Exhibit 10.7
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NOTE PURCHASE AGREEMENT
BETWEEN
MONTANA ▇▇▇▇▇ BREAD CO., INC.
AND ▇▇▇▇▇▇ CAPITAL PARTNERS, L.P.
$2,000,000 PRINCIPAL AMOUNT
12% CONVERTIBLE SUBORDINATED NOTE DUE JUNE 22, 2005
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Dated as of June 22, 2000
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This NOTE PURCHASE AGREEMENT is dated as of June 22, 2000 between
MONTANA ▇▇▇▇▇ BREAD CO., INC. (the "Company"), a Delaware corporation with an
address of ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇
CAPITAL PARTNERS, L.P. (the "Purchaser"), a New York limited partnership with an
address of ▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, and, for the limited
purpose of agreement with Section 7.1 of this Agreement, ▇▇▇▇▇▇ ▇'▇▇▇▇▇▇▇ with
an address of ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ("Shareholder").
Certain defined terms used herein have the meanings given thereto in
EXHIBIT A attached hereto.
The parties hereto agree as follows:
ARTICLE 1
NOTE/CONVERSION RIGHTS
SECTION 1.1 THE NOTE. On the date of this Agreement (the "Closing
Date"), and subject to the terms of this Agreement, the Purchaser shall purchase
the Company's Convertible Subordinated Note in the principal amount of,
$2,000,000 (together with any extensions, modifications, and replacements, the
"Note") by payment to the Company of $2,000,000 in immediately available funds.
The Note shall be in the form attached as EXHIBIT B to this Agreement and shall
be convertible into common stock of the Company as provided elsewhere in this
Article 1 (with the Note and the Conversion Shares into which it is or may be
converted called the "Securities").
SECTION 1.2 FEES/EXPENSES/BROKERAGE. In consideration for purchasing
the Securities and providing pre-closing services, on or before the Closing Date
the Company shall pay the Purchaser a non-refundable $20,000 application fee
($10,000 of which has been paid prior to execution of this Agreement), a $60,000
closing fee, and all fees, expenses and disbursements incurred by the Purchaser
related to the transactions contemplated herein, including, without limitation,
the fees (not exceeding $5,000) and disbursements of the Purchaser's counsel.
There are no claims for brokerage commissions, finders' fees or similar
compensation in connection with the transactions contemplated by this Agreement
except those due to Pittsford Capital Group and the Company shall pay, and hold
the Purchaser harmless against, any liability, loss or expense (including
reasonable attorneys' fees and out-of-pocket expenses) arising in connection
with any such claim.
SECTION 1.3 Conversion Rights and Procedures.
(a) Conversion Rights. Notwithstanding any provision herein to
the contrary, at any time and from time to time prior to the payment in full of
the Note (including without limitation within the ninety-day period after any
prepayment notice has been given), the Purchaser may convert all or any portion
of the outstanding principal amount of the Note into a number of shares of
Conversion Shares determined by dividing the principal amount designated by the
Purchaser to be converted by the Conversion Price then in effect. Any partial
conversions shall be in the minimum principal amount $1,000 or integral
multiples thereof.
(b) Effectiveness of Conversion. Except as otherwise provided
herein, each conversion of the Note shall be deemed to have been effected as of
the close of business on the date on which notice of conversion has been given
in the manner provided for the giving of notices under this Purchase Agreement.
At the time any such conversion has been effected, the rights of the Purchaser
to the extent of the conversion shall cease and the Person or Persons in whose
name or names any certificate or certificates for shares of Conversion Shares
are to be issued upon such conversion shall be deemed to have become the holder
or holders of record of the shares of Conversion Shares represented thereby.
Notwithstanding any other provision hereof, if a conversion of any portion of
the Note is to be made after the Company has notified the Purchaser of a Public
Offering, a change in Control of the Company, or other transaction affecting the
Company, the conversion of any portion of the Note may, at the election of the
Purchaser, be conditioned upon the consummation of such transaction, in which
case such conversion shall not be deemed to be effective until such transaction
has been consummated. Upon effectiveness of the conversion, the Purchaser shall
▇▇▇▇ its records, and ▇▇▇▇ the Note upon any transfer thereof, to evidence
payment of the principal amount of the Note so converted.
(c) Deliveries. As soon as possible after a conversion has been
effected, the Company shall deliver to the Purchaser:
(i) a certificate or certificates representing the number
of shares of Conversion Shares issuable by reason of such conversion in
such name or names and such denomination or denominations as the Purchaser
has specified; and
(ii) payment in an amount equal to the sum of all accrued
interest with respect to the principal amount of the Note converted, which
has not been paid prior thereto.
(d) No Charges, Taxes, Etc. The issuance of certificates for
shares of Conversion Shares upon conversion of the Note shall be made without
charge to the Purchaser for any issuance tax in respect thereof or other cost
incurred by the Company in connection with such conversion and the related
issuance of shares of Conversion Shares.
(e) Transfer Books. The Company shall not close its books
against the transfer of Conversion Shares issued or issuable upon conversion of
the Note. The Company shall assist and cooperate with the Purchaser in making
any governmental filings or obtain any governmental approval prior to or in
connection with the conversion of the Note (including making any filings
required to be made by the Company).
(f) Reservation of Shares. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of
Conversion Shares, solely for the purpose of issuance upon the conversion of the
Note, such number of shares of Conversion Shares issuable upon the conversion of
the Note. All shares of Conversion Shares which are so issuable shall, when
issued, be duly and validly issued, fully paid and nonassessable and free from
all taxes, Liens and charges. The Company shall take all such actions as may be
necessary to assure that all such shares of Conversion Shares may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any securities exchange upon which
shares of Conversion Shares may be listed (except for official notice of
issuance which shall be immediately delivered by the Company upon each such
issuance).
(g) Fractional Shares. If any fractional interest in a share of
Conversion Shares would, except for the provisions of this subparagraph, be
delivered upon any conversion of the Note, the Company, in lieu of delivering
the fractional share therefor, shall pay the Purchaser an amount equal to the
product of the fair market value of a full share multiplied by the fractional
amount.
(h) Compliance with Laws. The Company will comply with all
securities laws regulating the offer and delivery of shares of Conversion Shares
upon conversion of the Note and will list such shares on each national
securities exchange on which the Conversion Shares is listed.
(i) Conversion Price. The Conversion Price shall be the lesser
of (i)Ten Dollars ($10.00) per share of common stock, or (ii) the Fundraising
Price if a Fundraising Event occurs on or before September 30, 2000, or if the
placement covered by the Company's May 12, 2000 Private Placement Memorandum is
extended to a date up to and including January 31, 2001 ("Extension Date"), such
Extension Date. If no Fundraising Event has occurred on or before September 30,
2000 (or the Extension Date, as the case may be), the Conversion Price shall be
reduced on October l, 2000 (or the day after the Extended Date, as the case may
be) and shall be Eight Dollars ($8.00) per share of common stock thereafter. The
Conversion Price shall be subject to adjustment as provided in Section 1.5.
SECTION 1.4 Conversion Price/Share Adjustment. In order to prevent
dilution of the conversion rights granted hereunder, the Conversion Price shall
be subject to adjustment from time to time as set forth below. It is the
intention of the Company that the Conversion Price shall at all times be the
lesser of the amount specified in Section 1.4 or the lower Conversion Price
determined by adjustment pursuant to this Section 1.5. For purposes of
adjustments described below in this Section 1.5 related to grants, sales, or
distributions of options, warrants, or other Equity Interests which result in
the issuance of common stock only after the exercise of the rights covered
thereby, any adjustment that would be required under this Section 1.5 shall be
made only upon the earlier of (i) exercise of conversion rights under the Note,
or (ii) actual exercise of the rights covered by such options, warrants, or
Equity Interests.
(a) Stock Dividends, Subdivisions or Combinations. If the
Company at any time: (i) pays a dividend or makes a distribution on its common
stock in shares of any class of its capital stock, (ii) subdivides its
outstanding shares of common stock into a greater number of shares, (iii)
combines its outstanding shares of common stock into a smaller number of shares,
or (iv) issues by reclassification of its common stock any shares of its capital
stock, then the Conversion Price per share in effect immediately prior to such
action, shall be adjusted so that the Purchaser may receive the number of shares
of capital stock of the Company which it would have owned immediately following
such action if it had exercised all of its conversion rights immediately prior
to such action. The adjustment shall become effective immediately after the
record date in the case of a stock dividend or distribution and immediately
after the effective date in the case of a subdivision, combination or
reclassification. If after an adjustment the Purchaser may receive shares of two
or more classes of capital stock of the Company as a result of
conversion of the Note, the Company shall determine the allocation of the
adjusted Conversion Price between the classes of capital stock on a fair,
reasonable and equitable basis. After such allocation, the Conversion Price of
each class of capital stock shall thereafter be subject to adjustment on terms
comparable to those applicable to common stock in this Section 1.5.
(b) Adjustment for Equity Rights or Share Issue. If the Company
grants, sells or distributes any additional shares of its common stock or other
Equity Rights at an exercise, purchase, or offering price (the "Offering Price")
per share that is less than the per share Conversion Price on the date of such
grant, sale, or distribution, then the per share Conversion Price in effect
immediately prior to such action shall be adjusted proportionately by the
difference between the then per share Conversion Price and the per share
Offering Price. For purposes of this Section 1.5(b), the per share Offering
Price shall be equal to the lowest amount of consideration (if any) paid to the
Company (without deduction of underwriting commissions or the like) for the
issuance of one share of common stock pursuant to the Equity Rights. The
adjustment required by this Section 1.5(b) shall be made successively whenever
any grant, sale, or distribution occurs. If the Offering Price for any Equity
Rights is reduced at any time, the Conversion Price in effect at the time of
such change shall be adjusted immediately to the Conversion Price which would
have been in effect at such time had such Equity Rights provided for such
changed Offering Price at the time initially granted, issued or sold. This
Section 1.5(b) does not apply to (i) the conversion or exchange of Convertible
Securities for which an adjustment has already been made under Section 1.5(c),
(ii) common stock issued under bona fide employee benefit plans in existence on
the date of this Agreement in amounts not exceeding amounts issued or available
for issuance thereunder on the date of this Agreement, (iii) common stock or
Equity Rights issued to stockholders of any Person which merges into the Company
in proportion to their stockholdings of such Person immediately prior to such
merger, upon such merger, for which an adjustment has already been made under
Section 1.5(e), (iv) common stock issued in a bona fide Public Offering pursuant
to a firm commitment underwriting, or (v)except as provided in Section 1.5(f),
common stock issued upon the exercise of Equity Rights or conversion of
Convertible Securities issued by the Company prior to the date of this
Agreement.
(c) Adjustment for Convertible Securities Issue. If the Company
issues any Convertible Security for a consideration per share of Company common
stock (also referred to as the "Offering Price") initially deliverable upon
conversion or exchange of such securities that is less than the per share
Conversion Price on the date of such issuance, then the per share Conversion
Price in effect immediately prior to such action shall be adjusted
proportionately by the difference between the then per share Conversion Price
and the per share Offering Price. For purposes of this Section 1.5(c), the per
share Offering Price shall be equal to the lowest amount of consideration (if
any) paid to the Company (without deduction of underwriting commissions or the
like) for the issuance of one share of common stock upon conversion of the
Convertible Security. The adjustment required by this Section 1.5(c) shall be
made successively whenever any issuance occurs. If the Offering Price for any
Convertible Security is reduced at any time, the Conversion Price in effect at
the time of such change shall be adjusted immediately to the Conversion Price
which would have been in effect at such time had such Convertible Security
provided for such changed Offering Price at the time initially granted, issued
or sold. This Section 1.5(c) does not apply to (i) Convertible Securities issued
to stockholders of any Person which merges into the Company in proportion to
their stockholdings of such Person immediately prior to such merger, upon such
merger, for which an adjustment has already been made under
Section 1.5(e), or (ii) common stock issued in a bona fide Public Offering
pursuant to a firm commitment underwriting.
(d) Adjustment for Other Distributions. If the Company
distributes to any holders of its common stock any of its assets or debt
securities or any rights or warrants to purchase debt securities, assets or
other securities of the Company (other than common stock), at the option of the
Purchaser either (i) the Conversion Price shall be adjusted downward by an
amount equal to the fair market value of such assets, debt securities, rights,
or warrants, it being the intention of the parties to provide the Purchaser with
a benefit of any such distribution equivalent to the benefit that would have
been received by the Purchaser if the Purchaser immediately prior to such
distribution had exercised all of its conversion rights, or (ii) distribution
shall be made to the Purchaser as if the Purchaser immediately prior to such
distribution had exercised its conversion rights and received the Conversion
Shares. Any adjustments required by this Section 1.5(d) shall be made
successively whenever any such distribution is made and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive the distribution.
