EXHIBIT 1
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CONVERTIBLE NOTE AND WARRANT PURCHASE AGREEMENT
by and between
ENVIRONMENTAL TECTONICS CORPORATION
and
▇.▇. ▇▇▇▇▇▇▇
Dated as of
February 18, 2003
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS......................................................2
1.1 Certain Definitions..............................................2
1.2 Accounting Principles...........................................12
1.3 Other Definitional Provisions; Construction.....................12
ARTICLE II ISSUE AND SALE OF SECURITIES....................................12
2.1 Authorization and Issuance of the Note..........................12
2.2 Authorization and Issuance of the Warrants......................12
2.3 Sale and Purchase...............................................12
2.4 Issue Price.....................................................13
2.5 The Closing.....................................................13
ARTICLE III REPAYMENT OF THE NOTES..........................................13
3.1 Interest........................................................13
3.2 Repayment of the Note...........................................13
3.3 Optional Prepayment of the Note.................................13
3.4 Notice of Optional Prepayment...................................13
3.5 Maturity; Surrender, etc........................................14
3.6 Conversion of Note..............................................14
3.7 Maximum Lawful Rate.............................................14
ARTICLE IV CONDITIONS......................................................14
4.1 Conditions to the Purchase of Securities........................14
4.2 Waiver..........................................................17
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE BORROWER..................17
5.1 Representations and Warranties of the Borrower..................17
ARTICLE VI RESTRICTED SECURITIES...........................................25
6.1 Restricted Securities...........................................25
6.2 Legends; Purchaser's Representations............................26
6.3 Prohibition on Short Sales......................................26
6.4 Transfer of Notes...............................................26
6.5 Replacement of Lost Securities..................................26
ARTICLE VII COVENANTS.......................................................27
7.1 Affirmative Covenants...........................................27
7.2 Negative Covenants..............................................31
7.3 Financial Covenants.............................................35
ARTICLE VIII EVENTS OF DEFAULT...............................................36
8.1 Events of Default...............................................36
8.2 Consequences of Event of Default................................37
8.3 Security........................................................38
ARTICLE IX MISCELLANEOUS...................................................38
9.1 Successors and Assigns..........................................38
9.2 Modifications and Amendments....................................38
9.3 No Implied Waivers; Cumulative Remedies; Writing Required.......38
9.4 Reimbursement of Expenses.......................................38
9.5 Holidays........................................................39
9.6 Notices.........................................................39
9.7 Governing Law...................................................40
9.8 Severability....................................................40
9.9 Headings........................................................40
9.10 Counterparts....................................................40
9.11 Integration.....................................................40
9.12 Subordination...................................................40
ANNEXES 42
SCHEDULES 42
EXHIBITS 42
CONVERTIBLE NOTE AND WARRANT PURCHASE AGREEMENT
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$10,000,000
Senior Subordinated Convertible Note of Borrower
Due February 18, 2009
Warrants to Purchase
Shares of Common Stock of Borrower
THIS CONVERTIBLE NOTE AND WARRANT PURCHASE AGREEMENT (this
"Agreement"), dated as of February 18, 2003, is made by and between
Environmental Tectonics Corporation, a Pennsylvania corporation (the
"Borrower"), and ▇.▇. ▇▇▇▇▇▇▇ (the "Purchaser"). Capitalized terms used and not
defined elsewhere in this Agreement are defined in Article 1 hereof.
RECITALS
WHEREAS, contemporaneously herewith, Borrower is entering into the
Senior Credit Agreement pursuant to which Senior Lender will make available
credit facilities for the Borrower to repay certain of its outstanding debt
obligations and for Borrower's working capital requirements;
WHEREAS, the Senior Credit Agreement requires that the Borrower obtain
subordinated financing in an amount not less than $10,000,000 as a condition to
closing of the Senior Financing;
WHEREAS, to satisfy the closing condition under the Senior Credit
Agreement, the Borrower has requested that the Purchaser make available to the
Borrower a secured credit facility in the principal amount of $10,000,000 to be
used for working capital purposes and, repayment of debt of Borrower existing on
the date hereof and general corporate purposes directly related to the growth of
the business of the Borrower; and the Purchaser has agreed to do so, on the
terms and conditions set forth herein.
NOW, THEREFORE, the parties hereto, in consideration of the foregoing
premises and their mutual covenants and agreements herein set forth and
intending to be legally bound hereby, covenant and agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Definitions. In addition to other words and terms defined
elsewhere in this Agreement, the following words and terms shall have the
meanings set forth below (and such meanings shall be equally applicable to both
the singular and plural form of the terms defined, as the context may require):
"Acquisition" shall mean the acquisition by purchase, lease or
otherwise of all or substantially all of the assets of, or all of the capital
stock or other equity or ownership interests of, any other Person.
"Affiliate" shall mean with respect to any Person, any other Person
that is directly or indirectly controlling, controlled by or under common
control with such Person or entity or any of its Subsidiaries, and the term
"control" (including the terms "controlled by" and "under common control with")
means having, directly or indirectly, the power to direct or cause the direction
of the management and policies of a Person, whether through ownership of voting
securities or by contract or otherwise. Without limiting the foregoing, the
ownership of ten percent (10%) or more of the voting securities of a Person
shall be deemed to constitute control and notwithstanding anything to the
contrary herein, neither Purchaser nor any of his respective Affiliates shall be
deemed to be Affiliates of the Borrower by virtue of the transactions
contemplated in this Agreement.
"Agreement" shall mean this Convertible Note and Warrant Purchase
Agreement, as the same may be amended, restated, supplemented or otherwise
modified from time to time.
"Annual EBITDA" shall mean as of the last day of any Fiscal Quarter,
the Borrower's EBITDA for the most recently completed four consecutive Fiscal
Quarters, determined on a consolidated basis in accordance with GAAP. For
purposes of calculating EBITDA with respect to any Permitted Acquisition
occurring after the Closing Date, it shall be assumed that such acquisition
occurred on the first day of the period for which Annual EBITDA is being
calculated.
"Bonds" shall mean the Borrower's $5,470,000 Taxable Variable Rate
Demand/Fixed Rate Revenue Bonds, Series of 2000.
"Borrower" shall have the meaning assigned to such term in the preamble
hereto.
"Business" shall mean the principal business of the Borrower as set
forth in Section 5.1(d) herein and as such shall continue to be conducted
following the purchase and sale of the Securities.
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which banking institutions in the Commonwealth of Pennsylvania are
authorized or required by law to close.
2
"Bylaws" shall mean the bylaws of the Borrower and each Guarantor,
including all amendments and supplements thereto.
"Capital Expenditures" shall mean any expenditure which would be
classified as a capital expenditure in accordance with GAAP.
"Capital Lease" shall mean a lease with respect to which lessee is
required to recognize the acquisition of an asset and the incurrence of a
liability in accordance with GAAP.
"Capital Lease Obligation" shall mean at any time, the amount of the
obligations of a Person under Capital Leases which would be shown at such time
as a liability on a Consolidated balance sheet of such Person prepared in
accordance with GAAP.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. ss. 9601, et seq.), as amended, and
all rules, regulations, standards guidelines and publications issued thereunder.
"Change of Control" shall mean an event or series of events by which
(a) any "person" or "group" (as such terms are defined in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder) is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under such Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all shares that any such
Person has the right to acquire without condition, other than passage of time,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 35% of the total voting power of the
then outstanding Voting Stock of the Borrower, or (b) from and after the date
hereof, individuals who on the date hereof constitute the Board of Directors of
the Borrower (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the Borrower
was approved by a vote of a majority of the directors then still in office who
were either directors on the date hereof or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Borrower then in office.
"Charter Documents" shall mean the Articles of Incorporation of the
Borrower and the Articles of Incorporation or Certificate of Incorporation, as
the case may be, of each Guarantor, including all amendments and supplements
thereto.
"Closing" shall mean the closing of the purchase and sale of the
Securities pursuant to this Agreement.
"Closing Date" shall mean the date and time for delivery of the Note as
finally determined pursuant to Section 2.5 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall mean shares of common stock, par value $0.05 per
share, of the Borrower.
3
"Compliance Certificate" shall have the meaning set forth in Section
7.1(f)(ii).
"Condition" shall mean any condition that results in or otherwise
relates to any Environmental Liabilities.
"Consolidated" or "consolidated" shall mean with reference to any term
defined herein, that term as applied to the accounts of the Borrower and its
Subsidiaries, consolidated in accordance with GAAP.
"Consolidated Tangible Net Worth" shall mean as of any date of
determination, (a) the aggregate amount of all assets of the Borrower and its
Subsidiaries on a consolidated basis at such date as may be properly classified
as such in accordance with GAAP, excluding such other assets as are properly
classified as intangible assets under GAAP, minus (b) the aggregate amount of
all liabilities of the Borrower and its Subsidiaries on a consolidated basis at
such date, as may be properly classified as such in accordance with GAAP.
"Contingent Obligation" shall mean as to any Person, without
duplication, any guarantee of payment or performance by such Person of any
Indebtedness or other obligation of any other Person, or any agreement to
provide financial assurance with respect to the financial condition, or the
payment of the obligations of, such other Person (including, without limitation,
purchase or repurchase agreements, reimbursement agreements with respect to
letters of credit or acceptances, indemnity arrangements, grants of security
interests to support the obligations of another Person, keep well agreements and
take-or-pay or through-put arrangements) which has the effect of assuring or
holding harmless any third Person against loss with respect to one or more
obligations owed to such third Person; provided, however, the term Contingent
Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any Contingent
Obligation of any Person shall be deemed to be the lower of (a) an amount equal
to the stated or determinable amount of the primary obligation in respect of
which such Contingent Obligation is made and (b) the maximum amount for which
such contingently liable Person may be liable pursuant to the terms of the
instrument embodying such Contingent Obligation, unless such primary obligation
and the maximum amount for which such contingently liable Person may be liable
are not stated or determinable, in which case the amount of such Contingent
Obligation shall be such contingently liable Person's maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith.
"Contractual Obligation" shall mean as to any Person, any provision of
any security issued by or operating agreement or organizational or formation
documents of such Person or any provision of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Default" shall mean any event or condition that, but for the giving of
notice or the lapse of time, or both, would constitute an Event of Default.
4
"EBITDA" shall mean as of the last day of any Fiscal Quarter of the
Borrower, Net Income of the Borrower plus depreciation, amortization, other
non-cash charges, in each case to the extent deducted from earnings in
determining such Net Income, plus Interest Expense and income tax expense, each
to the extent deducted from earnings in determining such Net Income, minus the
amount of non-cash credits included in determining such Net Income, all of the
above to be determined for such Fiscal Quarter in accordance with GAAP on a
Consolidated basis; provided, however, that, in the above calculations there
also shall be excluded from Net Income (a) any addition for non-operating gains
during such period (including, without limitation, extraordinary or unusual
gains, gains from discontinuance of operations or gains arising from a sale of
capital assets) and (b) any subtraction for non-operating losses during such
period (including, without limitation, extraordinary or unusual losses, losses
from the discontinuance of operations or losses arising from the sale of capital
assets).
"Environmental Laws" shall mean any Laws that address, are related to
or otherwise are concerned with environmental, health or safety issues,
including, without limitation, any Laws relating to any emissions, releases or
discharges of Pollutants into ambient air, surface water, ground water or land,
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, handling, clean-up or control of
Pollutants or any exposure or impact on worker health and safety.
"Environmental Liabilities" shall mean any obligations or liabilities
(including, without limitation, any claims, suits or other assertions of
obligations or liabilities) that are:
(a) related to environmental, health or safety issues
(including, without limitation, on-site or off-site contamination by
Pollutants of surface or subsurface soil or water, and occupational
safety and health); and
(b) based upon or related to (i) any provision of past,
present or future United States or foreign Environmental Law
(including, without limitation, CERCLA and RCRA) or common law, or (ii)
any judgment, order, writ, decree, permit or injunction imposed by any
court, administrative agency, tribunal or otherwise.
The term "Environmental Liabilities" includes among other things, all: (i)
fines, penalties, judgments, awards, settlements, losses, damages, costs, fees
(including, without limitation, attorneys' and consultants' fees), expenses and
disbursements; (ii) defense and other responses to any administrative or
judicial action (including, without limitation, claims, notice letters,
complaints, and other assertions of liability); and (iii) financial
responsibility for (1) cleanup costs and injunctive relief, including any
Removal, Remedial or other Response actions, and natural resource damages, and
(2) any other compliance or remedial measures.
