NOTE AND WARRANT PURCHASE AGREEMENT
DATED APRIL 26, 2002
BY AND AMONG
CONCEPTS DIRECT, INC.,
ST. CLOUD CAPITAL PARTNERS, LP,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
AND
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
TABLE OF CONTENTS
Page
1. AUTHORIZATION AND CLOSING 1
1.1 Authorization of the Securities 1
1.2 Purchase and Sale of the Securities 1
1.3 The Closing 1
1.4 Closing Fees and Expenses 2
2. DEFINITIONS 2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY 9
3.1 Organization; Good Standing; Qualification 9
3.2 Authorization; No Breach 9
3.3 Reservation of Common Stock 10
3.4 Capitalization and Related Matters 10
3.5 Subsidiaries; Investments 10
3.6 Consents 10
3.7 Contracts and Other Commitments 11
3.8 Absence of Certain Developments 12
3.9 Assets 13
3.10 Compliance with Laws 13
3.11 Litigation 13
3.12 Offering 14
3.13 Financial Information 14
3.14 Title, Liens and Encumbrances 15
3.15 Tax Returns and Tax Matters 15
3.16 Employee Matters 15
3.17 Insurance 15
3.18 Intellectual Property Rights 15
3.19 Product Warranty 16
3.20 Brokerage 16
3.21 Employee Benefits and Plans 16
3.22 Environmental and Safety Matters 18
3.23 Minute Books 19
3.24 Small Business Matters 19
3.25 Affiliated Transactions 20
3.26 Solvency, etc 20
3.27 Investment Company 20
3.28 Margin Regulations 21
3.29 Public Utility Holding Company Act 21
3.30 Disclosure 21
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS 21
4.1 Authorization 21
4.2 Purchase Entirely for Own Account 21
4.3 Reliance upon the Investors' Representations 22
4.4 Receipt of Information 22
4.5 Accredited Investor 22
5. CONDITIONS OF THE INVESTORS' OBLIGATIONS AT CLOSING 22
5.1 Representations and Warranties and Covenants;
No Event of Default 22
5.2 Qualifications and Approvals 22
5.3 Compliance with Applicable Laws 22
5.4 Other Assurances 23
5.5 Closing Documents 23
5.6 Insurance 24
5.7 No Material Adverse Change 24
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING 24
6.1 Representations and Warranties 24
6.2 Performance 24
6.3 Compliance with Applicable Laws 24
7. AFFIRMATIVE COVENANTS 25
7.1 Accounting Records 25
7.2 Financial Reporting and Notices 25
7.3 Access 26
7.4 Qualification to Do Business 27
7.5 Insurance 27
7.6 Taxes and Other Liabilities 27
7.7 Governmental Approvals and Requirements 27
7.8 Liens and Perfection 27
7.9 Change of Location 27
7.10 Compliance with Agreements and
Transaction Documents 28
7.11 Maintenance of Properties 28
7.12 Compliance With Applicable Laws 28
7.13 Mandatory Prepayment of the Notes 28
8. NEGATIVE COVENANTS 29
8.1 Restricted Payments 29
8.2 Indebtedness 29
8.3 Mergers and Sale of Assets 29
8.4 Liquidation, Dissolution, Reorganization 29
8.5 Disposition of Assets 29
8.6 Change of Name or Business 29
8.7 Accounting Policies 30
8.8 Liens 30
8.9 Loans by the Company; Cancellation of Debts 30
8.10 Loans to Officers or Directors 30
8.11 Investments 30
8.12 Agreements 30
8.13 Use of Proceeds 31
8.14 Organizational Documents 31
8.15 Intellectual Property 31
9. SBIC REGULATORY PROVISIONS 31
9.1 Use of Proceeds 31
9.2 Regulatory Violation 32
9.3 Regulatory Compliance Cooperation 32
9.4 Economic Impact Information 32
9.5 Sales to Securities to other SBIC Holders 33
9.6 Business Activity 33
9.7 Number of Stockholders 33
9.8 Compliance With Non-Discrimination
Requirements 33
10. EVENTS OF DEFAULT 33
10.1 Events of Default 33
10.2 Termination and Acceleration 35
11. MISCELLANEOUS 35
11.1 Expenses 35
11.2 Remedies 36
11.3 No Setoffs, etc 36
11.4 Payment Set Aside 36
11.5 Entire Agreement 37
11.6 Survival of Covenants 37
11.7 Survival of Warranties 37
11.8 Successors and Assigns 37
11.9 Confidentiality 38
11.10 Indemnification 38
11.11 Aggregation 39
11.12 Counterparts 39
11.13 Titles and Subtitles 39
11.14 Notices 39
11.15 Amendments and Waivers; Rights of Investors 40
11.16 Severability 40
11.17 Construction 40
11.18 Exculpation of Investors 41
11.19 Jurisdiction and Venue 41
11.20 Waiver of Right to Jury Trial 41
11.21 Limitation on Liability 41
Exhibit A - Form of Note
Exhibit B - Form of Security Agreement
Exhibit C - Form of Warrant
Exhibit D - Form of Investors' Rights Agreement
Exhibit E - Pro forma Projections of the Company
Exhibit F - Form of Opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇ LLP
Exhibit G - Schedule of Exceptions
CONCEPTS DIRECT, INC.
NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT (this
"Agreement") is made as of April 26, 2002, by and among CONCEPTS
DIRECT, INC., a Delaware corporation (the "Company"), ST. CLOUD
CAPITAL PARTNERS, LP, a Delaware limited partnership ("St.
Cloud"), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, an individual ("▇.▇▇▇▇▇▇"), and ▇▇▇▇▇
▇. ▇▇▇▇▇▇, an individual ("▇.▇▇▇▇▇▇" and together with ▇.▇▇▇▇▇▇,
referred to herein as "▇▇▇▇▇▇"). St. Cloud and ▇▇▇▇▇▇ are
together referred to herein as the "Investors" and individually as
an "Investor". ▇.▇▇▇▇▇▇ and ▇.▇▇▇▇▇▇ shall act jointly for all
purposes under this Agreement and the other Transaction Documents
and shall be considered one Investor.
THE PARTIES HERETO HEREBY AGREE AS FOLLOWS:
1. AUTHORIZATION AND CLOSING.
1.1 Authorization of the Securities. The Company has
authorized the issuance and sale to each Investor of (a) a 10.0%
Senior Secured Promissory Note in an aggregate principal amount of
Two Million Dollars ($2,000,000.00), in the form attached hereto
as Exhibit A (each, a "Note", and together the "Notes"), and
secured by that certain Security Agreement, by and among the
Company and the Investors, in the form attached hereto as Exhibit
B (the "Security Agreement") and (b) a Common Stock Purchase
Warrant, representing the right to acquire 275,000 shares of the
Company's common stock, par value $0.10 per share (the "Common
Stock"), subject to adjustment, in the form attached hereto as
Exhibit C (each, a "Warrant", and together the "Warrants"). The
Notes and the Warrants are sometimes collectively referred to
herein as the "Securities".
1.2 Purchase and Sale of the Securities. On the Closing Date (as
defined below), the Company shall sell to each Investor and,
subject to the terms and conditions set forth herein, each
Investor shall purchase from the Company a Note and Warrant for a
purchase price equal to Two Million Dollars ($2,000,000.00) . The
Company and each Investor, having adverse interests and as a
result of arm's length bargaining, agree that: (a) none of the
Investors nor any of their affiliated companies has rendered any
services to the Company in connection with this Agreement, (b) the
Warrants are not being issued as compensation, (c) the fair market
value of each Note, if issued apart from each Warrant, is equal to
One Million Four Hundred Sixty Six Thousand Five Hundred Dollars
($1,466,500.00), and the fair market value of each Warrant, if
issued apart from each Note, is equal to Five Hundred Thirty Three
Thousand and Five Hundred Dollars ($533,500.00), (d) Twenty Four
Thousand Seven Hundred Fifty Dollars ($24,750.00) of the Two
Million Dollar ($2,000,000.00) purchase price paid by each
Investor is an advance payment of $0.09 per share underlying the
Warrants with respect to the exercise price per share of the
Warrants, and (e) all Tax Returns and other information returns of
each party relative to this Agreement, the Notes, and the Warrants
issued pursuant hereto shall consistently reflect the matters
agreed to in (a) through (d) above.
1.3 The Closing. The closing of the purchase and sale of the
Securities (the "Closing") shall take place at the offices of
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇,
on the Closing Date, or at such other place as may be mutually
agreeable to the Company and the Investors. At the Closing, the
Company shall deliver to each Investor a Note and a Warrant, the
Security Agreement and the Investors' Rights Agreement (as defined
below). At the Closing, each Investor shall pay the Company an
amount equal to Two Million Dollars ($2,000,000.00) for such
Investor's Note and Warrant by wire transfer of immediately
available funds, to an account designated by the Company.
1.4 Closing Fees and Expenses. At the Closing, the Company
shall pay to each Investor a closing fee in the aggregate amount
of Thirty Thousand Dollars ($30,000.00) and reimburse each
Investor for fees and expenses as provided in Section 11.1 hereto
(to the extent such fees and payments are known as of the Closing
Date). The Investors may offset amounts owed to them pursuant to
this Section 1.4 from the purchase price being paid by such
Investor pursuant to Section 1.3.
2. DEFINITIONS. Except as otherwise expressly provided or
unless the context otherwise requires, the terms defined in this
Section 2 shall, for all purposes of this Agreement, have the
meanings herein specified, the following definitions being equally
applicable to the singular and plural forms of any of the terms
herein defined:
" Action" shall mean any action, arbitration,
audit, demand, claim, complaint, dispute, hearing, inquiry,
investigation, litigation, prosecution or suit (whether civil,
criminal, administrative, governmental, judicial or investigative,
whether formal or informal, whether public or private).
"Affiliate" shall mean, when used with reference to any
specified Person, any other Person directly or indirectly
controlling, controlled by, or under direct or indirect common
control with, such specified Person. For the purposes of this
definition, "control," when used with respect to any specified
Person, means the power to direct or cause the direction of
management or policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have
meanings correlative of the foregoing.
"Agreement" shall mean this Note and Warrant Purchase
Agreement by and among the Company and the Investors (including
the exhibits attached hereto), as originally executed or as it may
from time to time be supplemented, modified or amended as provided
herein.
"Board" shall mean the Board of Directors of the Company.
"Business" shall have the meaning set forth in Section
3.24(b) hereof.
"Business Day" shall mean a day other than a Saturday,
Sunday or any other day on which commercial banks in Los Angeles,
California are required or authorized to be closed.
"Capitalized Lease Obligations" shall mean the amount of
the liability reflecting the aggregate discounted amount of future
payments under all Capitalized Leases calculated in accordance
with GAAP consistently applied and Statement of Financial
Accounting Standards No. 13.
"CERCLA" shall have the meaning set forth in Section 3.22
hereof.
"Cessation Date" shall have the meaning set forth in
Section 11.6 hereof.
"Change of Control" shall mean: (a) any sale, transfer or
issuance or series of sales or issuances of the Company's capital
stock by the Company or any holder or holders thereof, or any
merger, consolidation or other transaction involving the Company
where the stockholders of the Company immediately prior to such
event do not retain more than a fifty percent (50%) voting power
or interest in the Company or the successor corporation or other
entity, as the case may be, (b) any sale of all or substantially
all of the assets of Company on a consolidated basis, (c) after
the Closing, any Person or group of Persons (within the meaning of
Section 13 or 14 of the Securities Exchange Act of 1934, shall
acquire beneficial ownership (within the meaning of Rule 13d-3
promulgated under such Act) of more than twenty-five percent (25%)
of the outstanding securities (on a fully diluted basis and taking
into account any securities or contract rights exercisable,
exchangeable or convertible into equity securities) of the Company
having voting rights in the election of directors under normal
circumstances, or (d) a majority of the members of the Board shall
cease to be Continuing Members (as defined below). For purposes
of the foregoing, "Continuing Members" shall mean a member of the
Board who either (i) was a member of the Board on the day before
the Closing or (ii) became a member of the Board after the day
before the Closing and whose election or nomination for election
was approved by a vote of the majority of the Continuing Members
then members of the Board.
"Closing" shall have the meaning set forth in Section 1.3
hereof.
"Closing Date" shall mean April 26, 2002, or such other
date as the Company and Investors shall mutually agree upon.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and the regulations issued thereunder.
"Collateral" shall have the meaning set forth in the
Security Documents.
"Collateral Agent" shall have the meaning set forth in the
Security Agreement.
"Common Stock" shall have the meaning set forth in Section
1.1 hereof.
"Company" shall have the meaning set forth in the preamble
hereof.
"Company Benefit Plan" shall have the meaning set forth in
Section 3.21(a) hereof.
"Confidential Information" shall have the meaning set
forth in Section 11.9 hereof.
"Environmental and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, rules,
ordinances, and similar provisions having the force or effect of
law, all judicial and administrative orders, judgments,
directives, and determinations, all regulatory policy or guidance,
all contractual obligations, permits, licenses and all common law,
in each case concerning public health and safety, worker health
and safety and pollution or protection of the environment
(including, without limitation, all those relating to the
presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control or
cleanup of any hazardous or otherwise regulated materials,
substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or
radiation), each as amended and as now or hereafter in effect.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974 (or any successor legislation thereto), as amended
from time to time and any regulations promulgated thereunder.
"ERISA Affiliates" shall have the meaning set forth in
Section 3.21(a) hereof.
"Event of Default" shall have the meaning set forth in
Section 10.1 hereof.
"Financing" shall mean the purchase of the Securities by
the Investors hereunder.
"GAAP" shall mean United States generally accepted
accounting principles in effect from time to time applied
consistently throughout the period involved.
