collectively or
individually, any of clause (a), (b) or (c) being referred to in this Agreement
as a "Material Adverse Effect").
5.3 CORPORATE ACTS AND PROCEEDINGS. Each of the Transaction
Documents to which the Company is or will be a party has been duly authorized by
all necessary corporate action on behalf of the Company, and has been or at the
Closing will be duly executed and delivered by authorized officers of the
Company, and all corporate action necessary to the authorization, creation,
issuance and delivery of the Notes and the Conversion Stock, and the Warrants
and the Warrant Stock, has been taken on the part of the Company. Each of the
Transaction Documents to which any Subsidiary will be a party has been duly
authorized by all necessary corporate action on behalf of such Subsidiary, and
at the Closing will be duly executed and delivered by authorized officers of
such Subsidiary. This Agreement is, and each of the other Transaction Documents
to which the Company will be a party when executed and delivered pursuant to the
terms of this Agreement will be, a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium,
fraudulent conveyance or transfer, reorganization or other similar laws
affecting the enforcement of
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creditors' rights generally and by general principles of equity. Each of the
Transaction Documents to which a Subsidiary will be a party when executed and
delivered pursuant to the terms of this Agreement will be a valid and binding
agreement of such Subsidiary enforceable against such Subsidiary in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium, fraudulent conveyance or transfer,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and by general principles of equity.
5.4 NO CONFLICTS. None of the execution, delivery or
performance by any of the Company or the Subsidiaries of the Transaction
Documents to which it is or will be a party, nor the consummation by any of the
Company or the Subsidiaries of the transactions contemplated thereby, (a) will
conflict with, or, with or without the giving of notice or passage of time, or
both, result in any breach of, or constitute a default under, or result in the
imposition of any lien or encumbrance upon any asset or property of any of the
Company or the Subsidiaries pursuant to, any applicable law, administrative
regulation or judgment, order or decree of any court or governmental body, or
any agreement or other instrument to which any of the Company or the
Subsidiaries is a party or by which any of them or any of their properties,
assets or rights is bound or affected (except that the Company will be required,
pursuant to the terms of the Revolving Credit Program Agreement (as hereinafter
defined) to fund the Reserve Account (as hereinafter defined) with up to
$750,000 of the net proceeds received by the Company from the sale of the Notes
and Warrants and to grant Conseco Bank, Inc. a security interest therein), or
(b) will violate the Articles of Incorporation or Bylaws of any of the Company
or the Subsidiaries.
5.5 CONVERSION STOCK; WARRANTS AND WARRANT STOCK. The
Warrants, when issued and paid for pursuant to the terms of this Agreement, will
be duly authorized, validly issued and outstanding, fully paid, nonassessable
and free and clear of all pledges, liens, encumbrances and restrictions, except
as set forth in Section 4 hereof. The shares of Conversion Stock and Warrant
Stock issuable upon conversion of the Notes or exercise of the Warrants have
been reserved for issuance based upon the initial Conversion Price or Purchase
Price (each as hereinafter defined), as the case may be, and, when issued upon
conversion of the Notes or exercise of the Warrants in accordance with the terms
thereof, will be duly authorized, validly issued and outstanding, fully paid,
nonassessable and free and clear of all pledges, liens, encumbrances and
restrictions, except as set forth in Section 4 hereof. The Warrants to be
delivered by the Company hereunder, and the certificates representing the
Conversion Stock and Warrant Stock to be delivered upon the conversion of the
Notes or exercise of the Warrants, will be genuine, and the Company has no
knowledge of any fact which would impair the validity thereof.
5.6 CAPITAL STOCK. The authorized capital stock of the Company
consists of (a) 95,000,000 shares of common stock, par value $.01 per share, of
which 18,126,265 shares are issued and outstanding and 23,120,964 shares are
reserved for issuance, and (b) 5,000,000 shares of preferred stock, par value
$.01 per share (all of which are undesignated as to class or series), of which
no shares are issued and outstanding or reserved for issuance. All of the
outstanding shares of capital stock of the Company were duly authorized and
validly issued and are fully paid and nonassessable. There are no outstanding
subscriptions, options, warrants, calls, contracts, demands, commitments,
Convertible Securities (as hereinafter defined) or other agreements or
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arrangements of any character or nature whatever, except as otherwise disclosed
in Section 5.6 of the Disclosure Schedule of the Company dated the date hereof
(the "Disclosure Schedule"), a copy of which has been delivered to the
Purchasers, or as contemplated by this Agreement, under which the Company is or
may be obligated to issue capital stock or other securities of any kind
representing an ownership interest or contingent ownership interest in the
Company. Neither the offer nor the issuance or sale of the Notes or the
Conversion Stock, or the Warrants or the Warrant Stock, constitutes an event,
under any anti-dilution provisions of any securities issued or issuable by the
Company or any agreements with respect to the issuance of securities by the
Company, which will either increase the number of shares issuable pursuant to
such provisions or decrease the consideration per share to be received by the
Company pursuant to such provisions, except as otherwise disclosed in Section
5.6 of the Disclosure Schedule. No holder of any security of the Company is
entitled to any preemptive or similar rights to purchase securities from the
Company; provided, however, that nothing in this Section 5.6 shall affect, alter
or diminish any rights granted to the holders of the Purchased Securities in
this Agreement. All outstanding securities of the Company have been issued in
compliance in all material respects with an exemption or exemptions from the
registration and prospectus delivery requirements of the Securities Act and from
the registration and qualification requirements of all applicable state
securities laws, or in compliance with such requirements.
5.7 SECURITIES LAWS. Based in part upon the representations
and warranties contained in Section 6 hereof, no consent, authorization,
approval, permit or order of or filing with any governmental or regulatory
authority is required under current laws and regulations in connection with the
execution and delivery of any of the Transaction Documents or the offer,
issuance, sale or delivery of the Notes or the Warrants or the offer of the
Conversion Stock or the Warrant Stock other than the filing of a Form D with the
Securities Exchange Commission (the "SEC") and the filing of any notification
required by any state securities laws, which filings have been or will be
effected on a timely basis. The Company has not, directly or through an agent,
offered the Notes or the Conversion Stock, or the Warrants or the Warrant Stock,
or any similar securities for sale to, or solicited any offers to acquire such
securities from, persons other than the Purchasers and other accredited
investors. Under the circumstances contemplated hereby, the offer, issuance,
sale and delivery of the Notes and the Warrants and the offer of the Conversion
Stock and the Warrant Stock will not under current laws and regulations require
compliance with the registration or prospectus delivery requirements of the
Securities Act or with the registration or qualification requirements of any
applicable state securities laws.
5.8 SEC REPORTS; FINANCIAL STATEMENTS.
(a) The Company has made available to each of the Purchasers,
if requested, in the form filed with the SEC (including without limitation
exhibits and annexes thereto), its (i) Annual Report on Form 10-K for each of
the fiscal years ended January 1, 1999, December 31, 1999 and December 30, 2000,
(ii) all proxy statements relating to the Company's meetings of shareholders
(whether annual or special) held since January 2, 1999, and (iii) all other
reports, registration statements and other filings (including all amendments to
previously filed documents) filed by the Company with the SEC since January 2,
1999 (all such reports, proxy statements, registration statements and filings
being collectively called the "SEC Reports" and individually called a "SEC
Report"). As of their respective dates, the SEC Reports (including any documents
incorporated by reference therein) did not contain any untrue
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statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading, and each
SEC Report at the time of its filing complied as to form in all material
respects with all applicable requirements of the Securities Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations of the SEC. Except as disclosed in Section 5.8 of the Disclosure
Schedule, since January 2, 1999, the Company has filed in a timely manner (after
giving effect to appropriate extensions) all reports that it was required to
file with the SEC under the Exchange Act and the rules and regulations of the
SEC.
(b) The consolidated financial statements contained in the SEC
Reports were prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes thereto or, in the case of unaudited interim
financial statements, as may be permitted by the SEC on Form 10-Q under the
Exchange Act) and fairly present, in all material respects, the consolidated
financial position of the Company and the Subsidiaries as at the respective
dates thereof and the consolidated results of operations and consolidated cash
flows of the Company and the Subsidiaries for the respective periods indicated,
subject, in the case of interim financial statements, to normal year-end
adjustments.
(c) But for the late filing described in Section 5.8 of the
Disclosure Schedule, the Company would be currently eligible to register with
the SEC securities for resale in a secondary offering under Form S-3 (as
hereinafter defined).
5.9 NO CHANGES. Except for the transactions contemplated by
this Agreement and as disclosed in Section 5.9 of the Disclosure Schedule or in
the SEC Reports filed prior to the date of this Agreement, since December 30,
2000 there has been no material adverse change in the business, assets,
condition (financial or otherwise), operations or results of operations of the
Company and the Subsidiaries, taken as a whole, and neither the Company nor any
Subsidiary has: (a) incurred any material debts, obligations or liabilities,
absolute, accrued or contingent and whether due or to become due, except current
liabilities incurred in the ordinary course of business and the debt evidenced
by the Demand Note; (b) paid any material obligation or liability other than, or
discharged or satisfied any material liens or encumbrances other than those
securing, current liabilities, in each case in the ordinary course of business;
(c) declared or made any payment or distribution to its shareholders as such, or
purchased or redeemed any of its shares of capital stock or other securities, or
obligated itself to do so; (d) mortgaged, pledged or subjected to lien, charge,
security interest or other encumbrance any of its material assets, tangible or
intangible, except for Permitted Liens (as hereinafter defined) arising in the
ordinary course of business and liens securing the Demand Note; (e) sold,
transferred or leased any of its material assets, except for sales of inventory
and obsolete or worn-out equipment in the ordinary course of business; (f)
cancelled or compromised any material debt or claim, or waived or released any
right of material value; (g) suffered any physical damage, destruction or loss
(whether or not covered by insurance) materially and adversely affecting,
individually or in the aggregate, the business, assets, condition (financial or
otherwise), operations or results of operations of the Company and the
Subsidiaries, taken as a whole; (h) entered into any material transaction other
than in the ordinary course of business; (i) encountered any material labor
difficulties or labor union organizing activities; (j) issued or sold any shares
of capital stock or
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other securities (other than shares of Common Stock issued upon the exercise or
conversion of options, warrants or convertible securities outstanding on
December 30, 2000 or granted thereafter and disclosed on Schedule 5.9 hereto) or
granted any options, warrants, convertible securities or other purchase rights
with respect thereto; (k) made any acquisition or disposition of any material
assets or become involved in any other material transaction, other than for fair
value in the ordinary course of business; (l) increased substantially any
compensation or benefits payable to any officers, directors or employees of the
Company or any Subsidiary other than consistent with past practices; or (m)
agreed to do any of the foregoing.
5.10 TAX RETURNS AND AUDITS. All required federal and material
state, local and foreign tax returns or appropriate extension requests of each
of the Company and the Subsidiaries have been filed, all such returns are
accurate and complete in all material respects, and all federal and material
state, local and foreign taxes required to be paid with respect to such returns,
and all additional material assessments due or claimed to be due by the Company
or any Subsidiary, have been paid or due provision for the payment thereof has
been made, except as disclosed in Section 5.10 of the Disclosure Schedule.
Except as disclosed in Section 5.10 of the Disclosure Schedule, neither the
Company nor any Subsidiary has received notice of any tax deficiency proposed or
assessed against it that remains unresolved, or has executed any waiver of any
statute of limitations on the assessment or collection of any tax. Except as
disclosed in Section 5.10 of the Disclosure Schedule, none of the tax returns of
any of the Company or the Subsidiaries are, to the knowledge of the Company, the
subject of pending audits by governmental authorities. Neither the Company nor
any Subsidiary has any material tax liabilities except those reflected in the
most recent consolidated balance sheet included in the SEC Reports filed prior
to the date of this Agreement and those incurred in the ordinary course of
business since the date of such balance sheet.
5.11 TITLE TO PROPERTIES AND ENCUMBRANCES. Each of the Company
and the Subsidiaries has good and marketable title to all its owned properties
and assets, including without limitation the properties and assets reflected in
the most recent consolidated balance sheet included in the SEC Reports filed
prior to the date of this Agreement, except for property disposed of in the
ordinary course of business since the date of such balance sheet, which
properties and assets are not subject to any mortgage, pledge, lease, lien,
charge, security interest or encumbrance, except Permitted Liens and liens
securing the Demand Note. The plant, offices and equipment owned and leased by
each of the Company and the Subsidiaries have been kept in good condition and
repair (ordinary wear and tear excepted), and neither the Company nor any
Subsidiary has been threatened with any material action or proceeding under any
building or zoning ordinance, law or regulation.
5.12 LITIGATION; GOVERNMENTAL PROCEEDINGS. There are no legal
actions, suits, arbitrations or other legal, administrative or governmental
proceedings or investigations pending or, to the knowledge of the Company,
threatened against any of the Company or the Subsidiaries, or their respective
properties, assets or business, (a) that seek to enjoin or otherwise challenge
the consummation of the transactions contemplated by this Agreement, or (b)
except as described in the SEC Reports filed prior to the date of this Agreement
or as set forth in Section 5.12 of the Disclosure Schedule, that, if decided
adversely to the Company or such Subsidiary, could be reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect. Neither
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the Company nor any Subsidiary is in default in any material respect with
respect to any judgment, order or decree of any court or any governmental agency
or instrumentality.
