EXHIBIT 10.12
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SECURITIES PURCHASE AGREEMENT
by and among
HEALTH FITNESS CORPORATION
AND THE OTHER LOAN PARTIES SIGNATORY HERETO
(as the Loan Parties)
and
BAYVIEW CAPITAL PARTNERS LP
(as the Purchaser)
Dated as of August 25, 2003
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TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS.............................................. 1
ARTICLE II PURCHASE AND SALE OF SECURITIES.......................... 8
2.01 Purchase and Sale........................................ 8
2.02 The Closings............................................. 9
2.03 Use of Proceeds.......................................... 9
2.04 Closing Fee.............................................. 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE LOAN PARTIES....... 9
3.01 Organization, Standing and Qualification................. 10
3.02 Subsidiaries and Investments............................. 10
3.03 Authority and Consents................................... 10
3.04 Financial Statements..................................... 11
3.05 Capitalization........................................... 11
3.06 No Material Adverse Change............................... 12
3.07 Litigation............................................... 12
3.08 Compliance with Laws and Other Instruments............... 12
3.09 Title to and Liens on Assets............................. 13
3.10 Solvency................................................. 13
3.11 Permits and Licenses..................................... 13
3.12 Taxes.................................................... 13
3.13 Margin Securities........................................ 14
3.14 Not an Investment Company................................ 14
3.15 Securities Laws.......................................... 14
3.16 Environmental Matters.................................... 14
3.17 Customer, Client, and Agent Relations.................... 15
3.18 Insurance................................................ 15
3.19 Employment or Severance Agreements....................... 15
3.20 Intellectual Property Rights............................. 15
3.21 Software and Information Systems......................... 16
3.22 Material Contracts....................................... 16
3.23 Liability to Clients and Customers....................... 17
3.24 Use of Proceeds; Restrictions under the SBIA............. 18
3.25 Small Business Concern................................... 18
3.26 Location of Employees and Assets......................... 18
3.27 No Payments Outside the Ordinary Course.................. 18
3.28 Related Party Transactions............................... 18
3.29 Certain Business Practices............................... 19
3.30 Brokers.................................................. 19
3.31 Acquisition Documents.................................... 19
3.32 Disclosure............................................... 19
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS......... 19
4.01 Partnership Existence and Power.......................... 20
4.02 Authorization............................................ 20
4.03 Litigation............................................... 20
4.04 Investment Intent........................................ 20
4.05 Investigation............................................ 21
ARTICLE V CLOSING CONDITIONS....................................... 21
5.01 Conditions to the Bridge Note Closing.................... 21
5.02 Conditions to the Final Closing.......................... 23
ARTICLE VI AFFIRMATIVE COVENANTS OF THE LOAN PARTIES................ 25
6.01 Payment of Notes......................................... 25
6.02 Reporting................................................ 25
6.03 Books and Records; Inspection and Examination............ 25
6.04 Compliance with Laws..................................... 26
6.05 Maintenance of Properties................................ 26
6.06 Insurance................................................ 26
6.07 Payment of Taxes and Claims.............................. 27
6.08 Maintenance of Existence................................. 27
6.09 Financial Covenants...................................... 27
6.10 Board of Directors....................................... 27
6.11 Replacement of Certificates.............................. 28
6.12 Retirement Plans......................................... 28
6.13 Filing of SEC Documents.................................. 28
6.14 Rule 144A................................................ 28
6.15 Environmental Matters.................................... 29
6.16 Notice of Event of Default............................... 29
6.17 SBIA Information......................................... 30
6.18 SBIA Compliance.......................................... 30
6.19 Other Agreements......................................... 30
ARTICLE VII NEGATIVE COVENANTS OF THE LOAN PARTIES................... 31
7.01 Liens.................................................... 31
7.02 Indebtedness............................................. 32
7.03 Guaranties............................................... 32
7.04 Investments and Loans.................................... 32
7.05 Dividends and Distributions.............................. 33
7.06 Sale of Assets........................................... 33
7.07 Consolidation and Merger; Acquisitions................... 33
7.08 Sale and Leaseback....................................... 33
7.09 Restrictions on Nature of Business....................... 33
7.10 Accounting............................................... 34
7.11 Issuances of Capital Stock............................... 34
7.12 Conflicts of Interest.................................... 34
7.13 Transactions with Affiliates............................. 34
7.14 Inconsistent Agreements.................................. 34
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7.15 Rental Obligations....................................... 34
7.16 Management............................................... 34
7.17 Organizational Documents................................. 34
7.18 Modification of Credit Agreements........................ 35
ARTICLE VIII INDEMNIFICATION.......................................... 35
8.01 Indemnification.......................................... 35
8.02 Notice................................................... 35
8.03 Defense.................................................. 35
ARTICLE IX EVENTS OF DEFAULT........................................ 36
9.01 Events of Default........................................ 36
9.02 Remedies................................................. 38
ARTICLE X MISCELLANEOUS............................................ 38
10.01 Survival of Representations and Warranties............... 38
10.02 Expenses................................................. 39
10.03 Governing Law............................................ 39
10.04 Notices.................................................. 39
10.05 Entire Agreement......................................... 40
10.06 Amendments; Consents; Waivers............................ 40
10.07 Severability of Invalid Provision........................ 40
10.08 Successors and Assigns................................... 41
10.09 Rules of Construction; Disclosure Schedule............... 41
10.10 Counterparts............................................. 41
10.11 Cumulative Remedies...................................... 41
10.12 Press Releases........................................... 41
10.13 Time is of the Essence................................... 41
10.14 Consent to Jurisdiction.................................. 42
10.15 Waiver of Jury Trial..................................... 42
10.16 Relationship of the Purchasers........................... 42
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RIDERS, EXHIBITS AND SCHEDULES
Riders
Reporting Rider
Financial Covenants Rider
Exhibits
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Exhibit A-1 - Bridge Note
Exhibit A-2 - Long Term Note
Exhibit B - Warrant
Exhibit C - Security Agreement
Exhibit D - Guaranty
Exhibit E - Series A Preferred Stock Rights and Preferences
Exhibit F - Registration Rights Agreement
Exhibit G - Escrow Agreement
Exhibit H - Opinion of Loan Parties' Counsel (Bridge Note Closing)
Schedules
Disclosure Schedule
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SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement") is made as of
August 25, 2003 by and among HEALTH FITNESS CORPORATION, a Minnesota corporation
(the "Company"), THE OTHER LOAN PARTIES SIGNATORY HERETO, and BAYVIEW CAPITAL
PARTNERS LP, a Delaware limited partnership ("Bayview")
BACKGROUND
A. Pursuant to an Asset Purchase Agreement by and among the
Company and ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ Health Care Systems Inc., a New Jersey corporation
(the "Seller"), dated the date hereof (the "Acquisition Agreement"), the Company
will acquire certain assets of the Seller (the "Acquisition").
B. The Company desires the Purchaser to purchase the Notes, the
Preferred Shares and the Warrant for an aggregate purchase price of $3,000,000
on the terms and conditions set forth in this Agreement which, along with funds
provided by the Senior Lender, will be used to consummate the Acquisition.
C. The Purchaser is willing to purchase the Notes, the Preferred
Shares and the Warrants from the Company on the terms and conditions set forth
in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises set forth below, the parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms have the meanings
indicated:
"Acquired Person" has the meaning set forth in the definition of
Permitted Acquisition.
"Acquisition" has the meaning set forth in paragraph A of the
Background.
"Acquisition Agreement" has the meaning set forth in paragraph A of the
Background.
"Acquisition Documents" means the Acquisition Agreement, together with
all other agreements, documents, and instruments executed and/or delivered
pursuant to the Acquisition Agreement.
"Affiliate" means, with respect to any Person, (i) any Person which
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person, (ii) any Person of
which five percent (5%) or more of the equity interest is held beneficially or
of record by such Person, (iii) with respect to a Person that is an individual,
any Family Member of such Person, or (iv) any business of which such Person or
any Family
Member of such Person is a director, officer, or employee. The term "control"
for purposes of this definition means the possession, directly or indirectly, of
the power to influence the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"Ancillary Agreements" means all the agreements and instruments
executed and/or delivered to consummate the transactions contemplated by this
Agreement, including without limitation the Bridge Note, Long Term Note, the
Warrant, the Security Agreement, the Guaranties, the Registration Rights
Agreement and the Escrow Agreement.
"Balance Sheet Date" has the meaning set forth in Section 3.04.
"Bridge Note" means the Senior Secured Subordinated Note to be issued
by the Company to the Purchaser at the Bridge Note Closing, substantially in the
form attached as Exhibit A-1 and in the aggregate principal amount of
$3,000,000.
"Bridge Note Closing" has the meaning set forth in Section 2.01.
"Bridge Note Closing Date" has the meaning set forth in Section 2.02.
"Change in Control" means any of the following:
(i) any Person or group (within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934) is or becomes the
beneficial owner, directly or indirectly, through a purchase, merger or
other acquisition transaction or series of transactions, of the capital
stock of the Company entitling such Person or group to control 50% or
more of the total voting power of the capital stock of the Company
entitled to vote generally in the election of directors, where any
voting capital stock of which such Person or group is the beneficial
owner that are not then outstanding are deemed outstanding for purposes
of calculating such percentage;
(ii) any consolidation of any Loan Party with, or merger
of any Loan Party into, any other Person, or any merger of another
Person into any Loan Party (excluding the merger of any Loan Party with
or into any other Loan Party so long as the Company remains in
existence after such merger); or
(iii) any sale or transfer of all or substantially all of
the assets of any Loan Party (other than the Company) to another Person
(other than a Loan Party).
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations adopted pursuant thereto.
"Commission" means the U.S. Securities and Exchange Commission.
"Common Stock" means the common stock, $0.01 par value per share, of
the Company.
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"Conversion Stock" means the Common Stock or other securities issued or
issuable upon any partial or complete exercise of the Warrant or conversion of
the Preferred Shares.
"Disclosure Schedule" means the disclosure schedule prepared by the
Loan Parties attached to this Agreement which sets forth the exceptions to the
representations and warranties contained in Article 3 and certain other
information called for by the Agreement.
"Environmental Laws" has the meaning set forth in Section 3.16.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations adopted pursuant thereto.
"Escrow Agreement" means the Escrow Agreement to be entered into by the
Purchaser, the Senior Lender (as escrow agent and as a lender) and the Seller,
substantially in the form attached as Exhibit G.
"Event of Default" has the meaning set forth in Section 9.01.
"Family Member" means, with respect to an individual, (i) each parent,
spouse, child, grandchild, brother, or sister of such individual, (ii) the
spouse or lineal descendants of each of such individual's parent, spouse, child,
grandchild, brother or sister, and (iii) each trust created for the benefit of
one or more of such persons and each custodian of property of one or more of
such persons.
"Final Closing" has the meaning set forth in Section 2.01.
"Final Closing Date" has the meaning set forth in Section 2.02.
"Financial Statements" has the meaning set forth in Section 3.04.
"GAAP" means United States generally accepted accounting principles,
consistently applied with prior periods.
"Guaranty" means each Guaranty to be made and given by the Guarantors
to and for the benefit of the Purchaser at the Bridge Note Closing,
substantially in the form attached as Exhibit D.
"Guarantors" means each Subsidiary of the Company, including, without
limitation, Health Fitness Rehab, Inc., a Minnesota corporation, Fitness Centers
of America, a California corporation, and Health Fitness Corporation of Canada,
Inc., an Alberta, Canada corporation.
"Hazardous Materials" means (i) any "hazardous waste" as defined by the
Resource Conservation and Recovery Act of 1976, as amended from time to time,
and regulations promulgated thereunder; (ii) any "hazardous substance" as
defined by the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended from time to time, and regulations promulgated
thereunder, (iii) any substance, the presence of which on any
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property now or hereafter owned, acquired or operated by any Loan Party or any
Subsidiary is prohibited by any Environmental Law; and (iv) any other substance
which any Environmental Law requires special handling in its collection,
storage, treatment or disposal.
"Hazardous Materials Contamination" means the contamination (whether
presently existing or occurring after the date of this Agreement) by Hazardous
Materials of any property owned, operated or controlled by any Loan Party or any
Subsidiary or for which any Loan Party or any Subsidiary has responsibility,
including, without limitation, improvements, facilities, soil, ground water, air
or other elements on, or of, any property now or hereafter owned, acquired or
operated by any Loan Party or any Subsidiary, and any other contamination by
Hazardous Materials for which any Loan Party or any Subsidiary is, or is claimed
to be, responsible.
"Indebtedness" means, without duplication (i) all indebtedness for
borrowed money, (ii) all indebtedness secured by any Lien (other than a Lien
securing obligations excluded from the definition of Indebtedness pursuant to
subpart (v) of this definition) existing on property owned subject to such Lien
whether or not the indebtedness secured thereby shall have been assumed, (iii)
all amounts representing the capitalization of leases in accordance with GAAP,
(iv) all notes payable and drafts accepted representing extensions of credit
whether or not representing obligations for borrowed money, (v) any obligation
owed for all or any part of the deferred purchase price of property or services
if the purchase price is due more than six months from the date the obligation
is incurred or is evidenced by a note or similar written instrument, (vi) all
obligations in respect of letters of credit, (vii) any advances under any
factoring agreement, and (viii) all guarantees, endorsements and other
contingent obligations with respect to liabilities of a type described in any of
clauses (i) through (vii) above.
"Intellectual Property" means all patents and patent rights, trademarks
and trademark rights, trade names and trade name rights, service marks and
service ▇▇▇▇ rights, service names and service name rights, brand names,
inventions, processes, formulae, copyrights and copyright rights, trade dress,
business and product names, logos, slogans, trade secrets, industrial models,
designs, methodologies, computer programs (including all source codes) and
related documentation, technical information, manufacturing, engineering and
technical drawings, know-how and all pending applications for and registrations
of patents, trademarks, service marks and copyrights.
"Interim Period Financial Statements" has the meaning set forth in
Section 3.04.
"Lien" means any lien, pledge, hypothecation, charge, mortgage,
security interest, encumbrance, claim, preference, right of possession, lease,
license, encroachment, covenant, infringement, interference, proxy, option,
right of first refusal, preemptive right, community property interest,
imperfection of title, condition or restriction of any nature (including any
restriction on the transfer of any asset, any restriction on the receipt of any
income derived from any asset, any restriction on the use of any asset and any
restriction on the possession, exercise or transfer of any other attribute of
ownership of any asset).
"Loan Party" means each of the Company, each Guarantor and any other
Person specifically designated from time to time as a Loan Party under this
Agreement.
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"Long Term Note" means the Senior Secured Subordinated Note to be
issued by the Company to the Purchaser at the Final Closing, substantially in
the form attached as Exhibit A-2.
"Material Adverse Effect" means, with respect to any Person, any effect
or series of effects that, either individually or in the aggregate, have a
material adverse effect on (i) the business, properties, financial condition,
operations, or performance of such Person, or (ii) the ability of such Person to
perform its obligations under this Agreement or any Ancillary Agreement.
"Note" means each of the Bridge Note and the Long Term Note.
"Organizational Documents" means, with respect to each Loan Party, the
Articles or Certificate of Incorporation and Bylaws of such Loan Party or, as
applicable, the Articles or Certificate of Organization, Operating Agreement or
other equivalent charter documents of such Loan Party.
"▇▇▇▇▇▇▇ Investment" means the purchase by ▇▇▇▇▇▇▇ Capital Management,
Inc. or one of its Affiliates from the Company of up to, but not exceeding,
500,000 shares of Series A Convertible Preferred Stock at a purchase price of
$1.00 per share.
"Permitted Acquisition" means an acquisition by a Loan Party of the
assets of, or the capital stock of, a Person (an "Acquired Person"), where (i)
the consent of the Purchasers to such acquisition has been obtained or (ii) each
of the following conditions is satisfied with respect to such acquisition:
(i) if such acquisition is of the capital stock of the
Acquired Person, either (A) such Acquired Person is merged with and
into the acquiring Loan Party substantially simultaneously with such
acquisition or (B) such Acquired Person (1) becomes a wholly-owned
Subsidiary of such Loan Party, (2) guarantees all the obligations of
the Loan Parties to the Purchasers under this Agreement and the
Ancillary Agreements in form and substance satisfactory to the
Purchasers, and (3) grants a security interest to the Purchasers
pursuant to a security agreement in form and substance substantially
similar to the Security Agreement which security interest is second in
priority only to the Senior Lender;
(ii) if such acquisition is of the capital stock of an
Acquired Person, such acquisition is not opposed by the board of
directors or equivalent governing body of the Acquired Person;
(iii) the assets which are the subject of an acquisition
which is an asset sale, or the primary assets of any Acquired Person of
which the capital stock is to be acquired, are reasonably related to
the Loan Parties' business;
(iv) at the time of such acquisition, no Event of Default
will have occurred and remain in effect and no Event of Default,
including, without limitation, a Change in
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Control, would occur as a result thereof on either an actual or pro
forma basis immediately after giving effect to such acquisition;
(v) the Loan Parties have provided to the Purchasers, no
later than 30 days prior to the date of consummation of the
acquisition, the following information and documentation pertaining to
the acquisition, in each case in form and substance satisfactory to the
Purchasers: (A) calculations certified by the chief financial officer
of the Company indicating pro forma compliance by the Loan Parties with
the Financial Covenants Rider subsequent to the Acquisition, (B)
historical financial statements of the Acquired Person for the three
full fiscal years of the Acquired Person immediately preceding the date
of the consummation of the acquisition (or, if the Acquired Person does
not have stand-alone historical financial statements or such financial
statements are not in the possession of the Loan Parties, a due
diligence review of the Acquired Person performed at the expense of the
Loan Parties by a nationally recognized accounting firm reasonably
acceptable to the Purchasers), (C) consolidated projections of the Loan
Parties and their Subsidiaries, by fiscal quarter, incorporating the
results of operations of the Acquired Person and detailing the
incremental EBITDA for each relevant fiscal period for the Acquired
Person, (D) a certificate of the chief financial officer of the Company
which sets forth the sources and uses of funds which will be required
to consummate the Acquisition, (E) a certificate of the chief financial
officer of the Company (1) certifying that the acquisition is a
Permitted Acquisition and (2) certifying that the Loan Parties have
conducted customary lien, litigation, and where applicable and
available, title, searches with respect to the Acquired Person and the
material assets to be acquired in the acquisition in all relevant
jurisdictions and with all relevant governmental agencies, and
attaching a summary of the results of such searches, and (F) such other
due diligence information and documentation as the Purchasers
reasonably request;
(vi) any deferred purchase price payable by the Loan
Parties and their Subsidiaries with respect to or as a result of such
acquisition (A) does not have any scheduled principal payment,
mandatory principal prepayment or sinking fund payment due prior to the
date that is one year after the final maturity of the Notes, (B) is not
secured by any Lien on any property of any Loan Party or any Subsidiary
other than capital stock or assets acquired from the Acquired Person,
(C) is not guaranteed by any Loan Party or Subsidiary, (D) is
subordinated by its terms in right of payment to the Notes pursuant to
provisions reasonably acceptable to the Purchasers, (E) is subject to
such financial and other covenants and events of defaults as may be
reasonably acceptable to the Purchasers and (F) is subject to such
payment blockage and delayed acceleration provisions as may be
reasonably acceptable to the Purchasers; and
(vii) such acquisition is approved by the Company's Board
of Directors.
"Permitted Liens" has the meaning set forth in Section 7.01.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization or government, or any agency or political
subdivision thereof.
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"Plan" means an employee benefit plan or other plan maintained for
employees of any Loan Party or any Subsidiary and governed by Title IV of ERISA.
"Preferred Shares" means the 1,000,000 shares of Series A Convertible
Preferred Stock to be issued by the Company to the Purchaser at the Final
Closing.
"Purchaser" means each of Bayview and any other Person specifically
designated from time to time as a Purchaser under this Agreement.
"Registration Rights Agreement" means the Registration Rights Agreement
to be entered into by the Purchaser and the Company, substantially in the form
attached as Exhibit F.
"Release Date" means the date that the funds are released from the
escrow account under the Escrow Agreement.
"Reportable Event" has the meaning assigned to that term in Title IV of
ERISA.
"SBA" means the U.S. Small Business Administration.
"SBA Forms" means the following SBA forms prepared by the Loan Parties
and the Purchaser in connection with the transactions contemplated by this
Agreement: (i) Initial Economic Data From Small Business Borrowers, (ii)
Certification of Intended Use of Loan Proceeds, (ii) Acknowledgement of Status,
(iv) Size Status Declaration (SBA Form 480), (v) Assurance of Compliance for
Nondiscrimination (SBA Form 652), and (vi) Portfolio Financing Report (SBA Form
1031).
"SBIA" means the Small Business Investment Act of 1958, as amended, and
the regulations adopted pursuant thereto.
"SBIC" means a small business investment company licensed under the
SBIA.
"Securities" means the Bridge Note, the Long Term Note, the Preferred
Shares and the Warrant.
"Securities Act" means the Securities Act of 1933, as amended, and the
regulations adopted pursuant thereto.
"Security Agreement" means the Security Agreement to be entered into by
the Purchaser and the Loan Parties at the Bridge Note Closing, substantially in
the form attached as Exhibit C.
"Seller" has the meaning set forth in paragraph A of the Background.
"Senior Credit Agreement" means the Credit Agreement between the
Company and the Senior Lender dated the date hereof.
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"Senior Indebtedness" means all indebtedness of the Company to the
Senior Lender.
"Senior Lender" means ▇▇▇▇▇ Fargo Bank, National Association, a
national banking association.
"Senior Subordination Agreement" means that certain Subordination
Agreement between the Purchaser and the Senior Lender dated the date hereof.
"Series A Convertible Preferred Stock" means the Series A Convertible
Preferred Stock, $.01 par value per share, of the Company.
"Series A Preferred Stock Designation" means the Certificate of
Designation, Preferences and Rights of Series A Convertible Preferred Stock in
the form attached as Exhibit E.
"Subsidiary" means any corporation, partnership, limited liability
company or other business entity of which an aggregate of 50% or more of the
outstanding voting stock, membership interests or other ownership interests are
at any time directly or indirectly owned by any Loan Party or any Subsidiary.
"Warrant" means the Warrant to be issued by the Company to the
Purchaser at the Final Closing, substantially in the form attached as Exhibit B.
ARTICLE II
PURCHASE AND SALE OF SECURITIES
2.01 Purchase and Sale.
(a) Bridge Note. Subject to the terms and conditions of
this Agreement, the Company agrees to sell to the Purchaser, and the Purchaser
agrees to purchase from the Company at the initial closing contemplated by this
Agreement (the "Bridge Note Closing"), the Bridge Note for an aggregate purchase
price of $3,000,000 (the "Purchase Price").
(b) Exchange of Bridge Note. Subject to the terms and
conditions of this Agreement, at the final closing contemplated by this
Agreement (the "Final Closing"), the Purchaser agrees to exchange the Bridge
Note for the Long Term Note, the Preferred Shares and the Warrant. The Company
and the Purchaser agree that the Long Term Note, the Preferred Shares and the
Warrant issued to the Purchaser constitute an "investment unit" for the purposes
of Section 1273(c)(2)(A) of the Code. In accordance with Sections 1273(c)(2)(A)
and 1273(b)(2) of the Code, the issue price of the investment units is the
Purchase Price. Allocating the Purchase Price among the Long Term Note, the
Preferred Shares and the Warrant in proportion to their fair market value, as
required by Section 1273(c)(2)(B) of the Code and Treasury Regulation Section
1.1273-2(h)(1), results in the following issue prices:
Long Term Note $ 2,000,000
Preferred Shares $ 1,000,000
Warrant $ 0
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Accordingly, no original issue discount will accrue on the
Long Term Note. None of the parties will take any position in its tax returns or
otherwise that is inconsistent with the allocation of the Purchase Price set
forth in this Section 2.01.
2.02 The Closings.
(a) Bridge Note Closing. The Bridge Note Closing will
occur at the offices of ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, P.A. in Minneapolis, Minnesota on
the date hereof or such later date as all of the conditions precedent stated in
Section 5.01 have been satisfied (the "Bridge Note Closing Date"). At the Bridge
Note Closing and subject to the satisfaction of the conditions precedent stated
in Section 5.01, the Purchaser will deliver the Purchase Price by wire transfer
of immediately available funds to the escrow agent in accordance with the terms
of the Escrow Agreement.
(b) Final Closing. The Final Closing will occur at the
offices of ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, P.A. in Minneapolis, Minnesota on the date of
closing of the Acquisition or such later date as all of the conditions precedent
stated in Section 5.02 have been satisfied (the "Final Closing Date"). At the
Final Closing and subject to the satisfaction of the conditions precedent stated
in Section 5.02, the Purchaser will deliver the Bridge Note to the Company for
cancellation in exchange for the Long Term Note, the Preferred Shares and the
Warrant. The parties acknowledge that any accrued but unpaid interest on the
Bridge Note will be paid to the Purchaser at the Final Closing.
2.03 Use of Proceeds. The Loan Parties will apply the proceeds of
the sale of the Securities (i) first, to the payment of the fees and expenses
associated with the transactions contemplated under this Agreement, (ii) second,
to the payment of the purchase price under the Acquisition Agreement and (iii)
third, to working capital and general corporate purposes.
2.04 Closing Fee. At the Bridge Note Closing the Loan Parties will
pay Bayview Capital Management LLC a closing fee of $45,000 by wire transfer of
immediately available funds to an account designated in writing by Bayview. The
closing fee will be fully earned and nonrefundable as of the Bridge Note
Closing. The parties acknowledge that (i) the Loan Parties have paid $30,000 to
Bayview in connection with the execution of the commitment letter dated July 31,
2003 between the Company and Bayview, and (ii) such payment will be applied
against the closing fee required to be paid hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE LOAN PARTIES
The Loan Parties, jointly and severally, represent and warrant to the
Purchaser as of the date of this Agreement and as of the Bridge Note Closing
Date, except as expressly indicated on the Disclosure Schedule which exceptions
are deemed to be representations and warranties as if made within this Article
3, as follows:
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3.01 Organization, Standing and Qualification. Each Loan Party is
duly organized, validly existing and in good standing under the laws of the
state of its organization as set forth on the Disclosure Schedule. Each Loan
Party has all requisite power and authority to carry on its business as now
being conducted and proposed to be conducted and to own, lease or operate its
properties as and in the places where such business is now conducted or proposed
to be conducted and such properties are now owned, leased or operated. Each Loan
Party is duly qualified and in good standing as a foreign entity authorized to
carry on its business in the states where the nature of the activities conducted
or proposed to be conducted by it, or the character of the properties owned,
leased or operated by it require such qualification except where failure to be
so qualified or in good standing could not reasonably be expected to have a
Material Adverse Effect on any Loan Party.
3.02 Subsidiaries and Investments. No Loan Party (i) has, or has
ever had, any Subsidiary or investment, equity or ownership interest (whether
controlling or not) of any kind in any other Person, or (ii) is engaged in any
joint venture or partnership with any other Person.
3.03 Authority and Consents.
(a) The execution, delivery and performance of this
Agreement and the Ancillary Agreements by each Loan Party have been duly
authorized by each Loan Party and do not conflict with, or result in a default,
right to accelerate, loss of rights under, or the creation of any Lien pursuant
to, any provision of any Loan Party's Organizational Documents, or any
agreement, law, rule or regulation, or any order, judgment or decree to which
any Loan Party is a party or by which any Loan Party, or its respective
properties are bound or affected (except for any Lien created under this
Agreement or the Ancillary Agreements).
(b) Each Loan Party has full power and authority to enter
into this Agreement and the Ancillary Agreements to which it is a party and to
carry out the transactions contemplated by this Agreement. This Agreement has
been duly executed and delivered on behalf of each Loan Party and constitutes,
and the Ancillary Agreements when executed and delivered will constitute, valid
and binding obligations of each Loan Party enforceable in accordance with their
respective terms, except to the extent that enforcement may be limited by
applicable bankruptcy, reorganization, moratorium or similar laws of general
applicability affecting the enforcement of creditors' rights and subject to
general equitable principles which may limit the right to obtain equitable
remedies.
(c) No consent is required to be obtained or made by any
Loan Party in connection with the execution, delivery and performance of this
Agreement or the Ancillary Agreements by each Loan Party.
(d) The offer and sale of the Securities to the
Purchasers does not require the approval of the Company's stockholders.
(e) Except for such consents, approvals, filings,
notifications or other actions that have been received, obtained, made or done
on or prior to the date hereof, including, without limitation, the approval of a
committee of the Company's Board of Directors under and in
10
accordance with Section 302A.673 of the Minnesota Statutes, no consent,
approval, filing, notification or other action is required to exempt (i) the
issuance and sale of the Securities, (ii) this issuance of the Conversion Stock
upon exercise or conversion of the Warrant or Preferred Shares, and (iii) the
other transactions contemplated by this Agreement from the provisions of any
anti-takeover, business combination or control share acquisition law or statute
applicable to the Loan Parties or any provision of any Loan Party's
Organizational Documents that is or could become applicable to the Purchasers as
a result of such transactions or that may adversely affect the ownership,
disposition or voting of the Securities by the Purchasers or the exercise of any
right granted to the Purchasers pursuant to this Agreement or any Ancillary
Agreement.
3.04 Financial Statements. Attached to the Disclosure Schedule are
the following consolidated and consolidating financial statements: (i) the
Company's unaudited balance sheet as of July 31, 2003 (the "Balance Sheet Date")
and related statements of income, cash flow, and stockholder's equity for the
seven months then ended (the "Interim Period Financial Statements"); (ii) the
Company's audited financial statements for the fiscal years ended as of December
31, 2002, December 31, 2001 and December 31, 2000; (iii) the Seller's income
statements for the six months ended June 30, 2003 and June 30, 2002, as received
by the Company from the Seller; and (iv) the Seller's audited balance sheets as
of December 29, 2002 and December 30, 2001 and the related statements of income
and cash flows for the twelve months ended December 29, 2002, December 30, 2001
and December 31, 2000, as received by the Company from the Seller. The financial
statements described in clauses (i) and (ii) are referred to in this Agreement
as the "Financial Statements." All of the Financial Statements have been
prepared from the books and records of the Company and its Subsidiaries in
accordance with GAAP and fairly present the financial condition of the Company
and its Subsidiaries as of their respective dates and the results of operations
for the periods covered thereby. The income statements included in the Financial
Statements do not contain any items of special or nonrecurring income or any
other income not earned in the ordinary course of business except as expressly
specified therein, and the Financial Statements include all material
adjustments, which consist only of normal recurring accruals, necessary for such
fair presentation, subject in the case of the unaudited interim period financial
statements to normal year-end adjustments.
3.05 Capitalization.
(a) The Disclosure Schedule sets forth the authorized and
issued and outstanding capital stock or membership interests of each Loan Party.
All outstanding shares of capital stock or membership interests of each Loan
Party are validly issued, fully paid and nonassessable. The Conversion Stock has
been reserved for issuance and, when issued upon exercise of the Warrants, will
be validly issued, fully paid and nonassessable. In addition, the Preferred
Shares and the Conversion Stock will be issued by the Company to the Purchaser
in transactions exempt from registration and qualification under applicable
federal and state securities laws.
(b) There are no rights, options or warrants of any kind
outstanding to purchase or acquire any capital stock or any other ownership
interest in any Loan Party, nor are there other securities, obligations,
agreements or rights of any kind outstanding which are exercisable for,
convertible into or exchangeable for any capital stock or any other ownership
11
interest in any Loan Party or under the terms of which any Person has the right
to purchase or acquire any capital stock or any other ownership interest in the
Company. The issuance by the Company of the Preferred Shares and the Conversion
Stock is not subject to any preemptive or similar right of any Person pursuant
to statute, contract or understanding.
(c) No Loan Party nor any Subsidiary is subject to any
obligation to repurchase or otherwise acquire or retire any shares of capital
stock or other ownership interest. There are no commitments of any Loan Party to
distribute to the holders of any class of capital stock or other ownership
interest any evidences of indebtedness or assets, or to pay any dividend or make
any other distribution in respect thereof.
(d) No Person has a contractual right to demand or other
right to cause any Loan Party to file any registration statement under the
Securities Act relating to any securities of such Loan Party or any right to
participate in any offering of such Loan Party's securities. To the knowledge of
the Loan Parties, there are no agreements between or among any Loan Party's
shareholders or buy-sell agreements of any kind affecting any Loan Party's
capital stock or other ownership interests.
(e) After giving effect to the transactions contemplated
by this Agreement, the Senior Credit Agreement and the Acquisition Agreement,
the Warrants will be exercisable for 8% of the Common Stock of the Company,
determined on a fully diluted basis, excluding (i) the shares of Conversion
Stock issuable upon conversion of the Preferred Shares, (ii) the shares of
Series A Convertible Preferred Stock that may be issued in connection with the
▇▇▇▇▇▇▇ Investment, and (iii) the options, warrants, convertible securities or
other rights to acquire shares of Common Stock which have an exercise or
conversion price of $3.00 per share or greater. The securities described in
clause (iii) are specifically identified in the Disclosure Schedule.
3.06 No Material Adverse Change. Since the Balance Sheet Date there
has been no event or occurrence which has had or is reasonably likely to have a
Material Adverse Effect on any Loan Party.
3.07 Litigation. There is no claim, legal action, suit,
arbitration, governmental investigation or other legal or administrative
proceeding, nor any order, decree or judgment, pending or, to the knowledge of
the Loan Parties and only to the extent material, threatened against (i) any
Loan Party, (ii) any Loan Party's managers, directors, officers or employees for
acts or omissions relating to the such Loan Party, (iii) any Loan Party's
properties, assets or business, or (iv) the transactions contemplated by this
Agreement. To the knowledge of the Loan Parties, there is no reasonable basis
for any of the foregoing.
3.08 Compliance with Laws and Other Instruments. Each Loan Party is
in material compliance, and has complied in all material respects, with all
laws, rules, regulations, ordinances, orders, judgments and decrees applicable
to its business, properties or operations. Neither the ownership nor use of any
Loan Party's properties nor the conduct or currently proposed conduct of its
business (i) conflicts with the rights of any other Person or (ii) violates or
(with or without the giving of notice or the passage of time, or both) will
violate, conflict with, or result in a default, right to accelerate, or loss of
rights under, any Loan Party's Organizational
12
Documents, or any Lien, lease, license, agreement, understanding, law,
ordinance, rule, regulation, zoning regulation, order, judgment or decree to
which any Loan Party is a party or by which it or its assets may be bound or
affected.
3.09 Title to and Liens on Assets.
(a) No Loan Party owns any real property. The Disclosure
Schedule contains a complete and accurate street address of each parcel of real
property where any tangible properties or assets of any Loan Party are located.
(b) Each Loan Party has good, marketable and insurable
title (which is of record as to any real estate) to, or, in the case of leased
or licensed property, has the right to possess and use, all the properties and
assets which it owns or uses in its business or purports to own, including
without limitation those properties and assets reflected in the Pro Forma
Balance Sheet. None of such properties and assets are subject to any Lien,
lease, license, easement, liability or adverse claim of any nature whatsoever,
direct or indirect, whether accrued, absolute, contingent or otherwise, except:
(i) Permitted Liens, (ii) those specifically identified on the Disclosure
Schedule, and (iii) those imperfections of title and encumbrances, if any, which
(A) are not substantial in character, amount, or extent and do not so materially
detract from the value of the properties and assets subject thereto so as to
render them unmarketable, (B) do not interfere with either the present and
continued use of such property or asset or the conduct of normal operations, and
(C) have arisen only in the ordinary course of business.
3.10 Solvency. After giving effect to the transactions contemplated
by this Agreement and the Ancillary Agreements, (i) the fair market value of the
assets of each Loan Party will be in excess of the total amount of its
liabilities (including, without limitation, contingent liabilities); (ii) the
present fair saleable value of the assets of each Loan Party will be greater
than its probable liability on its existing debts as such debts become absolute
and matured; (iii) each Loan Party will be able and expects to be able to pay
its debts (including, without limitation, contingent debts and other
commitments) as they mature; and (iv) each Loan Party will have capital
sufficient to carry on its business as presently conducted and as proposed to be
conducted.
3.11 Permits and Licenses. Except as set forth on the Disclosure
Schedule, each Loan Party has all federal, state and local licenses and permits
required to be maintained in connection with and material to the operation of
its business, and all such licenses and permits are valid and fully effective.
3.12 Taxes. Each Loan Party has timely filed with the appropriate
federal, state, local and foreign taxing authorities all tax returns required to
be filed by or with respect to it, and such tax returns are true, correct and
complete in all material respects. Each Loan Party has timely paid all taxes
that have become due pursuant to such tax returns and all other taxes and
assessments levied upon such Loan Party, or its properties, assets, income or
franchises, to the extent such taxes and assessments have become due and payable
and before they have become delinquent. No issue has been raised by any federal,
state, local or foreign taxing authority which could reasonably be expected to
result in a proposed deficiency against any Loan Party for
13
any period. There is no basis for any other tax or assessment that could
reasonably be expected to have a Material Adverse Effect on any Loan Party.
3.13 Margin Securities. No Loan Party is engaged in the business of
extending credit for the purpose of buying or carrying margin securities, and no
part of the proceeds realized from the sale of the Securities will be used to
buy or carry any margin securities or be used in a manner inconsistent with the
provisions of Regulation T, U or X of the Board of Governors of the Federal
Reserve System.
3.14 Not an Investment Company. No Loan Party is an "investment
company," or a company "controlled" by an "investment company," as such terms
are defined in the Investment Company Act of 1940, as amended.
3.15 Securities Laws. The Loan Parties have complied with or are
exempt from the registration and qualification requirements of all federal and
state securities laws applicable to the issuance and sale of the Securities. No
Loan Party nor any Person authorized or employed by any Loan Party as agent,
broker, dealer or otherwise, has offered or will offer the Securities for sale
to, or solicited any offers to buy the Securities from, any Persons other than
the Purchasers. No Loan Party nor any Person acting on any Loan Party's behalf
has taken or will take any action which might subject the offering, issuance or
sale of the Securities to registration under the Securities Act or violate the
provisions of any securities or blue sky law of any applicable jurisdiction.
3.16 Environmental Matters.
(a) Except as set forth in the Disclosure Schedule, each
Loan Party has obtained all material permits, licenses and other authorizations
which are required under federal, state and local laws relating to pollution or
protection of the environment, including laws relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants, hazardous or toxic
materials or wastes into ambient air, surface water, ground water or land, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants or
hazardous or toxic materials or wastes ("Environmental Laws").
(b) Except as set forth in the Disclosure Schedule, each
Loan Party is in material compliance with all terms and conditions of such
required permits, licenses and authorizations and is also in material compliance
with all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in all
Environmental Laws or contained in any plan, order, decree, judgment or notice
from any governmental authority. Except as set forth in the Disclosure Schedule,
no Loan Party has knowledge of, nor has any Loan Party received notice from any
governmental authority or other Person of, any events, conditions,
circumstances, activities, practices, incidents, actions or plans which
interfere or prevent continued compliance with any Environmental Law by any Loan
Party or which may give rise to any liability under any Environmental Law.
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3.17 Customer, Client, and Agent Relations. There exists no actual
or, to the knowledge of any Loan Party, threatened termination, cancellation or
limitation of, or any adverse modification or change in, the business
relationship with any customer, client, or agent, or any group of customers,
clients, or agents, whose business individually or in the aggregate represents
more than 5% of the Loan Parties' consolidated revenue. To the knowledge of the
Loan Parties, there exists no present condition or state of facts or
circumstances that would materially adversely affect any Loan Party or prevent
any Loan Party from conducting such business relationships or such business with
any such customer, client, provider group or agent, or any such group of
customers, clients, or agents in the same manner as previously conducted by the
Loan Parties.
3.18 Insurance. Set forth on the Disclosure Schedule is a complete
and accurate list of all primary, excess and umbrella policies, bonds and other
forms of insurance currently owned or held by or on behalf of and/or providing
insurance coverage to each Loan Party, its assets and properties, or any of its
managers, directors, officers, salespersons, agents or employees. Each Loan
Party has been and is insured by financially sound and reputable insurers with
respect to its properties and the conduct of its business in such amounts and
against such risks as is sufficient for its business and compliance with law.
All policies of insurance are currently in full force and effect and no notice
of cancellation or termination has been received by any Loan Party with respect
to any such policies. All premiums due and payable on such policies have been
paid.
3.19 Employment or Severance Agreements. No Loan Party is a party
to or bound by (i) any collective bargaining agreement, (ii) any agreement
providing for a term of employment or for any severance payment to any officer
or employee, or (iii) any agreement providing any deferred compensation, bonus
or profit sharing payment to any officer or employee. To the knowledge of the
Loan Parties, none of the employees, officers, or directors of any Loan Party or
any Subsidiary is a party to any oral or written contract or agreement
prohibiting any of them from freely competing with other parties or engaging in
such Loan Party's or Subsidiary's business.
3.20 Intellectual Property Rights.
(a) The Disclosure Schedule lists (i) the federal
registration number and the date of registration of all patents, trademarks,
service marks and copyrights owned by each Loan Party or used in the conduct of
its business, (ii) the federal application number and the date of submission for
all applications for patents, trademarks, service marks or copyrights by each
Loan Party, and (iii) all other marks, trade names, brand names or other trade
rights used by each Loan Party in the conduct of its business and whether such
use is or will be pursuant to license, sub-license, agreement or permission. The
Loan Parties have delivered to the Purchasers complete and accurate copies of
each agreement, registration and other document relating to the Intellectual
Property set forth on the Disclosure Schedule.
(b) Each Loan Party owns or possesses adequate and
enforceable licenses or other rights to use (i) all Intellectual Property rights
listed on the Disclosure Schedule and (ii) all other patents, trademarks,
service marks, brand names and trade names, all applications for any of the
foregoing, all other trade secrets, designs, plans, specifications and other
rights of every
15
kind related to all Intellectual Property material to the conduct of such Loan
Party's business. Entry into this Agreement and consummation of the transactions
contemplated hereby will not impair any Loan Party's ownership or use of such
Intellectual Property.
(c) No Person has a right to receive a royalty or similar
payment in respect of any item of Intellectual Property pursuant to any
contractual arrangements entered into by any Loan Party. No Loan Party has
granted any license, sub-license or other similar agreement relating in whole or
in part to any Intellectual Property. No Loan Party has received any notice that
its or any third party's use of any item of Intellectual Property is interfering
with, infringing upon or otherwise violating the rights of such Loan Party, or
any third party in or to such Intellectual Property. No proceedings have been
instituted against or notices received by any Loan Party alleging that the use
or proposed use of any item of Intellectual Property by such Loan Party or any
third party infringes upon or otherwise violates any rights of such Loan Party
or a third party in or to such Intellectual Property, and there is no basis for
such claim or proceeding. To the knowledge of the Loan Parties, no third party
is interfering with, infringing upon, or otherwise violating the rights of any
Loan Party in any Intellectual Property.
3.21 Software and Information Systems. The software and information
systems (including all management information and accounting systems) currently
used or proposed to be used by each Loan Party are functioning properly and are
adequate for such Loan Party's business as currently conducted or proposed to be
conducted.
