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EXHIBIT 4.1
CONVERTIBLE LOAN AGREEMENT
DATED DECEMBER 19, 1997
BY AND AMONG
LIFEQUEST MEDICAL, INC.
AS BORROWER
AND
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
AND
RENAISSANCE US GROWTH & INCOME TRUST PLC
AS LENDERS
AND
RENAISSANCE CAPITAL GROUP, INC.
AS AGENT FOR THE LENDERS
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TABLE OF CONTENTS
PAGE
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ARTICLE I - DEFINITION OF TERMS . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Other Definition Provisions . . . . . . . . . . . . . . 8
ARTICLE II - LOAN PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.01. The Loan . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.02. Use of Proceeds . . . . . . . . . . . . . . . . . . . . 10
Section 2.03. Interest Rate and Interest Payments . . . . . . . . . . 10
Section 2.04. Maturity . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.05. Mandatory Principal Repayment . . . . . . . . . . . . 10
Section 2.06. Redemption . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.07. Fees and Expenses . . . . . . . . . . . . . . . . . . . 10
Section 2.08. Finder's Fees . . . . . . . . . . . . . . . . . . . . . 11
Section 2.09. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.10 Conversion Rights . . . . . . . . . . . . . . . . . . . 12
ARTICLE III - CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . 12
Section 3.01. Document Requirements . . . . . . . . . . . . . . . . . 12
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BORROWER . . . . . . . . . . . 13
Section 4.01. Organization and Good Standing . . . . . . . . . . . . 14
Section 4.02. Authorization and Power . . . . . . . . . . . . . . . . 14
Section 4.03. No Conflicts or Consents . . . . . . . . . . . . . . . 14
Section 4.04. Enforceable Obligations . . . . . . . . . . . . . . . . 14
Section 4.05. No Liens . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.06. Financial Condition . . . . . . . . . . . . . . . . . . 15
Section 4.07. No Default . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.08. Material Agreements . . . . . . . . . . . . . . . . . . 15
Section 4.09. No Litigation . . . . . . . . . . . . . . . . . . . . . 15
Section 4.10. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.11. Capitalization . . . . . . . . . . . . . . . . . . . . 16
Section 4.12. Use of Proceeds . . . . . . . . . . . . . . . . . . . . 16
Section 4.13. Employee Matters . . . . . . . . . . . . . . . . . . . 17
Section 4.14. Compliance with Laws . . . . . . . . . . . . . . . . . 17
Section 4.15. Shares Issuable Upon Conversion . . . . . . . . . . . . 18
Section 4.16. Insider . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.17. Subsidiaries . . . . . . . . . . . . . . . . . . . . . 18
Section 4.18. Casualties . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.19. Investment Company Act . . . . . . . . . . . . . . . . 19
Section 4.20. Sufficiency of Capital . . . . . . . . . . . . . . . . 19
Section 4.21. Corporate Names . . . . . . . . . . . . . . . . . . . . 19
Section 4.22. Insurance . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.23. Licenses, Trademarks, Service Marks and Copyrights . . 19
Section 4.24. Real Property; Leases . . . . . . . . . . . . . . . . . 20
Section 4.25. Survival of Representations and Warranties . . . . . . 20
Section 4.26. Full Disclosure . . . . . . . . . . . . . . . . . . . . 20
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ARTICLE V - AFFIRMATIVE COVENANTS OF BORROWER . . . . . . . . . . . . . . . . 20
Section 5.01. Financial Statements, Reports and Documents . . . . . . 21
Section 5.02. Preparation of Budget . . . . . . . . . . . . . . . . . 22
Section 5.03. Payment of Taxes and Other Indebtedness . . . . . . . . 22
Section 5.04. Maintenance of Existence and Rights; Conduct of
Business . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.05. SEC Filings . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.06. Notice . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.07. Compliance with Loan Documents . . . . . . . . . . . . 23
Section 5.08. Compliance with Material Agreements . . . . . . . . . . 23
Section 5.09. Operations and Properties . . . . . . . . . . . . . . . 23
Section 5.10. Books and Records; Access . . . . . . . . . . . . . . . 23
Section 5.11. Compliance with Law . . . . . . . . . . . . . . . . . . 24
Section 5.12. Insurance . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.13. Authorizations and Approvals . . . . . . . . . . . . . 24
Section 5.14. ERISA Compliance . . . . . . . . . . . . . . . . . . . 24
Section 5.15. Further Assurances . . . . . . . . . . . . . . . . . . 24
Section 5.16. Indemnity by Borrower . . . . . . . . . . . . . . . . . 25
Section 5.17. Reservation of Shares . . . . . . . . . . . . . . . . . 26
Section 5.18. Ownership of Subsidiaries. . . . . . . . . . . . . . . 26
Section 5.19. Retention of Stock Ownership. . . . . . . . . . . . . . 26
ARTICLE VI - NEGATIVE COVENANTS OF BORROWER . . . . . . . . . . . . . . . . . 26
Section 6.01. Limitation on Indebtedness . . . . . . . . . . . . . . 27
Section 6.02. Limitation on Liens . . . . . . . . . . . . . . . . . . 27
Section 6.03. Limitation on Investments . . . . . . . . . . . . . . . 27
Section 6.04. Alteration of Material Agreements . . . . . . . . . . . 27
Section 6.05. Transactions with Affiliates . . . . . . . . . . . . . 27
Section 6.06. Limitations on Acquisition of Nonrelated Business . . . 28
Section 6.07. Limitation on Sale of Properties . . . . . . . . . . . 28
Section 6.08. Fiscal Year and Accounting Method . . . . . . . . . . . 28
Section 6.09. Liquidation . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.10. Material Amendments to Articles of Incorporation or
Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.11. Executive Compensation . . . . . . . . . . . . . . . . 28
Section 6.12. Restricted Payments . . . . . . . . . . . . . . . . . . 29
Section 6.13. Consolidation or Merger. . . . . . . . . . . . . . . . 29
ARTICLE VII - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS . . . . . . . . 29
Section 7.01. Financial Ratios . . . . . . . . . . . . . . . . . . . 29
ARTICLE VIII - EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.01. Events of Default . . . . . . . . . . . . . . . . . . . 30
Section 8.02. Remedies Upon Event of Default. . . . . . . . . . . . . 31
Section 8.03. Performance by the Lenders . . . . . . . . . . . . . . 32
Section 8.04. Payment of Expenses Incurred by the Lenders . . . . . . 32
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ARTICLE IX - REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.01. Demand Registration . . . . . . . . . . . . . . . . . 32
Section 9.02. "Piggy-Back" Registration . . . . . . . . . . . . . . 33
Section 9.03. Shelf Registration . . . . . . . . . . . . . . . . . . 34
Section 9.04. Obligations of Borrower . . . . . . . . . . . . . . . 34
Section 9.05. Furnish Information . . . . . . . . . . . . . . . . . 36
Section 9.06. Expenses of Registration . . . . . . . . . . . . . . . 36
Section 9.07. Indemnification Regarding Registration Rights . . . . 36
Section 9.08. Reports Under the 1934 Act. . . . . . . . . . . . . . 38
Section 9.09. Assignment of Registration Rights . . . . . . . . . . 39
Section 9.10. Other Matters . . . . . . . . . . . . . . . . . . . . 39
ARTICLE X - BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . 40
Section 10.01. Board Representation or Attendance by Observer . . . . 40
Section 10.02. Limitation of Authority of Persons Designated as a
Director Nominee . . . . . . . . . . . . . . . . . . . 40
Section 10.03. Nonliability of the Lenders . . . . . . . . . . . . . 41
ARTICLE XI - AGENCY AND INTER-LENDER PROVISIONS . . . . . . . . . . . . . . . 41
Section 11.01. The Lenders' Representations and Warranties to Other
Lenders . . . . . . . . . . . . . . . . . . . . . . . 41
Section 11.02. Waiver of Loan Provisions or Interest or Principal
Payments . . . . . . . . . . . . . . . . . . . . . . . 42
Section 11.03. Agency . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 11.04. Subordination of Liens . . . . . . . . . . . . . . . . 43
ARTICLE XII - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 12.01. Strict Compliance . . . . . . . . . . . . . . . . . . 43
Section 12.02. Waivers and Modifications . . . . . . . . . . . . . . 44
Section 12.03. Limitation on Liability . . . . . . . . . . . . . . . 44
Section 12.04. Choice of Forum; Consent to Service of Process and
Jurisdiction . . . . . . . . . . . . . . . . . . . . . 44
Section 12.05. Arbitration. . . . . . . . . . . . . . . . . . . . . . 44
Section 12.06. Invalid Provisions . . . . . . . . . . . . . . . . . . 46
Section 12.07. Maximum Interest Rate . . . . . . . . . . . . . . . . 47
Section 12.08. Participations and Assignments of the Debentures . . . 47
Section 12.09. Confidentiality . . . . . . . . . . . . . . . . . . . 48
Section 12.10. Binding Effect . . . . . . . . . . . . . . . . . . . . 48
Section 12.11. No Third Party Beneficiary . . . . . . . . . . . . . . 48
Section 12.12. Entirety . . . . . . . . . . . . . . . . . . . . . . . 49
Section 12.13. Headings . . . . . . . . . . . . . . . . . . . . . . . 49
Section 12.14. Survival . . . . . . . . . . . . . . . . . . . . . . . 49
Section 12.15. Multiple Counterparts . . . . . . . . . . . . . . . . 49
Section 12.16. Notices . . . . . . . . . . . . . . . . . . . . . . . 49
Section 12.17. Governing Law. . . . . . . . . . . . . . . . . . . . . 51
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Agreement
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THIS AGREEMENT, dated as of DECEMBER 19, 1997, by and among LIFEQUEST
MEDICAL, INC., a Delaware corporation, as borrower ("BORROWER"), RENAISSANCE
CAPITAL GROWTH & INCOME FUND III, INC., a Texas corporation, and RENAISSANCE US
GROWTH & INCOME TRUST PLC, a public limited company registered in England and
Wales, (individually referred to as Renaissance III and Renaissance PLC,
respectively, and together with any permitted assignees or successors in
interest individually referred to as each or any "LENDER" and collectively
referred to as the "LENDERS"), and RENAISSANCE CAPITAL GROUP, INC., a Texas
corporation, as agent (the "AGENT") for the Lenders. All references herein to
Borrower shall include the Subsidiaries, unless the context otherwise requires.
WITNESSETH:
WHEREAS, Borrower seeks to obtain THREE MILLION DOLLARS ($3,000,000)
from the Lenders through the issuance of Debentures to be used for
acquisitions, working capital and general corporate purposes in accordance with
Section 2.02 hereof; and
WHEREAS, Borrower has requested that the Lenders provide such loan as
herein provided, and that the Lenders are willing to furnish such to Borrower
upon the terms and subject to the conditions and for the considerations
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises herein contained
and for other valuable consideration, receipt and sufficiency of which is
acknowledged, the parties hereto agree as follows:
ARTICLE I - DEFINITION OF TERMS
SECTION 1.01. DEFINITIONS.
(a) For the purposes of this Agreement, the following terms shall
have the respective meanings assigned to them in this Article I or in the
section or recital referred to below:
"Acquisition Indebtedness" shall mean Indebtedness or mandatorily
redeemable preferred stock of Borrower or a Subsidiary incurred in connection
with, or to provide all or any portion of the funds or credit support utilized
to consummate, the transaction or series of related transactions pursuant to
which such Subsidiary became a Subsidiary or was acquired by Borrower.
"Affiliate" with respect to any Person shall mean a person that directly
or indirectly, through one or more intermediaries, controls or is controlled
by, or is under common control with, such Person.
"Capital Expenditure" shall mean an expenditure for assets that is
properly classifiable as a capital expenditure in accordance with generally
accepted accounting principles.
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Agreement (Continued)
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"Capital Lease" shall mean any lease of property, real or personal,
which would be properly classifiable as a capital lease in accordance with
generally accepted accounting principles.
"Common Stock"shall mean Borrower's common stock, $.001 par value.
"Consolidated Current Assets" shall mean, for any Person as of any date,
the assets of such Person and its Consolidated Subsidiaries which would be
reflected as current assets on a consolidated balance sheet for such Person and
its Subsidiaries prepared as of such date in accordance with GAAP.
"Consolidated Current Liabilities" shall mean, for any Person as of any
date, the liabilities of such Person and its Consolidated Subsidiaries which
would be reflected as current liabilities on a consolidated balance sheet for
such Person and its Subsidiaries prepared as of such date in accordance with
GAAP. For purposes of calculating compliance with any covenant contained in
this Agreement or any other Loan Document, the principal amount of Consolidated
Current Liabilities shall include any balance under any revolving credit
facility of Borrower, regardless of whether such revolving credit facility
would be reflected as a current liability in accordance with GAAP.
"Consolidated Net Income" shall mean, for any Person for any period,
consolidated net income of such Person and its Consolidated Subsidiaries for
such period which would be reflected in accordance with GAAP, but excluding (a)
any gain or loss arising from the sale of capital assets, (b) any gain or loss
arising from any write-up or write-down of assets, (c) income or loss of any
other Person, substantially all of the assets of which have been acquired by
such Person in any manner, to the extent that such earnings or losses were
realized by such other Person prior to the date of such acquisition, (d) income
or loss of any Person in which the Person has any ownership interest (other
than Consolidated Subsidiaries of such Person), unless such earnings have
actually been received or paid by the Person or its Consolidated Subsidiaries
in the form of cash distributions or additional cash calls, (e) income or loss
of any other Person to which assets of the Person or its Consolidated
Subsidiaries shall have been sold, transferred or disposed of, or into which
the Person shall have merged, to the extent that such earnings or losses of any
other Person arise prior to the date of such transaction, (f) any gain or loss
arising from the acquisition of any securities of the Person or any of its
Consolidated Subsidiaries, and (g) any extraordinary gain or loss realized by
such Person or any of its Consolidated Subsidiaries during such period.
"Consolidated Subsidiaries" shall mean those entities whose assets,
liabilities and operations are consolidated with those of Borrower for purposes
of Borrower's consolidated financial statements.
"Consolidated Trailing Twelve Months EBITDA" shall mean for any Person,
for the immediately preceding twelve-month period ended on such date,
Consolidated Net Income of such Person for such twelve-month period, plus (a)
all income tax expense of such Person and its Consolidated Subsidiaries for
such twelve-month period, (b) all interest expense of such Person and its
Consolidated Subsidiaries for such twelve-month period, (c) all depreciation
expense of such Person and its Consolidated Subsidiaries for such twelve-month
period, and (d) all amortization expense of such Person and its Consolidated
Subsidiaries for such twelve-month period.
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Agreement (Continued)
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"Consolidated Trailing Twelve Months Free Cash Flow" shall mean for any
Person, for the immediately preceding twelve-month period ended on such date,
Consolidated Net Income of such Person for such twelve-month period, plus (a)
all deferred income tax expense of such Person and its Consolidated
Subsidiaries for such twelve-month period, (b) all depreciation expense of such
Person and its Consolidated Subsidiaries for such twelve-month period, and (c)
all amortization expense of such Person and its Consolidated Subsidiaries for
such twelve-month period, less Capital Expenditures of such Person and its
Consolidated Subsidiaries for such twelve-month period.
"Conversion" or "Conversion Rights" shall mean exchange of, or the
rights to exchange, the Principal Amount of the Loan, or any part thereof, for
fully paid and nonassessable Common Stock on the terms and conditions provided
in the Debenture.
"Current Liabilities" shall mean all liabilities classified in
accordance with GAAP as current liabilities, but specifically including all
amounts outstanding under Borrower's revolving credit loans.
"Current Ratio" shall mean, for any Person as of any date, the ratio of
such Person's Consolidated Current Assets to Consolidated Current Liabilities
as of such date.
"Debentures" shall mean the Debentures executed by Borrower and
delivered pursuant to the terms of this Agreement, together with any renewals,
extensions or modifications thereof.
"Debtor Laws" shall mean all applicable liquidation, conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization
or similar laws from time to time in effect affecting the rights of creditors
or debtors generally.
"Default" or "Event of Default" shall mean any of the events specified
in Article VIII.
"Dividends," in respect of any corporation, shall mean (i) cash
distributions or any other distributions on, or in respect of, any class of
capital stock of such corporation, except for distributions made solely in
shares of stock of the same class, and (ii) any and all funds, cash and other
payments made in respect of the redemption, repurchase or acquisition of such
stock, unless such stock shall be redeemed or acquired through the exchange of
such stock with stock of the same class.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, together with all rules and regulations issued pursuant thereto.
"Fixed Charge Coverage Ratio" shall mean for Borrower for the
immediately preceding twelve-month period ended on such date, the ratio of (a)
Consolidated Trailing Twelve Months Free Cash Flow, to (b) Borrower's total
scheduled payments of principal on Indebtedness for the same twelve-month
period, excluding Indebtedness under Borrower's revolving credit loans and
mandatory redemption payments as set forth herein.
