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Exhibit 10.12
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$7,000,000
LOAN AGREEMENT
between
Clearwater Fund IV, LLC, as Lender
and
▇▇▇▇/Biophile International Corporation, as Borrower
Dated as of August 5, 1997
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TABLE OF CONTENTS
Page
SECTION 1. Definitions.................................................... 1
SECTION 2. Amount and Terms............................................... 7
2.1 Tranches....................................................... 7
2.2 Cancellation of Demand Note.................................... 7
2.3 Borrowing Notice; Borrowings................................... 8
2.4 Interest....................................................... 8
2.5 Repayment and Prepayment of Loans.............................. 8
2.6 Warrants....................................................... 10
SECTION 3. Conditions Precedent........................................... 10
3.1 Representations and Warranties................................. 10
3.2 Performance; No Default........................................ 10
3.3 Officer's Certificate.......................................... 10
3.4 Borrowing Notice............................................... 11
3.5 Note........................................................... 11
3.6 Security Documents............................................. 11
3.7 Consents, etc.................................................. 11
3.8 Legal Matters.................................................. 11
3.9 Corporate Proceedings and Documents............................ 11
3.10 Opinion of Counsel............................................. 11
3.11 Other Items.................................................... 11
SECTION 4. Representations and Warranties................................. 11
4.1 Organizational Status.......................................... 12
4.2 Organizational Power and Authority, Capital, etc............... 12
4.3 No Violation................................................... 12
4.4 Litigation..................................................... 12
4.5 Use of Proceeds................................................ 12
4.6 Governmental Approvals, etc.................................... 12
4.7 Investment Company Act......................................... 13
4.8 Financial Condition; Financial Statements; Projections......... 13
4.9 Security Interests............................................. 13
4.10 Tax Returns and Payments....................................... 13
4.11 ERISA.......................................................... 13
4.12 Subsidiaries................................................... 14
4.13 Patents, Copyrights, Trademarks, etc........................... 14
4.14 Compliance With Laws, etc...................................... 14
4.15 Properties..................................................... 14
4.16 Collective Bargaining Agreements............................... 14
4.17 Indebtedness Outstanding....................................... 14
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4.18 Liens.......................................................... 14
4.19 Agreements..................................................... 14
4.20 Bank Accounts.................................................. 15
4.21 Full Disclosure................................................ 15
4.22 SEC Filings.................................................... 15
SECTION 5. Affirmative Covenants.......................................... 15
5.1 Information Covenants.......................................... 15
5.2 Books, Records and Inspections................................. 16
5.3 Maintenance of Property; Licenses; Insurance................... 17
5.4 Payment of Taxes............................................... 17
5.5 Maintain Existence............................................. 18
5.6 Compliance With Statutes, etc.................................. 18
5.7 Performance of Obligations..................................... 18
5.8 Notice of Litigation........................................... 18
5.9 Bank Statements................................................ 18
SECTION 6. Negative Covenants............................................. 18
6.1 Changes in Business............................................ 18
6.2 Liens.......................................................... 18
6.3 Indebtedness................................................... 19
6.4 Advances, Investments and Notes................................ 19
6.5 Modification of Organizational Documents....................... 19
6.6 Dividends, etc................................................. 19
6.7 Disbursements.................................................. 19
6.8 Subsidiaries................................................... 19
6.9 Disposition of Assets.......................................... 19
6.10 ERISA.......................................................... 20
6.11 Mergers and Acquisitions....................................... 20
6.12 Limitations on Issuances of Common Stock....................... 20
SECTION 7. Events of Default.............................................. 20
7.1 Payments....................................................... 20
7.2 Representations, etc........................................... 20
7.3 Covenants...................................................... 20
7.4 Default Under Other Agreements................................. 20
7.5 Bankruptcy, etc. ............................................. 21
7.6 Security Documents............................................. 21
7.7 Judgments...................................................... 21
SECTION 8. Miscellaneous.................................................. 22
8.1 Payment of Expenses, etc....................................... 22
8.2 Right of Set-off............................................... 22
8.3 Notices........................................................ 22
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8.4 Benefit of Agreement........................................... 23
8.5 No Waiver; Remedies Cumulative................................. 23
8.6 Governing Law; Submission to Jurisdiction; Venue............... 23
8.7 Counterparts................................................... 24
8.8 Headings Descriptive........................................... 24
8.9 Amendment or Waiver............................................ 24
8.10 WAIVER OF JURY TRIAL........................................... 24
8.11 Independence of Covenants...................................... 24
8.12 Entire Agreement............................................... 24
8.13 Execution by Facsimile Transmission............................ 24
EXHIBITS
Exhibit A - Demand Note
Exhibit B - Form of Cash Collateral Agreement
Exhibit C - Form of Guaranty
Exhibit D - Form of Pledge Agreement
Exhibit E - Form of Security Agreement
Exhibit F - Form of Note
Exhibit G - Form of Warrant
Exhibit H - Form of Warrant
Exhibit I - Form of Warrant
Exhibit J - Form of Warrant
SCHEDULES
Schedule 4.8 - Changes in Financial Position or Operations
Schedule 4.12 - Subsidiaries
Schedule 4.13 - Intellectual Property
Schedule 4.17 - Indebtedness
Schedule 4.20 - Bank Accounts
Schedule 6.2 - Permitted Liens
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LOAN AGREEMENT, dated as of August 5, 1997, between
▇▇▇▇/Biophile International Corporation, a Delaware corporation (the
"Borrower"), and Clearwater Fund IV, LLC, a Delaware limited liability company
(the "Lender").
WITNESSETH:
WHEREAS, Borrower desires to borrow up to $7,000,000 from
Lender to be used by Borrower in connection with the manufacture and delivery of
laser hair removal systems and for general working capital purposes;
WHEREAS, Borrower has previously borrowed from Lender the
principal amount of One Million Four Hundred Thirty-One Thousand Nine Hundred
Thirty-One and 51/100 Dollars ($1,431,931.51), pursuant to that certain 10%
Demand Promissory Note and Security Agreement, dated July 7, 1997, by and
between Borrower and Lender (the "Demand Note"), a copy of which is attached
hereto as Exhibit A, and the parties now desire to cancel the Demand Note and
have the principal amount thereof as of the date of cancellation together with
all accrued and unpaid interest thereon (the "Demand Note Obligations") be
governed by the terms of this Agreement; and
WHEREAS, Lender is prepared to loan up to $7,000,000
(including an amount equal to the Demand Note Obligations) to Borrower upon the
terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms
shall have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular, the plural, and
in the plural, the singular:
"Affiliate" means, with respect to any Person, any other
Person which, directly or indirectly, controls, or is under common control with,
or is controlled by, such Person. As used in this definition, "control" shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other interests, by contract or otherwise).
