EXHIBIT 4.1
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BRIDGE AND CONSOLIDATED TERM LOAN AGREEMENT,
Dated as of March 18, 2002
among
DONLAR CORPORATION
and
DONLAR BIOSYNTREX CORPORATION
together as the Borrowers,
and
TENNESSEE FARMERS LIFE INSURANCE COMPANY
collectively with its other lending affiliates as the Lender
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TABLE OF CONTENTS
PAGE
SECTION 1 TERM LOANS, BORROWING PROCEDURE AND NOTES.................. 2
SECTION 1.1 TERM A LOAN................................ 2
SECTION 1.2 TERM B LOAN................................ 2
SECTION 1.3 TERM C LOAN (BRIDGE LOAN).................. 2
SECTION 1.4 NOTES...................................... 2
SECTION 1.5 BORROWING PROCEDURE........................ 3
SECTION 1.6 FIRST FARMERS NOTE......................... 3
SECTION 2 INTEREST AND COMMITMENT FEE................................ 4
SECTION 2.1 INTEREST RATES AND PAYMENTS................ 4
SECTION 2.2 BASIS OF COMPUTATION....................... 5
SECTION 3 PRINCIPAL PAYMENTS AND PREPAYMENTS......................... 5
SECTION 3.1 PRINCIPAL PAYMENT.......................... 5
SECTION 3.2 OPTIONAL PREPAYMENT........................ 6
SECTION 3.3 MANDATORY PREPAYMENT....................... 6
SECTION 3.4 FORM OF PAYMENT............................ 6
SECTION 3.5 SETOFF..................................... 7
SECTION 3.6 PRIORITY; APPLICATIONS OF EXTRAORDINARY
PAYMENTS................................ 7
SECTION 4 REPRESENTATIONS AND WARRANTIES............................. 7
SECTION 4.1 ORGANIZATION............................... 7
SECTION 4.2 AUTHORIZATION; NO CONFLICT................. 8
SECTION 4.3 FINANCIAL STATEMENTS....................... 8
SECTION 4.4 TAXES...................................... 8
SECTION 4.5 OWNERSHIP OF PROPERTIES; LIENS............. 8
SECTION 4.6 ADVERSE CONTRACTS.......................... 8
SECTION 4.7 LITIGATION AND CONTINGENT LIABILITIES...... 9
SECTION 4.8 SUBSIDIARIES............................... 9
SECTION 4.9 ERISA...................................... 9
SECTION 4.10 ENVIRONMENTAL WARRANTIES.................. 9
SECTION 4.11 BINDING EFFECT............................ 10
SECTION 4.12 CAPITALIZATION OF THE BORROWERS;
RESERVATION OF SHARES; OTHER MATTERS
RELATING TO CAPITAL STOCK............... 10
SECTION 4.13 SUFFICIENCY OF ACCOUNTS PAYABLE
COMPONENT............................... 12
SECTION 4.14 NOT AN INVESTMENT COMPANY................. 12
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SECTION 5 COVENANTS.................................................. 12
SECTION 5.1 CORPORATE EXISTENCE, MERGERS, ETC.......... 12
SECTION 5.2 REPORTS, CERTIFICATES AND OTHER
INFORMATION............................. 12
SECTION 5.3 INSPECTION................................. 14
SECTION 5.4 INDEBTEDNESS, LIENS AND TAXES.............. 14
SECTION 5.5 INVESTMENTS AND LOANS...................... 15
SECTION 5.6 CAPITAL STRUCTURE AND DIVIDENDS............ 15
SECTION 5.7 MAINTENANCE OF PROPERTIES.................. 15
SECTION 5.8 INSURANCE.................................. 16
SECTION 5.9 USE OF PROCEEDS............................ 16
SECTION 5.10 ASSET SALES............................... 16
SECTION 5.11 COMPLIANCE WITH LAW....................... 16
SECTION 5.12 ENVIRONMENTAL COVENANT.................... 16
SECTION 5.13 REMUNERATION.............................. 16
SECTION 5.14 FURTHER ASSURANCES/NOTING ASSIGNMENT
OF RECORD............................... 17
SECTION 5.15 FURTHER ASSURANCES........................ 17
SECTION 5.16 PURIZER CORPORATION....................... 17
SECTION 6 CONDITIONS TO EFFECTIVENESS OF THIS AGREEMENT AND
INITIAL EXTENSION OF CREDIT UNDER BRIDGE LOAN FACILITY... 17
SECTION 6.1 AGREEMENT.................................. 17
SECTION 6.2 FINANCIAL STATEMENTS....................... 17
SECTION 6.3 OTHER DOCUMENTATION........................ 18
SECTION 6.4 CHIEF RESTRUCTURING AGENT................. 19
SECTION 6.5 SHORT TERM DEBT REPAYMENT.................. 19
SECTION 6.6 NO MATERIAL ADVERSE CHANGE................. 19
SECTION 6.8 PAYMENT OF COSTS AND EXPENSES.............. 19
SECTION 7 CONDITIONS OF EACH DRAW-DOWN AFTER CLOSING DAY............. 20
SECTION 7.1 REPRESENTATIONS AND WARRANTIES
IN AGREEMENT............................ 20
SECTION 7.2 NO DEFAULT................................. 20
SECTION 7.3 APPLICATION DEEMED A REPRESENTATION
AND WARRANTY............................ 20
SECTION 7.4 BORROWING REQUEST AND USE OF
FUNDS CERTIFICATE....................... 20
SECTION 7.5 FEES....................................... 20
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SECTION 8 DEFAULT.................................................... 21
SECTION 8.1 EVENTS OF DEFAULT.......................... 21
SECTION 8.2 REMEDIES................................... 23
SECTION 9 CONVERSION RIGHTS........................................... 24
SECTION 9.1 CONVERSION................................. 24
SECTION 9.2 CONVERSION PROCEDURE....................... 24
SECTION 9.3 CONVERSION PRICE........................... 26
SECTION 9.4 EFFECT ON CONVERSION PRICE OF
CERTAIN EVENTS.......................... 26
SECTION 9.5 SUBDIVISION OR COMBINATION OF
COMMON STOCK............................ 29
SECTION 9.6 REORGANIZATION, RECLASSIFICATION,
CONSOLIDATION, MERGER OR SALE.............. 29
SECTION 9.7 CERTAIN EVENTS............................. 30
SECTION 9.8 NOTICES.................................... 30
SECTION 9.9 LIQUIDATING DIVIDENDS...................... 30
SECTION 9.10 PURCHASE RIGHTS............................ 31
SECTION 9.11 AMENDMENT AND WAIVER....................... 31
SECTION 9A COMPLIANCE WITH SECURITIES LAWS............................ 31
SECTION 9A.1 INVESTMENT INTENT OF THE INITIAL NOTEHOLDER....... 31
SECTION 9A.2 STATUS OF NOTES................................... 31
SECTION 9A.3 STATUS OF THE INITIAL NOTEHOLDER.................. 31
SECTION 9A.4 TRANSFER.......................................... 32
SECTION 10 REGISTRATION RIGHTS....................................... 32
SECTION 10.1 COMPANY REGISTRATION...................... 32
SECTION 10.2 DEMAND REGISTRATION....................... 34
SECTION 10.3 SUSPENSION RIGHT.......................... 35
SECTION 10.4 NOTICES................................... 35
SECTION 10.5 REGISTRATION STATEMENT; AMENDMENTS
AND SUPPLEMENTS......................... 36
SECTION 10.6 STATE SECURITIES LAWS..................... 36
SECTION 10.7 REMEDIATION OF MISSTATEMENTS
OR OMISSIONS............................ 36
SECTION 10.8 LISTING ON EXCHANGE....................... 36
SECTION 10.9 COMPLIANCE WITH SECURITIES LAWS........... 37
SECTION 10.10 SHARE CERTIFICATES....................... 37
SECTION 10.11 OTHER REGISTRATION RIGHTS................ 37
SECTION 10.12 EXPENSES OF REGISTRATION................. 37
SECTION 10.13 INDEMNIFICATION.......................... 37
SECTION 10.14 OBLIGATIONS OF HOLDERS................... 39
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SECTION 10.15 RULE 144 SALES........................... 40
SECTION 10.16 SURVIVAL OF REGISTRATION RIGHTS.......... 41
SECTION 11 MISCELLANEOUS............................................. 41
SECTION 11.1 WAIVERS, AMENDMENTS, ETC.................. 41
SECTION 11.2 NOTICES................................... 41
SECTION 11.3 NONWAIVER; CUMULATIVE REMEDIES............ 41
SECTION 11.4 SURVIVAL OF AGREEMENTS.................... 42
SECTION 11.5 EFFECTIVENESS AND SUCCESSORS.............. 42
SECTION 11.6 CAPTIONS.................................. 42
SECTION 11.7 SINGULAR AND PLURAL....................... 42
SECTION 11.8 COUNTERPARTS.............................. 42
SECTION 11.9 PAYMENT OF COSTS AND EXPENSES............. 42
SECTION 11.10 SALE AND TRANSFER OF TERM LOANS AND
NOTES; PARTICIPATIONS IN TERM LOANS
AND NOTES............................... 43
SECTION 11.11 INDEMNIFICATION........................... 44
SECTION 11.12 CONSTRUCTION.............................. 45
SECTION 11.13 DEFINITIONS............................... 45
SECTION 11.14 THIRD PARTY BENEFICIARIES................. 45
SECTION 11.15 INTERPRETATION............................ 45
SECTION 11.16 EFFECT OF IMPENDING REORGANIZATION........ 46
SUBMISSION TO JURISDICTION; VENUE....... 46
APPENDIX A (DEFINITIONS).............................................. Appendix A-1
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LIST OF EXHIBITS AND SCHEDULES
EXHIBIT A Form of Term A Note
EXHIBIT B Form of Term B Note
EXHIBIT C Form of Term C Note (Bridge Note)
EXHIBIT D Form of ▇▇▇▇▇▇ Subordination Agreement
EXHIBIT E Form of ▇▇▇▇▇ Subordination Agreement
EXHIBIT F Form of Amendment to Security Agreement
EXHIBIT G Form of Amendment to Pledge Agreement
EXHIBIT H Form of Borrowing Request and Funding Day Certificate
EXHIBIT I Certificate of Incumbency and Attached Borrowing Resolutions
SCHEDULE 1 List of Accounts Payable Creditors
SCHEDULE 4.12 Registration Rights
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BRIDGE AND CONSOLIDATED TERM LOAN AGREEMENT
THIS BRIDGE AND CONSOLIDATED TERM LOAN AGREEMENT, dated as of
March 18, 2002 (as it may be amended or modified from time to time, this
"Agreement"), is entered into by and among DONLAR CORPORATION, an Illinois
corporation ("Donlar"), DONLAR BIOSYNTREX CORPORATION, a Nevada corporation
("Donlar Bio," and collectively with Donlar, the "Borrowers" and each, a
"Borrower") and TENNESSEE FARMERS LIFE INSURANCE COMPANY, a Tennessee
corporation licensed to sell life insurance in Tennessee (collectively with any
of its Affiliates or Subsidiaries that have loaned or will loan to the Borrowers
from time to time and any future purchaser of a Syndicated or Participation
Interest in the Term Loans made pursuant to this Agreement, "Tennessee Farmers,"
or the "Lender").
R E C I T A L S :
A. On December 5, 1997 Donlar sold to First Farmers and Merchants National
Bank (the "Assignor") and Assignor purchased from Donlar that certain secured
promissory note in the original principal amount of Five Million United States
Dollars ($5,000,000), which note was amended and restated by that certain
Amended and Restated Convertible Promissory Note dated July 1, 1998 in the
original principal amount of Twelve Million Thirty Two Thousand Three Hundred
Fifty-Seven United States Dollars ($12,032,357), and which note was further
amended and restated on December 31, 1999 in the original principal amount of
Seventeen Million Six Hundred Thirty Nine Thousand Six Hundred and Forty Eight
United States Dollars ($17,639,648) (as so amended and restated, the "First
Farmers Note");
B. With the consent and acknowledgment of the Borrowers, the Assignor has
assigned its entire interest in the First Farmers Note to Tennessee Farmers;
C. The First Farmers Note was and remains secured by security interests
and liens granted by Donlar in substantially all of its assets.
D. In December of 2001, the Borrowers requested and received from
Tennessee Farmers an additional emergency loan of approximately $252,000 (the
"Short-Term Debt"), which Short-Term Debt was conditioned on Borrowers executing
(i) that certain Security Agreement, dated as of January 19, 2002 (as amended,
the "Security Agreement"), whereby the Borrowers granted Tennessee Farmers a
first priority lien on substantially all of their assets, (ii) that certain
Pledge Agreement, dated as of January 19, 2002 (as amended, the "Pledge
Agreement") whereby Donlar pledged to Tennessee Farmers all of the shares it
holds in Donlar Bio in order to secure the Short-Term Debt and the First Farmers
Note, and (iii) that certain Assignment of Security Interest, dated as of
January 19, 2002 (as amended, the "Assignment") whereby the Borrowers
acknowledged and consented to the transfer by the Assignor to Tennessee Farmers
of the security interest which Assignor previously had on the all of the assets
of the Borrowers, including but not limited to all of their patents and other
intellectual property and their ownership interests in certain real property;
and
E. The Borrowers now desire to obtain a bridge loan of approximately
$2,127,000 (the "Bridge Loan," or the "Term C Loan") in order to, among other
things, refinance the Short-Term Debt and pay certain Accounts Payable
Creditors (as such term is defined below), and Tennessee Farmers has agreed to
make such a Bridge Loan, subject to the terms and conditions of this Agreement,
including, without limitation, that the ▇▇▇▇▇▇ ▇▇▇▇▇ Group and ▇▇. ▇▇▇▇ ▇▇▇▇▇▇
(together, the "Junior Creditors") enter into certain Subordination Agreements
in favor of Tennessee Farmers substantially in the form of exhibits attached
hereto.
NOW THEREFORE, the parties hereto agree as follows:
SECTION 1 TERM LOANS, BORROWING PROCEDURE AND NOTES
SECTION 1.1 TERM A LOAN. The obligations evidenced by the First Farmers
Note shall be restructured (and reinstated) into a "Term A Loan" and a "Term B
Loan" for which each Borrower shall be jointly and severally liable. As of the
effective date hereunder, the principal amount of the Term A Loan shall be
$10,184,134.66 (the "Term A Loan Amount") and shall be subject to the terms and
conditions set forth herein and on the face of the notes attached as Exhibit A
hereto.
SECTION 1.2 TERM B LOAN. The "Term B Loan" shall be in the amount of
$9,000,000 (the "Term B Loan Amount") and shall be subject to the terms and
conditions set forth herein and on the face of the notes attached as Exhibit B
hereto.
SECTION 1.3 TERM C LOAN (BRIDGE LOAN). The "Term C Loan" shall be for the
Bridge Facility Maximum Commitment Amount and shall be subject to the terms and
conditions set forth herein and on the face of the notes attached hereto as
Exhibit C (the "Term C Notes"). Provided that the conditions set forth in
Sections 6-7 hereof (including the conditions set forth in the Borrowing Request
and Funding Day Certificate) are satisfied, Tennessee Farmers shall advance
funds (or net amounts, as the case may be) under this facility up to the Bridge
Facility Maximum Commitment Amount, it being contemplated that most of the
commitment shall be drawn down on the Closing Date.
SECTION 1.4 NOTES. The Term Loans shall be evidenced as follows:
(a) Term A Notes. The joint and several liability of each Borrower
for and on account of the Term A Loan shall be evidenced by a promissory
note (in the pertinent form of Exhibit A hereto) executed and delivered by
each Borrower, which note shall be payable to the order of Tennessee
Farmers in the principal amount of the Term A Loan Amount (as the same may
be amended, modified, supplemented, sold or assigned from time to time, a
"Term A Note" and collectively, the "Term A Notes," which terms shall
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include any other promissory note accepted in renewal of or substitution
for such promissory notes).
(b) Term B Notes. The joint and several liability of each Borrower
for and on account of the Term B Loans shall be evidenced by a promissory
note (in the pertinent form of Exhibit B hereto), which note shall be
payable to the order of Tennessee Farmers in the principal amount of the
Term B Loan Amount as at the date hereof (as the same may be amended,
modified, supplemented, sold or assigned from time to time, a "Term B
Note" and collectively, the "Term B Notes," which terms shall include any
other promissory notes accepted in renewal of or substitution for such
promissory notes).
(c) Term C Notes (Bridge Notes). The joint and several liability of
each Borrower for and on account of the Term C Loan shall be evidenced by
a promissory note (in the pertinent form of Exhibit C hereto), which note
shall be payable to the order of Tennessee Farmers for up to the Bridge
Facility Maximum Commitment Amount as of the Closing Day (as the same may
be amended, modified, supplemented, sold or assigned from time to time, a
"Term C Note" and collectively, the "Term C Notes," which terms shall
include any other promissory notes accepted in renewal of or substitution
for such promissory notes).
SECTION 1.5 BORROWING PROCEDURE. Each borrowing under the Bridge Facility
(each, a "Draw-Down") shall be conditioned on the receipt by Tennessee Farmers
of a fully executed Borrowing Request and Funding Day Certificate (substantially
in the form of Exhibit H hereto) on or before 12:00 a.m., Central Standard Time,
on a Business Day at least one Business Day before the date on which Borrowers
wish such a Bridge Loan to be actually advanced. Each such Draw-Down shall be
made in a minimum amount of the lesser of $10,000 and the remaining available
amount of any applicable Component (defined below) of the Bridge Facility. On
the terms and subject to the conditions of this Agreement, each Draw-Down shall
be made on the Business Day specified in such Borrowing Request and Funding Date
Certificate.