"EPA" shall mean the United States Environmental Protection Agency and
any governmental body or agency succeeding to the functions thereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as the same may from time to time be amended, and the rules and regulations of
any governmental agency or authority, as from time to time may be in effect,
promulgated thereunder.
"Event of Default" shall mean any of the events of default described in
Section 8.1 hereof.
5
"Executive Officer" shall mean the chief executive officer, the
president, the chief financial officer, and the chief operating officer of the
Borrower and each Guarantor, as applicable.
"Financing Statements" shall have the meaning assigned to such term in
Section 4.1(c)(i) hereof.
"Fiscal Quarter" or "fiscal quarter" shall mean during each Fiscal Year
of the Borrower, each three-month fiscal period beginning respectively on the
day immediately following the last day of the prior Fiscal Year and on the
corresponding day of the third, sixth and ninth month thereafter and ending on
the three-month anniversary of each such date, except in the case of the fourth
Fiscal Quarter which ends on the last day of such Fiscal Year.
"Fiscal Year" or "fiscal year" shall mean each twelve-month period
ending on the last Friday in February.
"Fixed Charges" shall mean as of the last day of each Fiscal Quarter,
the sum (without duplication) of the Borrower's (a) Debt Service (including
payments under Capitalized Leases) for the immediately preceding period of four
consecutive Fiscal Quarters, (b) income taxes paid in cash in the immediately
preceding period of four consecutive Fiscal Quarters and (c) cash dividends paid
on the immediately preceding period of four consecutive Fiscal Quarters, all
determined on a consolidated basis in accordance with GAAP.
"Fixed Charge Coverage Ratio" shall mean, for any period, the ratio of
EBITDA, minus Capital Expenditures minus capitalized software development costs
during such period to the Fixed Charges during such period.
"GAAP" shall have the meaning assigned to such term in Section 1.2
hereof.
"Government Approval" shall have the meaning set forth in Section
5.1(aa).
"Governmental Authorities" shall mean any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantor" shall mean each of Entertainment Technology Corporation, a
Pennsylvania corporation, ETC Delaware, Inc., a Delaware corporation, and each
other Subsidiary of the Borrower hereafter formed, created or acquired, and
their respective successors and permitted assigns.
"Guaranty" shall mean any guaranty of the payment or performance of any
Indebtedness or other obligation and any other arrangement whereby credit is
extended to one obligor on the basis of any promise of another Person, whether
that promise is expressed in terms of an obligation to pay the Indebtedness of
such obligor, or to purchase an obligation owed by such obligor, or to purchase
goods and services from such obligor pursuant to a take-or-pay contract, or to
maintain the capital, working capital, solvency or general financial condition
of such obligor, whether or not any such arrangement is reflected on the balance
6
sheet of such other Person, firm or corporation, or referred to in a footnote
thereto, but shall not include endorsements of items for collection in the
ordinary course of business. For the purpose of all computations made under this
Agreement, the amount of a Guaranty in respect of any obligation shall be deemed
to be equal to the maximum aggregate amount of such obligation or, if the
Guaranty is limited to less than the full amount of such obligation, the maximum
aggregate potential liability under the terms of the Guaranty.
"Guaranty Agreement" shall mean the Guaranty Agreement of even date
herewith executed and delivered by the Guarantors to Purchasers, as the same may
be amended, modified, supplemented or restated from time to time hereafter.
"Indebtedness" shall mean
(a) all indebtedness of such Person for borrowed money or for
the deferred purchase price of property or services (other than
current trade liabilities incurred in the ordinary course of business
and payable in accordance with customary practices),
(b) any other indebtedness which is evidenced by a note, bond,
debenture or similar instrument,
(c) all Capital Lease Obligations of such Person,
(d) all obligations of such Person in respect of outstanding
letters of credit, acceptances and similar obligations created for the
account of such Person,
(e) all liabilities secured by any Lien on any property owned
by such Person even though such Person has not assumed or otherwise
become liable for the payment thereof,
(f) all obligations of such Person with respect to Interest
Rate Protection Agreements (calculated on a basis satisfactory to the
Bank and in accordance with accepted practice), and
(g) withdrawal liabilities of such Person or any Affiliate
under a Plan.
"Interest Expense" shall mean as of the last day of each Fiscal
Quarter, the amount of cash interest expense incurred by the Borrower for the
most recently completed four consecutive Fiscal Quarters determined on a
consolidated basis in accordance with GAAP.
"Interest Hedge Agreement" shall mean any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, interest rate
insurance or any other similar agreement which is not speculative in nature with
all extensions, renewals, amendments, substitutions and replacements to and any
of the foregoing, documentation of all of which shall conform to International
Swap Dealers Association Inc. standards.
7
"Investment" as applied to any Person shall mean the amount paid or
agreed to be paid or loaned, advanced or contributed to other Persons, and in
any event shall include, without limitation, (i) any direct or indirect purchase
or other acquisition of any notes, obligations, instruments, stock, securities
or ownership interest (including, without limitation, partnership interests and
joint venture interests) and (ii) any capital contribution to any other Person.
"IRS" shall mean the Internal Revenue Service and any governmental body
or agency succeeding to the functions thereof.
"Laws" shall mean all U.S. and foreign federal, state or local
statutes, laws, rules, regulations, ordinances, codes, decrees, binding
agreements, rules of common law, and the like, now or hereafter in effect,
including, any judicial or administrative interpretations thereof, and any
judicial or administrative orders, consents, decrees, judgments or rulings.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement and any
Capital Lease having substantially the same economic effect as any of the
foregoing).
"Loan" shall mean the loan in the original principal amount of
$10,000,000.00 made to the Borrower by the Purchaser hereunder and any additions
thereto.
"Material Adverse Change" shall mean any set of circumstances or events
which (a) has or could reasonably be expected to have any material adverse
effect whatsoever upon the validity or enforceability of this Agreement or any
other Transaction Document, (b) is or could reasonably be expected to be
material and adverse to the business, properties, assets, financial condition or
results of operations of the Borrower and its Subsidiaries taken as a whole, (c)
impairs materially or could reasonably be expected to impair materially the
ability of the Borrower to duly and punctually pay or perform its obligations
under the Transaction Documents, or (d) impairs materially or could reasonably
be expected to impair materially the ability of the Purchaser to enforce its
legal remedies pursuant to this Agreement and the other Transaction Documents.
"Material Adverse Effect" shall mean an effect that results in or
causes or has a reasonable likelihood of resulting in or causing a Material
Adverse Change.
"Maturity Date" shall mean February 18, 2009, or any other date on
which all outstanding principal, together with accrued and unpaid interest, on
the Notes shall be due and payable in full.
"Mortgage" shall mean the Open-End Mortgage and Security Agreement, in
the form attached hereto as Exhibit F, encumbering and granting a second
mortgage lien in favor of the Purchaser on the Borrower's real property at ▇▇▇
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, as the same may be amended, supplemented
or otherwise modified from time to time.
8
"Multiemployer Plan" shall mean a multiemployer plan (within the
meaning of Section 3(37) of ERISA) that is maintained for the benefit of the
employees of the Borrower.
"Net Income" shall mean, for any fiscal period, the net income (or
loss) after income taxes (if any) of the Borrower for such period, determined a
Consolidated basis in accordance with GAAP.
"Note" shall have the meaning assigned to such term in Section 2.1.
"Operating Lease" shall mean any lease that, under GAAP, is not
required to be capitalized.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA, or any other governmental agency,
department or instrumentality succeeding to the functions thereof.
"Permitted Acquisition" shall mean an Acquisition that is permitted by
the Senior Credit Agreement or as to which the consent or waiver of the Senior
Lender under the Senior Credit Agreement has been obtained.
"Permitted Indebtedness" shall have the meaning assigned to such term
in Section 5.1(c) hereof.
"Permitted Liens" shall have the meaning assigned to such term in
Section 7.2(b) hereof.
"Person" shall mean any individual, partnership, limited partnership,
corporation, limited liability company, association, joint stock company, trust,
joint venture, unincorporated organization or governmental entity or department,
agency or political subdivision thereof.
"Plan" shall mean any employee benefit plan (within the meaning of
Section 3(3) of ERISA), other than a Multiemployer Plan, established or
maintained by the Borrower.
"Pollutant" shall include any "hazardous substance" and any "pollutant
or contaminant" as those terms are defined in CERCLA; any "hazardous waste" as
that term is defined in RCRA; and any "hazardous material" as that term is
defined in the Hazardous Materials Transportation Act (49 U.S.C. ss. 1801 et
seq.), as amended (including as those terms are further defined, construed, or
otherwise used in rules and regulations issued pursuant to, or otherwise in
implementation of, said Environmental Laws); and including, without limitation,
any petroleum product or byproduct, solvent, flammable or explosive material,
radioactive material, asbestos, polychlorinated biphenyls (PCBs), dioxins,
dibenzofurans, heavy metals, and radon gas; and including any other substance or
material that is reasonably determined by any Governmental Authority or pursuant
to any Law to present a threat, hazard or risk to human health or the
environment.
"Preferred Stock" shall mean shares of preferred stock, par value $0.05
per share, of the Borrower.
"Properties and Facilities" shall have the meaning assigned to such
term in Section 5.1(q).
9
"Proprietary Rights" shall mean all patents, patents pending,
trademarks, trade names, service marks, copyrights, inventions, production
methods, licenses, formulas, technology, know-how, processes and trade secrets,
regardless of whether such are registered with any Governmental Authorities,
including applications therefor.
"Purchaser" shall have the meaning assigned to such term in the
preamble hereto and in Section 6.2 hereof.
"RCRA" shall mean the Resource Conservation and Recovery Act (42 U.S.C.
ss. 6901 et seq.), as amended, and all rules and regulations issued thereunder.
"Registration Rights Agreement" shall have the meaning set forth in
Section 4.1(c)(ii).
"Removal," "Remedial" and "Response" actions shall include the types of
activities covered by CERCLA, RCRA, and other comparable Environmental Laws, and
whether the activities are those which might be taken by a government entity or
those which a government entity or any other person might seek to require of
waste generators, handlers, distributors, processors, users, storers, treaters,
owners, operators, transporters, recyclers, reusers, disposers, or other persons
under "removal," "remedial," or other "response" actions.
"Reportable Event" shall mean any of the events which are reportable
under Section 4043 of ERISA and the regulations promulgated thereunder, other
than an occurrence for which the thirty (30) day notice contained in 29 C.F.R.
ss. 2615.3(a) is waived.
"SEC" shall mean the Securities and Exchange Commission and any
governmental body or agency succeeding to the functions thereof.
"Securities" shall mean the Note, the Warrants and the shares of Common
Stock issuable upon conversion of the Note and exercise of the Warrants.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
"Security Agreement" shall have the meaning assigned to such term in
Section 4.1(c)(i) hereof.
"Security Documents" shall mean the Security Agreement, the Mortgage,
the Guaranty, the Financing Statements, and all other documents, instruments and
other materials necessary to create or perfect the security interests created
pursuant to the Security Agreement.
"Senior Credit Agreement" shall mean that certain Credit Agreement by
and between the Borrower and PNC Bank, National Association, dated February 18,
2003, as the same may be amended, modified, supplemented or restated from time
to time and any replacement agreement with another Senior Lender as permitted
hereunder.
10
"Senior Debt" shall mean the outstanding obligations of the Borrower
under the Senior Financing and any other obligation that by its terms ranks
senior to the Indebtedness contemplated under this Agreement.
"Senior Financing" shall mean all obligations, liabilities and
indebtedness of the Borrower to a Senior Lender hereafter existing, whether
principal, interest, fees, expenses, indemnification or otherwise under or in
respect of a Senior Credit Agreement (including all interest, charges, expenses,
fees and other sums accruing after commencement of any case, proceeding or other
action relating to the bankruptcy, insolvency or reorganization of the
Borrower).
"Senior Lender" shall collectively mean the bank(s) party to a Senior
Credit Agreement.
"Stockholders Voting Agreement" shall have the meaning set forth under
Section 4.1(c)(v).
"Subordination Agreement" means the subordination and intercreditor
agreement of even date herewith among the Purchaser, the Senior Lender and the
Borrower.