(e) Reorganization, Reclassification, Consolidation, Merger or
Sale. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets, stock
exchange, or other transaction, in each case which is effected in such a manner
that the holders of the Company's common stock are entitled to receive (either
directly or upon subsequent liquidation) stock, securities or assets with
respect to or in exchange for common stock, is referred to herein as an "Organic
Change". Prior to the consummation of any Organic Change, the Company shall make
lawful and adequate provision in form and substance satisfactory to the
Purchaser to insure that the Purchaser shall thereafter have the right to
acquire and receive, in lieu of or in addition to (as the case may be) the
Conversion Shares theretofore acquirable and receivable such shares of stock,
securities or assets as the Purchaser would have received in connection with
such Organic Change if the Purchaser had converted the Note immediately prior to
such Organic Change. In each such case, the Company shall also make appropriate
provisions (in form and substance satisfactory to the Purchaser) to insure that
the provisions of this Section 1.5 shall thereafter be applicable to the Note in
relation to any shares of stock, securities or assets thereafter deliverable
upon conversion of the Note (including, in the case of any such consolidation,
merger or sale in which the successor entity or purchasing entity is other than
the Company, an immediate adjustment of the per share Conversion Price to the
value for the common stock reflected by the terms of such consolidation, merger
or sale, and a corresponding immediate adjustment in the number of shares of
Conversion Shares acquirable and receivable upon conversion of the Note, if the
value so reflected is less than the Conversion Price in effect immediately prior
to such Organic Change). The Company shall not effect an Organic Change unless
it has complied with the terms of the Purchase Agreement and unless, prior to
the consummation thereof, the successor entity (if other than the Company)
resulting from consolidation or merger or the entity purchasing such assets
assumes by written instrument (in form and substance satisfactory to the
Purchaser), the obligation to deliver to the Purchaser such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the
Purchaser may be entitled to acquire.
(f) Other Events. If any event occurs of the type contemplated
by the provisions of this Section 1.5 but not expressly provided for by such
provisions (including the
granting of stock appreciation rights, phantom stock rights, profit
participation rights, participating preferred stock, and other rights and
interests to share in the equity of the Company on a similar basis with the
holders of common stock of the Company), then the Company's Board of Directors
shall in good faith make a reasonable and appropriate adjustment in the
Conversion Price so as to protect the rights of the Purchaser hereunder;
provided that no such adjustment shall increase the Conversion Price as
otherwise determined pursuant to this Section 1.5.
(g) Calculation of Consideration Received. If any common stock
or other Equity Interest is issued or sold or deemed to have been issued or sold
for cash, the consideration deemed to be received therefor shall be the amount
paid therefor (without deduction of underwriting commissions or the like). If
any common stock or other Equity Interest is issued or sold for a consideration
other than cash, the amount of the consideration other than cash received shall
be the fair market value of such consideration. If any common stock or other
Equity Interest is issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving corporation,
the amount of consideration therefor shall be deemed to be the fair market value
of such portion of the net assets and business of the non-surviving entity as is
attributable to such common stock or other Equity Interest, as the case may be.
Consideration received shall include, among others, the value of non-competition
agreements, incentive and earn-out payments, and the like. The fair market value
of any consideration other than cash and securities shall be determined jointly
by the Company and the Purchaser. If such parties are unable to reach agreement
within a reasonable period of time, the fair market value of such consideration
shall be determined by an independent appraiser experienced in valuing such type
of consideration jointly selected by the Company and the Purchaser. The
determination of such appraiser shall be final and binding upon the parties, and
the fees and expenses of such appraiser shall be borne by the Company.
(h) Treasury Shares. The number of shares of common stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any shares so owned or held
shall be considered an issue or sale of common stock.
(i) Record Date. If the Company establishes a record date for
the holders of common stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in common stock or other Equity
Interests, or (ii) to subscribe for or purchase common stock or other Equity
Interests, then such Record Date shall be deemed to be the date of the issue or
sale of the shares of common stock or other Equity Interests deemed to have been
issued or sold upon the declaration of such dividend or upon the making of such
other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(j) Deferral of Adjustments, Etc. No adjustment in the
Conversion Price need be made unless the adjustment would require an increase or
decrease of at least one percent (1%) in the Conversion Price. Any adjustments
that are not made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 1.5 shall be made to
the nearest cent or to the nearest 1/100th of a share, as the case may be.
(k) Notices.
(i) Immediately upon any adjustment of the Conversion
Price, the Company shall give written notice thereof to the Purchaser,
setting forth in reasonable detail and certifying the calculation of such
adjustment.
(ii) The Company shall give written notice to the Purchaser
at least twenty (20) days prior to the date (i) on which the Company closes
its books or establishes a record date including without limitation a
record date (A) with respect to any dividend or distribution upon common
stock, (B) with respect to any subscription offer to holders of Equity
Interests, or (C) for determining rights to vote with respect to any
Organic Change, dissolution or liquidation, (ii) of any change of Control
(of which it has notice), or (iii) the date of any Public Offering.
(l) Excluded Conversion. The Company may enter into an
arrangement with the holders of its Preferred Stock outstanding on the date of
this Purchase Agreement who have exchanged or redeemed such Preferred Stock in
consideration of receipt of Junior Subordinated Indebtedness which is
convertible into common stock of the Company at a conversion price of at least
$8.00 per share.
SECTION 1.5 Life Insurance. For so long as the Note remains unpaid in
full, the Company shall cause to remain in effect, for the benefit of the
Company, life insurance on the life of Shareholder in the amount of $2,000,000.
ARTICLE 2
COMPANY REPRESENTATIONS AND WARRANTIES
As a material inducement to the Purchaser to enter into this Agreement
and purchase the Securities, the Company hereby represents and warrants that:
SECTION 2.1 ORGANIZATION, CORPORATE POWER AND LICENSES. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and is qualified to do business in every
jurisdiction in which its ownership of property or conduct of business requires
it to qualify, except where the failure to so qualify would not have a material
adverse effect on the Company. The Company possesses all requisite corporate
power and authority and all material licenses, permits and authorizations
necessary to own and operate its properties, to carry on its businesses as now
conducted and presently proposed to be conducted and to carry out the
transactions contemplated by this Agreement.
SECTION 2.2 CAPITAL STOCK AND RELATED MATTERS.
(a) On the Closing Date and immediately thereafter, all of the
authorized capital stock of the Company consists of the shares and classes of
stock described on SCHEDULE 2.2. SCHEDULE 2.2 sets forth all outstanding Equity
Interests and the holders thereof (all of which Equity Interests are validly
issued, fully paid, and nonassessable). As of the Closing Date, the Company has
no obligation (contingent or otherwise) to issue, sell, create, repurchase or
otherwise acquire or retire any Equity Interests. The Company has reserved
sufficient shares of its common stock for issuance upon conversion of the Note.
(b) Except as provided in the Certificate of Incorporation of
the Company, there are no statutory or contractual shareholder preemptive rights
or rights of refusal with respect to the issuance of the Securities hereunder or
the issuance of common stock upon conversion of the Note. The Company has not
violated any applicable federal or state securities laws in connection with the
offer, sale or issuance of any of its Equity Interests or the Securities. The
offer, sale and issuance of the Securities do not require registration or
qualification under the Securities Act or any applicable state securities laws,
and all filings required in connection therewith have been made.
SECTION 2.3 SUBSIDIARIES. SCHEDULE 2.3 correctly sets forth (i) the
name of each Subsidiary, (ii) the jurisdiction of its incorporation, (iii) the
issued, outstanding, and reserved capital stock of each Subsidiary, and (iv) the
Persons owning such capital stock. Each Subsidiary is duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation, possesses all requisite corporate power and authority and all
material licenses, permits and authorizations necessary to own its properties
and to carry on its businesses as now being and presently proposed to be
conducted, and is qualified to do business in every jurisdiction in which its
ownership of property or the conduct of business requires it to qualify, except
where the failure to so qualify would not have a material adverse effect on the
Company or such Subsidiary. All of the outstanding capital stock of each
Subsidiary is validly issued, fully paid, non-assessable, owned by the Company
free and clear of any Lien, and not subject to any option or right to purchase.
SECTION 2.4 AUTHORIZATION; NO BREACH. The execution, delivery and
performance of the Transaction Documents executed by the Company have been duly
authorized by the Company. Each of the Transaction Documents executed by the
Company constitutes a valid and binding obligation of the Company, enforceable
in accordance with its terms. Except as set forth on SCHEDULE 2.4, the execution
and delivery by the Company of the Transaction Documents, the compliance with
the respective terms thereof by the Company, the offering, sale and issuance of
the Securities hereunder, and the issuance of common stock upon the conversion
of the Note, do not (a) conflict with or result in a violation of, (b)
constitute a default under, (c) result in the creation of any Lien upon the
Company's or any Subsidiary's capital stock or assets pursuant to, (d) give any
third party the right to modify, terminate or accelerate any obligation under,
(e) require any authorization, consent, approval, exemption or other action by
or notice to, or filing with, any court or administrative or governmental body
or agency pursuant to, the charter or bylaws of the Company or any Subsidiary,
any law, statute, rule or regulation to which the Company or any Subsidiary is
subject (including, without limitation, any usury laws applicable to the Note),
or any material agreement, instrument, order, judgment or decree to which the
Company or any Subsidiary is subject. Except asset forth on SCHEDULE 2.4, no
Subsidiary is subject to any restriction upon making loans or advances or paying
dividends to, transferring property to, or repaying any Indebtedness owed to,
the Company or another Subsidiary.
SECTION 2.5 FINANCIAL STATEMENTS. The Company has delivered its annual
financial statements audited as of February 28, 2000, to the Purchaser (the
"Latest Financial Statements"). Each of such financial statements (including in
all cases the notes thereto, if any) is accurate and complete in all material
respects, is consistent with the books and records of the Company and its
Subsidiaries (which, in turn, are accurate and complete in all material
respects) and has been prepared in accordance with generally accepted accounting
principles, consistently applied.
SECTION 2.6 ABSENCE OF UNDISCLOSED LIABILITIES. The Company and its
Subsidiaries do not have any material obligation or liability (whether accrued,
absolute, contingent, unliquidated or otherwise, whether or not known to the
Company or any Subsidiary, whether due or to become due and regardless of when
asserted) arising out of transactions entered into, action or inaction, or any
state of facts existing, on or prior to the Closing Date other than: (a)
liabilities set forth on the Latest Financial Statements and (b) liabilities and
obligations which have arisen after the date of the Latest Financial Statements
in the ordinary course of business (none of which is a liability resulting from
breach of contract, breach of warranty, tort, infringement, claim, lawsuit, or
the like).
SECTION 2.7 NO MATERIAL ADVERSE CHANGE. Since the date of the Latest
Financial Statements, there has been no material adverse change in the financial
condition, operating results, assets, operations, business, or employee,
customer or supplier relations of the Company and its Subsidiaries taken as a
whole.
SECTION 2.8 ABSENCE OF CERTAIN DEVELOPMENTS. Except as expressly
contemplated by this Agreement or as described on SCHEDULE 2.8, since the date
of the Latest Financial Statements, the Company and its Subsidiaries have not
(i) incurred any Indebtedness, (ii) discharged or satisfied any material Lien or
paid any material obligation or liability, other than current liabilities paid
in the ordinary course of business, (iii) declared or made any payment or
distribution of any kind to any holders of its Equity Interests or purchased,
redeemed, or otherwise retired any Equity Interests, (iv) granted or permitted
any material Liens to attach to any of its properties or assets or subjected
them to any material Lien, except Liens for current property taxes not yet due
and payable, (v) sold or transferred any of its tangible assets, except in the
ordinary course of business, (vi) canceled any material debts or claims, (vii)
sold or transferred any Intellectual Property Rights, or disclosed any material
proprietary confidential information to any Person, (viii) made capital
expenditures or commitments therefor which are not in the ordinary course of
business, (ix) made any loans or advances to, guarantees for the benefit of, or
any Investments in, any Persons, (x) made any material charitable contributions
or pledges, (xi) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance, (xi) entered into any other material
transaction other than in the ordinary course of business; or (xii) made any
bribes, kickback payments or other illegal payments.