SECTION 1.6 FIRST FARMERS NOTE. The Term A Notes and Term B Notes are
intended to be in substitution for the First Farmers Note and accordingly, are a
restatement of the indebtedness heretofore evidenced thereby. Consistent with,
but without limiting the generality of, the foregoing, nothing contained herein
shall be deemed under any circumstances to constitute any forgiveness,
satisfaction, or release of any portion of such indebtedness, whether by
novation or otherwise, and such indebtedness, as restated herein and in the
Notes, shall in all respects constitute and continue to constitute the valid,
binding, and enforceable joint and several obligations of each Borrower. To the
extent it has not already explicitly or implicitly done so, Donlar Bio hereby
recognizes, agrees and acknowledges that it (i) has received substantial
financial benefits from the loans evidenced and memorialized by the First
Farmers Note, all of which have been ostensibly made to Donlar, (ii) has
received from Donlar via assignment, sale or contribution much of the collateral
securing the First Farmers Note, and, as such, (iii) is a joint
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and several debtor/obligor with respect to the indebtedness evidenced and
memorialized by the First Farmers Note.
SECTION 2 INTEREST AND COMMITMENT FEE
SECTION 2.1 INTEREST RATES AND PAYMENTS. The unpaid principal amount of
Term Loans from time to time outstanding hereunder shall bear interest in
accordance with this Section 2.1.
(a) Term A Loan. Absent the occurrence of any Event of Default, the
unpaid principal amount of the Term A Loan shall bear interest at the rate
of nine percent (9%) per annum from and after the Closing Date, but such
interest shall merely accrue and not be payable until the first
anniversary of the Closing Day, at which point, such interest shall be due
and owing and immediately payable in cash in full. Thereafter, absent the
occurrence of any Event of Default, the unpaid principal of the Term A
Loan shall continue to bear interest at eleven percent (11%) per annum,
but such interest shall be paid in cash on a quarterly basis on the final
Business Day of each March, June, September and December. All other terms
and conditions found in the Term A Notes shall apply to the Term A Loan.
In the case of any Event of Default hereunder, interest shall thereafter
accrue on the unpaid principal amount of the Term A Loan at 13% per annum
(the "A and Term B Loan Default Rate") and shall be immediately payable in
full in cash.
(b) Term B Loan. Absent the occurrence of any Event of Default, the
unpaid principal amount of the Term B Loan shall bear interest at the rate
of one percent (1%) per annum, but such interest shall merely accrue and
not be payable until the earlier to occur of the following: (A) EBITDA for
the year-long financial period ending as of the final date of any
financial quarter shall equal or exceed $7,500,000, (B) the maturity
(including as a result of acceleration) of the Bridge Loan (as such
maturity may be from time to time extended by Tennessee Farmers in its
absolute discretion) and the failure to pay the Bridge Loan in full timely
pursuant to the terms thereof, (C) the occurrence of any Event of Default
and ensuing acceleration of the entire indebtedness by Tennessee Farmers,
and (D) the third anniversary of the Closing Date. Upon the occurrence of
any such event (other than the acceleration of indebtedness described in
clause (C) of the preceding sentence), the interest accrued on the unpaid
principal amount of the Term B Loan at the pertinent interest rate(s)
through the date of such occurrence shall be paid in full in cash within
thirty (30) days of such date, and the interest accruing on the unpaid
principal amount of the Term B Loan after the date of such occurrence
shall be paid in cash on a quarterly basis on the final Business Day of
each March, June, September and December, starting with the first such
date after the occurrence of such event. All other terms and conditions
found in the form of the Term B Notes shall apply to the Term B Loan. Upon
the occurrence of any event consisting of the acceleration of indebtedness
described in clause (C) of the second preceding sentence, all interest
(including, without
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limitation, the interest accrued on the unpaid principal amount of the
Term B Loan at the pertinent interest rate(s) through the date of such
occurrence) shall be due and payable in full in cash immediately. In the
case of any Event of Default hereunder, interest shall accrue on the
unpaid principal amount of the Term B Loan at the A and Term B Loan
Default Rate and shall be payable in cash as described in the foregoing.
(c) Bridge Loan (Term C Loan). Absent the occurrence of any Event of
Default, the unpaid principal amount of the Bridge Loan outstanding
hereunder shall bear interest at the rate of eleven percent (11%) per
annum. Absent the occurrence of any Event of Default, one half of the
interest accruing at this rate shall accrue, but not be payable, until
maturity of the Term C Loan and Term C Note (whether pursuant to
acceleration or otherwise) and the other half shall be due and payable in
cash on a quarterly basis on the last Business Day of each March, June,
September and December. In the case of any Event of Default hereunder,
interest shall accrue on the unpaid principal amount of the Term C Loan at
the rate of 14% per annum (the "Term C Loan Default Rate") and shall be
payable in cash immediately.
SECTION 2.2 BASIS OF COMPUTATION. Interest shall be computed for the
actual number of days elapsed on the basis of a year consisting of 360 days,
including the date each Draw-Down is made.
SECTION 2.3 COMMITMENT FEE. The Borrowers agree to pay a non-refundable
commitment fee (the "Commitment Fee") of two percent (2%) of the stated Bridge
Facility Maximum Commitment Amount on the Closing Day, in other words $42,540
(.02*$2,127,000), which amount shall be earned on the Closing Day but due and
payable on the first anniversary of the Closing Day. Such Commitment Fee shall
not be reduced or reimbursed in the event that the entire Bridge Facility
Maximum Commitment Amount is not utilized.
SECTION 3 PRINCIPAL PAYMENTS AND PREPAYMENTS
SECTION 3.1 PRINCIPAL PAYMENT. Except as otherwise provided herein, the
principal of all Term Loans shall be repaid in accordance with this Section 3.1.
(a) Term A Loan. Absent acceleration pursuant to Section 8.2(a)
hereof, principal repayments under the Term A Loan will be deferred until
March 31, 2003. On such date and thereafter, and absent the occurrence of
any such prior acceleration, the unpaid principal balance of the Term A
Loan shall be payable in equal consecutive quarterly principal
installments of not less than $222,500, which shall be due and payable on
the last Business Day of each March, June, September and December. Absent
prior acceleration pursuant to Section 8.2(a) hereof, final payment equal
to all unpaid principal, interest and capitalized interest shall be due
and payable on March 31, 2007.
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(b) Term B Loan. Absent acceleration pursuant to Section 8.2(a)
hereof, principal repayments on the Term B Loan shall be deferred for as
long as interest payments on the Term B Loan are deferred pursuant to
Section 2.1(b). Thereafter, and absent the occurrence of any such prior
acceleration, the unpaid principal balance of the Term B Loan shall be
payable in equal consecutive quarterly principal installments of not less
than $225,000, which shall be due and payable on the last Business Day of
each March, June, September and December, with the first payment being due
and payable upon the first such date occurring after the termination of
the deferral of interest payments pursuant to Section 2.1(b) hereof.
Absent acceleration pursuant to Section 8.2(a) hereof, a final installment
equal to all unpaid principal, interest, and capitalized interest shall be
due and payable on March 31, 2007.
(c) Term C Loan. Absent acceleration pursuant to Section 8.2.(a)
hereof, all outstanding principal, interest, capitalized interest and the
Commitment Fee (described in Section 2.3) shall be due and payable on the
first anniversary of the Closing Day.
SECTION 3.2 OPTIONAL PREPAYMENT. The Borrowers may from time to time, upon
prior written or telephone notice to the Lender, prepay any of the Term Loans in
whole or in part without premium or penalty provided that any such prepayment
shall (i) be made in accordance with Section 3.6, and (ii) be an integral of
$10,000. It is understood, however, that no Term Loan is a revolving loan and
that the prepayment of any Term Loan will not obligate Tennessee Farmers (and
Tennessee Farmers shall not be obligated under any circumstances) to extend
additional funds under any Term Loan.
SECTION 3.3 MANDATORY PREPAYMENT. In the event that either Borrower (i)
sells an asset worth more than $1000 outside the ordinary course of business, or
(ii) issues any additional equity other than in accordance with Sections 9 and
10 hereof (whether such issuance be a violation of this Agreement or otherwise),
then such Borrower shall immediately remit the proceeds to the Lender to be
applied against the Term Loans in accordance with Section 3.6.
SECTION 3.4 FORM OF PAYMENT. All payments of principal, interest
(including, without limitation, previously deferred interest), Default Interest
or the Commitment Fee shall be made in immediately available funds to Tennessee
Farmers at its principal office at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇. Specifically, such payments shall be wired to First Farmers and Merchants
National Bank, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ABA Routing
Number ▇▇▇▇▇▇▇▇▇, with accompanying notice to ▇▇▇▇▇ ▇▇▇▇▇▇ (tel: ▇▇▇-▇▇▇-▇▇▇▇
ext. 2356) upon wiring. All such payments required to be made to the Lender
shall be made, without setoff, deduction or counterclaim, not later than 11:00
a.m., Central Standard Time, on the date due, in same day or immediately
available funds, to such account as Tennessee Farmers shall specify from time to
time by notice to the Borrowers. Funds received after that time shall be deemed
to have been received by Tennessee Farmers on the next Business Day.
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SECTION 3.5 SETOFF. The Lender shall, upon the occurrence of any Event of
Default described in Section 8.1, have the right, without notice to the
Borrowers, to appropriate and apply to the payment of the Term Loans all
balances, credits, deposits, accounts or moneys of the Borrowers then or
thereafter maintained with the Lender or otherwise under its control or the
control of its affiliates.
SECTION 3.6 PRIORITY; APPLICATIONS OF EXTRAORDINARY PAYMENTS. The Term C
Loan shall have the highest priority of the three Term Loans with respect to the
application of payments received and resort to any of the collateral described
in any of the Collateral Documents. As between the Term A Loan and the Term B
Loan, the Term A Loan will have similar priority. Any optional prepayments
pursuant to Section 3.2 hereof, any mandatory prepayments pursuant to Section
3.3 hereof, and any amounts received from any source whatsoever after
acceleration pursuant to Section 8.2 hereof shall be applied by the Lender as
follows (and in the following order of priority): first, to reimburse the Lender
for all expenses then due and owing and for which the Borrowers are liable under
Section 11.9 hereof, second, in payment of the Commitment Fee (to the extent
that it has yet to be paid in full), third, in payment of any and all accrued
interest then owing in respect to the Term C Loan (regardless of whether such
interest is otherwise then due and owing under any of the other provisions of
this Agreement), fourth, in payment of unpaid principal then owing in respect of
the Term C Loan, fifth, in payment of any and all accrued interest then owing in
respect of the Term A Loan (regardless of whether such interest is otherwise
then due and owing under any of the other provisions of this Agreement), sixth,
in payment of unpaid principal then owing in respect of the Term A Loan,
seventh, in payment of any and all accrued interest then owing in respect to the
Term B Loan (regardless of whether such interest is otherwise then due and owing
under any of the other provisions of this Agreement), eighth, in payment of the
unpaid principal then owing in respect of the Term B Loan, and finally, in
payment of any of the other Obligations then due and owing.
SECTION 4 REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement (including to make the
Term C Loan and to restructure the First Farmers Note as provided herein), the
Borrowers represent and warrant unto the Lender that:
SECTION 4.1 ORGANIZATION. The Borrowers are corporations existing and in
good standing under the laws of their respective states of organization
indicated in the preamble; the Borrowers are duly qualified, in good standing
and authorized to do business in each other jurisdiction where, because of the
nature of their activities or properties, such qualification is required and
where the failure to be so qualified may have a Material Adverse Effect; and the
Borrowers have the power and authority to own their properties and to carry on
their businesses as now being conducted.
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SECTION 4.2 AUTHORIZATION; NO CONFLICT. Any Draw-Down hereunder, the
execution and delivery of the Notes and each other Loan Document executed or to
be executed by it, and the performance by the Borrowers of their obligations
under this Agreement and each other Loan Document are within the Borrowers'
corporate powers, have been authorized by all necessary corporate actions, have
received all necessary governmental approval (if any shall be required) and do
not and will not contravene or conflict with any provision of law applicable to
the Borrowers or of the charter or by-laws of the Borrowers or of any agreement
binding upon the Borrowers.
SECTION 4.3 FINANCIAL STATEMENTS. The Borrowers' unaudited consolidating
and consolidated financial statements (the "Financial Statements") as have been
prepared in conformity with generally accepted accounting principles applied on
a basis consistent with that of the preceding fiscal year, and accurately
present the financial condition of the Borrowers at such dates and the results
of their operations for the respective periods then ended, subject to year-end
audit adjustments. Except as disclosed in writing to the Tennessee Farmers
before this Agreement was signed, since January 21, 2002, no material, adverse
change in the business, properties, assets, operations, conditions or prospects
of the Borrowers have occurred of which the Borrowers are, or with reasonable
diligence should have been, aware. There is no known contingent liability of the
Borrowers which is known to be in an amount in excess of $50,000 which is not
reflected in such financial statements.
SECTION 4.4 TAXES. The Borrowers have filed or caused to be filed all
federal, state and local tax returns which, to the knowledge of the Borrowers,
are required to be filed, and have paid or have caused to be paid all taxes as
shown on such returns or on any assessment received by them, to the extent that
such taxes have become due (except for (i) current taxes not delinquent, (ii)
taxes being contested in good faith and by appropriate proceedings for which
adequate reserves have been provided on the books of the Borrowers, and as to
which no foreclosure, distraint, sale or similar proceedings have been
commenced, and (iii) other taxes which shall be paid with the proceeds of the
first Draw-Down under the Bridge Facility).
SECTION 4.5 OWNERSHIP OF PROPERTIES; LIENS. The Borrowers each own good
and marketable title to all of their properties and assets, real and personal,
tangible and intangible, of any nature whatsoever (including patents,
trademarks, trade names, service marks and copyrights). None of the properties
and assets of the Borrowers are subject to any mortgage, pledge, title retention
lien, or other lien, encumbrance or security interest, except for Permitted
Liens or liens held by Tennessee Farmers.
SECTION 4.6 ADVERSE CONTRACTS. The Borrowers are not parties to any
agreement or instrument or subject to any charter or other corporate
restriction, nor are they subject to any judgment, decree or order of any court
or governmental body, which may have a Material Adverse Effect. The Borrowers do
not have, nor with reasonable diligence should they have had, knowledge of or
notice that it is in default in the performance, observance or
8
fulfillment of any of the obligations, covenants or conditions contained in any
such agreement, instrument, restriction, judgment, decree or order.
SECTION 4.7 LITIGATION AND CONTINGENT LIABILITIES. No litigation
(including derivative actions), arbitration proceedings or governmental
proceedings are pending or threatened against the Borrowers which would (singly
or in the aggregate), if adversely determined, have a Material Adverse Effect.
SECTION 4.8 SUBSIDIARIES. Except for the ownership interests held by one
or both of the Borrowers in Donlar Bio, Optim Nutrition and Purizer Corporation,
neither Borrower has an interest in other entities that would make any other
such entity a Subsidiary of either Borrower (or both).
SECTION 4.9 ERISA. The Unfunded Liabilities of all Plans do not in the
aggregate exceed $800,000. Each Plan complies in all material respects with all
applicable requirements of law and regulations, no Reportable Event has occurred
with respect to any Plan, the Borrowers have not withdrawn from any Plan or
initiated steps to do so, and no steps have been taken to terminate any Plan.
SECTION 4.10 ENVIRONMENTAL WARRANTIES. To the best of the Borrowers'
knowledge:
(a) all facilities and property (including underlying groundwater)
owned or leased by the Borrowers have been, and continue to be, owned or
leased by the Borrowers in material compliance with all Environmental
Laws;
(b) there have been no past, and there are no pending or threatened
(i) claims, complaints, notices or requests for information
received by the Borrowers with respect to any alleged violation of
any Environmental Law, or
(ii) complaints, notices or inquiries to the Borrowers
regarding potential liability under any Environmental Law;
(c) there have been no Releases of Hazardous Materials at, on or
under any property now or previously owned or leased by the Borrowers,
singly or in the aggregate, have, or may reasonably be expected to have, a
Material Adverse Effect;
(d) the Borrowers have been issued and are in material compliance
with all permits, certificates, approvals, licenses and other
authorizations relating to environmental matters and necessary or
desirable for their businesses;
9
(e) no property now or previously owned or leased by the Borrowers
is listed or proposed for listing (with respect to owned property only) on
the National Priorities List pursuant to CERCLA, on the CERCLIS or on any
similar state list of sites requiring investigation or clean-up;
(f) there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any property now or
previously owned or leased by the Borrowers that, singly or in the
aggregate, have, or may reasonably be expected to have, a Material Adverse
Effect;
(g) The Borrowers have not directly transported or directly arranged
for the transportation of any Hazardous Material to any location which is
listed or proposed for listing on the National Priorities List pursuant to
CERCLA, on the CERCLIS or on any similar state list or which is the
subject of federal, state or local enforcement actions or other
investigations which may lead to material claims against either of the
Borrowers for any remedial work, damage to natural resources or personal
injury, including claims under CERCLA;
(h) there are no polychlorinated biphenyls or friable asbestos
present at any property now or previously owned or leased by the Borrowers
that, singly or in the aggregate, have, or may reasonably be expected to
have, a Material Adverse Effect; and
(i) no conditions exist at, on or under any property now or
previously owned or leased by the Borrowers which, with the passage of
time, or the giving of notice or both, would give rise to liability under
any Environmental Law.
