CONVERTIBLE LOAN AGREEMENT
BY AND BETWEEN
CANMAX INC.
AND
CANMAX RETAIL SYSTEMS, INC.
AS CO-BORROWER
AND
FOUNDERS EQUITY GROUP, INC.
AND
FOUNDERS MEZZANINE INVESTORS III, LLC
AS LENDERS
This Convertible Loan Agreement (the "Agreement") is entered into as of
DECEMBER 15, 1997, by and among CANMAX INC. (a Wyoming corporation) and
CANMAX RETAIL SYSTEMS, INC. (a Texas corporation) as co-borrowers
(hereinafter collectively referred to as "BORROWER"), FOUNDERS MEZZANINE
INVESTORS, LLC (a Texas limited liability corporation) FOUNDERS EQUITY GROUP,
INC. (a Texas corporation) (individually referred to as "Mezzanine" and
"Founders Equity", respectively, together with any assignees or successors in
interest collectively referred to as "LENDERS") and Founders Equity Group,
Inc. also as agent (hereinafter referred to as ("AGENT").
WITNESSETH:
WHEREAS, Borrower seeks to obtain $500,000 in financing through issuance
of Convertible Debentures, such funds to be used for the purposes as set
forth herein; and
WHEREAS, Founders Equity purchased a Promissory Note dated November 26,
1997 directly from the Borrower and the Borrower has requested that this
indebtedness be retired and replaced by Convertible Debentures issued
pursuant hereto; and
WHEREAS, Borrower agrees to issue this indebtedness in a senior secured
position; and
WHEREAS, Borrower has requested that Lenders provide such financing as
herein provided, and Lenders are willing to furnish financing such to
Borrower upon the terms and subject to the conditions and for the
considerations hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises herein contained
and for other valuable consideration, receipt and sufficiency of which is
acknowledged, the parties hereto agree as follows:
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AGREEMENT (CONTINUED)
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ARTICLE I - DEFINITION OF TERMS
SECTION 1.01. DEFINITIONS.
(a) For the purposes of this Agreement, unless the context otherwise
requires, the following terms shall have the respective meanings assigned to
them in this Article I or in the section or recital referred to below:
"Affiliate" with respect to any Person shall mean (i) any person directly or
indirectly owning, controlling or holding power to vote 10% or more of the
outstanding voting securities of any Person; (ii) any person, 10% or more of
whose outstanding voting securities are directly or indirectly owned,
controlled or held with power to vote by any Person; (iii) any person
directly or indirectly controlling, controlled by or under common control
with any Person; (iv) any officer, director or partner of any Person; and (v)
if a Person is an officer, director or partner, any company for which any
Person acts in such capacity. For purposes of this Agreement, any
partnership of which any Person is a general partner, or any joint venture in
which any Person is a joint venturer, is an Affiliate of each Person.
"Agent" shall mean Founders Equity Group, Inc., its successor or its assigns.
"Capital Expenditure" shall mean, with respect to any period, the aggregate
of all expenditures (whether paid in cash or accrued as liabilities and
including expenditures for capitalized lease obligations) by Borrower during
such period that are required by GAAP to be included in or reflected by the
property, plant, or equipment or similar fixed asset accounts in the balance
sheet of Borrower.
"Capital Lease" shall mean any lease of property, real or personal, which is
in substance a financing lease and which would be capitalized on a balance
sheet of the lessee, including without limitation, any lease under which (i)
such lessee will have an obligation to purchase the property for a fixed sum,
(ii) an option to purchase the property at an amount less than a reasonable
estimate of the fair market value of such property as of the date such lease
is executed, or (iii) the term of the lease approximates or exceeds the
expected useful life of the property leased thereunder.
"Collateral" shall mean each and all of the following wherever located and
whether now existing or owned or hereafter created or acquired: the
accounts; the general intangibles; the negotiable collateral; the inventory;
Borrower's books; the equipment; the real estate collateral; any money,
deposit accounts or other assets of Borrower in which Lenders receive a lien
or which hereafter comes into the possession, custody or control of Lenders;
and all products an proceeds of every nature of any of the foregoing,
including, but not limited to, proceeds of insurance covering the collateral
and any and all accounts, general intangibles, negotiable collateral,
inventory, contract rights, instruments, documents and chattel paper,
equipment, money, deposit accounts or other tangible and intangible property
of Borrower resulting from the sale or other disposition of the Collateral,
and the proceeds and products thereof.
"Consolidated Subsidiaries" shall mean those corporations of which 50% or
more of the voting stock is owned by Borrower and their financial statements
are consolidated with those of the Borrower.
"Conversion " or "Conversion Rights" shall mean exchange of, or the rights to
exchange, the Principal Amount of the loan, or any part thereof, for fully
paid and non assessable Common Stock on the terms and conditions as provided
in the Debenture.
"Conversion Price" shall mean the conversion price as then in effect as
stipulated in the Debentures.
"Common Stock" shall mean the Canmax Inc. common stock, no par value.
"Debentures" shall mean the Debentures executed by Borrower and made payable
to the order of the Lenders in the aggregate principal amount of $500,000 and
delivered pursuant to the terms of this Agreement, together with any
renewals, extensions or modifications thereof.
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"Debtor Laws" shall mean all applicable liquidation, conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization
or similar laws from time to time in effect affecting the rights of creditors
generally.
"Default" shall mean an event with notice or lapse of time or both, could
become an Event of Default.
"Dividends", in respect of any corporation, shall mean (i) cash distributions
or any other distributions on, or in respect of, any class of capital stock
of such corporation, except for distributions made solely in shares of stock
of the same class, and (ii) any and all funds, cash and other payments made
in respect of the redemption, repurchase or acquisition of such stock, unless
such stock shall be redeemed or acquired through the exchange of such stock
with stock of the same class.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, together with all regulations issued pursuant thereto.
"Event of Default" shall mean any of the events specified in Article VIII.
"GAAP" shall mean generally accepted accounting principles applied on a
consistent basis, set forth in the opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants, or their
successors, which are applicable in the circumstances as of the date in
question. The requisite that such principles be applied on a consistent
basis shall mean that the accounting principles observed in a current period
are comparable in all material respects to those applied in a preceding
period.
"Governmental Authority" shall mean any government (or any political
subdivision or jurisdiction thereof), court, bureau, agency or other
governmental authority having jurisdiction over Borrower or a Subsidiary or
any of its or their businesses, operations or properties.
"Guaranty" of any Person shall mean any contract, agreement or understanding
of such Person pursuant to which such Person in effect guarantees the payment
of any Indebtedness of any other Person (the "Primary Obligor") in any
manner, whether directly or indirectly, including without limitation
agreements: (i) to purchase such Indebtedness or any property constituting
security therefor; (ii) to advance or supply funds primarily for the purpose
of assuring the holder of such Indebtedness of the ability of the Primary
Obligor to make payment; or (iii) otherwise to assure the holder of the
Indebtedness of the Primary Obligor against loss in respect thereof, except
that "Guaranty" shall not include the endorsement by Borrower or a Subsidiary
in the ordinary course of business of negotiable instruments or documents for
deposit or collection.
"Holder" shall mean the owner of Registrable Securities.
"Indebtedness" shall mean, with respect to any Person, (a) indebtedness for
borrowed money or for the deferred purchase price of property or services in
respect of which such Person is liable, contingently or otherwise, as obligor
or otherwise or any commitment by which such Person assures a creditor
against loss, including contingent reimbursement obligations with respect to
letter of credit, (b) indebtedness guaranteed in any manner by such Person,
including guarantees in the form of an agreement to repurchase or reimburse,
(c) obligations under leases which shall have been or should be, in
accordance with GAAP, recorded as capital leases, in respect of which
obligations such Person is liable, contingently or otherwise, as obligor,
guarantor or otherwise, or in respect of which obligations such Person
assures a creditor against loss, and (d) any unfunded obligation of such
Person to any employee/employer benefit plan.
"Investment" in any Person shall mean any investment, whether by means of
share purchase, loan, advance, extension of credit, capital contribution or
otherwise, in or to such Person, the Guaranty of any Indebtedness of such
Person, or the subordination of any claim against such Person to other
Indebtedness of such Person.
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"IRS Code" shall mean the Internal Revenue Code of 1986, as amended, together
with all regulations issued thereunder.
"Lien" shall mean any lien, mortgage, security interest, tax lien, pledge,
encumbrance, conditional sale or title retention arrangement, or any other
interest in property designed to secure the repayment of Indebtedness,
whether arising by agreement or under any statute or law, or otherwise.
"Loan" shall mean the money lent to Borrower pursuant to this Agreement,
along with any accrued interest thereon.
"Loan Closing" or "Loan Closing Date" shall mean the initial disbursement of
Loan funds which shall occur on a date 30 days from the date hereof or such
earlier date on which Borrower requests, and Lenders approve, as the date at
which the initial advance of the Loan funds shall be consummated, provided
that such date may be mutually extended beyond 30 days, but only by written
agreement of the parties hereto.
"Loan Documents" shall mean this Agreement, the Debentures, the security
agreement, financing statements (including any renewals, extensions and
refundings thereof), and any other agreements or documents (and with respect
to this Agreement, and such other agreements and documents, any amendments or
supplements thereto or modifications thereof) executed or delivered pursuant
to the terms of this Agreement.
"Majority in Interest" shall mean Lenders holding among them at least 50.1%
of the then outstanding Loan.
"Material Adverse Effect" or "Material Adverse Change" shall mean any change,
factor or event that shall (i) have a material adverse effect upon the
validity, performance or enforceability of any material provision of any Loan
Documents, (ii) have a material adverse effect upon the financial condition
or business operations of Borrower or any Subsidiaries, (iii) have a material
adverse effect upon the ability of the Borrower to fulfill its material
obligations under the Loan Documents, or (iv) any event that causes a Default
or Event of Default.
"Obligation" shall mean: (i) all present and future indebtedness, obligations
and liabilities of Borrower to Lenders arising pursuant to this Agreement,
regardless of whether such indebtedness, obligations and liabilities are
direct, indirect, fixed, contingent, joint, several, or joint and several;
(ii) all present and future indebtedness, obligations and liabilities of
Borrower to Lenders arising pursuant to or represented by the Debentures and
all interest accruing thereon, and reasonable attorneys' fees incurred in the
enforcement or collection thereof; (iii) all present and future indebtedness,
obligations and liabilities of Borrower and any Subsidiary evidenced by or
arising pursuant to any of the Loan Documents; (iv) all costs incurred by
Lenders, including but not limited to reasonable attorneys' fees and legal
expenses related to this transaction; and (v) all renewals, extensions and
modifications of the indebtedness referred to in the foregoing clauses, or
any part thereof.
"Other Taxes" shall have the meaning set forth in Section 2.09(b).
"Permitted Liens" shall mean: (i) Liens (if any) granted Agent for the
benefit of the Lenders to secure the Obligation; (ii) pledges or deposits
made to secure payment of worker's compensation insurance (or to participate
in any fund in connection with worker's compensation insurance), unemployment
insurance, pensions or social security programs; (iii) Liens imposed by
mandatory provisions of law such as for landlord's, materialmen's,
mechanics', warehousemen's and other like Liens arising in the ordinary
course of business, securing Indebtedness whose payment is not yet due; (iv)
Liens for taxes, assessments and governmental charges or levies imposed upon
a Person or upon such Person's income or profits or property, if the same are
not yet due and payable or if the same are being contested in good faith and
as to which adequate cash reserves have been provided or if an extension is
obtained with respect thereto; (v) Liens arising from good faith deposits in
connection with tenders, leases, real estate bids or contracts (other than
contracts involving the borrowing of money), pledges or deposits to
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secure public or statutory obligations and deposits to secure (or in lieu of)
surety, stay, appeal or customs bonds and deposits to secure the payment of
taxes, assessments, customs duties or other similar charges; (vi)
encumbrances consisting of zoning restrictions, easements, or other
restrictions on the use of real property, provided that such items do not
materially impair the use of such property for the purposes intended, and
none of which is violated by existing or proposed structures or land use;
(vii) mortgages, financing statements, equipment leases or other encumbrances
incurred in connection with the acquisition of property or equipment or the
replacement of existing property or equipment, provided that such liens shall
be limited to the property or equipment then being acquired, (viii) Liens in
existence as of the date hereof and as disclosed in the attached exhibit, and
(ix) Lien on any Permitted Investments or assets acquired in connection
therewith.