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Agreement (Continued)
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"GAAP" shall mean United States generally accepted accounting principles
applied on a consistent basis, set forth in the Opinions of the Accounting
Principles Board of the American Institute of Certified Public Accountants or
the Financial Accounting Standards Board or their successors, which are
applicable in the circumstances as of the date in question. The requirement
that such principles be applied on a consistent basis shall mean that the
accounting principles observed in a current period are comparable in all
material respects to those applied in a preceding period.
"Governmental Authority" shall mean any government (or any political
subdivision or jurisdiction thereof), court, bureau, agency or other
governmental authority having jurisdiction over Borrower or a Subsidiary or any
of its or their businesses, operations or properties.
"Guaranty" of any Person shall mean any contract, agreement or
understanding of such Person pursuant to which such Person in effect guarantees
the payment of any Indebtedness of any other Person (the "Primary Obligor") in
any manner, whether directly or indirectly, including without limitation
agreements: (i) to purchase such Indebtedness or any property constituting
security therefor; (ii) to advance or supply funds primarily for the purpose of
assuring the holder of such Indebtedness of the ability of the Primary Obligor
to make payment; or (iii) otherwise to assure the holder of the Indebtedness of
the Primary Obligor against loss in respect thereof, except that "Guaranty"
shall not include the endorsement by Borrower or a Subsidiary in the ordinary
course of business of negotiable instruments or documents for deposit or
collection.
"Holder" shall mean the owner of Registrable Securities.
"Indebtedness" shall mean, with respect to any Person, without
duplication, the following indebtedness, obligations and liabilities of such
Person: (i) indebtedness for borrowed money; (ii) all obligations of such
Person in respect of any Guaranty; (iii) all obligations of such Person in
respect of any Capital Lease, (iv) all obligations, indebtedness and
liabilities secured by any lien or any security interest on any property or
assets of such Person, but only to the extent so secured; and (v) all preferred
stock of such Person which is subject, at the time of calculation of
Indebtedness, to a mandatory redemption requirement, valued at the greater of
its involuntary redemption price or liquidation preference plus accrued and
unpaid dividends, and all extensions, renewals, modifications and amendments
thereto.
"Investment" in any Person shall mean any investment, whether by means
of share purchase, loan, advance, capital contribution or otherwise, in or to
such Person, the Guaranty of any Indebtedness of such Person, or the
subordination of any claim against such Person to other Indebtedness of such
Person; provided however, that "Investment" shall not include (i) any demand
deposits in a duly chartered state or national bank or other cash equivalent
investments (ii) any loans permitted by Section 6.12, or (iii) any acquisitions
of equity in any other Person.
"IRS Code" shall mean the Internal Revenue Code of 1986, as amended,
together with all rules and regulations issued thereunder.
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Agreement (Continued)
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"Lien" shall mean any lien, mortgage, security interest, tax lien,
pledge, encumbrance, conditional sale or title retention arrangement, or any
other interest in property designed to secure the repayment of Indebtedness,
whether arising by agreement or under any statute or law, or otherwise.
"Loan" shall mean the money lent to Borrower pursuant to this Agreement,
along with any accrued, unpaid interest thereon.
"Loan Closing" or "Loan Closing Date" shall mean the disbursement of
Loan funds, which shall occur within ten (10) days of the execution and
delivery of this Agreement.
"Loan Documents" shall mean this Agreement, the Debentures and any other
agreements or documents required to be executed or delivered by Borrower
pursuant to the terms of this Agreement (and any amendments or supplements
hereto or modifications hereof).
"Lock-Up Agreement" shall mean the "lock-up" agreements to be executed
by the executive officers, directors and principal shareholders of the Company
pursuant to Section 5.19 of this Agreement.
"Material Adverse Effect" or "Material Adverse Change" shall mean any
change, factor or event that shall (i) have a material adverse effect upon the
validity or enforceability of any Loan Documents, (ii) have a material adverse
effect upon the financial condition, results of operations, business,
properties, operations or assets of Borrower or its Subsidiaries taken as a
whole, or, (iii) have a material adverse effect upon the ability of Borrower to
fulfill its obligations under the Loan Documents, or (iv) any event that causes
an Event of Default or which, with notice or lapse of time or both, could
become an Event of Default.
"Material Indebtedness" shall mean any debt incurred by Borrower that
shall have a Material Adverse Effect.
"Obligation" shall mean: (i) all present and future Indebtedness,
obligations and liabilities of Borrower to the Lenders arising pursuant to this
Agreement, regardless of whether such Indebtedness, obligations and liabilities
are direct, indirect, fixed, contingent, joint, several, or joint and several;
(ii) all present and future Indebtedness, obligations and liabilities of
Borrower to the Lenders arising pursuant to or represented by the Debentures
and all interest accruing thereon, and reasonable attorneys' fees incurred in
the enforcement or collection thereof; (iii) all present and future
indebtedness, obligations and liabilities of Borrower and any Subsidiary
evidenced by or arising pursuant to any of the Loan Documents; (iv) all costs
incurred by the Lenders or Agent, including but not limited to reasonable
attorneys' fees and legal expenses related to this transaction and (v) all
renewals, extensions and modifications of the indebtedness referred to in the
foregoing clauses, or any part thereof.
"Permits" shall have the meaning set forth in Section 4.14.
"Permitted Indebtedness" shall mean Indebtedness outstanding as of the
date hereof or incurred in compliance with Section 6.01 and the other terms of
this Agreement that constitutes (i) Senior Obligations,
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Agreement (Continued)
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(ii) obligations under capital leases, (iii) letters of credit, (iv) Current
Liabilities, (v) debt associated with Permitted Liens, (vi) any other
Subordinated Debt, (vii) Acquisition Indebtedness, (viii) purchase money
Indebtedness, (ix) Indebtedness of foreign Subsidiaries, (x) intercompany
Indebtedness, (xi) Indebtedness under this Agreement or the Debentures, and
(xii) any refunding, refinancing or extension of any of the above.
"Permitted Liens" shall mean: (i) Liens (if any) granted for the
benefit of the Lenders; (ii) Liens to secure the Permitted Indebtedness; (iii)
pledges or deposits made to secure payment of worker's compensation insurance
(or to participate in any fund in connection with worker's compensation
insurance), unemployment insurance, pensions or social security programs; (iv)
Liens imposed by mandatory provisions of law such as for carriers', landlord's,
materialmen's, mechanics', warehousemen's, vendors' and other like Liens
arising in the ordinary course of business, securing Indebtedness whose payment
is made within 90 days of the date such Lien arises, or that are being
contested in good faith by appropriate proceedings as to which adequate
reserves have been established to the extent required by GAAP; (v) Liens for
taxes, assessments and governmental charges or levies imposed upon a Person or
upon such Person's income or profits or property, if the same are not yet due
and payable or if the same are being contested in good faith and as to which
adequate cash reserves have been provided or if an extension is obtained with
respect thereto; (vi) Liens arising from good faith deposits in connection with
tenders, leases, bids or contracts (other than contracts involving the
borrowing of money), pledges or deposits to secure public or statutory
obligations and deposits to secure (or in lieu of) surety, stay, appeal or
customs bonds and deposits to secure the payment of taxes, assessments, customs
duties or other similar charges; (vii) encumbrances consisting of zoning
restrictions, easements, reservations, licenses, covenants and other minor
irregularities of title or other restrictions on the use of real property
(whether owned or leased) provided that such items do not materially impair the
intended use of such property, and none of which is violated by Borrower's
existing structures or land use; (viii) mortgages, financing statements,
equipment leases or other encumbrances incurred in connection with the
acquisition of property or equipment or the replacement of existing property or
equipment, provided that such liens shall be limited to the property or
equipment then being acquired; and (ix) Liens listed in Schedule 4.05.
"Person" shall include an individual, a corporation, a joint venture, a
general or limited partnership, a trust, an unincorporated organization or a
government or any agency or political subdivision thereof.
"Plan" shall mean an employee benefit plan or other plan maintained by
Borrower for employees of Borrower and/or any Subsidiaries and covered by Title
IV of ERISA, or subject to the minimum funding standards under Section 412 of
the Internal Revenue Code of 1986, as amended.
"Principal Amount" shall mean, as of any time, the then aggregate
outstanding face amount of the Debentures after any conversions or redemptions
and after giving effect to any installment payments received by the Lenders.
"Registrable Securities" shall mean (i) the Common Stock issuable upon
Conversion of the Debentures, (ii) any Common Stock issued upon Conversion of
the Debentures or upon exercise of any
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Agreement (Continued)
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warrant, right or other security that is issued with respect to the Common
Stock by way of (a) stock dividend; (b) any other distribution with respect to
or in exchange for, or in replacement of Common Stock; (c) stock split; or (d)
in connection with a combination of shares, recapitalization, merger, or
consolidation excluding in all cases, however, any Common Stock that is not a
Restricted Security and any Registrable Securities sold or transferred by a
Person in a transaction in which the rights under this Agreement are not
assigned, or (iii) any Common Stock purchased from the Company by the Lenders.
"Registrable Securities Then Outstanding" shall mean an amount equal to
the number of Registrable Securities outstanding which have been issued
pursuant to the Conversion of the Debentures.
"Renaissance III" shall mean Renaissance Capital Growth & Income Fund
III, Inc., a Texas corporation.
"Renaissance PLC" shall mean Renaissance US Growth & Income Trust PLC, a
public limited company registered in England and Wales.
"Renaissance Group" shall mean Renaissance Capital Group, Inc., a Texas
corporation.
"Restricted Security" shall mean a security that has not been (i)
registered under the 1933 Act or (ii) distributed to the public pursuant to
Rule 144 (or any similar provisions that are in force) under the ▇▇▇▇ ▇▇▇.
"SEC" shall mean the Securities and Exchange Commission, or any other
federal agency at the time administering the 1933 Act and the 1934 Act.
"1933 Act" shall refer to the Securities Act of 1933, as amended, or any
similar federal statute and rules and regulations promulgated thereunder, all
as the same may be in effect from time to time.
"1934 Act" shall refer to the Securities Exchange Act of 1934, as
amended, or any similar federal statute and rules and regulations promulgated
thereunder, all as the same may be in effect from time to time.
"1940 Act" shall refer to the Investment Company Act of 1940, as
amended, or any similar federal statute and rules and regulations promulgated
thereunder, all as the same may be in effect from time to time.
"Senior Documents" means all loan documents evidencing the Senior
Obligations, as each may now or hereafter be amended, modified, supplemented,
renewed or extended from time to time.
"Senior Obligations" means one or more senior debt facilities (including
loans and other extensions of credit under the Senior Documents) or commercial
paper facilities with banks or other institutional lenders providing for
revolving credit loans, term loans, capital expenditure loans, receivables
financings (including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit as now existing or hereafter incurred, in
each case, as amended, restated, modified, renewed or extended from time to
time.
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Agreement (Continued)
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"Solvent" shall mean, with respect to any Person on a particular date,
that on such date: (i) the fair value of the assets of such Person is greater
than the total amount of liabilities, of such Person; (ii) the estimated
present fair salable value, in the ordinary course of business, of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured; (iii) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business; (iv) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature; and (v) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person's assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
"Subordinated Debt" shall mean any indebtedness of Borrower or any
Subsidiaries, now existing or hereafter incurred, which indebtedness is, by its
terms, junior in right of repayment to the payment of the Debentures.
"Subsidiary" or "Subsidiaries" shall mean any or all corporations or
entities whether now existing or hereafter acquired of which over 50% the
Voting Shares or equity interests are owned, directly or indirectly, by
Borrower.
"Subsidiary Documents" shall mean the Guaranties, Security Agreements
and any other agreements or documents required to be executed or delivered by
any Subsidiary pursuant to the terms of this Agreement (and any amendments or
supplements hereto or modifications hereof).
"Total Capitalization" shall mean for any Person, total Indebtedness
plus shareholders' equity as defined in accordance with GAAP.
"Voting Shares" of any corporation shall mean shares of any class or
classes (however designated) having ordinary voting power for the election of
at least a majority of the members of the Board of Directors (or other
governing bodies) of such corporation, other than shares having such power only
by reason of the happening of a contingency.
SECTION 1.02. OTHER DEFINITION PROVISIONS.
(a) All terms defined in this Agreement shall have the above-defined
meanings when used in the Debentures or any other Loan Documents, certificate,
report or other document made or delivered pursuant to this Agreement, unless
the context therein shall otherwise require.
(b) Defined terms used herein in the singular shall import the plural
and vice versa.
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Agreement (Continued)
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(c) The words "hereof," "herein," "hereunder" and similar terms when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement.
(d) References to financial statements and reports shall be deemed to
be a reference to such statements and reports prepared in accordance with GAAP.
(e) Accounting terms not specifically defined above in this Agreement
shall be construed in accordance with GAAP.
ARTICLE II - LOAN PROVISIONS
SECTION 2.01. THE LOAN.
(a) Subject to the terms and conditions of this Agreement, and the
compliance with such terms and conditions by all parties, each Lender agrees to
lend to Borrower, and Borrower agrees to borrow from the Lenders, the aggregate
sum of THREE MILLION DOLLARS ($3,000,000) as follows:
RENAISSANCE CAPITAL GROWTH & INCOME III, INC. $1,500,000
RENAISSANCE US GROWTH & INCOME TRUST PLC $1,500,000
(b) The Loan shall be disbursed at Loan Closing, subject to the
conditions provided hereunder, and shall be evidenced by the Debentures, in the
Principal Amounts specified above. The Debentures shall rank pari passu with
all Indebtedness of Borrower, other than the Senior Obligations and the
Subordinated Debt.
(c) Unless otherwise mutually agreed, the Loan Closing shall be at
the offices of Renaissance Capital Group, Inc., ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇.
(d) If, within 10 days of the date of this Agreement (i) Borrower has
failed to comply with the conditions precedent to the Loan Closing as specified
in Article III hereof (unless compliance with such conditions in whole or in
part has been waived or modified by the Lenders in their sole discretion) or
(ii) the Loan Closing has not occurred (unless the date of such Loan Closing
has been mutually extended), other than as a result of any failure of Lenders
to comply with the terms of this Agreement, then, in either such case, the
obligations of the Lenders under this Agreement shall terminate; provided,
however, that Borrower shall be obligated for payment of the fees and expenses
provided in Section 2.07 due and payable as of such date of termination.
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Agreement (Continued)
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SECTION 2.02. USE OF PROCEEDS.
(a) Borrower intends to use the Loan proceeds for acquisitions,
working capital and general corporate purposes.
(b) Borrower hereby acknowledges that the proceeds from the Loan
shall be of benefit to Borrower for the growth of its business by providing
capital which will provide additional opportunities for Borrower.
SECTION 2.03. INTEREST RATE AND INTEREST PAYMENTS.
Interest on the Principal Amount outstanding from time to time shall
accrue at the rate of 9.00% per annum, with the first installment of accrued,
unpaid interest being due and payable on FEBRUARY 1, 1998 and subsequent
payments of accrued, unpaid interest being due and payable on the first day of
each month thereafter. Overdue principal and interest on the Debentures shall
bear interest at the maximum rate permitted by applicable law. Interest on the
Principal Amount of each Debenture shall be calculated, from time to time, on
the basis of the actual days elapsed in a year consisting of 365 days.
SECTION 2.04. MATURITY.
If not sooner redeemed or converted, the Debentures shall mature on
DECEMBER 19, 2004, at which time all the remaining unpaid principal, interest
and any other charges then due under this Agreement shall be due and payable in
full. The Debentures may be prepaid without premium or penalty and shall be
prepaid pro rata with any prepayments of Indebtedness (other than Senior
Obligations) which is pari passu with or subordinated to the Debentures.
SECTION 2.05. MANDATORY PRINCIPAL REPAYMENT .
The Debentures shall be subject to mandatory principal repayment as
provided in the Debentures.
SECTION 2.06. REDEMPTION.
The Debentures shall be subject to redemption as provided in the
Debentures.
SECTION 2.07. FEES AND EXPENSES.
(a) Subject to the provisions of Section 12.07, upon Loan Closing:
(1) Borrower shall pay to Agent a closing fee of $40,000.
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Agreement (Continued)
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(2) Borrower shall pay the legal fees and expenses of the
Lenders and the Agent in connection with the preparation and negotiation
of the Loan Documents and the Loan Closing.
(3) All unpaid fees and expenses required to have been paid
under the Preliminary Outline of Terms among the parties.
(b) Subject to the provisions of Section 12.07, Borrower shall also
pay to the Agent monthly a monitoring fee of $1,000 per month for consulting
and monitoring services, and Borrower shall reimburse Agent for its reasonable
travel and out-of-pocket expenses in monitoring Borrower's compliance with this
Agreement.
SECTION 2.08. FINDER'S FEES.
Borrower represents to the Lenders that, except as set forth in Schedule
2.08, no commissions, brokerage or finder's fees were incurred by Borrower in
connection with this Agreement or the Debentures.