SECTION 4.11 BINDING EFFECT. This Agreement, each Note and each and every
other Loan Document constitutes the valid and binding obligations of each of the
Borrowers, enforceable against such Borrowers in accordance with their terms,
and shall continue to constitute the valid, binding, and enforceable obligations
of the surviving Borrower after the consummation of the contemplated
reorganization and merger in accordance with the Agreements to Reorganize and
Sections 9-10 hereof.
SECTION 4.12 CAPITALIZATION OF THE BORROWERS; RESERVATION OF SHARES; OTHER
MATTERS RELATING TO CAPITAL STOCK.
(a) Capitalization of the Borrowers.
(i) Donlar's authorized capital stock consists solely of
60,000,000 shares of common stock, no par value ("Donlar Common
Shares"), 21,483,224 of which are issued and outstanding on the date
hereof, and 38,000,000 preferred shares, no par value, of which
38,000,000 are outstanding on the date hereof.
10
(ii) Donlar Bio's capital stock consists of 500,000,000 shares
of common stock, par value $0.0001 per share ("Donlar Bio Common
Shares"), 46,816,621 shares of which are issued and outstanding on
the date hereof, and 50,000,000 preferred shares, par value $0.0001
per share, which have been designated and issued as set forth on
Schedule 4.12.
All of such outstanding capital stock is validly issued, fully paid and
nonassessable and has been issued in compliance with all applicable laws.
As of the date hereof, there are options, warrants and convertible
securities exercisable or convertible into 2,200,216 Donlar Common Shares
and 1,825,000 Donlar Bio Common Shares. As of the date hereof, except as
set forth on Schedule 4.12 and except for the Notes, there are no existing
options, convertible securities, warrants, calls, pledges, transfer
restrictions (except restrictions imposed by federal and state securities
laws), liens, rights of first offer, rights of first refusal, antidilution
provisions or commitments of any character relating to any issued or
unissued shares of capital stock of Donlar or Donlar Bio. Except for the
Notes or as set forth on Schedule 4.12, there are no preemptive or other
preferential rights applicable to the issuance and sale of equity
securities (or securities convertible or exercisable into or exchangeable
for equity securities) of Donlar or Donlar Bio. Except for the Notes or as
set forth on Schedule 4.12, there are no registration rights with respect
to any of the Donlar Common Shares or Donlar Bio Common Shares or
securities exercisable or convertible into Donlar Common Shares or Donlar
Bio Common Shares.
(b) Reservation of Shares. As of the date hereof, sufficient shares
of authorized but unissued Donlar Common Shares and Donlar Bio Common
Shares have been reserved by corporate action in connection with the
prospective conversion of the Notes. The issuance of the Notes will not
(x) require any further corporate action by the stockholders or directors
of the Borrowers, (y) be subject to any statutory or contractual
preemptive rights of any present or future stockholders or members of the
Borrowers or (z) conflict with any provision of any agreement to which
either of the Borrowers is a party or by which either of the Borrowers is
bound. All Donlar Common Shares or Donlar Bio Common Shares issuable upon
conversion of the Notes in accordance with their terms will be validly
authorized, fully paid and nonassessable.
(c) Neither of the Borrowers has not violated any applicable federal
or state securities laws in connection with the offer, sale and issuance
of any of its capital stock or securities. The offer, sale and issuance of
the Notes and the Common Stock issuable upon conversion thereof do not
require registration under the Securities Act or any applicable federal or
state securities laws.
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SECTION 4.13 SUFFICIENCY OF ACCOUNTS PAYABLE COMPONENT.
(a) Accounts Payable Creditors. The Borrowers owe approximately
$2,000,000 to Accounts Payable Creditors as of the Closing Day (the
"Pay-Off Amount"). The Borrowers and the Chief Restructuring Agent have or
soon will arrange for the forgiveness by certain Accounts Payable
Creditors of approximately $500,000 of the Pay-Off Amount. The Borrowers
shall pay $1,300,000 of the Pay-Off Amount with proceeds of the Accounts
Payable Component. The remaining $200,000 of the Pay-Off Amount will be
settled in exchange for capital stock pursuant to the Permitted Stock
Issuance.
(b) Non-accounts Payable Creditors. All accounts payable and short
term trade debts owed to persons who are not Accounts Payable Creditors
constitute debts which are neither past due nor in payment default. Thus,
once the Accounts Payable Creditors receive payment pursuant to the
Draw-Down(s) under the Accounts Payable Component, no holder of an
accounts payable debt or other short term trade debt, including Accounts
Payable Creditors, shall be in a position for at least one calendar month
after the Closing Day to claim that the Borrowers are in default under
his, her, or its credit extension to the Borrowers.
SECTION 4.14 NOT AN INVESTMENT COMPANY. Neither Borrower nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940.
SECTION 5 COVENANTS
Until all Term Loans hereunder have been repaid and all Obligations (other
than those of the Obligations which survive any termination of this Agreement)
are paid and fulfilled in full, the Borrowers agree and promise that they shall
comply with the following affirmative and negative covenants, unless the Lender
consents otherwise in writing.
SECTION 5.1 CORPORATE EXISTENCE, MERGERS, ETC. The Borrowers shall
preserve and maintain their corporate existence, rights, franchises, patents and
other intellectual property, licenses and privileges, and will not liquidate,
dissolve, or merge, or consolidate with or into any other corporation, or sell,
lease, transfer or otherwise dispose of all or a substantial part of its assets,
except that the Borrowers shall be entitled to and shall timely and strictly
reorganize in accordance with the Agreement to Reorganize and Sections 9 and 10
hereof.
SECTION 5.2 REPORTS, CERTIFICATES AND OTHER INFORMATION. The Borrowers
shall furnish to Tennessee Farmers and each Lender:
(a) Interim Reports. Within 30 days after the end of each month and
after each fiscal year of the Borrowers, a copy of an unaudited Financial
Statement of the Borrowers prepared on a consolidating and consolidated
basis consistent with the
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unaudited consolidating and consolidated Financial Statements of the
Borrowers referred to in Section 4.3, signed by an authorized officer of
the Borrowers and consisting of at least (i) a balance sheet as at the
close of such month, (ii) a statement of earnings for such month, for the
period from the beginning of such fiscal year to the close of such month
and for the comparable periods in the preceding fiscal year and (iii) a
statement of cash flows (A) for such month, (B) for the period from the
beginning of such fiscal year to the close of such month, and (C) for the
rolling 13 week period preceding the end of such month (starting with the
first month's end that is 13 weeks after the Closing Date).
(b) Audit Report. Within 90 days after the end of each fiscal year
of the Borrowers, a copy of an annual audit report of the Borrowers on a
consolidating and consolidated basis and in conformity with generally
accepted accounting principles applied on a basis consistent with the
unaudited consolidating and consolidated financial statements of the
Borrowers referred to in Section 4.3, duly certified by independent
certified public accountants of recognized standing satisfactory to the
Lenders, accompanied by an opinion and a certificate from such accountants
containing a computation of, and showing compliance with, any financial
restriction contained in this Agreement, and to the effect that, in making
the examination necessary for the signing of such annual audit report by
such accountants, they have not become aware of any Event of Default or
any Unmatured Event of Default hereunder, or if they have become aware of
any such event, describing it.
(c) Compliance Certificates. Contemporaneously with the furnishing
of a copy of each annual audit report and of each interim report provided
for in this Section 5.2(c), a certificate dated the date of such annual
report or such interim report and signed by any one of the President, the
Chief Financial Officer or the Treasurer of the Borrowers, to the effect
that no Event of Default or Unmatured Event of Default has occurred and is
continuing under this Agreement, or, if there is any such event,
describing it and the steps, if any, being taken to cure it, and
containing a computation of, and showing compliance with, the financial
restrictions set forth in Sections 5.4 and 5.13.
(d) Notice of Default, Litigation and ERISA Matters. Promptly and in
any event within three days after learning of the occurrence of any of the
following, written notice to the Lender describing the same and the steps
being taken by the Borrowers affected in respect thereof: (A) the
occurrence of an Event of Default or an Unmatured Event of Default; (B)
the institution of, or any adverse determination in, any litigation,
arbitration or governmental proceeding which is material to the Borrowers
on a consolidated basis; (C) the occurrence of a Reportable Event under,
or the institution of steps by the Borrowers to withdraw from, or the
institution of any steps to terminate, any Plan; or (D) any change in the
Borrowers' status for federal income tax purposes.
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(e) Other Information. From time to time such other information,
financial or otherwise, as the Lenders may reasonably request, including
periodic Financial Statements of either Borrower or both.
SECTION 5.3 INSPECTION. Upon not less than 36 hours prior notice to the
Borrowers from Lender (except if an Event of Default shall have occurred and be
continuing, in which case prior notice to the Borrowers shall not be required),
the Borrowers shall permit Tennessee Farmers and their respective
representatives at any time during normal business hours to inspect the
properties of the Borrowers and to inspect and make copies of their books and
records.
SECTION 5.4 INDEBTEDNESS, LIENS AND TAXES. The Borrowers shall:
(a) Indebtedness. Not incur, permit to remain outstanding, assume or
in any way become committed for indebtedness in respect of borrowed money,
except (i) indebtedness incurred hereunder or to the Lenders on the date
hereof, (ii) other than any indebtedness owing to either Junior Creditor,
indebtedness existing on the date of this Agreement shown on the financial
statements furnished to the Lenders before this Agreement was signed,
including any extensions or renewals thereof so long as the principal
amount of such indebtedness is not increased by such extension or renewal,
and (iii) indebtedness incurred after the date hereof in the nature of
Capitalized Lease Liabilities and/or purchase money debt, provided that
the aggregate amount thereof outstanding at any one time does not exceed
$25,000 in the aggregate for the Borrowers.
(b) Liens. Not create, suffer or permit to exist any security
interest, mortgage, other lien or other encumbrance of any kind or nature
upon any of their assets now or hereafter owned or acquired, or acquire or
agree to acquire any property or assets of any character under any
conditional sale agreement or other title retention agreement except for
(i) the security interests, mortgages, and other liens and encumbrances
securing the payment of the Obligations and (ii) any liens, encumbrances
and security interests held by properly perfected purchase money creditors
or equipment lessors provided that the aggregate value of the collateral
subject to such properly perfected purchase money security interests does
not exceed $25,000 (the permitted liens described in the preceding clauses
(i) and (ii) being referred to herein collectively as the "Permitted
Liens").
(c) Taxes. (i) Not change, or permit any change to occur in, the
Borrowers' status for federal income tax purposes, and (ii) pay and
discharge all taxes, assessments and governmental charges or levies
imposed upon them, upon their income or profits or upon any properties
belonging to them, specifically including but not limited to payroll
taxes, prior to the date on which penalties attach thereto, and all lawful
claims for labor, materials and supplies when due, except that no such
tax, assessment, charge, levy or claim need be paid which is being
contested in good faith by appropriate proceedings and as to which
adequate reserves shall have been established, and as to which no
foreclosure,
14
distraint, sale or similar proceedings have commenced which, if not stayed
or terminated, would have a Material Adverse Effect.
(d) Keep Well Agreements. Not assume, guarantee, indorse or
otherwise become or be responsible in any direct, indirect or contingent
manner (whether by agreement to purchase any obligations, stock, assets,
goods or services, or to supply or advance any funds, assets, goods or
services, or otherwise) with respect to the obligation of any other
Person.
SECTION 5.5 INVESTMENTS AND LOANS. The Borrowers shall not make any loan,
advance, extension of credit or capital contribution to, or purchase or
otherwise acquire for a consideration evidences of indebtedness, capital stock
or other securities of, any person or legal entity (including, without
limitation, either of the Junior Creditors), except that the Borrowers may:
(a) purchase or otherwise acquire and own short-term money market
items; and
(b) extend credit upon customary terms to their customers in the
ordinary course of their business.
SECTION 5.6 CAPITAL STRUCTURE AND DIVIDENDS. The Borrowers shall not
purchase or redeem, or obligate themselves to purchase or redeem, or issue
additional shares, of the Borrowers' capital stock, of any class, issued and
outstanding from time to time; or declare or pay any dividend (other than
dividends payable in its own common stock or to the Borrowers) or make any other
distribution in respect of such shares without the written consent of the
Lender; provided, however, that this Section 5.6 shall not apply to (i) any
action taken in accordance with the Agreements to Reorganize or Sections 9 and
10 of this Agreement or (ii) the Permitted Stock Issuance. Specifically, but
without in any manner whatsoever limiting the generality of the foregoing, the
Borrowers shall make no dividends or other distributions (including, without
limitation, any cash stock dividends or other cash distributions on any type of
equity interest) so long as any of the Obligations shall remain unpaid without
the express written consent of the Lender.
SECTION 5.7 MAINTENANCE OF PROPERTIES. The Borrowers shall maintain, or
cause to be maintained, in a manner consistent with their past practices, all
their properties (whether owned or held under lease) in good repair, working
order and condition, and from time to time make, or cause to be made, in a
manner consistent with their past practices, all needed and appropriate repairs,
renewals, replacements, additions, betterments and improvements thereto, so that
the business carried on in connection therewith may be properly and
advantageously conducted at all times.
15
SECTION 5.8 INSURANCE. The Borrowers shall maintain insurance with
responsible companies in such amounts and against such risks as is reasonably
required by Tennessee Farmers and, at a minimum, insurance on their business,
fixed assets, inventory and other properties, workmen's compensation or similar
insurance as required by law, and adequate public liability (including product
liability) insurance against claims for personal injury, death or property
damage arising out of its products, facilities or operations, as is usually
carried by similar businesses conducting operations in similar areas.
SECTION 5.9 USE OF PROCEEDS. The Borrowers shall not use any proceeds of
the Term C Loan in any manner that is inconsistent with the Borrowing Request
and Use of Funds Certificate tendered to Tennessee Farmers in order to obtain
the release of such proceeds. Any such material discrepancy between the actual
use of funds and that promised on the Use of Funds Certificate shall constitute
fraud upon the Tennessee Farmers and any other Lender.
SECTION 5.10 ASSET SALES. The Borrower shall sell no asset or business
unit with a market value of more than $10,000 if such sale is conducted outside
the normal course of business of the Borrower, unless the Lender consents in
writing to such a sale. This Section 5.10 shall not apply to the sale of Optim
Nutrition under Section 8.1(o) hereof.
SECTION 5.11 COMPLIANCE WITH LAW. The Borrowers shall comply in all
respects with all applicable laws, rules, regulations and orders, except where
the failure to so comply would not have a Material Adverse Effect.
SECTION 5.12 ENVIRONMENTAL COVENANT. The Borrowers will
(a) use and operate all of its facilities and properties in material
compliance with all Environmental Laws, keep all necessary permits,
approvals, certificates, licenses and other authorizations relating to
environmental matters in effect and remain in material compliance
therewith, and handle all Hazardous Materials in material compliance with
all applicable Environmental Laws;
(b) promptly notify Tennessee Farmers and provide copies upon
receipt of all written claims, complaints, notices or inquiries relating
to the condition of its facilities and properties or compliance with
Environmental Laws, and shall promptly cure and have dismissed with
prejudice to the reasonable satisfaction of Tennessee Farmers any actions
and proceedings relating to compliance with Environmental Laws; and
(c) provide such information and certifications which Tennessee
Farmers may reasonably request from time to time to evidence compliance
with this Section 5.12.
SECTION 5.13 REMUNERATION. The Borrowers shall not pay salaries or other
remuneration to officers, employees who are stockholders (or, in the case of a
stockholder which is a trust, officers or employees who are grantors and/or
beneficiaries of such trust, as
16
appropriate) of the Borrowers at a rate or in an amount in excess of that which
is in effect on or before Closing Day; provided, however, that the board may,
with the consent of Tennessee Farmers, increase the compensation of ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ or ▇▇▇▇▇ ▇▇▇▇▇▇ to reward unusually high performance; provided
further, however, that no such payments shall be made to either of the Junior
Creditors under any circumstances. This Section 5.13 shall not apply to routine
raises in salary given to deserving employees, in all cases other than the
Junior Creditors, who own less than one-tenth of one percent of the outstanding
stock of Donlar or Donlar Bio.
SECTION 5.14 FURTHER ASSURANCES/NOTING ASSIGNMENT OF RECORD. In order to
secure the First Farmers Note (before the same was sold to Tennessee Farmers),
the Borrowers gave the Assignor a security interest on their Intellectual
Property, and certain other personal property, which Assignor has assigned to
Tennessee Farmers as part and parcel of the assignment of the First Farmers
Note. The Borrowers hereby covenant to extend all necessary assistance and
cooperation (if any is necessary or otherwise advisable) to the Assignor and to
Tennessee Farmers to cause such transfer to be noted of record in the patent
office recordation or filing systems (or to otherwise obtain any necessary title
or other insurance relating to any of such collateral) on or before the first
business day which comes 45 calendar days after the Closing Day.
SECTION 5.15 FURTHER ASSURANCES. The Borrowers agree that, from time to
time at its own expense, the Borrowers will promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable, as reasonably determined by Tennessee Farmers, in order
to perfect, preserve and protect any lien or security interest granted or
purported to be granted by any Collateral Document or to enable Tennessee
Farmers to exercise and enforce its rights and remedies thereunder with respect
to any collateral.
SECTION 5.16 PURIZER CORPORATION. On or before the first anniversary of
the Closing Date, the Borrower shall either sell their investment in Purizer
Corporation or write such asset off (i.e. take an accounting charge with respect
to) and discontinue all operations with respect thereto to the extent that they
have not been discontinued prior to such date.