"Permitted Indebtedness" shall mean (i) current liabilities as reflected on
Borrower's balance sheet prepared in accordance with GAAP from time to time
(ii) indebtedness incurred in the purchase of capital equipment not to exceed
$2,000,000 per year, and (iii) debt associated with Permitted Liens.
"Person" shall include an individual, a corporation, a joint venture, a
general or limited partnership, a trust, an unincorporated organization or a
government or any agency or political subdivision thereof.
"Plan" shall mean an employee benefit plan or other plan maintained by
Borrower for employees of Borrower and/or any Subsidiaries and covered by
Title IV of ERISA, or subject to the minimum funding standards under Section
412 of the Internal Revenue Code of 1986, as amended.
"Principal Amount" shall mean, as of any time, the then aggregate outstanding
face amount of the Debentures after any conversions or redemptions and after
giving effect to any installment payments received by Lenders.
"Registrable Securities" shall mean (i) the Common Stock issued or issueable
upon Conversion of the Debentures, or (ii) any Common Stock issued upon
Conversion of the Debentures or exercise of any warrant, right or other
security which is issued with respect to the Common Stock referred to in
clause (i) above by way of stock dividend; any other distribution with
respect to or in exchange for, or in replacement of Common Stock; stock
split; or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization; excluding in all cases,
however, any Registrable Security that is not a Restricted Security and any
Registrable Securities sold or transferred by a person in a transaction in
which the rights under this Agreement are not assigned.
"Registrable Securities Then Outstanding" shall mean an amount equal to the
number of Registrable Securities outstanding which have been issued pursuant
to the Conversion of the Debentures.
"Restricted Security" shall mean a security that has not been (i) registered
under the 1933 Act or (ii) distributed to the public pursuant to Rule 144 (or
any similar provisions that are in force) under the 0000 Xxx.
"SEC" shall mean the Securities and Exchange Commission.
"1933 Act" shall refer to the Securities Act of 1933, as amended.
"1934 Act" shall refer to the Securities Exchange Act of 1934, as amended.
"Solvent" shall mean, with respect to any Person on a particular date, that
on such date: (i) the fair value of the property of such Person is greater
than the total amount of liabilities, including, without limitation,
contingent liabilities, of such Person; (ii) the present fair salable value,
in the ordinary course of business, of the assets of such Person is not less
than the amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured; (iii) such Person is
able to realize upon its assets and pay its debts and other liabilities,
contingent obligations and other commitments as they mature in the normal
course of business; (iv) such Person does not intend to, and does not believe
that it will, incur debts or liabilities beyond such Person's ability to pay
as such debts and liabilities mature; and (v) such Person is not engaged in
business or a transaction,
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and is not about to engage in business or a transaction, for which such
Person's property would constitute unreasonably small capital after giving
due consideration to the prevailing practice in the industry in which such
Person is engaged. In computing the amount of contingent liabilities at any
time, it is intended that such liabilities will be computed at the amount
which, in light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or
matured liability.
"Subordinated Debt" shall mean any indebtedness of the Borrower or any
Subsidiaries, now existing or hereafter incurred, which indebtedness is, by
its terms, junior in right of repayment to the payment of the Debentures.
"Subsidiary" shall mean any corporation whether now existing or hereafter
acquired of which fifty percent (50%) or more of the Voting Shares are owned,
directly or indirectly, by Borrower.
"Voting Shares" of any corporation shall mean shares of any class or classes
(however designated) having ordinary voting power for the election of at
least a majority of the members of the Board of Directors (or other governing
bodies) of such corporation, other than shares having such power only by
reason of the happening of a contingency.
SECTION 1.02. OTHER DEFINITION PROVISIONS.
(a) All terms defined in this Agreement shall have the above-defined
meanings when used in the Debentures or any other Loan Documents, certificate,
report or other document made or delivered pursuant to this Agreement, unless
the context therein shall otherwise require. Reference to Borrower as parent
company exclusively does occur where the context requires.
(b) Defined terms used herein in the singular shall import the plural and
vice versa.
(c) The words "hereof," "herein," "hereunder" and similar terms when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement.
(d) References to financial statements and reports shall be deemed to be
a reference to such statements and reports prepared in accordance with GAAP
on the basis used by Borrower in prior years, for all periods after the date
hereof so as to properly reflect the financial condition, and the results of
operations and statement of cash flows, of Borrower and its Consolidated
Subsidiaries, if any.
(e) Accounting terms not specifically defined above, or not defined in
the Agreement, shall be construed in accordance with GAAP as recognized as of
this date by the American Institute of Certified Public Accountants.
ARTICLE II - LOAN PROVISIONS
SECTION 2.01. LOAN CLOSING.
(a) Subject to the terms and conditions of this Agreement, and the
compliance with such terms and conditions by all parties, Lenders agree to
lend to Borrower, and Borrower agrees to borrow from Lenders, the aggregate
sum of up to FIVE HUNDRED THOUSAND DOLLARS ($500,000) which shall be
disbursed at the Loan Closing as follows:
Founders Equity Group, Inc. (cancellation and reissuance) $100,000
Founders Equity Group, Inc. $150,000
Founders Mezzanine Investors III, LLC $250,000
--------
Total $500,000
(b) Such disbursements are to be at such time and subject to the
conditions as provided hereunder and such borrowing shall be evidenced by
Borrower's duly executed Debentures (in one or more counterparts) in the
aggregate sum of $500,000 substantially in the form of Exhibit 2.01(b)
attached hereto and made a part hereof, with appropriate insertion of names,
dates and amounts. In the event of
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any differences in terms between this Agreement and the Debentures, the
Debentures will be controlling; provided, however, that the holder of the
Debentures shall be entitled to all the rights and benefits of the Lenders
provided in this Agreement.
(c) Unless otherwise mutually agreed, the Loan Closing shall be at the
offices of Founders Equity Group, Inc., Dallas, Texas.
(d) If, within 10 days of the date of this Agreement (i) Borrower has
failed to comply with the conditions precedent to the Loan Closing as
specified in Article III hereof (unless compliance with such conditions in
whole or in part has been waived or modified by Lenders in their sole
discretion) or (ii) the Loan Closing has not occurred (unless the date of
such Loan Closing has been mutually extended) then, in either such case, the
obligations of Lenders under this Agreement shall terminate, provided however
that Borrower shall be obligated for payment of Loan Commitment Fee as
provided in Section 2.07 due and payable as of such date of termination.
SECTION 2.02. USE OF PROCEEDS.
(a) Borrower intends to use the money advanced hereunder for the
purposes of (i) the payment of fees and expenses incurred in connection with
the proposed acquisition of USCommunication Services, Inc. ("USC"), (ii)
lending to USC up to $250,000 of such proceeds prior to the consummation of
the proposed acquisition, (iii) pursuing such other acquisitions of
businesses or assets as Borrower, in its discretion, elects (iv) general
working capital.
SECTION 2.03. INTEREST RATE AND INTEREST PAYMENTS.
(a) Interest on the Principal Amount outstanding from time to time shall
accrue at the rate of 10.00% per annum, with the first installment payable on
FEBRUARY 1, 1998 and subsequent payments at the first day of each month
thereafter. Overdue principal and interest on the Debentures shall bear
interest, to the extent permitted by applicable law, at a rate of 12.00% per
annum. Interest on the Principal Amount of each Debenture shall be
calculated, from time to time, on the basis of the actual days elapsed in a
year consisting of 365 days.
SECTION 2.04. MATURITY.
(a) If not sooner redeemed or converted, the Debentures shall mature on
JANUARY 1, 1999, at which time all the remaining unpaid principal, interest
and any other charges then due under the Agreement shall be due and payable
in full.
SECTION 2.06. OPTIONAL REDEMPTION.
(a) Optional principal redemption on each Debenture shall be as provided
for in such Debentures.
SECTION 2.07 LOAN CLOSING COSTS.
(a) Borrower agrees to pay to Agent, a Loan Commitment fee of 1% of the
loan amount available under this Loan Agreement such to be due and payable at
Loan Closing or upon termination of this Loan Agreement.
(b) Borrower agrees to pay to Agent, a Loan Closing Fee of 1% of the
amount of Loan funds disbursed at each Loan Closing, such to be due and
payable at Loan Closing.
(c) Lender agrees to a similar fee arrangement on any additional funds
provided under this Loan Agreement or similar agreement between Lender and
Borrower.
SECTION 2.08. NO BROKERS.
Borrower and Lenders represent and warrant to each other that they have
not engaged any brokers in connection with the Loan or taken any action that
would otherwise subject either party to claims for placement fees,
commissions, brokerage fees, or finders fees or similar claims arising in
connection with
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the Loan. Each party shall indemnify the other for any costs or expenses
incurred in connection with the breach of the representations or warranties
contained in this Section 2.08.
SECTION 2.09. TAXES.
(a) Each Debenture shall be exchangeable for shares of Borrower's Common
Stock on such terms hereunder and shall be made without deduction for any
present or future taxes, duties, charges or withholdings, (excluding, in the
case of the Lenders, any foreign taxes, any federal, state or local income
taxes and any franchise taxes or taxes imposed upon it by the jurisdiction,
or any political subdivision thereof, under which the Lenders are organized
or is qualified to do business) and all liabilities with respect thereto
(herein "Taxes") shall be paid by Borrower. If Borrower shall be required by
law to deduct any Taxes for which Borrower is responsible under the preceding
sentence from any sum payable hereunder to any Lenders: (i) the sum payable
shall be increased so that after making all required deductions, such Lenders
receive an amount equal to the sum it would have received had no such
deductions been made; (ii) Borrower shall make such deductions; and (iii)
Borrower shall pay the full amount deducted to the relevant taxing authority
or other authority in accordance with applicable law.
(b) Except as otherwise set forth in this Agreement or the other Loan
Documents, Borrower shall pay any present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or under the Loan Documents or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or the other Loan Documents (hereinafter referred to as "Other
Taxes").
(c) Borrower shall indemnify Lenders for the full amount of Taxes and
Other Taxes reasonably paid by Lenders or any liability (including any
penalties or interest assessed because of Borrower's defaults) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes
were correctly or legally asserted. This indemnification shall be made
within thirty (30) days from the date Lenders make written demand therefor
and has delivered to Borrower all documentation with respect thereto
reasonably requested by Borrower. Lenders shall subrogate any and all rights
and claims relating to such Taxes and Other Taxes to Borrower upon payment of
said indemnification.
(d) Without prejudice to the survival of any other agreement of Borrower
hereunder, the agreements and obligations of Borrower in this Section 2.09
shall survive the payment in full of the Loan.
SECTION 2.10 STOCK CONVERSION RIGHTS.
(a) Each Debenture shall be exchangeable for shares of Common Stock on
such terms and in such amounts as shall be stated in such Debenture. The
holders of the stock issued upon exercise of the right of conversion as
provided in said Debenture shall be entitled to all the rights of the Lenders
as stated in this Agreement or the other Loan Documents to the extent such
rights are specifically stated to survive the surrender of the Debenture for
conversion as therein provided.
SECTION 2.11 REGISTRATION RIGHTS AGREEMENT.
(a) The holder of shares of Common Stock issued upon Conversion shall be
entitled to registration rights as provided in Article IX of this Agreement
to the extent set forth therein.
ARTICLE III - CONDITIONS PRECEDENT
SECTION 3.01. DOCUMENT REQUIREMENTS.
(a) The obligations of Lenders to advance funds at the Loan Closing are
subject to the condition precedent that, on or before the date of such
advance, Lenders shall have received the following in form and substance
satisfactory to Lenders:
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(i) One or more duly executed Debentures with the insertions of date,
amount and conversion features and aggregating five hundred thousand dollars
($500,000.00) each in amounts as requested by Lenders, which shall be styled
as follows:
Founders Equity Group, Inc. and Founders Mezzanine Investors III, LLC.
(ii) One or more duly executed security agreements.
(iii) One or more duly executed financing statements.
(iv) Copies of resolutions, as adopted by the Borrower's Board of
Directors, approving the execution, delivery and performance of this
Agreement, the Debentures, and the other Loan Documents, including the
transactions contemplated herein and accompanied by a certificate of the
Secretary or Assistant Secretary of Borrower stating that such resolutions
have been duly adopted, are true and correct, have not been altered or
repealed and are in full force and effect.
(v) A signed certificate of the Secretary or Assistant Secretary of
the Borrower which shall certify the names of the officers of Borrower
authorized to sign each of the Loan Documents to be executed by such officer,
together with the true signatures of each of such officers. It is herewith
stipulated and agreed that Lenders may thereafter rely conclusively on the
validity of this certificate as a representation of the officers of Borrower
duly authorized to act with respect to the Loan Documents until such time as
Lenders shall receive a further certificate of the Secretary or Assistant
Secretary of Borrower canceling or amending the prior certificate and
submitting the signatures of the officers thereupon authorized in such
further certificate.