SECTION 2.09. TAXES.
(a) Each Debenture shall be convertible into shares of Common Stock
and on such terms as are stated in the Debentures. Such conversion shall be
made without deduction for any present or future taxes, duties, charges or
withholdings, (excluding, in the case of the Lenders, any foreign taxes, any
federal, state or local income taxes and any franchise taxes or taxes imposed
upon them by the jurisdiction, or any political subdivision thereof, under
which the Lenders are organized or are qualified to do business), and all
liabilities with respect thereto (herein "Taxes") shall be paid by Borrower.
If Borrower shall be required by law to deduct any Taxes for which Borrower is
responsible under the preceding sentence from any sum payable hereunder to the
Lenders: (i) the sum payable shall be increased so that after making all
required deductions, the Lenders shall receive an amount equal to the sum it
would have received had no such deductions been made; (ii) Borrower shall make
such deductions; and (iii) Borrower shall pay the full amount deducted to the
relevant taxing authority or other authority in accordance with applicable law.
Borrower shall be entitled to any refunds or returns from any such taxing
authority.
(b) Except as otherwise set forth in this Agreement or the other Loan
Documents, Borrower shall pay any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies which arise
from any payment made hereunder or under the Loan Documents or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or the other Loan Documents (hereinafter referred to as "Other
Taxes").
(c) Borrower shall indemnify the Lenders for the full amount of Taxes
and Other Taxes reasonably paid by the Lenders or any liability (including any
penalties or interest assessed because of Borrower's defaults) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes
were correctly or legally asserted. This indemnification shall be made within
thirty (30) days from the date
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Agreement (Continued)
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the Lenders make written demand therefor. The Lenders shall subrogate any and
all rights and claims relating to such Taxes and Other Taxes to Borrower upon
payment of said indemnification.
(d) Without prejudice to the survival of any other agreement of
Borrower hereunder, the agreements and obligations of Borrower in this Section
2.09 shall survive the payment in full of the Obligation.
SECTION 2.10 CONVERSION RIGHTS.
Each Debenture shall be convertible into shares of Common Stock on such
terms and in such amounts as are stated in the Debenture. The holders of the
shares issued upon exercise of the right of conversion as provided in said
Debenture shall be entitled to all the rights of the Lenders as stated in this
Agreement or the other Loan Documents, to the extent such rights are
specifically stated to survive the surrender of the Debenture for conversion as
therein provided.
ARTICLE III - CONDITIONS PRECEDENT
SECTION 3.01. DOCUMENT REQUIREMENTS.
The obligation of the Lenders to advance funds at the Loan Closing Date
hereof is subject to the condition precedent that, on or before the date of
such advance, the Lenders shall have received the following:
(i) Duly executed Debentures from Borrower in the Principal Amount of
Loan, each in amounts as requested by the Lenders, styled "Compass Bank, FBO,
Renaissance Capital Growth and Income Fund III, Inc.," and "Compass Bank, FBO,
Renaissance U.S. Growth and Income Trust PLC," which shall be in form and
substance acceptable to the Lenders and their counsel. Duly executed Pledge
Agreement and Security Agreement from Borrower, which shall be in form and
substance acceptable to the Lenders and their counsel.
(ii) Duly executed Guaranties and Security Agreements from each of the
Subsidiaries, which shall be in the form and substance acceptable to the
Lenders and their counsel.
(iii) A true and correct certificate signed by a duly authorized
officer of Borrower and dated as of the Loan Closing Date stating that, to the
best knowledge and belief of such officer, after reasonable and due
investigation and review of matters pertinent to the subject matter of such
certificate: (A) all of the representations and warranties contained in Article
IV hereof and the other Loan Documents are true and correct in all material
respects as of the Loan Closing Date and (B) no event has occurred and is
continuing, or would result from the Loan, which constitutes, or with notice or
lapse of time or both would constitute, a Default or an Event of Default.
(iv) Copies of resolutions, as adopted by Borrower and each
Subsidiary's Board of Directors, approving the execution, delivery and
performance, as applicable, of this Agreement, the Debentures, the
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Agreement (Continued)
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Guaranties and the other Loan Documents, including the transactions
contemplated herein and accompanied by a certificate of the Secretary or
Assistant Secretary of Borrower or the Subsidiary, stating that such
resolutions have been duly adopted, are true and correct, have not been altered
or repealed and are in full force and effect.
(v) A signed certificate of the Secretary or Assistant Secretary of
Borrower and each Subsidiary which shall certify the names of the officers of
Borrower and each Subsidiary authorized to sign the Loan Documents to be
executed by such officer, together with the true signatures of each of such
officers. It is herewith stipulated and agreed that the Lenders may thereafter
rely conclusively on the validity of this certificate as a representation of
the officers of Borrower and each Subsidiary duly authorized to act with
respect to the Loan Documents until such time as the Lenders shall receive a
further certificate of the Secretary or Assistant Secretary of Borrower and
each Subsidiary canceling or amending the prior certificate and submitting the
signatures of the officers thereupon authorized in such further certificate.
(vi) Certificates of good standing (or other similar instrument) for
Borrower and each Subsidiary issued by the Secretary of State of the state of
incorporation of Borrower and each Subsidiary, and certificates of
qualification and good standing for Borrower and each Subsidiary issued by the
Secretary of State of each of the states wherein such Borrower and each
Subsidiary has operating facilities of such nature so as to be required to be
qualified to do business as a foreign corporation, dated within ten (10) days
prior to Loan Closing.
(vii) A copy of the Articles of Incorporation of Borrower and each
Subsidiary and all amendments thereto, certified by the Secretary of State of
the state of incorporation and dated within ten (10) days prior to Loan Closing
and a copy of the bylaws of Borrower and each Subsidiary and all amendments
thereto, certified by the Secretary or Assistant Secretary of Borrower and the
Subsidiary, as being true, correct and complete as of the date of such
certification.
(viii) Copies of all registration statements, reports and proxy
statements filed with the SEC during or for the three fiscal years ended
December 31, 1996 and the nine months ended September 30, 1997.
(ix) A legal opinion from counsel to Borrower, in form and substance
satisfactory to the Lenders and their counsel.
(x) "Lock-up" Agreements, in form and substance satisfactory to the
Lenders and their counsel.
(xi) Such other information, documents and agreements as may
reasonably be required by the Lenders and the Lenders' counsel to substantiate
Borrower's compliance with the requirements of this Agreement and the Lenders'
compliance with the 1940 Act.
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Agreement (Continued)
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ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BORROWER
All references in this Article to Borrower shall include the
Subsidiaries, unless the context otherwise requires. To induce the Lenders to
make the Loan hereunder, Borrower represents and warrants to the Lenders that:
SECTION 4.01. ORGANIZATION AND GOOD STANDING.
Borrower is duly organized and existing in good standing under the laws
of the state of its incorporation, is duly qualified as a foreign corporation
and in good standing in all states in which failure to qualify would have a
Material Adverse Effect, and has the corporate power and authority to own its
properties and assets and to transact the business in which it is engaged and
is or will be qualified in those states wherein it proposes to transact
material business operations in the future.
SECTION 4.02. AUTHORIZATION AND POWER.
Borrower has the corporate power and requisite authority to execute,
deliver and perform the Loan Documents to be executed by Borrower. Borrower is
duly authorized to, and has taken all corporate action necessary to authorize,
execute, deliver and perform the Loan Documents executed by Borrower. Borrower
is and will continue to be duly authorized to perform the Loan Documents
executed by Borrower.
SECTION 4.03. NO CONFLICTS OR CONSENTS.
Except as disclosed on Schedule 4.03, neither the execution and delivery
of the Loan Documents, nor the consummation of any of the transactions therein
contemplated, nor compliance with the terms and provisions thereof, will
contravene or materially conflict with any judgment, license, order or permit
applicable to Borrower, or any indenture, loan agreement, mortgage, deed of
trust, or other agreement or instrument to which Borrower is a party or by
which Borrower is or becomes bound, or to which Borrower is or becomes subject,
or violate any provision of the charter or bylaws of Borrower or trigger any
preemptive rights or rights of first refusal of any third party. No consent,
approval, authorization or order of any court or governmental authority or
third party is required in connection with the execution and delivery by
Borrower of the Loan Documents or to consummate the transactions contemplated
hereby or thereby except those that have been obtained.
SECTION 4.04. ENFORCEABLE OBLIGATIONS.
The Loan Documents have been duly executed and delivered by Borrower and
are the legal, valid and binding obligations of Borrower, enforceable in
accordance with their respective terms.
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Agreement (Continued)
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SECTION 4.05. NO LIENS.
Except for Permitted Liens, all of the properties and assets owned or
leased by Borrower are free and clear of all Liens and other adverse claims of
any nature, and Borrower has good and marketable title to such properties and
assets. A true and complete list of all known or recorded liens for borrowed
money is disclosed on Schedule 4.05.
SECTION 4.06. FINANCIAL CONDITION.
Borrower has delivered to the Lenders copies of the balance sheets of
Borrower as of December 31, 1996, and the related statements of income,
stockholders' equity and statement of cash flow for the year then ended,
audited by its independent certified public accountant. Borrower has also
delivered to the Lenders copies of the balance sheet of Borrower as of
September 30, 1997, and the related statements of income, stockholders' equity
and statement of cash flow for the nine month period ended such date, which
financial statements have not been audited by its independent certified public
accountant. Such financial statements are true and correct in all material
respects, fairly represent the financial condition of Borrower as of such dates
and have been prepared in accordance with GAAP (except that unaudited financial
statements omit certain footnotes); and as of the date hereof, there are no
obligations, liabilities or Indebtedness (including contingent and indirect
liabilities and obligations) of Borrower which are (separately or in the
aggregate) material and are not reflected in such financial statements or
otherwise disclosed herein. Since the date of the above-referenced year end
financial statements and quarterly financial statements, there have not been,
except as disclosed in Schedule 4.06: (i) any Material Adverse Change; (ii) any
dividend declared or paid or distribution made on the capital stock of Borrower
or any capital stock thereof redeemed or repurchased; (iii) any incurrence of
long-term debt by Borrower; (iv) any salary, bonus or compensation increases to
any officers, key employees or agents of Borrower, other than in the ordinary
course of business and consistent with past practice, or; (v) any other
material transaction entered into by Borrower, except in the ordinary course of
business and consistent with past practice.
SECTION 4.07. NO DEFAULT.
No event has occurred and is continuing which constitutes, or with
notice and passage of time or both, would constitute, a Default or an Event of
Default under this Agreement.
SECTION 4.08. MATERIAL AGREEMENTS.
Neither Borrower nor any other party is in default, and no event has
occurred and is continuing which, with notice or lapse of time or both, would
constitute, a default, under any material contract, lease, loan agreement,
indenture, mortgage, security agreement, license agreement or other agreement
or obligation to which it is a party or by which any of its properties is
subject, except as described on Schedule 4.08. To the best knowledge of
Borrower, it is not a party to, or bound by, any contract or agreement, the
faithful performance of which is so onerous so as to create or to likely create
a Material Adverse Effect on the business, operations or financial condition of
Borrower.
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Agreement (Continued)
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SECTION 4.09. NO LITIGATION.
Except as disclosed on Schedule 4.09, there are no actions, suits,
investigations, arbitrations or administrative proceedings pending, or to the
knowledge of Borrower threatened, against Borrower, and there has been no
change in the status of any of the actions, suits, investigations, litigation
or proceedings disclosed to the Lenders which could reasonably be expected have
a Material Adverse Effect on Borrower or on any transactions contemplated by
any Loan Document.
SECTION 4.10. TAXES.
All tax returns required to be filed by Borrower in any jurisdiction
have been filed and all taxes (including mortgage recording taxes),
assessments, fees and other governmental charges upon Borrower or upon any of
its properties, income or franchises now due have been paid, in each case,
except where the same are being contested in good faith by appropriate
proceedings, as disclosed on Schedule 4.10.
Except as disclosed on Schedule 4.10, Borrower has not received any
notice of deficiency or other adjustment from any taxing authority that is
unresolved as of the Closing. No audit or examination, claim or proposed
assessment by any taxing authority is pending or, to the knowledge of Borrower,
threatened against Borrower or any of its properties. All ad valorem and other
property taxes imposed on Borrower, or that may become a lien on Borrower's
assets and that are due and payable, have been paid in full. Borrower has
withheld or collected from each payment made to each of its U.S. employees the
amount of all taxes (including federal income taxes, Federal Insurance
Contributions Act ("FICA") taxes, and state and local income, payroll, and wage
taxes, among others) required to be withheld or collected.
SECTION 4.11. CAPITALIZATION.
The authorized capital stock of Borrower consists of 10,000,000 shares
of Common Stock , $.001 par value, of which 6,410,883 shares of Common Stock
are issued and outstanding as of the date hereof. All of such outstanding
shares have been duly authorized and validly issued are fully paid and
nonassessable, and were not issued in violation of the preemptive rights or
rights of first refusal of any person. Schedule 4.11 sets forth all stock
options, warrants, conversion rights, subscription rights, preemptive rights,
rights of first refusal and other rights or agreements to acquire securities of
Borrower and any shares held in treasury or reserved for issue upon exercise of
such stock options, warrants or conversion rights, subscription rights and
other rights or agreements to acquire securities, including the date of
termination of such rights and the consideration therefor. As of the Loan
Closing Date, Borrower does not have class of securities with respect to which
a member of a national securities exchange, broker, or dealer may extend or
maintain credit to or for a customer pursuant to rules or regulation adopted by
the Board of Governors of the Federal Reserve System under Section 7 of the
1934 Act. Borrower has, and will continue to have as long as the Debentures
remain outstanding, authorized and reserved an adequate number of shares of
Common Stock to permit Conversion of the Debentures.
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Agreement (Continued)
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SECTION 4.12. USE OF PROCEEDS.
Borrower intends to use proceeds from the Loan as disclosed in Section
2.02 hereof.
SECTION 4.13. EMPLOYEE MATTERS.
(a) Borrower is not obligated under any Plan.
(b) Except as set forth on Schedule 4.13, Borrower is not a party to
any collective bargaining agreement and is not aware of any activities of any
labor union that is currently seeking to represent or organize its employees.
(c) Borrower is in compliance with all federal, state and municipal
laws respecting employment and employment practices, terms and conditions of
employment, and wages and hours, and is not engaged in any unfair labor
practice, and there are no arrears in the payment of wages or social security
taxes;
(d) there is no unfair labor practice complaint against Borrower
pending before the National Labor Relations Board or any state or local agency;
(e) to the best knowledge of Borrower, there is no pending labor
strike or other material labor trouble affecting Borrower (including, without
limitation, any organizational drive);
(f) to the best knowledge of Borrower, there is no material labor
grievance pending against Borrower;
(g) there is no pending representation question respecting the
employees of Borrower before any local, state or federal agency; and
(h) there are no pending arbitration proceedings arising out of or
under any collective bargaining agreement to which Borrower is a party, or to
the best knowledge of Borrower, any basis for which a claim may be made under
any collective bargaining agreement to which Borrower is a party.
SECTION 4.14. COMPLIANCE WITH LAWS.
Borrower has all requisite licenses, permits and certificates, including
environmental, health and safety permits, from federal, state and local
authorities necessary to conduct its business and own and operate its assets
(collectively, the "Permits"). Except as set forth on Schedule 4.14, Borrower
is not in violation of any law, regulation or ordinance (including, without
limitation, laws, regulations or ordinances relating to food and drug or
similar matters) relating to its business, operations and properties, which
individually or in the aggregate would have a Material Adverse Effect, and the
business and operations of Borrower do not violate, in any material respect,
any federal, state, local or foreign laws, regulations or orders (including,
but
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Agreement (Continued)
--------------------------------------------------------------------------------
not limited to, any of the foregoing relating to employment discrimination,
occupational safety, environmental protection, food and drug matters or corrupt
practices). Except as set forth on Schedule 4.14, Borrower has not received
any notice or communication from any federal, state or local governmental or
regulatory authority or otherwise of any such violation or noncompliance.
Borrower has not engaged in any practices in violation of any anti-trust law or
regulation of any federal, state or local Governmental Authority.
SECTION 4.15. SHARES ISSUABLE UPON CONVERSION.
The shares of Common Stock of Borrower when issued to the Lenders upon
conversion of the Debentures will be duly and validly issued, fully paid and
nonassessable and in compliance with all applicable securities laws. Such
issuance will not give rise to preemptive rights, rights of first refusal or
similar rights by any other security holder of Borrower.
SECTION 4.16. INSIDER.
(a) Neither Borrower, nor any Person having "control" (as that term
is defined in the 1940 Act or in the regulations promulgated pursuant thereto)
of Borrower is an "executive officer," "director," or "principal shareholder"
(as those terms are defined in the ▇▇▇▇ ▇▇▇) of any Lender.
