========================================================
CPS ACQUISITION CORP.
and
CPS SYSTEMS, INC.
NOTE AGREEMENT
Dated as of December 29, 1994
$2,100,000 12% Senior Subordinated Secured Note
Due December 31, 2000
and
Warrant to Purchase
Shares of Common Stock
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TABLE OF CONTENTS
Page
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SECTION 1. INTERPRETATION OF AGREEMENT; DEFINITIONS...................... 1
1.1. Definitions................................................... 1
1.2. Accounting Principles......................................... 11
1.3. Directly or Indirectly........................................ 11
SECTION 2. DESCRIPTION OF NOTE AND COMMITMENT............................ 11
2.1. Description of Note and Warrant............................... 11
2.2. Security for the Note......................................... 11
2.3. Commitment, Closing Date...................................... 11
SECTION 3. PAYMENTS ON THE NOTE.......................................... 12
3.1. Mandatory Payments of Principal............................... 12
3.2. Optional Prepayments of Principal............................. 12
3.3. Notice of optional Principal Prepayments...................... 13
3.4. Payments of Interest.......................................... 13
3.5. Payment Upon Change of Certain Officers....................... 13
3.6. Direct Payment................................................ 14
3.7. Manner of Payment............................................. 14
SECTION 4. REPRESENTATIONS............................................... 14
4.1. Representations of the Company................................ 14
4.2. Representations of Purchaser.................................. 14
SECTION 5. CLOSING CONDITIONS............................................ 14
5.1. Conditions.................................................... 14
5.2. Waiver of Conditions.......................................... 15
SECTION 6. COMPANY COVENANTS............................................. 17
6.1. Corporate Existence, Etc...................................... 17
6.2. Insurance..................................................... 17
6.3. Taxes, Claims for Labor and Materials,
Compliance with Laws........................................ 17
6.4. Maintenance, Etc.............................................. 18
6.5. Nature of Business............................................ 18
6.6. Certain Financial Covenants................................... 18
6.7. Limitation on Liens........................................... 19
6.8. Limitation on Rental Payments, Sale and
Leasebacks.................................................. 20
6.9. Restricted Payment............................................ 20
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6.10. Investments................................................... 21
6.11. Change of Control, Mergers, Consolidation and
Sales of Assets............................................. 21
6.12. Guaranties.................................................... 23
6.13. Greyhound Agreement........................................... 23
6.14. Transaction with Affiliates................................... 23
6.15. Termination of Pension Plans.................................. 23
6.16. Financial Statements, Report and
Rights of Inspection........................................ 24
6.17 Indemnity..................................................... 27
SECTION 7. EVENTS OF DEFAULTS AND REMEDIES THEREFOR...................... 29
7.1. Events of Defaults............................................ 29
7.2. Notice to Purchaser........................................... 30
7.3. Acceleration of Maturities.................................... 30
7.4. Acceleration of Senior Debt................................... 31
SECTION 8. SUBORDINATION OF THE NOTE..................................... 31
SECTION 9. MISCELLANEOUS................................................. 31
9.1. Purchaser's Consent Required.................................. 31
9.2. Loss, Theft, Etc. of Note..................................... 32
9.3. Brokerage and Other Fees...................................... 32
9.4. Powers and Rights Not Waived.................................. 32
9.5. Notices....................................................... 32
9.6. Successors and Assigns........................................ 32
9.7. Survival of Covenants and Representations..................... 33
9.8. Amendments.................................................... 33
9.9. Headings...................................................... 33
9.10. Maximum Interest Rate......................................... 33
9.11. The Company and Acquisition Corp.............................. 33
9.12. Governing Law................................................. 34
EXHIBIT A Form of 12% Subordinated Secured Note
EXHIBIT B Form of Warrant
EXHIBIT C Representations and Warranties of the Company
EXHIBIT D Description of Closing Opinion of Counsel to
the Company and to Acquisition Corp.
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CPS ACQUISITION CORP.
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
NOTE AGREEMENT
$2,100,000 12% Senior Subordinated Secured Note
Due December 31, 2000
and
Warrant to Purchase
Shares of Common Stock
Dated as of
December 29, 1994
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Mezzanine Fund, L.P.
c/▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Capital Partners
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Gentlemen:
Acquisition Corp. has been formed to acquire all outstanding Common
Stock of the Company and, as part of the same transaction, to be merged into the
Company (the "Merger). You (hereafter, "Purchaser") have indicated your
intention to provide a portion of the financing for the stock acquisition: Both
Acquisition Corp. and the Company, by their execution of this Agreement, agree
to be jointly and severally obligated for the Company's obligations hereunder
prior to the effective date of the Merger. Thereafter the Company, as the entity
surviving the Merger, will be the sole obligor hereunder. Accordingly, the term
"Company" herein will refer to both Acquisition Corp. and the Company prior to
the effective date of the Merger and only to the Company after the Merger. The
parties hereby agree.
SECTION 1. INTERPRETATION OF AGREEMENT; DEFINITIONS.
1.1. Definitions. Unless the context otherwise requires, the terms
hereinafter set forth when used herein shall have the following meanings and the
following definitions shall be equally applicable to both the singular and
plural forms of any of the terms herein defined:
"Acquisition Corp." shall mean CPS Acquisition Corp., a Georgia
corporation.
"Affiliate" shall mean any Person (other than a Subsidiary) (a) that
directly or indirectly through one or
more intermediaries controls, or is controlled by, or is under common control
with, the Company, (b) that beneficially owns or holds 5% or more of any class
of the Voting Stock of the Company or (c) 5% or more of the Voting Stock (or in
the case of a Person that is not a corporation, 5% or more of the equity
interest) of which is beneficially owned or held by the Company or a Subsidiary.
The term "control" is defined below.
"Borrowed Indebtedness" shall mean (a) the Greyhound Debt, (b)
Indebtedness evidenced by the Note, and (c) any substitutions or replacements
thereof made with the prior approval of Purchaser.
"Cash Flow" shall mean, for any applicable period, the sum, without
duplication, for such period of;
(a) net income of the Company determined in accordance with
GAAP;
plus
(b) the amount deducted, in determining net income referenced in
clause (a) above, of Interest Expense of the Company determined in accordance
with GAAP;
plus
(c) the amount deducted, in determining net income referenced in
clause (a) above, as depreciation of assets of the Company, determined in
accordance with GAAP;
plus
(d) the amount deducted, in determining net income referenced in
clause (a) above, as amortization of assets of the Company, determined in
accordance with GAAP;
plus
(e) accrued federal and state income tax expenses and other
non-cash expenses;
minus
(f) actual federal and state income taxes paid, items of
non-cash income and actual capital expenditures made.
"Change of Control" shall mean a change in the Control of the Company,
whether occurring through merger, sale of assets or stock, exchange of
Securities, or otherwise, except that a sale or other transfer of Common Stock
or other
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Voting Stock by a Principal Shareholder to another Principal Shareholder shall
not be deemed a "Change of Control."
"Chief Financial Officer" shall mean the Chief Financial Officer of
the Company.
"Closing Date" shall have the meaning set forth in (S) 2.3.
"Collateral" shall mean and include the Company's accounts receivable
and inventory and all outstanding Common Stock held by the Shareholders and all
other property carried by the Collateral Documents.
"Collateral Documents" shall mean and include the Security Agreements.
"Commitment Letter" shall mean the letter dated December 7, 1994
between the Company and Purchaser concerning terms of this Agreement, the
Warrant and other aspects of the transactions contemplated hereby.
The term "Common Stock" shall mean, collectively, (a) the Company's
Common Stock, $.01 par value, (b) any other class of capital stock of the
Company hereafter authorized that is not limited to a fixed sum or percentage of
par or stated value in respect to the rights of the holders thereof to
participate in dividends or in the distribution of assets upon any liquidation,
dissolution or winding up of the Company and (c) any other class or classes of
Voting Stock.
"Company" shall mean Acquisition Corp. and the Company, jointly and
severally, prior to the effective date of the Merger; thereafter, the term shall
mean the Company alone, and any Person who succeeds to all or substantially all
of the assets and business of the Company. Unless the context otherwise
indicates, the term "Company" shall also include, individually and collectively,
any Subsidiary.
"Control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of management and policies of a Person,
whether through ownership of Voting Stock, by contract or otherwise, as term
"control" is more fully defined in Rule 405 under the Securities Act.
"Debt" of any Person shall mean as of the date of any determination
thereof:
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(a) all Indebtedness of such Person for borrowed money evidenced
by notes, bonds, debentures or similar evidences of Indebtedness of such Person,
(b) obligations secured by any Lien upon property or assets
owned by such Person, even though such Person has not assumed or become liable
for the payment of such obligation including, without limitation, obligations
secured by Liens arising from the sale or transfer of notes or accounts
receivable,
(c) obligations created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such
Person, notwithstanding the fact that the rights and remedies of the seller,
lender or lessor under such agreement in the event of default are limited to
repossession or sale of property including, without limitation, obligations
secured by Liens arising from the sale or transfer of notes or accounts
receivable, but, in all events, excluding trade payables and accrued expenses
constituting current liabilities,
(d) reimbursement obligations in respect of credit enhancement
instruments which are, in substance, financial guaranties of the obligations of
Persons other than the Company or its Subsidiaries,
(e) reimbursement obligations in respect of credit enhancement
instruments, which reimbursement obligations are then due and payable,
(f) obligations of such Person representing the deferred and
unpaid purchase price of any property or business or services, excluding trade
payables and accrued expenses constituting current liabilities,
(g) obligations under swaps or other financial ▇▇▇▇▇▇, and
(h) Guaranties of obligations of others of the character
referred to hereinabove in this definition, but not including guaranties of any
Debt described in Clauses (a) through (g).
"Default" shall mean any event or condition the occurrence of which
would, with the lapse of time or the giving of notice, or both, constitute an
Event of Default.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, together with the
regulations thereunder, in
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each case as in effect from time to time. References to sections of ERISA shall
be construed to also refer to any successor sections.
"ERISA Affiliate" shall mean any corporation, trade or business that
is, along with the Company, a member of a controlled group of corporations or a
controlled group of trades or businesses, as described in section 414(b) and
414(c), respectively, of the Code or Section 4001 of ERISA.
"Event of Default" shall have the meaning set forth in (S) 7.1.
"Financing Documents" shall mean and include the Note Agreement, the
Collateral Documents, the Warrant and the Note.
