Exhibit 3
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CONVERTIBLE LOAN AND SECURITY AGREEMENT
between
COVOL TECHNOLOGIES, INC.
and
PACIFICORP FINANCIAL SERVICES, INC.
Dated as of March 20, 1997
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TABLE OF CONTENTS
Page
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RECITALS...................................................................... 1
ARTICLE I - DEFINITIONS............. ......................................... 1
SECTION 1.01. Certain Defined Terms...................................... 1
SECTION 1.02. Accounting Terms...........................................10
SECTION 1.03. Other Terms................................................10
ARTICLE II - THE INDEBTEDNESS.................................................11
SECTION 2.01. The Commitment and the Term loans; Note....................11
SECTION 2.02. Repayment..................................................13
SECTION 2.03. Payments and Computations..................................13
SECTION 2.04. Taxes.... .................................................14
SECTION 2.05. Late Payments..............................................15
ARTICLE III - ACKNOWLEDGMENT AND CREATION OF SECURITY
INTEREST.............................................................16
SECTION 3.01. Acknowledgment and Creation of
Security Interest........................................16
SECTION 3.02. Duty of Care...............................................16
SECTION 3.03. Release of Liens and Security
Interests................................................16
SECTION 3.04. Continuation of Liens and Security.........................17
SECTION 3.05. Insurance Proceeds.........................................17
ARTICLE IV - REPRESENTATIONS AND WARRANTIES...................................18
SECTION 4.01. Corporation in Good Standing...............................18
SECTION 4.02. Due Authorization..........................................18
SECTION 4.03. Pending and Threatened Actions.............................18
SECTION 4.04. Disclosure.................................................18
SECTION 4.05. Valid and Binding Obligations..............................19
SECTION 4.06. Payment of Taxes...........................................19
SECTION 4.07. Title to Collateral and Liens..............................19
SECTION 4.08. Defaults...................................................19
SECTION 4.09. Permits.. .................................................19
SECTION 4.10. Principal Place of Business:
Jurisdictions Where Doing Business:
Fiscal Year..............................................19
SECTION 4.11. ERISA.... .................................................20
SECTION 4.12. Subordination..............................................20
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SECTION 4.13 Government Approval........................................20
SECTION 4.14 Securities and Exchange Act;
Investment Company Act...................................20
SECTION 4.15 Regulation U...............................................20
SECTION 4.16 Strikes, Etc...............................................20
SECTION 4.17 Adverse Agreements.........................................20
SECTION 4.18 Trade Names and Intellectual Property......................21
SECTION 4.19 Location of Collateral.....................................21
SECTION 4.20 Possession of Collateral...................................21
SECTION 4.21 Validity and Priority of Security
Interests................................................21
SECTION 4.22 Accounts ..................................................21
SECTION 4.23 Agreements with Related Persons............................21
ARTICLE V - COVENANTS OF BORROWERS............................................22
SECTION 5.01. Affirmative Covenants......................................22
SECTION 5.02. Negative Covenants.........................................27
SECTION 5.03. Collateral.................................................30
ARTICLE VI - DEFAULT................ .........................................32
SECTION 6.01. Events of Default..........................................32
ARTICLE VII - RIGHTS, POWERS AND REMEDIES UPON DEFAULT........................35
SECTION 7.01. Remedies...................................................35
SECTION 7.02. Protection and Preservation of
Collateral and Rights;
Protective Advances......................................37
SECTION 7.03. Election...................................................37
SECTION 7.04. Waiver... .................................................37
SECTION 7.05. Power of Attorney..........................................38
SECTION 7.06. Entry Upon Premises........................................38
SECTION 7.07. Notification of Customers..................................39
SECTION 7.08. Failure to Pay.............................................39
SECTION 7.09. Application of Collateral Proceeds.........................39
SECTION 7.10. Enforcement of Borrower's Rights...........................39
SECTION 7.11. Exercise of Remedies.......................................40
SECTION 7.12. Equitable Remedies.........................................40
ARTICLE XIII GENERAL PROVISIONS...............................................40
SECTION 8.01. Survival of Terms..........................................40
SECTION 8.02. Presentment................................................41
SECTION 8.03. Successors and Assigns.....................................41
SECTION 8.04. Number... .................................................41
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SECTION 8.05. Governing Law..............................................41
SECTION 8.06. Notices and Addresses; Payments............................42
SECTION 8.07. Severability; Independence of Covenants....................42
SECTION 8.08. Time..... .................................................42
SECTION 8.09. Necessity of Writing.......................................42
SECTION 8.10. Integration................................................43
SECTION 8.11. Captions...................................................43
SECTION 8.12. Lender's Expenses and Attorneys' Fees......................43
SECTION 8.13. Indemnification............................................44
SECTION 8.14. Agreement Governs..........................................45
SECTION 8.15. Third Party Beneficiaries..................................45
SECTION 8.16. Jurisdiction...............................................45
SECTION 8.17. Consent to Loan Participation..............................43
SECTION 8.18. Waiver of Jury Trial.......................................46
SECTION 8.19. Execution in Counterparts..................................47
ARTICLE IX - ENVIRONMENTAL PROVISIONS.........................................47
SECTION 9.01. Definitions................................................47
SECTION 9.02. Representations and Warranties.............................48
SECTION 9.03. Covenants..................................................48
SECTION 9.04. Borrower's Remedial Work...................................49
SECTION 9.05. Indemnity..................................................50
SECTION 9.06. Remedies Upon Default......................................51
SECTION 9.07. Continuing Obligations.....................................52
SECTION 9.08. Other Laws.................................................52
SECTION 9.09. Security Interest..........................................52
ARTICLE X - CONVERSION RIGHTS.................................................52
SECTION 10.01. Conversion.................................................52
SECTION 10.02. Mechanics of Conversion....................................53
SECTION 10.03. Current Conversion Price...................................54
SECTION 10.04. Adjustment of Conversion Price.............................55
SECTION 10.05. Issuer's Consolidation or Merger...........................61
SECTION 10.06. Notice to Lender...........................................62
Exhibit ▇.▇▇.▇▇ - Note
Exhibit 5.01.R - Opinion of Counsel
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CONVERTIBLE LOAN AND SECURITY AGREEMENT
THIS CONVERTIBLE LOAN AND SECURITY AGREEMENT (this "Agreement") is made as
of March 20, 1997, by and between COVOL TECHNOLOGIES, INC., a Delaware
corporation ("Borrower"), and PACIFICORP FINANCIAL SERVICES, INC., an Oregon
corporation ("Lender").
RECITALS
Borrower desires to borrow up to $5,000,000 (i) to complete construction by
Borrower of the coal briquetting facility to be located in Birmingham, Alabama,
known as Alabama Synfuel #1 Ltd. (the "Alabama Project"), (ii) to finance the
acquisition by Borrower for the benefit of the Alabama Project of up to 100,000
tons of coal fines to be stored at the Port Hodder site, (iii) for funding of
net working capital needs of the Alabama Project, as approved by Lender, (iv) to
finance the development and construction of a wash plant for coal fines, at a
location, price and with specifications approved by Lender, and (v) other uses
by Borrower, as approved by the Lender in its sole discretion. In addition, the
parties wish to provide that Lender may elect to convert all or any portion of
the then outstanding principal and interest owing under this Agreement into
shares of common stock, par value $.001 per share ("Borrower Common Stock"), of
Borrower. Upon the terms and subject to the conditions set forth in this
Agreement, and in consideration of the mutual covenants and agreements exchanged
herein, Borrower and Lender agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (which meanings shall be
equally applicable to both the singular and plural forms of the terms defined):
"Account" shall have the meaning given to that term in the Code.
"Account Debtor" means any Person who is obligated on an Account.
"Accounts Payable" means the accounts payable of Borrower.
"Additional Common Stock" is defined in Section 10.04.C.
"Alabama Project" is defined in the Recitals.
"Alabama Project Purchase Agreement" means the Alabama Project
Purchase Agreement, dated as of the date hereof, between Borrower and Alabama
Synfuel #1 Ltd., and Birmingham Syn Fuel, L.L.C.
"Attorneys' Fees" means the reasonable fees (and all costs and
expenses related thereto) for the services of the attorneys (and all paralegals
and other staff employed by such attorneys) employed by Lender from time to time
(i) in connection with or arising out of any bankruptcy case, receivership
proceeding, or similar proceeding involving Borrower; (ii) to commence, defend
or intervene in any court proceeding (whether at the trial or appellate level)
or arbitration proceeding, or to file a petition, complaint, answer, motion or
other pleading, or to take any other action in or with respect to any case, suit
or proceeding (bankruptcy or otherwise) relating to the Transaction Documents,
the Collateral, the Obligations, or any other agreement, document or instrument
in any way relating to the Transaction Documents or the relationship between
Borrower and Lender; (iii) after the occurrence and during the continuance of a
Default or Event of Default, to advise Lender with respect to the Transaction
Documents or any other agreement, document or instrument in any way relating
thereto or the relationship between Borrower and Lender; (iv) to protect,
collect, lease, sell, take possession of, or liquidate any of the Collateral and
any other property, rights or interests owned or held by Lender to secure the
payment and performance of the Obligations, to enforce or to attempt to enforce
any security interest in any of the Collateral and any other property, rights or
interests owned or held by Lender to secure the payment and performance of the
Obligations, or to give any advice with respect to such enforcement; and (v) to
enforce any of Lender's rights to collect any of the Obligations.
"Borrower Common Stock" is defined in the Recitals.
"Business Day" means any day other than a Saturday, a Sunday, a public
or bank holiday under the laws of the State of Utah.
"Cash and Cash Equivalents" means the aggregate amount of (i) cash on
hand, (ii) Dollar demand deposits maintained in the United States with any
federally insured or state chartered financial institution, (iii) Dollar time
deposits maintained in the United States with, or certificates
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of deposit issued by, any federally insured or state chartered financial
institution, (iv) direct obligations of, or unconditionally guaranteed by, the
United States and having a maturity of one year or less, and (v) readily
marketable commercial paper having a maturity of one year or less, issued by any
corporation organized and existing under the laws of the United States or any
state thereof or the District of Columbia.
"Code" means the Uniform Commercial Code as enacted in the State of
Utah.
"Collateral" means (a) all personal property assets of Borrower used
or useful in connection with the Alabama Project, whether now existing or
hereafter acquired or arising, and wherever located, tangible or intangible,
including:
(i) All Equipment used or useful in connection with the Alabama
Project;
(ii) All Inventory produced by, and used or useful in connection
with, the Alabama Project;
(iii) All Computer Hardware and Software used or useful in
connection with the Alabama Project;
(iv) All Accounts, contract rights, notes receivable, chattel
paper, instruments, Intangibles, Cash and Cash Equivalents, stock and other
equity securities, tax refunds and tax refund claims, trademarks, service marks,
trade styles, trade names, copyrights, patents and other intellectual property
of Borrower used or useful in connection with the Alabama Project, all
depository accounts or deposits by Borrower in connection with the Alabama
Project with any Person, documents, documents of title, and other property
rights of any kind used or useful in connection with the Alabama Project,
whether now or hereafter existing, wherever located, together with all rights
now or hereafter existing in and to all security agreements, leases of personal
property, leases of real property, and other contracts securing or otherwise
relating to any such Accounts, contract rights, notes receivable, chattel paper,
instruments, Intangibles, Cash and Cash Equivalents, stock and other equity
securities, tax refunds and tax refund claims, trademarks, service marks, trade
styles, trade names, copyrights, patents and other intellectual property of
Borrower used or useful in connection with the Alabama Project;
(v) All Proceeds and products of any and all of the foregoing
property and, to the extent not otherwise included, all payments under insurance
(whether or not Lender is the loss payee thereof), and all claims, indemnities,
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warranties or guarantees, payable by reason of loss or damage to or otherwise
with respect to any of the foregoing property, and all property of any type
described above that is acquired with any cash proceeds of any of the foregoing
property; and
(b) all interests of Borrower in the real property covered by the Collateral
Assignment of Lease and all other real property assets of Borrower used or
useful in connection with the Alabama Project, and all rents, income, issues and
profits thereof.
"Collateral Assignment of Lease" means a Collateral Assignment of
Lease executed and delivered by Borrower and Lender, securing the Obligations
hereunder, together with the Consent of ▇▇▇▇▇▇ towing Company, Inc., in form and
substance reasonably satisfactory to Lender.
"Commitment" is defined in Section 2.01.A hereof.
"Commitment Period" is defined in Section 2.01.A hereof.
"Computer Hardware and Software" means all of Borrower's right, title
and interest, now owned or hereafter acquired, in computer equipment and
hardware including all central processing units, terminals, disk drives, tape
drives, electronic memory units, printers, keyboards, screens, peripherals (and
other input/output devices), modems and other communication controllers, and any
and all model conversions, accessions, parts and appurtenances thereto,
substitutions therefor and replacements thereof, all intellectual property used
by Borrower, at any time, in the operation of such computer equipment and
hardware, including all software, all of Borrower's rights (to the extent
assignable) under any licenses, options, warranties, service contracts, program
services, test rights, maintenance rights, support rights, improvement rights,
and renewal rights related to Borrower's use, at any time, of such computer
equipment, hardware or software, and all leases pursuant to which Borrower
leases any computer equipment, hardware or software.
"Construction Assignment Agreement" means a Collateral Assignment of
Construction Agreement to be executed and delivered by Borrower, Alabama Synfuel
#1, Ltd. and Lender, securing the Obligations hereunder, together with a Consent
and Agreement executed and delivered by TIC The Industrial Company, in form and
substance reasonably satisfactory to Lender.
"Conversion" is defined in Section 10.01.B hereof.
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"Conversion Price" is defined in Section 10.03 hereof.
"Current Conversion Price" is defined in Section 10.03 hereof.
"Current Liabilities" means for Borrower, on a consolidated basis in
accordance with GAAP, (i) all Debt which by its terms is payable on demand or
matures within one year from the date of determination (excluding any Debt
renewable or extendable, at the option of the debtor, to a date more than one
year from such date or arising under a revolving credit or similar agreement
which obligates the lender or lenders to extend credit during a period of more
than one year from such date) and (ii) all other items (including taxes accrued
as estimated) which in accordance with GAAP would be included as current
liabilities.
"Debt" means, for any Person, (i) all indebtedness or other
obligations of such Person for borrowed money or for the deferred purchase price
of property or services, (ii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (iii) all obligations under leases which shall have
been or should be, in accordance with GAAP, recorded as capital leases in
respect of which such Person is liable as lessee, (iv) liabilities in respect of
unfunded vested benefits under any ERISA Plan, (v) all Guaranteed Indebtedness,
and (vi) (to the extent not otherwise covered by clauses (i), (ii) or (iii)
above) all Debt of the type referred to in clauses (i), (ii) or (iii) above
secured by (or for which the holder of such Debt has an existing right,
contingent or otherwise, to be secured by) any lien, security interest or other
charge or encumbrance upon or in property owned by such Person, even though such
Person has not assumed or become liable for the payment of such debt.
"Default" means the occurrence of an act, event or condition which
would constitute an Event of Default under this Agreement but for the
requirement that notice be given or time elapse or both.
"Default Interest Rate" means, for any day, a rate per annum equal to
the lesser of (a) the highest rate allowed by law, or (b) the sum of (i) the
rate of interest publicly announced by ▇▇▇▇▇▇ Guaranty Trust Company of New York
in New York City from time to time as its "prime rate", and (ii) five percent
(5%) per annum.
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"Distributions on Common Stock" is defined in Section 10.04.B hereof.
"Dollars" and the sign "$" each means lawful money of the United
States.
"Early Termination Date" is defined in Section 2.01(D) hereof.
"Employee Group" shall include any Person who was, has been or becomes
an officer or director of Borrower at any time on or after the Effective Date.
The Employee Group as of the date of this Agreement is identified on Schedule
▇.▇▇.▇▇ attached hereto.
"Environmental Report" means the Phase I Environmental Site
Assessment, dated as of September 18, 1996, prepared by ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Technologies, Inc.
"Equipment" means all equipment (as defined in the Code) of Borrower
in all of its forms, wherever located, now or hereafter existing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Plan" means, for any Person, an employee benefit plan or other
plan maintained for employees of such Person and covered by Title IV of ERISA.
"Event of Default" is defined in Section 6.01 hereof.
"GAAP" means generally accepted United States accounting principles
consistently applied, as in effect from time to time.
"Good Faith" means honesty in fact in the conduct or transaction
concerned, without regard to whether standards which might be deemed
commercially reasonable have been observed.
"Guaranteed Indebtedness" of any Person means all Debt referred to in
clause (i), (ii) or (iii) of the definition of "Debt" in this Section 1.01 of
any other Person guaranteed directly or indirectly in any manner by such Person,
or in effect guaranteed directly or indirectly by such Person through agreement
(i) to pay or purchase such Debt or to advance or supply funds for the payment
or purchase of such Debt, or (ii) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payments of such Debt or to assure
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the holder of such Debt against loss, or (iii) to supply funds to or in any
other manner invest in the debtor (including any agreement to pay for property
or services irrespective of whether or not such property is received or such
services are rendered) or (iv) otherwise to assure a creditor against loss.
"Intangibles" means (i) goodwill, organizational expenses, research
and development expenses, trademarks, trade names, copyrights, patents, patent
applications, licenses and rights in any thereof, and other similar intangibles,
(ii) all unamortized debt discount and expense, (iii) all reserves carried and
not deducted from assets, (iv) treasury stock and capital stock, obligations or
other securities of, or capital contributions to or investments in, any Related
Person, (v) securities which are not readily marketable, (vi) cash held in a
sinking or other analogous fund established for the purpose of redemption,
retirement or prepayment of capital stock or Debt, (vii) any write-up in the
book value of any asset resulting from a revaluation thereof, and (viii) any
items not included in clauses (i) through (vii) above which are treated as
intangibles in conformity with GAAP.