5.13 COMPLIANCE WITH APPLICABLE LAWS AND OTHER INSTRUMENTS.
The business and operations of each of the Company and its Subsidiaries have
been and are being conducted in accordance with all applicable laws, rules and
regulations of all governmental authorities, except to the extent noncompliance
therewith has not had and would not be reasonably expected to have, individually
or in the aggregate, a Material Adverse Effect. Neither the Company nor any
Subsidiary is in violation of its Articles of Incorporation or its Bylaws.
5.14 PATENTS AND OTHER INTANGIBLE RIGHTS. Except as set forth
in Section 5.14 of the Disclosure Schedule, each of the Company and the
Subsidiaries (a) owns or has the right to use and enforce (which right is
exclusive in the case of any patents), free and clear of all liens, claims and
restrictions (other than Permitted Liens and liens securing the Demand Note),
all material patents, trademarks, service marks, trade names, copyrights,
licenses and rights with respect to the foregoing used in the conduct of its
business as now conducted, (b) is not obligated or under any liability
whatsoever to make any payments of a material nature by way of royalties, fees
or otherwise to any owner of, licensor of, or other claimant to, any patent,
trademark, trade name, copyright or other intangible asset with respect to the
use thereof or in connection with the conduct of its business or otherwise
(except pursuant to a written license or other agreement included or
incorporated by reference in any SEC Reports filed prior to the date of this
Agreement, and except as set forth in Section 5.14 of the Disclosure Schedule),
(c) owns or has the unrestricted right to use all material trade secrets,
know-how, inventions, designs, processes, computer programs and technical data
necessary to the development, operation and sale of all products and services
presently sold by it (and has no reason to believe that it will not own or have
the unrestricted right to use all material trade secrets, know-how, inventions,
designs, processes, computer programs and technical data necessary to the
development, operation and sale of all products and services, if any, presently
proposed to be sold by it), free and clear of any liens, rights or claims of
others (other than Permitted Liens and liens securing the Demand Notes), and (d)
is not using any material confidential information or trade secrets of others
(except pursuant to a written license or other agreement included or
incorporated by reference in any SEC Reports filed prior to the date of this
Agreement). Neither the Company nor any Subsidiary is infringing in any material
respect upon any right or claimed right of any person under or with respect to
any patents, trademarks, service marks, trade names, copyrights, licenses or
rights with respect to the foregoing, nor has the Company or any Subsidiary
received any notice with respect thereto. To the knowledge of the Company, no
person is infringing upon any right or claimed right of the Company or any
Subsidiary under or with respect to any patents, trademarks, service marks,
trade names, copyrights, licenses or rights with respect to the foregoing,
except for infringements that have not had and would not be reasonably expected
to have, individually or in the aggregate, a Material Adverse Effect.
5.15 CONTRACTS. All "material contracts" (as such term is
defined in Item 601(b)(10) of Regulation S-K promulgated by the SEC) to be
performed in whole or in part by the Company or any of the Subsidiaries after
the date of this Agreement ("Material Contracts") have been included or
incorporated by reference in the SEC Reports filed prior to the date of this
Agreement. Each Material Contract is in full force and effect and enforceable
according to its terms (except as the enforceability thereof may be limited by
bankruptcy,
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insolvency, moratorium, fraudulent conveyance or transfer, reorganization or
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity). None of the Company or any Subsidiary or, to the
knowledge of the Company, any other party is in breach in any material respect
of or in default in any material respect under any of the Material Contracts.
5.16 INSURANCE COVERAGE. There are in full force policies of
insurance issued by insurers of recognized responsibility insuring each of the
Company and the Subsidiaries, and their respective properties and business,
against such losses and risks and in such amounts as in the Company's best
judgment, after advice from its insurance broker, are acceptable for the nature
and extent of the business of the Company and the Subsidiaries and the resources
of the Company and the Subsidiaries. Neither the Company nor any Subsidiary is
in default in any material respect under any material provision contained in any
insurance policy, or has failed to give any notice or present any material
existing claims it has under any insurance policies in a timely fashion.
5.17 NO BROKERS OR FINDERS. No person, firm or corporation has
or will have, as a result of any act or omission of any of the Company or the
Subsidiaries, any right, interest or valid claim against or upon any of the
Company, the Subsidiaries or the Purchasers for any commission, fee or other
compensation as a finder or broker, or in any similar capacity, in connection
with the transactions contemplated by this Agreement, except as disclosed in
Section 5.17 of the Disclosure Schedule. The Company will indemnify and hold
harmless each Purchaser against any and all liability with respect to any such
commission, fee or other compensation (including without limitation those
arising under the arrangements described in Section 5.17 of the Disclosure
Schedule) which may be payable or determined to be payable in connection with
the transactions contemplated by this Agreement.
5.18 CONFLICTS OF INTEREST. Except as disclosed in the SEC
Reports filed prior to the date of this Agreement, no officer or director of any
of the Company or the Subsidiaries, or any person who is known by the Company to
be the beneficial owner of more than 5% of the Company's Common Stock (as
determined in accordance with Rule 13d-3 under the Exchange Act), or any
affiliate of any such person (other than St. Xxxx or any affiliate of St. Xxxx),
has any direct or indirect interest (a) in any entity which does business with
any of the Company or the Subsidiaries, or (b) in any property, asset or right
which is used by any of the Company or the Subsidiaries in the conduct of its
business, or (c) in any contractual relationship with any of the Company or the
Subsidiaries other than as an employee. For the purpose of this Section 5.18,
there shall be disregarded any interest which arises solely from the ownership
of less than a 1% equity interest in a corporation whose stock is regularly
traded on any national securities exchange or in the over-the-counter market.
5.19 LICENSES. Each of the Company and the Subsidiaries
possesses from the appropriate agency, commission, board and government body and
authority, whether federal, state, local or foreign, all licenses, permits,
authorizations, approvals, franchises and rights which are necessary for it to
engage in the business currently conducted by it and which, if not possessed by
the Company or such Subsidiary, would be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect. The Company has no
knowledge that would lead it to believe that either it or any of the
Subsidiaries will not be able to obtain all
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licenses, permits, authorizations, approvals, franchises and rights that may be
required for any business the Company or any Subsidiary presently proposes to
conduct if the failure to obtain the same would be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect.
5.20 REGISTRATION RIGHTS. Other than under (a) this Agreement,
(b) that certain Amended and Restated Registration Rights Agreement dated as of
December 28, 1995, as heretofore amended, among the Company and certain of its
shareholders (as heretofore amended, the "Existing Registration Rights
Agreement"), a true and correct copy of which has been delivered to the
Purchasers, and (c) the Existing GE Warrant (as hereinafter defined), a true and
correct copy of which has been delivered to the Purchasers, the Company has not
agreed to register any of its authorized or outstanding securities under the
Securities Act.
5.21 EMPLOYEE BENEFITS.
(a) With respect to each employee benefit plan (as such term
is defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) maintained by the Company or an "ERISA Affiliate"
(as defined below) or to which the Company or an ERISA Affiliate contributes or
is under any obligation to contribute (an "Employee Benefit Plan"): (i) such
plan has been administered and operated in compliance with its terms and the
applicable requirements of ERISA and the Internal Revenue Code of 1986, as
amended (the "Code"), except with respect to matters that, individually or in
the aggregate, could not be reasonably expected to result in material liability;
(ii) no event has occurred and there exists no circumstance under which the
Company or any ERISA Affiliate could be reasonably expected to incur material
liability under ERISA or the Code (other than for contributions or benefits paid
or payable in the ordinary course of operation of such plan); (iii) there are no
actions, suits or claims pending or, to the knowledge of the Company, threatened
with respect to any Employee Benefit Plan or against the assets or a fiduciary
of any Employee Benefit Plan (other than routine claims for benefits in the
ordinary course); (iv) no "prohibited transaction" (as defined in Section 406 of
ERISA or Section 4975 of the Code) which is not covered by an applicable
exemption and which could be reasonably expected to result in material liability
has occurred; (v) no "reportable event" (as defined in Section 4043 of ERISA)
has occurred; (vi) all material contributions and premiums due have been paid on
a timely basis; and (vii) all material contributions made under any Employee
Benefit Plan intended to be tax deductible meet the requirements for
deductibility under the Code. As used herein, the term "ERISA Affiliate" refers
to any organization that is (x) a member of a "controlled group" of which the
Company is a member or (y) under "common control" with the Company within the
meaning of, respectively, Sections 414(b) and (c) of the Code.
(b) Each Employee Benefit Plan that is intended to qualify
under Section 401(a) of the Code has received a favorable letter of
determination from the Internal Revenue Service that it so qualifies and that
its related trust is exempt from taxation under Section 501(a) of the Code. No
event has occurred that will or could reasonably be expected to give rise to
disqualification or loss of tax-exempt status of any such Employee Benefit Plan
or trust under Section 401(a) or 501(a) of the Code.
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(c) No Employee Benefit Plan is a "defined benefit plan"
within the meaning of Section 3(35) of ERISA. Neither the Company nor any
Subsidiary has at any time been a party to or contributed to any "multiemployer
plan" within the meaning of Section 3(37) of ERISA or any "multiple employer
plan" within the meaning of Section 413 of the Code (each, a "Multiemployer
Plan").
(d) Neither the approval or execution of this Agreement nor
the consummation of the transactions contemplated by this Agreement will (i)
entitle any officer, director or employee of or consultant to the Company or any
Subsidiary to severance pay, or (ii) accelerate the time of payment or vesting
of, or increase the amount of, compensation due to any such person.
5.22 ENVIRONMENTAL AND SAFETY LAWS.
(a) Neither the Company nor any Subsidiary is, in any material
respect, in violation of any applicable statute, law or regulation relating to
the environment or occupational health and safety, and no material expenditures
are, or are reasonably anticipated to be, required in order for the Company or
any Subsidiary to comply with any such existing statute, law or regulation.
(b) Except as disclosed in Section 5.22 of the Disclosure
Schedule, during the period that the Company or a Subsidiary has owned or leased
any facility and, to the knowledge of the Company, in the case of any currently
owned or leased facility, at all times prior thereto, (i) there have been no
material disposals, releases or threatened releases of Hazardous Materials (as
defined below) by any of the Company or the Subsidiaries or, to the knowledge of
the Company, any other person on, from or under such facility, and (ii) other
than normal office products and cleaning supplies, there has not been used,
generated, manufactured or stored on, under or about such facility or
transported to or from such facility by the Company or any Subsidiary or, to the
knowledge of the Company, any other person, any Hazardous Materials.
(c) There is no pending or, to the knowledge of the Company,
threatened claim, litigation or administrative agency proceeding against any of
the Company or the Subsidiaries arising out of circumstances that form the basis
of or are alleged to form the basis of, nor has the Company or any of the
Subsidiaries received written notice from any governmental entity that alleges,
violation in any material respect of any material applicable statute, law or
regulation relating to the environment or occupational health and safety.
(d) For purposes of this Agreement, (i) the terms "disposal,"
"release" and "threatened release" shall have the definitions assigned thereto
by the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section 9601, ET. SEQ. as amended ("CERCLA"), and (ii)
"Hazardous Materials" shall mean any hazardous or toxic substance, material or
waste, which is regulated under, or defined as a "hazardous substance,"
"pollutant," "contaminant," "toxic chemical," "hazardous material," "toxic
substance" or "hazardous chemical" under (A) CERCLA; (B) the Emergency Planning
and Community Right-to-Know Act, 42 U.S.C. Section 11001, ET. SEQ.; (C) the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, ET. SEQ.; (D)
the Toxic Substance Control Act, 15 U.S.C. Section 2601, ET. SEQ.; (E) the
Occupational Safety and Health Act of 1970, 00 X.X.X.
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Xxxxxxx 000, XX. SEQ.; (F) regulations promulgated under any of the above
statutes; or (G) any applicable state or local statute, ordinance, rule or
regulation that has a scope or purpose similar to those statutes identified
above.
5.23 EMPLOYEES. To the Company's knowledge, no executive
officer of the Company, and no employee of the Company or any Subsidiary whose
annual compensation is in excess of $100,000, has any plans to terminate his or
her employment with the Company or such Subsidiary. Neither the Company nor any
Subsidiary is involved in any material labor dispute nor, to the knowledge of
the Company, is any such dispute threatened. Neither the Company nor any
Subsidiary is a party to or bound by any collective bargaining agreement. Each
of the Company and the Subsidiaries has complied in all material respects with
all laws relating to the employment of labor, including without limitation
provisions relating to wages, hours, equal opportunity, collective bargaining
and payment of Social Security and other taxes, and neither the Company nor any
Subsidiary has encountered any material labor difficulties.