"GAAP" shall mean generally accepted accounting principles at the
time.
"Greyhound" shall mean Greyhound Financial Corporation, a Delaware
corporation.
"Greyhound Agreements" shall mean the two loan agreements dated as of
December 29, 1994 between the Company and Greyhound covering the Senior Debt.
"Greyhound Debt" shall mean all Indebtedness of the Company under the
Greyhound Agreements, such Indebtedness, as to principal, not to exceed (a)
$1,500,000 with respect to the Senior Term Loan and $1 million with respect to
the Revolver Loan, as those terms are defined in the Greyhound Agreements.
"Guaranties" by any Person shall mean all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person quaranteeing, or in effect quaranteeing,
any Indebtedness, dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such Person: (a) to purchase such Indebtedness or obligation or
any property or assets constituting security therefor, (b) to advance or supply
funds (i) for the purchase or payment of such Indebtedness or obligation, or
(ii) to maintain working capital or other balance sheet condition or otherwise
to advance or make available funds for the purchase or payment of such
Indebtedness or obligation, (c) to lease property or to purchase Securities or
other property or services primarily
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for the purpose of assuring the owner of such Indebtedness or obligation of the
ability of the primary obligor to make payment of the Indebtedness or
obligation, or (d) otherwise to assure the owner of the Indebtedness or
obligation of the primary obligor against loss in respect thereof. For the
purposes of all computations made under this Agreement, a Guaranty in respect of
any Indebtedness for borrowed money shall be deemed to be Indebtedness equal to
the principal amount of such Indebtedness for borrowed money that has been
guaranteed, and a Guaranty in respect of any other obligation or liability or
any dividend shall be deemed to be Indebtedness equal to the maximum aggregate
amount of such obligation, liability or dividend.
"Indebtedness" of any Person shall mean and include all obligations of
such Person that in accordance with GAAP is classified upon a balance sheet of
such Person as liabilities of such Person, and in any event includes all Debt.
"Initial Public Offering" shall mean the first issuance of shares of
Common Stock by the Company pursuant to a public distribution in which the
Company Stock shall be listed and traded on a national or regional exchange or
in the NASDAQ over-the-counter market.
"Intangible Assets" shall mean, as of the date of any determination
thereof, the total amount of all goodwill, patents, trade names, trademarks,
copyrights, franchises, experimental expense, organizational expense,
unamortized debt discount and expense, deferred assets other than prepaid
insurance and prepaid taxes, the excess of cost of shares acquired over book
value of related assets and such other assets as are properly classified as
"intangible assets" in accordance with GAAP, of the Company and its
Subsidiaries.
"Intercreditor Agreement" shall mean the Subordination and
Intercreditor Agreement dated as of December 29, 1994 among Greyhound,
Purchaser, Acquisition Corp. and the Company, setting forth certain rights and
obligations of the parties.
"Interest Charges" for any period shall mean all interest and expense
on any particular Indebtedness for which such calculations are being made
(excluding amortization of capitalized interest). Computations of Interest
Charges on a pro forma basis for Indebtedness having a variable interest rate
shall be calculated at the rate in effect on the date of any determination.
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"Investments" shall mean all investments, in cash or by delivery of
property made, directly or indirectly, in any Person, whether by acquisition of
shares of capital stock, indebtedness or other obligations or Securities or by
loan, advance, capital contribution or otherwise; provided, however, that
"Investments" shall not mean or include routine investments in property to be
used or consumed in the ordinary course of business.
"Lease" shall mean any lease of real or personal property, including
office and equipment Lease, under which the Company shall be required to pay
Rentals.
"Lien" shall mean any interest in property securing an obligation
owned to, or a claim by, a Person other than the owner of the property, whether
such interest is based on the common law, statute or contract, and including but
not limited to the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, right-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances (including, with respect to
stock, stockholder agreements, voting trust agreements, buy-back agreements and
all similar arrangements) affecting property. For the purposes of this
Agreement, the Company or a Subsidiary shall be deemed to be the owner of any
property which it has acquired or holds subject to a conditional sale agreement,
capitalized lease or other arrangement pursuant to which title to the property
has been retained by or vested in some other Person for security purposes and
such retention or vesting shall constitute a Lien.
"Merger" shall mean the merger of Acquisition Corp. into the Company,
the effective date of which Merger shall be the date that the Merger is
effective, under the corporate laws of Texas, defined for this purpose to mean
the time and date on which the corporate existence of Acquisition Corp. shall
cease and the Company shall remain as the surviving entity.
"Multiemployer Plan" shall have the same meaning as in ERISA.
"Net Income" for any period shall mean the net income of the Company
excluding (but only to the extent otherwise included):
(a) extraordinary items;
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(b) earnings or losses from sales of fixed or capital assets;
(c) earnings or losses attributable to any period other than the
period of calculation;
(d) earnings or entities that are not Subsidiaries, except to
the extent actually paid in cash;
(e) earnings of any Subsidiary the payment of which is
prohibited by law, rule, regulation or contract; and
(f) earnings attributable to minority interests (meaning shares
of stock of any class of a Subsidiary) that are not owned by the Company.
"Net Revenue" for any period shall mean the net revenue of the Company
before deducting costs and expenses.
"Note" shall have the meaning set forth in (S) 2.1 and shall include
any Note or Notes issued in exchange or in substitution therefor.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Performance-Based Shareholder Bonuses" shall mean cash bonuses
awarded under a written plan the terms of which shall have been approved in
advance by (a) each holder of the Borrowed Indebtedness and (b) the board of
directors of the Company. The awarding of one or more such bonuses without such
prior approval shall be an Event of Default under (S) 7.1(d).
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political subdivision
thereof.
"Plan" means a "pension plan," as such term is defined in ERISA,
established or maintained by the Company or any ERISA Affiliate or as to which
the Company or any ERISA Affiliate contributed or is a member or otherwise may
have any liability.
"Principal Shareholders" shall mean ▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇ ▇. ▇▇▇▇▇▇▇ and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and their respective permitted assignees and successors in
interest.
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"Purchaser" shall mean ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Mezzanine Fund, L.P., a Colorado
limited partnership.
"Rentals" shall mean and include as of the date of any determination
thereof all fixed payments (including as such all payments which the lessee is
obligated to make to the lessor on termination of Leases or surrender of the
property) payable by the Company as lessee or sublessee under Leases of real or
personal property, but shall be exclusive of any amounts required to be paid by
the Company (whether or not designated as rents or additional rents) on account
of maintenance, repairs, insurance, taxes and similar charges. Fixed rents under
any so-called "percentage leases" shall be computed solely on the basis of the
minimum rents, if any, required to be paid by the lessee regardless of sales
volume or gross revenues.
"Reportable Event" shall have the same meaning as in ERISA.
"SBA" shall mean the federal Small Business Administration.
"Security" shall have the same meaning as in Section 2(1) of the
Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar federal statute, and the rules and regulations of the Securities
and Exchange Commission thereunder, all as the same shall be in effect at the
time.
"Security Agreements" shall include the Security Agreement (Stock),
covering Common Stock of the Company pledged hereunder by the Shareholders, and
the Security Agreement (General) covering the Company's accounts, inventory and
other property therein identified, subordinate only to the prior security
interest of Greyhound.
"Senior Debt" of the Company shall mean all Greyhound Debt.
"Shareholders" shall mean the Principal Shareholders plus ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇. and E. ▇▇▇▇ ▇▇▇▇▇.
"Shareholders Agreements" shall mean existing Employment Agreements
between the Company and one or more of the shareholders.
"Shareholders Compensation" shall mean payments by the Company to the
Shareholders in the form of (a) salaries, bonuses (other than Performance-Based
Shareholder Bonuses),
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commissions, directors' fees and similar work-related compensation contemplated
by the Shareholders Agreements and (b) contributions to executive and/or
employee benefit plans that qualify under sections 125 and 401(k) of the
Internal Revenue Code. Reimbursement of reasonable and necessary expense items
shall not be deemed to be "Shareholders Compensation."
The term "subsidiary" shall mean as to any particular parent
corporation any corporation of which more than 50% (by number of votes) of the
Voting Stock shall be beneficially owned, directly or indirectly, by such parent
corporation. The term "Subsidiary" shall mean any direct or indirect subsidiary
of the Company.
"Tangible Assets" shall mean as of the date of any determination
thereof the total amount of all assets of the Company (less depreciation,
depletion and other properly deductible valuation reserves) after deducting
Intangible Assets.
"Tangible Net Worth" shall mean shareholders' equity minus Intangible
Assets.
"Total Contractual Debt Service" shall have the meaning given to such
term in the Greyhound Agreements.
"Voting Stock" shall mean Securities of any class or classes, the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect the corporate directors (or Persons performing similar functions).
"Warrant" shall mean the Warrant described in (S) 2.1 issued by the
Company to Purchaser, a copy of which is attached as Exhibit B.
"Wholly-owned" when used in connection with any Subsidiary shall mean
a Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares) shall be owned directly or
indirectly by the Company.
"Working Capital" shall mean, as of the date of any determination
thereof, (a) current assets of the Company included in such computation of
current assets minus (b) current liabilities of the Company excluding the
payment of current maturities of Borrowed Indebtedness otherwise included in the
computation of current liabilities.
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1.2. Accounting Principles. Where the character or amount of any asset
or liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be done in accordance with GAAP. If
the Company shall at any time have a Subsidiary, the Company's financial
statements and other financial requirements under this Agreement shall be
reported on a consolidated basis.
1.3. Directly or Indirectly. Where any provision in this Agreement
refers to action to be taken by any Person, or which such Person is prohibited
from taking, such provision shall be applicable whether the action in question
is taken directly or indirectly by such Person.
SECTION 2. DESCRIPTION OF NOTE AND COMMITMENT.
2.1. Description of Note and Warrant. The Company will authorize the
issue and sale to Purchaser of (a) its 12% Senior Subordinated Secured Note in
the principal amount of $2,100,000 (the "Note") to be dated the date of issue,
to bear interest from such date at the rate of 12% per annum, payable quarterly
on the 30th day of March, June, September and December in each year (commencing
March 30, 1995) and at maturity and to bear interest on the overdue principal,
if any, and (to the extent legally enforceable) on any overdue installment of
interest at the rate of 19% per annum after the date due, whether by
acceleration or otherwise, until paid, to be expressed to mature on December 31,
2000, and to be substantially in the form attached hereto as Exhibit A and (b) a
Warrant (the "Warrant") substantially in the form of Exhibit B hereto to
purchase shares of Common Stock of the Company. Interest on the Note shall be
computed on the basis of a 360-day year of twelve 30-day months. The Note is not
subject to prepayment or redemption at the option of the Company prior to its
expressed maturity date except on the terms and conditions and in the amounts
and with the premium set forth in (S) 3.