(vi) Certificates of good standing (or other similar instrument) for
the Borrower issued by the Secretary of State of the state of incorporation
of Borrower, and certificates of qualification and good standing for Borrower
issued by the Secretary of State of each of the states wherein the failure to
be qualified to do business as a foreign corporation would have a Material
Adverse Effect, dated within fifteen (15) days of Loan Closing, and
(vii) Such other information and documents as may reasonably be required
by Lenders and Lenders' counsel to substantiate Borrower's compliance with
the requirements of this Agreement.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
To induce Lenders to make the Loan hereunder, Borrower represents and warrants
to Lenders that:
SECTION 4.01. ORGANIZATION AND GOOD STANDING.
(a) Borrower is duly organized and existing in good standing under the
laws of the state of its incorporation, is duly qualified as a foreign
corporation and in good standing in all states in which failure to qualify
would have a Material Adverse Effect, and has the corporate power and
authority to own its properties and assets and to transact the business in
which it is engaged and is or will be qualified in those states wherein it
proposes to transact material business operations in the future and where
failure to qualify would have a Material Adverse Effect.
SECTION 4.02. AUTHORIZATION AND POWER.
(a) Borrower has the corporate power and requisite authority to execute,
deliver and perform the Loan Documents to be executed by Borrower. The
Borrower is duly authorized to, and has taken all corporate action necessary
to authorize, execute, deliver and perform the Loan Documents executed by
Borrower. The Borrower is and will continue to be duly authorized to perform
the Loan Documents executed by Borrower.
SECTION 4.03. ENFORCEABLE OBLIGATIONS.
(a) The Loan Documents to which it is a party have been duly executed
and delivered by the Borrower and are the legal and binding obligations of
the Borrower, enforceable in accordance with their
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respective terms, except as limited by any applicable bankruptcy, insolvency
or similar laws now or hereafter in effect affecting creditors rights and
debtor's obligations.
SECTION 4.04. NO LIENS.
(a) Except for Permitted Liens, all of the properties and assets owned
by the Borrower are free and clear of all Liens and other adverse claims of
any nature, and Borrower has good and marketable title to such properties and
assets. A true and complete list of all Liens for borrowed money is
disclosed to Lenders pursuant to Exhibit 4.04.
SECTION 4.05. FINANCIAL CONDITION.
(a) Borrower has delivered to Lenders copies of the Form 10-K of
Borrower dated October 31, 1996 and 10-Q dated July 31, 1997. The financial
statements contained in the 10-K and 10-Q are true and correct in all
material respects, fairly represent the financial condition of Borrower as of
such dates and have been prepared in accordance with GAAP (except unaudited
financial statements omit certain footnotes and are subject to year end
adjustment in the ordinary course); and as of the date hereof, there are no
obligations, liabilities or Indebtedness (including contingent and indirect
liabilities and obligations) of Borrower which are (separately or in the
aggregate) material and are not reflected in such financial statements.
Since the date of the above referenced Form 10-K and 10-Q, there has not been
(i) any Material Adverse Change in the financial condition, results of
operations, business, prospects, assets or liabilities (contingent or
otherwise, whether due or to become due, known or unknown), of the Borrower;
(ii) any dividend declared or paid or distribution made on the capital stock
of the Borrower or any capital stock thereof redeemed or repurchased; (iii)
any incurrence of long-term debt by the Borrower; (iv) any salary, bonus or
compensation increases to any officers, key employees or agents of the
Borrower or; (v) any other transaction entered into by the Borrower except in
the ordinary course of business and consistent with past practice.
SECTION 4.06. FULL DISCLOSURE.
(a) To the best of Borrower's knowledge and belief after current
investigation, there is no material fact that Borrower has not disclosed to
Lenders which could reasonably be expected to have a Material Adverse Effect.
Neither the financial statements referenced in Section 4.05 hereof, nor any
business plan, offering memorandum or prospectus, certificate or statement
delivered herewith or heretofore by Borrower to Lenders in connection with
the negotiations of this Agreement, contained any untrue statement of a
material fact or omitted to state any material fact necessary to keep the
statements contained herein or therein from being misleading.
SECTION 4.07. NO DEFAULT.
(a) No Default or Event of Default under this Agreement has occurred or
is continuing.
SECTION 4.08. MATERIAL AGREEMENTS.
(a) The Borrower is not in default in any material respect under any
material contract, lease, loan agreement, indenture, mortgage, security
agreement or other material agreement or obligation to which it is a party or
by which any of its properties is bound.
SECTION 4.09. NO LITIGATION.
(a) There are no actions, suits, investigations, arbitrations or
administrative proceedings pending, or to the knowledge of Borrower
threatened, against Borrower that would have a Material Adverse Effect, and
there has been no change in the status of any of the actions, suits,
investigations, litigation or proceedings disclosed to Lenders which could
have a Material Adverse Effect on Borrower or on any transactions
contemplated by any Loan Document.
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AGREEMENT (CONTINUED)
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SECTION 4.10. BURDENSOME CONTRACTS.
(a) To the best knowledge of the Borrower, it is not a party to, or
bound by, any contract or agreement, the faithful performance of which is so
onerous so as to create or to likely create a Material Adverse Effect.
SECTION 4.11. TAXES.
(a) All tax returns required to be filed by Borrower in any jurisdiction
have been filed and all taxes (including mortgage recording taxes),
assessments, fees and other governmental charges upon Borrower or upon any of
its properties, income or franchises have been paid except for (i) where a
failure to file could not reasonably be anticipated to have a Material
Adverse Effect or (ii) immaterial amounts and taxes being contested by
Borrower in good faith and by appropriate proceedings. To the best knowledge
of Borrower, there is no proposed tax assessment against Borrower and there
is no basis for such assessment.
SECTION 4.12 PRINCIPAL OFFICE, ETC.
(a) The principal office and principal place of business of the Borrower
is:
Canmax Inc.
000 X. Xxxxxxxxx Xxxxxxx
Xxxxxx, XX 00000
SECTION 4.13. USE OF PROCEEDS.
(a) The Borrower hereby acknowledges that it intends to use proceeds
from the Loans the set forth in Section 2.02
SECTION 4.14. COMPLIANCE WITH LAW.
(a) To the best knowledge of Borrower, Borrower is in compliance in all
material respects with all laws, rules, regulations, orders and decrees which
are applicable to Borrower or its properties by reason of any Governmental
Authority which are material to the conduct of the business of Borrower or
any of its properties.
SECTION 4.15. SCHEDULE OF CAPITAL STOCK AND SEC REQUIREMENTS.
(a) As of the date hereof, set forth on Exhibit 4.15 - Schedule of
Capital Stock is a true and correct schedule of all classes of authorized,
issued, and outstanding Capital Stock of the Borrower, all stock options,
warrants, conversion rights, subscription rights and other rights or
agreements to acquire securities of Borrower (other than the Debentures )and
any shares held in treasury or reserved for issue upon exercise of such stock
options, warrants or conversion rights, subscription rights and other rights
or agreements to acquire securities including date of termination of such
right and the consideration therefor.
(b) Except as provided in Exhibit 4.15 - Schedule of Capital Stock, to
the best of the Borrower's knowledge, all securities of Borrower have been
issued in compliance with the requirements of the 1933 Act, and the rules and
regulation promulgated thereunder, or pursuant to an exemption therefrom.
(c) The shares of Common Stock when issued to Lenders upon Conversion
will be duly and validly issued, fully paid and nonassessable and in
compliance with all applicable securities laws. Such issuance will not give
rise to preemptive rights or similar rights by any other security holder of
Borrower. Borrower shall at all times reserve and keep available sufficient
authorized and unissued shares of Common Stock to effectuate the Conversion.
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AGREEMENT (CONTINUED)
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SECTION 4.16. SUBSIDIARIES.
(a) As of the date hereof, the Borrower but not have any Subsidiaries
other than (i) Canmax Retail Systems, Inc., a Texas corporation, or (ii)
subsidiaries with no material assets or liabilities through which no
operations have been conducted within the preceding 24 months.
(b) Except to set forth and Section 4.16(a) above, Borrower does not own
any equity or debt interest or any form of proprietary interest (other than
standard commercial money market accounts) in any entity, or any right or
option to acquire any such interest in any such entity.
SECTION 4.17 PATENTS, TRADEMARKS AND COPYRIGHTS.
(a) To the best of Borrower's knowledge and belief after current
investigation, Borrower owns all patents, trademarks and copyrights, if any,
necessary to conduct its business or possesses licenses or other rights, if
any, therefor. All such intangible property rights are listed in Exhibit 4.17
- Schedule of Patents, Trademarks and Copyrights. To its knowledge, Borrower
has the right to use such proprietary rights without infringing or violating
the rights of any third parties. No claim has been asserted by any person to
the ownership of or right to use any such proprietary right or challenging or
questioning the validity or effectiveness of any such license or agreement
which would have a Material Adverse Effect, however Buyer has granted to The
Southland Corporation ("Southland") a license to use, possess and modify the
source code for its "C-Serve Software" and related software of Borrower used
by Southland. To Borrower's knowledge, each of the proprietary rights is
valid and subsisting, and has not been canceled, abandoned or otherwise
terminated.
SECTION 4.18. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) All representations and warranties by Borrower herein shall survive
the Loan Closing and any subsequent Loan Closings and the delivery of the
Debentures, and any investigation at any time made by or on behalf of any
Lender shall not diminish Lenders' right to rely on Borrower's
representations and warranties as herein set forth, except to the extent that
such warranty was made as of a specific date or was subsequently modified or
supplemented with the consent of the Majority in Interest.
ARTICLE V - AFFIRMATIVE COVENANTS
So long as any part of the Debentures remains unpaid or has not been
redeemed or converted hereunder, and until such payment, redemption or
conversion in full, unless the Majority in Interest shall otherwise consent
in writing, which consent shall not be unreasonably withheld, Borrower agrees
that:
SECTION 5.01. FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS.
(a) The Borrower shall accurately and fairly maintain its books of
account in accordance with GAAP, employ a firm of independent certified
public accountants, which firm is and shall be one of the six largest
national accounting firms or which is approved by the Majority in Interest,
to make annual audits of its accounts in accordance with generally accepted
auditing standards; permit the Lenders and their representatives to have
access to and to examine its properties, books and records (and to copy and
make extracts therefrom) at such reasonable times and intervals as the
Lenders may request; and to discuss its affairs, finances and accounts with
its officers and auditors, all to such reasonable extent and at such
reasonable times and intervals as the Lenders may request.
(b) The Borrower shall provide the following reports and information to
the Lenders:
(i) As soon as available, and in any event within forty-five (45)
days after the close of each quarter, the Borrower's report on Form 10-Q with
exhibits for said period. In addition, the Lenders may at their sole
discretion request internal monthly reports for specific periods.
(ii) As soon as available, and in any event within ninety (90) days
after the close of each year, the Borrower's report on Form 10-K with
exhibits for said period.
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AGREEMENT (CONTINUED)
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(iii) Each quarter, concurrent with the periodic report required
above, a certificate executed by the Chief Financial Officer or Chief
Executive Officer of the Borrower, (A) stating that a review of the
activities of the Borrower during such fiscal period has been made under his
supervision and that the Borrower has observed, performed and fulfilled each
and every obligation and covenant contained herein and no Default or Event of
Default shall have occurred, or if a Default or Event of Default shall
occurred, specifying the nature and status thereof, and (B) setting forth a
computation in reasonable detail as of the end of the period covered by such
statements, of compliance with the Agreed Minimum Financial Standards in
Exhibit 7.01 as provided therein.
(iv) So long as any Debenture remains outstanding, promptly (but in
any event within five (5) business days) upon learning of the occurrence of a
Default or an Event of Default deliver a certificate signed by the Chief
Executive Officer or Chief Financial Officer of the Borrower describing such
Default or Event of Default and stating what steps are being taken to remedy
or cure the same.
(v) Promptly (but in any event within five (5) business days) upon
the receipt thereof by the Borrower or the Board of Directors of the
Borrower, copies of all reports, all management letters and other detailed
information submitted to the Borrower or the Board by independent accountants
in connection with each annual or interim audit or review of the accounts or
affairs of the Borrower made by such accountants.
(vi) With reasonable promptness, such other information relating to
the finances, properties, business and affairs of the Borrower and each
Subsidiary, as Lenders may reasonably request from time to time.