3.22 Material Contracts.
(a) The Disclosure Schedule contains a true and complete
list of each of the following written or oral contracts, agreements or other
arrangements to which each Loan Party or any Subsidiary is a party or by which
any of their assets and properties is bound (and, to the extent oral, accurately
describes the terms of such contracts, agreements and arrangements) (the
"Scheduled Contracts"):
(i) all collective bargaining or similar labor
agreements;
(ii) all contracts for the employment of any
officer, employee or other person or entity on a full time, part time,
consulting or other basis (except for the "at will" employment of an
employee in the ordinary course of business with no post-termination
benefits beyond that required by applicable law or such Loan Party's
employment policies);
(iii) all loan agreements, indentures, debentures,
notes or letters of credit relating to the borrowing of money or
mortgaging, pledging or otherwise placing a Lien on any material asset
or material group of assets of any Loan Party or any Subsidiary;
(iv) all guarantees of any obligation;
16
(v) all leases or agreements under which any
Loan Party or any Subsidiary is lessee or lessor of, or holds, or
operates, any property, real or personal, except for any lease under
which the aggregate annual rental payments do not exceed $100,000;
(vi) all commitments, contracts, sales contracts,
purchase orders or groups of related agreements with the same party or
any group of affiliated parties which require or may in the future
require payment of aggregate consideration to or by any Loan Party or
any Subsidiary in excess of $100,000;
(vii) all contracts or commitments that in any way
restrict any Loan Party or any Subsidiary from carrying on its business
anywhere in the world;
(viii) all fitness center management contracts; and
(ix) all other contracts and agreements that (A)
involve the payment or potential payment, pursuant to the terms of any
such contract or agreement, by any Loan Party or any Subsidiary of more
than $100,000, and (B) cannot be terminated within 30 days after giving
notice of termination without resulting in any cost or penalty to any
Loan Party or any Subsidiary.
(b) Each Scheduled Contract is in full force and effect
and constitutes a legal, valid and binding agreement, enforceable in accordance
with its terms, of each party thereto. Each Loan Party and each Subsidiary has
performed all of its required obligations under, and is not in material
violation or breach of or default under, any Scheduled Contract. To the
knowledge of the Loan Parties, the other parties to any such contract, agreement
or arrangement are not in material violation or breach of or default under any
Scheduled Contract.
(c) The Loan Parties have provided to the Purchasers a
true and correct copy of each written Scheduled Contract, and a true and correct
written description of each oral Scheduled Contract, which have been requested
by the Purchasers.
3.23 Liability to Clients and Customers.
(a) To the knowledge of the Loan Parties, all products
sold, licensed, leased or delivered by the Loan Parties to any customers and all
services provided by the Loan Parties to customers conform in all material
respects to applicable contractual commitments, express and implied warranties,
product or service specifications and product or service documentation and to
any representations provided to such customers. No Loan Party has any material
liability (and to the knowledge of the Loan Parties there are no facts that
would form a basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against any Loan Party giving
rise to any liability that could have a Material Adverse Effect on any Loan
Party) for replacement, repair or other damages in connection therewith in
excess of any reserves therefor reflected on the Pro Forma Balance Sheet.
17
(b) No Loan Party has committed any act, and there has
been no omission, which may result in, and there has been no occurrence that may
give rise to, any material liability in connection with, arising out of,
resulting from or incident to any personal injury or property damage or adverse
health effect or claim of any personal injury or property damage or adverse
health effect by a third party arising out of the ownership, use, possession or
physical contact with any product manufactured, sold, leased or delivered or any
services rendered by any Loan Party.
3.24 Use of Proceeds; Restrictions under the SBIA. No portion of
the proceeds from the sale of the Securities (i) will be used to provide capital
to an SBIC, (ii) will be used outside the United States (except (A) to acquire
materials and industrial property rights abroad for a domestic operation or (B)
as may be transferred to a controlled foreign subsidiary, so long as at least
51% of the assets, employees and activities of the Loan Parties and their
Subsidiaries will remain within the United States), or (iii) will be used for
any purpose "contrary to the public interest (including but not limited to
activities which are in violation of law) or inconsistent with free competitive
enterprise," within the meaning of 13 CFR Section 107.720. No Loan Party's
primary business activity involves, directly or indirectly, providing funds to
others, purchasing or discounting debt obligations, factoring or long-term
leasing of equipment with no provision for maintenance or repair, and no Loan
Party is classified under Major Group 65 (Real Estate) of the Standard
Industrial Classification Manual prepared by the Office of Management and
Budget.
3.25 Small Business Concern. Each Loan Party acknowledges that the
Purchaser is an SBIC and is subject to regulations promulgated by the SBA
relating to the small business investment company program. Although such
regulations are not incorporated into this Agreement, each Loan Party
acknowledges that it has been provided with an opportunity to review such
regulations. The Company, together with its affiliates (as defined in 13 CFR
Section 121.103) is a "small business concern" within the meaning of the SBIA.
The information set forth in the SBA Forms regarding the Loan Parties is
accurate and complete. No Loan Party presently engages in, and will not engage
in, any activities, and will not use directly or indirectly the proceeds from
the sale of the Securities for any purposes for which an SBIC is prohibited from
providing funds by the SBIA.
3.26 Location of Employees and Assets. At least 51% of the
employees (based on total workforce) and assets (based on the stated value of
all tangible assets reflected on its financial statements) of the Company,
together with its affiliates (as defined in 13 CFR Section 121.103), are located
within the United States.
3.27 No Payments Outside the Ordinary Course. Since June 30, 2003,
no Loan Party has made any payment to any Person other than in the ordinary
course of business, consistent with past practices.
3.28 Related Party Transactions. Except as set forth in the
Disclosure Schedule (i) no Loan Party's directors, officers, managers,
employees, agents, or Affiliates (each a "Related Person") has any interest in
any property (whether real, personal, or mixed and whether tangible or
intangible), used in or pertaining to any Loan Party's business; (ii) no Related
Person owns, of record or as a beneficial owner, an equity interest or any other
financial or profit interest in any
18
Person that (A) has business dealings or a material financial interest in any
transaction with any Loan Party, or (B) engages in competition with any Loan
Party; (iii) no Related Person is a party to any contract or agreement with any
Loan Party, including, without limitation, any management or consulting
agreement; and (iv) no Related Party has any cause of action or other claim
whatsoever against, or owes or has advanced any amount to, any Loan Party,
except for claims in the ordinary course of business such as for salary, wages
or accrued benefits under employee benefit plans.
3.29 Certain Business Practices. No Loan Party nor any of its
respective officers, directors, managerial employees or agents has (i) made or
agreed to make any contribution, payment or gift to any customer, supplier,
governmental official, employee or agent where either the contribution, payment
or gift or the purpose thereof was illegal under any law, (ii) established or
maintained any unrecorded fund or asset of any Loan Party for any improper
purpose or made any false entries on its books and records for any reason, or
(iii) made or agreed to make, in violation of any law, any contribution, or
reimbursed any political gift or contribution made by any other person, to any
governmental official, governmental employee or candidate for federal, state or
local public office.
3.30 Brokers. No Loan Party has engaged or employed any broker,
finder or investment banker in connection with the transactions under this
Agreement, and no such Person is entitled to any brokerage, finder's or other
fee or commission in connection with such transactions.
3.31 Acquisition Documents. The Loan Parties have provided to the
Purchasers a true, complete and correct copy of the Acquisition Documents. The
Acquisition Documents have not been amended, supplemented or modified, and they
constitute the complete understanding among the parties thereto in respect of
the matters and transactions contemplated therein. The Acquisition Documents are
the legal, valid and binding obligations of each Loan Party, enforceable in
accordance with their terms (except to the extent that enforcement may be
limited by applicable bankruptcy, reorganization, moratorium or similar laws of
general applicability affecting the enforcement of creditors' rights and subject
to general equitable principles which may limit the right to obtain equitable
remedies), and there are no oral agreements or understandings or other
agreements modifying or waiving any of the provisions thereof. The
representations and warranties of each Loan Party and each of the other parties
thereto contained in the Acquisition Documents are true and correct in all
material respects and may be relied upon by the Purchasers.
3.32 Disclosure. No representation or warranty by any Loan Party in
this Agreement or any of the Ancillary Agreements contains or will contain any
untrue statement of a material fact, or omits or will omit to state any material
fact necessary to make the facts stated therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
The Purchaser represents and warrants to the Loan Parties that:
19
4.01 Partnership Existence and Power. The Purchaser is a limited
partnership duly organized, validly existing and in good standing under the laws
of the state of Delaware and has full power and authority to execute and deliver
this Agreement and the Ancillary Agreements to which it is a party and to
purchase the Securities as provided in this Agreement.
4.02 Authorization. All proceedings or partnership action required
to be taken by the Purchaser relating to the execution, delivery and performance
of this Agreement have been taken at or prior to the Bridge Note Closing. This
Agreement has been duly executed and delivered on behalf of the Purchaser and
constitutes, and the Ancillary Agreements to which it is a party, when executed
and delivered, will constitute, valid and binding obligations of the Purchaser
enforceable in accordance with their respective terms, except to the extent that
enforcement may be limited by applicable bankruptcy, reorganization, moratorium
or similar laws of general applicability affecting the enforcement of creditors'
rights and subject to general equitable principles which may limit the right to
obtain equitable remedies.
4.03 Litigation. There is no legal action, suit, arbitration,
governmental investigation or other legal or administrative proceeding, nor any
order, decree or judgment in progress, pending or in effect, or to the knowledge
of the Purchaser threatened, against or relating to the Purchaser, in connection
with or relating to the transactions contemplated by this Agreement and the
Ancillary Agreements to which it is a party.
4.04 Investment Intent. The Purchaser is an "accredited investor,"
as defined under Rule 501(a) of Regulation D of the Securities Act. The
Securities are being purchased for the Purchaser's own account and not with a
view to, or for resale in connection with, any distribution or public offering
within the meaning of the Securities Act. The Purchaser understands that the
Securities have not been registered under the Securities Act by reason of its
contemplated issuance in transactions exempt from the registration and
prospectus delivery requirements of the Securities Act pursuant to Section 4(2)
thereof, that the reliance of the Loan Parties upon this exemption is predicated
in part upon this representation and warranty by the Purchaser, and that the
Purchaser has made no agreement with others regarding any of the Securities, and
that the Purchaser's financial condition is such that it is not likely that it
will be necessary for the Purchaser to dispose of any of the Securities in the
foreseeable future. The Purchaser is aware that (i) in the view of the
Securities and Exchange Commission, a purchase of securities with an intent to
resell by reason of any foreseeable specific contingency or anticipated change
in market values, or any change in the liquidation or settlement of any loan
obtained for the acquisition of any of the Securities and for which the
Securities were or may be pledged as security would represent an intent
inconsistent with the investment representations set forth above and (ii) a
legend will be placed on the certificate(s) representing the Securities
containing substantially the following language:
"The securities represented by this certificate have not been
registered under either the Securities Act of 1933 or applicable state
securities laws and may not be sold, transferred, assigned, offered,
pledged or otherwise distributed for value unless there is an effective
registration statement under such Act and such laws covering such
securities, or the Company receives an opinion of counsel acceptable to
the Company stating that
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such sale, transfer, assignment, offer, pledge or other distribution
for value is exempt from the registration and prospectus delivery
requirements of such Act and such laws."
The Purchaser further represents and agrees that if, contrary to the
Purchaser's foregoing intentions, the Purchaser should later desire to dispose
of or transfer any of the Securities in any manner (excluding the exchange of
the Bridge Note as contemplated by this Agreement), the Purchaser shall not do
so without first obtaining (i) an opinion of counsel satisfactory to the Company
that such proposed disposition or transfer may be made lawfully without the
registration of such Securities pursuant to the Act and applicable state laws,
or (ii) registration of such Securities (it being expressly understood that the
Company shall not have any obligation to register such Securities except as
expressly provided in this Agreement or the Ancillary Agreements).
4.05 Investigation. The Purchaser acknowledges that a purchase of
the Securities represents a speculative investment involving a high degree of
risk and that the Purchaser has been given access to full and complete
information regarding the Company and full opportunity to meet with
representatives of the Company for the purpose of obtaining such information as
the Purchaser has desired in connection with the transactions contemplated
herein.
ARTICLE V
CLOSING CONDITIONS
5.01 Conditions to the Bridge Note Closing. The Purchaser's
obligations to purchase and pay for the Bridge Note are subject to the following
conditions, any of which may be waived in whole or in part by the Purchaser in
writing:
(a) Representations and Warranties True. The
representations and warranties of the Loan Parties in this Agreement are true
and correct on and as of the Bridge Note Closing Date.
(b) Compliance with Agreement. Each Loan Party has
performed and complied with all agreements and conditions required by this
Agreement to be performed and complied with by it prior to or as of the Bridge
Note Closing Date.
(c) No Event of Default. At the time of the Bridge Note
Closing no condition or event exists or has occurred which would constitute an
Event of Default or which, after notice or lapse of time or both, would
constitute an Event of Default.
(d) Documents Required for the Bridge Note Closing. Each
Loan Party, or other appropriate Person at the direction or request of the Loan
Parties, has delivered to the Purchasers the following, duly executed as
appropriate:
(i) this Agreement;
(ii) the Bridge Note;
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(iii) the Security Agreement;
(iv) the Guaranties;
(v) a certificate dated as of the Bridge Note
Closing Date, signed by an officer of each Loan Party, in form and
substance satisfactory to the Purchaser certifying that the conditions
specified in Sections 5.01(a)-(c) are true and correct;
(vi) a certificate from each Loan Party dated as
of the Bridge Note Closing Date, signed by such Loan Party's Secretary
or other appropriate officer, in form and substance satisfactory to the
Purchasers certifying (A) that resolutions have been duly adopted by
such Loan Party's Board of Directors (and to the extent necessary, its
stockholders) authorizing the execution of this Agreement and the
Ancillary Agreements, the issuance of the Securities, and all of the
other transactions to be consummated pursuant hereto, (B) the names and
incumbency of its officers who are empowered to execute the foregoing
documents for and on behalf of such Loan Party, (C) the authenticity of
attached copies of such Loan Party's Organizational Documents, and (D)
the continued good standing of such Loan Party in its jurisdiction of
organization, as evidenced by a reasonably current certificate of good
standing;
(vii) a favorable opinion of the Loan Parties'
legal counsel as to matters set forth in Exhibit H and in form
reasonably acceptable to the Purchaser;
(viii) a reasonably current search with respect to
each Loan Party for (A) Liens of record in its state of organization
and in each state where it maintains its principal executive office or
owns material assets, and (B) judgments of record in the state and
federal courts sitting in the county where it maintains its principal
executive office;
(ix) documents, in form and substance
satisfactory to the Purchaser, evidencing the obtaining of all
necessary releases, consents or approvals for the transactions
contemplated by this Agreement;
(x) receipt by the Purchaser and by the
Purchaser's counsel of payment of the fees referred to in Section 2.04
and the expenses referred to in Section 10.02;
(xi) a copy, certified by each Loan Party as true
and correct, of the Acquisition Agreement and the exhibits and
schedules thereto;
(xii) a copy, certified by each Loan Party as true
and correct, of the Senior Credit Agreement and the closing documents
related thereto; and
(xiii) such other documents, certificates,
instruments or opinions as each Purchaser or its legal counsel may
reasonably request, in form reasonably satisfactory to each Purchaser.
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(e) Proceedings Satisfactory. All proceedings to be taken
in connection with the transactions contemplated by this Agreement and all
documents incident to such transactions are satisfactory in form and substance
to each Purchaser and its counsel.
5.02 Conditions to the Final Closing. The Purchaser's obligation to
exchange the Bridge Note for the Long Term Note, the Preferred Shares and the
Warrant are subject to the following conditions, any of which may be waived in
whole or in part by the Purchaser in writing:
(a) Representations and Warranties True. The
representations and warranties of the Loan Parties in this Agreement are true
and correct on and as of the Final Closing Date.
(b) Compliance with Agreement. Each Loan Party has
performed and complied with all agreements and conditions required by this
Agreement to be performed and complied with by it prior to or as of the Final
Closing Date.
(c) No Event of Default. As of the Final Closing Date, no
condition or event exists or has occurred which would constitute an Event of
Default or which, after notice or lapse of time or both, would constitute an
Event of Default.
(d) Documents Required for the Final Closing. Each Loan
Party, or other appropriate Person at the direction or request of the Loan
Parties, has delivered to the Purchasers the following, duly executed as
appropriate:
(i) the Long Term Note;
(ii) the Preferred Shares;
(iii) the Warrant;
(iv) a certificate dated as of the Final Closing
Date, signed by an officer of each Loan Party, in form and substance
satisfactory to the Purchaser certifying that (A) the conditions
specified in Sections 5.02(a)-(c) are true and correct, (B) all
conditions to the Company's obligations to consummate the Acquisition
in accordance with the Acquisition Agreement have been satisfied (and
not merely waived) and (C) attached thereto is an updated Disclosure
Schedule dated as of the Final Closing Date and reflecting the
transactions contemplated by this Agreement, the Acquisition and the
Senior Lender Agreement;
(v) a certificate dated as of the Final Closing
Date, signed by each Loan Party's Chief Financial Officer or other
appropriate officer, in form and substance satisfactory to the
Purchaser certifying that the proceeds from the sale of the Securities
have been applied in the manner specified in a complete and accurate
summary of the sources and uses (including a description in reasonable
detail of the transaction fees and
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expenses to be paid by the Company) of all debt and equity funds
provided to the Loan Parties at the Final Closing as attached to such
certificate;
(vi) a certificate dated as of the Final Closing
Date, signed by each Loan Party's Chief Financial Officer or other
appropriate officer, in form and substance satisfactory to the
Purchaser certifying that:
(A) attached to such certificate is a
pro forma consolidated and consolidating balance sheet (the
"Pro Forma Balance Sheet") of the Company as of the end of the
month immediately preceding the Final Closing Date, giving
effect to the transactions contemplated by this Agreement, the
Senior Credit Agreement and the Acquisition; that the Pro
Forma Balance Sheet fairly presents, in all material respects,
a reasonable forecast on a pro forma basis of the financial
condition of the Loan Parties as of the Final Closing Date and
giving effect to such transactions; and, to the knowledge of
the Loan Parties, there are no material liabilities,
contingent or otherwise, which are not referred to in the Pro
Forma Balance Sheet other than liabilities not required to be
disclosed in accordance with GAAP; and
(B) attached to such certificate are
the forecasted consolidated and consolidating balance sheets,
income statements, and statements of cash flow of the Company
(the "Projections") reflecting projections on a monthly basis
from the Final Closing through December 31, 2004 and on an
annual basis for the four year period beginning on January 1,
2005; that the Projections are based upon the estimates and
assumptions stated therein, all of which the Loan Parties
believe in good faith to be reasonable and fair in light of
the current conditions and facts known to the Loan Parties;
and that the Projections reflect the Loan Parties' good faith
and reasonable estimate of the future financial performance of
the Loan Parties as of the Final Closing Date.
(vii) a favorable opinion of the Loan Parties'
legal counsel as to matters and in form reasonably acceptable to the
Purchaser;
(viii) a reasonably current search of appropriate
filing offices showing that no state or federal tax liens or financing
statements have been filed and remain in effect against the Seller with
respect to the assets being acquired by the Company under the
Acquisition;
(ix) a copy, certified by each Loan Party as true
and correct, of the Acquisition Agreement, the Senior Credit Agreement
and the closing documents related thereto;
(x) confirmation from the Senior Lender that all
conditions to the release of the funds attributable to the Senior
Lender from the Escrow Agreement have been satisfied or waived, in form
and substance satisfactory to the Purchaser;
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(xi) receipt by the Purchaser and by the
Purchaser's counsel of payment of the expenses referred to in Section
10.02; and
(xii) such other documents, certificates,
instruments or opinions as each Purchaser or its legal counsel may
reasonably request, in form reasonably satisfactory to each Purchaser.
(e) Preferred Stock Designation. The Series A Preferred
Stock Designation shall have been duly filed with the Minnesota Secretary of
State and be in full force and effect.
(f) Financial Covenants. The Loan Parties have agreed to
amend the Financial Covenants Rider to adopt a new set of financial covenants
that are acceptable to the Purchaser, in its sole discretion, including fixed
charge coverage, cash flow leverage, EBITDA and capital expenditures covenants.
(g) Proceedings Satisfactory. All proceedings to be taken
in connection with the transactions contemplated by this Agreement and all
documents incident to such transactions are satisfactory in form and substance
to each Purchaser and its counsel.
ARTICLE VI
AFFIRMATIVE COVENANTS OF THE LOAN PARTIES
Each Loan Party, jointly and severally, covenants and agrees that from
and after the Bridge Note Closing, so long as the Bridge Note, the Long Term
Note or at least 10% of the Preferred Shares remain outstanding, unless the
Purchaser otherwise consents in writing:
6.01 Payment of Notes. The Loan Parties will pay the principal of
and interest on the Note at the time and place and in the manner specified in
the Note.
6.02 Reporting. The Loan Parties will furnish to each Purchaser the
financial statements, other reports, and other information set forth in the
Reporting Rider attached to this Agreement.
6.03 Books and Records; Inspection and Examination.
(a) Each Loan Party will keep, and will cause each
Subsidiary to keep, accurate books of record and account for itself in which
true and complete entries will be made in accordance with GAAP and, upon request
of any Purchaser, will give any representative of any Purchaser access to, and
permit such representative to examine, audit, copy or make extracts from, any
and all books, records and documents in each Loan Party's and each Subsidiary's
possession, to inspect each Loan Party's and each Subsidiary's properties and to
discuss each Loan Party's and each Subsidiary's affairs, finances and accounts
with their principal officers or independent accountants, all at such times
during normal business hours and as often as any Purchaser may reasonably
request. The Loan Parties will reimburse each Purchaser for the reasonable
out-of-pocket fees and expenses incurred in connection with any such inspection
or audit.
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(b) Any information or document obtained by any Purchaser
in any examination, audit, inspection or discussion pursuant to this Section
6.03 will be kept in strict confidence and will be used by the Purchaser only
for those purposes the Purchaser believes to be appropriate to protect its
interests under this Agreement and the Ancillary Agreements or in obtaining
payment of amounts owed pursuant to the Notes, provided that the foregoing will
not limit any Purchaser's use of such information or document (i) if such
information or document has become generally available to the public through no
fault of the Purchaser, (ii) if use of such information or document is required
or appropriate in any report, statement or testimony submitted to any municipal,
state or federal regulatory body having or claiming to have jurisdiction over
the Purchaser, (iii) if use of such information or document may be required or
appropriate in response to any summons or subpoena or in connection with any
litigation, (iv) if such information or document is disclosed or given to the
Purchaser in good faith by a third party who had independent rights to such
information or document, (v) if use of such information or document is believed
by the Purchaser to be appropriate in order to comply with any law, order,
regulation or ruling applicable to the Purchaser, or (vi) if such information or
document is disclosed or given to a prospective transferee in connection with
any contemplated transfer of any of the Securities; provided that such
transferee will first execute a confidentiality agreement containing
substantially the same restrictions as set forth herein. Except for disclosures
required to comply with the SBIA, the Purchaser will give the Company reasonable
notice of any possible disclosure pursuant to subparts (ii), (iii), or (v)
herein and will use its commercially reasonable efforts to provide the Company
with an opportunity to request confidential treatment in any proceeding pursuant
to which such disclosure may occur.
6.04 Compliance with Laws. Each Loan Party will comply, and will
cause each Subsidiary to comply, with all applicable statutes, rules,
regulations, orders and restrictions of the United States of America, foreign
countries, states and municipalities and of any governmental department,
commission, board, regulatory authority, bureau, agency, and instrumentality of
the foregoing, and of any court, arbitrator or grand jury, in respect of the
conduct of its business and the ownership of its properties, except such as are
being contested in good faith by appropriate proceedings or could not reasonably
be expected to have a Material Adverse Effect on any Loan Party.
6.05 Maintenance of Properties. Each Loan Party will keep and
maintain, and will cause each Subsidiary to keep and maintain, its properties in
good repair, working order and condition, ordinary wear and tear excepted, and
from time to time make, or cause to be made, all repairs and renewals and
replacements which are necessary and proper so that the business carried on in
connection therewith may be properly and advantageously conducted at all times.
Each Loan Party will maintain, and will cause each Subsidiary to maintain, or
cause to be maintained, back-up copies of all valuable papers and software.
6.06 Insurance. Each Loan Party will obtain insurance, for itself
and each Subsidiary, against loss or damage of the kinds customarily insured
against by Persons similarly situated, with reputable insurers, in such amounts,
with such deductibles and by such methods as are adequate, and in any event in
amounts and coverages (i) not less than amounts and coverages generally
maintained by other Persons engaged in similar businesses and (ii) not less than
the
26
amounts and coverages maintained as of the Bridge Note Closing Date. Each Loan
Party will promptly provide to each Purchaser copies of all material notices
received from or sent to any of its insurers together with copies of all
material correspondence related to such insurance.
6.07 Payment of Taxes and Claims. Each Loan Party will, and will
cause each Subsidiary to, duly pay and discharge, as they become due and
payable, all taxes, assessments and governmental and other charges, levies or
claims levied or imposed, which are, or which if unpaid might become, a Lien
upon the properties, assets, earnings or business of any Loan Party or any
Subsidiary; provided, however, that nothing contained in this Section will
require any Loan Party or any Subsidiary to pay and discharge, or cause to be
paid and discharged, any such tax, assessment, charge, levy or claim so long as
such party in good faith contests the validity thereof and sets aside on its
books adequate reserves with respect thereto. In the event any Loan Party or any
Subsidiary fails to satisfy its obligations under this Section, any Purchaser
may (but is not obligated to) satisfy such obligations in whole or in part and
any payments made and reasonable expenses incurred in doing so will constitute,
to the extent satisfied by the Purchaser, an obligation of the Loan Parties
immediately due and payable to the Purchaser, and such obligation will be paid
upon the demand of the Purchaser by the Loan Parties with interest at the
default rate of interest provided for under the Note.
6.08 Maintenance of Existence. Each Loan Party will, and will cause
each Subsidiary to, at all times do or cause to be done all things necessary to
maintain, preserve and renew its charter and existence and its rights, patents
and franchises, and comply with all material laws applicable thereto; provided,
however, that a Loan Party may dissolve or liquidate (including by merger) any
Subsidiary that is wholly-owned by such Loan Party upon a good faith
determination by the Company's Board of Directors that such action will not
adversely affect the Loan Parties or the Purchasers. Each Loan Party will at all
times maintain its principal executive offices at the address set forth in the
Disclosure Schedule; provided, however, that a Loan Party may change the
location of its principal executive offices upon not less than 30 days prior
notice to each Purchaser.
6.09 Financial Covenants. The Loan Parties will comply with the
covenants set forth in the Financial Covenants Rider attached to this Agreement.
6.10 Board of Directors.
(a) The Purchaser has the right, at its option, to
designate one director to the Company's Board of Directors. The Company will
nominate any person designated by the Purchaser to serve as a member of the
Board of Directors and use its best efforts to effectuate such person's election
or appointment to the Board of Directors; provided, however, that the Company
will not be obligated to so nominate any person (i) that is a director, officer
or employee of a direct competitor of the Company, as determined in good faith
by the Company, (ii) with respect to whom the Company would be required to make
any disclosure under Item 401(f) of Regulation S-K (but excluding Item
401(f)(1)), or (iii) that is prohibited by applicable law from serving on the
Board of Directors. The Purchaser's designee on the Company's Board of Directors
will receive the same compensation as the Company's other outside directors. The
27
Company will reimburse the Purchaser's designee for the expenses of attending
board and committee meetings in the same manner as the Company's other outside
directors.
(b) Each Loan Party will use its best efforts to provide
each Purchaser with five business days prior notice of all regular and special
meetings of such Loan Party's Board of Directors (or equivalent governing body)
and any committee thereof (and in any event such notice must be provided not
later than the notice provided to the members thereof), and afford any
representative designated by each Purchaser the right and opportunity to attend
any such meeting. In the case of a live meeting, such attendance will be
permitted (at the option of the representative) either by the representative in
person or by conference telephone participation. Each Purchaser's representative
will be entitled to receive all written materials and other information given to
the directors (or their equivalent) of each Loan Party in connection with any
such meeting at the time such materials or information are given to such
directors. The Loan Parties will reimburse each Purchaser for the expenses
incurred by its representative in connection with attending meetings of the Loan
Party's Board of Directors (or equivalent governing body) and any committee
thereof in the same manner as the Company's other outside directors or committee
members.
6.11 Replacement of Certificates. Upon receipt of evidence
reasonably satisfactory to the Loan Parties of the loss, theft, destruction or
mutilation of any certificate or instrument representing the Securities, the
Loan Parties will issue new certificates or instruments of like tenor, in lieu
of such lost, stolen, destroyed or mutilated certificate or instrument.
6.12 Retirement Plans. Each Loan Party will cause each retirement
plan in which any employee of such Loan Party or any Subsidiary participates
that is subject to the provisions of ERISA, and the documents and instruments
governing each such plan, to be conformed to, when necessary, and to be
administered in a manner consistent with, those provisions of ERISA which may,
from time to time, become effective and operative with respect to such plans. If
requested by any Purchaser in writing from time to time, each Loan Party will
furnish to each Purchaser a copy of any annual report with respect to each such
plan that any Loan Party or any Subsidiary files with the Secretary of Labor
pursuant to ERISA. Each Loan party will maintain fiduciary liability insurance
with respect to its acts as an ERISA fiduciary with respect to each employee
benefit pension plan governed by ERISA up to the amount of plan assets.
6.13 Filing of SEC Documents. Each Loan Party will, from and after
such time as it has securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended, or has securities registered
pursuant to the Securities Act, make timely filing of such reports as are
required to be filed by it with the Commission so that Rule 144 under the
Securities Act or any successor provision thereto will be available to such Loan
Party's security holders who are otherwise able to take advantage of the
provisions of such rule.
6.14 Rule 144A. Each Loan Party will, upon the request of any
Purchaser or any prospective purchaser of the Securities, promptly provide (but
in any case within 15 days of a request) to such Purchaser or potential
purchaser the following information: (i) a brief statement of the nature of the
business of such Loan Party and any Subsidiaries and the products and services
they offer; (ii) such Loan Party's most recent consolidated balance sheets and
profit and
28
loss and retained earnings statements, and similar financial statements for such
part of the two preceding fiscal years prior to such request as such Loan Party
has been in operation (such financial information shall be audited, to the
extent reasonably available); and (iii) such other information about such Loan
Party, any Subsidiaries, and their business, financial condition and results of
operations as the Purchaser or potential purchaser requests in order to comply
with Rule 144A promulgated under the Securities Act and the antifraud provisions
of the federal and state securities laws. Each Loan Party represents and
warrants to each Purchaser and each potential purchaser that the information
provided pursuant to this Section will not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading.
6.15 Environmental Matters.
(a) Each Loan Party will give notice to each Purchaser
immediately upon acquiring knowledge of the presence of any Hazardous Materials
or any Hazardous Materials Contamination on any property owned, operated or
controlled by any Loan Party or any Subsidiary or for which any Loan Party or
any Subsidiary is, or is claimed to be, responsible, with a full description
thereof (provided that such notice will not be required for Hazardous Materials
placed or stored on such property in accordance with Environmental Laws in the
ordinary course of business).
(b) Each Loan Party will, and will cause each Subsidiary
to, promptly comply with any Environmental Law requiring the removal, treatment
or disposal of Hazardous Materials or Hazardous Material Contamination and, upon
request, provide each Purchaser with satisfactory evidence of such compliance.
(c) Each Loan Party will provide each Purchaser, within
30 days after a demand by any Purchaser, with a bond, letter of credit or
similar financial assurance evidencing to each Purchaser's satisfaction that the
necessary funds are available to pay the cost of removing, treating, and
disposing of such Hazardous Materials or Hazardous Materials Contamination and
discharging any Lien which may be established as a result thereof on any
property owned, operated or controlled by any Loan Party or any Subsidiary or
for which any Loan Party or any Subsidiary is, or is claimed to be responsible.
(d) Each Loan Party will defend, indemnify and hold
harmless each Purchaser and its directors, officers, employees, partners,
governors and agents from any and all claims which may now or in the future
(whether before or after the termination of this Agreement) be asserted as a
result of the presence of any Hazardous Materials or any Hazardous Materials
Contamination on any property owned, operated or controlled by any Loan Party or
any Subsidiary for which any Loan Party or any Subsidiary is, or is claimed to
be, responsible. Each Loan Party acknowledges and agrees that this
indemnification obligation will survive the termination of this Agreement and
the payment and performance of all obligations under this Agreement and the
Ancillary Agreements.
6.16 Notice of Event of Default. In addition to any other reporting
requirement set forth in this Agreement, each Loan Party will immediately report
to each Purchaser the
29
occurrence of any Event of Default and the action which the Loan Parties propose
to take with respect thereto.
6.17 SBIA Information. Each Loan Party will:
(a) as soon as reasonably practical, but in any event
within 20 days after the request of any Purchaser, furnish to such Purchaser all
information necessary in order for the Purchaser to prepare and file the SBA
Forms and any other information requested or required by any governmental
authority asserting jurisdiction over the Purchaser;
(b) as soon as reasonably practical after the written
request of any Purchaser, confirm the use of the proceeds as described in
Section 3.24 above; and
(c) with reasonable promptness, provide such information
as from time to time any Purchaser may request to enable the Purchaser to comply
with the SBIA.
6.18 SBIA Compliance.
(a) So long as any Purchaser is an SBIC (i) no Loan Party
will use the proceeds from the sale of the Securities for any purpose other than
as set forth in Section 3.24 above, (ii) no Loan Party will use the proceeds
from the sale of the Securities for any prohibited purposes set forth in Section
3.24, (iii) no Loan Party will change its business activity in any manner which,
by reason of such change in business activity, would cause such Loan Party to
fall within a different SIC Code and thereby render it ineligible as a "small
business concern" under the SBIA, and (iv) each Loan Party will at all times
comply with the non-discrimination requirements of 13 CFR Parts 112, 113 and
117.
(b) So long as any Purchaser is an SBIC, each Loan Party
will at all times permit such Purchaser and, if necessary, a representative of
the SBA, access to its records and each Loan Party will provide such information
as the Purchaser may request in order to verify compliance with this Section
6.18 including, without limitation, an officer's certificate indicating such
compliance.
(c) As of the Bridge Note Closing and for at least one
year thereafter, at least 51% of the employees (based on total workforce) and
assets (based on the stated value of all tangible assets reflected on its
financial statements) of the Company, together with its affiliates (as defined
in 13 CFR Section 121.103), are and will remain located within the United
States.
6.19 Other Agreements. Each Loan Party will, and will cause each
Subsidiary to, faithfully observe, perform and discharge in all material
respects all of their respective covenants, agreements, conditions and
obligations under any and all material agreements, whether now existing or
hereafter created or arising, to which it is a party or under which it has any
obligation.
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ARTICLE VII
NEGATIVE COVENANTS OF THE LOAN PARTIES
Each Loan Party, jointly and severally, covenants and agrees that from
and after the Bridge Note Closing, so long as the Bridge Note, the Long Term
Note or at least 10% of the Preferred Shares remain outstanding, unless the
Purchaser otherwise consents in writing:
7.01 Liens. No Loan Party will, and no Loan Party will permit any
Subsidiary to, create, incur, assume or suffer to exist any Liens on any of its
assets now owned or hereafter acquired, or assign or otherwise convey any right
to receive income or give its consent to the subordination of any right or claim
of any Loan Party or any Subsidiary to any right or claim of any other Person;
excluding, however, the following ("Permitted Liens"):
(a) Liens for taxes or assessments or other governmental
charges to the extent not required to be paid by Section 6.07;
(b) Materialmen's, merchants', carriers', workmen's,
repairmen's, or other similar liens arising in the ordinary course of business
to the extent not required to be paid by Section 6.07;
(c) Pledges or deposits to secure obligations under
workers' compensation laws, unemployment insurance and social security laws, or
to secure the performance of bids, tenders, contracts (other than for the
repayment of borrowed money) or leases or to secure statutory obligations or
surety or appeal bonds, or to secure indemnity, performance or other similar
bonds, in each case arising in the ordinary course of business;
(d) Zoning restrictions, easements, licensees'
restrictions on the use of real property or minor irregularities in title
thereto, which do not materially impair the use of such property in the
operation of the business or the value of such property for the purpose of such
business;
(e) Subject to Section 7.02, purchase money mortgages,
liens, or security interests (which term for purposes of this Section 7.01(e)
includes conditional sale agreements or other title retention agreements and
leases in the nature of title retention agreements) upon or in property acquired
after the date hereof, or mortgages, liens or security interests existing in
such property at the time of acquisition thereof, provided that:
(i) no such mortgage, lien or security interest
extends or will extend to or cover any property of any Loan Party or
any Subsidiary, other than the property then being acquired and fixed
improvements then or thereafter erected thereon; and
(ii) the aggregate principal amount of
Indebtedness secured by mortgages, liens and security interests
described in this Section 7.01(e) at the time of acquisition of the
property subject thereto does not exceed the lesser of (A) 100% of the
cost of such property or (B) the then fair market value of such
property as reasonably determined in good faith by the Board of
Directors of the Company;
31
(f) Liens granted to the Senior Lender under the Senior
Credit Agreement to secure the Senior Indebtedness;
(g) Liens granted to the Purchaser under this Agreement
and the Ancillary Agreements;
(h) Liens arising out of a judgment against any Loan
Party or any Subsidiary for the payment of money not exceeding $50,000
in the aggregate with respect to which an appeal is being prosecuted
and a stay of execution pending such appeal has been secured; and
(i) Liens set forth on the Disclosure Schedule and marked
with an asterisk to designate them as Permitted Liens hereunder.
7.02 Indebtedness. The Loan Parties and their Subsidiaries, in the
aggregate and on a consolidated basis, will not incur, create, assume or permit
to exist any Indebtedness, except:
(a) Indebtedness evidenced by the Notes and the
Guaranties; and
(b) the Senior Indebtedness in the amount not exceeding
that available under the Senior Credit Agreement, as such Senior Credit
Agreement may be amended from time to time in accordance with Section 7.18.
7.03 Guaranties. Notwithstanding anything to the contrary in
Section 7.02, except for the Guaranties and any guaranty entered into in
connection with the Senior Indebtedness, no Loan Party will, and no Loan Party
will permit any Subsidiary to, assume, guarantee, endorse or otherwise become
directly or contingently liable in connection with any obligations of any
Person, except endorsements of negotiable instruments for deposit or collection
in the ordinary course of business.
7.04 Investments and Loans. No Loan Party will, and no Loan Party
will permit any Subsidiary to, purchase or hold beneficially any stock,
ownership interests or other securities or evidences of indebtedness of, make or
permit to exist any loans or advances to, or make any investment or acquire any
interest whatsoever in, any other Person, except:
(a) (i) investments in direct obligations of the United
States of America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of America
having a maturity of one year or less, (ii) commercial paper issued by U.S.
corporations rated "A-1" or "A-1+" by Standard & Poors Corporation or "P-1" or
"P-1+" by ▇▇▇▇▇'▇ Investors Service, or (iii) certificates of deposit or
bankers' acceptances having a maturity of one year or less issued by members of
the Federal Reserve System having deposits in excess of $100,000,000;
(b) advances in the ordinary course of business in the
form of commercially reasonable security deposits;
32
(c) each Loan Party's existing investment in its
Subsidiaries as of the Bridge Note Closing Date; or
(d) Permitted Acquisitions.
7.05 Dividends and Distributions. Except for the dividends required
under the Series A Preferred Stock Designation, no Loan Party will declare or
pay any dividends on, or make any other distributions, direct or indirect, on
account of, any class of its stock or make any payment on account of the
purchase, redemption or other retirement of any shares of such stock or of any
warrants, rights, or options to acquire any shares of such stock, either
directly or indirectly.
7.06 Sale of Assets. No Loan Party will, and no Loan Party will
permit any Subsidiary to, sell, lease, assign, transfer or otherwise dispose of
(whether in one transaction or in a series of transactions) all or a substantial
part of its assets to any Person; provided, however, that the restrictions
contained in this Section 7.06 will not apply to or prevent sales or leases by
any Loan Party or any Subsidiary of its properties in the ordinary course of
business. For purposes of this Section 7.06, the term "substantial part" means
assets having a sale price or book value (whichever is greater) equal to or
greater than either (i) 10% or more of the book value of such Loan Party's or
Subsidiary's assets, determined in accordance with GAAP or (ii) 10% or more of
the fair market value of such Loan Party's or Subsidiary's assets.
7.07 Consolidation and Merger; Acquisitions. No Loan Party will,
and no Loan Party will permit any Subsidiary to, consolidate with or merge into
any entity or permit any entity to merge into it, or acquire (whether or not in
a transaction analogous in purpose or effect to a consolidation or merger) all
or substantially all of the assets or securities of another Person; provided,
that (i) upon the good faith determination by the Company's Board of Directors
that such action will not adversely affect the Loan Parties or the Purchasers,
(A) any Loan Party may consolidate with or merge into any other Loan Party
(including the Company) so long as the Company remains in existence after such
merger and (B) any Loan Party may acquire all or substantially all of the assets
of any other Loan Party (excluding the Company) and (ii) the Loan Parties and
the Subsidiaries may make Permitted Acquisitions to the extent that the
aggregate purchase price payable by the Loan Parties and the Subsidiaries with
respect to or as a result of such acquisitions does not exceed $500,000.
7.08 Sale and Leaseback. Except for the sale and leaseback
transaction with respect to the two ▇▇▇▇ South facilities located in Atlanta,
Georgia, no Loan Party will, and no Loan Party will permit any Subsidiary to,
enter into any arrangement, directly or indirectly, with any entity whereby it
will sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which it intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
7.09 Restrictions on Nature of Business. The Loan Parties and any
Subsidiaries, viewed as a consolidated entity, will not engage, directly or
indirectly, in any line of business materially different from those engaged in
as of the Bridge Note Closing Date.
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7.10 Accounting. No Loan Party will, and no Loan Party will permit
any Subsidiary to, adopt, permit or consent to any material change in accounting
principles other than as required by GAAP, except as permitted by GAAP and
expressly concurred with by certified public accountants acceptable to the
Purchasers and, in the event of any material change in accounting principles,
the Loan Parties will, at the Purchasers' request, provide the financial
statements required by the Reporting Rider on a comparative basis showing the
financial condition and the results of operations of the Loan Parties under both
the prior accounting principle and the accounting principle as changed, and the
Loan Parties will comply with the Financial Covenants Rider under the prior
principles. No Loan Party will adopt, permit or consent to any change in its
fiscal year or file a consolidated tax return with any other Person.
7.11 Issuances of Capital Stock. The Company will not issue any
additional shares of Series A Convertible Preferred Stock except (i) as required
by the Series A Preferred Stock Designation and (ii) the ▇▇▇▇▇▇▇ Investment.
7.12 Conflicts of Interest. Except as provided by this Agreement or
the transactions contemplated hereby, no Loan Party will, and no Loan Party will
permit any Subsidiary to, conduct its business in such a manner that any
director, officer, or employee will have any direct or indirect material equity
interest in any entity which does business with any Loan Party or any Subsidiary
or in any property, asset or right which is used by any Loan Party or any
Subsidiary in the conduct of its business.
7.13 Transactions with Affiliates. No Loan Party will, and no Loan
Party will permit any Subsidiary to, enter into or continue in effect any
transaction with any Affiliate or any director, officer or employee thereof
except transactions upon fair and reasonable terms no less favorable to such
Loan Party or Subsidiary than would arise in a comparable arm's length
transaction with a Person not an Affiliate.
7.14 Inconsistent Agreements. No Loan Party will, and no Loan Party
will permit any Subsidiary to, enter into any agreement containing any provision
which would be violated or breached by this Agreement or by the performance by
any Loan Party of its obligations hereunder or under any document executed
pursuant hereto.
7.15 Rental Obligations. No Loan Party will, and no Loan Party will
permit any Subsidiary to, be or become liable for rentals under any leases of
real or personal property (excluding capitalized leases) where the total rents
payable by the Loan Parties and the Subsidiaries under such leases exceeds
$250,000 for any calendar year.
7.16 Management. No Loan Party will, except upon the prior approval
of a committee of such Loan Party's Board of Directors consisting of
disinterested directors, (i) terminate its existing chief executive officer,
president, chief financial officer, chief operating officer, or any other Person
acting in a similar capacity to such positions, or (ii) offer employment to any
Person for any of the foregoing positions.