(b) Borrower's 1996 Annual Report on Form 10-K discloses all material
transactions required to be disclosed therein pursuant to Item 404 of
Regulation S-K promulgated under the 1933 Act.
(c) All agreements between Borrower and any of its officers,
directors, and principal shareholders, including employment agreements, are
disclosed in reports and filings made with the SEC or listed on Schedule 4.16.
SECTION 4.17. SUBSIDIARIES.
(a) All of the Subsidiaries of Borrower are listed on Schedule 4.17.
Except as disclosed on Schedule 4.17, Borrower owns all of the outstanding
capital stock or other equity interests of the Subsidiaries, free and clear of
all adverse claims, other than Liens securing the Senior Obligations. All of
such outstanding capital stock of each Subsidiary has been duly and validly
authorized and issued and is fully paid and nonassessable. All such
Subsidiaries are duly organized and existing in good standing under the laws of
the respective jurisdictions of their incorporation or organization, are duly
qualified as foreign corporations and in good standing in all jurisdictions in
which failure to qualify would have a Material Adverse Effect, and have the
corporate power and authority to own their respective properties and assets and
to transact the business in which they are engaged and are or will be qualified
in those jurisdictions wherein they propose to transact material business
operations in the future.
(b) Except as disclosed on Schedule 4.17, Borrower does not own any
equity or long-term debt interest in any other Person, or any right or option
to acquire any such interest in any such Person.
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Agreement (Continued)
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(c) There are no restrictions on the payment of dividends by or
advances from any Subsidiary to Borrower.
SECTION 4.18. CASUALTIES.
Neither the business nor the properties of Borrower is currently
affected by any environmental hazard, fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act
of God or other casualty (whether or not covered by insurance).
SECTION 4.19. INVESTMENT COMPANY ACT.
Borrower is not an "investment company" as defined in Section 3 of the
1940 Act nor a company that would be an investment company, except for the
exclusions from the definition of an investment company in Section 3(C) of the
1940 Act, and Borrower is not controlled by such a company.
SECTION 4.20. SUFFICIENCY OF CAPITAL.
Borrower is, and after consummation of this Agreement and giving effect
to all Indebtedness incurred and transactions contemplated in connection
herewith will be, Solvent.
SECTION 4.21. CORPORATE NAMES.
Borrower has not, during the preceding five (5) years, been known as or
used any assumed, fictitious or trade names.
SECTION 4.22. INSURANCE.
All of the insurable properties of Borrower are insured for its benefit
under valid and enforceable policies, issued by insurers of recognized
responsibility in amounts and against such risks and losses as is customary in
Borrower's industry. Schedule 4.22 sets forth all of Borrower's property
insurance policies.
SECTION 4.23. LICENSES, TRADEMARKS, SERVICE MARKS AND COPYRIGHTS.
Borrower owns or possesses legal, valid and binding licenses to use all
material trademarks, service marks, trade names, patents and copyrights
presently used to conduct its business. All material licenses of Borrower are
listed in Schedule 4.23, showing licensor, character or trademark license,
product and licensed area, date of grant, date of renewal or modification (if
any) and date of expiration. Borrower has the right to use such intellectual
property rights without infringing or violating the rights of any third
parties. No claim has been asserted by any person to the ownership of or right
to use any such rights or challenging or questioning the validity or
effectiveness of any such license or agreement. Borrower is not in default of
any such license agreements in any material respect and no event has occurred
and is continuing which, with
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Agreement (Continued)
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notice or lapse of time or both, would constitute a material default. Each
license agreement is enforceable in accordance with its terms and has not been
canceled, abandoned or terminated, nor has Borrower received notice thereof.
There are no claims for trademark or copyright infringement against Borrower or
the Subsidiaries, or their respective officers or directors. Neither Borrower
nor any Subsidiary is currently using copyrightable material for which Borrower
or any Subsidiary needs, but does not have, a license to conduct its existing
business, if the failure to have any such license could reasonably be expected
to have a Material Adverse Effect. Neither Borrower nor any Subsidiary is
currently using any trademarks for which Borrower or any Subsidiary needs, but
does not have, a valid character or trademark license to conduct its existing
business, if the failure to have any such license could reasonably be expected
to have a Material Adverse Effect.
SECTION 4.24. REAL PROPERTY; LEASES.
Set forth on Schedule 4.24 is an accurate description of each parcel of
real property owned by or leased to Borrower. All such real property, and the
use by Borrower of such real property, (i) complies with all applicable
federal, state and local environmental and wetlands laws, rules and
regulations, and there is not now, and never has been, manufacture, storage, or
disposal of hazardous wastes at such real property in violation of said laws,
rules and regulations, where the noncompliance with such laws, rules and
regulations could reasonably be expected to have a Material Adverse Effect, and
(ii) complies with all applicable building, health and fire codes, and
subdivision control laws, rules and regulations, where the noncompliance with
such laws, rules and regulations could reasonably be expected to have a
Material Adverse Effect. All leases of such real property are valid and in
full force and effect, binding and enforceable against Borrower, and there does
not exist any default or event that with notice or lapse of time, or both,
would constitute a default under any of such leases.
SECTION 4.25. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties of Borrower herein shall survive the
Loan Closing and the delivery of the Debentures, and any investigation at any
time made by or on behalf of the Lenders shall not diminish the Lenders' right
to rely on Borrower's representations and warranties as herein set forth.
SECTION 4.26. FULL DISCLOSURE.
Neither the representations, warranties, schedules, financial statements
referenced in Section 4.06, nor any business plan, offering memorandum,
prospectus, SEC registration statement, report or proxy statement, certificate,
document or written statement to be delivered or caused to be delivered by
Borrower or any of its agents or representatives to the Lenders in connection
with this Agreement, contains or will contain, as of the date thereon, any
untrue statement of a material fact or omits or will omit to state any material
fact necessary to keep the statements contained herein or therein from being
misleading in any material respect.
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Agreement (Continued)
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ARTICLE V - AFFIRMATIVE COVENANTS OF BORROWER
So long as any part of the Debentures remains unpaid or has not been
redeemed or converted hereunder, and until such payment, redemption or
conversion in full, unless the Lenders shall otherwise consent in writing,
Borrower agrees that:
SECTION 5.01. FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS.
(a) Borrower shall accurately and fairly maintain its books of
account in accordance with GAAP, retain ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, or other such firm
of independent certified public accountants, requested by Borrower and approved
by the Lenders, to make annual audits of its accounts in accordance with
generally accepted auditing standards.
(b) Borrower shall provide the following reports and information to
each Lender:
(i) As soon as available, and in any event within forty-five
(45) days after the close of each fiscal quarter, Borrower's quarterly reports
on Form 10-Q with exhibits for said period. As soon as available, Borrower's
reports on Form 8-K with any exhibits.
(ii) As soon as available, and in any event within ninety (90)
days after the close of each fiscal year, Borrower's annual report on Form 10-K
with exhibits for said period.
(iii) Each fiscal quarter, concurrent with the periodic report
required above, a certificate executed by the Chief Financial Officer or Chief
Executive Officer of Borrower, (A) stating that a review of the activities of
Borrower during such fiscal period has been made under his supervision and that
Borrower has observed, performed and fulfilled each and every obligation and
covenant contained herein and is not in default under any of the same or, if
any such default shall have occurred, specifying the nature and status thereof,
and (B) stating that Borrower and the Subsidiaries are in compliance as of the
end of such fiscal quarter with the agreed minimum financial ratios and
standards set forth in Schedule 7.01 to this Agreement.
(iv) Promptly (but in any event within five (5) business days)
upon becoming aware of the existence of any condition or event which
constitutes a Default or which, with notice or the passage of time or both
would become a Default or an Event of Default, written notice specifying the
nature and period of existence thereof and the action which Borrower is taking
or proposes to take with respect thereto.
(v) Promptly (but in any event within five (5) business days)
upon the receipt thereof by Borrower or the Board of Directors of Borrower,
copies of all reports, all management letters and other detailed information
submitted to Borrower or the Board by independent accountants in connection
with each annual or interim audit or review of the accounts or affairs of
Borrower made by such accountants.
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Agreement (Continued)
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(vi) Promptly (but in any event within five (5) business days),
such other information relating to the finances, budgets, properties, business
and affairs of Borrower and each Subsidiary, as the Lenders or the Agent may
reasonably request from time to time.
(vii) Promptly upon its becoming available, one copy of each
financial statement, report, press release, notice or proxy statement sent by
Borrower to stockholders generally, and of each regular or periodic report,
registration statement or prospectus filed by Borrower with any securities
exchange or the SEC or any successor agency, and of any order issued by any
Governmental Authority in any proceeding to which Borrower is a party.
SECTION 5.02. PREPARATION OF BUDGETS.
(a) Prior to the beginning of Borrower's fiscal year Borrower agrees
to prepare and submit to the Board and furnish to each Lender a copy of, an
annual plan for such year which shall include, without limitation, plans for
expansion, if any, plans for incurrences of Indebtedness and projections
regarding other sources of funds, quarterly projected capital and operating
expense budgets, cash flow statements, profit and loss statements and balance
sheet projections, itemized in such detail as the Board may request.
(b) Borrower shall furnish to the Lenders monthly financial reports,
including budgets (as currently used by management in the conduct of business)
within 30 days of the end of each month.
(c) Borrower agrees that it will review its operations with Agent.
Such operations reviews will be in such depth and detail as Agent shall
reasonably request and will be held as reasonably necessary, generally once a
fiscal quarter.
SECTION 5.03. PAYMENT OF TAXES AND OTHER INDEBTEDNESS.
Borrower shall, and shall cause its Subsidiaries to, pay and discharge
(i) all taxes, assessments and governmental charges or levies imposed upon it
or upon its income or profits, or upon any property belonging to it, before
delinquent, (ii) all lawful claims (including claims for labor, materials and
supplies), which, if unpaid, will give rise to a Lien upon any of its property,
other than a Permitted Lien, and (iii) all of its other Indebtedness in
accordance with their respective terms, except as prohibited hereunder;
provided, however, that Borrower and its Subsidiaries, if any, shall not be
required to pay any such tax, assessment, charge, levy or other claim if and so
long as the amount, applicability or validity thereof shall currently be
contested in good faith by appropriate proceedings and appropriate accruals and
reserves therefor have been established in accordance with GAAP.
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Agreement (Continued)
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SECTION 5.04. MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS.
Subject to Section 6.13, Borrower shall, and shall cause its operating
Subsidiaries to, preserve and maintain their respective corporate existence and
all of their respective material rights, privileges and franchises necessary in
the normal conduct of its business, except where the failure to maintain such
rights, privileges and franchises could reasonably be expected to have a
Material Adverse Effect, and conduct their respective businesses in an orderly
and efficient manner consistent with good business practices and in accordance
with all valid regulations and orders of any Governmental Authority. Borrower
shall keep its principal place of business within the United States.
SECTION 5.05. SEC FILINGS.
So long as Borrower has a class of securities registered pursuant to
Section 12 of the 1934 Act, Borrower shall duly file, when due, all reports and
proxy statements required of a company whose securities are registered for
public trading under and pursuant to the 1934 Act and any rules and regulations
issued thereunder, and to preserve and maintain its registration thereunder.
SECTION 5.06. NOTICE.
Borrower shall promptly notify the Lenders of (i) any Material Adverse
Change, (ii) any default under any Senior Obligations, other Indebtedness
having an aggregate principal amount in excess of $50,000, material agreement,
contract or other instrument to which it is a party or by which any of its
properties are bound, or any acceleration of the maturity of any Indebtedness
having an aggregate principal amount in excess of $50,000, if any, (iii) any
material adverse claim against or affecting Borrower or its Subsidiaries, if
any, or any of its properties, and (iv) the commencement of, and any
determination in, any material litigation with any third party or any
proceeding before any Governmental Authority.
SECTION 5.07. COMPLIANCE WITH LOAN DOCUMENTS.
Borrower shall, and shall cause each of its Subsidiaries to, promptly
comply with any and all covenants and provisions of the Loan Documents.
SECTION 5.08. COMPLIANCE WITH MATERIAL AGREEMENTS.
Borrower shall, and shall cause each of its Subsidiaries to, comply in
all material respects with all material agreements, indentures, mortgages or
documents binding on it or affecting its properties or business.
SECTION 5.09. OPERATIONS AND PROPERTIES.
Borrower shall, and shall cause each of its Subsidiaries to, act
prudently and in accordance with customary industry standards in managing or
operating its assets, properties, business and investments. Borrower shall,
and shall cause each of its Subsidiaries to, keep in good working order and
condition,
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Agreement (Continued)
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ordinary wear and tear excepted, all of its assets and properties which are
necessary to the conduct of its business.
SECTION 5.10. BOOKS AND RECORDS; ACCESS.
Borrower shall, and shall cause each of its Subsidiaries to, maintain
complete and accurate books and records of its transactions in accordance with
good accounting practices. Borrower shall give each duly authorized
representative of the Lenders access during all normal business hours, upon
reasonable notice, to, and shall permit such representative to examine, copy or
make excerpts from, any and all books, records and documents in the possession
of Borrower and its Subsidiaries and relating to its affairs, and to inspect
any of the properties of Borrower and its Subsidiaries; provided that the
Lender agrees that any such inspection will be performed so as not to interfere
with the Borrower's normal business operations. Borrower shall make a copy of
this Agreement, along with any waivers, consents, modifications or amendments,
available for review at its principal office by the Lenders or the Lenders'
representatives.
SECTION 5.11. COMPLIANCE WITH LAW.
Borrower shall, and shall cause each of its Subsidiaries to, comply in
all material respects with all applicable laws, rules, regulations, ordinances
and all orders and decrees of any Governmental Authority applicable to it or
any of its properties, businesses, or operations.
SECTION 5.12. INSURANCE.
Borrower shall, and shall cause each of its Subsidiaries to, maintain
such worker's compensation insurance, liability insurance and insurance on its
properties, assets and business, now owned or hereafter acquired, against such
casualties, risks and contingencies, and in such types and amounts, as are
consistent with customary practices and standards of companies engaged in
similar businesses.
SECTION 5.13. AUTHORIZATIONS AND APPROVALS.
Borrower shall, and shall cause each of its Subsidiaries to, promptly
obtain, from time to time at its own expense, all such governmental licenses,
authorizations, consents, permits and approvals as may be required to enable it
to comply with its obligations hereunder and under the other Loan Documents.
SECTION 5.14. ERISA COMPLIANCE.
Borrower shall (i) at all times, make prompt payment of all
contributions required under all Plans, if any, and shall meet the minimum
funding standards set forth in ERISA with respect to its Plans subject to
ERISA, if any, (ii) notify the Lenders immediately of any fact in connection
with any of its Plans, which might constitute grounds for termination thereof
by the Pension Benefit Guaranty Corporation or for the appointment by the
appropriate United States District Court of a trustee to administer such Plan,
together with a statement, if requested by the Lenders as to the reason
therefor and the action, if any, proposed to be
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Agreement (Continued)
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taken with respect thereto, and (iii) furnish to the Lenders upon its request
such additional information concerning any of its Plans as may be reasonably
requested.
SECTION 5.15. FURTHER ASSURANCES.
Borrower shall, and shall cause each of its Subsidiaries to, make,
execute or endorse, and acknowledge and deliver or file or cause the same to be
done, all such notices, certifications and additional agreements, undertakings,
transfers, assignments, or other assurances, and take any and all such other
action, as the Lenders may, from time to time, deem reasonably necessary or
proper in connection with any of the Loan Documents, or the obligations of
Borrower or its Subsidiaries, if any, thereunder, which the Lenders may request
from time to time.
SECTION 5.16. INDEMNITY BY BORROWER.