(vii) Promptly upon its becoming available, one copy of each
financial statement, report, press release, notice or proxy statement sent by
Borrower to stockholders generally, and of each regular or periodic report,
registration statement or prospectus filed by Borrower with any securities
exchange or the SEC or any successor agency, and of any order issued by any
Governmental Authority in any proceeding to which the Borrower is a party.
SECTION 5.02. OPERATION REVIEW.
(a) Borrower agrees that it will review its operations with Lenders.
Such operations reviews will be in such depth and detail as Lenders shall
reasonably request. Operations reviews, which usually will require a day or
less to complete, will be held as reasonably necessary, generally once a
fiscal quarter.
SECTION 5.03. PAYMENT OF TAXES AND OTHER INDEBTEDNESS.
(a) Borrower shall, and shall cause its Subsidiaries (if any) to, pay
and discharge (i) all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits, or upon any property belonging
to it, before delinquent, (ii) all lawful claims (including claims for labor,
materials and supplies), which, if unpaid, might give rise to a Lien upon any
of its property other than Permitted Liens, and (iii) all of its other
Indebtedness, except as prohibited hereunder; provided, however, that
Borrower and its Subsidiaries, if any, shall not be required to pay any such
tax, assessment, charge or levy if and so long as the amount, applicability
or validity thereof shall currently be contested in good faith by appropriate
proceedings and appropriate accruals and reserves therefor have been
established in accordance with GAAP.
SECTION 5.04. MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS.
(a) Borrower shall, and shall cause its Subsidiaries (if any) to,
preserve and maintain its corporate existence and all of its rights,
privileges and franchises necessary or desirable in the normal conduct of its
business, and conduct its business in an orderly and efficient manner
consistent with good business practices and in accordance with all valid
regulations and orders of any Governmental Authority. Borrower shall keep its
principal place of business within the United States.
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AGREEMENT (CONTINUED)
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SECTION 5.05. SEC FILING AND MAINTENANCE OF SEC REPORTING REQUIREMENTS.
(a) So long as Borrower has a class of securities registered pursuant to
Section 12 of the 1934 Act, Borrower shall duly file, when due, all reports
and statements required of a company whose securities are registered for
public trading under and pursuant to the 1934 Act, as amended, and any rules
and regulations issued thereunder, and to preserve and maintain its
registration thereunder and all of the rights of its security holders
normally associated with a publicly traded stock company.
SECTION 5.06. NOTICE OF DEFAULT.
(a) Borrower shall furnish to Lenders, immediately upon becoming aware
of the existence of any condition or event which constitutes a Default or
would with the passage of time become a Default or an Event of Default,
written notice specifying the nature and period of existence thereof and the
action which Borrower is taking or proposes to take with respect thereto.
SECTION 5.07. OTHER NOTICES.
(a) Borrower shall promptly notify Lenders of (i) any Material Adverse
Change, (ii) any default under any material agreement, contract or other
instrument to which it is a party or by which any of its properties are
bound, or any acceleration of the maturity of any Indebtedness owing by
Borrower or its Subsidiaries, if any, (iii) any material adverse claim that
would have a Material Adverse Effect against or affecting Borrower or its
Subsidiaries, if any, or any of its properties, and (iv) the commencement of,
and any material determination in, any litigation with any third party or any
proceeding before any Governmental Authority, the negative result of which
has a Material Adverse Effect on Borrower and its Subsidiaries.
SECTION 5.08. BOOKS AND RECORDS; ACCESS.
(a) Borrower shall, and shall cause each of its Subsidiaries (if any)
to, maintain complete and accurate books and records of its transactions in
accordance with GAAP. Borrower shall give each duly authorized representative
of Lenders access during all normal business hours to, and shall permit such
representative to examine, copy or make excerpts from, any and all books,
records and documents in the possession of Borrower and its Subsidiaries and
relating to its affairs, and to inspect any of the properties of Borrower and
its Subsidiaries, if any. Borrower shall make a copy of this Agreement, along
with any waivers, consents, modifications or amendments, available for review
at its principal office by Lenders or Lenders' representatives. Borrower
shall not be responsible for Lenders' costs and expenses of inspection.
SECTION 5.09. COMPLIANCE WITH LAW.
(a) Borrower shall, and shall cause each of its Subsidiaries (if any)
to, comply with all applicable laws, rules, regulations, and all orders of
any Governmental Authority applicable to it or any of its property, business
operations or transactions, a breach of which could reasonably be expected to
have a Material Adverse Effect.
SECTION 5.10. INSURANCE.
(a) Borrower shall, and shall cause each of its Subsidiaries (if any)
to, maintain such worker's compensation insurance, liability insurance and
insurance on its properties, assets and business, now owned or hereafter
acquired, against such casualties, risks and contingencies, and in such types
and amounts, as are consistent with customary practices and standards of
companies engaged in similar businesses.
SECTION 5.11. FURTHER ASSURANCES.
(a) Borrower shall, and shall cause each of its Subsidiaries (if any)
to, make, execute or endorse, and acknowledge and deliver or file or cause
the same to be done, all such notices, certifications and
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AGREEMENT (CONTINUED)
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additional agreements, undertakings, transfers, assignments, or other
assurances, and take any and all such other action, as Lenders may, from time
to time, deem reasonably necessary or proper in connection with any of the
Loan Documents, or the obligations of Borrower or its Subsidiaries, if any,
thereunder, which Lenders may request from time to time.
SECTION 5.12. INDEMNITY BY BORROWER.
(a) Borrower shall indemnify, save, and hold harmless, Lenders and their
directors, officers, agents, attorneys, and employees (singularly or
collectively, the "Indemnitee") from and against (i) any and all claims,
demands, actions or causes of action that are asserted against any Indemnitee
if the claim, demand, action or cause of action directly or indirectly
relates to this Agreement and the other Loan Documents issued pursuant
thereto, the use of proceeds of the Loans, or the relationship of Borrower
and Lenders under this Agreement or any transaction contemplated pursuant to
this Agreement, (ii) any administrative or investigative proceeding by any
Governmental Authority directly or indirectly related to a claim, demand,
action or cause of action described in clause (i) above, and (iii) any and
all liabilities, losses, costs, or expenses (including reasonable attorneys'
fees and disbursements) that any Indemnitee suffers or incurs as a result of
any of the foregoing; provided, however, that Borrower shall have no
obligation under this Section 5.12 to any Indemnitees with respect to any of
the foregoing arising out of the negligence or willful misconduct of any
Indemnitees or the breach by the Lenders or its assignees of this Agreement
or any other Loan Document or other document executed in connection with any
of the aforesaid, the breach by any Indemnitees of any agreement or
commitment with other parties, the violation or alleged violation of any law,
rule or regulation by any Indemnitees, or from the acquisition, transfer or
disposition by Lenders of any Debenture or the Common Stock issued upon
Conversion of the Debenture. If any claim, demand, action or cause of action
is asserted against any Indemnitee, such Indemnitee shall promptly notify
Borrower, but the failure to so promptly notify Borrower shall not affect
Borrower's obligations under this Section unless such failure materially
prejudices Borrower's right to participate in the contest of such claim,
demand, action or cause of action, as hereinafter provided. In the event
that such indemnitee's failure to properly notify the Borrower materially
prejudices Borrower's right to participate in the contest of such claim,
demand, action, or cause of action, then said Indemnitee shall have no right
to receive, and Borrower shall have no obligation to pay, any indemnification
amounts hereunder. Borrower may elect to defend any such claim, demand,
action or cause of action (at its own expense) asserted against said
Indemnitee and, if requested by Borrower in writing and so long as no Default
or Event of Default shall have occurred and be continuing, such Indemnitee
(at Borrower's expense) shall in good faith contest the validity,
applicability and amount of such claim, demand, action or cause of action and
shall permit Borrower to participate in such contest. Any Indemnitee that
proposes to settle or compromise any claim or proceeding for which Borrower
may be liable for payment to or on behalf of an Indemnitee hereunder shall
give Borrower written notice of the terms of such proposed settlement or
compromise reasonably in advance of settling or compromising such claim or
proceeding and shall obtain Borrower's written concurrence thereto. In the
event that said Indemnitee fails to obtain Borrower's prior written consent
to any such settlement or compromise, said Indemnitee shall have no right to
receive and Borrower shall have no obligation to pay any indemnification
amounts hereunder. Each Indemnitee may employ counsel in enforcing its
rights hereunder and in defending against any claim, demand, action, or cause
of action covered by this Section 5.12; provided, however, that each
Indemnitee shall endeavor, but shall not be obligated, in connection with any
matter covered by this Section which also involves any other Indemnitee, to
use reasonable efforts to avoid unnecessary duplication of effort by counsel
for all Indemnitees, including by allowing Borrower to select one lawyer for
all parties, such selection to be subject to the approval of such parties,
which approval shall not be unreasonably withheld. Any obligation or
liability of Borrower to any Indemnitee under this Section 5.12 shall survive
the expiration or termination of this Agreement and the repayment of the
Debentures.
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AGREEMENT (CONTINUED)
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ARTICLE VI - NEGATIVE COVENANTS
So long as any part of the Debentures have not been redeemed or
converted hereunder, and until such redemption or conversion in full, unless
the Majority in Interest shall otherwise consent in writing, which consent
shall not be unreasonably withheld, Borrower agrees that, unless permitted
otherwise:
SECTION 6.01. LIMITATION ON INDEBTEDNESS.
(a) Borrower and its Subsidiaries shall not incur, create, contract,
waive, assume, have outstanding, guarantee or otherwise be or become,
directly or indirectly, liable in respect of any Indebtedness, except:
(i) Indebtedness arising out of this Agreement or otherwise contemplated
herein;
(ii) Permitted Indebtedness
(iii) Intercompany loans and advances;
(iv) contingent liabilities totaling less than $500,000 arising out of
endorsements of checks or other negotiable instrument for deposit or
collection in the ordinary course of business;
(v) indebtedness outstanding on the date hereof and described in the
financial statements delivered pursuant to Section 4.05 hereof or on
Exhibit 6.01, and any refinancings or extensions thereof; and
(vi) Indebtedness associated with Permitted Investments.
SECTION 6.02. NEGATIVE PLEDGE/PREPAYMENTS.
(a) Borrower shall not, and shall not permit its Subsidiaries (if any)
to, create, incur, permit or suffer to exist any Lien upon any of its
property or assets other than Permitted Liens.
SECTION 6.03. LIMITATION ON INVESTMENTS.
(a) Borrower shall not, and shall not permit its Subsidiaries (if any)
to, make any advance, loan, investment or material acquisition of assets for
cash or cash equivalents, other than (i) advances made to employees in the
ordinary course of business so long as the aggregate amount of such advances
do not exceed Twenty-five Thousand Dollars ($25,000.00) in the aggregate
outstanding at any time; (ii) investments in marketable securities so long as
the aggregate amount of such investments do not exceed One Hundred Thousand
Dollars ($100,000.00) at any time; (iii) investments in short-term direct
obligations of the United States government or any agency thereof; (iv)
investments in negotiable certificates of deposit and repurchase agreements
issued by a United States bank having a combined capital and surplus of at
least $50,000,000 payable to the order of Borrower or to bearer, (v)
investments in commercial paper rated A-1 or P-1, and (vi) acquisition of the
stock or assets of other Persons other than USC.
SECTION 6.04. CERTAIN TRANSACTIONS.
Intentionally omitted.
SECTION 6.05. LIMITATION ON SALE OF PROPERTIES.
(a) Borrower shall not, and shall not permit its Subsidiaries (if any)
to (i) sell, assign, convey, exchange, lease or otherwise dispose of any of
its properties, rights, assets or business, whether now owned or hereafter
acquired, except in the ordinary course of its business and for a fair
consideration, or (ii) sell, assign or discount any accounts receivable
except in the ordinary course of business or to secure bank or commercial
working capital loans in the ordinary course of business.
SECTION 6.06. NO AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS.
(a) Borrower shall not, and shall not permit its Subsidiaries (if any)
to, materially amend its Articles of Incorporation or bylaws except as is
necessary to fulfill the conditions of this Agreement or to change its
domicile from the state of Wyoming to the state of Delaware or Texas.
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SECTION 6.07. LIMITATION ON INCREASED EXECUTIVE COMPENSATION AND BONUS,
PROFIT SHARING OR OTHER INCENTIVE PAYMENTS.
(a) Borrower will not increase the salary, bonus, or other compensation
programs (whether in cash, securities, or other property, and whether payment
is deferred or current) of its top five executive officers unless such
compensation increase is approved by a majority of the Board or a
Compensation Committee of the Board of Directors, a majority of whom shall
non-employee Directors.