2.2. Security for the Note. The Note shall be secured and supported by
the Collateral covered by the Collateral Documents, which Collateral includes
substantially all assets of the Company and all of the issued and outstanding
Common Stock of the Company. The lien of the Collateral Documents shall be
subordinate and junior to the collateral taken by Greyhound to secure the Senior
Debt.
2.3. Commitment, Closing Date. (a) Subject to the terms and conditions
hereof and on the basis of the
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representations and warranties hereinafter set forth, on the Closing Date the
Company shall issue and sell to Purchaser, and Purchaser shall purchase and
receive from the Company, the Note, at a price equal to the principal amount
thereof.
(b) Delivery of the Note and the Warrant will be made at the
offices of ▇▇▇▇▇▇▇ ▇▇▇▇, Rennaissance ▇▇▇, ▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ (or at such other location as agreed to by the Company and
Purchaser) against payment therefor in immediately available funds in the amount
of the purchase price at 11:00 A.M., Phoenix Time, on December 30, 1994, or such
other date or in such other manner (including manner of payment and transfer of
funds) as shall mutually be agreed upon by the Company and Purchaser (the
"Closing Date"). The Note will be delivered to Purchaser in substantially the
form attached hereto as Exhibit A for the full amount of its purchase,
registered in Purchaser's name or in the name of Purchaser's nominee, all as
Purchaser may specify at any time prior to the Closing Date.
(c) Both GAAP and regulations of the Internal Revenue Service
now in effect require a determination of the value of the Warrant. After taking
into account the general condition of the bond market at this time (including
prevailing interest rates), the exercise price of the Warrant, the restrictions
on transfer and all other matters concerning the Note and the Warrant, the
Company is of the opinion and understands that Purchaser is of the opinion
(based on the information contained in the letter of Shenkin ▇▇▇▇▇ ▇▇▇▇▇ & Co.,
P.C., to Purchaser dated December 29, 1994) that the Warrant would have a value
of not more than $85,680.
SECTION 3. PAYMENTS ON THE NOTE.
Subject to such restrictions as may be imposed by the Intercreditor
Agreement (as long as such agreement is in full force and effect):
3.1. Mandatory Payments of Principal. The Company shall make two
principal payments upon the Note, each in the amount of $1,050,000, one on
December 31, 1999 and the other on December 31, 2000. No premium shall be
required on any mandatory prepayment made pursuant to this (S) 3.1, but any
accrued interest thereon shall be paid at the time of such prepayment.
3.2. Optional Prepayments of Principal. The Company shall have the
right, at any time and from time to time, to prepay the principal indebtedness
evidenced by the Note, in whole or in part (but if in part then in a minimum
principal
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amount of $100,000) by making such prepayment, together with
(a) accrued interest thereon to the date of prepayment and
(b) a premium determined as follows:
If Prepayment
Date Is During the Required Premium
Calendar Year Commencing (% of Prepayment
January 1 Amount)
------------------------ ----------------
1995 3%
1996 2%
1997 1%
1998 -0-
1999 -0-
All prepayments under this (S) 3.2 shall be applied ratably to future principal
payments required under (S) 3.1.
3.3. Notice of Optional Principal Prepayments. The Company shall give
notice to Purchaser of any prepayment of the Note pursuant to (S) 3.2 not less
than 30 days nor more than 60 days before the date fixed for such optional
prepayment specifying (a) such date, (b) the principal amount of the Note to be
prepaid on such date, (c) that a premium may be payable, (d) the date when the
premium will be calculated, (e) the estimated premium, and (f) the accrued
interest applicable to the prepayment. Such notice of prepayment shall also
certify all facts, if any, that are conditions precedent to any such prepayment.
Notice of prepayment having been so given, the amount of the prepayment
(together with accrued thereto) shall become due and payable on the prepayment
date specified in the notice.
3.4. Payments of Interest. To the extent not allowed by the
Intercreditor Agreement, the quarterly payments of interest by the Company
specified in (S) 2.1 shall be added to the principal of the Note and shall bear
interest thereon at the 12% annual rate specified herein and in the Note from
their due dates until paid. Any such delayed payments shall be paid by the
Company promptly after the restrictions of the Intercreditor Agreement have been
removed, either by termination of such agreement or otherwise.
3.5. Direct Payment. Notwithstanding anything to the contrary in this
Agreement or the Note, the Company shall, upon notice from Purchaser, make all
future payments due on the Note (a) directly to Purchaser or its nominee or
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(b) directly to an account in a United States bank designated by Purchaser.
3.6. Manner of Payment. Unless otherwise agreed by the parties, all
payments required hereunder or by the Note shall be in immediately available
funds to such account or accounts as Purchaser shall direct.
SECTION 4. REPRESENTATIONS.
4.1. Representations of the Company. The Company and Acquisition Corp.
each represents and warrants that all representations and warranties set forth
in Exhibit C are true and correct as of the date hereof and are incorporated
herein by reference with the same force and effect as though herein set forth in
full.
4.2. Representations of Purchaser. Purchaser represents, and in
entering into this Agreement the Company understands, that Purchaser is
acquiring the Note and the Warrant for the purpose of investment and not with a
view to the distribution thereof, and that Purchaser has no present intention of
selling, negotiating or otherwise disposing of the Note or the Warrant.
SECTION 5. CLOSING CONDITIONS.
5.1. Conditions. Purchaser's obligation to purchase the Note and the
Warrant on the Closing Date shall be subject to the performance by the Company
of its agreements hereunder that by their terms are to be performed at or prior
to the time of delivery of the Note and the Warrant and to the following further
conditions precedent:
(a) Closing Certificate. Purchaser shall have received a
certificate dated the Closing Date, signed by the President or a Vice President
of the Company, the truth and accuracy of which shall be a condition to
Purchaser's obligation to purchase the Note and the Warrant to the effect that
(i) the representations and warranties of the Company set forth in Exhibit C are
true and correct on and with respect to the Closing date, (ii) the Company has
performed all of its obligations hereunder that are to be performed on or prior
to the Closing Date, and (iii) no Default or Event of Default has occurred and
is continuing.
(b) Legal Opinion. Purchaser shall have received from ▇▇▇▇▇,
▇▇▇▇ & ▇▇▇▇▇▇▇▇, counsel to the Company,
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its opinion dated the Closing Date, in form and substance satisfactory to
Purchaser, and covering the matters set forth in Exhibit D.
(c) Valuation Opinion. Purchaser shall have obtained from Shenkin
▇▇▇▇▇ ▇▇▇▇▇ & Co., P.C., a written opinion as to the valuation of the Warrant in
form and substance satisfactory to Purchaser and its counsel.
(d) Acquisition and Application of Certain Proceeds. Upon or prior to
the issuance and sale of the Note and the Warrant to Purchaser, the Shareholders
shall have acquired all outstanding Common Stock of the Company, upon terms and
conditions and in form and substance satisfactory to Purchaser.
(e) Certain Expenses. Concurrently with the delivery of the Note and
the Warrant on the Closing Date, the Company shall have paid the balance of the
"Processing Fee" and "Eligible Costs" that the Company agreed to pay to
Purchaser pursuant to the terms of the Commitment Letter. Upon receipt of a
supplemental statement within 60 days after the Closing Date, the Company shall
pay such additional "Eligible Costs" as were not reflected in Purchaser's
accounting records at the Closing Date.
(f) SBA Forms. Purchaser shall have received the Company's signature
on SBA Forms 480 and 652 concerning size status and nondiscrimination
requirements, respectively.
(g) Execution of Collateral Documents. The Company shall have
executed, acknowledged and delivered the Collateral Documents and they shall
have been recorded or filed for record in each public office wherein such
recording or filing is deemed necessary or appropriate by Purchaser or its
counsel to perfect the lien thereof as against creditors of or purchasers from
the Company. Without limiting the foregoing, all taxes, fees and other charges
in connection with the execution, delivery, recording and filing of the
foregoing instruments shall have been paid by the Company.
(h) Delivery of Possession. The Company shall have delivered to
Purchaser all securities, evidences of title or other documents, reasonably
necessary for perfecting Purchaser's security interest in any of the Collateral,
appropriately endorsed, if necessary, to perfect or allow perfection of such
security interest.
-15-
(i) Satisfactory Proceedings. All proceedings taken in
connection with the transactions contemplated by this Agreement, and all
documents necessary to the consummation thereof (including, specifically, but
without limitation, the charter and bylaws of the Company), shall be
satisfactory in form and substance to Purchaser and its counsel, and Purchaser
shall have received a copy (executed or certified as may be appropriate) of all
legal documents or proceedings taken in connection with the consummation of such
transactions.
(j) Stock Purchase Transaction. The Shareholders shall have
acquired all outstanding Common Stock, the Merger shall have become affective
under Texas corporate laws, and the Greyhound Agreements shall have been
executed and delivered and, in the case of the term loan thereunder, funds
delivered in the amount therein required. In addition, all indebtedness owed by
the Company to ▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ shall have been paid in full
and the shares of Common Stock pledged thereunder shall have been returned to
the Company to be held as treasury stock.
(k) No Changes. Since September 30, 1994 there shall not have
been any change in the condition, financial or otherwise, of the Company as
shown on the financial statements, of such date, other than those changes in the
ordinary course of business, none of which individually or in the aggregate
shall have been materially adverse.
5.2. Waiver of Conditions. If on the Closing Date the Company fails to
tender the Note and the Warrant to Purchaser or if any of the conditions
specified in (S) 5.1 have not been fulfilled, Purchaser may thereupon elect to
be relieved of all further obligations under this Agreement. Without limiting
the foregoing, if any of the conditions specified in (S) 5.1 have not been
fulfilled, Purchaser may waive compliance by the Company with any such condition
to such extent as Purchaser may in its sole discretion determine. Nothing in
this (S) 5.2 shall operate to relieve the Company of any of its obligations
hereunder or to waive any of Purchaser's rights against the Company.
-16-
SECTION 6. COMPANY COVENANTS.