SECTION 5.17 TREATMENT OF TERM B LOAN. The parties hereto each hereby
acknowledge that Tennessee Farmers has agreed to the low interest rates and
payments on the Term B Loan as set forth in Section 2.1(b) hereof solely for the
purpose of making this Agreement non-onerous to the Borrowers. The provisions of
Sections 9, 9A and 10 hereof notwithstanding, each party hereto acknowledges
that Tennessee Farmers does not intend to hold equity in either of the Borrowers
solely by effect of lending to the Borrowers at unusually low rates, nor do the
Borrowers intend to grant Tennessee Farmers an equity interest by accepting such
a low interest loan. Each party hereto hereby covenants to act at all times
consistent with this common understanding and to take no action for purposes of
accounting, taxation or bankruptcy which treats the Term B Loan as equity.
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SECTION 6 CONDITIONS TO EFFECTIVENESS OF THIS AGREEMENT
AND INITIAL EXTENSION OF CREDIT UNDER BRIDGE LOAN FACILITY
This Agreement shall become effective as of the date hereof upon
satisfaction of the following conditions precedent:
SECTION 6.1 AGREEMENT. Each party hereto shall have received a counterpart
of this Agreement which has been executed by all of the parties hereto.
SECTION 6.2 FINANCIAL STATEMENTS. Tennessee Farmers shall have received
Financial Statements setting forth all of the information discussed in Section
5.2(a) hereof covering the 60 months preceding the month of the Closing Day that
after review by PricewaterhouseCoopers, accounting consultant to Tennessee
Farmers, is satisfactory to Tennessee Farmers.
SECTION 6.3 OTHER DOCUMENTATION. Tennessee Farmers shall have received all
of the following, each duly executed and dated as of the Closing Day and in form
and substance satisfactory to Tennessee Farmers and its counsel and at the
expense of the Borrowers and in such number of signed counterparts as Tennessee
Farmers may request (except for the Notes, of which only the originals shall be
signed):
(a) Notes. Each of the fully executed original Notes;
(b) Security Agreement Amendment. An amendment to the Security
Agreement, substantially in the form of Exhibit F hereto;
(c) Pledge Agreement Amendment. An amendment to the Pledge
Agreement, substantially in the form of Exhibit G hereto;
(d) Subordination Agreements. The Agreements to be signed by each of
the Junior Creditors, each substantially in the respective forms of
Exhibits D and E hereto;
(e) Agreement to Reorganize. The Agreement(s) to Reorganize in a
form fully satisfactory to Tennessee Farmers;
(f) Borrowing Request and Use of Funds Certificate. (In the event
that Borrowers wish to effect a Draw-Down on the Closing Day and the
Borrowers have complied with the provisions of Section 1.5 hereof; it
being understood that with respect to the payment of Accounts Payable
Creditors ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, LLP, ▇▇▇▇▇▇▇▇▇ Laboratories, ▇▇▇▇▇ of Chicago,
▇▇▇▇ and Associates, RPK Ag Advisory and the Internal Revenue Service, the
initial extension of credit under the Accounts Payable Component shall not
be conditioned on the Chief Restructuring Agent signing the Borrowing
Request and Use of Funds Certificate.);
18
(g) Borrowers' Resolutions. A copy of a resolution of the Board of
Directors of each of the Borrowers authorizing or ratifying the execution,
delivery and performance, respectively, of this Agreement, the Notes and
all other Loan Documents to be executed by such Borrower substantially
similar to sample resolutions found in Exhibit I hereto, certified by the
Secretaries of such Borrower;
(h) Borrowers' Articles of Incorporation and By-laws. A certificate
of the Secretaries of each of the Borrowers to the effect that a copy of
the true, correct and currently-in-effect Articles of Incorporation and
By-Laws of each Borrower are attached to such certificate (and are indeed
attached);
(i) Certificates of Good Standing. Or other such documents and
certificates relating to the organization, existence and good standing of
each of the Borrowers in its state of incorporation.
(j) Borrowers' Certificates of Incumbency. A certificates of the
Secretaries of each of the Borrowers certifying the names of the officer
or officers of each of the Borrowers authorized to sign this Agreement,
the Notes and the other Loan Documents to be executed by the Borrowers,
together with a sample of the true signature of each such officer
(Tennessee Farmers and each Lender may conclusively rely on such
certificate until formally advised by a like certificate of any changes
therein);
(k) Opinion of Counsel to the Borrowers. An opinion of counsel to
each of the Borrowers to such effect as Tennessee Farmers may reasonably
require; and
(l) Miscellaneous. Such other documents and certificates as
Tennessee Farmers may reasonably request.
SECTION 6.4 CHIEF RESTRUCTURING AGENT. The Borrowers shall have retained
Mr. ▇▇▇▇▇ ▇▇▇▇▇▇ (collectively with his Affiliates, employees and agents, the
"Chief Restructuring Agent"), which Chief Restructuring Agent shall be given
full access to all of the Borrowers' senior management, financial documentation
and other information necessary to fulfill its duties. The Borrowers shall
thereafter authorize and empower the Chief Restructuring Agent to be their
principal negotiator and analyst with respect to their accounts payable debts
and shall respect and abide by the judgement of the Chief Restructuring Agent
with regards to his, her or its judgment as to the necessity of paying any
particular Accounts Payable Creditor and the amount of such payment. Each
Borrower acknowledges that an approval by the Chief Restructuring Agent shall be
necessary for any Draw-Down of the Accounts Payable Component.
SECTION 6.5 SHORT TERM DEBT REPAYMENT. The Borrowers shall have repaid the
Short-Term Debt on or before Closing Day. Tennessee Farmers shall be authorized
to
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ensure such repayment by netting the amount owing with respect to the Short-Term
Debt against the initial Draw-Down on or as soon as practicable after Closing
Day.
SECTION 6.6 NO MATERIAL ADVERSE CHANGE. No Material Adverse Change shall
have occurred in the operations of the Borrowers since the meeting that occurred
on January 21, 2002.
SECTION 6.7 ASSIGNMENT OF MORTGAGE. The Borrowers shall render all
assistance necessary to allow the Assignor to assign the Mortgage to Tennessee
Farmers, and such assignment shall be effected on or before the Closing Day
SECTION 6.8 PAYMENT OF COSTS AND EXPENSES. The Borrowers shall have paid
in full all Professional Fees and other expenses of Tennessee ▇▇▇▇▇▇ incurred up
to the Closing Day hereof and hereby acknowledge and agree that Tennessee
Farmers may net the amounts necessary to pay all such Professional Fees against
any wiring of funds on Closing Day connected with a Draw-Down of the
Professional Fees Component.
SECTION 7 CONDITIONS OF EACH DRAW-DOWN AFTER CLOSING DAY
The obligation of Tennessee Farmers to fund a Draw-Down under the Bridge
Facility is subject to the following conditions precedent:
SECTION 7.1 REPRESENTATIONS AND WARRANTIES IN AGREEMENT. At the date of
each Draw-Down under the Bridge Facility, the Borrowers' representations and
warranties set forth in Section 4 hereof shall be true and correct as at such
date with the same effect as though those representations and warranties had
been made on and as at such date.
SECTION 7.2 NO DEFAULT. At the time of each Draw-Down under the Bridge
Facility, and immediately after giving effect to such Draw-Down under the Bridge
Facility, the Borrowers shall be in compliance with all the terms and provisions
set forth herein on its part to be observed or performed, and no Event of
Default or Unmatured Event of Default shall have occurred and be continuing at
the time of the Draw-Down of a Bridge Loan, or would result from the making of
the Draw-Down.
SECTION 7.3 APPLICATION DEEMED A REPRESENTATION AND WARRANTY. The
application by the Borrowers under Section 1.5 hereof for any Draw-Down under
the Bridge Facility and the acceptance by the Borrowers of the proceeds of such
a Bridge Loan under the Bridge Facility shall each be deemed a representation
and warranty by the Borrowers that the statements in Sections 7.1 and 7.2 are
true and correct on and as of the date of each such Bridge Loan Draw-Down.
SECTION 7.4 BORROWING REQUEST AND USE OF FUNDS CERTIFICATE. Receipt by
Lender of a properly filled out and fully executed (including a written approval
by the
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Chief Restructuring Agent if a Draw-Down under the Accounts Payable Component is
requested) Borrowing Request and Funding Day Certificate.
SECTION 7.5 FEES. All outstanding Professional Fees shall be paid on or
each date on which the Borrowers wish to Draw-Down under the Bridge Facility.
Unless the Professional Fees Component or a relevant Sub-Component is exhausted,
such payment may be made by borrowing under such Component of the Bridge
Facility and then allowing Tennessee Farmers to net such amounts owing from any
wiring of such Bridge Facility loan proceeds. No Draw-Down of the Professional
Fee and Closing Costs Component may be used to pay the Professional Fees of
▇▇▇▇▇ ▇▇▇▇▇▇ Law Firm if, after taking into account the effect of such a
Draw-Down, all other outstanding Professional Fees still exceed $10,000.
Consistent with Section 11.9 hereof, the Borrowers hereby acknowledge that the
availability or non-availability of loan proceeds under the Professional Fees
Component or relevant Sub-Component notwithstanding, complete payment of
Professional Fees shall be a condition precedent to each Draw-Down.
SECTION 8 DEFAULT
SECTION 8.1 EVENTS OF DEFAULT. Each of the following occurrences is hereby
defined as an "Event of Default":
(a) Nonpayment. The Borrowers shall fail to make any payment of
principal, interest, the Commitment Fee or other amounts payable hereunder
when and as due (including the timely payment of Professional Fees which
are connected with the Term Loans);
(b) Covenants. The Borrowers shall breach any negative covenant
found in Section 5 hereof, including, but not limited to Sections 5.5,
5.6, 5.7, and 5.10, or the Borrowers shall breach any affirmative covenant
and such breach shall continue unremedied for 5 calendar days or such
other grace period more specifically connected with any such affirmative
covenant (it being understood that, to the extent that the breach is not
susceptible of being remedied, the Event of Default shall be deemed to
occur at the end of the pertinent cure period);
(c) Loan Documents Not Enforceable, etc. Any Loan Document shall
(except in accordance with its terms), in whole or in part, terminate,
cease to be effective or cease to be the legal, valid, binding and
enforceable obligation of the Borrowers or any other party thereto (other
than Tennessee Farmers); or, in the case of the Collateral Documents, the
lien or security interest created by any Collateral Document shall, in
whole or in part, cease to be a perfected first priority lien or security
interest, subject only to those exceptions expressly permitted by such
Collateral Document or this Agreement, except if any of the foregoing
occurs as the result of acts or omissions of Tennessee Farmers;
21
(d) Cross-Default. In connection with any indebtedness which exceeds
$250,000 in aggregate outstanding principal and interest (other than any
Term Loan or the debts owed to Junior Creditors), if there shall occur any
default or event of default, or any event which might become such with
notice or the passage of time or both, or any similar event, or any event
which requires the prepayment of borrowed money or the acceleration of the
maturity thereof, under the terms of any evidence of indebtedness or other
agreement issued or assumed or entered into by the Borrowers, under the
terms of any indenture, agreement or instrument under which any such
evidence of indebtedness or other agreement is issued, assumed, secured or
guaranteed (except for any such event which is being contested in good
faith and by appropriate proceedings, and as to which adequate reserves
shall have been established, and which involves indebtedness other than
for borrowed money), and such event shall continue uncured or unresolved
beyond any applicable period of grace provided;
(e) Dissolutions, etc. The Borrowers shall fail to comply with any
provision concerning their existence or any prohibition against
dissolution, liquidation, merger, consolidation or sale of assets;
(f) Representations and Warranties. Any representation, warranty,
schedule, certificate, Financial Statement, report, notice or other
writing contained in or connected with a Loan Document and furnished to
Tennessee Farmers by or on behalf of the Borrowers or any other party to a
Loan Document (other than Tennessee Farmers) is false or misleading in any
material respect on the date as of which the facts therein set forth are
stated or certified;
(g) Junior Creditor Breach. Either or both of the Junior Creditors
shall have breached (or shall have sought the cooperation or other
assistance of the Borrowers in breaching) any provision of the
Subordination Agreements;
(h) Change in Control. Any Person presently not in control of the
Borrowers shall obtain control directly or indirectly of the Borrowers,
whether by purchase or gift of stock or assets, by contract, or otherwise;
(i) ERISA. Any Reportable Event shall occur under ERISA in respect
of any Plan or other termination of any plan requiring contribution by a
non-Borrower;
(j) Litigation. (i) Any judgment or order for the payment of money
in excess of $100,000 shall be rendered against either of the Borrowers
and (A) enforcement proceedings shall have been commenced by any creditor
upon such judgment or order, or (B) there shall be any period of 20
consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect,
or (ii) there shall be rendered against any Borrower a non-monetary
judgement which causes or reasonably could be expected to cause a Material
Adverse Effect;
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(k) Any Loan Document not Valid or Binding. Any Loan Document shall
cease to be valid and binding on the parties to such Loan Document (other
than Tennessee Farmers) or any of the parties to such a Loan Document
(other than Tennessee Farmers) shall so assert in a pleading filed in any
court;
(l) Noncompliance with this Agreement or Other Loan Document. The
Borrowers or any other party to a Loan Document (other than a Lender or
Tennessee Farmers) shall fail to comply with any provision hereof
(specifically including, but not limited to, Section 5.14) or of any other
Loan Document, which failure does not otherwise constitute an Event of
Default, and such failure shall continue for ten days after written notice
thereof to the Borrowers by Tennessee Farmers;
(m) Noncompliance with any Borrowing Request and Funding Day
Certificate. Either Borrower shall spend the proceeds of a Draw-Down under
any Term Loan in a manner not in strict accordance with the relevant
Borrowing Request and Funding Day Certificate which such Borrower provided
to Tennessee Farmers in order to obtain such Draw-Down;
(n) Noncompliance with Agreement to Reorganize. (i) Any of the
Borrowers, Junior Creditors or other parties to the Agreement(s) to
Reorganize shall fail to perform its obligations thereunder or to extend
all cooperation necessary to effect in a timely manner the planned
reorganization of the Borrowers as described in such agreement, time being
of the essence, or (ii) the failure of the parties to reorganize the
Borrowers with the time limits set forth in the Agreement to Reorganize
(the best intention of such parties notwithstanding), time being of the
essence;
(o) Failure to Sell, Dissolve, or Write-Off Certain Assets. The
Borrowers shall (i) fail to sell their business unit, Optim Nutrition, on
or before the first anniversary of the Closing Day and immediately remit
the proceeds of such a sale to Tennessee Farmers in accordance with
Section 3.3 hereof, or dissolve Optim Nutrition, in the event that a buyer
capable of consummating a transaction before the first anniversary of the
Closing Day cannot be found or (ii) sell or write-off (i.e., take an
accounting charge with respect to) and discontinue the operations of
Purizer Corporation in accordance with Section 5.16 hereof;
(p) Bankruptcy. Any bankruptcy, insolvency, reorganization,
arrangement, readjustment, liquidation, dissolution, or similar
proceeding, domestic or foreign, is instituted by or against the Borrowers
or any Guarantor and, if instituted against the Borrowers or any
Guarantor, is consented to or acquiesced in by the Borrowers or such
Guarantor or remains for 30 days undismissed; or the Borrowers or any
Guarantor shall take any step toward, or to authorize, such a proceeding;
or
23
(q) Insolvency. Either Borrower generally shall fail or be unable to
pay its debts as they mature, shall admit in writing its inability to pay
its debts as they mature, shall make a general assignment for the benefit
of its creditors, shall enter into any composition or similar agreement,
or shall suspend the transaction of all or a substantial portion of its
usual business.
SECTION 8.2 REMEDIES.
(a) Remedies Outside of Insolvency or Bankruptcy. Upon the
occurrence of any Event of Default set forth in subsections (a)-(o) of
Section 8.1 and during the continuance thereof, the Lender may take all or
any of the following actions:
(i) Acceleration. Declare all amounts owing under any or all
of the Term Loans to be immediately due and payable and, whereupon
the Notes and any other amounts owed to Tennessee Farmers shall
forthwith become due and payable.
(ii) Termination. Terminate any further commitment to advance
funds under the Term C Loan.
(iii) Default Rate Interest . Charge Default Rate Interest on
all outstanding amounts under the Term Loans.
(b) Remedies in Insolvency or Bankruptcy. Upon the occurrence of any
Event of Default set forth in subsections (p) or (q) of Section 8.1, the
Notes and any other amounts owed to Tennessee Farmers shall be immediately
and automatically due and payable without action of any kind on the part
of Tennessee Farmers. All other remedies available under Section 8.2(a)
shall also apply.
(c) Remedies Generally. The Borrowers expressly waive presentment,
demand, notice or protest of any kind in connection herewith this Section
8.2. Tennessee Farmers shall promptly give the Borrowers notice of any
such declaration, but failure to do so shall not impair the effect of such
declaration. No delay or omission on the part of any Lender in exercising
any power or right hereunder or under any Note shall impair such right or
power or be construed to be a waiver of any Event of Default or any
acquiescence therein, nor shall any single or partial exercise of any
power or right hereunder preclude other or further exercise thereof, or
the exercise of any other power or right. In addition to the rights and
remedies set forth above in Sections 8.2(a) and 8.2(b), the Lender hereby
expressly reserves the right to take any other actions (including, without
limitation, with respect to the liens currently securing the indebtedness
of the Borrowers to Tennessee Farmers) permitted under this Agreement or
applicable law.