SECTION 6.08. RESTRICTED PAYMENTS.
(a) So long as any Debentures are outstanding, Borrower shall not (i)
declare or pay any dividend on any Common Stock or Preferred Stock that
exceeds five percent (5%) of Net Operating Income as defined by GAAP for the
most recent 12 month period, or (ii) purchase, redeem, decrease, or otherwise
acquire any shares of Common Stock, or any Preferred Stock.
ARTICLE VII - EVENTS OF DEFAULT
SECTION 7.01. EVENTS OF DEFAULT.
(a) An "Event of Default" shall exist if any one or more of the
following events (herein collectively called "Events of Default") shall occur
and be continuing:
(i) Borrower shall fail to pay (or shall state in writing an intention
not to pay or its inability to pay), not later than ten (10) days after the
due date, any installment of interest on or principal of, any Debenture or
any fee, expense or other payment required hereunder;
(ii) Any representation or warranty made under this Agreement, or any of
the other Loan Documents, or in any certificate or statement furnished by
Borrower to Lenders pursuant hereto or in connection herewith or with the
Loans hereunder, shall prove to be untrue or inaccurate in any material
respect as of the date on which such representation or warranty was made;
(iii) Default shall occur in the performance of any of the covenants or
agreements of Borrower or of its Subsidiaries (if any) contained herein, or
in any of the other Loan Documents, which is not remedied within fifteen (15)
days after written notice thereof to Borrower from Lenders;
(iv) Default shall occur in the payment of any Indebtedness in excess of
one hundred thousand dollars ($100,000) of the Borrower or its Subsidiaries
(if any), or default shall occur in respect of any note, loan agreement or
credit agreement relating to any such Indebtedness, and such default shall
continue for more than the period of grace, if any, specified therein or any
such indebtedness shall become due before its stated maturity by acceleration
of the maturity thereof or shall become due by its terms and shall not be
promptly paid or extended;
(v) Any of the Loan Documents shall cease to be legal, valid and binding
agreements enforceable against the Borrower in accordance with the respective
terms thereof, or shall in any way be terminated except as otherwise provided
for therein or become or be declared ineffective or inoperative, or shall in
any way whatsoever cease to give or provide the respective rights, titles,
interests, remedies, powers or privileges intended to be created thereby;
(vi) Borrower or its Subsidiaries (if any) shall (A) apply for or
consent to the appointment of a receiver, trustee, custodian, intervenor or
liquidator of itself, or of all or substantially all of such Person's assets,
(B) file a voluntary petition in bankruptcy, admit in writing that such
Person is unable to pay such Person's debts as they become due or generally
not pay such Person's debts as they become due, (C) make a general assignment
for the benefit of creditors, (D) file a petition or answer seeking
reorganization or an arrangement with creditors or to take advantage of any
bankruptcy or insolvency laws, (E) file an answer admitting the material
allegations of, or consent to, or default in answering, a
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petition filed against such Person in any bankruptcy, reorganization or
insolvency proceeding, or (F) take corporate action for the purpose of
effecting any of the foregoing;
(vii) An involuntary petition or complaint shall be filed against
Borrower or any of its Subsidiaries (if any) seeking bankruptcy or
reorganization of such Person or the appointment of a receiver, custodian,
trustee, intervenor or liquidator of such Person, or all or substantially all
of such Person's assets, and such petition or complaint shall not have been
dismissed within sixty (60) days of the filing thereof or an order, order for
relief, judgment or decree shall be entered by any court of competent
jurisdiction or other competent authority approving a petition or complaint
seeking reorganization of Borrower or its subsidiary (if any) or appointing a
receiver, custodian, trustee, intervenor or liquidator of such Person, or of
all or substantially all of such Person's assets;
(viii) Any final judgment for the payment of money, in excess of $50,000
individually or $100,0000 in the aggregate, shall be rendered against the
Borrower and which is not covered by insurance; or
(ix) The Borrower shall fail to issue and deliver shares of Common Stock
as provided in the Debentures.
SECTION 7.02. REMEDIES UPON EVENT OF DEFAULT.
(a) If an Event of Default shall have occurred and be continuing for a
period of fifteen (15) days, then Lenders may exercise any one or more of the
following rights and remedies, and any other remedies provided in any of the
Loan Documents, as the Majority in Interest in their sole discretion may deem
necessary or appropriate:
(i) declare the unpaid Principal Amount (after application of any
payments or installments received by Lenders) of, and all interest then
accrued but unpaid on, the Debentures and any other liabilities hereunder to
be forthwith due and payable, whereupon the same shall forthwith become due
and payable without presentment, demand, protest, notice of default, notice
of acceleration or of intention to accelerate or other notice of any kind,
all of which Borrower hereby expressly waives, anything contained herein or
in the Debentures to the contrary notwithstanding;
(ii) reduce any claim to judgment; and
(iii) without notice of default or demand, pursue and enforce any of
Lenders' rights and remedies under the Loan Documents, or otherwise provided
under or pursuant to any applicable law or agreement, all of which rights may
be specifically enforced.
SECTION 7.03. PERFORMANCE BY LENDERS.
(a) Should Borrower fail to perform any covenant, duty or agreement
contained herein or in any of the other Loan Documents, Lenders may perform
or attempt to perform such covenant, duty or agreement on behalf of Borrower.
In such event, Borrower shall, at the request of Lenders, promptly pay any
amount reasonably expended by Lenders in such performance or attempted
performance to Lenders at their principal office in Dallas, Texas, together
with interest thereon, at the interest rate specified in the Debenture, from
the date of such expenditure until paid. Notwithstanding the foregoing, it
is expressly understood that Lenders assume no liability or responsibility
for the performance of any duties of Borrower hereunder or under any of the
other Loan Documents.
SECTION 7.04. PAYMENT OF EXPENSES INCURRED BY LENDERS.
(a) Upon the occurrence of a Default or an Event of Default, which
occurrence is not cured within the notice provisions, if any, provided
herein, Borrower agrees to pay and shall pay all costs and expenses
(including Lenders' attorney's fees and expenses) reasonably incurred by
Lenders or their Agent in connection with the preservation and enforcement of
Lenders' rights under this Agreement, the Debentures, or any other Loan
Document.
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AGREEMENT (CONTINUED)
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ARTICLE VIII - REGISTRATION RIGHTS
SECTION 8.01. PIGGY BACK RIGHTS. PENALTY FOR FAILURE TO REGISTER.
(a) If at any time after the date hereof, the Borrower shall file a
registration statement relating to any of its securities, it will notify the
Holder in writing and, upon the Holder's request, will include the offer and
sale of Registrable Securities in such registration statement. In the event
that the Borrower fails include Registrable Securities in a piggy back
statement as required herein, the Borrower shall give notice demanding a
registration and 105 days after the notice the Borrower shall prepare and
file a registration statement with the SEC with respect to such Registrable
Securities. If the Borrower fails to file within said time period, the
Conversion Price of the Debentures issued pursuant to this Agreement shall
decrease by $0.0625 per month until a complete registration statement has
been filed.
SECTION 8.02. OBLIGATIONS OF THE BORROWER.
Whenever required to include Registrable Securities in any registration
or to effect the registration of any Registrable Securities pursuant to this
Agreement, the Borrower shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect
to such Registrable Securities and use its best lawful efforts to cause such
registration statement to become effective, and use its best efforts to keep
such registration statement effective until all such Registrable Securities
have been distributed;
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of
the 1933 Act with respect to the disposition of all Registrable Securities
covered by such registration statement;
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of
the 1933 Act, and such other documents as they may reasonably request in
order to facilitate the disposition of Registrable Securities owned by them;
(d) Use its best lawful efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue
Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Borrower shall not be required in connection
therewith or as a condition thereto to qualify as a broker-dealer in any
states or jurisdictions or to do business or to file a general consent to
service of process in any such states or jurisdictions;
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement with the managing
underwriter of such offering, in usual and customary form reasonably
satisfactory to the Borrower and the Holders of a majority of the Registrable
Securities to be included in such offering. Each Holder participating in
such underwriting shall also enter into and perform its obligations under
such an agreement; and
(f) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto and
covered by such registration statement is required to be delivered under the
1933 Act, of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
SECTION 8.03. FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations of the Borrower
to take any action pursuant to this Article VIII that the selling Holders
shall furnish to the Borrower any and all information reasonably requested by
the Borrower, its officers, directors, employees, counsel, agents or
representatives, the
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AGREEMENT (CONTINUED)
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underwriter or underwriters, if any, and the SEC or any other Governmental
Authority, including but not limited to: (i) such information regarding
themselves, the Registrable Securities held by them, and the intended method
of disposition of such securities, as shall be required to effect the
registration of their Registrable Securities, and (ii) the identity of and
compensation to be paid to any proposed underwriter or broker-dealer to be
employed in connection therewith.
(b) In connection with the preparation and filing of each registration
statement registering Registrable Securities under the 1933 Act, the Borrower
shall give the Holders of Registrable Securities on whose behalf such
Registrable Securities are to be registered and their underwriters, if any,
and their respective counsel and accountants, at such Holders' sole cost and
expense (except as otherwise set forth herein), such access to copies of the
Borrower's records and documents and such opportunities to discuss the
business of the Borrower with its officers and the independent public
accountants (in the presence of the Borrower) who have certified its
financial statements as shall be reasonably necessary in the opinion of such
Holders and such underwriters or their respective counsel, to conduct a
reasonable investigation within the meaning of the 1933 Act, after written
notice to Borrower.
SECTION 8.04. EXPENSES OF REGISTRATION.
All expenses, other than underwriting discounts and commissions incurred
in connection the registrations contemplated herein, including, without
limitation, all registration, filing and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Borrower, and the
reasonable fees and disbursements of one counsel for the selling Holders,
shall be borne by the Borrower.
SECTION 8.05. INDEMNIFICATION REGARDING REGISTRATION RIGHTS.
If any Registrable Securities are included in a registration statement
under this Article VIII:
(a) To the extent permitted by law, the Borrower will indemnify and
hold harmless each Holder, the officers and directors of each Holder, any
underwriter (as defined in the 0000 Xxx) for such Holder and each person, if
any, who controls such Holder or underwriter within the meaning of the 1933
Act or the 1934 Act, against any losses, claims, damages, liabilities (joint
or several) or any legal or other costs and expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action to which they may become subject under the 1933
Act, the 1934 Act or other federal or state law, insofar as such losses,
claims, damages, costs, expenses or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact with respect to the
Borrower or its securities contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements therein; (ii) the omission or alleged omission
to state therein a material fact with respect to the Borrower or its
securities required to be stated therein or necessary to make the statements
therein not misleading; or (iii) any violation or alleged violation by the
Borrower of the 1933 Act, the 1934 Act, any federal or state securities law
or any rule or regulation promulgated under the 1933 Act, the 1934 Act or any
state securities law. Notwithstanding the foregoing, the indemnity agreement
contained in this Section 8.05(a) shall not apply and the Borrower shall not
be liable (i) in any such case for any such loss, claim, damage, costs,
expenses, liability or action to the extent that it arises out of or is based
upon a Violation which occurs in (a) reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person or (b) as
a result of the gross negligence, willful misconduct or breach of any
warranty, covenant or agreement of such Holder contained herein, or (ii) for
amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the prior written consent of
the Borrower, which consent shall not be unreasonably withheld.
(b) To the extent permitted by law, each Holder who participates in a
registration pursuant to the terms and conditions of this Agreement shall
indemnify and hold harmless the Borrower, each of its
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AGREEMENT (CONTINUED)
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directors and officers who have signed the registration statement, each
Person, if any, who controls the Borrower within the meaning of the 1933 Act
or the 1934 Act, each of the Borrower's employees, agents, counsel and
representatives, any underwriter and any other Holder selling securities in
such registration statement, or any of its directors or officers, or any
person who controls such Holder, against any losses, claims, damages, costs,
expenses, liabilities (joint or several) to which the Borrower or any such
director, officer, controlling person, employee, agent, representative,
underwriter, or other such Holder, or director, officer or controlling person
thereof, may become subject, under the 1933 Act, the 1934 Act or other
federal or state law, only insofar as such losses, claims, damages, costs,
expenses or liabilities or actions in respect thereto arise out of or are
based upon any Violation, in each case to the extent and only to the extent
that such Violation occurs (i) in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such or (ii) as a result of the gross negligence, willful misconduct or
breach of any warranty, covenant or agreement of such Holder contained
herein. Each such Holder will indemnify any legal or other expenses
reasonably incurred by the Borrower or any such director, officer, employee,
agent representative, controlling person, underwriter or other Holder, or
officer, director or of any controlling person thereof, in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section
8.05(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, costs, expenses, liability or action if such settlement is
effected without the prior written consent of the Holder, which consent shall
not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this Section
8.05 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 8.05, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
shall have the right to retain its own counsel, with the reasonable fees and
expenses of such counsel to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential conflict
of interests between such indemnified party and any other party represented
by such counsel in such proceeding. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve the indemnifying party of its obligations under
this Section 8.05, except to the extent that the failure results in a failure
of actual notice to the indemnifying party and such indemnifying party is
materially prejudiced in its ability to defend such action solely as a result
of the failure to give such notice.