"Agreement" means this Loan Agreement, as the same may after
its execution be amended, supplemented or otherwise modified from time to time
in accordance with the terms hereof.
"Bank Accounts" has the meaning provided in Section 4.20.
"Bankruptcy Code" means Chapter 11 U.S.C. Section 101 et seq.
(as now or hereinafter in effect or any successor thereto).
"Borrower" has the meaning ascribed to such term in the
preamble.
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"Borrowing Date" means the Business Day specified in each
Borrowing Notice as the date on which Borrower requests Lender to make funds
available under each Loan.
"Borrowing Rate" has the meaning provided in Section 2.4.
"Business Day" means any day excluding Saturday, Sunday and
any day which shall be in the City of New York a legal holiday or a day on which
banking institutions are authorized by law or other governmental actions to
close.
"Capital Lease" of any Person means any lease of or other
agreement conveying the right to use any property (whether real, personal or
mixed) by that Person as lessee or other like user which, in conformity with
GAAP, is, or is required to be, accounted for as a capital lease on the balance
sheet of that Person, together with any renewals of such leases (or entry into
new leases) on substantially similar terms.
"Capitalized Lease Obligations" of any Person means all
obligations under Capital Leases of such Person, in each case taken at the
amount thereof accounted for as liabilities in accordance with GAAP.
"Cash" means money, currency or a credit balance in a deposit
account.
"Cash Collateral Agreement" means the Cash Collateral
Agreement to be executed by ▇▇▇▇▇ ▇▇▇▇▇▇ Inc., Borrower and Lender substantially
in the form of Exhibit B, as the same may be amended from time to time.
"Cash Equivalents" means (i) securities issued, or directly
and fully guaranteed, or insured by the United States of America or any agency
or instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof) having maturities of not
more than three years from the date of acquisition, (ii) marketable direct
obligations issued by any State of the United States of America, or any local
government, or other political subdivision thereof rated (at the time of
acquisition of such security) at least AA by Standard & Poor's Corporation
("S&P") or the equivalent thereof by ▇▇▇▇▇'▇ Investors Service, Inc.
("Moody's"), having maturities of not more than one year from the date of
acquisition, (iii) U.S. dollar denominated time deposits, certificates of
deposit and bankers' acceptances of any domestic commercial bank of recognized
standing having capital and surplus in excess of $250,000,000 or any bank whose
short-term commercial paper rating (at the time of acquisition of such security)
by S&P is at least A-1 or the equivalent thereof or by ▇▇▇▇▇'▇ is at least P-1
or the equivalent thereof (any such bank, an "Approved Bank"), in each case with
maturities of not more than six months from the date of acquisition, (iv)
commercial paper and variable or fixed rate notes issued by any Approved Bank or
by the parent company of any Approved Bank and (v) commercial paper and variable
rate notes issued by, or guaranteed by, any industrial or financial company with
a short-term commercial paper rating (at the time of acquisition of such
security) of at least A-1 or the equivalent thereof by S&P or at least P-1 or
the equivalent thereof by Moody's, or guaranteed by any industrial company with
a long-term
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unsecured debt rating (at the time of acquisition of such security) of at least
AA or the equivalent thereof by S&P or at least the equivalent thereof by
Moody's, and in each case maturing within one year after the date of
acquisition.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and the regulations promulgated thereunder.
"Collateral" means all of the Collateral as defined in the
Security Documents.
"Contingent Obligations" means, as to any Person, without
duplication, any obligation of such Person guaranteeing or intended to guarantee
any Indebtedness, leases, dividends or other obligations ("primary obligations")
of any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (d) otherwise to assure or hold
harmless the owner of such primary obligation against loss in respect thereof;
provided, however, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the maximum amount that such Person may be obligated to expend
pursuant to the terms of such Contingent Obligation or, if such Contingent
Obligation is not so limited, the stated or determinable amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof (assuming such Person is required to perform thereunder) as determined
by such Person in good faith.
"Default" means any event, act or condition which with notice
or lapse of time, or both, would constitute an Event of Default.
"Demand Note" has the meaning ascribed to such term in the
recitals hereof.
"Dollar(s)" means lawful money of the United States of
America.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated thereunder.
Section references to ERISA are to ERISA, as in effect at the date of this
Agreement, and any subsequent provisions of ERISA, amendatory thereof,
supplemental thereto or substituted therefor.
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"ERISA Affiliate" means any entity, whether or not
incorporated, which is under common control or would be considered a single
employer with Borrower within the meaning of Section 414(b), (c), (m), (n) or
(o) of the Code and regulations promulgated under those sections or within the
meaning of section 4001(b) of ERISA and regulations promulgated under that
section.
"Event of Default" has the meaning ascribed to such term in
Section 7.
"Financial Statements" has the meaning ascribe to such term in
Section 4.8.
"GAAP" means generally accepted accounting principles in the
United States of America, as in effect from time to time.
"Governmental Authority" means any federal, state, local or
other governmental or administrative body, instrumentality, department or agency
or any court, tribunal, administrative hearing body, arbitration panel,
commission, or other similar dispute-resolving panel or body or any subdivision
thereof.
"Guaranties" means the personal guaranties of the Obligations
issued by ▇▇▇▇▇▇ ▇▇▇▇, ▇▇. and ▇▇▇▇▇▇ ▇▇▇▇ in favor of Lender, in the form of
Exhibit C, as each may be amended, supplemented or otherwise modified from time
to time.