Except with prior approval of Purchaser, from and after the Closing
Date and continuing so long as any amount remains unpaid on the Note:
6.1. Corporate Existence, Etc. The Company shall preserve and keep in
full force and effect its corporate existence and all licenses and permits
necessary to the proper conduct of its business, provided that the foregoing
shall not prevent any transaction permitted by (S) 6.11.
6.2. Insurance. (a) The Company shall maintain, and shall cause any
Subsidiary to maintain, insurance coverage by financially sound and reputable
insurers and in such forms and amounts and against such risks as are customary
for corporations of established reputation engaged in the same or a similar
business and owning and operating similar properties, including such insurance
as may be required by the Greyhound Agreement.
(b) In addition to the foregoing, within 60 days after the date
of this Agreement, the Company shall purchase, maintain and own life insurance
policies (which shall be satisfactory in form and substance to Purchaser and
shall be issued by life insurance companies satisfactory to Purchaser) covering
the following Shareholders in the respective amounts set forth opposite their
names) naming Greyhound and Purchaser, in that order, as beneficiaries:
Insured Person Amount of Insurance
-------------- -------------------
▇▇▇▇ ▇. ▇▇▇▇ $1 million
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇. $1 million
6.3. Taxes, Claims for Labor and Materials, Compliance with Laws. The
Company shall promptly pay and discharge all lawful taxes, assessments and
governmental charges or levies imposed upon the Company or upon or in respect of
all or any part of the property or business of the Company, all trade accounts
payable in accordance with usual and customary business terms, and all claims
for work, labor or materials, which if unpaid might become a Lien upon any
property of the Company; provided the Company shall not be required to pay any
such tax, assessment, charge, levy, account payable or claim if (i) the
validity, applicability or amount thereof is being contested in good faith by
appropriate actions or proceedings that will prevent the forfeiture or sale of
any property of the Company or such Subsidiary or any material interference with
the use thereof by the Company or
-17-
such Subsidiary, or (ii) the Company or such Subsidiary shall set aside on its
books, reserves deemed by it to be adequate with respect thereto. The Company
shall promptly comply and shall cause each such Subsidiary to comply in all
material respects with all laws, ordinances or governmental rules and
regulations to which it is subject including, without limitation, the
Occupational Safety and Health Act of 1970, as amended, ERISA and all
environmental laws, the violation of which could materially and adversely affect
the properties, business, prospects, profits or condition of the Company or
would result in any Lien not permitted under (S) 6.7.
6.4. Maintenance, Etc. The Company shall maintain, preserve and keep
its properties that are used or useful in the conduct of its business (whether
owned in fee or a leasehold interest) in good repair and working order and from
time to time shall make all necessary repairs, replacements, renewals and
additions so that at all times the efficiency thereof shall be maintained.
6.5. Nature of Business. The Company shall not engage in any business
if, as a result, the general nature of the business that would then be engaged
in by the Company would be substantially changed from the general nature of the
business engaged in by the Company on the date of this Agreement.
6.6. Certain Financial Covenants. The Company, on a consolidated
basis, shall at all times maintain the following ratios and standards on a
four-quarter rolling average basis:
(a) A minimum current ratio (the ratio of current assets to
current liabilities minus obligations under the Greyhound Revolver Loan) of not
less than 1.1-to-1.
(b) Indebtedness for borrowed money shall include only the
Borrowed Indebtedness.
(c) A ratio of Cash Flow to Total Contractual Debt Service of at
least 1-to-1. Compliance with this covenant shall be measured quarterly
throughout the term of the Indebtedness hereunder on a trailing 12-month basis,
except that during the first three quarters of 1995 this covenant shall be
measured with reference back to the Closing Date.
(d) Shareholders Compensation shall not exceed $300,000 in each
fiscal year.
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6.7. Limitation on Liens. The Company shall not create or incur, or
suffer to be incurred or to exist, any Lien on its property or assets, whether
now owned or hereafter acquired, or upon any income or profits therefrom, or
transfer any property for the purpose of subjecting the same to the payment of
obligations in priority to the payment of its general creditors, or acquire or
agree to acquire any property or assets upon conditional sales agreements or
other title retention devices, except:
(a) Liens for property taxes and assessments or governmental
charges or levies and Liens securing claims or demands of mechanics and
materialmen, and Liens on deposits securing contested taxes and/or import
duties, provided that payment thereof is not at the time required by (S) 6.3;
(b) Liens of or resulting from any judgment or award, the time
for the appeal or petition for rehearing of which shall not have expired, or in
respect of which the Company or a Subsidiary shall at any time in good faith be
prosecuting an appeal or proceeding for a review and in respect of which a stay
of execution pending such appeal or proceeding for review shall have been
secured;
(c) Liens incidental to the conduct of business or the ownership
of properties and assets (including Liens in connection with worker's
compensation, unemployment insurance and other like laws, carriers',
warehousemen's and attorneys' liens and statutory landlords' liens) and Liens to
secure the performance of bids, tenders or trade contracts, or to secure
statutory obligations, surety or appeal bonds or other Liens of like general
nature incurred in the ordinary course of business and not in connection with
the borrowing of money, provided in each case, the obligation secured is not
overdue or, if overdue, is being contested in good faith by appropriate actions
or proceedings;
(d) Liens incurred after the Closing Date given to secure the
payment of the purchase price incurred in connection with the acquisition after
the Closing Date of fixed assets useful and intended to be used in carrying on
the business of the Company, including Liens existing on such fixed assets at
the time of acquisition thereof or at the time of acquisition by the Company of
any business entity then owing such fixed assets, whether or not such existing
Liens were given to secure the payment of the purchase price of the fixed assets
to which they attach so long as they were not incurred, extended or renewed in
contemplation of such acquisition, provided that (i) the Lien shall attach
solely to the fixed assets acquired or purchased, (ii) at the time of
-19-
acquisition of such fixed assets, the aggregate amount remaining unpaid on all
Indebtedness secured by Liens on such fixed assets whether or not assumed by the
Company shall not exceed an amount equal to the lesser of the total purchase
price or fair market value at the time of acquisition of such fixed assets (as
determined in good faith by the Chief Financial Officer of the Company), and
(iii) the aggregate unpaid principal amount of all Debt of the Company secured
by any Lien shall have been incurred within the applicable limitations set forth
in (S) 6.6; or
(e) Liens retained by International Business Machines
Corporation pursuant to the Value Added Reseller Agreement dated March 27, 1990,
between it and the Company or by another hardware manufacturer under any similar
agreement between it and the Company; or
(f) Liens on property securing the Borrowed Indebtedness.
6.8. Limitation on Rental Payments, Sale and Leasebacks. (a) The
Company shall not become obligated, as lessee, under any Lease if, at the time
of entering into such Lease and after giving effect thereto, the aggregate
Rentals payable by the Company in any one fiscal year under all Leases would
exceed $300,000 plus 5% of Net Revenues for such fiscal year.
(b) The Company shall not enter into any arrangement whereby the
Company shall sell or transfer any property owned by the Company to any Person
other than the Company and thereupon the Company shall lease or intend to lease,
as lessee, the same property (a "Sale-Leaseback").
6.9. Restricted Payment. The Company shall not, except as hereinafter
provided:
(a) Declare or pay any dividends (except dividends or other
distributions payable solely in shares of capital stock of the Company);
(b) Directly or indirectly purchase, redeem or retire any shares
of its capital stock of any class or any warrants (other than the Warrant or
Restricted Stock, as defined in the Warrant); or
(c) Make any other payment or distribution, either directly or
indirectly or through any Subsidiary, in respect of its capital stock.
-20-
6.10. Investments. The Company shall not make any Investments, other
than:
(a) Investments by the Company in and to Subsidiaries,
including any Investment in a corporation which, after giving effect to such
Investment, will become a Subsidiary;
(b) Investments in commercial paper maturing in 270 days or
less from the date of issuance which, at the time of acquisition by the Company
or any Subsidiary, is accorded the highest rating by Standard & Poor's
Corporation, ▇▇▇▇▇'▇ Investors Service, Inc. or other nationally recognized
credit rating agency of similar standing;
(c) Investments in direct obligations of the United States of
America or any agency or instrumentality of the United States of America, the
payment or guarantee of which constitutes a full faith and credit obligation of
the United States of America, in either case, maturing in 12 months or less from
the date of acquisition thereof;
(d) Investments in certificates of deposit maturing within one
year from the date of issuance thereof, issued by a bank or trust company
organized under the laws of the United States or any state thereof, having
capital, surplus and undivided profits aggregating at least $100,000,000 and
whose long-term certificates of deposit are, at the time of acquisition thereof
by the Company or a Subsidiary, rated AA or better by Standard & Poor's
Corporation or Aa or better by ▇▇▇▇▇'▇ Investors Service, Inc.; and
(e) Receivables arising from the sale of goods and services in
the ordinary course of business of the Company and its Subsidiaries.
For purposes of this (S) 6.10, at any time when a corporation becomes
a Subsidiary, all Investments of such corporation at such time shall be deemed
to have been made by such corporation, as a Subsidiary, at such time.
6.11. Change of Control, Mergers, Consolidations and Sales of Assets.
Except with respect to the Merger, (a) The Company shall not (i) cause or allow
a Change of Control, (ii) consolidate with or be a party to a merger with any
other corporation, or (iii) sell, lease or otherwise dispose of all or any
substantial part (as defined in paragraph (c) of this (S) 6.11) of the assets of
the Company and its Subsidiaries, provided, however, that:
-21-
(A) any Subsidiary may merge or consolidate with or into
the Company or any Wholly-owned Subsidiary so long as
in any merger or consolidation involving the Company,
the Company shall be the surviving or continuing
corporation;
(B) the Company may consolidate or merge with any other
corporation if (1) the Company shall be the surviving
or continuing corporation and (2) at the time of such
consolidation or merger and after giving effect thereto
no Default or Event of Default shall have occurred and
be continuing; and
(C) any Subsidiary may sell, lease or otherwise dispose of
all or any substantial part of its assets to the
Company or any Wholly-owned Subsidiary.