SECTION 2.9 ASSETS. Except as set forth on SCHEDULE 3.11, the Company
and each Subsidiary have good and marketable title to, or a valid leasehold
interest in, the material properties and assets used by them, located on their
premises, or reflected on the Latest Financial Statements or acquired
thereafter, free and clear of all Liens, except for properties and assets
disposed of in the ordinary course of business since the date of the Latest
Financial Statements and except for current property taxes not yet due and
payable. The Company's and each Subsidiary's buildings, equipment and other
tangible assets are in good operating condition in all material respects and are
fit for use in the ordinary course of business. The Company and each Subsidiary
own, or have a valid leasehold interest in, all material tangible assets
necessary for the conduct of its respective business as presently conducted and
as presently proposed to be conducted.
SECTION 2.10 TAX MATTERS.
(a) The Company and each Subsidiary have filed all material tax
returns which they are required to file under, and such filings have been in
compliance with, applicable laws and regulations. The Company and each
Subsidiary have paid all taxes due and owing by them and has withheld and paid
over to the appropriate taxing authority all taxes which they are required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party. No tax audits, notices related thereto, or administrative or
judicial proceedings related to taxes are pending or being conducted with
respect to the Company or any Subsidiary, nor has information related to tax
matters been requested by any taxing authority, nor are there material
unresolved questions or claims concerning the Company's or any Subsidiary's tax
liability. Adequate accruals for taxes have been reflected on the Company's
financial statements furnished to the Purchaser.
(c) Neither the Company nor any Subsidiary has made an election
under Section 341 (f) of the Internal Revenue Code of 1986, as amended. Neither
the Company nor any Subsidiary has been nor is currently a member of an
Affiliated Group except an Affiliated Group in which the Company is the parent.
Neither the Company nor any Subsidiary is liable for the Taxes of another Person
that is not a Subsidiary or is a party to any tax sharing agreement.
SECTION 2.11 CONTRACTS AND COMMITMENTS. All of the material contracts,
agreements and instruments to which the Company and its Subsidiaries are parties
are valid, binding and enforceable against the Company or the Subsidiary that is
the party thereto in accordance with their respective terms except as such
enforceability may be restricted, limited, or delayed by applicable bankruptcy
or other laws affecting creditor's rights generally and except as may be subject
to general principles of equity. The Company and each Subsidiary have performed
all material obligations required to be performed by them under such contracts,
agreements and are not in material default under or in material breach of nor in
receipt of any claim of default or breach under any such contract, agreement or
instrument; no event has occurred which with the passage of time or the giving
of notice or both would result in a material default, breach or event of
noncompliance by the Company or any Subsidiary under any such contract,
agreement or instrument.
SECTION 2.12 INTELLECTUAL PROPERTY RIGHTS. The Company or its
Subsidiaries own all right, title and interest to, or has the right to use
pursuant to a valid license, all Intellectual Property Rights necessary for the
operation of the businesses of the Company and its Subsidiaries as presently
conducted and as presently proposed to be conducted, none of which are subject
to threatened or reasonably foreseeable loss which would reasonably be expected
to have a material adverse effect on the conduct of the Company's and its
Subsidiaries' respective businesses, or to Liens. The Company and its
Subsidiaries have taken all reasonably necessary and desirable actions to
maintain and protect such Intellectual Property Rights. SCHEDULE 2.12 sets forth
all patents, trademarks, and copyrights (whether issued, registered, or for
which application has been made) and all licenses and other agreements related
to Intellectual Property held by and material to the business of the Company.
SECTION 2.13 LITIGATION, ETC. There are no actions, suits, proceedings,
arbitrations, orders, investigations or claims pending or, to the Company's
knowledge, threatened in writing against or affecting the Company or any
Subsidiary which if adversely determined would have a material adverse effect on
the Company and its Subsidiaries taken as a whole. Neither the
Company nor any Subsidiary is subject to any material judgment, order or decree
of any court or other governmental agency.
SECTION 2.14 INSURANCE. Neither the Company nor any Subsidiary is in
material default with respect to its obligations under any insurance policy
maintained by it, and neither has been denied insurance coverage in the past
five years. The insurance coverage of the Company and its Subsidiaries is
customary for corporations of similar size engaged in similar lines of business.
The Company and its Subsidiaries do not have any self-insurance or co-insurance
programs.
SECTION 2.15 EMPLOYEES. The Company is not aware that any executive or
key employee of the Company or any Subsidiary has any plans to terminate
employment with the Company or any Subsidiary. The Company is not aware that it
or any Subsidiary has any material labor relations problems (including any union
organization activities, threatened or actual strikes or work stoppages or
material grievances).
SECTION 2.16 ERISA. All pension, retirement and deferred compensation
plans sponsored and maintained by the Company and its Subsidiaries (the "Plans")
and all related trusts, insurance contracts and funds have been maintained,
funded and administered in compliance in all material respects with the
applicable provisions of ERISA and other applicable laws. Neither the Company
nor its Subsidiaries, nor to the best of its knowledge any trustee or
administrator of any Plan, has engaged in any transaction with respect to the
Plans which could subject the Company, its Subsidiaries, or any trustee or
administrator of the Plans, or any party dealing with any such Plan, nor do the
transactions contemplated by this Agreement constitute transactions which could
subject any such party, to either a civil penalty assessed pursuant to Section
502(i) of ERISA or the tax or penalty on prohibited transactions imposed by
Section 4975 of the IRC. No actions, suits or claims with respect to the assets
of the Plans (other than routine claims for benefits) are pending or threatened
which could result in or subject the Company or any Subsidiary to any liability,
and there are no circumstances which could give rise to or be expected to give
rise to any such actions, suits or claims.
SECTION 2.17 COMPLIANCE WITH LAWS. The Company and its Subsidiaries
have not violated any law or any governmental regulation or requirement which
violation has had or would reasonably be expected to have a material adverse
effect upon the financial condition, operating results, assets, operations or
business of the Company or any Subsidiary, and neither the Company nor any
Subsidiary has received written notice of any such violation. Except for any
liabilities fully covered by insurance, neither the Company or any Subsidiary is
subject to, or has reason to believe it may become subject to, any material
liability (contingent or otherwise) or corrective or remedial obligation arising
under any federal, state, local or foreign law, rule or regulation (including
the common law) relating to or regulating health, safety, pollution or the
protection of the environment ("Environmental Laws"). Without limiting the
generality of the foregoing the Company and its Subsidiaries have obtained all
material permits, licenses and authorizations required under, and has complied
in all material respects with, all Environmental Laws.
SECTION 2.18 SMALL BUSINESS MATTERS. The information regarding the
Company and its affiliates set forth in the Small Business Administration Form
480, Form 652, and Form 1031 delivered on the Closing Date is accurate and
complete and in all material respects. Copies of
such forms shall have been completed and executed by the Company and delivered
to the Purchaser at the Closing together with a written statement of the Company
regarding its planned use of the proceeds from the sale of the Securities. The
Company shall use the proceeds of the sale of the Securities only for the
purposes disclosed in its written application to the Purchaser. The Company and
its Subsidiaries shall not engage in any activities for which a Small Business
Investment Company (as defined under the SBIC Regulations) is prohibited from
providing funds by the SBIC Regulations.
SECTION 2.19 AFFILIATED TRANSACTIONS. Except as set forth in SCHEDULE
2.19, no officer, director, employee, or Affiliate of the Company or any
Subsidiary or any individual related by blood, marriage or adoption to any such
individual or any entity in which any such Person or individual owns any
beneficial interest, is a party to any agreement, contract, commitment or
transaction with the Company or any Subsidiary or has any material interest in
any material property used by the Company or any Subsidiary.
SECTION 2.20 INVESTMENT COMPANY. Neither the Company nor any Subsidiary
is an "investment company" as defined under the Investment Company Act of 1940.
SECTION 2.21 MARGIN SECURITIES. Neither the Company nor any Subsidiary
is engaged in the business of extending credit for the purpose of, or, buying or
carrying "margin securities" within the meaning of Regulations T, U or X
promulgated by the Board of Governors of the Federal Reserve Board.
SECTION 2.22 DISCLOSURE. Neither this Agreement nor any of the
exhibits, schedules, attachments or certificates required to be delivered with
respect to the transactions contemplated hereby contain any untrue statement of
a material fact or omit a material fact necessary to make each statement
contained herein or therein not misleading. There is no fact (other than general
economic conditions) which the Company has not disclosed to the Purchaser in
writing and which, to the Company's knowledge, has had or would reasonably be
expected to have a material adverse effect on the Company and its Subsidiaries
taken as a whole.
ARTICLE 3
COVENANTS OF COMPANY
SECTION 3.1 Financial Statements and Other Information. The Company
shall deliver to the Purchaser:
(a) as soon as available but in any event within sixty (60) days
after the end of each fiscal quarter of the Company, unaudited consolidated
balance sheets and statements of income and cash flows of the Company and its
Subsidiaries for such quarterly period, prepared in accordance with generally
accepted accounting principles, consistently applied, subject to the absence of
footnote disclosures and to normal year-end adjustments for recurring accruals,
accompanied by a certificate of the Company's Chief Financial Officer containing
a calculation of Cash Flow Coverage and certifying the completeness and
correctness of such financial statements and that there exists no Default or
Event of Default;
(b) as soon as available but in any event within one hundred
twenty (120) days after the end of each fiscal year of the Company, consolidated
balance sheets and statements of
income and cash flows of the Company and its Subsidiaries for such fiscal year,
prepared in accordance with generally accepted accounting principles,
consistently applied, and accompanied by (i) an opinion of an independent
accounting firm acceptable to Purchaser unqualified as to internal controls or
going concern issues, (ii) consolidating schedules showing contribution margin,
(iii) a certificate from such accounting firm, stating that in the course of its
examination in connection with its audit nothing came to its attention that
caused it to believe that there was an existing Default or Event of Default and
(iv) a copy of such firm's management letter, if any;
(c) promptly upon receipt thereof, any management letters given
to the Company by its independent accountants;
(d) promptly (but in any event within five (5) business days)
after the discovery or receipt of notice of any Default or Event of Default, an
Officers' Certificate specifying the details thereof and what actions the
Company has taken and proposes to take with respect thereto;
(e) within ten (10) days, copies of all press releases as well
as general written communications which the Company sends to its holders of
Equity Interests, the SEC, or any securities exchange; and
(f) copies of all annual budgets submitted to the Company's
Board of Directors;
(g) with reasonable promptness, such other information
concerning the Company and its Subsidiaries as the Purchaser may reasonably
request.
SECTION 3.2 INSPECTION RIGHTS. The Company shall permit, and shall
cause its Subsidiaries to permit, any representatives designated by the
Purchaser, upon reasonable notice and at such times as the Purchaser may
reasonably request, to (a) visit and inspect any of their properties and assets,
(b) examine their corporate and financial records and make copies thereof or
extracts therefrom and (c) discuss their affairs, finances and accounts with
their directors, officers and key employees. The Company consents to its
independent accountants participating in discussions with such Persons. The
Purchaser shall take all reasonable and appropriate actions to preserve the
confidentiality of all proprietary information of the Company made available to
the Purchaser hereunder, and shall not disclose the same except to its
attorneys, accountants, advisors, consultants, investors, regulators, and agents
who have assumed the same obligations of confidentiality provided that after
prior written notice to the Company the Purchaser may disclose any such
information as required by law or judicial or governmental entity.
SECTION 3.3 MAINTENANCE OF PROPERTIES, ETC.
(a) The Company shall, and shall cause each of its Subsidiaries
to:
(i) maintain with financially sound and reputable insurers
such insurance as may be required by law and such other insurance, to
such extent and against such hazards and liabilities, as is
customarily maintained by companies similarly situated; and
(ii) discharge when payable all material taxes, assessments
and governmental charges imposed upon it or its properties (in each
case before the same becomes delinquent and before penalties accrue
thereon) and all material claims for labor, materials or supplies
which if unpaid would by law become a Lien upon any of its property
unless and to the extent that the same is being contested in good
faith and by appropriate proceedings and adequate reserves (as
determined in accordance with generally accepted accounting
principles) have been established on its books with respect thereto.