"Indebtedness" of a Person shall mean (a) any obligation
of such Person for borrowed money, (b) any obligation of such
Person evidenced by bonds, debentures, notes or other similar
instruments, (c) any obligation of such Person to pay the deferred
purchase price of property or for services (other than trade
payables in the ordinary course of business), (d) any Capitalized
Lease Obligation or synthetic lease obligation of such Person, (e)
any obligation or liability of others secured by a lien on any
asset of such Person, whether or not such obligation or liability
is assumed, (f) any guarantee or indemnity with respect to the
indebtedness, obligations or liability of another Person (other
than those incurred in the ordinary course of business), (g)
indebtedness of such Person consisting of reimbursement
obligations under letters of credit issued for the account of such
person, (h) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect
to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event
of default are limited to repossession or sale of such Property),
(i) all obligations of such Person, contingent or otherwise, to
purchase, redeem, retire or otherwise acquire for value any
capital stock of such Person, (j) all obligations of such Person
in respect of hedge agreements, swap agreements and similar
agreements and (k) the liquidation value of any mandatorily
redeemable preferred capital stock of such Person or any of its
Subsidiaries held by any Person other than such Person and its
wholly owned Subsidiaries.
"Indemnitees" shall have the meaning set forth in Section
11.10 hereof.
"Intellectual Property Contracts" shall mean all contracts
and agreements relating to the Intellectual Property Rights (as
defined below) to which the Company is a party or by which the
Company is bound, including without limitation assignment, royalty
and license agreements.
"Intellectual Property Rights" shall mean any and all
rights in or affecting intellectual or industrial property or
other proprietary rights owned or used by the Company, existing
now or in the future in the United States or anywhere in the
universe, including without limitation any and all rights in, to,
or subsisting in the following: (a) patents, patent applications,
patent disclosures and inventions, including all reissues,
continuations, continuations-in-part, divisions, renewals and
extensions of patents; (b) trademarks, service marks, trade dress,
trade names, slogans, Internet domain names, vanity telephone
numbers, logos and corporate names, including all registrations,
applications for registration and renewals thereof, together with
all of the goodwill associated therewith; (c) copyrights,
copyrightable works and original works of authorship, including
all registrations, applications for registration and renewals
thereof; (d) computer software, data, data bases and Internet
websites, and all documentation relating thereto; (e) trade
secrets and other confidential information (including, without
limitation, ideas, formulas, compositions, inventions (whether
patentable or unpatentable and whether or not reduced to
practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data,
financial and marketing plans and customer and supplier lists and
information); (f) copies and tangible embodiments thereof (in
whatever form or medium); (g) licenses (under which the applicable
Person is licensor or licensee) relating to any of the foregoing
and (h) all other intangible assets, properties and rights,
together with all other interests accruing by reason of
international conventions and treaties, including without
limitation all claims, causes of action and rights to ▇▇▇ for
past, present and future infringement or unconsented use of any of
the Intellectual Property Rights, the righ t to file applications
and obtain registrations, and all products, proceeds and revenues
arising from or relating to any and all of the foregoing.
"Investment" as applied to any Person shall mean (a) any
direct or indirect purchase or other acquisition by such Person of
any notes, obligations, instruments, stock, securities or
ownership interest (including partnership interests, membership
interests and joint venture interests) of any other Person and (b)
any capital contribution by such Person to any other Person.
"Investor" or "Investors" shall have the meaning set forth
in the preamble hereof.
"Investors' Rights Agreement" shall mean that certain
Investors' Rights Agreement, to be entered into at the Closing by
and among the Company and the Investors, as originally executed or
as it may from time to time be supplemented, modified or amended,
in the form attached hereto as Exhibit D.
"IRS" shall the Internal Revenue Service.
"Liabilities" shall have the meaning set forth in Section
11.10 hereof.
"Lien" shall mean any interest in property securing an
obligation, whether such interest is based on common law, statute
or contract, and including but not limited to any security
interest or lien arising from a mortgage, encumbrance, pledge,
charge, easement, servitude, security agreement, conditional sale
or trust receipt or a lease, consignment or bailment for security
purposes.
"Material Adverse Change" shall mean a material adverse
change in (a) the business, assets, operations, prospects or
financial condition of the Company, (b) the ability of the Company
to pay the Obligations in accordance with their terms, or (c) the
Liens of the Investors on the Collateral or the priority of such
Liens.
"Material Adverse Effect" shall mean a material adverse
effect on (a) the business, assets, operations, prospects or
financial condition of the Company, (b) the ability of the Company
to pay the Obligations in accordance with their terms, or (c) the
Liens of the Investors on the Collateral or the priority of such
Liens.
"Mortgage" shall mean that certain Deed of Trust to Public
Trustee, Security Agreement and Financing Statement, dated as of
the Closing Date, executed by the Company in favor of the
Investors.
"Multiemployer Plan" shall have the meaning set forth in
Section 3.21(d) hereof.
"Net Proceeds" shall have the meaning set forth in Section
7.13(a) hereof.
"Note" shall have the meaning set forth in Section 1.1
hereof.
"Obligations" shall mean all loans, advances, debts,
liabilities, obligations, covenants and duties owing to any
Investor by the Company of any kind or nature, present or future,
whether or not evidenced by any note, guaranty or other
instrument, arising under this Agreement, the Notes or the
Security Documents, whether or not for the payment of money,
arising by reason of an extension of credit, absolute or
contingent, due or to become due, now existing or hereafter
arising, including all principal, interest, charges, expenses,
fees, attorneys' fees and disbursements and any other sum
chargeable to the Company under this Agreement or any other
Transaction Document.
"Operating Lease" shall mean for any Person any lease of
property which would not be classified as a Capitalized Lease
under GAAP consistently applied, other than a lease under which
such Person is the lessor.
"Other Assurances" shall mean any agreement, instrument,
conveyance, mortgage, pledge, hypothecation or other document
executed and delivered (or to be executed and delivered) pursuant
to Section 5.4 hereof (as amended, modified or supplemented from
time to time).
"Pension Plan" shall have the meaning set forth in Section
3.21(d) hereof.
"Permitted Liens" shall mean: (a) the Liens created under the
Security Documents, (b) landlords', suppliers', Tax, assessment,
governmental and other like liens and charges arising in the
ordinary course of business securing obligations that are not
incurred in connection with the obtaining of any advance or credit
and which are not overdue, or are being contested in good faith by
appropriate proceedings, provided that, in accordance with GAAP,
adequate reserves have been set aside on the books of the Company
for the eventual payment thereof in the event it is determined
that such obligations are payable by the Company, (c) Liens
arising in connection with worker's compensation, unemployment
insurance, appeal and release bonds and progress payments under
government contracts, (d) any "banker's lien" or similar right of
offset, (e) any Lien arising in connection with a Capitalized
Lease Obligation permitted hereunder on the asset which is the
subject of the related lease, (f) Liens of mechanics, materialmen,
warehousemen or carriers, and other like liens, securing
obligations incurred in the ordinary course of business that are
not yet due and payable, and (g) Liens for any Taxes, or other
governmental charges, either not delinquent or secured by a bond
reasonably acceptable to each Investor or not yet due and being
contested in good faith and by appropriate proceedings, so long as
(i) such proceedings could not reasonably be expected to result in
the sale, forfeiture or loss of the Collateral or have a Material
Adverse Effect on the Company, or (ii) a bond or other security
acceptable to the Collateral Agent, which acceptance may be
withheld in the Collateral Agent's sole and absolute discretion,
has been posted or provided in such manner and amount as to assure
the Collateral Agent that any amounts determined to be due will be
promptly paid in full when such contest is determined. "Person"
shall mean any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization,
labor union, or other entity or governmental body.
"Potential Event of Default" shall mean any event or
occurrence which with the passage of time or the giving of notice
or both would constitute an Event of Default.
"Real Estate Transfer" shall have the meaning set forth in
Section 7.13 hereof.
"Regulatory Problem" shall mean any transaction,
circumstance or situation whereby (a) a Person and such Person's
Affiliates would own, control or have power over a quantity of
securities of any kind issued by the Company or any other entity
greater than is permitted under any requirement of any
governmental authority, or (b) it has been asserted by any
governmental regulatory agency, or such Person believes, that such
Person and its Affiliates are not entitled to hold, or exercise
any significant right under or with respect to, the Notes, the
Warrants, or the Underlying Common Stock held by such Person.
"Regulatory Violation" shall mean, with respect to
any SBIC Holder providing Financing under this Agreement, (a) a
diversion of the proceeds of such Financing from the use reported
thereof on the SBA Form 1031 delivered at the Closing, if such
diversion was effected without obtaining the prior written consent
of the SBIC Holder (which may be withheld in its sole discretion)
or (b) a change in the principal business activity of the Company
to an ineligible business activity (within the meaning of the SBIC
Regulations) if such change occurs within one year after the date
of the initial Financing hereunder.
"Release" shall have the meaning set forth in CERCLA.
"Restricted Payment" shall mean (a)
any dividend or other distribution declared or paid by the Company
on any of the shares now or hereafter outstanding of the capital
stock of the Company or return of capital to its stockholders as
such; and (b) any purchase or other acquisition for value by the
Company of (i) any shares of the capital stock of the Company
(except shares acquired solely upon the conversion thereof into
other shares of its capital stock) or (ii) any security
convertible into, or any option, warrant or other right to
acquire, shares of the capital stock of the Company.
"SBA" shall mean the United States Small Business
Administration.
"SBIC" shall mean a small business investment company
licensed under the SBIC Act.
"SBIC Act" shall mean the Small Business Investment Act of
1958, as amended.
"SBIC Holder" shall mean St. Cloud and any other
holder of Notes or Underlying Common Stock which is an SBIC.
"SBIC Regulations" shall mean the Small Business
Investment Company Act of 1958, as amended, and the regulations
issued by the SBA thereunder, codified at Title 13 of the Code of
Federal Regulations ("13 CFR"), 107 and 121, as amended.
"Securities" shall have the meaning set forth in Section
1.1 hereof.
"Securities Act" shall have the meaning set forth in
Section 3.6 hereof.
"Securities and Exchange Commission" shall include any
governmental body or agency succeeding to the functions thereof.
"Security Agreement" shall have the meaning set forth in
Section 1.1 hereof.
"Security Documents" shall mean the Security Agreement,
the Mortgage and the Other Assurances.
"Subsidiary" shall mean, with respect to any Person, any
corporation, limited liability company, partnership, association
or other business entity of which (a) if a corporation, a majority
of the total voting power of shares of stock entitled (without
regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by that Person or one
or more of the other Subsidiaries of that Person or a combination
thereof, or (b) if a limited liability company, partnership,
association or other business entity, a majority of the
partnership or other similar ownership interest thereof is at the
time owned or controlled, directly or indirectly, by any Person or
one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a
majority ownership interest in a limited liability company,
partnership, association or other business entity if such Person
or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains
or losses or shall be or control (or have the power to be or
control) a managing director, manager or general partner of such
limited liability company, partnership, association or other
business entity.
"Taxes" shall mean any tax, duty, fee, assessment or
charge of any nature whatsoever imposed by any taxing authority
(including, without limitation, any gross or net income, gross or
net receipts, franchise, sales, use, ad valorem, asset, value
added, stamp, transfer, franchise, withholding, payroll,
employment, profit sharing, capital, corporation, excise,
occupation or property taxes), together with any and all
penalties, fines, additions to tax or interest thereon.
"Tax Return" shall mean any return, information report or
filing with respect to Taxes, including any schedules attached
thereto and including any amendment thereof.
"Transaction Documents" shall mean this Agreement, the
Notes, the Warrants, the Security Documents and the Investors'
Rights Agreement.
"Underlying Common Stock" shall mean (a) the Common Stock
issued or issuable upon exercise of the Warrants and (b) any
Common Stock issued or issuable with respect to the securities
referred to in clause (a) above by way of stock dividend or stock
split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
"Warrant" shall have the meaning set forth in Section 1.1
hereof.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. As a
material inducement to the Investors to enter into this Agreement
and purchase the Securities hereunder, the Company hereby
represents and warrants to each Investor that each of the
following statements are true, complete and correct as of the date
of this Agreement and will be true, complete and correct as of the
Closing after giving effect the other transactions contemplated by
the Transaction Documents to occur on the date of the Closing:
3.1 Organization; Good Standing; Qualification . The Company
is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, has all
requisite corporate power and authority to own and operate its
properties and assets and to carry on its business as now
conducted and as proposed to be conducted, to execute and deliver
the Transaction Documents, to issue the Securities and to carry
out the provisions of the Transaction Documents. Except where
failure to so qualify would not have a Material Adverse Effect,
the Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction listed on
Schedule 3.1, being all the jurisdictions in which the character
of its properties owned or leased or the nature of its activities
make such qualification necessary.
3.2 Authorization; No Breach. The execution, delivery
and performance of each of the Transaction Documents and all other
agreements and instruments contemplated hereby and thereby to
which the Company is a party have been duly authorized by the
Company. Each of the Transaction Documents, the Company's
Certificate of Incorporation and all other agreements and
instruments contemplated hereby and thereby to which the Company
is a party constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms. The execution
and delivery by the Company of each of the Transaction Documents
and all other agreements and instruments contemplated hereby and
thereby to which it is a party, the offering, sale and issuance of
the Securities hereunder, the issuance of the Underlying Common
Stock and the fulfillment of and compliance with the respective
terms hereof and thereof by the Company, do not and shall not (a)
conflict with or result in a breach of the terms, conditions or
provisions of, (b) constitute a default under, (c) result in the
creation of any Lien upon the Company's capital stock or assets
pursuant to, (d) give any third party the right to modify,
terminate or accelerate any obligation under, (e) result in a
violation of, or (f) require any authorization, consent, approval,
exemption or other action by or notice or declaration to, or
filing with, any court or administrative or governmental body or
agency pursuant to, the charter or bylaws of the Company, or any
law, statute, rule or regulation to which the Company is subject
(including any usury laws applicable to the Note), or any
agreement, instrument, order, judgment or decree to which the
Company is subject.