Borrower shall indemnify, save, and hold harmless, the Lenders and their
directors, officers, lenders, attorneys, and employees (singularly or
collectively, the "Indemnitee") from and against (i) any and all claims,
demands, actions or causes of action that are asserted against any Indemnitee
if the claim, demand, action or cause of action directly or indirectly relates
to this Agreement and the other Loan Documents issued pursuant thereto, the use
of proceeds of the Loans, or the relationship of Borrower and the Lenders under
this Agreement or any transaction contemplated pursuant to this Agreement, (ii)
any administrative or investigative proceeding by any Governmental Authority
directly or indirectly related to a claim, demand, action or cause of action
described in clause (i) above, and (iii) any and all liabilities, losses,
costs, or expenses (including reasonable attorneys' fees and disbursements)
that any Indemnitee suffers or incurs as a result of any of the foregoing;
provided, however, that Borrower shall have no obligation under this Section
5.16 to the Lenders with respect to any of the foregoing arising out of the
gross negligence or willful misconduct of the Lenders or their assignees or the
breach by any Lender or their assignees of this Agreement or any other Loan
Document or other document executed in connection with any of the aforesaid,
the breach by the Lenders or their assignees of any intercreditor or
participation agreement or commitment with other parties, the violation or
alleged violation of any law, rule or regulation by the Lenders or their
assignees, or from the transfer or disposition by the Lenders of any Debenture
or the Common Stock issued upon conversion of the Debenture. If any claim,
demand, action or cause of action is asserted against any Indemnitee, such
Indemnitee shall promptly notify Borrower, but the failure to so promptly
notify Borrower shall not affect Borrower's obligations under this Section
unless such failure materially prejudices Borrower's right or ability to
participate in the contest of such claim, demand, action or cause of action, as
hereinafter provided. In the event that such Indemnitee's failure to properly
notify Borrower materially prejudices Borrower's right or ability to
participate in the contest of such claim, demand, action, or cause of action,
then said Indemnitee shall have no right to receive, and Borrower shall have no
obligation to pay, any indemnification amounts hereunder. Borrower may elect
to defend any such claim, demand, action or cause of action (at its own
expense) asserted against said Indemnitee and, if requested by Borrower in
writing and so long as no Default or Event of Default shall have occurred and
be continuing, such Indemnitee (at Borrower's expense) shall in good faith
contest the validity, applicability and amount of such claim, demand, action or
cause of action and shall permit Borrower to participate in such contest. Any
Indemnitee that
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Agreement (Continued)
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proposes to settle or compromise any claim or proceeding for which Borrower may
be liable for payment to or on behalf of an Indemnitee hereunder shall give
Borrower written notice of the terms of such proposed settlement or compromise
reasonably in advance of settling or compromising such claim or proceeding and
shall obtain Borrower's written concurrence thereto. In the event that said
Indemnitee fails to obtain Borrower's prior written consent to any such
settlement or compromise, said Indemnitee shall have no right to receive and
Borrower shall have no obligation to pay any indemnification amounts hereunder.
Each Indemnitee may employ counsel, which counsel shall be reasonably
acceptable to Borrower, in enforcing its rights hereunder and in defending
against any claim, demand, action, or cause of action covered by this Section
5.16; provided, however, that each Indemnitee shall endeavor in connection with
any matter covered by this Section 5.16 which also involves any other
Indemnitee, use reasonable efforts to avoid unnecessary duplication of effort
by counsel for all Indemnitees, including by allowing Borrower to select one
lawyer for all parties, such selection to be subject to the approval of such
parties, which approval shall not be unreasonably withheld. Any obligation or
liability of Borrower to any Indemnitee under this Section 5.16 shall survive
the expiration or termination of this Agreement and the repayment of the
Debentures.
SECTION 5.17. RESERVATION OF SHARES.
Borrower shall at all times reserve and keep available sufficient
authorized and unissued shares of Common Stock to effect the conversion of the
Debentures.
SECTION 5.18. OWNERSHIP OF SUBSIDIARIES.
Borrower shall own at all times all of the capital stock, or other
equity interests in, of the Subsidiaries, except that Borrower shall own
1,995,654 shares of common stock (81.6%) of ValQuest Medical, Inc. at Closing.
Additionally, Borrower plans to acquire approximately 294 shares of the common
stock of TFX Holding Company, Inc., a Delaware corporation and the parent
company of Dexterity, Inc. on or before December 31, 1997, which shares shall
represent 16.95% of the then issued and outstanding shares.
SECTION 5.19. RETENTION OF STOCK OWNERSHIP.
(a) Borrower shall not offer, sell or otherwise dispose of any shares
of Common Stock or securities exercisable or convertible into shares of Common
Stock for a period of 120 days following the Loan Closing, other than except
(A) Common Stock issued upon the conversion of any of the Debentures; (B)
Common Stock issued upon exercise of any outstanding warrants or options; (C)
Common Stock issued upon exercise of outstanding employee stock options; (D) up
to 200,000 shares of Common Stock issued upon exercise of employee stock
options to be granted subsequent to the date hereof, and (E) Common Stock sold
to the Lenders concurrently with the issuance of this Debenture.
(b) All executive officers, directors and principal shareholders of
the Company will execute and deliver Lock-Up Agreements at the Loan Closing
which shall provide that they will not offer, sell or otherwise dispose of
eighty-five percent (85%) of the shares of Common Stock beneficially owned or
controlled by them (including subsequently acquired shares or securities
exercisable or convertible into
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Agreement (Continued)
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shares), except for intra-family transfers or estate planning purposes, for a
period of twelve (12) months following the Loan Closing. Thereafter, each such
person shall only sell such securities pursuant to Rule 144, without the
consent of the Lenders, until the Debentures have been paid in full.
ARTICLE VI - NEGATIVE COVENANTS OF BORROWER
So long as any part of the Debentures have not been redeemed or
converted hereunder, and until such redemption or conversion in full, unless
the Lenders shall otherwise consent in writing, Borrower agrees that:
SECTION 6.01. LIMITATION ON INDEBTEDNESS.
At Loan Closing, Borrower and its Subsidiaries shall not have any
outstanding Indebtedness, except Indebtedness arising under this Agreement, the
Debentures, the Guaranties, Permitted Indebtedness or as set forth in Schedule
6.01. Borrower and its Subsidiaries will not incur or guarantee any
Indebtedness senior to or pari passu with the Debentures, without the consent
of the Lenders, except for bank debt and asset-based loans for Borrower's
operations and acquisitions.
SECTION 6.02. LIMITATION ON LIENS.
Borrower shall not, and shall not permit its Subsidiaries to, create,
cause, incur, permit, suffer to exist any Lien upon any of its properties or
assets, other than Permitted Liens.
SECTION 6.03. LIMITATION ON INVESTMENTS.
Borrower shall not, and shall not permit its Subsidiaries to, make or
have outstanding any Investments in any Person, except for Borrower's and any
Subsidiary's acquisition or ownership of stock of or other equity interests in
Subsidiaries (including Persons that will be Subsidiaries after giving effect
to such Investments), loans and other transactions between Borrower and any
Subsidiaries, short term bank deposits, money market investments, investment-
grade commercial paper, government securities and such other "cash equivalent"
investments as the Lenders may from time to time approve, and customer
obligations and receivables arising out of sales or leases made or the
rendering of services in the ordinary course of business.
SECTION 6.04. ALTERATION OF MATERIAL AGREEMENTS.
Borrower shall not, and shall not permit its Subsidiaries to, consent to
or permit any alteration, amendment, modification, release, waiver or
termination of any material agreement to which it is party, other than in the
ordinary course of business.
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Agreement (Continued)
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SECTION 6.05. TRANSACTIONS WITH AFFILIATES.
Except as disclosed in Schedule 6.05, Borrower shall not, and shall not
permit its Subsidiaries to, enter into any transaction not in the ordinary
course of business with, or pay any management fees to, any Affiliate, except
for intercompany transactions, without the consent of the Lenders, unless the
terms thereof (1) are no less favorable to Borrower or such Subsidiary than
those that could be obtained at the time of such transaction in arm's-length
dealings with a Person who is not an Affiliate, or (2) if such transaction
involves an amount less than $50,000, are set forth in writing and have been
approved by a majority of the members of the Board of Directors having no
personal stake in the transaction.
SECTION 6.06. LIMITATIONS ON ACQUISITION OF NONRELATED BUSINESS.
Borrower shall not, and shall not permit its Subsidiaries to, engage in
any line of business or acquire any new product lines or business or acquire
any companies unless such new product line or business of the company acquired
is primarily involved in, or substantially similar or related to, Borrower's
current lines of business.
SECTION 6.07. LIMITATION ON SALE OF PROPERTIES.
Borrower shall not, and shall not permit its Subsidiaries to, (i) sell,
assign, convey, exchange, lease or otherwise dispose of any of its properties,
rights, assets or business (including the capital stock of its operating
Subsidiaries), whether now owned or hereafter acquired having a market value in
excess of $500,000 in any single transaction or series of related transactions,
or (ii) sell, assign or discount any accounts receivable except in the ordinary
course of business (which shall include receivable financing or
securitization), without the consent of the Lenders; provided, however, that
Borrower may sell its securities to unaffiliated third parties for fair market
value and to employees under its existing stock option plan.
SECTION 6.08. FISCAL YEAR AND ACCOUNTING METHOD.
Borrower shall not, and shall not permit its Subsidiaries to, change its
fiscal year or method of accounting, except as permitted by GAAP.
SECTION 6.09. LIQUIDATION.
Borrower shall not, and shall not permit its Subsidiaries to, (i)
dissolve or liquidate (except for dissolution or liquidation of inactive
Subsidiaries in the ordinary course of business) or (ii) enter into any other
transaction that has a similar effect.
SECTION 6.10. MATERIAL AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS.
Borrower shall not, and shall not permit its Subsidiaries to, amend its
Certificate of Incorporation (or other charter document) or bylaws in any
material respect, without the consent of the Lenders.
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Agreement (Continued)
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SECTION 6.11. EXECUTIVE COMPENSATION.
(a) Borrower will not increase the salary, bonus, or other
compensation programs (whether in cash, securities, or other property, and
whether payment is deferred or current) of its five most senior executive
officers, unless such compensation increase is approved by a majority of the
Board or a Compensation Committee of the Board of Directors, a majority of whom
shall nonemployee Directors.
(b) Borrower shall not implement any bonus, profit sharing or other
incentive plans, until such plans are formally adopted by the majority of the
Board or a Compensation Committee of the Board of Directors, a majority of
which shall be nonemployee Directors. Borrower's executive compensation shall
be consistent with the general compensation policies adopted by the
Compensation Committee of the Board of Directors.
SECTION 6.12. RESTRICTED PAYMENTS.
Borrower shall not (i) without the consent of the Lenders declare or pay
any dividend (other than stock dividends) or make any other cash distribution
on (a) any Common Stock, (b) any Preferred Stock, other than the Series A
Preferred Stock, or (c) the Series A Preferred Stock, if at the time of such
declaration or payment, the Borrower is in Default with respect to the Loan,
(ii) purchase, redeem, or otherwise acquire any shares of Common Stock or
Preferred Stock, without the consent of the Lenders, (iii) make any payments of
Indebtedness (other than Senior Obligations) which are pari passu or
subordinated to the Debentures, if at the time of such payment, Borrower is in
Default with respect to the Loan, or (iv) make any prepayments of Indebtedness
(other than Senior Obligations) which are pari passu or subordinated to the
Debentures, unless the Debentures are prepaid on a pro rata basis. Borrower
shall not permit its Subsidiaries to enter into any agreements restricting the
payment of dividends from the Subsidiaries to the Borrower without the written
consent of the Lenders.
SECTION 6.13. CONSOLIDATION OR MERGER.
Borrower shall not consolidate with or merge into any other corporation,
unless the surviving corporation after such merger or consolidation will not be
in Default and the surviving corporation becomes a party to this Agreement.
Subsidiaries shall only consolidate with or merge into Borrower or another
Subsidiary; provided, however, that a Subsidiary may merge or consolidate with
any other entity as long as such Subsidiary is the surviving corporation of
such merger or consolidation, and the Company is not in Default.
ARTICLE VII - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS
SECTION 7.01. FINANCIAL RATIOS.
So long as any of the Debentures have not been redeemed or converted
hereunder, and until such redemption or conversion has been made in full, or
unless the Lenders shall otherwise consent in writing,
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Agreement (Continued)
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Borrower, on a consolidated basis, shall be in compliance with the covenants
contained in its Senior Documents and with the agreed minimum financial ratios
and standards provided in Schedule 7.01, as of the end of each fiscal quarter
of Borrower and as set forth in its most recent quarterly compliance
certificates delivered pursuant to Section 5.01.
ARTICLE VIII - EVENTS OF DEFAULT
SECTION 8.01. EVENTS OF DEFAULT.
(a) An "Event of Default" shall exist if any one or more of the
following events (herein collectively called "Events of Default") shall occur
and be continuing:
(i) Borrower shall fail to pay when due (or shall state in
writing an intention not to pay or its inability to pay) any installment of
interest on or principal of, any Debenture or any fee, expense or other payment
required hereunder and such failure to pay shall continue unremedied for a
period three (3) days.
(ii) Any representation or warranty made under this Agreement,
or any of the other Loan Documents, or in any certificate or statement
furnished or made to Agent pursuant hereto or in connection herewith or with
the Loans hereunder, or in any Subsidiary Document shall prove to be untrue or
inaccurate in any material respect as of the date on which such representation
or warranty was made;
(iii) Default shall occur in the performance of any of the
covenants or agreements of Borrower or of its Subsidiaries contained herein,
or in any of the other Loan Documents or in any Subsidiary Document, which
Default is not remedied within ten (10) days after the occurrence of such
breach or failure to perform.
(iv) Default shall occur in the payment of any Senior
Obligations or in the payment of any other Indebtedness having an aggregate
principal amount in excess of $50, 000, or nonmonetary default shall occur in
respect of any note, loan agreement or credit agreement relating to any
Indebtedness having an aggregate principal amount in excess of $50,000, and
such default continues for more than the period of grace, if any, specified
therein or any Indebtedness having an aggregate principal amount in excess of
$50,000, shall become due before its stated maturity by acceleration of the
maturity, or any indebtedness having an aggregate principal amount in excess of
$50,000, shall become due by its terms and shall not be promptly paid or
extended;
(v) Any of the Loan Documents shall cease to be legal, valid
and binding agreements enforceable against Borrower in accordance with the
respective terms, or shall in any way be terminated or become or be declared by
any court or by Borrower or any Subsidiary in any legal proceeding to be
ineffective or inoperative, or shall in any way whatsoever cease to give or
provide the respective rights, titles, interests, remedies, powers or
privileges stated therein to be created thereby;
(vi) Borrower or its Subsidiaries shall (A) apply for or
consent to the appointment of a receiver, trustee, custodian, intervenor or
liquidator of itself, or of all or substantially all of such Person's assets,
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Agreement (Continued)
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(B) file a voluntary petition in bankruptcy, admit in writing that such Person
is unable to pay such Person's debts as they become due or generally not pay
such Person's debts as they become due, (C) make a general assignment for the
benefit of creditors, (D) file a petition or answer seeking reorganization or
an arrangement with creditors or to take advantage of any bankruptcy or
insolvency laws, (E) file an answer admitting the material allegations of, or
consent to, or default in answering, a petition filed against such Person in
any bankruptcy, reorganization or insolvency proceeding, or (F) take corporate
action for the purpose of effecting any of the foregoing;
(vii) An involuntary petition or complaint shall be filed
against Borrower or any of its Subsidiaries seeking bankruptcy or
reorganization of such Person or the appointment of a receiver, custodian,
trustee, intervenor or liquidator of such Person, or all or substantially all
of such Person's assets, and such petition or complaint shall not have been
dismissed within sixty (60) days of the filing thereof or an order, order for
relief, judgment or decree shall be entered by any court of competent
jurisdiction or other competent authority approving a petition or complaint
seeking reorganization of Borrower or its subsidiary or appointing a receiver,
custodian, trustee, intervenor or liquidator of such Person, or of all or
substantially all of such Person's assets;
(viii) Any final judgment(s) for the payment of money in excess
of the sum of $100,000 in the aggregate shall be rendered against Borrower or
any Subsidiary and such judgment or judgments shall not be satisfied or
discharged prior to the date on which any of its assets could be lawfully sold
to satisfy such judgment; or
(ix) Borrower shall fail to issue and deliver shares of Common
Stock as provided herein upon conversion of the Debentures.
SECTION 8.02. REMEDIES UPON EVENT OF DEFAULT.
(a) If an Event of Default shall have occurred and be continuing,
then the Lenders may exercise any one or more of the following rights and
remedies, and any other remedies provided in any of the Loan Documents, as the
Lenders in their sole discretion may deem necessary or appropriate:
(i) declare the unpaid Principal Amount (after application of
any payments or installments received by the Lenders) of, and all interest then
accrued but unpaid on, the Debentures and any other liabilities hereunder to be
forthwith due and payable, whereupon the same shall forthwith become due and
payable without presentment, demand, protest, notice of default, notice of
acceleration or of intention to accelerate or other notice of any kind, all of
which Borrower hereby expressly waives, anything contained herein or in the
Debentures to the contrary notwithstanding;
(ii) reduce any claim to judgment; and
(iii) without notice of default or demand, pursue and enforce
any of the Lenders' rights and remedies under the Loan Documents and the
Subsidiary Documents, or otherwise provided under or pursuant to any applicable
law or agreement, all of which rights may be specifically enforced.
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Agreement (Continued)
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(b) In the event of a violation by Borrower of the negative covenants
set forth in Article VI, the Lenders may, in their sole discretion, (i) waive
compliance with the covenants provided Borrower is in compliance with Section
7.01 hereof; or (ii) require Borrower to redeem the Debentures at the higher of
market value or the unpaid principal amount of the Debentures, together with an
amount equal to an 18% annual yield on the principal amount through the
Redemption Date, which ever is greater.
SECTION 8.03. PERFORMANCE BY THE LENDERS.