"Inventory" means all inventory (as defined in the Code) of Borrower,
including without limitation all personal property held for sale, lease or
demonstration, or to be furnished under contracts of sale or service, in all
forms, wherever located, now or hereafter existing, including (i) all inventory,
raw materials, work in process, finished goods, materials and supplies used or
to be consumed in Borrower's business, and all additions and accessions to such
property, (ii) goods in which Borrower has an interest in mass or a joint or
other interest or right of any kind, and (iii) goods which are returned to or
repossessed by Borrower, and all accessions thereto and products thereof.
"issuances" is defined in Section 10.04I hereof.
"Letter Ruling" means a letter ruling from the Internal Revenue
Service setting forth the specific terms of the proposed transaction and
confirming to the satisfaction of Lender, among other things, (a) the
availability and calculation of the credit available under Section 29 of the
Internal Revenue Code of 1986, as amended (the "1986 Code"), (b) that the
construction contract for the Alabama Project satisfies the requirements of the
Section 29 of the 1986 Code, and (c) that the allocation of the Section 29
Credits to the various members of the buyer is valid under the 1986 Code.
"Lien" means any mortgage, pledge, lien, claim, charge, encumbrance,
security interest, conditional sale or title retention agreement, easement, use
restriction, covenant
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or reservation against or with respect to any of Borrower's property or interest
in property.
"Loan Documents" means this Agreement, the Note, the Security
Documents, and any and all other documents executed pursuant hereto or thereto,
or contemplated hereby or thereby (other than the Purchase Agreement Documents),
as the same may be modified, extended, renewed, amended or replaced from time to
time.
"Material Adverse Change" means any material and adverse change in (a)
Borrower's business, properties, condition (financial or otherwise), or
operations or results thereof since the date of the most recent financial
statement given to Lender with respect to Borrower, (b) Borrower's ability to
pay and perform the Obligations, with respect to the development, construction
or operation of the Alabama Project or (d) the Collateral, Lender's Liens on the
Collateral or the priority of Lender's Liens on a material portion of the
Collateral.
"Note" means the promissory note of or about even date herewith
executed by Borrower in the principal amount of the Term Loan, in substantially
the form attached hereto as Exhibit ▇.▇▇.▇▇, as the same may be amended,
modified, renewed, extended, or replaced from time to time.
"Obligations" means any and all indebtedness and other obligations of
Borrower to Lender, both monetary and non-monetary, whether now existing or
hereafter arising and however acquired, and whether arising under this
Agreement, the Note, the other Transaction Documents or otherwise.
"Other Taxes" is defined in Section 2.04.B hereof.
"Permitted Liens" means:
(i) Liens (but only to the extent not yet delinquent or (a) which
are being contested in good faith by appropriate proceedings with reserves
acceptable to Lender having been set aside and maintained and (b) with respect
to tax liens on the Collateral, as to which Borrower shall have paid the
undisputed amount) securing taxes, assessments or governmental charges or
levies, or arising in connection with workers' compensation, unemployment
insurance or social security obligations, or securing the claims or demands of
materialmen, mechanics, carriers, warehousemen, landlords and other like
Persons;
(ii) Attachment, judgment or similar liens arising in connection
with court proceedings (a) which are
8
discharged or stayed pending appeal within thirty (30) days of attachment or
levy, and, if so stayed, the stay remains in effect or (b) payment of which is
covered in full (subject only to customary and reasonable deductibles) by
insurance or surety bonds;
(iii) Liens in favor of Lender under the Loan Documents;
(iv) Existing Liens disclosed on Schedule ▇.▇▇.▇▇ attached hereto
and Liens affecting real property interests consisting of (a) zoning
regulations, (b) easements, (c) set-back lines, or (d) covenants, conditions or
restrictions, now existing or hereafter arising, which do not in the aggregate
have a material adverse effect on Borrower's use and enjoyment of such real
property interests; and
(v) The rights of Alabama Synfuel #1, Ltd. in the Alabama Project
specifically set forth in Schedule ▇.▇▇.▇▇.
"Person" means any natural person, corporation, limited liability
company, partnership, sole proprietorship, firm, association, government,
governmental agency or any other entity, whether acting in an individual,
fiduciary or other capacity.
"Port Hodder Site" means the 15 acre leased parcel operated by Port
Hodder, Inc., located in the City of Birmingham, Alabama, fronting the Locust
Fork of the Black Warrior River at river mile 399.0 and located at latitude
33.5876 and longitude 87.1048.
"Proceeds" shall have the meaning given to that term in the Code and
shall include whatever is received upon the sale, exchange, collection or other
disposition of Collateral.
"Purchase Agreement Documents" means the Alabama Project Purchase
Agreement, and any and all other documents executed pursuant thereto, or
contemplated thereby (other than the Loan Documents), as the same may be
modified, extended, renewed, amended or replaced from time to time.
"Receiver" means any trustee, receiver, custodian, fiscal agent,
liquidator or similar officer.
"Related Person" means (i) any shareholder who owns or controls more
than five percent (5%) of the voting securities of Borrower, (ii) any officer or
director of Borrower, (iii) any other Person that, directly or indirectly,
controls, is controlled by or is under common control with or
9
is related to, by blood or marriage, Borrower or any Person identified in
clauses (i) or (ii), and (iv) any member of the Employee Group and any Person
who is related, by blood or marriage, to any member of the Employee Group.
"Responsible Officer" means each of the Chief Executive Officers,
President, each Vice President, the Treasurer, the Chief Financial Officer and
the Chief Accounting Officer of Borrower, or any other Person, howsoever
designated, performing substantially similar roles for Borrower.
"SEC Filings" means: Borrower's Registration Statement on Form 10/A
Amendment No. 2; and Borrower's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, and any subsequent filing made by Borrower with the
Securities and Exchange Commissioner.
"Security Documents" means this Agreement, the Collateral Assignment
of Lease, the Construction Assignment Agreement and any financing statements or
other documents or agreements reasonably requested by Lender to secure the
Obligations hereunder.
"Shares" is defined in Section 10.01.A hereof.
"Taxes" is defined in Section 2.04.A hereof.
"Termination Date" means the first anniversary of the date hereof.
"Term Loans" is defined in Section 2.01.A.
"Transaction Documents" means this Agreement, the Loan Documents and
the Purchase Agreement Documents.
SECTION 1.02. Accounting Terms. Any accounting term used in this Agreement
which is not specifically defined herein shall have the meaning customarily
given to it under GAAP as consistently applied by Borrower as promulgated in (i)
the documents of Rule 203 of the Code of Professional Conduct of the American
Institute of Certified Public Accountants, (ii) Statement of Accounting
Standards No. 43 "Omnibus Statement on Auditing Standards" of the Auditing
Standards Board of the American Institute of Certified Public Accountants and
(iii) any superseding or supplemental documentation of equal authority
promulgating generally accepted accounting principles and practices, all as in
effect from time to time.
SECTION 1.03. Other Terms. All other terms contained in this Agreement
which are not defined herein shall, unless the
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context indicates otherwise, have the meanings provided for by the Code to the
extent such terms are defined therein.
ARTICLE II
THE INDEBTEDNESS
SECTION 2.01. The Commitment and the Term Loans; the Note.
A. Subject to the terms and conditions hereof, during the period up to
but not including September 30, 1997 (the "Commitment Period"), Lender shall
make loans to the Borrower in such amounts as Borrower may from time to time
request ("Term Loans") but not exceeding in aggregate principal amount at any
one time outstanding $5,000,000 (the "Commitment"); provided, however, that,
prior to obtaining a satisfactory Letter Ruling, Lender shall not be obligated
to make Term Loans in an aggregate amount exceeding $1,900,000 provided,
further, that any amounts drawn under any letters of credit arranged by Lender
or any or its Affiliates for the purposes described in Section 2.01.B below
shall be deemed "Term Loans" for the purposes of this Section 2.01.A; provided
further; that any payments with respect to the Construction Contract (as defined
in the Alabama Project Purchase Agreement) shall be paid directly by Lender to
the Contractor and shall be deemed "Term Loans" for the purposes of this Section
2.01.A.
B. The Term Loans shall be available in the following amounts and for
the following purposes: (i) up to $25,000 to repay the Demand Promissory Note,
dated as of February 24, 1997, of Borrower in favor of Lender, (ii) up to
$100,000 to be used as a "good faith" deposit pursuant to the Amended and
Restated Supply Agreement, dated as of the date hereof, (iii) up to $3,200,000
to complete construction by Borrower of the Alabama Project, (iv) up to
$1,640,000 to finance the acquisition by Borrower for the benefit of the Alabama
Project of up to 60,000 tons of coal fines to be stored at the Port Hodder Site,
and (v) up to an amount equal to $5,000,000 minus such amounts as are borrowed
pursuant to clauses (i) and (iv) above, to fund the net working capital needs of
the plant operations of the Alabama Project; provided, however, that the
determination of the amount of such net working capital needs shall be subject
to the approval of Lender in its sole discretion; provided, further, that any
amounts available to be drawn under any letters of credit arranged by Lender or
any of its Affiliates for the purposes described in this Section 2.01.B shall
not be available to be drawn as Term Loans hereunder.
11
C. Term Loans shall be made upon the written request of Borrower
against invoices for the purposes contemplated in paragraph B above; provided,
however, except in connection with Term Loans pursuant to clauses (i) and (ii)
of Section 2.01.B above, the Lender shall have no obligation to make any Term
Loan hereunder until completion of each of the following: (i) delivery of the
opinions of counsel of ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇, in substantially the forms attached hereto as Exhibit
5.01.R, (ii) execution and delivery of a Lease and Lease Option between Borrower
and ▇▇▇▇▇▇ Towing Company, Inc., in form and substance reasonably satisfactory
to Lender, (iii) delivery of a certificate of an executive officer of the
Borrower certifying that (a) the representations and warranties of the Borrower
and Alabama Synfuel #1 Ltd. in each of the Transaction Documents are true and
complete on and as of the date of such certification as though such
representations and warranties were made on and as of the date of such
certificate, and (b) each of Borrower and Alabama Synfuel #1 Ltd. is in
compliance with the terms of each of the Transaction Documents and no event of
default has occurred under any of the Transaction Documents, (iv) delivery to
Lender of evidence of the release of the lien of AJG Financial Services, Inc. on
the apron drying oven being manufactured by National Dryer Company for use in
the Alabama project, (v) execution and delivery of any Transaction Documents not
previously delivered to Lender, including the Security Documents, (vi) receipt
of confirmation of filing of the Security Documents in the respective
jurisdictions identified by Lender, and (vii) delivery of a certificate of
insurance by Borrower in form and substance reasonably satisfactory to Lender.
D. Subject to Section 10.01 hereof, at any time prior to the
termination of the Commitment Period, by written notice to Lender no later than
11:00 A.M. Portland, Oregon time sixty (60) days prior to such termination (such
period from and after notice to the termination, the "Early Termination
Period"), Borrower may permanently terminate the Commitment. Such notice shall
be in writing or by telephonic communication confirmed by telecopy or other
facsimile transmission on the same day as such notice.
E. Lender may terminate the Commitment to make further Term Loans at
any time Lender determines (in the case of clause (ii), in its sole discretion,
and in the case of each of clause (i), in its reasonable discretion) that (i) a
favorable Letter Ruling will not be obtained, or (ii) an Event of Default has
occurred and is continuing under any of the Transaction Documents.
12
F. In the event that no Term Loans have been made prior to the
termination of the Commitment Period (and no simultaneous advances and
conversions contemplated under Article X hereof shall have been made prior to
such time), this Agreement shall automatically terminate as of the end of the
Commitment Period.
SECTION 2.02. Repayment.
A. Obligation to Repay. Subject to Section 10.01 hereof, Borrower
shall repay the principal amount of the Term Loan, together with interest
thereon, in accordance with the terms of this Agreement and the Note. Except
where the time for payment has been set forth in this Section 2.02 or in the
Note, Borrower shall pay all Obligations to Lender immediately upon demand.
B. Repayment of Protective Advances. Notwithstanding anything to the
contrary contained in this Agreement or the other Transaction Documents, until
those amounts which from time to time shall be payable by Borrower pursuant to
the provisions of Section 7.02 hereof ("Protective Advances") shall have been
paid in full, any and all sums (i) paid by Borrower to Lender, or (ii) otherwise
received by Lender for application to payment of any Obligations, may, at
Lender's option, be applied (in lieu of any other application thereof) to pay
Protective Advances.
C. Prepayments.
(i) Optional Prepayments. Subject to Section 10.01 hereof, by
written notice to Lender no later than 11:00 A.M. Portland, Oregon time, sixty
(60) days prior to such prepayment, Borrower may prepay, at any time without
premium or penalty, all Obligations outstanding under the Note.
(ii) Termination of Commitment. Subject to Section 10.01 hereof,
prepayment under this Section 2.02.C shall cause the Commitment to be
immediately and automatically terminated.
SECTION 2.03. Payments and Computations.
A. Borrower shall make each payment hereunder and under the Note not
later than 12:30 p.m. (Portland, Oregon time) on the day when due in U.S.
Dollars to Lender at the address for payments set forth in Section 8.06 hereof
in same day funds, and any funds received after that hour shall be deemed to
have been received by Lender on the next succeeding Business Day. Whenever any
payment hereunder or under the Note shall be stated to be due on a day which is
not a Business Day,
13
such payment shall be made on the next succeeding Business Day, and such
extension of time shall in such case be included in the computation of payment
of interest or fees, as the case may be.
B. Lender shall record in its records, or at its option on a schedule
attached to the Note, the date and amount of each repayment of the Term Loan.
The aggregate unpaid principal amount so recorded shall be presumed to be
correct and binding on Borrower absent manifest error. The failure to so record
any such amount, or any error in so recording any such amount, shall not,
however, limit or otherwise affect Borrower's obligations hereunder or under the
Note to repay the principal amount of the Term Loan, together with all interest
accruing thereon.
SECTION 2.04. Taxes.
A. Any and all payments by Borrower hereunder or under the Note shall
be made, free and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities, penalties and interest with respect thereto, excluding, in the case
of Lender, (x) withholding taxes that are creditable against taxes payable by
Lender, (y) periodic taxes upon or with respect to the value of the interest of
Lender in the Note or this Agreement, and (z) taxes imposed on or measured by
Lender's income or receipts and franchise and doing business taxes imposed on
Lender (all such nonexcluded taxes, levies, imposts, deductions, charges,
withholdings, liabilities, penalties and interest being hereinafter referred to
as "Taxes"). If Borrower shall be required by law to deduct any Taxes from or in
respect of any sum payable hereunder or under the Note to Lender, (i) the sum
payable shall be increased as may be necessary so that after making all required
deductions Lender receives an amount equal to the sum it would have received had
no such deductions been made, (ii) Borrower shall make such deductions and (iii)
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.
B. In addition, Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made under any of the Transaction Documents
or from the execution, delivery or registration of, or otherwise with respect
to, any of the Transaction Documents, excluding, in the case of Lender, (x)
taxes, charges and similar levies imposed as a result of a voluntary or
involuntary transfer or other disposition of all or any portion of its
respective equitable or legal interests in the Note or this Agreement and (y)
taxes
14
imposed on or measured by its income or receipts and franchise and doing
business taxes imposed on it (all such non-excluded taxes, charges and levies
being hereinafter referred to as "Other Taxes").
C. Borrower shall, within thirty (30) days from the date Lender makes
written demand therefor, indemnify Lender for the full amount of Taxes or Other
Taxes to the extent such taxes are either due and payable or have been paid by
Lender.
D. Within thirty (30) days after the date of any payment of Taxes,
Borrower will furnish to Lender the original or a certified copy of a receipt
evidencing payment thereof.
E. The provisions of Sections 2.04.A and 2.04.B hereof shall not
extend to any of the following:
(i) Taxes or Other Taxes imposed on Lender as a result of a
voluntary or involuntary transfer or disposition of all or any portion of its
equitable or legal interest in the Note or this Agreement;
(ii) Taxes or Other Taxes imposed on Lender to the extent such
Taxes or Other Taxes result from the failure of Lender to accurately prepare and
file timely and properly any return or form, certificate or other document; or
(iii) Taxes or Other Taxes imposed on Lender by any jurisdiction
as a result of activities or presence in such jurisdiction unrelated to the
transactions contemplated by this Agreement and agreements contemplated hereby.
F. In the event that Lender transfers or assigns any of its rights,
interest or obligations under the Note or this Agreement, Borrower's obligations
under this Section 2.04 shall in no case exceed the amount of Borrower's
obligations had said rights, interest or obligations not been transferred or
assigned.
SECTION 2.05. Late Payments. If any sums owing by Borrower to Lender,
whether principal, interest or otherwise, are not paid on the due date (whether
as a result of scheduled maturity, acceleration or demand), after giving effect
to any applicable grace period, then (i) Borrower shall pay to Lender a late
charge equal to five percent (5%) of such sum(s) and (ii) the interest rate
payable under the Note shall be increased to the Default Interest Rate until
such unpaid sum(s) are paid to Lender. Borrower acknowledges that the actual
expenses incurred by Lender in attending to late payments and the cost of the
loss of use of funds are difficult to ascertain, and agree that the late charge
and the increase in
15
the rate of interest as set forth above together constitute a reasonable
estimate of these additional losses, expenses and costs to Lender resulting from
such late payments.