"Indebtedness" of any Person means, without duplication, (i)
all indebtedness of such Person for borrowed money, (ii) the deferred purchase
price of assets or services which in accordance with GAAP would be shown on the
liability side of the balance sheet of such Person, (iii) the face amount of all
letters of credit issued for the account of such Person and, without
duplication, all drafts drawn thereunder, (iv) all indebtedness of a second
Person secured by any Lien on any property owned by such first Person, whether
or not such indebtedness has been assumed by such first Person, (v) all
Capitalized Lease Obligations of such Person, (vi) all obligations of such
Person to pay a specified purchase price for goods or services whether or not
delivered or accepted, i.e., take-or-pay and similar obligations, and (viii) all
Contingent Obligations of such Person; provided that Indebtedness shall not
include trade payables, accrued expenses, deferred taxes and accrued income
taxes, in each case arising in the ordinary course of business.
"Intellectual Property" has the meaning ascribed to such term
in Section 4.13.
"Inventory" means Borrower's presently owned and hereafter
acquired goods which are held for sale or lease.
"Knowledge" means with respect to Borrower, what the executive
officers of Borrower actually know or should have known given diligent inquiry.
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"Laser Devices" shall mean the CHROMOS 694 lasers currently
marketed by the Company or its Affiliates.
"Lender" has the meaning ascribed to such term in the
preamble.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien, claim, hypothecation, assignment for security or charge of
any kind (including any agreement to give any of the foregoing, any conditional
sale or other title retention agreement or any lease in the nature thereof).
"Loan Documents" means this Agreement, the Security Documents
and the Note.
"Loan" and "Loans" has the meaning ascribed to such term in
Section 2.1.
"Material Adverse Effect" means, (i) any material adverse
effect with respect to the operations, business, properties, assets, nature of
assets, liabilities (contingent or otherwise), financial condition of Borrower,
or (ii) any fact or circumstance as to which, singly or in the aggregate, there
is a reasonable likelihood of (x) a material adverse change described in clause
(i) with respect to Borrower, or (y) the inability of Borrower to perform in any
material respect its Obligations hereunder or under any of the other Loan
Documents or the inability of Lender to enforce in any material respect their
rights purported to be granted hereunder or under any of the other Loan
Documents or the Obligations (including realizing on the Collateral).
"Material Agreement" has the meaning ascribed to such term in
Section 4.18 hereof.
"Maturity Date" has the meaning ascribed to such term in
Section 2.5 hereof.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA with respect to which Borrower or any of its
ERISA Affiliates is or has been required to contribute.
"Note" has the meaning ascribed to such term in Section 2.1.
"Obligations" means all amounts, direct or indirect,
contingent or absolute, of every type or description, and at any time existing,
owing to Lender pursuant to the terms of this Agreement or any other Loan
Document.
"Pension Plan" means any employee benefit pension plan as
defined in Section 3(2) of ERISA (other than a Multiemployer Plan) that is
subject to Title IV of ERISA and that is or has been maintained by or to which
contributions are or have been made by Borrower or any of its ERISA Affiliates.
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"Permanent Financing" means debt financing obtained by the
Company in an amount sufficient to enable Borrower to repay the Obligations in
full.
"Permitted Liens" has the meaning provided in Section 6.2.
"Person" means any individual, partnership, joint venture,
firm, corporation, limited liability company, association, trust or other
enterprise or any governmental or political subdivision or any agency,
department or instrumentality thereof.
"Placed in Service" means Laser Devices which, since July 15,
1997, have been delivered to, are operational at, and are the subject of an
effective license agreement with, a third party physician, clinic or hospital.
"Pledge Agreements" means the Pledge Agreements to be executed
▇▇▇▇▇▇ ▇▇▇▇, ▇▇. and ▇▇▇▇▇▇ ▇▇▇▇ in favor of Lender in the form of Exhibit D, as
the same may be amended from time to time.
"Public Filings" has the meaning ascribe to such term in
Section 4.8.
"Required Documentation" means copies, certified as true and
complete by an executive officer of Borrower, of the license agreement and
delivery receipt relating to each Laser Device Placed in Service, in each case
signed by the recipient of such Laser Devise.
"Security Agreement" means the Security Agreement to be
executed by Borrower in favor of Lender substantially in the form of Exhibit E,
as the same may be amended, supplemented or otherwise modified from time to
time.
"Security Documents" means the Security Agreement, the Pledge
Agreements, the Cash Collateral Agreement and the Guaranties, and any other
agreements or instruments utilized to pledge as Collateral for the Obligations
any property or assets of whatever kind or nature.
"Subsidiary" of any Person means and includes (i) any
corporation more than 50% of whose stock of any class or classes having by the
terms thereof ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time owned by such Person, directly
or indirectly through Subsidiaries, and (ii) any partnership, association, joint
venture or other entity in which such Person, directly or indirectly through
Subsidiaries, has more than a 50% equity interest at the time.
"Taxes" has the meaning ascribed to such term in Section 2.11.
"Tranche 1 Loan" shall have the meaning ascribed to such term
in Section 2.1(a).
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"Tranche 2 Loan" shall have the meaning ascribed to such term
in Section 2.1(b).
"UCC" means the Uniform Commercial Code as in effect in any
applicable jurisdiction.
SECTION 2. Amount and Terms.
2.1 Tranches. Subject to and upon the terms and conditions set
forth herein, Lender agrees to lend to Borrower the following amounts at the
following times:
(a) an amount equal to the sum of (x) four million Dollars
($4,000,000) minus (y) the amount of the Demand Note Obligations,
immediately upon execution of the Loan Documents (the "Tranche 1
Loan"); and
(b) three million ($3,000,000) Dollars, upon request of
Borrower made in accordance with Section 2.3, at any time before the
Maturity Date after fifty (50) Laser Devices have been Placed in
Service (the "Tranche 2 Loan").
The Tranche 1 Loan and Tranche 2 Loan are each referred to herein
individually as a "Loan" and collectively as the "Loans." Borrower shall use the
proceeds of the Loans to pay for expenses incurred in connection with Placing in
Service Laser Devices and such other expenses of Borrower and its Affiliates as
shall have been approved in advance by Lender. The aggregate principal balance
of the Loans shall be evidenced by a single promissory note (the "Note") made by
Borrower and payable to Lender in the form of Exhibit F hereto. Lender shall
endorse on the schedule attached to the Note (or any continuation thereof) the
date and amount of each Loan and the date and amount of all payments on account
of each Loan. All entries shall be presumed correct, absent manifest error.
Notwithstanding the foregoing, the failure by Lender to make such entries shall
not affect the rights of Lender or the obligations of Borrower hereunder or
thereunder.