"Subsidiary" shall mean as to any Person, a corporation, partnership,
limited liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such other
ownership interests having such power only be reason of the happening of a
contingency) to elect a majority of the board of directors or other managers of
such corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer
to a Subsidiary or Subsidiaries of the Borrower.
"Total Debt" shall mean as of the last day of a Fiscal Quarter, all of
the Borrower's outstanding obligations for borrowed money at such date,
including without limitation, Indebtedness of the Borrower evidenced by the
Note, the Bonds and all obligations under the Senior Credit Agreement in respect
of loans and letters of credit (but not in respect of any letter of credit
securing the Bonds or any cash collateralized letters of credit), determined on
a Consolidated basis in accordance with GAAP.
"Transaction Documents" shall mean this Agreement, the Note, the
Warrants the Registration Rights Agreement, the Security Documents and all other
agreements, instruments and documents delivered in connection therewith as any
or all of the foregoing may be supplemented, amended or restated from time to
time
"Transactions" shall mean the incurrence of debt and the issuance of
securities, as contemplated by this Agreement, the Note, the Warrants, the other
Transaction Documents and all other agreements contemplated hereby and/or
thereby.
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"UST" shall mean an underground storage tank, including as that term is
defined, construed and otherwise used in RCRA and in rules and regulations
issued pursuant to RCRA and comparable state and local laws.
"Warrants" shall have the meaning assigned to such term in Section 2.2.
1.2 Accounting Principles. The character or amount of any asset,
liability, capital account or reserve and of any item of income or expense to be
determined, and any consolidation or other accounting computation to be made,
and the construction of any definition containing a financial term, pursuant to
this Agreement shall be determined or made in accordance with generally accepted
accounting principles in the United States of America consistently applied
("GAAP"), unless such principles are inconsistent with the express requirements
of this Agreement.
1.3 Other Definitional Provisions; Construction. Whenever the context
so requires, neuter gender includes the masculine and feminine, the singular
number includes the plural and vice versa. The words "hereof" "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not in any particular provision of this
agreement, and references to section, article, annex, schedule, exhibit and like
references are references to this Agreement unless otherwise specified. A
Default or Event of Default shall "continue" or be "continuing" until such
Default or Event of Default has been cured, or waived by Purchaser. References
in this Agreement to any Persons shall include such Persons, successors and
permitted assigns. Other terms contained in this Agreement (which are not
otherwise specifically defined herein) shall have meanings provided in Article 9
of the Pennsylvania Uniform Commercial Code on the date hereof to the extent the
same are used or defined therein.
ARTICLE II
ISSUE AND SALE OF SECURITIES
2.1 Authorization and Issuance of the Note. The Borrower has duly
authorized the issuance and sale on the Closing Date to the Purchaser of
Borrower's 10.0% Senior Subordinated Convertible Note Due February 18, 2009 in
the original principal balance of $10,000,000 (the "Note") to be substantially
in the form attached hereto as Exhibit A.
2.2 Authorization and Issuance of the Warrants. In connection with the
issuance of the Note, the Borrower has duly authorized the issuance and sale on
the Closing Date to the Purchaser of detachable common stock purchase warrants
substantially in the form attached hereto as Exhibit B evidencing the
Purchaser's right to acquire 803,048 shares of Common Stock (the "Warrants").
2.3 Sale and Purchase. Subject to the terms and conditions and in
reliance upon the representations, warranties and agreements set forth herein,
on the Closing Date (i) the Borrower shall sell to Purchaser, and Purchaser
shall purchase from the Borrower, the Note and Warrants at the purchase price
equal to 100% of the principal amount of the Note. (The Notes and the Warrants
are sometimes referred to herein collectively as the "Securities.")
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2.4 Issue Price. The Borrower and the Purchaser agree for U.S. federal
income tax purposes (a) that the present value as of the Closing Date of all
payments under the Note and Warrants shall be such value; and (b) that (x) the
aggregate "issue price" under ss.1273(b) of the Code of the Note to be issued
hereunder, and (y) that the aggregate purchase price under ss.1273(b) of the
Code of all of the Warrants to be issued hereunder, shall be such value and
purchase prices, respectively, as determined by the Borrower and accepted and
agreed to by ▇▇▇▇▇ ▇▇▇▇▇▇▇, the Borrower's outside auditors.
2.5 The Closing. Delivery of and payment for the Securities (the
"Closing") shall be made at the offices of Ballard, Spahr, ▇▇▇▇▇▇▇ & Ingersoll,
LLP, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
commencing at 10:00 a.m., local time, on February 18, 2003 or at such place or
on such other date on or before such date as may be mutually agreeable to the
Borrower and the Purchaser. The date and time of the Closing as finally
determined pursuant to this Section 2.5 are referred to herein as the "Closing
Date."
ARTICLE III
REPAYMENT OF THE NOTES
3.1 Interest.
(a) Interest Rates and Interest Payments; Deferral Option.
Interest on the Note shall be due and payable in arrears (i) quarterly on the
last Business Day of each calendar quarter commencing on May 31, 2003 and (ii)
on the Maturity Date (each, a "Payment Date"). The Note will bear interest on
the outstanding principal amount thereof at a rate per annum equal to 10%.
Interest on the Note will be computed on the basis of a year of 365 days, for
the number of actual days elapsed during which principal is outstanding.
(b) Deferral Option. During the term of the Note, the Borrower
may elect to defer the payment of all or a portion of the interest due and
payable on a Payment Date (other than the Maturity Date) and instead may, at the
election of the Borrower, accrue and add such interest to the outstanding
principal balance of the Note, to bear interest and become due and payable on
the Maturity Date.
3.2 Repayment of the Note. The Borrower covenants and agrees to repay
to the Purchaser on February 18, 2009, the unpaid principal balance of, together
with all accrued and unpaid interest, fees and other amounts due on this Note.
3.3 Optional Prepayment of the Note. The Borrower may, at its option,
upon notice as provided in section 3.4, prepay at any time or from time to time
all or any part (in an integral multiple of $100,000) of the principal amount of
the Note. Any such prepayment shall be accompanied by a certificate of an
Executive Officer certifying that the prepayment does not result in an Event of
Default under this Agreement.
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3.4 Notice of Optional Prepayment. If the Borrower elects to prepay the
Note pursuant to Section 3.3 hereof, the Borrower shall give notice of such
prepayment to the Purchaser to be prepaid not less than ten (10) days or more
than sixty (60) days prior to the date fixed for prepayment, specifying (i) the
date on which such prepayment is to be made, and (ii) the principal amount of
the Note to be prepaid on such date. Notice of prepayment having been so given,
the aggregate principal amount of the Notes specified in such notice, together
with accrued interest thereon shall become due and payable on the prepayment
date set forth in such notice.
3.5 Maturity; Surrender, etc. In the case of a prepayment, the
principal amount to be prepaid shall mature and become due and payable on the
date fixed for such prepayment, together with interest on such principal amount
accrued to such date. Upon payment of the amount due and owing under the Note,
the Note shall be surrendered to the Borrower and canceled and shall not be
reissued.
3.6 Conversion of Note. At any time, or from time to time, the
Purchaser may convert all or a portion of the then outstanding principal balance
of, and accrued and unpaid interest on, the Note into shares of Common Stock in
accordance with the terms of the Note.
3.7 Maximum Lawful Rate. This Agreement, the Note and the other
Transaction Documents are hereby limited by this Section 3.7. In no event,
whether by reason of acceleration of the maturity of the amounts due hereunder
or otherwise, shall interest and fees contracted for, charged, received, paid or
agreed to be paid to the Purchaser exceed the maximum amount permissible under
such applicable law. If, from any circumstance whatsoever, interest and fees
would otherwise be payable to the Purchaser in excess of the maximum amount
permissible under applicable law, the interest and fees shall be reduced to the
maximum amount permitted under applicable law. If from any circumstance, the
Purchaser shall have received anything of value deemed interest by applicable
law in excess of the maximum lawful amount, an amount equal to any excess
interest shall be applied to the reduction of the principal amount of the Note,
in such manner as may be determined by the Purchaser, and not to the payment of
fees or interest, or if such excessive interest exceeds the unpaid balance of
the principal amount of the Note, such excess shall be refunded to the Borrower;
provided, however, that in such event the Conversion Price (as defined in the
Note) of the Note shall be adjusted to preserve the economic effects of the
transactions contemplated by this Agreement.
ARTICLE IV
CONDITIONS
4.1 Conditions to the Purchase of Securities. The obligation of the
Purchaser to make the Loan is subject to the satisfaction, prior to or at the
Closing, of the following conditions:
(a) Representations and Warranties True. The representations
and warranties contained in Article 5 hereof shall be true and correct in all
material respects at and as of the Closing Date as though then made.
(b) Material Adverse Change. There will have been no Material
Adverse Change since February 22, 2002.
(c) Certain Agreements.
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(i) Security Agreement. The Borrower, each Guarantor
and the Purchaser shall have entered into a security agreement, in form
and substance as set forth in Exhibit C attached hereto (as the same
may be amended, modified, supplemented or restated from time to time in
accordance with the terms thereof, the "Security Agreement"). The
Borrower shall have authorized the Purchaser to file, or shall have
delivered to the Purchaser, such financing statements and other
instruments (collectively, "Financing Statements") as the Purchaser
shall require in order to perfect and maintain the continued perfection
of the security interest created by the Security Agreement. The
Purchaser shall have received reports of filings with appropriate
government agencies showing that there are no Liens on the assets of
the Borrower other than Permitted Liens.
(ii) Registration Rights Agreement. The Borrower
shall have executed and delivered to the Purchaser the Registration
Rights Agreement, substantially in the form of Exhibit D (the
"Registration Rights Agreement").
(iii) Guaranty Agreement. Each Guarantor shall have
executed and delivered to the Purchaser the Guaranty Agreement,
substantially in the form of Exhibit E, unconditionally and irrevocably
guaranteeing to the Purchaser the full and prompt payment and
performance of the Borrower's obligations under the Note.
(iv) Mortgage. The Borrower shall have executed and
delivered to the Purchaser the Mortgage.
(v) Stockholders Voting Agreement. ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, M.D., Emerald Advisors, Inc. and ETC Asset
Management, LLC shall have executed and delivered a stockholders voting
agreement, substantially in the form of Exhibit G (the "Stockholders
Voting Agreement").
(vi) Agreements with Senior Lender.
(A) Senior Credit Agreement. The Senior
Credit Agreement shall have been executed and delivered by the Borrower and
Senior Lender, and shall be reasonably satisfactory in form and substance to the
Purchaser. The Purchaser shall have received a copy of the Senior Credit
Agreement, certified as a true and complete copy thereof by an Executive Officer
of the Borrower.
(B) Subordination Agreement. Senior Lender
and Borrower shall have executed and delivered to the Purchaser the
Subordination Agreement, substantially in the form of Exhibit H.
(d) Closing Documents. The Borrower will have delivered or
caused to be delivered to the Purchaser all of the following documents in form
and substance satisfactory to Purchaser:
(i) the Note, duly completed and executed by the
Borrower;
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(ii) the Warrants evidencing the right to acquire the
number of shares of Common Stock set forth in Section 2.2;
(iii) certificates of good standing dated not more
than 10 business days prior to the Closing Date for the Borrower and
each Guarantor certified by its jurisdiction of organization;
(iv) a copy of the Charter Documents of the Borrower
and each Guarantor, certified by the appropriate governmental official
of the jurisdiction of its incorporation as of a date not more than 10
Business Days prior to the Closing Date;
(v) a copy of the Bylaws of the Borrower and each
Guarantor, certified as of the Closing Date by the secretary or
assistant secretary of the Borrower and each Guarantor;
(vi) a certificate of the secretary or assistant
secretary of the Borrower and each Guarantor, certifying as to the
names and true signatures of the Executive Officers of the Borrower and
each Guarantor authorized to sign this Agreement and the other
Transaction Documents to which it is a party;
(vii) copies of the resolutions duly adopted by the
Borrower's and each Guarantor's board of directors, authorizing the
execution, delivery and performance by the Borrower and each such
Guarantor of this Agreement and each of the other Transaction Documents
to which it is a party, such other instruments and documents
contemplated hereby to which the Borrower or any Guarantor is a party,
and the consummation of all of the other Transactions, certified as of
the Closing Date by an Executive Officer of the Borrower or such
Guarantor;
(viii) a certificate dated as of the Closing Date
from an Executive Officer of the Borrower stating that the conditions
specified in this Section 4.1 have been fully satisfied by the Borrower
or waived by the Purchaser;
(ix) the opinion of Klehr, Harrison, ▇▇▇▇▇▇,
Branzburg & ▇▇▇▇▇▇ LLP, counsel for the Borrower and Guarantors,
substantially in the form set forth in Exhibit I, addressed to the
Purchaser, dated the date of the Closing.