7.17 Organizational Documents. No Loan Party will, and no Loan
Party will permit any Subsidiary to, amend its Organizational Documents.
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7.18 Modification of Credit Agreements. No Loan Party will, and no
Loan Party will permit any Subsidiary to, amend, modify, or supplement any
provision of, or waive any other party's compliance with any of the terms of,
the Senior Credit Agreement in any manner which (i) is prohibited by the terms
of the Senior Subordination Agreement, (ii) increases the interest rate or fees
payable with respect to the Senior Indebtedness from that in effect on the
Bridge Note Closing Date, (iii) changes the definition of Borrowing Base or any
defined term incorporated therein, (iv) extends the maturity date of the Senior
Indebtedness, (v) changes the principal payment amortization schedule, (vi)
establishes a term loan, (vii) imposes any more stringent financial covenants on
the Loan Parties from those in effect on the Bridge Note Closing Date (as
amended on the Final Closing Date), or (viii) is materially adverse to the
rights and benefits of the Purchasers under this Agreement.
ARTICLE VIII
INDEMNIFICATION
8.01 Indemnification. Each Loan Party, jointly and severally,
agrees to defend, indemnify and hold harmless each Purchaser and its directors,
officers, employees, partners, agents and representatives from and against any
and all claims, causes of action, losses, costs, damages, deficiencies or
expenses, including reasonable attorneys' fees (collectively "Damages"), arising
from or related to any and all misrepresentations or breach of a representation,
warranty or covenant of any Loan Party set forth in this Agreement, any of the
Ancillary Agreements, or any certificate, financial statement, document,
instrument or other material furnished to any Purchaser in connection with this
Agreement. Each Loan Party acknowledges and agrees that this indemnification
obligation will survive the termination of this Agreement and the payment and
performance of all obligations under this Agreement and the Ancillary
Agreements.
8.02 Notice. Each Purchaser agrees to give the Loan Parties prompt
written notice of any event or assertion of which it has knowledge concerning
any Damages or other obligation and as to which it may request indemnification
hereunder. A failure to give timely notice or to provide copies of documents or
to furnish relevant data in connection with any third party claim by a party who
suffers Damages will not constitute a defense (in part or in whole) to any claim
for indemnification by such party, except and only to the extent that such
failure shall result in material prejudice to the indemnifying party.
8.03 Defense. In the event the Loan Parties are obligated to
provide indemnification under this Article VIII with respect to any claim,
action or proceeding involving any third party, the Loan Parties will be
entitled to participate in any investigation of such claim, action or proceeding
and, upon written notice to the Purchasers, assume the investigation and defense
of such claim, action, or proceeding with counsel of its choice at its expense,
provided that such counsel is reasonably acceptable to the Purchasers.
35
ARTICLE IX
EVENTS OF DEFAULT
9.01 Events of Default. An "Event of Default" means any of the
following:
(a) Failure to pay principal owed under the Note, or any
interest, fees, or expenses or other amounts due under the Note, this Agreement
or any of the Ancillary Agreements, when due; or
(b) Default by any Loan Party or any Subsidiary in the
performance or observance of any covenant set forth in the Financial Covenants
Rider; or
(c) Default by any Loan Party or any Subsidiary in the
performance or observance of any covenant, condition, undertaking or agreement
contained in this Agreement or any of the Ancillary Agreements (other than a
default of a type specifically dealt with elsewhere in this Section 9.01) and
either (i) the failure of the Loan Parties to provide notice of such default to
the Purchasers within 10 business days after any Loan Party or any Subsidiary
has knowledge of the occurrence thereof, or (ii) the continuance of such default
for a period of 10 business days after the Purchasers have given notice to the
Loan Parties specifying such default and requiring it to be remedied; or
(d) Any warranty, representation or other statement by or
on behalf of any Loan Party or any Subsidiary contained in this Agreement or any
of the Ancillary Agreements, or in any instrument furnished in compliance with
or in reference hereto or thereto, is false or misleading in any material
respect at the time made; or
(e) Any event of default occurs under the Senior Credit
Agreement that results, whether automatically or at the election of the Senior
Lender, in the acceleration of the Senior Indebtedness; or
(f) Any Loan Party or any Subsidiary: (i) files a
petition seeking relief for itself under the United States Bankruptcy Code, as
now constituted or hereafter amended, or files an answer consenting to,
admitting the material allegations of, or otherwise not controverting, or fails
timely to controvert a petition filed against it seeking relief under the United
States Bankruptcy Code, as now constituted or hereafter amended; or (ii) files
such a petition or answer with respect to relief under the provisions of any
other now existing or future applicable bankruptcy, insolvency or similar law of
the United States of America or any state thereof providing for the
reorganization, winding-up or liquidation of corporations or an arrangement,
composition, extension or adjustment with creditors; or
(g) An order for relief is entered against any Loan Party
or any Subsidiary under the United States Bankruptcy Code, as now constituted or
hereafter amended, which order is not stayed; or
(h) The entry of an order, judgment or decree by
operation of law or by any court having jurisdiction in the premises which is
not stayed (i) adjudging any Loan Party or any
36
Subsidiary bankrupt or insolvent under, or ordering relief against any Loan
Party or any Subsidiary under, or approving a properly filed petition seeking
relief against any Loan Party or any Subsidiary under the provisions of any
other now existing or future applicable bankruptcy, insolvency or other similar
law of the United States or any state thereof providing for the reorganization,
winding-up or liquidation of corporations or any arrangement, composition,
extension or adjustment with creditors, (ii) appointing a receiver, liquidator,
assignee, sequestrator, trustee or custodian of any Loan Party or any
Subsidiary, or any substantial part of its property, or (iii) ordering the
reorganization, winding-up or liquidation of the affairs of any Loan Party or
any Subsidiary; or
(i) The expiration of 60 days after the filing of any
involuntary petition against any Loan Party or any Subsidiary seeking any of the
relief specified in Sections 9.01(f), (g) or (h) hereof without the petition
being dismissed prior to that time; or
(j) Any Loan Party or any Subsidiary: (i) makes a general
assignment for the benefit of creditors; (ii) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, sequestrator, trustee or
custodian of all or a substantial part of its property; (iii) admits its
insolvency or inability to pay its debts generally as such debts become due;
(iv) fails generally to pay its debts as such debts become due; or (v) takes any
action in furtherance of its dissolution or liquidation, except as permitted by
Section 6.08 or Section 7.07; or
(k) Default by any Loan Party or any Subsidiary under any
covenant, provision or condition contained in any material ($25,000 or more)
bond, debenture, note or other evidence of Indebtedness (other than the Note and
the Senior Indebtedness) or under any indenture or other instrument under which
any such evidence of Indebtedness has been issued or by which it is governed and
the expiration of the applicable period of grace, if any, specified in such
evidence of Indebtedness, indenture or other instrument; provided, however, that
if such default under such evidence of Indebtedness, indenture or other
instrument is timely cured, or waived by the holder of such Indebtedness, in
each case as may be permitted by such evidence of Indebtedness, indenture or
other instrument, then the Event of Default hereunder by reason of such default
will be deemed likewise to have been thereupon cured or waived; or
(l) A judgment for the payment of money in excess of
$50,000 is rendered against any Loan Party or any Subsidiary and continues
unsatisfied for a period of 30 days without a stay of execution; or
(m) Any Reportable Event, which the Purchasers determine
in good faith may constitute grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a trustee to
administer any Plan, occurs and continues 30 days after written notice to such
effect has been given to the Loan Parties by the Purchasers; or any Plan is
terminated, or a trustee is appointed by an appropriate United States District
Court to administer any Plan, or the Pension Benefit Guaranty Corporation
institutes proceedings to terminate any Plan or to appoint a trustee to
administer any Plan; or
(n) Any audit report referred to in Paragraph A.1 of the
Reporting Rider contains a qualification as to scope or continuance as a going
concern; or
37
(o) Any Change in Control occurs.
9.02 Remedies.
(a) From and after the occurrence of any Event of
Default, upon the written consent of the Purchaser or Purchasers representing
greater than 50% of the unpaid principal amount of the Notes at the time
outstanding, each Purchaser will be entitled to:
(i) declare all indebtedness evidenced by its
Note to be immediately due and payable, and upon such acceleration the
Note will become due and payable without any presentment, demand,
protest or other notice of any kind, all of which are expressly waived;
(ii) apply any and all amounts owed to any Loan
Party by such Purchaser to the payment of its Note;
(iii) exercise and enforce its rights and remedies
under this Agreement or any of the Ancillary Agreements; and
(iv) proceed to protect and enforce its rights
under applicable law;
provided, that upon the occurrence of any Event of Default under Section
9.01(f), (g), (h), (i) or (j), the entire unpaid principal amount of the Notes
then outstanding, all interest accrued and unpaid thereon, and all other amounts
payable under this Agreement will be immediately due and payable without
presentment, demand, protest or notice of any kind.
(b) No course of dealing on the part of any Purchaser or
any delay or failure on the part of any Purchaser to exercise any right will
operate as a waiver of such right or otherwise prejudice any Purchaser's rights,
powers and remedies.
(c) The Loan Parties will pay to each Purchaser such
additional amounts as are sufficient to cover the costs and expenses, including
without limitation, reasonable attorneys' fees, incurred by each Purchaser in
collecting any sums due on account of the Notes or otherwise in enforcing its
rights under this Agreement or the Ancillary Agreements.
ARTICLE X
MISCELLANEOUS
10.01 Survival of Representations and Warranties. The
representations, warranties, covenants and agreements set forth in this
Agreement (including the Disclosure Schedule), the Ancillary Agreements, or any
writing delivered by or on behalf of a party to this Agreement to another party
to this Agreement in connection with this Agreement, will survive the Bridge
Note Closing Date, the Final Closing Date and the consummation of the
transactions contemplated by this Agreement and will not be affected by any
examination or knowledge, or the acceptance of any certificate or opinion.
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10.02 Expenses.
(a) At the Bridge Note Closing and the Final Closing, the
Loan Parties will pay the reasonable legal, accounting, environmental, travel
and other out-of-pocket expenses of each Purchaser relating to the Loan Parties,
this Agreement, the Ancillary Agreements and the transactions contemplated
hereby. The parties acknowledge that (i) the Loan Parties have paid $25,000 to
Bayview in connection with the execution of the proposal letter dated July 3,
2003 between the Company and Bayview, and (ii) such payment will be applied
against the expenses required to be paid hereunder. The Loan Parties acknowledge
that such payment is in addition to the closing fee required to be paid under
Section 2.04.
(b) The Loan Parties will pay all reasonable
out-of-pocket expenses incurred by each Purchaser after the Bridge Note Closing
in connection with monitoring the Loan Parties, and the administration or
enforcement of this Agreement, the Ancillary Agreements or any of the
instruments and documents delivered and to be delivered hereunder or thereunder,
including all reasonable fees and out-of-pocket expenses of legal counsel
retained by each Purchaser with respect thereto. The Loan Parties will promptly
reimburse each Purchaser for all costs and expenses, as they are incurred,
associated with any amendment, waiver, extension or restructuring of the loans
or agreements or covenants contemplated herein.
10.03 Governing Law. This Agreement and the Ancillary Agreements
will be construed and enforced in accordance with the substantive laws of the
State of Minnesota without giving effect to the conflicts of laws principles of
any jurisdiction.
10.04 Notices. All notices, consents, requests, instructions,
approvals and other communications required by this Agreement will be validly
given, made or served if in writing and delivered personally, sent by certified
mail (postage prepaid), facsimile transmission, or by a nationally recognized
overnight delivery service, addressed as follows (or such other address as is
furnished in writing by a party to the other parties):
(a) If to the Purchaser:
Bayview Capital Partners LP
Attn: ▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇. ▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel.: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ P.L.L.P.
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
4200 IDS Center
▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel.: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
(b) If to any Loan Party, addressed to the Company at:
Health Fitness Corporation
Attn: Chief Financial Officer
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel.: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, P.A.
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Tel.: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
10.05 Entire Agreement. This Agreement and the Ancillary Agreements,
including the other documents referred to herein, contain the entire
understanding of the parties hereto with respect to the subject matter contained
herein. There are no restrictions, promises, warranties, covenants, or
undertakings, other than those expressly provided for herein. This Agreement and
the Ancillary Agreements supersede all prior agreements and undertakings between
the parties with respect to such subject matter.
10.06 Amendments; Consents; Waivers. The Purchaser or Purchasers
representing (i) at least 50% of the unpaid principal amount of the Notes at the
time outstanding and (ii) at least 50% of the Preferred Shares at the time
outstanding (the "Requisite Purchasers"), may by written agreement with the Loan
Parties amend this Agreement. Any consent, notice, request, demand or waiver
required or permitted to be given by the Purchasers by any provision hereof will
be sufficient and binding on all Purchasers if given in writing by the Requisite
Purchasers at the time outstanding except that, without the written consent of
all the Purchasers, no amendment to this Agreement will extend the maturity of
the Notes, alter the rate of interest or any premium payable with respect to the
Notes, affect the amount or timing of any required prepayments, or reduce the
proportion of the principal amount of the Notes required with respect to any
consent. No waiver of any term or condition of this Agreement, in any one or
more instances, will constitute a waiver of the same term or condition of this
Agreement on any future occasion.
10.07 Severability of Invalid Provision. If any one or more covenant
or agreement provided in this Agreement is contrary to law, then such covenant
or agreement will be null and
40
void and will in no way affect the validity of the other provisions of this
Agreement, which will otherwise be fully effective and enforceable.
10.08 Successors and Assigns. This Agreement and the various
instruments and agreements delivered in connection with the consummation of this
Agreement will be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided, however, that no Loan
Party may assign any of its obligations hereunder without the prior written
consent of the Purchasers.
10.09 Rules of Construction; Disclosure Schedule.
(a) Section headings contained in this Agreement are
inserted only as a matter of convenience and in no way define, limit, extend or
describe the scope of this Agreement or the intent of any of the provisions
hereof. This Agreement and the Ancillary Agreements have been negotiated on
behalf of the parties with the advice of legal counsel and no general rule of
contract construction requiring an agreement to be more stringently construed
against the drafter or proponent of any particular provision will be applied in
the construction or interpretation of this Agreement or the Ancillary
Agreements.
(b) The Loan Parties will include references in the
Disclosure Schedule to the particular Section of this Agreement that relates to
each disclosure. The disclosures in the Disclosure Schedule relate only to the
representations and warranties in the Section of the Agreement to which they
expressly relate and not to any other representation or warranty in this
Agreement except to the extent that it is reasonably apparent from the face of a
disclosure that such disclosure relates to such other representation or
warranty. In the event of any inconsistency between the statements in the body
of this Agreement and those in the Disclosure Schedule (other than an exception
expressly set forth as such in the Disclosure Schedule with respect to a
specifically identified representation or warranty), the statements in the body
of this Agreement will control.
10.10 Counterparts. This Agreement may be executed in one or more
counterparts, and will become effective when one or more counterparts have been
signed by each of the parties.
10.11 Cumulative Remedies. The rights, remedies, powers and
privileges provided in this Agreement are cumulative and not exclusive and will
be in addition to any and all other rights, remedies, powers and privileges
granted by law, rule, regulation or instrument.
10.12 Press Releases. The Loan Parties agree not to issue any press
release or make any general public announcement or statement with respect to the
execution of this Agreement or the transactions hereunder unless the same,
including the content thereof, are approved by the Purchasers. The Loan Parties
agree that each Purchaser may utilize the name, trade names, logos, and
trademarks of the Loan Parties in the Purchaser's marketing materials.
10.13 Time is of the Essence. Time is of the essence as to the
payment and performance of all obligations and agreements of the Loan Parties
under this Agreement.
41
10.14 Consent to Jurisdiction. AT THE OPTION OF THE PURCHASERS, THIS
AGREEMENT AND THE ANCILLARY AGREEMENTS MAY BE ENFORCED IN ANY FEDERAL COURT OR
MINNESOTA STATE COURT SITTING IN HENNEPIN COUNTY, MINNESOTA, AND EACH LOAN PARTY
CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT
THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT ANY LOAN PARTY
COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT
THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS
AGREEMENT OR THE ANCILLARY AGREEMENTS, OR ALLEGING ANY BREACH OF THIS AGREEMENT
OR ANY OF THE ANCILLARY AGREEMENTS, THE PURCHASERS AT THEIR OPTION ARE ENTITLED
TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES DESCRIBED
ABOVE, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE
SUCH CASE DISMISSED WITHOUT PREJUDICE.
10.15 Waiver of Jury Trial. EACH LOAN PARTY WAIVES THE RIGHT TO A
TRIAL BY JURY IN ANY ACTION BASED ON OR PERTAINING TO THIS AGREEMENT OR ANY OF
THE ANCILLARY AGREEMENTS.
10.16 Relationship of the Purchasers. No Purchaser nor any of its
Affiliates nor any of their officers, directors, employees, agents, or
representatives will be liable to any other Purchaser for any action taken or
omitted to be taken by it under or in connection with this Agreement or any
Ancillary Agreement. No Purchaser makes any warranty or representation to any
other Purchaser and will not be responsible to any other Purchaser for any
statements, warranties or representations made in or in connection with this
Agreement or any Ancillary Agreement. No Purchaser has any duty to any other
Purchaser to ascertain or to inquire as to the performance or observance of any
of the terms, covenants or conditions of this Agreement or any Ancillary
Agreement. Each Purchaser acknowledges that it has, independently and without
reliance upon any other Purchaser and based on such documents and information as
it has deemed appropriate, made its own credit and financial analysis of the
Loan Parties and its own decision to enter into this Agreement. Each Purchaser
also acknowledges that it will, independently and without reliance upon any
other Purchaser and based on such documents and information as it deems
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under or in connection with this Agreement. Each Purchaser
acknowledges the potential conflict of interest of each other Purchaser as a
result of the Purchasers holding disproportionate interests in the Securities,
and expressly consents to, and waives any claim based upon, such conflict of
interest.
* * * * *
42
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto on the day and year first above written.
THE LOAN PARTIES: THE PURCHASER:
HEALTH FITNESS CORPORATION BAYVIEW CAPITAL PARTNERS LP
By: Bayview Capital Management LLC
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Its: General Partner
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Its: Treasurer
HEALTH FITNESS REHAB, INC. By: /s/ ▇▇▇▇ ▇. ▇▇▇
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Its: Associate Director
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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Its: Treasurer
FITNESS CENTERS OF AMERICA
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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Its: --------------------------
HEALTH FITNESS CORPORATION OF CANADA,
INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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Its: President
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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Its: Treasurer
43
REPORTING RIDER
TO SECURITIES PURCHASE AGREEMENT
The Loan Parties will furnish to each Purchaser the financial statements, other
reports, and other information set forth in this Reporting Rider.
A. Annual Reporting.
1. Financials. As soon as available, and in any event within 90
days after the end of each fiscal year of the Company, a copy
of the annual audit report of the Company and its
Subsidiaries, which report is certified by an independent
certified public accountant who is selected by the Company and
is reasonably acceptable to the Purchasers, without
qualification as to scope of audit or opinion. Such annual
report will include a consolidated and consolidating balance
sheet of the Company and its Subsidiaries as of the end of
such fiscal year and the related statements of income,
retained earnings and cash flows of the Company and its
Subsidiaries for the fiscal year then ended, all in reasonable
detail and all prepared in accordance with GAAP, together with
(i) a report signed by such accountants stating that in making
the investigations necessary for their opinion they obtained
no knowledge, except as specifically stated, of any Event of
Default and all relevant facts in reasonable detail to
evidence, and the computations as to, whether or not the
Company is in compliance with the financial covenants set
forth in the Financial Covenants Rider attached to the
Agreement; (ii) any management letters from such accountants,
and (iii) a Compliance Certificate in substantially the form
attached to the Financial Covenants Rider signed by the
Company's chief financial officer stating that such financial
statements have been prepared in accordance with GAAP and
whether or not he or she has any knowledge of the occurrence
of any Event of Default and, if so, stating in reasonable
detail the facts with respect thereto and the computations as
to whether the Company is in compliance with the financial
covenants set forth in the Financial Covenants Rider.
2. Budget. At least one month prior to the beginning of each
fiscal year of the Company, an annual plan for such year,
which includes major operating goals and milestones, monthly
balance sheets, profit and loss projections, cash flow
statements and monthly capital and operating expense budgets,
itemized in such detail as the Purchasers may reasonably
request.
3. Tax Returns. Upon the request of the Purchasers, a true and
correct copy of the Company's consolidated federal income tax
returns as filed and all schedules thereto.
Financial Covenants Rider - 1
B. Monthly Reporting.
1. Financials. Within 30 days after the end of each month, a
consolidated and consolidating balance sheet, statement of
income and statement of cash flows of the Company and its
Subsidiaries as of the end of and for such month and for the
period year-to-date, each prepared in accordance with GAAP and
including a comparison for the corresponding periods of the
previous year.
2. Management Reports. Within 30 days after the end of each
month, comparisons of actual results with the budget for such
month, the period year-to-date and the actual results of the
corresponding periods of the previous year, and management's
discussion of variances from budget, all in such detail as the
Purchasers may reasonably request.
C. Compliance Certificates. Within 30 days after the end of each fiscal
quarter of the Company's fiscal year, a Compliance Certificate in
substantially the form attached to the Financial Covenants Rider signed
by the Company's chief financial officer as to whether or not he or she
has any knowledge of the occurrence of any Event of Default and, if so,
stating in reasonable detail the facts with respect thereto and the
computations as to whether the Company is in compliance with the
financial covenants set forth in the Financial Covenants Rider.
D. Board of Director and Shareholder Materials.
1. Meetings. Each Loan Party will use its best efforts to provide
each Purchaser with five business days prior notice of all
regular and special meetings of such Loan Party's Board of
Directors (or equivalent governing body), any committee
thereof, shareholders, members or partners (and in any event
such notice must be provided not later than the notice
provided to the members thereof). Each Loan Party will provide
the Purchasers copies of the minutes of all meetings of, and
written minutes of action taken by, the Board of Directors (or
equivalent governing body), any committee thereof,
shareholders, members or partners of each Loan Party, promptly
after each such meeting or action is taken.
2. Shareholder Documents. To the extent not already delivered to
the Purchasers, promptly upon their distribution, copies of
all financial statements, reports and proxy statements which
any Loan Party delivers to its shareholders, members or
partners.
3. Securities Filings. Promptly after the sending or filing
thereof, copies of all regular and periodic financial reports
which any Loan Party or any Subsidiary files with the
Commission or any national securities exchange.
Financial Covenants Rider - 2
E. Other Creditor Materials.
1. Periodic Reports. Promptly with the sending or filing thereof,
copies of all reports and documents that any Loan Party sends
or provides to any of its material creditors, whether upon
such creditors' request or otherwise, and copies of all
reports, audits and work papers, prepared by or for its
creditors, or their designees, whether during the course of a
periodic audit or otherwise, which examine the loans,
collateral, controls, policies or procedures of such Loan
Party.
2. Defaults. Immediately upon the receipt thereof from any
creditor, copies of any notices of default or other
correspondence or information pertaining to any alleged or
actual default or noncompliance with any credit facility
maintained by any Loan Party or any Subsidiary with any
creditor other than the Purchasers.
F. Reporting Upon Certain Events.
1. Litigation. Immediately after any Loan Party learns of the
commencement or threatened commencement of any material suit,
legal or equitable, or of any material administrative,
arbitration or other proceeding against any Loan Party or any
Subsidiary, or its business, assets or properties, written
notice of the nature and extent of such suit or proceeding.
2. Material Adverse Events; Events of Default. As promptly as
practicable, but in any event not later than five days after a
director or officer of any Loan Party obtains knowledge
thereof, notice of the occurrence of any of the following,
together with a detailed statement by a responsible director
or officer of the Company of the steps being taken to cure the
effect of such occurrence or event:
(a) any materially adverse development in any litigation,
arbitration or governmental investigation or
proceeding previously disclosed by the Loan Parties
to the Purchasers;
(b) any event which constitutes an Event of Default; or
(c) any condition or event regarding the business,
properties, condition or prospects (financial or
otherwise) of any Loan Party or any Subsidiary which
has or may reasonably be expected to have a Material
Adverse Effect on such Loan Party or Subsidiary or
result in an Event of Default.
3. Benefit Plan Reportable Events. As soon as possible and in any
event within 30 days after any Loan Party knows or has reason
to know that any Reportable Event with respect to any Plan has
occurred, a statement of the chief financial officer of the
Company setting forth details as to such Reportable Event and
the action which the Loan Parties propose to take with respect
thereto, together with a copy of the notice of such Reportable
Event to the Pension Benefit Guaranty Corporation.
Financial Covenants Rider - 3
G. Other Information. Such other documents and information concerning any
Loan Party or Subsidiary which is reasonably requested by the
Purchasers from time to time.
Financial Covenants Rider - 4
FINANCIAL COVENANTS RIDER
TO SECURITIES PURCHASE AGREEMENT
A. Senior Cash Flow Leverage. The Company will at all times maintain its
Senior Cash Flow Leverage Ratio, determined as of the end of each month
during each period described below, at not more than the ratio set
forth below opposite such period.
Maximum Senior Cash
Period Flow Leverage Ratio
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Bridge Note Closing Date through December 31, 2003 N/A
December 31, 2003 through February 29, 2004 2.0 to 1
March 1, 2004 and thereafter 1.65 to 1
B. Senior Leverage Ratio. The Company will maintain its Senior Leverage
Ratio, determined as of the end of each month during each period
described below, at not more than the ratio set forth below opposite
such period.
Maximum Senior
Period Leverage Ratio
------ --------------
Bridge Note Closing Date through September 29, 2003 3.75 to 1
September 30, 2003 through December 30, 2003 4.0 to 1
December 31, 2003 through March 31, 2004 3.75 to 1
April 1, 2004 through December 30, 2004 3.50 to 1
December 31, 2004 and thereafter 2.50 to 1
C. Current Ratio. The Company will maintain its Current Ratio, determined
as of the end of each month at not less than 1.5 to 1.0.
D. Capital Expenditures. The Loan Parties (calculated on a consolidated
basis) will not make any Capital Expenditures which, in the aggregate,
exceed $325,000 in any fiscal year.
E. Defined Terms. For purposes of this Financial Covenants Rider, the
following terms have the meanings indicated.
"Capital Expenditures" of any Person means any expenditure of money for
the purchase or construction of fixed assets or for the purchase or
construction of any other assets, or
Financial Covenants Rider - 1
for improvements or additions thereto, which are capitalized on such
Person's balance sheet.
"Current Assets" of any Person means the aggregate amount of assets of
such Person which in accordance with GAAP may be properly classified as
current assets, after deducting adequate reserves where proper, but in
no event including any real estate.
"Current Liabilities" of any Person means (i) all Debt of such Person
due on demand or within one year from the date of determination
thereof, reduced by the outstanding principal balance of the Escrow
Account, and (ii) all other items (including taxes accrued as
estimated) which, in accordance with GAAP, may be properly classified
as current liabilities of such Person.
"Current Ratio" means the ratio of the Company's consolidated Current
Assets to consolidated Current Liabilities, as determined in accordance
with GAAP.
"Debt" of any Person means (i) all items of indebtedness or liability
which in accordance with GAAP would be included in determining total
liabilities as shown on the liabilities side of a balance sheet of that
Person as at the date as of which Debt is to be determined, (ii)
indebtedness secured by any Lien on property owned by such Person,
whether or not the indebtedness secured thereby shall have been
assumed, (iii) obligations of such Person to pay money under
non-compete, consulting or similar agreements, and (iv) guaranties and
endorsements (other than for purposes of collection in the ordinary
course of business) by such Person and other contingent obligations of
such Person in respect of, or to purchase or otherwise acquire,
indebtedness of others. For purposes of determining a Person's
aggregate Debt at any time, "Debt" shall also include the aggregate
payments required to be made by such Person at any time under any lease
that is considered a capitalized lease under GAAP. Unless otherwise
stated, Debt means Debt of the Company and its Subsidiaries.
"EBITDA" means, as of any date, the sum of (i) pretax earnings from
continuing operations, (ii) Interest Expense and (iii) depreciation,
depletion, and amortization of tangible and Intangible Assets, before
(a) special extraordinary gains, (b) minority interests, and (c)
miscellaneous gains and losses, in each case for the twelve-month
period ending on such date, computed and calculated in accordance with
GAAP.
"Escrow Account" means the account or accounts established under the
Escrow Agreement.
"Intangible Assets" means all intangible assets as determined in
accordance with GAAP and including intellectual property rights,
goodwill, accounts due from Affiliates or employees, deposits, deferred
charges or treasury stock or any securities or Debt of the Company or
its Subsidiaries or any other securities unless the same are readily
marketable in the United States or entitled to be used as a credit
against federal income tax liabilities, non-compete agreements and any
other assets designated from time to time by the Senior Lender.
Financial Covenants Rider - 2
"Interest Expense" means, as of any date, the Company's total gross
interest expense during the twelve-month period ending on such date
(excluding interest income), and shall in any event include (i)
interest expensed (whether or not paid) on all Debt, (ii) the
amortization of debt discounts, (iii) the amortization of all fees
payable in connection with the incurrence of Debt to the extent
included in interest expense and (iv) the portion of any capitalized
lease obligation allocable to interest expense.
"Net Worth" means the aggregate of capital and retained earnings of the
Company and its Subsidiaries, as determined on a consolidated basis in
accordance with GAAP.
"Senior Cash Flow Leverage Ratio" means, as of any date, the ratio of
the Company's Senior Funded Debt as of such date to its EBITDA.
"Senior Debt" means all Debt of the Company or any Subsidiary other
than Subordinated Debt.
"Senior Funded Debt" means all interest-bearing Debt of the Company or
any Subsidiary other than Subordinated Debt.
"Senior Leverage Ratio" means, as of any date, the ratio of the Company
consolidated Senior Debt, reduced by the outstanding principal balance
of the portion of the Escrow Account funded by the Senior Lender, to
its consolidated Tangible Net Worth plus Subordinated Debt.
"Subordinated Debt" means Debt of the Company or any Subsidiary which
is subordinated in right of payment to all indebtedness of the Company
to the Senior Lender, on terms that have been approved in writing by
the Senior Lender and that have been noted by appropriate legend on all
instruments evidencing the Subordinated Debt.
"Tangible Net Worth" means the difference between (i) Net Worth and
(ii) Intangible Assets.
Financial Covenants Rider - 3
HEALTH FITNESS CORPORATION
COMPLIANCE CERTIFICATE
The undersigned is the Chief Financial Officer of Health Fitness
Corporation, a Minnesota corporation (the "Company"). Pursuant to the Securities
Purchase Agreement dated as of August ____, 2003 (the "Agreement"), by and among
the Company, the other Loan Parties thereto, Bayview Capital Partners LP
("Bayview") and any other Purchasers thereto, the undersigned certifies to each
Purchaser that:
1. The financial statements as of __________________, _____ and
for the period then ended which are attached to this certificate are complete
and correct in all material respects and fairly present the financial condition
of the Loan Parties and their Subsidiaries as of the date of the financial
statements and the results of operations for the period covered thereby, and
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis.
2. The undersigned DOES DOES NOT (instruction: circle the correct
response) have knowledge of the occurrence of any Event of Default as defined in
the Agreement, or of any event, condition or occurrence which with the giving of
notice or passage of time or both would constitute an Event of Default (each a
"Pending Event of Default"), not previously reported to the Purchasers in a
prior Compliance Certificate. If the undersigned does have knowledge of any such
Event of Default or Pending Event of Default, the facts related to such Event of
Default or Pending Event of Default are set forth below (or attached hereto):
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3. As of the date and for the period ended on the date of the
attached financial statements, the actual and required financial covenants
contained in the Financial Covenants Rider are as follows:
FINANCIAL COVENANT ACTUAL REQUIRED
----------------------------------------------------------------
Senior Cash Flow Leverage Ratio
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Senior Leverage Ratio
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Current Ratio
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Capital Expenditures
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4. Attached to this certificate are schedules showing the
computation of the actual ratios referred to above.
IN WITNESS WHEREOF, the undersigned has executed this Compliance
Certificate this ________________ ____, ________.
HEALTH FITNESS CORPORATION
By:_________________________________
Its: Chief Financial Officer
EXHIBIT A-1
THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBJECT TO A SUBORDINATION AGREEMENT
DATED AS OF AUGUST 25, 2003 (AS THE SAME MAY BE AMENDED, MODIFIED OR OTHERWISE
SUPPLEMENTED FROM TIME TO TIME) MADE BY BAYVIEW CAPITAL PARTNERS LP FOR THE
BENEFIT OF ▇▇▇▇▇ FARGO BANK, NATIONAL ASSOCIATION (THE "SUBORDINATION
AGREEMENT"). THIS NOTE MAY NOT BE ASSIGNED UNLESS THE ASSIGNEE AGREES IN WRITING
TO BE BOUND BY THE TERMS AND PROVISIONS OF THE SUBORDINATION AGREEMENT.
SECURED SENIOR SUBORDINATED NOTE
(BRIDGE NOTE)
$3,000,000 August 25, ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇
FOR VALUE RECEIVED, Health Fitness Corporation, a Minnesota corporation
(the "Debtor"), promises to pay to the order of Bayview Capital Partners LP, a
Delaware limited partnership, or its assigns (the "Holder"), the principal sum
of $3,000,000, together with interest, in the manner provided in this Bridge
Note (this "Note").
This Note was issued pursuant to a Securities Purchase Agreement dated
the date hereof (the "Agreement") by and among the Debtor, the Holder, and the
Loan Parties thereto. This Note is subject to, and the Holder is entitled to,
the benefits of the Agreement. Except as to those terms otherwise defined in
this Note, all initially-capitalized terms used in this Note have the meanings
provided in the Agreement.
1. Repayment of Principal. All outstanding principal, if not
previously paid, will be due and payable on the earliest to occur of (i) the
satisfaction of the conditions set forth in Section 5.02 of the Agreement, (ii)
the disbursement of funds under Section 4.2 or Section 4.3 of the Escrow
Agreement, and (iii) December 1, 2003 (the "Stated Maturity Date").
2. Interest.
2.1 Interest will accrue on the unpaid principal balance
of this Note at an interest rate of 12% per year; provided that (i) after the
occurrence and during the continuance of any Event of Default, the unpaid
principal balance of this Note will bear interest at 15% per year, and (ii) in
no event will the applicable interest rate exceed the highest rate permitted by
applicable law. For purposes of this Section, in the event an Event of Default
occurs under Section 9.01(b) of the Agreement, such Event of Default will be
deemed to have occurred at the beginning of the period to which such Event of
Default relates.
2.2 The assessment and accrual of interest as provided in
this Section 2 will not be tolled by virtue of any payment blockage under any
subordination or intercreditor agreement applicable hereto.
2.3 All interest will be computed on the basis of a
360-day year containing 12 months, counting the actual number of days in each
month, and will compound monthly. Accrued interest will be paid (i) monthly on
the last day of each calendar month, commencing on September 30, 2003 and
continuing thereafter until the principal amount outstanding under this Note has
been repaid, (ii) on the Final Closing Date, and (iii) on the Stated Maturity
Date.
3. Method of Payment for Principal and Interest. All payments
with respect to this Note will be made by wire transfer, in immediately
available funds, to such account as the Holder may specify in writing, without
any presentation of this Note. Each such payment will be applied (i) first, to
any fees, expenses or other amounts (other than principal and interest) due
under this Note, the Agreement or any Ancillary Agreement, (ii) second, to
accrued and unpaid interest, and (iii) third, to outstanding principal in the
inverse order of maturity. Whenever any payment to be made under this Note is
due on a Saturday, Sunday or holiday for banks under the laws of the State of
Minnesota, such payment may be made on the next succeeding bank business day,
and such extension of time will in such case be included in the computation of
the amount of interest due.
4. Subordination. This Note is subject in all respect to the
Senior Subordination Agreement.
5. Events of Default. Upon the occurrence and during the
continuance of any Event of Default, the Holder will have the rights provided in
the Agreement.
6. Cash Payment Premium. In the event any outstanding principal
of this Note is paid in cash and not converted in to the Long Term Note, the
Preferred Shares and the Warrant in accordance with the terms of the Agreement,
any such principal payment must be accompanied by payment of a 5% premium based
on the amount of the principal payment.
7. Mandatory Prepayment upon Change in Control. All outstanding
principal and accrued interest under this Note will become due and payable upon
the occurrence of a Change in Control.
8. General.
8.1 Payment of principal or interest on this Note may
only be made to, or upon the order of, the registered Holder. This Note is
transferable only by surrender of the Note to the Debtor, duly endorsed or
accompanied by a written instrument of transfer executed by the registered
Holder, and further accompanied by a written agreement to be bound to the
Subordination Agreement. Upon surrender of this Note for transfer as provided
above, the Debtor will issue a new Note to, and register such new Note in the
name of, the transferee and such new Note must contain the same legend as
provided in this Note.
8.2 The Debtor:
(a) waives diligence, presentment, demand for
payment, notice of dishonor, notice of non-payment, protest, notice of
protest, and any and all other demands
in connection with the delivery, acceptance, performance, default or
enforcement of this Note;
(b) agrees that the Holder will have the right,
without notice, to grant any extension of time for payment of any
indebtedness evidenced by this Note or any other indulgence or
forbearance whatsoever;
(c) agrees that no failure on the part of the
Holder to exercise any power, right or privilege hereunder, or to
insist upon prompt compliance with the terms of this Note, will
constitute a waiver of that power, right or privilege; and
(d) agrees that the acceptance at any time by
the Holder of any past due amounts will not be deemed to be a waiver of
the requirement to make prompt payment when due of any other amounts
then or hereafter due and payable.
8.3 Upon receipt of evidence reasonably satisfactory to
the Debtor of the loss, theft, destruction or mutilation of this Note, the
Debtor will make and deliver a new Note of like tenor in lieu of this Note.
8.4 This Note will be construed and enforced in
accordance with the substantive laws of the State of Minnesota without giving
effect to the conflicts of laws principles of any jurisdiction.
8.5 In the event the Debtor fails to timely pay any
amount due under this Note, the Debtor will pay all of the Holder's reasonable
out-of-pocket collection costs, including without limitation, reasonable
attorneys' fees and legal costs, whether or not any suit or enforcement
proceeding is commenced.
8.6 AT THE OPTION OF THE HOLDER, THIS NOTE MAY BE
ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING IN HENNEPIN
COUNTY, AND THE DEBTOR CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT
AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE
EVENT THE DEBTOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY
TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP
CREATED BY THIS NOTE, OR ALLEGING ANY BREACH OF THIS NOTE, THE HOLDER AT ITS
OPTION IS ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND
VENUES DESCRIBED ABOVE, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER
APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.
8.7 THE DEBTOR WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY
ACTION BASED ON OR PERTAINING TO THIS NOTE.
9. Security Interest. All amounts due under this Note are secured
pursuant to the terms of the Security Agreement.
* * * * *
IN WITNESS WHEREOF, the Debtor has caused this Note to be signed by a
duly authorized officer and dated as of the date first above written.
HEALTH FITNESS CORPORATION
By:___________________________
Its:_________________________
EXHIBIT A-2
THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBJECT TO A SUBORDINATION AGREEMENT
DATED AS OF AUGUST ___, 2003 (AS THE SAME MAY BE AMENDED, MODIFIED OR OTHERWISE
SUPPLEMENTED FROM TIME TO TIME) MADE BY BAYVIEW CAPITAL PARTNERS LP FOR THE
BENEFIT OF ▇▇▇▇▇ FARGO BANK, NATIONAL ASSOCIATION (THE "SUBORDINATION
AGREEMENT"). THIS NOTE MAY NOT BE ASSIGNED UNLESS THE ASSIGNEE AGREES IN WRITING
TO BE BOUND BY THE TERMS AND PROVISIONS OF THE SUBORDINATION AGREEMENT.
SECURED SENIOR SUBORDINATED NOTE
(LONG TERM NOTE)
$2,000,000 ________ ___, ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇
FOR VALUE RECEIVED, Health Fitness Corporation, a Minnesota corporation
(the "Debtor"), promises to pay to the order of Bayview Capital Partners LP, a
Delaware limited partnership, or its assigns (the "Holder"), the principal sum
of $2,000,000, together with interest, in the manner provided in this Secured
Senior Subordinated Note (this "Note").
This Note was issued pursuant to a Securities Purchase Agreement dated
August ____, 2003 (the "Agreement") by and among the Debtor, the Holder, and the
Loan Parties thereto. This Note is subject to, and the Holder is entitled to,
the benefits of the Agreement. Except as to those terms otherwise defined in
this Note, all initially-capitalized terms used in this Note have the meanings
provided in the Agreement.
1. Repayment of Principal. All outstanding principal, if not
previously paid, will be due and payable on August ___, 2008 (the "Stated
Maturity Date").
2. Interest.
2.1 Interest will accrue on the unpaid principal balance
of this Note at an interest rate of 12% per year; provided that (i) after the
occurrence and during the continuance of any Event of Default, the unpaid
principal balance of this Note will bear interest at 15% per year, and (ii) in
no event will the applicable interest rate exceed the highest rate permitted by
applicable law. For purposes of this Section, in the event an Event of Default
occurs under Section 9.01(b) of the Agreement, such Event of Default will be
deemed to have occurred at the beginning of the period to which such Event of
Default relates.
2.2 The assessment and accrual of interest as provided in
this Section 2 will not be tolled by virtue of any payment blockage under any
subordination or intercreditor agreement applicable hereto.
2.3 All interest will be computed on the basis of a
360-day year containing 12 months, counting the actual number of days in each
month, and will compound monthly. Accrued interest will be paid monthly on the
last day of each calendar month, commencing on
_______ __, 2003 and continuing thereafter until the principal amount
outstanding under this Note has been repaid, and on the Stated Maturity Date.
3. Method of Payment for Principal and Interest. All payments
with respect to this Note will be made by wire transfer, in immediately
available funds, to such account as the Holder may specify in writing, without
any presentation of this Note. Each such payment will be applied (i) first, to
any fees, expenses or other amounts (other than principal and interest) due
under this Note, the Agreement or any Ancillary Agreement, (ii) second, to
accrued and unpaid interest, and (iii) third, to outstanding principal in the
inverse order of maturity. Whenever any payment to be made under this Note is
due on a Saturday, Sunday or holiday for banks under the laws of the State of
Minnesota, such payment may be made on the next succeeding bank business day,
and such extension of time will in such case be included in the computation of
the amount of interest due.
4. Subordination. This Note is subject in all respect to the
Senior Subordination Agreement.
5. Events of Default. Upon the occurrence and during the
continuance of any Event of Default, the Holder will have the rights provided in
the Agreement.
6. Optional Prepayments. The indebtedness evidenced by this Note
may be prepaid, in whole or in part, at any time. Any prepayment must be
accompanied by payment of a premium based on the amount of the prepayment, as
follows:
Date of Prepayment Premium
------------------ -------
Before ______ ___, 2004 5.0%
On or after _________ ___, 2004 and before _________ ___, 2005 4.0%
On or after _________ ___, 2005 and before _________ ___, 2006 3.0%
On or after _________ ___, 2006 and before _________ ___, 2007 2.0%
On or after _________ ___, 2007 and before _________ ___, 2008 1.0%
On or after _________ ___, 2008 None
7. Mandatory Prepayments. All outstanding principal and accrued
interest under this Note will become due and payable upon (i) the occurrence of
a Change in Control or (ii) the exercise by the Company of its redemption rights
under Section 4(c) of the Series A Preferred Stock Designation. Any prepayment
made under this Section 7 must be accompanied by payment of a premium determined
in accordance with Section 6 above.
8. General.
8.1 Payment of principal or interest on this Note may
only be made to, or upon the order of, the registered Holder. This Note is
transferable only by surrender of the Note to the Debtor, duly endorsed or
accompanied by a written instrument of transfer executed by the registered
Holder, and further accompanied by a written agreement to be bound to the
Subordination Agreement. Upon surrender of this Note for transfer as provided
above, the Debtor will issue a new Note to, and register such new Note in the
name of, the transferee and such new Note must contain the same legend as
provided in this Note.