(b) The Company shall use its best efforts, and shall cause
each of its Subsidiaries to use its best efforts, to:
(iii) maintain its properties and assets in good working
order and condition and make all necessary renewals, replacements,
additions, and improvements thereto;
(iv) keep true books of records and accounts in which full
and correct entries will be made of all its business transactions, in
accordance with sound business practices, and reflect in its financial
statements adequate accruals and appropriations to reserves, all in
accordance with generally accepted accounting principles;
(v) comply with all statutes, laws, ordinances, or
government rules and regulations to which it is subject, noncompliance
with which would materially adversely affect the business, prospects,
earnings, properties, assets or condition, financial or otherwise, of
the Company and its Subsidiaries;
(vi) keep in full force and effect all franchises, licenses,
and permits material to the operation of the business of the Company
and its Subsidiaries; and
(vii) remain free from judgments or the like which are not
fully covered by insurance.
SECTION 3.4 CURRENT PUBLIC INFORMATION. The Company shall file all
reports, if any, required to be filed by it under the Securities Act and the
Securities Exchange Act and the rules and regulations adopted by the SEC
thereunder and shall take such further action as the Purchaser may reasonably
request, all to the extent required to enable the Purchaser to sell Restricted
Securities pursuant to (a) Rule 144 adopted by the SEC under the Securities Act
(as such rule may be amended from time to time) or any similar rule or
regulation hereafter adopted by the SEC or (ii) a registration statement on an
applicable form adopted by the SEC. Upon request, the Company shall deliver to
Purchaser details of such compliance.
SECTION 3.5 SBIC REGULATORY PROVISIONS.
(a) Within seventy-five (75) days after the Closing Date and
thereafter at the time that the Company delivers its quarterly financial
statements to the Purchaser pursuant to Section 3.1 (a) until all of the
proceeds from the Financing provided hereunder have been used by the Company,
the Company shall deliver to the Purchaser an Officers' Certificate describing-
in reasonable detail the use of the proceeds of the Financing hereunder by the
Company. In addition to any other rights granted hereunder, upon reasonable
notice from Purchaser the
Company shall permit the Purchaser and the SBA access to the Company's records
for the purpose of verifying the use of such proceeds.
(b) Upon the occurrence of an SBIC Regulatory Violation or in
the event that the Purchaser determines in its reasonable good faith judgment
that a SBIC Regulatory Violation has occurred, in addition to any other rights
and remedies to which it may be entitled as a holder of the Securities and any
Equity Interests issuable pursuant thereto, the Purchaser shall have the right
to the extent required under the SBIC Regulations to demand the immediate
repurchase of the Securities and all Equity Interests issuable pursuant thereto
at a price equal to the aggregate unpaid principal amount of the Note together
with any accrued and unpaid interest thereon and any premium due thereon, plus
all accrued or declared and unpaid dividends thereon, by delivering written
notice of such demand to the Company. The Company shall pay the purchase price
for all such securities by a cashier's or certified check or by wire transfer of
immediately available funds to the Purchaser within thirty (30) days after the
Company's receipt of the demand notice, and upon such payment, the Purchaser
shall deliver the instruments and certificates evidencing the securities to be
repurchased duly endorsed for transfer or accompanied by duly executed forms of
assignment.
(c) The Company shall use the proceeds of the Financing provided
hereunder solely for new store openings, marketing, growth initiatives, working
capital, and other purposes complying with the SBA Regulations, consistent with
representations and warranties made by the Company to the Purchaser hereunder.
SECTION 3.6 REGULATORY COMPLIANCE COOPERATION. In the event that the
Purchaser determines that it has a Regulatory Problem, the Company shall take
all such actions as are reasonably requested by the Purchaser in order to
effectuate and facilitate any transfer by the Purchaser of any securities of the
Company then held by the Purchaser to any Person designated by the Purchaser to
alleviate such Regulatory Problem.
SECTION 3.7 CERTAIN SUBSIDIARY RESTRICTIONS. The Company will cause all
present and future Subsidiaries to deliver to the Company a Guaranty of the
Company's obligations related to the Note in the form attached to this Agreement
as EXHIBIT D. The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or allow to exist any
encumbrance or restriction on the ability of (a) the Company to perform the
provisions of the Transaction Documents or (b) any Subsidiary to (i) pay
dividends or make any other distributions on its Equity Interests owned by the
Company or any of the Subsidiaries or pay any Indebtedness owed to the Company
or any of the Subsidiaries, (ii) make loans or advances to the Company or any of
the Subsidiaries or (iii) transfer any of its properties or assets to the
Company or any of its Subsidiaries except for encumbrances or restrictions
existing under or by reason of (A) this Agreement, (B) applicable law, or (C) by
reason of customary non-assignment provisions in leases entered into and
purchase money obligations for property acquired in the ordinary course of
business and consistent with past practices.
SECTION 3.8 RESTRICTION ON PAYMENT OF DIVIDENDS AND STOCK REPURCHASES.
As long as the Note is outstanding, the Company shall not, and shall not permit
any Subsidiary except in favor of the Company to, directly or indirectly make
Distributions except as required by the Transaction Documents or with the prior
written consent of the Purchaser.
The Purchaser hereby consents to (a) payment of dividends on the
Preferred Stock according to its terms provided that the Company both remains in
compliance with Section 3.22 after giving effect to such payment, (b) mandatory
redemption of the Preferred Stock in the event that the Note has been paid or
prepaid in full or the Purchaser has converted the Note in full to common stock,
and (c) mandatory redemption of the Preferred Stock in the event that the
Company both (i) remains in compliance with Section 3.22 after giving effect to
such redemption and (ii) has raised, through the sale of common stock or Junior
Subordinated Indebtedness convertible into common stock of the Company, at least
two (2) times the amount to be paid in connection with such mandatory redemption
within the twelve (12) month period immediately prior to the effective date of
such redemption.
SECTION 3.9 RESTRICTION ON TRANSFER WITH AFFILIATES. So long as the
Note is outstanding, the Company will not, nor permit any Subsidiary to,
directly or indirectly, (a) enter into or permit to exist any transaction,
including, without limitation, the purchase, sale, lease or exchange of any
property, or the rendering of any service, with any Affiliate, officer, or
director of the Company, or any Affiliate of any of them, on terms that are less
favorable to the Company or such Subsidiary, as the case may be, than those
which might be obtained at the time of such transaction from Persons who are not
Affiliates on an arms length basis or (b) purchase Equity Interests of any
Affiliate. The restrictions contained in this Section 3.9 shall not apply to
transactions with or between Subsidiaries wholly owned by the Company to the
extent otherwise permitted by this Agreement.
SECTION 3.10 INCURRENCE OF INDEBTEDNESS So long as the Note is
outstanding, the Company will not, nor permit any of its Subsidiaries to,
directly or indirectly, incur, issue, purchase, assume, guarantee or become
liable with respect to, contingently or otherwise, or extend the maturity of,
any Indebtedness except for: (a) purchase money Indebtedness secured by Liens on
assets used in the ordinary course of business by them, the value of which at
least equals the outstanding principal amount of such Indebtedness, (b)
endorsements of negotiable instruments for deposit or collection in the ordinary
course of business, (c) Indebtedness described in SCHEDULE 3.10 ATTACHED HERETO,
(d) Senior Indebtedness, (e) Junior Subordinated Indebtedness convertible into
common stock of the Company, (f) seller indebtedness in connection with
acquisitions provided that such indebtedness is subordinated to all Company
obligations to Purchaser in form satisfactory to the Purchaser, and (g)
Indebtedness to which the Purchaser agrees in writing.
SECTION 3.11 LIENS AND ENCUMBRANCES. So long as the Note is
outstanding, the Company will not, nor permit any of its Subsidiaries to, create
or suffer to exist any Lien in respect of any property or assets of any
character whether owned now or hereafter other than: (a) Liens described in
SCHEDULE 3.11 attached hereto, (b) purchase money Liens securing purchase money
Indebtedness permitted by Section 3.10 of this Agreement, and (c) Liens to which
the Purchaser agrees in writing.
SECTION 3.12 DISPOSITION OF PROPERTY. So long as the Note is
outstanding, the Company shall not, nor permit any of its Subsidiaries to,
directly or indirectly, sell, transfer or dispose of any of their respective
properties or assets (or any interest therein) except for: (a) sales of
inventory in the ordinary course of business, (b) dispositions of obsolete or
other assets no longer used or useful, (c) transfers of assets that do not
constitute a material portion of the assets of the
Company or any Subsidiary for a fair consideration, and (d) transfers of assets
among the Company and wholly-owned Subsidiaries.
SECTION 3.13 LOANS. So long as the Note is outstanding, the Company
shall not, nor permit any of its Subsidiaries to, make or permit to be
outstanding loans or advances, to any Person, except: (a) loans or advances in
nature of deposits or prepayments to subcontractors, suppliers and others in the
ordinary course of business, (b) loans or advances to employees not exceeding
$100,000 in the aggregate at any one time outstanding, and (c) loans or advances
among the Company and its Subsidiaries.
SECTION 3.14 INVESTMENTS. So long as the Note is outstanding, the
Company shall not, nor permit any of its Subsidiaries to, purchase, acquire or
own or make any Investment, except: (a) short term direct obligations of the
United States of America or agencies thereof, in each case with maturity of less
than one year, (b) short term certificates of deposit of or other time deposits
with banks, (c) corporate bonds with a ▇▇▇▇▇'▇ or Standard & Poor's investment
grade rating, (d) municipal bonds, and (e) no more than twenty percent (20%) of
Investments in high grade, large cap equities.
SECTION 3.15 NEW BUSINESS, ACQUISITIONS. So long as the Note is
outstanding and except as contemplated by its e-commerce strategy as
contemplated by its Private Placement Memorandum dated May 12, 2000, a copy of
which has been provided to the Purchaser prior to the date of this Agreement,
the Company will not, nor permit any of its Subsidiaries to,: (a) substantially
change the nature of the businesses in which they are engaged, or (b) purchase
or lease any asset or properties outside of the ordinary course of business if
such assets or properties would constitute a material part of the assets or
properties of the Company or any such Subsidiary.
SECTION 3.16 MERGER, CHANGE OF CONTROL, ETC. So long as the Note is
outstanding, the Company shall not:
(a) consolidate with or merge into, or transfer all or
substantially all of its assets in one or more related transactions, to, any
Person, or
(b) permit any change in forty percent (40%) or more of the
Controlling Equity Interests of the Company.
SECTION 3.17 LIQUIDATION. The Company shall not terminate its
existence, wind up, liquidate its affairs or dissolve.
SECTION 3.18 MATERIAL AGREEMENTS.
(a) The Company shall, and shall cause its Subsidiaries to,
perform and comply with all material obligations and agreements including
without limitation obligations under the Transaction Documents.
(b) The Company shall not modify or extend the terms of any
Indebtedness other than the Senior Indebtedness in any material respect from
those in effect on the date hereof, including without limitation change the
maturity, increase the amount outstanding, change the
interest rate, or grant additional security therefor. The Company shall not
modify or extend the terms of the Senior Indebtedness in any manner that would
cause it to no longer constitute Senior Indebtedness.
SECTION 3.19 CORPORATE DOCUMENTS/EQUITY INTERESTS. So long as the Note
is outstanding, the Company shall not, nor permit any of its Subsidiaries to,
amend or modify permit to be amended or modified their respective charters or
By-Laws from the forms thereof in effect on the Closing Date, except for changes
which do not adversely affect the rights of the Purchaser.
The Company shall not create, sell, or issue additional Equity
Interests without the prior written consent of the Purchaser. The Purchaser,
subject to compliance with Section 1.5 hereof, hereby consents to (i) creation,
issuance, and sale of Junior Subordinated Indebtedness convertible into common
stock of the Company so long as after giving effect thereto the Company remains
in compliance with Section 3.22 of this Agreement, (ii) grants of stock options
under the Company Stock Option Plan as in effect on the date of this Agreement,
and as it may be amended to add options for up to an additional 250,000 shares
of the Company, (iii) grants or stock options or warrants to Pittsford Capital
Group or its Affiliates covering a maximum of 200,000 shares (including 50,000
shares already covered by existing warrants) of the common stock of the Company,
and (iv) creation, issuance, and sale of common stock of the Company.
SECTION 3.20 PROHIBITED USE OF PROCEEDS. The Company shall not, nor
permit any of its Subsidiaries to, 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."
SECTION 3.21 INVESTMENT COMPANY ACT. The Company will not, nor permit
any of its Subsidiaries to, register as, or conduct its business or take any
action which shall cause any of them to become or be deemed to be, an investment
company as defined under the Investment Company Act of 1940 and the rules and
regulations of the SEC thereunder.