(x) certificates of insurance evidencing the
existence of all insurance required to be maintained by the Borrower
pursuant to Section 7.1(c), together with loss payable endorsements,
all satisfactory in the type and extent of such coverage to Purchaser;
and
(xi) such other documents relating to the
Transactions contemplated by this Agreement as the Purchaser may
reasonably request.
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(e) Consents, Agreements. The Borrower shall have obtained all
consents and waivers, under any term of any agreement or instrument to which it
is a party or by which it or any of its properties is bound, or any term of any
applicable Law of any Governmental Authority, or any term of any applicable
order, judgment or decree of any court, arbitrator or governmental authority,
necessary or appropriate in connection with the transactions contemplated by
this Agreement, and such consents and waivers shall be in full force and effect
on the Closing Date.
(f) Compliance with Securities Laws. The offering and sale of
the Note and Warrants to the Purchaser shall have complied with all applicable
requirements of federal and state securities laws.
(g) No Adverse U.S. Legislation, Action or Decision, etc. No
legislation shall have been enacted by Congress, no other formal action shall
have been taken by any Governmental Authority, whether by order, regulation,
rule, ruling or otherwise, and no decision shall have been rendered by any court
of competent jurisdiction, which would materially and adversely affect the Note
or the Warrants being purchased by the Purchaser hereunder.
(h) No Actions Pending. There shall be no suit, action,
investigation, inquiry or other proceeding by any Governmental Authority or any
other Person or any other legal or administrative proceeding pending or, to the
Borrower's knowledge, threatened which questions the validity or legality of the
Transactions or injunctive or other equitable relief in connection therewith.
4.2 Waiver. Any condition specified in Section 4.1 hereof may be waived
by the Purchaser on or prior to the Closing Date.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
5.1 Representations and Warranties of the Borrower. As a material
inducement to the Purchaser to enter into this Agreement and purchase the Note
and the Warrants, the Borrower hereby represents and warrants to the Purchaser
as follows:
(a) Organization, Qualification and Power. Each of the
Borrower and each Guarantor is a corporation duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its incorporation.
The Company and each Guarantor is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted by it makes such qualification necessary and where the
failure so to qualify would have a Material Adverse Effect. Each of the Borrower
and each Guarantor has all requisite corporate or other organizational power and
authority and all material licenses, permits, approvals and authorizations
necessary to own and operate their properties, to carry on their businesses as
now conducted and presently proposed to be conducted and to enter into each
Transaction Document to which it is a party, to carry out the terms of each such
Transaction Document, and the case of Borrower to issue and sell the Note and
the Warrants.
(b) Power; Authorization; Enforceable Obligations. This
Agreement, the Note, Warrants and the other Transaction Documents have been duly
authorized by all necessary corporate action on the part of the Borrower and
each Guarantor, as applicable, except for stockholder approval of the
17
transactions contemplated by this Agreement as required under Section 713 of the
Listing Standards, Policies and Requirements of the American Stock Exchange.
This Agreement, the Note, the Warrants and the other Transaction Documents have
been duly executed and delivered by the Borrower and each Guarantor, as
applicable, and constitute legal, valid and binding obligations of the Borrower,
and each Guarantor, as applicable, enforceable against it in accordance with
their respective terms, except (i) that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and transfer and similar laws of general application relating to or
affecting the rights and remedies of creditors, and (ii) that acceleration of
the Note may affect the collectibility of that portion of the stated principal
amount thereof which might be determined to constitute unearned interest
thereon.
(c) No Other Indebtedness. Neither the Borrower nor any
Guarantor has any outstanding Indebtedness to any person or entity other than
the Bonds, the Senior Debt, the Indebtedness contemplated by this Agreement and
the Indebtedness set forth on Schedule 5.1(c) hereto ("Permitted Indebtedness").
(d) Business. The Borrower and the Guarantors are primarily
engaged in the business of designing, manufacturing and selling software
products used to (i) create and monitor the physiological effects of motion on
humans and equipment; (ii) control, modify, simulate and measure environmental
conditions; and (iii) other activities incidental to the business (the
"Business").
(e) Financial Statements. The Borrower has delivered to the
Purchaser complete and correct copies of (i) its annual report to stockholders
for the fiscal year ended February 22, 2002 (the "Annual Report") and its annual
report on Form 10-K for such fiscal year as filed with the Securities and
Exchange Commission (the "Form 10-K"), and (ii) its quarterly report on Form
10-Q for the Fiscal Quarter ended November 22, 2002 as filed with the Securities
and Exchange Commission (the "Form 10-Q"). The Annual Report and the Form 10-K
correctly describe, in all material respects, as of their respective dates, the
business then conducted and proposed to be conducted by the Borrower. There are
included in the Form 10-K financial statements of the Borrower for the fiscal
year ended February 22, 2002, accompanied by the opinion thereon of ▇▇▇▇▇
▇▇▇▇▇▇▇▇ LLP, independent public accountants, and in the Form 10-Q financial
statements of the Borrower for the Fiscal Quarter ended November 22, 2002. All
financial statements included in the foregoing materials delivered to the
Purchaser (except as otherwise specified therein) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
specified and present fairly the financial position of the Borrower and its
Subsidiaries as of the respective dates specified and the results of their
operations and cash flows for the respective periods specified (with normal
year-end adjustments, which in the aggregate would not have a Material Adverse
Effect on the Company).
(f) Capitalization and Related Matters. As of the Closing
Date, the authorized capital stock of the Borrower will consist of 20,000,000
shares of Common Stock and 1,000,000 shares of Preferred Stock, par value $0.05
per share. On the Closing Date, 7,157,239 shares of the Common Stock and no
shares of such Preferred Stock are issued and outstanding. The shares of Common
Stock issuable upon conversion of the Note and exercise of the Warrants have
18
been duly authorized and validly reserved for issuance upon such conversion and
exercise and, when so issued in accordance with their terms, will be validly
issued, fully paid and non-assessable. Except as set forth on Schedule 5.1(f),
as of the Closing Date, the Borrower will not have outstanding securities
convertible into or exchangeable for any shares of its capital stock, nor will
it have outstanding any rights to subscribe for or to purchase, or any options
for the purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any character relating to,
any shares of its capital stock or any securities convertible into or
exchangeable for any shares of its capital stock.
(g) No Breach. Except as specifically provided by the
Transaction Documents, the execution and delivery by the Borrower and each
Guarantor of the Transaction Documents, as applicable, and the consummation of
the Transactions do not and will not (i) conflict with or result in a breach of
the terms, conditions or provisions of, (ii) constitute a default under, (iii)
except as created pursuant to the Security Documents, result in the creation of
any Lien upon the Borrower's or any Guarantor's capital stock or assets pursuant
to, (iv) give any third party the right to accelerate any obligation under, (v)
result in a violation of, or (vi) require any authorization, consent, approval,
exemption or other action by or notice to any Governmental Authority pursuant
to, the Charter Documents or the Bylaws of the Borrower or any Guarantor, or any
Law to which the Borrower or any Guarantor is subject, or any agreement,
statute, rule or regulation, instrument, order, judgment or decree to which the
Borrower or any Guarantor is a party or to which they or their assets are
subject.
(h) Governmental Approvals. Except as specifically provided by
the Transaction Documents, no registration with or consent or approval of, or
other action by, any Governmental Authority or any other Person is or will be
required in connection with the consummation of the Transactions by the Borrower
or Guarantors and the performance of their obligations thereunder.
(i) No Material Adverse Change. Since February 22, 2002, there
has been no event or occurrence that is likely to have a Material Adverse
Effect.
(j) Litigation. Except as set forth on Schedule 5.1(j) hereto,
there are no actions, suits or proceedings at law or in equity or by or before
any arbitrator or any Governmental Authority now pending or, to the knowledge of
the Borrower's management after due inquiry, threatened against or filed by or
affecting the Borrower or any Guarantor or their directors or officers or the
businesses, assets or rights of the Borrower or any Guarantor.
(k) Compliance with Laws. Neither the Borrower nor any
Guarantor is in violation of any applicable Law, the affect of which violation
could have a Material Adverse Effect. Neither the Borrower nor any Guarantor is
in default with respect to any judgment, order, writ, injunction, decree, rule
or regulation of any Governmental Authority. Neither the Borrower nor the
Guarantor is in, and the consummation of the Transactions will not cause any,
default concerning any judgment, order, writ, injunction or decree of any
Governmental Authority, and there is no investigation, enforcement action or
regulatory action pending or threatened against or affecting the Borrower or any
Guarantor by any Governmental Authority, except as set forth on Schedule 5.1(k).
Except as set forth on Schedule 5.1(k), there is no remedial or other corrective
action that the Borrower or any Guarantor is required to take to remain in
compliance with any judgment, order, writ, injunction or decree of any
Governmental Authority or to maintain any material permits, approvals or
licenses granted by any Governmental Authority in full force and effect.
19
(l) Environmental Protection. Except as set forth on Schedule
5.1(l) and after giving effect to the Transactions: (i) the Business of the
Borrower and each Guarantor, the methods and means employed by the Borrower and
each Guarantor in the operation thereof (including all operations and conditions
at or in the properties of the Borrower and each Guarantor), and the assets
owned, leased, managed, used, controlled, held or operated by the Borrower and
each Guarantor, comply in all material respects with all applicable
Environmental Laws; (ii) with respect to the Properties and Facilities, and
except as disclosed on Schedule 5.1(l), the Borrower and each Guarantor have
obtained, possess, and are in full compliance with all permits, licenses,
reviews, certifications, approvals, registrations, consents, and any other
authorizations required for material compliance with any Environmental Laws;
(iii) neither the Borrower nor either Guarantor has received (x) any claim or
notice of violation, lien, complaint, suit, order or other claim or notice to
the effect that the Borrower or either Guarantor is or may be liable to any
Person as a result of (A) the environmental condition of any of its Properties
and Facilities or any other property, or (B) the release or threatened release
of any Pollutant, or (y) any letter or request for information under Section 104
of the CERCLA, or comparable Laws, and to the best of the Borrower's knowledge,
none of the operations of the Borrower and each Guarantor are the subject of any
investigation by a Governmental Authority evaluating whether any remedial action
is needed to respond to a release or threatened release of any Pollutant at the
Properties and Facilities or at any other location, including any location to
which the Borrower or either Guarantor has transported, or arranged for the
transportation of, any Pollutants; (iv) except as disclosed on Schedule 5.1(l),
neither the Borrower or either Guarantor nor any prior owner or operator has
incurred in the past, or is now subject to, any material Environmental
Liabilities; (v) except as disclosed on Schedule 5.1(l), there are no Liens,
covenants, deed restrictions, notice or registration requirements, or other
limitations applicable to the Properties and Facilities, based upon any
Environmental Laws; (vi) there are no USTs located in, at, on, or under the
Properties and Facilities other than the USTs identified on Schedule 5.1(l) as
USTs; and each of those USTs is in material compliance with all Environmental
Laws and other legal obligations; and (vii) except as disclosed on Schedule
5.1(l), to Borrower's knowledge, there are no PCBs, lead paint, asbestos (of any
type or form), or materials, articles or products containing PCBs, lead paint or
asbestos, located in, at, on, under, a part of, or otherwise related to the
Properties and Facilities (including, without limitation, any building,
structure, or other improvement that is a part of the Properties and
Facilities), and all of the PCBs, lead paint, asbestos, and materials, articles
and products containing PCBs, lead paint or asbestos identified in the
Environmental Schedule are in full compliance with all Environmental Laws and
other legal obligations. To the knowledge of the Borrower, the Borrower is not
subject to liability under any Environmental Laws that would result in a
Material Adverse Effect.
(m) Use of Proceeds; Legal Investments.