2.2 Cancellation of Demand Note. Concurrently with execution
and delivery of the Note and other Loan Documents, Lender shall cancel the
Demand Note and return same to Borrower and the Demand Note shall thereupon be
of no further force and effect. An amount equal to the Demand Note Obligations
shall, upon cancellation of the Demand Note, continue to be outstanding under
the Tranche 1 Loan and be deemed to constitute part thereof, subject to all of
the terms and conditions of this Agreement.
2.3 Borrowing Notice; Borrowings. (a) To request the Tranche 2
Loan, Borrower shall deliver to Lender written notice of such request, which
notice shall be irrevocable and shall be effective only if received by Lender
not later than 1:00 P.M. Eastern Standard time one Business Day prior to the
requested Borrowing Date. Such notice of borrowing shall state the principal
amount to be borrowed and the date Borrower requests that such Loan be made, and
shall be accompanied by Required Documentation evidencing that the requisite
number of Laser Devices have been Placed in Service.
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(b) Lender shall, on the date hereof, deposit the amount of
the Tranche 1 Loan, and following receipt of an acceptable notice of borrowing,
on the applicable Borrowing Date, deposit the amount of the Tranche 2 Loan, by
wire transfer of immediately available funds, to Borrower's account with [Cash
Collateral Account to be identified] or to such other account or Person for the
account of Borrower, as Borrower shall request and Lender shall approve in its
sole and absolute discretion.
2.4 Interest. (a) Borrower shall pay interest on the
outstanding principal amount of each Loan at the rate of fifteen (15%) percent
per annum (the "Borrowing Rate"), in arrears on the first Business Day of each
month commencing with September 1, 1997. Notwithstanding the foregoing, Borrower
shall, on demand, pay interest on each Loan and any portion thereof, and on any
other amount payable by Borrower hereunder (to the extent permitted by law),
which shall not be paid in full when due (whether at stated maturity, by
acceleration or otherwise) for the period commencing on the due date thereof
until the same are paid in full at a rate equal to the Borrowing Rate plus two
(2%) percent per annum. Interest payable pursuant to this Agreement shall be
calculated on the basis of actual days elapsed over a 365 day year.
(b) Anything in this Agreement or the Note to the contrary
notwithstanding, the obligation of Borrower to make payments of interest shall
be subject to the limitation that payments of interest shall not be required to
be made to Lender to the extent that Lender's receipt thereof would not be
permissible under the law or laws applicable to Lender limiting rates of
interest which may be charged or collected by Lender. Any such payments of
interest which are not made by Borrower as a result of the limitation referred
to in the preceding sentence shall be made by Borrower to Lender on the earliest
interest payment date or dates on which the receipt thereof would be permissible
under the laws applicable to Lender limiting rates of interest which may be
charged or collected by Lender. Such deferred interest shall not bear interest.
2.5 Repayment and Prepayment of Loans. (a) Subject to
mandatory prepayment of the Loans as provided herein, the outstanding principal
amount of each Loan shall be repaid in full, together with all accrued and
unpaid interest thereon, on January 15, 1998 (the "Maturity Date"). Borrower
shall, at any time, and from time to time, be entitled to prepay any portion of
the principal amount of the Loans, without premium or penalty, provided, that
(i) all such prepayments shall be made together with accrued interest through
the date of prepayment on the principal amount being prepaid and (ii) the Lender
shall have received at least one Business Days' prior written notice of such
prepayment which notice states the proposed date of prepayment and the amount of
principal and interest being prepaid. All principal and interest payable by
Borrower pursuant to this Agreement shall be paid in Dollars to an account
specified in writing by Lender from time to time no later than 1:00 p.m. on the
date specified for payment.
(b) Borrower shall prepay (without premium or penalty), and
there shall immediately become due and payable, the outstanding principal amount
of each Loan and all accrued and unpaid interest thereon (and any fees, costs
and expenses payable pursuant to any
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of the Loan Documents) concurrently with the receipt of the proceeds of a
Permanent Financing. Borrower shall deliver written notice of any Permanent
Financing to Lender at least one Business Day prior to the closing thereof.
(c) All payments received by Lender from Borrower shall be
applied first, to pay all fees, costs and expenses of Lender then due and
payable under the Loan Documents, second, to pay accrued and unpaid interest on
each Loan and third, to repay the outstanding principal balance of the Loans.
(d) All payments by Borrower under this Agreement or under any
other Loan Document shall be made without set-off or counterclaim and in such
amounts as may be necessary in order that all such payments (after deduction or
withholding for or on account of any present or future taxes, levies, imposts,
duties or other charges of whatsoever nature imposed by any government or any
political subdivision or taxing authority thereof, other than any tax on or
measured by the income of Lender pursuant to the income tax laws of the United
States or of any other jurisdiction (collectively, "Taxes")) shall not be less
than the amounts otherwise specified to be paid under this Agreement and/or any
other Loan Document. A certificate as to the calculation of any additional
amounts payable to Lender under this Section 2.5(d) submitted to Borrower by
Lender shall, absent manifest error, be final, conclusive and binding for all
purposes upon all parties hereto. With respect to each deduction or withholding
for or on account of any Taxes, Borrower shall promptly furnish to Lender such
certificates, receipts and other documents as may be required (in the reasonable
judgment of Lender) to establish any tax credit to which Lender may be entitled.
(e) Without prejudice to the provisions of paragraph (d) of
this Section 2.5, if Borrower is required by law to make any payment on account
of Taxes on or in relation to any sum received or receivable under this
Agreement and/or the other Loan Documents by Lender or any liability for Taxes
in respect of any such payment is imposed, levied or assessed against Lender,
Borrower will promptly indemnify Lender against such Tax payment or liability,
together with any interest, penalties and reasonable expenses (including counsel
fees and expenses) payable or incurred in connection therewith, including any
tax arising by virtue of payments under this Section 2.5(e), computed in a
manner consistent with paragraph (d) of this Section 2.5. A certificate by
Lender as to the calculation and amount of such payments shall, absent manifest
error, be final, conclusive and binding upon all parties hereto for all
purposes.