3.3 Reservation of Common Stock. The Underlying Common
Stock has been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Warrants and the
Company's Certificate of Incorporation, will be duly and validly
issued, fully paid and nonassessable, and will be free of
restrictions on transfer other than restrictions on transfer under
applicable state and federal securities laws.
3.4 Capitalization and Related Matters.
(a) The authorized capital of the Company consists, or
will consist prior to the Closing, of 7,500,000 shares of Common
Stock, 4,923,538 shares of which are issued and outstanding.
(b) Except as set forth on Schedule 3.4,
the Company does not have outstanding any stock or securities
convertible or exchangeable for any shares of its capital stock or
containing any profit participation features, or has outstanding
any rights or options to subscribe for or to purchase its capital
stock or any stock or securities convertible into or exchangeable
for its capital stock or any stock appreciation rights or phantom
stock plans, except for the Warrants. The Company is not subject
to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of its capital stock or any
warrants, options or other rights to acquire its capital stock.
All of the outstanding shares of the Company's capital stock are
validly issued, fully paid and nonassessable and the Underlying
Common Stock will, when issued, be duly authorized and validly
issued, fully paid and nonassessable.
(c) The Company is not obligated to register under the
Securities Act any of its presently outstanding securities or any
of its securities that may subsequently be issued (other than the
Underlying Common Stock).
3.5 Subsidiaries; Investments. Except as set forth on
Schedule 3.5, the Company does not have any Subsidiaries. The
Company has no direct or indirect stock or other equity or
ownership interest (whether controlling or not) in any
corporation, association, partnership, limited liability company,
joint venture or other entity.
3.6 Consents. Except as set forth on Schedule 3.6, no
consent, approval, qualification, order or authorization of, or
filing with, any Person, or any local, state, federal or foreign
governmental authority is required on the part of the Company in
connection with the Company's valid execution, delivery or
performance of this Agreement or the other Transaction Documents,
the issuance of the Securities contemplated by this Agreement or
the issuance of the Underlying Common Stock except (a) such
filings as have been made prior to the Closing and (b) any notices
of sale required to be filed with the Securities and Exchange
Commission under Regulation D of the Securities Act of 1933, as
amended (the "Securities Act") and such post-closing filings as
may be required under applicable state securities laws, which will
be timely filed within the applicable periods therefor.
3.7 Contracts and Other Commitments.
(a) Except as expressly contemplated by this Agreement or
as set forth on Schedule 3.7, the Company is not a party to or
bound by any written or oral:
(i) pension, profit sharing, stock option, employee
stock purchase or other plan or arrangement providing for
deferred or other compensation to employees or any other
employee benefit plan or arrangement, or any collective
bargaining agreement or any other contract with any labor
union, or severance agreements, programs, policies or
arrangements;
(ii) contract for the employment of any officer,
individual employee or other Person on a full-time,
part-time, consulting or other basis providing annual
compensation in excess of $50,000 or contract relating to
loans to officers, directors or Affiliates;
(iii) contract under which the Company has advanced or
loaned any other Person amounts in the aggregate exceeding
$50,000;
(iv) agreement or indenture relating to borrowed money
or other Indebtedness or the mortgaging, pledging or
otherwise placing a Lien on any material asset or material
group of assets of the Company;
(v) guarantee of any obligation in excess of $50,000
(other than checks and other instruments endorsed in the
ordinary course of business);
(vi) lease or agreement under which the Company is
lessee or lessor of any property, real or personal, except
for any lease of real or personal property under which the
aggregate annual rental payments do not exceed $50,000;
(vii) Intellectual Property Contracts;
(viii) warranty agreement with respect to its services
rendered or its products sold or leased;
(ix) agreement under which it has granted any Person
any registration rights (including demand and piggyback
registration rights);
(x) sales, distribution or franchise agreement;
(xi) material agreement with a term of more than six
(6) months which is not terminable by the Company upon
less than thirty (30) days notice without penalty; or
(xii) contract or agreement prohibiting it from freely
engaging in any business or competing anywhere in the
world.
(b) All of the contracts, agreements and instruments set
forth on Schedule 3.7 are valid, binding and enforceable by the
Company and against any other party thereto, in each case in
accordance with their respective terms. The Company has performed
all material obligations required to be performed by them and are
not in default under or in breach of nor in receipt of any claim
of default or breach under any material contract, agreement or
instrument to which the Company is subject; no event has occurred
which with the passage of time or the giving of notice or both
would result in a default, breach or event of noncompliance by the
Company under any material contract, agreement or instrument to
which the Company is subject; the Company does not have any
present expectation or intention of not fully performing all such
obligations; the Company does not have knowledge of any breach or
anticipated breach by the other parties to any material contract,
agreement, instrument or commitment to which it is a party; the
Company has not delivered or received written notice or oral
notice to an officer of, or has knowledge that any other party
intends to deliver any notice of, termination or non-renewal of
term under any material contract, agreement or instrument to which
the Company is subject.
3.8 Absence of Certain Developments.
(a) Except as expressly contemplated by this Agreement or
as set forth on Schedule 3.8, since December 31, 2001, the Company
has not:
(i) issued any notes, bonds or other debt securities
or any capital stock or other equity securities or any
securities convertible, exchangeable or exercisable into
any capital stock or other equity securities;
(ii) borrowed any amount or incurred or become subject
to any liabilities, except current liabilities incurred in
the ordinary course of business and liabilities under
contracts entered into in the ordinary course of business;
(iii) discharged or satisfied any Lien or paid any
obligation or liability, other than current liabilities
paid in the ordinary course of business;
(iv) declared or made any payment or distribution of
cash or other property to its stockholders with respect to
its capital stock or other equity securities or purchased
or redeemed any shares of its capital stock or other
equity securities (including any warrants, options or
other rights to acquire its capital stock or other equity
securities);
(v) mortgaged or pledged any of its properties or
assets or subjected them to any Lien, except Liens for
current property taxes not yet due and payable;
(vi) sold, assigned or transferred any of its tangible
assets, except in the ordinary course of business, or
canceled any debts or claims;
(vii) sold, assigned or transferred any Intellectual
Property Rights or other intangible assets;
(viii) suffered any extraordinary losses or waived any
rights of value, whether or not in the ordinary course of
business or consistent with past practice;
(ix) made capital expenditures or commitments therefor
that aggregate in excess of $150,000;
(x) made any loans or advances to, guarantees for the
benefit of, or any Investments in, any Persons in excess
of $50,000 in the aggregate;
(xi) suffered any damage, destruction or casualty loss
exceeding in the aggregate $50,000, whether or not covered
by insurance;
(xii) failed to pay or satisfy when due any
liabilities, except where the failure would not have a
Material Adverse Effect;
(xiii) changed its accounting methods, principles or
practices or increased or changed any assumption
underlying or methods of calculating any doubtful account
contingency or other reserves;
(xiv) reevaluated any of its assets, including without
limitation, writing down the value of inventory or writing
off notes or accounts receivable other than in the
ordinary course of business;
(xv) incurred any liabilities other than in the
ordinary course of business
(xvi) made any Investment in or taken steps to
incorporate any Subsidiary; or agreed to do any of the
foregoing.
3.9 Assets. The Company has good and marketable title to, or
a valid leasehold interest in, the material properties and assets
used by them, free and clear of all Liens, except for Permitted
Liens and except for properties and assets disposed of in the
ordinary course of business. The buildings, equipment and other
tangible assets of the Company are in good operating condition
(ordinary wear and tear excepted) and are fit for use in the
ordinary course of business. The Company owns, or has a valid
leasehold interest in, all assets necessary for the conduct of its
business as presently conducted and as presently proposed to be
conducted and as conducted by the Company for the past twelve (12)
months.
3.10 Compliance with Laws. The Company has not violated
and the Company is in compliance in all material respects with all
laws, governmental regulations and governmental requirements. The
Company has not received any notice of any such violation.
3.11 Litigation. Except as set forth on Schedule 3.11,
there is no action, suit, Tax claim, proceeding or investigation
pending or, to the Company's knowledge, currently threatened (a)
against the Company, (b) that questions the validity of the
Transaction Documents or the right of the Company to enter into
the Transaction Documents, or to consummate the transactions
contemplated hereby and thereby, or (c) that might result, either
individually or in the aggregate, in any Material Adverse Change,
or in any material change in the current equity ownership of the
Company. The Company is not aware that there is any basis for any
of the foregoing. The foregoing includes, without limitation,
actions, suits, claims, proceedings or investigations pending or
threatened involving the prior employment of any of the employees
of the Company, its use in connection with the business of the
Company of any information or techniques allegedly proprietary to
any of its former employers, or its obligations under any
agreements with prior employers. The Company is not a party or
subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality.
There is no action, suit, proceeding or investigation by the
Company currently pending or that the Company intends to initiate.
3.12 Offering. Assuming the truth and accuracy of the
representations and warranties of the Investors contained in this
Agreement, the offer, sale and issuance of the Securities as
contemplated by this Agreement and the Underlying Common Stock
are, or will be, exempt from the registration and prospectus
delivery requirements of the Securities Act, and are, or will be,
exempt from registration or qualification under the registration,
permit or qualification requirements of all applicable state
securities laws. Neither the Company nor any authorized agent
acting on its behalf has solicited or will solicit any offers to
sell or has offered to sell or will offer to sell all or any part
of the Securities to any Person or Persons so as to bring the sale
of such Securities by the Company within the registration
provisions of the Securities Act or any state securities laws.
3.13 Financial Information.
(a) Financial Statements. The audited financial
statements of the Company dated as of December 31, 2001, copies of
which have been furnished to the Investors, have been prepared by
the Company in accordance with GAAP, and they contain no material
misstatement or omission and fairly and accurately present the
financial position, assets and liabilities of the Company, as of
the respective dates thereof and the results of operations of the
Company. The Company has no material liabilities or obligations,
absolute, contingent or otherwise, other than (a) liabilities
incurred in the ordinary course of business subsequent to December
31, 2001 and (b) obligations under contracts and commitments
incurred in the ordinary course of business and not required under
GAAP to be reflected in such financial statements, which, in both
cases, individually or in the aggregate, are not material to the
financial condition, operations or prospects of the Company. The
Company is not a guarantor or indemnitor of any Indebtedness or
obligation of any other person, firm, or corporation.
(b) Projections. Attached hereto as Exhibit E is a true
and complete copy of the latest pro forma projections of the
consolidated income and cash flows of the Company for the fiscal
years ending December 31, 2002 through December 31, 2004. Such
projections are based on underlying assumptions of the Company
which provide a reasonable basis for the projections contained
therein. Such projections have been prepared on the basis of the
assumptions set forth therein, which the Company reasonably
believes are fair and reasonable in light of the historical
financial performance of the Company and of current and reasonably
foreseeable business conditions and reflect the reasonable
estimate of the Company of the results of operations and other
information projected therein. However, the Company makes no
warranty that the projections will be met or exceeded.
3.14 Title, Liens and Encumbrances. Except for the
Permitted Liens, the Company has good and marketable title to and
possession of all of the Collateral, free and clear of all Liens.
Except for the Permitted Liens, the Company has not granted and
will not grant any Liens on the Collateral which would preclude
the Investors from obtaining a first priority Lien on the
Collateral.
3.15 Tax Returns and Tax Matters. The Company has
timely filed all Tax Returns which are required to be filed, and
all such Tax Returns are true, correct and complete in all
material respects. The Company has paid all Taxes which are
payable and due. There is no proposed, asserted or assessed Tax
deficiency against the Company, where any such deficiency or all
such deficiencies, considered in the aggregate, could have a
Material Adverse Effect. The Company has not received written
notice from any taxing authority in a jurisdiction in which such
entity does not file a Tax Return stating that such entity is or
may be subject to taxation by that jurisdiction.
3.16 Employee Matters. The Company is not aware that any
executive or key employee of the Company or any group of employees
of the Company has any plans to terminate employment with the
Company. The Company has complied in all material respects with
all laws relating to the employment of labor (including provisions
thereof relating to wages, hours, equal opportunity, collective
bargaining and the payment of social security and other Taxes),
and the Company does not have any material labor relations
problems (including any union organization activities, threatened
or actual strikes or work stoppages or material grievances).
Neither the Company nor any of its employees is subject to any
noncompete, nondisclosure, confidentiality, employment, consulting
or similar agreements relating to, affecting or in conflict with
the present or proposed business activities of the Company.
3.17 Insurance. Schedule 3.17 contains a complete and
accurate list of all policies or binders of fire, liability,
title, worker's compensation, directors and officers, product
liability (which list shall be from January 1, 2001) and other
forms of insurance (showing as to each policy or binder the
carrier, policy number, coverage limits, expiration dates, a
general description of the type of coverage provided) maintained
by the Company. The Company and maintains insurance with insurers
duly licensed in the applicable jurisdictions, in such amounts and
against such risks and losses as are reasonable and customary for
its business and properties. All such insurance is in full force
and effect and all premiums with respect thereto have been paid to
the date hereof or paid in accordance with payment schedules
previously applicable thereto. There is no default under any such
coverage nor has there been any failure to give notice or present
any claim under any such coverage in a due and timely fashion.
There are no outstanding unpaid premiums except in the ordinary
course of business and no notice of cancellation or nonrenewal of
any such coverage has been received.