20
(i) The Borrower will apply any proceeds of the sale
of the Note and Warrants, together with the proceeds of borrowings
under the Senior Credit Agreement, simultaneously with the Closing, (a)
to the repayment of the existing debt of the Borrower in an aggregate
amount of approximately $9,800,000, (b) to the payment of fees and
expenses incurred in connection with the offering and sale of the Note
and Warrants and the concurrent execution and delivery of the Credit
Agreement, in an aggregate amount of approximately $402,000 and (c) to
working capital needs.
(ii) Neither the Borrower nor any Guarantor is
engaged in the business of extending credit for the purpose of
purchasing or carrying any "margin stock" or "margin security" (within
the meaning of Regulations T, U or X issued by the Board of Governors
of the Federal Reserve System), and no proceeds of the sale of the Note
and Warrants will be used to purchase or carry any margin stock or
margin security or to extend credit to others for the purpose of
purchasing or carrying any margin stock or margin security.
(n) Taxes. Each of the Borrower and each Guarantor has filed
or caused to be filed all tax returns which are required to be filed and have
paid all taxes shown to be due and payable on said returns or on any assessments
made against it or any of its property and all other taxes, fees or other
charges imposed on it or any of its property by any Governmental Authority
(other than any the amount or validity of which are currently being contested in
good faith by appropriate proceedings and with respect to which reserves, if
any, in conformity with GAAP have been provided on the books of the Borrower);
no tax Lien has been filed against the Borrower or any Guarantor, and, to the
knowledge of the Borrower, no claim is being asserted, with respect to any such
tax, fee or other charges.
(o) ERISA; Labor and Employment.
(i) The Borrower is and each of its Plans are in
compliance in all material respects with those provisions of ERISA, the
Code, the Age Discrimination in Employment Act, and the regulations and
published interpretations thereunder which are applicable to the
Borrower or any such Plan. As of the date hereof, no Reportable Event
has occurred with respect to any Plan as to which the Borrower is or
was required to file a report with the PBGC. No Plan has any material
amount of unfunded benefit liabilities (within the meaning of Section
4001(a)(18) of ERISA) or any accumulated funding deficiency (within the
meaning of Section 302(a)(2) of ERISA), whether or not waived, and the
Borrower has not incurred nor reasonably expects to incur any material
withdrawal liability under Subtitle E of Title IV of ERISA to a
Multiemployer Plan. The Borrower is in compliance in all material
respects with all labor and employment laws, rules, regulations and
requirements of all applicable domestic and foreign jurisdictions.
There are no pending or threatened labor disputes, work stoppages or
strikes.
(ii) The Borrower is not a party to any collective
bargaining agreement, and there are no strikes, work stoppages,
material grievances, disputes or controversies with any union or any
other organization of the Borrower's employees, or threats of strikes,
work stoppages or any asserted pending demands for collective
bargaining by any union or organization, except to the extent that such
strikes, work stoppages, material grievances, disputes or controversies
could not reasonably be expected to have a Material Adverse Effect. The
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Borrower has not, within the two-year period preceding the Closing
Date, taken any action which would have constituted or resulted in a
"plant closing" or "mass layoff" within the meaning of the Federal
Worker Adjustment and Retraining Notification Act of 1988 or any
similar Law. The procedures by which each of the Borrower has hired or
will hire its employees comply and will comply in all material respects
with each collective bargaining agreement to which the Borrower is a
party and any applicable Law. The Borrower is in compliance with the
Fair Labor Standards Act, as amended, and has paid all minimum and
overtime wages required by law to be paid to its respective employees,
except for violations which could not have a Material Adverse Effect.
(p) Investment Company Act; Public Utility Holding Company
Act. The Borrower is not (i) an "investment company" or "controlled" by an
investment company within the meaning of the Investment Company Act of 1940, as
amended, or (ii) a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company," within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
(q) Condition of and Title to Properties. The real property
owned or leased by the Borrower and any Guarantor in the United States as of the
Closing Date is described on Schedule 5.1(q) hereto. Each of the Borrower and
each Guarantor has good title to or valid leasehold interest in all properties,
assets and other rights which it purports to own or lease or which are reflected
as owned or leased on its books and records (the "Properties and Facilities"),
free and clear of all Liens and encumbrances except Permitted Liens, and subject
to the terms and conditions of the applicable leases. Except as described on
Schedule 5.1(q), all leases of property are in full force and effect. No consent
under any lease is required in connection with the consummation of the
transactions contemplated hereby. Except for financing statements evidencing
Permitted Liens, no effective financing statement under the Uniform Commercial
Code is in effect in any jurisdiction and no other filing which names the
Borrower or any Guarantor as debtor or which covers or purports to cover any of
the assets of the Borrower or any Guarantor is currently effective and on file
in any state or other jurisdiction, and neither the Borrower nor any Guarantor
has signed any such financing statement or filing or any security agreement
authorizing any secured party thereunder to file any such financing statement or
filing. All of the assets and properties of the Borrower and each Guarantor that
are necessary for the operation of their respective businesses are in good
working condition and are able to serve the functions for which they are
currently being used, except for ordinary wear and tear.
(r) Proprietary Rights. Each of the Borrower and each
Guarantor owns, or is licensed to use its Proprietary Rights necessary for the
conduct of its business as currently conducted. Except as set forth on Schedule
5.1(r), no claim has been asserted and is pending by any Person challenging or
questioning the use of any such Proprietary Rights, nor does the Borrower know
of any valid basis for any such claim. The use of such Proprietary Rights by the
Borrower and each Guarantor does not infringe the rights of any Person, except
for such claims and infringements that, in the aggregate, do not have a Material
Adverse Effect. To the best knowledge of the Borrower, except as set forth on
Schedule 5.1(r), no slogan or other advertising, device, product, process,
22
method, substance, part or component or other material now employed, or now
contemplated to be employed, by any of the Borrower and each Guarantor infringes
upon or conflicts with any rights owned by any other Person, and no claim or
litigation regarding any of the foregoing is pending or, to the knowledge of the
Borrower, threatened. No patent, invention, device, application, and no statute,
law, rule, regulation, standard or code involving the Borrower's or any
Guarantor's Proprietary Rights is pending or, to the knowledge of the Borrower,
proposed, except where the consequences in the aggregate could not reasonably be
expected to have a Material Adverse Effect.
(s) Solvency. After giving effect to the Transactions, (i) the
fair value of the assets of the Borrower and each Guarantor, at a fair
valuation, will exceed its debts and liabilities, subordinated, contingent or
otherwise, (ii) the present fair saleable value of the property of the Borrower
and each Guarantor will be greater than the amount that will be required to pay
the probable liability of its debts and other liabilities, subordinated,
contingent or otherwise, as such debts and other liabilities become absolute and
matured, (iii) the Borrower and each Guarantor will be able to pay their
respective debts and liabilities, subordinated, contingent or otherwise, as such
debts and liabilities become absolute and matured, and (iv) the Borrower will
not have unreasonably small capital with which to conduct the Business.
(t) Subsidiaries. As of the Closing Date, the Borrower has no
Subsidiaries except for those set forth on Schedule 5.1(t), each of which was
duly formed and is existing under the law of the jurisdiction set forth opposite
their names. All of the issued and outstanding shares of capital stock of the
Subsidiaries are duly and validly authorized and issued and fully paid and
nonassessable and are owned by the Borrower, (except for directors' qualifying
shares). There are no options, warrants or other rights outstanding to purchase
any capital stock of any of the Subsidiaries, nor are any securities of any of
the Subsidiaries convertible into or exchangeable for capital stock of the
Subsidiaries except as described on Schedule 5.1(t).
(u) Broker's or Finder's Commissions. Except as set forth on
Schedule 5.1(u), no broker's or finder's or placement fee or commission will be
payable to any broker or agent engaged by the Borrower or any of its officers,
directors or agents with respect to the issuance and sale of the Note, the
Warrants or the Transactions. The Borrower agrees to indemnify the Purchaser and
hold Purchaser harmless from and against any claim, demand or liability for
broker's or finder's or placement fees or similar commissions, alleged to have
been incurred in connection with such transactions, other than any broker's or
finder's fees payable to Persons engaged by the Purchaser.
(v) Absence of Undisclosed Liabilities. Except as set forth on
Schedule 5.1(v), the Borrower has no liabilities or obligations, either accrued,
absolute, contingent or otherwise, except:
(i) those liabilities or obligations set forth on the
Financial Statements and not heretofore paid or discharged,
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(ii) liabilities arising in the ordinary course of
business under any agreement, contract, commitment, lease or plan
specifically disclosed on the schedules or not required to be disclosed
because of the term or amount involved or otherwise, and
(iii) those liabilities or obligations incurred,
consistently with past business practice, in or as a result of the
normal and ordinary course of business.
(w) Federal Regulations. No part of the proceeds of the Loan
will be used for "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation U or for any
purpose which violates the provisions of Regulation U or any other Regulations
of the Board of Governors of the Federal Reserve System. If requested by the
Purchaser, the Borrower will furnish to the Purchaser a statement to the
foregoing effect in conformity with the requirements of FR Form U-l referred to
in said Regulation U. No part of the proceeds of the Loan hereunder will be used
for any purpose which violates, or which is inconsistent with, the provisions of
either of Regulations T and X.
(x) Complete Disclosure. All statements and material furnished
by or on behalf of the Borrower to the Purchaser for purposes of or in
connection with this Agreement or the Transactions is, and all other statements
and material hereafter furnished by or on behalf of the Borrower will be, true
and accurate in all material respects on the date as of which such information
is furnished and not incomplete or misleading by omitting to state any fact
necessary to make such information not misleading at such time in light of the
circumstances under which such information was provided.
(y) Security Interests. At all times after execution and
delivery of the Security Documents by the party or parties thereto and
completion of the filings and recordings listed on Schedule 5.1(y), the security
interests created for the benefit of the Purchaser pursuant to the Security
Documents will constitute valid, perfected security interests in the collateral
subject thereto, subject to no other Liens whatsoever, except Permitted Liens.
(z) Insurance. The Borrower currently maintains insurance
which meets or exceeds the requirements of Section 7.1(c) and the applicable
insurance requirements set forth in the other Transaction Documents. Schedule
5.1(z) hereto lists, as of the Closing Date, all insurance policies and other
bonds to which the Borrower is a party, all of which are valid and in full force
and effect. No written notice has been given or claim made and the Borrower has
no knowledge that any grounds exist to cancel or avoid any of such policies or
bonds or to reduce the coverage provided thereby or any replacements thereof.
Such policies and bonds or any replacements thereof provide adequate coverage
from reputable and financially sound insurers in amounts sufficient to insure
the assets and risks of the Borrower in accordance with prudent business
practice in the industry of the Borrower.
(aa) Authorizations.
(i) Except as set forth on Schedule 5.1(aa), each of
the Borrower and each Guarantor possesses all material approvals of
each Governmental Authority (the "Governmental Approvals") necessary
for the operations of its business and is not in material violation
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thereof. All such Governmental Approvals are in full force and effect,
and no event has occurred that permits, or after notice or lapse of
time could permit, the revocation, termination or material and adverse
modification of any such Governmental Approval.
(ii) Except as set forth on Schedule 5.1(aa), neither
the Borrower nor any Guarantor has knowledge of any investigation,
notice of apparent liability, violation, forfeiture or other order or
complaint issued by or before any Governmental Authority, or of any
other proceedings of or before any Governmental Authority, which could
reasonably be expected to have a Material Adverse Effect.
(bb) No Consents. Except as set forth in Section 5.1(b), no
consent, approval or authorization of any Person is required for the valid
execution and delivery of this Agreement or the valid offer, issue, sale and
delivery of the Note and Warrants pursuant to this Agreement.
(cc) Stockholders Voting Agreement. Pursuant to the terms of
the Stockholders Voting Agreement, the stockholders of the Borrower owning, or
controlling the voting power of, greater than 50% of the issued and outstanding
shares of Common Stock have agreed to vote the shares of Common Stock owned by
them in favor of the transactions contemplated by this Agreement.
(dd) Foreign Corrupt Practices. Neither the Borrower, nor any
of its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Borrower or any Subsidiary has, in the course of his
actions for, or on behalf of, the Borrower, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
(ee) No Defaults. Except as set forth on Schedule 5.1(ee),
neither the Borrower nor any Guarantor is in default under or with respect to
any of its Contractual Obligations in any respect which could reasonably be
expected to have a Material Adverse Effect. No Default or Event of Default has
occurred and is continuing.