2.6 Warrants. As additional consideration hereunder, Borrower
shall issue each of the following common stock purchase warrants to Lender at
the following times:
(a) concurrently with execution hereof, a common stock
purchase warrant in the form attached hereto as Exhibit G;
(b) on the Borrowing Date of the Tranche 2 Loan, a common
stock purchase warrant in the form attached hereto as Exhibit H;
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(c) on October 2, 1997, a common stock purchase warrant in the
form attached hereto as Exhibit I, unless the Obligations shall have
been paid in full on or prior to the close of business on October 1,
1997; and
(d) on December 2, 1997, a common stock purchase warrant in
the form attached hereto as Exhibit J, unless the Obligations shall
have been paid in full on or prior to the close of business on December
1, 1997.
SECTION 3. Conditions Precedent. The obligation of Lender to
make each Loan (unless otherwise specified) is subject to the satisfaction of
each of the following conditions precedent:
3.1 Representations and Warranties. The representations and
warranties of Borrower made in this Agreement and the other Loan Documents, and
each of the representations and warranties of Borrower or any officer of
Borrower contained in any certificate, document or financial or other statement
furnished at any time under or in connection with this Agreement, shall be true
and correct when made and on the Borrowing Date of each Loan (unless such
representations and warranties expressly relate to an earlier date).
3.2 Performance; No Default. Borrower shall have performed and
complied with all agreements and conditions contained in the Loan Documents
required to be performed or complied with by it and after giving effect to each
Loan (and the application of the proceeds thereof as contemplated by this
Agreement) no Default or Event of Default shall have occurred and be continuing.
3.3 Officer's Certificate. Lender shall have received
certificates executed by the Chief Executive Officer of Borrower stating that
the conditions set forth in Sections 3.1 and 3.2 have been satisfied.
3.4 Borrowing Notice. Lender shall have received a notice of
borrowing relating to such Loan in accordance with Section 2.3(a).
3.5 Note. As of the Borrowing Date of the Tranche 2 Loan, the
Note shall be in full force and effect and no challenge to the validity or
enforceability thereof shall have been threatened or initiated.
3.6 Security Documents. Each of the Security Documents shall
be in full force and effect and grant, create or perfect the Liens, rights,
powers, priorities, remedies and benefits contemplated therein, no default shall
exist thereunder and no challenge to the validity or enforceability thereof
shall have been threatened or initiated.
3.7 Consents, etc. All material Governmental Authority and
third party approvals and consents, if any, in connection with the transactions
contemplated by the Loan Documents shall have been obtained and remain in
effect, and all applicable waiting periods shall
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have expired without any action being taken by any competent authority, and
evidence thereof shall be delivered to Lender. There shall not exist any
judgment, order, injunction or other restraint issued or filed with respect to
the making of each Loan.
3.8 Legal Matters. All legal matters incident to the making of
each Loan shall be satisfactory to counsel to Lender.
3.9 Corporate Proceedings and Documents. With respect to the
Tranche 1 Loan, Lender shall have received a certificate executed by the
Secretary of Borrower, certifying as to evidence of all corporate action taken
by Borrower to authorize the borrowing of each Loan and the execution, delivery
and performance of each of the Loan Documents.
3.10 Opinion of Counsel. Counsel to Borrower shall have
delivered its legal opinion, in form and substance satisfactory to Lender's
counsel, on such matters as shall be requested by Lenders counsel.
3.11 Other Items. Borrower shall provide such other
certificates, approvals, documents, opinions and agreements as Lender shall
reasonably request.
All of the certificates and documents referred to in this Section 3 shall be
satisfactory in form and substance to Lender.
SECTION 4. Representations and Warranties. In order to induce
Lender to enter into this Agreement and make each Loan provided for herein,
Borrower makes the following representations and warranties to Lender, all of
which shall survive the execution and delivery of this Agreement and the making
of each Loan.
4.1 Organizational Status. Borrower (i) is a duly organized
and validly existing corporation under the laws of the State of Delaware and has
the power and authority to own its property and assets and to transact the
business in which it is engaged and presently proposes to engage and (ii) is in
good standing in its jurisdiction of organization and is duly qualified or
authorized to do business and is in good standing in all jurisdictions where it
is required to be so qualified or authorized except where the failure to be so
qualified or authorized would not have a Material Adverse Effect.
4.2 Organizational Power and Authority, Capital, etc. Borrower
has the requisite power and authority to execute, deliver and carry out the
terms and provisions of the Loan Documents and has taken all necessary action to
authorize the execution, delivery and performance of the Loan Documents. This
Agreement constitutes, and each other Loan Document (when executed and delivered
by Borrower) will constitute, the legal, valid and binding obligation of
Borrower enforceable against Borrower in accordance with its terms.
4.3 No Violation. Neither the execution, delivery and
performance by Borrower of any of the Loan Documents, nor compliance with the
terms and provisions thereof, nor the
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consummation of the transactions contemplated herein or therein (i) will
contravene any applicable provision of any law, statute, rule, regulation,
order, writ, injunction or decree of any court or Governmental Authority, (ii)
will conflict or be inconsistent with or result in any breach of any of the
terms, covenants, conditions or provisions of, or constitute a default under, or
result in the creation or imposition of (or the obligation to create or impose)
any Lien upon any of the property or assets of Borrower (or the Liens created by
the Security Documents) pursuant to the terms of any indenture, mortgage, deed
of trust, agreement or other instrument to which Borrower is a party or by which
the property or assets are bound or to which they may be subject, or (iii) will
violate any provision of the bylaws or the certificate of incorporation of
Borrower.
4.4 Litigation. Other than as set forth in the Public Filings
(as defined below), there are no actions, judgments, suits or proceedings
pending or, to Borrower's Knowledge, threatened as to which there is a
reasonable possibility of a Material Adverse Effect.
4.5 Use of Proceeds. The use of the proceeds of each Loan will
not violate or be inconsistent with the provisions of Regulation G, T, U or X of
the Board of Governors of the Federal Reserve System.
4.6 Governmental Approvals, etc. No order, consent, approval,
license, authorization, or validation of, or filing, recording or registration
with, or exemption by, any third party or any Governmental Authority (other than
those orders, consents, approvals, licenses, authorizations or validations which
have previously been obtained and except for filings to perfect security
interests granted pursuant to the Security Documents), is required to authorize
or is required in connection with (i) the execution, delivery and performance of
any Loan Document or the transactions contemplated therein or (ii) the legality,
validity, binding effect or enforceability of any Loan Document.