3.18 Intellectual Property Rights .
(a) Schedule 3.18(a) sets forth a list of all material
Intellectual Property Rights and a list of all jurisdictions where
the Intellectual Property Rights are registered or protected or
where applications have been filed, together with all patent,
registration and applications numbers. Except as set forth on
Schedule 3.18(a), the Company owns exclusively and has the
exclusive and unrestricted right to use, or, the case of licensed
rights, has valid rights to use, these material Intellectual
Property Rights, free and clear of all Liens (other than Permitted
Liens). No other intellectual property or other right is
necessary for the conduct of the business of the Company as
presently conducted or as proposed to be conducted. The
consummation of the transactions contemplated hereby will not
result in the loss or impairment of any of the material
Intellectual Property Rights, or any right pertaining thereto.
Schedule 3.18(a) also contains a list of all material Intellectual
Property Contracts, in each case identifying the subject
Intellectual Property Rights. The Company has taken all
reasonable (i) actions to maintain and protect these material
Intellectual Property Rights which it owns and (ii) precautions
and security measures to protect the secrecy, confidentiality and
value of its trade secrets. The Company is in compliance in all
material respects with the terms of its website privacy policies
and user agreements/terms of use.
(b) Except as set forth in Schedule 3.18(b), (i) the
material Intellectual Property Rights, and the business of the
Company (as presently and proposed to be conducted) do not
infringe upon, violate or misappropriate the rights of any Person,
(ii) the material Intellectual Property Rights (including the
validity and title thereto) have not been questioned in or the
subject of any prior Action, are not being questioned in or the
subject of any pending Action, and, to the knowledge of the
Company, are not the subject of any threatened or proposed Action,
(iii) the Company is not aware any infringement or unauthorized
use by any Person of any of the material Intellectual Property
Rights, (iv) the Company has not granted any sublicense or similar
right with respect to any material Intellectual Property Contract,
and (v) there are no outstanding and, to the knowledge of the
Company, no threatened disputes or disagreements with respect to
any material Intellectual Property Contract. For purposes of
this Section 3.18, a material Intellectual Property Contract shall
mean an Intellectual Property Contract pursuant to which the
underlying Intellectual Property generates revenues to the Company
in excess of $50,000 per year or involves obligations in excess of
$50,000.
3.19 Product Warranty. All products manufactured by the
Company have in all material respects been manufactured in
conformity with all applicable contractual commitments and all
express or implied warranties. No such products contain any
latent design defect.
3.20 Brokerage. There are no claims for brokerage
commissions, finders' fees or similar compensation in connection
with the transactions contemplated by this Agreement and the other
Transaction Documents based on any arrangement or agreement
binding upon the Company. The Company shall pay, and hold each
Investor harmless against, any liability, loss or expense
(including reasonable attorneys' fees and out-of-pocket expenses)
arising in connection with any such claim.
3.21 Employee Benefits and Plans.
(a) Schedule 3.21(a) sets forth a true and complete list
of each "employee benefit plan" as defined in Section 3(3) of the
ERISA, and any other plan, policy, program practice, agreement,
understanding or arrangement (whether written or oral) providing
compensation or other benefits to any current or former director,
officer, employee or consultant (or to any dependent or
beneficiary thereof) of the Company or any ERISA Affiliate (as
defined below), which are now, or were within the past 6 years,
maintained, sponsored or contributed to by the Company or any
ERISA Affiliate, or under which the Company or any ERISA Affiliate
has any obligation or liability, whether actual or contingent,
including, without limitation, all incentive, bonus, deferred
compensation, vacation, holiday, cafeteria, medical, disability,
stock purchase, stock option, stock appreciation, phantom stock,
restricted stock or other stock-based compensation plans,
policies, programs, practices or arrangements (each a "Company
Benefit Plan"). For purposes of this Agreement, "ERISA Affiliate"
shall mean any entity (whether or not incorporated) other than the
Company that, together with the Company, is considered under
common control and treated as one employer under Section 414(b),
(c), (m) or (o) of the Code. Neither the Company, nor to the
knowledge of the Company, any other Person, has any express or
implied commitment, whether legally enforceable or not, to modify,
change or terminate any Company Benefit Plan, other than with
respect to a modification, change or termination required by
ERISA, the Code or any other applicable law or governmental rule
or regulation.
(b) Each Company Benefit Plan has been administered in all
material respects in accordance with its terms and all applicable
laws, including ERISA and the Code, and contributions required to
be made under the terms of any of the Company Benefit Plans as of
the date of this Agreement have been timely made or, if not yet
due, have been properly reflected on the most recent consolidated
balance sheet filed or incorporated by reference in the Company's
audited financial statements prior to the date of this Agreement.
With respect to the Company Benefit Plans, no event has occurred
and, to the knowledge of Company, there exists no condition or set
of circumstances in connection with which Company could be subject
to any material liability (other than for routine benefit
liabilities) under the terms of, or with respect to, such Company
Benefit Plans, ERISA, the Code or any other applicable law or
governmental rule or regulation.
(c) Except as disclosed on Schedule 3.21(c): (i) each
Company Benefit Plan which is intended to qualify under Section
401(a), Section 401(k), Section 401(m) or Section 4975(e)(6) of
the Code has received a favorable determination letter from the
IRS as to its qualified status, and each trust established in
connection with any Company Benefit Plan which is intended to be
exempt from federal income taxation under Section 501(a) of the
Code is so exempt, and to Company's knowledge no fact or event has
occurred that could reasonably be expected to adversely affect the
qualified status of any such Company Benefit Plan or the exempt
status of any such trust; (ii) to Company's knowledge there has
been no prohibited transaction (within the meaning of Section 406
of ERISA or Section 4975 of the Code and other than a transaction
that is exempt under a statutory or administrative exemption) with
respect to any Company Benefit Plan that could result in material
liability to the Company or any ERISA Affiliate; (iii) no suit,
administrative proceeding, action or other litigation has been
brought, or to the knowledge of Company is threatened, against or
with respect to any such Company Benefit Plan, including any audit
or inquiry by the IRS or United States Department of Labor (other
than routine benefits claims); (iv) no material liability under
Title IV of ERISA has been incurred by Company or any ERISA
Affiliate that has not been satisfied in full, and no condition
exists that presents a material risk to the Company or any Company
ERISA Affiliate of incurring or being subject (whether primarily,
jointly or secondarily) to a material liability thereunder; (v)
none of the assets of Company or any Company ERISA Affiliate is,
or may reasonably be expected to become, the subject of any lien
arising under ERISA or Section 412(n) of the Code; (vi) neither
the Company nor any ERISA Affiliate has any material liability
under ERISA Section 502; (vii) all tax, annual reporting and other
governmental filings required by ERISA and the Code have been
timely filed with the appropriate governmental entity; (viii) all
contributions and payments to or under each Company Benefit Plan
which can appropriately be deducted under either Code Section 162
or 404 are deductible; (ix) no amount is subject to Tax as
unrelated business taxable income under Section 511 of the Code;
and (x) no excise tax could be imposed upon the Company under
Chapter 43 of the Code.
(d) No Company Benefit Plan is a "multiemployer plan" (as
defined in Section 3(37) or 4001(a)(3) of ERISA) (a "Multiemployer
Plan") or is subject to Title IV of ERISA or Section 412 of the
Code, and neither the Company nor any ERISA Affiliate has
sponsored or contributed to or been required to contribute to a
Multiemployer Plan or other pension plan subject to Title IV of
ERISA or Section 412 of the Code (a "Pension Plan").
(e) Except as required by applicable law, no Company
Benefit Plan provides any of the following retiree or
post-employment benefits to any person: medical, disability or
life insurance benefits. No Company Benefit Plan is a voluntary
employee benefit association under Section 501(a)(9) of the Code.
The Company and each of its ERISA Affiliates are in compliance in
all material respects with (i) the requirements of the applicable
health care continuation and notice provisions of the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended, and the
regulations (including proposed regulations) thereunder and any
similar state law and (ii) the applicable requirements of the
Health Insurance Portability and Accountability Act of 1996, as
amended, and the regulations thereunder.
(f) The Company does not maintain, sponsor, contribute to
or have any liability with respect to any employee benefit plan
program or arrangement that provides benefits to non-resident
aliens with no United States source income outside of the United
States.
3.22 Environmental and Safety Matters . Except as set forth
on Schedule 3.22
(a) The Company is now and has always been in compliance
in all material respects with all Environmental and Safety
Requirements.
(b) Without limiting the generality of the foregoing, the
Company has obtained and complied with, and is in compliance with,
in all material respects, all permits, licenses and other
authorizations that may be required pursuant to Environmental and
Safety Requirements for the occupation of its facilities and the
operation of its business; a list of all such permits, licenses
and other authorizations is set forth on Schedule 3.22.
(c) The Company has not received any written or oral
notice regarding any actual or alleged material violation of
Environmental and Safety Requirements, or any material
liabilities, obligations or responsibilities or potential material
liabilities, obligations or responsibilities (whether accrued,
absolute, contingent, unliquidated or otherwise), including any
investigatory, remedial or corrective obligations, relating to the
Company or its facilities arising under Environmental and Safety
Requirements, nor is the Company aware of any information which
might form the basis of any such notice.
(d) None of the following exists or formerly existed at
any property or facility owned or operated by the Company: (i)
underground storage tanks; (ii) asbestos-containing material in
any form or condition; (iii) materials or equipment containing
polychlorinated biphenyls; (iv) landfills, surface impoundments,
or disposal areas, or (iv) maintenance area or vehicle or
equipment wash area.
(e) The Company has not treated, stored, disposed of,
arranged for or permitted the disposal of, transported, handled,
or released any substance, including any hazardous substance, or
owned or operated any property or facility (and no such property
or facility is contaminated by any such substance) in a manner
that has given or could give rise to material liabilities,
obligations or responsibilities of the Company, including any
liability for response costs, corrective action costs, personal
injury, property damage, natural resources damages or attorney
fees, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA") or
the Solid Waste Disposal Act, as amended or any other
Environmental and Safety Requirements, nor has the Company
released or waived any third party, either expressly or by
operation of law, from any liability, obligation or responsibility
relating to any Environmental and Safety Requirements.
(f) No facts, events or conditions relating to the past or
present facilities, properties or operations of Company will
prevent, hinder or limit continued compliance in all material
respects with Environmental and Safety Requirements, give rise to
any investigatory, remedial or corrective obligations pursuant to
Environmental and Safety Requirements, or give rise to any other
material liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) pursuant to Environmental and Safety
Requirements, including any relating to onsite or offsite releases
or threatened releases of hazardous materials, substances or
wastes, personal injury, property damage or natural resources
damage.
(g) Neither this Agreement nor the consummation of the
transaction that is the subject of this Agreement will result in
any obligations for site investigation or cleanup, or notification
to or consent of government agencies or third parties, pursuant to
any of the so-called "transaction-triggered" or "responsible
property transfer" Environmental and Safety Requirements.
(h) The Company has not, either expressly or by operation
of law, assumed or undertaken any liability, including any
obligation for corrective or remedial action, of any other Person
relating to Environmental and Safety Requirements.
(i) The Company has provided true, correct and complete
copies of all environmental reports, assessments or investigations
and all parts thereof (including any drafts of such items)
regarding any property currently or formerly owned, leased or
operated by the Company.
3.23 Minute Books. The minute books of the Company provided
to Investor upon its request contain a complete summary of all
meetings of directors and stockholders since the time of
incorporation and reflect all transactions referred to in such
minutes accurately in all material respects.
3.24 Small Business Matters.
(a) The Company acknowledges that St. Cloud is a federally
licensed SBIC under the SBIC Act. The Company, together with its
"affiliates" (as that term is defined in 13 CFR Section 121.103),
is a "small business concern" within the meaning of the SBIC
Regulations, including 13 CFR Section 121.103 because the Company,
including its affiliates, has a tangible net worth not in excess
of $18 million, and average net income after federal income taxes
(excluding any carry-over losses) for the preceding two completed
fiscal years not in excess of $6 million. The information
regarding the Company and its affiliates set forth in the SBA Form
480, Form 652 and Form 793 delivered at the Closing is accurate
and complete, each in form and substance acceptable to St. Cloud.
Copies of such forms have been completed and executed by the
Company and delivered to the Investors at the Closing together
with a written statement of the Company regarding its planned use
of the proceeds from the sale of the Notes and the Warrants. The
Company presently does not knowingly engage in, and it shall not
hereafter engage in, any activities, nor shall the Company use
directly or indirectly the proceeds of the Financing for any
purpose, for which an SBIC is prohibited from providing funds by
the SBIC Regulations (including 13 CFR Section 107.720).
(b) The Company's primary business activity does not
involve, directly or indirectly, providing funds to others, the
purchasing or discounting of debt obligations, factoring or
long-term leasing of equipment with no provision for maintenance
or repair, and the Company is not classified under Section 53
(Real Estate) of the NAICS manual. The assets of the business of
the Company (the "Business") will not be reduced or consumed,
generally without replacement, as the life of the Business
progresses, and the nature of the Business does not require that a
stream of cash payments be made to the Business's financing
sources, on a basis associated with the continuing sale of assets
other than in the ordinary course of business.
3.25 Affiliated Transactions. Except for this Agreement, no
officer, director, employee, stockholder or Affiliate of the
Company or any individual related by blood, marriage or adoption
to any such individual or any entity in which any such Person or
individual owns any beneficial interest, is a party to any
agreement, contract, commitment, transaction or arrangement with
the Company or has any material interest in any material property
used by the Company, except for (a) employment arrangements and
compensation in the ordinary course of business and (b)
transactions which in the aggregate shall not exceed $50,000.