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SECTION 9 CONVERSION RIGHTS
SECTION 9.1 CONVERSION. A Noteholder may convert all or any portion of the
outstanding principal amount of a Note pursuant to this Section 9 until such
time as such amount has been paid in full by the Borrowers; provided that if the
Noteholder has received a notice of prepayment pursuant to Section 3.2 above,
the Noteholder may unilaterally delay and refuse acceptance of such prepayment
for a length of time that is sufficient to permit the Noteholder to exercise the
conversion right set forth in this Section 9.
SECTION 9.2 CONVERSION PROCEDURE.
(a) At any time from the date hereof and prior to the payment of a
Note, the holder of such Note may convert all or any portion of the
outstanding principal amount of such Note into a number of shares of
Conversion Stock (excluding any fractional share) determined by dividing
the principal amount designated by such Noteholder in a written notice of
intention to convert as the amount to be converted, by the applicable
Conversion Price. The Noteholder shall give the Company 30 days notice of
its intention to convert.
(b) Each such conversion of a Note shall be deemed to have been
effected as of the close of business on the date on which the Note has
been surrendered at the principal office of the Company. At such time as
such conversion has been effected, the rights of the Noteholder as such
holder to the extent of the conversion shall cease, and the Person or
Persons in whose name or names any certificate or certificates for shares
of Conversion Stock are to be issued upon such conversion shall be deemed
to have become the holder or holders of record of the shares of Conversion
Stock represented thereby.
(c) As soon as possible after a conversion has been effected (but in
any event within five business days), the Company shall deliver to the
converting Noteholder:
(i) a certificate or certificates representing the number of
shares of Conversion Stock (excluding any fractional share) issuable
by reason of such conversion in such name or names and such
denomination or denominations as the converting holder has
specified;
(ii) payment in an amount equal to the sum of all accrued
interest with respect to the principal amount converted, which has
not been paid prior thereto, plus the amount payable under
subparagraph (d) below; and
(iii) a new Note representing any portion of the principal
amount which was represented by the Note surrendered to the Company
in connection with such conversion but which was not converted.
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(d) If any fractional share of Conversion Stock would, except for
the provisions hereof, be deliverable upon conversion of this Note, the
Company, in lieu of delivering such fractional share, shall pay an amount
equal to the Market Price of such fractional share as of the date of such
conversion.
(e) The issuance of certificates for shares of Conversion Stock upon
conversion of a Note shall be made without charge to the holder hereof for
any domestic documentary, stamp, transfer, excise or similarly related
transactional tax relating to the issuance of securities in respect
thereof or other cost incurred by the Company in connection with such
conversion and the related issuance of shares of Conversion Stock. Upon
conversion of a Note, the Company shall take all such actions as are
necessary in order to ensure that the Conversion Stock issuable with
respect to such conversion shall be validly issued, fully paid and
nonassessable.
(f) The Company shall not close its books against the transfer of
Conversion Stock issued or issuable upon conversion of a Note in any
manner which interferes with the timely conversion of a Note. The Company
shall assist and cooperate with any Noteholder required to make any
governmental filings or obtain any governmental approval prior to or in
connection with the conversion of a Note (including, without limitation,
making any filings required to be made by the Company).
(g) The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Conversion Stock, solely for the
purpose of issuance upon the conversion of the Note, such number of shares
of Conversion Stock issuable upon the conversion of all outstanding Notes.
All shares of Conversion Stock which are so issuable shall, when issued,
be duly and validly issued, fully paid and nonassessable and free from all
taxes, liens and charges. The Company shall take all such actions as may
be necessary to assure that all such shares of Conversion Stock may be so
issued without violation of any applicable law or governmental regulation
or any requirements of any domestic securities exchange upon which shares
of Conversion Stock may be listed (except for official notice of issuance
which shall be immediately delivered by the Company upon each such
issuance).
SECTION 9.3 CONVERSION PRICE. The initial Conversion Price for an Term A
Note or a Term B Note shall be $0.68. The initial Conversion Price for a Term C
Note shall be $0.29. If and whenever on or after the original date of issuance
of a Note the Company issues or sells, or in accordance with Section 9.4 is
deemed to have issued or sold, any shares of Common Stock for a consideration
per share less than the Conversion Price in effect immediately prior to such
time, the Conversion Price shall be reduced to the Conversion Price determined
by dividing (A) an amount equal to the sum of (x) the product derived by
multiplying the Conversion Price immediately prior to such issue or sale by the
number of shares of Common Stock Deemed Outstanding immediately prior to such
issue or sale, plus (y) the consideration, if any, received
26
by the Company upon such issue on sale, by (B) the number of shares of Common
Stock Deemed Outstanding immediately after such issue or sale.
SECTION 9.4 EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Conversion Price under Section 9.3, the following shall
be applicable:
(a) Issuance of Rights or Option. If the Company in any manner
grants any rights or options to subscribe for or to purchase Common Stock
or any stock or other securities convertible into or exchangeable for
Common Stock (such rights or options being herein called "Options" and
such convertible or exchangeable stock or securities being herein called
"Convertible Securities") and the price per share for which Common Stock
is issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Conversion Price
in effect immediately prior to the time of the granting of such Options,
then the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the exercise
of such Options shall be deemed to be outstanding and to have been issued
and sold by the Company for such price per share. For purposes of this
paragraph, the "price per share for which Common Stock is issuable upon
exercise of such Options or upon conversion or exchange of such
Convertible Securities" is determined by dividing (A) the total amount, if
any, received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of all such
Options, plus in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the issuance or sale of such Convertible
Securities and the conversion or exchange thereof, by (B) the total
maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options. No adjustment of
the Conversion Price shall be made upon the actual issuance of such Common
Stock or of such Convertible Securities upon the exercise of such Options
or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities. Notwithstanding the foregoing,
there shall be no adjustment pursuant to this Section 9.4(a) with respect
to grants of options to employees pursuant to employee benefit plans as in
effect on the Closing Date hereof or pursuant to the Agreements to
Reorganize.
(b) Issuance of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities and the price per share for
which Common Stock is issuable upon such conversion or exchange is less
than the Conversion Price in effect immediately prior to the time of such
issue or sale, then the maximum number of shares of Common Stock issuable
upon conversion or exchange of all such Convertible Securities shall be
deemed to be outstanding and to have been issued and sold by the
27
Company for such price per share. For the purposes of this paragraph, the
"price per share for which Common Stock is issuable upon such conversion
or exchange" is determined by dividing (A) the total amount received or
receivable by the Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or
exchange thereof, by (B) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of all such Convertible
Securities. No adjustment of the Conversion Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustments of
the Conversion Price had been or are to be made pursuant to other
provisions of this Section 9.4, no further adjustment of the Conversion
Price shall be made by reason of such issue or sale.
(c) Change in Option Price or Conversion Rate. If the purchase price
provided for in any Option, the additional consideration (if any) payable
upon the issue, conversion or exchange of any Convertible Security, or the
rate at which any Convertible Security is convertible into or exchangeable
for Common Stock changes at any time, the Conversion Price in effect at
the time of such change shall be readjusted to the Conversion Price which
would have been in effect at such time had such Option or Convertible
Security originally provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold; provided that if such adjustment of the
Conversion Price would result in an increase in the Conversion Price then
in effect, such adjustment shall not be effective until 30 days after
written notice thereof has been given to all Noteholders.
(d) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any
right to convert or exchange any Convertible Securities without the
exercise of such Option or right, the Conversion Price then in effect
hereunder shall be adjusted to the Conversion Price which would have been
in effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to
such expiration or termination, never been issued; provided that if such
expiration or termination would result in an increase in the Conversion
Price then in effect, such increase shall not be effective until 30 days
after written notice thereof has been given to all Noteholders.
(e) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefore shall
be deemed to be the net amount received by the Company therefore. In case
any Common Stock, Options or Convertible Securities are issued or sold for
a consideration other than cash, the amount of the consideration other
than cash received by the Company shall be the fair value of such
consideration, except where such consideration consists of securities, in
which case the amount of
28
consideration received by the Company shall be the Market Price thereof as
of the date of receipt. In case any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving
corporation, the amount of consideration therefore shall be deemed to be
the fair value of such portion of the net assets and business of the
non-surviving corporation as is attributable to such Common Stock, Options
or Convertible Securities, as the case may be. The fair value of any
consideration other than cash and securities shall be determined jointly
by the Company and the Noteholders. If such parties are unable to reach
agreement within a reasonable period of time, such fair value shall be
determined by an appraiser jointly selected by the Company and the
Noteholders. The determination of such appraiser shall be final and
binding upon the parties, and the fees and expenses of such appraiser
shall be borne by the Company.
(f) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the
Options shall be deemed to have been issued for a consideration of $0.01.
(g) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or
for the account of the Company or any Subsidiary, and the disposition of
any shares so owned or held shall be considered an issue or sale of Common
Stock.
(h) Record Date. If the Company takes a record of the holders of
Common Stock for the purpose of entitling them (A) to receive a dividend
or other distribution payable in Common Stock, Options or in Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
SECTION 9.5 SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at
any time subdivides (by any stock split, stock dividend or otherwise) one or
more classes of their outstanding shares of Common Stock into a greater number
of shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and if the Company at any time combines (by
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination shall be proportionately increased.
SECTION 9.6 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any recapitalization, reorganization, reclassification, consolidation,
29
merger, sale of all or substantially all of the Company's assets to another
Person or other transaction, except for the merger of Donlar with Donlar Bio
contemplated by the Agreements to Reorganize (collectively, any "Organic
Change") is effected in such a way that holders of Common Stock are entitled to
receive (either directly or upon subsequent liquidation) stock, securities or
assets with respect to or in exchange for Common Stock, then, prior to the
consummation of such Organic Change, lawful and adequate provision (in form and
substance satisfactory to the Noteholders) shall be made whereby each of the
Noteholders shall thereafter have the right to acquire and receive in lieu of or
addition to (as the case may be) shares of Conversion Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's Note,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for the number of shares of Conversion Stock
immediately theretofore acquirable and receivable upon conversion of such
holder's Note had such Organic Change not taken place. In any such case,
appropriate provision (in form and substance reasonably satisfactory to the
holders of the Notes) shall be made with respect to such holder's rights and
interests to insure that the provisions of this Section 9 shall thereafter be
applicable in relation to any shares of stock, securities or assets thereafter
deliverable upon the conversion of the Notes (including, in the case of any such
consolidation, merger or sale in which the successor entity or purchasing entity
is other than the Company, an immediate adjustment of the Conversion Price to
the value for the Common Stock reflected by the terms of such consolidation,
merger or sale and a corresponding immediate adjustment in the number of shares
of Conversion Stock acquirable and receivable upon conversion of the Notes, if
the value so reflected is less than the Conversion Price in effect immediately
prior to such consolidation, merger or sale.) The Company shall not effect any
such consolidation, merger or sale, unless prior to the consummation thereof,
the successor entity (if other than the Company) resulting from consolidation or
merger or the entity purchasing such assets assumes by written instrument (in
form reasonably satisfactory to the Noteholders), the obligation to deliver to
each such holder such shares of stock, securities or assets as, in accordance
with the foregoing provisions, such holder may be entitled to acquire.
SECTION 9.7 CERTAIN EVENTS. If any event occurs of the type contemplated
by the provisions of this Section 9 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's board of directors shall make an appropriate adjustment in the
Conversion Price so as to protect the rights of the Noteholders; provided that
no such adjustment shall increase the Conversion Price as otherwise determined
pursuant to this Section 9 or decrease the number of shares of Conversion Stock
issuable upon conversion of the Notes then outstanding.
SECTION 9.8 NOTICES.
(a) Immediately upon any adjustment of the Conversion Price, the
Company shall send written notice thereof to the Noteholders, setting
forth in reasonable detail and certifying the calculation of such
adjustment.
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(b) The Company shall send written notice to the Noteholders at
least 20 days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any pro rata subscription offer to
holders of Common Stock or (C) for determining rights to vote with respect
to any Organic Change, dissolution or liquidation.
(c) The Company shall also give at least 20 days prior written
notice of the date on which any Organic Change, dissolution or liquidation
shall take place.
SECTION 9.9 LIQUIDATING DIVIDENDS. If the Company declares a dividend upon
the Common Stock payable otherwise than in cash out of earnings or earned
surplus (determined in accordance with generally accepted accounting principles,
consistently applied) except for a stock dividend payable in shares of Common
Stock (a "Liquidating Dividend"), then the Company shall pay to the Noteholders
at the time of payment thereof the Liquidating Dividend which would have been
paid to the Noteholders on the Conversion Stock had this Note been fully
converted immediately prior to the date on which a record is taken for such
Liquidating Dividend, or, if no record is taken, the date as of which the record
holders of Common Stock entitled to such dividends are to be determined. Nothing
in this Section 9.9 in any way shall permit any dividend, distribution or other
payment prohibited, restricted or limited by the Purchase Agreement.
SECTION 9.10 PURCHASE RIGHTS. If at any time the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then each Noteholder shall be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Conversion Stock acquirable upon conversion of such
holder's Note immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
SECTION 9.11 AMENDMENT AND WAIVER. Except as otherwise expressly provided
in this Section 9, the provisions of the Notes may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of the holders; provided that no such action shall change the Conversion
Price of the Notes or the number of shares or the class of stock into which the
Notes are convertible, without the written consent of all of Noteholders.
SECTION 9A COMPLIANCE WITH SECURITIES LAWS
SECTION 9A.1 INVESTMENT INTENT OF THE INITIAL NOTEHOLDER. The Initial
Noteholder represents and warrants to the Company that it is acquiring the Notes
and,
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upon issuance in accordance with this Agreement, the Conversion Stock for its
own account, with no present intention of selling or otherwise distributing the
same to the public.
SECTION 9A.2 STATUS OF NOTES. The Initial Noteholder has been informed by
the Company that neither the Notes nor the Conversion Stock have been (or will
be) registered under the Securities Act or under any state securities laws
(except pursuant to Section 10 of this Agreement) and are being offered and sold
in reliance upon federal and state exemptions for transactions not involving any
public offering.
SECTION 9A.3 STATUS OF THE INITIAL NOTEHOLDER. The Initial Purchaser
represents and warrants to the Company that it is an "accredited investor"
within the meaning of Regulation D under the Securities Act.
SECTION 9A.4 TRANSFER.
(a) The Notes and the Conversion Stock may be transferred, without
the need for the Company's consent, pursuant to (i) public offerings
registered under the Securities Act, (ii) Rule 144 or 144A promulgated
under the Securities Act (or any similar rule then in force) or (iii)
subject to the conditions set forth in Sections 9A.4(b) and (c), any other
legally available means of transfer.
(b) In connection with any transfer of any Notes or Conversion Stock
described in Section 9A.4(a)(iii), the holder of Notes or Conversion Stock
shall deliver written notice to the Company describing in reasonable
detail the proposed transfer. Promptly upon receipt of such written
notice, the Company shall prepare and deliver new instruments for the
Notes or Conversion Stock being transferred.
(c) Except as provided in Section 10.10, each Note shall be
imprinted with a legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY WERE ORIGINALLY ISSUED ON MARCH
18, 2002. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR
UNDER THE SECURITIES LAWS OF ANY STATES AND CANNOT BE OFFERED,
TRANSFERRED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
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SECTION 10 REGISTRATION RIGHTS
SECTION 10.1 COMPANY REGISTRATION.
(a) If the Company shall determine to Register any of its Common
Stock or any securities convertible into shares of Common Stock either for
its own account or for the account of any other Person, other than a
Registration relating solely to benefit plans, or a Registration relating
solely to a Commission Rule 145 transaction or on Form S-4, or a
Registration on any registration form which does not permit secondary
sales or does not include substantially the same information as would be
required to be included in a registration statement covering the sale of
Registrable Shares, the Company will:
(i) promptly give to each of the Holders a written notice
thereof (which shall include a list of the jurisdictions, if any, in
which the Company intends to attempt to qualify such securities
under applicable state securities laws); and
(ii) include in such Registration (and any related
qualification under state securities laws or other compliance), and
in any underwriting involved therein, all the Registrable Shares
specified in a written request or requests, made by the Holders
within fifteen (15) business days after the giving of the written
notice from the Company described in clause (a) above, except as set
forth in Section 10.1(b) below. Such written request shall specify
the amount of Registrable Shares intended to be disposed of by a
Holder and may specify all or a part of the Holder's Registrable
Shares.
Notwithstanding the foregoing, if, at any time after giving such written
notice of its intention to effect such Registration and prior to the
effective date of the registration statement filed in connection with such
Registration, the Company shall determine for any reason not to Register
such equity securities the Company may, at its election, give written
notice of such determination to the Holders and thereupon the Company
shall be relieved of its obligation to Register such Registrable Shares in
connection with the Registration of such equity securities (but not from
its obligation to pay Registration Expenses to the extent incurred in
connection therewith as provided herein).
(b) Underwriting. If the Registration of which the Company gives
notice is for a Registered public offering involving an underwriting, the
Company shall so advise each of the Holders as a part of the written
notice given pursuant to Section 10.1(a)(i). In such event, the right of
each of the Holders to Registration pursuant to this Section 10.1 shall be
conditioned upon such Holders' participation in such underwriting and the
inclusion of such Holders' Registrable Shares in the underwriting to the
extent provided herein. The Holders whose shares are to be included in
such Registration shall (together with the Company and any other Person
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the
33
representative of the underwriter or underwriters selected for the
underwriting by the Company or such other Persons, as the case may be.