4.7 Investment Company Act. Borrower is not, and after giving
effect to the transactions contemplated hereby will not be, an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
4.8 Financial Condition; Financial Statements; Projections.
The financial statements (the "Financial Statements") included in Borrower's
Annual Report on Form 10-KSB for the fiscal year ended May 31, 1996 and
Borrower's Quarterly Report on Form 10-QSB for the nine months ended February
28, 1997 (the "Public Filings") have been prepared in accordance with GAAP,
applied on a consistent basis, during the respective periods, except as therein
noted. The Financial Statements present fairly the financial position of
Borrower as of such dates and the results of operations and changes in cash
flows and shareholders' equity for such periods. Borrower does not have any
material obligation or liability, individually or in the aggregate, of the
nature required to be disclosed in financial statements prepared in accordance
with GAAP that is not disclosed in the Financial Statements. Other than as set
forth on Schedule
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4.8, subsequent to February 28, 1997, there has been no change in the financial
position or operations of Borrower which could reasonably be expected to have a
Material Adverse Effect.
4.9 Security Interests. The Security Documents will create, in
favor of Lender, as security for the Obligations purported to be secured
thereby, a valid and enforceable first priority Lien upon all of the Collateral,
superior to and prior to the rights of all third persons and subject to no other
Liens except as provided in Section 6.2. No filings or recordings are required
in order to perfect the security interests created under any Security Document
except for filings or recordings required provided for in each such Security
Document.
4.10 Tax Returns and Payments. Borrower has filed all tax
returns required to be filed by it. Borrower has paid all federal, state, local
and foreign income taxes (including, without limitation, franchise taxes based
upon income) which have become due. Borrower knows of no proposed tax assessment
against it that could reasonably be expected to have a Material Adverse Effect.
4.11 ERISA. (a) Borrower and each of its ERISA Affiliates, if
any, are in compliance in all material respects with all applicable provisions
of ERISA and the regulations and published interpretations thereunder with
respect to all employee benefit plans. Neither Borrower nor any of its ERISA
Affiliates, if any, maintains, contributes to or is obligated to contribute to,
or during the last five years has maintained, contributed to or was obligated to
contribute to, any Pension Plan or Multiemployer Plan.
(b) The execution, performance and delivery of the Loan
Documents by any party thereto will not involve any prohibited transaction
within the meaning of Section 406 of ERISA or Section 4975 of the Code for which
an exemption therefrom is not available.
4.12 Subsidiaries. Other than as set forth on Schedule 4.12,
Borrower has no Subsidiaries and is not a partner in any partnership.
4.13 Patents, Copyrights, Trademarks, etc. Schedule 4.13 sets
forth all patents, copyrights, trademarks and service marks owned, possessed or
licensed by Borrower. Borrower owns or possesses adequate licenses or other
rights to use all patents, patent applications, trademarks, trademark
applications, service marks, service ▇▇▇▇ applications, trade names, copyrights,
trade secrets and know-how (collectively, the "Intellectual Property"), that are
necessary for the operation of its business. No claim is pending, or to
Borrower's Knowledge threatened, to the effect that Borrower infringes upon or
conflicts with the asserted rights of any other person under any Intellectual
Property, which, if adversely determined, would have a Material Adverse Effect.
Except as disclosed in the Public Filings, no claim is pending, or to Borrower's
Knowledge threatened, to the effect that any such Intellectual Property owned or
licensed by Borrower or which Borrower otherwise has the right to use is invalid
or unenforceable by Borrower, which, if adversely determined, would have a
Material Adverse Effect.
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4.14 Compliance With Laws, etc. Borrower is in compliance with
all material laws and regulations of all Governmental Authorities, the violation
of which would have a Material Adverse Effect.
4.15 Properties. Borrower does not own any Real Property.
Borrower owns or has valid leasehold interests in all of its properties and
assets, free and clear of all Liens except for Permitted Liens. Borrower holds
all material licenses, permits, leases, certificates of occupancy or operation
and similar certificates and clearances of municipal and other authorities
necessary to own and operate its properties.
4.16 Collective Bargaining Agreements. There are not currently
any collective bargaining or similar agreements applicable to Borrower.
4.17 Indebtedness Outstanding. Schedule 4.17 sets forth all
Indebtedness of Borrower for borrowed money as of the date hereof.
4.18 Liens. There are no Liens affecting any of Borrower's
assets or properties, including the Collateral, other than Permitted Liens.
4.19 Agreements. Borrower has performed all obligations
required to be performed by it under each material agreement to which it is a
party or by which it or its assets or properties may be bound (the "Material
Agreements") and no event of default has occurred thereunder which would entitle
the other party thereto to terminate such Material Agreement or accelerate
Borrower's obligations thereunder, and no event has occurred which, with the
lapse of time or the giving of notice or both, would constitute an event of
default by Borrower thereunder, or to the Knowledge of Borrower, by any other
party to any Material Agreement.
4.20 Bank Accounts. Schedule 4.20 attached hereto lists each
bank account maintained by Borrower and its Subsidiaries (the "Bank Accounts").
4.21 Full Disclosure. No representation or warranty contained
herein or any exhibit hereto nor any other certificate, statement or opinion,
made or furnished in writing to Lender by or on behalf of Borrower in connection
with this Agreement or the transactions contemplated herein, contains (in each
case, as of its date) any untrue statement of a material fact, or omits to state
a material fact necessary in order to make the statements contained therein or
herein not misleading.
4.22 SEC Filings. Borrower's Public Filings do not contain any
untrue statement of a material fact, or omit to state a material fact necessary
in order to make the statements contained therein or herein not misleading.
SECTION 5. Affirmative Covenants. Borrower covenants and
agrees that until payment in full of the Obligations:
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5.1 Information Covenants. Borrower will furnish or cause to
be furnished to Lender:
(a) As soon as available after the close of each monthly
accounting period, the balance sheet of Borrower as at the end of such
monthly period and the related statements of operations, of
shareholders' equity and of cash flows for such monthly period and for
the elapsed portion of the fiscal year ended with the last day of such
monthly period, each such statement to be certified by an appropriate
officer of Borrower, which certificate shall state that such statements
present fairly the balance sheet and related income, equity interests
and cash flows of Borrower as of the dates and for the periods
indicated, in conformity with GAAP applied on a basis consistent with
prior years (except for such changes with which the independent
certified accountants concur) and in each case setting forth
comparative figures for the fiscal year budget, subject to normal
year-end audit adjustments.