Should Borrower or any Subsidiary fail to perform any covenant, duty or
agreement contained herein or in any of the other Loan Documents or in any
Subsidiary Document, any Lender or Agent may perform or attempt to perform such
covenant, duty or agreement on behalf of Borrower. In such event, Borrower
shall, at the request of any Lender or Agent, promptly pay any amount
reasonably expended by any Lender or Agent in such performance or attempted
performance to any Lender or Agent at its principal office, together with
interest thereon, at the interest rate specified in the Debenture, from the
date of such expenditure until paid. Notwithstanding the foregoing, it is
expressly understood that any Lender or Agent assumes no liability or
responsibility for the performance of any duties of Borrower or any Subsidiary
hereunder or under any of the other Loan Documents or under any Subsidiary
Document.
SECTION 8.04. PAYMENT OF EXPENSES INCURRED BY THE LENDERS.
Upon the occurrence of a Default or an Event of Default, which
occurrence is not cured within the notice provisions, if any, provided herein,
Borrower agrees to pay and shall pay all costs and expenses (including
attorneys' fees and expenses) incurred by any Lender or Agent in connection
with the preservation and enforcement of the Lenders' rights under this
Agreement, the Debentures or any other Loan Document.
ARTICLE IX - REGISTRATION RIGHTS
SECTION 9.01. DEMAND REGISTRATION.
(a) Borrower hereby agrees to register all or any portion of the
Registrable Securities on two occasions (but no more than one per year) within
18 months after Closing, if, and only if, it shall receive a written request
from a Holder (the Initiating Holder) that Borrower file a registration
statement under the 1933 Act covering the registration of at least 25% of the
Registrable Securities Then Outstanding. Borrower shall, within 20 days of its
receipt thereof, give written notice of such request to all Holders of record
of Registrable Securities. The Holders of said Registrable Securities shall
then have 15 days from the date of mailing of such notice by Borrower to
request that all or a portion of their respective Registrable Securities be
included in said registration.
(b) If the Holders intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise
Borrower as a part of their request made pursuant to this Agreement, and
Borrower shall include such information in the written notice to the other
Holders of Registrable Securities referred to in Section 9.01(a). In such
event, the right of any Holder to include its Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's
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Agreement (Continued)
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Registrable Securities in the underwriting (unless otherwise mutually agreed by
Borrower, the underwriter, the Initiating Holder and such Holder) is limited to
the extent provided herein. All Holders proposing to distribute their
securities through such underwriting shall (together with Borrower as provided
in Section 9.04(e)) enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by mutual
agreement of Borrower and the Initiating Holder, which agreement shall not be
unreasonably withheld. Notwithstanding any other provision of this Section
9.01, if the underwriter advises the Initiating Holder and Borrower in writing
that marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holder shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated on a pro rata basis among all Holders that have
requested to participate in such registration. The rights of the Holders shall
be senior to those of any Persons subsequently granted demand registration
rights.
(c) Each such registration shall remain effective for a period of 180
days, unless the Initiating Holder otherwise determines.
SECTION 9.02. "PIGGY-BACK" REGISTRATION.
If Borrower proposes to register any of its capital stock under the 1933
Act in connection with the public offering of such securities for its own
account or for the account of its security holders, other than Holders of
Registrable Securities pursuant hereto (a "Piggy-Back Registration Statement"),
except for (i) a registration relating solely to the sale of securities to
participants in Borrower's stock plans or employee benefit plans or (ii) a
registration relating solely to an transaction for which Form S-4 may be used,
then:
(a) Borrower shall give written notice of such determination to each
Holder of Registrable Securities, and each such Holder shall have the right to
request, by written notice given to Borrower within 15 days of the date that
such written notice was mailed by Borrower to such Holder, that a specific
number of Registrable Securities held by such Holder be included in the Piggy-
Back Registration Statement (and related underwritten offering, if any);
(b) If the Piggy-Back Registration Statement relates to an
underwritten offering, the notice given to each Holder shall specify the name
or names of the managing underwriter or underwriters for such offering. In
addition such notice shall also specify the number of securities to be
registered for the account of Borrower and for the account of its shareholders
(other than the Holders of Registrable Securities), if any;
(c) If the Piggy-Back Registration Statement relates to an
underwritten offering, each Holder of Registrable Securities to be included
therein must agree (i) to sell such Holder's Registrable Securities on the same
basis as provided in the underwriting arrangement approved by Borrower, and
(ii) to timely complete and execute all questionnaires, powers of attorney,
indemnities, hold-back agreements, underwriting agreements and other documents
required under the terms of such underwriting arrangements or by the SEC or by
any state securities regulatory body;
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Agreement (Continued)
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(d) If the managing underwriter or underwriters for the underwritten
offering under the Piggy-Back Registration Statement determines that inclusion
of all or any portion of the Registrable Securities in such offering would
materially adversely affect the ability of the underwriters for such offering
to sell all of the securities requested to be included for sale in such
offering at the best price obtainable therefor, the aggregate number of
Registrable Securities that may be sold by the Holders shall be limited to such
number of Registrable Securities, if any, that the managing underwriter or
underwriters determine may be included therein without such adverse effect as
provided below. If the number of securities proposed to be sold in such
underwritten offering exceeds the number of securities that may be sold in such
offering, there shall be included in the offering, first, up to the maximum
number of securities to be sold by Borrower for its own account and for the
account of other stockholders (other than Holders of Registrable Securities),
as they may agree among themselves, and second, as to the balance, if any,
Registrable Securities requested to be included therein by the Holders thereof
(pro rata as between such Holders based upon the number of Registrable
Securities initially proposed to be registered by each), or in such other
proportions as the managing underwriter or underwriters for the offering may
require; provided, however, that in the event that the number of securities
proposed to be sold in such underwritten offering exceeds the number of
securities that may be sold in such offering pursuant to the terms and
conditions set forth above and the Piggy-Back Registration Statement is a
result of public offering by Borrower of its securities for its own account,
there shall be included in the offering, first, up to the maximum number of
securities to be sold by Borrower for its own account and second, as to the
balance, if any, securities to be sold for the account of Borrower's
stockholders (both the Holders of Registrable Securities requested and such
other stockholders of Borrower requested to be included therein) on a pro rata
basis;
(e) Holders of Registrable Securities shall have the right to
withdraw their Registrable Securities from the Piggy-Back Registration
Statement, but if the same relates to an underwritten offering, they may only
do so during the time period and on the terms agreed upon among the
underwriters for such underwritten offering and the Holders of Registrable
Securities; and
(f) The exercise of the registration rights of the Holders with
respect to any specific underwriters offering shall be subject to a 90-day
delay at the request of the managing underwriter.
SECTION 9.03. SHELF REGISTRATION.
Borrower shall file a "shelf" registration statement on an appropriate
form under the 1933 Act (the "Shelf Registration") covering all of the
Registrable Securities within 90 days from the Loan Closing and shall use its
best efforts to cause the Shelf Registration to be declared effective and to
keep the Shelf Registration continuously effective until all of the Registrable
Securities registered therein cease to be Registrable Securities. The
securities shall cease to be Registrable Securities when (a) the Shelf
Registration shall have become effective under the 1933 Act and such securities
shall have been disposed of pursuant to the Shelf Registration, or (b) such
securities shall have been sold as permitted by Rule 144 under the 1933 Act.
The holders of the Debentures shall utilize Rule 144 in their sole discretion
to the extent it meets their distribution requirements. Borrower agrees, if
necessary, to supplement or amend the Shelf Registration, as required by the
registration form utilized by Borrower or by the instructions applicable to
such registration form or by the 1933 Act, and Borrower agrees to furnish to
the holders of the Registrable Securities copies of any such supplement or
amendment prior to its being used.
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Agreement (Continued)
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SECTION 9.04. OBLIGATIONS OF BORROWER.
Whenever required to effect the registration of any Registrable
Securities pursuant to this Agreement, Borrower shall, as expeditiously as
reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become effective, and keep such registration
statement effective until the sooner of all such Registrable Securities having
been distributed, or until 120 days have elapsed since such registration
statement became effective (subject to extension of this period as provided
below);
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
1933 Act with respect to the disposition of all securities covered by such
registration statement, or 120 days have elapsed since such registration
statement became effective (subject to the extension of this period as provided
below);
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them;
(d) Use all reasonable efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that Borrower shall not be required in connection therewith or as a
condition thereto to qualify as a broker-dealer in any states or jurisdictions
or to do business or to file a general consent to service of process in any
such states or jurisdictions;
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement with the managing
underwriter of such offering, in usual and customary form reasonably
satisfactory to Borrower and the Holders of a majority of the Registrable
Securities to be included in such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such an
agreement;
(f) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto and
covered by such registration statement is required to be delivered under the
1933 Act, of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing; and
(g) In the event of the notification provided for in Section 9.04(f)
above, Borrower shall use its best efforts to prepare and file with the SEC
(and to provide copies thereof to the Holders) as soon as reasonably
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Agreement (Continued)
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possible an amended prospectus complying with the 1933 Act, and the period
during which the prospectus referred to in the notice provided for in Section
9.04(f) above cannot be used and the time period prior to the use of the
amended prospectus referred to in this Section 9.04(g) shall not be counted in
the 120 day period of this Section 9.04.
SECTION 9.05. FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations of Borrower
to take any action pursuant to this Article IX that the selling Holders shall
furnish to Borrower any and all information reasonably requested by Borrower,
its officers, directors, employees, counsel, agents or representatives, the
underwriter or underwriters, if any, and the SEC or any other Governmental
Authority, including but not limited to: (i) such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities, as shall be required to effect the registration
of their Registrable Securities, and (ii) the identity of and compensation to
be paid to any proposed underwriter or broker-dealer to be employed in
connection therewith.
(b) In connection with the preparation and filing of each
registration statement registering Registrable Securities under the 1933 Act,
Borrower shall give the Holders of Registrable Securities on whose behalf such
Registrable Securities are to be registered and their underwriters, if any, and
their respective counsel and accountants, at such Holders' sole cost and
expense (except as otherwise set forth herein), such access to copies of
Borrower's records and documents and such opportunities to discuss the business
of Borrower with its officers and the independent public accountants who have
certified its financial statements as shall be reasonably necessary in the
opinion of such Holders and such underwriters or their respective counsel, to
conduct a reasonable investigation within the meaning of the 1933 Act.
SECTION 9.06. EXPENSES OF REGISTRATION.
All expenses, other than underwriting discounts and commissions
applicable to the Registrable Securities sold by selling Holders, incurred in
connection with the registration of the Registerable Securities pursuant to
this Article, including, without limitation, all registration, filing and
qualification fees, printer's expenses, and accounting and legal fees and
expenses of Borrower, shall be borne by Borrower. Selling Holders shall also
be responsible for all costs of their due diligence and legal counsel in
connection with a registration of Registrable Securities.
SECTION 9.07. INDEMNIFICATION REGARDING REGISTRATION RIGHTS.
If any Registrable Securities are included in a registration statement
under this Article:
(a) To the extent permitted by law, Borrower will indemnify and hold
harmless each Holder, the officers and directors of each Holder, any
underwriter (as defined in the ▇▇▇▇ ▇▇▇) for such Holder and each person, if
any, who controls such Holder or underwriter within the meaning of the 1933 Act
or the 1934 Act, against any losses, claims, damages, liabilities (joint or
several) or any legal or other costs and expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action
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Agreement (Continued)
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to which they may become subject under the 1933 Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, costs, expenses
or liabilities (or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations (each a "Violation"):
(i) any untrue statement or alleged untrue statement of a material fact with
respect to Borrower or its securities contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements therein; (ii) the omission or alleged omission to
state therein a material fact with respect to Borrower or its securities
required to be stated therein or necessary to make the statements therein not
misleading; or (iii) any violation or alleged violation by Borrower of the 1933
Act, the 1934 Act, any federal or state securities law or any rule or
regulation promulgated under the 1933 Act, the 1934 Act or any state securities
law. Notwithstanding the foregoing, the indemnity agreement contained in this
Section 9.07(a) shall not apply and Borrower shall not be liable (i) in any
such case for any such loss, claim, damage, costs, expenses, liability or
action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person, or (ii) for amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is
effected without the prior written consent of Borrower, which consent shall not
be unreasonably withheld.
(b) To the extent permitted by law, each Holder who participates in a
registration pursuant to the terms and conditions of this Agreement shall
indemnify and hold harmless Borrower, each of its directors and officers who
have signed the registration statement, each Person, if any, who controls
Borrower within the meaning of the 1933 Act or the 1934 Act, each of Borrower's
employees, agents, counsel and representatives, any underwriter and any other
Holder selling securities in such registration statement, or any of its
directors or officers, or any person who controls such Holder, against any
losses, claims, damages, costs, expenses, liabilities (joint or several) to
which Borrower or any such director, officer, controlling person, employee,
agent, representative, underwriter, or other such Holder, or director, officer
or controlling person thereof, may become subject, under the 1933 Act, the 1934
Act or other federal or state law, only insofar as such losses, claims,
damages, costs, expenses or liabilities or actions in respect thereto arise out
of or are based upon any Violation, in each case to the extent and only to the
extent that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such. Each such Holder will indemnify any legal or other expenses
reasonably incurred by Borrower or any such director, officer, employee, agent
representative, controlling person, underwriter or other Holder, or officer,
director or of any controlling person thereof, in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this Section 9.07(b) shall
not apply to amounts paid in settlement of any such loss, claim, damage, costs,
expenses, liability or action if such settlement is effected without the prior
written consent of the Holder, which consent shall not be unreasonably
withheld.
(c) Promptly after receipt by an indemnified party under this Section
9.07 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 9.07, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an
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Agreement (Continued)
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indemnified party shall have the right to retain its own counsel, with the
reasonable fees and expenses of such counsel to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
conflict of interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement
of any such action shall not relieve the indemnifying party of its obligations
under this Section 9.07, except to the extent that the failure results in a
failure of actual notice to the indemnifying party and such indemnifying party
is materially prejudiced in its ability to defend such action solely as a
result of the failure to give such notice.
(d) If the indemnification provided for in this Section 9.07 is
unavailable to an indemnified party under this Section in respect of any
losses, claims, damages, costs, expenses, liabilities or actions referred to
herein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, costs, expenses, liabilities or
actions in such proportion as is appropriate to reflect the relative fault of
Borrower, on the one hand and of the Holder, on the other, in connection with
the Violation that resulted in such losses, claims, damages, costs, expenses,
liabilities or actions. The relative fault of Borrower, on the one hand, and
of the Holder, on the other, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of the material fact or
the omission to state a material fact relates to information supplied by
Borrower or by the Holder, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission.
(e) Borrower, on the one hand, and the Holders, on the other hand,
agree that it would not be just and equitable if contribution pursuant to this
Section 9.07 were determined by a pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of losses, claims, damages, costs, expenses,
liabilities and actions referred to in the immediately preceding paragraph
shall be deemed to include, subject to the limitations set forth above, any
reasonable legal or other expenses incurred by such indemnified party in
connection with defending any such action or claim. Notwithstanding the
provisions of this Section 9.07, neither Borrower nor the Holders shall be
required to contribute any amount in excess of the amount by which the total
price at which the securities were offered to the public exceeds the amount of
any damages which Borrower or each such Holder has otherwise been required to
pay by reason of such Violation. No person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the ▇▇▇▇ ▇▇▇) shall
be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.
SECTION 9.08. REPORTS UNDER THE 1934 ACT.
So long as Borrower has a class of securities registered pursuant to
Section 12 of the 1934 Act, with a view to making available to the Holders the
benefits of Rule 144 promulgated under the 1933 Act ("Rule 144") and any other
rule or regulation of the SEC that may at any time permit a Holder to sell
securities of Borrower to the public without registration or pursuant to a
registration on Form S-3, if applicable, Borrower agrees to use its reasonable
efforts to:
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Agreement (Continued)
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(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times;
(b) File with the SEC in a timely manner all reports and other
documents required of Borrower under the 1933 Act and the 1934 Act;
(c) Use its best efforts to include all Common Stock covered by such
registration statement on NASDAQ if the Common Stock is then quoted on NASDAQ;
or list all Common Stock covered by such registration statement on such
securities exchange on which any of the Common Stock is then listed; or, if the
Common Stock is not then quoted on NASDAQ or listed on any national securities
exchange, use its best efforts to have such Common Stock covered by such
registration statement quoted on NASDAQ or, at the option of Borrower, listed
on a national securities exchange; and
(d) Furnish to any Holder, so long as the Holder owns any Registrable
Securities, (i) forthwith upon request a copy of the most recent annual or
quarterly report of Borrower and such other SEC reports and documents so filed
by Borrower, and (ii) such other information (but not any opinion of counsel)
as may be reasonably requested by any Holder seeking to avail himself of any
rule or regulation of the SEC which permits the selling of any such securities
without registration or pursuant to such form.
SECTION 9.09. ASSIGNMENT OF REGISTRATION RIGHTS.