All of the foregoing representations and warranties shall survive the execution
and delivery of the Note and the making by the Purchaser of the Loan hereunder
and shall continue in full force and effect so long as any indebtedness or
obligation of the Borrower to the Purchaser hereunder or otherwise is
outstanding or unperformed or this Agreement remains in effect.
ARTICLE VI
RESTRICTED SECURITIES
6.1 Restricted Securities. The Purchaser acknowledges that the
Securities have not been registered under the Securities Act and may be resold
only if registered pursuant to the provisions of the Securities Act or if an
exemption from registration is available, and, except as provided in the
Registration Rights Agreement, that the Borrower is not required to register any
of the Securities.
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6.2 Legends; Purchaser's Representations. The Purchaser hereby
represents and warrants to the Borrower that it is an "accredited investor"
within the meaning of Rule 501(a) under the Securities Act and is acquiring the
Securities for investment for the Purchaser's own account, with no present
intention of dividing its participation with others (except for a potential
transfer or transfers of the Securities to an affiliate or affiliates of the
Purchaser) or reselling or otherwise distributing the same in violation of the
Securities Act or any applicable state securities laws. The Borrower may place
an appropriate legend on the Securities owned by the Purchaser concerning the
restrictions set forth in this Article 6. Upon the assignment or transfer by the
Purchaser or any of its successors or assignees of all or any part of the
Securities, the term "Purchaser" as used herein shall thereafter mean, to the
extent thereof, the then holder or holders of such Securities, or portion
thereof.
6.3 Prohibition on Short Sales. The Purchaser will not engage in any
short sale of any shares of Common Stock or have in effect a short position with
respect thereto (whether such short sale or position is against the box and
regardless of when such position was entered into).
6.4 Transfer of Notes. Subject to Section 6.2 hereof, a holder of a
Note may transfer such Note to a new holder, or may exchange such Note for Notes
of different denominations (but in no event of denominations of less than
$500,000 or increments of $100,000 in excess thereof in original principal
amount), by surrendering such Note to the Borrower duly endorsed for transfer or
accompanied by a duly executed instrument of transfer naming the new holder (or
the current holder if submitted for exchange only), together with written
instructions for the issuance of one or more new Notes specifying the respective
principal amounts of each new Note and the name of each new holder and each
address therefor. The Borrower shall simultaneously deliver to such holder or
its designee such new Notes, shall ▇▇▇▇ the surrendered Notes as canceled. The
Borrower shall not be required to recognize any subsequent holder of a Note
unless and until the Borrower have received reasonable assurance that all
applicable transfer taxes have been paid. Notwithstanding the foregoing, a
holder of a Note may not transfer such Note or shares of Common Stock issuable
upon conversion of such Note to a competitor of the Borrower or any Subsidiary
or affiliate of the Borrower.
6.5 Replacement of Lost Securities. Upon receipt of evidence reasonably
satisfactory to the Borrower of the mutilation, destruction, loss or theft of
any Securities and the ownership thereof, the Borrower shall, upon the written
request of the holder of such Securities, execute and deliver in replacement
thereof new Securities in the same form, in the same original principal amount
and dated the same date as the Securities so mutilated, destroyed, lost or
stolen; and such Securities so mutilated, destroyed, lost or stolen shall then
be deemed no longer outstanding hereunder. If the Securities being replaced have
been mutilated, they shall be surrendered to the Borrower; and if such replaced
Securities have been destroyed, lost or stolen, such holder thereof shall
furnish the Borrower with a written indemnity, in form satisfactory to the
Borrower, to save it harmless in respect of such replaced Security.
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ARTICLE VII
COVENANTS
7.1 Affirmative Covenants. The Borrower covenants that, so long as all
or any of the principal amount of the Note or any interest thereon shall remain
outstanding, the Borrower shall and cause each Guarantor to:
(a) Existence. Do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its legal existence.
(b) Businesses and Properties; Compliance with Laws. At all
times (i) do or cause to be done all things necessary to preserve, renew and
keep in full force and effect the rights, licenses, registrations, permits,
certifications, approvals, consents, franchises, Proprietary Rights which may be
material to the conduct of the Business; (ii) comply in all material respects
with all Laws applicable to the operation of such business, including but not
limited to, all Environmental Laws, whether now in effect or hereafter enacted
and with all other applicable Laws, (iii) take all action which may be required
to obtain, preserve, renew and extend all rights, Proprietary Rights,
franchises, registrations, certifications, approvals, consents, licenses,
permits and any other authorizations which may be material to the operation of
such business, (iv) maintain, preserve and protect all property material to the
conduct of such business, and (v) except for obsolete or worn out equipment,
keep their property in good repair, working order and condition and from time to
time make, or cause to be made, all needful and proper repairs, renewals,
additions, improvements and replacements thereto necessary in order that the
business carried on in connection therewith may be properly conducted at all
times.
(c) Insurance. Maintain insurance required by the Transaction
Documents and any and all contracts entered into by the Borrower under policies
issued by financially sound and reputable insurers in such amounts as are
customary with companies similarly situated and in the same or similar business.
The Borrower shall pay all insurance premiums payable by it and shall deliver
the policy or policies of such insurance (or certificates of insurance with
copies of such policies) to the Purchaser. All insurance policies of the
Borrower shall contain endorsements, in form and substance reasonably
satisfactory to the Purchaser, providing that the insurance shall not be
cancelable except upon thirty (30) days' prior written notice to Purchaser. The
Purchaser shall be shown as a loss payee and an additional named insured party
under all such insurance policies.
(d) Obligations and Taxes. Pay and discharge promptly when due
all taxes, assessments and governmental charges or levies imposed upon them or
upon their income or profits or in respect of their properties before the same
shall become delinquent or in default, as well as all lawful claims for labor,
materials and supplies or otherwise, which, if unpaid, might give rise to Liens
or charges upon such properties or any part thereof; provided, however, that
neither the Borrower nor any Guarantor shall be required to pay and discharge or
to cause to be paid and discharged any such tax, assessment, charge, levy or
claim so long as the validity or amount thereof shall be contested in good faith
by appropriate proceedings and the Borrower or such Guarantor shall have set
aside on their books adequate reserves with respect thereto.
27
(e) Financial Statements; Reports. Furnish to the Purchaser:
(i) not later than the ninetieth day after the end of
each fiscal year of the Borrower, Consolidated balance sheets of the
Borrower and its Subsidiaries as at the end of such year and the
related Consolidated statements of income, stockholders' equity and
cash flows of the Borrower and its Subsidiaries for such fiscal year,
setting forth in each case in comparative form (x) the Consolidated
figures for the previous fiscal year and (y) the figures set forth in
the budget for such period, all in reasonable detail and accompanied by
a report thereon of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP or other reputable firm of
independent public accountants, which report shall state that such
consolidated financial statements present fairly the financial position
of the Borrower and its Subsidiaries as at the dates indicated and the
results of their operations and their cash flows for the periods
indicated in conformity with GAAP applied on a basis consistent with
prior years (except as otherwise specified in such report) and that the
audit by such accountants in connection with such Consolidated
financial statements has been made in accordance with GAAP; provided
that so long as the Borrower is subject to the reporting provisions of
the Exchange Act, timely delivery of copies of the Borrower's annual
report on Form 10-K for such period will satisfy the requirements of
this paragraph (i) (except for the requirement included in clause (y)
above);
(ii) not later than the sixtieth day after the end of
each of the first three quarterly fiscal periods in each fiscal year of
the Borrower, Consolidated balance sheets of the Borrower and its
Subsidiaries as at the end of such period and the related Consolidated
statements of income, stockholders' equity and cash flows of the
Borrower and its Subsidiaries for such period and (in the case of the
second and third quarterly periods) for the period from the beginning
of the current fiscal year to the end of such quarterly period, setting
forth in each case in comparative form (x) the consolidated figures for
the corresponding periods of the previous fiscal year and (y) the
figures set forth in the budget for such period, all in reasonable
detail and certified by a principal financial officer of the Borrower
as presenting fairly, in accordance with GAAP (except for the absence
of notes thereto) applied (except as specifically set forth therein) on
a basis consistent with such prior fiscal periods, the information
contained therein, subject to changes resulting from normal year-end
audit adjustments; provided that so long as the Borrower is subject to
the reporting provisions of the Exchange Act, timely delivery of copies
of the Borrower's quarterly report on Form 10-Q for such period will
satisfy the requirements of this paragraph (ii) (except for the
requirement included in clause (y) above);
(f) Certificates; Other Information. Furnish to the Purchaser:
(i) concurrently with the delivery of the financial
statements referred to in subsection 7.1(e)(i), a certificate of the
Borrower's independent certified public accountants reporting on such
financial statements and stating that in making the examination
necessary for certifying such financial statements no knowledge was
obtained of any Default or Event of Default, except as specifically
indicated;
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(ii) concurrently with the delivery of the financial
statements referred to in subsections 7.1(e)(i) and (ii), a compliance
certificate, in substantially the form attached as Exhibit J (the
"Compliance Certificate"), executed by an Executive Officer showing,
among other things, in detail the calculations demonstrating compliance
with the financial covenants set forth in Section 7.3;
(iii) within five days after the same are sent,
copies of all financial statements and reports which the Borrower sends
to any of its shareholders and within five days after the same are
filed, copies of all financial statements and reports which the
Borrower may make to, or file with, the Securities Exchange Commission
or any successor or analogous Governmental Authority;
(iv) promptly upon their becoming available to the
Borrower any reports including management letters submitted to the
Borrower by independent accountants in connection with any annual,
interim or special audit;
(g) Litigation and Other Notices. Give the Purchaser prompt
written notice of the following:
(i) Orders; Injunctions. The issuance by any
Governmental Authority of any injunction, order, decision or other
restraint prohibiting, or having the effect of prohibiting, the making
of any loan or the initiation of any litigation or similar proceeding
seeking any such injunction, order or other restraint.
(ii) Litigation. The notice, filing or commencement
of any action, suit or proceeding against the Borrower or any Guarantor
whether at law or in equity or by or before any court or any Federal,
state, municipal or other governmental agency or authority and that, if
adversely determined against the Borrower or any Guarantor, could
result in uninsured liability in excess of $150,000 in the aggregate.
(iii) Environmental Matters. (A) Any release or
threatened release of any Pollutant required to be reported to any
Governmental Authority under any applicable Environmental Laws, (B) any
Removal, Remedial or Response action taken by the Borrower or any other
person in response to any Pollutant in, at, on or under, a part of or
about the Borrower's or either Guarantor's Properties and Facilities,
or any other property for which the Borrower or either Guarantor is
responsible, (C) any violation by the Borrower or any Guarantor of any
Environmental Law, in each case, that could result in a Material
Adverse Effect, or (D) any notice, claim or other information that the
Borrower or any Guarantor might be subject to an Environmental
Liability.
(iv) Default. Any Default or Event of Default,
specifying the nature and extent thereof and the action (if any) that
is proposed to be taken with respect thereto.
(v) Material Adverse Effect. Any development in the
Business or in the affairs of the Borrower or any Guarantor that could
have a Material Adverse Effect.
29
(h) ERISA. Comply in all material respects with the applicable
provisions of ERISA and the provisions of the Code relating thereto and furnish
to the Purchaser (i) as soon as possible, and in any event within thirty (30)
days after the Borrower knows thereof, notice of (A) the establishment by the
Borrower of any Plan, (B) the commencement by the Borrower of contributions to a
Multiemployer Plan, (C) any failure by the Borrower or any of its Affiliates to
make contributions required by Section 302 of ERISA (whether or not such
requirement is waived pursuant to Section 303 of ERISA), or (D) the occurrence
of any Reportable Event with respect to any Plan or Multiemployer Plan for which
the reporting requirement is not waived, together with a statement of an officer
setting forth details as to such Reportable Event and the action which the
Borrower proposes to take with respect thereto, together with a copy of the
notice of such Reportable Event given to the PBGC if any such notice was
provided by the Borrower, and (ii) promptly after receipt thereof, a copy of any
notice the Borrowers may receive from the PBGC relating to the intention of the
PBGC to terminate any Plan or Multiemployer Plan, or to appoint a trustee to
administer any Plan or Multiemployer Plan, and (iii) promptly after receipt
thereof, a copy of any notice of withdrawal liability from any Multiemployer
Plan.