ARTICLE III
ACKNOWLEDGMENT AND CREATION
OF SECURITY INTEREST
SECTION 3.01. Acknowledgment and Creation of Security Interest. To secure
payment and performance of the Obligations, Borrower hereby assigns, transfers
and grants to Lender a continuing first priority security interest in and lien
on all of the Collateral (subject only to the Permitted Liens). Borrower further
acknowledges and agrees that the Obligations are secured by security interests
in and liens upon all of the Collateral in accordance with the provisions set
forth herein and in the other Loan Documents.
SECTION 3.02. Duty of Care. Lender shall have no duty of care with respect
to the Collateral, except that Lender shall exercise reasonable care with
respect to the Collateral in Lender's custody, but shall be deemed to have
exercised reasonable care if such property is accorded treatment substantially
equal to that which Lender accords its own property, or if Lender takes such
action with respect to the Collateral as Borrower shall request in writing,
provided, that no failure to comply with any such request nor any omission to do
any such act requested by Borrower shall be deemed a failure to exercise
reasonable care. Lender's failure to take steps to preserve rights against any
parties or property shall not be deemed to be a failure to exercise reasonable
care with respect to the Collateral in Lender's custody.
SECTION 3.03. Release of Liens and Security Interests.
A. Except as expressly required by the terms of this Agreement or
applicable law, Lender shall not be obligated to release its liens and security
interests in any portion of the Collateral so long as any Obligations remain
outstanding; provided, however, that any release by Lender of its liens and
security interests in any portion of the Collateral shall apply only to such of
the Collateral as is specifically described in the release given by Lender and
shall not in any way constitute a release by Lender of its liens and security
interests in the Proceeds, products or accessions of such Collateral in
existence at the time of such release or of any other Collateral.
B. So long as no Default or Event of Default has occurred and is
continuing or would, as a result of or after
16
giving effect to the sale, exist or be continuing, (i) Borrower may, in the
ordinary course of business, sell to third parties synthetic coal products; and
(ii) Borrower may, in the ordinary course of business, sell or otherwise dispose
of obsolete or excess Equipment used or useful in connection with the Alabama
Project of an aggregate value not exceeding Five Thousand Dollars ($5,000)
during the term of hereof, and Lender shall, if requested by Borrower, release
its security interest in and Lien upon such Equipment.
C. Lender shall release its liens and security interest in the
Collateral upon the first of the following to occur: (i) the termination of the
Commitments and the satisfaction in full of all Obligations under the Loan
Documents; (ii) the closing of the purchase by Birmingham Syn Fuel, L.L.C. of
the Alabama Project pursuant to the Alabama Project Purchase Agreement, or (iii)
the conversion of all of the outstanding Term Loans and Commitments into Shares
pursuant to Article X hereof.
SECTION 3.04. Continuation of Liens and Security Interests. All of Lender's
rights with respect to the liens and security interests hereunder and under the
other Security Documents shall continue unimpaired, and Borrower shall be and
remain obligated in accordance with the terms hereof and thereof,
notwithstanding the release or substitution of any Collateral at any time(s), or
of any rights or interests therein, or any delay, extension of time, renewal,
compromise, accommodation or other indulgence granted by Lender with respect to
Borrower, any other Person or any of the Obligations, or any promissory note,
draft, ▇▇▇▇ of exchange or other instrument given in connection therewith.
SECTION 3.05. Insurance Proceeds. Proceeds of any insurance on the
Collateral shall be paid directly to Lender pursuant to the Lender's loss
payable endorsement to Borrower's casualty insurance policies. Lender may deal
directly with the insurance company to adjust or settle the loss: So long as (i)
no Default or Event of Default has occurred and is continuing; and (ii) the
proceeds from insurance and, if needed, additional funds provided by Borrower
are, in the reasonable judgment of Lender, sufficient, Borrower may require the
proceeds be used to rebuild, repair or replace any damaged Collateral. Borrower
shall obtain the prior written consent of Lender to the method of such rebuild,
repair and/or replacement, including, if necessary, approval to any changes to
the plans and specifications approved under the Alabama Project Purchase
Agreement, which approval shall not be unreasonably withheld. Lender shall
respond to any written request for approval from Borrower within ten (10)
Business
17
Days of receipt thereof, indicating approval or setting forth the reasons for
disapproval, as applicable.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Subject to the specific exceptions set forth in the Schedules referenced in
this Article IV, Borrower makes the following representations and warranties to
Lender, which representations and warranties shall survive the execution of this
Agreement and remain in full force and effect until Borrower has satisfied and
discharged all Obligations under the Loan Documents. The representations and
warranties shall be deemed repeated as of the date of each advance of a Term
Loan; provided, however, that from and after the closing of the transfer of the
Alabama Project pursuant to the Alabama Project Purchase Agreement, the
representations and warranties contained in Sections 4.07, 4.08 (in so far as it
relates to Collateral) and 4.19-4.22 shall not be brought down.
SECTION 4.01. Corporation in Good Standing. Borrower has complied in all
material respects with all laws necessary to conduct its business as presently
conducted and Borrower is a corporation (i) duly organized, validly existing and
in good standing in Delaware, (ii) in good standing and qualified to do business
in the jurisdiction where such Borrower's principal place of business is located
and (iii) in good standing and qualified to do business in all other
jurisdictions to the extent necessary for Borrower to conduct its business as
presently conducted in such jurisdictions.
SECTION 4.02. Due Authorization. Borrower has the authority, and has
completed all proceedings and obtained all approvals and consents necessary, to
execute, deliver and perform this Agreement and the transactions contemplated
hereby. Such execution, delivery and performance will not contravene or
constitute a default under or result in or require the creation of a lien,
security interest, or other charge or encumbrance upon any assets of Borrower
(except the liens created by this Agreement or the other Loan Documents in favor
of Lender) pursuant to any applicable law or regulation, any charter document of
Borrower, or any contract, agreement, judgment, order, decree, or other
instrument binding upon or affecting Borrower.
SECTION 4.03. Pending and Threatened Actions. There is no action, suit or
proceeding pending or, to the best of Borrower's knowledge after due inquiry,
threatened against Borrower where an adverse result could cause a Material
Adverse Change, other than as set forth on Schedule 4.03 hereto.
18
SECTION 4.04. Disclosure. No written statement made by Borrower to Lender
in connection with this Agreement contains any untrue statement of a material
fact or omits a material fact necessary to make such statement accurate.
SECTION 4.05. Valid and Binding Obligations. All of the Transaction
Documents are valid and binding obligations of Borrower, fully enforceable in
accordance with their respective terms.
SECTION 4.06. Payment of Taxes. All tax returns and reports of Borrower
required to be filed have been timely filed, and all taxes, assessments, fees,
interest, penalties and other governmental charges upon Borrower and its
properties, assets, income and franchises which are due and payable have been
paid when due and payable except where such taxes, assessments, fees, interest,
penalties or other governmental charges are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and where
reserves or other appropriate provisions, if any, as required in accordance with
GAAP, have been made and are being maintained therefor.
SECTION 4.07. Title to Collateral and Liens. Borrower has good and
marketable title to all of the Collateral and, except for the Permitted Liens,
all of the Collateral is free of any and all liens, charges, security interests,
encumbrances and adverse claims.
SECTION 4.08. Defaults. There are (i) no defaults in the payment of any
Debt (other than defaults with respect to trade payables incurred in the
ordinary course of business, the occurrence of which could not cause a Material
Adverse Change) or, (ii) no defaults in the performance of any obligations,
including obligations to deliver synthetic coal product under long-term
contracts or with respect to Debt secured by any of the Permitted Liens against
the Collateral which are or may be senior to any lien thereon or other security
interest therein in favor of Lender, by assignment or otherwise, which, in the
case of any event under this clause (ii), could cause a Material Adverse Change.
SECTION 4.09. Permits. Borrower possesses, and will hereafter possess, all
material permits, memberships, franchises, contracts, patents and licenses
required, and fictitious name rights necessary, to enable it to conduct the
business in which it is now engaged in each jurisdiction where such business is
now being conducted.
SECTION 4.10. Principal Place of Business; Jurisdictions Where Doing
Business; Fiscal Year. Borrower's principal place
19
of business, the offices where Borrower keeps its records and the states where
Collateral is located are set forth on Schedule 4.10 attached hereto. The end of
the Borrower's fiscal year is September 30.
SECTION 4.11. ERISA. Borrower does not maintain any ERISA Plan.
SECTION 4.12. Subordination. None of the Obligations are subordinated in
right of payment to any obligations of Borrower to any other Person, including
any Debt of Borrower to any Related Persons. Except as set forth on Schedule
4.12 attached hereto, Borrower is not currently indebted, directly or
indirectly, to any Related Persons.
SECTION 4.13. Government Approval. No authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
Borrower of any of the Transaction Documents.
SECTION 4.14. Securities and Exchange Act; Investment Company Act. No
proceeds of the Term Loan have been used to acquire any security in any
transaction which is subject to Sections 13 and 14 of the Securities Exchange
Act of 1934. Borrower is not an "investment company" or a company "controlled"
by an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
SECTION 4.15. Regulation U. Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U issued by the Board of Governors of the Federal
Reserve System), and no proceeds of the Term Loan have been or will be used to
purchase or carry any margin stock, to extend credit to others for the purpose
of purchasing or carrying any margin stock, or for any other purpose not
permitted by Regulations G, U, V or X of the Federal Reserve Board.
SECTION 4.16. Strikes Etc. Neither the business nor the properties of
Borrower currently are affected by any fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act
of God or other casualty (whether or not covered by insurance), materially
adversely affecting such business or properties or the operations of Borrower.
SECTION 4.17. Adverse Agreements. Borrower is not party to any indenture,
loan or credit agreement or lease or other agreement or instrument or subject to
any charter or corporation restriction which, if performance or compliance
20
therewith is effected for its intended purpose by the parties thereto, would
cause a Material Adverse Change in Borrower's business, properties, assets,
operations or condition, financial or otherwise, or on the ability of Borrower
to carry out its obligations under any of the Transaction Documents.
SECTION 4.18. Trade Names and Intellectual Property. Schedule 4.18 attached
hereto contains a complete list of all of Borrower's trade names, trademarks,
trademark applications, patents, patent applications, copyrights and copyright
applications included in the Collateral, and Borrower is not operating or doing
business under any other trade name or utilizing any other trademarks, patents
or copyrights in the conduct of the Alabama Project.
SECTION 4.19. Location of Collateral. All of the items, whether tangible or
intangible, comprising the Collateral are located at the places specified
(detailing account numbers and other information sufficient to permit Lender to
readily locate and identify the Collateral) in Schedule 4.19 attached hereto.
SECTION 4.20. Possession of Collateral. Borrower has exclusive possession
and control of the Collateral, except where (i) Lender is in possession or
control of the Collateral pursuant to the terms of this Agreement, and (ii)
another Person is in possession and control of the Collateral to the extent
necessary to give effect to the Permitted Liens.
SECTION 4.21. Validity and Priority of Security Interests. Except where a
Permitted Lien is senior in priority to Lender's security interest in the
Collateral, this Agreement creates a valid first priority security interest in
the Collateral
SECTION 4.22. Accounts. Unless otherwise disclosed by Borrower to Lender in
writing, each Account listed or referred to on any trial balance, balance sheet
or the books and records of Borrower, or referred to in any report to Lender, is
and will be free and clear of Liens in favor of any Person other than Lender,
will cover a bona fide sale or lease and delivery of goods usually dealt with by
Borrower in the ordinary course of Borrower's business or will cover the
rendition of services by Borrower to customers of a kind ordinarily rendered in
the ordinary course of Borrower's business, and will be for a liquidated amount
from a customer competent to contract therefor and maturing as stated by
Borrower.
SECTION 4.23 Agreements with Related Persons. There are no contracts,
licenses, agreements, arrangements or limitations on the use by Borrower of any
property, tangible or intangible, or assets used or utilizable in the business
of
21
Borrower with any Related Person other than as disclosed on Schedule 4.23
attached hereto.
ARTICLE V
COVENANTS OF BORROWER
SECTION 5.01. Affirmative Covenants. Until Borrower has satisfied and
discharged all Obligations under the Loan Documents, subject to the provisions
of Section 8.01 hereof, Borrower will:
A. Performance of Obligations. Punctually pay and perform each of the
Obligations in accordance with the terms of the Transaction Documents.
B. Financial Statements and Reports. Furnish Lender:
(i) not later than one hundred (120) days after the end of each
fiscal year of Borrower, consolidated financial statements prepared by Borrower
in accordance with GAAP and audited by independent certified public accountants
as of and for the fiscal year then ended, certified by such independent
certified public accountants in a manner reasonably acceptable to Lender and
including a balance sheet, a statement of operations, a statement of cash flows,
a statement of stockholders' equity, in each case, consistent with the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the Securities and Exchange Commission;
(ii) not later than forty-five (45) days after the end of each
fiscal quarter of Borrower (other than the fiscal quarter which is Borrower's
fiscal year end), consolidated financial statements prepared by Borrower in
accordance with GAAP as of and for the quarter then ended, to include a balance
sheet, a statement of operations, and a statement of cash flows, in each case,
consistent with the Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Securities and Exchange Commission;
(iii) promptly (in any event within five (5) Business Days), a
copy of any monthly management reports;
(iv) at the time of delivery of the financial statements referred
to in Sections 5.01.B(i), and (ii)hereof, a letter addressed to Lender signed by
the Chief Executive Officer, Chief Financial Officer or the Chief Accounting
Officer of Borrower, certifying that no condition, act or event has occurred and
is continuing which constitutes a Default or an Event of Default under this
Agreement;
22
(v) not later than ten (10) Business Days after Lender's request
therefor, copies of all annual federal and state tax returns for taxes based on
Borrower's income, all exhibits and schedules thereto and any additional tax
returns (whether for income or any other taxes and whether filed with state,
federal or other taxing authorities), exhibits and schedules of Borrower;
(vii) at such times and from time to time as Lender may request
of Borrower, such other reports concerning the Collateral or Borrower's
operations as Lender may reasonably request;
(viii) within five (5) days after the filing thereof, all forms,
statements, reports, notices or other filings filed or made by Borrower with the
Securities and Exchange Commission; and
(ix) promptly upon receipt, copies of all management letters,
internal control evaluations and reports and other material letters, memoranda
or reports submitted by Borrower's independent certified public accountants or
consultants with respect to any matter concerning the audits, financial
statement presentation or other accounting matters.
C. Accounting Records. Maintain adequate books and accounts and permit
any representative of Lender, during normal business hours, to inspect, audit,
copy and examine such books and accounts and inspect the properties of Borrower
and to interview Borrower's independent accountants regarding operating results
and financial condition.
D. Collateral Records. Keep accurate and complete records of Accounts,
allow Lender or any of Lender's agents, including consultants hired by Lender,
to call at any of Borrower's places of business (a) prior to the occurrence of a
Default or an Event of Default, on at least one Business Day's advance notice
and (b) after the occurrence of a Default or an Event of Default, without prior
appointment, at intervals determined by Lender (without hindrance or delay) to
inspect the Collateral and to inspect, examine, check and make extracts from the
books, records, journals, order receipts, correspondence and any other data
relating to the Collateral or operations of the Alabama Project or any
transactions (y) between Borrower and Lender, or (z) affecting Lender's rights
under this Agreement, the expenses of which shall be borne by Borrower. If any
such records are held by a third party, Borrower hereby authorizes Lender to
contact such third party and direct such third party to provide access to such
documents to Lender as if such documents were in Borrower's possession. Lender
may retain one or more consultants in
23
connection with the foregoing, the expenses of which shall be borne by Borrower.
Borrower further agrees to provide Lender with such information as Lender may
from time to time request with respect to the location of any of the Collateral.
In addition, Borrower shall notify Lender promptly in writing of any change(s)
in location of any office where records concerning any of the Accounts are
maintained, of any change(s) in location of Borrower's places of business and of
any change(s) in the location of any of the Collateral.
E. Additional Information; Board of Director Meetings. Provide such
additional information regarding the business affairs and financial condition of
Borrower as Lender may from time to time request, and provide Lender prompt
notice of, and admittance to, all meetings of the Board of Directors of
Borrower.
F. Maintenance of Property. Keep all of Borrower's properties useful
or necessary to Borrower's business in good repair and condition, reasonable
wear and tear excepted, and from time to time make necessary repairs, renewals
and replacements thereto so that such property shall be fully and efficiently
preserved and maintained, except to the extent it would not cause a Material
Adverse Change.
G. Maintenance of Business. Preserve and maintain Borrower's corporate
existence and all of its licenses, permits, trade names, trade styles,
governmental approvals, rights, privileges and franchises reasonably necessary
to conduct its business; conduct its business in an orderly and regular manner;
comply with the provisions of all documents pursuant to which Borrower is
organized and/or which govern Borrower's continued existence; and comply with
the requirements of all applicable laws, rules, regulations and orders of any
governmental authority and requirements reasonably necessary for the maintenance
of Borrower's insurance, licenses, permits, trade names, trade styles,
governmental approvals, rights, privileges and franchises reasonably necessary
for the continued business of Borrower as currently constituted, except to the
extent it would not cause a Material Adverse Change.
H. Statements Regarding Collateral. Furnish to Lender promptly upon
request therefor statements of the terms, conditions and status of payments on
all Accounts and other instruments, documents and agreements which at the time
of the request constitute a part of the Collateral. Lender may, from time to
time, either before or after an Event of Default, by reasonable means, verify,
in its own name or such other name as Lender may choose, the validity, amount
and any other matters relating to Accounts and other instruments, documents and
24
agreements by means of mail, telephone or otherwise, and Borrower shall use its
best efforts to assist Lender in verifying such matters promptly upon Lender's
request therefor.