3.26 Solvency, etc. The Company is, and after giving effect
to the transactions contemplated by this Agreement shall be, able
to pay its debts as they become due, and the Company's property
now has, and after giving effect to the transactions contemplated
hereby shall have, a fair salable value greater than the amounts
required to pay its debts (including a reasonable estimate of the
amount of all contingent liabilities). No transfer of property is
being made and no obligation is being incurred in connection with
the transactions contemplated by this Agreement with the intent to
hinder, delay or defraud either present or future creditors of the
Company.
3.27 Investment Company. The Company is not an
"investment company" or an "affiliated person" of, or "promoter"
or "principal underwriter" for, an "investment company," as such
terms are defined in the Investment Company Act of 1940, as
amended, nor is the Company, directly or indirectly, controlled by
or acting on behalf of any Person which is an "investment company"
within the meaning of such act. The purchase of the Securities,
the application of the proceeds and repayment thereof by the
Company and the consummation of the transactions contemplated by
this Agreement will not violate any provision of such act or any
rule, regulation or order issued by the Securities and Exchange
Commission thereunder.
3.28 Margin Regulations. The Company does not own any
"margin stock," as the term is defined in Regulation U of the
Federal Reserve Board, and the proceeds of the Securities will be
used only for the purposes contemplated hereunder. None of the
proceeds of the Securities will be used, directly or indirectly,
for the purpose of purchasing or carrying any margin security, for
the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase or carry any margin security or
for any other purpose which might cause the loans hereunder to be
considered "purpose credit" within the meaning of Regulations U or
X of the Federal Reserve Board. The purchase of the Securities
will not constitute a violation of such Regulations U or X.
3.29 Public Utility Holding Company Act. The Company is
not a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company," or an
"affiliate" of a "subsidiary company" of a "holding company,"
within the meaning of the Public Utility Holding Company Act of
1935, as amended.
3.30 Disclosure. Neither this Agreement nor any of the
schedules, attachments, written statements, documents,
certificates or other items prepared or supplied to the Investors
by or on behalf of the Company with respect to the transactions
contemplated hereby contain any untrue statement of a material
fact or omit a material fact necessary to make each statement
contained herein or therein not misleading. There is no fact
which the Company has disclosed to the Investors in writing and of
which any of its officers, directors or executive employees is
aware (other than general economic conditions) and which has had
or would reasonably be expected to have a Material Adverse Effect.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. As a
material inducement to the Company to enter into this Agreement
and sell the Securities hereunder, each Investor hereby represents
and warrants to the Company that each of the following statements
are true, complete and correct as of the date of this Agreement
and will be true, complete and correct as of the Closing after
giving effect the other transactions contemplated by the
Transaction Documents to occur on the date of the Closing:
4.1 Authorization . Each Investor has full power and
authority to enter into the Transaction Documents and the
Transaction Documents constitute valid and legally binding
obligations of such Investor, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, usury and
other laws of general application affecting enforcement of
creditors' rights generally and (b) as limited by laws relating to
the availability of specific performance, injunctive relief, or
other equitable remedies.
4.2 Purchase Entirely for Own Account . The Transaction
Documents are made with each Investor in reliance upon such
Investor's representation to the Company, which by such Investor's
execution of the Transaction Documents, such Investor hereby
confirms, that the Securities will be acquired for investment for
such Investor's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and
that such Investor has no present intention of selling, granting
any participation in, or otherwise distributing the same. By
executing the Transaction Documents, each Investor further
represents that such Investor does not have any contract,
undertaking, agreement or arrangement with any Person to sell,
transfer or grant participation to such Person or to any third
person, with respect to any of the Securities.
4.3 Reliance upon the Investors' Representations. Each
Investor understands that the Securities are not registered under
the Securities Act on the ground that the issuance of Securities
hereunder is exempt from registration under the Securities Act
pursuant to section 4(2) thereof, and that the Company's reliance
on such exemption is based on the Investors' representations set
forth herein.
4.4 Receipt of Information. Each Investor believes it has
received all the information it considers necessary or appropriate
for deciding whether to invest in the Securities. The foregoing,
however, does not limit or modify the representations and
warranties of the Company in Section 3 hereof or the right of the
Investors to rely thereon.
4.5 Accredited Investor. Each Investor represents and
warrants that such Investor is an "accredited investor" within the
meaning of the Securities and Exchange Rule 501 of Regulation D,
as presently in effect.
5. CONDITIONS OF THE INVESTORS' OBLIGATIONS AT CLOSING. The
obligations of each Investor under Section 1 hereof are subject to
the fulfillment on or before the Closing of each of the following
conditions, as applicable, the waiver of which shall not be
effective against an Investor who does not consent in writing
thereto:
5.1 Representations and Warranties and Covenants; No Event of
Default . The representations and warranties of the Company
contained in Section 3 hereof shall be true and correct at and as
of the Closing (both immediately prior to and immediately after
giving effect to the transactions contemplated by the Transaction
Documents) as though then made, the Company shall have performed
all of the covenants required to be performed by it hereunder and
under the other documents, agreements and instruments executed in
connection herewith that are to be complied with or performed by
the Company on or prior to the Closing, and there shall not exist
any Event of Default or Potential Event of Default.
5.2 Qualifications and Approvals. Except for the notices
required or permitted to be filed after the Closing, all
authorizations, approvals or permits, if any, of any governmental
authority or regulatory body of the United States or of any state
that are required in connection with the lawful issuance and sale
of the Securities pursuant to this Agreement and the issuance of
the Underlying Common Stock shall be duly obtained and effective
as of the Closing.
5.3 Compliance with Applicable Laws. The purchase of the
Securities by the Investors hereunder shall not be prohibited by
any applicable law or governmental rule or regulation and shall
not subject any Investor to any penalty, liability or, in each
Investor's sole judgment, other onerous condition under or
pursuant to any applicable law or governmental rule or regulation,
and the purchase of the Securities by the Investors hereunder
shall be permitted by laws, rules and regulations of the
jurisdictions and governmental authorities and agencies to which
any Investor is subject.
5.4 Other Assurances. The Company shall execute and deliver
all Other Assurances reasonably requested by any Investor and
necessary to obtain, perfect and enforce a perfected, first
priority Lien in favor of the Investors on the Collateral. Without
limiting the generality of the foregoing, all applicable UCC-1
financing statements shall have been recorded (or delivered for
recording) in the applicable filing office, the Mortgage shall
have been recorded (or delivered for recording) in the appropriate
real property records, any applicable security agreement with
respect to any Intellectual Property Rights shall have been
recorded (or delivered for recording) in the appropriate recording
office. The Investors shall have received a commitment for title
insurance, satisfactory to each Investor, pursuant to which the
title company, which shall be a reputable title insurance company,
agrees to insure, at its regular rates, the property located in
Weld County, Colorado and described in more detail on Exhibit A
attached to the Mortgage, subject only to the exceptions shown on
the preliminary title report attached hereto as Schedule 5.4. The
Investors shall have received such other reports, appraisals or
reviews as they shall require.
5.5 Closing Documents. The Company shall have delivered
to the Investors all of the following documents:
(a) the Notes, duly completed and executed by the Company;
(b) the Warrants, duly completed and executed by the
Company;
(c) each other Transaction Document to which either the
Company is a party to;
(d) an opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇ LLP, counsel to the
Company, in the form attached hereto as Exhibit G;
(e) an Officer's Certificate of the Company, dated the date
of the Closing, certifying that as of the Closing Date (i) the
representations and warranties of the Company contained in Section
3 shall be true and correct in all material respects on and as of
the Closing with the same effect as though such representations
and warranties had been made on and as of the date of the Closing,
and (ii) the Company shall have performed in all material respects
all agreements and covenants required hereby to be performed by it
on or before the Closing;
(f) certified copies of the resolutions duly adopted by the
Board authorizing the execution, delivery and performance of each
of the Transaction Documents to which it is a party, the issuance
and sale of the Notes, the Warrants, the reservation for issuance
upon exercise of the Warrants of an aggregate of 550,000 shares of
Common Stock, and the consummation of all other transactions
contemplated by this Agreement;
(g) a certificate of the secretary of the Company certifying
the names and the signatures of the officers of the Company
authorized to sign this Agreement, the Securities and each of the
other agreements, documents and instruments contemplated hereby;
(h) a certified copy of the Company's Certificate of
Incorporation and bylaws, each as in effect at the Closing;
(i) a certificate of good standing of the Company, dated
not more than five (5) days prior to the date of the Closing,
issued by the Secretary of State of the States of Delaware and
Colorado;
(j) copies of all third party and governmental consents,
approvals and filings required in connection with the consummation
of the transactions hereunder (including all blue sky law
filings);
(k) duly completed and executed SBA Form 480, Form 652 and
Form 793, each in form and substance acceptable to St. Cloud;
(l) a written certification from the Company regarding its
intended use of proceeds from the Financing;
(m) a solvency certificate executed by the Company's chief
financial officer on behalf of the Company; and
(n) such other documents or information (including without
limitation, information required to enable St. Cloud to complete
and file SBA Form 1031) relating to the transactions contemplated
by this Agreement as any Investor or its respective counsel may
reasonably request.
5.6 Insurance. The Company shall have supplied certificates
of insurance showing the (a) addition of each Investor as an
additional insured under all risk and liability insurance and each
such other policies set forth on Schedule 3.17 which an Investor
requests and (b) coverage of each Investor Director (as such term
is defined in the Investors' Rights Agreement) under the Company's
directors and officers liability insurance, in amounts reasonably
acceptable to each Investor.
5.7 No Material Adverse Change. Since December 31, 2001,
there shall have been no material adverse change in the financial
condition, operating results, prospects, assets, liabilities,
operations or supplier relations of the Company.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to sell the Securities to the
Investors under this Agreement are subject to the fulfillment on
or before the Closing of each of the following conditions by each
Investor:
6.1 Representations and Warranties. The representations and
warranties of each Investor contained in Section 4 hereof shall be
true on and as of the Closing.
6.2 Performance. Each Investor shall have performed and
complied with all agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied
with by such Investor on or before the Closing.
6.3 Compliance with Applicable Laws. At the Closing, the
sale and issuance by the Company, and the purchase by the
Investors, of the Notes and the Warrants, and the Company's
execution and delivery of, or performance of obligations under or
the consummation of any transaction contemplated by, the
Transaction Document shall be legally permitted by all laws and
regulations to which any Investor or the Company is subject.
7. AFFIRMATIVE COVENANTS. The Company covenants and agrees
that so long as any Obligation is outstanding it will comply with
the following provisions:
7.1 Accounting Records. The Company shall maintain adequate
books and accounts in accordance with sound business practices and
GAAP consistently applied. The Company shall promptly furnish to
each Investor any information regarding its business or finances
as such Investor may reasonably request. Upon request of any
Investor, the Company will extend its cooperation and assistance
and comply with the requests of such Investor or its
representative in connection with an audit regarding the
Collateral and will furnish any information requested in respect
thereof, including, without limitation, appraisals of the
Collateral, lien search reports and physical counts.
7.2 Financial Reporting and Notices. The Company shall
furnish the following financial statements and notices to the
Investors:
(a) As soon as practicable after the end of each fiscal
year of the Company, and in any event within one hundred twenty
(120) days thereafter, a consolidated balance sheet of the Company
as at the end of such fiscal year, and consolidated statements of
income and cash flows of the Company for such fiscal year,
prepared in accordance with GAAP consistently applied and audited
and certified by independent public accountants of nationally
recognized standing selected by the Company and acceptable to each
Investor, and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail and
certified by the principal financial or accounting officer of the
Company. The financial statements referred to in this subsection
(a) shall be accompanied by management discussion and analysis of
the Company's financial condition, changes in financial condition
and results of operations, as compared to the previous year and
budget.
(b) As soon as practicable after the end of each quarterly
accounting period in each fiscal year of the Company, and in any
event within forty-five (45) days thereafter, a consolidated
balance sheet of the Company, as of the end of each such quarterly
period, and consolidated statements of income and cash flows of
the Company for such period and for the current fiscal year to
date, prepared in accordance with GAAP consistently applied and
setting forth in comparative form the figures for the
corresponding periods of the previous fiscal year and to the
Company's operating plan then in effect and approved by the Board,
subject to changes resulting from normal year-end audit
adjustments, all in reasonable detail and certified by the
principal financial or accounting officer of the Company. The
financial statements referred to in this subsection (b) shall be
accompanied by management discussion and analysis of the Company's
financial condition, changes in financial condition and results of
operations, as compared to the previous year and budget.
(c) As soon as practicable after the end of each calendar
month in each fiscal year of the Company, and in any event within
thirty (30) days thereafter, an unaudited consolidated balance
sheet of the Company, as of the end of each such month, and
unaudited consolidated statements of income and cash flows of the
Company for such period, prepared in accordance with GAAP
consistently applied and setting forth in comparative form the
figures for the corresponding periods of the previous fiscal year
and to the Company's operating plan then in effect and approved by
the Board, subject to changes resulting from normal year-end audit
adjustments, all in reasonable detail and certified by the
principal financial or accounting officer of the Company.
(d) Promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning
significant aspects operations or financial affairs of the
Company, given to the Company by its independent accountants (and
not otherwise contained in other materials provided hereunder).
(e) As soon as practicable after the end of each quarterly
accounting period in each fiscal year of the Company, and in any
event within forty-five (45) days thereafter, or in the case of
the end of the fiscal year, within sixty (60) days thereafter, a
duly completed Certificate executed by the chief financial officer
or chief executive officer of the Company certifying compliance
with the covenants contained in each Transaction Document.
(f) Promptly, but in no event later than two (2) Business
Days, after the Company becomes aware of an occurrence of an Event
of Default, the Company shall notify each Investor of such an
occurrence and shall include a statement of an officer of the
Company setting forth the details of such Event of Default and the
action which the Company proposes to take with respect thereto.