SECTION 3.22 CASH FLOW. The Company shall maintain Cash Flow Coverage
of not less than 1.0 to 1.0 for the immediately preceding twelve (12) month
period, measured as of the end of each fiscal year of the Company as shown on
the financial statements provided to the Purchaser by the Company pursuant to
Section 3.1 of this Agreement.
SECTION 3.23 OBSERVER STATUS. At the request of the Purchaser, the
Company will allow representatives designated by the Purchaser to attend all
meetings of its Board of Directors as observers only, and will provide to the
Purchaser copies of all materials and information provided to the members of its
Board of Directors.
ARTICLE 4
TRANSFER OF RESTRICTED SECURITIES
SECTION 4.1 AUTHORIZATION. The execution, delivery, and performance of
the Transaction Documents executed by the Purchaser have been duly authorized by
the Purchaser.
Each of the Transaction Documents executed by the Purchaser constitutes a valid
and binding obligation of the Purchaser, enforceable in accordance with its
terms. The execution and delivery by the Purchaser of the Transaction Documents,
and the compliance with the respective terms thereof by the Purchaser, does not
(a) conflict with or result in a violation of, (b) constitute a default under,
(c) require any authorization, consent, approval, exemption, or other action by
or notice to, or filing with, any court or administrative or governmental body
or agency pursuant to, the partnership agreements and other organizational
documents of the Purchaser, any law, statute, rule, or regulation to which the
Purchaser is subject or any material agreement, instrument, order, judgment, or
decree to which the Purchaser is subject.
SECTION 4.2 DISCLOSURE. The Securities are being acquired for the
Purchaser's own account, for investment and not with a view to, or for resale in
connection with, any distribution thereof within the meaning of the Securities
Act or the securities laws of any other state applicable to the Purchaser. The
Purchaser understands that the Securities have not been registered under the
Securities Act by reason of their issuance in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act pursuant
to Section 4 (2) thereof, which exemption depends upon, among other things, the
bona fide nature of the Purchaser's investment intent expressed herein, that the
Company has no present intention of registering the Securities, and that the
Securities must be held by the Purchaser indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
registration.
SECTION 4.3 ACCESS TO INFORMATION. During the negotiation of the
transactions contemplated herein, the Purchaser and its representatives have
been afforded full and free access to corporate books, documents, and other
information concerning the Company and to is offices and facilities, have been
afforded an opportunity to ask such questions of the Company and its officers,
employees, agents, accountants, and representatives concerning the Company's
business, operations, financial condition, assets, liabilities, and other
relevant matters as they have deemed necessary or desirable, and have been given
all such information as has been requested, in order to evaluate the merits and
risks of the prospective investments contemplated herein.
SECTION 4.4 DUE DILIGENCE. The Purchaser and its representatives have
been solely responsible for the Purchaser's own "due diligence" investigation of
the Company and its management and business, for its own analysis of the merits
and risks of this investment, and for its own analysis of the fairness and
desirability of the terms of the investment. In taking any action or performing
any role relative to the arranging of the proposed investment, the Purchaser has
acted solely in its own interest, and neither the Purchaser (nor any of such
Purchaser's agents or employees) has acted as an agent of the Company. The
Purchaser has such knowledge and experience in financial and business matters
that the Purchaser is capable of evaluating the merits and risks of the purchase
of the Securities pursuant to the terms of this Agreement and of protecting
Purchaser's interests in connection therewith. Nothing in this Section, however,
shall affect the Company's obligations to Purchaser under the representations
and warranties contained in Article 2 hereof.
SECTION 4.5 ECONOMIC RISK. The Purchaser is able to bear the economic
risk of the purchase of the Securities pursuant to the terms of this Agreement,
including a complete loss of the Purchaser's investment in the Securities.
SECTION 4.6 RESTRICTIONS ON TRANSFERS.
(a) Restricted Securities are transferable only pursuant to
(i) public offerings registered under the Securities Act, (ii) Rule 144 or Rule
144A of the SEC (or any similar rule or rules then in force) if such rule is
available, (iii) upon satisfaction of the conditions specified in Section 4.8 or
(iv) any other legally available means of transfer.
(b) No holder of Restricted Securities shall directly or
indirectly transfer any Restricted Securities to any direct competitor
(including without limitation, any Person who Controls or is Controlled by any
direct competitor) of the Company, unless the Company is issuing Equity
Interests to, or Shareholder has also transferred or is transferring Equity
Interests to, such competitor unless the holder has first complied with Section
4.6(c) of this Agreement.
(c) If the holder proposes to transfer all or part of the
Restricted Securities in a transfer that could involve a transfer limited by
Section 4.6(b), the holder shall deliver a written notice ("Transfer Notice") to
the Company. The Transfer Notice shall describe the Restricted Securities
proposed to be transferred (the "Offered Shares") and the proposed price per
share. The Company may elect to purchase all, but not less than all, of the
Offered Shares at the price described in the Transfer Notice. If the Company
elects to purchase all of the Offered Shares, the Company shall give the holder
written notice of such election no later than twenty-one (21) days after
delivery of the Transfer Notice. If an election to purchase all of the Offered
Shares has been made, the Offered Shares shall be transferred to the Company at
the price stated in the Transfer Notice no later than fourteen (14) days after
notice of the election to purchase has been given. If the Company has not
elected to purchase all of the Offered Shares, the holder may conclude a
Transfer at the price per share stated in the Transfer Notice, or at a higher
price per share, at any time within a one hundred twenty (120) day period after
expiration of such election periods provided that the transferee has agreed in
writing to be bound by the terms of this Section 4 as if it was an original
signatory to this Agreement.
SECTION 4.7 LEGEND. Each certificate or instrument representing
Restricted Securities shall be imprinted with a legend in substantially the
following form:
"The securities represented hereby have not been registered under
the Securities Act of 1933, as amended. The transfer of the
securities represented by this certificate is subject to the
conditions specified in the Note Purchase Agreement, dated as of
June 22, 2000, as amended and modified from time to time, between
the issuer (the "Company") and certain investors, as amended and
modified from time to time. A copy of such Agreement will be
furnished by the Company to the holder hereof upon written
request and without charge."
SECTION 4.8 OPINION DELIVERY. In connection with the transfer of any
Restricted Securities (other than a transfer described in Section 4.6(a) above),
the holder thereof shall deliver written notice to the Company describing in
reasonable detail the transfer or proposed transfer, together with an opinion of
legal counsel which (to the Company's reasonable satisfaction) is knowledgeable
in securities law matters to the effect that such transfer of Restricted
Securities may be effected without registration of such Restricted Securities
under the Securities Act. In addition, if the holder of the Restricted
Securities delivers to the Company an opinion of such counsel that no subsequent
transfer of such Restricted Securities shall require registration under the
Securities Act, the Company shall promptly upon such contemplated transfer
deliver new certificates for such Restricted Securities which do not bear the
Securities Act legend set forth in Section 4.7. If the Company is not required
to deliver new certificates for such Restricted Securities not bearing such
legend, the holder thereof shall not transfer the same until the prospective
transferee has confirmed to the Company in writing its agreement to be bound by
the conditions contained in this Article 4.
SECTION 4.9 RULE 144A. Upon the request of the Purchaser, the Company
shall promptly supply to the Purchaser or its prospective transferees all
information regarding the Company required to be delivered in connection with a
transfer pursuant to Rule 144A of the SEC.
SECTION 4.10 LEGEND REMOVAL. If any Restricted Securities are sold
pursuant to Rule 144(k), the Company shall, upon the request of the holder of
such Restricted Securities, remove the legend set forth in Section 4.7 from the
certificates for such Restricted Securities.
ARTICLE 5
ARTICLE 5 SUBORDINATION
SECTION 5.1 SUBORDINATION. The Company and the Purchaser agree for the
benefit of the holders of the Senior Indebtedness that the Subordinated
Indebtedness is junior and shall be subordinated in all respects to all Senior
Indebtedness as provided for in this Purchase Agreement.
Notwithstanding, however, the foregoing or anything to the contrary
contained elsewhere in this Article 5, the cash value and proceeds of any life
insurance assigned to Purchaser may be retained by Purchaser and applied to
repay any obligations of the Company to Purchaser and shall not be subject to
the standstill, subordination, or other provisions contained in this Article 5.
SECTION 5.2 PAYMENT TO PURCHASER. Except as provided in this Article 5,
Company will not make and Purchaser will not accept, at any time while any
Senior Indebtedness is owing (a) any payment upon any Subordinated Indebtedness,
or (b) any advance, transfer or assignment of assets to Purchaser in any form
whatsoever that would reduce at any time or in any way the amount of
Subordinated Indebtedness. Notwithstanding the foregoing, the Company may make
regularly scheduled cash payments of principal and interest to Purchaser as
required under the Note; provided, no direct or indirect payment by or on behalf
of the Company of principal or interest on the Subordinated Indebtedness,
whether pursuant to the terms of the Note, upon acceleration or otherwise, shall
be made if at the time of such payment there exists an Event of Default under
the Senior Indebtedness and such default shall not have been cured by the
Company or waived by Senior Creditor in writing, and further provided, exercise
of conversion rights under the Note shall be allowed at any time. Upon the
occurrence of such cure or waiver, payment of scheduled principal and interest
on the Note shall be resumed.
In the event of any distribution, division, or application, whether
partial or complete, voluntary or involuntary, by operation of law or otherwise,
of all or any part of Company's assets, or the proceeds of Company's assets, in
whatever form, to creditors of Company or upon any indebtedness of Company,
whether by reason of liquidation, dissolution or other winding-up of Company, or
by reasons or any execution sale, receivership, insolvency, or bankruptcy
proceeding, assignment for the benefit of creditors, proceedings for
reorganization, or readjustment of Company or Company's properties, then and in
such event, (a) the Senior Indebtedness shall be paid in full before any payment
is made upon the Subordinated Indebtedness, and (b) all payments and
distributions, of any kind or character and whether in cash, property, or
securities, which shall be payable or deliverable upon or in respect of the
Subordinated Indebtedness shall be paid or delivered directly to Senior Creditor
for application in payment of the amounts then due on the Senior Indebtedness
until the Senior Indebtedness shall have been paid in full.
The Senior Creditor is hereby authorized to file an appropriate claim
for and on behalf of the Purchaser on account of the Subordinated Indebtedness
if Purchaser does not file, and there is not otherwise filed on behalf of the
Purchaser, a proper claim or proof of claim in the form required in any
dissolution, liquidation or reorganization proceeding prior to 30 days before
the expiration of the time to file such claim or claims. In connection with such
authorization, the Purchaser hereby irrevocably authorizes, empowers, and
appoints the Senior Creditor the Purchaser's agent and attorney-in-fact to
execute, verify, deliver and file such proofs of claim and to receive and
collect any and all dividends, payments, or other disbursements made thereon in
whatever form the same may be paid or issued and to apply the same on account of
the Senior Indebtedness.
Should any payment, distribution, security, or proceeds thereof be
received by Purchaser at any time on the Subordinated Indebtedness contrary to
the terms of this Purchase Agreement, Purchaser immediately will deliver the
same to Senior Creditor in precisely the form received (except for the
endorsement or assignment of Purchaser where necessary), for application on or
to secure the Senior Indebtedness, whether it is due or not due, and until so
delivered the same shall be held in trust by Purchaser as property of Senior
Creditor. In the event Purchaser fails to make anysuch endorsements or
assignment, Senior Creditor, or any of its officers on behalf of Senior
Creditor, is hereby irrevocably authorized by Purchaser to make the same.
SECTION 5.3 LIQUIDATION, DISSOLUTION, BANKRUPTCY. Upon any distribution
to creditors of the Company in a liquidation or dissolution of the Company or in
a bankruptcy, reorganization, insOlvency, receivership or similar proceeding
relating to the Company or its property or in any assignment for the benefit of
creditors or any marshaling of the assets and liabilities of the Company:
(a) Senior Creditor shall be entitled to receive payment in full
of all Senior Indebtedness (including interest after the commencement of any
such proceeding at the rate specified in the applicable agreements governing the
Senior Indebtedness, whether or not such
interest is an allowable claim in any such proceeding) before Purchaser shall be
entitled to receive any payment of any Subordinated Indebtedness with respect to
the Note; and
(b) until all Senior Indebtedness (as provided in subsection
(a) above) is paid in full, any distribution to which Purchaser would be
entitled but for this Section 5.3 shall be made to the Senior Creditor.