Such underwriting agreement will contain such representations and
warranties by the Company and such other terms and provisions as are
customarily contained in underwriting agreements with respect to secondary
distributions, including, without limitation, indemnities and contribution
and customary lock-up periods required by the representative on terms no
more onerous than to any other parties to the underwriting agreement.
Notwithstanding any other provision of this Section 10.1, if the
representative determines that marketing factors require a
limitation on the number of shares to be underwritten, the Company
shall so advise all holders of securities requesting Registration,
and the number of shares of securities that are entitled to be
included in the Registration and underwriting shall be allocated in
the following manner: the number of shares that may be included in
the Registration and underwriting by each of the Company, the
Holders and each securityholder of the Company (other than the
Holders) that on the date hereof has rights to piggyback
registration upon a Company Registration shall be reduced, on a pro
rata basis (based on the number of shares requested to be registered
by the Company, such Holders or such other securityholders), by such
minimum number of shares as is necessary to comply with such
limitation.
If any of the Holders or any officer, director or stockholder of the
Company other than a Holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by prompt written
notice to the Company and the underwriter. Any Registrable Shares or
other securities excluded or withdrawn from such underwriting shall
be withdrawn from such Registration.
SECTION 10.2 DEMAND REGISTRATION. The holders of the Registrable Shares,
at any time, may require the Company to effect the registration of the
Registrable Shares. The right to request registration under this Section 10.2
may be exercised on two (2) separate occasions, only unless such request is
withdrawn in accordance with the terms hereof. The two (2) rights granted
hereunder are distinct and separate from any other rights to request
registration which have been granted to any other Person. A shelf registration
may be demanded pursuant to this Section 10.2. These demand registration rights
may only be exercised if the holders of a majority of Conversion Stock (whether
or not the Conversion Stock have been issued) (the "Majority Holders") provided,
however, that if Tennessee Farmers holds any Registrable Shares, the Majority
Holders must include Tennessee Farmers, shall give notice to the Company to the
effect that holders of Notes or Conversion Stock intend to (i) transfer all or
any part of the Conversion Stock or (ii) exercise all or any part of the Note
and transfer all or any part of the Conversion Stock under such circumstances
that a public distribution (within the meaning of the Securities Act) of the
Conversion Stock will be involved, then the Company (A) within ten (10) days
after receipt of such notice shall give written notice of the proposed
registration pursuant to this Section 10.2 to the other holders of Notes and
Conversion Stock and (B) within thirty (30)
34
days after receipt of such notice from the Majority Holders, shall file a
registration statement pursuant to the Securities Act to the end that all
Conversion Stock the holders of which requested registration thereof either
pursuant to the original notice from the Majority Holders given pursuant to this
sentence or by written notice given to the Company during such 30-day period,
may be sold under the Securities Act as promptly as is practicable thereafter.
The Company shall use commercially reasonable efforts to cause any such
registration to become effective and to keep the prospectus included therein
current for 135 days; provided, however, that such holders shall furnish the
Company with such appropriate information as is required in connection with such
registration as the Company may reasonably request in writing.
If the managing underwriter for any offering made pursuant to this Section
10.2 (who shall be selected by the Majority Holders, subject to the consent of
the Company, which shall not be unreasonably withheld) advises the Company in
writing that, in its opinion, the inclusion of all of the Conversion Stock
requested to be included in such registration by the holders of Notes and
Conversion Stock would materially adversely affect the distribution of all such
securities, then there shall be included in such registration shares of the
holders of Notes or Conversion Stock pro rata based on the number of shares
originally proposed to be registered by each holder of Notes or Conversion Stock
and no other Common Shares shall be included in such registration. A
registration will not count as a demand registration under this Section 10.2
until it has become effective and the holders of the Warrants or Conversion
Stock participating in the demand registration are able to register and sell at
least 90% of the Conversion Stock originally requested to be included in such
registration. The Company agrees to enter into an underwriting agreement in
customary form with the managing underwriter. Such underwriting agreement will
contain such representations and warranties by the Company and such other terms
and provisions as are customarily contained in underwriting agreements with
respect to secondary distributions, including, without limitation, indemnities
and contribution.
SECTION 10.3 SUSPENSION RIGHT. Notwithstanding the provisions of Sections
10.1 and 10.2, if the Board of Directors of the Company determines in good faith
that the filing of a registration statement or any supplement or amendment
thereto would interfere with the negotiation or completion of a material
transaction or event being contemplated by the Company, the Company shall have
the right to (the "Suspension Right"), by notice to the Holders in accordance
with Section 11.2, defer the filing of a registration statement to effect the
demand registration or suspend the rights of the Holders to make sales pursuant
to the demand registration for such a period of time as the Board of Directors
may determine; provided that no such period of deferral or suspension may exceed
30 consecutive days and that all such periods of deferral or suspension may not
exceed 60 days in the aggregate during any period of 12 consecutive months.
SECTION 10.4 NOTICES. The Company shall promptly notify the Holders of
Registrable Shares covered by the demand registration of the occurrence of the
following events:
35
(a) when the demand registration or post-effective amendment thereto
filed with the Commission has become effective;
(b) the issuance by the Commission of any stop order suspending the
effectiveness of the demand registration;
(c) the suspension of sales under the demand registration by the
Company in accordance with Section 10.3 above;
(d) the Company's receipt of any notification of the suspension of
the qualification of any Registrable Shares covered by the demand
registration for sale in any jurisdiction; and
(e) the existence of any event, fact or circumstance that results in
the registration statement evidencing the demand registration or
prospectus relating to Registrable Shares or any document incorporated
therein by reference containing an untrue statement of material fact or
omitting to state a material fact required to be stated therein or
necessary to make the statements therein not misleading during the
distribution of securities.
The Company agrees to use commercially reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of any such registration
statement or any state qualification at the earliest possible moment.
SECTION 10.5 REGISTRATION STATEMENT; AMENDMENTS AND SUPPLEMENTS. The
Company shall provide to the Holders of Registrable Shares covered by a
registration, at no cost to such Holders, such reasonable number of copies as
each Holder may request of the related registration statement and any amendment
thereto used to effect the Registration of the Registrable Shares, each
prospectus contained in such registration statement or post-effective amendment
and any amendment or supplement thereto and such other documents as the
requesting Holders may reasonably request in order to facilitate the disposition
of the Registrable Shares covered by such registration statement. The Company
consents to the use of each such prospectus and any supplement thereto by the
Holders in connection with the offering and sale of the Registrable Shares
covered by such registration statement or any amendment thereto. The Company
shall also file a sufficient number of copies of the prospectus and any
post-effective amendment or supplement thereto with NASDAQ over-the-counter
bulletin board (or, if the Common Shares are no longer listed thereon, with such
other securities exchange or market on which the Common Shares are then listed)
so as to enable the Holders to have the benefits of the prospectus delivery
provisions of Rule 153 under the Securities Act, if applicable.
SECTION 10.6 STATE SECURITIES LAWS. The Company agrees to use commercially
reasonable efforts to cause the Registrable Shares covered by a registration
statement to be registered with or approved by such state securities authorities
as may be
36
necessary to enable the Holders to consummate the disposition of such shares
pursuant to the plan of distribution set forth in the registration statement.
SECTION 10.7 REMEDIATION OF MISSTATEMENTS OR OMISSIONS. Subject to the
Company's Suspension Right, if any event, fact or circumstance requiring an
amendment to a registration statement relating to the Registrable Shares or
supplement to a prospectus relating to the Registrable Shares shall exist,
immediately upon becoming aware thereof the Company agrees to notify the Holders
and prepare and furnish to the Holders a post-effective amendment to the
registration statement or supplement to the prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of the Registrable Shares, the
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading.
SECTION 10.8 LISTING ON EXCHANGE. The Company agrees to use commercially
reasonable efforts (including the payment of any listing fees) to obtain the
listing of all Registrable Shares covered by the registration statement on each
securities exchange on which securities of the same class are then listed.
SECTION 10.9 COMPLIANCE WITH SECURITIES LAWS. The Company agrees to use
commercially reasonable best efforts to comply with the Securities Act and the
Exchange Act in connection with the offer and sale of Registrable Shares
pursuant to a registration statement, and, as soon as reasonably practicable
following the end of any fiscal year during which a registration statement
effecting a Registration of the Registrable Shares shall have been effective, to
make available to its security holders an earnings statement satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.
SECTION 10.10 SHARE CERTIFICATES. The Company agrees to: (x) cooperate
with the selling Holders to facilitate the timely preparation and delivery of
certificates representing Registrable Shares to be sold pursuant to a
Registration and not bearing any Securities Act legend; and (y) enable
certificates for such Registrable Shares to be issued for such numbers of shares
and registered in such names as the Holders may reasonably request at least two
business days prior to any sale of Registrable Shares. Each Holder requesting
delivery of certificates not bearing any Securities Act legend shall provide
appropriate representations to the Company of such Holder's intent to comply
with all conditions necessary for sale pursuant to a Registration, including
prospectus delivery requirements.
SECTION 10.11 OTHER REGISTRATION RIGHTS. The Company agrees not to grant
registration rights to any holder of Common Stock or securities exercisable or
convertible into common shares without the written consent of the holders of
Notes and Conversion Stock representing 100% of the Conversion Stock issuable
hereunder, excluding any Conversion Stock sold to the public pursuant to an
effective registration statement or Rule 144 under the Securities Act, except
that the Company may grant piggyback registration rights on a Company
registration (but not on a demand registration pursuant to Section 10.2) to any
other party as long as such
37
party may only participate in a registration to the extent that all Registrable
Shares requested to be included by the Holders are included.
SECTION 10.12 EXPENSES OF REGISTRATION. The Company shall pay all
Registration Expenses incurred in connection with the registration,
qualification or compliance pursuant to Section 10.1 through 10.11 hereof. All
Selling Expenses incurred in connection with the offer and sale of Registrable
Shares by any of the Holders shall be borne by the Holder offering or selling
such Registrable Shares.
SECTION 10.13 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each Holder's officers
and directors, each person controlling such Holder within the meaning of
Section 15 of the Securities Act and each underwriter, if any, of the
Company's securities covered by any Registration hereunder against all
expenses, claims, losses, damages and liabilities (including reasonable
legal fees and expenses), arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any
registration statement or prospectus relating to the Registrable Shares,
or any amendment or supplement thereto, or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any such case to
the extent that any such claim, loss, damage, liability or expense arises
out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with
information furnished in writing to the Company by such Holder or
underwriter for inclusion therein.
(b) Each Holder will indemnify the Company, each of its directors
and each of its officers who signs the registration statement and each
person who controls the Company within the meaning of Section 15 of the
Securities Act against all claims, losses, damages and liabilities
(including reasonable legal fees and expenses) arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement or prospectus, or any
amendment or supplement thereto, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in
such registration statement or prospectus in reliance upon and in
conformity with information furnished in writing to the Company by such
Holder for inclusion therein and provided further that such
indemnification shall be limited to the amount of proceeds such Holder
received from the sale of Common Shares pursuant to such registration.
(c) Each party entitled to indemnification under this Section 10.13
(the "Registration Indemnified Party") shall give notice to the party
required to provide indemnification (the "Registration Indemnifying
Party") promptly after such Indemnified
38
Party has actual knowledge of any claim as to which indemnity may be
sought, but the omission to so notify the Registration Indemnifying Party
shall not relieve it from any liability which it may have to the
Registration Indemnified Party pursuant to the provisions of this Section
10.13 except to the extent of the actual damages suffered by such delay in
notification. The Registration Indemnifying Party shall assume the defense
of such action, including the employment of counsel to be chosen by the
Registration Indemnifying Party, which counsel must be reasonably
satisfactory to the Registration Indemnified Party, and payment of
reasonable expenses. The Registration Indemnified Party shall have the
right to employ its own counsel in any such case, but the reasonable legal
fees and expenses of such counsel shall be at the expense of the
Registration Indemnified Party, unless the employment of such counsel
shall have been authorized in writing by the Registration Indemnifying
Party in connection with the defense of such action, or the Registration
Indemnifying Party shall not have employed counsel to take charge of the
defense of such action, or the Registration Indemnified Party shall have
reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to the
Registration Indemnifying Party (in which case the Registration
Indemnifying Party shall not have the right to direct the defense of such
action on behalf of the Registration Indemnified Party), in any of which
events such reasonable fees and expenses shall be borne by the
Registration Indemnifying Party. No Registration Indemnifying Party, in
the defense of any such claim or litigation, shall, except with the
consent of each Registration Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Registration Indemnified Party of a release from all liability in respect
to such claim or litigation.
(d) If the indemnification provided for in this Section 10.13 is
unavailable to a party that would have been an Registration Indemnified
Party under this Section 10.13 in respect of any expenses, claims, losses,
damages and liabilities referred to herein, then each party that would
have been an Registration Indemnifying Party hereunder shall, in lieu of
indemnifying such Registration Indemnified Party, contribute to the amount
paid or payable by such Registration Indemnified Party as a result of such
expenses, claims, losses, damages and liabilities in such proportion as is
appropriate to reflect the relative fault of the Registration Indemnifying
Party on the one hand and such Registration Indemnified Party on the other
in connection with the statement or omission which resulted in such
expenses, claims, losses, damages and liabilities, as well as any other
relevant equitable considerations. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Registration
Indemnifying Party or such Registration Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and each holder
of Registrable Shares agrees that it would not be just and equitable if
contribution pursuant to this Section were
39
determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to
above in this Section 10.13(d).
(e) No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(f) In no event shall any Holder be liable for any expenses, claims,
losses, damages or liabilities pursuant to this Section 10.13 in excess of
the net proceeds to such Holder of any Registrable Shares sold by such
Holder.
SECTION 10.14 OBLIGATIONS OF HOLDERS. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to Section 10.1
through 10.11 that each Holder shall:
(a) cooperate with the Company, its counsel, advisors and other
representatives, and comply with all applicable provisions of law
(including, without limitation, the prospectus delivery requirements of
the Securities Act and Rule 10b-5 and Regulation M under the Exchange Act)
in connection with any registration effected pursuant to the provisions of
this Agreement;
(b) promptly provide to the Company, in writing, such information as
the Company or its counsel deems necessary for inclusion in the
registration statement, which information, when given, shall be true and
correct in all material respects and shall not omit any information
necessary to make the information furnished not misleading;
(c) execute all questionnaires, powers of attorney or other
documents as the Company may reasonably request;
(d) discontinue sales of Registrable Securities upon notification of
any stop order or suspension of the effectiveness of the registration
statement;
(e) notify the Company immediately upon any material change in the
plan of distribution or other information concerning such Holder described
in the prospectus;
(f) discontinue sales of Registrable Securities and use of the
related prospectus following notification by the Company that the
registration statement must be amended or supplemented. The Company shall
promptly file such amendment or supplement;
(g) not use any prospectus other than the most recent prospectus
reasonably known to such Holder related to the registration statement; and
40
(h) upon presentation of a stock certificate representing
Registrable Securities sold in such registration, certify that the sale
was made in accordance with the terms hereof and the plan of distribution
described in the prospectus relating thereto.
If any Holder fails to provide the Company with such information within twenty
(20) days of the Company's request, the Company's obligations under Sections
10.1 through 10.11 hereof with respect to such Holder or the Registrable Shares
owned by such Holder shall be suspended until such Holder provides such
information, provided, however, that if a Holder provides any such information
too late to be reasonably included in such Registration, the Company's
obligations under Section 10.1 through 10.11 with respect to such Holder or the
Registrable Shares owned by such Holder shall be terminated with respect to such
Registration.
SECTION 10.15 RULE 144 SALES.
(a) The Company covenants that it will file any and all reports
required to be filed by the Company under the Exchange Act so as to enable
any Holder to sell Registrable Shares pursuant to Rule 144 under the
Securities Act.
(b) In connection with any sale, transfer or other disposition by
any Holder of any Registrable Shares pursuant to Rule 144 under the
Securities Act, the Company shall cooperate with such Holder to facilitate
the timely preparation and delivery of certificates representing
Registrable Shares to be sold and not bearing any Securities Act legend,
if deemed appropriate, and enable certificates for such Registrable Shares
to be for such number of shares and registered in such names as the
selling Holder may reasonably request, provided that such request is made
at least two business days prior to any sale of Registrable Shares.
SECTION 10.16 SURVIVAL OF REGISTRATION RIGHTS. The provisions of this
Section 10 shall survive any conversion of the Notes and any termination of any
other provision of this Agreement or of any of the other Loan Documents.
SECTION 11 MISCELLANEOUS
SECTION 11.1 WAIVERS, AMENDMENTS, ETC. The provisions of this Agreement
and of each other Loan Document may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and consented to
by the undersigned parties. No failure or delay on the part of Tennessee Farmers
or the future holder of any of the Notes in exercising any power or right under
this Agreement or any other Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power or right preclude any
other or further exercise thereof or the exercise of any other power or right.
No notice to or demand on the Borrowers in any case shall entitle it to any
notice or demand in similar or other circumstances. No waiver or approval by
Tennessee Farmers, any Lender or the future holder of any Note under this
Agreement or any other Loan Document shall, except as may be otherwise stated in
such waiver or approval, be applicable to subsequent transactions. No
41
waiver or approval hereunder shall require any similar or dissimilar waiver or
approval thereafter to be granted hereunder.