I. Annual Collateral Report. Provide to Lender as soon as possible,
but in any event within one hundred twenty (120) days after the end of each
fiscal year of Borrower, an asset register update setting forth in reasonable
detail an inventory of all Collateral and such information with respect thereto
as Lender reasonably may request.
J. Litigation. Promptly give notice in writing to Lender of (i) any
litigation pending or instituted against Borrower potentially involving Fifty
Thousand Dollars ($50,000) or more, (ii) any litigation overtly threatened
against Borrower potentially involving Fifty Thousand Dollars ($50,000) or more,
(iii) any litigation involving or affecting the Alabama Project or any of the
Transaction Documents, or (iv) any litigation pending, instituted or overtly
threatened involving a claim for injunctive relief. Not later than one hundred
twenty (120) days after the end of each fiscal year of Borrower, deliver to
Lender a report of all litigation pending or overtly threatened against
Borrower, or to which Borrower is otherwise a party or which involves the
Alabama Project or any of the Transaction Documents, in such detail as Lender
may reasonably request.
K. Taxes and Other Liabilities. Pay and discharge when due any and all
Debt, obligations, assessments and taxes, real and personal, including federal
and state income taxes, except such as Borrower may in good faith contest by
appropriate proceedings promptly instituted and diligently conducted and if such
reserve or other appropriate provisions, if any, as are proper in accordance
with GAAP shall have been made therefor and maintained.
L. Notice to Lender. Promptly, but in no event more than five (5) days
after becoming aware of the occurrence of each such event or matter give notice
in writing to Lender of (i) the occurrence of any Event of Default or any
Default, (ii) any change in name, identity or corporate structure of Borrower or
(iii) any loss through fire, theft, liability, property damage or other casualty
in excess of an aggregate of Fifty Thousand Dollars ($50,000).
M. Insurance.
(i) Obtain, maintain and keep in force insurance of the types and
in amounts customarily carried in lines of business similar to Borrower
including fire, hazard insurance, extended coverage, public liability, property
25
damage, extra expense and business interruption and worker's compensation,
carried with companies, as required by law and pursuant to each contract or
agreement entered into by Borrower in connection with the Alabama Project and in
amounts satisfactory to Lender in its reasonable discretion, and obtain,
maintain and keep in force such other insurance as Lender may reasonably request
from time to time, and at all times maintain insurance upon the Collateral
covering such risks and in such amounts as shall be necessary to prevent
Borrower from being a co-insurer; and
(ii) On or about the date of this Agreement and at the time of
issuance or renewal of any insurance policy of Borrower, deliver to Lender
certificates of such insurance, each of which such certificates shall name
Lender as a lender's loss payee or additional insured, as appropriate, in a form
satisfactory to Lender and shall prohibit cancellation or modification except
upon thirty (30) days' prior written notice to Lender.
N. Stock Powers. Grant Lender appropriate stock powers to the extent
any securities become part of the Collateral.
O. Subordination. Immediately notify Lender of the creation of any
Debt or other obligations in favor of any of Borrower's officers, directors or
Related Persons, and immediately cause all such Debt and obligations to be
subordinated, pursuant to subordination agreements in form and substance
reasonably satisfactory to Lender, to the Obligations.
P. Defense of Actions.
(i) At Borrower's sole cost and expense, appear in and defend any
action or proceeding which may adversely affect Lender's interest in the
Obligations or the Transaction Documents or Lender's security interest in and
liens upon the Collateral; and
(ii) At Borrower's sole cost and expense, appear in and defend
any action or proceeding which may adversely affect Borrower's title to any
Collateral.
Q. Collateral. At Borrower's sole cost and expense, at all times
maintain or cause to be maintained, as the case may be, in favor of Lender
valid, continuing and perfected first priority security interests (subject only
to the Permitted Liens relating thereto) in all of the Collateral, take such
actions as Lender deems reasonably necessary and appropriate to protect Lender's
security interests in such
26
Collateral, and provide to Lender such assurances as Lender may reasonably
require as to Borrower's compliance herewith.
R. Opinion of Counsel. Promptly following execution and delivery of
this Agreement, deliver to Lender an opinion of counsel in the form of Exhibit
5.01.R hereto.
SECTION 5.02. Negative Covenants. Until Borrower has satisfied and
discharged all of the Obligations under the Loan Documents, subject to the
provisions of Section 8.01 hereof, Borrower will not, without the prior written
consent of Lender (which shall not be unreasonably withheld):
A. Use of Proceeds. Use the proceeds of the Term Loans except as
contemplated by Section 2.02.
B. Other Debt. Create, incur or permit to exist any Debt, except (i)
the liabilities of Borrower to Lender, (ii) accrued expenses, accrued
liabilities and Accounts Payable that are in each case also Current Liabilities
incurred in the ordinary course of Borrower's business, (iii) taxes payable,
(iv) the Debt described on Schedule 5.02.B,(v) debt incurred or created to fund
the acquisition, development, building, management and/or maintenance of coal
briquetting facilities and related expenditures, whether the facilities are
intended to be developed by the Borrower or affiliated entities or sold to third
party entities (provided that, except for Liens with respect to the specific
facility or equipment related to such specific facility, such Debt shall be
unsecured), (vi) Debt created or incurred to fund working capital needs or
obligations in aggregate outstanding amount not to exceed $1,000,000, and (vii)
Debt created or incurred solely to refinance existing Debt of Borrower (which
Debt was otherwise permitted pursuant to the foregoing clauses (i) through (vi).
C. Merger, Consolidation, Pledge of Assets. Make any substantial
change in the nature of Borrower's business; merge into or consolidate with any
Person; pledge, encumber, allow the creation of any Lien (other than Permitted
Liens) or grant any security interest in or to any of its assets other than
security interests on specific coal briquetting facilities or equipment related
to such specific facilities to secure the Debt allowed under Section 5.02B; or
do business in any corporate, trade or fictitious name other than as listed on
Schedule 4.18, except for any name used by an affiliated entity formed to
facilitate the financing, acquisition, development, building, management and/or
maintenance of coal briquetting facilities.
D. Sale of Assets. Sell, lease, assign, transfer or otherwise dispose
of a substantial portion of Borrower's
27
property, real or personal, outside of the ordinary course of Borrower's
business, except as contemplated by the Transaction Documents, the sale of coal
briquetting facilities or the licensing of technology related to the coal
briquetting facilities, or the sale of equity in an affiliated entity formed to
facilitate the financing, acquisition, development, building, management and/or
maintenance of coal briquetting facilities
E. Guarantees. Guarantee or become liable in any way, as surety,
endorser (other than as endorser of negotiable instruments in the ordinary
course of business), accommodation endorser or otherwise for the Debts or
obligations of any other Person (other than a subsidiary or other affiliate
controlled by Borrower to the extent such Debt is permitted under Section
5.02.B), including without limitation any Hazardous Materials Claims (as defined
in Article IX hereof), except as to any Obligation.
F. Auditor. Permit the replacement of Coopers & ▇▇▇▇▇▇▇ as Borrower's
independent certified public accountants, except by independent certified
accountants satisfactory to Lender in its sole discretion.
G. Loans, Advances, Investments. Make any loans or advances to, or
investments in, any Person, other than (i) credit terms offered to customers and
advances to suppliers in the ordinary course of Borrower's business, (ii)
deposits (other than certificates of deposit) held by federally-insured banks,
(iii) investments in commercial paper maturing in two hundred-seventy (270) days
or less from the date of issuance which is rated Al or better by Standard &
Poor's Corporation or P1 or better by ▇▇▇▇▇'▇ Investors Services, Inc., (iv)
investments in direct obligations of the United States of America or obligations
of any agency thereof which are guaranteed by the United States of America,
provided that such obligations mature within twelve months of the date of
acquisition thereof, (v) investments in certificates of deposit maturing within
one year from the date of acquisition thereof, issued by a bank or trust company
organized under the laws of the United States or any state thereof, having
capital, surplus and undivided profits aggregating at least One Hundred Million
Dollars ($100,000,000) and the long-term deposits of which are rated A or better
by ▇▇▇▇▇'▇ Investors Services, Inc. or equivalent by Standard & Poor's
Corporation, (vi) investments in banker's acceptances maturing within five (5)
days from the date of acquisition thereof, issued by a bank which meets the
criteria set forth in clause (v) of this Section 5.02.G, (vii) investments in or
loans and advances to an Affiliate of Borrower formed to facilitate the
financing, acquisition, development, building, management and/or maintenance of
coal
28
briquetting facilities, or (viii) agreements with a third party to purchase a
coal briquetting facility from the Borrower or an affiliate of Borrower on an
installment basis.
H. Salaries and Other Compensation and Perquisites; Payments to
Related Persons. Make any payments to a Related Person, other than pay
compensation in any fiscal year of Borrower in the amounts and to the Persons
listed on Schedule 5.02.H.
I. Pension Plans. Create an ERISA Plan.
J. No Material Adverse Change. Permit any Material Adverse Change to
occur or enter into any transaction, contract or agreement or make any material
change in or to any of Borrower's business objectives, purposes or operations
which in any respect may reasonably be expected to cause a Material Adverse
Change.
K. Removal, Storage and Preparation of Records. Either (i) remove any
of Borrower's records from the locations set forth on Schedule 4.10 attached
hereto, other than in the ordinary course of business or (ii) enter into, modify
or terminate any agreement with an accounting firm or service bureau for the
preparation or maintenance of Borrower's accounting records.
L. Stock Transactions. Distribute, sell, issue or convey any shares of
Borrower's capital stock except in compliance with all applicable state and
federal securities laws.
M. Fiscal Year. Change the fiscal year end of Borrower from September
30.
N. Assignment of Rents. Assign, as lessor or sublessor as the case may
be, the rents, royalties or income of the Collateral or any part thereof (other
than to Lender or as a consequence of the grant of Permitted Liens).
O. Acquisitions. Purchase or otherwise acquire (i) all or
substantially all of the assets of or (ii) any class of stock of or (iii) any
partnership or joint venture interest in or with, any Person, except in
connection with the construction, financing, maintenance, operation or sale of a
briquetting facility in the ordinary course of Borrower's business.
P. Affiliate Transactions. Enter into, or be a party to, any
transaction with any of Borrower's Related Persons, except in the ordinary
course of business pursuant to
29
the reasonable requirements of Borrower's business and upon fair and reasonable
terms which were fully disclosed in writing to Lender and are no less favorable
to Borrower than Borrower could obtain in a comparable arm's length transaction
with a Person who is not a Related Person.
Q. Sales. Back date, post date or redate any Account, invoice or sale.
R. Prepayments. Voluntarily prepay any Debt prior to the stated
maturity thereof.
SECTION 5.03. Collateral. Borrower further agrees and covenants to:
A. Promptly deliver possession to Lender, and assign for security
purposes to Lender, all chattel paper, instruments, certificated securities and
documents necessary for the perfection of Lender's senior security interests in
the Collateral, subject to Permitted Liens; provided, however, that until the
occurrence of an Event of Default or the occurrence and continuance of a
Default, Lender will, upon Borrower's request, return possession of such chattel
paper, instruments and documents to Borrower, as Lender's bailee or agent, but
only to the extent reasonably necessary for Borrower to enforce or collect the
goods or obligations evidenced by such chattel paper, instruments and documents.
B. If Lender requests, (i) promptly execute and deliver to Lender any
notice, financing or continuation statement, instrument, document, agreement or
other papers (including any assignment of claim form under or pursuant to the
federal Assignment of Claims Act, 31 USC ss. 3726, or any successor or amended
version thereof, or any regulation promulgated under or pursuant to any version
thereof), (ii) stamp on its records concerning the Collateral (and/or enter in
its computer records concerning the Collateral) and add on all chattel paper
constituting a portion of the Collateral a notation, in form satisfactory to
Lender, of Lender's security interest hereunder and/or (iii) perform any act
reasonably requested by Lender that may be necessary or that Lender may deem
advisable to create, perfect, preserve, validate or otherwise protect any of
Lender's security interests in the Collateral, subject to Permitted Liens, or to
enable Lender to exercise and enforce Lender's rights hereunder or with respect
to any such security interests.
C. Refrain from signing or filing or authorizing the signing or filing
of any financing statement(s) under the Uniform Commercial Code of any
jurisdiction with respect to the Collateral or any portion thereof in which
Borrower is named as
30
debtor, except as herein provided or in connection with Permitted Liens, and
refrain from delivering possession of any of Borrower's assets to any Person,
except as herein provided or in the ordinary course of Borrower's business.
D. Provide Lender with ten (10) Business Days' prior written notice of
any proposed transfer or change in any of Borrower's sites or facilities from
the jurisdictions set forth in Schedule 4.10 hereof, and/or the addition or
creation of new sites, facilities or places of business in jurisdictions other
than those set forth in Schedule 4.10, in each case, wherein any Collateral is
to be located for any period of time whatsoever. In addition, Borrower agrees to
provide Lender with ten (10) Business Days' prior written notice if any
Collateral is or will be removed from the jurisdictions set forth in Schedule
4.10 for a period of more than one (1) month. Borrower further agrees (i) to
execute and deliver to Lender, prior to (A) any such change in jurisdiction, (B)
the use or operation of any such site, facility or place of business by or on
behalf of Borrower, or (C) such removal of any such Collateral, all instruments,
documents and other agreements (including financing statements and/or amendments
thereto or documents or certificates of title) as Lender may require to perfect,
or assure the continued perfection of, a first priority lien and/or security
interest in all such Collateral (except for Permitted Liens), and (ii) to pay to
Lender, upon demand, all reasonable costs and expenses (including Attorneys'
Fees and disbursements) incurred by Lender in connection with the preparation,
execution and delivery of such documents.
E. Promptly notify Lender in writing if Borrower acquires an item of
Collateral worth in excess of Fifty Thousand Dollars ($50,000) that is covered
by a document or certificate of title or similar document or instrument.
F. Cause the Collateral to be maintained and preserved in the same
condition, repair and working order as when acquired by Borrower, ordinary wear
and tear excepted, and forthwith, or in the case of any loss or damage to any of
the Collateral, promptly after the occurrence thereof, make or cause to be made
all repairs, replacements, and other improvements in connection therewith which
are necessary or desirable to such end and which are economically reasonable,
and not permit any material item of Collateral to become a fixture to real
estate or an accession to any personal property which is not part of the
Collateral.
G. Pay promptly when due all property and other taxes, assessments and
governmental charges or levies imposed upon, and all claims (including claims
for labor, materials and supplies) against, the Collateral, except to the extent
the
31
validity thereof is being contested by appropriate proceedings, promptly
initiated and conducted in good faith and with due diligence and so long as
Lender's interest in the Collateral is not impaired or jeopardized.
H. Until Lender exercises its rights to collect Accounts, collect with
diligence all of Borrower's Accounts.
ARTICLE VI
DEFAULT
SECTION 6.01. Events of Default. The occurrence of any of the following
acts, events or conditions shall, without any notice, grace or right to cure
except as expressly provided in this Agreement, constitute an event of default
("Event of Default") hereunder:
A. Borrower shall fail to pay (i) without demand, any principal or
interest due for any of the Obligations owing to Lender (whether under this
Agreement, the Note) which failure continues for three (3) days from when due,
or (ii) within ten (10) days following demand, any other amounts owing to Lender
(whether under this Agreement, the Note, or any other of the Loan Documents) not
referred to in clause (i) due for any of the Obligations or any other fees or
other amounts not referred to in clause (i).
B. Borrower shall fail to perform or observe any covenant set forth in
Sections 5.01.C, or Section 5.02.A, 5.02.B, 5.02.C, 5.02.D, 5.02.E, 5.02.F, or
5.02R hereof.
C. Borrower shall fail to perform or observe any term, covenant or
condition (i) set forth in Sections 5.01.B, or 5.01.J within fifteen (15) days
after a Responsible Officer has knowledge thereof, or (ii) otherwise contained
herein and not specified in clauses (A), (B) or (C)(i) of this Section 6.01,
which continues for fifteen (15) days after written notice thereof to Borrower;
provided, however, that if such failure is curable and a delay in exercising
Lender's rights under Article VII will not materially and adversely affect the
Collateral or the rights of Lender, so long as Borrower is diligently pursuing
such cure, Borrower shall have an additional period after the initial written
notice to cure such failure, not to exceed seventy-five (75) days; provided,
further however, that Borrower shall not be entitled to any notice or
opportunity to cure under this Section 6.01.C if Lender has, on two (2)
occasions in the previous six (6) month period, given Borrower notice under this
Section 6.01.C.
32
D. Any representation or warranty hereunder or under any of the other
Transaction Documents shall have been untrue or misleading in any material
respect when made.
E. A default shall occur under any agreement, document or instrument
(other than the Transaction Documents), to which Borrower is a party, the
consequences of which would have an adverse effect potentially involving Fifty
Thousand Dollars ($50,000) or more relating to the business of Borrower, on the
Collateral, relating to Lender's interest in the Collateral, or relating to
Borrower's ability to pay or perform the Obligations.
F. The entry of an order for relief under Title 11 of the United
States Code as to Borrower or the determination of such Borrower as insolvent or
bankrupt pursuant to the provisions of any state insolvency or bankruptcy laws;
the commencement by Borrower of any case, proceeding or other action seeking any
reorganization, arrangement, composition, adjustment, liquidation, dissolution
or similar relief for itself under any present or future statute, law or
regulation relating to bankruptcy, insolvency, reorganization or other relief
for debtors; Borrower's consent to, acquiescence in or attempt to secure the
appointment of any Receiver of all or any part of its properties or of the
Collateral; Borrower shall generally not pay its debts as they become due or
shall admit in writing its inability to pay its debts or shall make a general
assignment for the benefit of creditors; or Borrower (including the board of
directors of Borrower) shall take any corporate action to authorize any of the
acts set forth above in this paragraph.