5.24 ABSENCE OF RESTRICTIVE AGREEMENTS. To the knowledge of
the Company, no employee of the Company or any Subsidiary is subject to any
secrecy or non-competition agreement or any agreement or restriction of any kind
that would impede in any material respect the ability of such employee to carry
out fully all activities of such employee in furtherance of the business of the
Company and the Subsidiaries. To the best of the Company's knowledge, no
employer or former employer of any employee of the Company or any Subsidiary has
any claim of any kind whatsoever in respect of any of the rights described in
Section 5.14 hereof.
5.25 INVESTMENT COMPANY. Neither the Company nor any
Subsidiary is, or will be as a result of consummation of the transactions
contemplated by this Agreement, an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
5.26 LISTING AND MAINTENANCE REQUIREMENTS. Except as disclosed
in Section 5.26 of the Disclosure Schedule, the Company has not, since the
inclusion of its Common Stock for listing on the NASDAQ National Market,
received written notice from such market to the effect that the Company is not
in compliance with the listing or maintenance requirements of such market.
5.27 DISCLOSURE. The Company has not knowingly withheld from
the Purchasers any material facts relating to the business, assets, condition
(financial or otherwise), operations or results of operations of any of the
Company or the Subsidiaries. No representation or warranty in this Agreement or
in any certificate, schedule, statement or other document furnished or to be
furnished to any Purchaser pursuant hereto or in connection with the
transactions contemplated hereby contains or will contain any untrue statement
of a material fact or omits or will omit to state any material fact required to
be stated herein or therein or necessary to make the statements herein or
therein not misleading.
6. REPRESENTATIONS AND WARRANTIES OF PURCHASERS. Each of the Purchasers
severally represents and warrants for itself that:
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6.1 INVESTMENT INTENT. The Notes and the Warrants being
acquired by such Purchaser hereunder are being purchased, and the Conversion
Stock and the Warrant Stock acquired by such Purchaser upon conversion of such
Notes or exercise of such Warrants will be acquired, for such Purchaser's own
account and not with the view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities
Act. Such Purchaser understands that the Notes and the Conversion Stock, and the
Warrants and the Warrant Stock, have not been registered under the Securities
Act or any applicable state laws by reason of their issuance or contemplated
issuance in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act and such laws, and that the reliance of the
Company and others upon this exemption is predicated in part upon this
representation and warranty. Such Purchaser further understands that the Notes
and Conversion Stock, and the Warrants and the Warrant Stock, may not be
transferred or resold without (a) registration under the Securities Act and any
applicable state securities laws, or (b) an exemption from the registration
requirements of the Securities Act and applicable state securities laws.
Such Purchaser understands that any sales of securities
pursuant to Rule 144 may only be made in full compliance with the provisions of
Rule 144, and that it may not sell any securities pursuant to Rule 144 prior to
the expiration of a one-year period after such Purchaser has acquired the
securities.
6.2 LOCATION OF PRINCIPAL OFFICE AND QUALIFICATION AS
ACCREDITED INVESTOR. The state in which such Purchaser's principal office (or
domicile, if such Purchaser is an individual) is located is set forth in such
Purchaser's address in Schedule 1 hereto. Unless otherwise indicated on such
Purchaser's Certification attached to this Agreement, such Purchaser qualifies
as an accredited investor within the meaning of Rule 501 under the Securities
Act for the reasons specified on such Certification. Such Purchaser has such
knowledge and experience in financial and business matters that such Purchaser
is capable of evaluating the merits and risks of the investment to be made
hereunder by such Purchaser. Such Purchaser has and has had access to all of the
Company's material books and records and access to the Company's executive
officers has been provided to such Purchaser or to such Purchaser's qualified
agents.
6.3 ACTS AND PROCEEDINGS. Each of the Transaction Documents to
which such Purchaser is or will be a party has been duly authorized by all
necessary action on the part of such Purchaser and has been or at the Closing
will be duly executed and delivered by such Purchaser. This Agreement is, and
each of the other Transaction Documents to which such Purchaser will be a party
when executed and delivered pursuant to the terms of this Agreement will be, a
valid and binding agreement of such Purchaser enforceable against such Purchaser
in accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium, fraudulent conveyance or
transfer, reorganization or similar laws affecting the enforcement of creditors'
rights generally and by general principles of equity.
6.4 NO BROKERS OR FINDERS. No person, firm or corporation has
or will have, as a result of any act or omission by such Purchaser, any right,
interest or valid claim against the Company or any Subsidiary for any
commission, fee or other compensation as a finder or broker, or in any similar
capacity, in connection with the transactions contemplated by this Agreement.
Such Purchaser will indemnify and hold harmless each of the Company and the
Subsidiaries against any and all liability with respect to any such commission,
fee or other compensation
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which may be payable or determined to be payable as a result of the actions of
such Purchaser in connection with the transactions contemplated by this
Agreement.
7. CONDITIONS OF EACH PURCHASER'S OBLIGATION. The obligation to
purchase and pay for the Notes and the Warrants which each Purchaser has agreed
to purchase at the Closing is subject to the fulfillment prior to or at the
Closing of the following conditions. In the event that any such condition is not
fulfilled to the satisfaction of each Purchaser, or in the event that any of the
Purchasers does not proceed with the purchase of the number of Notes or Warrants
it has committed to purchase, then no Purchaser shall be obligated to proceed
with the purchase of such Notes or Warrants.
7.1 REPRESENTATIONS. The representations and warranties of the
Company under this Agreement shall be true in all material respects as of the
date of this Agreement and as of the Closing Date with the same effect as though
made on and as of the Closing Date.
7.2 COMPLIANCE WITH AGREEMENT. The Company shall have
performed and complied in all material respects with all agreements or
conditions required by this Agreement to be performed and complied with by it
prior to or as of the Closing.
7.3 CERTIFICATE OF OFFICERS. The Company shall have delivered
to the Purchasers a certificate, dated the Closing Date, executed by the chief
executive officer and chief financial officer of the Company on behalf of the
Company and certifying to the satisfaction of the conditions specified in
Sections 7.1, 7.2 and 7.5 hereof.
7.4 OPINION OF COMPANY'S COUNSEL. The Company shall have
delivered to each of the Purchasers opinions of Xxxxxxxxxxx Xxxxx & Xxxxxxxx LLP
and of Xxxx Xxxxxxx, each dated the Closing Date, in substantially the forms set
forth as, respectively, Exhibits 8 and 9 hereto.
7.5 NO EVENT OF DEFAULT. There shall exist at the time of
Closing no condition or event which, immediately after the Closing, would, with
or without notice or lapse of time, or both, constitute an Event of Default (as
hereinafter defined).
7.6 FAIRNESS OPINION. The Company shall have received an
opinion from Duff & Xxxxxx, LLC that the issuance and sale of the Notes and
Warrants on the terms provided for in this Agreement are fair to the
shareholders of the Company from a financial point of view.
7.7 SUPPORTING DOCUMENTS. The Purchasers shall have received
the following:
(a) a copy of resolutions of the Board of Directors of each of
the Company and the Subsidiaries, evidencing compliance with the requirements of
Section 302A.255, Subdivision 1(c) of the Minnesota Business Corporation Act and
otherwise in form and substance reasonably satisfactory to the Purchasers,
authorizing and approving the transactions contemplated by this Agreement, all
such resolutions to be certified by the Secretary of such entity;
(b) a certificate of the Secretary of each of the Company and
the Subsidiaries certifying the names, titles and signatures of the officers of
such entity authorized to execute the
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Transaction Documents to which such entity is or will be a party and further
certifying that the Articles of Incorporation and By-Laws of such entity
delivered to the Purchasers prior to the date hereof have been validly adopted,
are in full force and effect, and have not been amended or modified;
(c) good standing certificates for each of the Company and the
Subsidiaries issued by the Secretary of State of the State of Minnesota, and, if
such entity is qualified to do business therein as a foreign corporation, the
Secretaries of State of the States of South Carolina and Utah, as of a date no
more than 15 days prior to the Closing Date; and
(d) such additional supporting documentation and other
information with respect to the transactions contemplated hereby as any of the
Purchasers may reasonably request.
7.8 LIEN SEARCHES. The Purchasers shall have received Uniform
Commercial Code, judgment and tax lien searches from the Secretary of State of
the State of Minnesota and appropriate officials of such other states and/or
counties as any of the Purchasers may reasonably request at least ten days prior
to the Closing Date, as of a date no more than 15 days prior to the Closing
Date, certified by a reporting service satisfactory to the Purchasers and
disclosing no liens, charges, security interests or encumbrances on the assets
of the Company or any of its Subsidiaries other than Permitted Liens or liens
securing the Demand Note.
7.9 COLLATERAL DOCUMENTS. The Purchasers shall have received
the Parent Security Agreement, the Parent Patent and Trademark Security
Agreement and the Pledge Agreement duly executed by the Company, and the
Guaranty and the Subsidiary Security Agreement duly executed by each Subsidiary.
7.10 ACTIONS TO PERFECT LIENS. The Purchasers shall have
received all certificates, documents and instruments, in form and substance
reasonably satisfactory to them, including without limitation duly executed
financing statements on Form UCC-1 and the stock certificates evidencing all of
the outstanding capital stock of each Subsidiary accompanied by undated stock
powers duly executed in blank, necessary or, in the opinion of any of the
Purchasers, desirable to perfect the liens created by any of the Security
Agreements (as hereinafter defined).
7.11 INSURANCE. The Purchasers shall have received standard
lenders' loss payable endorsements in favor of the Purchasers with respect to
insurance policies or other instruments or documents evidencing insurance
coverage on the properties of the Company and its Subsidiaries in compliance
with Section 8.16 hereof and the terms of the Parent Security Agreement and
Subsidiary Security Agreement, and standard endorsements to all liability
insurance policies of the Company or any of its Subsidiaries naming the
Purchasers as additional insureds thereunder.
7.12 LISTING. Listing and trading of the Common Stock on the
NASDAQ National Market shall not have been suspended.
7.13 REGISTRATION RIGHTS AGREEMENT. The Company shall have
delivered to the Purchasers a Registration Rights Agreement, in substantially
the form set forth as Exhibit 10
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hereto (the "Registration Rights Agreement"), duly executed by the Company and
each of the other parties thereto (other than the Purchasers) who is an
affiliate of the Company or whose execution thereof is necessary to effectively
block the exercise of registration rights under the Existing Registration Rights
Agreement.
7.14 CANCELLATION OF EXISTING GE WARRANT. The Company shall
have delivered to the Purchasers evidence reasonably satisfactory to the
Purchasers that the Series A Warrant dated effective March 31, 1998 to initially
purchase 1,309,583 shares of Common Stock at an initial exercise price of $8.82
per share (the "Existing GE Warrant") has been cancelled in exchange for a new
warrant to initially purchase 135,000 shares of Common Stock at an initial
exercise price of $1.00 per share (the "New GE Warrant"), which New GE Warrant
shall be in substantially the form of the Existing GE Warrant except that such
New GE Warrant shall modify the registration rights contained in the Existing GE
Warrant so that they do not conflict with the exercise by the Purchasers of any
of their rights under the Registration Rights Agreement.
8. AFFIRMATIVE COVENANTS. The Company covenants and agrees that, as
long as any of the Notes remain outstanding and, in the case of Sections 8.6,
8.9, 8.10, 8.11 and 8.12, as long as any of the Notes or Conversion Stock, or
any of the Warrants or Warrant Stock, remain outstanding:
8.1 CORPORATE EXISTENCE. The Company will maintain and cause
each Subsidiary to maintain its corporate existence in good standing (except
that the corporate existence and good standing of any Subsidiary may be
terminated pursuant to a merger permitted under Section 9.2 hereof) and comply
in all material respects with all applicable laws and regulations of the United
States or of any state or states thereof or of any political subdivision thereof
and of any governmental authority.
8.2 BOOKS OF ACCOUNT AND RESERVES. The Company will, and will
cause each of its Subsidiaries to, keep books of record and account in which
full, true and correct entries are made of all of its and their respective
dealings, business and affairs, in accordance with generally accepted accounting
principles. The Company will employ certified public accountants of nationally
recognized standing selected by the Board of Directors of the Company (the
"Board of Directors") who are "independent" within the meaning of the accounting
regulations of the SEC, and have annual audits made by such independent public
accountants in the course of which such accountants shall make such
examinations, in accordance with generally accepted auditing standards, as will
enable them to give such reports or opinions with respect to the consolidated
financial statements of the Company and its Subsidiaries as will satisfy the
requirements of the SEC in effect at such time with respect to certificates and
opinions of accountants.