SECTION 5.4 PURCHASER NOTE. Purchaser agrees not to sell, assign,
pledge or otherwise transfer the Note except subject to all the terms and
conditions of this Article 5. The Note evidencing the Subordinated Indebtedness
shall bear the following legend or a legend substantially similar thereto:
"THIS NOTE IS SUBJECT TO CERTAIN SUBORDINATION PROVISIONS CONTAINED IN
THE PURCHASE AGREEMENT."
SECTION 5.5 CREDITOR REPRESENTATION AND WARRANTIES. Purchaser
represents and warrants to Senior Creditor that:
(a) no representations or agreements of any kind have been made
to Purchaser which would limit or qualify in any way the terms of this Article
5,
(b) Senior Creditor has made no representation to the Purchaser
as to the creditworthiness of Company; and
(c) Purchaser has established adequate means of obtaining from
Company on a continuing basis information regarding Company's financial
condition. Purchaser agrees that Senior Creditor shall have no obligation to
disclose to Purchaser information or material acquired by Senior Creditor in the
course of their relationships with Company.
SECTION 5.6 STANDSTILL PERIOD. Prior to the Purchaser notifying the
Senior Creditor that an event of default has occurred with respect to the
Subordinated Indebtedness, and continuing during the Standstill Period, the
Purchaser shall have no authority to enforce the Subordinated Indebtedness by
legal proceedings or otherwise, or in any manner interfere with the Liens held
by Senior Creditor until all of the Senior Indebtedness paid in full. The term
"Standstill Period' shall mean one hundred twenty (120) days following the date
on which the Purchaser has notified the Senior Creditor that an Event of Default
has occurred under the Note, unless on or before the expiration of the
Standstill Period the Senior Creditor is diligently pursuing its rights and
remedies with respect to any Liens held by the Senior Creditor, in which case
the Standstill Period shall continue for an additional sixty (60) days. If,
during the Standstill Period, the Events of Default under the Note are cured by
the Company or waived by the Purchaser, the Standstill Period shall cease
running, and a new Standstill Period shall commence running when the Senior
Creditor receives notice from the Purchaser of the occurrence of an Event of
Default with respect the Subordinated Indebtedness. The Standstill Period shall
be tolled during any period of time that there is in effect an automatic stay
under the Bankruptcy Code or an injunction or restraining order issued by a
court prohibiting the Senior Creditor from exercising its remedies, until a
court of competent jurisdiction has lifted such stay, injunction, or restraint.
During the Standstill Period, the Purchaser shall not take any action to
exercise its rights and remedies with respect to the Subordinated Indebtedness.
Nothing in this Agreement shall restrict or prohibit the Purchaser
from taking any action to declare the Company in default of its obligations to
the Purchaser, sending notice of any Event of Default under the Note, and/or
exercising its conversion rights under the Note.
SECTION 5.7 PURCHASER'S WAIVERS. Purchaser waives any right to require
Senior Creditor:
(a) to make, extend, renew, or modify any loan to Company or to
grant any other financial accommodations to Company whatsoever;
(b) to make any presentment, protest, demand, or notice of any
kind, including notice of any nonpayment of the Senior Indebtedness or of any
nonpayment related to any Liens, or notice of any action or nonaction or the
part of Company, Senior Creditor, any surety, endorser, or other guarantor in
connection with the Senior Indebtedness, or in connection with the creation of
new or additional Senior Indebtedness;
(c) to resort for payment or to proceed directly or at once
against any Person, including Company;
(d) to proceed directly against or exhaust any Lien held by
Senior Creditor from Company, any other guarantor, or any other Person;
(e) to pursue any other remedy within Senior Creditor's power;
or
(f) to commit any act or omission of any kind, at any time, with
respect to any matter whatsoever.
SECTION 5.8 SENIOR CREDITOR'S RIGHTS. Purchaser may take or omit any
and all actions with respect to the Senior Indebtedness or any Liens for the
Senior Indebtedness without affecting whatsoever any of Senior Creditor's rights
under this Article 5. In particular, without limitation, Senior Creditor may,
without notice of any kind to Purchaser:
(a) make or cause the Senior Creditor to make one or more
additional loans to Company provided that only the amount of such loans which
constitutes Senior Indebtedness shall have the benefit of this Article 5;
(b) repeatedly alter, amend, modify, or otherwise change any
borrowing base and/or fees, or any part thereof, applicable under the agreements
related to the Senior Indebtedness, including increases and decreases of the
advance rates, reserves, and fees applicable thereunder;
(c) repeatedly alter, compromise, renew, extend, accelerate, or
otherwise change the time for payment or other terms of the Senior Indebtedness
or any part thereof, including increases and decreases of the rate of interest
on the Senior Indebtedness; extensions may be repeated and may be for longer
than the original loan term;
(d) Take and hold Liens for the payment of the Senior
Indebtedness, and exchange, enforce, waive, and release any such Liens, with or
without the substitution of new collateral;
(e) release, substitute, agree not to ▇▇▇, or deal with any one
or. more of Company's sureties, endorsers, or guarantors on any terms or manner
Senior Creditor chooses;
(f) determine how, when and what application of payments and
credits shall be made on the Senior Indebtedness;
(g) apply such security and direct the order or manner of sale
thereof, as Senior Creditor in its discretion may determine; and
(h) assign the rights given under this Article 5 in whole or in
part in connection with an assignment in whole or in part of the Senior
Indebtedness.
SECTION 5.9 PURCHASER'S NOTICE OF DEFAULT. Purchaser agrees to give the
Senior Creditor copies of any written notices given to the Company of the
occurrence of any Event of Default under the Note, concurrently with, or as soon
as practicable after, the giving of such notice to the Company.
SECTION 5.10 MARSHALING. Senior Creditor may foreclose on its Liens in
any manner which it, in its sole discretion, chooses even though a higher price
might have been realized if the Senior Creditor had proceeded to foreclose on
its Liens in another manner. Without in any manner limiting the foregoing, the
Purchaser agrees that Senior Creditor may exercise its remedies against the
property in which they hold Liens in any order that the Senior Creditor, in its
sole discretion, chooses; and Purchaser confirms that the Senior Creditor shall
in no manner be required to marshal its claims against one or more properties in
which it holds a Lien.
SECTION 5.11 MODIFICATION OF SUBORDINATED INDEBTEDNESS. Purchaser and
Company waive any right to modify or amend the terms of the payment of interest
or the repayment of principal to either increase the interest rate or shorten
the amortization period of principal payments with respect to the Subordinated
Indebtedness during the term of this Agreement absent the prior written consent
of Senior Creditor.
SECTION 5.12 DEFAULT BY COMPANY. If Company becomes insolvent or
bankrupt, this Agreement shall remain in full force and effect. In the event of
a corporate reorganization or corporate arrangement of Company under the
provisions of the Bankruptcy Code, as amended, this Agreement shall remain in
full force and effect and the court having jurisdiction over the reorganization
or arrangement is hereby authorized to preserve such priority and subordination
in approving any such plan or reorganization or arrangement. Any payment default
under the terms of the Subordinated Indebtedness or any other Event of Default
under this Purchase Agreement which could result in an acceleration of the
Subordinated Indebtedness also shall be a default under the terms of the Senior
Indebtedness. The Purchaser shall give the Senior Creditor notice of the
occurrence of any such default and/or acceleration of the Subordinated
Indebtedness at such time as it gives such notice to the Company.
SECTION 5.13 SUBROGATION. After all Senior Indebtedness is irrevocably
paid in full and until the Subordinated Indebtedness is paid in full, Purchaser
shall be subrogated to the rights of the Senior Creditor to receive
distributions applicable to the Senior Indebtedness to the extent that
distributions otherwise payable to Purchaser have been applied to the payment of
the Senior Indebtedness. A distribution made under this Agreement to the Senior
Creditor on account of the Senior Indebtedness which otherwise would have been
made to Purchaser is not, as between the Purchaser and the Company, a payment by
the Company on the Subordinated Indebtedness. After payment in full of the
Senior Indebtedness, Purchaser shall be entitled to receive from the Senior
Creditor any payments or distributions received by Senior Creditor in excess of
the amounts sufficient to pay all Senior Indebtedness in full.
SECTION 5.14 OBLIGATIONS OF COMPANY UNCONDITIONAL. Subject to the
subordination provisions of this Agreement, nothing contained in this Agreement
is intended to or shall impair, as between Company and the Purchaser, the
obligations of Company, which are absolute and unconditional, to pay to the
Purchaser the principal and interest on the Note as and when the same shall
become due and payable in accordance with its terms, or is intended to or shall
affect the relative rights of the Purchaser and creditors of Company other than
the Senior Creditor.
SECTION 5.15 NOTICE TO PURCHASER AND SENIOR CREDITOR BY COMPANY.
Company shall give prompt written notice to the Senior Creditor and Purchaser of
any fact known to Company which would prohibit the making of any payment in
respect of the Subordinated Indebtedness, but failure to give such notice shall
not affect the subordination of the Subordinated Indebtedness to the Senior
Indebtedness provided in this Agreement. Notwithstanding the provisions of this
Agreement, the Purchaser shall not be charged with knowledge of the existence of
any facts which would prohibit the making of any payment in respect of the
Subordinated Indebtedness, unless and until the Purchaser shall have received
written notice thereof from the Company or the Senior Creditor, and, prior to
the receipt of any such written notice the Purchaser shall be entitled in all
respects to assume no such facts exist and to retain payments received prior to
such notice.
SECTION 5.16 FINANCIAL ACCOMMODATION. No provision contained in this
Agreement shall be construed:
(a) as requiring Senior Creditor to grant to Company or to
Purchaser any financial assistance or other accommodations; or
(b) as limiting or precluding Senior Creditor from the exercise
of Senior Creditor's own judgment and discretion about amounts and times of
payment in making loans or extending accommodations to Company.
SECTION 5.17 RANKING OF SECURITIES. The Indebtedness evidenced by the
Note shall rank senior to all Indebtedness evidenced by securities of the
Company issued by the Company after the date of this Agreement, any other
evidence of Indebtedness of the Company except as expressly provided for in
Section 5.1, and the Equity Interests of the Company.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1 EVENTS OF DEFAULT. An "Event of Default" occurs if
(a) Any representation or warranty made by or on behalf of the
Company, any Subsidiary, or any of their officers in any of the Transaction
Documents is false, inaccurate, or misleading in any material respect on the
date as of which made or deemed made;
(b) The Company fails to pay any obligation under the
Transaction Documents within ten (10) days after such amount becomes due
thereunder, whether or not such payment is prohibited by Article 5;
(c) The Company fails to, or to cause any Subsidiary to, comply
with or perform any of its covenants or agreements contained in Sections 3.1,
3.2, 3.3(a)(i)-(ii), 33(c), 3.3(g), 3.5, 3.6, 3.7, 3.8, 3.16, 3.17, 3.18(b),
3.20, 3.22, 3.23, or Article 4;
(d) The Company fails to, or to cause any Subsidiary to, comply
with or perform any of its covenants or agreements contained in the Transaction
Documents (other than as covered by Section 6.1 (b) or (c)) within ten days
after Purchaser gives Company notice of such failure;
(e) The Company or any Subsidiary (other than a Subsidiary
formed solely to hold real estate interests or leases, to which the Company has
not transferred material assets except those necessary in the ordinary course to
pay rent and the like, and whose obligations are not guaranteed by the Company)
defaults with respect to any Indebtedness (other than under the Transaction
Documents) if the effect of such default is to cause or permit the acceleration
of such Indebtedness prior to its expressed maturity;
(f) A final judgment of $100,000 or more is entered by a court
of competent jurisdiction against the Company or any Subsidiary (other than a
Subsidiary formed solely to hold real estate interests or leases, to which the
Company has not transferred material assets except those necessary in the
ordinary course to pay rent and the like, and whose obligations are not
guaranteed by the Company) that is not fully covered by insurance or discharged
within thirty (30) days unless such judgment is being appealed and a stay of
execution has been granted pending resolution of such appeal;
(g) The Company, or any Subsidiary (other than a Subsidiary
formed solely to hold real estate interests or leases, to which the Company has
not transferred material assets except those necessary in the ordinary course to
pay rent and the like, and whose obligations are not guaranteed by the Company)
commences or has commenced against it a case under any bankruptcy law or other
provision for the relief of debtors, makes a general assignment for the benefit
of its creditors; or generally is unable to pay its debts as the same become
due; or
(h) a custodian, receiver, trustee, liquidator, or the like is
appointed for the Company or any Subsidiary (other than a Subsidiary formed
solely to hold real estate interests or leases, to which the Company has not
transferred material assets except those necessary in the
ordinary course to pay rent and the like, and whose obligations are not
guaranteed by the Company) or for all or substantially all of their respective
property.