8.2 The Debtor:
(a) waives diligence, presentment, demand for
payment, notice of dishonor, notice of non-payment, protest, notice of
protest, and any and all other demands in connection with the delivery,
acceptance, performance, default or enforcement of this Note;
(b) agrees that the Holder will have the right,
without notice, to grant any extension of time for payment of any
indebtedness evidenced by this Note or any other indulgence or
forbearance whatsoever;
(c) agrees that no failure on the part of the
Holder to exercise any power, right or privilege hereunder, or to
insist upon prompt compliance with the terms of this Note, will
constitute a waiver of that power, right or privilege; and
(d) agrees that the acceptance at any time by
the Holder of any past due amounts will not be deemed to be a waiver of
the requirement to make prompt payment when due of any other amounts
then or hereafter due and payable.
8.3 Upon receipt of evidence reasonably satisfactory to
the Debtor of the loss, theft, destruction or mutilation of this Note, the
Debtor will make and deliver a new Note of like tenor in lieu of this Note.
8.4 This Note will be construed and enforced in
accordance with the substantive laws of the State of Minnesota without giving
effect to the conflicts of laws principles of any jurisdiction.
8.5 In the event the Debtor fails to timely pay any
amount due under this Note, the Debtor will pay all of the Holder's reasonable
out-of-pocket collection costs, including without limitation, reasonable
attorneys' fees and legal costs, whether or not any suit or enforcement
proceeding is commenced.
8.6 AT THE OPTION OF THE HOLDER, THIS NOTE MAY BE
ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING IN HENNEPIN
COUNTY, AND THE DEBTOR CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT
AND WAIVES ANY ARGUMENT THAT VENUE IN
SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE DEBTOR COMMENCES ANY ACTION IN
ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY
OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS NOTE, OR ALLEGING ANY BREACH
OF THIS NOTE, THE HOLDER AT ITS OPTION IS ENTITLED TO HAVE THE CASE TRANSFERRED
TO ONE OF THE JURISDICTIONS AND VENUES DESCRIBED ABOVE, OR IF SUCH TRANSFER
CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.
8.7 THE DEBTOR WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY
ACTION BASED ON OR PERTAINING TO THIS NOTE.
9. Security Interest. All amounts due under this Note are secured
pursuant to the terms of the Security Agreement.
* * * * *
IN WITNESS WHEREOF, the Debtor has caused this Note to be signed by a
duly authorized officer and dated as of the date first above written.
HEALTH FITNESS CORPORATION
By:___________________________
Its:________________________
EXHIBIT B
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE
STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (1) REGISTRATION IN COMPLIANCE WITH
SUCH ACT AND SUCH STATE LAWS OR (2) AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS NOT
REQUIRED.
WARRANT
TO PURCHASE COMMON STOCK OF
HEALTH FITNESS CORPORATION
_____ ___, 2003
Health Fitness Corporation, a Minnesota corporation (the "Company"),
certifies and agrees that Bayview Capital Partners LP, a Delaware limited
partnership or its successors and assigns (the "Holder") is entitled to purchase
from the Company _______ shares of the Company's Common Stock (the "Exercise
Quantity"), upon the terms and provisions and subject to adjustment as provided
in this Warrant (the "Warrant"). The exercise price of the Common Stock for
which this Warrant is exercisable is $0.50 per share, subject to adjustment as
provided below (the "Exercise Price).
This Warrant was issued pursuant to a Securities Purchase Agreement
dated as of the date hereof (the "Purchase Agreement") by and among the Holder,
the Company, and the other Loan Parties thereto. This Warrant is subject to, and
the Holder is entitled to, the benefits of the Agreement and the Ancillary
Agreements. Except as to those terms otherwise defined in this Warrant, all
initially-capitalized terms used in this Warrant have the meanings provided in
the Agreement.
This Warrant is subject to the following provisions, terms and
conditions:
1. Term of Warrant. The term of this Warrant commences as of the
date hereof and expires at 5:00 P.M., Minneapolis time, on _____ ___, 2013.
2. Exercise.
(a) This Warrant may be exercised by the Holder in whole
or in part from time to time during the term of this Warrant by (i) providing
written notice of exercise to the Company on or before the intended date of
exercise, (ii) surrendering the Warrant (properly endorsed if required) at the
principal office of the Company, and (iii) paying an amount equal to the
Exercise Price multiplied by the number of shares of Common Stock being
purchased.
(b) At the option of the Holder, payment of the Exercise
Price may be made either by (i) check payable to the order of the Company, (ii)
surrender of stock certificates then held representing, or deduction from the
number of shares issuable upon exercise of this Warrant, that number of shares
which has an aggregate current Fair Market Value (as defined below) on the date
of exercise equal to the aggregate Exercise Price for all shares to be purchased
pursuant to this Warrant, or (iii) any combination of the foregoing methods.
(c) Upon the proper exercise of this Warrant, the Company
will issue and deliver (or cause to be delivered) to the Holder, stock
certificates for that number of shares of Common Stock purchased. In the event
of a partial exercise of this Warrant, the Company will also issue and deliver
to the Holder a new Warrant at the same time such stock certificates are
delivered, which new Warrant will entitle the Holder to purchase the balance of
the shares not purchased in that partial exercise and will otherwise be upon the
same terms and provisions as this Warrant.
3. Issuance of Shares. The Company agrees that the shares of
Common Stock purchased pursuant to this Warrant will and are deemed to be issued
to the Holder as of the close of business on the date on which this Warrant is
surrendered and payment is made for such shares as provided in Section 2 above.
Certificates for the shares of stock so purchased will be delivered to the
Holder within a reasonable time, not exceeding 10 days after the rights
represented by this Warrant have been exercised, and, unless this Warrant has
expired, a new Warrant representing the number of shares, if any, with respect
to which this Warrant has not been exercised will also be delivered to the
Holder within such time.
4. Covenants of Company.
(a) The Company covenants and agrees that all shares
which may be issued upon the exercise of this Warrant will, upon such issuance,
be duly authorized and issued, fully paid, nonassessable and free from all
taxes, liens and charges with respect to the issue thereof. The Company further
covenants and agrees that during the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have authorized,
and reserved for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant, a sufficient number of shares of
its Common Stock to provide for the exercise of the rights represented by this
Warrant.
(b) The Company covenants and agrees that it will not
declare, make or pay any cash dividend or other cash distribution, with respect
to the Company's Common Stock except that cash dividends will be permitted so
long as (i) such dividends are not prohibited by any contractual obligation of
the Company, and (ii) a cash payment is made to the Holder of the Warrant equal
to the product of (A) the amount of cash plus the fair value of any property or
securities distributed with respect to each outstanding share of Common Stock,
multiplied by (B) the number of shares of Common Stock then issuable upon
exercise of the Warrant.
5. Anti-dilution Adjustments.
(a) General Exercise Quantity Adjustment. Upon any
adjustment of the Exercise Price as provided in this Section 5, the Exercise
Quantity will be adjusted such that at the Exercise Price resulting from such
adjustment, the new Exercise Quantity will be obtained by multiplying the former
Exercise Quantity by a fraction (i) the numerator of which is the Exercise Price
in effect immediately prior to such adjustment and (ii) the denominator of which
is the Exercise Price resulting from such adjustment. Further, the Company will
give prompt written notice, no later than three business days, of each
adjustment, by first class mail, postage prepaid, addressed to the Holder at the
address shown on the books of the Company, which notice will state the Exercise
Price and Exercise Quantity resulting from such adjustment and will set forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
(b) Stock Splits, Dividends and Combinations. If the
Company at any time hereafter subdivides or combines the outstanding shares of
Common Stock or declares a dividend payable in shares of Common Stock, the
Exercise Price in effect immediately prior to the subdivision, combination or
record date for such dividend payable in Common Stock will be proportionately
increased (in the case of a combination) or decreased (in the case of a
subdivision or dividend payable in Common Stock), and the Exercise Quantity will
be adjusted in accordance with Section 5(a) above.
(c) Issuances Below Fair Market Value. If the Company
issues (or, pursuant to Section 5(c)(iii) below, is deemed to issue) any Common
Stock except for Excluded Stock (as defined below) for a consideration per share
less than the Fair Market Value on the date the Company fixes the purchase price
for such Common Stock (excluding stock dividends, subdivisions, split-ups,
combinations or recapitalizations which are addressed by Section 5(b) or (e)),
the Exercise Price in effect immediately after each such issuance will be
reduced, concurrently with such issuance, to a price determined by multiplying
the applicable Exercise Price immediately prior to such issuance by a fraction,
the numerator of which is the sum of the number of shares of Common Stock
Outstanding immediately prior to such issuance (or deemed issuance) plus the
number of shares of Common Stock which the aggregate consideration received by
the Company for such issuance would purchase at such Fair Market Value per
share, and the denominator of which is the number of shares of Common Stock
Outstanding immediately after such issuance (or deemed issuance), including the
shares of Common Stock, if any, deemed to have been issued pursuant to Section
5(c)(iii) below.
For the purposes of any adjustment of the Exercise Price
pursuant to this Section 5(c), the following provisions are applicable:
(i) In the case of the issuance of Common Stock
for cash, the consideration is the amount of cash paid for such Common
Stock after deducting any discounts or commissions paid or incurred by
the Company in connection with the issuance and sale thereof.
(ii) In the case of the issuance of Common Stock
for a consideration in whole or in part other than cash, the
consideration other than cash is the fair value thereof as determined
in good faith by the Board of Directors.
(iii) In the case of the issuance of (A) options
to purchase or rights to subscribe for Common Stock, (B) securities, by
their terms, convertible into or exchangeable for Common Stock, (C)
options to purchase or rights to subscribe for securities, by their
terms, convertible into or exchangeable for Common Stock, or (D) stock
appreciation rights, phantom stock, or other stock-based compensation
mechanisms ("SARs"):
(1) the aggregate maximum number of
shares of Common Stock deliverable upon exercise of such
options to purchase or rights to subscribe for Common Stock
or, in the case of SARs, the number of shares of Common Stock
upon which the value of the SARs are based, shall be deemed to
have been issued at the time such options or rights were
issued and for a consideration equal to the consideration
(determined in the manner provided in subdivisions (i) and
(ii) above of this Section 5(c)), if any, received by the
Company upon the issuance of such options or rights plus the
minimum purchase price provided in such options or rights for
the Common Stock covered thereby;
(2) the aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in
exchange for any such convertible or exchangeable securities,
or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and
subsequent conversion or exchange thereof, shall be deemed to
have been issued at the time such securities were issued or
such options or rights were issued and for a consideration
equal to the consideration received by the Company for any
such securities and related options or rights (excluding any
cash received on account of accrued interest or accrued
dividends), plus the additional minimum consideration, if any,
to be received by the Company upon the conversion or exchange
of such securities or the exercise of any related options or
rights (the consideration in each case to be determined in the
manner provided in subdivisions (i) and (ii) above of this
Section 5(c));
(3) on any change in the number of
shares of Common Stock deliverable upon exercise of any such
options or rights or conversion of or exchange for such
convertible or exchangeable securities, or on any change in
the minimum purchase price of such options, rights or
securities, other than a change resulting from the
antidilution provisions of such options, rights or securities,
the Exercise Price will be readjusted to such Exercise Price
as would have been obtained had the adjustment made upon (a)
the issuance of such options, rights or securities not
exercised, converted or exchanged prior to such change or (b)
the options or rights related to such securities not converted
or exchanged prior to such change, as the case may be, been
made upon the basis of such change; and
(4) on the expiration of any such
options or rights, the termination of any such rights to
convert or exchange or the expiration of any options or rights
related to such convertible or exchangeable securities, the
Exercise Price will be readjusted to such Exercise Price as
would have been obtained had the adjustment made upon the
issuance of such options, rights, convertible or exchangeable
securities or options or rights related to such convertible or
exchangeable securities, as the case may be, been made upon
the basis of the issuance of only the number of shares of
Common Stock actually issued upon the exercise of such options
or rights, upon the conversion or exchange of such convertible
or exchangeable securities or upon the exercise of the options
or rights related to such convertible or exchangeable
securities, as the case may be.
(iv) "Fair Market Value" means the fair value of
the Common Stock (i) as mutually agreed to by the Holder and the
Company, or (ii) if they do not agree to such value within 30 days of
the issuance of the applicable shares of Common Stock, as determined by
an independent professional appraiser mutually selected by the Holder
and the Company. In the event that the Holder and the Company are
unable to mutually select an appraiser within 15 days of the end of the
30 day period, then the Holder and the Company will each select an
independent professional appraiser who will jointly select a third
independent professional appraiser to conduct the appraisal. Each such
appraiser must be selected within 15 days of the end of the initial 15
day period, and, if either the Holder of the Company fails to select an
appraiser within such time period, then the appraiser selected by the
other party will determine the Fair Market Value. In no event will any
appraiser apply any discounts for illiquidity, lack of control or other
similar factors in determining the Fair Market Value. All costs
associated with the appraisal will be borne by the Company.
Notwithstanding the foregoing, if the Company's Common Stock is (i)
listed and trading on a national securities exchange or on the Nasdaq
National Market System, Fair Market Value means, on a per share basis,
the average closing sale price per share of the Common Stock for the 20
trading days immediately preceding any date of determination or (ii) is
not listed for trading on a national securities exchange or on the
Nasdaq National Market System Stock Market, but is traded in the
over-the-counter market, including the Nasdaq OTC Bulletin Board, Fair
Market Value means, on a per share basis, the average of the high bid
and low ask price per share of the Common Stock for each of the 20
trading days immediately preceding any date of determination.
(v) "Excluded Stock" means (A) all shares of
Common Stock issued upon the exercise or conversion of currently issued
and outstanding Common Stock Equivalents in accordance with their
terms, (B) all shares of Common Stock or Common Stock Equivalents
issued pursuant to the Company's 1995 Employee Stock Purchase Plan, as
amended, as in effect on the date hereof, but not in excess of 700,000
shares of Common Stock, (C) all shares of Common Stock or Common Stock
Equivalents issued pursuant to the Company's 1995 Stock Option Plan, as
amended, as in effect on the date hereof, but not in excess of
2,000,000 shares of Common Stock and Common Stock Equivalents, and (D)
all shares of Series A Convertible Preferred Stock issued in connection
with the ▇▇▇▇▇▇▇ Investment (as defined in the Purchase Agreement) and
all
shares of Common Stock issued upon the conversion of such shares in
accordance with their terms, and (E) all shares of Series A Convertible
Preferred Stock and all Common Stock Equivalents issued pursuant to the
Purchase Agreement and all shares of Common Stock issued upon the
conversion or exercise, as applicable, of such securities in accordance
with their terms.
(vi) "Common Stock Outstanding" means, at any
time and without duplication, the sum of (i) the shares of Common Stock
then outstanding, plus (ii) all shares of Common Stock that are then
issuable upon the exchange, conversion or exercise of all Common Stock
Equivalents then outstanding.
(d) No Fractional Shares. No fractional shares of Common
Stock will be issued upon the exercise of the Warrant, but the Company will pay
a cash adjustment in respect of any fraction of a share which would otherwise be
issuable in an amount equal to the same fraction of the fair market value per
share of Common Stock on the day of exercise as determined in good faith by the
Company.
(e) Exchange Events. In the event that any capital
reorganization or reclassification of the capital stock of the Company, or the
consolidation or merger of the Company with another entity, or the sale of all
or substantially all of the Company's assets to another entity is effected in
such a way that the Company's common stockholders will be entitled to receive
stock, securities or assets with respect to or in exchange for their Common
Stock (an "Exchange Event"), then, from and after such Exchange Event, the
Warrant will be exercisable, upon the terms and conditions specified in this
Warrant, for an amount of such stock, securities or assets to which a holder of
the number of shares of Common Stock purchasable upon exercise of the Warrant at
the time of such Exchange Event would have been entitled to receive upon such
Exchange Event. Appropriate provisions will be made with respect to the rights
and interests of the Holder to ensure that the provisions of this Warrant
(including without limitation the provisions to adjust the Exercise Price and
the number of shares purchasable upon the exercise of this Warrant) will be
applicable, as nearly as may be, in relation to any such stock, securities or
assets deliverable upon the exercise of this Warrant after an Exchange Event.
The Company will not effect any Exchange Event unless, prior to the consummation
thereof, the successor or purchasing corporation (if other than the Company)
with respect to such Exchange Event, assumes by written instrument executed and
delivered to the Holder at the address of such Holder as shown on the books of
the Company, the obligation to deliver to such Holder such stock, securities or
assets as, in accordance with the foregoing provisions, such Holder may be
entitled to purchase.
(f) Adjustments for Initial Errors. The Company
acknowledges that the Exercise Quantity was calculated based upon an intention
that the Exercise Quantity would constitute 8% of the Common Stock Outstanding
as of the date of issuance of the Warrant, but excluding (i) the shares of
Common Stock issuable upon conversion of the Preferred Shares, (ii) the Series A
Convertible Preferred Stock issued in connection with the ▇▇▇▇▇▇▇ Investment (as
defined in the Purchase Agreement), and (iii) the Common Stock Equivalents the
exercise price of which is $3.00 per share or greater. If for any reason it is
determined that the calculation of the Exercise Quantity is erroneous, then the
Holder may notify the Company of such
determination and the Company will promptly reissue the Warrant with an
appropriate increase in the Exercise Quantity to be effective as of the Closing
Date.
(g) Other Adjustments. In the case any event occurs as to
which the preceding provisions of this Section 5 are not strictly applicable,
but as to which the failure to make an adjustment to this Warrant would not
fairly protect the purchase rights or value represented by this Warrant in
accordance with the essential intent and principles of this Warrant, then, in
each such case, the Holder may appoint an independent investment bank or firm of
independent public accountants (in each case acceptable to the Company, such
approval not to be unreasonably withheld), which will give its opinion as to the
adjustment, if any, on a basis consistent with the essential intent and
principles established in this Warrant, necessary to preserve the purchase
rights or value represented by this Warrant. Upon receipt of such opinion, the
Company will promptly deliver a copy of such opinion to the Holder and will make
the adjustments described in such opinion. The fees and expenses of such
investment bank or independent public accountants will be borne by the Company.
6. Preemptive Rights.
(a) In the event that at any time after the date hereof
the Company proposes to issue Common Stock or Common Stock Equivalents (as
defined below), the Company will give written notice to the Holder of this
Warrant and the holders of any Common Stock issued upon exercise of this
Warrant, describing such proposal at least thirty (30) days in advance of such
issuance. Each such holder or its affiliates will then have the right,
exercisable by written notice given to the Company no later than twenty (20)
days after receipt of the Company's notice, to purchase its pro rata share
(assuming the conversion of all Common Stock Equivalents to Common Stock) of the
Common Stock or Common Stock Equivalents proposed to be issued by the Company on
the same price and terms as are proposed by the Company.
(b) "Common Stock Equivalents" means all options,
warrants (including this Warrant), convertible securities, securities, stock
appreciation rights, phantom stock, and other rights to acquire from the Company
shares of Common Stock (without regard to whether such options, warrants,
convertible securities, securities, stock appreciation rights, phantom stock,
and other rights are then exchangeable, exercisable or convertible in full, in
part or at all).
(c) The rights granted under this Section 6 do not apply
to issuances of (i) Excluded Stock or (ii) shares of capital stock of the
Company in a public offering underwritten by an underwriter, or group of
underwriters which is represented by an underwriter or underwriters, which is a
member of the New York Stock Exchange.
7. Put Right.
(a) Upon the occurrence of a Change in Control or an
Event of Default (as defined in the Purchase Agreement), the Requisite Holders
shall have the right to have the Company purchase all or any portion of the
Warrant and shares of Conversion Stock then outstanding at a per share purchase
price equal to the Fair Market Value; provided, however, that with respect to
the Warrant, prior to its exercise, the purchase price will be reduced by the
Exercise Price then in effect (the "Put Price"). The Company shall give all
holders of the Warrant or Conversion Stock not less than 90 days prior written
notice of any Change in Control. In addition, the Company shall promptly provide
to the holders such information concerning the terms of such Change in Control
and the value of the assets of the Company as may reasonably be requested by the
holders in order to assist them in determining whether to make such an election.
(b) The Requisite Holders may exercise the put right
under Section 7(a) above by giving the Company written notice of the Requisite
Holders' intention to exercise the put right. Within 10 days after receipt of
such written notice, the Company shall give all other holders of the Warrant and
Conversion Stock, if any, written notice of the Company's receipt of such
written notice. The Company's notice must specify (i) the date fixed for
purchase of the Warrant and Conversion Stock under Section 7(c), (ii) the Put
Price, and (iii) the location to which the Warrant and Conversion Stock must be
presented and surrendered for purchase. Such other holders of the Warrant or
Conversion Stock will then have the right, to be exercised by providing the
Company a written notice within 10 days after receipt of the Company's notice,
to require the Company to repurchase all or any portion of such holder's Warrant
or Conversion Stock on the same terms as the Requisite Holders.
(c) The purchase of the Warrant and Conversion Stock
pursuant to the put right set forth in Section 7(a) will occur on (i) if a
Change in Control is the event giving rise to the put right under Section 7(a),
the date on which such Change in Control is consummated (and, notwithstanding
anything herein to the contrary, such put right shall be conditioned upon such
consummation), or (ii) if an Event of Default is the event giving rise to the
put right under Section 7(a), a date selected by the Company that is between 30
and 45 days after receipt of the written notice from the Requisite Holders.
(d) On the date of purchase of the Warrant and the
Conversion Stock, the Company shall deliver payment, in same-day funds, to each
holder in an amount equal to the aggregate Put Price applicable to such holder's
Warrant and Conversion Stock being purchased. In the event that the Company
defaults in its obligation to deliver all or any portion of the purchase price,
in addition to any other rights or remedies of the holder, the unpaid portion of
the purchase price will bear interest at the rate of 15% per year, payable
monthly in arrears. The Company will, upon request of the Requisite Holders,
execute and deliver to the holders a promissory note in form and substance
satisfactory to the Requisite Holders evidencing such obligation.
8. No Voting Rights. This Warrant, as such, does not entitle the
Holder to any voting rights or other rights as a stockholder of the Company.
9. Governing Law. This Warrant will be construed and enforced in
accordance with the substantive laws of the State of Minnesota without giving
effect to the conflicts of laws principles of any jurisdiction.
10. Consent to Jurisdiction. AT THE OPTION OF THE HOLDER, THIS
WARRANT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE
COURT SITTING IN HENNEPIN COUNTY, AND THE COMPANY CONSENTS TO THE JURISDICTION
AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS
NOT CONVENIENT. IN THE EVENT THE COMPANY COMMENCES ANY ACTION IN ANOTHER
JURISDICTION OR VENUE ARISING OUT OF OR RELATING TO THIS WARRANT, THE HOLDER, AT
ITS OPTION, IS ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS
AND VENUES DESCRIBED ABOVE, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER
APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.
11. Waiver of Jury Trial. THE COMPANY WAIVES THE RIGHT TO A TRIAL
BY JURY IN ANY ACTION BASED ON OR PERTAINING TO THIS WARRANT.
* * * * *
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
a duly authorized officer and dated as of the date first above written.
HEALTH FITNESS CORPORATION
By:_______________________________
Its:___________________________
EXHIBIT C
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated as of August 25, 2003, is made by and
among Health Fitness Corporation, a Minnesota corporation (the "Borrower"),
Bayview Capital Partners LP, a Delaware limited partnership (the "Lender").
BACKGROUND
A. Health Fitness Corporation, a Minnesota corporation (the
"Borrower"), has requested extensions of credit from the Lender pursuant to the
terms of a Security Purchase Agreement dated of the date hereof by and among the
Borrower, the other Loan Parties thereto and the Lender (as it may be amended,
modified, supplemented, increased or restated from time to time, the "Purchase
Agreement").
B. The Lender is willing to extend such credit to the Loan
Parties on the condition that the Borrower grant the Lender a security interest
in certain assets of the Borrower.
NOW, THEREFORE, in consideration of the promises contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
1. Definitions. As used in this Agreement, the capitalized terms
set forth in this Section 1 have the meanings indicated in this Section 1.
Further, all terms defined in the UCC and used in this Agreement have the same
definitions in this Agreement as specified in the UCC.
1.1 "Copyright Security Agreement" means, if any, each
Copyright Security Agreement executed and delivered by the Borrower to
the Lender, as the same may be amended and in effect from time to time.
1.2 "Copyrights" means any copyrights, copyright
registrations and copyright applications, and all renewals, extensions
and continuations of any of the foregoing.
1.3 "Event of Default" means the occurrence of an Event
of Default under the Purchase Agreement.
1.4 "Intellectual Property" means, collectively, all
Copyrights, Patents and Trademarks.
1.5 "Lien" has the meaning given such term in the
Purchase Agreement.
1.6 "Notes" has the meaning given such term in the
Purchase Agreement.
1.7 "Obligations" means all of the indebtedness,
obligations and liabilities of the Borrower to the Lender, whether
direct or indirect, joint or several, absolute or contingent, due or to
become due, now existing or hereafter arising under or in respect of
the Notes, the Purchase Agreement, any other instruments or agreements
executed and delivered pursuant thereto or in connection therewith, or
this Agreement.
1.8 "Patent Security Agreement" means, if any, each
Patent Security Agreement executed and delivered by the Borrower to the
Lender, as the same may be amended and in effect from time to time.
1.9 "Patents" means any patents, patent registrations and
patent applications and all renewals, extensions and continuations of
any of the foregoing.
1.10 "Permitted Liens" has the meaning given such term in
the Purchase Agreement.
1.11 "Trademark Security Agreement" means, if any, each
Trademark Security Agreement executed and delivered by the Borrower to
the Lender, as the same may be amended and in effect from time to time.
1.12 "Trademarks" means any trademarks, trademark
registrations, and trademark applications, all renewals, extensions and
continuations of any of the foregoing and all goodwill attributable to
any of the foregoing.
1.13 "UCC" means the Uniform Commercial Code of the State
of Minnesota.
2. Grant of Security Interest. The Borrower grants to the Lender,
to secure the payment and performance in full of all of the Obligations, a
security interest in the following properties, assets and rights of the
Borrower, wherever located, whether now owned or hereafter acquired or arising,
and all proceeds and products thereof (all of the same being hereinafter called
the "Collateral"): all personal and fixture property of every kind and nature
including without limitation all goods (including inventory, equipment and any
accessions thereto), instruments (including promissory notes), documents,
accounts (including health-care-insurance receivables), chattel paper (whether
tangible or electronic), deposit accounts, letter-of-credit rights (whether or
not the letter of credit is evidenced by a writing), commercial tort claims,
securities and all other investment property, supporting obligations, any other
contract rights or rights to the payment of money, insurance claims and
proceeds, tort claims, and all general intangibles including, without
limitation, all payment intangibles, Patents, Trademarks, trade names,
Copyrights, software, engineering drawings, service marks, customer lists,
goodwill, and all licenses, permits, agreements of any kind or nature pursuant
to which the Borrower possesses, uses or has authority to possess or use
property (whether tangible or intangible) of others or others possess, use or
have authority to possess or use property (whether tangible or intangible) of
the Borrower, and all recorded data of any kind or nature, regardless of the
medium of recording including, without limitation, all software, writings,
plans, specifications and schematics; provided, however, that, to the extent the
grant by the Borrower of a security interest pursuant to this Agreement in any
Intellectual Property licensed by the Borrower is prohibited by
the terms of such license, then a security interest in such licensed
Intellectual Property will not be granted pursuant to this Agreement; and
provided, further, that any such licensed Intellectual Property will
automatically become subject to the security interest granted under this
Agreement immediately upon the acquisition of all necessary consents to such
grant. The Lender acknowledges that the attachment of its security interest in
any commercial tort claim as original collateral is subject to the Borrower's
compliance with Section 4.6.
3. Authorization to File Financing Statements. The Borrower
irrevocably authorizes the Lender at any time and from time to time to file in
any jurisdiction any initial financing statements and amendments thereto that
(i) indicate the Collateral (A) as all assets of the Borrower or words of
similar effect, regardless of whether any particular asset comprised in the
Collateral falls within the scope of Article 9 of the Uniform Commercial Code of
such jurisdiction, or (B) as being of an equal or lesser scope or with greater
detail, and (ii) contain any other information required by Article 9 of the UCC.
The Borrower agrees to furnish any such information to the Lender promptly upon
request. The Borrower also ratifies its authorization for the Lender to have
filed in any jurisdiction any similar initial financing statements or amendments
thereto if filed prior to the date hereof.
4. Other Actions. To further insure the attachment, perfection
and priority of, and the ability of the Lender to enforce, the Lender's security
interest in the Collateral, the Borrower agrees, in each case at the Borrower's
own expense, to take the following actions with respect to the following
Collateral, but subject to the terms of the Senior Subordination Agreement (as
defined in the Purchase Agreement):
4.1 Promissory Notes and Tangible Chattel Paper. If the
Borrower at any time holds or acquires any promissory notes or tangible
chattel paper, the Borrower will promptly endorse, assign and deliver
the same to the Lender, accompanied by such instruments of transfer or
assignment duly executed in blank as the Lender may from time to time
specify.
4.2 Deposit Accounts. For each deposit account that the
Borrower at any time opens or maintains, the Borrower will, at the
Lender's request and option, pursuant to an agreement in form and
substance satisfactory to the Lender, during the existence of an Event
of Default, cause the depositary bank to agree to comply at any time
with instructions from the Lender to such depositary bank directing the
disposition of funds from time to time credited to such deposit
account, without further consent of the Borrower.
4.3 Investment Property.
(a) If the Borrower at any time holds or
acquires any certificated securities, the Borrower will
promptly endorse, assign and deliver the securities to the
Lender, accompanied by such instruments of transfer or
assignment duly executed in blank as the Lender may from time
to time specify.
(b) If any securities now or hereafter acquired
by the Borrower are uncertificated and are issued to the
Borrower or its nominee directly by the issuer thereof, the
Borrower will immediately notify the Lender thereof and, at
the Lender's request and option, pursuant to an agreement in
form and substance satisfactory to the Lender, either (i)
cause the issuer to agree to comply with instructions from the
Lender as to such securities, without further consent of the
Borrower or such nominee, or (ii) arrange for the Lender to
become the registered owner of the securities.
(c) If any securities, whether certificated or
uncertificated, or other investment property now or hereafter
acquired by the Borrower are held by the Borrower or its
nominee through a securities intermediary or commodity
intermediary, the Borrower will immediately notify the Lender
thereof and, at the Lender's request and option, pursuant to
an agreement in form and substance satisfactory to the Lender,
either (i) cause such securities intermediary or commodity
intermediary to agree to comply with entitlement orders or
other instructions from the Lender to such securities
intermediary as to such securities or other investment
property, or to apply any value distributed on account of any
commodity contract as directed by the Lender to such commodity
intermediary, in each case without further consent of the
Borrower or such nominee, or (ii) in the case of financial
assets or other investment property held through a securities
intermediary, arrange for the Lender to become the entitlement
holder with respect to such investment property, with the
Borrower being permitted, only with the consent of the Lender,
to exercise rights to withdraw or otherwise deal with such
investment property.
4.4 Collateral in the Possession of a Bailee. If any
goods are at any time in the possession of a bailee, the Borrower will
promptly notify the Lender thereof. If requested by the Lender, the
Borrower will promptly obtain an acknowledgment from the bailee, in
form and substance satisfactory to the Lender, that the bailee holds
such Collateral for the benefit of the Lender and that the bailee will
act upon the instructions of the Lender, without the further consent of
the Borrower.
4.4. Electronic Chattel Paper and Transferable Records.
The Borrower will promptly notify the Lender if the Borrower at any
time holds or acquires an interest in any electronic chattel paper or
any "transferable record," as that term is defined in Section 201 of
the federal Electronic Signatures in Global and National Commerce Act
(the "Electronic Signatures Act"), or in Section 16 of the Uniform
Electronic Transactions Act (the "Electronic Transactions Act") as in
effect in any relevant jurisdiction. At the request of the Lender, the
Borrower will take such action as the Lender may reasonably request to
vest in the Lender control of (i) such electronic chattel paper under
Section 9-105 of the UCC or (ii) such transferable record under Section
201 of the Electronic Signatures Act or Section 16 of the Electronic
Transactions Act, as applicable.
4.5 Letter-of-credit Rights. If the Borrower is at any
time a beneficiary under a letter of credit now or hereafter issued in
favor of the Borrower, the Borrower will promptly notify the Lender
thereof and, at the request and option of the Lender, the Borrower
will, pursuant to an agreement in form and substance satisfactory to
the Lender, either (i) arrange for the issuer and any confirmer of such
letter of credit to consent to an assignment to the Lender of the
proceeds of any drawing under the letter of credit or (ii) arrange for
the Lender to become the transferee beneficiary of the letter of
credit.
4.6 Commercial Tort Claims. If the Borrower at any time
holds or acquires a commercial tort claim, the Borrower will
immediately notify the Lender in a writing signed by the Borrower of
the brief details thereof and grant to the Lender in such writing a
security interest therein and in the proceeds thereof, all upon the
terms of this Agreement, with such writing to be in form and substance
satisfactory to the Lender.
4.7 Intellectual Property.
(a) The Borrower will concurrently herewith
deliver to the Lender each Copyright Security Agreement,
Patent Security Agreement and Trademark Security Agreement and
all other documents, instruments and other items as may be
necessary for the Lender to file such agreements with the U.S.
Copyright Office and the U.S. Patent and Trademark Office, as
applicable.
(b) In the event the Borrower acquires or
becomes entitled to any new or additional Intellectual
Property, or rights thereto, the Borrower will give prompt
written notice thereof to the Lender, and will amend (and
authorizes the Lender to amend) the schedules to the
respective security agreements or enter into new or additional
security agreements to include any such new or additional
Intellectual Property. The Borrower acknowledges that receipt
of a true, correct and complete copy of the Acquisition
Agreement (as defined in the Purchase Agreement) will
constitute notice under this Section of the Intellectual
Property being acquired by the Borrower pursuant to the
Acquisition Agreement.
(c) The Borrower will preserve and maintain all
rights in the Intellectual Property. The Borrower will use
commercially reasonable efforts to obtain any consents,
waivers or agreements necessary to enable the Lender to
exercise its remedies with respect any and all Intellectual
Property.
(d) The Borrower will not abandon any material
pending Intellectual Property application or material
registered Intellectual Property.
(e) The Borrower will not take any action or
permit any action to be taken by others subject to its
control, including licensees, or fail to take any action which
would affect the validity or enforcement of the rights granted
to the Lender under this Agreement.
(f) The Borrower assigns, transfers and conveys
to the Lender all Intellectual Property owned or used by the
Borrower to the extent necessary to enable the Lender,
effective upon the occurrence of any Event of Default, to
realize on the Collateral and any successor or assign to enjoy
the benefits of the Collateral. This right and assignment will
inure to the benefit of the Lender and its successors, assigns
and transferees, whether by voluntary conveyance, operation of
law, assignment, transfer, foreclosure, deed in lieu of
foreclosure or otherwise. Such right and assignment is granted
free of charge, without requirement that any monetary payment
whatsoever including, without limitation, any royalty or
license fee, be made to the Borrower or any other Person by
the Lender or any other Person.
4.8 Other Actions as to any and all Collateral. The
Borrower agrees to take any other action reasonably requested by the
Lender to insure the attachment, perfection and priority of, and the
ability of the Lender to enforce, the Lender's security interest in any
and all of the Collateral including, without limitation, (i) executing,
delivering and, where appropriate, filing financing statements and
amendments relating thereto under the UCC, (ii) causing the Lender's
names to be noted as secured party on any certificate of title for a
titled good if such notation is a condition to attachment, perfection
or priority of, or ability of the Lender to enforce, the Lender's
security interest in such Collateral, (iii) complying with any
provision of any statute, regulation or treaty of the United States as
to any Collateral if compliance with such provision is a condition to
attachment, perfection or priority of, or ability of the Lender to
enforce, the Lender's security interest in such Collateral, (iv)
obtaining governmental and other third party consents and approvals,
including without limitation any consent of any licensor, lessor or
other person obligated on Collateral, (v) obtaining waivers from
mortgagees and landlords in form and substance satisfactory to the
Lender and (vi) taking all actions required by any earlier versions of
the UCC or by other law, as applicable in any jurisdiction, or by other
law as applicable in any foreign jurisdiction.
5. Relation to Other Security Documents. The provisions of this
Agreement supplement the provisions of any real estate mortgage or deed of trust
granted by the Borrower to the Lender and securing the payment or performance of
any of the Obligations. Nothing contained in any such real estate mortgage or
deed of trust will derogate from any of the rights or remedies of the Lender
under this Agreement. In addition, the provisions of this Agreement will be read
and construed with the other security documents indicated below in the manner so
indicated.
6. Representations and Warranties Concerning Borrower's Legal
Status. The Borrower represents and warrants to the Lender that Schedule 1 sets
forth (i) the Borrower's exact legal name, (ii) the type of organization of the
Borrower, (iii) the jurisdiction of organization of the Borrower, (iv) the
Borrower's organizational identification number, and (iv) the Borrower's place
of business or, if more than one, its chief executive office and mailing
address.
7. Covenants Concerning Borrower's Legal Status. The Borrower
covenants that (i) without providing at least 30 days prior written notice to
the Lender, the Borrower will not change its name, places of business, chief
executive office, mailing address or organizational identification number, (ii)
if the Borrower does not have an organizational identification number and later
obtains one, the Borrower will promptly notify the Lender of such organizational
identification number, and (iii) the Borrower will not change its type of
organization, jurisdiction of organization or other legal structure.
8. Representations and Warranties Concerning Collateral.
8.1 General. The Borrower represents and warrants to the
Lender that: (i) the Borrower is the owner of the Collateral, free from
any Lien except for Permitted Liens, (ii) none of the Collateral
constitutes, or is the proceeds of, "farm products" as defined in
Section 9-102(a)(34) of the UCC, (iii) none of the account debtors or
other persons obligated on any of the Collateral is a governmental
authority subject to the Federal Assignment of Claims Act or any
similar federal, state or local statute or rule in respect of such
Collateral, (iv) the Borrower holds no commercial tort claim except as
indicated in Schedule 1, (v) the Borrower has at all times operated its
business in compliance with all applicable provisions of the federal
Fair Labor Standards Act, as amended, and with all applicable
provisions of federal, state and local statutes and ordinances dealing
with the control, shipment, storage or disposal of hazardous materials
or substances and (vi) all other information set forth in Schedule 1
pertaining to the Collateral is accurate and complete.
8.2 Intellectual Property. The Copyrights, Patents and
Trademarks listed on the respective schedules to each of the Copyright
Security Agreement, Patent Security Agreement and Trademark Security
Agreement constitute all of the federally registered Intellectual
Property owned by the Borrower. All Intellectual Property owned by the
Borrower is valid, subsisting and enforceable and all filings necessary
to maintain the effectiveness of such registrations have been made.
Except for Permitted Liens, the Borrower is the sole and exclusive
owner of the entire and unencumbered right, title and interest in and
to all Intellectual Property purported to be owned by the Borrower,
free and clear of any Liens, including without limitation licenses and
covenants by the Borrower not to ▇▇▇ third persons. The Borrower has no
notice of any suits or actions commenced or threatened with reference
to any Intellectual Property owned or used by the Borrower. The
execution, delivery and performance of this Agreement by the Borrower
will not violate or cause a default under any Intellectual Property
owned or used by the Borrower or any agreement in connection therewith.
9. Covenants Concerning Collateral. The Borrower covenants that
(i) the Collateral, to the extent not delivered to the Lender pursuant to
Section 4, will be kept at the locations listed on Schedule 1, and the Borrower
will not remove the Collateral from such locations, without providing at least
30 days prior written notice to the Lender, (ii) except for the security
interest herein granted and Permitted Liens, the Borrower will be the owner of
the Collateral free from any Lien, and the Borrower will defend the Collateral
against all claims and demands of all persons at any time claiming the
Collateral or any interests therein adverse to the Lender, (iii)
except for Permitted Liens, the Borrower will not pledge, mortgage or create, or
suffer to exist a security interest in the Collateral in favor of any person
other than the Lender, (iv) the Borrower will keep the Collateral in good order
and repair and will not use the Collateral in violation of law or any policy of
insurance thereon, (v) the Borrower will permit the Lender, or any designee, to
inspect the Collateral at any reasonable time, wherever located, (vi) the
Borrower will pay promptly when due all taxes, assessments, governmental charges
and levies upon the Collateral or incurred in connection with the use or
operation of such Collateral or incurred in connection with this Agreement,
(vii) the Borrower will operate its business in compliance with all applicable
provisions of the federal Fair Labor Standards Act, as amended, and with all
applicable provisions of federal, state and local statutes and ordinances
dealing with the control, shipment, storage or disposal of hazardous materials
or substances and (viii) the Borrower will not sell or otherwise dispose, or
offer to sell or otherwise dispose, of the Collateral or any interest therein
except for sales of obsolete Collateral or sales inventory in the ordinary
course of business.
10. Insurance. The Borrower will maintain insurance in such
amounts and coverages as required by the Purchase Agreement. All policies of
insurance will be payable to the Lender as loss payee (or, in the case of
liability insurance, list the Lender as an additional insured, except where the
Lender cannot legally be named as an additional insured) and will provide for at
least 30 days prior written cancellation notice to the Lender. In the event of
failure by the Borrower to provide and maintain insurance as required by this
Section, the Lender may, at its option, provide such insurance and charge the
amount thereof to the Borrower. The Borrower will furnish the Lender with
certificates of insurance and policies evidencing compliance with the foregoing
insurance provision.
11. Collateral Protection Expenses; Preservation of Collateral.
11.1 Expenses Incurred by Lender. In its discretion, the
Lender may discharge taxes and other encumbrances at any time levied or
placed on any of the Collateral, make repairs thereto and pay any
necessary filing fees or, if the Borrower fails to do so, insurance
premiums. The Borrower agrees to reimburse the Lender on demand for any
and all expenditures so made. The Lender will have no obligation to the
Borrower to make any such expenditures, nor will the making thereof
relieve the Borrower of any default.
11.2 Lender's Obligations and Duties. Anything herein to
the contrary notwithstanding, the Borrower will remain liable under
each contract or agreement included within the Collateral to be
observed or performed by the Borrower thereunder. The Lender will not
have any obligation or liability under any such contract or agreement
by reason of or arising out of this Agreement or the receipt by the
Lender of any payment relating to any of the Collateral, nor will the
Lender be obligated in any manner to perform any of the obligations of
the Borrower under or pursuant to any such contract or agreement, to
make inquiry as to the nature or sufficiency of any payment received by
the Lender in respect of the Collateral or as to the sufficiency of any
performance by any party under any such contract or agreement. The
Lender will not have any obligation to present or file any claim or to
take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to the Lender or to
which the Lender may be entitled at any time or times. The Lender's
sole duty with respect to the custody, safe keeping and physical
preservation of the Collateral in its possession, under Section 9-207
of the UCC or otherwise, will be to deal with such Collateral in the
same manner as the Lender deals with similar property for its own
account.
12. Securities and Deposits. The Lender may, at any time following
and during the continuance of an Event of Default, at its option, transfer to
the Lender or any nominee any securities constituting Collateral, receive any
income thereon and hold such income as additional Collateral or apply it to the
Obligations. Whether or not any Obligations are due, the Lender may, following
and during the continuance of an Event of Default demand, ▇▇▇ for, collect, or
make any settlement or compromise which they deem desirable with respect to the
Collateral. Regardless of the adequacy of Collateral or any other security for
the Obligations, any deposits or other sums at any time credited by or due from
the Lender to the Borrower may at any time be applied to or set off against any
of the Obligations.