(d) If the indemnification provided for in this Section 8.05 is
unavailable to an indemnified party under this Section in respect of any
losses, claims, damages, costs, expenses, liabilities or actions referred to
herein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, costs,
expenses, liabilities or actions in such proportion as is appropriate to
reflect the relative fault of the Borrower, on the one hand and of the
Holder, on the other, in connection with the Violation that resulted in such
losses, claims, damages, costs, expenses, liabilities or actions. The
relative fault of the Borrower, on the one hand, and of the Holder, on the
other, shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of the material fact or the omission to
state a material fact relates to information supplied by the Borrower or by
the Holder, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(e) The Borrower, on the one hand, and the Holders, on the other hand,
agree that it would not be just and equitable if contribution pursuant to
this Section 8.05 were determined by a pro rata allocation or by any other
method of allocation which does not take account of the equitable
considerations referred to
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21
AGREEMENT (CONTINUED)
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in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of losses, claims, damages, costs, expenses,
liabilities and actions referred to in the immediately preceding paragraph
shall be deemed to include, subject to the limitations set forth above, any
reasonable legal or other expenses incurred by such indemnified party in
connection with defending any such action or claim. Notwithstanding the
provisions of this Section 8.05, neither the Borrower nor the Holders shall
be required to contribute any amount in excess of the amount by which the
total price at which the securities were offered to the public exceeds the
amount of any damages which the Borrower or each such Holder has otherwise
been required to pay by reason of such Violation. No person guilty of
fraudulent misrepresentations (within the meaning of Section 11(f) of the
0000 Xxx) shall be entitled to contribution from any person who is not guilty
of such fraudulent misrepresentation.
SECTION 8.06. ASSIGNMENT OF REGISTRATION RIGHTS.
(a) Subject to the terms and conditions of this Agreement and the
Debentures, the right to cause the Borrower to register Registrable
Securities pursuant to this Agreement may be assigned by Holder to any
transferee or assignee of such securities; provided that said transferee or
assignee is a transferee or assignee of at least five percent (5%) of the
Registrable Securities and provided that the Borrower is, within a reasonable
time after such transfer, furnished with written notice of the name and
address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; and provided, further,
that such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act; it being the intention that so
long as Holder holds any Registrable Securities hereunder, either Holder or
its transferee or assignee of at least five percent may exercise the demand
right to registration and piggy-back registration rights hereunder. Other
than as set forth above, the parties hereto hereby agree that the
registration rights hereunder shall not be transferable or assigned and any
contemplated transfer or assignment in contravention of this Agreement shall
be deemed null and void and of no effect whatsoever.
SECTION 8.07. OTHER MATTERS.
(a) Each Holder of Registrable Securities hereby agrees by acquisition
of such Registrable Securities that, with respect to each offering of the
Registrable Securities, whether each Holder is offering such Registrable
Securities in an underwritten or non-underwritten offering, such Holder will
comply with Rules 10b-2, 10b-6 and 10b-7 of the 1934 Act and such other or
additional anti-manipulation rules then in effect until such offering has
been completed, and in respect of any non-underwritten offering, in writing
will inform the Borrower, any other Holders who are selling shareholders, and
any national securities exchange upon which the securities of the Borrower
are listed, that the Registrable Securities have been sold and will, upon the
Borrower's request, furnish the distribution list of the Registrable
Securities. In addition, upon the request of the Borrower, each Holder will
supply the Borrower with such documents and information as the Borrower may
reasonably request with respect to the subject matter set forth and described
in this Section 8.07.
(b) Each Holder of Registrable Securities hereby agrees by acquisition
of such Registrable Securities that, upon receipt of any notice from the
Borrower of the happening of any event which makes any statement made in the
registration statement, the prospectus or any document incorporated therein
by reference, untrue in any material respect or which requires the making of
any changes in the registration statement, the prospectus or any document
incorporated therein by reference, in order to make the statements therein
not misleading in any material respect, such Holder will forthwith
discontinue disposition of Registrable Securities under the prospectus
related to the applicable registration statement until such Holder's receipt
of the copies of the supplemented or amended prospectus, or until it is
advised in writing by the Borrower that the use of the prospectus may be
resumed, and has received copies of any additional or supplemental filings
which are incorporated by reference in the prospectus.
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AGREEMENT (CONTINUED)
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ARTICLE IX - AGENCY AND INTER-LENDER PROVISIONS
SECTION 9.01. LENDERS REPRESENTATIONS AND WARRANTIES TO OTHER LENDERS
Each Lender represents and warrants to the other Lenders and the Agent:
(a) It is legal for it to make its portion of the Loan, and the making
of such portion of the Loan complies with laws applicable to it.
(b) It has made, without reliance upon any other Lender, its own
independent review (including any desired investigations and inspections) of,
and it accepts and approves, the Loan, this Agreement and the associated
documents and all other matters and information which it deems pertinent. It
acknowledges that the Loan Documents are a complete statement of all
understandings and respective rights and obligations between and among
Lenders and Borrower regarding the Loan.
(c) No Lender has made any express or implied representation or warranty
to any other Lender with respect to this transaction.
(d) It will, independently and without reliance upon any other Lender,
and based upon 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 this Agreement, and will make such
investigation as it deems necessary to inform itself as to the Loan, the Loan
Document, the Borrower and any Collateral; provided, however, nothing
contained in this Section shall limit Agent's obligation to provide the other
Lenders with the information and documents Agent is expressly required to
deliver under this Agreement.
(e) The relationship of Lenders are, and shall at all times remain,
solely that of a lender of its respective Loan portion. Lenders are not
partners or joint venturers in connection with the Loan.
SECTION 9.02. WAIVER OF LOAN PROVISIONS OR INTEREST OR PRINCIPAL PAYMENTS
(a) So long as no Lender has sold or assigned any of the debentures
issued to such Lender pursuant to this Agreement, unanimous consent of the
Lenders will be required for the waiver of principal or interest payment and
any alterations thereto.
(b) If any Lender disposes of any part of their Debentures, a waiver of
an interest or principal payment and any alterations thereto will require the
consent of the Majority in Interest.
(c) All other modifications, consents, amendments or waivers of any
provision of this Agreement, the Debentures or other Loan Documents shall
require the consent of the Majority in Interest.
SECTION 9.03. AGENCY
(a) Each Lender hereby designates and appoints Founders Equity Group,
Inc. ("Agent") as its agent under this Agreement and authorizes the Agent to
take such action on its behalf under the provisions of this Agreement and the
other Loan Documents and to exercise such powers as are set forth herein or
therein, together with such other powers as are reasonable incidental
thereto. In performing its functions and duties under this Agreement, the
Agent shall act solely as agent of the Lenders and does not assume and shall
not be deemed to have assumed any obligation toward or relationship of agency
or trust with or for the Borrower. The Agent may perform any of its duties
under this Agreement, or under the other Loan Documents, by or through its
agents or employees.
(b) The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement or in the other Loan Documents. Except
as expressly provided herein, the duties of the Agent shall be mechanical and
administrative in nature. The Agent shall have and may use its sole
discretion with respect to exercising or refraining from taking any actions
which the Agent is expressly entitled to take or assert under this Agreement
and the other Loan Documents. The Agent shall not have by reason of this
Agreement a fiduciary relationship with respect to any Lender. Nothing in
this Agreement or any of the other Loan Documents, express or implied, is
intended to or shall be construed to impose upon the
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AGREEMENT (CONTINUED)
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Agent any obligations in respect of this Agreement or any of the other Loan
Documents except as expressly set forth herein or therein. If the Agent
seeks the consent or approval of the Majority in Interest to the taking or
refraining from taking any action hereunder, the Agent shall send notice
thereof to each Lender. The Agent shall promptly notify each Lender any time
that the Majority in Interest have instructed the Agent to act or refrain
from acting pursuant hereto. The Agent may employ agents, co-agents and
attorneys-in-fact and shall not be responsible to the Lenders or the
Borrower, except as to money or securities received by it or its authorized
agents, for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care.
(c) Neither the Agent nor any of its officers, directors, employees or
agents shall be liable to any Lender for any action taken or omitted by it or
any of them under this Agreement or under any of the other Loan Documents, or
in connection herewith or therewith, except that no Person shall be relieved
of any liability imposed by law, intentional tort or gross negligence. The
Agent shall not be not be responsible to any Lender for any recitals,
statements, representations or warranties contained in this Agreement or for
the execution, effectiveness, genuiness, validity, enforceability,
collectibility, or sufficiency of this Agreement or any of the other Loan
Documents or any of the transactions contemplated thereby, or for the
financial condition of the Borrower. The Agent shall not be required to make
any inquiry concerning either the performance or observance of any of the
terms, provisions or conditions of this Agreement or any of the other Loan
Documents or the financial condition of the Borrower, or the existence or
possible existence of any Default or Event of Default. Agent shall give
Lender notice of any Default or Event of Default of which Agent has actual
notice. The Agent may at any time request instructions from the Lenders with
respect to any actions or approvals which by the terms of this Agreement or
of any of the other Loan Documents the Agent is permitted or required to take
or to grant, and if such instructions are promptly requested, the Agent shall
be absolutely entitled to refrain from taking any action or to withhold any
approval and shall not be under any liability whatsoever to any Person for
refraining from any action or withholding any approval under any of the Loan
Documents until it shall have received such instructions from the Majority in
Interest. Without limiting the foregoing, no Lender shall have any right of
action whatsoever against the Agent as a result of the Agent acting or
refraining from acting under this Agreement or any of the other Loan
Documents in accordance with the instructions of the Majority in Interest.
(d) The Agent shall be entitled to rely upon any written notices,
statements, certificates, orders or other documents or any telephone message
believed by it in good faith to be genuine and correct and to have been
signed, sent or made by the proper Person, and with respect to all matters
pertaining to this Agreement or any of the other Loan Documents and its
duties hereunder or thereunder, upon advice of counsel selected by it.
(e) To the extent that the Agent is not reimbursed and indemnified by
the Borrower, the Lenders will reimburse and indemnify the Agent for and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs (including all professional fees), expenses,
advances or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against the Agent in any way relating to
or arising out of this Agreement or any of the other Loan Documents or any
action taken or omitted by the Agent under this Agreement or any of the other
Loan Documents, in proportion to each Lenders' pro rata share of the Loan.
The obligations of the Lenders under this indemnification provision shall
survive the payment in full of the Loans and the termination of this
Agreement.
(f)(i) The Agent is hereby authorized by the Borrower and the Lenders,
from time to time, before or after the occurrence of an Event of Default, to
make such disbursements and advances ("Agent Advances") pursuant to this
Agreement and the other Loan Documents which the Agent, in its sole
discretion, deems necessary or desirable to preserve or protect the
Collateral, or any portion thereof, in order to enhance the likelihood of, or
maximize the amount of, repayment by the Borrower, or any
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AGREEMENT (CONTINUED)
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guarantor or other Person, of the Loans and other Obligation or to pay any
other amount chargeable to the Borrower pursuant to the terms of this
Agreement, including, without limitation, costs, fees and expenses. The
Agent Advances shall be repayable on demand and be secured by the Collateral.
(ii) If and so long as the Loan is secured or the Lenders are a
beneficiary of any security agreement or pledge, the Lenders hereby
irrevocably authorize the Agent, at its option and in its discretion, to
release any Lien granted to or held by the Agent for the benefit of Lenders
upon any Collateral (A) upon termination of the commitments and payments and
satisfaction of all Loans, (whether or not due) and all other Obligations
which have matured and which the Agent has been notified in writing are then
due and payable, (B) constituting property being sold or disposed in
compliance with this Agreement (and the Agent may rely conclusively on any
such certificate, without further inquiry); (C) constituting property in
which the Borrower did not own any interest at the time the Lien was granted
or at any time thereafter; (D) constituting property leased to the Borrower
under a lease which has expired or been terminated in a transaction permitted
under this Agreement or which will expire imminently and which has not been,
and is not intended by such Borrower to be, renewed or extended; or (E) if
approved, authorized or ratified in writing by the Majority in Interest.