SECTION 11.2 NOTICES. All notices and other communications provided to any
party hereto under this Agreement or any other Loan Document shall be in writing
(except as otherwise specifically provided in this Agreement) or by facsimile
and addressed, delivered or transmitted to such party at its address or
facsimile number set forth below its signature hereto or set forth in the Lender
Assignment Agreement or at such other address or facsimile number as may be
designated by such party in a notice to the other parties. Any notice, if mailed
and properly addressed with postage prepaid or if properly addressed and sent by
pre-paid courier service, shall be deemed given when received; any notice, if
transmitted by facsimile, shall be deemed given when transmitted and the party
giving such notice shall have received (including either through telephonic
communication initiated by it or telephonic communication received by it)
telephonic, machine, or other confirmation that such notice has been received by
the intended recipient.
SECTION 11.3 NONWAIVER; CUMULATIVE REMEDIES. No failure to exercise, and
no delay in exercising, on the part of Tennessee Farmers, any right, power or
privilege hereunder shall preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies of
Tennessee Farmers herein provided are cumulative and not exclusive of any
claims, rights, powers, and/or remedies provided by law.
SECTION 11.4 SURVIVAL OF AGREEMENTS. All agreements, representations and
warranties made herein shall survive the delivery of the Notes and the making of
the Term Loans.
SECTION 11.5 EFFECTIVENESS AND SUCCESSORS. This Agreement shall, upon
execution and delivery by the Borrowers, and Tennessee Farmers become effective
and shall be binding upon and inure to the benefit of the Borrowers, Tennessee
Farmers and their respective successors and assigns, except that the Borrowers
may not transfer or assign any of their rights or interest hereunder without the
prior written consent of Tennessee Farmers which consent Tennessee Farmers may
withhold in its absolute discretion.
SECTION 11.6 CAPTIONS. Captions in this Agreement are for convenience of
reference only and shall not define or limit any of the terms or provisions
hereof. References herein to Sections or provisions without reference to the
document in which they are contained are references to this Agreement.
SECTION 11.7 SINGULAR AND PLURAL. Unless the context requires otherwise,
wherever used herein the singular shall include the plural and vice versa, and
the use of one gender shall also denote the other where appropriate.
SECTION 11.8 COUNTERPARTS. This Agreement may be executed by the parties
on any number of separate counterparts, and by each party on separate
counterparts; each
42
counterpart shall be deemed an original instrument; and all of the counterparts
taken together shall be deemed to constitute one and the same instrument.
SECTION 11.9 PAYMENT OF COSTS AND EXPENSES. The availability or non-
availability of loan proceeds under the Professional Fees Component or relevant
Sub-Component notwithstanding, the Borrowers hereby agree to reimburse and shall
be obligated to reimburse Tennessee Farmers for and pay on demand all fees and
out-of-pocket expenses of the professional advisors (including attorneys) of
Tennessee Farmers or any Lender and of local counsel, if any, who may be
retained by counsel to Tennessee Farmers or any Lender, and time charges at the
prevailing rate of members of the internal audit division of Tennessee Farmers
and each Lender) in connection with
(a) the negotiation, preparation, execution and delivery of this
Agreement and of each other Loan Document, including schedules and
exhibits, and any amendments, waivers, consents, supplements or other
modifications to this Agreement or any other Loan Document as may from
time to time hereafter be required, whether or not the transactions
contemplated hereby are consummated,
(b) the filing, recording, refiling or re-recording of Collateral
Documents and/or any Uniform Commercial Code financing statements relating
thereto and all amendments, supplements and modifications to any thereof
and any and all other documents or instruments of further assurance
required to be filed or recorded or refiled or re-recorded by the terms
hereof or of any of the Collateral Documents, and
(c) the preparation and review of the form of any document or
instrument relevant to this Agreement or any other Loan Document.
The Borrowers also agree to reimburse Tennessee Farmers and each Lender upon
demand for all reasonable expenses (including attorneys' fees and out-of-pocket
expenses of counsel to Tennessee Farmers and each Lender and other legal
expenses and time charges at the prevailing rate of members of the internal
audit division of Tennessee Farmers and each Lender) incurred by Tennessee
Farmers or such Lender in connection with (x) the negotiation of any
restructuring or "work-out", whether or not consummated, of any obligations
hereunder or under any Loan Document, including the restructuring of the Term
Loans effectuated by this Agreement, and (y) the enforcement of any obligations
hereunder or under any Loan Document.
SECTION 11.10 SALE AND TRANSFER OF TERM LOANS AND NOTES; PARTICIPATIONS IN
TERM LOANS AND NOTES. Any Lender may assign, or sell participations in, its Term
Loans to one or more other Persons without the prior or subsequent consent of
the Borrowers.
43
(a) Assignments. Any Lender may assign any of its Term Loans to one
or more Persons (an "Assignee Lender") without the consent of the
Burrowers. Upon the consummation of any such assignment, the Assignee
Lender shall be deemed automatically to have become a party hereto and to
the extent that rights and obligations hereunder have been assigned and
delegated to such Assignee Lender in connection with the underlying
assignment agreement, shall have the rights and obligations of a Lender
hereunder and under the other Loan Documents. The assignor Lender, to the
extent that rights and obligations hereunder have been assigned and
delegated by it in connection with the underlying assignment agreement,
shall be released from its obligations hereunder and under the other Loan
Documents. Within five Business Days after its receipt of notice of an
assignment, the Borrowers shall execute and deliver to Tennessee Farmers
(for delivery to the relevant Assignee Lender a new term note
substantially in the form of the relevant Exhibit hereto (A, B or C,
depending on the type of Term Loans being assigned)) evidencing such
Assignee Lender's assigned Term Loans, and, if the assignor Lender has
retained Term Loans hereunder, a replacement note in the principal amount
retained by the assignor Lender hereunder. Each such Note shall be dated
the date of the predecessor Note. The assignor Lender shall ▇▇▇▇ the
predecessor Note "exchanged" and deliver it to the Borrowers. Accrued
interest on that part of the predecessor Note evidenced by the new Note
shall be paid as provided in the agreement between the assigning Lender
and the Assignee Lender which effects the assignment (the "Lender
Assignment Agreement"). Accrued interest on that part of the predecessor
Note evidenced by the replacement Note shall be paid to the assignor
Lender. Accrued interest shall be paid at the same time or times provided
in the predecessor Note and in this Agreement.
(b) Participations. The Lenders may at any time sell to one or more
Persons (each being herein called a "Participant") participating interests
in any of its Term Loans or other interests of such Lender hereunder;
provided, however, that
(i) no participation contemplated in this Section 11.10 shall
relieve such Lender from its other obligations hereunder or under
any other Loan Document,
(ii) such Lender shall remain solely responsible for the
performance of such other obligations,
(iii) the Borrowers and Tennessee Farmers shall continue to
deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and each of the
other Loan Documents, and
(iv) no Participant, unless such Participant is an Affiliate
of such Lender, or is itself a Lender, shall be entitled to require
such Lender to take or refrain from taking any action hereunder or
under any other Loan Document.
44
SECTION 11.11 INDEMNIFICATION. In consideration of the execution and
delivery of this Agreement by Tennessee Farmers, the Borrowers, to the fullest
extent permitted by applicable law, hereby indemnify, exonerate and hold
Tennessee Farmers and each of their respective officers, directors, employees
and agents (collectively, the "Indemnified Parties") free and harmless from and
against any and all actions, causes of action, suits, losses, costs, liabilities
and damages, and expenses incurred in connection therewith (irrespective of
whether any such Indemnified Party is a party to the action for which
indemnification hereunder is sought), including reasonable attorneys' fees of
counsel for the Indemnified Parties and disbursements (collectively, the
"Indemnified Liabilities"), incurred by the Indemnified Parties or any of them
as a result of, or arising out of, or relating to
(a) any investigation or proceeding related to any environmental
cleanup, audit, compliance or other matter relating to the protection of
the environment or the Release by the Borrowers of any Hazardous Material;
or
(b) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or releases from, any real
property owned or operated by the Borrowers of any Hazardous Material
(including without limitation any losses, liabilities, damages, injuries,
costs, expenses or claims asserted or arising under any Environmental
Law), regardless of whether caused by, or within the control of, the
Borrowers.
Notwithstanding any contrary provision in this Agreement, the Borrowers
shall have no obligation hereunder to indemnify or hold harmless any Indemnified
Party against or with respect to any liability, loss, damage, suit, action,
proceeding or claim (including any attorneys' fees or legal expenses incident
thereto) under any Environmental Laws or similar laws caused by or resulting
from any Hazardous Material being first placed on any of the Borrowers' real
estate at or after the time Tennessee Farmers or a Lender obtains possession or
control of such property, whether pursuant to the exercise of rights and
remedies available under any of the Loan Documents or otherwise or as a result
of conveyance of title to Tennessee Farmers or a Lender in lieu of such
exercise.
SECTION 11.12 CONSTRUCTION. The Loan Documents and any other document or
instrument executed in connection herewith shall be governed by, and construed
and interpreted in accordance with, the internal laws of the State of Tennessee,
and shall be deemed to have been executed in the State of Tennessee.
SECTION 11.13 DEFINITIONS. The definitions set forth in Appendix A hereto
apply to this Agreement as if they were set forth in the text hereof and
accordingly, are incorporated herein by this reference.
SECTION 11.14 THIRD PARTY BENEFICIARIES. This Agreement is solely for the
benefit of the parties hereto and, to the extent provided for herein, the
respective affiliates of the parties, and no provision of this Agreement shall
be deemed to confer upon any other third
45
parties (including any other creditors of either of the Borrowers such as any of
the Accounts Payable Creditors) any claim (including any claim to payment or
reimbursement), right, power, cause of action or other remedy, whether against
Tennessee Farmers or any other Lender.
SECTION 11.15 INTERPRETATION. The headings preceding the text of Articles
and Sections included in this Agreement and the headings to Schedules attached
to this Agreement are for convenience only and shall not be deemed part of this
Agreement or be given any effect in interpreting this Agreement. The use of the
masculine, feminine or neuter gender or the singular or plural form of words
herein shall not limit any provision of this Agreement. The use of the terms
"including" or "include" shall in all cases herein mean "including, without
limitation" or "include, without limitation," respectively. Reference to any
person or entity includes such person's or entity's successors and assigns to
the extent such successors and assigns are permitted by the terms of any
applicable agreement, and reference to a person or entity in a particular
capacity excludes such person or entity in any other capacity or individually.
Reference to any agreement (including this Agreement), document or instrument
means such agreement, document or instrument as amended or modified and in
effect from time to time in accordance with the terms thereof and, if
applicable, the terms hereof. Reference to any law means such law as amended,
modified, codified, replaced or re-enacted, in whole or in part, and in effect
on the date hereof, including rules, regulations, enforcement procedures and any
interpretations promulgated thereunder. Underscored references to Articles,
Sections, clauses, Exhibits or Schedules shall refer to those portions of this
Agreement, and any underscored references to a clause shall, unless otherwise
identified, refer to the appropriate clause within the same Section in which
such reference occurs. The use of the terms "hereunder", "hereof", "hereto" and
words of similar import shall refer to this Agreement as a whole and not to any
particular Article, Section or clause of or Exhibit or Schedule to this
Agreement. All terms defined in this Agreement shall have the above-defined
meanings when used in any certificate, report or other document made or
delivered pursuant to this Agreement, unless the context therein shall clearly
otherwise require. In the computation of periods of time in this Agreement from
a specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each means "to but excluding." This
Agreement and the other documents relating to this Agreement are the result of
negotiations among and have been reviewed by counsel to the Borrowers and the
other parties, and are the products of all parties. Accordingly, they shall not
be construed against Tennessee Farmers or any other Lender merely because of its
involvement in their preparation.
SECTION 11.16 EFFECT OF IMPENDING REORGANIZATION. Tennessee Farmers hereby
acknowledges and agrees that any action taken by either Borrower which (i) is
expressly called for in the Agreement(s) to Reorganize and (ii) would otherwise
violate any section of this Agreement, or make any representation or warranty
herein untrue or incorrect, or create an ongoing Event of Default hereunder,
shall have no such effect.
SECTION 11.17 SUBMISSION TO JURISDICTION; VENUE. THE BORROWERS IRREVOCABLY
AGREE THAT ALL SUITS, ACTIONS OR OTHER
46
PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO
THIS AGREEMENT, THE NOTES, THE LOAN DOCUMENTS OR ANY OTHER DOCUMENT EXECUTED IN
CONNECTION HEREWITH, SHALL BE SUBJECT TO LITIGATION IN COURTS HAVING SITUS
WITHIN MAURY COUNTY, TENNESSEE. THE BORROWERS HEREBY IRREVOCABLY CONSENT AND
SUBMIT TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN
SAID CITY AND STATE. THE BORROWERS HEREBY IRREVOCABLY WAIVE ANY RIGHT THEY MAY
HAVE TO TRIAL BY JURY, TO TRANSFER OR CHANGE THE VENUE OF ANY SUIT, ACTION OR
OTHER PROCEEDING BROUGHT AGAINST ANY PARTY IN ACCORDANCE WITH THIS SECTION
11.17, OR TO CLAIM THAT ANY SUCH PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.
* * * * * *
[SIGNATURE PAGE FOLLOWS]
47
IN WITNESS WHEREOF, the parties hereto have caused this Bridge and
Consolidated Term Loan Agreement to be executed by their respective officers
thereunto duly authorized as of the day and year first above written.
DONLAR CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
Its: President
--------------------------------
Address: ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile:
DONLAR BIOSYNTREX
CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
Its: President
--------------------------------
Address: ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile:
THE TENNESSEE FARMERS LIFE
INSURANCE COMPANY
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------
Its: Treasurer/CFO
--------------------------------
Address: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile:
48
APPENDIX A
DEFINITIONS
The following terms when used in this Agreement, including its preamble
and recitals, shall, except where the context otherwise requires, have the
following meanings (such meanings to be equally applicable to the singular and
plural forms thereof):
"Accounts Payable Component" means that particular Component of the Bridge
Facility which shall not exceed $1,300,000 in the aggregate, a Draw-Down under
which (i) shall only be used to pay Accounts Payable Creditors and (ii) must be
expressly and individually approved by the Chief Restructuring Agent.
"Accounts Payable Creditors" means any creditor listed on Schedule 1 of
this Agreement but shall not include creditors who are directors, officers of
the borrowers, or other insiders unless the aggregate amount owed to all such
directors, officers or insiders is less than $90,000.
"Affiliate" of any Person means any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person. A Person shall be deemed to be "controlled by" any other Person if such
other Person possesses, directly or indirectly, power
(a) to vote 10% or more of the securities (on a fully diluted basis)
having ordinary voting power for the election of directors or managing general
partners; or
(b) to direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.
"Agreement" is defined in the preamble and generally means this Agreement.
"Agreement(s) to Reorganize" shall mean certain Agreement(s) executed and
delivered by the Borrower and by each of the Junior Creditors, dated as of the
Closing Day, in form and substance satisfactory to the Lender, whereby each
promises and covenant to reorganize the capital structure of the Borrowers and
extend all cooperation to achieve that end, such that a complete reorganization
of the Borrowers shall occur on or before the 105th calendar day after the
Closing Date.
"Assignor" is defined in Recital A and means First Farmers & Merchants
National Bank.
"Assignee Lender" is defined in Section 11.10(a).
"Authorized Officer" means, relative to the Borrower, those of its
officers whose signatures and incumbency shall have been certified to Tennessee
Farmers and the Lenders pursuant to subsection (f) of Section 6.2(j).
Appendix A - 1
"Borrower" and "Borrowers" are defined in the preamble.
"Borrowing Request and Funding Day Certificate" means a request for a
Draw-Down under the Bridge Facility and certificate duly executed by an
Authorized Officer of the Borrower as to the use of such Bridge Facility loan
proceeds, substantially in the form of Exhibit H hereto.
"Bridge Facility" shall mean that Term C Loan facility discussed in
Section 1.3, which loan facility is evidenced and memorialized by the Term C
Notes and shall be comprised of several sub-facilities, each of which shall have
their own maximum principal amounts (the "Components" and each, a "Component"),
including: the Accounts Payable Component, the Short Term Debt Component, the
Professional Fees Component and the Working Capital Component.
"Bridge Facility Maximum Commitment Amount" is $2,127,000 or some lesser
amount which the Lender may decide in its absolute discretion, based on the
advice of the Chief Restructuring Agent, is sufficient to pay their presently
outstanding accounts payable. Such amount is the sum of the maximum principal
amounts of all of the Components. If Tennessee Farmers should elect to lower the
Bridge Facility Maximum Commitment Amount, it will only lower the Accounts
Payable Component.
"Bridge Loan" is defined in Recital E and shall generally mean a loan made
under the Term C Loan of the Bridge Facility.
"Business Day" means every calendar day of the week except for Saturday
and Sunday, but shall not include any particular day in which the United States
Postal Service is closed for a holiday.
"Capitalized Lease Liabilities" means all monetary obligations of the
Borrowers under any leasing or similar arrangement which, in accordance with
generally accepted accounting principles, would be classified as capitalized
leases, and, for purposes of this Agreement, the amount of such obligations
shall be the capitalized amount thereof, determined in accordance with generally
accepted accounting principles.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response Compensation
Liability Information System List.
"Chief Restructuring Agent" is defined in Section 6.4.
"Closing Day" means March 18, 2002.
Appendix A - 2
"Collateral Documents" means, the Security Agreement (as amended), the
Pledge Agreement (as amended), the ▇▇▇▇▇▇ Subordination Agreement, the ▇▇▇▇▇
Subordination Agreement and this Agreement.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Commitment Fee" is defined in Section 2.3.