G. Any case, proceeding or other action against Borrower shall be
commenced seeking to have an order for relief entered against it as a debtor or
seeking any reorganization, arrangement, composition, adjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation relating to bankruptcy, insolvency, reorganization or other relief
for debtors, or seeking appointment of any Receiver for Borrower or for all or
any substantial part of its property, and such case, proceeding or other action
is not dismissed within sixty (60) days after it is filed.
H. The filing of any claim or Lien (other than Permitted Liens)
against the Collateral or any part thereof, and the continued maintenance of
such claim or Lien for a period of thirty (30) days without discharge,
satisfaction or adequate bonding thereof, or the sale, hypothecation, conveyance
or other disposition of any of the Collateral other than within the ordinary
course of Borrower's business.
33
I. Any of the Transaction Documents, at any time after their
respective execution and delivery and for any reason, shall cease to be in full
force and effect as executed and delivered in their entirety or be declared null
and void, or the validity or enforceability thereof shall be contested by
Borrower or any stockholder of Borrower, or Borrower shall deny any liability or
obligation ascribed to it under any of the Transaction Documents.
J. Any of the Security Documents, at any time after their respective
execution and delivery and for any reason, shall cease to constitute valid and
subsisting liens and/or valid and perfected security interests in and to the
property purported to be subject thereto.
K. A judgment, order or decree has been entered or otherwise made
effective against Borrower in an amount equal to or greater than Fifty Thousand
Dollars ($50,000) and either (i) such judgment, order or decree is not vacated
or stayed pending appeal within thirty (30) days after the date of entry or the
effective date thereof, or (ii) if so stayed, the stay is lifted or the appeal
is unsuccessful, or (iii) such judgment is not paid, settled or otherwise
discharged or satisfied within thirty (30) days.
L. Lender declares an Event of Default pursuant to Section 9.06
hereof.
M. Any (i) event of default (howsoever designated) shall occur under
any other Transaction Document which permits Lender or any of its Affiliates to
accelerate the Obligations or terminate such Transaction Document, or (ii) other
default (howsoever designated) shall occur under any other Transaction Document
and such default shall continue after any applicable grace and notice periods
applicable thereto, or, if no grace or notice period is provided, such default
is not remedied within thirty (30) days after written notice thereof.
N. Borrower shall fail to pay any amount of principal on any Debt (but
excluding Debt evidenced by the Note) of Borrower in an aggregate amount of more
than Fifty Thousand Dollars ($50,000), or any interest or premium thereon, when
due (whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) and such failure shall continue after the applicable grace period, if
any, specified in the agreement or instrument relating to such Debt; or any
default under any agreement or instrument relating to any such Debt, or any
other event, shall occur and shall continue after the applicable grace period,
if any, specified in such agreement or instrument, if the effect of such default
or event is to accelerate, or to permit the acceleration of, the
34
maturity of such Debt; or any such Debt shall be declared to be due and payable,
or required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof.
P. Any Person or related group of Persons acquires, or obtains the
right to acquire, whether pursuant to options, warrants or otherwise, more than
fifty percent (50%) of any class of the then outstanding voting common stock of
Borrower (calculated, in the case of any options, warrants or similar rights, as
if such Person's or group's right to acquire voting stock, and no other
unrelated Person's rights, were exercised).
ARTICLE VII
RIGHTS, POWERS AND REMEDIES UPON DEFAULT
SECTION 7.01. Remedies. If any Event of Default shall occur and continue,
Lender may, at its election, and without demand or notice of any kind, do any
one or more of the following:
(i) Declare all of Borrower's Obligations to Lender to be
immediately due and payable, whereupon all unpaid principal, interest and fees
in respect of such Obligations, together with all of Lender's costs, expenses
and Attorneys' Fees related thereto, whether under the terms of this Agreement,
the other Transaction Documents or otherwise, shall be immediately due and
payable;
(ii) Exercise any and all rights and remedies available to Lender
under any applicable law, including without limitation all remedies of a secured
party under the Code (whether or not the Code applies to the affected
Collateral) and also (a) require Borrower, at Borrower's sole expense, to
promptly assemble all or part of the Collateral as directed by Lender and make
it available to Lender at a place or places to be designated by Lender (which
may include Borrower's place of business, where the Collateral may be stored at
Borrower's expense), and (b) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at Borrower's place of business, at any of Lender's offices or elsewhere, for
cash, on credit or for future delivery, and upon such other terms as Lender may
deem commercially reasonable; provided, that (a) to the extent notice of such
sales shall be required by law, at least ten (10) day's notice to Borrower of
the times and places of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification, (b) Lender shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given and, (c) Lender may adjourn
35
any public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned;
(iii) Exercise any and all rights and remedies granted to Lender
under the terms of this Agreement or any of the other Transaction Documents;
(iv) Instruct any warehouseman then in possession or custody of
any of the Collateral to act thenceforth only on instructions of Lender;
(v) Foreclose or otherwise enforce any or all of Lender's
security interests in any manner permitted by law, or provided for in this
Agreement or the other Loan Documents or in any security agreement entered into
by Lender and Borrower, in such order as Lender in its sole and absolute
discretion may determine;
(vi) Exercise, to the extent permitted by applicable law, the
following rights and remedies regarding the appointment of a Receiver: (a)
Lender may have a Receiver appointed as a matter of right; (b) the Receiver may
be an employee of Lender and may serve without bond; and (c) all fees of the
Receiver and his or her attorney shall become part of the Obligations and shall
be payable on demand, with interest at the Default Interest Rate from date of
expenditure until repaid;
(vii) At any time, without prior notice to Borrower, collect
Collateral Proceeds and give notice of Lender's security interest to any and all
Persons, and Borrower does hereby irrevocably make, constitute and appoint
Lender its true and lawful attorney-in-fact, coupled with an interest and with
power of substitution, with power: to receive, open and dispose of all mail
addressed to Borrower; to endorse the names of Borrower upon any checks or other
evidences of payment that may come into the possession of Lender upon the
Collateral or as proceeds of Collateral; to endorse on behalf of Borrower any
document or instrument constituting or relating to the Collateral; in Borrower's
name or otherwise, to demand, ▇▇▇ for, collect and give acquittance for, any and
all moneys due or to become due upon the Collateral; to compromise, prosecute or
defend any action, claim or proceeding with respect thereto; and to do any and
all things necessary and proper to carry out the purpose herein contemplated; at
any time in Lender's discretion, transfer any Collateral into its own name or
that of its nominee and receive the payments, rents, income, and revenues
therefrom, hold the same as security for the Obligations and, at Lender's option
or upon Borrower's written
36
request, apply it to payment of the Obligations in such order of preference as
Lender may determine; and insofar as the Collateral consists of Intangibles,
insurance policies, instruments, chattel paper, choses in action, or similar
property, Lender may demand, collect, receipt for, settle, compromise, adjust,
▇▇▇ for, foreclose, or realize on the Collateral as Lender may in Good Faith
determine, whether or not any Obligations are then due; and
(viii) apply any proceeds of insurance toward payment of the
Obligations, whether or not due, in such order of application as Lender may
determine.
SECTION 7.02. Protection and Preservation of Collateral and Rights;
Protective Advances. Upon the occurrence and during the continuance of any
Default or upon the occurrence and during the continuance of an Event of
Default, if Borrower shall fail to make any payment or perform any act provided
in this Agreement or any of the other Transaction Documents, Lender may, but
shall not be obligated to, without notice to or demand upon Borrower, make any
such payment or perform any such act, and further may pay, purchase, contest or
compromise any Lien on any of the Collateral that in the reasonable judgment of
Lender appears to affect said property. Borrower hereby irrevocably appoints
Lender as its true and lawful attorney-in-fact, coupled with an interest and
with power of substitution, to make any such payment and/or perform any such
act. In exercising any of said powers, Lender may, but shall not be obligated
to, incur any liabilities and expend whatever amounts which Lender in Good Faith
may deem necessary therefor. All sums so incurred or expended by Lender shall be
part of the Obligations and shall be due and payable by Borrower to Lender,
together with interest thereon from the date of expenditure at the Default
Interest Rate, together with all costs and expenses, including Attorneys' Fees,
incurred by Lender in connection with the exercise of its rights hereunder,
immediately on demand by Lender.
SECTION 7.03. Election. Lender shall have the right to enforce one or
more remedies hereunder, successively or concurrently, and such action shall not
operate as an election of remedies or otherwise operate to estop or prevent
Lender from pursuing any further remedies which it may have.
SECTION 7.04. Waiver. No failure or delay on the part of Lender, or of
any holder of any instrument delivered to Lender in connection with this
Agreement, in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise of any other
power, right or privilege. All rights and remedies
37
existing under this Agreement or any other agreement, document or instrument
executed and delivered by Borrower to Lender are cumulative to, and not
exclusive of, any rights or remedies otherwise available under any applicable
law.
SECTION 7.05. Power of Attorney. Borrower hereby irrevocably appoints
Lender as its true and lawful attorney-in-fact, coupled with an interest and
with power of substitution, to do any and all of the following after the
occurrence and during the continuance of an Event of Default: to take control in
any manner of any cash and noncash items of payment or Proceeds of Collateral
which come into Lender's possession; to endorse the name of Borrower on any
notes, acceptances, checks, drafts, money orders, chattel paper or other
evidences of payment that may come into Lender's possession; to sign Borrower's
name on any invoice or document relating to any Collateral, on drafts against
customers, and on notices to customers; to notify the post office authorities to
change the address for delivery of Borrower's mail to an address designated by
Lender; to receive, open and process all mail addressed to Borrower; and to do
all things necessary to preserve or protect the Collateral and to otherwise
carry out this Agreement. Provided Lender acts in Good Faith, Borrower ratifies
and approves all acts of such attorney, and neither Lender nor the attorney
shall be liable for any acts or omissions nor for any error of judgment or
mistake of fact or law absent gross negligence or willful misconduct by Lender.
All checks or other forms of remittance so received by Lender shall be endorsed
in such manner as Lender may designate. Borrower's signature or name, as may be
appropriate, may be inserted by Lender in longhand, in typewriting or by rubber
stamp. Every such endorsement, however signed or made, shall be deemed to be the
valid endorsement of Borrower. Borrower further hereby irrevocably appoints
Lender as its true and lawful attorney-in-fact, coupled with an interest and
with power of substitution, for the purpose, at any time or times, of executing
for Borrower, and in Borrower's name, financing statements and amendments
thereto with respect to any of the Collateral and filing any of the same.
Borrower further agrees that a copy of this Agreement may be filed as a
financing statement.
SECTION 7.06. Entry Upon Premises. Upon the occurrence and during the
continuance of a Default or upon the occurrence and during the continuance of an
Event of Default, Lender shall have the right to enter upon the premises of
Borrower and upon any premises where Collateral located or believed to be
located and to receive and open all mail directed to Borrower; provided,
however, that Lender shall use reasonable efforts to turn over to Borrower all
such mail which does not relate to the Collateral. Lender shall have the right
to obtain access
38
to Borrower's data processing equipment, computer hardware and computer software
relating to or containing information regarding the Collateral and to use all of
the foregoing and the information contained therein in any manner Lender in Good
▇▇▇▇▇ ▇▇▇▇▇ appropriate. Lender is hereby granted a license and right to use,
without charge, until the Obligations are fully and finally paid in cash,
Borrower's labels, patents, copyrights and rights of use of any name, trade
secrets, trade names, trademarks, service marks, advertising material or any
property of a similar nature in completing the production, advertising for sale
and sale of any Collateral.
SECTION 7.07. Notification of Customers. At any time or times after the
occurrence and during the continuance of any Event of Default, Lender shall have
the right to contact any Person obligated to Borrower on any Account or other
right to payment and to instruct such Account Debtor or other person to deliver
all payments directly to Lender.
SECTION 7.08. Failure to Pay. If Borrower fails to make any payment or
deposit, furnish the required proof or take the required action, as provided in
this Agreement or any of the other Transaction Documents, Lender may, in its
sole and absolute discretion after notice to Borrower, make payment of the same
or part thereof or take the required action. Lender may conclusively rely on the
usual statements of the amount owing or other official statements issued by the
appropriate governmental agency. Each amount so paid by Lender and cost or
expense incurred by Lender shall be part of the Obligations and shall be due and
payable by Borrower to Lender, together with interest thereon from the date of
expenditure at the Default Interest Rate, together with all costs and expenses,
including Attorneys' Fees, incurred by Lender in connection with the exercise of
its rights hereunder, immediately on demand by Lender. No payment made by Lender
or cost or expense incurred by Lender shall constitute (i) an agreement by it to
make similar payments or incur any similar cost or expense in the future, or
(ii) a waiver by Lender of any Default or Event of Default under this Agreement.
Lender need not inquire as to, or contest the validity of, any expense, tax,
security interest, encumbrance or Lien, and receipt of the usual official notice
of the payment thereof shall be conclusive evidence that the same was validly
due and owing.
SECTION 7.09. Application of Collateral Proceeds. After the occurrence and
during the continuance of an Event of Default, Borrower hereby grants to Lender
the right to, and upon Borrower's written request Lender shall, apply any and
all Proceeds from the sale or disposition of the Collateral towards the payment
of the Obligations in such order as Lender from time to time may elect. Lender
shall have no obligation to
39
reconvey any of the Collateral unless and until all of the Obligations have been
satisfied and discharged in full.
SECTION 7.10. Enforcement of Borrower's Rights. Lender shall have no
obligation to take any action to enforce any rights running to the benefit of
Borrower in respect of any items of Collateral, to preserve any rights in or to
the Collateral against any Person, to make any demand upon or pursue or exhaust
any rights or remedies against Borrower or others with respect to payment of the
Obligations, to pursue or exhaust any rights or remedies with respect to any of
the Collateral or any other security for the Obligations, or to ▇▇▇▇▇▇▇▇ any
assets in favor of Borrower or any other Person against or in payment of any or
all of the Obligations. To the extent that Borrower makes a payment to Lender or
Lender enforces a security interest or exercises its rights of set off and such
payment or the proceeds of such enforcement or setoff or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
avoided and/or required to be repaid under any bankruptcy law, state or federal
law, common law or equitable cause, then, to the extent of such recovery, the
Obligations or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect with all Collateral as security therefor,
as if such payment had not been made or such enforcement or setoff had not
occurred.
SECTION 7.11. Exercise of Remedies. Borrower acknowledges that portions of
the Collateral may be difficult to preserve and dispose of and may be subject to
complex maintenance and management; accordingly, Borrower agrees that Lender
shall have the widest possible latitude in the method and manner of the exercise
of its rights, powers and remedies under this Agreement.
SECTION 7.12. Equitable Remedies. Borrower recognizes that if it fails to
perform, observe or discharge of its obligations or liabilities under this
Agreement, any remedy at law may prove to be inadequate relief to Lender.
Therefore, Borrower agrees that Lender, if Lender so requests, shall be entitled
to temporary and permanent injunctive relief in any such case without the
necessity of proving, but without waiving, actual damages.
ARTICLE XIII
GENERAL PROVISIONS
SECTION 8.01. Survival of Terms. The warranties, representations, covenants
and agreements set forth herein and in any other Loan Documents executed in
conjunction herewith or contemplated hereby shall be cumulative and in addition
to any
40
and all warranties, representations, covenants and agreements which Borrower may
give, or cause to be given, to Lender hereafter, and shall remain effective
until the first of the following to occur: (i) the termination of the
Commitments and the satisfaction in full of all of the Obligations under the
Loan Documents, or (ii) the conversion of all of the outstanding Term Loans and
Commitments into Shares pursuant to Article X hereof; provided, however, that
the Registration Rights Agreement and all of the Purchase Agreement Documents
shall survive; provided, further, that the obligations under Section 8.13 and
Article IX shall survive. Notwithstanding the foregoing, from and after the
closing of the transfer of the Alabama Project pursuant to the Alabama Project
Purchase Agreement, the covenants contained in Sections 5.01.D, 5.01.H, 5.01.I,
5.01.M and 5.03 shall terminate.
SECTION 8.02. Presentment. Lender shall not be required to make
presentment, demand or protest or, except as may otherwise be expressly provided
in this Agreement or in any other agreements, documents and instruments executed
in conjunction herewith or contemplated hereby, give any notice or take any
action to preserve rights against Borrower or any other Person or the Collateral
in connection with any provision of the Loan Documents.
SECTION 8.03. Successors and Assigns. This Agreement shall bind and inure
to the benefit of the respective successors and assigns of each of the parties;
provided, however, that neither party may assign this Agreement or any rights
hereunder without the other party's prior written consent, and any prohibited
assignment shall be absolutely void; provided, further, that such prohibition on
assignment shall in no event apply to the transfer of Shares after Conversion
pursuant to Article X hereof, which shall remain in the sole control and
discretion of Lender (subject to the representations and warranties contained in
Article XI hereof); provided, further, that such prohibition on assignment shall
in no event apply to the assignment by Lender of all or any portion of its
rights hereunder after the occurrence of an Event of Default. All references to
"Lender" herein shall be deemed to refer to and include Lender's respective
successors and assigns. No consent to any assignment by Lender shall release
Borrower of any of the Obligations.
SECTION 8.04. Number. The singular includes the plural and the plural
includes the singular, if the context so requires.