(b) As soon as available, a budget of Borrower in reasonable
detail for each month of its fiscal year, as customarily prepared by
management for its internal use, setting forth, with appropriate
discussion, the principal assumptions upon which such budgets are
based. Together with each delivery of financial statements pursuant to
Section 5.1(a), a comparison of the current year to date financial
results against the budgets required to be submitted pursuant to this
Section 5.1(b) shall be presented.
(c) At the time of the delivery of the financial statements
provided for in Section 5.1(a), a certificate of an appropriate officer
of each of Borrower to the effect that no Default or Event of Default
exists, or, if any Default or Event of Default does exist, specifying
the nature and extent thereof;
(d) Promptly upon receipt thereof, a copy of each "management
letter" submitted to Borrower by its independent accountants in
connection with any compilation, review or audit made by them of the
books of Borrower.
(e) Promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent or
made available generally by Borrower to its securityholders of all
regular and periodic reports and all registration statements and
prospectuses, if any, filed by Borrower with any securities exchange or
with the United States Securities and Exchange Commission and of all
press releases and other statements made available generally by
Borrower to the public.
(f) Prompt written notice (x) of any condition or event which
constitutes a Default or Event of Default, (y) that any holder of any
note or other evidence of Indebtedness of Borrower has given any notice
to Borrower or taken any other action with respect to a claimed default
or event or condition of the type referred to in Section 7.4, or (z) of
any event which could reasonably be expected to have a Material Adverse
Effect.
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(g) Prompt written notice of the institution of, or written
threat of, any action, suit, proceeding, governmental investigation or
arbitration against or affecting Borrower or any property of any of
Borrower not previously disclosed to Lender, which action, suit,
proceeding, governmental investigation or arbitration which seeks (or
in the case of multiple actions, suits, proceedings, governmental
investigations or arbitrations arising out of the same general
allegations or circumstances which seek) recovery from Borrower
aggregating $100,000 or more. In addition to the requirements set forth
in the previous sentence, Borrower upon request shall promptly give
notice of the status of any action, suit, proceeding, governmental
investigation or arbitration covered by a report delivered to Lender
pursuant to this Section 5.1(g) and provide such other information as
may be reasonably available to it (exclusive of privileged documents)
to enable Lender and its counsel to evaluate such matters.
(h) On demand, such other information that Lender shall
reasonably request.
5.2 Books, Records and Inspections. Borrower will keep true
books of records and accounts in which full and correct entries will be made of
all of its business transactions and will reflect in its financial statements
adequate accruals and appropriations to reserves, all in accordance with GAAP.
Borrower will permit officers and designated representatives of Lender to visit
and inspect any of the properties or assets of Borrower in whomsoever
possession, and to examine the books of account of Borrower (and to make copies
thereof at Borrower's expense) and discuss the affairs, finances and accounts of
Borrower with, and be advised as to the same by, appropriate officers of
Borrower, all at such reasonable times and intervals and to such reasonable
extent as Lender may reasonably request.
5.3 Maintenance of Property; Licenses; Insurance.
(a) Borrower will exercise commercially reasonable efforts to
maintain or cause to be maintained in good repair, working order and condition
(subject to normal wear and tear) all properties used in its businesses and from
time to time will make or cause to be made all appropriate repairs, renewals and
replacements thereof.
(b) Borrower will maintain in full force and effect all of its
rights, franchises, licenses and permits and other rights in or to use any
licenses, patents, processes, trademarks, trade names or copyrights owned or
possessed by it, except where such failure to keep in full force and effect such
rights, franchises, licenses or permits could not reasonably be expected to have
a Material Adverse Effect.
(c) Borrower will maintain or cause to be maintained, with
financially sound and reputable insurers, insurance with respect to their
properties and business against loss or damage of the kinds customarily insured
against by Persons of established reputation engaged in the same or similar
businesses and similarly situated, of such types and in such amounts as are
customarily carried under similar circumstances by such other Persons to the
extent that such types and such amounts of insurance are available at
commercially reasonable rates. Borrower
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will furnish to Lender, upon reasonable request, information as to the insurance
carried, and will not cancel, without replacement, any such insurance without
the consent of Lender, which consent shall not be unreasonably withheld.
5.4 Payment of Taxes. Borrower will pay and discharge all
taxes, assessments and governmental charges or levies imposed upon it or upon
their income or profits, or upon any properties belonging to it, prior to the
date on which material penalties attach thereto, and Borrower will promptly pay
and discharge all other taxes, assessments and governmental charges or levies
imposed upon each of them or upon their income or profits, or upon any
properties belonging to it, and all lawful claims which, if unpaid, might become
a Lien or charge upon any properties of Borrower or cause a failure or
forfeiture of title thereto, prior to the date on which material penalties
attach thereto; provided that Borrower shall not be required to pay any such
tax, assessment, charge, levy or claim that is being contested in good faith and
by proper proceedings promptly instituted and diligently conducted, which
proceedings have the effect of preventing the forfeiture or sale of the property
or asset that may become subject to such Lien, if it has maintained adequate
reserves with respect thereto in accordance with and to the extent required
under GAAP.
5.5 Maintain Existence. Borrower will do or cause to be done
all things necessary to preserve and keep in full force and effect its corporate
existence rights and authority.
5.6 Compliance With Statutes, etc. Borrower will comply with
all applicable statutes, regulations and orders of, and all applicable
restrictions imposed by, all Governmental Authorities, the non compliance of
which would have a Material Adverse Effect.
5.7 Performance of Obligations. Borrower will perform in all
material respects all of their obligations under the terms of each Material
Agreement, except where such nonperformance would not reasonably be expected to
have a Material Adverse Effect.
5.8 Notice of Litigation. Borrower will promptly notify Lender
if it receives: (i) any notice of any violation or administrative or judicial
complaint or order having been filed or about to be filed against it, including
without limitation, all complaints or orders alleging violations of any law
material to its business, (ii) any notice from any Governmental Authority or any
other Person alleging that it is or may be subject to any liability under any
law material to its business; and promptly upon receipt thereof, provide Lender
with a copy of such notice together with a statement of the action it has or
intends to take with respect thereto.