8.3 FURNISHING OF FINANCIAL STATEMENTS AND INFORMATION. Upon
request, the Company will make available to each holder of a Purchased Security:
(a) as soon as practicable, but in any event within 45 days
after the close of each fiscal quarter, unaudited consolidated balance sheets of
the Company and its Subsidiaries as of the end of such fiscal quarter, together
with related unaudited consolidated statements of operations and cash flows for
such fiscal quarter, setting forth in comparative form figures for
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the corresponding fiscal quarter of the previous year, all in reasonable detail
and certified by an authorized accounting officer of the Company;
(b) as soon as practicable, but in any event within 90 days
after the end of each fiscal year, a consolidated balance sheet of the Company
and its Subsidiaries, as of the end of such fiscal year, together with the
related consolidated statements of operations, stockholders' equity and cash
flow for such fiscal year, setting forth in comparative form figures for the
previous fiscal year, all in reasonable detail and duly certified by the
Company's independent certified public accountants, which accountants shall have
given the Company an opinion, unqualified as to the scope of the audit,
regarding such statements;
(c) concurrently with the delivery in each year of the
financial statements referred to in paragraph (b) of this Section 8.3, a
statement and report signed by the independent certified public accountants who
certified such financial statements to the effect that they have read this
Agreement and that in the course of the audit of the consolidated financial
statements of the Company they became aware of no condition or event which
constituted an Event of Default or which, after notice or lapse of time, or
both, would constitute an Event of Default, or if such accountants did become
aware of any such condition or event, specifying the nature and period of
existence thereof;
(d) promptly upon transmission thereof, copies of all reports,
proxy statements, registration statements and notifications filed by it with the
SEC pursuant to any act administered by the SEC or furnished to shareholders of
the Company or to any national securities exchange or market; and
(e) with reasonable promptness, such other financial data
relating to the business, affairs and financial condition of any of the Company
and the Subsidiaries as is available to the Company and as from time to time any
holder of a Purchased Security may reasonably request.
8.4 INSPECTION. The Company will permit each holder of a
Purchased Security and any of its partners, officers or employees, or any
outside representatives designated by such holder and reasonably satisfactory to
the Company, to visit and inspect at such holder's expense any of the properties
of the Company or its Subsidiaries, including their books and records (and to
make photocopies thereof or make extracts therefrom), and to discuss their
affairs, finances, and accounts with their officers, lawyers and accountants,
except with respect to trade secrets and similar confidential information, all
to such reasonable extent and at such reasonable times and intervals as such
holder may reasonably request. Except as otherwise required by laws or
regulations applicable to such holder, each holder of a Purchased Security shall
maintain, and shall require its representatives to maintain, all information
obtained pursuant to this Section 8.4 or any other provision of this Agreement
or the other Transaction Documents on a confidential basis.
8.5 PREPARATION AND APPROVAL OF BUDGETS. At least one month
prior to the beginning of each fiscal year of the Company, the Company shall
prepare and submit to its Board of Directors, for its review and approval, an
annual plan for such year, which shall include monthly capital and operating
expense budgets, cash flow statements and profit and loss
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projections itemized in such detail as the Board of Directors may reasonably
request. Each annual plan shall be modified as often as is necessary in the
judgment of the Board of Directors to reflect changes required as a result of
operating results and other events that occur, or may be reasonably expected to
occur, during the year covered by the annual plan, and copies of each such
modification shall be submitted to the Board of Directors. The Company will,
simultaneously with the submission thereof to the Board of Directors, deliver a
copy of each such annual plan and modification thereof to each holder of a
Purchased Security.
8.6 REPLACEMENT OF NOTES OR WARRANTS OR CERTIFICATES
REPRESENTING CONVERSION STOCK OR WARRANT STOCK. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Notes or Warrants or certificates representing Conversion
Stock or Warrant Stock and, in the case of any such loss, theft or destruction,
upon delivery of an indemnity agreement reasonably satisfactory to the Company,
or, in the case of any such mutilation, upon surrender and cancellation of the
Notes or Warrants or certificates representing Conversion Stock or Warrant
Stock, as the case may be, the Company will issue new Notes or Warrants or
certificates representing Conversion Stock or Warrant Stock, as the case may be,
of like tenor, in lieu of such lost, stolen, destroyed or mutilated Notes or
Warrants or certificates representing Conversion Stock or Warrant Stock, as the
case may be.
8.7 EXCHANGE OF NOTES. The Company will at any time, at the
Company's expense (except for any transfer tax payable), at the written request
of the holder of a Note and upon surrender of such Note for such purpose, issue
a new Note or Notes in exchange therefor in the denomination of $50,000, or any
multiple thereof specified by such holder, in an aggregate principal amount
equal to the then unpaid principal amount of the Note surrendered and
substantially in the form of Exhibit 1 to this Agreement with appropriate
insertions and variations.
8.8 APPLICATION OF PROCEEDS. The net proceeds received by the
Company from the sale of the Notes and Warrants shall be used substantially for
working capital purposes, to prepay any portion of the Demand Note which is not
converted by St. Xxxx at the Closing in payment of the purchase price hereunder
for its Notes and Warrants, and to fund up to $750,000 of the Reserve Account.
Pending use of the proceeds in the business, they shall be invested in
accordance with the Company's investment policy in effect on the date hereof, a
true and correct copy of which has been delivered to the Purchasers.
8.9 REPORTS UNDER THE EXCHANGE ACT. With a view to making
available to the holders of the Purchased Securities the benefits of Rule 144
and any other rule or regulation of the SEC that may at any time permit such a
holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to use all
commercially reasonable efforts to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144, at all times;
(b) take such action as is necessary to enable the holders of
the Purchased Securities to utilize Form S-3 for the sale of the Purchased
Securities (as defined in the Registration Rights Agreement) as contemplated by
the Registration Rights Agreement;
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(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(d) furnish promptly to any holder of Purchased Securities,
upon request (i) a written statement by the Company that it has complied with
the reporting requirements of Rule 144, the Securities Act and the Exchange Act,
or that it qualifies as a registrant whose securities may be resold in a
secondary offering pursuant to Form S-3, (ii) a copy of the most recent annual
or quarterly reports of the Company and such other reports and documents so
filed by the Company, (iii) all press releases and other statements made
available by the Company to the public concerning material developments related
to the Company or any of its Subsidiaries, and (iv) such other information as
may be reasonably requested in availing any such holder of any rule or
regulation of the SEC which permits the selling of any such securities without
registration or under such form.
8.10 RULE 144A.
(a) The Company agrees that, upon the request of any holder of
Purchased Securities, or any prospective purchaser of Purchased Securities, the
Company shall promptly provide (but in any case within 15 days of a request) to
such holder or potential purchaser the following information: (a) a brief
statement of the nature of the business of the Company and its Subsidiaries and
the products and services they offer; (b) the Company's most recent consolidated
balance sheets and profit and loss and retained earnings statements, and similar
financial statements for such part of the two preceding fiscal years prior to
such request as the Company has been in operation (which financial information
shall be audited, to the extent reasonably available); and (c) such other
information about the Company, its Subsidiaries and their business, financial
condition and results of operations as the requesting person shall request in
order to comply with Rule 144A promulgated under the Securities Act and the
antifraud provisions of the federal and state securities laws.
(b) The Company hereby represents and warrants to any such
requesting person that the information provided by the Company pursuant to this
Section 8.10 will not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made, in light
of the circumstances under which they were made, not misleading.
8.11 LISTING. The Company shall, as promptly as practicable
after the Closing, secure the listing of all Conversion Stock and Warrant Stock
upon each securities exchange and automated quotation system (including the
NASDAQ National Market), if any, upon which shares of Common Stock of the
Company are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Stock and Warrant Stock. The Company shall use all
commercially reasonable efforts to maintain the Common Stock's listing on either
the NASDAQ National Market, a national securities exchange or other national
market or interdealer quotation system (including without limitation the NASDAQ
SmallCap Market and the OTC Bulletin Board). The Company shall promptly offer to
provide the holders of the Purchased Securities copies of any notice it receives
from the NASDAQ National Market or any securities exchange or other market or
interdealer quotation system regarding the continued eligibility of the Common
Stock for listing
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on such market, securities exchange or system, provided that the Company shall
not be required to offer to provide, or to provide, such notices if the Company
reasonably determines that such notices contain material non-public information.
The Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 8.11.
8.12 RIGHTS TO PURCHASE ADDITIONAL SECURITIES.
(a) If the Company should decide to issue and sell additional
shares of any capital stock of the Company or any options, warrants or other
rights to subscribe for or to purchase any capital stock of the Company or any
securities convertible into capital stock of the Company, other than (i) shares
of Common Stock sold to the public pursuant to a registration statement filed
under the Securities Act, if such offering is underwritten on a firm commitment
basis by an underwriter, or group of underwriters represented by an underwriter
or underwriters, which is a member of the New York Stock Exchange, (ii) options
to purchase Common Stock or awards of Common Stock granted to employees or
directors of the Company or to consultants to the Company or to the Company's
employee stock purchase plan, as approved from time to time by the Board of
Directors or a committee thereof, and shares of Common Stock issued upon the
exercise of such options, (iii) shares of Common Stock issued upon the exercise
of options, warrants or Convertible Securities outstanding at the Closing that
were approved by the Board of Directors or a committee thereof (including
without limitation the New GE Warrant), (iv) shares of Common Stock issued upon
conversion of the Notes or exercise of the Warrants, (v) shares of Common Stock
issued in a stock split or reclassification of, or as a stock dividend or other
distribution on, then outstanding shares of Common Stock, (vi) shares of Common
Stock issued in connection with any bona fide business acquisition by the
Company or any Subsidiary which has been approved by the Board of Directors and
is permitted by the terms of this Agreement, and (vii) shares of Common Stock,
or options or warrants to purchase shares of Common Stock, issued to vendors or
lessors of the Company or any Subsidiary, or shares of Common Stock issued upon
the exercise of such options or warrants, provided that the issuance of such
shares, options or warrants has been approved by the Board of Directors and is
for other than primarily equity financing purposes, and further provided that
the sum of the number of shares of Common Stock issued pursuant to this clause
(vii) (other than upon the exercise of options or warrants), plus the number of
shares of Common Stock subject to options or warrants issued pursuant to this
clause (vii), in any 12-month period shall not exceed one percent of the shares
of Common Stock outstanding on the date of this Agreement (appropriately
adjusted to reflect stock splits, stock dividends, reorganizations,
consolidations and similar changes hereafter effected) (all such capital stock,
warrants, securities convertible into capital stock and other rights, other than
securities referred to in clauses (i), (ii), (iii), (iv), (v), (vi) and (vii)
above, being hereinafter sometimes collectively referred to as "Additional
Securities"), the Company shall first offer to sell to each holder of Purchased
Securities, upon the same terms and conditions as the Company is proposing to
issue and sell such Additional Securities to others, such holder's pro rata
share (as defined below) of such Additional Securities. Such offer shall be made
by written notice given to each such holder and specifying therein the amount of
the Additional Securities being offered, the purchase price and other terms of
such offer. Each such holder shall have a period of 15 days from and after the
date of receipt by it of such notice within which to accept such offer. If a
holder of Purchased Securities elects to accept such offer in whole or in part,
such holder shall so accept by written notice to the Company given within such
15-day period. If a holder of Purchased Securities fails to accept such offer in
whole or in part within such 15-day period, any
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of such Additional Securities not purchased by such holder pursuant to such
offer may be offered for sale to others by the Company for a period of 120 days
from the last day of such 15-day period, but only on the same terms and
conditions as set forth in the initial offer to such holder, free and clear of
the restrictions imposed by this Section 8.12.
(b) For purposes of the previous paragraph, a holder's "pro
rata share" is the number of shares of Additional Securities (rounded to the
nearest whole share) as is equal to the product of (i)(A) the number of shares
of Common Stock issued, or issuable upon the exercise or conversion of rights,
options, warrants or Convertible Securities without the payment of any
additional cash consideration or with the payment of a nominal cash
consideration, as the case may be (collectively, "Fully Paid Securities"), to
such holder immediately prior to the issuance of the Additional Securities being
offered divided by (B) the total number of Fully Paid Securities issued or
issuable by the Company immediately prior to the issuance of the Additional
Securities, multiplied by (ii)(A) if so approved by the affirmative vote of the
holders of a Majority in Interest of the Purchased Securities, that portion of
the offering of Additional Securities that remains after considering binding
commitments to purchase that have been received from persons other than the
holders of the Purchased Securities, or (B) if not so approved, the entire
offering of Additional Securities.
(c) The rights of a holder of Purchased Securities under this
Section 8.12 to acquire a pro rata share of any Additional Securities (i) may be
assigned in whole or in part by such holder to any of its affiliates, and (ii)
shall terminate at the close of business on the fifth anniversary of the Closing
Date.
8.13 EMPLOYEE BENEFIT PLANS. The Company will maintain and
cause each ERISA Affiliate to maintain each Employee Benefit Plan in compliance
in all material respects with all applicable requirements of ERISA and of the
Code and with all applicable rulings and regulations issued under the provisions
of ERISA and of the Code, and will not and not permit any of the ERISA
Affiliates to (a) engage in any transaction in connection with which the Company
or any of the ERISA Affiliates would be subject to either a civil penalty
assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of
the Code, in either case in an amount exceeding $100,000, (b) fail to make full
payment when due of all amounts which, under the provisions of any Employee
Benefit Plan, the Company or any ERISA Affiliate is required to pay as
contributions thereto, or permit to exist any accumulated funding deficiency (as
such term is defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, with respect to any Employee Benefit Plan in an aggregate
amount exceeding $100,000, or (c) fail to make any payments in an aggregate
amount exceeding $100,000 to any Multiemployer Plan that the Company or any of
the ERISA Affiliates may be required to make under any agreement relating to
such Multiemployer Plan or any law pertaining thereto.