Subject to the terms and conditions of this Agreement, and the
Debentures, the right to cause Borrower to register Registrable Securities
pursuant to this Agreement may be assigned by Holder to any transferee or
assignee of such securities; provided that said transferee or assignee is a
transferee or assignee of at least ten percent (10%) of the Registrable
Securities and provided that Borrower is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act; it being the intention that so long as Holder
holds any Registrable Securities hereunder, either Holder or its transferee or
assignee of at least ten percent may exercise the demand right to registration
and piggy-back registration rights hereunder. Other than as set forth above,
the parties hereto hereby agree that the registration rights hereunder shall
not be transferable or assigned and any contemplated transfer or assignment in
contravention of this Agreement shall be deemed null and void and of no effect
whatsoever.
SECTION 9.10. OTHER MATTERS.
(a) Each Holder of Registrable Securities hereby agrees by
acquisition of such Registrable Securities that, with respect to each offering
of the Registrable Securities, whether each Holder is offering such Registrable
Securities in an underwritten or nonunderwritten offering, such Holder will
comply with Rules 10b-2, 10b-6 and 10b-7 of the 1934 Act and such other or
additional anti-manipulation rules then in effect until such offering has been
completed, and in respect of any nonunderwritten offering, in writing will
inform Borrower, any other
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Agreement (Continued)
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Holders who are selling shareholders, and any national securities exchange upon
which the securities of Borrower are listed, that the Registrable Securities
have been sold and will, upon Borrower's request, furnish the distribution list
of the Registrable Securities. In addition, upon the request of Borrower, each
Holder will supply Borrower with such documents and information as Borrower may
reasonably request with respect to the subject matter set forth and described
in this Section 9.10.
(b) Each Holder of Registrable Securities hereby agrees by
acquisition of such Registrable Securities that, upon receipt of any notice
from Borrower of the happening of any event which makes any statement made in
the registration statement, the prospectus or any document incorporated therein
by reference, untrue in any material respect or which requires the making of
any changes in the registration statement, the prospectus or any document
incorporated therein by reference, in order to make the statements therein not
misleading in any material respect, such Holder will forthwith discontinue
disposition of Registrable Securities under the prospectus related to the
applicable registration statement until such Holder's receipt of the copies of
the supplemented or amended prospectus, or until it is advised in writing by
Borrower that the use of the prospectus may be resumed, and has received copies
of any additional or supplemental filings which are incorporated by reference
in the prospectus.
(c) Borrower hereby agrees not to effect any public sale or other
public distribution of its equity securities, or any securities convertible
into or exchangeable or exercisable for such equity securities, during the
period commencing on the 7th day prior to, and ending on the 90th day (subject
to extension as provided in Section 9.04 hereof) following the effective date
of any underwritten demand registration, other than pursuant to Form S-8.
ARTICLE X - BOARD OF DIRECTORS
SECTION 10.01. BOARD REPRESENTATION OR ATTENDANCE BY OBSERVER.
(a) Borrower herewith agrees that Agent shall have the right from
time to time to designate a nominee to serve as a member of the Board of
Directors of Borrower. In the event of a monetary Default under Section 8.01
hereof, the Agent shall have the right to designate one (1) additional nominee
to serve as a member of the Board of Directors of Borrower. Borrower will
nominate and use its best efforts to secure the election of such designee(s) as
Director(s) of Borrower. During such time as Agent has not exercised such
rights, the Agent shall have the right to designate an observer, who shall be
entitled to attend and participate (but not vote) in all meetings of the Board
of Directors and to receive all notices, information, correspondence and
communications sent by Borrower to members of the Board of Directors. All
costs and expenses incurred by any such designated Director or observer, or by
Agent on behalf of such Director of observer, shall be reimbursed by Borrower.
(b) Any such Director or observer shall, if requested to do so,
absent himself or herself from the meeting in the event of, and so long as, the
Directors are considering and acting on matters pertaining to any rights or
obligations of Borrower or the Lender under this Agreement, the Debentures, the
other Loan Documents or the Subsidiary Documents.
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Agreement (Continued)
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SECTION 10.02. LIMITATION OF AUTHORITY OF PERSONS DESIGNATED AS A DIRECTOR
NOMINEE.
It is provided and agreed that the actions and advice of any person
while serving pursuant to Section 10.01 as a Director or an observer at
meetings of the Board of Directors shall be construed to be the actions and
advice of that person alone and not be construed as actions of the Lender as to
any notice of requirements or rights of Lender under this Agreement, the
Debentures, the other Loan Documents or the Subsidiary Documents; nor as
actions of the Lender to approve modifications, consents, amendments or waivers
thereof; and all such actions or notices shall be deemed actions or notices of
the Lender only when duly provided in writing and given in accordance with the
provisions of this Agreement.
SECTION 10.03. NONLIABILITY OF THE LENDERS.
The relationship between Borrower and the Lenders is, and shall at all
times remain, solely that of borrower and lender. The Lenders neither
undertake nor assume any responsibility or duty to Borrower to review, inspect,
supervise, pass judgment upon, or inform Borrower of any matter in connection
with any phase of Borrower's business, operations, or condition, financial or
otherwise. Borrower shall rely entirely upon its own judgment with respect to
such matters, and any review, inspection, supervision, exercise of judgment, or
information supplied to Borrower by the Lenders, or any representative or agent
of the Lenders, in connection with any such matter is for the protection of the
Lenders, and neither Borrower nor any third party is entitled to rely thereon.
ARTICLE XI - AGENCY AND INTER-LENDER PROVISIONS
SECTION 11.01. THE LENDERS' REPRESENTATIONS AND WARRANTIES TO OTHER LENDERS.
Each Lender represents and warrants to the other Lenders and the Agent:
(a) It is legal for it to make its portion of the Loan, and the
making of such portion of the Loan complies with laws applicable to it;
(b) It has made, without reliance upon any other Lenders, its own
independent review (including any desired investigations and inspections) of,
and it accepts and approves, the Loan, this Agreement and the associated
documents and all other matters and information which it deems pertinent. It
acknowledges that the Loan Documents and the Subsidiary Documents are a
complete statement of all understandings and respective rights and obligations
between and among the Lenders, Subsidiaries and Borrowers regarding the Loan.
(c) None of the Lenders have made any express or implied
representation or warranty to any other Lender with respect to this
transaction.
(d) It will, independently and without reliance upon any other
Lender, and based upon such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement, and will
make such investigation as
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Agreement (Continued)
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it deems necessary to inform itself as to the Loan, the Loan Documents, the
Subsidiary Documents, Borrower and any collateral; provided, however, nothing
contained in this Section shall limit Agent's obligation to provide the other
Lenders with the information and documents Agent is expressly required to
deliver under this Agreement.
(e) The relationship of each Lender is, and shall at all times
remain, solely that of each Lender of its respective Loan. The Lenders are not
partners or joint venturers in connection with the Loan.
SECTION 11.02. WAIVER OF LOAN PROVISIONS OR INTEREST OR PRINCIPAL PAYMENTS.
A waiver of an interest or principal payment, a declaration of a Default
or any amendment, modification or waiver of this Agreement or the Debentures
will require the consent of the Lenders.
SECTION 11.03. AGENCY.
(a) Each of the Lenders hereby designates and appoints Renaissance
Group as its Agent under this Agreement and authorizes the Agent to take such
action on its behalf under the provisions of this Agreement and the other Loan
Documents and the Subsidiary Documents and to exercise such powers as are set
forth herein or therein, together with such other powers as are reasonable
incidental thereto. In performing its functions and duties under this
Agreement, the Agent shall act solely as agent of the Lenders and does not
assume and shall not be deemed to have assumed any obligation toward or
relationship of agency or trust with or for Borrower. The Agent may perform
any of its duties under this Agreement, or under the other Loan Documents or
the Subsidiary Documents, by or through its agents or employees.
(b) The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement, in the other Loan Documents or in the
Subsidiary Documents. Except as expressly provided herein, the duties of the
Agent shall be mechanical and administrative in nature. The Agent shall have
and may use its sole discretion with respect to exercising or refraining from
taking any actions which the Agent is expressly entitled to take or assert
under this Agreement, the other Loan Documents and the Subsidiary Documents.
The Agent shall not have by reason of this Agreement a fiduciary relationship
with respect to the Lenders. Nothing in this Agreement, any of the other Loan
Documents or any of the Subsidiary Documents, express or implied, is intended
to or shall be construed to impose upon the Agent any obligations in respect of
this Agreement, any of the other Loan Documents or any of the Subsidiary
Documents except as expressly set forth herein or therein. If the Agent seeks
the consent or approval of the Lenders to the taking or refraining from taking
any action hereunder, the Agent shall send notice thereof to the Lenders. The
Agent may employ agents, co-agents and attorneys-in-fact and shall not be
responsible to the Lenders or Borrower, except as to money or securities
received by it or its authorized agents, for the negligence or misconduct of
any such agents or attorneys-in-fact selected by it with reasonable care.
(c) Neither the Agent nor any of its officers, directors, employees
or agents shall be liable to the Lenders for any action taken or omitted by it
or any of them under this Agreement, any of the other Loan Documents or any of
the Subsidiary Documents, or in connection herewith or therewith, except that
no Person shall be relieved of any liability imposed by law, intentional tort
or gross negligence. The Agent shall not be
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Agreement (Continued)
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responsible to the Lenders for any recitals, statements, representations or
warranties contained in this Agreement or for the execution, effectiveness,
genuineness, validity, enforceability, collectability, or sufficiency of this
Agreement, any of the other Loan Documents or any of the Subsidiary Documents
or any of the transactions contemplated thereby, or for the financial condition
of any of Borrowers. The Agent shall not be required to make any inquiry
concerning either the performance or observance of any of the terms, provisions
or conditions of this Agreement, any of the other Loan Documents or any of the
Subsidiary Documents or the financial condition of Borrower, or the existence
or possible existence of any Default or Event of Default. Agent shall give the
Lenders notice of any Default or Event of Default of which Agent has actual
notice. The Agent may at any time request instructions from the Lenders with
respect to any actions or approvals which by the terms of this Agreement, of
any of the other Loan Documents or of any of the Subsidiary Documents the Agent
is permitted or required to take or to grant, and if such instructions are
promptly requested, the Agent shall be absolutely entitled to refrain from
taking any action or to withhold any approval and shall not be under any
liability whatsoever to any Person for refraining from any action or
withholding any approval under any of the Loan Documents or any of the
Subsidiary Documents until it shall have received such instructions from the
Lenders. Without limiting the foregoing, the Lenders shall not have any right
of action whatsoever against the Agent as a result of the Agent acting or
refraining from acting under this Agreement, any of the other Loan Documents or
any of the Subsidiary Documents in accordance with the instructions of the
Lenders.
(d) The Agent shall be entitled to rely upon any written notices,
statements, certificates, orders or other documents or any telephone message
believed by it in good faith to be genuine and correct and to have been signed,
sent or made by the proper Person, and with respect to all matters pertaining
to this Agreement, any of the other Loan Documents or any of the Subsidiary
Documents and its duties hereunder or thereunder, upon advice of counsel
selected by it.
(e) To the extent that the Agent is not reimbursed and indemnified by
Borrower, the Lenders will reimburse and indemnify the Agent for and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, advances or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent in any way relating to or arising out of this Agreement, any of the other
Loan Documents, or any of the Subsidiary Documents or any action taken or
omitted by the Agent under this Agreement, any of the other Loan Documents or
any of the Subsidiary Documents. The obligations of the Lenders under this
indemnification provision shall survive the payment in full of the Loans and
the termination of this Agreement.
SECTION 11.04. SUBORDINATION OF LIENS.
The Lenders agree to subordinate their Liens to the Liens granted by the
Borrower to secure the Senior Obligations on terms and conditions reasonably
satisfactory to the Lenders.
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Agreement (Continued)
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ARTICLE XII - MISCELLANEOUS
SECTION 12.01. STRICT COMPLIANCE.
Any waiver by the Lenders of any breach or any term or condition of this
Agreement, the other Loan Documents or the Subsidiary Documents shall not be
deemed a waiver of any other breach, nor shall any failure to enforce any
provision of this Agreement, the other Loan Documents or the Subsidiary
Documents operate as a waiver of such provision or of any other provision, nor
constitute nor be deemed a waiver or release of Borrower for anything arising
out of, connected with or based upon this Agreement, the other Loan Documents
or the Subsidiary Documents.
SECTION 12.02. WAIVERS AND MODIFICATIONS.
All modifications, consents, amendments or waivers (herein "Waivers") of
any provision of this Agreement, the Debentures, any other Loan Documents or
any Subsidiary Documents, and any consent to departure therefrom, shall be
effective only if the same shall be in writing by the Lenders and then shall be
effective only in the specific instance and for the purpose for which given.
No notice or demand given in any case shall constitute a waiver of the right to
take other action in the same, similar or other instances without such notice
or demand. No failure to exercise, and no delay in exercising, on the part of
Agent or any Lender, any right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise any other right. The rights of any Lender
hereunder, under the other Loan Documents and under the Subsidiary Documents
shall be in addition to all other rights provided by law.
SECTION 12.03. LIMITATION ON LIABILITY.
The duties, warranties, covenants and promises arising from the Loan
Documents and the Subsidiary Documents of each Lender to Borrower shall be
several and not joint, and Borrower shall have no legal or equitable cause of
action against any Lender (or its successors or assigns) for any liability of
any other Lender (or its successors or assigns).
SECTION 12.04. CHOICE OF FORUM; CONSENT TO SERVICE OF PROCESS AND JURISDICTION.
Any suit, action or proceeding against Borrower with respect to this
Agreement or the Debentures or any judgment entered by any court in respect
thereof, may be brought in the courts of the State of Texas, County of Dallas,
or in the United States federal courts located in the State of Texas, as each
Lender in its sole discretion may elect, and Borrower hereby submits to the
nonexclusive jurisdiction of such courts for the purpose of any such suit,
action or proceeding. Borrower hereby agrees that service of all writs,
process and summonses in any such suit, action or proceeding brought in the
State of Texas may be brought upon, and Borrower hereby irrevocably appoints,
the CT Corporation System, Dallas, Texas, as its true and lawful attorney-in-
fact in the name, place and stead of Borrower to accept such service of any and
all such writs, process and summonses. Borrower hereby irrevocably waives any
objections which it may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement or any
Debenture brought in such courts, and hereby
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Agreement (Continued)
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further irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in any inconvenient forum.
SECTION 12.05. ARBITRATION.
(a) Upon the demand of the Lenders or Borrower (collectively the
"parties"), made before the institution of any judicial proceeding or not more
than 60 days after service of a complaint, third party complaint, cross-claim
or counterclaim or any answer thereto or any amendment to any of the above, any
Dispute (as defined below) shall be resolved by binding arbitration in
accordance with the terms of this arbitration clause. A "Dispute" shall
include any action, dispute, claim, or controversy of any kind, whether founded
in contract, tort, statutory or common law, equity, or otherwise, now existing
or hereafter occurring between the parties arising out of, pertaining to or in
connection with this Agreement, any document evidencing, creating, governing,
or securing any indebtedness guaranteed pursuant to the terms hereof, or any
related agreements, documents, or instruments (the "Documents"). The parties
understand that by this Agreement they have decided that the Disputes may be
submitted to arbitration rather that being decided through litigation in court
before a judge or jury and that once decided by an arbitrator the claims
involved cannot later be brought, filed, or pursued in court. IF BORROWER
SHALL FAIL TO PAY (OR SHALL STATE IN WRITING AN INTENTION NOT TO PAY OR ITS
INABILITY TO PAY) NOT LATER THAN THREE (3) DAYS AFTER THE DUE DATE, ANY
INSTALLMENT OF INTEREST ON OR PRINCIPAL OF, ANY DEBENTURE OR ANY FEE, EXPENSE
OR OTHER PAYMENT REQUIRED HEREUNDER, THE LENDERS MAY, AT THEIR OPTION, ENFORCE
THEIR RIGHTS OUTSIDE THE ARBITRATION PROVISION FOUND IN THIS SECTION 12.05 OR
ANY DEBENTURE.
(b) Arbitrations conducted pursuant to this Agreement, including
selection of arbitrators, shall be administered by the American Arbitration
Association ("Administrator") pursuant to the Commercial Arbitration rules of
the Administrator. Arbitrations conducted pursuant to the terms hereof shall
be governed by the provisions of the Federal Arbitration Act (Title 9 of the
United States Code), and to the extent the foregoing are inapplicable,
unenforceable or invalid, the laws of the State of Texas. Judgment upon any
award rendered hereunder may be entered in any court having jurisdiction;
provided, however, that nothing contained herein shall be deemed to be a waiver
by any party that is a bank of the protections afforded to it under 12 U.S.C.
91 or similar governing state law. Any party who fails to submit to binding
arbitration following a lawful demand by the opposing party shall bear all
costs and expenses, including reasonable attorneys' fees, incurred by the
opposing party in compelling arbitration of any Dispute.