(i) Maintaining Records; Access to Premises and Inspections.
Maintain financial records in accordance with generally accepted practices and,
on no more than two occasions during any twelve (12) month period, during
business hours and after reasonable notice has been provided, permit an
authorized representative of the Purchaser to visit and inspect the properties
and financial records of the Borrower and to make extracts from such financial
records, all at the Borrower's reasonable expense, and permit any authorized
representative to discuss the affairs, finances and conditions of the Borrower
with the Borrower's Executive Officers, and the Borrower's independent public
accountants.
(j) Covenants Regarding Formation of Subsidiaries and
Acquisitions. At the time of (a) any Permitted Acquisition of domestic
Subsidiary or (b) the formation of any new domestic Subsidiary of the Borrower
which is permitted under this Agreement (i) provide the Purchaser an executed
joinder agreement, in form and substance acceptable to the Purchaser, pursuant
to which such domestic Subsidiary shall become a Guarantor under the Guaranty
and a Security Agreement and appropriate financing statements so that all of the
assets of such domestic Subsidiary shall be pledged to the Purchaser, (ii)
provide a statement of an Executive Officer that no Default or Event of Default
exists or would be caused by the Permitted Acquisition or formation; and (iii)
provide all other documentation, including one or more opinions of counsel,
reasonably satisfactory to the Purchaser, which in its reasonable opinion is
appropriate with respect to such Permitted Acquisition or the formation of such
domestic Subsidiary. Any document, agreement or instrument executed or issued
pursuant to this subsection 7.1(j) shall be a "Transaction Document" for
purposes of this Agreement.
(k) Board of Directors. So long as the Purchaser or any of its
Affiliates beneficially own five (5%) percent of the outstanding shares of
Common Stock, calculated on a fully-diluted basis, the Borrower will nominate
for election to its Board of Directors the Purchaser or the designee of
Purchaser (who shall be reasonably acceptable to the Borrower) to serve in such
capacity, promptly after the Closing and in connection with each subsequent
election of Directors thereafter, and will use its best efforts to procure the
election and reelection of such person.
30
(l) Stockholder Approval. Borrower shall, as soon as
practicable, but in no event later than June 18, 2003, hold a meeting of its
stockholders (the "Meeting") for the purpose of approving the transactions
contemplated by this Agreement, including, without limitation, approving, as
required by Section 713 of the Listing, Standards, Policies and Requirements of
the American Stock Exchange, the right of the Purchaser to, at any time (i)
convert the Note and (ii) exercise the Warrants into shares of Common Stock
representing in the aggregate in excess of 19.99% of the issued and outstanding
Common Stock; and Borrower shall use its best efforts to obtain such approval.
In connection therewith, Borrower shall use its best efforts to set the record
date for determination of shareholders of Borrower entitled to vote at the
Meeting on March 20, 2003.
(m) Grant of Warrants upon Additional Issuances.
(i) Upon each conversion of the Note, Borrower shall
issue a warrant (each an "Additional Warrant"), entitling the Purchaser
to purchase shares of Common Stock equal to ten percent (10%) of the
shares of Common Stock issued upon such conversion.
(ii) In connection with the grant by the Borrower of
each of the 568,386 available but unissued stock options under the
Borrower's option plan, the Borrower shall issue an Additional Warrant
entitling the Purchaser to purchase shares of Common Stock equal to ten
percent (10%) of the shares of Common Stock issuable upon exercise of
such option.
(iii) The Exercise Price and other terms and
conditions of each Additional Warrant shall be the same as may then
apply to the Warrant, including all adjustments, as if each such
Additional Warrant had been issued on the date hereof. For all purposes
each Additional Warrant shall be deemed to be a Warrant.
(iv) The covenants of the Borrower contained in this
Section 7.1(m) shall survive exercise of the Warrants, the conversion
of the Note and any termination of this Agreement.
7.2 Negative Covenants. The Borrower covenants that, so long as all or
any part of the principal amount of the Note or any interest thereon shall
remain outstanding:
(a) Indebtedness. The Borrower and each Guarantor shall not
create, incur, assume, guarantee or be or remain liable for, contingently or
otherwise, or suffer to exist any Indebtedness, except:
(i) Indebtedness under this Agreement;
(ii) Indebtedness under the Senior Financing, to
which payment under the Notes will be subordinated on terms reasonably
acceptable to Purchaser;
31
(iii) Indebtedness incurred in the ordinary course of
business with respect to customer deposits, trade payables and other
unsecured current liabilities not the result of borrowing and not
evidenced by any note or other evidence of indebtedness; and
(iv) Permitted Indebtedness; and
(v) Extensions, renewals, and replacements of any
Permitted Indebtedness.
(b) Negative Pledge; Liens. The Borrower and each Guarantor
shall not create, incur, assume or suffer to exist any Lien of any kind on any
of its properties or assets of any kind, except the following (collectively,
"Permitted Liens"):
(i) Liens now existing or hereafter created in
connection with the Senior Financing, to which Liens the Purchaser will
subordinate its Liens to on the terms set forth in the Subordination
Agreement;
(ii) Liens for or priority claims imposed by law that
are incidental to the conduct of business or the ownership of
properties and assets (including mechanic's, warehousemen's, attorneys'
and statutory landlords' liens) and deposits, pledges or liens 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, however, that in
each case, the obligation secured thereby shall not be overdue, or, if
overdue, is being contested in good faith and adequate reserves have
been set up by the Borrower;
(iii) Liens securing the payments of taxes,
assessments and governmental charges or levies incurred in the ordinary
course of business that either (a) are not delinquent, or (b) are being
contested in good faith by appropriate legal or administrative
proceedings and as to which adequate reserves have been set aside on
their books, and so long as during the period of any such contest, the
Borrower shall suffer no loss of any privilege of doing business or any
other right, power or privilege necessary or material to the operation
of the Business;
(iv) Liens listed on Schedule 7.2(b) hereto; and
(v) Extensions, renewals and replacements of Liens
referred to in clauses (i) through (iv) of this Section 7.2(b);
provided, however, that any such extension, renewal or replacement Lien
shall be limited to the property or assets covered by the Lien
extended, renewed or replaced and that the obligations secured by any
such extension, renewal or replacement Lien shall be in an amount not
greater than the amount of the obligations secured by the Lien
extended, renewed or replaced.
(c) Contingent Obligations. Neither the Borrower nor any
Guarantor shall create, incur, assume or suffer to exist any Contingent
Obligation other than guarantees by the Borrower of Indebtedness of a
Subsidiary, but only to the extent such Indebtedness is permitted hereunder.
32
(d) Mergers, etc. Except for Permitted Acquisitions, the
Borrower shall not merge into or consolidate or combine with any other Person,
or purchase, lease or otherwise acquire (in one transaction or a series of
related transactions) all or any part of the property or assets of any Person
other than purchases or other acquisitions of inventory, materials, leases,
property and equipment in the ordinary course of business. Except as expressly
permitted by the Security Documents, the Borrower shall not sell, transfer or
otherwise dispose of, lease or let others manage any of its assets, including
the collateral under the respective Security Documents.
(e) Affiliate Transactions. Except as set forth on Schedule
7.2(e), neither the Borrower nor any Guarantor shall make any loan or advance to
any director, officer or employee of any Borrower or any Affiliate, or enter
into or be a party to any transaction or arrangement with any Affiliate of the
Borrower or such Guarantor, including, without limitation, the purchase from,
sale to or exchange of property with, any merger or consolidation with or into,
or the rendering of any service by or for, any Affiliate, except pursuant to the
reasonable requirements of the Business and upon fair and reasonable terms no
less favorable to Borrower or such Guarantor than would be obtained in a
comparable arm's-length transaction with a Person other than an Affiliate.
(f) Dividends and Common Stock Purchases. Neither the Borrower
nor any Guarantor will declare or pay any dividend, or make any distribution on
its outstanding capital stock or any other payment of any kind to any of its
stockholders or its or their Affiliates. provided that Subsidiaries not formed
under the laws of the United States of America or any U.S. state may declare and
pay dividends to their shareholders other than the Borrower and any other
Subsidiaries, in an aggregate amount not exceeding $25,000 per year.
(g) Advances, Investments and Loans. Neither the Borrower nor
any Guarantor shall purchase, or hold beneficially any stock, other securities
or evidences of Indebtedness of, or make or permit to exist any loan, Guaranty
or advance to, or make any investment or acquire any interest whatsoever in, any
other Person (including, but not limited to, the formation or acquisition of any
Subsidiaries), except:
(i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof having maturities of not more than six (6)
months from the date of acquisition;
(ii) United States dollar-denominated time deposits,
certificates of deposit and bankers acceptances of any bank or any bank
whose short-term debt rating from Standard & Poor's Ratings Group, a
division of The ▇▇▇▇▇▇-▇▇▇▇ Companies, Inc. ("S&P"), is at least A-1 or
the equivalent or from ▇▇▇▇▇'▇ Investors Service, Inc. ("▇▇▇▇▇'▇") is
at least P-1 or the equivalent with maturities of not more than six (6)
months from the date of acquisition;
33
(iii) commercial paper with a rating of at least A-1
or the equivalent by S&P or at least P-1 or the equivalent by Moody's
maturing within six (6) months after the date of acquisition;
(iv) marketable direct obligations issued by any
state of the United States of America or any political subdivision of
any such state or any public instrumentality thereof maturing within
six (6) months from the date of acquisition thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from
either S&P or Moody's;
(v) Investments in money market funds substantially
all the assets of which are comprised of securities of the types
described in clauses (i) through (iv) above;
(vi) Investments (including debt obligations)
received in connection with the bankruptcy or reorganization of
suppliers and customers and in settlement of delinquent obligations of,
and other disputes with, customers and suppliers arising in the
ordinary course of business;
(vii) receivables owing to the Borrower created or
acquired in the ordinary course of business and payable on customary
trade terms of the Borrower;
(viii) deposits made in the ordinary course of
business consistent with past practices to secure the performance of
leases or in connection with bidding on government contracts; and
(ix) advances to employees in the ordinary course of
business for business expenses; provided, however, that the aggregate
amount of such advances at any time outstanding shall not exceed
$100,000.
(h) Use of Proceeds. The Borrower shall not use any proceeds
from the sale of the Note hereunder, directly or indirectly, for the purposes of
purchasing or carrying any "margin securities" within the meaning of Regulations
T, U or X promulgated by the Board of Governors of the Federal Reserve Board or
for the purpose of arranging for the extension of credit secured, directly or
indirectly, in whole or in part by collateral that includes any "margin
securities."
(i) Amendment of Charter Documents. Neither the Borrower nor
any Guarantor shall amend, terminate, modify or waive or agree to the amendment,
modification or waiver of any material term or provision of its Charter
Documents or Bylaws. The Borrower shall not, without the prior written consent
of the Purchaser, issue any shares of its Preferred Stock.
(j) Business. Neither the Borrower nor any Guarantor shall
engage, directly or indirectly, in any business other than the Business.
34
(k) Fiscal Year; Accounting. The Borrower shall not change its
Fiscal Year from ending on the last Friday of each February or method of
accounting (other than immaterial changes in methods), except as required by
GAAP.
(l) Establishment of New or Changed Business Locations. The
Borrower shall not relocate its principal executive offices or other facilities
or establish new business locations or store any inventory or other assets at a
location not identified to the Purchaser on or before the date hereof, without
providing not less than thirty (30) days advance written notice to the
Purchaser.
(m) Changed or Additional Business Names. Neither the Borrower
nor any Guarantor shall change its corporate name or establish new or additional
trade names without providing not less than thirty (30) days advance written
notice to the Purchaser.
7.3 Financial Covenants. The Borrower covenants that, so long as all or
any part of the principal amount of the Note or any interest thereon shall
remain outstanding:
(a) Minimum Tangible Net Worth. The Borrower will not on any
day permit Consolidated Tangible Net Worth to be less than (i) $14,875,000 plus
(ii) an amount equal to 63.75% of the consolidated Net Income (if positive) of
the Borrower and its Subsidiaries for each Fiscal Quarter ending after May 31,
2003, calculated on a cumulative basis plus (iii) 85% of the net proceeds from
the issuance after the date hereof of any and all shares, interests,
participations or other equivalents (however designated) of capital stock of the
Borrower, including any and all warrants or options to purchase such shares,
interests, participations or other such equivalents, other than to the Borrower
or any of its Subsidiaries (excluding proceeds from the issuance of shares of
Common Stock issuable upon Conversion of the Note and exercise of the Warrant.