8.14 INSURANCE. The Company will, and will cause each
Subsidiary to, obtain and maintain in force such property damage, public
liability, business interruption, worker's compensation, indemnity bonds and
other types of insurance as the Company's executive officers, after consultation
with an accredited insurance broker, shall determine to be necessary or
appropriate to protect the Company and its Subsidiaries from the insurable
hazards or risks associated with the conduct of the business of the Company and
its Subsidiaries. The Company's executive officers shall periodically report to
the Board of Directors on the status of
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such insurance coverage. All insurance shall be maintained in at least such
amounts and to such extent as shall be determined to be reasonable by the Board
of Directors; and all such insurance shall be effected and maintained in force
under a policy or policies issued by insurers of recognized responsibility,
except that the Company or any Subsidiary may effect worker's compensation or
similar insurance in respect of operations in any state or other jurisdiction
either through an insurance fund operated by such state or other jurisdiction or
by causing to be maintained a system or systems of self-insurance which is in
accord with applicable laws.
8.15 PAYMENT OF TAXES, ETC. The Company will, and will cause
each Subsidiary to, pay and discharge promptly, or cause to be paid and
discharged promptly, when due and payable, all material taxes, assessments and
governmental charges or levies imposed upon it or upon its income or upon any of
its properties, as well as all material claims of any kind (including claims for
labor, material and supplies) which, if unpaid, might by law become a lien or
charge upon its property; provided, however, that neither the Company nor any
Subsidiary shall be required to pay any such tax, assessment, charge, levy or
claim if the amount, applicability or validity thereof is being contested in
good faith by appropriate proceedings promptly initiated and diligently
conducted and adequate reserves have been established therefor in accordance
with generally accepted accounting principles.
8.16 LANDLORD'S WAIVERS. The Company shall use all
commercially reasonable efforts to obtain and deliver to each of the Purchasers
as promptly as practicable after the Closing a landlord's waiver, in the form
approved by counsel for the Purchasers prior to the Closing or such other form
as any of the Purchasers shall reasonably request, duly executed by each of the
landlords of the facilities operated by the Company and its Subsidiaries other
than the landlords of retail stores.
8.17 SHAREHOLDER APPROVAL. The Company shall use all
commercially reasonable efforts to obtain as promptly as is practical after the
Closing approval of the shareholders of the Company, by the vote specified under
Section 4350(i) of the National Association of Securities Dealers Manual &
Notice to Members, of those terms of the Notes which, pursuant to the provisions
of the Notes, are fully effective only upon receipt of such approval.
9. NEGATIVE COVENANTS. Without the approval of the holders of a
Majority in Interest of the Purchased Securities, the Company will not and will
not permit any Subsidiary to, as long as any of the Notes remain outstanding
and, in the case of Section 9.4, as long as any of the Notes or Conversion
Stock, or any of the Warrants or Warrant Stock, remain outstanding until such
securities cease to be Purchased Securities:
9.1 SALES OF ASSETS. Sell, lease, license on an exclusive
basis or otherwise dispose of any of the assets of the Company and its
Subsidiaries, provided that (a) until the revocation by the holder or holders of
at least 67% of the aggregate principal amount of the Notes then outstanding,
which may be effected upon the occurrence and during the continuance of any
Event of Default, the Company and the Subsidiaries may sell inventory and
obsolete or worn-out equipment in the ordinary course of business, (b) any
Subsidiary may sell, lease, license or otherwise dispose of all or a substantial
part of its assets to the Company or another wholly-owned Subsidiary, (c) the
Company or any Subsidiary may dispose of cash in the
-24-
payment of its obligations, and (d) so long as no Event of Default, or condition
or event which, after notice or lapse of time, or both, would constitute an
Event of Default, shall then exist, the Company or any Subsidiary may sell,
lease, license or otherwise dispose of assets if (i) the net book value of such
assets, when added to the net book value of all other assets disposed of by the
Company or any Subsidiary pursuant to this clause (d) within the immediately
preceding 36-month period, does not exceed ten percent of the consolidated net
book value of the assets of the Company determined as of the end of the most
recently completed fiscal quarter, and (ii) such assets, together with all other
assets disposed of by the Company or any Subsidiary pursuant to this clause (d)
within the immediately preceding 36-month period, have not contributed more than
ten percent of consolidated net earnings of the Company for any of the three
most recently completed fiscal years. Upon any sale of assets permitted under
clause (d) of this Section 9.1, or upon any sale of obsolete or worn-out
equipment permitted under clause (a) of this Section 9.1, the Purchasers shall,
at the expense of the Company, execute such documents and take such actions as
the Company or the Collateral Agent (as hereinafter defined) shall reasonably
request to release, or to authorize the release of, the liens on such assets
securing the Notes.
9.2 FUNDAMENTAL CHANGES. Wind-up, liquidate or dissolve, or
consolidate with or merge into any other person, or permit any other person to
consolidate with or merge into the Company or any Subsidiary, or enter into a
plan of exchange with any other person, or otherwise acquire all or
substantially all of the assets of any other business operation (or any division
thereof), provided that any wholly-owned Subsidiary may be merged into the
Company if the Company is the surviving corporation or with another wholly-owed
Subsidiary.
9.3 DIVIDENDS ON OR REDEMPTION OF CAPITAL STOCK. Declare or
pay any dividend or make any other distribution on any shares of its capital
stock, or purchase, redeem or otherwise acquire for any consideration, or set
aside a sinking fund or other fund for the redemption or repurchase of, any
shares of its capital stock or any warrants, rights or options to purchase
shares of its capital stock (collectively, "Restricted Payments"), provided that
(a) any Subsidiary may make Restricted Payments to the Company or any other
wholly-owned Subsidiary, (b) the Company may issue shares of its Common Stock as
dividends on its issued and outstanding Common Stock, and (c) so long as there
exists no Event of Default or any event or condition which, with notice or lapse
of time, or both, would constitute an Event of Default, the Company may redeem
shares of its capital stock pursuant to employment agreements with its employees
which are approved by the Company's Board of Directors.
9.4 FUTURE REGISTRATION RIGHTS. Except pursuant to the
Registration Rights Agreement, the Existing Registration Rights Agreement and
the GE Warrant, and except to the extent subordinated to the registration rights
of the holders of the Purchased Securities under the Registration Rights
Agreement, agree with the holders of any securities issued or to be issued by
the Company to register such securities under the Securities Act or grant any
incidental registration rights.
9.5 INDEBTEDNESS. Borrow money, issue evidences of
indebtedness or create, assume or suffer to exist indebtedness in addition to
the Notes (including without limitation as indebtedness capitalized lease
obligations), except (a) indebtedness incurred in connection with the
acquisition of machinery and equipment, which indebtedness is secured by
conditional sales
-25-
contracts, title retention agreements, capitalized leases or other purchase
money security interests, provided that the indebtedness secured by any such
security interest shall not exceed the fair market value of the machinery or
equipment acquired subject thereto and such security interest shall not encumber
any property of the Company or any Subsidiary other than the machinery or
equipment acquired subject thereto (or the refinancing of any such indebtedness,
provided that no such refinancing shall increase the outstanding principal
amount of such indebtedness and any replacement lien given to secure such
refinancing shall be limited to the machinery and equipment securing such
indebtedness), (b) existing indebtedness described in Section 9.5 of the
Disclosure Schedule (provided that all such indebtedness shall be repaid in
accordance with its terms with no extension, renewal or other modification), (c)
indebtedness of the Company to banks or other financial institutions, provided
that the aggregate principal amount of such indebtedness outstanding at any time
shall not exceed $5,000,000 ("Bank Debt"), (d) unsecured indebtedness of the
Company which is subordinated in right of payment to the Notes pursuant to terms
and conditions reasonably satisfactory to St. Xxxx, provided that the aggregate
principal amount of such indebtedness outstanding at any time shall not exceed
$100,000, (e) indebtedness of wholly-owned Subsidiaries which arises out of
loans or advances permitted by Section 9.8(a), (f) guarantees of indebtedness
permitted by Section 9.7, (g) obligations of the Company under the Revolving
Credit Program Agreement, and (h) indebtedness or liabilities, other than
Indebtedness for Borrowed Money (as hereinafter defined), incurred or arising in
the ordinary course of business. Upon the incurrence by the Company of any Bank
Debt, each of the holders of the Notes shall execute and deliver agreements, in
form and substance reasonably satisfactory to St. Xxxx, subordinating the Notes
in right of payment to such Bank Debt and subordinating the liens on the assets
of the Company and its Subsidiaries securing the Notes to the liens on such
assets securing the Bank Debt.
9.6 LIENS. Create, assume, or suffer to exist any mortgage,
pledge, lease, lien, charge, security interest or encumbrance upon any of its
assets in addition to the liens securing the Notes, except (a) liens securing
indebtedness permitted by Section 9.5(a), (b) the senior interest of Conseco
Bank, Inc. in the Reserve Account (the "Reserve Account"), as defined in the
Revolving Credit Program Agreement dated May 17, 1999, as amended as of February
20, 2001 and April 13, 2001, between the Company and Conseco Bank, Inc. (the
"Revolving Credit Program Agreement"), a complete copy of which has been
furnished to the Purchasers, securing certain obligations of the Company to
Conseco Bank, Inc. under the Revolving Credit Program Agreement, provided that
the value of the cash, funds and other deposits in the Reserve Account shall not
exceed $1,000,000 at any given time, (c) liens for taxes and assessments or
governmental charges or levies not at the time due or which are being contested
in good faith by appropriate proceedings promptly initiated and diligently
conducted and for which adequate reserves have been established in accordance
with generally accepted accounting principles, (d) liens in respect of pledges
or deposits under worker's compensation laws or similar legislation, (e)
carriers', warehousemen's, mechanics', laborers', materialmen's, landlord's and
similar statutory liens securing obligations incurred in the ordinary course of
business which are not yet due or which are being contested in good faith by
appropriate proceedings promptly initiated and diligently conducted and for
which adequate reserves have been established in accordance with generally
accepted accounting principles, (f) encumbrances on real property in the nature
of zoning restrictions, easements, rights of way, encroachments, restrictive
covenants and other similar rights or restrictions, whether or not of record, on
the use of real property,
-26-
which encumbrances were not incurred in connection with the borrowing of money
or the obtaining of advances or credits and do not in the aggregate materially
detract from the value of the property subject thereto or materially impair the
use thereof in the operation of the business of the Company or any Subsidiary,
(g) liens securing the Bank Debt, (h) existing liens described in Section 9.6 of
the Disclosure Schedule (provided that all of the obligations secured by such
liens shall be repaid in accordance with their terms with no extension, renewal
or other modification), (i) licenses, sublicenses, leases or subleases granted
by any of the Company or its Subsidiaries to other persons in the ordinary
course of business that do not materially interfere with the conduct of the
business of any of the Company or its Subsidiaries, and (j) liens arising out of
the existence of judgments or awards in respect of which any of the Company or
its Subsidiaries shall in good faith be prosecuting an appeal or proceedings for
review and in respect of which there shall have been secured a subsisting stay
of execution pending such appeal or proceedings, provided that the aggregate
amount of all cash and the fair market value of all other property subject to
such liens does not at any time exceed $250,000 (all of the foregoing being
herein called "Permitted Liens").
9.7 GUARANTEES. Guarantee, endorse or otherwise become
contingently liable for the obligations, securities or dividends of any person
other than the Company or any of its wholly-owned Subsidiaries, except pursuant
to the Revolving Credit Program Agreement, and except that the Company and any
Subsidiary may endorse negotiable instruments for collection in the ordinary
course of business.
9.8 LOANS AND INVESTMENTS. Make loans or advances to any
person (including without limitation to any officer, director or shareholder of
the Company or any Subsidiary), or purchase or invest in the stock or
obligations of, or make capital contribution to, any person, except (a) loans
and advances to wholly-owned Subsidiaries which are parties to the Guaranty and
the Subsidiary Security Agreement, provided such loans and advances are general
obligations of such Subsidiaries which are not subordinated to any other
obligations of such Subsidiaries, (b) advances to suppliers and employees made
in the ordinary course of business, (c) accounts receivable arising from the
ordinary conduct of the business of the Company or any Subsidiary (including
those acquired from Conseco Bank, Inc. under the Revolving Credit Program
Agreement), (d) cash and cash equivalents (determined in accordance with
generally accepted accounting principles consistent with those applied in
connection with the preparation of the Company's consolidated financial
statements), (e) existing investments described in Section 9.8 of the Disclosure
Schedule, provided that any additional investments made with respect thereto
shall be permitted only if independently allowed under any of the other clauses
of this Section 9.8, (f) investments in any newly created, wholly-owned
subsidiaries provided that the aggregate of all such investments does not exceed
$50,000, and (g) investments (including debt obligations) received in connection
with a bankruptcy or reorganization of a supplier or customer of the Company or
any of its Subsidiaries and in good faith settlement of delinquent obligations
of, or other disputes with, such customer or supplier arising in the ordinary
course of business.
9.9 CHANGE IN NATURE OF BUSINESS. Make any material change in
the nature of its business as carried on at the date of this Agreement.