13. Notification to Account Debtors and Other Persons Obligated on
Collateral. If an Event of Default occurs and is continuing, the Borrower will,
at the request of the Lender, notify account debtors and other persons obligated
on any of the Collateral of the security interest of the Lender and that payment
thereof is to be made directly to the Lender, and the Lender may, without notice
to or demand upon the Borrower, so notify account debtors and other persons
obligated on Collateral. After the making of such a request or the giving of any
such notification, the Borrower will hold any proceeds of collection of
accounts, chattel paper, general intangibles, instruments and other Collateral
received by the Borrower as trustee for the Lender without commingling the same
with other funds of the Borrower and will turn the same over to the Lender in
the identical form received, together with any necessary endorsements or
assignments.
14. Power of Attorney.
14.1 Appointment and Powers of Secured Party. The Borrower
irrevocably constitutes and appoints the Lender and any officer or
agent thereof, with full power of substitution, as its true and lawful
attorneys-in-fact with full irrevocable power and authority in the
place and stead of the Borrower or in the Lender's own name, for the
purpose of carrying out the terms of this Agreement, to take any and
all appropriate action and to execute any and all documents and
instruments that may be necessary or desirable to accomplish the
purposes of this Agreement and, without limiting the generality of the
foregoing, hereby gives said attorneys the power and right, on behalf
of the Borrower, without notice to or assent by the Borrower, to do the
following:
(a) upon the occurrence and during the
continuance of an Event of Default, generally to sell,
transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral in such manner as is
consistent with the UCC and as fully and completely as though
the Lender was the absolute owners thereof for all purposes,
and to do at the Borrower's expense, at any time, or from time
to time, all acts and things which the Lender deems necessary
to protect,
preserve or realize upon the Collateral and the Lender's
security interest therein, in order to effect the intent of
this Agreement, all as fully and effectively as the Borrower
might do, including, without limitation, (i) the filing and
prosecuting of registration and transfer applications with the
appropriate federal or local agencies or authorities with
respect to trademarks, copyrights and patentable inventions
and processes, (ii) upon written notice to the Borrower, the
exercise of voting rights with respect to voting securities,
which rights may be exercised, if the Lender so elects, with a
view to causing the liquidation in a commercially reasonable
manner of assets of the issuer of any such securities and
(iii) the execution, delivery and recording, in connection
with any sale or other disposition of any Collateral, of the
endorsements, assignments or other instruments of conveyance
or transfer with respect to such Collateral; and
(b) to the extent that the Borrower's
authorization given in Section 3 is not sufficient, to file
such financing statements with respect hereto, with or without
the Borrower's signature, or a photocopy of this Agreement in
substitution for a financing statement, as the Lender may deem
appropriate and to execute and/or file in the Borrower's name
such financing statements and amendments thereto and
continuation statements which may require the Borrower's
signature.
14.2. Ratification by the Borrower. To the extent permitted
by law, the Borrower ratifies all that any such attorneys lawfully do
or cause to be done by virtue hereof. This power of attorney is a power
coupled with an interest and is irrevocable.
14.3. No Duty on Lender. The powers conferred on the Lender
hereunder is solely to protect the Lender's interests in the Collateral
and do not impose any duty upon the Lender to exercise any such powers.
The Lender will be accountable only for the amounts that it actually
receives as a result of the exercise of such powers and neither it nor
any of its officers, directors, employees or agents will be responsible
to the Borrower for any act or failure to act, except for the Lender's
own gross negligence or willful misconduct.
15. Remedies. If an Event of Default occurs and is continuing, the
Lender may, without notice to or demand upon the Borrower, declare this
Agreement to be in default, and the Lender will thereafter have in any
jurisdiction in which enforcement hereof is sought, in addition to all other
rights and remedies, the rights and remedies of a secured party under the UCC or
the Uniform Commercial Code of any jurisdiction in which the Collateral is
located, including, without limitation, the right to take possession of the
Collateral, and for that purpose the Lender may, so far as the Borrower can give
authority therefor, enter upon any premises on which the Collateral may be
situated and remove the same therefrom. The Lender may in its discretion require
the Borrower to assemble all or any part of the Collateral at such location or
locations within the jurisdictions of the Borrower's principal office or at such
other locations as the Lender may reasonably designate. Unless the Collateral is
perishable or threatens to decline rapidly in value or is of a type customarily
sold on a recognized market, the Lender will give to the Borrower at least ten
business days prior written notice of the time and place of any public sale
of Collateral or of the time after which any private sale or any other intended
disposition is to be made. The Borrower acknowledges that ten business days
prior written notice of such sale or sales is reasonable notice. In addition,
the Borrower waives any and all rights that it may have to a judicial hearing in
advance of the enforcement of any of the Lender's rights hereunder, including,
without limitation, the right following an Event of Default to take immediate
possession of the Collateral and to exercise its rights with respect thereto.
16. Standards for Exercising Remedies. To the extent that
applicable law imposes duties on the Lender to exercise remedies in a
commercially reasonable manner, the Borrower acknowledges and agrees that it is
not commercially unreasonable for the Lender (i) to fail to incur expenses
reasonably deemed significant by the Lender to prepare Collateral for
disposition or otherwise to complete raw material or work in process into
finished goods or other finished products for disposition, (ii) to fail to
obtain third party consents for access to Collateral to be disposed of, or to
obtain or, if not required by other law, to fail to obtain governmental or third
party consents for the collection or disposition of Collateral to be collected
or disposed of, (iii) to fail to exercise collection remedies against account
debtors or other persons obligated on Collateral or to remove Liens on or any
adverse claims against Collateral, (iv) to exercise collection remedies against
account debtors and other persons obligated on Collateral directly or through
the use of collection agencies and other collection specialists, (v) to
advertise dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (vi) to
contact other persons, whether or not in the same business as the Borrower, for
expressions of interest in acquiring all or any portion of the Collateral, (vii)
to hire one or more professional auctioneers to assist in the disposition of
Collateral, whether or not the collateral is of a specialized nature, (viii) to
dispose of Collateral by utilizing Internet sites that provide for the auction
of assets of the types included in the Collateral or that have the reasonable
capability of doing so, or that match buyers and sellers of assets, (ix) to
dispose of assets in wholesale rather than retail markets, (x) to disclaim
disposition warranties, (xi) to purchase insurance or credit enhancements to
insure the Lender against risks of loss, collection or disposition of Collateral
or to provide to the Lender a guaranteed return from the collection or
disposition of Collateral, or (xii) to the extent deemed appropriate by the
Lender, to obtain the services of other brokers, investment bankers, consultants
and other professionals to assist the Lender in the collection or disposition of
any of the Collateral. The Borrower acknowledges that the purpose of this
Section is to provide non-exhaustive indications of what actions or omissions by
the Lender would not be commercially unreasonable in the Lender's exercise of
remedies against the Collateral and that other actions or omissions by the
Lender will not be deemed commercially unreasonable solely on account of not
being indicated in this Section. Without limitation upon the foregoing, nothing
contained in this Section will be construed to grant any rights to the Borrower
or to impose any duties on the Lender that would not have been granted or
imposed by this Agreement or by applicable law in the absence of this Section.
17. No Waiver by Lender. The Lender will not be deemed to have
waived any of its rights hereunder unless such waiver is in writing and signed
by the Lender or Lenders representing at least 50% of the unpaid principal
amount of the Notes at the time outstanding (the "Requisite Lenders"). Any
consent, notice, request, demand or waiver required or permitted to be given by
the Lender by any provision hereof will be sufficient and binding on all Lenders
if
given in writing by the Requisite Lenders at the time outstanding. No delay or
omission on the part of the Lender in exercising any right will operate as a
waiver of such right or any other right. A waiver on any one occasion will not
be construed as a waiver of any right on any future occasion. All rights and
remedies of the Lender with respect to the Obligations or the Collateral,
whether evidenced hereby or by any other instrument or papers, will be
cumulative and may be exercised singularly, alternatively, successively or
concurrently at such time or at such times as the Lender deems expedient.
18. Suretyship Waivers by the Borrower. The Borrower waives
demand, notice, protest, notice of acceptance of this Agreement, notice of loans
made, credit extended, Collateral received or delivered or other action taken in
reliance hereon and all other demands and notices of any description. With
respect to both the Obligations and the Collateral, the Borrower assents to any
extension or postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of or failure to perfect any security interest
in any Collateral, to the addition or release of any party or person primarily
or secondarily liable, to the acceptance of partial payment thereon and the
settlement, compromising or adjusting of any thereof, all in such manner and at
such time or times as the Lender may deem advisable. The Lender will have no
duty as to the collection or protection of the Collateral or any income thereon,
nor as to the preservation of rights against prior parties, nor as to the
preservation of any rights pertaining thereto beyond the safe custody thereof as
set forth in Section 11.2. The Borrower further waives any and all other
suretyship defenses.
19. Marshaling. The Lender will not be required to marshal any
present or future collateral security (including but not limited to this
Agreement and the Collateral) for, or other assurances of payment of, the
Obligations or any of them or to resort to such collateral security or other
assurances of payment in any particular order, and all of its rights hereunder
and in respect of such collateral security and other assurances of payment will
be cumulative and in addition to all other rights, however existing or arising.
To the extent that it lawfully may, the Borrower agrees that it will not invoke
any law relating to the marshalling of collateral which might cause delay in or
impede the enforcement of the Lender's rights under this Agreement or under any
other instrument creating or evidencing any of the Obligations or under which
any of the Obligations is outstanding or by which any of the Obligations is
secured or payment thereof is otherwise assured, and, to the extent that it
lawfully may, the Borrower irrevocably waives the benefits of all such laws.
20. Proceeds of Dispositions; Expenses. The Borrower will pay to
the Lender on demand all reasonable expenses, including attorneys' fees and
disbursements, incurred or paid by the Lender in protecting, preserving or
enforcing the Lender's rights under or in respect of any of the Obligations or
any of the Collateral. After deducting all of such expenses, the residue of any
proceeds of collection or sale of the Obligations or Collateral will, to the
extent actually received in cash, be applied to the payment of the Obligations
in such order or preference as the Lender may determine, proper allowance and
provision being made for any Obligations not then due. Upon the final payment
and satisfaction in full of all of the Obligations and after making any payments
required by Section 9-608(a)(1)(C) or 9-615(a)(3) of the UCC, any excess will be
returned to the Borrower, and the Borrower will remain liable for any deficiency
in the payment of the Obligations.
21. Overdue Amounts. Until paid, all amounts due and payable by
the Borrower hereunder will be a debt secured by the Collateral and will bear,
whether before or after judgment, interest at the rate of interest set forth in
the Note issued under the Purchase Agreement.
22. Governing Law. This Agreement will be construed and enforced
in accordance with the substantive laws of the State of Minnesota without giving
effect to the conflicts of laws principles of any jurisdiction.
23. Notices. All notices, consents, requests, instructions,
approvals and other communications required by this Agreement will be made in
accordance with the provisions of the Purchase Agreement.
24. Entire Agreement. This Agreement contains the entire
understanding of the parties hereto with respect to the subject matter contained
herein. There are no restrictions, promises, warranties, covenants, or
undertakings, other than those expressly provided for herein. This Agreement
supersedes all prior agreements and undertakings between the parties with
respect to such subject matter.
25. Severability of Invalid Provision. If any one or more covenant
or agreement provided in this Agreement is contrary to law, then such covenant
or agreement will be null and void and will in no way affect the validity of the
other provisions of this Agreement, which will otherwise be fully effective and
enforceable.
26. Successors and Assigns. This Agreement will be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns, including one or more future holders of the Notes; provided,
however, that the Borrower may not assign any of its obligations hereunder
without the prior written consent of the Lender.
27. Counterparts. This Agreement may be executed in one or more
counterparts, and will become effective when one or more counterparts have been
signed by each of the parties.
28. Consent to Jurisdiction. AT THE OPTION OF THE LENDER, THIS
AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING
IN HENNEPIN COUNTY, MINNESOTA, AND THE BORROWER CONSENTS TO THE JURISDICTION AND
VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT
CONVENIENT. IN THE EVENT THE BORROWER COMMENCES ANY ACTION IN ANOTHER
JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR
INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, OR ALLEGING ANY
BREACH OF THIS AGREEMENT, THE LENDER AT ITS OPTION IS ENTITLED TO HAVE THE CASE
TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES DESCRIBED ABOVE, OR IF SUCH
TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE
DISMISSED WITHOUT PREJUDICE.
29. Waiver of Jury Trial. THE BORROWER WAIVES THE RIGHT TO A TRIAL
BY JURY IN ANY ACTION BASED ON OR PERTAINING TO THIS AGREEMENT.
30. Subordination. This Agreement is subject to the Senior
Subordination Agreement (as defined in the Purchase Agreement). Until the Senior
Indebtedness (as defined in the Purchase Agreement) has been paid in full, to
the extent of any conflict between the terms of this Agreement and the Senior
Subordination Agreement, the terms of the Senior Subordination Agreement will
control.
* * * * *
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto on the day and year first above written.
THE BORROWER: THE LENDER:
HEALTH FITNESS CORPORATION BAYVIEW CAPITAL PARTNERS LP
By: Bayview Capital Management LLC
By:___________________________ Its: General Partner
Its:_______________________
By:___________________________
Its:_________________________
SCHEDULE 1 TO
SECURITY AGREEMENT
1. Borrower's Exact Legal Name: Health Fitness Corporation
2. Borrower's Type of Organization: Corporation
3. Borrower's State of Organization: Minnesota
4. Borrower's Organization 5N-384
Identification Number:
5. Address of Borrower's Chief ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
Executive Office: ▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
6. Addresses of All of Borrower's See attached list
Places of Business:
7. Description of any Commercial None.
Tort Claims:
PLACES OF BUSINESS
ADDRESS 1 ADDRESS 2 CITY ST ZIP
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SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated as of August 25, 2003, is made by and
among Health Fitness Rehab, Inc., a Minnesota corporation, Fitness Centers of
America, a California corporation, Health Fitness Corporation of Canada, Inc.,
an Alberta, Canada corporation (collectively the "Guarantors" and each
individually the "Guarantor"), and Bayview Capital Partners LP, a Delaware
limited partnership (the "Lender").
BACKGROUND
A. Health Fitness Corporation, a Minnesota corporation (the
"Borrower"), has requested extensions of credit from the Lender pursuant to the
terms of a Security Purchase Agreement dated of the date hereof by and among the
Borrower, the other Loan Parties thereto and the Lender (as it may be amended,
modified, supplemented, increased or restated from time to time, the "Purchase
Agreement").
B. As a condition to extending credit to the Borrower, the Lender
has required the execution and delivery by the Guarantors of the Guaranty dated
the date hereof, guaranteeing the payment and performance of all obligations of
the Borrower to the Lender (the "Guaranty").
C. As a further condition to extending credit to the Borrower,
the Lender has required that each Guarantor grant the Lender a security interest
in certain assets of the Guarantor.
NOW, THEREFORE, in consideration of the promises contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
1. Definitions. As used in this Agreement, the capitalized terms
set forth in this Section 1 have the meanings indicated in this Section 1.
Further, all terms defined in the UCC and used in this Agreement have the same
definitions in this Agreement as specified in the UCC.
1.1 "Copyright Security Agreement" means, if any, each
Copyright Security Agreement executed and delivered by the Guarantor to
the Lender, as the same may be amended and in effect from time to time.
1.2 "Copyrights" means any copyrights, copyright
registrations and copyright applications, and all renewals, extensions
and continuations of any of the foregoing.
1.3 "Event of Default" means the occurrence of an Event
of Default under the Purchase Agreement.
1.4 "Intellectual Property" means, collectively, all
Copyrights, Patents and Trademarks.
1.5 "Lien" has the meaning given such term in the
Purchase Agreement.
1.6 "Notes" has the meaning given such term in the
Purchase Agreement.
1.7 "Obligations" means all of the indebtedness,
obligations and liabilities of the Guarantor to the Lender, whether
direct or indirect, joint or several, absolute or contingent, due or to
become due, now existing or hereafter arising under or in respect of
the Guaranty, the Notes, the Purchase Agreement, any other instruments
or agreements executed and delivered pursuant thereto or in connection
therewith, or this Agreement.
1.8 "Patent Security Agreement" means, if any, each
Patent Security Agreement executed and delivered by the Guarantor to
the Lender, as the same may be amended and in effect from time to time.
1.9 "Patents" means any patents, patent registrations and
patent applications and all renewals, extensions and continuations of
any of the foregoing.
1.10 "Permitted Liens" has the meaning given such term in
the Purchase Agreement.
1.11 "Trademark Security Agreement" means, if any, each
Trademark Security Agreement executed and delivered by the Guarantor to
the Lender, as the same may be amended and in effect from time to time.
1.12 "Trademarks" means any trademarks, trademark
registrations, and trademark applications, all renewals, extensions and
continuations of any of the foregoing and all goodwill attributable to
any of the foregoing.
1.13 "UCC" means the Uniform Commercial Code of the State
of Minnesota.
2. Grant of Security Interest. The Guarantor grants to the
Lender, to secure the payment and performance in full of all of the Obligations,
a security interest in the following properties, assets and rights of the
Guarantor, wherever located, whether now owned or hereafter acquired or arising,
and all proceeds and products thereof (all of the same being hereinafter called
the "Collateral"): all personal and fixture property of every kind and nature
including without limitation all goods (including inventory, equipment and any
accessions thereto), instruments (including promissory notes), documents,
accounts (including health-care-insurance receivables), chattel paper (whether
tangible or electronic), deposit accounts, letter-of-credit rights (whether or
not the letter of credit is evidenced by a writing), commercial tort claims,
securities and all other investment property, supporting obligations, any other
contract rights or rights to the payment of money, insurance claims and
proceeds, tort claims, and all general intangibles including, without
limitation, all payment intangibles, Patents, Trademarks, trade names,
Copyrights, software, engineering drawings, service marks, customer lists,
goodwill, and all licenses, permits, agreements of any kind or nature pursuant
to which the Guarantor possesses, uses or has authority to possess or use
property (whether tangible or intangible) of
others or others possess, use or have authority to possess or use property
(whether tangible or intangible) of the Guarantor, and all recorded data of any
kind or nature, regardless of the medium of recording including, without
limitation, all software, writings, plans, specifications and schematics;
provided, however, that, to the extent the grant by the Guarantor of a security
interest pursuant to this Agreement in any Intellectual Property licensed by the
Guarantor is prohibited by the terms of such license, then a security interest
in such licensed Intellectual Property will not be granted pursuant to this
Agreement; and provided, further, that any such licensed Intellectual Property
will automatically become subject to the security interest granted under this
Agreement immediately upon the acquisition of all necessary consents to such
grant. The Lender acknowledges that the attachment of its security interest in
any commercial tort claim as original collateral is subject to the Guarantor's
compliance with Section 4.6.
3. Authorization to File Financing Statements. The Guarantor
irrevocably authorizes the Lender at any time and from time to time to file in
any jurisdiction any initial financing statements and amendments thereto that
(i) indicate the Collateral (A) as all assets of the Guarantor or words of
similar effect, regardless of whether any particular asset comprised in the
Collateral falls within the scope of Article 9 of the Uniform Commercial Code of
such jurisdiction, or (B) as being of an equal or lesser scope or with greater
detail, and (ii) contain any other information required by Article 9 of the UCC.
The Guarantor agrees to furnish any such information to the Lender promptly upon
request. The Guarantor also ratifies its authorization for the Lender to have
filed in any jurisdiction any similar initial financing statements or amendments
thereto if filed prior to the date hereof.
4. Other Actions. To further insure the attachment, perfection
and priority of, and the ability of the Lender to enforce, the Lender's security
interest in the Collateral, the Guarantor agrees, in each case at the
Guarantor's own expense, to take the following actions with respect to the
following Collateral, but subject to the terms of the Senior Subordination
Agreement (as defined in the Purchase Agreement):
4.1 Promissory Notes and Tangible Chattel Paper. If the
Guarantor at any time holds or acquires any promissory notes or
tangible chattel paper, the Guarantor will promptly endorse, assign and
deliver the same to the Lender, accompanied by such instruments of
transfer or assignment duly executed in blank as the Lender may from
time to time specify.
4.2 Deposit Accounts. For each deposit account that the
Guarantor at any time opens or maintains, the Guarantor will, at the
Lender's request and option, pursuant to an agreement in form and
substance satisfactory to the Lender, during the existence of an Event
of Default, cause the depositary bank to agree to comply at any time
with instructions from the Lender to such depositary bank directing the
disposition of funds from time to time credited to such deposit
account, without further consent of the Guarantor.
4.3 Investment Property.
(a) If the Guarantor at any time holds or
acquires any certificated securities, the Guarantor will
promptly endorse, assign and deliver the securities to the
Lender, accompanied by such instruments of transfer or
assignment duly executed in blank as the Lender may from time
to time specify.
(b) If any securities now or hereafter acquired
by the Guarantor are uncertificated and are issued to the
Guarantor or its nominee directly by the issuer thereof, the
Guarantor will immediately notify the Lender thereof and, at
the Lender's request and option, pursuant to an agreement in
form and substance satisfactory to the Lender, either (i)
cause the issuer to agree to comply with instructions from the
Lender as to such securities, without further consent of the
Guarantor or such nominee, or (ii) arrange for the Lender to
become the registered owner of the securities.
(c) If any securities, whether certificated or
uncertificated, or other investment property now or hereafter
acquired by the Guarantor are held by the Guarantor or its
nominee through a securities intermediary or commodity
intermediary, the Guarantor will immediately notify the Lender
thereof and, at the Lender's request and option, pursuant to
an agreement in form and substance satisfactory to the Lender,
either (i) cause such securities intermediary or commodity
intermediary to agree to comply with entitlement orders or
other instructions from the Lender to such securities
intermediary as to such securities or other investment
property, or to apply any value distributed on account of any
commodity contract as directed by the Lender to such commodity
intermediary, in each case without further consent of the
Guarantor or such nominee, or (ii) in the case of financial
assets or other investment property held through a securities
intermediary, arrange for the Lender to become the entitlement
holder with respect to such investment property, with the
Guarantor being permitted, only with the consent of the
Lender, to exercise rights to withdraw or otherwise deal with
such investment property.
4.4 Collateral in the Possession of a Bailee. If any
goods are at any time in the possession of a bailee, the Guarantor will
promptly notify the Lender thereof. If requested by the Lender, the
Guarantor will promptly obtain an acknowledgment from the bailee, in
form and substance satisfactory to the Lender, that the bailee holds
such Collateral for the benefit of the Lender and that the bailee will
act upon the instructions of the Lender, without the further consent of
the Guarantor.
4.4. Electronic Chattel Paper and Transferable Records.
The Guarantor will promptly notify the Lender if the Guarantor at any
time holds or acquires an interest in any electronic chattel paper or
any "transferable record," as that term is defined in Section 201 of
the federal Electronic Signatures in Global and National Commerce Act
(the "Electronic Signatures Act"), or in Section 16 of the Uniform
Electronic Transactions Act (the "Electronic Transactions Act") as in
effect in any relevant jurisdiction. At the request of the Lender, the
Guarantor will take such action as the Lender may reasonably request to
vest in the Lender control of (i) such electronic chattel
paper under Section 9-105 of the UCC or (ii) such transferable record
under Section 201 of the Electronic Signatures Act or Section 16 of the
Electronic Transactions Act, as applicable.
4.5 Letter-of-credit Rights. If the Guarantor is at any
time a beneficiary under a letter of credit now or hereafter issued in
favor of the Guarantor, the Guarantor will promptly notify the Lender
thereof and, at the request and option of the Lender, the Guarantor
will, pursuant to an agreement in form and substance satisfactory to
the Lender, either (i) arrange for the issuer and any confirmer of such
letter of credit to consent to an assignment to the Lender of the
proceeds of any drawing under the letter of credit or (ii) arrange for
the Lender to become the transferee beneficiary of the letter of
credit.
4.6 Commercial Tort Claims. If the Guarantor at any time
holds or acquires a commercial tort claim, the Guarantor will
immediately notify the Lender in a writing signed by the Guarantor of
the brief details thereof and grant to the Lender in such writing a
security interest therein and in the proceeds thereof, all upon the
terms of this Agreement, with such writing to be in form and substance
satisfactory to the Lender.
4.7 Intellectual Property.
(a) The Guarantor will concurrently herewith
deliver to the Lender each Copyright Security Agreement,
Patent Security Agreement and Trademark Security Agreement and
all other documents, instruments and other items as may be
necessary for the Lender to file such agreements with the U.S.
Copyright Office and the U.S. Patent and Trademark Office, as
applicable.
(b) In the event the Guarantor acquires or
becomes entitled to any new or additional Intellectual
Property, or rights thereto, the Guarantor will give prompt
written notice thereof to the Lender, and will amend (and
authorizes the Lender to amend) the schedules to the
respective security agreements or enter into new or additional
security agreements to include any such new or additional
Intellectual Property. The Guarantor acknowledges that receipt
of a true, correct and complete copy of the Acquisition
Agreement (as defined in the Purchase Agreement) will
constitute notice under this Section of the Intellectual
Property being acquired by the Guarantor pursuant to the
Acquisition Agreement.
(c) The Guarantor will preserve and maintain all
rights in the Intellectual Property. The Guarantor will use
commercially reasonable efforts to obtain any consents,
waivers or agreements necessary to enable the Lender to
exercise its remedies with respect any and all Intellectual
Property.
(d) The Guarantor will not abandon any material
pending Intellectual Property application or material
registered Intellectual Property.
(e) The Guarantor will not take any action or
permit any action to be taken by others subject to its
control, including licensees, or fail to take any action which
would affect the validity or enforcement of the rights granted
to the Lender under this Agreement.
(f) The Guarantor assigns, transfers and conveys
to the Lender all Intellectual Property owned or used by the
Guarantor to the extent necessary to enable the Lender,
effective upon the occurrence of any Event of Default, to
realize on the Collateral and any successor or assign to enjoy
the benefits of the Collateral. This right and assignment will
inure to the benefit of the Lender and its successors, assigns
and transferees, whether by voluntary conveyance, operation of
law, assignment, transfer, foreclosure, deed in lieu of
foreclosure or otherwise. Such right and assignment is granted
free of charge, without requirement that any monetary payment
whatsoever including, without limitation, any royalty or
license fee, be made to the Guarantor or any other Person by
the Lender or any other Person.
4.8 Other Actions as to any and all Collateral. The
Guarantor agrees to take any other action reasonably requested by the
Lender to insure the attachment, perfection and priority of, and the
ability of the Lender to enforce, the Lender's security interest in any
and all of the Collateral including, without limitation, (i) executing,
delivering and, where appropriate, filing financing statements and
amendments relating thereto under the UCC, (ii) causing the Lender's
names to be noted as secured party on any certificate of title for a
titled good if such notation is a condition to attachment, perfection
or priority of, or ability of the Lender to enforce, the Lender's
security interest in such Collateral, (iii) complying with any
provision of any statute, regulation or treaty of the United States as
to any Collateral if compliance with such provision is a condition to
attachment, perfection or priority of, or ability of the Lender to
enforce, the Lender's security interest in such Collateral, (iv)
obtaining governmental and other third party consents and approvals,
including without limitation any consent of any licensor, lessor or
other person obligated on Collateral, (v) obtaining waivers from
mortgagees and landlords in form and substance satisfactory to the
Lender and (vi) taking all actions required by any earlier versions of
the UCC or by other law, as applicable in any jurisdiction, or by other
law as applicable in any foreign jurisdiction.
5. Relation to Other Security Documents. The provisions of this
Agreement supplement the provisions of any real estate mortgage or deed of trust
granted by the Guarantor to the Lender and securing the payment or performance
of any of the Obligations. Nothing contained in any such real estate mortgage or
deed of trust will derogate from any of the rights or remedies of the Lender
under this Agreement. In addition, the provisions of this Agreement will be read
and construed with the other security documents indicated below in the manner so
indicated.
6. Representations and Warranties Concerning Guarantor's Legal
Status. The Guarantor represents and warrants to the Lender that Schedule 1 sets
forth (i) the Guarantor's exact legal name, (ii) the type of organization of the
Guarantor, (iii) the jurisdiction of
organization of the Guarantor, (iv) the Guarantor's organizational
identification number, and (iv) the Guarantor's place of business or, if more
than one, its chief executive office and mailing address.
7. Covenants Concerning Guarantor's Legal Status. The Guarantor
covenants that (i) without providing at least 30 days prior written notice to
the Lender, the Guarantor will not change its name, places of business, chief
executive office, mailing address or organizational identification number, (ii)
if the Guarantor does not have an organizational identification number and later
obtains one, the Guarantor will promptly notify the Lender of such
organizational identification number, and (iii) the Guarantor will not change
its type of organization, jurisdiction of organization or other legal structure.
8. Representations and Warranties Concerning Collateral.
8.1 General. The Guarantor represents and warrants to the
Lender that: (i) the Guarantor is the owner of the Collateral, free
from any Lien except for Permitted Liens, (ii) none of the Collateral
constitutes, or is the proceeds of, "farm products" as defined in
Section 9-102(a)(34) of the UCC, (iii) none of the account debtors or
other persons obligated on any of the Collateral is a governmental
authority subject to the Federal Assignment of Claims Act or any
similar federal, state or local statute or rule in respect of such
Collateral, (iv) the Guarantor holds no commercial tort claim except as
indicated in Schedule 1, (v) the Guarantor has at all times operated
its business in compliance with all applicable provisions of the
federal Fair Labor Standards Act, as amended, and with all applicable
provisions of federal, state and local statutes and ordinances dealing
with the control, shipment, storage or disposal of hazardous materials
or substances and (vi) all other information set forth in Schedule 1
pertaining to the Collateral is accurate and complete.
8.2 Intellectual Property. The Copyrights, Patents and
Trademarks listed on the respective schedules to each of the Copyright
Security Agreement, Patent Security Agreement and Trademark Security
Agreement constitute all of the federally registered Intellectual
Property owned by the Guarantor. All Intellectual Property owned by the
Guarantor is valid, subsisting and enforceable and all filings
necessary to maintain the effectiveness of such registrations have been
made. Except for Permitted Liens, the Guarantor is the sole and
exclusive owner of the entire and unencumbered right, title and
interest in and to all Intellectual Property purported to be owned by
the Guarantor, free and clear of any Liens, including without
limitation licenses and covenants by the Guarantor not to ▇▇▇ third
persons. The Guarantor has no notice of any suits or actions commenced
or threatened with reference to any Intellectual Property owned or used
by the Guarantor. The execution, delivery and performance of this
Agreement by the Guarantor will not violate or cause a default under
any Intellectual Property owned or used by the Guarantor or any
agreement in connection therewith.
9. Covenants Concerning Collateral. The Guarantor covenants that
(i) the Collateral, to the extent not delivered to the Lender pursuant to
Section 4, will be kept at the locations listed on Schedule 1, and the Guarantor
will not remove the Collateral from such
locations, without providing at least 30 days prior written notice to the
Lender, (ii) except for the security interest herein granted and Permitted
Liens, the Guarantor will be the owner of the Collateral free from any Lien, and
the Guarantor will defend the Collateral against all claims and demands of all
persons at any time claiming the Collateral or any interests therein adverse to
the Lender, (iii) except for Permitted Liens, the Guarantor will not pledge,
mortgage or create, or suffer to exist a security interest in the Collateral in
favor of any person other than the Lender, (iv) the Guarantor will keep the
Collateral in good order and repair and will not use the Collateral in violation
of law or any policy of insurance thereon, (v) the Guarantor will permit the
Lender, or any designee, to inspect the Collateral at any reasonable time,
wherever located, (vi) the Guarantor will pay promptly when due all taxes,
assessments, governmental charges and levies upon the Collateral or incurred in
connection with the use or operation of such Collateral or incurred in
connection with this Agreement, (vii) the Guarantor will operate its business in
compliance with all applicable provisions of the federal Fair Labor Standards
Act, as amended, and with all applicable provisions of federal, state and local
statutes and ordinances dealing with the control, shipment, storage or disposal
of hazardous materials or substances and (viii) the Guarantor will not sell or
otherwise dispose, or offer to sell or otherwise dispose, of the Collateral or
any interest therein except for sales of obsolete Collateral or sales inventory
in the ordinary course of business.
10. Insurance. The Guarantor will maintain insurance in such
amounts and coverages as required by the Purchase Agreement. All policies of
insurance will be payable to the Lender as loss payee (or, in the case of
liability insurance, list the Lender as an additional insured, except where the
Lender cannot legally be named as an additional insured) and will provide for at
least 30 days prior written cancellation notice to the Lender. In the event of
failure by the Guarantor to provide and maintain insurance as required by this
Section, the Lender may, at its option, provide such insurance and charge the
amount thereof to the Guarantor. The Guarantor will furnish the Lender with
certificates of insurance and policies evidencing compliance with the foregoing
insurance provision.
11. Collateral Protection Expenses; Preservation of Collateral.
11.1 Expenses Incurred by Lender. In its discretion, the
Lender may discharge taxes and other encumbrances at any time levied or
placed on any of the Collateral, make repairs thereto and pay any
necessary filing fees or, if the Guarantor fails to do so, insurance
premiums. The Guarantor agrees to reimburse the Lender on demand for
any and all expenditures so made. The Lender will have no obligation to
the Guarantor to make any such expenditures, nor will the making
thereof relieve the Guarantor of any default.
11.2 Lender's Obligations and Duties. Anything herein to
the contrary notwithstanding, the Guarantor will remain liable under
each contract or agreement included within the Collateral to be
observed or performed by the Guarantor thereunder. The Lender will not
have any obligation or liability under any such contract or agreement
by reason of or arising out of this Agreement or the receipt by the
Lender of any payment relating to any of the Collateral, nor will the
Lender be obligated in any manner to perform any of the obligations of
the Guarantor under or pursuant to any such contract or agreement, to
make inquiry as to the nature or sufficiency of any payment received by
the Lender in respect of the Collateral or as to the sufficiency of any
performance by any party under any such contract or
agreement. The Lender will not have any obligation to present or file
any claim or to take any action to enforce any performance or to
collect the payment of any amounts which may have been assigned to the
Lender or to which the Lender may be entitled at any time or times. The
Lender's sole duty with respect to the custody, safe keeping and
physical preservation of the Collateral in its possession, under
Section 9-207 of the UCC or otherwise, will be to deal with such
Collateral in the same manner as the Lender deals with similar property
for its own account.
12. Securities and Deposits. The Lender may, at any time following
and during the continuance of an Event of Default, at its option, transfer to
the Lender or any nominee any securities constituting Collateral, receive any
income thereon and hold such income as additional Collateral or apply it to the
Obligations. Whether or not any Obligations are due, the Lender may, following
and during the continuance of an Event of Default demand, ▇▇▇ for, collect, or
make any settlement or compromise which they deem desirable with respect to the
Collateral. Regardless of the adequacy of Collateral or any other security for
the Obligations, any deposits or other sums at any time credited by or due from
the Lender to the Guarantor may at any time be applied to or set off against any
of the Obligations.
13. Notification to Account Debtors and Other Persons Obligated on
Collateral. If an Event of Default occurs and is continuing, the Guarantor will,
at the request of the Lender, notify account debtors and other persons obligated
on any of the Collateral of the security interest of the Lender and that payment
thereof is to be made directly to the Lender, and the Lender may, without notice
to or demand upon the Guarantor, so notify account debtors and other persons
obligated on Collateral. After the making of such a request or the giving of any
such notification, the Guarantor will hold any proceeds of collection of
accounts, chattel paper, general intangibles, instruments and other Collateral
received by the Guarantor as trustee for the Lender without commingling the same
with other funds of the Guarantor and will turn the same over to the Lender in
the identical form received, together with any necessary endorsements or
assignments.
14. Power of Attorney.
14.1 Appointment and Powers of Secured Party. The
Guarantor irrevocably constitutes and appoints the Lender and any
officer or agent thereof, with full power of substitution, as its true
and lawful attorneys-in-fact with full irrevocable power and authority
in the place and stead of the Guarantor or in the Lender's own name,
for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute any and all documents and
instruments that may be necessary or desirable to accomplish the
purposes of this Agreement and, without limiting the generality of the
foregoing, hereby gives said attorneys the power and right, on behalf
of the Guarantor, without notice to or assent by the Guarantor, to do
the following:
(a) upon the occurrence and during the
continuance of an Event of Default, generally to sell,
transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral in such manner as is
consistent with the UCC and as fully and completely as though
the Lender was the absolute owners thereof for all purposes,
and to do at the Guarantor's expense, at any time, or from
time to time, all acts and things which the Lender deems
necessary to protect, preserve or realize upon the Collateral
and the Lender's security interest therein, in order to effect
the intent of this Agreement, all as fully and effectively as
the Guarantor might do, including, without limitation, (i) the
filing and prosecuting of registration and transfer
applications with the appropriate federal or local agencies or
authorities with respect to trademarks, copyrights and
patentable inventions and processes, (ii) upon written notice
to the Guarantor, the exercise of voting rights with respect
to voting securities, which rights may be exercised, if the
Lender so elects, with a view to causing the liquidation in a
commercially reasonable manner of assets of the issuer of any
such securities and (iii) the execution, delivery and
recording, in connection with any sale or other disposition of
any Collateral, of the endorsements, assignments or other
instruments of conveyance or transfer with respect to such
Collateral; and
(b) to the extent that the Guarantor's
authorization given in Section 3 is not sufficient, to file
such financing statements with respect hereto, with or without
the Guarantor's signature, or a photocopy of this Agreement in
substitution for a financing statement, as the Lender may deem
appropriate and to execute and/or file in the Guarantor's name
such financing statements and amendments thereto and
continuation statements which may require the Guarantor's
signature.
14.2. Ratification by the Guarantor. To the extent
permitted by law, the Guarantor ratifies all that any such attorneys
lawfully do or cause to be done by virtue hereof. This power of
attorney is a power coupled with an interest and is irrevocable.
14.3. No Duty on Lender. The powers conferred on the Lender
hereunder is solely to protect the Lender's interests in the Collateral
and do not impose any duty upon the Lender to exercise any such powers.
The Lender will be accountable only for the amounts that it actually
receives as a result of the exercise of such powers and neither it nor
any of its officers, directors, employees or agents will be responsible
to the Guarantor for any act or failure to act, except for the Lender's
own gross negligence or willful misconduct.
15. Remedies. If an Event of Default occurs and is continuing, the
Lender may, without notice to or demand upon the Guarantor, declare this
Agreement to be in default, and the Lender will thereafter have in any
jurisdiction in which enforcement hereof is sought, in addition to all other
rights and remedies, the rights and remedies of a secured party under the UCC or
the Uniform Commercial Code of any jurisdiction in which the Collateral is
located, including, without limitation, the right to take possession of the
Collateral, and for that purpose the Lender may, so far as the Guarantor can
give authority therefor, enter upon any premises on which the Collateral may be
situated and remove the same therefrom. The Lender may in its discretion require
the Guarantor to assemble all or any part of the Collateral at such location or
locations
within the jurisdictions of the Guarantor's principal office or at such other
locations as the Lender may reasonably designate. Unless the Collateral is
perishable or threatens to decline rapidly in value or is of a type customarily
sold on a recognized market, the Lender will give to the Guarantor at least ten
business days prior written notice of the time and place of any public sale of
Collateral or of the time after which any private sale or any other intended
disposition is to be made. The Guarantor acknowledges that ten business days
prior written notice of such sale or sales is reasonable notice. In addition,
the Guarantor waives any and all rights that it may have to a judicial hearing
in advance of the enforcement of any of the Lender's rights hereunder,
including, without limitation, the right following an Event of Default to take
immediate possession of the Collateral and to exercise its rights with respect
thereto.
16. Standards for Exercising Remedies. To the extent that
applicable law imposes duties on the Lender to exercise remedies in a
commercially reasonable manner, the Guarantor acknowledges and agrees that it is
not commercially unreasonable for the Lender (i) to fail to incur expenses
reasonably deemed significant by the Lender to prepare Collateral for
disposition or otherwise to complete raw material or work in process into
finished goods or other finished products for disposition, (ii) to fail to
obtain third party consents for access to Collateral to be disposed of, or to
obtain or, if not required by other law, to fail to obtain governmental or third
party consents for the collection or disposition of Collateral to be collected
or disposed of, (iii) to fail to exercise collection remedies against account
debtors or other persons obligated on Collateral or to remove Liens on or any
adverse claims against Collateral, (iv) to exercise collection remedies against
account debtors and other persons obligated on Collateral directly or through
the use of collection agencies and other collection specialists, (v) to
advertise dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (vi) to
contact other persons, whether or not in the same business as the Guarantor, for
expressions of interest in acquiring all or any portion of the Collateral, (vii)
to hire one or more professional auctioneers to assist in the disposition of
Collateral, whether or not the collateral is of a specialized nature, (viii) to
dispose of Collateral by utilizing Internet sites that provide for the auction
of assets of the types included in the Collateral or that have the reasonable
capability of doing so, or that match buyers and sellers of assets, (ix) to
dispose of assets in wholesale rather than retail markets, (x) to disclaim
disposition warranties, (xi) to purchase insurance or credit enhancements to
insure the Lender against risks of loss, collection or disposition of Collateral
or to provide to the Lender a guaranteed return from the collection or
disposition of Collateral, or (xii) to the extent deemed appropriate by the
Lender, to obtain the services of other brokers, investment bankers, consultants
and other professionals to assist the Lender in the collection or disposition of
any of the Collateral. The Guarantor acknowledges that the purpose of this
Section is to provide non-exhaustive indications of what actions or omissions by
the Lender would not be commercially unreasonable in the Lender's exercise of
remedies against the Collateral and that other actions or omissions by the
Lender will not be deemed commercially unreasonable solely on account of not
being indicated in this Section. Without limitation upon the foregoing, nothing
contained in this Section will be construed to grant any rights to the Guarantor
or to impose any duties on the Lender that would not have been granted or
imposed by this Agreement or by applicable law in the absence of this Section.
17. No Waiver by Lender. The Lender will not be deemed to have
waived any of its rights hereunder unless such waiver is in writing and signed
by the Lender or Lenders representing at least 50% of the unpaid principal
amount of the Notes at the time outstanding (the "Requisite Lenders"). Any
consent, notice, request, demand or waiver required or permitted to be given by
the Lender by any provision hereof will be sufficient and binding on all Lenders
if given in writing by the Requisite Lenders at the time outstanding. No delay
or omission on the part of the Lender in exercising any right will operate as a
waiver of such right or any other right. A waiver on any one occasion will not
be construed as a waiver of any right on any future occasion. All rights and
remedies of the Lender with respect to the Obligations or the Collateral,
whether evidenced hereby or by any other instrument or papers, will be
cumulative and may be exercised singularly, alternatively, successively or
concurrently at such time or at such times as the Lender deems expedient.
18. Suretyship Waivers by the Guarantor. The Guarantor waives
demand, notice, protest, notice of acceptance of this Agreement, notice of loans
made, credit extended, Collateral received or delivered or other action taken in
reliance hereon and all other demands and notices of any description. With
respect to both the Obligations and the Collateral, the Guarantor assents to any
extension or postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of or failure to perfect any security interest
in any Collateral, to the addition or release of any party or person primarily
or secondarily liable, to the acceptance of partial payment thereon and the
settlement, compromising or adjusting of any thereof, all in such manner and at
such time or times as the Lender may deem advisable. The Lender will have no
duty as to the collection or protection of the Collateral or any income thereon,
nor as to the preservation of rights against prior parties, nor as to the
preservation of any rights pertaining thereto beyond the safe custody thereof as
set forth in Section 11.2. The Guarantor further waives any and all other
suretyship defenses.
19. Marshaling. The Lender will not be required to marshal any
present or future collateral security (including but not limited to this
Agreement and the Collateral) for, or other assurances of payment of, the
Obligations or any of them or to resort to such collateral security or other
assurances of payment in any particular order, and all of its rights hereunder
and in respect of such collateral security and other assurances of payment will
be cumulative and in addition to all other rights, however existing or arising.