SECTION 8.05. Governing Law. Without regard to principles of conflicts of
law, the Transaction Documents, including without limitation this Agreement,
shall be construed
41
in accordance with and governed by the laws of the State of Utah, and all
matters or disputes directly or indirectly relating to or arising in connection
with the Transaction Documents, or otherwise relating to the debtor-creditor
relationship between Borrower and Lender, shall be governed by the laws of the
State of Utah; provided, however, that where applicable (and except as otherwise
defined herein), terms used herein shall have the meanings given them in the
Code; provided further, that with respect to enforcement by Lender of remedies
against any Collateral which is real property, nothing in this paragraph shall
bar application of the law of the jurisdiction where such real property
Collateral is situated.
SECTION 8.06. Notices and Addresses; Payments.
A. All notices required or permitted to be given under this Agreement
shall be in writing. Notices may be served by certified or registered mail,
postage paid with return receipt requested; by private courier, prepaid; by
telex, facsimile, or other telecommunication device capable of transmitting or
creating a written record; or personally. Mailed notices shall be deemed
delivered five days after mailing, properly addressed. Couriered notices shall
be deemed delivered when delivered as addressed, or if the addressee refuses
delivery, when presented for delivery notwithstanding such refusal. Telex or
telecommunicated notices shall be deemed delivered when receipt is either
confirmed by confirming transmission equipment or acknowledged by the addressee
or its office. Personal delivery shall be effective when accomplished. Unless a
party changes its address by giving notice to the other party as provided
herein, notices shall be delivered to the parties at the addresses set forth in
Schedule 8.06.
B. All payments provided for in this Agreement or the other
Transaction Documents shall be delivered, in the manner set forth in such
documents, to Lender by wire transfer in accordance with the instructions set
forth in Schedule 8.06.
SECTION 8.07. Severability; Independence of Covenants. Each provision of
this Agreement shall be severable from each other provision of this Agreement
for the purpose of determining the legal enforceability of any specific
provision. All covenants under this Agreement shall be given independent effect
so that if a particular action, event or condition is not permitted by any of
such covenants, then the fact that it would be permitted by an exception to, or
be otherwise within the limitations of, another covenant shall not avoid the
occurrence of a Default or an Event of Default if such action is taken, event
occurs, or condition exists.
42
SECTION 8.08. Time. Time is of the essence of this Agreement and the other
Transaction Documents.
SECTION 8.09. Necessity of Writing. Any consent, modification, amendment,
notice or waiver hereof or hereunder must be in writing and signed by an
authorized officer of Lender to be effective and enforceable against Lender, and
this Agreement cannot be changed orally or by conduct of the parties.
SECTION 8.10. Integration. This Agreement, together with the Schedules and
Exhibits referred to herein and the other Transaction Documents, is intended by
the parties as a final expression of their agreement, as a complete and
exclusive statement of the terms and conditions thereof, and fully to integrate
the parties' agreement. No prior understandings, proposals or agreements not
contained herein or in the Transaction Documents shall be binding upon or
enforceable against the parties. Acceptance of or acquiescence in a course of
performance under the Transaction Documents shall not be relevant in determining
the meaning of the Transaction Documents, even though the accepting or
acquiescing party had knowledge of the nature of the performance and opportunity
for objection. The rule of law that ambiguities in a document are to be
construed against the drafter shall not apply to the interpretation of this
Agreement or the Transaction Documents.
SECTION 8.11. Captions. The captions in this Agreement and on the Exhibits
hereto are for convenience of reference only and shall not modify or alter the
operative provisions hereof.
SECTION 8.12. Lender's Expenses and Attorneys' Fees.
A. Following any Event of Default or Default, Borrower shall pay to
Lender, promptly on demand therefor, all of Lender's costs and expenses
resulting from such Default or Event of Default. Without limiting the generality
of the foregoing, such sums shall include all Attorneys' Fees and reasonable
consultants' fees or accountants' fees incurred by Lender following such Default
or Event of Default in exercising, supervising, enforcing or defending any of
its rights, powers or remedies provided by this Agreement, by any of the other
Transaction Documents, or by law, whether or not suit is filed. Borrower agrees
that neither any of Borrower's obligations hereunder nor any payments made by
them hereunder shall result in any waiver by Lender of its attorney-client
privilege or any other of its privileges with respect to the legal
representation for which reimbursement is to be made pursuant hereto.
43
B. All sums so incurred or expended by Lender pursuant to subsection A
of this Section 8.12 shall be part of the Obligations and shall be due and
payable by Borrower to Lender, together with interest thereon from the date of
expenditure at the Default Interest Rate, immediately on demand by Lender.
SECTION 8.13. Indemnification.
A. Borrower hereby agrees to indemnify and defend Lender and the
officers, directors, employees and agents of Lender (herein collectively called
the "Indemnitees" and individually each called an "Indemnitee") from, and hold
the Indemnitees harmless against, any and all losses, liabilities, claims,
damages or expenses, including attorneys' fees and disbursements (all of the
foregoing being herein collectively called the "Indemnified Liabilities")
incurred by any Indemnitee in connection with any investigation, litigation or
proceedings arising out of, or relating to, the Term Loan; provided, however,
that the foregoing indemnity shall not apply to any litigation brought by an
Indemnitee against Borrower which is determined adversely to such Indemnitee or
to losses, liabilities, claims, damages or expenses arising out of any violation
by an Indemnitee of a statutory duty or the gross negligence or willful
misconduct of such Indemnitee. If and to the extent that the foregoing indemnity
may be unenforceable for any reason, Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
B. Lender hereby agrees to indemnify and defend Borrower and the
officers, directors, employees and agents of Borrower (herein collectively
called the "Borrower Indemnitees" and individually each called a "Borrower
Indemnitee") from, and hold the Borrower Indemnitees harmless against, any and
all losses, liabilities, claims, damages or expenses, including attorneys' fees
and disbursements (all of the foregoing being herein collectively called the
"Indemnified Liabilities") incurred by any Borrower Indemnitee in connection
with any investigation, litigation or proceedings arising out of a breach of the
representations of Lender under Section 11.1 hereof; provided, however, that the
foregoing indemnity shall not apply to any litigation brought by any Borrower
Indemnitee against Borrower which is determined adversely to such Borrower
Indemnitee or to losses, liabilities, claims, damages or expenses arising out of
any violation by a Borrower Indemnitee of a statutory duty or the gross
negligence or willful misconduct of such Borrower Indemnitee. If and to the
extent that the foregoing indemnity may be unenforceable for any reason,
Borrower hereby agrees to make the maximum contribution
44
to the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
C. All obligations provided for in this Section 8.13 shall survive any
termination of this Agreement.
SECTION 8.14. Agreement Governs. In the event of any inconsistency between
the provisions of this Agreement and any other Transaction Documents other than
the Note, the provisions of this Agreement shall govern and control. In the
event of any inconsistency between the provisions of this Agreement and the
provisions of the Note, the provisions of the Note shall govern and control.
SECTION 8.15. Third Party Beneficiaries. This Agreement is made and entered
into for the sole protection and benefit of the parties hereto and their
permitted successors and assigns, and neither this Agreement nor any of the
other Transaction Documents is intended to operate as, directly or indirectly,
nor shall be construed as effecting in any way, directly or indirectly, a
waiver, estoppel, discharge, release, or other modification of the parties'
rights against any Person, nor shall any other Person have any right of action
hereunder or be entitled to rely hereon or on the existence hereof or claim any
rights or benefits hereunder.
SECTION 8.16. Jurisdiction.
A. Borrower hereby irrevocably agrees that any legal action, suit, or
proceedings against any of them with respect to any of the Obligations or any
other matter under or arising out of or in connection with this Agreement, the
Note or the other Transaction Documents or for recognition or enforcement of any
judgment rendered in any such action, suit or proceedings may be brought in the
United States Courts sitting in the State of Utah, or in the courts of the State
of Utah, as Lender may elect, and, by execution and delivery of this Agreement,
Borrower hereby irrevocably accepts and submits to the non-exclusive
jurisdiction of the aforesaid courts in personam generally and unconditionally
with respect to any such action, suit, or proceeding for itself and in respect
to of any of its property.
B. Borrower further agrees that final judgment against it in any
action, suit, or proceeding referred to herein shall be conclusive and may be
enforced in any other jurisdiction, within or outside the United States of
America, by suit on the judgment, a certified or exemplified copy of which shall
be conclusive evidence of the fact and of the amount of Borrower's obligations
and liabilities. Borrower hereby irrevocably appoints the Person so designated
on
45
Schedule 8.06 hereto as its agent for service of process in any action, suit or
proceeding referred to herein. Should the Person designated by Borrower under
this Section 8.16.B cease to be available for service of process, Borrower will
forthwith irrevocably designate a designee, appointee and agent within the City
of Salt Lake City, State of Utah, which shall irrevocably consent to act as
such, with the powers and for the purposes specified in this subsection.
C. Borrower further irrevocably consents and agrees to the service of
any and all legal process, summons, notices, and documents out of any of the
aforesaid courts in any such action, suit or proceeding by mailing copies
thereof by registered or certified mail, postage prepaid, to the Borrower at its
address referred to in Section 8.06 hereof, or to any other address of which
Borrower shall have given notice pursuant to said Section 8.06 hereof, or to its
then designee, appointee and agent for service. Borrower agrees that service
upon Borrower or any such designee, appointee and agent as provided for herein
shall constitute valid and effective personal service upon Borrower and that the
failure of any such designee, appointee and agent to give any notice of such
service to Borrower shall not impair or affect in any way the validity of such
service or any judgment rendered in any action or proceeding based thereon.
D. Nothing in this Section 8.16 shall, or shall be construed so as to,
limit the right of Lender to bring actions, suits or proceedings with respect to
the Obligations of Borrower under, or any other matter arising out of or in
connection with, this Agreement, the Note or the other Transaction Documents, or
for recognition or enforcement of any judgment rendered in any such action, suit
or proceeding, in the courts of whatever jurisdiction in which the office of
Lender may be located or the property of Borrower may be found or as otherwise
shall to Lender seem appropriate, or to affect the right to service of process
in any jurisdiction in any other manner permitted by law.
E. In addition, Borrower hereby irrevocably and unconditionally waives
any objection which Borrower may now or hereafter have to the laying of venue of
any of the aforesaid action, suits or proceedings arising out of or in
connection with this Agreement, the Note, or the other Transaction Documents
brought in any of the aforesaid courts, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim that any such action,
suit or proceeding brought in any such court has been brought in an inconvenient
forum.
46
SECTION 8.17. WAIVER OF JURY TRIAL. EACH OF BORROWER AND LENDER HEREBY
IRREVOCABLY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THE OBLIGATIONS, THE TRANSACTION DOCUMENTS, THE DEBTOR-CREDITOR
RELATIONSHIP OF BORROWER AND LENDER OR THE ACTIONS OF LENDER IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
SECTION 8.18. Execution in Counterparts. This Agreement may be executed in
any number of counterparts, each of which when so executed shall be deemed to be
an original and all of which when taken together shall constitute one and the
same Agreement.
ARTICLE IX
ENVIRONMENTAL PROVISIONS
SECTION 9.01. Definitions. For the purposes of this Article IX, the
following terms shall have the following meanings:
"Business" is defined as the business and operations conducted by
Borrower in connection with the Real Property Collateral.
"Environmental Obligations" is defined in Section 9.07 hereof.
"Expenses" is defined in Section 9.05 hereof.
"Hazardous Materials" means any (a) asbestos in any form, urea
formaldehyde foam insulation, transformers or other equipment which contain
dielectric fluid containing levels of polychlorinated byphenyls or radon gas;
(c) any chemical, material or substance defined as or included in the definition
of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely
hazardous waste", "restricted hazardous waste", "toxic substances" or words of
similar import under any applicable Hazardous Materials Laws.
"Hazardous Materials Claims" means any enforcement, cleanup, removal,
remedial or other governmental or regulatory demand, actions, agreements or
orders threatened, instituted, pending or completed pursuant to any Hazardous
Materials Laws, together with any claims made or threatened by any third party
against any of Borrower, Lender or any Collateral relating to damage,
contribution, cost recovery, compensation, loss or injury resulting from the
presence, release or discharge of any Hazardous Materials.
47
"Hazardous Materials Laws" means the following Federal laws, and their
implementing regulations, as well as any amendments to such laws, and all State
and local laws and ordinances which apply to the Real Property Collateral and
which regulate the same subject matter: (a) the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA), 42 USC 9601 et seq.; (b) the
Solid Waste Disposal Act, 42 USC 6901 et seq., including the Resource
Conservation and Recovery Act (RCRA) and the laws governing Underground Storage
Tanks; (c) the Toxic Substances Control Act (TSCA), 15 USC 2601 et seq.,
including those provisions governing use and disposal of Polychlorinated
Biphenyls (PCBs); (d) the Hazardous Materials Transportation Act (HMTA), 49 USC
1801, et seq.; (e) the Federal Insecticide, Fungicide and Rodenticide Act
(FIFRA), 7 USC 136 et seq.; (f) those portions of the Clean Air Act governing
toxic air emissions, 42 USC 7401 et seq.; (g) those portions of the Clean Water
Act governing toxic water pollutants and oil spills, 33 USC 1251 et seq.; (h)
the Emergency Planning and Community Right-to-know Act (EPCRA, ▇▇▇▇ Title III),
42 USC 11001 et seq.; and (i) those portions of the Occupational Safety and
Health Act (OSHA) governing worker safety with respect to hazards from chemical
substances, including requirements for Material Safety Data Sheets, 29 USC 651,
et seq.
"Remedial Work" is defined in Section 9.04 hereof.
"Tenant" means any tenant under any lease or occupancy agreement
affecting any part of the Real Property Collateral.
SECTION 9.02. Representations and Warranties. Borrower hereby represents
and warrants that, to the best of its knowledge after due inquiry, except as
otherwise specifically disclosed to Lender in a writing dated the date hereof:
(a) except as described on Schedule 9.02 hereto, no Hazardous Materials exist
on, under or about any of the Collateral or Borrower's business premises in
violation of any Hazardous Materials Laws, to the satisfaction of the relevant
government agency that enforces such laws, (b) the Business is and has been in
compliance with all Hazardous Materials Laws, to the satsifaction of the
relevant government agency that enforces such laws, (c) Borrower has not
received any notice of, and to the best knowledge of Borrower after due
investigation, there are no existing or threatened Hazardous Materials Claims,
(d) all Hazardous Materials generated in connection with the Business are and
have been transported and disposed of on or off-site in compliance with all
Hazardous Materials Laws, to the satsifaction of the relevant government agency
that enforces such laws, and (e) no storage tanks are or have been located on or
under the Collateral within the last five years.
48
SECTION 9.03. Covenants. Until it has satisfied and discharged all
Obligations, Borrower shall (or shall cause its Affiliates to, as the case may
be):
A. Compliance with Laws. Comply with all Hazardous Materials Laws, to
the satisfaction of the relevant government agency that enforces such laws.
B. Presence of Materials. Without limiting the generality of Section
9.02 hereof, except where done in compliance with all applicable Hazardous
Materials Laws, not install, use, generate, manufacture, store, release or
dispose of, nor permit the installation, use, generation, storage, release or
disposal of Hazardous Materials on, under or about any Collateral or Borrower's
business premises, nor transport or permit the transportation of Hazardous
Materials to or from any Collateral or Borrower's business premises.
C. Notification. Promptly advise Lender in writing of (i) any and all
Hazardous Materials Claims, (ii) Borrower's discovery of any release, discharge
or disposal of any Hazardous Materials on, under or about any Collateral, (iii)
Remedial Work taken by Borrower in response to any Hazardous Materials on, under
or about any Collateral or to any Hazardous Materials Claims, (iv) Borrower's
discovery of any release, discharge or disposal of any Hazardous Materials on,
under or about any real property adjoining or in the vicinity of any Collateral,
or (v) Borrower's discovery of any occurrence or condition on any Collateral or
any real property adjoining or in the vicinity of any Collateral that could
cause any Collateral to be subject to any restrictions on the ownership,
occupancy, transferability or use under any Hazardous Materials Laws.
D. Environmental Condition. Promptly provide Lender with copies of all
reports, analyses, notices, licenses, permits, approvals, orders,
correspondences or other written materials relating to the environmental
condition of any Collateral or Hazardous Materials Claims promptly upon receipt,
completion or delivery of such materials.
F. Tanks. Not install or allow to be installed any additional
underground tanks on any Collateral.
G. Liens. Not create or permit to continue in existence any lien upon
any Collateral imposed pursuant to any Hazardous Materials Laws.
SECTION 9.04. Borrower's Remedial Work. Borrower shall undertake any and
all remedial work ("Remedial Work") (i) required by any governmental
authority(ties) in connection
49
with any Hazardous Materials Claims instituted or completed by such governmental
authority(ies) or (ii) reasonably required to respond to any other Hazardous
Materials Claims; provided however, that Borrower shall undertake such Remedial
Work in good faith so as to minimize any impairment to Lender's security under
the Loan Documents. All Remedial Work shall be conducted (a) in a diligent and
timely fashion; (b) pursuant to a detailed written plan for the Remedial Work
approved by any public or private agencies or persons from which such approval
is required; (c) with such insurance coverage pertaining to liabilities arising
out of the Remedial Work as is then customarily maintained by companies
similarly situated to Borrower with respect to such activities; and (d) only
following receipt of any required permits, licenses or approvals. Borrower shall
submit to Lender, promptly upon receipt or preparation, copies of any and all
reports, studies, analyses, correspondence, governmental comments or approvals,
proposed removal or other Remedial Work contracts and similar information
prepared or received by Borrower in connection with any Remedial Work or
Hazardous Materials relating to any Property Collateral. All costs and expenses
of such Remedial Work shall be paid by Borrower, including the charges of the
Remedial Work contractors and any consulting environmental engineer, any taxes
or penalties assessed in connection with the Remedial Work and Lender's
reasonable fees and costs (including Attorneys' Fees and consultant fees)
incurred in connection with monitoring or review of such Remedial Work. Lender
shall have the right, but not the obligation, to join and participate in, as a
party if Lender so elects, any legal proceedings or actions initiated in
connection with any Hazardous Materials Claims.