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9.10 MODIFICATION OF ORGANIZATIONAL DOCUMENTS. Amend, modify
or otherwise change its Articles of Incorporation or By-Laws (or similar
organizational documents), including without limitation by the filing of a
certificate of designation, in any way that would have an adverse impact on any
of the Purchased Securities.
9.11 OPERATIONS PENDING RECEIPT OF SHAREHOLDER APPROVAL. Until
the receipt of the shareholder approval described in Section 8.17 hereof, take
any action (including without limitation the issuance of any shares of Common
Stock or any options, warrants or other rights to purchase Common Stock or any
Convertible Securities) if such action would have resulted, had such shareholder
approval been theretofore obtained, in any adjustment to the conversion price of
the Notes or the number of shares of Common Stock issuable upon conversion of
the Notes which is, pursuant to the terms of the Notes, either ineffective or
only partially effective until receipt of such shareholder approval.
9.12 ISSUANCE OF PARTICIPATING PREFERRED. So long as any of
the Warrants remain outstanding, issue any capital stock of any class preferred
as to dividends or as to the distribution of assets upon voluntary or
involuntary liquidation, dissolution or winding up, unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par,
liquidation or redemption value in respect of participation in dividends and in
the distribution of such assets.
10. THE NOTES AND WARRANTS.
10.1 STOCK FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all Conversion Stock and Warrant Stock that may be
issued upon conversion of the Notes or exercise of the Warrants will be, upon
issuance in accordance with the terms of the Notes or Warrants, as the case may
be, fully paid and nonassessable, and that the issuance thereof shall not give
rise to any preemptive rights on the part of any person or entity. The Company
further covenants and agrees that the Company will at all times have authorized
and reserved a sufficient number of shares of its Common Stock for the purpose
of issue upon the conversion of the Notes and exercise of the Warrants.
10.2 NO PREPAYMENT WITHOUT CONSENT. The Notes shall be
prepayable only with the prior written consent of the holders of at least 67% of
the aggregate principal amount of the Notes outstanding immediately prior to
such prepayment. All accrued and unpaid interest on any principal amount being
prepaid with such consent shall be paid at the time of such prepayment.
10.3 PRO RATA PAYMENTS. All payments and prepayments of
principal of and interest on the Notes, and all proceeds recovered under the
Guaranty or upon any foreclosure, sale or other disposition of or realization in
any manner upon all or any part of the collateral under any of the Security
Agreements, shall, after deducting all reasonable and documented expenses of
collection (including without limitation reasonable attorneys' fees and
disbursements), be shared by the holders of the Notes pro rata in accordance
with the respective unpaid principal amounts thereof and accrued and unpaid
lawful interest thereon.
10.4 SENIOR DEBT. The principal of and interest on the Notes,
and all other obligations of the Company under this Agreement or any of the
other Transaction Documents,
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shall constitute "Senior Debt" for purposes of the Convertible Subordinated
Debenture of the Company payable to St. Xxxx Venture Capital V, LLC dated
November 10, 2000 in the original principal amount of $4,000,000.
11. REGISTRATION OF SECURITIES. The holders of the Purchased Securities
shall be entitled to the registration rights provided in the Registration Rights
Agreement.
12. DEFAULT.
12.1 EVENTS OF DEFAULT. Each of the following events shall be
an event of default (an "Event of Default") for purposes of this Agreement:
(a) if default shall be made in the punctual payment of
interest on the Notes, and such default shall have continued for a period of
seven days after written notice thereof to the Company by the holder of any of
the Notes; or
(b) if default shall be made in the punctual payment of the
principal of the Notes, or any installment thereof; or
(c) if the Company or any Significant Subsidiary (as
hereinafter defined) becomes insolvent, or admits in writing its inability to
pay its debts as they mature, or makes an assignment for the benefit of
creditors, or ceases doing business as a going concern, or the Company or any
Significant Subsidiary applies for or consents to the appointment of a trustee
or receiver for the Company or any Significant Subsidiary, or for the major part
of the property of either; or
(d) if a trustee or receiver is appointed for the Company or
any Significant Subsidiary or for the major part of the property of either and
the order of such appointment is not discharged, vacated or stayed within 60
days after such appointment; or
(e) if an order for relief shall be entered in any federal
bankruptcy proceeding in which the Company or any Significant Subsidiary is the
debtor; or if bankruptcy, reorganization, arrangement, insolvency, or
liquidation proceedings, or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors, are instituted by or against the
Company or any Significant Subsidiary and, if instituted against the Company or
any Significant Subsidiary, are consented to or, if contested by the Company or
such Significant Subsidiary, are not dismissed by the adverse parties or by an
order, decree or judgment within 60 days after such institution; or
(f) if any judgment, writ or warrant of attachment or of any
similar process in an amount in excess of $250,000 shall be entered or filed
against the Company or any Significant Subsidiary or against any of the property
or assets of either and remains unpaid, unvacated, unbonded or unstayed for a
period of 30 days; or
(g) if the Company, any Significant Subsidiary or any ERISA
Affiliate shall have made a complete or partial withdrawal from a Multiemployer
Plan and, as a result of such complete or partial withdrawal, the Company, any
Significant Subsidiary or any ERISA Affiliate incurs a withdrawal liability in
an annual amount exceeding $100,000; or a Multiemployer Plan
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enters reorganization under Section 4241 of ERISA and, as a result thereof, the
Company's, any Significant Subsidiary's or any ERISA Affiliate's contribution
requirement with respect to such Multiemployer Plan increases by an annual
amount exceeding $100,000; or
(h) if the Company or any Significant Subsidiary shall default
in any material respect in the due and punctual performance of any covenant or
agreement in any note, bond, indenture, loan agreement, note agreement,
mortgage, security agreement or other instrument evidencing or related to
Indebtedness for Borrowed Money, and such default shall continue for more than
the period of notice and/or grace, if any, therein specified and shall not have
been waived; or
(i) (i) if any representation or warranty made by the Company
in this Agreement shall prove to have been untrue or incorrect in any material
respect as of the date of this Agreement or as of the Closing Date, or (ii) if
any representation or warranty made by any of the Subsidiaries in the Guaranty
shall prove to have been untrue or incorrect in any material respect as of the
date of the Guaranty, or (iii) if any report, certificate, financial statement,
financial schedule or other instrument prepared or purported to be prepared by
the Company or any officer of the Company and furnished or delivered under or
pursuant to this Agreement on or after the Closing Date (or any statement made
therein) shall prove to be untrue or incorrect in any material respect as of the
date it was made, furnished or delivered; or
(j) if default shall be made in the due and punctual
performance or observance of any covenant or agreement contained in Section 9 of
this Agreement; or
(k) if default shall be made in the due and punctual
performance or observance of any other covenant or agreement contained in this
Agreement, in the Guaranty or in the Registration Rights Agreement, and such
default shall have continued for a period of 15 days after written notice
thereof to the Company by any holder of a Note; or
(l) if there shall occur any other Event of Default under and
as defined in any of the Security Agreements; or
(m) if a Change in Control (as hereinafter defined) shall have
occurred.
12.2 REMEDIES UPON EVENTS OF DEFAULT. Upon the occurrence of
an Event of Default as herein defined, and so long as such Event of Default
continues unremedied, then the holders of at least 67% of the aggregate
principal amount of the Notes then outstanding shall be entitled by notice to
declare the principal of and any accrued interest on the Notes to be immediately
due and payable, and thereupon the Notes, including both principal and interest,
shall become immediately due and payable (provided, however, that, when any
Event of Default described in Section 12.1(c), (d) or (e) hereof has occurred,
the Notes shall immediately become due and payable without presentment, demand
or notice of any kind).
12.3 NOTICE OF DEFAULTS. When, to its knowledge, any Event of
Default has occurred or exists, the Company agrees to give written notice within
three business days of such Event of Default to the holders of all outstanding
Purchased Securities. If the holder of any Purchased Securities shall give any
notice or take any other actions in respect of a claimed Event
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of Default, the Company will forthwith give written notice thereof to all other
holders of Purchased Securities at the time outstanding, describing such notice
or action and the nature of the claimed Event of Default.
12.4 REMEDIES CUMULATIVE. No right, power or remedy conferred
upon any holder of Purchased Securities shall be exclusive, and each such right,
power or remedy shall be cumulative and in addition to every other right, power
or remedy, whether conferred hereby or by any such security or now or hereafter
available at law or in equity or by statute or otherwise.
12.5 REMEDIES NOT WAIVED. No course of dealing between the
Company and any Purchaser or the holder of any Purchased Securities, and no
delay in exercising any right, power or remedy conferred hereby or by any such
security or now or hereafter existing at law or in equity or by statute or
otherwise, shall operate as a waiver of or otherwise prejudice any such right,
power or remedy.
12.6 EQUITABLE REMEDIES. The parties agree that money damages
or other remedies at law may not be a sufficient or adequate remedy for any
breach or violation of, or default under, this Agreement by them and that, in
addition to all other remedies available to them, each of them shall be
entitled, to the fullest extent permitted by law, to an injunction restraining
such breach, violation or default or threatened breach, violation or default and
to any other equitable relief, including without limitation specific
performance, without bond or other security being required.
13. DEFINITIONS. Unless the context otherwise requires, the terms
defined in this Section 13 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms herein defined. All accounting terms defined below shall,
except as otherwise expressly provided, be determined by reference to the
Company's books of account and in conformity with generally accepted accounting
principles as applied to such books of account in the opinion of the independent
certified public accountants selected by the Board of Directors as required
under the provisions of Section 8.2 hereof.
13.1 "Additional Shares of Common Stock" shall mean all shares
of Common Stock of the Company issued by the Company on or after the Closing
Date, except the Conversion Stock and the Warrant Stock.
13.2 "Change in Control" shall mean the occurrence of any of
the following: (a) the first day on which a majority of the members of the Board
of Directors are not Continuing Directors (as hereinafter defined), (b) the
consummation of any transaction (including without limitation any stock sale,
merger, consolidation or statutory share exchange) the result of which is that
any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act) other than St. Xxxx or any of its affiliates is the beneficial owner (as
defined in Rule 13d-3 promulgated under the Exchange Act) of 30% or more of the
voting power of the outstanding voting stock of the Company, (c) the sale or
other disposition (in one transaction or a series of related transactions) of
all or substantially all of the assets of the Company and its Subsidiaries,
taken as a whole, to any individual or entity other than the Company or any of
its wholly-owned Subsidiaries, or (d) the adoption of a plan relating to the
complete liquidation or dissolution of
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the Company. For purposes of this provision, "Continuing Directors" means any
member of the Board of Directors who (x) was a member of the Board of Directors
on the date of this Agreement, or (y) was nominated for election or elected or
appointed to the Board of Directors by the Board of Directors at a time when a
majority of the members of the Board of Directors consisted of Continuing
Directors.
13.3 "Collateral Agent" shall mean St. Xxxx, in its capacity
as agent for the holders of the Notes as provided under Section 14 hereof, or
any successor agent.
13.4 "Collateral Agent-Related Person" shall mean the
Collateral Agent, each of its affiliates, and each of the officers, directors,
employees, agents and attorneys-in-fact of the Collateral Agent or any of its
affiliates.
13.5 "Common Stock" shall mean the Company's authorized common
shares, any additional common shares which may be authorized in the future by
the Company, and any stock into which such common shares may hereafter be
changed, and shall also include stock of the Company of any other class which is
not preferred as to dividends or as to distributions of assets on liquidation,
dissolution or winding up of the Company over any other class of stock of the
Company, and which is not subject to redemption.
13.6 "Conversion Price" shall mean such price at which the
Notes are convertible into Common Stock.
13.7 "Convertible Securities" shall mean evidences of
indebtedness, shares of stock or other securities which are at any time directly
or indirectly convertible into or exchangeable for Additional Shares of Common
Stock.
13.8 "Indebtedness for Borrowed Money" shall include only
indebtedness of the Company and its Subsidiaries incurred as the result of a
direct borrowing of money and shall not include any other indebtedness
including, but not limited to, indebtedness incurred with respect to trade
accounts.
13.9 "Majority in Interest of the Purchased Securities" shall
mean at least 67% of the aggregate principal amount of the Notes outstanding at
the time of calculation and at least 67% of the sum of (a) the number of shares
of Conversion Stock outstanding at the time of calculation, plus (b) the number
of shares of Warrant Stock for which Warrants outstanding at the time of
calculation could then be exercised, plus (c) the number of shares of Warrant
Stock outstanding at the time of calculation.
13.10 "Purchase Price" shall mean such price at which the
Warrants are exercisable for Common Stock.
13.11 "Purchased Securities" shall mean the Notes, the
Conversion Stock, the Warrants and the Warrant Stock (other than any shares of
Conversion Stock or Warrant Stock that have been theretofore registered under
the Securities Act and sold or that have been theretofore sold in an open market
transaction pursuant to Rule 144).
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13.12 "Security Agreements" shall mean the Parent Security
Agreement, the Parent Patent and Trademark Security Agreement, the Subsidiary
Security Agreement, the Pledge Agreement and any other collateral security
agreements hereafter entered into by any of the Company or the Subsidiaries as
security for the Notes or the Guaranty.