To the extent that it lawfully may, the Guarantor agrees that it will not invoke
any law relating to the marshalling of collateral which might cause delay in or
impede the enforcement of the Lender's rights under this Agreement or under any
other instrument creating or evidencing any of the Obligations or under which
any of the Obligations is outstanding or by which any of the Obligations is
secured or payment thereof is otherwise assured, and, to the extent that it
lawfully may, the Guarantor irrevocably waives the benefits of all such laws.
20. Proceeds of Dispositions; Expenses. The Guarantor will pay to
the Lender on demand all reasonable expenses, including attorneys' fees and
disbursements, incurred or paid by the Lender in protecting, preserving or
enforcing the Lender's rights under or in respect of any of the Obligations or
any of the Collateral. After deducting all of such expenses, the residue of any
proceeds of collection or sale of the Obligations or Collateral will, to the
extent actually received in cash, be applied to the payment of the Obligations
in such order or preference as the Lender
may determine, proper allowance and provision being made for any Obligations not
then due. Upon the final payment and satisfaction in full of all of the
Obligations and after making any payments required by Section 9-608(a)(1)(C) or
9-615(a)(3) of the UCC, any excess will be returned to the Guarantor, and the
Guarantor will remain liable for any deficiency in the payment of the
Obligations.
21. Overdue Amounts. Until paid, all amounts due and payable by
the Guarantor hereunder will be a debt secured by the Collateral and will bear,
whether before or after judgment, interest at the rate of interest set forth in
the Note issued under the Purchase Agreement.
22. Governing Law. This Agreement will be construed and enforced
in accordance with the substantive laws of the State of Minnesota without giving
effect to the conflicts of laws principles of any jurisdiction.
23. Notices. All notices, consents, requests, instructions,
approvals and other communications required by this Agreement will be made in
accordance with the provisions of the Purchase Agreement.
24. Entire Agreement. This Agreement contains the entire
understanding of the parties hereto with respect to the subject matter contained
herein. There are no restrictions, promises, warranties, covenants, or
undertakings, other than those expressly provided for herein. This Agreement
supersedes all prior agreements and undertakings between the parties with
respect to such subject matter.
25. Severability of Invalid Provision. If any one or more covenant
or agreement provided in this Agreement is contrary to law, then such covenant
or agreement will be null and void and will in no way affect the validity of the
other provisions of this Agreement, which will otherwise be fully effective and
enforceable.
26. Successors and Assigns. This Agreement will be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns, including one or more future holders of the Notes; provided,
however, that the Guarantor may not assign any of its obligations hereunder
without the prior written consent of the Lender.
27. Counterparts. This Agreement may be executed in one or more
counterparts, and will become effective when one or more counterparts have been
signed by each of the parties.
28. Consent to Jurisdiction. AT THE OPTION OF THE LENDER, THIS
AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING
IN HENNEPIN COUNTY, MINNESOTA, AND THE GUARANTOR CONSENTS TO THE JURISDICTION
AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS
NOT CONVENIENT. IN THE EVENT THE GUARANTOR COMMENCES ANY ACTION IN ANOTHER
JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR
INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS
AGREEMENT, OR ALLEGING ANY BREACH OF THIS AGREEMENT, THE LENDER AT ITS OPTION IS
ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES
DESCRIBED ABOVE, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE
LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.
29. Waiver of Jury Trial. THE GUARANTOR WAIVES THE RIGHT TO A
TRIAL BY JURY IN ANY ACTION BASED ON OR PERTAINING TO THIS AGREEMENT.
30. Subordination. This Agreement is subject to the Senior
Subordination Agreement (as defined in the Purchase Agreement). Until the Senior
Indebtedness (as defined in the Purchase Agreement) has been paid in full, to
the extent of any conflict between the terms of this Agreement and the Senior
Subordination Agreement, the terms of the Senior Subordination Agreement will
control.
* * * * *
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto on the day and year first above written.
THE GUARANTORS: THE LENDER:
HEALTH FITNESS REHAB, INC. BAYVIEW CAPITAL PARTNERS LP
By: Bayview Capital Management LLC
By: ______________________________ Its: General Partner
Its: ____________________________
By: ________________________________________
FITNESS CENTERS OF AMERICA Its: ______________________________________
By: ______________________________
Its: ____________________________
HEALTH FITNESS CORPORATION OF
CANADA, INC.
By: ______________________________
Its: ____________________________
By: ______________________________
Its: ____________________________
SCHEDULE 1 TO
SECURITY AGREEMENT
Health Fitness Rehab, Inc.
1. Guarantor's Exact Legal Name: Health Fitness Rehab, Inc.
2. Guarantor's Type of Organization: Corporation
3. Guarantor's State of Organization: Minnesota
4. Guarantor's Organization 9K-538
Identification Number:
5. Address of Guarantor's Chief ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
Executive Office: ▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
6. Addresses of All of Guarantor's None.
Places of Business:
7. Description of any Commercial None.
Tort Claims:
Fitness Centers of America
1. Guarantor's Exact Legal Name: Fitness Centers of America
2. Guarantor's Type of Organization: Corporation
3. Guarantor's State of Organization: California
4. Guarantor's Organization C0740985
Identification Number:
5. Address of Guarantor's Chief ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
Executive Office: ▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
6. Addresses of All of Guarantor's None.
Places of Business:
7. Description of any Commercial None.
Tort Claims:
Health Fitness Corporation of Canada, Inc.
1. Guarantor's Exact Legal Name: Health Fitness Corporation of
Canada, Inc.
2. Guarantor's Type of Organization: Corporation
3. Guarantor's Province of Alberta, Canada
Organization:
4. Guarantor's Corporate 209067461
Access Number:
5. Address of Guarantor's Chief ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
Executive Office: ▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
6. Addresses of All of Guarantor's None.
Places of Business:
7. Description of any Commercial None.
Tort Claims:
EXHIBIT D
GUARANTY
This Guaranty (the "Guaranty") is made as of August 25, 2003 by each of
the parties signatory hereto (each individually the "Guarantor" and collectively
the "Guarantors") to and for the benefit of Bayview Capital Partners LP, a
Delaware limited partnership (the "Beneficiary").
BACKGROUND
A. The Beneficiary has agreed to purchase a secured senior
subordinated note in the aggregate principal amount of $3,000,000 (the "Bridge
Note") issued by Health Fitness Corporation, a Minnesota corporation (the
"Debtor"), pursuant to a Securities Purchase Agreement dated the date hereof by
and among the Debtor, the Beneficiary and the Guarantors (as it may hereafter be
amended or otherwise modified from time to time, the "Purchase Agreement").
Pursuant to the terms of the Purchase Agreement, the Bridge Note may be
exchanged for the Long Term Note, the Preferred Shares and the Warrant (each as
defined in the Purchase Agreement).
B. The Guarantor, as a direct or an indirect wholly-owned
subsidiary of the Debtor, will benefit from the transactions described in the
Purchase Agreement.
C. The Beneficiary is willing to extend such credit to the Debtor
on the condition that the Guarantor execute and deliver this Guaranty to the
Beneficiary.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Guarantor agrees as follows:
1. The Guarantor hereby absolutely and unconditionally guarantees to the
Beneficiary the payment and performance of each and every debt,
liability and obligation of every type and description which the Debtor
may now or at any time hereafter owe to the Beneficiary, whether such
debt, liability, or obligation currently exists or is hereafter created
or incurred, and whether such debt, liability, or obligation is or may
be direct or indirect, due or to become due, absolute or contingent,
primary or secondary, liquidated or unliquidated, joint, several, or
joint and several (all such debts, liabilities, and obligations are
collectively referred to herein as the "Obligations").
2. No act or thing need occur to establish the liability of the Guarantor
under this Guaranty, and no act or thing, except full payment and
discharge of all Obligations, will in any way exonerate the Guarantor
or modify, reduce, limit or release the liability of the Guarantor
under this Guaranty.
3. This is an absolute, unconditional and continuing guaranty of payment
of and performance of the Obligations and will continue to be in force
and be binding upon the Guarantor until all Obligations are paid in
full.
4. If the Guarantor or the Debtor dissolves (except as permitted by the
Purchase Agreement) or is or becomes insolvent (however defined), then
the Beneficiary will have the right to declare immediately due and
payable, and the Guarantor will forthwith pay to the Beneficiary, the
full amount of all Obligations, whether due and payable or unmatured.
If the Guarantor or the Debtor voluntarily commences or there is
commenced involuntarily against the Guarantor or the Debtor a case
under the United States Bankruptcy Code, the full amount of all
Obligations, whether due and payable or unmatured, shall be immediately
due and payable without demand or notice thereof.
5. The Guarantor is liable for all Obligations, without any limitation as
to amount, plus accrued interest thereon and all attorneys' fees,
collection costs and enforcement expenses referable thereto.
6. Until such time as the Obligations have been indefeasibly paid in full
to the Beneficiary, the Guarantor waives and relinquishes any right of
subrogation or other right of recourse, contribution or reimbursement
from the Debtor and any other right to payment from the Debtor, arising
out of or on account of any sums paid or agreed to be paid by the
Guarantor under this Guaranty, whether any such right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, secured, or unsecured.
7. The Guarantor will pay or reimburse the Beneficiary for all costs and
expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Beneficiary in connection with the protection, defense
or enforcement of this Guaranty in any litigation or bankruptcy or
insolvency proceedings.
8. Whether or not any existing relationship between the Guarantor and the
Debtor has been changed or ended, the Beneficiary may, but is not
obligated to, enter into transactions resulting in the continuance of
the Obligations, without any consent or approval by the Guarantor and
without any notice to the Guarantor. The liability of the Guarantor
under this Guaranty will not be affected or impaired by any of the
following acts or things (which the Beneficiary is expressly authorized
to do, omit or suffer from time to time, without notice to or approval
by the Guarantor):
(a) any acceptance of collateral security, guarantors,
accommodation parties, or sureties for any or all Obligations;
(b) any one or more extensions or renewals of the Obligations
(whether or not for longer than the original period) or any
modification of the interest rates, maturities or other
contractual terms applicable to any Obligations;
(c) any waiver or indulgence granted to the Debtor, any delay or
lack of diligence in the enforcement of the Obligations, or
any failure to institute proceedings, file a claim, give any
required notices or otherwise protect any Obligations;
(d) any full or partial release of, settlement with, or agreement
not to ▇▇▇ the Debtor, the Guarantor, or other person liable
in respect of any Obligations;
(e) any discharge of any evidence of the Obligations or the
acceptance of any instrument in renewal thereof or
substitution therefor;
(f) any failure to obtain collateral security (including rights of
setoff) for the Obligations, or to see to the proper or
sufficient creation and perfection thereof, or to establish
the priority thereof, or to protect, insure, or enforce any
collateral security;
(g) any foreclosure or enforcement of any collateral security;
(h) any transfer of any Obligations or any evidence thereof;
(i) any order of application of any payments or credits upon the
Obligations; or
(j) any election by the Beneficiary under Section 1111(b)(2) of
the United States Bankruptcy Code.
9. The Guarantor waives any and all defenses, claims and discharges of the
Guarantor, or any other obligor, pertaining to the Obligations, except
the defense of discharge of payment in full (or the defense of
discharge in part with respect to any portion of the Obligations
actually paid). Without limiting the generality of the foregoing, the
Guarantor will not assert, plead or enforce against the Beneficiary any
defense of waiver, release, discharge in bankruptcy, statute of
limitations, res judicata, statute of frauds, anti-deficiency statute,
fraud, incapacity, minority, usury, illegality, or unenforceability
which may be available to the Guarantor or any other person liable in
respect of any Obligations, or any setoff available against any
Beneficiary to the Guarantor or any other person, whether or not on
account of a related trans-action. The Guarantor expressly agrees that
the Guarantor is and will remain liable for any deficiency remaining
after foreclosure of any mortgage or security interest securing the
Obligations, whether or not the liability of the Guarantor or any other
obligor for such deficiency is discharged pursuant to statute or
judicial decision.
10. The Guarantor waives presentment, demand for payment, notice of
dishonor or nonpayment, and protest of any instrument evidencing the
Obligations. Neither Beneficiary is required to first resort for
payment of the Obligations from the Debtor or any other persons or
their properties, or first to enforce, realize upon or exhaust any
collateral security for the Obligations, before enforcing this
Guaranty.
11. If any payment applied by the Beneficiary to the Obligations is
thereafter set aside, recovered, rescinded or required to be returned
for any reason (including, without limitation, the bankruptcy,
insolvency or reorganization of the Debtor or any other obligor), the
Obligations to which such payment was applied shall for the purposes of
this Guaranty be deemed to have continued in existence, notwithstanding
such application,
and this Guaranty will be enforceable as to such Obligations as fully
as if such application had never been made.
12. The liability of the Guarantor under this Guaranty is in addition to
and shall be cumulative with all other liabilities of the Guarantor to
the Beneficiary as the Guarantor or otherwise, without any limitation
as to amount, unless the instrument or agreement evidencing or creating
such other liability specifically provides to the contrary.
13. This Guaranty shall be enforceable against each party signing this
Guaranty, even if only one party signs and regardless of the failure of
any other party to sign this Guaranty. If there is more than one signer
of this Guaranty, all agreements and promises herein shall be construed
to be, and are hereby declared to be, joint and several in each and
every particular and shall be fully binding upon and enforceable
against each of the Guarantors. This Guaranty shall be effective upon
delivery to the Beneficiary, without further act, condition or
acceptance by any Beneficiary, shall be binding upon the Guarantor and
the successors and assigns of the Guarantor and shall inure to the
benefit of each Beneficiary and its participants, successors and
assigns. Any invalidity or unenforceability of any provision or
application of this Guaranty shall not affect other lawful provisions
and application hereof, and to this end the provisions of this Guaranty
are declared to be severable. This Guaranty may not be waived,
modified, amended, terminated, released or otherwise changed except by
a writing signed by the Guarantor and each Beneficiary. This Guaranty
shall be governed by the laws of the State of Minnesota without regard
to conflict of law principles of any jurisdiction. The Guarantor waives
notice of the Beneficiary's acceptance hereof.
14. AT THE OPTION OF THE BENEFICIARY, THIS GUARANTY MAY BE ENFORCED IN ANY
FEDERAL COURT OR MINNESOTA STATE COURT SITTING IN HENNEPIN COUNTY, AND
EACH GUARANTOR CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT
AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN
THE EVENT ANY GUARANTOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR
VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY
FROM THE RELATIONSHIP CREATED BY THIS GUARANTY, OR ALLEGING ANY BREACH
OF THIS GUARANTY, THE BENEFICIARY AT ITS OPTION IS ENTITLED TO HAVE THE
CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES DESCRIBED
ABOVE, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW,
TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.
15. EACH GUARANTOR WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION BASED
ON OR PERTAINING TO THIS GUARANTY.
* * * * *
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be signed
by its duly authorized officer and dated as of the date first above written.
HEALTH FITNESS REHAB, INC., a
Minnesota corporation
By: ________________________________
Its: ______________________________
FITNESS CENTERS OF AMERICA, a
California corporation
By: ________________________________
Its: ______________________________
HEALTH FITNESS CORPORATION OF
CANADA, INC., an Alberta, Canada
corporation
By: ________________________________
Its: ______________________________
By: ________________________________
Its: ______________________________
EXHIBIT E
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF
SERIES A CONVERTIBLE PREFERRED STOCK
of
Health Fitness Corporation
Pursuant to Section 302A.401 of the Minnesota
Business Corporation Act
The undersigned, ▇▇▇▇▇ ▇. ▇▇▇▇▇, Chief Executive Officer and ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, Secretary, of Health Fitness Corporation, a corporation organized and
existing under the Minnesota Business Corporation Act, in accordance with the
provisions of Section 302A.401 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by
the Articles of Incorporation of said Corporation, the Board of Directors on
______ __, 2003 adopted the following resolution creating a series of two
million five hundred thousand (2,500,000) shares of preferred stock designated
as Series A Convertible Preferred Stock, par value $.01 per share ("Series A
Convertible Preferred Stock"):
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its Articles
of Incorporation, a series of preferred stock of the Corporation be, and it
hereby is, created, and that the designation and amount thereof and the voting
powers, preferences and relative, optional and other special rights of the
shares of such series, and the qualifications, limitations or restrictions
thereof, are as follows:
1. Defined Terms. As used in this Certificate of Designation, the
following terms have the meanings indicated:
"Acquisition / Refinancing Transaction" means any of the following: (i)
the acquisition by the Corporation of assets or capital stock of any other
person (excluding Affiliates of the Corporation) where the purchase price for
such acquisition is greater than 25% of the book value of the Corporation's
assets immediately prior to such acquisition, or (ii) the incurrence by the
Corporation of indebtedness for borrowed money in an amount equal to or greater
than the Senior Indebtedness (as defined in the Purchase Agreement) as of the
date hereof from any person other than the Senior Lender (as defined in the
Purchase Agreement) or an Affiliate of the Corporation.
"Affiliate" means, with respect to any person, any other person which
directly or indirectly controls, is controlled by, or is under common control
with, such person.
"Common Stock Equivalents" means all options, warrants, convertible
securities, securities, stock appreciation rights, phantom stock, and other
rights to acquire from the Corporation shares of Common Stock (without regard to
whether such options, warrants,
convertible securities, securities, stock appreciation rights, phantom stock,
and other rights are then exchangeable, exercisable or convertible in full, in
part or at all).
"Common Stock Outstanding" means, at any time and without duplication,
the sum of (i) the shares of Common Stock then outstanding, plus (ii) all shares
of Common Stock that are then issuable upon the exchange, conversion or exercise
of all Common Stock Equivalents then outstanding.
"Conversion Date" has the meaning set forth in Section 6(c)(i).
"Conversion Price" shall mean the price at which a share of Series A
Convertible Preferred Stock converts to a shares of Common Stock, which shall
initially be $.50, subject to adjustment as is elsewhere provided in this
Certificate of Designation.
"Conversion Rights" has the meaning set forth in Section 6.
"Excluded Stock" means (A) all shares of Common Stock issued upon the
exercise or conversion of currently issued and outstanding Common Stock
Equivalents in accordance with their terms, (B) all shares of Common Stock or
Common Stock Equivalents issued pursuant to the Corporation's 1995 Employee
Stock Purchase Plan, as amended, as in effect on the date hereof, but not in
excess of 700,000 shares of Common Stock, (C) all shares of Common Stock or
Common Stock Equivalents issued pursuant to the Corporation's 1995 Stock Option
Plan, as amended, as in effect on the date hereof, but not in excess of
2,000,000 shares of Common Stock and Common Stock Equivalents, (D) all shares of
Series A Convertible Preferred Stock issued in connection with the ▇▇▇▇▇▇▇
Investment (as defined in the Purchase Agreement) and all shares of Common Stock
issued upon the conversion of such shares in accordance with their terms, and
(E) all shares of Series A Convertible Preferred Stock and all Common Stock
Equivalents issued pursuant to the Purchase Agreement and all shares of Common
Stock issued upon the conversion or exercise, as applicable, of such securities
in accordance with their terms.
"Fair Market Value" means the fair value of the Common Stock (i) as
mutually agreed to by the Requisite Holders and the Corporation, or (ii) if they
do not agree to such value within 30 days of the issuance of the applicable
shares of Common Stock, as determined by an independent professional appraiser
mutually selected by the Requisite Holders and the Corporation. In the event
that the Requisite Holders and the Corporation are unable to mutually select an
appraiser within 15 days of the end of the 30 day period, then the Requisite
Holders and the Corporation will each select an independent professional
appraiser who will jointly select a third independent professional appraiser to
conduct the appraisal. Each such appraiser must be selected within 15 days of
the end of the initial 15 day period, and, if either the Requisite Holders or
the Corporation fails to select an appraiser within such time period, then the
appraiser selected by the other party will determine the Fair Market Value. In
no event will any appraiser apply any discounts for illiquidity, lack of control
or other similar factors in determining the Fair Market Value. All costs
associated with the appraisal will be borne by the Corporation. Notwithstanding
the foregoing, if the Corporation's Common Stock is (i) listed and trading on a
national securities exchange or on the Nasdaq National Market System, Fair
Market Value means, on a per share basis, the average closing sale price per
share of the Common Stock for the
20 trading days immediately preceding any date of determination or (ii) is not
listed for trading on a national securities exchange or on the Nasdaq National
Market System Stock Market, but is traded in the over-the-counter market,
including the Nasdaq OTC Bulletin Board, Fair Market Value means, on a per share
basis, the average of the high bid and low ask price per share of the Common
Stock for each of the 20 trading days immediately preceding any date of
determination.
"Impasse" means the situation where (i) the Board of Directors of the
Corporation (excluding any representative of the Lender Holders) unanimously
approves an Acquisition / Refinancing Transaction, (ii) each such member of the
Board of Directors of the Corporation certifies to the Lender Holders that the
Acquisition / Refinancing Transaction is in the best interest of the Corporation
independent of the provisions of Section 4(c) below, (iii) such Acquisition /
Refinancing Transaction requires a consent under the Purchase Agreement, and
(iv) the parties to the Purchase Agreement are unwilling to provide such consent
after the Corporation has provided them with such information concerning the
Acquisition / Refinancing Transaction as may be requested.
"Junior Stock" has the meaning set forth in Section 2(b).
"Lender Holders" means the holders of Series A Convertible Preferred
Stock who are also designated as Purchasers under the Purchase Agreement.
"Liquidation Preference" has the meaning set forth in Section 3(a).
"Original Issue Date" means the date on which a share of Series A
Convertible Preferred Stock was first issued.
"Original Issue Price" means $1.00 per share of Series A Convertible
Preferred Stock.
"Purchase Agreement" means the Securities Purchase Agreement between
the Corporation, the other Loan Parties thereto, and Bayview Capital Partners LP
dated as of , 2003, as it may be amended, restated, modified, or supplemented
from time to time.
"Redemption Price" means the greater of (i) the Liquidation Preference
and (ii) the Fair Market Value of the shares of Series A Preferred Stock on an
as-if converted basis.
"Requisite Holders" means the holders of at least a majority of the
then outstanding shares of Series A Convertible Preferred Stock.
"Requisite Lender Holders" means the holders of at least a majority of
the then outstanding shares of Series A Convertible Preferred Stock held by the
Lender Holders.
"SARs" has the meaning set forth in Section 6(d)(iii).
2. Dividends.
(a) The holders of Series A Convertible Preferred Stock
shall be entitled to receive dividends out of funds legally available
therefore at the dividend rate of 6% per year multiplied by the
Original Issue Price (subject to appropriate adjustment in the event of
any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) multiplied by the number of
shares of Series A Convertible Preferred Stock held by such holders.
Dividends on the Series A Convertible Preferred Stock shall be
cumulative from the date of issuance. The Corporation shall pay the
dividends on the Series A Convertible Preferred by the issuance and
delivery, to the holders entitled to receive such dividends, of that
number of newly issued fully paid and nonassessable shares of Series A
Convertible Preferred Stock determined by dividing the amount of the
dividend due to each such holder by the Conversion Price then in
effect.
(b) The Corporation shall not declare or pay any
distributions (as defined below) on shares of Common Stock and other
stock (being collectively referred to as "Junior Stock") until the
holders of the Series A Convertible Preferred Stock then outstanding
shall have first received a distribution at the rate specified in
Section 1(a).
(c) For purposes of this Section 1, unless the context
requires otherwise, "distribution" shall mean the transfer of cash or
property with respect to outstanding shares of stock of any class
issued by the Corporation, without consideration, whether by way of
dividend or otherwise, payable other than in Common Stock or other
securities of the Corporation, or the purchase or redemption of shares
of the Corporation (other than redemptions in liquidation or
dissolution of the Corporation) for cash or property, including any
such transfer, purchase or redemption by a subsidiary of this
Corporation.
3. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the holders
of shares of Series A Convertible Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders, before any payment
shall be made to the holders of Junior Stock, by reason of their
ownership thereof, an amount equal to the greater of (the "Liquidation
Preference"):
(i) the Original Issue Price per share plus (A)
any accrued but unpaid dividend and plus (B) the following
premium per share (as a percentage of the Original Issue
Price) based upon the date of the liquidation, dissolution or
winding up of the Corporation:
Date Premium
---- -------
Before ______ ___, 2004 5.0%
On or after ______ ___, 2004 and before ______ ___, 2005 4.0%
On or after ______ ___, 2005 and before ______ ___, 2006 3.0%
Date Premium
---- -------
On or after ______ ___, 2006 and before ______ ___, 2007 2.0%
On or after ______ ___, 2007 and before ______ ___, 2008 1.0%
On or after ______ ___, 2008 None
(all such amounts (other than the premium percentage) subject
to appropriate adjustment in the event of any stock dividend,
stock split, combination or other similar recapitalization
affecting such shares), or
(ii) such amount per share as would have been
payable had each such share been converted into Common Stock
pursuant to Section 5 immediately prior to such liquidation,
dissolution or winding up.
If upon any such liquidation, dissolution or winding up of the
Corporation the remaining assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the
holders of shares of Series A Convertible Preferred Stock the full
amount to which they shall be entitled, the holders of shares of Series
A Convertible Preferred Stock shall share ratably in any distribution
of the remaining assets and funds of the Corporation in proportion to
the respective amounts which would otherwise be payable in respect of
the shares held by them upon such distribution if all amounts payable
on or with respect to such shares were paid in full.
(b) After the payment of all preferential amounts
required to be paid to the holders Series A Convertible Preferred
Stock, upon the dissolution, liquidation or winding up of the
Corporation, the holders of Common Stock, and holders of any other
class or series of stock entitled to participate in liquidation
distributions (but excluding the Series A Convertible Preferred Stock),
then outstanding shall be entitled to receive the remaining assets and
funds of the Corporation available for distribution to its stockholders
in accordance with their respective terms.
4. Redemption Rights.
(a) Redemption Right of the Holders Upon a Change in
Control.
(i) Upon the occurrence of a Change in Control
(as defined in the Purchase Agreement), the Requisite Holders
shall have the right to have the Corporation redeem all of the
shares of Series A Convertible Preferred Stock at a per share
purchase price equal to the Redemption Price. The Corporation
shall give all holders of Series A Convertible Preferred Stock
not less than 90 days prior written notice of any Change in
Control. In addition, the Corporation shall promptly provide
to the holders of shares of Series A Convertible Preferred
Stock such information concerning the terms of such Change in
Control and the value of the assets of the Corporation as may
reasonably be requested by the holders of Series A Convertible
Preferred Stock in order to assist them in determining whether
to make such an election. If the Requisite Holders do not
exercise the
redemption right permitted by this Section 4(a), the
provisions of Section 6(h) shall apply.
(ii) The Requisite Holders may exercise the
redemption right under Section 4(a)(i) above by giving the
Corporation written notice of the Requisite Holders' intention
to exercise the redemption right. Within 10 days after receipt
of such written notice, the Corporation shall give all other
holders of shares of Series A Convertible Preferred Stock, if
any, written notice of the Corporation's receipt of such
written notice. The Corporation's notice must specify (A) the
expected date fixed for redemption of the shares under Section
4(a)(iii), (B) the Redemption Price, and (C) the location to
which the shares of Series A Convertible Preferred Stock must
be presented and surrendered for redemption.
(iii) The date for the redemption of the Series A
Convertible Preferred Stock under this Section 4(a) shall be
the date on which the Change in Control giving rise to the
redemption right under this Section 4(a) is consummated.
Notwithstanding anything herein to the contrary, such
redemption right shall be conditioned upon the consummation of
such Change in Control.
(iv) On the date of redemption of the shares, the
Corporation shall deliver payment, in same-day funds, to each
holder of Series A Convertible Preferred Stock in an amount
equal to the aggregate Redemption Price applicable to such
holder's shares of Series A Convertible Preferred Stock being
redeemed. In the event that the Corporation defaults in its
obligation to deliver all or any portion of the Redemption
Price, in addition to any other rights or remedies of the
holder of shares of Series A Preferred Convertible Stock, the
unpaid portion of the Redemption Price will bear interest at
the rate of 15% per year, payable monthly in arrears. The
Corporation will, upon request of the Requisite Holders,
execute and deliver to the holders a promissory note in form
and substance satisfactory to the Requisite Holders evidencing
such obligation.
(b) Redemption Right of the Lender Holders Upon an Event
of Default.
(i) Upon the occurrence of an Event of Default
(as defined in the Purchase Agreement), the Requisite Lender
Holders shall have the right to have the Corporation redeem
all of the shares of Series A Convertible Preferred Stock held
by the Lender Holders at a per share purchase price equal to
the Redemption Price.
(ii) The Requisite Lender Holders may exercise
the redemption right under Section 4(b)(i) above by giving the
Corporation written notice of the Requisite Lender Holders'
intention to exercise the redemption right. Within 10 days
after receipt of such written notice, the Corporation shall
give all other Lender Holders, if any, written notice of the
Corporation's receipt of such written notice. The
Corporation's notice must specify (A) the date fixed for
redemption of the shares under Section 4(b)(iii), (B) the
Redemption Price, and (C) the
location to which the shares of Series A Convertible Preferred
Stock must be presented and surrendered for redemption.
(iii) The Corporation shall fix a date for the
redemption of the Series A Convertible Preferred Stock under
this Section 4(b), which date must be between 30 and 45 days
after receipt of the written notice from the Requisite Lender
Holders.
(iv) On the date fixed for redemption of the
shares, the Corporation shall deliver payment, in same-day
funds, to each Lender Holder in an amount equal to the
aggregate Redemption Price applicable to such Lender Holder's
shares of Series A Convertible Preferred Stock being redeemed.
In the event that the Corporation defaults in its obligation
to deliver all or any portion of the Redemption Price, in
addition to any other rights or remedies of the holder of
shares of Series A Preferred Convertible Stock, the unpaid
portion of the Redemption Price will bear interest at the rate
of 15% per year, payable monthly in arrears. The Corporation
will, upon request of the Requisite Lender Holders, execute
and deliver to the Lender holders a promissory note in form
and substance satisfactory to the Requisite Lender Holders
evidencing such obligation.
(c) Redemption Right of the Corporation Upon an Impasse.
(i) Upon the occurrence, and subject to the
satisfaction, of all of the following conditions: (A) an
Impasse, (B) the closing of the Acquisition / Refinancing
Transaction the subject of the Impasse, (C) the complete
satisfaction by the Corporation of the Notes under the
Purchase Agreement, (D) the making by the Corporation of an
irrevocable offer to the Lender Holders to redeem all, and not
less than all, of the Warrants and any Conversion Stock then
outstanding (each as defined in the Purchase Agreement) at a
per share purchase price equal to the Fair Market Value and
(E) to the extent such offer is accepted by a Lender Holder,
the purchase of such Lender Holder's Warrants and Conversion
Stock on the redemption date, the Corporation shall have the
right to redeem all but not less than all of the shares of
Series A Convertible Preferred Stock then held by the Lender
Holders at a per share purchase price equal to the Redemption
Price.
(ii) Notwithstanding anything to the contrary in
Section 4(c)(i), any Lender Holder may (A) refuse the offer
made by the Corporation under Section 4(c)(i)(D) above, and
(B) elect to convert all or any portion of such Lender
Holder's shares of Series A Convertible Preferred Stock into
shares of Common Stock pursuant to Section 6 below at any time
prior to the consummation of the redemption; in which case
such Lender Holder's Warrant and Conversion Stock shall not be
subject to the redemption under this Section 4(c).
(iii) The Corporation may exercise the redemption
right under Section 4(c)(i) above by giving all Lender Holders
written notice of the Corporation's
intention to exercise the redemption right. The Corporation's
notice must specify (A) the date fixed for redemption of the
shares under Section 4(c)(iv), (B) the Redemption Price, and
(C) the location to which the shares of Series A Convertible
Preferred Stock must be presented and surrendered for
redemption.
(iv) The date for the redemption of the Series A
Convertible Preferred Stock under this Section 4(c) shall be
the date on which the Acquisition / Refinancing Transaction
giving rise to the redemption right under this Section 4(c) is
consummated.
(v) On the date of redemption of the shares, the
Corporation shall deliver payment, in same-day funds, to each
Lender Holder in an amount equal to the aggregate Redemption
Price applicable to such Lender Holder's shares of Series A
Convertible Preferred Stock being redeemed. In the event that
the Corporation defaults in its obligation to deliver all or
any portion of the Redemption Price or all or any portion of
the purchase price for the Warrant and Conversion Stock being
redeemed in connection therewith, in addition to any other
rights or remedies of the Lender Holders, the unpaid portion
of the Redemption Price and such purchase price will bear
interest at the rate of 15% per year, payable monthly in
arrears. The Corporation will, upon request of such Requisite
Lender Holders, execute and deliver to the Lender Holders a
promissory note in form and substance satisfactory to the
Requisite Lender Holders evidencing such obligation.
(d) Effect of Redemption. Any Series A Convertible
Preferred Stock redeemed pursuant to this Section 4 will be cancelled
and will not under any circumstances be reissued, sold or transferred
and the Corporation may from time to time take such appropriate action
as may be necessary to reduce the authorized Series A Convertible
Preferred Stock accordingly.
5. Voting.
(a) Each holder of outstanding shares of Series A
Convertible Preferred Stock shall be entitled to the number of votes
equal to the number of whole shares of Common Stock into which the
shares of Series A Convertible Preferred Stock held by such holder are
then convertible (as adjusted from time to time pursuant to Section 6
hereof), at each meeting of shareholders of the Corporation (and
written actions of stockholders in lieu of meetings) with respect to
any and all matters presented to the shareholders of the Corporation
for their action or consideration. Except as provided by law, by the
provisions of Section 5(b) or 5(c) below, holders of Series A
Convertible Preferred Stock shall vote together with the holders of
Common Stock as a single class.
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series A Convertible
Preferred Stock so as to affect adversely the Series A Convertible
Preferred Stock, without the written consent or affirmative vote of the
Requisite Holders, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For
this purpose, without limiting the generality of the foregoing, the
authorization of any shares of capital stock with preference or
priority over the Series A Convertible Preferred Stock as to the right
to receive either dividends or amounts distributable upon liquidation,
dissolution or winding up of the Corporation shall be deemed to affect
adversely the Series A Convertible Preferred Stock, and the
authorization of any shares of capital stock on a parity with the
Series A Convertible Preferred Stock as to the right to receive either
dividends or amounts distributable upon liquidation, dissolution or
winding up of the Corporation shall also be deemed to affect adversely
the Series A Convertible Preferred Stock.
(c) In addition to any other rights provided by law, so
long any shares of Series A Convertible Preferred Stock shall be
outstanding, the Corporation shall not, without first obtaining the
affirmative vote or written consent of the Requisite Holders:
(i) Amend or repeal any provision of, or add any
provision to, the Corporation's Articles of Incorporation or
By-laws, if such action would adversely affect the
preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, Series A Convertible
Preferred Stock;
(ii) Authorize or issue any new or existing class
or classes or series of capital stock having any preference,
priority or parity as to dividends or assets superior to or on
parity with any such preference or priority of the Series A
Preferred Stock, or authorize or issue shares of stock of any
class or any bonds, debentures, notes or other obligations
convertible into or exchangeable for, or having rights to
purchase, any shares of stock of the Corporation having any
preference, priority or parity as to dividends or assets
superior to any such preference or priority of the Series A
Convertible Preferred Stock;
(iii) Reclassify any Common Stock or Junior Stock
into shares having any preference, priority or on parity as to
dividends or assets superior to or on a parity with any such
preference or priority of the Series A Convertible Preferred
Stock; or
(iv) Pay or declare any dividend or distribution
on any shares of its capital stock (except dividends payable
solely in shares of Common Stock on account of a stock split),
or apply any of its assets to the redemption, retirement,
purchase or acquisition, directly or indirectly, through
subsidiaries or otherwise, of any shares of its capital stock.
6. Optional Conversion. The holders of the Series A Convertible
Preferred Stock shall have conversion rights as follows (the "Conversion
Rights"):
(a) Right to Convert. Each share of Series A Convertible
Preferred Stock shall be convertible, at the option of the holder
thereof, at any time and from time to time, and without the payment of
additional consideration by the holder thereof, into such
number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $1.00 by the Conversion Price in effect at the
time of conversion.
(b) Fractional Shares. No fractional shares of Common
Stock shall be issued upon conversion of the Series A Convertible
Preferred Stock. In lieu of any fractional shares to which the holder
would otherwise be entitled, the Corporation shall pay cash equal to
such fraction multiplied by the then effective Conversion Price.
(c) Mechanics of Conversion.
(i) In order for a holder of Series A
Convertible Preferred Stock to convert shares of Series A
Convertible Preferred Stock into shares of Common Stock, such
holder shall surrender the certificate or certificates for
such shares of Series A Convertible Preferred Stock, at the
office of the transfer agent for the Series A Convertible
Preferred Stock (or at the principal office of the Corporation
if the Corporation serves as its own transfer agent), together
with written notice that such holder elects to convert all or
any number of the shares of the Series A Convertible Preferred
Stock represented by such certificate or certificates. Such
notice shall state such holder's name or the names of the
nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. If
required by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to
the Corporation, duly executed by the registered holder or his
or its attorney duly authorized in writing. The date of
receipt of such certificates and notice by the transfer agent
(or by the Corporation if the Corporation serves as its own
transfer agent) shall be the conversion date ("Conversion
Date"). The Corporation shall, as soon as practicable after
the Conversion Date, issue and deliver at such office to such
holder of Series A Convertible Preferred Stock, or to his or
its nominees, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the
Series A Convertible Preferred Stock shall be outstanding,
reserve and keep available out of its authorized but unissued
stock, for the purpose of effecting the conversion of the
Series A Convertible Preferred Stock, such number of its duly
authorized shares of Common Stock as shall from time to time
be sufficient to effect the conversion of all outstanding
Series A Convertible Preferred Stock. Before taking any action
which would cause an adjustment reducing the Conversion Price
below the then par value of the shares of Common Stock
issuable upon conversion of the Series A Convertible Preferred
Stock, the Corporation will take any corporate action which
may, in the opinion of its counsel, be necessary in order that
the Corporation may validly and legally issue fully paid and
nonassessable shares of Common Stock at such adjusted
Conversion Price.
(iii) All shares of Series A Convertible Preferred
Stock which shall have been surrendered for conversion as
herein provided shall no longer be deemed to be outstanding
and all rights with respect to such shares, including the
rights, if any, to receive notices and to vote, shall
immediately cease and terminate on the Conversion Date, except
only the right of the holders thereof to receive shares of
Common Stock in exchange therefor and payment of any accrued
but unpaid dividends. Any shares of Series A Convertible
Preferred Stock so converted shall be retired and cancelled
and shall not be reissued, and the Corporation (without the
need for stockholder action) may from time to time take such
appropriate action as may be necessary to reduce the
authorized Series A Convertible Preferred Stock accordingly.
(iv) The Corporation shall pay any and all issue
and other taxes that may be payable in respect of any issuance
or delivery of shares of Common Stock upon conversion of
shares of Series A Convertible Preferred Stock pursuant to
this Section 5. The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of shares of
Common Stock in a name other than that in which the shares of
Series A Convertible Preferred Stock so converted were
registered.
(d) Adjustment of Conversion Price Upon Issuances Below
Fair Market Value. If the Corporation issues (or, pursuant to Section
6(d)(iii) below, is deemed to issue) any Common Stock except for
Excluded Stock for a consideration per share less than the Fair Market
Value on the date the Corporation fixes the purchase price for such
Common Stock (excluding stock dividends, subdivisions, split-ups,
combinations or recapitalizations which are addressed by Sections
6(e)-(i)), the Conversion Price in effect immediately after each such
issuance will be reduced, concurrently with such issuance, to a price
determined by multiplying the applicable Conversion Price immediately
prior to such issuance by a fraction, the numerator of which is the sum
of the number of shares of Common Stock Outstanding immediately prior
to such issuance (or deemed issuance) plus the number of shares of
Common Stock which the aggregate consideration received by the
Corporation for such issuance would purchase at such Fair Market Value
per share, and the denominator of which is the number of shares of
Common Stock Outstanding immediately after such issuance (or deemed
issuance), including the shares of Common Stock, if any, deemed to have
been issued pursuant to Section 6(d)(iii) below.
For the purposes of any adjustment of the Conversion Price
pursuant to this Section 6(d), the following provisions are applicable:
(i) In the case of the issuance of Common Stock
for cash, the consideration is the amount of cash paid for
such Common Stock after deducting
any discounts or commissions paid or incurred by the
Corporation in connection with the issuance and sale thereof.
(ii) In the case of the issuance of Common Stock
for a consideration in whole or in part other than cash, the
consideration other than cash is the fair value thereof as
determined in good faith by the Board of Directors.
(iii) In the case of the issuance of (A) options
to purchase or rights to subscribe for Common Stock, (B)
securities, by their terms, convertible into or exchangeable
for Common Stock, (C) options to purchase or rights to
subscribe for securities, by their terms, convertible into or
exchangeable for Common Stock, or (D) stock appreciation
rights, phantom stock, or other stock-based compensation
mechanisms ("SARs"):
(1) the aggregate maximum number of
shares of Common Stock deliverable upon exercise of
such options to purchase or rights to subscribe for
Common Stock or, in the case of SARs, the number of
shares of Common Stock upon which the value of the
SARs are based, shall be deemed to have been issued
at the time such options or rights were issued and
for a consideration equal to the consideration
(determined in the manner provided in subdivisions
(i) and (ii) above of this Section 6(d)), if any,
received by the Corporation upon the issuance of such
options or rights plus the minimum purchase price
provided in such options or rights for the Common
Stock covered thereby;
(2) the aggregate maximum number of
shares of Common Stock deliverable upon conversion of
or in exchange for any such convertible or
exchangeable securities, or upon the exercise of
options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent
conversion or exchange thereof, shall be deemed to
have been issued at the time such securities were
issued or such options or rights were issued and for
a consideration equal to the consideration received
by the Corporation for any such securities and
related options or rights (excluding any cash
received on account of accrued interest or accrued
dividends), plus the additional minimum
consideration, if any, to be received by the
Corporation upon the conversion or exchange of such
securities or the exercise of any related options or
rights (the consideration in each case to be
determined in the manner provided in subdivisions (i)
and (ii) above of this Section 6(d));
(3) on any change in the number of
shares of Common Stock deliverable upon exercise of
any such options or rights or conversion of or
exchange for such convertible or exchangeable
securities, or on any change in the minimum purchase
price of such options, rights or securities, other
than a change resulting from the antidilution
provisions of such options, rights or securities, the
Conversion Price will be readjusted
to such Conversion Price as would have been obtained
had the adjustment made upon (a) the issuance of such
options, rights or securities not exercised,
converted or exchanged prior to such change or (b)
the options or rights related to such securities not
converted or exchanged prior to such change, as the
case may be, been made upon the basis of such change;
and
(4) on the expiration of any such
options or rights, the termination of any such rights
to convert or exchange or the expiration of any
options or rights related to such convertible or
exchangeable securities, the Conversion Price will be
readjusted to such Conversion Price as would have
been obtained had the adjustment made upon the
issuance of such options, rights, convertible or
exchangeable securities or options or rights related
to such convertible or exchangeable securities, as
the case may be, been made upon the basis of the
issuance of only the number of shares of Common Stock
actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such
convertible or exchangeable securities or upon the
exercise of the options or rights related to such
convertible or exchangeable securities, as the case
may be.
(e) Adjustment for Stock Splits, Dividends and
Combinations. If the Corporation shall at any time or from time to time
after the Original Issue Date effect a subdivision of the outstanding
Common Stock or declare a dividend payable in shares of Common Stock,
the Conversion Price then in effect immediately before that subdivision
shall be proportionately decreased. If the Corporation shall at any
time or from time to time after the Original Issue Date combine the
outstanding shares of Common Stock, the Conversion Price then in effect
immediately before the combination shall be proportionately increased.