(g) As soon as practicable, written notice of (i) any
claims made in writing, litigation, suits, governmental
investigations, proceedings or disputes involving individually a
monetary amount in excess of $50,000, to the extent not covered by
insurance; (ii) any labor controversy which is reasonably expected
to result in a strike against the Company; or (iii) any
investigation or proceeding before or by any governmental
authority, the effect of which could reasonably be expected
materially to limit, prohibit or restrict the manner in which the
Company currently conducts its business.
(h) Upon the request of any SBIC Holder, such financial
statements and other information as such SBIC Holder may from time
request for the purposes of assessing the Company's financial
condition and all information reasonably requested by such SBIC
Holder in order for it to prepare and file SBA Form 468 and any
other information reasonably requested by any governmental agency
asserting jurisdiction over such SBIC Holder.
7.3 Access. The Company shall permit any representatives
designated by any Investor, upon reasonable notice and during
normal business hours and at such other times as any such holder
may reasonably request, to (a) visit and inspect any of the its
properties, including conducting testing, (b) examine its
corporate and financial records and make copies thereof or
extracts therefrom and (c) discuss the affairs, finances and
accounts of the Company with its directors, officers, key
employees and independent accountants. The presentation of an
executed copy of this Agreement by any Investor to the Company's
independent accountants shall constitute the Company's permission
to its independent accountants to participate in discussions with
such Persons.
7.4 Qualification to Do Business. The Company shall cause
to be done all things necessary to maintain, preserve and renew
its corporate existence, rights, franchises, privileges and
qualifications (except in those instances in which the failure to
be qualified to do business or in good standing in a jurisdiction
could not reasonably be expected to have a Material Adverse
Effect) and all material licenses, authorizations and permits
necessary to the conduct of its business.
7.5 Insurance. The Company, at its own expense, shall have
and maintain insurance at all times with respect to all Collateral
that is insurable at a reasonable cost against such risks and
liabilities, with such carrier and in such amounts as any Investor
may reasonably require. Each Investor shall be an additional
insured with respect to all risk and liability insurance. All
other insurance shall provide that each Investor and the Company
are joint loss payees as their interests may appear and shall not
be subject to cancellation or reduction in coverage without thirty
(30) days' prior written notice to each Investor. The Company
shall supply certificates of such insurance to any Investor upon
request.
7.6 Taxes and Other Liabilities. The Company shall pay and
discharge when payable all Taxes, assessments and governmental
charges imposed upon its properties or upon it or its income or
profits (in each case before the same becomes delinquent and
before penalties accrue thereon) and all claims for labor,
materials or supplies which if unpaid would by law become a Lien
upon any of its property, unless and to the extent that the same
are being contested in good faith, diligently and by appropriate
proceedings and adequate reserves (as determined in accordance
with GAAP consistently applied) have been established on its books
with respect thereto and such contest operates to suspend
collections of the same.
7.7 Governmental Approvals and Requirements. The Company
shall apply for, diligently pursue, and obtain or cause to be
obtained, and shall thereafter maintain in full force and effect
all governmental approvals that shall now or hereafter be
necessary for the operation of the business of the Company. The
Company shall promptly notify each Investor in the event of any,
and provide each Investor with a copy of all notices of, denial,
suspension, variance or revocation of any material governmental
approvals. The Company shall comply with all terms and conditions
of all governmental approvals and requirements except where its
failure to comply would not have a Material Adverse Effect.
7.8 Liens and Perfection. From and after the Closing, the
Company shall take all such further actions and execute and
deliver or cause to be executed and delivered to the Investors,
any agreement, instrument, conveyance, mortgage, pledge,
hypothecation or financing statement, in form and substance
satisfactory to each Investor, which any Investor reasonably
determines is necessary to obtain, perfect or enforce a first
priority Lien on any property received by the Company upon its
disposition of any of the Collateral. In addition, and without
limiting the generality of the foregoing, the Company shall from
time to time do all things and deliver all documents and
instruments requested by any Investor to perfect, protect and
enforce the Liens granted under the Security Agreement and
pursuant to this Section.
7.9 Change of Location. The Company shall notify each
Investor not later than thirty (30) days in advance of any change
in the location of its corporate offices.
7.10 Compliance with Agreements and Transaction Documents .
The Company shall comply with all other material obligations which
it incurs pursuant to any contract or agreement, whether oral or
written, express or implied, as such obligations become due,
unless and to the extent that the same are being contested in good
faith, diligently and by appropriate proceedings and adequate
reserves (as determined in accordance with GAAP consistently
applied) have been established on its books with respect thereto.
The Company shall perform and observe all of its obligations to
(a) each holder of the Notes and all of its obligations to each
holder of Underlying Common Stock set forth in the Company's
Certificate of Incorporation and bylaws, (b) to each holder of the
Warrants and Underlying Common Stock set forth herein and therein,
(c) to each holder of Registrable Securities (as defined in the
Investors' Rights Agreement) as set forth in the Investors' Rights
Agreement, and (d) under each of the other Transaction Documents.
7.11 Maintenance of Properties. The Company shall maintain
and keep its material properties in good repair, working order and
condition (ordinary wear and tear excepted), and from time to time
make all necessary or desirable repairs, renewals and
replacements, so that its business may be properly and
advantageously conducted in all material respects at all times.
7.12 Compliance With Applicable Laws. The Company shall
comply in all material respects with all applicable laws, rules
and regulations of all governmental authorities (including
Environmental and Safety Requirements). The Company shall (a)
comply with all material Environmental and Safety Requirements and
all material permits, licenses or other authorizations issued
thereunder, (b) respond immediately to any Release or threatened
Release of any hazardous material, substance or waste in a manner
which complies with all Environmental and Safety Requirements and
reasonably mitigates any risk to human health or the environment
and provide such documents or information, and (c) conduct at its
own cost such studies or assessments, relating to matters arising
under the Environmental and Safety Requirements as any Investor
may reasonably request.
7.13 Mandatory Prepayment of the Notes. If, upon any sale,
lease, conveyance or other disposition of any real property or
related facilities owned in fee by the Company (including, without
limitation, all rights, easements and privileges appertaining or
relating thereto, all buildings, fixtures, and improvements
located thereon) (each a "Real Estate Transfer"):
(a) the average closing price of the Common Stock on the
principal national securities exchange on which the Common Stock
is admitted to trading or listing for the ten (10) consecutive
Business Days immediately prior to the date of such Real Estate
Transfer is above $5.00 per share, the Company shall (except with
respect to any Note if waived by the holder thereof) within three
(3) days after its receipt of the proceeds resulting from such
Real Estate Transfer (such proceeds, net only of documental,
reasonable and customary costs of sale are referred to herein as
the "Net Proceeds"), apply such Net Proceeds (pro rata among the
holders of Notes) to prepay the Notes, provided that the Company
shall not be obligated to apply more than $750,000 of such Net
Proceeds to prepay the Notes under this Section 7.13(a); or
(b) the average closing price of the Common Stock on the
principal national securities exchange on which the Common Stock
is admitted to trading or listing for the ten (10) consecutive
Business Days immediately prior to the date of such Real Estate
Transfer is equal to or below $5.00 per share, the Company shall
(except with respect to any Note if waived by the holder thereof)
within three (3) days after its receipt of the Net Proceeds, apply
100% of such Net Proceeds (pro rata among the holders of the
Notes) to prepay the Notes.
8. NEGATIVE COVENANTS. The Company covenants and agrees
that so long as any Obligation is outstanding it will comply with
all of the following provisions (unless waived by each Investor in
its sole discretion):
8.1 Restricted Payments. The Company shall not make
Restricted Payments to its stockholders.
8.2 Indebtedness. Except as set forth on Schedule 8.2, the
Company shall not incur, create, assume or permit to exist any
Indebtedness except the Obligations and except for (a) unsecured
Indebtedness subordinated to the Obligations in a manner
acceptable to each Investor, (b) Indebtedness existing and
reflected on the Company's audited balance sheet as of December
31, 2001, and (c) up to an aggregate of $100,000 of other
Indebtedness outstanding at any time. The Company shall not
become a guarantor of any Indebtedness of any other Person other
than in the ordinary course of business. The Company shall not
prepay, redeem, purchase, defease or otherwise satisfy in any
manner any principal or interest on any Indebtedness except, with
respect to existing Indebtedness, in accordance with the terms of
the agreements governing such Indebtedness as in effect on the
date hereof) other than the Indebtedness under this Agreement and
the Note.
8.3 Mergers and Sale of Assets. Except as required by the
Security Agreement, without the prior written consent of each
Investor, the Company shall not effect any sale, lease,
assignment, transfer, or other conveyance of all or substantially
all of the assets of the Company, or any consolidation, merger or
other transaction involving a Change of Control of the Company.
8.4 Liquidation, Dissolution, Reorganization. Without the
prior written consent of each Investor, which consent shall not be
unreasonably withheld, the Company shall not liquidate, dissolve
or effect a reorganization in any form of transaction (including
any reorganization into a limited liability company, a partnership
or any other non-corporate entity which is treated as a
partnership for federal income tax purposes and any reorganization
after which the Company becomes a subsidiary of any other Person).
8.5 Disposition of Assets. Except as required or permitted
by the Security Agreement, without the prior written consent of
each Investor, which consent shall not be unreasonably withheld,
the Company shall not (a) sell, lease or otherwise dispose of more
than five percent (5%) of the assets of Company in any twelve (12)
month period (other than sales of inventory in the ordinary course
of business) or (b) sell or permanently dispose of any of its
material Intellectual Property Rights. Without limiting the
generality of the foregoing, without the prior written consent of
each holder of the Notes, which consent may be withheld in each
such holder's sole discretion, the Company shall not (except as
required or permitted by the Security Agreement) effect a Real
Estate Transfer.
8.6 Change of Name or Business. The Company shall not
change its name without at least thirty (30) days' prior notice to
each Investor. The Company shall not change the nature of its
business or engage in any other business other than the business
in which it is engaged as of the Closing without the prior written
consent of each holder of the Notes, in each such holder's sole
discretion, .
8.7 Accounting Policies. Except in order to comply with
GAAP or in order to comply with the policies of the Securities and
Exchange Commission, the Company shall not materially change any
of its accounting policies or its fiscal year.
8.8 Liens. The Company shall not create or permit to exist
any Lien upon any of its assets, except for Permitted Liens, or
enter into any agreement to ▇▇▇▇▇ ▇ ▇▇▇▇ (other than in connection
with the granting or sufferance of a Permitted Lien, provided that
such agreement pertains only to the property covered by the
Permitted Lien) on any of its assets.
8.9 Loans by the Company; Cancellation of Debts. The
Company shall not, without the prior written consent of each
Investor, which consent shall not be unreasonably withheld,
directly or indirectly, make any loan or advance in excess of
$50,000 or that would cause the aggregate of all such loans to
exceed $50,000. The Company shall not cancel any claim or debt
owing to it, except for reasonable consideration or in the
ordinary course of business, and except for the cancellation of
debts or claims not to exceed $50,000 in any fiscal year.
8.10 Loans to Officers or Directors. The Company shall not,
without the prior written consent of each Investor, which consent
shall not be unreasonably withheld, directly or indirectly, make
any loans or advances aggregating in excess of $50,000 to any
officer of director of the Company.
8.11 Investments. The Company shall not, without the prior
written consent of each Investor, which consent shall not be
unreasonably withheld, make any Investment in any company or
business, except in the ordinary course of business.
8.12 Agreements. The Company shall not, without the prior
written consent of each Investor, which consent shall not be
unreasonably withheld:
(a) enter into, become subject to, amend, modify or
waive, any agreement or instrument which by its terms would (under
any circumstances) restrict the Company's right to perform any of
the provisions of any of the Transaction Documents, the Securities
or its Certificate of Incorporation (including provisions relating
to the exercise of the Warrants, the payment of principal and
interest on the Notes);
(b) enter into, amend, modify or supplement any agreement,
transaction, commitment or arrangement with any officers,
directors, employees, stockholders, partners or Affiliates of the
Company or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any
such Person or individual owns a beneficial interest, except for
customary employment arrangements and benefit programs on
reasonable terms and as otherwise expressly contemplated by this
Agreement.
(c) Except as set forth on Schedule 8.12(c), enter into any
individual Operating Lease with annual lease payments exceeding
$50,000 or which, together with any other Operating Leases entered
into after the date hereof, would result in annual lease payments
for all such Operating Leases to exceed $250,000 in the aggregate;
(d) amend or modify any stock option plan or employee stock
ownership plan as in existence as of the Closing or adopt any new
stock option plan or employee stock ownership plan, in any such
case which would provide for the redemption or put of any stock or
options or other rights by any Person or which would be adverse to
any Investor; or
(e) enter into any contracts not in the ordinary course of
business involving obligations of the Company in excess of
$100,000.
8.13 Use of Proceeds. The Company shall not, without the
prior written consent of each Investor, use the proceeds from the
sale of the Securities other than for (a) general corporate
purposes or (b) payment of expenses related to the transactions
contemplated by this Agreement. Without limiting the generality
of the foregoing, the Company shall not use any proceeds from the
sale of the Notes hereunder, directly or indirectly, for the
purposes of (i) providing capital to any SBIC; (ii) acquiring farm
land, (iii) funding production of a single item or defined limited
number of items, generally over a defined production period, and
such production constitutes the majority of the activities that
the Company, or (iv) purchasing or carrying any "margin
securities" within the meaning of Regulation U promulgated by the
Board of Governors of the Federal Reserve Board or for the purpose
of arranging for the extension of credit secured, directly or
indirectly, in whole or in part by collateral that includes any
"margin securities."