(b) The Company shall not permit any Subsidiary to issue or sell
any shares of stock of any class (including as "stock" for the purposes of this
(S) 6.11, any warrants, rights or options to purchase or otherwise acquire stock
or other Securities exchangeable for or convertible into stock) of such
Subsidiary to any Person other than the Company or a Wholly-owned Subsidiary,
except in satisfaction of the Validly pre-existing preemptive rights of minority
shareholders in connection with the simultaneous issuance of stock to the
Company and/or a Subsidiary whereby the Company and/or such Subsidiary maintain
their same proportionate interest in such Subsidiary.
(c) As used in this (S) 6.11, a sale, lease or other disposition
of assets shall be deemed to be a "substantial part" of the assets of the
Company only if (i) the book value of such assets, when added to the book value
of all other assets sold, leased or otherwise disposed of by the Company (other
than in the ordinary course of business) during the same fiscal year, exceeds
10% of Tangible Assets, determined as of the end of the immediately preceding
fiscal year or if (ii) the book value of such assets when added to the book
value of all other assets sold, leased or otherwise disposed of by the Company
(other than in the ordinary course of business) after the Closing Date, exceeds
25% of Tangible Assets, determined as of the end of the immediately preceding
fiscal year. For the purpose of making any determination of "substantial part"
sales of assets in
-22-
excess of the foregoing restrictions shall be excluded if the Company offers to
apply as a prepayment of the principal amount of the Note the amount of such
excess sales and makes such payment if Purchaser accepts the Company's offer in
accordance with the terms of such offer. Any such payment shall be treated as an
optional prepayment under (S) 3.2 and shall be accompanied by the payment of a
premium as therein set forth.
6.12. Guaranties. The Company shall not, and shall not permit any
Subsidiary to, become or be liable in respect of any Guaranty except (a)
Guaranties of the Company or any Subsidiary incurred in the ordinary course of
business and which are not Guaranties of Debt or (b) Guaranties of the Company
included in Debt which are limited in amount to a stated maximum dollar exposure
which are otherwise permitted by the provisions of this Agreement.
6.13. Greyhound Agreement. The Company shall not cause or permit any
waiver, amendment, consent or modification of the terms of the Greyhound
Agreement that would have a materially adverse effect upon Purchaser's benefits
and relative relationships under this Agreement and the Warrant.
6.14. Transactions with Affiliates. (a) The Company shall not enter
into or be a party to any transaction or arrangement with any Affiliate
(including, without limitation, the purchase from, sale to or exchange of
property with, or the rendering of any service by or for, any Affiliate), except
in the ordinary course of and pursuant to the reasonable requirements of the
Company's business and upon fair and reasonable terms no less favorable to the
Company than would be obtained in a comparable arm's-length transaction with a
Person other than an Affiliate.
(b) The Company shall not enter into any employment,
management, consulting or benefit programs of any type with or with respect to
the Principal Shareholders, other than the Shareholders Agreements. The
Shareholders Agreements shall not be amended in any material respect without the
prior consent of Purchaser.
6.15. Termination of Pension Plans. The Company shall not and shall
not permit any Subsidiary to withdraw from any Multiemployer Plan or permit any
employee benefit plan maintained by it to be terminated if such withdrawal or
termination could result in withdrawal liability in excess of $50,000 (as
described in Part 1 of Subtitle E of Title IV of ERISA) or the imposition of a
Lien on any property of the Company or any Subsidiary pursuant to Section 4608
of ERISA.
-23-
6.16. Financial Statements, Reports and Rights of Inspection. The
Company shall keep proper books of record and account in which full and correct
entries will be made of all dealings or transactions of, or in relation to, the
business and affairs of the Company, in accordance with GAAP consistently
applied (except for changes disclosed in the financial statements furnished to
Purchaser pursuant to this (S) 6.16 and concurred in by the independent public
accountants referred to in paragraph (c) hereof), and shall furnish to Purchaser
so long as Purchaser is the holder of the Note:
(a) Monthly Statements. As soon as available and in any event
within 30 days after the end of each monthly fiscal period (except the last such
monthly period) of each fiscal year, copies of:
(i) balance sheet of the Company as of the close of such
monthly fiscal period, and, beginning with the monthly fiscal period ending
on January 31, 1995, setting forth in comparative form the projected budget
figures for such monthly period and the figures for the fiscal year then
most recently ended.
(ii) statement of income of the Company for such monthly
fiscal period and for the portion of the fiscal year ending with such
monthly fiscal period, in each case setting forth in comparative form the
projected budget figures for such periods and the figures for the
corresponding periods of the preceding fiscal year, and
(iii) statement of cash flow of the Company, for such
monthly fiscal period and the portion of the fiscal year ending with such
monthly fiscal period, setting forth in comparative form the projected
budget figures for such period and the figures for the corresponding period
of the preceding fiscal year,
all in reasonable detail and certified as complete and correct by the Chief
Financial Officer.
(b) Quarterly Statements. As soon as available and in any event
within 30 days after the end of each quarterly fiscal period of each fiscal
year, copies of:
(i) balance sheets of the Company as of the close of such
quarterly fiscal period, setting forth in comparative form the projected
budget figures for such period and the figures for the fiscal year then
most recently ended,
-24-
(ii) statement of income of the Company for such quarterly
fiscal period and for the portion of the fiscal year ending with such
quarterly fiscal period, in each case setting forth in comparative form the
projected budget figures for such periods and the figures for the
corresponding periods of the preceding fiscal year, and
(iii) statement of cash flow of the Company for such
quarterly fiscal period and for the portion of the fiscal year ending with
such quarterly fiscal period, setting forth in comparative form the
projected budget figures for such period and the figures for the
corresponding period of the preceding fiscal year,
all in reasonable detail and certified as complete and correct by the Chief
Financial Officer.
(c) Annual Statements. As soon as available and in any event
within 90 days after the close of each fiscal year of the Company, copies of the
balance sheets of the Company as of the close of such fiscal year, and
statements of income and retained earnings and cash flow of the Company for such
fiscal year, in each case setting forth in comparative form the projected budget
figures for such periods and the figures for the preceding fiscal year, all in
reasonable detail and accompanied by a report thereon of a firm of independent
public accountants of recognized national standing selected by the Company to
the effect that the financial statements present fairly, in all material
respects, the financial position of the Company as of the end of the fiscal year
being reported on and the results of the operations and cash flow for said year
in conformity with GAAP and that the examination of such accountants in
connection with such financial statements has been conducted in accordance with
generally accepted auditing procedures as said accountants deemed necessary in
the circumstances.
(d) Budget and Projections. As soon as practicable and in any
event prior to 30 days following the commencement of each new fiscal year,
reasonably detailed statements showing projected revenues, expenses, income and
capital expenditures for the Company for such fiscal year.
(e) Audit Reports. Promptly upon their becoming available, one
copy of each interim or special audit made by independent accountants of the
books of the Company and any management letter received from such accountants.
(f) Income Tax Returns. As soon as practicable after filing with
the Internal Revenue Service, complete
-25-
copies of all federal income tax returns, excluding all schedules thereto.
(g) SEC and Other Reports, if Applicable. Promptly upon receipt
thereof, one copy of each financial statement, report, notice or proxy statement
sent by the Company to shareholders generally and of each regular or periodic
report, and any registration statement or prospectus filed by the Company or any
Subsidiary with any securities exchange or the Securities and Exchange
Commission or any successor agency, and copies of any orders in any proceedings
to which the Company is a party, issued by any governmental agency, federal or
state, having jurisdiction over the Company.
(h) ERISA Reports, if Applicable. Promptly upon the occurrence
thereof, written notice of (i) a Reportable Event with respect to any Plan; (ii)
the institution of any steps by the Company, any ERISA Affiliate, the PBGC or
any other person to terminate any Plan; (iii) the institution of any steps by
the Company or any ERISA Affiliate to withdraw from any Plan; (iv) a non-exempt
"prohibited transaction" within the meaning of section 406 of ERISA in
connection with any Plan; (v) any material increase in the contingent liability
of the Company with respect to any post-retirement welfare liability; or (vi)
the taking of any action by, or the threatening of the taking of any action by,
the Internal Revenue Service, the Department of Labor of the PBGC with respect
to any of the foregoing.
(i) Officer's Certificates. Within the periods provided in
paragraphs (b) and (c) above, a certificate of the Chief Financial Officer
stating that such officer has reviewed the provisions of this Agreement and
setting forth: (i) the information and computations (in sufficient detail)
required in order to establish whether the Company was in compliance with the
requirements of (S) 6 at the end of the period covered by the financial
statements then being furnished, and (ii) whether there existed as of the date
of such financial statements and whether, to the best of such officer's
knowledge, there exists on the date of the certificate or existed at any time
during the period covered by such financial statements any Default or Event of
Default and, if any such condition or event exists on the date of the
certificate, specifying the nature and period of existence thereof and the
action the Company is taking and proposes to take with respect thereto.
(j) Accountant's Certificates. Within the period provided in
paragraph (c) above, a certificate of the accountants who render an opinion with
respect to such
-26-
financial statements, stating that they have reviewed this Agreement and stating
further whether, in making their audit, such accountants have become aware of
any Default or Event of Default under any of the terms or provisions of this
Agreement insofar as any such terms or provisions pertain to or involve
accounting matters or determinations, and if any such condition or event then
exists, specifying the nature and period of existence thereof.
(k) Requested Information. With reasonable promptness, such
other data and information as Purchaser may reasonably request. Without limiting
the foregoing, upon reasonably notice the Company shall permit Purchaser (or
such Persons as Purchaser may designate, including representations of the SBA)
to visit and inspect any of the properties of the Company or any Subsidiary, to
examine all of their books of account, records, reports and other papers, to
make copies and extracts therefrom and to discuss their respective affairs,
finances and accounts with their respective officers and independent public
accountants (and by this provision the Company authorizes such accountants to
discuss with Purchaser the finances and affairs of the Company), all at such
reasonable times and as often as may be reasonably requested. In particular, the
Company shall allow a reasonable visit and review by Purchaser or its
representatives within 90 days after the Closing Date for the purpose of
ascertaining that proceeds of its Note purchase were used as specified in
paragraph 12 of Exhibit C.