SECTION 9.05. Indemnity. Borrower shall protect, defend, indemnify and hold
Lender, and its directors, officers, employees and agents, and any successors to
any of Lender's interests in the Obligations or any portion thereof or any
interest therein, and any Person who acquires any Collateral at a foreclosure
sale or otherwise through the exercise of Lender's rights and remedies under the
Transaction Documents, and any successors to any such Person, and all directors,
officers, employees and agents of all of the aforementioned indemnified parties,
harmless from and against any and all claims, liabilities, obligations, damages,
losses, fines, penalties, judgments, awards, costs and expenses (including
attorneys' fees and costs and expenses of investigation) which arise out of or
relate in any way to any Hazardous Materials Claims or any use, handling,
production, transportation, disposal, release or storage of any Hazardous
Materials in, under or on any Collateral or Borrower's business premises,
whether by Borrower or by any Tenant or any other Person, including (a) all
foreseeable and all unforeseeable
50
consequential damages directly or indirectly arising out of (i) Hazardous
Materials Claims or the use, generation, storage, discharge or disposal of
Hazardous Materials by any Borrower, any prior owner or operator of any
Collateral or Borrower's business premises, or the business or operations of
Borrower, or any Person on or about any Collateral or Borrower's business
premises; (ii) any residual contamination affecting any natural resource or the
environment; (iii) any exercise by Lender of any of its rights and remedies
hereunder; and (iv) Lender's reliance on any representation or warranty made
herein or in any certificate delivered after the date hereof pursuant hereto, if
such representation or warranty proves to be materially false or misleading; and
(b) the costs of any required or necessary repair, cleanup, closure or
detoxification of any Collateral or Borrower's business premises and the
preparation of any closure or other required plans. All such costs, damages,
claims and expenses heretofore described and/or referred to in this Section 9.05
are hereinafter referred to as "Expenses". In the event any Hazardous Material
is caused to be removed from any of the Collateral or Borrower's business
premises by Borrower, Lender or any other Person, the number assigned by the
Environmental Protection Agency to such Hazardous Material or any similar
identification shall be solely in the name of Borrower, and Borrower shall
assume any and all liability for such removed Hazardous Material.
SECTION 9.06. Remedies Upon Default. In addition to any other rights or
remedies Lender may have under this Agreement, at law or in equity, in the event
that: (i) Borrower shall fail timely to comply with any of the provisions of
this Article IX; (ii) any representation or warranty made herein or in any
certificate delivered after the date hereof pursuant hereto proves to be
materially false or misleading; or (iii) Borrower changes or alters the present
use of any Collateral or Borrower's business premises in a manner which will
result in the presence of Hazardous Materials on any Collateral or Borrower's
business premises at a level which may increase the potential liability for
Hazardous Materials Claims, then, in such event Lender may, after (a) delivering
written notice to Borrower, which notice specifically states that Borrower have
failed to comply with the provisions of this Article IX and (b) the expiration
of the earlier to occur of (x) the thirty (30) day period after giving of such
notice or, if Borrower commences cure during such thirty (30) day period, such
longer period as is reasonably required by Borrower to effect such cure using
reasonable diligence, but in any event no longer than one hundred and twenty
(120) days, or (y) the cure period, if any, permitted under the applicable law,
rule, regulation or order with which Borrower shall have failed to comply, (i)
declare an Event of Default under this Agreement
51
and exercise any and all remedies provided for therein, and/or (ii) do or cause
to be done whatever is necessary to cause the Collateral or Borrower's business
premises to comply with all Hazardous Materials Laws and other applicable law,
rule, regulation or order and the cost thereof shall constitute an Expense
hereunder and shall become immediately due and payable without notice and with
interest thereon at the Default Interest Rate until paid. Borrower shall give
Lender and its agents and employees access to the Collateral or Borrower's
business premises for the purpose of effecting such compliance and hereby
specifically grant to Lender a license, effective upon expiration of the
applicable cure period, if any, to do whatever is necessary to cause the
Collateral or Borrower's business premises to so comply, including to enter the
Collateral or Borrower's business premises and remove therefrom any Hazardous
Materials.
SECTION 9.07. Continuing Obligations. The obligations set forth in this
Article IX, including Borrower's obligation to pay Expenses hereunder
(collectively, the "Environmental Obligations"), are secured by the Collateral.
Notwithstanding any term or provision contained herein or in the Transaction
Documents, the Environmental Obligations shall not be limited to the original
principal amount of the Term Loan. The Environmental Obligations shall survive
the termination of this Agreement, the repayment of the Obligations and any
foreclosure, deed in lieu of foreclosure or similar proceedings by or through
which Lender or any successors or assigns or any other Person bidding at a
foreclosure sale may obtain title to the Collateral or any portion thereof.
SECTION 9.08. Other Laws. Nothing in this Article IX, and no exercise by
Lender of its rights or remedies under this Article IX or this Agreement, shall
impair, constitute a waiver of, or in any way affect Lender's rights and
remedies with respect to Borrower under any Hazardous Materials Laws, including
without limitation, contribution provisions or private right of action
provisions under such Hazardous Materials Laws.
SECTION 9.09. Security Interest. The parties acknowledge that if any
indicia of title is held by Lender under the Loan Documents, it is held by
Lender solely to protect Lender's liens and security interests.
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ARTICLE X
CONVERSION RIGHTS
SECTION 10.01. Conversion.
A. Lender shall have the right, subject to the terms and provisions of
this ARTICLE X, at the option of the Lender, (i) at any time, to convert, the
unpaid principal amount of the Term Loans or any portion thereof, and any
accrued and unpaid interest on such Term Loans, and (ii) at any time prior to
the Termination Date, to simultaneously advance and convert all or any portion
of the remaining Commitment, or after the Commitment Period, to simultaneously
advance and convert an amount equal to the amount of the Commitment, if any,
which was not advanced as a Term Loan during the Commitment Period (it being
acknowledged that this does not extend the Commitment Period), into fully paid
and non-assessable shares of Borrower Common Stock or any capital stock or other
securities into which such Borrower Common Stock shall have been changed or any
capital stock or other securities resulting from a reclassification thereof
("Shares"). Such conversion of Term Loans and simultaneous advance and
conversion of the Commitment to Shares shall be made at an amount per Share
which is equal to the then Current Conversion Price, as further described below.
The Term Loans and Commitment shall continue to be convertible, in whole or in
part, even though Borrower may have given notice of prepayment of the Term Loans
or termination of the Commitment pursuant to Sections 2.01.D and 2.02.C, so long
as Lender's notice of election to convert has been delivered to Borrower within
the Early Termination period.
B. For convenience, the conversion pursuant to this Article X of all
or a portion of the principal amount of Term Loans (and/or of accrued and unpaid
interest if elected by Lender) and/or Commitment into Shares is herein sometimes
referred to as the "conversion" of the Term Loans/Commitment.
SECTION 10.02. Mechanics of Conversion.
A. Election and Payment. The then unpaid principal amount of the Term
Loans/Commitment (and/or, in the event of a conversion of any Term Loan, any
accrued and unpaid interest on such Term Loan) may be converted by Lender, in
whole or in part, during normal business hours on any Business Day during the
period such election can be made by written notice of Lender's election to
convert the Term Loans/Commitment or portion thereof, to Borrower at its office
designated pursuant to Section 8.06 hereof. Payment of the Conversion Price for
the Shares specified in such election shall be made by applying an aggregate
amount of unpaid principal of the Term
53
Loans/Commitment (and/or, in the event of a conversion of any Term Loan, any
accrued and unpaid interest on such Term Loan) equal to the amount obtained by
multiplying (i) the number of Shares specified in such election by (ii) the then
Current Conversion Price. Lender shall thereupon be entitled to receive the
number of Shares specified in such election (plus cash in lieu of any fractional
share as provided in Section 10.02.C hereof).
B. Effective Date. Each conversion of the Term Loans/Commitment
(and/or, in the event of a conversion of any Term Loan, any accrued and unpaid
interest on such Term Loan) pursuant to Section 10.02.A hereof shall be deemed
to have been effected immediately prior to the close of business on the Business
Day on which notice of Lender's election to convert the Term Loans/Commitment
shall have been given to Borrower as provided in Section 10.02.A hereof, and
such conversion shall be at the Current Conversion Price in effect at such time.
On each such day that the conversion of the Term Loans/Commitment (and/or, in
the event of a conversion of any Term Loan, any accrued and unpaid interest on
such Term Loan) is deemed effected, Lender shall be deemed to have become the
holder of record of such Shares.
C. Share Certificates and Cash for Fractional Shares. As promptly as
practicable after the conversion of the Term Loans/Commitment (and/or, in the
event of a conversion of any Term Loan, any accrued and unpaid interest on such
Term Loan), and in any event within five (5) Business Days thereafter, Borrower
at its expense (including the payment by it of any applicable issue, stamp or
other taxes, other than any income taxes) will cause to be issued in the name of
and delivered to Lender or as Lender may direct, a certificate or certificates
for the number of Shares to which Lender shall be entitled upon such conversion
plus, in lieu of any fractional share to which such holder would otherwise be
entitled, cash in an amount equal to the same fraction of the Conversion Price.
Lender shall return to Borrower the original promissory note on conversion of
all Term Loans and termination of the Commitment.
D. Payment of Accrued Interest. Within five (5) Business Days after
receipt of notice of Lender's election to convert all or a portion of the
principal amount of any Term Loan under Section 10.02.A hereof, Borrower will
pay to Lender any unpaid interest, accrued to the date of conversion of the Term
Loan, on the principal amount so converted, except to the extent that the amount
of such interest has also been converted into Shares.
54
SECTION 10.03. Current Conversion Price.
The term "Conversion Price" shall mean initially $7.00 per Share,
subject to adjustment as set forth in Section 10.04 hereof. The term "Current
Conversion Price" as used herein shall mean the Conversion Price, as the same
may be adjusted from time to time as hereinafter provided, in effect at any
given time. In determining the Current Conversion Price, the result shall be
expressed to the nearest $0.01, but any such lesser amount shall be carried
forward and shall be considered at the time of (and together with) the next
subsequent adjustment which, together with any adjustments to be carried
forward, shall amount to $0.01 per Share or more.
SECTION 10.04. Adjustment of Conversion Price. The Conversion Price shall
be subject to adjustment, from time to time, as follows:
A. Adjustments for Stock Dividends, Recapitali zations, Etc. In case
Borrower shall, after August 26, 1996, (i) pay a stock dividend or make a
distribution (on or in respect of its Borrower Common Stock) in shares of its
Borrower Common Stock, (ii) subdivide the outstanding shares of its Borrower
Common Stock, (iii) combine the outstanding shares of its Borrower Common Stock
into a smaller number of shares, or (iv) issue by reclassification of shares of
its Borrower Common Stock, any shares of capital stock of Borrower, then, in any
such case, the Current Conversion Price in effect immediately prior to such
action shall be adjusted to a price such that if Lender were to convert the Term
Loans/Obligations in full immediately after such action, Lender would be
entitled to receive the number of shares of capital stock of Borrower, which
Lender would have owned immediately following such action had such Term
Loans/Obligations been converted immediately prior thereto (with any record date
requirement being deemed to have been satisfied), and, in any such case, such
Conversion Price shall thereafter be subject to further adjustments under this
Article X. An adjustment made pursuant to this subsection (a) shall become
effective retroactively immediately after the record date in the case of a
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
B. Adjustments for Certain Other Distributions. In case Borrower
shall, after August 26, 1996 fix a record date for the making of a distribution
to holders of its Borrower Common Stock (including any such distribution made in
connection with a consolidation or merger in which Borrower is the continuing
corporation) of (i) assets, (ii) evidences of indebtedness or other securities
(except for its Borrower Common Stock) of Borrower or of any entity other than
Borrower,
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or (iii) subscription rights, options or warrants to purchase any of the
foregoing assets or securities, whether or not such rights, options or warrants
are immediately exercisable (all such distributions referred to in clauses (i),
(ii) and (iii) being hereinafter collectively referred to as "Distributions on
Common Stock"), Borrower shall set aside in an escrow reasonably acceptable to
Lender, and suitably invested for the benefit of Lender, the Distribution on
Common Stock to which Lender would have been entitled if Lender had converted
all of the Term Loans/Commitment for the Borrower Common Stock immediately prior
to the record date for the purpose of determining stockholders entitled to
receive such Distribution on Common Stock and any such Distribution on Common
Stock (together with any earnings while escrowed) shall thereafter be
distributed from out of such escrow to Lender (immediately upon conversion) to
the extent such Distribution on Common Stock relates to the portion of the Term
Loans/Commitment then being converted.
C. Adjustments for Issuances of Additional Stock. Subject to the
exceptions referred to in Section 10.04.E hereof, in case Borrower shall at any
time or from time to time after the date hereof issue any additional shares of
the Borrower Common Stock ("Additional Common Stock"), for a consideration per
share either (i) less than the then Current Conversion Price per share of the
Borrower Common Stock immediately prior to the issuance of such Additional
Common Stock, or (ii) without consideration, then (in the case of either clause
(i) or (ii)), and thereafter successively upon each such issuance, the Current
Conversion Price shall forthwith be reduced to a price equal to the price
determined by multiplying such Current Conversion Price by a fraction, of which
(1) the numerator shall be (i) the number of shares of the
Borrower Common Stock outstanding when the then Current Conversion
Price became effective plus (ii) the number of shares of the Borrower
Common Stock which the aggregate amount of consideration, if any,
received by Borrower upon all issuances of the Borrower Common Stock,
since the Current Conversion Price became effective (including the
consideration, if any, received for such Additional Common Stock)
would purchase at the then Current Conversion Price per share of the
Borrower Common Stock, and
(2) the denominator shall be (i) the number of shares of the
Borrower Common Stock outstanding when the Current Conversion Price
became effective plus (ii) the number of shares of the Borrower Common
Stock issued since the Current Conversion Price
56
became effective (including the number of shares of such Additional
Common Stock.
provided, however, that such adjustment shall be made only if such
adjustment results in a Current Conversion Price less than the Current
Conversion Price in effect immediately prior to the issuance of such
Additional Common Stock. Borrower may, but shall not be required to, make
any adjustment of the Current Conversion Price if the amount of such
adjustment shall be less than one percent (1%) of the Current Conversion
Price immediately prior to such adjustment, but any adjustment that would
otherwise be required then to be made which is not so made shall be carried
forward and shall be made at the time of (and together with) the next
subsequent adjustment which, together with any adjustments so carried
forward, shall amount to not less than one percent (1%) of the Current
Conversion Price immediately prior to such adjustment.
D. Certain Rules in Applying the Adjustment for Additional Stock
Issuances. For purposes of any adjustment as provided in Section 10.04.C hereof,
the following provisions shall also be applicable:
(i) Cash Consideration. In case of the issuance of Additional
Common Stock for cash, the consideration received by Borrower therefor shall be
deemed to be the net cash proceeds received by Borrower for such Additional
Common Stock after deducting any commissions or other expenses paid or incurred
by Borrower for any underwriting of, or otherwise in connection with the
issuance of, such Additional Common Stock.
(ii) Non-Cash Consideration. In case of the issuance of
Additional Common Stock for a consideration other than cash, or a consideration
a part of which shall be other than cash, (A) if value of Additional Common
Stock to be issued for such consideration is less than Fifty Thousand Dollars
($50,000), the amount of the consideration other than cash so received or to be
received by Borrower shall be deemed to be the value of such consideration at
the time of its receipt by Borrower as determined in good faith by the Board of
Directors of Borrower, and (B) if value of Additional Common Stock to be issued
for such consideration is equal to or greater than Fifty Thousand Dollars
($50,000), the amount of the consideration other than cash so received or to be
received by Borrower shall be deemed to be the value of such consideration at
the time of its receipt by Borrower as determined in good faith by an
independent appraiser approved by the Lender; provided, however, that where the
non-cash consideration consists of the cancellation, surrender or exchange of
outstanding obligations of Borrower (or where such obligations are otherwise
converted
57
into shares of the Borrower Common Stock), the value of the non-cash
consideration shall be deemed to be the principal and unpaid interest amount of
the obligations canceled, surrendered, satisfied, exchanged or converted. If
Borrower receives consideration, part or all of which consists of publicly
traded securities (i.e., in lieu of cash), the value of such non-cash
consideration shall be the aggregate market value of such securities (based on
the latest reported sale price, standard settlement) as of the close of the day
immediately preceding the date of its receipt by Borrower.