8.14 Organizational Documents. The Company shall not,
without the prior written consent of each Investor, make any
amendment to its Certificate of Incorporation or bylaws, or file
any resolution of the Board with its jurisdiction of incorporation
containing any provisions, which would adversely affect or
otherwise impair in any respect any rights or remedies of any
Investor or the rights or relative priority of the holders of the
Underlying Common Stock under this Agreement, its Certificate of
Incorporation or bylaws.
8.15 Intellectual Property. The Company shall not, without
the prior written consent of each Investor, take any action, or
fail to take any action, which would result in the invalidity,
abandonment, misuse or unenforceability of any material
Intellectual Property Rights or which would infringe upon or
misappropriate any rights of other Persons.
9. SBIC REGULATORY PROVISIONS
9.1 Use of Proceeds.
(a) At such times as any SBIC Holder reasonably requests,
the Company shall deliver such SBIC Holder a written statement
certified by the Company's chief financial officer describing in
reasonable detail the use of the proceeds of the Financing
hereunder by the Company. In addition to any other rights granted
hereunder, the Company shall grant such SBIC Holder and the SBA
access to the Company's books, and records for the purpose of
verifying the use of such proceeds and verifying the
certifications made by the Company in SBA Form 480, Form 652 and
Form 793, delivered pursuant to Section 5.5(k) and for the purpose
of determining whether the principal business activity of the
Company continues to constitute an eligible business activity
(within the meaning of the SBIC Regulations).
(b) The Company shall not use any proceeds from the
Financing substantially for a foreign operation, and no more than
forty-nine percent (49%) employees or tangible assets of the
Company will be outside the United States (unless the Company can
show to the SBA's satisfaction, that proceeds from the Financing
will be used for a specific domestic purpose).
(c) The Company shall not use any proceeds from the
Financing for any purpose contrary to public interest (including,
but not limited to, activities which are in violation of law) or
inconsistent with free enterprise, in each case, within the
meaning of 13 C.F.R. Section 107.720.
9.2 Regulatory Violation. Upon the occurrence of a
Regulatory Violation, in addition to any other rights and remedies
to which it may be entitled as a holder of the Notes, the Warrants
or the Underlying Common Stock (whether under this Agreement, the
Notes, the Warrants, the Company's Certificate of Incorporation or
otherwise), each SBIC Holder shall have the right to the extent
required under the SBIC Regulations to demand the immediate
repurchase of all of the outstanding Securities and Underlying
Common Stock owned by such SBIC Holder at a price equal to the
purchase price paid for such Securities and Underlying Common
Stock, plus all accrued interest on the Notes, by delivering
written notice of such demand to the Company. The Company shall
pay the purchase price for such Securities and Underlying Common
Stock by a cashier's or certified check or by wire transfer of
immediately available funds to each SBIC Holder demanding
repurchase within thirty (30) days after the Company's receipt of
the demand notice, and upon such payment, each such SBIC Holder
shall deliver the certificates evidencing the Securities and
Underlying Common Stock to be repurchased duly endorsed for
transfer or accompanied by duly executed forms of assignment.
9.3 Regulatory Compliance Cooperation. In the event that
any SBIC Holder reasonably believes that it has a Regulatory
Problem, such SBIC Holder shall have the right to transfer its
Securities and Underlying Common Stock, without regard to any
restrictions on transfer set forth in this Agreement or any of the
Transaction Documents other than the restrictions under applicable
securities law, and the Company shall at its option, either (a)
effectuate and facilitate any transfer by such SBIC Holder of the
Securities then held by such SBIC Holder to any Person designated
by such SBIC Holder or (b) permit such SBIC Holder (or any or its
Affiliates) to exchange all or any portion of the Common Stock
then held by it on a share-for-share basis for shares of a class
of nonvoting common stock of the Company, which nonvoting common
stock shall be identical in all respects to such Common Stock,
except that such common stock shall be nonvoting and shall be
convertible into Common Stock on such terms as are requested by
such SBIC Holder in light of regulatory considerations then
prevailing. If necessary to effectuate the actions either in
clause (a) or (b) in the foregoing sentence, the Company shall
amend this Agreement and shall use reasonable efforts to amend the
Certificate of Incorporation and the bylaws of the Company, and
related agreements and instruments.
9.4 Economic Impact Information. Promptly after the end of
each calendar year (but in any event prior to February 28 of each
year), the Company shall deliver to each SBIC Holder a written
assessment of the economic impact of each SBIC Holder's investment
in the Company, specifying the full-time equivalent jobs created
or retained in connection with the investment, the impact of the
Investment on the business of the Company and on Taxes paid by the
Company and its employees.
9.5 Sales to Securities to other SBIC Holders. To the
Company's knowledge, each small business investment company
licensed under the SBIC Act that owns any securities issued by the
Company, together with a description of the kinds and amounts of
securities held, are listed on Schedule 9.5 attached hereto.
Without any SBIC Holder's consent, the Company will not issue
securities to any SBIC Holder in the future if such issuance would
cause any SBIC Holder to be deemed to be a member of an "Investor
Group" in "Control" of the Company (as such terms are defined in
13 CFR Section 107.865).
9.6 Business Activity. For a period of one year following
the date hereof, the Company will not change its business activity
if such change would render the Company ineligible to receive
financial assistance from any SBIC Holder (within the meanings of
13 CFR Sections 107.720 and 107.760(b)).
9.7 Number of Stockholders. The Company will notify each
SBIC Holder from time to time when the number of its stockholders
decreases below fifty (50), and if thereafter, the number of its
stockholders increases to above fifty (50).
9.8 Compliance With Non-Discrimination Requirements. The
Company shall comply at all times with the non-discrimination
requirements of 13 C.F.R. Parts 112, 113 and 117.
10. EVENTS OF DEFAULT.
10.1 Events of Default. Each of the following shall
constitute an "Event of Default" under this Agreement:
(a) Payment. The Company fails to pay when due and
payable (whether at maturity or otherwise) the full amount of
interest then accrued on the Notes and the continuance thereof for
ten (10) Business Days, or the full amount of any principal
payment (together with any applicable premium) on the Notes or any
other amounts payable under this Agreement or the Note on the date
due.
(b) Performance of Covenants. The Company shall default
or fail to observe or perform any agreement or covenant contained
herein or in any other Transaction Document in any material
respect, and such default or failure shall not have been remedied
within thirty (30) days after the Company shall become aware of
such default (including, without limitation, as a result of notice
from any Investor).
(c) Breach of Representation or Warranty. One or more
representations or warranties made by or on behalf of the Company
herein or in any other Transaction Document shall prove to be
false, incorrect or breached unless such inaccuracies or breaches
would not, in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
(d) Judgment. A final and non-appealable judgment or
judgments shall be entered against the Company in the aggregate
amount of $125,000 or more on an uninsured claim or claims or a
claim or claims which the insurer does not undertake to pay, and
such judgment or judgments shall remain unstayed, unvacated,
undischarged or unsatisfied for thirty (30) days.
(e) Cross-Default . The Company shall (i) default (unless
waived) in the payment when due, whether by acceleration or
otherwise, on any of its Indebtedness exceeding $125,000 in
principal amount, or (ii) default (unless waived) in the
performance or observance (subject to any applicable grace period)
of any agreement, covenant or condition with respect to any such
Indebtedness if the effect of such default is to accelerate the
maturity of any such Indebtedness or to permit the holder or
holders of any such Indebtedness, or any trustee or agent for such
holders, to cause such Indebtedness to become due and payable
prior to its expressed maturity or, if such Indebtedness is a
guaranty, to call upon such guaranty in advance of nonpayment of
the guaranteed indebtedness, or (iii) default (unless waived) in
any payments to third party vendors in the aggregate amount of
$250,000 or more (not arising hereunder or under any of the other
Transaction Documents), and in the case of clause (i), (ii) or
(iii), such default is not cured within thirty (30) days.
(f) Collateral. A judgment creditor of the Company shall
obtain possession of any material portion of the Collateral by any
means, including, but not limited to, levy, distraint, replevin or
self-help.
(g) Impairment of Collateral. The Investors' Lien, or the
priority thereof, on any portion of the Collateral shall become
impaired or otherwise unenforceable, and such impairment or
unenforceability is not cured within ten (10) days.
(h) Insolvency or Bankruptcy. The Company shall become
insolvent or admit in writing its inability to pay its debts
generally as they come due; or the Company shall institute a
voluntary case seeking liquidation or reorganization under the
United States Bankruptcy Code, or shall consent to the institution
of an involuntary case thereunder against it; or the Company shall
file a petition initiating or shall otherwise institute any
similar proceeding under any other applicable federal or state
law, or shall consent thereto; or the Company shall apply for, or
by consent or acquiescence there shall be an appointment of, a
receiver, liquidator, sequestrator, trustee or other officer with
similar powers, or the Company shall make an assignment for the
benefit of creditors; or, if an involuntary case shall be
commenced seeking the liquidation or reorganization of the Company
under the United States Bankruptcy Code, or any similar proceeding
shall be commenced against the Company under any other applicable
federal or state law, and (i) the petition commencing the
involuntary case is not timely controverted, or (ii) the petition
commencing the involuntary case is not dismissed within thirty
(30) days of its filing, or (iii) an interim trustee is appointed
to take possession of all or a portion of the property and/or to
operate all or any part of the business of the Company, or (iv) an
order for relief shall have been issued or entered therein; or a
decree or order of a court having jurisdiction in the premises for
the appointment of a receiver, liquidator, sequestrator, trustee
or other officer having similar powers over the Company, or of all
or a part of the property of any of the foregoing, shall have been
entered; or any other similar relief shall be granted against the
Company under any applicable federal or state law.
(i) Invalidity of Transaction Documents. If any of the
Transaction Documents shall cease to be in full force and effect
or the Company shall disavow its obligations thereunder, shall
declare that it does not have any further obligation thereunder or
shall contest the validity or enforceability thereof.
The foregoing shall constitute Events of Default whatever
the reason or cause for any such Event of Default and whether it
is voluntary or involuntary or is effected by operation of law or
pursuant to any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental
body.
10.2 Termination and Acceleration.
(a) If any Event of Default has occurred and is
continuing, then the interest rate on the Notes shall increase
immediately by an increment of two (2) percentage points (or, if
less, the highest rate permitted by law). If any such Event of
Default has occurred and continues for a period of three hundred
sixty (360) days thereafter, then the interest rate on the Notes
shall increase by a further increment of two (2) percentage points
(for a total increase of four (4) percentage points) (or, if less,
the highest rate permitted by law). Any increase of the interest
rate resulting from the operation of this subparagraph shall
terminate as of the close of business on the date on which no
Events of Default exist (subject to subsequent increases pursuant
to this subparagraph).
(b) If an Event of Default of the type described in
Section 10.1(h) has occurred, then the aggregate outstanding
principal amount of each Note (together with all accrued interest
thereon and all other amounts due and payable with respect
thereto) shall become immediately due and payable without any
action on the part of any Investor, and the Company shall
immediately pay to each Investor all amounts due and payable with
respect to its Note.
(c) If an Event of Default (other than under Section
10.1(h)) has occurred and is continuing, then any Investor may
declare all or any portion of the outstanding principal amount of
such Investor's Note (together with all accrued interest thereon
and all other amounts due and payable with respect thereto) to be
immediately due and payable and may demand immediate payment of
all or any portion of the outstanding principal amount of such
Note (together with all such other amounts then due and payable)
owed to such Investor. If any such Investor demands immediate
payment of all or any portion of its respective Note, the Company
shall immediately pay to each such Investor all amounts due and
payable with respect to the Note.
11. MISCELLANEOUS.
11.1 Expenses. The Company shall pay, and hold each Investor
harmless against liability for the payment of, and reimburse on
demand as and when incurred from and against, (a) all
out-of-pocket fees and expenses incurred by each Investor in
connection with its due diligence review of the Company, the
preparation, negotiation, execution and interpretation of this
Agreement, the Securities, the Underlying Common Stock, the
Investors' Rights Agreement, the other Transaction Documents and
the agreements contemplated hereby and thereby, and the
consummation of all of the transactions contemplated hereby and
thereby (including, without limitation, all travel expenses
incurred by representatives or agents of any Investor and all
reasonable fees and expenses of legal counsel, accountants and
other third parties), which reasonable fees and expenses shall not
exceed [$_________] and shall be payable at the Closing or, if the
Closing does not occur, payable upon demand, (b) all reasonable
fees and expenses incurred with respect to any amendments or
waivers (whether or not the same become effective) under or in
respect of each of the Transaction Documents and the other
agreements and instruments contemplated hereby and thereby, (c)
all recording and filing fees, stamp and other Taxes which may be
payable in respect of the execution and delivery of this Agreement
or the issuance, delivery or acquisition of any Securities or the
Underlying Common Stock, (d) the reasonable fees and expenses
(including attorney's fees) incurred with respect to the
enforcement of the rights granted under this Agreement, the
Securities, the other Transaction Documents and other the
agreements or instruments contemplated hereby and thereby
(including, without limitation, all court costs and costs of
collection, and including any such fees and expenses incurred in
connection with any bankruptcy, reorganization, workout or similar
transaction and any fees and expenses incurred in connection with
any Collateral audit and any other fees and expenses of any
auditors and consultants), and (e) the fees and expenses incurred
by each such Person in any filing with any governmental agency
with respect to its investment in the Company or in any other
filing with any governmental agency with respect to the Company
which mentions such Person. If the Company fails to pay when due
any amounts due to any Investor or fails to comply with any of its
obligations pursuant to this Agreement or any other agreement,
document or instrument executed or delivered in connection
herewith, the Company shall, upon demand by such Investor, pay to
each such Investor such further amounts as shall be sufficient to
cover the cost and expense (including, but not limited to
attorneys' fees) incurred by or on behalf of any Investor in
collecting all such amounts due or in otherwise enforcing such
Investor's rights and remedies hereunder.