6.17. Indemnity. The Company shall reimburse and pay purchaser for all
fees, costs and expenses (including, without limitation, reasonable attorneys'
fees, court costs and reasonable legal expenses and consultants' and experts'
fees and expenses), incurred or expended in connection with (a) the breach by
the Company of any representation or warranty contained in any of the Financing
Documents, (b) the failure by the Company to perform any agreement, covenant,
condition, indemnity or obligation contained in any of the Financing
Documents, (c) Purchaser's exercise of any of its rights and remedies under any
of the Financing Documents, or (d) the protection of the Collateral and the
liens thereon and security interests therein. The Company shall indemnify and
hold harmless Purchaser and any Persons owned or controlled by or affiliated
with Purchaser, and their respective directors, officers, shareholders,
partners, employees, consultants and agents (herein individually called an
"Indemnified Party," and collectively called "Indemnified Parties") from and
against, and reimburse and pay Indemnified Parties with respect to, any and all
claims, demands, liabilities, losses, damages (including without limitation,
actual, consequential,
-27-
exemplary and punitive damages), causes of action, judgments, penalties, fees,
costs and expenses (including, without limitation, reasonable attorneys' fees,
court costs and reasonable legal expenses and consultants' and experts' fees and
expenses), of any and every kind or character, known or unknown, fixed or
contingent, that may be imposed upon, asserted against or incurred or paid by or
on behalf of any Indemnified Party on account of, in connection with, or arising
out of (i) any bodily injury or death or property damage occurring in or upon or
in the vicinity of any Company office or the Collateral through any cause
whatsoever, (ii) any act performed or omitted to be performed hereunder or the
breach of or failure to perform any warranty, representation, indemnity,
covenant, agreement or condition contained in any of the Financing Documents,
(iii) any transaction, act, omission, event or circumstance arising out of or in
any way connected with the Collateral or with any of the Financing Documents,
and (iv) the violation of or failure to comply with any statute, law, rule,
regulation or order now existing or hereafter occurring, including, without
limitation, environmental laws and statutes, laws, rules, regulations and orders
relating to pollutants, contaminants, wastes or hazardous, dangerous or toxic
substances. Without limiting the generality of the foregoing, it is the
intention of Borrower and Borrower agrees that the foregoing indemnities shall
apply to each Indemnified Party with respect to claims, demands, liabilities,
losses, damages (including, without limitation, actual, consequential, exemplary
and punitive damages), causes of action, judgments, penalties, fees, costs and
expenses (including without limitation, reasonable attorneys' fees, court costs
and reasonable legal expenses and consultants' and experts' fees and expenses)
of any and every kind or character, known or unknown, fixed or contingent, that
in whole or in part are caused by or arise out of the negligence of such
Indemnified Party. Notwithstanding the foregoing, such indemnities shall not
apply to any Indemnified Party to the extent the subject of the Indemnification
is caused by or arises out of the gross negligence or willful misconduct of such
Indemnified Party. The foregoing indemnities shall not terminate upon release,
foreclosure or other termination of the Collateral Documents, but shall survive
foreclosure of the liens and security interests created by the Documents or
conveyance in lieu of foreclosure and the payment of the Note and the discharge
and release of the liens and security interest created by the Financing
Documents. Any amount to be paid hereunder by the Company to Purchaser or for
which the Company has indemnified an Indemnified Party shall be a demand
obligation owing by Borrower to Lender, shall bear interest at the default rate
specified in the Note (19%) until paid, and shall constitute a part of the
Indebtedness secured and evidenced by the Collateral Documents.
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SECTION 7. EVENTS OF DEFAULT AND REMEDIES THEREFOR.
7.1 Events of Default. Any one or more of the following shall
constitute an "Event of Default" as such term is used herein:
(a) Default shall occur in the payment of interest on the Note
when the same shall have become due; or
(b) Default shall occur in the making of any payment of the
principal of the Note or premium thereon, if any, at the expressed or any
accelerated maturity data or at any date fixed for prepayment; or
(c) Default shall be made in the payment when due (whether by
lapse of time, by declaration, by call for redemption or otherwise) of the
principal of or interest on any Debt (other than the Note) of the Company and
such default shall continue beyond the period of grace, if any, allowed with
respect thereto; or
(d) Default or the happening of any event shall occur under any
indenture, agreement or other instrument under which any Debt of the Company may
be issued and such default or event shall continue for a period of time
sufficient to permit the acceleration of the maturity of any Debt of the company
outstanding thereunder; or
(e) Default shall occur in the observance or performance of any
covenant or agreement contained in (S)(S) 6.1, 6.2, 6.3, 6.6, 6.8, 6.9, 6.11,
6.13, 6.16(a) through (f) and (k), and 6.17; or
(f) Default shall occur in the observance or performance of any
other provision of this Agreement or any other Financing Document that is not
remedied within 30 days after the earlier of (i) the day on which the Company
first obtains knowledge of such default, or (ii) the day on which notice thereof
is given to the Company by Purchaser, provided that such failure shall not be an
Event of default if the nature of the failure cannot be cured within 30 days and
Company has commenced curative action within such 30-day period and is
proceeding in good faith and by appropriate action to its completion; or
(g) The Company's representation and warranty in paragraph 12
of Exhibit C, involving the use of net proceeds from the sale of the Note to
purchase Common Stock, shall prove to be untrue, in that such proceeds or a
material portion thereof were diverted to another use without Purchaser's prior
consent; or
-29-
(h) Any other material representation or warranty made by the
company herein or in any other Financing Document, or made by the Company in any
statement or certificate furnished by the Company in connection with the
consummation of the issuance and delivery of the Note or the warrant or
furnished by the Company pursuant hereto or pursuant to any Financing Document,
is untrue in any material respect as of the date of the issuance or making
thereof; or
(i) Final judgement or judgements for the payment of money
aggregating in excess of $100,000 is or are outstanding against the Company or
against any of its property or assets and any one of such judgments has
remained unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a
period of 30 days from the date of its entry; or
(j) A custodian, liquidator, trustee or receiver is appointed
for the Company or for the major part of its property and is not discharged
within 30 days after such appointment; or
(K) The Company becomes insolvent or bankrupt, is generally not
paying its debts as they become due or makes an assignment for the benefit of
creditors, or the Company applies for or consents to the appointment of a
custodian, liquidator, trustee or receiver for the Company or for the major part
of its property, or
(l) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar law
or laws for the relief of debtors, are instituted by or against the Company or
any Subsidiary and, if instituted against the Company or any Subsidiary, are
consented to or are not dismissed within 60 days after such institution; or
(m) A material adverse change, including any overtly threatened
or pending litigation, investigation or administrative proceeding, occurs or, in
Purchaser's opinion, is likely to occur in the financial condition, business
operations, organization or property of the Company or either of its
subsidiaries.
7.2. Notice of Purchaser. When any Event of Default described in the
foregoing (S) 7.1 has occurred, the Company shall give notice thereof to
Purchaser within 10 business days of such event.
7.3. Acceleration of Maturities. Except as otherwise provided in the
Intercreditor Agreement, when an Event of Default has happened and is
continuing, Purchaser may, by
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notice to the Company, declare the entire principal and all interest accrued on
the Note to be, and the Note shall thereupon become, forthwith due and payable,
without any presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived. Thereupon the Company will forthwith pay to
Purchaser the entire principal and interest accrued on the Note. No course of
dealing on Purchaser's part nor any delay or failure on its part to exercise
any right shall operate as a waiver of such right or otherwise prejudice
Purchaser's rights, powers and remedies. The Company further shall, to the
extent permitted by law, pay to Purchaser all reasonable costs and expenses
incurred by Purchaser in the collection of the Note upon any default hereunder
or thereon, including reasonable compensation to Purchaser's attorneys for all
services rendered in connection therewith. Nothing herein shall be deemed a
waiver of (a) Purchaser's rights under any of the Collateral Documents or (b)
its right to ▇▇▇ the Company or other responsible Persons for loss of profit and
other damages suffered if there is an Event of Default under (s) 7.1 (g).
7.4. Acceleration of Senior Debt. The Company agrees, for the benefit
of Purchaser, that if the Senior Debt is declared due and payable before its
expressed maturity because of a default thereunder, (a) the Company shall give
prompt notice thereof to Purchaser and (b) if allowed by the Intercreditor
Agreement, the Note and the indebtedness evidenced thereby shall become
immediately due and payable upon demand, regardless of the expressed maturity
thereof.
SECTION 8. SUBORDINATION OF THE NOTE.
The Indebtedness evidenced by the Note, and any renewals or extensions
thereof, shall at all times be wholly subordinate and junior in right of payment
to the Senior Debt, as more fully set forth in the Intercreditor Agreement.
SECTION 9. MISCELLANEOUS.
9.1. Purchaser's Consent Required. Any term, covenant, agreement or
condition of this Agreement binding upon or to be performed or complied with by
the Company may be waived (either generally or in a particular instance and
either retroactively or prospectively) with Purchaser's consent. No such
consent shall be given, however, until Purchaser shall have been supplied with
sufficient information to enable Purchaser to make an informed decision with
respect thereto.
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9.2. Loss, Theft, Etc. of Note. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of the
Note and, if reasonably requested by the Company, a reasonable indemnification
by Purchaser, the Company shall make and deliver without expense to Purchaser, a
new Note, of like tenor and issue, in lieu of such lost, stolen, destroyed or
mutilated Note.
9.3. Brokerage and Other Fees. In addition to the fees and costs
contemplated by the Commitment Letter, all expenses relating to any proposed or
actual amendment, waivers or consents pursuant to the provisions hereof,
including, without limitation, any amendments, waivers or consents resulting
from any work-out, renegotiation or restructuring relating to the performance by
the Company of its obligations under this Agreement, the Note and the other
Financing Documents. The Company also shall pay and save Purchaser harmless
against any liability for all brokerage fees and commissions payable or claimed
to be payable to any Person in connection with the transactions contemplated by
this Agreement and the other Financing Documents.
9.4. Powers and Rights Not Waived. No delay or failure on the part
of Purchaser in the exercise of any power or right shall operate as a waiver
thereof; nor shall any single or partial exercise of the same preclude any
other or further exercise thereof, or the exercise of any other power or right,
and the rights and remedies of Purchaser are cumulative to, and are not
exclusive of, any rights or remedies Purchaser would otherwise have.
9.5. Notices. Any notice, demand or delivery to be made pursuant to
the provisions of this Agreement shall be in writing and (a) shall be deemed to
have been given or made one day after the date sent (i) if by the Company, by
prepaid overnight delivery addressed to Purchaser at its address appearing on
the first page of this Agreement or (ii) if by Purchaser, by prepaid overnight
delivery addressed to the Company at ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇; and (b) if given by courier, confirmed telegram, confirmed facsimile
transmission or confirmed telex shall be deemed to have been made or given when
received. Purchaser and the Company may each designate a different address by
notice to the other in the manner provided in this (s) 9.5.