(iii) Options, Warrants, Convertibles, Etc. In case of the
issuance, whether by distribution or sale to holders of Borrower Common Stock or
to others, by Borrower of (i) any security that is convertible into Borrower
Common Stock or (ii) any rights, options or warrants to purchase the Borrower
Common Stock (except as stated in Section 10.04.E hereof), if inclusion thereof
in calculating adjustments under this Section 10.04 would result in a Current
Conversion Price lower than if excluded, Borrower shall be deemed to have
issued, for the consideration described below, the number of shares of the
Borrower Common Stock into which such convertible security may be converted when
first convertible, or the number of shares of the Borrower Common Stock
deliverable upon the exercise of such rights, options or warrants when first
exercisable, as the case may be (and such shares shall be deemed to be
Additional Common Stock for purposes of Section 10.04.C hereof). The
consideration deemed to be received by the Borrower at the time of the issuance
of such convertible securities or such rights, options or warrants shall be the
consideration so received determined as provided in Section 10.04.D(i) and (ii)
hereof after deducting any commissions or other expenses paid or incurred by
Borrower for any underwriting of, or otherwise in connection with, the issuance
of such convertible securities or rights, options or warrants, plus (x) any
consideration or adjustment payment to be received by Borrower in connection
with such conversion or, as applicable, (y) the aggregate price at which shares
of the Borrower Common Stock are to be delivered upon the exercise of such
rights, options or warrants when first exercisable (or, if no price is specified
and such shares are to be delivered at an option price related to the market
value of the subject Borrower Common Stock an aggregate option price bearing the
same relation to the market value of the subject Borrower Common Stock at the
time such rights, options or warrants were granted). If, subsequently, such
convertible security, rights, options or warrants is converted or exercised or
the Term Loans/Commitment is converted hereunder (1) such number of shares into
which such convertible security is convertible, or which are deliverable upon
the exercise of such rights, options or warrants, is increased or (2) the
conversion or exercise
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price of such convertible security, rights, options or warrants is decreased,
then the calculations under the preceding two sentences (and any resulting
adjustment to the Current Conversion Price under Section 10.04.C hereof) with
respect to such convertible security, rights, options or warrants, as the case
may be, shall be recalculated as of the time of such exercise or conversion but
giving effect to such changes (but any such recalculation shall not result in
the Current Conversion Price being higher than that which would be calculated
without regard to such issuance). On the expiration or termination of such
rights, options or warrants, or rights to convert, the Conversion Price
hereunder shall be readjusted (up or down as the case may be) to such Current
Conversion Price as would have been obtained had the adjustments made with
respect to the issuance of such rights, options, warrants or convertible
securities been made upon the basis of the delivery of only the number of shares
of the Borrower Common Stock actually delivered upon the exercise of such
rights, options or warrants or upon the conversion of any such securities and at
the actual exercise or Conversion Prices (but any such recalculation shall not
result in the Current Conversion Price being higher than that which would be
calculated without regard to such issuance).
(iv) Number of Shares Outstanding. The number of shares of the
Borrower Common Stock has at the time outstanding shall exclude all shares of
the Borrower Common Stock then owned or held by or for the account of Borrower
but shall include the aggregate number of shares of Borrower Common Stock at the
time deliverable in respect of the convertible securities, rights, options and
warrants referred to in Section 10.04.D(iii) and 10.04.E hereof; provided, that
to the extent that such rights, options, warrants or conversion privileges are
not exercised, such shares of Borrower Common Stock shall be deemed to be
outstanding only until the expiration dates of the rights, warrants, options or
conversion privileges or the prior cancellation thereof.
E. Exclusions from the Adjustment for Additional Stock Issuances. No
adjustment of the Current Conversion Price under Section 10.04.C hereof shall be
made as a result of or in connection with:
(i) the issuance of Shares upon conversion of the Term
Loans/Commitment;
(ii) the issuance of Borrower Common Stock to officers and
employees of Borrower or any Subsidiary, or the grant to or exercise by any such
persons of options to purchase Borrower Common Stock, all pursuant to the
Borrower's stock
59
option and stock purchase plans described on Schedule 10.04.E hereto; or
(iii) the issuance of Borrower Common Stock pursuant to any
convertible securities described on Schedule 10.04.E hereto.
To the extent that the issuance (or deemed issuance) of Borrower Common Stock
shall not result in any adjustment of the Current Conversion Price pursuant to
the provisions of this Section 10.04.E then such Borrower Common Stock shall not
be taken into account for purposes of determining any adjustment under clause
(B) of Section 10.04.C hereof.
F. Officer's Certification. Whenever the Current Conversion Price is
adjusted as provided in this Section 10.04, Borrower will promptly deliver to
Lender a certificate of its Chief Accounting Officer or Chief Financial Officer
setting forth the Current Conversion Price as so adjusted, the computation of
such adjustment and a brief statement of the facts accounting for such
adjustment. Upon the request of Lender, Borrower shall promptly (in any event,
within thirty (30) days of such request) obtain a certificate of a firm of
independent public accountants of recognized national standing selected by the
Board of Directors of Borrower (who may be the regular auditors of Borrower)
(the "Accountant Certificate") setting forth the Current Conversion Price as so
adjusted, the computation of such adjustment and a brief statement of the facts
accounting for such adjustment, and will mail to Lender a copy of such
Accountant Certificate. The determination set forth in the Accountant
Certificate shall be final and binding on both parties. If there is no change in
the amount of the original proposed adjustment or if the change (whether
increased or decreased) is less than five percent (5%) of the original proposed
adjustment, the cost of such Accountant Certificate shall be for the account of
Lender. In all other events, the cost of such Accountant Certificate shall be
for the account of Borrower.
G. Antidilution Adjustments under other Securities. Without limiting
any other rights available hereunder to Lender, if there is an antidilution
adjustment (x) under any security which is convertible into Borrower Common
Stock whether issued prior to or after the date hereof or (y) under any right,
option or warrant to purchase Borrower Common Stock whether issued prior to or
after the date hereof which (in the case of clause (x) or (y)) results in a
reduction in the exercise or purchase price with respect to such security,
right, option or warrant or results in an increase in the number of shares
obtainable under such security, right, option or warrant, then an adjustment
shall be made under this
60
Section 10.04.G to the Current Conversion Price hereunder. Any such adjustment
under this Section 10.04.G shall be whichever of the following results in a
lower Current Conversion Price: (A) a reduction in the Current Conversion Price
equal to the percentage reduction in such exercise or purchase price with
respect to such security, right, option or warrant or (B) a reduction in the
Current Conversion Price which will result in the same percentage increase in
the number of Shares available under this Article X as the percentage increase
in the number of shares available under such security, right, option or warrant.
Any such adjustment under this Section 10.04.G shall only be made if it would
result in a lower Current Conversion Price than that which would be determined
pursuant to any other antidilution adjustment otherwise required under this
Article X as a result of the event or circumstance which triggered the
adjustment to the security, right, option or warrant described in clause (x) or
(y) above (and if any such adjustment is so made under this Section 10.04.G,
then such other antidilution adjustment otherwise required under this Article X
shall not be made as a result of such event or circumstance).
H. Other Adjustments. In case any event shall occur as to which any of
the provisions of this Section 10.04 are not strictly applicable but the failure
to make any adjustment would not fairly protect the conversion rights
represented hereby in accordance with the essential intent and principles of
this Section 10.04, then, in each such case, Borrower shall make an adjustment
consistent with the intent and principles of this Section 10.04, provided,
however, that any such adjustment under this Section 10.04.H shall only be made
if it would result in a lower Current Conversion Price. Upon the request of
Lender, Borrower shall promptly (in any event, within thirty (30) days of such
request) appoint a firm of independent public accountants of recognized national
standing selected by the Board of Directors of Borrower (who may be the regular
auditors of Borrower), which shall give their opinion upon the adjustment, if
any, on a basis consistent with the essential intent and principles established
in this Section 10.04, necessary to preserve, without dilution, the conversion
rights represented hereby. Upon receipt of such opinion, Borrower will promptly
mail copies thereof to Lender and shall make the adjustments described therein.
If there is no change in the amount of the original proposed adjustment or if
the change (whether increased or decreased) is less than five percent (5%) of
the original proposed adjustment, the cost of such opinion shall be for the
account of Lender. In all other events, the cost of such Accountant Certificate
shall be for the account of Borrower.
I. Meaning of "Issuance". References in this Agreement to "issuances"
of stock by Borrower include issuances
61
by Borrower of previously unissued shares and issuances or other transfers by
Borrower of treasury stock not specifically identified on Schedule 10.04(E).
SECTION 10.05. Issuer's Consolidation or Merger.
Without limiting Section 5.02 hereof, if Borrower shall at any time
consolidate with or merge into another corporation (where Borrower is not the
continuing corporation after such merger or consolidation), or Borrower shall
sell, transfer or lease all or substantially all of its assets, or Borrower
shall change its Shares into property other than capital stock, then, in any
such case, Lender shall thereupon (and thereafter) be entitled to receive, upon
the conversion of the Term loans/Commitment, the securities or other property to
which (and upon the same terms and with the same rights as) Lender would have
been entitled if such conversion had occurred immediately prior to such
consolidation or merger, such sale of assets or such change (with any record
date requirement being deemed to have been satisfied), and such conversion
rights shall thereafter continue to be subject to further adjustments under this
Article X. Borrower shall take such steps in connection with such consolidation
or merger, such sale of assets or such change as may be necessary to assure
Lender that the provisions hereof shall thereafter be applicable in relation to
any securities or property thereafter deliverable upon the conversion of the
Term Loans/Commitment, including obtaining a written obligation to supply such
securities or property upon such conversion and to be so bound hereby.
SECTION 10.06. Notice to Lender.
In case at any time
(i) Borrower shall take any action which would require an adjustment
in the Current Conversion Price pursuant to Section 10.04.A, C or G; or
(ii) Borrower shall authorize the granting to the holders of Borrower
Common Stock of any Distributions on Common Stock as set forth in Section
10.04.B; or
(iii) there shall be any reorganization, reclassification or change of
Borrower Common Stock, or any consolidation or merger to which Borrower is
a party and for which approval of any stockholders of Borrower is required,
or any sale, transfer or lease of all or substantially all of the assets of
Borrower; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of Borrower;
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then, in any one or more of such cases, Borrower shall give written notice to
Lender, not less than twenty (20) days before any record date or other date set
for definitive action, of the date on which such action, distribution,
reorganization, reclassification, change, sale, transfer, lease, consolidation,
merger, dissolution, liquidation or winding-up shall take place, as the case may
be. Such notice shall also set forth such facts as shall indicate the effect of
any such action (to the extent such effect may be known at the date of such
notice) on the Current Conversion Price and the kind and amount of the shares
and other securities and property deliverable upon conversion of the Term
Loans/Commitment. Such notice shall also specify any date as of which the
holders of Borrower Common Stock of record shall be entitled to exchange their
Borrower Common Stock for securities or other property deliverable upon any such
reorganization, reclassification, change, sale, transfer, lease, consolidation,
merger, dissolution, liquidation or winding-up, as the case may be.
ARTICLE XI
REPRESENTATIONS OF LENDER
SECTION 11.01. Representations of Lender. Lender hereby represents and
warrants to Borrower as follows:
A. Lender is an Accredited Investor as defined under the Securities
Act of 1933, as amended (the "Act"). Lender has been provided with and reviewed
the SEC Filings and has made its own independent due diligence investigation of
Borrower; provided, however, that such investigation shall not impact in any
manner Borrower's responsibility for the representations and warranties made
hereunder. Lender is qualified to analyze the merits of an investment in
Borrower.
B. Lender acknowledges that the Term Loans and any Shares received by
it upon conversion of the Term Loans and/or Commitments have not been registered
under the Act and may not be transferred, assigned or resold unless registered
pursuant to the Act or pursuant to an exemption under the Act; provided,
however, that the foregoing shall not impact in any manner Borrower's
obligations under the Act.
C. Lender has entered into this Agreement, issued the Commitments to
make the Term Loans and acquired the Conversion rights hereunder without a view
towards sale or distribution thereof; provided, however, that, as set forth in
Section 8.03 hereof, the distribution of any Shares acquired after Conversion of
the Term Loans and/or Commitments shall be in the sole control and discretion of
Lender.
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D. On each date of Conversion of the Term Loans and/or Commitments
pursuant to Article X hereof, the representations and warranties of Lender
contained in this Article XI shall be deemed repeated.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
COVOL TECHNOLOGIES, INC.
By:
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Name:
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Title:
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PACIFICORP FINANCIAL SERVICES, INC.
By:
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Name:
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Title:
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64
Exhibit ▇.▇▇.▇▇
PROMISSORY NOTE
U.S. $5,000,0000 Dated as of March 20, 1997
or such amount thereof
as has been advanced
FOR VALUE RECEIVED, the undersigned, COVOL TECHNOLOGIES, INC., a
Delaware corporation ("Borrower"), PROMISES TO PAY to the order of PACIFICORP
FINANCIAL SERVICES, INC., an Oregon corporation ("Lender"), the principal amount
of Five Million Dollars ($5,000,000), or such amount thereof as has been
advanced, together with interest thereon at the Interest Rate (as hereinafter
defined) (collectively, the "Term Loan") from the date hereof until paid in
full, all in accordance with the terms of the Loan Agreement (as hereinafter
defined) and this Note.
For purposes of this Note, the following terms shall have the meanings
set forth below. Capitalized terms used but not otherwise defined herein shall
have the meanings ascribed thereto in the Loan Agreement.
"Default Interest Rate" means a rate per annum equal to the lesser of
(a) the highest rate allowed by law, or (b) the sum of the Interest Rate plus
three percent (3%).
"Interest Rate" means, for any day, a rate per annum equal to the
lesser of (a) the highest rate allowed by law, or (b) the sum of (i) the rate of
interest publicly announced by ▇▇▇▇▇▇ Guaranty Trust Company of New York in New
York City from time to time as its "prime rate" and (ii) two percent (2%) per
annum.
"Loan Agreement" means the Loan and Security Agreement dated as of
even date herewith by and between Borrower and Lender, as the same may be
amended, supplemented or otherwise modified from time to time.
Borrower shall pay interest on the unpaid principal balance of this
Note from the date hereof until the repayment in full thereof at the Interest
Rate. Interest shall be calculated based on a 365/366-day year and the actual
number of days elapsed, and shall be compounded monthly. Principal and accrued
and unpaid interest thereon, shall be due and payable on the Termination Date,
or on such earlier date as such sum shall become due and payable hereunder or
under the Loan Documents by virtue of acceleration in accordance with the
provisions hereof or of the Loan Agreement.
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In no contingency or event whatsoever shall the rate or amount of
interest paid by the Borrower under this Note exceed the maximum amount
permissible under the law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto. In the event that such court
determines that Lender has received interest under this Note in excess of the
maximum amount permitted by such law (i) Lender shall apply such excess to any
unpaid principal owed by Borrower to Lender or, if the amount of such excess
exceeds the unpaid balance of such principal, Lender shall promptly refund such
excess interest to Borrower and (ii) the provisions of this Note shall be deemed
amended to provide for such permissible rate. All sums paid, or agreed to be
paid, by Borrower which are, or hereafter may be construed to be, compensation
for the use, forbearance or detention of money shall, to the extent permitted by
applicable law, be amortized, spread and allocated throughout the full term of
such indebtedness until the indebtedness is paid in full.
Both principal and interest are payable in United States Dollars in
immediately available funds. All principal, interest and late charges shall be
paid to Lender pursuant to the payment provisions in the Loan Agreement.
The terms and provisions of the Loan Agreement are hereby incorporated
herein by this reference, and reference is made to the Loan Agreement for the
basic terms of the Term Loan. The Loan Agreement, among other things, contains
provisions for (i) acceleration of the maturity hereof upon the happening of
certain stated events and (ii) prepayments on account of principal hereof prior
to the maturity hereof upon the terms and conditions therein specified, which
prepayments shall be applied by Lender to payment of principal on the Term Loan
in inverse order of maturity.
Time is of the essence hereof, and upon the occurrence of an Event of
Default then this Note and any note(s) or other instrument(s) that may be taken
in renewal or extension of all or any part of the indebtedness evidenced hereby
or in replacement of this Note shall, at Lender's option, become immediately due
and payable without any further presentment, demand, protest or notice of any
kind, and thereafter interest shall continue to accrue at the Default Interest
Rate.
Furthermore, upon the occurrence of an Event of Default, Lender shall
have all of the rights and remedies granted to Lender under the Loan Agreement
and under all other Loan Documents, and notwithstanding anything to the contrary
contained herein, any amount of principal which is not paid when due (whether at
stated maturity, by acceleration or
2
otherwise) shall bear interest at the Default Interest Rate from the date due
until paid.
This Note shall bind and inure to the benefit of the Lender's
successors and permitted assigns; provided, however, that Lender may not assign
this Note without Borrower's prior written consent, and any prohibited
assignment shall be absolutely void; provided, further, that such prohibition on
assignment shall in no event apply to the assignment by Lender of all or any
portion of its rights hereunder after the occurrence of an Event of Default.
Borrower hereby waives presentment for payment, demand, notice of
dishonor and protest of this Note and further agrees that this Note shall be
deemed to have been made under and shall be governed by the laws of the State of
Oregon in all respects, including matters of construction, validity and
performance, and that none of its terms or provisions may be waived, altered,
modified or amended except as Lender may consent thereto in writing duly signed
by Lender or its authorized agent. No failure to exercise, and no delay in
exercising, any rights hereunder on the part of the holder hereof shall operate
as a waiver of such rights.
This Note is secured by the Collateral under the terms of the Loan
Agreement and is subject to the terms and conditions and entitled to the
benefits of the Loan Agreement and the other Loan Documents.
This Note shall be binding upon and inure to the benefit of the Lender
and its respective heirs, executors, administrators, personal representatives
and permitted successors and assigns.
WAIVER OF JURY TRIAL: THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED
UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THE OBLIGATIONS,
THE TRANSACTION DOCUMENTS, THE DEBTOR-CREDITOR RELATIONSHIP OF BORROWER AND
LENDER OR THE ACTIONS OF LENDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE
OR ENFORCEMENT THEREOF.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed as of the
date and year first above written.
COVOL TECHNOLOGIES, INC.
By:
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Name:
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Title:
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3