"Common Stock" means, collectively the Company's Common Stock and any
capital stock of any class of the Company hereafter authorized which is not
limited to a fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in the distribution
of assets upon any liquidation, dissolution or winding up of the Company.
"Common Stock Deemed Outstanding" means, at any given time, the number of
shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Sections 9.4(a) and
9.4(b) hereof, regardless of whether or not the Options and Convertible
Securities are actually exercisable at such time, but excluding any shares of
Common Stock issuable upon conversion of the Notes.
"Company" means, prior to the effective date of the merger between Donlar
and Donlar Bio contemplated by the Agreement(s) to Reorganize, Donlar Bio, and
from and after such date, Donlar.
"Component" is defined in the definition of "Bridge Facility."
"Consolidated Net Income" means, with respect to the Borrowers (or their
Subsidiaries) for any period, the net income (or loss) of the Borrowers and
Subsidiaries for such period, excluding any gains from the sale of assets, any
extraordinary gains and any gains from discontinued operations or other
wind-downs.
"Conversion Stock" means shares of the Company's authorized but unissued
Common Stock issuable upon conversion of the Notes; provided that if there is a
change such that the securities issuable upon conversion of the Notes are issued
by an entity other than the Company or there is a change in the class of
securities so issuable, then the term "Conversion Stock" shall mean one share of
the security issuable upon conversion of this Note if such security is issuable
in shares, or shall mean the smallest unit in which such security is issuable if
such security is not issuable in shares.
"Convertible Securities" is defined in Section 9.4(a).
Appendix A - 3
"Default Rate Interest" means interest owing under the A and Term B Loan
Default Rate or the Term C Loan Default Rate.
"Draw-Down" is defined in Section 1.5.
"EBITDA" means, for any period, Consolidated Net Income for such period,
plus, too the extent deducted in determining Consolidated Net Income, Interest
Expense, income tax expense, depreciation and amortization for such period.
"Environmental Laws" means all applicable federal, state or local
statutes, laws, ordinances, codes, rules, regulations and guidelines (including
consent decrees and administrative orders) relating to public health and safety
and protection of the environment.
"ERISA" means the federal Employee Retirement Income Security Act of 1974,
as amended.
"Event of Default" is defined in Section 8.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the relevant time.
"Financial Statements" is defined in Section 4.3.
"First Farmers Note" is defined in Recital A.
"Hazardous Material" means
(a) any "hazardous substance", as defined by CERCLA;
(b) any "hazardous waste", as defined by the Resource Conservation
and Recovery Act, as amended;
(c) any petroleum product; or
(d) any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material or substance within the meaning of any other applicable
federal, state or local law, regulation, ordinance or requirement (including
consent decrees and administrative orders) relating to or imposing liability or
standards of conduct concerning any hazardous, toxic or dangerous waste,
substance or material, all as amended or hereafter amended.
"herein", "hereof", "hereto", "hereunder" and similar terms contained in
this Agreement or any other Loan Document refer to this Agreement or such other
Loan Document, as the case
Appendix A - 4
may be, as a whole and not to any particular Section, paragraph or provision of
this Agreement or such other Loan Document.
"Holders" shall mean (i) the Noteholders, and (ii) each Person holding
Registrable Shares as a result of a transfer or assignment, in accordance with
the terms and conditions of this Agreement, to that Person of Registrable Shares
other than pursuant to an effective registration statement or Rule 144 (or any
successor provision) under the Securities Act.
"Indemnified Liabilities" is defined in Section 11.11.
"Indemnified Parties" is defined in Section 11.11.
"Initial Noteholder" shall mean the Lender.
"Intellectual Property" shall mean all patents, trademarks and copyrights
owned by either Borrower.
"Interest Expense" shall mean for any period the consolidated interest
expense of the Borrowers and their Subsidiaries for such period (including all
imputed interest arising from Capitalized Lease Liabilities and excluding any
interest that has been earned but deferred).
"Junior Creditors" means ▇▇. ▇▇▇▇ ▇▇▇▇▇▇ and the ▇▇▇▇▇▇ ▇▇▇▇▇ Group (which
consists of a joint venture or partnership between ▇▇▇▇▇▇ ▇▇▇▇▇ Partners, L.P.
and Star Polymers, L.L.C.) both individually and collectively, as more fully
explained in Recital E.
"Lender" or "Lenders" means Tennessee Farmers, its affiliates, its
successors in interest, and purchaser of a participation or syndicated interest
in Term A Loan and any assignees or successors in interest of any of the
foregoing, either collectively or individually.
"Lender Assignment Agreement" is defined in Section 11.10(a).
"Liquidating Dividend" is defined in Section 9.9.
"Loan Documents" means, collectively, this Agreement, the ▇▇▇▇▇▇
Subordination Agreement a form of which is attached hereto as Exhibit D, the
▇▇▇▇▇ Subordination Agreement a form of which is attached hereto as Exhibit E,
the Notes, the Security Agreement, the Pledge Agreement, each Borrowing Request
and Funding Day Certificate remitted by the Borrowers to the Lender and any
other of the Collateral Documents not previously listed in this definition.
"Majority Holder" is defined in Section 10.2.
"Market Price" of any security means the average of the closing prices of
such security's sales on all securities exchanges on which such security may at
the time be listed, or, if on any
Appendix A - 5
day such security is not so listed, the average of the representative bid and
asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if
on any day such security is not quoted in the NASDAQ System, the average of the
highest bid and lowest asked prices on such day in the domestic over-the-counter
market as reported by the National Quotation Bureau, Incorporated, or any
similar successor organization, in each such case averaged over a period of 21
days consisting of the day as of which "Market Price" is being determined and
the 20 consecutive business days prior to such day. If at any time such security
is not listed on any securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the "Market Price" shall be the fair value thereof
determined jointly by the Company and the Noteholders. If such parties are
unable to reach agreement within a reasonable period of time, such fair value
shall be determined by an appraiser jointly selected by the Company and the
Noteholders. The determination of such appraiser shall be final and binding upon
the parties, and the fees and expenses of such appraiser shall be borne by the
Company.
"▇▇▇▇▇▇ Subordination Agreement" shall mean that certain Subordination
Agreement executed on the Closing Day by ▇▇. ▇▇▇▇ ▇▇▇▇▇▇ in favor of Tennessee
Farmers, a form of which is attached hereto as Exhibit D.
"Material Adverse Effect" means a material and adverse effect on the
business, assets, liabilities, financial condition, operations or business
prospects of the Borrowers taken as a whole or on the ability of the Borrowers
to perform their obligations under this Agreement, the Notes or the other Loan
Documents to which the Borrowers are a party or on the value of any of the
collateral securing any of the Obligations or on the ability of Tennessee
Farmers to realize on any such collateral.
"Mortgage" means (i) that certain "Mortgage, Assignment of Rents and
Leases, Security Agreement and Fixture Financing Statement," first recorded on
December 11, 1997 in LaSalle County, Illinois, which secures the First Farmers
Note, and (ii) any other present or future mortgage securing indebtedness of the
Borrowers to the Lenders.
"Nonoperating Real Estate" means all of the Real Property, and
improvements thereon, other than the Operating Real Estate.
"Noteholder" shall mean the holder of a Note.
"Notes" shall be the collective reference to the Term A Notes, the Term B
Notes, and the Term C Notes or any replacement note issued under Section
11.10(a).
"Obligations" means all obligations (monetary or otherwise) of the
Borrowers arising under or in connection with this Agreement, the Notes and each
other Loan Document to which the Borrowers are parties.
"Organic Change" is defined in Section 9.7.
Appendix A - 6
"Participant" is defined in Section 11.10(b).
"Participation Interest" means an interest in Term A Loan purchased from
any Lender pursuant to Section 11.10(b) of this Agreement.
"Pay-Off Amount" is defined in Section 4.13.
"PBGC" means the Pension Benefit Guaranty Corporation and its successors
and assigns.
"Permitted Liens" is defined in Section 5.4(b).
"Permitted Stock Issuance" means that certain exception to the general
proscription against the issuance of additional capital shares in effect under
this Agreement, whereby the following amounts of capital stock of Donlar Bio
shall be issued to the following Accounts Payable Creditors in exchange for
their forgiveness of all debts and claims held by such Accounts Payable
Creditors against either Borrower: (1) 80,000 shares to ▇▇. ▇▇▇▇▇ ▇▇▇▇▇; (2)
200,000 shares to ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇; (3) 60,000 shares to ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇; and
(4) 125,000 shares to ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇. No other issuance of capital shares
to any party shall be a "Permitted Stock Issuance."
"Person" means any natural person, corporation, partnership, limited
liability company, firm, association, trust, government, governmental agency or
any other entity, whether acting in an individual, fiduciary or other capacity.
"Plan" means an employee benefit plan which is covered by Title IV of
ERISA or subject to the minimum funding standards under Section 412 of the
Internal Revenue Code as to which the Borrowers may have any liability.
"Pledge Agreement" is defined in Recital D.
"Professional Fees" shall mean (i) the legal fees of Mayer, Brown, ▇▇▇▇ &
Maw or other legal counsel to Tennessee Farmers, (ii) the fees of
PricewaterhouseCoopers or other accounting consultants to Tennessee Farmers,
(iii) the fees, if any, of persons employed by Tennessee Farmers or its
Affiliates which arose in connection with the Term Loans; (iv) the fees of the
Chief Restructuring Agent and (v) the fees of ▇▇▇▇▇ ▇▇▇▇▇▇ Law Firm or other
legal counsel to the Borrowers.
"Professional Fees Component" means that certain Component of the Bridge
Facility which shall not exceed $275,000 in aggregate principal amount, a Drawn
Down of which may only be used to pay Professional Fees associated with the
Closing Day or the date of any subsequent Draw-Down under the Bridge Facility.
The Professional Fees Component shall have five sub-components (the
"Sub-Components"), each of which is dedicated to the payment of fees of a
particular party or group. If any of the Sub-Components dedicated to a
particular party or
Appendix A - 7
group is exhausted, no Draw-Down of the Professional Fees Component may be used
to pay the Professional fees of such party or group unless another professional
party consents to depletion of its Sub-Component in payment of such fees. The
five Sub-Components are as follows: (1) the Mayer, Brown, ▇▇▇▇ & Maw
Sub-Component in the amount of $92,500, (2) the ▇▇▇▇▇ ▇▇▇▇▇▇ Sub-Component in
the amount of $92,500, (3) the PricewaterhouseCoopers Sub-Component in the
amount of $50,000, (4) the Chief Restructuring Agent Sub-Component in the amount
of $15,000 and (5) the Accounting Sub-Component (payable to accountants other
than PricewaterhouseCoopers) in the amount of $25,000.
"Purchase Rights" is defined in Section 9.10.
"Real Property" means all real estate owned by either or both of the
Borrowers, including, but not limited to, that real property located at ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, in LaSalle County, Illinois which, by
effect of the Mortgage, secures the First Farmers Note and which shall be
assigned to Tennessee Farmers by effect of this Agreement.
The terms "Register," "Registered" and "Registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act providing for the sale by the Holders of
Registrable Shares in accordance with the method or methods of distribution
designated by the Holders, and the declaration or ordering of the effectiveness
of such registration statement by the Commission.
"Registrable Shares" shall mean the Conversion Stock issued upon
conversion of the Notes; provided, however, that any such Common Stock shall
cease to be Registrable Shares when (A) a registration statement with respect to
the sale of such shares shall have become effective under the Securities Act and
such shares shall have been disposed of in accordance with such registration
statement; (B) such shares shall have been sold in accordance with Rule 144; (C)
such shares shall have been otherwise transferred and new certificates not
subject to transfer restrictions under the Securities Act and not bearing any
legend restricting further transfer shall have been delivered by the Company,
and no other applicable and legally binding restriction on transfer under the
federal securities laws shall exist or (D) such shares, after having been
issued, otherwise cease to be outstanding.
"Registration Indemnifying Party" is defined in Section 10.13.
"Registration Expenses" shall mean all out-of-pocket expenses (excluding
Selling Expenses) incurred by the Company in complying with Section 10 hereof,
including, without limitation, the following: all registration and filing fees;
reasonable fees and expenses of compliance with federal and state securities
laws (including, without limitation, reasonable fees and disbursements of
counsel in connection with state securities qualifications of the Registrable
Shares under the laws of such jurisdictions as the Holders may reasonably
designate); printing (including, without limitation, reasonable expenses of
printing or engraving certificates representing the Registrable Shares in a form
eligible for deposit with The Depository Trust Company or its nominee and
otherwise meeting
Appendix A - 8
the requirements of any securities exchange on which they are listed and of
printing registration statements and prospectuses), messenger, telephone,
shipping and delivery expenses; reasonable fees and disbursements of counsel for
the Company; reasonable fees and disbursements of all independent public
accountants of the Company (including without limitation the reasonable expenses
of any annual or special audit and "cold comfort" letters reasonably required by
the managing underwriter); Securities Act liability insurance if the Company so
desires; reasonable fees and expenses of other Persons reasonably necessary in
connection with the registration, including any experts, retained by the
Company; reasonable fees and expenses incurred in connection with the listing of
the Registrable Shares on each securities exchange on which securities of the
same class are then listed; reasonable fees and expenses associated with any
filing with the National Association of Securities Dealers, Inc. required to be
made in connection with the registration statement; and (j) reasonable fees and
disbursements of one counsel for the Holders participating in the registration.
"Release" means a "release", as such term is defined in CERCLA.
"Reportable Event" means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such Section, with respect to a Plan,
excluding, however, such events which, singly or in the aggregate, do not and
will not have a Material Adverse Effect.
"Resource Conservation and Recovery Act" means the Resource Conservation
and Recovery Act, 42 U.S.C. Section 690, et seq., as in effect from time to
time.
"Rule 144" shall mean Rule 144 promulgated by the Commission under the
Securities Act, or any successor thereto, as the same shall be in effect at the
relevant time.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder, all as the same shall be
in effect at the relevant time.
"Security Agreement" is defined in Recital D.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to any sale of Registrable
Shares.
"Short-Term Debt" means that certain loan made by Tennessee Farmers to the
Borrowers in December of 2001 for approximately $252,000, all as more fully set
forth in Recital D.
"Short-Term Debt Component" means a Component of the Bridge Facility in
the maximum amount owing under the Short-Term Debt, a Draw-Down under which may
only be used to repay the Short-Term Debt.
Appendix A - 9
"▇▇▇▇▇ Subordination Agreement" means that certain Subordination Agreement
executed by ▇▇▇▇▇ ▇▇▇▇▇ on the Closing Day in favor of Tennessee Farmers, a form
of which is attached hereto as Exhibit E.
"Subordinated Debt" means all unsecured indebtedness of the Borrowers in
respect of borrowed money which is subordinated, upon terms satisfactory to
Tennessee Farmers and the Required Lenders, in right of payment to the payment
in full and in cash of all obligations, whether now or hereafter existing, of
the Borrowers to the Lenders and Tennessee Farmers.
"Subordination Agreements" means the ▇▇▇▇▇▇ Subordination Agreement and
the ▇▇▇▇▇ Subordination Agreement.
"Subsidiary" means any corporation, partnership, joint venture, limited
liability company, trust, or other legal entity of which the Borrowers owns
directly or indirectly 20% or more of the outstanding voting stock or interest,
or of which the Borrowers have effective control, by contract or otherwise.
"Sub-Components" is defined in the definition of "Professional Fees
Component."
"Suspension Right" is defined in Section 10.3.
"Term A and Term B Loan Default Rate" is defined in Section 2.1(a).
"Term A Loan" is defined in Section 1.1.
"Term A Loan Amount" is defined in Section 1.1.
"Term A Notes" are defined in Section 1.4(a) and forms of such notes are
attached to this Agreement as Exhibit A.
"Term B Loan Amount" is defined in Section 1.1 to be $9,000,000.
"Term B Notes" are defined in Section 1.4(b) and forms of such notes are
attached to this Agreement as Exhibit B.
"Term C Loan" is defined in Recital D.
"Term C Loan Amount" is the Bridge Facility Maximum Commitment Amount.
"Term C Loan Default Rate" is defined in Section 2.1(c).
"Term C Notes" are defined in Section 1.4(c) and forms of such notes are
attached to this Agreement at Exhibit C.
Appendix A - 10
"Term Loans" means the Term A Loan, the Term B Loan and the Term C Loan,
the latter also herein called from time to time the Bridge Loan.
"Unfunded Liabilities" means
(a) in the case of single employer Plans, the amount (if any) by
which the present value of all vested nonforfeitable benefits under such
Plan exceeds the fair market value of all Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for
such Plan; and
(b) in the case of multi-employer plans, the withdrawal liability of
the Borrowers.
"Unmatured Event of Default" means an event or condition which would
become an Event of Default with notice or the passage of time or both.
"Working Capital Component" means that certain Component of the Bridge
Facility with an aggregate maximum principal amount of $300,000, a Draw-Down
under which may only be used by the Borrowers for purposes of paying their
working expenses and under no circumstances may be used to make a capital
investment, purchase assets or pay an Accounts Payable Creditor (whether such
creditor is found on Schedule 1 hereto or not) or any other short or long term
indebtedness.
Except as and unless otherwise specifically provided herein, all
accounting terms in this Agreement shall have the meanings given to them by
generally accepted accounting principles and shall be applied, and all reports
required by this Agreement shall be prepared, in a manner consistent with the
financial statements referred to in Section 4.3.
Terms hereof pertaining to any Affiliate shall apply to the Borrowers only
during such times as the Borrowers have any Affiliate.
Appendix A - 11