(c) No provision of, nor the exercise of any rights under, this
arbitration clause shall limit the right of any party to (i) foreclose against
any real or personal property collateral or other security, (ii) exercise self-
help remedies (including repossession and setoff rights) or (iii) obtain
provisional or ancillary remedies such as injunctive relief, sequestration,
attachment, replevin, garnishment, or the appointment of a receiver from a
court having jurisdiction. Such rights can be exercised at any time except to
the extent such action is contrary to a final award or decision in any
arbitration proceeding. The institution and maintenance of an action as
described above shall not constitute a waiver of the right of any party,
including the plaintiff, to submit the Dispute to arbitration, nor render
inapplicable the compulsory arbitration provisions hereof. Any claim or
Dispute related to exercise of any self-help, auxiliary or other exercise of
rights under this section shall be a Dispute hereunder.
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Agreement (Continued)
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(d) Arbitrator(s) shall resolve all Disputes in accordance with the
applicable substantive law of the State of Texas. Arbitrator(s) may make an
award of attorneys' fees and expenses if permitted by law or the agreement of
the parties. All statutes of limitation applicable to any Dispute shall apply
to any proceeding in accordance with this arbitration clause. Any arbitrator
selected to act as the only arbitrator in a Dispute shall be required to be a
practicing attorney with not less than five (5) years practice in commercial
law in the State of Texas. With respect to a Dispute in which the claims or
amounts in controversy do not exceed five hundred thousand dollars ($500,000),
a single arbitrator shall be chosen and shall resolve the Dispute. In such
case the arbitrator shall have authority to render an award up to but not to
exceed five hundred thousand dollars ($500,000) including all damages of any
kind whatsoever, costs, fees and expenses. Submission to a single arbitrator
shall be a waiver of all parties' claims to recover more than five hundred
thousand dollars ($500,000). A Dispute involving claims or amounts in
controversy exceeding five hundred thousand dollars ($500,000) shall be decided
by a majority vote of a panel of three arbitrators ("Arbitration Panel"), one
of whom must possess the qualifications to sit as a single arbitrator in a
Dispute decided by one arbitrator. If the arbitration is consolidated with one
conducted pursuant to the terms of an agreement between the Lenders and
Borrower related to the indebtedness guaranteed, then the Arbitration Panel
shall be one which meets the criteria set forth between the Lenders and
Borrower. Arbitrator(s) may, in the exercise of their discretion, at the
written request of a party, (i) consolidate in a single proceeding any multiple
party claims that are substantially identical and all claims arising out of a
single loan or series of loans including claims by or against borrower(s),
guarantors, sureties and/or owners of collateral if different from Borrower,
and (ii) administer multiple arbitration claims as class actions in accordance
with Rule 23 of the Federal Rules of Civil Procedure. The arbitrator(s) shall
be empowered to resolve any dispute regarding the terms of this Agreement or
any Dispute or any claim that all or any part (including this provision) is
void or voidable but shall have no power to change or alter the terms of this
Agreement. The award of the arbitrator(s) shall be in writing and shall
specify the factual and legal basis for the award.
(e) To the maximum extent practicable, the Administrator, the
arbitrator(s) and the parties shall take any action necessary to require that
an arbitration proceeding hereunder be concluded within 180 days of the filing
of the Dispute with the Administrator. The arbitrator(s) shall be empowered to
impose sanctions for any party's failure to proceed within the times
established herein. Arbitration proceedings hereunder shall be conducted in
Texas at a location determined by the Administrator. In any such proceeding a
party shall state as a counterclaim any claim which arises out of the
transaction or occurrence or is in any way related to the Documents which does
not require the presence of a third party which could not be joined as a party
in the proceeding, The provisions of this arbitration clause shall survive any
termination, amendment, or expiration of the Documents and repayment in full of
sums owed to the Lenders by Borrower unless the parties otherwise expressly
agree in writing. Each party agrees to keep all Disputes and arbitration
proceedings strictly confidential, except for disclosures of information
required in the ordinary course of business of the parties or as required by
applicable law or regulation.
SECTION 12.06. INVALID PROVISIONS.
If any provision of any Loan Document is held to be illegal, invalid or
unenforceable under present or future laws during the term of this Agreement,
such provision shall be fully severable; such Loan Document shall be construed
and enforced as if such illegal, invalid or unenforceable provision had never
comprised a part of such Loan Document; and the remaining provisions of such
Loan Document shall remain in full force and effect and
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Agreement (Continued)
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shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from such Loan Document. Furthermore, in lieu of each such
illegal, invalid or unenforceable provision shall be added as part of such Loan
Document a provision mutually agreeable to Borrower and the Lenders as similar
in terms to such illegal, invalid or unenforceable provision as may be possible
and be legal, valid and enforceable. In the event Borrower and the Lenders are
unable to agree upon a provision to be added to the Loan Document within a
period of ten (10) business days after a provision of the Loan Document is held
to be illegal, invalid or unenforceable, then a provision acceptable to
independent arbitrators, such to be selected in accordance with the provisions
of the American Arbitration Association, as similar in terms to the illegal,
invalid or unenforceable provision as is possible and be legal, valid and
enforceable shall be added automatically to such Loan Document. In either
case, the effective date of the added provision shall be the date upon which
the prior provision was held to be illegal, invalid or unenforceable.
SECTION 12.07. MAXIMUM INTEREST RATE.
(a) Regardless of any provision contained in any of the Loan
Documents, the Lenders shall never be entitled to receive, collect or apply as
interest on the Debentures any amount in excess of interest calculated at the
Maximum Rate, and, in the event that any Lender ever receives, collects or
applies as interest any such excess, the amount which would be excessive
interest shall be deemed to be a partial prepayment of principal and treated
hereunder as such; and, if the principal amount of the Obligation is paid in
full, any remaining excess shall forthwith be paid to Borrower. In determining
whether or not the interest paid or payable under any specific contingency
exceeds interest calculated at the Maximum Rate, Borrower and the Lenders
shall, to the maximum extent permitted under applicable law, (i) characterize
any nonprincipal payment as an expense, fee or premium rather than as interest;
(ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize,
pro rate, allocate and spread, in equal parts, the total amount of interest
throughout the entire contemplated term of the Debentures; provided that, if
the Debentures are paid and performed in full prior to the end of the full
contemplated term thereof, and if the interest received for the actual period
of existence thereof exceeds interest calculated at the Maximum Rate, the
Lenders shall refund to Borrower the amount of such excess or credit the amount
of such excess against the principal amount of the Debentures and, in such
event, the Lenders shall not be subject to any penalties provided by any laws
for contracting for, charging, taking, reserving or receiving interest in
excess of interest calculated at the Maximum Rate.
(b) "Maximum Rate" shall mean, on any day, the highest nonusurious
rate of interest permitted by applicable law on such day that at any time, or
from time to time, may be contracted for, taken, reserved, charged or received
on the Indebtedness evidenced by the Debentures under the laws which are
presently in effect of the United States of America and the laws of any other
jurisdiction which are or may be applicable to the holders of the Debentures
and such Indebtedness or, to the extent permitted by law, under such applicable
laws of the United States of America and the laws of any other jurisdiction
which are or may be applicable to the holder of the Debentures and which may
hereafter be in effect and which allow a higher maximum nonusurious interest
rate than applicable laws now allow.
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Agreement (Continued)
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SECTION 12.08. PARTICIPATIONS AND ASSIGNMENTS OF THE DEBENTURES.
(a) The Lenders and the Agent shall have the right to enter into a
participation agreement with any other party or its Affiliates with respect to
the Debentures, or to sell all or any part of the Debentures, but any
participation or sale shall not affect the rights and duties of any such Lender
or the Agent hereunder vis-a-vis Borrower. In the event that all or any
portion of the Loan shall be, at any time, assigned, transferred or conveyed to
other parties, any action, consent or waiver (except for compromise or
extension of maturity), to be given or taken by any Lender or the Agent
hereunder (herein "Action"), shall be such action as taken by the holders of a
majority in amount of the Principal Amount of the Debentures then outstanding,
as such holders are recorded on the books of Borrower and represented by the
Agent as described in subsection (b) below.
(b) Assignment or sale of the Debentures shall be effective, on the
books of Borrower only upon (i) endorsement of the Debenture, or part thereof,
to the proposed new holder, along with a current notation of the amount of
payments or installments received and net Principal Amount yet unfunded or
unpaid, and presentment of such Debenture to Borrower for issue of a
replacement Debenture, or Debentures, in the name of the new holder; and (ii)
delivery of an opinion of counsel, reasonably satisfactory to Borrower, that
transfer shall not require registration or qualification under applicable state
or federal securities laws.
(c) The Debentures may be sold, transferred or assigned only to
Affiliates of the Lenders or permitted transferees in multiples of $100,000.
SECTION 12.09. CONFIDENTIALITY.
(a) All financial reports or information that are furnished to the
Lenders or Holders, or their respective director designees or other
representatives, pursuant to this Agreement or pursuant to the Debentures, the
other Loan Documents or the Subsidiary Documents shall be treated as
confidential unless and to the extent that such information has been otherwise
disclosed by Borrower, but nothing herein contained shall limit or impair the
Lenders' or Holders' right to disclose such reports to any appropriate
Governmental Authority, or to use such information to the extent pertinent to
an evaluation of the Obligation, or to enforce compliance with the terms and
conditions of this Agreement, or to take any lawful action which the Lenders or
Holders deem necessary to protect their respective interests under this
Agreement.
(b) The Lenders and the Agent shall use their reasonable efforts to
protect and preserve the confidentiality of such information, except for such
disclosure as shall be required for compliance by the Lenders or their
respective director designees with SEC reporting requirements or any
administrative or judicial proceeding or otherwise as a matter of law. The
provisions of Section 5.01 notwithstanding, Borrower may refuse to provide
information as required pursuant thereto to an assignee or successor in
interest to the Lenders, unless and until such assignee or successor shall have
executed an agreement to maintain the confidentiality of the information as
provided herein.
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Agreement (Continued)
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SECTION 12.10. BINDING EFFECT.
The Loan Documents shall be binding upon and inure to the benefit of
Borrower and the Lenders and their respective successors, assigns and legal
representatives; provided, however, that Borrower may not, without the prior
written consent of the Lenders, assign any rights, powers, duties or
obligations thereunder.
SECTION 12.11. NO THIRD PARTY BENEFICIARY.
The parties do not intend the benefits of this Agreement to inure to any
third party, nor shall this Agreement be construed to make or render the
Lenders liable to any materialman, supplier, contractor, subcontractor,
purchaser or lessee of any property owned by Borrower, or for debts or claims
accruing to any such persons against Borrower. Notwithstanding anything
contained herein, in the Debentures, in any other Loan Document or in any
Subsidiary Document, no conduct by any or all of the parties hereto, before or
after signing this Agreement, any other Loan Document nor any Subsidiary
Document, shall be construed as creating any right, claim or cause of action
against the Lenders, or any of their respective officers, directors, agents or
employees, in favor of any materialman, supplier, contractor, subcontractor,
purchaser or lessee of any property owned by Borrower, nor to any other person
or entity other than Borrower.
SECTION 12.12. ENTIRETY.
This Agreement and the Debentures, the other Loan Documents, the
Subsidiary Documents and any other documents or instruments issued or entered
into pursuant hereto and thereto contain the entire agreement between the
parties and supersede all prior agreements and understandings, written or oral
(if any), relating to the subject matter hereof and thereof.
SECTION 12.13. HEADINGS.
Section headings are for convenience of reference only and, except as a
means of identification of reference, shall in no way affect the interpretation
of this Agreement.
SECTION 12.14. SURVIVAL.
All representations and warranties made by Borrower herein shall survive
delivery of the Debentures and the making of the Loans.
SECTION 12.15. MULTIPLE COUNTERPARTS.
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same agreement, and any of
the parties hereto may execute this Agreement by signing any such counterpart.
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Agreement (Continued)
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SECTION 12.16. NOTICES.
(a) Any notices or other communications required or permitted to be
given by this Agreement or any other documents and instruments referred to
herein must be (i) given in writing and personally delivered, mailed by prepaid
certified or registered mail or sent by overnight service, such as Federal
Express, or (ii) made by telex or facsimile transmission delivered or
transmitted to the party to whom such notice or communication is directed, with
confirmation thereupon given in writing and personally delivered or mailed by
prepaid certified or registered mail.
(b) Any notice to be mailed, sent or personally delivered shall be
mailed or delivered to the principal offices of the party to whom such notice
is addressed, as that address is specified herein below. Any such notice or
other communication shall be deemed to have been given (whether actually
received or not) on the day it is mailed, postage prepaid, or sent by overnight
service or personally delivered or, if transmitted by telex or facsimile
transmission, on the day that such notice is transmitted; provided, however,
that any notice by telex or facsimile transmission, received by any Borrower or
the Lenders after 4:00 p.m., Standard Time, at the recipient's address, on any
day, shall be deemed to have been given on the next succeeding business day.
Any party may change its address for purposes of this Agreement by giving
notice of such change to the other parties.
If to Borrower to:
LifeQuest Medical, Inc.
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
210/495-8787
210/▇▇▇-▇▇▇▇ (fax)
with a copy to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fulbright & ▇▇▇▇▇▇▇▇ L.L.P.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
210/224-5575
210/▇▇▇-▇▇▇▇ (fax)
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Agreement (Continued)
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If to the Lenders to:
Renaissance Capital Growth & Income Fund III, Inc.
Renaissance US Growth & Income Trust PLC
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇-▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
214/891-8294
214/▇▇▇-▇▇▇▇ (fax)
with a copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
214/939-4906
214/▇▇▇-▇▇▇▇ (fax)
If to Agent to:
Renaissance Capital Group, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇-▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
214/891-8294
214/▇▇▇-▇▇▇▇ (fax)
with a copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
214/939-4906
214/▇▇▇-▇▇▇▇ (fax)
Any notice delivered personally in the manner provided herein will be
deemed given to the party to whom it is directed upon the party's (or its
agent's) actual receipt. Any notice addressed and mailed in the manner
provided here will be deemed given to the party to whom it is addressed at the
close of business, local time of the recipient, on the fourth business day
after the day it is placed in the mail, or, if earlier, the time of actual
receipt.
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Agreement (Continued)
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SECTION 12.17. GOVERNING LAW.
THIS LOAN AGREEMENT HAS BEEN PREPARED, IS BEING EXECUTED AND DELIVERED,
AND IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS, AND THE SUBSTANTIVE LAWS
OF SUCH STATE AND THE APPLICABLE FEDERAL LAWS OF THE UNITED STATES OF AMERICA
SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS
LOAN AGREEMENT.
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57
Agreement (Continued)
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IN WITNESS WHEREOF, the undersigned has caused this Agreement to be
executed and delivered, as of the date and year first above written.
BORROWER
LIFEQUEST MEDICAL, INC.
By:
------------------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President and Chief Executive Officer
LENDERS
RENAISSANCE US GROWTH & INCOME TRUST PLC
By:
------------------------------------------------------
Renaissance Capital Group, Inc., Investment Manager
By:
------------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Executive Vice President
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
By:
------------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President
AGENT
RENAISSANCE CAPITAL GROUP, INC.
By:
------------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Executive Vice President
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SCHEDULES TO CONVERTIBLE LOAN AGREEMENT
Schedule 2.08 Schedule of Brokers/Finders
Schedule 4.03 Schedule of Conflicts or Consents
Schedule 4.05 Schedule of Permitted Liens
Schedule 4.06 Schedule of Any Material Adverse Change
Schedule 4.08 Schedule of Material Agreements
Schedule 4.09 Schedule of Litigation
Schedule 4.10 Schedule of Unpaid Taxes
Schedule 4.11 Schedule of Capitalization
Schedule 4.13 Schedule of Employee Matters
Schedule 4.14 Schedule of Compliance with Laws Matters
Schedule 4.16 Schedule of Agreements between Borrower and any of its
officers, directors, and principal shareholders, including
employment agreements
Schedule 4.17 Schedule of Subsidiaries
Schedule 4.22 Schedule of Insurance
Schedule 4.23 Schedule of Licenses, Trademarks, Service Marks and
Copyrights
Schedule 4.24 Schedule of Real Property; Leases
Schedule 6.01 Schedule of Limitation on Indebtedness
Schedule 6.05 Schedule of Transactions with Affiliates
Schedule 7.01 Schedule of Financial Ratios
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SCHEDULE 7.01
FINANCIAL RATIOS
1. DEBT TO NET WORTH RATIO. Borrower agrees to maintain a Debt to Net
Worth Ratio of no greater than 1.8:1.
2. INTEREST EARNED RATIO. Borrower agrees to maintain an Interest Coverage
Ratio of at least .85:1.
3. DEBT COVERAGE RATIO. Borrower agrees to maintain Debt Coverage Ratio of
at least 5:1.
4. CURRENT RATIO. Borrower agrees to maintain a Current Ratio of at least
.10:1.