Any adjustment under this Section 6(e) shall become effective at the
close of business on the date the subdivision, dividend or combination
becomes effective.
(f) Adjustments for Other Dividends and Distributions. In
the event the Corporation at any time or from time to time after the
Original Issue Date for the Series A Convertible Preferred Stock shall
make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation other than shares of Common
Stock, then and in each such event provision shall be made so that the
holders of the Series A Convertible Preferred Stock shall receive upon
conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Corporation that
they would have received had the Series A Convertible Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and
including the conversion date, retained such securities receivable by
them as aforesaid during such period, giving application to all
adjustments called for during such period under this Section 6(f) with
respect to the rights of the holders of the Series A Convertible
Preferred Stock; and
provided further, however, that no such adjustment shall be made if the
holders of Series A Convertible Preferred Stock simultaneously receive
a dividend or other distribution of such securities in an amount equal
to the amount of such securities as they would have received if all
outstanding shares of Series A Convertible Preferred Stock had been
converted into Common Stock on the date of such event.
(g) Adjustment for Reclassification, Exchange, or
Substitution. If the Common Stock issuable upon the conversion of the
Series A Convertible Preferred Stock shall be changed into the same or
a different number of shares of any class or classes of stock, whether
by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares or stock dividend provided for
above, or a reorganization, merger, consolidation, or sale of assets
provided for below), then and in each such event the holder of each
such share of Series A Convertible Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of
stock and other securities and property receivable upon such
reorganization, reclassification, or other change, by holders of the
number of shares of Common Stock into which such shares of Series A
Convertible Preferred Stock might have been converted immediately prior
to such reorganization, reclassification, or change, all subject to
further adjustment as provided herein.
(h) Adjustment for Merger or Reorganization, etc. In case
of any consolidation or merger of the Corporation with or into another
corporation or the sale of all or substantially all of the assets of
the Corporation to another corporation (other than a consolidation,
merger or sale which is covered by Section 4(a)), each share of Series
A Convertible Preferred Stock shall thereafter be convertible (or shall
be converted into a security which shall be convertible) into the kind
and amount of shares of stock or other securities or property to which
a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series A Convertible Preferred
Stock would have been entitled upon such consolidation, merger or sale;
and, in such case, appropriate adjustment (as determined in good faith
by the Board of Directors) shall be made in the application of the
provisions in this Section 6 set forth with respect to the rights and
interest thereafter of the holders of the Series A Convertible
Preferred Stock, to the end that the provisions set forth in this
Section 6 (including provisions with respect to changes in and other
adjustments of the Conversion Price) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or
other property thereafter deliverable upon the conversion of the Series
A Convertible Preferred Stock.
(i) No Impairment. The Corporation will not, by amendment
of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale
of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good
faith assist in the carrying out of all the provisions of this Section
6 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of
the Series A Convertible Preferred Stock against impairment.
(j) Certificate as to Adjustments. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to
this Section 6, the Corporation at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of Series A Convertible Preferred Stock a
certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of
any holder of Series A Convertible Preferred Stock, furnish or cause to
be furnished to such holder a similar certificate setting forth (i)
such adjustments and readjustments, (ii) the Conversion Price then in
effect, and (iii) the number of shares of Common Stock and the amount,
if any, of other property which then would be received upon the
conversion of Series A Convertible Preferred Stock.
(k) Notice of Record Date. In the event:
(A) that the Corporation declares a dividend (or
any other distribution) on its Common Stock payable in Common
Stock or other securities of the Corporation;
(B) that the Corporation subdivides or combines
its outstanding shares of Common Stock;
(C) of any reclassification of the Common Stock
of the Corporation (other than a subdivision or combination of
its outstanding shares of Common Stock or a stock dividend or
stock distribution thereon), or of any consolidation or merger
of the Corporation into or with another corporation, or of the
sale of all or substantially all of the assets of the
Corporation; or
(D) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or
at the office of the transfer agent of the Series A Convertible
Preferred Stock, and shall cause to be mailed to the holders of the
Series A Convertible Preferred Stock at their last addresses as shown
on the records of the Corporation or such transfer agent, at least ten
days prior to the date specified in (A) below or twenty days before the
date specified in (B) below, a notice stating:
(A) the record date of such dividend,
distribution, subdivision or combination, or, if a record is
not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend, distribution.
subdivision or combination are to be determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation or
winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for
securities or other property
deliverable upon such reclassification, consolidation, merger,
sale, dissolution or winding up.
7. Preemptive Rights.
(a) In the event that at any time after the Original
Issue Date the Corporation proposes to issue Common Stock or Common
Stock Equivalents, the Corporation will give written notice to each
holder of the Series A Convertible Preferred Stock, describing such
proposal at least thirty (30) days in advance of such issuance. Each
such holder or its affiliates will then have the right, exercisable by
written notice given to the Corporation no later than twenty (20) days
after receipt of the Corporation's notice, to purchase its pro rata
share (assuming the conversion of all Common Stock Equivalents to
Common Stock) of the Common Stock or Common Stock Equivalents proposed
to be issued by the Corporation on the same price and terms as are
proposed by the Corporation.
(b) The rights granted under this Section 7 do not apply
to issuances of (i) Excluded Stock or (ii) shares of capital stock of
the Corporation in a public offering underwritten by an underwriter, or
group of underwriters which is represented by an underwriter or
underwriters, which is a member of the New York Stock Exchange.
8. Rank. The Series A Convertible Preferred Stock shall, with
respect to (i) all distributions pursuant to Section 3 and (ii) all dividends
payable pursuant to Section 2, rank senior to all classes of Junior Stock and
each other class or series of the Corporation's capital stock hereafter created
which does not expressly rank pari passu with or senior to the Series A
Convertible Preferred Stock.
9. Amendments, Waivers and Consents. Any term of this Certificate
of Designation may be amended and the observance of any term of this Certificate
of Designation may be waived or consented to only with the written consent of
the Board of Directors, the Requisite Holders and the Lender Holders. Any
amendment, waiver or consent effected in accordance with this Section 9 shall be
binding upon the Corporation and all the holders of the Series A Convertible
Preferred Stock.
IN WITNESS WHEREOF, we have hereunto set our hands as President and
Secretary, respectively, of the Corporation, as of __________ ___, 2003 and we
hereby affirm that the foregoing Certificate is our act and deed and the act and
deed of the Corporation and the facts stated herein are true.
_______________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇, Chief Executive Officer
_______________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Secretary
EXHIBIT F
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered into as
of August ___, 2003 by and among Health Fitness Corporation, a Minnesota
corporation (the "Company"), and the "Investor" named in that certain Securities
Purchase Agreement by and among the Company, the other Loan Parties thereto, and
the Investor (as it may be amended, restated, modified, or supplemented from
time to time, the "Purchase Agreement").
The parties hereby agree as follows:
CERTAIN DEFINITIONS.
Unless otherwise defined in this Agreement, all capitalized terms used in this
Agreement have the meanings indicated in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
"Affiliate" means, with respect to any person, any other person which directly
or indirectly controls, is controlled by, or is under common control with, such
person.
"Business Day" means a day, other than a Saturday or Sunday, on which banks in
New York City are open for the general transaction of business.
"Common Stock" shall mean the Company's common stock, par value $0.01 per share,
and any securities into which such shares may hereinafter be reclassified.
"Effectiveness Deadline" shall mean (i) with respect to any Registration
Statement filed pursuant to a Registration Request made within 180 days after
the date hereof, the date that is 360 days after the date hereof, and (ii) with
respect to any Registration Statement filed pursuant to a Registration Request
made after 180 days after the date hereof, the date that is 180 days after such
Registration Request.
"Event of Default" shall have the meaning ascribed to it in the Purchase
Agreement.
"Investor" shall mean the Purchaser identified in the Purchase Agreement and any
Affiliate or permitted transferee of any Investor who is a subsequent holder of
any Warrants or Registrable Securities.
"Prospectus" shall mean the prospectus included in any Registration Statement,
as amended or supplemented by any prospectus supplement, with respect to the
terms of the offering of any portion of the Registrable Securities covered by
such Registration Statement and by all other amendments and supplements to the
prospectus, including post-effective amendments and all material incorporated by
reference in such prospectus.
"Register," "registered" and "registration" refer to a registration made by
preparing and filing a Registration Statement or similar document in compliance
with the 1933 Act (as defined below), and the declaration or ordering of
effectiveness of such Registration Statement or document.
"Registrable Securities" shall mean the shares of Common Stock issuable: (i)
upon conversion of the Shares; (ii) upon the exercise of the Warrants issuable
pursuant to the Purchase Agreement, if any; (iii) any other shares of Common
Stock issuable on account of any stock splits, dividends
reclassifications, reorganizations or similar events with respect to the Shares
or Warrants; and (iv) with respect to or in exchange for Registrable Securities;
provided, that, a security shall cease to be a Registrable Security upon (A)
sale pursuant to a Registration Statement or Rule 144 under the 1933 Act, or (B)
such security becoming eligible for sale by the Investors pursuant to Rule
144(k).
"Registration Statement" shall mean any registration statement of the Company
filed under the 1933 Act that covers the resale of any of the Registrable
Securities pursuant to the provisions of this Agreement, amendments and
supplements to such Registration Statement, including post-effective amendments,
all exhibits and all material incorporated by reference in such Registration
Statement.
"SEC" means the U.S. Securities and Exchange Commission.
"Shares" means shares of the Company's Series A Convertible Preferred Stock
issued pursuant to the Purchase Agreement, and any shares of Series A
Convertible Preferred Stock or Common Stock issued as payment of dividends on
such shares of Series A Convertible Preferred Stock.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder.
"Warrants" means warrants to purchase shares of Common Stock issued pursuant to
the Purchase Agreement.
"Warrant Shares" means the shares of Common Stock issuable upon the exercise of
the Warrants.
REGISTRATION.
REGISTRATION STATEMENTS.
At any time after the Final Closing Date (as defined in the Purchase Agreement),
Investors owning at least 50% of the Registrable Securities shall be entitled to
request that the Company effect a registration with respect to the Registrable
Securities in accordance with this Section 2. Any such request for a
registration under this Section 2 (a "Registration Request") shall be in writing
and delivered to the Company in accordance with the notice provisions hereof.
Upon the Company's receipt of a Registration Request, the Company shall promptly
notify all Investors (other than the Investors that made the Registration
Request) of the Registration Request and shall allow all such Investors to
participate in the registration contemplated by this Section 2. Each Investor
may elect to participate in such registration by notifying the Company in a
writing delivered to the Company in accordance with the notice provisions hereof
of such election and the number of Registrable Securities of such Investor to be
included in the registration.
Following the Company's receipt of a Registration Request (and at a time
consistent with the Company's obligation to cause a Registration Statement to
become effective on
or before the Effectiveness Deadline), the Company shall prepare and file with
the SEC one Registration Statement on Form S-3 (or, if Form S-3 is not then
available to the Company, on such form of registration statement as is then
available to effect a registration for resale of the Registrable Securities,
subject to the Investor's consent), covering the resale of the Registrable
Securities requested by the Investors to be included in the registration. Such
Registration Statement also shall cover, to the extent allowable under the 1933
Act and the rules promulgated thereunder (including Rule 416), such
indeterminate number of additional shares of Common Stock resulting from stock
splits, stock dividends, Common Stock issued or issuable pursuant to
anti-dilution provisions and payment of future dividends on the Shares in the
form of Common Stock, or similar transactions with respect to the Registrable
Securities. The Registration Statement (and each amendment or supplement
thereto, and each request for acceleration of effectiveness thereof) shall be
provided in accordance with Section 3(c) to the Investors and their counsel
prior to its filing or other submission.
EXPENSES. THE COMPANY WILL PAY ALL EXPENSES ASSOCIATED WITH EACH REGISTRATION,
INCLUDING BUT NOT LIMITED TO, FILING AND PRINTING FEES, COUNSEL TO THE COMPANY,
COUNSEL TO THE INVESTOR, AND ACCOUNTING FEES AND EXPENSES, COSTS ASSOCIATED WITH
CLEARING THE REGISTRABLE SECURITIES FOR SALE UNDER APPLICABLE STATE SECURITIES
LAWS AND LISTING FEES, AND DISCOUNTS, COMMISSIONS, FEES OF UNDERWRITERS, SELLING
BROKERS, DEALER MANAGERS OR SIMILAR SECURITIES INDUSTRY PROFESSIONALS WITH
RESPECT TO THE REGISTRABLE SECURITIES BEING SOLD BY THE INVESTOR.
EFFECTIVENESS.
The Company shall cause any Registration Statement filed pursuant to Section
2(a) to be declared effective by the SEC on or before the Effectiveness
Deadline. The Company shall notify the Investors by facsimile or e-mail as
promptly as practicable, and in any event, within twenty-four (24) hours, after
any Registration Statement is declared effective and shall simultaneously
provide the Investors with copies of any related Prospectus to be used in
connection with the sale or other disposition of the securities covered thereby.
If (A) any Registration Statement filed pursuant to Section 2(a) is not declared
effective by the SEC on or before the Effectiveness Deadline, or (B) after a
Registration Statement has been declared effective by the SEC, sales cannot be
made pursuant to such Registration Statement for any reason (including without
limitation by reason of a stop order, or the Company's failure to update the
Registration Statement), but excluding the inability of any Investor to sell the
Registrable Securities covered thereby due to market conditions and except as
excused pursuant to subparagraph (ii) below, then such failure to have the
Registration Statement declared effective by the SEC or the Investor's inability
to sell Registrable Securities shall constitute an Event of Default under the
Purchase Agreement entitling the Investor to all rights and remedies specified
thereunder.
For not more than thirty (30) consecutive days or for a total of not more than
sixty (60) days in any twelve (12) month period, the Company may delay the
disclosure of material non-public information concerning the Company, by
suspending the use of any
Prospectus included in any registration contemplated by this Section containing
such information, the disclosure of which at the time is not, in the good faith
opinion of the Company, in the best interests of the Company (an "Allowed
Delay"); provided, that the Company shall promptly (a) notify the Investor in
writing of the existence of (but in no event, without the prior written consent
of the Investor, shall the Company disclose to such Investor any of the facts or
circumstances regarding) material non-public information giving rise to an
Allowed Delay, and (b) advise the Investor in writing to cease all sales under
the Registration Statement until the end of the Allowed Delay.
UNDERWRITTEN OFFERING. IF ANY OFFERING PURSUANT TO A REGISTRATION STATEMENT
PURSUANT TO SECTION 2(a) HEREOF INVOLVES AN UNDERWRITTEN OFFERING, THE COMPANY
SHALL HAVE THE RIGHT TO SELECT AN INVESTMENT BANKER AND MANAGER TO ADMINISTER
THE OFFERING, WHICH INVESTMENT BANKER OR MANAGER SHALL BE REASONABLY
SATISFACTORY TO THE INVESTOR.
COMPANY OBLIGATIONS. THE COMPANY WILL USE COMMERCIALLY REASONABLE EFFORTS TO
EFFECT THE REGISTRATION OF THE REGISTRABLE SECURITIES IN ACCORDANCE WITH THE
TERMS HEREOF, AND PURSUANT THERETO THE COMPANY WILL, AS EXPEDITIOUSLY AS
POSSIBLE:
USE COMMERCIALLY REASONABLE EFFORTS TO CAUSE SUCH REGISTRATION STATEMENT TO
BECOME EFFECTIVE AND TO REMAIN CONTINUOUSLY EFFECTIVE FOR A PERIOD THAT WILL
TERMINATE UPON THE EARLIER OF (i) THE DATE ON WHICH ALL REGISTRABLE SECURITIES
COVERED BY SUCH REGISTRATION STATEMENT AS AMENDED FROM TIME TO TIME, HAVE BEEN
SOLD, AND (ii) WITH RESPECT TO THE INVESTOR, THE DATE ON WHICH ALL REGISTRABLE
SECURITIES COVERED BY SUCH REGISTRATION STATEMENT MAY BE SOLD PURSUANT TO RULE
144(k);
PREPARE AND FILE WITH THE SEC SUCH AMENDMENTS AND POST-EFFECTIVE AMENDMENTS TO
THE REGISTRATION STATEMENT AND THE PROSPECTUS AS MAY BE NECESSARY TO KEEP THE
REGISTRATION STATEMENT EFFECTIVE FOR THE PERIOD SPECIFIED IN SECTION 3(a) AND TO
COMPLY WITH THE PROVISIONS OF THE 1933 ACT AND THE 1934 ACT WITH RESPECT TO THE
DISTRIBUTION OF ALL OF THE REGISTRABLE SECURITIES COVERED THEREBY;
PROVIDE COPIES TO AND PERMIT COUNSEL DESIGNATED BY THE INVESTOR TO REVIEW EACH
REGISTRATION STATEMENT AND ALL AMENDMENTS AND SUPPLEMENTS THERETO NO FEWER THAN
FIVE (5) BUSINESS DAYS PRIOR TO THEIR FILING WITH THE SEC AND NOT FILE ANY
DOCUMENT TO WHICH SUCH COUNSEL REASONABLY OBJECTS. AN OBJECTION SHALL BE DEEMED
TO BE REASONABLE ONLY IF THE INVESTOR REASONABLY BELIEVES SUCH REGISTRATION
STATEMENT, AMENDMENTS OR SUPPLEMENTS CONTAINS (X) AN UNTRUE STATEMENT OF
MATERIAL FACT OR OMIT TO STATE ANY MATERIAL FACT NECESSARY TO MAKE THE
STATEMENTS THEREIN NOT MISLEADING OR FAILS TO COMPLY WITH THE APPLICABLE
REQUIREMENTS OF THE 1933 ACT OR THE RULES PROMULGATED THEREUNDER OR (Y) CONTAINS
AN UNTRUE STATEMENT OF FACT REGARDING SUCH INVESTOR OR OMIT TO STATE ANY FACT
NECESSARY TO MAKE THE STATEMENT REGARDING SUCH INVESTOR THEREIN NOT MISLEADING,
AND THE INVESTOR PROVIDES WRITTEN NOTICE OF SUCH STATEMENT NECESSARY TO MAKE THE
STATEMENTS THEREIN NOT MISLEADING OR NON-COMPLIANT;
FURNISH TO THE INVESTOR AND ITS LEGAL COUNSEL (i) PROMPTLY AFTER THE SAME IS
PREPARED AND PUBLICLY DISTRIBUTED, FILED WITH THE SEC, OR RECEIVED BY THE
COMPANY (BUT NOT LATER THAN TWO (2) BUSINESS DAYS AFTER THE FILING DATE, RECEIPT
DATE OR SENDING DATE, AS THE CASE MAY BE, ONE (1) COPY OF ANY REGISTRATION
STATEMENT AND ANY AMENDMENT THERETO, EACH PRELIMINARY PROSPECTUS AND PROSPECTUS
AND EACH AMENDMENT OR SUPPLEMENT THERETO, AND (ii) SUCH NUMBER OF COPIES OF A
PROSPECTUS, INCLUDING A PRELIMINARY PROSPECTUS, AND ALL AMENDMENTS AND
SUPPLEMENTS THERETO AND SUCH OTHER DOCUMENTS AS THE INVESTOR MAY REASONABLY
REQUEST IN ORDER TO FACILITATE THE DISPOSITION OF THE REGISTRABLE SECURITIES
OWNED BY THE INVESTOR THAT ARE COVERED BY THE RELATED REGISTRATION STATEMENT;
IN THE EVENT THE COMPANY SELECTS AN UNDERWRITER FOR THE OFFERING, THE COMPANY
SHALL ENTER INTO AND PERFORM ITS REASONABLE OBLIGATIONS UNDER AN UNDERWRITING
AGREEMENT, IN USUAL AND CUSTOMARY FORM, INCLUDING, WITHOUT LIMITATION, CUSTOMARY
INDEMNIFICATION AND CONTRIBUTION OBLIGATIONS, WITH THE UNDERWRITER OF SUCH
OFFERING;
IF REQUIRED BY THE UNDERWRITER, THE COMPANY SHALL FURNISH, ON THE EFFECTIVE DATE
OF THE REGISTRATION STATEMENT (EXCEPT WITH RESPECT TO CLAUSE (i) BELOW) AND ON
THE DATE THAT REGISTRABLE SECURITIES ARE DELIVERED TO AN UNDERWRITER, IF ANY,
FOR SALE IN CONNECTION WITH THE REGISTRATION STATEMENT, (i) IN THE CASE OF AN
UNDERWRITTEN OFFERING, AN OPINION, DATED AS OF THE CLOSING DATE OF THE SALE OF
REGISTRABLE SECURITIES TO THE UNDERWRITERS, FROM INDEPENDENT LEGAL COUNSEL
REPRESENTING THE COMPANY FOR PURPOSES OF SUCH REGISTRATION STATEMENT, IN FORM,
SCOPE AND SUBSTANCE AS IS CUSTOMARILY GIVEN IN AN UNDERWRITTEN PUBLIC OFFERING,
ADDRESSED TO THE UNDERWRITERS PARTICIPATING IN SUCH UNDERWRITTEN OFFERING, AND
(ii) A LETTER, DATED AS OF THE EFFECTIVE DATE OF SUCH REGISTRATION STATEMENT AND
CONFIRMED AS OF THE APPLICABLE DATES DESCRIBED ABOVE, FROM THE COMPANY'S
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS IN FORM AND SUBSTANCE AS IS CUSTOMARILY
GIVEN BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TO UNDERWRITERS IN AN
UNDERWRITTEN PUBLIC OFFERING, ADDRESSED TO THE UNDERWRITERS;
USE COMMERCIALLY REASONABLE EFFORTS TO (i) PREVENT THE ISSUANCE OF ANY STOP
ORDER OR OTHER SUSPENSION OF EFFECTIVENESS AND, (ii) IF SUCH ORDER IS ISSUED,
OBTAIN THE WITHDRAWAL OF ANY SUCH ORDER AT THE EARLIEST POSSIBLE MOMENT;
PRIOR TO ANY PUBLIC OFFERING OF REGISTRABLE SECURITIES, USE COMMERCIALLY
REASONABLE EFFORTS TO REGISTER OR QUALIFY OR COOPERATE WITH THE INVESTOR AND ITS
COUNSEL IN CONNECTION WITH THE REGISTRATION OR QUALIFICATION OF SUCH REGISTRABLE
SECURITIES FOR OFFER AND SALE UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY AND
ALL SUCH JURISDICTIONS AS REQUESTED BY THE INVESTOR AND DO ANY AND ALL OTHER
COMMERCIALLY REASONABLE ACTS OR THINGS NECESSARY OR ADVISABLE TO ENABLE THE
DISTRIBUTION IN SUCH JURISDICTIONS OF THE REGISTRABLE SECURITIES COVERED BY THE
REGISTRATION STATEMENT; PROVIDED, HOWEVER, THAT THE COMPANY SHALL NOT BE
REQUIRED TO MAKE ANY REGISTRATION OR FILING OR TAKE ANY OTHER ACTION IN ANY
PARTICULAR JURISDICTION IN WHICH THE COMPANY WOULD BE REQUIRED TO EXECUTE A
GENERAL CONSENT TO SERVICE OF PROCESS IN CONNECTION THEREWITH;
USE COMMERCIALLY REASONABLE EFFORTS TO CAUSE ALL REGISTRABLE SECURITIES COVERED
BY A REGISTRATION STATEMENT TO BE LISTED ON EACH SECURITIES EXCHANGE,
INTERDEALER QUOTATION SYSTEM OR OTHER MARKET ON WHICH SIMILAR SECURITIES ISSUED
BY THE COMPANY ARE THEN LISTED;
IMMEDIATELY NOTIFY THE INVESTOR, AT ANY TIME DURING THE PERIOD REFERRED TO IN
SECTION 3(a), UPON DISCOVERY THAT, OR UPON THE HAPPENING OF ANY EVENT AS A
RESULT OF WHICH, THE PROSPECTUS INCLUDED IN A REGISTRATION STATEMENT, AS THEN IN
EFFECT, INCLUDES AN UNTRUE STATEMENT OF A MATERIAL FACT OR OMITS TO STATE ANY
MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS
THEREIN NOT MISLEADING IN LIGHT OF THE CIRCUMSTANCES THEN EXISTING, AND AT THE
REQUEST OF ANY SUCH HOLDER, PROMPTLY PREPARE AND FURNISH TO SUCH HOLDER A
REASONABLE NUMBER OF COPIES OF A SUPPLEMENT TO OR AN AMENDMENT OF SUCH
PROSPECTUS AS MAY BE NECESSARY SO THAT, AS THEREAFTER DELIVERED TO THE
PURCHASERS OF SUCH REGISTRABLE SECURITIES, SUCH PROSPECTUS SHALL NOT INCLUDE AN
UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT TO STATE A MATERIAL FACT REQUIRED TO
BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING IN
LIGHT OF THE CIRCUMSTANCES THEN EXISTING;
OTHERWISE USE COMMERCIALLY REASONABLE EFFORTS TO COMPLY WITH ALL APPLICABLE
RULES AND REGULATIONS OF THE SEC UNDER THE 1933 ACT AND THE 1934 ACT, TAKE SUCH
OTHER ACTIONS AS MAY BE REASONABLY NECESSARY TO FACILITATE THE REGISTRATION OF
THE REGISTRABLE SECURITIES HEREUNDER; AND MAKE AVAILABLE TO ITS SECURITY
HOLDERS, AS SOON AS REASONABLY PRACTICABLE, BUT NOT LATER THAN THE AVAILABILITY
DATE (AS DEFINED BELOW), AN EARNINGS STATEMENT COVERING A PERIOD OF AT LEAST
TWELVE (12) MONTHS, BEGINNING AFTER THE EFFECTIVE DATE OF EACH REGISTRATION
STATEMENT, WHICH EARNINGS STATEMENT SHALL SATISFY THE PROVISIONS OF SECTION
11(a) OF THE 1933 ACT, INCLUDING RULE 158 PROMULGATED THEREUNDER (FOR THE
PURPOSE OF THIS SUBSECTION 3(k), "AVAILABILITY DATE" MEANS THE 45TH DAY
FOLLOWING THE END OF THE FOURTH FISCAL QUARTER THAT INCLUDES THE EFFECTIVE DATE
OF SUCH REGISTRATION STATEMENT, EXCEPT THAT, IF SUCH FOURTH FISCAL QUARTER IS
THE LAST QUARTER OF THE COMPANY'S FISCAL YEAR, "AVAILABILITY DATE" MEANS THE
90TH DAY AFTER THE END OF SUCH FOURTH FISCAL QUARTER); ANY EARNINGS STATEMENT
CONFORMING TO THE REQUIREMENTS OF THIS SECTION 3(k) AND PUBLICLY AVAILABLE ON
THE COMPANY'S WEBSITE FOR A PERIOD OF AT LEAST TWELVE (12) MONTHS OR PUBLICLY
AVAILABLE ON ▇▇▇▇▇ SHALL BE DEEMED AVAILABLE FOR THE PURPOSES OF THIS SECTION
3(k); AND
WITH A VIEW TO MAKING AVAILABLE TO THE INVESTORS THE BENEFITS OF RULE 144 (OR
ITS SUCCESSOR RULE) AND ANY OTHER RULE OR REGULATION OF THE SEC THAT MAY AT ANY
TIME PERMIT THE INVESTOR TO SELL SHARES OF COMMON STOCK TO THE PUBLIC WITHOUT
REGISTRATION, THE COMPANY COVENANTS AND AGREES TO: (i) MAKE AND KEEP PUBLIC
INFORMATION AVAILABLE, AS THOSE TERMS ARE UNDERSTOOD AND DEFINED IN RULE 144,
UNTIL THE EARLIER OF (A) SIX MONTHS AFTER SUCH DATE AS ALL OF THE REGISTRABLE
SECURITIES MAY BE RESOLD PURSUANT TO RULE 144(k) OR ANY OTHER RULE OF SIMILAR
EFFECT OR (B) SUCH DATE AS ALL OF THE REGISTRABLE SECURITIES SHALL HAVE BEEN
RESOLD; AND (ii) FILE WITH THE SEC IN A TIMELY MANNER ALL REPORTS AND OTHER
DOCUMENTS REQUIRED OF THE COMPANY UNDER THE 1934 ACT; AND (iii) FURNISH TO THE
INVESTOR UPON REQUEST, AS LONG AS SUCH INVESTOR OWNS ANY REGISTRABLE SECURITIES,
(A) A WRITTEN STATEMENT BY THE COMPANY THAT IT HAS COMPLIED WITH THE REPORTING
REQUIREMENTS OF THE 1934 ACT, (B) A COPY OF THE COMPANY'S MOST RECENT ANNUAL
REPORT ON FORM ▇▇-▇ ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇ FORM 10-Q, AND (C) SUCH OTHER
INFORMATION AS MAY BE REASONABLY REQUESTED IN ORDER TO AVAIL SUCH INVESTOR OF
ANY RULE OR REGULATION OF THE SEC THAT PERMITS THE SELLING OF ANY SUCH
REGISTRABLE SECURITIES WITHOUT REGISTRATION.
OBLIGATIONS OF THE INVESTOR.
THE INVESTOR SHALL FURNISH IN WRITING TO THE COMPANY SUCH INFORMATION REGARDING
ITSELF, THE REGISTRABLE SECURITIES HELD BY IT AND THE INTENDED METHOD OF
DISPOSITION OF THE REGISTRABLE SECURITIES HELD BY IT, AS SHALL BE REASONABLY
REQUIRED TO EFFECT THE REGISTRATION OF SUCH REGISTRABLE SECURITIES AND SHALL
EXECUTE SUCH DOCUMENTS IN CONNECTION WITH SUCH REGISTRATION AS THE COMPANY MAY
REASONABLY REQUEST. AT LEAST TWENTY (20) BUSINESS DAYS PRIOR TO THE FIRST
ANTICIPATED FILING DATE OF ANY REGISTRATION STATEMENT, THE COMPANY SHALL NOTIFY
THE INVESTOR OF THE INFORMATION THE COMPANY REQUIRES FROM SUCH INVESTOR IF SUCH
INVESTOR ELECTS TO HAVE ANY OF THE REGISTRABLE SECURITIES INCLUDED IN THE
REGISTRATION STATEMENT. THE INVESTOR SHALL PROVIDE SUCH INFORMATION TO THE
COMPANY AT LEAST TEN (10) BUSINESS DAYS PRIOR TO THE FIRST ANTICIPATED FILING
DATE OF SUCH REGISTRATION STATEMENT IF THE INVESTOR ELECTS TO HAVE ANY OF THE
REGISTRABLE SECURITIES INCLUDED IN THE REGISTRATION STATEMENT. ANY INVESTOR WHO
FAILS TO PROVIDE SUCH INFORMATION TO THE COMPANY WITHIN THE TIMEFRAMES DESCRIBED
IN THIS SECTION 4(a) SHALL WAIVE ANY RIGHTS, DAMAGES OR PENALTIES SUCH INVESTOR
HAS PURSUANT TO SECTION 2 OF THIS AGREEMENT.
THE INVESTOR, BY ITS ACCEPTANCE OF THE REGISTRABLE SECURITIES AGREES TO
COOPERATE WITH THE COMPANY AS REASONABLY REQUESTED BY THE COMPANY IN CONNECTION
WITH THE PREPARATION AND FILING OF A REGISTRATION STATEMENT HEREUNDER, UNLESS
SUCH INVESTOR HAS NOTIFIED THE COMPANY IN WRITING OF ITS ELECTION TO EXCLUDE ALL
OF ITS REGISTRABLE SECURITIES FROM SUCH REGISTRATION STATEMENT.
IN THE EVENT THE COMPANY, AT THE REQUEST OF THE INVESTOR, DETERMINES TO ENGAGE
THE SERVICES OF AN UNDERWRITER, SUCH INVESTOR AGREES TO ENTER INTO AND PERFORM
ITS OBLIGATIONS UNDER AN UNDERWRITING AGREEMENT, IN USUAL AND CUSTOMARY FORM FOR
A SELLING STOCKHOLDER, INCLUDING, WITHOUT LIMITATION, CUSTOMARY INDEMNIFICATION
AND CONTRIBUTION OBLIGATIONS, WITH THE MANAGING UNDERWRITER OF SUCH OFFERING AND
TAKE SUCH OTHER ACTIONS AS ARE REASONABLY REQUIRED IN ORDER TO EXPEDITE OR
FACILITATE THE DISPOSITIONS OF THE REGISTRABLE SECURITIES.
THE INVESTOR AGREES THAT, UPON RECEIPT OF ANY NOTICE FROM THE COMPANY OF EITHER
(i) THE COMMENCEMENT OF AN ALLOWED DELAY PURSUANT TO SECTION 2(C)(II), OR (II)
THE HAPPENING OF AN EVENT PURSUANT TO SECTION 3(J) HEREOF, SUCH INVESTOR WILL
IMMEDIATELY DISCONTINUE DISPOSITION OF REGISTRABLE SECURITIES PURSUANT TO THE
REGISTRATION STATEMENT COVERING SUCH REGISTRABLE SECURITIES, UNTIL THE
INVESTOR'S RECEIPT OF THE COPIES OF THE SUPPLEMENTED OR AMENDED PROSPECTUS FILED
WITH THE SEC AND DECLARED EFFECTIVE AND, IF SO DIRECTED BY THE COMPANY, THE
INVESTOR SHALL DELIVER TO THE COMPANY (AT THE EXPENSE OF THE COMPANY) OR DESTROY
(AND DELIVER TO THE COMPANY A CERTIFICATE OF DESTRUCTION) ALL COPIES IN THE
INVESTOR'S POSSESSION OF THE PROSPECTUS COVERING THE REGISTRABLE SECURITIES
CURRENT AT THE TIME OF RECEIPT OF SUCH NOTICE.
THE INVESTOR MAY NOT PARTICIPATE IN ANY THIRD PARTY UNDERWRITTEN REGISTRATION
HEREUNDER UNLESS IT (i) COMPLETES AND EXECUTES ALL QUESTIONNAIRES, POWERS OF
ATTORNEY, INDEMNITIES, UNDERWRITING AGREEMENTS AND OTHER DOCUMENTS REASONABLY
REQUIRED UNDER THE TERMS OF SUCH UNDERWRITING ARRANGEMENTS, AND (II) AGREES TO
PAY ITS PRO RATA SHARE OF ALL UNDERWRITING DISCOUNTS AND COMMISSIONS.
NOTWITHSTANDING THE FOREGOING, THE INVESTOR SHALL NOT BE REQUIRED TO MAKE ANY
REPRESENTATIONS TO SUCH UNDERWRITER, OTHER THAN THOSE WITH RESPECT TO ITSELF AND
THE REGISTRABLE SECURITIES OWNED BY IT, INCLUDING ITS RIGHT TO SELL THE
REGISTRABLE SECURITIES, AND ANY INDEMNIFICATION IN FAVOR OF THE UNDERWRITER BY
THE INVESTOR SHALL BE SEVERAL AND NOT JOINT AND LIMITED IN THE CASE OF THE
INVESTOR, TO THE PROCEEDS RECEIVED BY SUCH INVESTOR FROM THE SALE OF ITS
REGISTRABLE SECURITIES. THE SCOPE OF ANY SUCH INDEMNIFICATION IN FAVOR OF AN
UNDERWRITER SHALL BE LIMITED TO THE SAME EXTENT AS THE INDEMNITY PROVIDED IN
SECTION 5(b) HEREOF.
INDEMNIFICATION.
INDEMNIFICATION BY THE COMPANY. THE COMPANY WILL INDEMNIFY AND HOLD HARMLESS THE
INVESTOR AND ITS OFFICERS, DIRECTORS, MEMBERS, EMPLOYEES AND AGENTS, SUCCESSORS
AND ASSIGNS, AND EACH OTHER PERSON, IF ANY, WHO CONTROLS SUCH INVESTOR WITHIN
THE MEANING OF THE 1933 ACT, AGAINST ANY LOSSES, CLAIMS, DAMAGES OR LIABILITIES,
JOINT OR SEVERAL, TO WHICH THEY MAY BECOME SUBJECT UNDER THE 1933 ACT OR
OTHERWISE, INSOFAR AS SUCH LOSSES, CLAIMS, DAMAGES OR LIABILITIES (OR ACTIONS IN
RESPECT THEREOF) ARISE OUT OF OR ARE BASED UPON: (i) ANY UNTRUE STATEMENT OR
ALLEGED UNTRUE STATEMENT OF ANY MATERIAL FACT CONTAINED IN ANY REGISTRATION
STATEMENT, ANY PRELIMINARY PROSPECTUS OR FINAL PROSPECTUS CONTAINED IN, OR ANY
AMENDMENT OR SUPPLEMENT THEREOF; (ii) ANY BLUE SKY APPLICATION OR OTHER DOCUMENT
EXECUTED BY THE COMPANY SPECIFICALLY FOR THAT PURPOSE OR BASED UPON WRITTEN
INFORMATION FURNISHED BY THE COMPANY FILED IN ANY STATE OR OTHER JURISDICTION IN
ORDER TO QUALIFY ANY OR ALL OF THE REGISTRABLE SECURITIES UNDER THE SECURITIES
LAWS THEREOF (ANY SUCH APPLICATION, DOCUMENT OR INFORMATION HEREIN CALLED A
"BLUE SKY APPLICATION"); (iii) THE OMISSION OR ALLEGED OMISSION TO STATE THEREIN
A MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE
STATEMENTS THEREIN NOT MISLEADING; (iv) ANY VIOLATION BY THE COMPANY OR ITS
AGENTS OF ANY RULE OR REGULATION PROMULGATED UNDER THE 1933 ACT APPLICABLE TO
THE
COMPANY OR ITS AGENTS AND RELATING TO ACTION OR INACTION REQUIRED OF THE COMPANY
IN CONNECTION WITH SUCH REGISTRATION; OR (v) ANY FAILURE TO REGISTER OR QUALIFY
THE REGISTRABLE SECURITIES INCLUDED IN ANY SUCH REGISTRATION IN ANY STATE WHERE
THE COMPANY OR ITS AGENTS HAS AFFIRMATIVELY UNDERTAKEN OR AGREED IN WRITING THAT
THE COMPANY WILL UNDERTAKE SUCH REGISTRATION OR QUALIFICATION ON THE INVESTOR'S
BEHALF (THE UNDERTAKING OF ANY UNDERWRITER CHOSEN BY THE COMPANY BEING
ATTRIBUTED TO THE COMPANY) AND WILL REIMBURSE SUCH INVESTOR, AND EACH SUCH
OFFICER, DIRECTOR OR MEMBER AND EACH SUCH CONTROLLING PERSON FOR ANY LEGAL OR
OTHER EXPENSES REASONABLY INCURRED BY THEM IN CONNECTION WITH INVESTIGATING OR
DEFENDING ANY SUCH LOSS, CLAIM, DAMAGE, LIABILITY OR ACTION; PROVIDED, HOWEVER,
THAT THE COMPANY WILL NOT BE LIABLE IN ANY SUCH CASE IF AND TO THE EXTENT THAT
ANY SUCH LOSS, CLAIM, DAMAGE OR LIABILITY (x) ARISES OUT OF OR IS BASED UPON AN
UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION SO
MADE IN CONFORMITY WITH INFORMATION FURNISHED BY SUCH INVESTOR OR ANY SUCH
CONTROLLING PERSON IN WRITING SPECIFICALLY FOR USE IN SUCH REGISTRATION
STATEMENT OR PROSPECTUS, (y) ARISES OUT OF THE FAILURE OF THE INVESTOR TO COMPLY
WITH THE PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT, PROVIDED THAT THE
COMPANY HAD MET ITS OBLIGATIONS HEREUNDER TO FURNISH THE INVESTOR WITH COPIES OF
THE APPLICABLE PROSPECTUS, OR (z) ARISES OUT OF OR IS BASED UPON SALES BY THE
INVESTOR PURSUANT TO THE REGISTRATION STATEMENT DURING AN ALLOWED DELAY,
PROVIDED THAT THE COMPANY HAD COMPLIED IN ALL RESPECTS WITH THE PROVISIONS OF
SECTION 2(c)(ii) HEREOF.
INDEMNIFICATION BY THE INVESTORS. IN CONNECTION WITH ANY REGISTRATION PURSUANT
TO THE TERMS OF THIS AGREEMENT, THE INVESTOR WILL FURNISH TO THE COMPANY IN
WRITING SUCH INFORMATION AS THE COMPANY REASONABLY REQUESTS CONCERNING THE
HOLDERS OF REGISTRABLE SECURITIES OR THE PROPOSED MANNER OF DISTRIBUTION FOR USE
IN CONNECTION WITH ANY REGISTRATION STATEMENT OR PROSPECTUS AND AGREES,
SEVERALLY BUT NOT JOINTLY, TO INDEMNIFY AND HOLD HARMLESS, TO THE FULLEST EXTENT
PERMITTED BY LAW, THE COMPANY, ITS DIRECTORS, OFFICERS, EMPLOYEES, STOCKHOLDERS
AND EACH PERSON WHO CONTROLS THE COMPANY (WITHIN THE MEANING OF THE 1933 ACT)
AGAINST ANY LOSSES, CLAIMS, DAMAGES, LIABILITIES AND EXPENSE (INCLUDING
REASONABLE ATTORNEY FEES) RESULTING FROM ANY UNTRUE STATEMENT OF A MATERIAL FACT
OR ANY OMISSION OF A MATERIAL FACT REQUIRED TO BE STATED IN THE REGISTRATION
STATEMENT OR PROSPECTUS OR PRELIMINARY PROSPECTUS OR AMENDMENT OR SUPPLEMENT
THERETO OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING, TO THE
EXTENT, BUT ONLY TO THE EXTENT THAT SUCH UNTRUE STATEMENT OR OMISSION IS
CONTAINED IN ANY INFORMATION FURNISHED IN WRITING BY SUCH INVESTOR TO THE
COMPANY SPECIFICALLY FOR INCLUSION IN SUCH REGISTRATION STATEMENT OR PROSPECTUS
OR AMENDMENT OR SUPPLEMENT THERETO. IN NO EVENT SHALL THE LIABILITY OF AN
INVESTOR BE GREATER IN AMOUNT THAN THE DOLLAR AMOUNT OF THE PROCEEDS (NET OF ALL
EXPENSE PAID BY SUCH INVESTOR IN CONNECTION WITH ANY CLAIM RELATING TO THIS
SECTION 5 AND THE AMOUNT OF ANY DAMAGES SUCH HOLDER HAS OTHERWISE BEEN REQUIRED
TO PAY BY REASON OF SUCH UNTRUE STATEMENT OR OMISSION) RECEIVED BY SUCH INVESTOR
UPON THE SALE OF THE REGISTRABLE SECURITIES INCLUDED IN THE REGISTRATION
STATEMENT GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION.