13.13 "Significant Subsidiary" shall mean any Subsidiary which
constitutes a significant subsidiary within the meaning of Rule 1-02(w) of
Regulation S-X promulgated by the SEC.
13.14 "Subsidiary" shall mean any corporation, association or
other business entity more than a majority (by number of votes) of the voting
stock or other voting equity interests of which is owned or controlled, directly
or indirectly, by the Company or by one or more of its Subsidiaries or both.
13.15 "Transaction Documents" shall mean this Agreement, the
Notes, the Warrants, the Guaranty, the Security Agreements and the Registration
Rights Agreement.
14 COLLATERAL AGENT.
14.1 APPOINTMENT AND AUTHORIZATION OF COLLATERAL AGENT. Each
holder of a Note hereby irrevocably (subject to Section 14.09 hereof) appoints,
designates and authorizes the Collateral Agent as its agent to take such actions
on its behalf under or in respect of any of the Guaranty or the Security
Agreements (collectively, the "Collateral Documents") and to exercise such
powers and perform such duties on its behalf as are expressly delegated to the
Collateral Agent by the terms of any of the Collateral Documents, together with
such powers as are reasonably incidental thereto. The Collateral Agent hereby
accepts such appointment. Notwithstanding any provision to the contrary
contained elsewhere herein, the Collateral Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall the
Collateral Agent have or be deemed to have any fiduciary relationship with any
holder of a Note, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or otherwise exist
against the Collateral Agent. Without limiting the generality of the foregoing
sentence, the use of the term "agent" herein with reference to the Collateral
Agent is not intended to connote any fiduciary or other implied (or express)
obligations arising under agency doctrine of any applicable law. Instead, such
term is used merely as a matter of market custom, and is intended to create or
reflect only an administrative relationship between independent contracting
parties.
14.2 DELEGATION OF DUTIES. The Collateral Agent may execute
any of its duties under this Section 14 or under any of the Collateral Documents
by or through agents, employees or attorneys-in-fact and shall be entitled to
advice of counsel and other consultants or experts concerning all matters
pertaining to such duties. The Collateral Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects in the
absence of gross negligence or willful misconduct of the Collateral Agent in
such selection.
14.3 LIABILITY OF COLLATERAL AGENT. No Collateral
Agent-Related Person shall be (a) liable for any action taken or omitted to be
taken by the Collateral Agent under this Section 14 or under or in connection
with any of the Collateral Documents (except for its own gross
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negligence or willful misconduct in connection with its duties expressly set
forth herein), or (b) responsible in any manner to any holder of a Note for any
recital, statement, representation or warranty made by the Company or any of the
Subsidiaries, or any officer thereof, contained in any of the Transaction
Documents, or in any certificate, report, statement or other document referred
to or provided for in, or received by the Collateral Agent or any other holder
of a Note under or in connection with, any of the Transaction Documents, or for
the validity, effectiveness, genuineness, enforceability or sufficiency of any
of the Transaction Documents, or for any failure of the Company or any of the
Subsidiaries to perform its obligations under any of the Transaction Documents.
No Collateral Agent-Related Person shall be under any obligation to any holder
of a Note to ascertain or to inquire as to the observance or performance of any
of the agreements contained in, or conditions of, any of the Transaction
Documents, or to inspect the properties, books or records of the Company or any
of the Subsidiaries.
14.4 RELIANCE BY COLLATERAL AGENT. The Collateral Agent shall
be entitled to rely, and shall be fully protected in relying, upon any writing,
communication, signature, resolution, representation, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper person or persons,
and upon advice and statements of legal counsel (including counsel to the
Company), independent accountants and other experts selected by the Collateral
Agent. The Collateral Agent shall be fully justified in failing or refusing to
take any action under or in connection with any of the Collateral Documents
unless it shall first receive such advice or concurrence of the holder or
holders of at least 67% of the aggregate principal amount of the Notes then
outstanding (the "Required Note Holders") as it deems appropriate and, if it so
requests, it shall first be indemnified to its satisfaction by the holders of
the Notes against any and all liability and expense which may be incurred by it
by reason of taking or continuing to take any such action. The Collateral Agent
shall in all cases be fully protected in acting, or in refraining from acting,
under or in connection with any of the Collateral Documents in accordance with a
request or consent of the Required Note Holders, and such request and any action
taken or failure to act pursuant thereto shall be binding upon all the holders
of the Notes. Where this Section 14 expressly permits or prohibits an action
unless the Required Lenders otherwise determine, the Collateral Agent shall, and
in all other instances, the Collateral Agent may, but shall not be required to,
initiate any solicitation for the consent or a vote of the holders of the Notes.
14.5 NOTICE OF DEFAULT. The Collateral Agent shall not be
deemed to have knowledge or notice of the occurrence of any Event of Default or
any event or condition which, with notice or lapse of time, or both, would
constitute an Event of Default (a "Default"), unless the Collateral Agent shall
have received written notice from a holder of a Note or the Company referring to
this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default." The Collateral Agent shall take such
action under any of the Collateral Documents with respect to such Default or
Event of Default as may be directed by the Required Note Holders; provided,
however, that unless and until the Collateral Agent has received any such
direction, the Collateral Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable or in the best interest of the
Required Note Holders.
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14.6 CREDIT DECISION; DISCLOSURE OF INFORMATION BY COLLATERAL
AGENT. Each holder of a Note acknowledges that no Collateral Agent-Related
Person has made any representation or warranty to it, and that no act by the
Collateral Agent hereinafter taken, including any consent to and acceptance of
any assignment or review of the affairs of the Company or any of the
Subsidiaries, shall be deemed to constitute any representation or warranty by
any Collateral Agent-Related Person to any holder of a Note as to any matter,
including whether Collateral Agent-Related Persons have disclosed material
information in their possession. Each holder of a Note represents to the
Collateral Agent that it has, independently and without reliance upon any
Collateral Agent-Related Person and based on such documents and information as
it has deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
creditworthiness of the Company and the Subsidiaries, and all applicable
regulatory laws relating to the transactions contemplated hereby, and made its
own decision to enter into this Agreement and to extend credit to the Company.
Each holder of a Note also represents that it will, independently and without
reliance upon any Collateral Agent-Related Person and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under the Transaction Documents, and to make such investigations as it deems
necessary to inform itself as to the business, prospects, operations, property,
financial and other condition and creditworthiness of the Company and the
Subsidiaries. The Collateral Agent shall not have any duty or responsibility to
provide any holder of a Note with any credit or other information concerning the
business, prospects, operations, property, financial and other condition or
creditworthiness of the Company or any of the Subsidiaries which may come into
the possession of any Collateral Agent-Related Person.
14.7 INDEMNIFICATION OF COLLATERAL AGENT. Each holder of a
Note shall indemnify and hold harmless upon demand each Collateral Agent-Related
Person (to the extent not reimbursed by or on behalf of the Company or any of
the Subsidiaries and without limiting the obligation of the Company or any of
the Subsidiaries to do so), pro rata according to such holder's share of the
aggregate principal amount of the Notes then outstanding, from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever (collectively, "Losses") which may be imposed on or incurred by such
Collateral Agent-Related Person in any way relating to or arising out of this
Section 14 or any of the Collateral Documents or any action taken or omitted by
the Collateral Agent under this Section 14 or any of the Collateral Documents;
provided, however, that no holder of any Note shall be liable for the payment to
any Collateral Agent-Related Person of any portion of any such Losses to the
extent resulting from such Collateral Agent-Related Person's gross negligence or
willful misconduct; provided, further, however, that no action taken in
accordance with the directions of the Required Note Holders shall be deemed to
constitute gross negligence or willful misconduct for purposes of this Section
14.7. The undertaking in this Section 14.7 shall survive the payment of the
principal of and interest on the Notes and all other obligations guarantied or
secured by any of the Collateral Documents and the resignation or replacement of
the Collateral Agent.
14.8 COLLATERAL AGENT IN ITS INDIVIDUAL CAPACITY. The
Collateral Agent and its affiliates may make loans to, acquire equity interests
in and generally engage in any kind of business with any of the Company or the
Subsidiaries as though the Collateral Agent were not the Collateral Agent
hereunder and without notice to or consent of the holders of the Notes. In
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addition, the holders of the Notes are aware that certain affiliates of the
Collateral Agent have existing business relationships with the Company and the
Subsidiaries, including relationships arising out of the ownership by such
affiliates of significant debt and equity interests in the Company and the
service on the Board of Directors of the Company of a representative of such
affiliates. The holders of the Notes acknowledge that, pursuant to such
activities and relationships, the Collateral Agent or its affiliates may receive
information regarding the Company or any of the Subsidiaries (including
information that may be subject to confidentiality obligations in favor of the
Company or such Subsidiary) and acknowledge that the Collateral Agent shall be
under no obligation to provide such information to them. With respect to its
Note, the Collateral Agent shall have the same rights and powers under any of
the Transaction Documents as any other holder of a Note and may exercise such
rights and powers as though it were not the Collateral Agent, and references in
this Section 14 and elsewhere in the Transaction Documents to a holder or
holders of Notes include the Collateral Agent in its individual capacity.
14.9 SUCCESSOR COLLATERAL AGENT. The Collateral Agent may
resign as Collateral Agent upon 30 days' notice to the other holders of the
Notes. If the Collateral Agent resigns under this Agreement, the Required Note
Holders shall appoint from among the holders of the Notes a successor Collateral
Agent for the holders of the Notes which successor Collateral Agent shall be
consented to by the Company at all times other than during the existence of an
Event of Default (which consent of the Company shall not be unreasonably
withheld or delayed). If no successor Collateral Agent is appointed prior to the
effective date of the resignation of the Collateral Agent, the Collateral Agent
may appoint, after consulting with the other holders of the Notes and the
Company, a successor Collateral Agent from among the holders of the Notes. Upon
the acceptance of its appointment as successor Collateral Agent hereunder, such
successor Collateral Agent shall succeed to all the rights, powers and duties of
the retiring Collateral Agent and the term "Collateral Agent" shall mean such
successor Collateral Agent and the retiring Collateral Agent's appointment,
powers and duties as Collateral Agent shall be terminated. After any retiring
Collateral Agent's resignation hereunder as Collateral Agent, the provisions of
this Section 14 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Collateral Agent under this Agreement. If no
successor Collateral Agent has accepted appointment as Collateral Agent by the
date which is 30 days following a retiring Collateral Agent's notice of
resignation, the retiring Collateral Agent's resignation shall nevertheless
thereupon become effective and the holders of the Notes shall perform all of the
duties of the Collateral Agent hereunder until such time, if any, as the
Required Note Holders appoint a successor agent as provided for above.
15. CONSENTS; WAIVERS AND AMENDMENTS. Except as otherwise specifically
provided herein, in each case in which approval of the holders of Purchased
Securities is required by the terms of this Agreement, such requirement shall be
satisfied by a vote or the written consent of the holders of at least a Majority
in Interest of the Purchased Securities. With the written consent of the holders
of at least a Majority in Interest of the Purchased Securities, the obligations
of the Company under this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), and with the
same approval the Company may enter into a supplementary agreement for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of any supplemental agreement or
modifying in any manner the rights and obligations of the holders of the
Purchased Securities and of the Company; provided, however, that no such waiver
or supplemental agreement shall
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(a) amend the basic terms of the Notes as to any holder of each Note so affected
who does not consent thereto, or (b) reduce the aforesaid percentage of
Purchased Securities, the holders of which are required to consent to any waiver
or supplemental agreement, without the consent of all of the holders of
Purchased Securities whose rights would be affected by such reduction, or (c)
amend the basic terms of the Warrants as to any holder of each Warrant so
effected who does not consent thereto. Written notice of any such waiver,
consent or agreement of amendment, modification or supplement shall be given to
the holders of the Purchased Securities who have not previously consented
thereto in writing.
16. CHANGES, WAIVERS, ETC. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally, but only by a
statement in writing in a manner consistent with the requirements set forth in
Section 15.
17. PAYMENT OF FEES AND EXPENSES OF PURCHASERS. Upon the consummation
of the sale of Notes and Warrants anticipated by this Agreement or upon failure
by the Company to consummate such sale, the Company will pay the expenses
incurred by the Purchasers in connection with the transactions herein
contemplated and the expenses incurred by St. Xxxx in connection with the
Company's negotiation of unconsummated financing arrangements prior to the date
hereof, including without limitation the reasonable fees and disbursements of
Faegre & Xxxxxx LLP for their services as special counsel to St. Xxxx in
connection with the transactions herein contemplated and as special counsel to
St. Xxxx in connection with such unconsummated financing arrangements. The
Company will also pay (a) all expenses incurred by the holders of Purchased
Securities (including without limitation reasonable attorneys' fees and
disbursements) with respect to any amendments or waivers requested by the
Company (whether or not the same become effective) under or in respect of this
Agreement or the agreements contemplated hereby, and (b) all expenses incurred
by the holders of Purchased Securities (including without limitation reasonable
attorneys' fees and disbursements), whether or not litigation is commenced, with
respect to the protection or enforcement of the rights granted under this
Agreement or the agreements contemplated hereby.