SECTION 6.2 ACCELERATION. If an Event of Default (other than an Event
of Default specified in Section 6.1 (g) or (h)) occurs, the Purchaser, by
written notice to the Company, may declare to be due and payable immediately all
Indebtedness of the Company to the Purchaser and all such amounts shall
thereupon be immediately due and payable without any presentment, demand or
notice of any kind, all of which the Company expressly waives. If any Event of
Default specified in Section 6.1 (g) or (h) occurs, all Indebtedness of the
Company to the Purchaser shall ipso facto be due and payable immediately without
presentment, demand or notice of any kind, all of which the Company expressly
waives.
SECTION 6.3 OTHER REMEDIES. If an Event of Default occurs, the
Purchaser may pursue any available remedy by proceeding at law or in equity, to
collect the obligations owed to it or to enforce the performance of any
provision of the Transaction Documents. No course of conduct or delay or
omission by the Purchaser in exercising any right or remedy shall impair the
right or remedy or constitute a waiver of or acquiescence in the Event of
Default or otherwise prejudice the Purchaser's rights, powers and remedies. No
remedy is exclusive of any other remedy and all remedies are cumulative to the
extent permitted by law. The Company further agrees to pay the Purchaser all
costs and expenses incurred by it (including attorney's fees) in connection with
the collection of any Indebtedness of the Company to the Purchaser or, after
notice to the Company of its intention to do so, the evaluation and exercise of
any rights and remedies in a commercially reasonable manner under the
Transaction Documents which are ultimately determined by counsel to be
available.
ARTICLE 7
VARIOUS PURCHASE, SALE, AND SHAREHOLDER RELATED RIGHTS
SECTION 7.1 COME ALONG RIGHTS. Except for Permitted Family Transfers,
transfers not exceeding an aggregate of 100,000 common shares during any
three-year period (adjusted proportionally for stock splits, stock combinations,
or the like), or transfers made with the written consent of the parties hereto,
all transfers of any Equity Interests by the Shareholder (including holders
pursuant to Permitted Family Transfers) for cash or a deferred cash payment
shall not be made unless the Purchaser is offered. the opportunity to transfer a
proportionate share of the Conversion Shares (including Conversion Shares
acquired as a result of conversion of the Note in order to take advantage of the
rights under this Section 7.1) to the same proposed transferee or transferees on
the same terms and conditions (including price) as are offered to the
Shareholder for the Shareholder's Equity Interests.
SECTION 7.2 REGISTRATION RIGHTS. The Purchaser shall receive the
registration rights described in the Registration Rights Agreement between the
Company and the Purchaser dated on or about the date of this Purchase Agreement.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1 NOTICES; REPORTING DATE. All notices, demands or other
communications to be given or delivered under or by reason of the provisions of
this Agreement shall be in writing and shall be deemed to have been given when
(i) delivered personally to the recipient, (ii) deposited for delivery to the
recipient with a reputable overnight courier service (charges prepaid), (iii)
faxed to recipient with a confirmation receipt and followed by deposit on the
same day with a reputable overnight courier service, or (iv) ten days after
being mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Any notice or communication shall be sent to the
respective addresses shown for the parties at the top of this Agreement, or, to
such additional or different address as any party designates by notice to the
other given in accordance with this Section 8.1.
SECTION 8.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein or made in writing by any party
in connection herewith shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, and
neither the knowledge of, nor any investigation by, the Purchaser shall affect
the occurrence or existence of a breach of any representation or warranty
contained herein.
SECTION 8.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto. In addition, and
whether or not any express assignment has been made, the provisions of this
Agreement which are for the Purchaser's benefit as a purchaser or holder of the
Securities or any Conversion Shares or other securities issued in connection
therewith are also for the benefit of, and enforceable by, any subsequent holder
of the same.
SECTION 8.4 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, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
SECTION 8.5 COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
SECTION 8.6 HEADINGS. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a substantive part of this
Agreement.
SECTION 8.7 GOVERNING LAW. This Agreement shall be governed by the laws
of the State of New York, without giving effect to any choice of law or conflict
of law rules or provisions (whether of the State of New York or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of New York.
SECTION 8.8 INDEMNIFICATION. In consideration of the Purchaser's
execution and delivery of this Agreement and acquiring the Note hereunder and in
addition to all of the
Company's other obligations under this Agreement, the Company shall defend,
protect, indemnify and hold harmless the Purchaser and all of its partners and
their respective officers, directors, employees and agents (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnitee") from and against:
(a) any and all actions, causes of action, liabilities, suits,
claims, losses, costs, penalties, fees, liabilities, damages, and expenses
(including among others reasonable attorney's fees) arising out of or incurred
in connection with the Transaction Documents and the transactions contemplated
thereby, except for any such liabilities arising on account of the particular
Indemnitee's gross negligence or willful misconduct, and
(b) any and all actions, causes of action, liabilities, suits,
claims, losses, costs, penalties, fees, liabilities, damages, and expenses
including, but not limited to, all costs of investigation, monitoring, legal
representation, remedial response, removal, restoration or permit acquisition of
any kind whatsoever, which may now or in the future be undertaken, suffered,
paid, awarded, assessed, or otherwise incurred by the Purchaser (or any other
Person affiliated with the Purchaser or representing or acting for the Purchaser
or at the Purchaser's behest, or with a claim on the Purchaser or to whom the
Purchaser has liability or responsibility of any sort) related to, resulting
from or arising out of (i) the presence of any Hazardous Substance or a Release
or the threat of a Release of any Hazardous Substance on, at or from the
Company's or any Subsidiary's property, (ii) the failure to promptly undertake
and diligently pursue to completion all necessary, appropriate and legally
authorized investigative, containment, removal, clean up and other remedial
actions with respect to any Release or the threat of a Release of any Hazardous
Substance on, at or from the Company's or any Subsidiary's property, (iii) human
exposure to any Hazardous Substance, noises, vibrations or nuisances of whatever
kind to the extent the same arise from the condition of the Company's or any
Subsidiary's property or the ownership, use, operation, sale, transfer or
conveyance thereof, (iv) a violation of any applicable law related to the
environment, or (v) noncompliance with any environmental permit, (the
"Indemnified Liabilities"), incurred by the Indemnitees or any of them as a
result of, or arising out of, or relating to the transactions contemplated by
the Transaction Documents. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
SECTION 8.9 PAYMENT SET ASIDE. To the extent that the Company makes a
payment or payments to the Purchaser hereunder or under the Note or the
Purchaser enforces or exercises its rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other Person under any law,
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or set off
had not occurred.
IN WITNESS WHEREOF, the parties have caused this Purchase Agreement to
be duly executed as of the date first shown above.
MONTANA ▇▇▇▇▇ BREAD CO., INC.
By: /s/ ▇▇▇▇▇▇ ▇'▇▇▇▇▇▇▇
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Title: President
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▇▇▇▇▇▇ CAPITAL PARTNERS, L.P.
By: Chephas LLC, General Partner
By: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------
Managing Member
For the limited purpose of agreement to Section 7.1:
/s/ ▇▇▇▇▇▇ ▇'▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇ ▇'▇▇▇▇▇▇▇
LIST OF APPENDIXES, EXHIBITS AND SCHEDULES
Exhibit A - Defined Terms
Exhibit B - Form of Note
Exhibit C - Form of Junior Subordinated Indebtedness
Subordination Agreement
Schedule 2.2 Equity Interests
Schedule 2.3 Subsidiaries
Schedule 2.4 Conflicts and Consents
Schedule 2.8 Material Changes
Schedule 2.12 Intellectual Property
Schedule 2.19 Affiliated Transactions
Schedule 3.10 Debt
Schedule 3.11 Encumbrances
EXHIBIT A
---------
DEFINITIONS
"Affiliate" means any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company.
"Affiliated Group" means any affiliated group as defined in IRC Section
1504 that has filed a consolidated return for federal income tax purposes (or
any similar group under state, local or foreign law) for a period during which
any of the Company or any of its Subsidiaries was a member.
"Capitalized Leases" means, with respect to any Person, all obligations
of such Person under any agreement to lease, or lease of, any real or personal
property that are required to be capitalized for financial reporting purposes in
accordance with generally accepted accounting principles.
"Cash Flow Coverage" means, for any fiscal year, EBITDA plus the
proceeds from the issuance of Equity Interests or Junior Subordinated
Indebtedness during such fiscal year plus cash on hand at the beginning of such
fiscal year, divided by interest expense plus principal repaid plus
Distributions plus income tax payments applicable to such fiscal year.
"Control" (including "Controlled' and "Controlling") means ownership of
twenty-five percent (25%) or more of the outstanding voting equity interests of
any Person (or interests that might have voting power by reason of the happening
of any contingency), or ownership of any other interest by reason of which a
controlling influence over the affairs of the entity may be exercised.
"Conversion Shares" means the common shares into which the Note may be
converted, as adjusted from time to time in accordance with the terms of the
Purchase Agreement.
"Convertible Securities" means any stock or securities (other than
Equity Rights) directly or indirectly convertible into or exchangeable for
common stock of the Company.
"Default" means any event which is, or after notice, or passage of time
or both would be, an Event of Default.
"Distributions" means (i) dividends, payments, or distributions of any
kind (including without limitation cash or property) in respect of the Equity
Interests of the Company except distributions in the form of such Equity
Interests, and (ii) repurchases, redemptions, or acquisitions of Equity
Interests in the Company or rights to acquire such Equity Interests.
"EBITDA" means earnings before interest, taxes, depreciation,
amortization, dividends, distributions, and the like.
"Equity Interest" means capital stock, warrants, options, convertible
securities or notes, other rights to acquire capital stock, stock appreciation
rights, phantom stock rights, profit participation rights, and other rights and
interests in any share of the equity of the Company of any kind.
"Equity Rights" means warrants, options, other similar rights to
acquire common stock.
"Event of Default" has the meaning given to it in Article 6 of the Note
Purchase Agreement.
"Financing" has the same meaning given to such term in the SBIC
Regulations.
"Fundraising Event" means the closing and funding of any issue of (i)
Junior Subordinated Indebtedness convertible into common stock of the Company,
or (ii) common stock of the Company, in either case resulting in $2,000,000 in
proceeds to the Company.
"Fundraising Price" means, as the case may be, the price per common
share or the debt conversion price per common share issued in connection with a
Fundraising Event.
"Hazardous Substance" means, without limitation, any explosives, radon,
radioactive materials, asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous
materials, hazardous wastes, hazardous or toxic substances and any other
material defined as a hazardous substance in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sections
9601, et. seq.; the Hazardous Materials Transportation Act, as amended, 49
U.S.C. Sections 1801, et. seq.; the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. Sections 6901, et. seq.; Articles 15 and 27 of the New York
State Environmental Conservation Law or any other federal, state, or local law,
regulation, rule, ordinance, bylaw, policy, guideline, procedure,
interpretation, decision, order, or directive, whether existing as of the date
hereof, previously enforced or subsequently enacted.
"Indebtedness" means (a) all obligations of any Person for borrowed
money (including without limitation all indebtedness evidenced by notes, bonds,
debentures or other securities sold by such Person for money) or in respect of
letters of credit issued for its own account, (b) all obligations incurred by
such Person in the acquisition (whether by way of purchase, merger,
consolidation or otherwise and whether by such Person or another Person) of any
business, real property or other assets (except assets acquired in the ordinary
course of the conduct of the acquiror's usual business), (c) all Capitalized
Leases, (d) guarantees by such Person of Indebtedness described in clauses (a),
(b) or (c), and (e) renewals, extensions refundings, deferrals, restructurings,
amendments and modifications of any such Indebtedness, obligation or guarantee.
"Intellectual Property Rights" means all (a) patents, patent
applications, patent disclosures and inventions, (b) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (c) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(d) mask works and registrations and applications for registration thereof, (e)
computer software, data, data bases and documentation
thereof, (f) trade secrets and other confidential information (including,
without limitation, ideas, formulas, compositions, inventions (whether
patentable or unpatentable and whether or not reduced to practice), know-how,
manufacturing and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, copyrightable works, financial and marketing plans and customer and
supplier lists and information), (g) other intellectual property rights and (h)
copies and tangible embodiments thereof (in whatever form or medium).