9.6. Successors and Assigns. This Agreement and the rights evidenced
hereby shall inure to the benefit of and be binding upon and the successors and
permitted assigns of the Company and Purchaser.
-32-
9.7. Survival of Covenants and Representations. All covenants,
representations and warranties of the Company herein and in any certificates
delivered pursuant hereto, whether or not in connection with the Closing Date,
shall survive the closing and delivery of this Agreement, the Note and the other
Financing Documents.
9.8 Amendments. This Agreement may not be modified, supplemented,
varied or amended except by an instrument in writing signed by the Company and
Purchaser.
9.9. Headings. The index and the descriptive headings of sections of
this Agreement are provided solely for convenience of reference and shall not,
for any purpose, be deemed a part of this Agreement.
9.10. Maximum Interest Rate. It is not intended hereby to charge
interest at a rate in excess of the maximum rate of interest permitted to be
charged to the Company under applicable law, but if, notwithstanding such
intention, interest in excess of the maximum rate shall be paid hereunder, the
excess shall be retained by Purchaser as additional cash collateral for the
payment of the Note, unless such retention is not permitted by law or by the
Intercreditor Agreement, in which case the interest rate on the Note shall be
adjusted to the maximum permitted under applicable law during the period or
periods that the interest rate otherwise provided herein would exceed such rate.
9.11. The Company and Acquisition Corp. Upon the execution of this
Agreement by the Company and Acquisition Corp., the terms and conditions herein
and in the other Financing Documents, to the extent possible, shall apply
jointly and severally to each of such entities, and each shall be jointly and
severally liable thereunder, until the effective date of the Merger, defined for
this purpose to be the time and date on which the corporate existence of
Acquisition Corp. shall cease and the Company shall remain as
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the surviving entity. After such date, the Company and Purchaser shall be the
only parties to this Agreement. If for any reason the Merger has not been
accomplished on or before December 31, 1994 to the satisfaction of Purchaser in
its sole judgment, this Agreement shall terminate and neither the company nor
Acquisition Corp. shall be liable to Purchaser, or Purchaser to either of such
entities, except as set forth in the Commitment Letter and in (S) 6.17 of this
Agreement. The terms of this (S) 9.11 shall survive such termination of this
Agreement.
9.12. Governing Law. This Agreement and all matters concerning this
Agreement, including the Note, shall be governed by the laws of the State of
Colorado for contracts entered into and to be performed in such state without
regard to principles of conflicts of laws.
* * * * * *
The execution hereof by Purchaser shall constitute a contract between
the parties for the uses and purposes hereinabove set forth, and this Agreement
may be executed in any number of counterparts, each executed counterpart
constituting an original but all together only one agreement.
CPS ACQUISITION CORP.
By [SIGNATURE ILLEGIBLE]
----------------------------
Its President
CPS SYSTEMS, INC.
By [SIGNATURE ILLEGIBLE]
----------------------------
Its President
Accepted as of December 29, 1994.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ MEZZANINE FUND, L.P.
By: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Capital
Partners
By [SIGNATURE ILLEGIBLE]
------------------------------
Managing Partner
-34-
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND CANNOT BE TRANSFERRED EXCEPT PURSUANT TO REGISTRATION OR AN EXEMPTION
THEREFROM.
CPS ACQUISITION CORP.
and
CPS SYSTEMS, INC.
12% Senior Subordinated Secured Note
Due December 31, 2000
$2,100,000 December 30, 1994
CPS Acquisition Corp., a Georgia corporation, and CPS Systems, Inc., a
Texas corporation ("Makers"), for value received, hereby promise to pay to
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ MEZZANINE FUND, L.P.
or registered assigns
on December 31, 2000
the principal amount of
Two Million One Hundred Thousand Dollars ($2,100,000)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at the
rate of 12% per annum from the date hereof until maturity, payable quarterly on
the 30th of each March, June, September and December in each year (commencing
the first of such dates after the date hereof), and at maturity. Makers agree to
pay interest on overdue principal, and (to the extent legally enforceable) on
any overdue installment of interest, at the rate of 19% per annum after the due
date, whether by acceleration or otherwise, until paid. Both the Principal
hereof and interest hereon are payable at the principal office of Colorado
National Bank, Denver, Colorado, in coin or currency of the United States of
America that at the time of payment shall be legal tender for the payment of
public and private debts.
This Note is issued or to be issued under and pursuant to the terms
and provisions of the Note Agreement dated as of December 29, 1994 (the "Note
Agreement"), entered into by Makers with the Purchaser therein referred to and
is secured by the Collateral Douments (as defined in the Note Agreement).
Reference is hereby made to the Collateral Documents for a full statement of
terms and provisions thereof and for a description of the collateral thereunder.
EXHIBIT A
(to Note Agreement)
This Note may be declared due prior to its expressed maturity date on
the terms and in the manner provided in the Note Agreement.
This Note is not subject to prepayment or redemption at the option of
Makers prior to its expressed maturity date except on the terms and conditions
and in the amounts and with the premium set forth in the Note Agreement.
This Note and the indebtedness evidenced hereby, including principal,
premium and interest, is expressly subordinate and junior to any and all Senior
Debt (as defined in the Note Agreement), all on the terms and to the extent more
fully set forth in the Intercreditor Agreement defined below.
The holder of this Note is registered on the books of Makers. It is
transferable only by surrender at the principal office of Makers duly endorsed
or accompanied by a written instrument of transfer duly executed by such holder
or holders's attorney duly authorized in writing. Payment of or on account of
principal, premium and interest on this Note shall be made only to or upon the
order in writing of such holder.
Notwithstanding anything to the contrary contained herein, the
payment of all outstanding principal hereunder and all accrued but unpaid
interest thereon shall be governed by and construed in accordance with the terms
and conditions of the "Intercreditor Agreement" defined in the Note Agreement.
So long as Makers are making the principal and interest payments under this Note
pursuant to the Intercreditor Agreement, the Company's failure to make the
principal payment at the stated maturity hereof shall not constitute a default
under the Note Agreement.
In the event of any conflict between the terms and provisions of the
Note Agreement and those of the Intercreditor Agreement with respect to the
payment of principal and interest under the Note, the terms and provisions of
the Intercreditor Agreement shall prevail.
The obligations of the Makers under this Note are joint and several.
Makers waive presentment, notice of dishonor and protest with respect to any
payment due under this Note.
CPS ACQUISITION CORP. CPS SYSTEMS, INC.
By_________________________________ By_________________________________
Its President Its President
A-2
================================================================================
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN VIOLATION OF SUCH
ACT OR LAW OR THE PROVISIONS OF THIS WARRANT.
Warrant No. 1
No. of Shares: 1,856 Dated: December 29, 1994
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
CPS SYSTEMS, INC.
(successor by merger to
CPS Acquisition Corp.)
================================================================================
EXHIBIT B
(to Note Agreement)
REPRESENTATIONS AND WARRANTIES
The Company and Acquisition Corp. each represents and warrants to
Purchaser as follows (with such changes as may be needed to reflect differences
in the makeup or status of the respective entities):
1. Corporate Organization and Authority. Such entity:
(a) is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation;
(b) has all requisite power and authority and all necessary
licenses and permits to own and operate its properties and to carry on its
business as now conducted and as presently proposed to be conducted
except where the failure to have such licenses and permits, either
singularly or in the aggregate, would not have a material adverse effect on
its business; and
(c) is duly licensed or qualified and is in good standing as a
foreign corporation in each jurisdiction wherein the nature of the business
transacted by it or the nature of the property owned or leased by it makes
such licensing or qualification necessary except where the failure to be so
licensed, qualified or in good standing, either singularly or in the
aggregate, would not have a material adverse effect on its business.
2. Financial Information. (a) Its financial information heretofore
delivered by it to Purchaser, is true, correct and complete.
(b) Since September 30, 1994 there has been no change in its
condition, financial or otherwise, as shown on the balance sheet as of such
date except changes in the ordinary course of business, none of which
individually or in the aggregate has been materially adverse.
3. Indebtedness. It has no material Debt as of the date hereof other
than as shown on such balance sheet.
4. Full Disclosure. Neither the financial information referred to in
paragraph 2 hereof nor the Note Agreement or any other written statement
furnished by it or its agents to Purchaser in connection with the
EXHIBIT C
(to Note Agreement)
negotiation of the sale of the Note and Warrant, contains any untrue statement
of a material fact or omits a material fact necessary to make the statements
contained therein or herein not misleading. There is no fact peculiar to such
entity that it has not disclosed to Purchaser in writing that materially
adversely affects nor, so far as it can now reasonably foresee, will materially
adversely affect its properties, business, profits or condition (financial or
otherwise).
5. Pending Litigation. Except as shown on any attachment hereto,
there are no proceedings pending or, to the knowledge of such entity, threatened
against or affecting it in any court or before any governmental authority or
arbitration board or tribunal that are likely to materially and adversely affect
its properties, business, profits or condition (financial or otherwise).
6. Title to Properties. Such entity has good and marketable title to
all material parcels of real property owned by it and has good title to all the
other material items of property it purports to own, including that reflected in
the most recent balance sheet referred to in paragraph 2 hereof, except as sold
or otherwise disposed of in the ordinary course of business and except for Liens
permitted by the Note Agreement.
7. Patents and Trademarks. Such entity owns, possesses or has
applied for all the patents, trademarks, trade names, service marks,
copyright, licenses and rights with respect to the foregoing necessary for the
present and planned future conduct of its business, without any known conflict
with the rights of others.
8. Sale is Legal and Authorized. The sale of the Note and Warrant
and compliance by such entity with all of the provisions of the Financing
Documents:
(a) are within its corporate powers;
(b) will not violate any provisions of any law or any order of
any court or governmental authority or agency and will not conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute a default under its Articles of Incorporation or bylaws or any
indenture or other agreement or instrument to which it is a party or by
which it may be bound or result in the imposition of any Liens or
encumbrances on any of its property (other than as contemplated in the
Note Agreement and the Financing Documents); and
C-2
(c) have been duly authorized by proper corporate action on the
part of such entity (no action by shareholders being required by law, by
its Articles of Incorporation or bylaws or otherwise), and the Financing
Documents constitute the legal, valid and binding obligations, contracts
and agreements of such entity, enforceable in accordance with their
respective terms.