CONDUCT OF INDEMNIFICATION PROCEEDINGS. ANY PERSON ENTITLED TO INDEMNIFICATION
HEREUNDER SHALL (i) GIVE PROMPT NOTICE TO THE INDEMNIFYING PARTY OF ANY CLAIM
WITH RESPECT TO WHICH IT SEEKS INDEMNIFICATION AND (ii) PERMIT SUCH INDEMNIFYING
PARTY TO ASSUME THE DEFENSE OF SUCH CLAIM WITH COUNSEL REASONABLY SATISFACTORY
TO THE INDEMNIFIED PARTY; PROVIDED THAT ANY PERSON ENTITLED TO INDEMNIFICATION
HEREUNDER SHALL HAVE THE RIGHT TO EMPLOY SEPARATE COUNSEL AND TO PARTICIPATE IN
THE DEFENSE OF SUCH CLAIM, BUT THE FEES AND EXPENSES OF SUCH COUNSEL SHALL BE AT
THE EXPENSE OF SUCH PERSON UNLESS (a) THE INDEMNIFYING PARTY HAS AGREED TO PAY
SUCH FEES OR EXPENSES, OR (b) THE INDEMNIFYING PARTY SHALL HAVE FAILED TO ASSUME
THE DEFENSE OF SUCH CLAIM AND EMPLOY COUNSEL REASONABLY SATISFACTORY TO SUCH
PERSON OR (c) IN THE REASONABLE JUDGMENT OF ANY SUCH PERSON, BASED UPON WRITTEN
ADVICE OF ITS COUNSEL, A CONFLICT OF INTEREST EXISTS BETWEEN SUCH PERSON AND THE
INDEMNIFYING PARTY WITH RESPECT TO SUCH CLAIMS (IN WHICH CASE, IF THE PERSON
NOTIFIES THE INDEMNIFYING PARTY IN WRITING THAT SUCH PERSON ELECTS TO EMPLOY
SEPARATE COUNSEL AT THE EXPENSE OF THE INDEMNIFYING PARTY, THE INDEMNIFYING
PARTY SHALL NOT HAVE THE RIGHT TO ASSUME THE DEFENSE OF SUCH CLAIM ON BEHALF OF
SUCH PERSON); AND PROVIDED, FURTHER, THAT THE FAILURE OF ANY INDEMNIFIED PARTY
TO GIVE NOTICE AS PROVIDED HEREIN SHALL NOT RELIEVE THE INDEMNIFYING PARTY OF
ITS OBLIGATIONS HEREUNDER, EXCEPT TO THE EXTENT THAT SUCH FAILURE TO GIVE NOTICE
SHALL MATERIALLY ADVERSELY AFFECT THE INDEMNIFYING PARTY IN THE DEFENSE OF ANY
SUCH CLAIM OR LITIGATION. IT IS UNDERSTOOD THAT THE INDEMNIFYING PARTY SHALL
NOT, IN CONNECTION WITH ANY PROCEEDING IN THE SAME JURISDICTION, BE LIABLE FOR
FEES OR EXPENSES OF MORE THAN ONE SEPARATE FIRM OF ATTORNEYS AT ANY TIME FOR ALL
SUCH INDEMNIFIED PARTIES. NO INDEMNIFYING PARTY WILL, EXCEPT WITH THE CONSENT OF
THE INDEMNIFIED PARTY, CONSENT TO ENTRY OF ANY JUDGMENT OR ENTER INTO ANY
SETTLEMENT THAT DOES NOT INCLUDE AS AN UNCONDITIONAL TERM THEREOF THE GIVING BY
THE CLAIMANT OR PLAINTIFF TO SUCH INDEMNIFIED PARTY OF A RELEASE FROM ALL
LIABILITY IN RESPECT OF SUCH CLAIM OR LITIGATION.
CONTRIBUTION. IF FOR ANY REASON THE INDEMNIFICATION PROVIDED FOR IN THE
PRECEDING PARAGRAPHS (a) AND (b) IS UNAVAILABLE TO AN INDEMNIFIED PARTY OR
INSUFFICIENT TO HOLD IT HARMLESS, OTHER THAN AS EXPRESSLY SPECIFIED THEREIN,
THEN THE INDEMNIFYING PARTY SHALL CONTRIBUTE TO THE AMOUNT PAID OR PAYABLE BY
THE INDEMNIFIED PARTY AS A RESULT OF SUCH LOSS, CLAIM, DAMAGE OR LIABILITY IN
SUCH PROPORTION AS IS APPROPRIATE TO REFLECT THE RELATIVE FAULT OF THE
INDEMNIFIED PARTY AND THE INDEMNIFYING PARTY, AS WELL AS ANY OTHER RELEVANT
EQUITABLE CONSIDERATIONS. NO PERSON GUILTY OF FRAUDULENT MISREPRESENTATION
WITHIN THE MEANING OF SECTION 11(f) OF THE 1933 ACT SHALL BE ENTITLED TO
CONTRIBUTION FROM ANY PERSON NOT GUILTY OF SUCH FRAUDULENT MISREPRESENTATION. IN
NO EVENT SHALL THE CONTRIBUTION OBLIGATION OF A HOLDER OF REGISTRABLE SECURITIES
BE GREATER IN AMOUNT THAN THE DOLLAR AMOUNT OF THE PROCEEDS (NET OF ALL EXPENSES
PAID BY SUCH HOLDER IN CONNECTION WITH ANY CLAIM RELATING TO THIS SECTION 5 AND
THE AMOUNT OF ANY DAMAGES SUCH HOLDER HAS OTHERWISE BEEN REQUIRED TO PAY BY
REASON OF SUCH UNTRUE OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED
OMISSION) RECEIVED BY IT UPON THE SALE OF THE REGISTRABLE SECURITIES GIVING RISE
TO SUCH CONTRIBUTION OBLIGATION.
MISCELLANEOUS.
AMENDMENTS AND WAIVERS. THIS AGREEMENT MAY BE AMENDED ONLY BY A WRITING SIGNED
BY THE COMPANY AND THE INVESTOR. THE COMPANY MAY TAKE ANY ACTION HEREIN
PROHIBITED, OR OMIT TO PERFORM ANY ACT HEREIN REQUIRED TO BE PERFORMED BY IT,
ONLY IF THE COMPANY SHALL HAVE OBTAINED THE WRITTEN CONSENT TO SUCH AMENDMENT,
ACTION OR OMISSION TO ACT, OF THE INVESTOR.
NOTICES. ALL NOTICES AND OTHER COMMUNICATIONS PROVIDED FOR OR PERMITTED
HEREUNDER, OTHER THAN NOTICES SET FORTH IN SECTION 2(c)(i), SHALL BE MADE AS SET
FORTH IN SECTION 9.4 OF THE PURCHASE AGREEMENT.
NONDISCLOSURE. THE COMPANY SHALL NOT DISCLOSE MATERIAL NONPUBLIC INFORMATION TO
THE INVESTOR, OR TO ADVISORS TO OR REPRESENTATIVES OF THE INVESTOR, UNLESS PRIOR
TO DISCLOSURE OF SUCH INFORMATION THE COMPANY IDENTIFIES SUCH INFORMATION AS
BEING MATERIAL NONPUBLIC INFORMATION AND PROVIDES THE INVESTOR, SUCH ADVISORS
AND REPRESENTATIVES WITH THE OPPORTUNITY TO ACCEPT OR REFUSE TO ACCEPT SUCH
MATERIAL NONPUBLIC INFORMATION FOR REVIEW AND ANY INVESTOR WISHING TO OBTAIN
SUCH INFORMATION ENTERS INTO AN APPROPRIATE CONFIDENTIALITY AND STANDSTILL
AGREEMENT WITH THE COMPANY WITH RESPECT THERETO.
ASSIGNMENTS AND TRANSFERS BY INVESTORS. THE PROVISIONS OF THIS AGREEMENT SHALL
BE BINDING UPON AND INURE TO THE BENEFIT OF THE INVESTOR AND ITS RESPECTIVE
SUCCESSORS AND ASSIGNS. THE INVESTOR MAY TRANSFER OR ASSIGN, IN WHOLE OR FROM
TIME TO TIME IN PART, TO ONE OR MORE PERSONS ITS RIGHTS HEREUNDER IN CONNECTION
WITH THE TRANSFER OF REGISTRABLE SECURITIES BY SUCH INVESTOR TO SUCH PERSON,
PROVIDED THAT SUCH INVESTOR COMPLIES WITH ALL LAWS APPLICABLE THERETO AND
PROVIDES WRITTEN NOTICE OF ASSIGNMENT TO THE COMPANY PROMPTLY AFTER SUCH
ASSIGNMENT IS EFFECTED.
ASSIGNMENTS AND TRANSFERS BY THE COMPANY. THIS AGREEMENT MAY NOT BE ASSIGNED BY
THE COMPANY (WHETHER BY OPERATION OF LAW OR OTHERWISE) WITHOUT THE PRIOR WRITTEN
CONSENT OF THE INVESTOR, PROVIDED, HOWEVER, THAT THE COMPANY MAY ASSIGN ITS
RIGHTS AND DELEGATE ITS DUTIES HEREUNDER TO ANY SURVIVING OR SUCCESSOR
CORPORATION IN CONNECTION WITH A MERGER OR CONSOLIDATION OF THE COMPANY WITH
ANOTHER CORPORATION, OR A SALE, TRANSFER OR OTHER DISPOSITION OF ALL OR
SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS TO ANOTHER CORPORATION, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE INVESTOR, AFTER NOTICE DULY GIVEN BY THE COMPANY TO
EACH INVESTOR.
BENEFITS OF THE AGREEMENT. THE TERMS AND CONDITIONS OF THIS AGREEMENT SHALL
INURE TO THE BENEFIT OF AND BE BINDING UPON THE RESPECTIVE PERMITTED SUCCESSORS
AND ASSIGNS OF THE PARTIES. NOTHING IN THIS AGREEMENT, EXPRESS OR IMPLIED, IS
INTENDED TO CONFER UPON ANY PARTY OTHER THAN THE PARTIES HERETO OR THEIR
RESPECTIVE SUCCESSORS AND ASSIGNS ANY RIGHTS, REMEDIES, OBLIGATIONS, OR
LIABILITIES UNDER OR BY REASON OF THIS AGREEMENT, EXCEPT AS EXPRESSLY PROVIDED
IN THIS AGREEMENT.
COUNTERPARTS; FAXES. THIS AGREEMENT MAY BE EXECUTED IN TWO OR MORE COUNTERPARTS,
EACH OF WHICH SHALL BE DEEMED AN ORIGINAL, BUT ALL OF WHICH TOGETHER SHALL
CONSTITUTE ONE AND THE SAME INSTRUMENT. THIS AGREEMENT MAY ALSO BE EXECUTED VIA
FACSIMILE, WHICH SHALL BE DEEMED AN ORIGINAL.
TITLES AND SUBTITLES. THE TITLES AND SUBTITLES USED IN THIS AGREEMENT ARE USED
FOR CONVENIENCE ONLY AND ARE NOT TO BE CONSIDERED IN CONSTRUING OR INTERPRETING
THIS AGREEMENT.
SEVERABILITY. ANY PROVISION OF THIS AGREEMENT THAT IS PROHIBITED OR
UNENFORCEABLE IN ANY JURISDICTION SHALL, AS TO SUCH JURISDICTION, BE INEFFECTIVE
TO THE EXTENT OF SUCH PROHIBITION OR UNENFORCEABILITY WITHOUT INVALIDATING THE
REMAINING PROVISIONS HEREOF BUT SHALL BE INTERPRETED AS IF IT WERE WRITTEN SO AS
TO BE ENFORCEABLE TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AND ANY
SUCH PROHIBITION OR UNENFORCEABILITY IN ANY JURISDICTION SHALL NOT INVALIDATE OR
RENDER UNENFORCEABLE SUCH PROVISION IN ANY OTHER JURISDICTION. TO THE EXTENT
PERMITTED BY APPLICABLE LAW, THE PARTIES HEREBY WAIVE ANY PROVISION OF LAW WHICH
RENDERS ANY PROVISIONS HEREOF PROHIBITED OR UNENFORCEABLE IN ANY RESPECT.
FURTHER ASSURANCES. THE PARTIES SHALL EXECUTE AND DELIVER ALL SUCH FURTHER
INSTRUMENTS AND DOCUMENTS AND TAKE ALL SUCH OTHER ACTIONS AS MAY REASONABLY BE
REQUIRED TO CARRY OUT THE TRANSACTIONS CONTEMPLATED HEREBY AND TO EVIDENCE THE
FULFILLMENT OF THE AGREEMENTS HEREIN CONTAINED.
ENTIRE AGREEMENT. THIS AGREEMENT IS INTENDED BY THE PARTIES AS A FINAL
EXPRESSION OF THEIR AGREEMENT AND INTENDED TO BE A COMPLETE AND EXCLUSIVE
STATEMENT OF THE AGREEMENT AND UNDERSTANDING OF THE PARTIES HERETO IN RESPECT OF
THE SUBJECT MATTER CONTAINED HEREIN. THIS AGREEMENT SUPERSEDES ALL PRIOR
AGREEMENTS AND UNDERSTANDINGS BETWEEN THE PARTIES WITH RESPECT TO SUCH SUBJECT
MATTER.
GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF MINNESOTA
WITHOUT REGARD TO THE CHOICE OF LAW PRINCIPLES THEREOF. EACH OF THE PARTIES
HERETO IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE
STATE OF MINNESOTA LOCATED IN HENNEPIN COUNTY AND THE UNITED STATES DISTRICT
COURT FOR THE DISTRICT OF MINNESOTA FOR THE PURPOSE OF ANY SUIT, ACTION,
PROCEEDING OR JUDGMENT RELATING TO OR ARISING OUT OF THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREBY. SERVICE OF PROCESS IN CONNECTION WITH ANY SUCH
SUIT, ACTION OR PROCEEDING MAY BE SERVED ON EACH PARTY HERETO ANYWHERE IN THE
WORLD BY THE SAME METHODS AS ARE SPECIFIED FOR THE GIVING OF NOTICES UNDER THIS
AGREEMENT. EACH OF THE PARTIES HERETO IRREVOCABLY CONSENTS TO THE JURISDICTION
OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING AND TO THE LAYING OF
VENUE IN SUCH COURT. EACH PARTY HERETO IRREVOCABLY WAIVES ANY OBJECTION TO THE
LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH COURTS
AND IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
* * * * *
IN WITNESS WHEREOF, the parties have executed this Agreement or caused
their duly authorized officers to execute this Agreement as of the date first
above written.
THE COMPANY: HEALTH FITNESS CORPORATION
By: ______________________________
Name: ______________________________
Title ______________________________
THE INVESTOR: BAYVIEW CAPITAL PARTNERS LP
By: Bayview Capital Management LLC
Its: General Partner
By: ______________________________
Name: ______________________________
EXHIBIT G
ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Escrow Agreement"), is dated as of August
___, 2003 by and among ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ Health Care Systems Inc., a New Jersey
corporation ("J&J Health"), Bayview Capital Partners LP, a Delaware limited
partnership ("Bayview"), ▇▇▇▇▇ Fargo Bank, National Association, as lender
("Lender"), and ▇▇▇▇▇ Fargo Bank Minnesota, National Association, as escrow
agent (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, Health Fitness Corporation, a Minnesota corporation ("HFC"),
and J&J Health are parties to that certain Asset Purchase Agreement, dated as of
the date hereof (the "Asset Purchase Agreement"), pursuant to which HFC will
acquire certain assets (the "Acquired Assets") of the Health & Fitness Services
division of J&J Health;
WHEREAS, to induce J&J Health to enter into the Asset Purchase
Agreement, Section 7(a) of the Asset Purchase Agreement provides that, in
connection with the purchase of the Acquired Assets, the sum of Five Million Two
Hundred Fifty Thousand Dollars ($5,250,000.00) (the "Escrow Contribution") shall
be deposited with the Escrow Agent and held by the Escrow Agent in an escrow
account established pursuant to this Escrow Agreement, and subsequently
disbursed in accordance with the terms of this Escrow Agreement;
WHEREAS, the Lender will deposit Two Million Two Hundred and Fifty
Thousand Dollars ($2,250,000) of the Escrow Contribution with the Escrow Agent
and Bayview will deposit Three Million Dollars ($3,000,000) of the Escrow
Contribution with the Escrow Agent; and
WHEREAS, the Escrow Agent has agreed to hold the Escrow Fund (as
defined herein) pursuant to the terms of this Escrow Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINED TERMS
1.1) Defined Terms. Capitalized terms used and not otherwise
defined in this Agreement shall have the meanings assigned to them in the Asset
Purchase Agreement.
1.2) Additional Definitions. The following terms shall have the
following meanings:
"Closing Distribution Notice" means as defined in Section 4.1.
"Escrow Fund" means the Escrow Contribution deposited with the Escrow
Agent pursuant to Section 7(a) of the Asset Purchase Agreement, together with
interest and other earnings and profits upon or in respect of such amount, minus
amounts paid or distributed pursuant to this Agreement.
"Permitted Investments" means as defined in Section 3.1.
"Post-Closing Distribution Notice" means as defined in Section 4.1.
ARTICLE II
ESCROW
2.1) Funds Placed in Escrow. On the date hereof, Lender and Bayview
have deposited the Escrow Contribution with the Escrow Agent. The Escrow Agent
hereby acknowledges receipt of such deposits and accepts delivery of the Escrow
Contribution. The Escrow Agent agrees to hold the Escrow Fund in an escrow
account, subject to the terms and conditions of this Agreement. The escrow
account shall be a trust fund and shall not be subject to any lien, attachment,
trustee process or any other judicial process of any creditor of any party to
this Agreement.
2.2) Repayment; Reimbursement. The Escrow Fund shall be utilized to
pay to J&J Health the Purchase Price at the Closing for the Acquired Assets and
to pay J&J Health any adjusted Purchase Price after the Closing, all as provided
in Section 7(a) of the Asset Purchase Agreement.
2.3) Escrow Taxes. Unless otherwise required by law, J&J Health
will include in its income, for federal, state, local and foreign tax purposes,
that portion of income and gains realized by the Escrow Fund that is disbursed
to J&J Health, and shall pay all income taxes due with respect thereto. HFC will
include in its income, for federal, state, local and foreign tax purposes, that
portion of income and gains realized by the Escrow Fund that is disbursed other
than to J&J Health. As soon as practicable after December 31 of each calendar
year (but in no event later than required by applicable law), the Escrow Agent
shall report, as required by applicable law, income and gains realized by the
Escrow Fund in a manner consistent with this section.
ARTICLE III
INVESTMENT OF FUND
3.1) Permitted Investments; Interest. From the date hereof until
the final disbursement from the Escrow Fund pursuant to Article 4 of this Escrow
Agreement, the Escrow Agent is authorized and directed to invest and reinvest
the Escrow Fund in the ▇▇▇▇▇ Fargo Treasury Plus Money Market Fund (the
"Permitted Investments"). The Escrow Agent hereby represents that the ▇▇▇▇▇
Fargo Treasury Plus Money Market Fund is a money market fund that is rated AAA
or Aaa by Standard & Poor's or Moody's, respectively, and that provides daily
liquidity without penalty. The Permitted Investments and interest accruing on,
and any profit resulting from, such investments shall be added to, and become a
part of, the Escrow Fund pursuant to this Escrow Agreement. For purposes of this
Escrow Agreement, "interest" on the Escrow Fund shall
include all proceeds thereof and investment earnings with respect thereto. The
Permitted Investments shall be registered in the name of the Escrow Agent. The
Escrow Agent shall have full power and authority to sell any and all of the
Permitted Investments held by it under this Escrow Agreement as necessary to
make disbursements under this Escrow Agreement, and may use its bond department
to effect such sales. The Escrow Agent shall not be responsible for any
unrealized profit or realized loss realized on such investments.
ARTICLE IV
RELEASE OF ESCROW ACCOUNT
4.1) Closing of the Asset Purchase Agreement. In connection with
the consummation of the Closing under the Asset Purchase Agreement, J&J Health
and HFC shall deliver to the Escrow Agent, with a copy to Bayview and the
Lender, a notice jointly executed by J&J Health and HFC stating that all
conditions precedent to the Closing of the Asset Purchase Agreement, with the
exception of delivery of the Purchase Price, have been satisfied and not waived
(provided that J&J Health may, in its sole and absolute discretion, waive any
one or more conditions precedent to J&J Health's obligation to consummate the
Closing set forth in Section 11(d)(ii) of the Asset Purchase Agreement), and
setting forth the amount of the Purchase Price to be distributed to J&J Health
in accordance with Section 7(a) of the Asset Purchase Agreement (the "Closing
Distribution Notice"), and the Escrow Agent thereupon shall promptly make a
disbursement to J&J Health from the Escrow Fund in the amount set forth in the
Closing Distribution Notice. Thereafter, at the end of each of the six calendar
months following the month in which the Closing occurs, the Escrow Agent shall
disburse to J&J Health an amount equal to the amount, if any, by which the
Purchase Price as recalculated in accordance with Section 7(a) of the Asset
Purchase Agreement at such month-end exceeds the total Purchase Price
theretofore paid to J&J Health upon the receipt of a notice, with a copy to
Bayview and the Lender, jointly executed by J&J Health and HFC setting forth and
directing the disbursement of any such amount (each a "Post-Closing Distribution
Notice"). Promptly following full payment of all amounts set forth in the
Closing Distribution Notice and all amounts set forth in the Post-Closing
Distribution Notices, any amounts remaining in the Escrow Fund shall be
disbursed to Lender.
4.2) Termination of the Asset Purchase Agreement. On receipt of a
notice jointly executed by J&J Health and HFC stating that the Asset Purchase
Agreement has been terminated (the "Termination Distribution Notice"), the
Escrow Agent shall promptly disburse all amounts in the Escrow Fund to Lender
and to Bayview pro rata based on the percentage of the Escrow Contribution
contributed by each.
4.3) No Closing or Termination. If the Escrow Agent has not
received the Closing Distribution Notice or Termination Distribution Notice on
or before November 30, 2003, the Escrow Agent shall promptly disburse all
amounts in the Escrow Fund to Lender and to Bayview pro rata based on the
percentage of the Escrow Contribution contributed by each.
ARTICLE V
LIABILITY AND COMPENSATION OF ESCROW AGENT
5.1) No Implied Duties. The duties and obligations of the Escrow
Agent hereunder shall be determined solely by the express provisions of this
Escrow Agreement, and no implied duties or obligations shall be read into this
Escrow Agreement against the Escrow Agent. The Escrow Agent shall, in
determining its duties hereunder, be under no obligation to refer to any other
documents between or among the parties related in any way to this Escrow
Agreement (except to the extent that this Escrow Agreement specifically refers
to or incorporates by reference provisions of any other document).
5.2) Indemnification of Escrow Agent. HFC and the Escrow Agent have
entered into a separate letter agreement dated the date hereof relating to
indemnification of the Escrow Agent for certain liability and expense which may
arise out of actions taken or omitted by the Escrow Agent in accordance with
this Escrow Agreement (except such liability and expense as may result from the
gross negligence or willful misconduct of the Escrow Agent).
5.3) Standard of Care; Reliance. The Escrow Agent shall not be
liable to any person by reason of any error of judgment or for any act done or
step taken or omitted by it, or for any mistake of fact or law or anything which
it may do or refrain from doing in connection herewith unless caused by or
arising out of its own gross negligence or willful misconduct. The Escrow Agent
shall be entitled to rely in good faith on, and shall be protected in acting in
reliance in good faith upon, any instructions or directions furnished to it in
writing jointly executed by J&J Health and HFC or by Lender and Bayview, as
applicable, pursuant to any provision of this Escrow Agreement and shall be
entitled to treat as genuine, and as the document it purports to be, any letter,
paper or other document furnished to it by J&J Health and HFC or by Lender and
Bayview, and reasonably believed by the Escrow Agent to be genuine and to have
been signed and presented by the proper party or parties. In performing its
obligations hereunder, the Escrow Agent may consult with counsel to the Escrow
Agent and shall be entitled to rely in good faith on, and shall be protected in
acting in reliance in good faith upon, the advice or opinion of such counsel.
5.4) Compensation of Escrow Agent. The Escrow Agent shall be
entitled to its customary fee for the performance of services by the Escrow
Agent hereunder for each year or portion thereof that any portion of the Escrow
Fund remains in escrow and shall be reimbursed for reasonable costs and expenses
incurred by it in connection with the performance of such services (such fees,
costs and expenses are hereinafter referred to as the "Escrow Agent's
Compensation"). The Escrow Agent's Compensation shall be paid by HFC pursuant to
the terms of a separate letter agreement between the Escrow Agent and HFC dated
the date hereof.
5.5) Resignation and Successor. The Escrow Agent may resign at any
time by giving sixty (60) days written notice to Lender, Bayview and J&J Health;
provided, that such resignation shall not be effective unless and until a
successor Escrow Agent has been appointed and accepts such position pursuant to
the terms of this Section 5.5. In such event, Lender, Bayview and J&J Health
shall jointly appoint a successor Escrow Agent. If a successor Escrow Agent is
not appointed within the 30-day period following such notice, the Escrow Agent
may petition any court of competent jurisdiction to name a successor Escrow
Agent. Such appointment shall be effective on the effective date of the
aforesaid resignation (the "Escrow
Transfer Date"). On the Escrow Transfer Date, all right title and interest to
the Escrow Fund, including interest thereon, shall be transferred to the
successor Escrow Agent and this Escrow Agreement shall be assigned by the Escrow
Agent to such successor Escrow Agent, and thereafter, the resigning Escrow Agent
shall be released from any further obligations hereunder. The Escrow Agent shall
continue to serve until its successor is appointed, assumes this Escrow
Agreement and receives the transferred Escrow Fund.
5.6) Disputes. It is understood and agreed that in the event any
adverse claims or demands are made in connection with the Escrow Fund, or in the
event the Escrow Agent in good faith is in doubt as to what action it should
take hereunder, the Escrow Agent shall retain the Escrow Fund until the Escrow
Agent shall have received (i) an enforceable final order of a court or
arbitrator of competent jurisdiction which is not subject to further appeal
directing delivery of the Escrow Fund or (ii) a written statement jointly
executed by J&J Health and HFC, on the one hand, and Lender and Bayview, on the
other hand, directing delivery of the Escrow Fund, in which event Escrow Agent
shall disburse the Escrow Fund in accordance with such order or agreement. Any
court or arbitrator order referred to in clause (i) immediately above shall be
accompanied by a legal opinion of counsel for the presenting party satisfactory
to the Escrow Agent to the effect that said court or arbitrator order or
judgment is final and enforceable and is not subject to further appeal. The
Escrow Agent shall act on such court or arbitrator order and legal opinion
without further question.
5.7) Limitation on Damages. In no event shall the Escrow Agent be
liable in connection with this Escrow Agreement for any special, indirect or
consequential loss or damage of any kind whatsoever, even if the Escrow Agent
has been previously advised of such loss or damage.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1) Representations by Escrow Agent. The Escrow Agent represents
and warrants to each of the other parties hereto that it is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
formation; that it has the power and authority to execute and deliver this
Escrow Agreement and to perform its obligations hereunder; that the execution,
delivery and performance of this Escrow Agreement by it has been duly authorized
and approved by all necessary action; that this Escrow Agreement constitutes its
legal, valid and binding obligation, enforceable against it in accordance with
its terms; and that the execution, delivery and performance of this Escrow
Agreement by it will not result in a breach of or loss of rights under or
constitute a default under or a violation of any trust (constructive or other),
agreement, judgment, decree, order or other instrument to which it is a party or
by which it or its properties or assets may be bound.
6.2) Representations by J&J Health, Bayview and Lender. J&J Health,
Bayview and Lender each represents to each of the other parties hereto that it
is duly organized, validly existing and in good standing under the laws of its
jurisdiction of formation; that it has the power and authority to execute and
deliver this Escrow Agreement and to perform its obligations hereunder; that the
execution, delivery and performance of this Escrow Agreement by it has been duly
authorized and approved by all necessary action; that this Escrow Agreement
constitutes its
legal, valid and binding obligation, enforceable against it in accordance with
its terms; and that the execution, delivery and performance of this Escrow
Agreement by it will not result in a breach of or loss of rights under or
constitute a default under or a violation of any trust (constructive or other),
agreement, judgment, decree, order or other instrument to which it is a party or
by which it or its properties or assets may be bound.
ARTICLE VII
TERMINATION
7.1) Termination. This Agreement shall terminate on the date all
amounts in the Escrow Fund have been disbursed as provided herein.
ARTICLE VIII
GENERAL
8.1) Other Agreements. Nothing in this Agreement is intended to
limit any of the rights of HFC or J&J Health, or any obligation of HFC or J&J
Health, under the Asset Purchase Agreement (or any agreement entered into in
connection with the transactions contemplated by the Asset Purchase Agreement).
8.2) Governing Law. This Agreement shall be governed by the laws of
the State of Minnesota (regardless of the laws that might otherwise govern under
applicable Minnesota principles of conflicts of law).
8.3) Arbitration.
(i) The parties hereby agree that any dispute shall be
resolved by arbitration before a single arbitrator in
accordance with the Commercial Arbitration Rules of
the American Arbitration Association ("AAA") then
pertaining (available by ▇▇▇.▇▇▇.▇▇▇), except where
those rules conflict with this provision, in which
case this provision controls. Any court with
jurisdiction shall enforce this clause and enter
judgment on any award. The arbitrator shall be
selected within twenty business days from
commencement of the arbitration from the AAA's
National Roster of Arbitrators pursuant to agreement
or through selection procedures administered by the
AAA. Within 45 days of initiation of arbitration, the
parties shall reach agreement upon and thereafter
follow procedures, including limits on discovery,
assuring that the arbitration will be concluded and
the award rendered within no more than eight months
from the selection of the arbitrator, or, failing
agreement, procedures meeting such time limits will
be designed by the AAA and adhered to by the parties.
The arbitration shall be held in Minneapolis,
Minnesota and the arbitrator shall apply the
substantive law of Minnesota, except that the
interpretation and enforcement of this arbitration
provision shall be governed by the Federal
Arbitration Act. Prior to commencement of
arbitration, emergency relief is available from any
court to avoid irreparable harm. THE ARBITRATOR SHALL
NOT AWARD EITHER
PARTY PUNITIVE, EXEMPLARY, MULTIPLIED OR
CONSEQUENTIAL DAMAGES, OR ATTORNEYS' FEES OR COSTS.
(ii) Prior to the commencement of arbitration, the parties
must attempt to mediate their dispute using a
professional mediator from AAA, the CPR Institute for
Dispute Resolution, or like organization selected by
agreement or, absent agreement, through selection
procedures administered by the AAA. Within a period
of 45 days after the request for mediation, the
parties agree to convene with the mediator, with
business representatives present, for at least one
session to attempt to resolve the matter. In no event
will mediation delay commencement of the arbitration
for more than 45 days absent agreement of the parties
or interfere with the availability of emergency
relief.
8.4) Benefit; Successor and Assigns. This Escrow Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns but shall not be assignable by any party hereto
without the written consent of all of the other parties hereto. The parties
acknowledge that HFC is an intended third-party beneficiary of this Escrow
Agreement and that this Escrow Agreement will not be amended without the consent
of HFC. This Escrow Agreement is not intended to confer on any person not a
party hereto, other than HFC pursuant to the immediately preceding sentence, any
rights or remedies hereunder.
8.5) Severability. If any provision of this Agreement, or the
application of such a provision, is for any reason and to any extent invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other circumstances shall be interpreted so as reasonably to effect the
intent of the parties to this Agreement. The parties shall replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that shall achieve, to the greatest extent possible, the economic, business and
other purposes of the void or unenforceable provision.
8.6) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts of it, individually or taken together,
whether delivered via facsimile or otherwise, bear the signatures of all the
parties reflected hereon as signatories.
8.7) Amendment and Waivers. Any term or provision of this Agreement
may be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the party to be bound thereby. Except
with respect to HFC pursuant to Section 8.4, notwithstanding any rights that may
be created in any third party under the terms of this Agreement, no such
amendment or waiver shall require the consent of such third party to be
effective. The waiver by a party of any breach of this Agreement or default in
the performance of any obligations under this Agreement shall not be deemed to
constitute a waiver of any other default or any succeeding breach or default.
8.8) Notices. All notices and other communications hereunder shall
be in writing and shall be delivered personally by commercial courier service or
otherwise, or by telecopier, or by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
If to J&J Health:
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ Health Care Systems Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
If to Escrow Agent:
▇▇▇▇▇ Fargo Bank Minnesota, N.A.
Corporate Trust Services
MAC N9303-110
Sixth and Marquette
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
FAX: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
If to Lender:
▇▇▇▇▇ Fargo Bank, N.A.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇-▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
If to Bayview:
Bayview Capital Partners LP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇. ▇▇▇
Any party may change the above-specified recipient and/or mailing address by
notice to all other parties given in the manner herein prescribed. All notices
shall be deemed given on the day when actually delivered as provided above (if
delivered personally or by telecopy) or on the day shown on the return receipt
(if delivered by mail).
8.9) Construction of Agreement. This Escrow Agreement has been
negotiated by the respective parties hereto and their attorneys and the language
of this Agreement shall not be construed for or against any party. A reference
to a Section shall mean a Section in this Agreement unless otherwise explicitly
set forth. The titles and headings in this Agreement are for reference purposes
only and shall not in any manner limit the construction of this Agreement, which
shall be considered as a whole.
8.10) Further Assurances. Each party agrees to cooperate fully with
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to evidence and reflect the transactions described
in this Escrow Agreement and contemplated by it and to carry into effect the
intents and purposes of this Escrow Agreement.
8.11) Absence of Third Party Beneficiary Rights. No provisions of
this Escrow Agreement are intended, nor shall be interpreted, to provide or
create any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, stockholder or partner of any party to this Escrow
Agreement or any other person or entity unless specifically provided otherwise
in it, and, except as so provided, all provisions of this Escrow Agreement shall
be personal solely among the parties to this Escrow Agreement.
8.12) Entire Agreement. This Escrow Agreement and the Asset Purchase
Agreement and the exhibits and schedules to this Escrow Agreement and to the
Asset Purchase Agreement constitute the entire understanding and agreement of
the parties to this Escrow Agreement with respect to the subject matter of this
Agreement and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect hereto. The express terms of this Escrow
Agreement control and supersede any course of performance or usage of trade
inconsistent with any of the terms of this Escrow Agreement.
IN WITNESS WHEREOF, the parties have executed this Escrow Agreement as
of the date first above written.
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ HEALTH CARE SYSTEMS ▇▇▇▇▇ FARGO BANK MINNESOTA, NATIONAL
INC. ASSOCIATION, AS ESCROW AGENT
By: _________________________________ By: _______________________________
Name: ________________________________ Name: ______________________________
Title: _______________________________ Title: _____________________________
▇▇▇▇▇ FARGO BANK, NATIONAL ASSOCIATION, BAYVIEW CAPITAL PARTNERS LP
AS LENDER
BY: BAYVIEW CAPITAL MANAGEMENT LLC
ITS: GENERAL PARTNER
By: _________________________________ By: _______________________________
Name: ________________________________ Name: ______________________________
Title: _______________________________ Title: _____________________________
EXHIBIT H
▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, P.A.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
August 25, 2003
Bayview Capital Partners LP
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▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇. ▇▇▇
Ladies and Gentlemen:
We have acted as counsel to Health Fitness Corporation, a Minnesota
corporation ("HFC"), in connection with the transactions contemplated by that
certain Securities Purchase Agreement between HFC and the Active Guarantors (as
defined below), on the one hand, and you ("Bayview"), on the other hand, dated
the date hereof (the "Purchase Agreement"). This opinion is given at the request
of HFC pursuant to Section 5.01(d)(vii) of the Purchase Agreement. Capitalized
terms not otherwise defined in this opinion have the same meanings as in the
Purchase Agreement.
We have examined the following documents, each dated the date hereof:
a. the Purchase Agreement;
b. the Bridge Note;
c. the Security Agreement between Bayview and HFC and the
Security Agreement between Bayview and each of Fitness Centers
of America, a California corporation ("FCA"), Health Fitness
Rehab, Inc., a Minnesota corporation ("HF Rehab"), and Health
Fitness Corporation of Canada, Inc., an Alberta corporation
("HFC Canada" and together with FCA and HF Rehab, the "Active
Guarantors"); and
d. the Guaranties (the "Guaranties") given in Bayview's favor by
each Active Guarantor.
All of the foregoing are sometimes collectively referred to herein as the
"Transaction Documents."
We have also examined HFC's Articles of Incorporation and Bylaws and
officer's and secretary's certificates certifying to the adoption of certain
corporate resolutions by HFC's board of directors and committees thereof in
connection with the execution of the Transaction Documents. We have also
examined the Active Guarantors' Articles of Incorporation and Bylaws and
officer's and secretary's certificates certifying to the adoption of certain
corporate resolutions by the Active Guarantors' boards of directors in
connection with the execution of the Transaction Documents.
As to various matters of fact material to this opinion we have relied
upon factual representations made by HFC and the Active Guarantors in the
Transaction Documents and upon certificates of officers and public officials. We
have also examined the originals or copies of such corporate documents and
records and other certificates, opinions and instruments and have made such
other investigation as we have deemed necessary in connection with the opinions
hereinafter set forth.
We have assumed the genuineness of all signatures (other than
signatures of persons signing on behalf of HFC or the Active Guarantors) and
authenticity of all documents submitted to us as originals and the conformity to
original documents of all documents submitted to us as copies. In examining
documents executed by parties other than HFC or the Active Guarantors, we have
assumed that such parties have all necessary power to enter into and perform all
of their obligations thereunder and have also assumed the due authorization by
all requisite action of the execution, delivery and performance of such
documents by such parties and that such documents are legal, valid and binding
on such parties in accordance with their respective terms. We have also assumed
that each natural person executing any Transaction Document has the capacity and
is legally competent to do so.
Our opinion set forth in Paragraph 2 is based solely upon certificates
of good standing (or similar certificates) from the Secretaries of State (or
other appropriate office) of California (dated August 21, 2003), with respect to
FCA; of Minnesota (dated August 21, 2003) with respect to HF Rehab; and Alberta
(dated July 17, 2003) with respect to HFC Canada; and all such opinions are
rendered as of the date of such certificate with respect to such party in such
jurisdiction.
Our opinions expressed below are limited to the law of the State of
Minnesota (excluding its conflict of laws principles), the corporate laws of the
State of California as reported by Aspen Law & Business, a Division of Aspen
Publishers, Inc., in its Corporation Statutes (without examination of any
judicial decisions applicable to the corporate laws of the State of California),
and the substantive law of the United States of America. We express no opinion
as to the laws of any other state or jurisdiction. We express no opinion on any
matter of county, municipal, or special political subdivision law.
References in this opinion to "our knowledge" or the like, mean that in
the course of our representation of HFC no information has come to the attention
of the lawyers working on the transaction contemplated by the Transaction
Documents that gives us current conscious awareness that any such opinions are
not accurate. Except as otherwise expressly stated herein, we have undertaken no
independent investigation or verification of such matters.
Based upon the foregoing, it is our opinion as of this date that:
1. HFC is a corporation duly organized, validly existing and in
good standing under the laws of the State of Minnesota.
2. Each of the Active Guarantors is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation.
3. Each of HFC, HF Rehab and FCA has the corporate power and
authority (a) to own its properties and conduct its business as presently
conducted and (b) to execute and deliver, and to perform its obligations under,
the Transaction Documents to which it is a party.
4. Each of the Transaction Documents to which it is a party has
been duly executed and delivered on behalf of each of HFC and the Active
Guarantors, and constitutes the legal, valid and binding obligation of HFC and
such Active Guarantors, enforceable against HFC and such Active Guarantors in
accordance with its terms.
5. The execution and delivery by HFC, HF Rehab and FCA of the
Transaction Documents to which each is a party, and the performance by HFC, HF
Rehab and FCA of their respective obligations thereunder: (a) have been duly
authorized by all necessary corporate action of HFC, HF Rehab and FCA, as the
case may be; (b) do not conflict with or result in the violation of HFC's, HF
Rehab's or FCA's Articles of Incorporation or Bylaws, as the case may be; (c) do
not result in a breach or other violation by HFC, HF Rehab or FCA, as the case
may be, of any law or regulation applicable to HFC, HF Rehab or FCA, as the case
may be; (d) to our knowledge, do not conflict with or result in the material
violation of any material agreement to which HFC, HF Rehab or FCA is a party, as
the case may be; and (e) to our knowledge, do not result in the creation or
imposition of any Lien upon any assets of HFC, HF Rehab or FCA other than any
Liens granted pursuant to the Transaction Documents.
6. The execution and delivery by HFC Canada of the Transaction
Documents to which it is a party, and the performance by HFC Canada of its
obligations thereunder: (a) do not conflict with or result in the violation of
HFC Canada's Articles of Incorporation or Bylaws; (b) to our knowledge, do not
conflict with or result in the material violation of any material agreement to
which HFC Canada is a party; and (c) to our knowledge, do not result in the
creation or imposition of any Lien upon any assets of HFC Canada, other than any
Liens granted pursuant to the Transaction Documents.
7. To our knowledge, except as set forth in the Purchase
Agreement, there is no pending or overtly threatened action, suit or proceeding
against HFC or any Active Guarantor, which, if adversely determined, would have
a Material Adverse Effect on HFC or any Active Guarantor.
8. No order, consent, approval, license, authorization or
registration with, or exemption by, any governmental body or governmental
authority is necessary for any Loan Party to authorize, execute and deliver the
Transaction Documents to which such Loan Party is a party or to perform all of
the obligations of such Loan Party thereunder to be performed by such Loan
Party at the Bridge Note Closing, including, in the case of HFC, the obligation
to issue the Bridge Note, except for the filing of appropriate financing
statements in the appropriate filing offices.
9. In addition to and not in limitation of the opinions set forth
in paragraph 5 above, the execution and delivery by HFC of the Transaction
Documents to which it is a party, and the performance by HFC of its obligations
thereunder, including, without limitation, the issuance of the Securities to
Bayview, (a) have been duly approved by a committee of the board of directors of
HFC in accordance with Section 302A.673 of the Minnesota Statutes (the "Business
Combination Act"), and (b) such committee has been formed in accordance with the
Business Combination Act and each member of such committee is, to our knowledge,
"disinterested", as defined in the Business Combination Act.
The foregoing opinions are subject to the following qualifications:
a. The opinions expressed above are qualified to the extent that
the legality, validity or enforceability of any provisions of
the Transaction Documents or of any rights granted to Bayview
pursuant to any of those agreements or instruments may be
subject to and affected by applicable bankruptcy (including
but not limited to the avoidance provisions thereof),
insolvency, reorganization, fraudulent transfer or conveyance,
equitable subordination, moratorium or similar laws affecting
the rights of creditors generally.
b. The enforceability of HFC's and the Active Guarantors'
obligations under the Transaction Documents is subject to
general principles of equity, including (without limitation)
concepts of materiality, reasonableness, good faith and fair
dealing (regardless of whether enforceability is considered in
a proceeding in equity or at law).
c. Certain provisions of the Transaction Documents may be
unenforceable, but the inclusion of such provisions therein
does not affect the validity of any such document as a whole
and such documents contain provisions generally considered
adequate for (i) enforcing payment of HFC's and the Active
Guarantors' obligations thereunder and (ii) exercising rights
and remedies customarily available to a secured lender.
d. We express no opinion regarding the title to any property.
e. We express no opinion as to the enforceability of any default
rate of interest or late charge provided for under the
Transaction Documents to the extent held by any court to be a
penalty imposed for the breach of contract.
f. We express no opinion regarding the creation, attachment,
perfection, or priority of any security interest.
g. We have assumed with your permission that Bayview has not been
and will not become (i) an "interested shareholder" (as
defined in the Minnesota Business Corporation Act) of HFC
other than pursuant to the Purchase Agreement and the
transactions contemplated thereby or (ii) an "associate" or
"affiliate" (each as defined in the Minnesota Business
Corporation Act) of an interested shareholder of HFC at any
time.
h. We express no opinion as to the Company's or any other
entity's or person's compliance with federal, state or foreign
securities laws, or exemptions therefrom, in connection with
the offer, issuance, transfer, distribution or other
disposition of any securities involved in the transactions
contemplated by the Purchase Agreement.
i. We express no opinion as to the enforceability of any
provisions indemnifying a party against, or requiring
contributions toward, that party's liability for its own
wrongful or negligent acts, or where indemnification or
contribution is contrary to public policy or prohibited by
law.
This opinion is being delivered to you alone and is solely for your
benefit and the benefit of your participants, successors and assigns and may not
be relied upon by any other person or entity. This opinion is rendered as of the
date first written above, and we assume no obligation to advise you at any time
of facts, circumstances, events or developments that hereafter may occur or be
brought to our attention and that may alter, affect or modify the opinions
expressed herein.
Very truly yours,
▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, P.A.
By:________________________________
Its: Vice President