(b) Minimum Fixed Charge Coverage. As of the last day of each
Fiscal Quarter, the Borrower will not permit the ratio of (i) the sum of EBITDA,
minus Capital Expenditures minus capitalized software development costs to (ii)
Fixed Charges to be less than 1.06 : 1.00.
(c) Total Debt to Annual EBITDA. The Borrower will not, as of
the last day of each Fiscal Quarter during the periods set forth in the table
below, permit the ratio of (i) Total Debt to (ii) Annual EBITDA for the period
ending on such date, to be greater than the ratio set forth opposite such date
in the table below:
35
Period End Date Ratio
--------------- -----
Closing Date through February 28, 2003 5.18:1.00
March 1, 2003 through February 29, 2004 4.60:1.00
March 1, 2004 and thereafter 4.03:1.00
ARTICLE VIII
EVENTS OF DEFAULT
8.1 Events of Default. An Event of Default shall mean the occurrence of
one or more of the following described events:
(a) the Borrower shall default in the payment of (i) interest
on the Note within five (5) days after its due date (subject to Section 3.1(b))
or (ii) principal of the Note when due, whether at maturity, by acceleration or
otherwise;
(b) the Borrower shall default in the payment of (i) interest
on any Senior Debt on its due date or (ii) principal on any Senior Debt, whether
at maturity, upon any scheduled payment date or by acceleration or otherwise;
(c) the Borrower shall default under any agreement related to
the Senior Financing or under any agreement under which any Indebtedness in an
aggregate principal amount of $300,000 or more is created in a manner entitling
the holder of such Indebtedness to accelerate the maturity of such Indebtedness;
(d) any representation or warranty herein made by the
Borrower, or any certificate or financial statement furnished pursuant to the
provisions hereof, shall prove to have been false or misleading in any material
respect as of the time made or furnished or deemed made or furnished;
(e) the Borrower or any Guarantor shall default in the
performance of any other covenant, condition or provision of this Agreement, the
Note or the other Transaction Documents, and such default shall not be remedied
for a period of thirty (30) days after the earlier of (i) written notice from
the Purchaser of such default or (ii) actual knowledge by the Borrower of such
default;
(f) a proceeding shall have been instituted in a court having
jurisdiction in the premises seeking a decree or order for relief in respect of
the Borrower in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or for the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of the Borrower or for any substantial part of its property, or for
the winding-up or liquidation of their affairs, and such proceeding shall remain
undismissed or unstayed and in effect for a period of sixty (60) days;
36
(g) the Borrower shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, shall consent to the entry of an order for relief in an involuntary case
under any such law, or shall consent to the appointment of or taking possession
by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other
similar official) of the Borrower or for any substantial part of its property,
or shall make a general assignment for the benefit of creditors, or shall fail
generally to pay their debts as they become due, or shall take any action in
furtherance of any of the foregoing;
(h) both the following events shall occur: (i) a Reportable
Event, the occurrence of which would have a Material Adverse Effect which could
cause the imposition of a Lien under Section 4068 of ERISA, shall have occurred
with respect to any Plan or Plans; and (ii) the aggregate amount of the then
"current liability" (as defined in Section 412(l)(7) of the Internal Revenue
Code of 1986, as amended) of all accrued benefits under such Plan or Plans
exceeds the then current value of the assets allocable to such benefits by more
than $1,000,000 at such time;
(i) a final judgment which, with other undischarged final
judgments against the Borrower, exceeds an aggregate of $300,000 (excluding
judgments to the extent any Borrower are fully insured or the deductible or
retention limit does not exceed $300,000 and with respect to which the insurer
has assumed responsibility in writing), shall have been entered against the
Borrower if, within thirty (30) days after the entry thereof, such judgment
shall not have been discharged or execution thereof stayed pending appeal, or
if, within thirty (30) days after the expiration of any such stay, such judgment
shall not have been discharged;
(j) any Transaction Document or Security Document shall at any
time after the Closing Date cease for any reason to be in full force and effect
or shall cease to create perfected security interests in favor of the Purchaser
in the collateral subject or purported to be subject thereto, subject to no
other Liens other than Permitted Liens, or such collateral shall have been
transferred to any Person without the prior written consent of the Purchaser;
(k) the Borrower or any Guarantor (except as otherwise
provided herein) shall terminate its existence, cease to exist, permanently
cease operations or abandon the operation of any material portion of its
business; or
(l) any of the following shall have occurred: (1) a final
non-appealable order is issued by any Governmental Authority, including,
requiring the Borrower or any Guarantor to divest a substantial portion of its
assets pursuant to any antitrust, restraint of trade, unfair competition,
industry regulation, or similar requirement of Law, or (ii) any Governmental
Authority shall condemn, seize or otherwise appropriate, or take custody or
control of all or any substantial portion of the assets of the Borrower or any
Guarantor.
8.2 Consequences of Event of Default.
(a) Bankruptcy. If an Event of Default specified in paragraphs
(f) or (g) of Section 8.1 hereof shall occur, the unpaid balance of the Note and
interest accrued thereon and all other liabilities of the Borrower to Purchaser
hereunder and thereunder shall be immediately due and payable, without
presentment, demand, protest or (except as expressly required hereby) notice of
any kind, all of which are hereby expressly waived.
37
(b) Other Defaults. If any other Event of Default shall occur,
the Purchaser may at his option, by written notice to the Borrower, declare the
entire unpaid balance of the Note, and interest accrued thereon and all other
liabilities of the Borrower hereunder and thereunder to be forthwith due and
payable, and the same shall thereupon become immediately due and payable,
without presentment, demand, protest or (except as expressly required hereby)
notice of any kind, all of which are hereby expressly waived.
(c) Penalty Interest. Following the occurrence and during the
continuance of any Event of Default, the Purchaser shall be entitled to receive,
to the extent permitted by applicable law, interest on the outstanding principal
of, and premium and overdue interest, if any, on, the Note at a rate per annum
equal to the interest rate thereon (determined as provided in Section 3.5) plus
three percent (3%).
8.3 Security. Payments of principal of, and interest on, the Note and
all other obligations of the Borrower under this Agreement or the Note are
secured pursuant to the terms of the Security Documents.
ARTICLE IX
MISCELLANEOUS
9.1 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, except that (i) the Borrower may not assign or transfer its rights or
obligations hereunder or any interest herein or delegate their duties hereunder
and (ii) the Purchaser shall have the right to assign his rights hereunder and
under the Securities in accordance with Article 6.
9.2 Modifications and Amendments. The provisions of this Agreement may
be modified, waived or amended, but only by a written instrument signed by the
Borrower and the Purchaser.
9.3 No Implied Waivers; Cumulative Remedies; Writing Required. No delay
or failure in exercising any right, power or remedy hereunder shall affect or
operate as a waiver thereof; nor shall any single or partial exercise thereof or
any abandonment or discontinuance of steps to enforce such a right, power or
remedy preclude any further exercise thereof or of any other right, power or
remedy. The rights and remedies hereunder are cumulative and not exclusive of
any rights or remedies that the Purchaser would otherwise have. Any waiver,
permit, consent or approval of any kind or character of any breach or default
under this Agreement or any such waiver of any provision or condition of this
Agreement must be in writing and shall be effective only to the extent in such
writing specifically set forth.
9.4 Reimbursement of Expenses. Each party hereto shall pay its own fees
and expenses incurred by it (including, without limitation, all attorneys' fees
and expenses), from time to time (i) arising in connection with the negotiation,
preparation and execution of this Agreement, the Note, the other Transaction
38
Documents and all other instruments and documents to be delivered hereunder or
thereunder or arising in connection with the transactions contemplated hereunder
or thereunder, (ii) relating to any amendments, waivers or consents pursuant to
the provisions hereof or thereof, and (iii) arising in connection with the
enforcement of this Agreement or collection of the Notes.
9.5 Holidays. Whenever any payment or action to be made or taken
hereunder or under the Note shall be stated to be due on a day which is not a
Business Day, such payment or action shall be made or taken on the next
following Business Day, and such extension of time shall be included in
computing interest or fees, if any, in connection with such payment or action.
9.6 Notices. All notices and other communications given to or made upon
any party hereto in connection with this Agreement shall, except as otherwise
expressly herein provided, be in writing (including telecopy, but in such case,
a confirming copy will be sent by another permitted means) and mailed via
certified mail, telecopied or delivered by guaranteed overnight parcel express
service or courier to the respective parties, as follows:
to the Borrower:
Environmental Tectonics Corporation
County Line Industrial Park
▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: Chief Financial Officer
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Klehr, Harrison, ▇▇▇▇▇▇, Branzburg & ▇▇▇▇▇▇ LLP
▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esquire
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
to the Purchaser:
c/o The ▇▇▇▇▇▇▇ Group
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇.▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esquire
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
or in accordance with any subsequent written direction from the recipient party
to the sending party. All such notices and other communications shall, except as
otherwise expressly herein provided, be effective upon delivery if delivered by
courier or overnight parcel express service; in the case of certified mail,
three (3) Business Days after the date sent; or in the case of telecopy, when
received.
39
9.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT REGARD
TO CONFLICT OF LAWS PRINCIPLES.
9.8 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law in any jurisdiction, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating any other provision of this Agreement.
9.9 Headings. Article, section and subsection headings in this
Agreement are included for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
9.10 Counterparts. This Agreement may be executed in any number of
counterparts and by either party hereto on separate counterparts, each of which,
when so executed and delivered, shall be an original, but all such counterparts
shall together constitute one and the same instrument.
9.11 Integration. This Agreement and the other Transaction Documents
set forth the entire understanding of the parties hereto with respect to all
matters contemplated hereby and supersede all previous agreements and
understandings among them concerning such matters. No statements or agreements,
oral or written, made prior to or at the signing hereof, shall vary, waive or
modify the written terms hereof.
9.12 Subordination. The obligations evidenced hereby are subordinate in
the manner and to the extent set forth in the Subordination Agreement, to the
indebtedness and other liabilities owed by the Borrower under and pursuant to
the Senior Credit Agreement and each related "Loan Document" (as defined
therein), and the Purchaser, by its acceptance of the Note, acknowledges and
agrees to be bound by the provisions of the Subordination Agreement.
* * *
40
SIGNATURE PAGE TO NOTE AND WARRANT PURCHASE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BORROWER:
ENVIRONMENTAL TECTONICS CORPORATION
By: ____________________________
Name:
Title:
PURCHASER:
_________________________________
▇.▇. ▇▇▇▇▇▇▇
______________________
Witness
41
ANNEXES
-------
SCHEDULES
---------
Permitted Indebtedness (Schedule 5.1(c))
Capitalization (Schedule 5.1(f))
Litigation (Schedule 5.1(j))
Compliance with Laws (Schedule 5.1(k))
Environmental (Schedule 5.1(l))
Properties (Schedule 5.1(q))
Intellectual Property (Schedule 5.1(r))
Subsidiaries (Schedule 5.1(t))
Broker's or Finder's Commission (Schedule 5.1(u))
Absence of Undisclosed Liabilities (Schedule 5.1(v))
Security Documents (Schedule 5.1(y))
Insurance (Schedule 5.1(z))
Authorizations (Schedule 5.1(aa))
Defaults (Schedule 5.1(ee))
Permitted Encumbrances (Schedule 7.2(b)(iv))
Affiliate Transactions (Schedule 7.2(e))
EXHIBITS
--------
EXHIBIT A Form of Senior Subordinated Note
EXHIBIT B Form of Senior Subordinated Note Warrant
EXHIBIT C Form of Security Agreement
EXHIBIT D Form of Registration Rights Agreement
EXHIBIT E Form of Guaranty Agreement
EXHIBIT F Form of Mortgage
EXHIBIT G Form of Stockholders Voting Agreement
EXHIBIT H Form of Subordination Agreement
EXHIBIT I Form of Opinion of Borrower's Counsel
EXHIBIT J Form of Compliance Certificate
SCHEDULES
---------
EXHIBITS
--------
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