Upon request by the Agent or the Borrower at any time, the Lenders will
confirm in writing the Agent's authority to release any Lien granted to or
held by the Agent, for the benefit of the secured creditors, upon particular
types or items of Collateral pursuant to this section.
(iii) So long as no Event of Default has occurred and is then
continuing, upon receipt by the Agent of confirmation from the Majority in
Interest of its authority to release any Lien granted to or held by the
Agent, for the benefit of the Lenders, upon particular types or items of
Collateral, and upon at least five (5) business days prior written request by
the Borrower, the Agent shall (and is hereby irrevocable authorized by the
Lenders to) execute such documents as may be necessary to evidence the
release of the Liens granted to the Agent, for the benefit of the Lenders,
herein or pursuant hereto upon such Collateral; PROVIDED, HOWEVER, that the
Agent (i) shall not be required to execute any such document on terms which,
in the Agent's opinion, would expose the Agent to liability or create any
obligation or entail any consequence other than the release and (ii) shall
not in any manner discharge, affect or impair the Obligations or any Liens
(other than those expressly being released) upon (or obligations of the
Borrower in respect of) all interests retained by Borrower, including
(without limitation) the proceeds of any sale, all of which shall continue to
constitute part of the Collateral.
(iv) The Agent shall have no obligation whatsoever to any Lender to
assure that the Collateral exists or is owned by Borrower or is cared for,
protected or insured or has been encumbered or that the Liens granted to the
Agent, for the benefit of the Lenders, herein or pursuant hereto have been
properly or sufficiently or lawfully created, perfected, protected or
enforced or are entitled to any particular priority, or to exercise at all or
in any particular manner or under any duty or care, disclosure or fidelity,
or to continue exercising, any of the rights, authorities and powers granted
or available to the pursuant to this section or pursuant to any of the Loan
Documents, it being understood and agreed that in respect of the Collateral,
or any act, omission or event related thereto, the Agent may act in any
manner it may deem appropriate, in its sole discretion, given the Agent's own
interest in the Collateral in its capacity as one of the Lenders and that the
Agent shall have no duty or liability whatsoever to any Lender as to any of
the foregoing.
SECTION 9.04. RESIGNATION; REMOVAL; SUCCESSOR AGENT
(a) Agent may resign at any time upon written notice to all of the
Lenders. In addition, if Agent fails, for a period of twenty (20) days after
written notice from any Lender of such failure, substantially to comply with
or perform any obligation imposed upon it by this Agreement or any of the
Loan Documents, then Agent may be removed by the vote of the Majority in
Interest and the Majority in Interest shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed, and
shall have accepted such appointment, within thirty (30) days after such
resigning Agent's
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AGREEMENT (CONTINUED)
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notice of resignation or such removal of the Agent, then the retiring Agent
may, on behalf of the Lenders, appoint a successor Agent. Any successor
Agent shall be one of the other Lenders or any commercial bank organized
under the laws of the United States or of any State thereof and having a
combined capital and surplus of at least $50,000,000 and such successor Agent
shall serve at no cost to Borrower. Any such commercial bank appointed
pursuant to this Section may condition its acceptance of such appointment on
the execution of such additional instruments, documents and agreements by
each of the parties hereto and by Borrower as such successor Agent may in its
sole discretion require. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed
to and become vested with all the rights, powers, privileges and duties of
the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations as Agent under this Agreement, but shall retain all
its rights, powers, privileges and duties as a Lender. After any retiring
Agent's resignation or removal hereunder as Agent, all provisions of this
Agreement applicable to "Agent" shall continue to inure to its benefit as to
any actions taken or omitted to be taken by it while it was Agent under this
Agreement.
SECTION 9.05. NOTICE, RECOMMENDATIONS
(a) Upon the happening of any Event of Default by Borrower coming to the
actual knowledge of Agent, Agent shall within ten (10) days after obtaining
such knowledge give notice of such default to Lenders, and Lenders shall
consult and confer with Agent within five (5) Business Days after such notice
regarding actions to be taken. Agent shall also promptly advise Lenders of
any other matter coming to the actual knowledge of Agent which, in Agent's
reasonable judgment, has a Materially Adverse Effect upon the interests of
the Lenders.
(b) Agent may, but shall have no duty to, recommend to Lenders the
taking of action within any provisions of this Agreement or any other Loan
Document which require or permit the concurrence of a Majority in Interest or
all Lenders in such actions. If any such recommendation is made in writing,
and if any Lender fails to advise Agent whether it concurs in or objects to
such action within ten (10) Business Days after the effective date of such
recommendation, such Lender shall be deemed to have concurred therein and
authorized Agent to proceed in accordance therewith, but Agent shall have no
duty to so proceed in the absence of the express concurrence of a Majority in
Interest or all Lenders, as applicable.
SECTION 9.06. RECEIPT OF PAYMENTS
Lenders shall only be allowed to accept or receive payments pursuant to the
terms of their Debentures. Should any Lender receive payment or
distributions from Borrower in excess of their scheduled payments, the Lender
shall hold the same in trust, as trustee, for the benefit of the other
Lenders and shall forthwith deliver the same to the Lenders for application
on the Debentures.
ARTICLE X - MISCELLANEOUS
SECTION 10.01. STRICT COMPLIANCE.
(a) Any waiver by Lenders of any breach or any term or condition of this
Agreement or the other Loan Documents shall not be deemed a waiver of any
other breach, nor shall any failure to enforce any provision of this
Agreement or the other Loan Documents operate as a waiver of such provision
or of any other provision, nor constitute nor be deemed a waiver or release
of the Borrower for anything arising out of, connected with or based upon
this Agreement or the other Loan Documents.
SECTION 10.02. WAIVERS AND MODIFICATIONS.
(a) All modifications, consents, amendments or waivers (herein
"Waivers") of any provision of this Agreement, the Debentures or any other
Loan Documents, and any consent to departure therefrom, shall be effective
only if the same shall be in writing by the Majority in Interest and then
shall be effective only in the specific instance and for the purpose for
which given. No notice or demand given in any case shall
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26
AGREEMENT (CONTINUED)
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constitute a waiver of the right to take other action in the same, similar or
other instances without such notice or demand. No failure to exercise, and
no delay in exercising, on the part of Lenders, any right hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right. The rights of Lenders hereunder and under the other Loan Documents
shall be in addition to all other rights provided by law.
SECTION 10.03. NOTICES.
(a) Any notices or other communications required or permitted to be
given by this Agreement or any other documents and instruments referred to
herein must be (i) given in writing and personally delivered, mailed by
prepaid certified, registered mail or sent by overnight service such as
Federal Express, or (ii) made by telex or facsimile transmission delivered or
transmitted to the party to whom such notice or communication is directed,
with confirmation thereupon given in writing and personally delivered or
mailed by prepaid certified or registered mail.
(b) Any notice to be mailed, sent or personally delivered shall be
mailed or delivered to the principal offices of the party to whom such notice
is addressed, as that address is specified herein on the signature page
hereof. Any such notice or other communication shall be deemed to have been
given (whether actually received or not) on the day it is mailed, postage
prepaid, or sent by overnight service or personally delivered or, if
transmitted by telex or facsimile transmission, on the day that such notice
is transmitted; provided, however, that any notice by telex or facsimile
transmission, received by Borrower or Lenders after 4:00 p.m., Standard Time
at the recipient's address, on any day, shall be deemed to have been given on
the next succeeding day. Any party may change its address for purposes of
this Agreement by giving notice of such change to the other parties pursuant
to this Section 10.03.
SECTION 10.04. CHOICE OF FORUM; CONSENT TO SERVICE OF PROCESS AND JURISDICTION.
(a) Any suit, action or proceeding against the Borrower with respect to
this Agreement, the Debentures or any judgment entered by any court in
respect thereof, may be brought in the courts of the State of Texas, County
of Dallas, or in the United States courts located in the State of Texas as
Lenders in their sole discretion may elect, and Borrower hereby submits to
the non-exclusive jurisdiction of such courts for the purpose of any such
suit, action or proceeding. Borrower hereby irrevocably waives any
objections which it may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement or
any Debenture brought in the courts located in the State of Texas, County of
Dallas, and hereby further irrevocably waives any claim that any such suit,
action or proceeding brought in any such court has been brought in any
inconvenient forum.
SECTION 10.05. ARBITRATION
(a) Upon the demand of the Lenders or Borrower (collectively the
"parties"), made before the institution of any judicial proceeding or not
more than 60 days after service of a complaint, third party complaint,
cross-claim or counterclaim or any answer thereto or any amendment to any of
the above, any Dispute (as defined below) shall be resolved by binding
arbitration in accordance with the terms of this arbitration clause. A
"Dispute" shall include any action, dispute, claim, or controversy of any
kind, whether founded in contract, tort, statutory or common law, equity, or
otherwise, now existing or hereafter occurring between the parties arising
out of, pertaining to or in connection with this Agreement, any document
evidencing, creating, governing, or securing any indebtedness guaranteed
pursuant to the terms hereof, or any related agreements, documents, or
instruments (the "Documents"). The parties understand that by this Agreement
they have decided that the Disputes may be submitted to arbitration rather
that being decided through litigation in court before a judge or jury and
that once decided by an arbitrator the claims involved cannot later be
brought, filed, or pursued in court. IF BORROWER SHALL FAIL TO PAY (OR SHALL
STATE IN WRITING AN INTENTION NOT TO PAY OR ITS INABILITY TO PAY), NOT LATER
THAN TEN (10) DAYS AFTER THE DUE DATE, ANY INSTALLMENT OF INTEREST ON OR
PRINCIPAL OF, ANY DEBENTURE OR ANY FEE,
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27
AGREEMENT (CONTINUED)
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EXPENSE OR OTHER PAYMENT REQUIRED HEREUNDER, LENDERS MAY, AT THEIR SOLE
OPTION, ENFORCE THEIR RIGHTS OUTSIDE THE ARBITRATION PROVISION FOUND IN THIS
SECTION 10.05 OR ANY DEBENTURE.
(b) Arbitrations conducted pursuant to this Agreement, including
selection of arbitrators, shall be administered by the American Arbitration
Association ("Administrator") pursuant to the Commercial Arbitration rules of
the Administrator. Arbitrations conducted pursuant to the terms hereof shall
be governed by the provisions of the Federal Arbitration Act (Title 9 of the
United States Code), and to the extent the foregoing are inapplicable,
unenforceable or invalid, the laws of the State of Texas. Judgment upon any
award rendered hereunder may be entered in any court having jurisdiction;
provided, however, that nothing contained herein shall be deemed to be a
waiver by any party that is a bank of the protections afforded to it under 12
U.S.C. 91 or similar governing state law. Any party who fails to submit to
binding arbitration following a lawful demand by the opposing party shall
bear all costs and expenses, including reasonable attorney's fees, incurred
by the opposing party in compelling arbitration of any Dispute.
(c) No provision of, nor the exercise of any rights under, this
arbitration clause shall limit the right of any party to (i) foreclose
against any real or personal property Collateral or other security, (ii)
exercise self-help remedies (including repossession and setoff rights) or
(iii) obtain provisional or ancillary remedies such as injunctive relief,
sequestration, attachment, replevin, garnishment, or the appointment of a
receiver from a court having jurisdiction. Such rights can be exercised at
any time except to the extent such action is contrary to a final award or
decision in any arbitration proceeding. The institution and maintenance of
an action as described above shall not constitute a waiver of the right of
any party, including the plaintiff, to submit the Dispute to arbitration, nor
render inapplicable the compulsory arbitration provisions hereof. Any claim
or Dispute related to exercise of any self-help, auxiliary or other exercise
of rights under this section shall be a Dispute hereunder.