11.2 Remedies. Each holder of Securities and Underlying
Common Stock shall have all rights and remedies set forth in this
Agreement, the Securities, the other Transaction Documents and the
Certificate of Incorporation of the Company and all rights and
remedies which any such holder has been granted at any time under
any other agreement or contract and all of the rights which any
such holder has under any law. No remedy hereunder or thereunder
conferred is intended to be exclusive of any other remedy, and
each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or thereunder or
now or hereafter existing at law or in equity or by statute or
otherwise. Any Person having any rights under any provision of
this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to
recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law.
11.3 No Setoffs, etc. All payments hereunder and under the
Notes and the Warrants shall be made by the Company without
setoff, offset, deduction or counterclaim, free and clear of all
Taxes, levies, imports, duties, fees and charges, and without any
withholding, restriction or conditions imposed by any governmental
authority. If the Company shall be required by any law to deduct,
setoff or withhold any amount from or in respect of any payment to
any Investor hereunder or under the Notes or the Warrants, then
the amount so payable to such Investor shall be increased as may
be necessary so that, after making all required deductions,
setoffs and withholdings, such Investor shall receive an amount
equal to the sum they would have received had no such deductions,
setoffs or withholding been made.
11.4 Payment Set Aside. To the extent that the Company
makes a payment or payments to any Investor hereunder or under the
Notes or any Investor enforces its rights or exercises its right
of setoff hereunder or thereunder, and such payment or payments or
the proceeds of such enforcement or setoff or any part thereof are
subsequently invalidated, declared to be fraudulent or
preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the
Company, a trustee, receiver or any other Person under any law
(including any bankruptcy law, state or federal law, common law or
equitable cause of action), then to the extent of any such
restoration the obligation or part thereof originally intended to
be satisfied shall be revived and continued in full force and
effect as if such payment had not been made or such enforcement or
setoff had not occurred.
11.5 Entire Agreement. This Agreement, the Security
Agreements and the other Transaction Documents and the other
documents executed in connection herewith constitute the entire
agreement among the parties with respect to the subject matter
hereof and no party shall be liable or bound to any other party in
any manner by any warranties, representations or covenants except
as specifically set forth herein or therein.
11.6 Survival of Covenants. The obligations of the Company
under Section 7 and Section 8 of this Agreement shall terminate on
the first date on which each of the following conditions are
satisfied: (a) all principal and interest outstanding under each
Note is paid in full by the Company, (b) all of the Underlying
Common Stock may be transferred in any three (3) month period
either pursuant to rule 144 under the Securities Act or as a
result of the registration statement contemplated by Section
1.2(b) of the Investors' Rights Agreement having been declared
effective, and (c) the limitations on the transferability of the
Warrants and/or Underlying Common Stock have expired under Section
3 of the Investors' Rights Agreement (such date referred to herein
as the "Cessation Date"). On the Cessation Date, the Company
shall have no liability to any Investor with respect to a breach
of the Company's obligations under Section 7 and Section 8 of this
Agreement, except for any breach occurring prior to the Cessation
Date). The foregoing provisions shall not limit or restrict the
availability of specific performance or other injunctive relief to
the extent that specific performance or such other relief would
otherwise be available to a party hereunder.
11.7 Survival of Warranties. The warranties, representations
and covenants of the Company contained in or made pursuant to this
Agreement shall survive until the Cessation Date.
11.8 Successors and Assigns. All covenants and agreements
contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether or not so
expressed; provided that the Company shall not be permitted to
assign its rights or obligations under this Agreement, the Notes,
the Warrants or the other Transaction Documents. In addition, and
whether or not any express assignment has been made, the
provisions of this Agreement which are for any Investor's benefit
as a purchaser or holder of Securities or Underlying Common Stock
are also for the benefit of, and enforceable by, any subsequent
holder of such Securities or such Underlying Common Stock. Except
as otherwise expressly provided herein, nothing expressed in or
implied from this Agreement, the Notes, the Warrants or the
Investors' Rights Agreement is intended to give, or shall be
construed to give, any Person, other than the parties hereto and
thereto and their permitted successors and assigns, any benefit or
legal or equitable right, remedy or claim under or by virtue of
this Agreement or any such other document.
11.9 Confidentiality . The parties hereby acknowledge and
agree that the transactions contemplated by this Agreement and the
other Transaction Documents are of a confidential nature and shall
not be disclosed except to consultants, advisors and Affiliates,
or as required by law, until such time as the Company and the
Investors agree to make a public announcement regarding the
transaction. The Investors acknowledge and agree that some of the
information provided by the Company with respect to the Investors'
due diligence may be non-public, confidential and proprietary to
the Company. All such information prominently labeled by the
Company as confidential (if disclosed in written form) or
identified as confidential (if disclosed oral) is hereinafter
referred to as the "Confidential Information"; provided that
Confidential Information shall not include any information which
(a) is or becomes generally available to the purblic other than as
a result of a disclosure by the Investors, (b) is or becomes
available to Investors by a third party that has no obligation to
the Company to maintain the confidentiality of such information,
or (c) was in the Investors' possession or available to the
Investors prior to the time of disclosure by the Company. Except
as required by law or pursuant to an order of a court of competent
jurisdiction, the Investors agree to not disclose Confidential
Information regarding the Company, and will cause their respective
employees and advisors not to disclose Confidential Information
regarding the Company, without the prior written consent of the
Company.
11.10 Indemnification. In consideration of the Investors'
execution and delivery of this Agreement and purchase of the
Securities hereunder and in addition to the Company's other
obligations under this Agreement and in addition to all other
rights and remedies available at law or in equity, the Company
shall defend, protect and indemnify each Investor and each of its
officers, directors, shareholders, partners, affiliates,
employees, agents, representatives, successors and assigns
(including those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Indemnitees"),
and save and hold each of them harmless from and against, and pay
on behalf of or reimburse such party on demand as and when
incurred, any and all actions, causes of action, suits, claims,
losses (including diminutions in value and consequential damages),
costs, penalties, fees, liabilities and damages and expenses in
connection therewith (irrespective of whether any such Indemnitee
is a party to the action for which indemnification hereunder is
sought), including reasonable attorneys' fees and disbursements,
interest and penalties and all amounts paid in investigation,
defense or settlement of any of the foregoing and claims relating
to any of the foregoing (the "Liabilities"), incurred by the
Indemnitees or any of them as a result of, or arising out of, or
relating to (a) the execution, delivery, performance or
enforcement of this Agreement, any other Transaction Document or
any other instrument, document or agreement executed pursuant
hereto by any of the Indemnitees, except to the extent any such
Liabilities are caused by the particular Indemnitee's gross
negligence or willful misconduct and (b) the past, present or
future environmental condition of any property owned, leased,
operated or used by the Company, its predecessors or successors or
of any offsite treatment, storage or disposal location associated
therewith, including the presence on or under, or the escape,
seepage, leakage, spillage, discharge, emi ssion, release, or
threatened release into, onto or from, any such property or
location of any toxic, chemical or hazardous substance, material
or waste (including any losses, liabilities, damages, injuries,
penalties, fees, costs, expenses or claims asserted or arising
under any Environmental and Safety Requirement) regardless of
whether caused by, or within the control of, the Company. To the
extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the
Liabilities which is permissible under applicable law.
11.11 Aggregation. For purposes of this Agreement and the
Investors' Rights Agreement, all holdings of Notes and Underlying
Common Stock by Persons who are Affiliates of each other shall be
aggregated for purposes of meeting any threshold tests under this
Agreement and the Investors' Rights Agreement.
11.12 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
11.13 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
11.14 Notices. All notices, requests, demands and other
communications which are required or may be given under this
Agreement shall be in writing and shall be deemed to have been
duly given when received if personally delivered; when transmitted
if transmitted by telecopy, electronic or digital transmission
method; the day after it is sent, if sent for next day delivery to
a domestic address by recognized overnight delivery service (e.g.,
Federal Express); and upon receipt, if sent by certified or
registered mail, return receipt requested. In each case notice
shall be sent to:
If to St. Cloud, addressed to:
St. Cloud Capital Partners, LP
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Attention: Managing Partner - Finances
& Administration
With a copy to:
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Attention: W. ▇▇▇▇ ▇▇▇▇▇▇, Esq.
If to ▇▇▇▇▇▇, addressed to:
Concepts Direct, Inc.
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Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
If to the Company, addressed to:
Concepts Direct, Inc.
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Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇ LLP
One ▇▇▇▇▇ Center
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Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
or to such other place and with such other copies as either party
may designate as to itself by written notice to the others.
11.15 Amendments and Waivers; Rights of Investors. Any term
of this Agreement may be amended and the observance of any term of
this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the
written consent of the Company and each of the Investors. No
delay or omission to exercise any right, power or remedy accruing
to the Investors upon any breach or default of the Company under
this Agreement or under any of the other Transaction Documents
shall impair any such right, power or remedy of any of the
Investors, nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any
similar breach or default occurring thereafter, nor shall any
waiver of any single breach or default be deemed a waiver of any
other breach or default occurring theretofore or thereafter. Each
Investor shall have the absolute right to exercise or refrain from
exercising any right or rights that such Investor may have by
reason of this Agreement, including without limitation the right
to consent to the waiver of any obligation of the Company under
this Agreement and to enter into an agreement with the Company for
the purpose of modifying this Agreement or any agreement effecting
any such modification. Any amendment or waiver effected in
accordance with this Section shall be binding upon each holder of
any Securities purchased under this Agreement at the time
outstanding (including securities the Underlying Common Stock),
each future holder of all such securities and the Company.
11.16 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such
provision shall be excluded from this Agreement and the balance of
this Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
11.17 Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises,
this Agreement shall be construed as if drafted jointly by the
parties hereto, and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of
any of the provisions of this Agreement. The parties intend that
each representation, warranty, and covenant contained herein shall
have independent significance. If any party has breached any
representation, warranty, or covenant contained herein in any
respect or any Event of Default shall occur, the fact that there
exists another representation, warranty, or covenant or Event of
Default relating to the same subject matter (regardless of the
relative levels of specificity) which such party has not breached
shall not detract from or mitigate the fact that such party is in
breach of the first representation, warranty, or covenant or that
the first Event of Default shall have occurred.
11.18 Exculpation of Investors. Each Investor acknowledges
that it is not relying upon any Person other than the Company and
its officers and directors, in making its investment or decision
to invest in the Company.
11.19 Jurisdiction and Venue. THE VALIDITY, CONSTRUCTION AND
EFFECT OF THIS AGREEMENT, THE NOTES, THE WARRANTS AND EACH OF THE
OTHER TRANSACTION DOCUMENTS SHALL BE GOVERNED BY THE INTERNAL LAWS
OF THE STATE OF CALIFORNIA. ANY ACTION OF ANY TYPE OR NATURE
WHATSOEVER WITH RESPECT TO THIS AGREEMENT OR ANY OF THE OTHER
TRANSACTION DOCUMENTS, WHETHER ARISING IN CONTRACT, TORT OR
OTHERWISE, SHALL BE BROUGHT IN SUPERIOR COURT FOR THE CITY AND
COUNTY OF LOS ANGELES, CALIFORNIA OR U.S. DISTRICT COURT FOR THE
CENTRAL DISTRICT OF CALIFORNIA IN LOS ANGELES, AND THE COMPANY
ACCEPTS FOR ITSELF AND ITS ASSETS AND PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS. THE COMPANY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM
NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING
OF ANY SUCH ACTION IN ANY SUCH JURISDICTION. NOTHING HEREIN SHALL
LIMIT THE RIGHT OF THE LENDER TO BRING PROCEEDINGS AGAINST THE
COMPANY IN THE COURT OF ANY OTHER JURISDICTION.
11.20 Waiver of Right to Jury Trial. THE COMPANY AND EACH
HOLDER OF NOTES AND WARRANTS HEREBY WAIVES, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN
ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF
THIS AGREEMENT, THE NOTES OR THE WARRANTS THE VALIDITY,
PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF. THE
COMPANY AGREES THAT THIS SECTION 11.20 IS A SPECIFIC AND MATERIAL
ASPECT OF THIS AGREEMENT AND ACKNOWLEDGES THAT THE INVESTORS WOULD
NOT PURCHASE THE NOTES OR WARRANTS HEREUNDER IF THIS SECTION 11.20
WERE NOT PART OF THIS AGREEMENT.
11.21 Limitation on Liability. NEITHER THE INVESTORS NOR THE
COMPANY SHALL HAVE ANY LIABILITY UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS FOR SPECIAL,
EXEMPLARY, PUNITIVE, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES
OF ANY SORT IN ANY ACTION OF ANY TYPE OR NATURE WHATSOEVER IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION
DOCUMENTS OR IN ANY WAY RELATED TO THE NOTES, THE COLLATERAL OR
THE ADMINISTRATION OR ENFORCEMENT THEREOF AND, EXCEPT TO THE
EXTENT PROHIBITED BY LAW, THE COMPANY AND EACH INVESTOR WAIVE ANY
RIGHT THEY MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH ACTION ANY
SPECIAL, EXEMPLARY, PUNITIVE, INCIDENTAL, INDIRECT OR
CONSEQUENTIAL DAMAGES OF ANY SORT OTHER THAN ACTUAL DAMAGES.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
THE COMPANY:
CONCEPTS DIRECT, INC.
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Chief Financial Officer
THE INVESTORS:
ST. CLOUD CAPITAL PARTNERS, LP
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