9. No Defaults. No Default or Event of Default has occurred and is
continuing. Such entity is not in default in the payment of principal or
interest on any Debt and is not in default under any instrument or instruments
or agreements under and subject to which any Debt has been issued. No event has
occurred and is continuing under the provisions of any such instrument or
agreement which with the lapse of time or giving of notice, or both, would
constitute an event of default thereunder.
10. Governmental Consent. No further approval, consent or withholding
of objection on the part of any regulatory body, state, federal or local, is
necessary in connection with the execution and delivery by such entity of the
Financing Documents or compliance with any of the Financing Documents.
11. Taxes. All tax returns required to be filed by such entity in
any jurisdiction have, in fact, been filed, and all taxes, assessments, fees and
other governmental charges upon any of them or upon any of their properties,
income or franchises that are shown to be due and payable in such returns have
been paid. Except as shown on any attachment hereto, such entity does not know
of any proposed additional tax assessment against it for which adequate
provisions has not been made on its accounts, and no material controversy in
respect of additional federal or state income taxes due since such date is
pending or to its knowledge threatened. The provisions for taxes in its books
are adequate for all open years, and for its current fiscal period.
12. Use of Proceeds. All of the net proceeds from the sale of the
Note will be used to purchase Common Stock as contemplated hereunder and to pay
the closing costs associated with such transaction.
13. ERISA. The consummation of the transactions provided for in the
Financing Documents and compliance by the Company with the provisions thereof
will not involve any prohibited transaction within the meaning of ERISA or
Section 4975 of the Internal Revenue Code of 1986, as amended.
C-3
Each Plan complies in all material respects with all applicable statutes and
governmental rules and regulations, and, with respect to the period on and after
December 21, 1987 and, to the best knowledge of such entity after diligent
inquiry, with respect to the period prior to December 21, 1987, (a) no
Reportable Event has occurred and is continuing with respect to any Plan, (b)
neither such entity nor any ERISA Affiliate has withdrawn from any Plan or
Multiemployer Plan or instituted steps to do so, and (c) no steps have been
instituted to terminate any Plan. No condition exists or event or transaction
has occurred in connection with any Plan which could result in the incurrence by
such entity or any ERISA Affiliate of any material liability, fine or penalty.
No Plan, nor any trust created thereunder, has incurred any "accumulated funding
deficiency" as defined in Section 302 of ERISA nor does the present value of all
benefits vested under all Plans exceed, as of the last annual valuation date,
the value of the assets of the Plans allocable to such vested benefits. Neither
such entity nor any ERISA Affiliate has any contingent liability with respect to
any post-retirement "welfare benefit plan" (as such term is defined in ERISA)
except as has been disclosed to Purchaser.
14. Compliance with Law. Such entity (a) is not in violation of any
material law, ordinance, franchise, governmental rule or regulation to which it
is subject; or (b) has failed to obtain or apply for the transfer of any
license, permit, franchise or other governmental authorization necessary to the
ownership of its property or to the conduct of its business, which violation or
failure to obtain would materially adversely affect its business, prospects,
profits, properties or condition (financial or otherwise) or materially impair
its ability to perform its obligations contained in the Financing Documents. It
is not in default with respect to any order of any court or governmental
authority or arbitration board or tribunal, which default could materially
adversely affects its business, prospects, profits, properties or condition,
financial or otherwise, or impair its ability to perform its obligations
contained in the Financing Documents.
15. Compliance with Environmental Laws. Such entity is not in
violation of any applicable environmental law that could have a material adverse
effect on its business, prospects, profits, properties or condition (financial
or otherwise).
16. Capital Stock. The authorized capital stock of the Company
consists of 100,000 shares of Common Stock $.01 par value. Upon the closing of
the transactions contemplated
C-4
by the Note Agreement, there will be 10,000 shares of Common Stock issued and
outstanding. In addition, the board of directors of the Company has duly
reserved a sufficient quantity of shares of Common Stock for issuance upon
exercise of the Warrant. No shareholder of the Company or any other person is
entitled to preemptive or similar rights with respect to shares of Common Stock
that are issuable upon exercise of the Warrant and if and when the Warrant is
exercised in accordance with the provisions thereof, the shares of Common Stock
to be delivered by the Company to Purchaser in connection with such exercise
will be validly issued, fully paid and nonassessable.
17. Solvency. On the Closing Date and after giving effect to the
Indebtedness created by the Note;
(a) The fair saleable value of the property of such entity is
greater than the total amount of its liabilities (including contingent and
unliquidated liabilities) on the Closing Date; and
(b) such entity is able to pay all of its liabilities as they
mature and does not have unreasonably small capital for the business about
to be engaged.
In computing the amount of contingent or liquidated liabilities at any
time, such liabilities will be computed at the amount which, in light of all the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
18. Collateral. (a) The Collateral has not suffered damage or
destruction that renders it inoperable and, under applicable zoning, use,
environmental protection and other laws, ordinances, rules and regulations, such
properties may be used for the present use and purpose as described in the
Agreement. The Collateral is free and clear of all Liens other than
encumbrances permitted by the Collateral Documents.
(b) The Collateral Documents and/or financing statements with
respect thereto have been filed for record in all public offices wherein
such filing is necessary to perfect, fully preserve and protect the lien of
Purchaser under the Collateral Documents against creditors perfected
security interest in the Collateral specifically described therein (or, in
lieu of filing financing statements, the Collateral described therein has
been delivered into the possession of the pledgee thereunder which
constitutes perfection of the Collateral described therein).
C-5
19. Employment Agreements, Etc. Neither such entity nor the Shareholders
are parties to any management, consulting, employment or shareholders agreement
between or among such entity and one or more of the Shareholders (or the
shareholders of Acquisition Corp.), other than the Shareholders Agreements.
C-6
DESCRIPTION OF CLOSING OPINIONS OF COUNSEL TO THE COMPANY
AND TO ACQUISITION CORP.
The closing opinion of _____________________________, counsel to the
Company (or Acquisition Corp., as the case may be), which is called for by $
5.1(b) of the Agreement, shall be dated the Closing Date and addressed to
Purchaser, shall be satisfactory in scope and form to Purchaser, and shall be to
the effect that (with such changes as may be needed to reflect differences in
the makeup or status of the respective entities):
(1) Such entity is a corporation, duly incorporated, legally existing
and in good standing under the laws of its state of incorporation [naming
it], has corporate power and authority and is duly authorized to enter into
and perform the Financing Agreements, and to issue the Note and the Warrant
and incur the Indebtedness to be evidenced by the Note and has full
corporate power and authority to conduct the activities in which it is now
engaged, and is duly licensed or qualified and is in good standing as a
foreign corporation in each jurisdiction in which the character of the
properties owned or leased by it or the nature of the business transacted
by it makes such licensing or qualification necessary;
(2) The Note Agreement has been duly authorized, executed and
delivered by such entity and constitutes the legal, valid and binding
agreement of such entity enforceable in accordance with its terms, subject
to applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally, and subject as to enforceability to general principles of
equity (regardless of whether enforcement is sought in a proceeding in
equity or at law).
(3) Financing Documents have been duly authorized, executed and
delivered by such entity and constitute its legal, valid and binding
agreements enforceable in accordance with the terms of each such
document, subject to applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally, and subject as to enforceability to
general principles of equity (regardless of whether enforcement is sought
in a proceeding in equity or at law) and except that certain remedies
provided for in the Collateral Documents may be limited by applicable law
(none of which limitations will, however, in our opinion, materially
interfere with the practical realization of the security provided by the
Financial Documents).
EXHIBIT D
(to Note Agreement)
(4) The Note has been duly authorized by proper corporate action on the
part of the Company or Acquisition Corp., as the case may be, has been duly
executed by its authorized officers and constitutes its legal, valid and binding
obligation enforceable in accordance with the terms of the Note, subject to
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally, and subject as to enforceability to general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law).
(5) The Warrant has been duly authorized by proper corporate action on the
part of the Company, has been duly executed and delivered by authorized officers
of the Company and constitutes the legal, valid and binding agreement of the
Company enforceable in accordance with its terms, except as enforcement of such
terms may be limited by bankruptcy, insolvency or similar laws and legal and
equitable principles affecting or limiting the availability of equitable
remedies and except that enforcement of the provisions with respect to
indemnities contained in the Warrant may be limited by public policy
consideration.
(6) No approval, consent or withholding of objection on the part of, or
filing, registration or qualification with, any governmental body, federal,
state or local, is necessary in connection with the execution and delivery of
the Note Agreement, the Warrant, the Collateral Documents or the Note.
(7) The issuance and sale of the Note and the Warrant, the issuance of any
Common Stock upon exercise of the Warrants, and the execution, delivery and
performance by such entity of the Note Agreement, the Warrant and the Collateral
Documents will not violate preemptive rights of other holders of capital stock
of such entity existing under its Articles of Incorporation and bylaws or under
the applicable corporate laws of its state of incorporation or any other
agreement or instrument known to such counsel, or trigger any anti-takeover
rights of other holders of such entity's capital stock or conflict with or
result in any breach of any of the provisions of or constitute a default under
or result in the creation or imposition of any Lien upon any of its property
pursuant to the provisions of its Articles of Incorporation or bylaws or under
corporate laws of its state of incorporation or any agreement or other
instrument known to such counsel to which such entity is a party or by which it
may be bound.
D-2
(8) The issuance, sale and delivery of the Note and the Warrant under
the circumstances contemplated by the Agreement constitute an exempt
transaction under the registration provisions of the Securities Act of
1933, as amended, and do not under existing law require the registration of
the Note or the Warrant under the Securities Act of 1933, as amended.
(9) The authorized capital stock of such entity consists of
______________ shares of Common Stock, $_____________ par value, of which
_____________ shares are issued and outstanding and _____________ shares
have been reserved for issuance upon exercise of the warrant.
(10) Assuming compliance by the Company with the terms and provisions
of the Warrant, the shares of Common Stock issuable upon exercise thereof
will be validly issued, fully paid and nonassessable.
This opinion shall cover such other matters relating to the Note
Agreement and the sale of the Note and the Warrant as Purchaser may reasonably
request. With respect to matters of fact on which such opinion is based, counsel
shall be entitled to rely on appropriate certificates of public officials and
officers of the entity that is the subject of closing opinion.
D-3