(d) Arbitrator(s) shall resolve all Disputes in accordance with the
applicable substantive law of the State of Texas. Arbitrator(s) may make an
award of attorneys' fees and expenses if permitted by law or the agreement of
the parties. All statutes of limitation applicable to any Dispute shall
apply to any proceeding in accordance with this arbitration clause. Any
arbitrator selected to act as the only arbitrator in a Dispute shall be
required to be a practicing attorney with not less than 5 years practice in
commercial law in the State of Texas. With respect to a Dispute in which the
claims or amounts in controversy do not exceed five hundred thousand dollars
($500,000), a single arbitrator shall be chosen and shall resolve the
Dispute. In such case the arbitrator shall have authority to render an award
up to but not to exceed five hundred thousand dollars ($500,000) including
all damages of any kind whatsoever, costs, fees and expenses. Submission to
a single arbitrator shall be a waiver of all parties' claims to recover more
than five hundred thousand dollars ($500,000). A Dispute involving claims or
amounts in controversy exceeding five hundred thousand dollars ($500,000)
shall be decided by a majority vote of a panel of three arbitrators
("Arbitration Panel"), one of whom must possess the qualifications to sit as
a single arbitrator in a Dispute decided by one arbitrator. If the
arbitration is consolidated with one conducted pursuant to the terms of an
agreement between the Lenders and the Borrower related to the indebtedness
guaranteed, then the Arbitration Panel shall be one which meets the criteria
set forth between the Lenders and Borrower. Arbitrator(s) may, in the
exercise of their discretion, at the written request of a party, (i)
consolidate in a single proceeding any multiple party claims that are
substantially identical and all claims arising out of a single loan or series
of loans including claims by or against borrower(s), guarantors, sureties
and/or owners of Collateral if different from the Borrower, and (ii)
administer multiple arbitration claims as class actions in accordance with
Rule 23 of the Federal Rules of Civil Procedure. The arbitrator(s) shall be
empowered to resolve any dispute regarding the terms of this Agreement or the
arbitrability of any Dispute or any claim that all or any part (including
this provision) is void or voidable but shall have no power to change or
alter the terms of this Agreement. The award of the arbitrator(s) shall be
in writing and shall specify the factual and legal basis for the award.
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AGREEMENT (CONTINUED)
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(e) To the maximum extent practicable, the Administrator, the
arbitrator(s) and the parties shall take any action necessary to require that
an arbitration proceeding hereunder be concluded within 180 days of the
filing of the Dispute with the Administrator. The arbitrator(s) shall be
empowered to impose sanctions for any party's failure to proceed within the
times established herein. Arbitration proceedings hereunder shall be
conducted in Texas at a location determined by the Administrator. In any
such proceeding a party shall state as a counterclaim any claim which arises
out of the transaction or occurrence or is in any way related to the
Documents which does not require the presence of a third party which could
not be joined as a party in the proceeding, The provisions of this
arbitration clause shall survive any termination, amendment, or expiration of
the Documents and repayment in full of sums owed to Lenders by Borrower
unless the parties otherwise expressly agree in writing. Each party agrees
to keep all Disputes and arbitration proceedings strictly confidential,
except for disclosures of information required in the ordinary course of
business of the parties or as required by applicable law or regulation.
SECTION 10.06. INVALID PROVISIONS.
(a) If any provision of any Loan Document is held to be illegal, invalid
or unenforceable under present or future laws during the term of this
Agreement, such provision shall be fully severable; such Loan Document shall
be construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part of such Loan Document; and the remaining
provisions of such Loan Document shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or
by its severance from such Loan Document. Furthermore, in lieu of each such
illegal, invalid or unenforceable provision shall be added as part of such
Loan Document a provision mutually agreeable to Borrower and Lenders as
similar in terms to such illegal, invalid or unenforceable provision as may
be possible and be legal, valid and enforceable. In the event Borrower and
Lenders are unable to agree upon a provision to be added to the Loan Document
within a period of ten (10) business days after a provision of the Loan
Document is held to be illegal, invalid or unenforceable, then a provision
acceptable to independent arbitrators, such to be selected in accordance with
the provisions of the American Arbitration Association, as similar in terms
to the illegal, invalid or unenforceable provision as is possible and be
legal, valid and enforceable shall be added automatically to such Loan
Document. In either case, the effective date of the added provision shall be
the date upon which the prior provision was held to be illegal, invalid or
unenforceable.
SECTION 10.07. MAXIMUM INTEREST RATE.
(a) Regardless of any provision contained in any of the Loan Documents,
Lenders shall never be entitled to receive, collect or apply as interest on
the Debentures any amount in excess of interest calculated at the Maximum
Rate, and, in the event that any Lenders ever receives, collects or applies
as interest any such excess, the amount which would be excessive interest
shall be deemed to be a partial prepayment of principal and treated hereunder
as such; and, if the principal amount of the Obligation is paid in full, any
remaining excess shall forthwith be paid to Borrower. In determining whether
or not the interest paid or payable under any specific contingency exceeds
interest calculated at the Maximum Rate, Borrower and Lenders shall, to the
maximum extent permitted under applicable law, (i) characterize any
non-principal payment as an expense, fee or premium rather than as interest;
(ii) exclude voluntary prepayments and the effects thereof, and (iii)
amortize, pro rate, allocate and spread, in equal parts, the total amount of
interest throughout the entire contemplated term of the Debentures; provided
that, if the Debentures are paid and performed in full prior to the end of
the full contemplated term thereof, and if the interest received for the
actual period of existence thereof exceeds interest calculated at the Maximum
Rate, Lenders shall refund to Borrower the amount of such excess or credit
the amount of such excess against the principal amount of the Debentures and,
in such event, Lenders shall not be subject to any penalties provided by any
laws for contracting for, charging, taking, reserving or receiving interest
in excess of interest calculated at the Maximum Rate.
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29
AGREEMENT (CONTINUED)
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(b) "Maximum Rate" shall mean, on any day, the highest nonusurious rate
of interest (if any) permitted by applicable law on such day that at any
time, or from time to time, may be contracted for, taken, reserved, charged
or received on the Indebtedness evidenced by the Debentures under the laws
which are presently in effect of the United States of America and the State
of Texas or by the laws of any other jurisdiction which are or may be
applicable to the holders of the Debentures and such Indebtedness or, to the
extent permitted by law, under such applicable laws of the United States of
America and the State of Texas or by the laws of any other jurisdiction which
are or may be applicable to the holder of the Debentures and which may
hereafter be in effect and which allow a higher maximum nonusurious interest
rate than applicable laws now allow.
SECTION 10.08. PARTICIPATIONS AND ASSIGNMENTS OF THE DEBENTURES.
(a) The Lenders shall have the right to enter into a participation
agreement with any other party with respect to the Debentures, or to sell all
or any part of the Debentures, but any participation or sale shall not affect
the rights and duties of such Lenders hereunder vis-a-vis Borrower. In the
event that all or any portion of the Loan shall be, at any time, assigned,
transferred or conveyed to other parties, any action, consent or waiver
(except for compromise or extension of maturity), to be given or taken by
Lenders hereunder (herein "Action"), shall be such action as taken by
Majority in Interest.
(b) Assignment or sale of the Debentures shall be effective, on the
books of the Borrower only upon (i) endorsement of the Debenture, or part
thereof, to the proposed new holder, along with a current notation of the
amount of payments or installments received and net Principal Amount yet
unfunded or unpaid, and presentment of such Debenture to the Borrower for
issue of a replacement Debenture, or Debentures, in the name of the new
holder; (ii) a designation by the holders of a single Lenders' Agent for
Notice, such agent to be the sole party to whom Borrower shall be required to
provide notice when notice to Lenders are required hereunder and who shall be
the sole party authorized to represent Lenders in regard to modification or
waivers under the Debenture, this Agreement, or other Loan Documents; and
(iii) delivery of an opinion of counsel, reasonably satisfactory to Borrower,
that transfer shall not require registration or qualification under
applicable state or federal securities laws.
(c) So long as the Borrower is not in default hereunder, the Lenders
shall not sell or assign an interest in the Debentures or rights under this
Agreement to any Person that the Borrower reasonably identifies to Lenders as
being engaged as a competitor.
SECTION 10.09 CONFIDENTIALITY.
(a) All financial reports or information which are furnished to Lenders,
or THEIR director designee or other representatives, pursuant to this
Agreement or pursuant to the Debentures or other Loan Documents shall be
treated as confidential unless and to the extent that such information has
been otherwise disclosed by the Borrower, but nothing herein contained shall
limit or impair Lenders' right to disclose such reports to any appropriate
Governmental Authority, or to use such information to the extent pertinent to
an evaluation of the Obligation, or to enforce compliance with the terms and
conditions of this Agreement, or to take any lawful action which Lenders deem
necessary to protect THEIR interests under this Agreement.
(b) Lenders, THEIR director designees, and agents shall use their
reasonable best efforts to protect and preserve the confidentiality of such
information except for such disclosure as shall be required for compliance by
Lenders or THEIR director designees with SEC reporting requirements or
otherwise as a matter of law.
SECTION 10.10. BINDING EFFECT.
(a) The Loan Documents shall be binding upon and inure to the benefit of
Borrower and Lenders and their respective successors, assigns and legal
representatives; provided, however, that Borrower may not, without the prior
written consent of Lenders, assign any rights, powers, duties or obligations
thereunder.
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30
AGREEMENT (CONTINUED)
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SECTION 10.11. NO THIRD PARTY BENEFICIARY.
(a) The parties do not intend the benefits of this Agreement to inure to
any third party other than persons entitled to indemnification pursuant to
Article VIII, nor shall this Agreement be construed to make or render Lenders
liable to any materialman, supplier, contractor, subcontractor, purchaser or
lessee of any property owned by Borrower, or for debts or claims accruing to
any such persons against Borrower. Notwithstanding anything contained herein
or in the Debentures, or in any other Loan Document, no conduct by any or all
of the parties hereto, before or after signing this Agreement nor any other
Loan Document, shall be construed as creating any right, claim or cause of
action against Lenders, or any of their officers, directors, agents or
employees, in favor of any materialman, supplier, contractor, subcontractor,
purchaser or lessee of any property owned by Borrower, nor to any other
person or entity other than Borrower.
SECTION 10.12. ENTIRETY.
(a) This Agreement and the Debentures and the other Loan Documents
issued pursuant thereto contain the entire agreement between the parties and
supersede all prior agreements and understandings, if any, relating to the
subject matter hereof and thereof.
SECTION 10.13. HEADINGS.
(a) Section headings are for convenience of reference only and, except
as a means of identification of reference, shall in no way affect the
interpretation of this Agreement.
SECTION 10.14. SURVIVAL.
(a) All representations and warranties made by Borrower herein shall
survive delivery of the Debentures and the making of the Loans.
SECTION 10.15. MULTIPLE COUNTERPARTS.
(a) This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same agreement, and any of
the parties hereto may execute this Agreement by signing any such
counterpart.
SECTION 10.16. GOVERNING LAW.
(a) THIS LOAN AGREEMENT HAS BEEN PREPARED, IS BEING EXECUTED AND
DELIVERED, AND IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS, AND THE
SUBSTANTIVE LAWS OF SUCH STATE AND THE APPLICABLE FEDERAL LAWS OF THE UNITED
STATES OF AMERICA SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND
INTERPRETATION OF THIS LOAN AGREEMENT AND ALL OF THE OTHER LOAN DOCUMENTS.
(signature page follows)
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31
AGREEMENT (CONTINUED)
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IN WITNESS WHEREOF, the undersigned has caused this Agreement to be
executed, sealed, and delivered, as of the day and year first above written.
ADDRESS FOR NOTICE: BORROWER
------------------- --------
000 X. Xxxxxxxxx Xxxxxxx
Xxxxxx, XX 00000 CANMAX INC.
000 000-0000
000 000-0000 By: /s/ Xxxxx Xxxxxx
------------------------------------
Xxxxx Xxxxxx
Chief Executive Officer
Attest by: /s/ Xxxxxx Xxxxxxx
-----------------------------
Xxxxxx Xxxxxxx
Chief Financial Officer
CANMAX RETAIL SYSTEMS, INC.
By: /s/ Xxxxx Xxxxxx
------------------------------------
Xxxxx Xxxxxx
Chief Executive Officer
Attest by: /s/ Xxxxxx Xxxxxxx
-----------------------------
Xxxxxx Xxxxxxx
Chief Financial Officer
LENDERS
-------
ADDRESS FOR NOTICE:
-------------------
2602 McKinney, Suite 220 Founders Mezzanine Investors, LLC
Xxxxxx, XX 00000
000 000-0000 By:
000 000-0000 ------------------------------------
by Founders Equity Group, Inc.
its Manager, Xxxxx Xxxx, Chairman
AGENT
-----
ADDRESS FOR NOTICE:
-------------------
0000 XxXxxxxx, Xxxxx 000 Founders Equity Group, Inc.
Xxxxxx, XX 00000
000 000-0000 By:
000 000-0000 ------------------------------------
Scotty Dell Xxxx, Chairman
Attest by:
-----------------------------
Title: President
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32