"Investment" as applied to any Person means (a) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations, or
Equity Interests (including partnership and joint venture interests) of any
other Person and (b) any capital contribution by such Person to any other
Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
"Junior Subordinated Indebtedness" means Indebtedness of the Company
subordinated to the Subordinated Indebtedness by a Subordination Agreement in
substantially the form of EXHIBIT attached hereto.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof), any sale of receivables with recourse
against the Company or any Affiliate, any filing or agreement to file a
financing statement as debtor under the Uniform Commercial Code or any similar
statute other than to reflect ownership by a third party of property leased to
the Company under a lease which is not in the nature of a conditional sale or
title retention agreement, or any subordination arrangement in favor of another
Person (other than any subordination arising in the ordinary course of
business).
"Note" means the Note described in Section 1.1 of this Agreement.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two (2) Officers
or by an Officer (other than the Secretary) and the Secretary or an Assistant
Secretary of the Company.
"Parent" with respect to a Person, means any Person which owns,
directly or through one or more Subsidiaries, shares of stock or other Equity
Interests having general voting power under ordinary circumstances to elect a
majority of the board of directors, managers, trustees or other governing body
of such Person or which otherwise Controls such Person.
"Permitted Family Transfers" means transfers of Equity Interests by the
Shareholder to members of their immediate family, or to trusts for the
beneficial interest of the Shareholder or members of his immediate family, or to
entities or partnerships the sole owners and beneficiaries
of which are the Shareholder and members of his immediate family, provided,
however, that in each case (i) the Shareholder at all times retains full and
unencumbered voting control with respect to such transferred Equity Interests
and (ii) the transferred Equity Interests remain subject to the same
restrictions and obligations as bind the Shareholder hereunder.
"Person" means any individual, corporation, partnership, company, joint
venture, association, joint stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof, or other entity of
any kind.
"Preferred Stock" means the Convertible Preferred Stock, Series A, of
the Company that is issued and outstanding on the date of the Purchase Agreement
as shown on Schedule 2.2 thereto.
"Public Offering" means any offering by the Company of its capital
stock or other Equity Interests to the public pursuant to an effective
registration statement under the Securities Act, or any comparable statement
under any similar federal statute then in force.
"Regulatory Problem" means any set of facts or circumstances wherein it
has been asserted by any governmental regulatory agency (or the Purchaser
believes that there is a substantial risk of such assertion) that the Purchaser
and its Affiliates are not entitled to hold, or exercise any significant right
with respect to the common stock.
"Restricted Securities" means (a) the Note, (b) the Conversion Shares,
and (c) any securities issued with respect to the securities referred to in
clauses (a) or (b) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular Restricted Securities, such
Securities shall cease to be Restricted Securities when they have been (a)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) distributed to the public
through a broker, dealer or market maker pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act or become eligible for sale
pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act or (c) been otherwise transferred and new certificates for them
not bearing the Securities Act legend set forth in Section 4.3 have been
delivered by the Company in accordance with Sections 4.4 or 4.6. Whenever any
particular Securities cease to be Restricted Securities, the holder thereof
shall be entitled to receive from the Company, without expense, new Securities
of like tenor not bearing a Securities Act legend of the character set forth in
Section 4.3.
"SBA" means the United States Small Business Administration.
"SBIC Regulations" means the Small Business Investment Company Act of
1958, as amended, and the regulations issued by the Small Business
Administration thereunder, 13 CFR 107 and 121, as amended.
"SBIC Regulatory Violation" means (a) a diversion of the proceeds of
the Financing provided hereunder from the reported use thereof on the use of
proceeds statement delivered by the Company on SBA Form 1031 delivered on the
Closing Date, if such diversion was effected without obtaining the prior written
consent of the Purchaser (which may be withheld in its sole discretion) or (b) a
change in the principal business activity of the Company to an ineligible
business activity (within the meaning of the SBIC Regulations) if such change
occurs within one year after the date of the initial Financing hereunder.
"SEC" means the United States Securities and Exchange Commission.
"Securities" means the Note and Conversion Shares issued under this
Agreement.
"Securities Act" means the Securities Act of 1933, as in effect on the
date hereof and as hereafter amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
in effect on the date hereof and as hereafter amended.
"Senior Indebtedness" means all Indebtedness designated as senior to
the Note, provided, however, that the aggregate principal amount outstanding of
such Indebtedness may not exceed four times EBITDA for the Company's most
recently ended fiscal year as shown on the most recent annual audited financial
statements of the Company provided to the Purchaser pursuant to Section 3.1 of
this Agreement. Such Senior Indebtedness shall include interest, late charges,
and other expenses and charges due or to become due related to such Senior
Indebtedness. If Senior Indebtedness constituted Senior Indebtedness at the time
it was incurred, the Senior Indebtedness shall remain Senior Indebtedness until
paid in full without regard to any subsequent decrease in Borrower's EBITDA.
"Subordinated Indebtedness" means all Indebtedness evidenced by the
Note and any amendments thereto, modifications thereof, or replacements
therefor.
"Subsidiary" means any Person of which at the time of determination
made under this Agreement at least a majority of capital stock or other Equity
Interests having ordinary voting power for the election of directors or other
governing body of such Person is owned or Controlled by the Company directly or
through one or more Subsidiaries.
"Tax" or "Taxes" means federal, state, county, local, foreign or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Transaction Documents" means the Note Purchase Agreement, the Note,
the Registration Rights Agreement, and all other agreements, instruments, and
documents executed or delivered in connection with the transactions contemplated
thereby.
EXHIBIT B
FORM OF CONVERTIBLE SUBORDINATED PROMISSORY NOTE
------------------------------------------------
The security represented by this instrument was originally
issued on June - , 2000, and has not been registered under
the Securities Act of 1933, as amended. The transfer of such
security is subject to the conditions specified in the Note
Purchase Agreement, dated as of June 22, 2000, as amended
and modified from time to time, between the issuer (the
"Company") and the original holder of this instrument, and
the Company reserves the right to refuse the transfer of
such security until such conditions have been fulfilled with
respect to such transfer. Upon written request, a copy of
such conditions shall be furnished by the Company to the
holder hereof without charge.
----------------------
CONVERTIBLE SUBORDINATED
PROMISSORY NOTE
FOR VALUE RECEIVED, MONTANA ▇▇▇▇▇ BREAD CO., INC., a Delaware
corporation (the "Company") with an address of ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, hereby promises to pay to the order of ▇▇▇▇▇▇ CAPITAL
PARTNERS, L.P., which has an address of ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, or registered assigns, ("Holder") the principal sum of Two Million
Dollars ($2,000,000) together with interest thereon calculated from the date
hereof in accordance with the provisions of this Note on June 22, 2005, or
sooner as provided herein.
This Note was issued pursuant to a Note Purchase Agreement, dated as of
June 22, 2000 (as amended and modified from time to time, the "Purchase
Agreement'), between the Company and the Holder and all provisions thereof are
hereby incorporated herein in full by reference. The Purchase Agreement contains
terms governing the rights of the Holder of this Note and the Holder is entitled
to the benefits thereof. All capitalized terms used herein and not otherwise
defined shall have the meanings given thereto in the Purchase Agreement.
THIS NOTE IS SUBJECT TO CERTAIN SUBORDINATION PROVISIONS
CONTAINED IN THE PURCHASE AGREEMENT.
1. INTEREST. Except as otherwise expressly provided herein, interest
shall accrue on the unpaid principal amount of this Note outstanding from the
date hereof until such time as payment therefor is actually delivered to the
Holder (including after acceleration, maturity, or judgment) at the rate of 12%
per annum. All interest shall be calculated on the basis of twelve thirty-day
months per year.
2. PAYMENTS. All accrued interest shall be due and payable on the first
day of each month, commencing August 1, 2000.
All outstanding principal and remaining accrued interest shall be due
and payable on June 22, 2005.
This Note may be freely prepaid in whole or in part at any time.
Prepayments (whether prior to the maturity date or due to acceleration of this
Note under Section 3) shall be accompanied by a prepayment premium equal to the
following percentage of the amount of principal prepaid during the following
periods:
Year Percentage
---- ----------
6/22/00 - 6/21/01 5%
6/22/01 - 6/21/02 4%
6/22/02 - 6/21/03 3%
6/22/03 - 6/21/04 2%
6/22/04 - 6/21/05 1%
3. EVENTS OF DEFAULT. In case an Event of Default shall occur, the
principal of this Note may be declared or become immediately due and payable in
the manner and with the effect provided in the Purchase Agreement.
In addition, upon the occurrence of an Event of Default at Holder's
option interest on the outstanding principal hereunder shall accrue at a rate
per annum from time to time equal to the rate of interest then in effect on this
Note plus three percentage points (3%) per annum. Any increase in the interest
rate shall not be the Holder's exclusive remedy in the event of an Event of
Default.
The Holder shall also have any other rights which the Holder may have
been afforded under any contract or agreement at any time and any other rights
which such holder may have pursuant to applicable law. The Company hereby waives
diligence, presentment, protest and demand and notice of protest and demand,
dishonor and nonpayment of this Note and expressly agrees that this Note, or any
payment hereunder, may be extended from time to time and that the Holder may
accept security for this Note or release security for this Note, all without in
any way affecting the liability of the Company hereunder.
4. SUBORDINATION. This Note is subordinated to the extent set forth and
on the terms and conditions set forth in the Purchase Agreement.
5. CONVERSION RIGHTS. The Holder shall have the conversion rights
related to this Note described in the Purchase Agreement.
6. AMENDMENT AND WAIVER. Except as otherwise expressly provided herein,
the provisions of this Note may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Holder.
7. CANCELLATION. After all principal and accrued interest at any time
owed on this Note has been paid in full, this Note shall be surrendered to the
Company for cancellation and shall not be reissued.
8. PAYMENTS. Unless otherwise expressly provided herein, all payments
to be made to the Holders shall be made in the lawful money of the United States
of America in immediately available funds which shall be delivered to the
address designated by the Holder.
9. TRANSFER OF NOTE. This Note may be transferred pursuant to the terms
of the Purchase Agreement and the Company shall treat the Person to whom this
Note is assigned in accordance therewith for the purpose of receiving payment
and for all other purposes, and the Company shall not be affected by any notice
to the contrary.
10. BUSINESS DAYS. If any payment is due, or any time period for giving
notice or taking action expires, on a day which is a Saturday, Sunday or legal
holiday in the State of New York, the payment shall be due and payable on, and
the time period shall automatically be extended to, the next business day
immediately following such Saturday, Sunday or legal holiday, and interest shall
continue to accrue at the required rate hereunder until any such payment is
made.
11. USURY LAWS. It is the intention of the Company and the Holder to
conform strictly to all applicable usury laws now or hereafter in force, and any
interest payable under this Note shall be subject to reduction to the amount not
in excess of the maximum legal amount allowed under the applicable usury laws as
now or hereafter construed by the courts having jurisdiction over such matters.
If the maturity of this Note is accelerated by reason of an election by the
Holder resulting from an Event of Default, voluntary prepayment by the Company
or otherwise, then earned interest may never include more than the maximum
amount permitted by law, computed from the date hereof until payment, and any
interest in excess of the maximum amount permitted by law shall be canceled
automatically and, if theretofore paid, shall at the option of the Holder either
be rebated to the Company or credited on the principal amount of this Note, or
if this Note has been paid, then the excess shall be rebated to the Company. The
aggregate of all interest (whether designated as interest, service charges,
points or otherwise) contracted for, chargeable or receivable under this Note
shall under no circumstances exceed the maximum legal rate upon the unpaid
principal balance of this Note remaining unpaid from time to time. If such
interest does exceed the maximum legal rate, it shall be deemed a mistake and
such excess shall be canceled automatically and, if theretofore paid, rebated to
the Company or credited on the principal amount of this Note, or if this Note
has been repaid, then such excess shall be rebated to the Company.
12. NOTICES. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Note shall be given in
accordance with the Purchase Agreement.
13. NEW YORK LAW. This Note is intended to be performed in the State of
New York and shall be construed and enforced in accordance with the laws of such
State.
IN WITNESS WHEREOF, the Company has executed and delivered this Note on
the 22nd of June, 2000.
MONTANA ▇▇▇▇▇ BREAD CO., INC.
By:
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Title:
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