18. UNDERSTANDING AMONG PURCHASERS. The determination by each of the
Purchasers to purchase Notes and Warrants pursuant to this Agreement has been
made by such Purchaser independent of the other Purchasers, and independent of
any statements or opinions as to the advisability of such purchase or as to the
properties, business, prospects, operations, results of operations or condition
(financial or otherwise) of the Company or any Subsidiary which may have been
made or given by the other Purchasers or by any agent or employee of the other
Purchasers. In addition, it is acknowledged by each of the Purchasers that the
other Purchasers have not acted as such Purchaser's agent in connection with
making its investment hereunder and that the other Purchasers will not be acting
as such Purchaser's agent in connection with monitoring such Purchaser's
investment hereunder.
19. NOTICES. All notices, demands, requests and other communications
given to or made upon a party pursuant to this Agreement shall be in writing and
shall be mailed (by certified mail, postage prepaid and return receipt
requested), sent by overnight courier, telecopied or hand delivered to such
party:
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(a) in the case of any Purchaser, at the address of such
Purchaser specified on Schedule 1 hereto or at such other address as
such Purchaser may specify by written notice to the Company, or
(b) in the case of any other holder of Purchased Securities,
at the address of such holder shown on the books of the Company or at
such other address as such holder may specify by written notice to the
Company, or
(c) in the case of the Company, at the address specified below
its signature at the end of this Agreement or at such other address as
the Company may specify by written notice to the holders of the
Purchased Securities.
All such notices, demands, requests and communications shall be effective and
deemed to have been given and received (i) if sent by certified mail, postage
prepaid and return receipt requested, when received or three business days after
mailing, whichever first occurs, (ii) if sent by overnight courier, one business
day after delivery to such courier, (iii) if telecopied, when transmitted and a
confirmation is received, provided the same is on a business day and, if not, on
the next business day, or (iv) if hand delivered, upon delivery, provided that
the same is on a business day and, if not, on the next business day.
20. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All
representations and warranties contained herein shall survive the execution and
delivery of this Agreement, any investigation at any time made by the Purchasers
or on their behalf, and the sale and purchase of the Notes and the Warrants and
payment therefor. All statements contained in any certificate, instrument or
other writing delivered by or on behalf of the Company pursuant hereto or in
connection with or contemplation of the transactions herein contemplated (other
than legal opinions) shall constitute representations and warranties by the
Company hereunder.
21. PARTIES IN INTEREST. All the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors and assigns, whether so expressed
or not, and, in particular, shall inure to the benefit of and be enforceable by
the holder or holders at the time of any of the Purchased Securities.
22. HEADINGS. The headings of the Sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
23. CHOICE OF LAW. It is the intention of the parties that the
substantive laws of Minnesota shall govern the validity of this Agreement, the
construction of its terms and the interpretation of the rights and duties of the
parties.
24. COUNTERPARTS. This Agreement may be executed concurrently in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
25. CONSTRUCTION. In this Agreement and the other Transaction
Documents, except as otherwise expressly provided:
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(a) the term "business day" shall mean every day other than a Saturday,
Sunday or a day which is a statutory holiday under the laws of the United States
or the State of Minnesota;
(b) the term "person" shall mean an individual, a partnership, a
limited liability company, a joint venture, a corporation, a trust, an
unincorporated association, and a government or any department or agency
thereof; and
(c) the term "affiliate" shall have the meaning ascribed thereto in
Rule 405 under the Securities Act.
26. CONSENT TO JURISDICTION; WAIVER OF TRIAL BY JURY. THE COMPANY
AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT
OR ANY OF THE OTHER TRANSACTION DOCUMENTS TO WHICH THE COMPANY IS A PARTY SHALL
BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE
COUNTY OF HENNEPIN, STATE OF MINNESOTA OR, AT THE SOLE OPTION OF ANY HOLDER OF
PURCHASED SECURITIES, IN ANY OTHER COURT IN WHICH SUCH HOLDER SHALL INITIATE
LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER
THE MATTER IN CONTROVERSY AND PERSONAL JURISDICTION OVER THE COMPANY. THE
COMPANY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT IT MAY
HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 26, AND THE
COMPANY WAIVE ITS RIGHT TO TRIAL BY JURY.
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
undersigned, whereupon this letter shall become a binding contract among you and
the undersigned.
Very truly yours,
SELECT COMFORT CORPORATION
By: /s/ Xxxx X. Xxxxxxx
----------------------------------------------
Name: Xxxx X. Xxxxxxx
-----------------------------------------
Title: Senior Vice President
----------------------------------------
Address: 0000 Xxxxxxx Xxxx Xxxxx
Xxxxx 000
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Chief Financial Officer
Fax No.: (000) 000-0000
-39-
The foregoing Agreement is hereby accepted as of the date first above written.
ST. XXXX VENTURE CAPITAL VI, LLC
By: SPVC MANAGEMENT VI, LLC
Its: Managing Member
By: /s/ Xxxxxxx X. Xxxx
------------------------------------------------
Name: Xxxxxxx X. Xxxx
------------------------------------------
Title: Managing Director
-----------------------------------------
Address: 00000 Xxxxxx Xxxxx
Xxxxx 000
Xxxx Xxxxxxx, XX 00000
Telephone No.: 000-000-0000
Fax No.: 000-000-0000
PRINTWARE, INC.
By: /s/ Xxxx Xxxxxxxxxxx
------------------------------------------------
Name: Xxxx Xxxxxxxxxxx
Its: Chief Financial Officer
Address: 0000 Xxxxx Xxxxxxxxxx Xxxx
Xx. Xxxx, XX 00000
Telephone No.: 000-000-0000
Fax No.: 000-000-0000
/s/ Xxxx X. Xxxxxx
---------------------------------------------------
Xxxx X. Xxxxxx
Address: 0000 Xxxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxxxx, XX 00000
Telephone No.: 000-000-0000
Fax No.:
----------------------------
/s/ Xxxxxx X. Xxxxxxx
---------------------------------------------------
Xxxxxx X. Xxxxxxx
Address: 0000 Xxxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxxxx, XX 00000
Telephone No.: 000-000-0000
Fax No.:
----------------------------
-40-
LIBERTY DIVERSIFIED
By: /s/ Xxxxx Xxxxxx
------------------------------------------------
Its: Executive Vice President
-----------------------------------------------
Address: 0000 Xxxxx Xxxxxxx 000
Xxxxxxxxxxx, XX 00000
Telephone No.: 000-000-0000
Fax No.: 000-000-0000
STANDARD FUSEE CORPORATION
By: /s/ C.Xxx XxXxxxxxxx
------------------------------------------------
Its: President and CEO
-----------------------------------------------
Address: 00000 Xx. Xxxxxxx'x Xxxx
X.X. Xxx 0000
Xxxxxx, XX 00000
Telephone No.: 0-000-000-0000
Fax No.: 000-000-0000
/s/ X.X. Xxxxxx
---------------------------------------------------
X.X. Xxxxxx
Address: 00 Xxxx 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Telephone No.: 212-683-2626 ext. 22
Fax No.: 000-000-0000
/s/ Xxxxxx X. Xxxxxx
---------------------------------------------------
Xxxxxx X. Xxxxxx
Address: 00 Xxxxxx Xxx
Xxxxxxxxx, XX 00000
Telephone No.: 000-000-0000
Fax No.: 000-000-0000
-41-
/s/ Xxxxx X. Xxxxxx
---------------------------------------------------
Xxxxx X. Xxxxxx
Address: 00 Xxxxxxxxx Xxxxx
Xxxxxx, XX 00000
Telephone No.: 000-000-0000 (home)
Telephone No.: 000-000-0000 (office)
Fax No.: 000-000-0000
/s/ Xxxx-Xxxxxx Xxxxxxx
---------------------------------------------------
Xxxx-Xxxxxx Xxxxxxx
Address: 00 Xxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Telephone No.: 000-000-0000 (home)
Telephone No.: 000-000-0000 (office)
Fax No.: 000-000-0000
BFSUS SPECIAL OPPORTUNITIES TRUST
PLC
By: /s/ Xxxxxxx Xxxxxxxxx
------------------------------------------------
Its: Director
-----------------------------------------------
Address: Renaissance Capital Group, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxxxxx
Xxxxx 000-XX 00
Xxxxxx, XX 00000
Telephone No.: 000-000-0000
Fax No.: 000-000-0000
RENAISSANCE US GROWTH & INCOME
TRUST PLC
By: /s/ Xxxxxxx Xxxxxxxxx
------------------------------------------------
Its: Director
-----------------------------------------------
Address: Renaissance Capital Group, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxxxxx
Xxxxx 000-XX 00
Xxxxxx, XX 00000
Telephone No.: 000-000-0000
Fax No.: 000-000-0000
-00-
XXXXXXX XXXXXXX, X.X.
By: /s/ Xxxxxxx X. Xxxx
------------------------------------------------
Its: Managing Director
-----------------------------------------------
Address: 0000 Xxxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Telephone No.: 000-000-0000
Fax No.: 000-000-0000
BAYSTAR INTERNATIONAL, LTD.
By: /s/ Xxxxxxx X. Xxxx
------------------------------------------------
Its: Managing Director
-----------------------------------------------
Address: 0000 Xxxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Telephone No.: 000-000-0000
Fax No.: 000-000-0000
-43-
SCHEDULE 1
SCHEDULE 1
-----------------------------------------------------------------------------------------------------------------
NAMES AND ADDRESSES OF PURCHASERS ORIGINAL PRINCIPAL NUMBER OF SHARES OF PURCHASE PRICE
AMOUNT OF NOTES WARRANT STOCK
-----------------------------------------------------------------------------------------------------------------
St. Xxxx Venture Capital VI, LLC $4,100,000 1,640,000 $4,100,000
00000 Xxxxxx Xxxxx
Xxxxx 000
Xxxx Xxxxxxx, XX 00000
Attention: Xxxx Xxxxxx
Fax No.: (000) 000-0000
-----------------------------------------------------------------------------------------------------------------
Printware, Inc. $1,500,000 600,000 $1,500,000
c/o Xxxx Xxxxxxxxxxx, CFO
0000 Xxxxx Xxxxxxxxxx Xxxx
Xx. Xxxx, XX 00000
-----------------------------------------------------------------------------------------------------------------
Xxxx X. Xxxxxx $100,000 40,000 $100,000
0000 Xxxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxxxxx, XX 00000
-----------------------------------------------------------------------------------------------------------------
Xxxxxx X. Xxxxxxx $100,000 40,000 $100,000
0000 Xxxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxxxxx, XX 00000
-----------------------------------------------------------------------------------------------------------------
Liberty Diversified $1,000,000 400,000 $1,000,000
0000 Xxxxx Xxxxxxx 000
Xxxxxxxxxxx, XX 00000
Attn: Xxxxx Xxxxxx and Xxxx
Xxxxxxxxx, CFO
-----------------------------------------------------------------------------------------------------------------
Standard Fusee Corporation $1,000,000 400,000 $1,000,000
00000 Xx. Xxxxxxxx Xxxx
XX Xxx 0000
Xxxxxx, XX 00000
-----------------------------------------------------------------------------------------------------------------
X. X. Xxxxxx $50,000 20,000 $50,000
00 Xxxx 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
-----------------------------------------------------------------------------------------------------------------
Xxxxxx X. Xxxxxx $50,000 20,000 $50,000
Summer Address:
Mail:
00 Xxxxxx Xxx
X.X. Xxx 000
Xxxxxxxxxx, XX 00000
Overnight:
00 Xxxxxx Xxx
Xxxxxxxxx, XX 00000
-----------------------------------------------------------------------------------------------------------------
Xxxxx X. Xxxxxx $50,000 20,000 $50,000
00 Xxxxxxxxx Xxxxx
Xxxxxx, XX 00000
-----------------------------------------------------------------------------------------------------------------
Xxxx-Xxxxxx Xxxxxxx $50,000 20,000 $50,000
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
00 Xxxxx Xxxxxx
Xxxxxxxxx, XX 00000
-----------------------------------------------------------------------------------------------------------------
BFSUS Special Opportunities Trust $500,000 200,000 $500,000
PLC
0000 Xxxxx Xxxxxxx Xxxxxxxxxx
Xxxxx 000-XX 00
Xxxxxx, XX 00000
-----------------------------------------------------------------------------------------------------------------
Renaissance Capital Growth & Income $500,000 200,000 $500,000
Fund III, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxxxxx
Xxxxx 000-XX 00
Xxxxxx, XX 00000
-----------------------------------------------------------------------------------------------------------------
BayStar Capital, L.P. $1,500,000 600,000 $1,500,000
0000 Xxxx Xxxxxx Xxxxxx
Xxxxx 000
Xxxxxx, XX 00000
-----------------------------------------------------------------------------------------------------------------
BayStar International, Ltd. $500,000 200,000 $500,000
0000 Xxxx Xxxxxx Xxxxxx
Xxxxx 000
Xxxxxx, XX 00000
-----------------------------------------------------------------------------------------------------------------
TOTAL $11,000,000 4,400,000 $11,000,000
-----------------------------------------------------------------------------------------------------------------