5.9 Bank Statements. Borrower shall cause to be delivered to
Lender copies of all statements and reports relating to each Bank Account, at
such time as such statements and reports become available to Borrower.
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SECTION 6. Negative Covenants. Borrower covenants and agrees
that while each Loan is outstanding, until each Note is paid in full, and until
full and complete performance of the Obligations:
6.1 Changes in Business. Borrower will not engage in any
business other than business of Borrower currently conducted.
6.2 Liens. Borrower will not directly or indirectly create,
incur, assume or permit or suffer to exist any Lien upon or with respect to any
item constituting Collateral, whether now owned or hereafter acquired, or sell
any such Collateral subject to an understanding or agreement, contingent or
otherwise, to repurchase such Collateral or assign any right to receive income,
or file or permit the filing of any financing statement under the UCC or any
other similar notice of Lien under any similar recording or notice statute,
except for (i) Liens in favor of Lender, (ii) Liens expressly permitted by any
Security Document, and (iii) Liens set forth on Schedule 6.2 to this Agreement,
which are herein collectively referred to as "Permitted Liens."
6.3 Indebtedness. Borrower will not contract, create, incur,
assume or suffer to exist any Indebtedness, except the Indebtedness incurred or
otherwise contemplated by this Agreement.
6.4 Advances, Investments and Notes. Borrower will not lend
money or credit or make advances to any Person, or purchase or acquire any
stock, obligations or securities of, or any other interest in, or make any
capital contribution to any Person, except:
(a) investments in Cash and Cash Equivalents;
(b) receivables owing to Borrower and advances to customers
and suppliers, in each case if created, acquired or made in the ordinary course
of business and payable or dischargeable in accordance with customary trade
terms; and
(c) investments (including debt obligations) received in
connection with the bankruptcy or reorganization of suppliers and customers and
in settlement of delinquent obligations of, and other disputes with, customers
and suppliers arising in the ordinary course of business.
6.5 Modification of Organizational Documents. Borrower will
not amend, modify or change any of its organizational documents including,
without limitation, its certificate of incorporation, or any agreement entered
into by Borrower with respect to its capital stock or enter into any new
agreement with respect to its capital stock, the result of which is reasonably
likely to be adverse to the interests of Lender.
6.6 Dividends, etc. Borrower will not declare or pay or
authorize any dividend, distribution, payment or delivery of property or cash to
its stockholders as such, or redeem,
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retire, purchase or otherwise acquire, directly or indirectly, for any
consideration, any of the capital stock or other equity interests of Borrower
now or hereafter outstanding (or any warrants or options in respect of such
equity interests), or set aside any funds for any of the foregoing purposes.
6.7 Disbursements. Borrower shall not cause any funds in any
Bank Account to be disbursed without the prior written consent of Lender.
6.8 Subsidiaries. Borrower shall not form, acquire or permit
any Person to become its Subsidiary.
6.9 Disposition of Assets. Borrower will not engage in any
sale, transfer, assignment, lease or other disposition of any of its assets to
any Person, except that Borrower may sell, assign, transfer, convey, or
otherwise dispose of or lease all or any part of its Inventory, acquired and
disposed of in the ordinary course of business.
6.10 ERISA. Borrower will not adopt, or become obligated to
contribute to, or allow any of its ERISA Affiliates to adopt, maintain, or
contribute to, a Pension Plan, and Borrower will not become obligated to
contribute to, or allow any of its ERISA affiliates to become obligated to
contribute to, any Multiemployer Plan.
6.11 Mergers and Acquisitions. Borrower will not acquire any
Person (including through the purchase of all of the capital stock or other
ownership interests of such Person or through merger or consolidation or
acquisition of all or substantially all of the assets of such Person) or merge
with any other Person.
6.12 Limitations on Issuances of Common Stock. Borrower will
not, nor permit any Subsidiary to, issue, sell or otherwise dispose of any
shares of any of its capital stock, any option rights thereto or any securities
convertible into capital stock of Borrower or any Subsidiary to any vendor or
other third party provider of goods or services to the Company or any
Subsidiary.
SECTION 7. Events of Default. Each of the following upon its
occurrence and during its continuance shall constitute an event of default
("Event of Default"):
7.1 Payments. Borrower shall fail to pay when due any
principal of, or interest on, the Loans or any fee payable under this Agreement
or any of the other Loan Documents and such failure shall continue unremedied
for five or more Business Days.
7.2 Representations, etc. Any representation, warranty or
statement made or deemed made by Borrower herein, or in any other Loan Document,
or in any statement or certificate delivered or required to be delivered
pursuant hereto or thereto shall prove to be untrue in any material respect on
the date as of which made or deemed made.
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7.3 Covenants. Borrower shall (a) default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 6, or (b) default in the due performance or observance by it of any
other term, covenant or agreement contained in this Agreement or any Loan
Document and such default shall continue unremedied for a period of at least
fifteen days after the date of such default.
7.4 Default Under Other Agreements. (a) Borrower shall (i)
default in any payment with respect to any Indebtedness (other than the
Obligations) in excess of $50,000 beyond the period of grace, if any, provided
in the instrument or agreement under which such Indebtedness was created or (ii)
default in the observance or performance of any agreement or condition relating
to any such Indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or condition exist,
the effect of which default or other event or condition is to cause, or to
permit the holder or holders of such Indebtedness (or a trustee or agent on
behalf of such holder or holders) to cause, any such Indebtedness to become due
prior to its stated maturity, or (b) any such Indebtedness of Borrower shall be
declared to be due and payable, or required to be prepaid other than by a
regularly scheduled required prepayment, prior to the stated maturity thereof.
7.5 Bankruptcy, etc. Borrower shall commence a voluntary case
concerning itself under the Bankruptcy Code; or an involuntary case is commenced
against Borrower and the petition is not controverted within ten days, or is not
dismissed or stayed within sixty days, after commencement of the case; or a
custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge
of, all or substantially all of the property of Borrower; or Borrower commences
any other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to Borrower; or there
is commenced against Borrower any such proceeding which remains undismissed and
unstayed for a period of sixty days; or Borrower is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or Borrower suffers any appointment of any custodian or
the like for it or any substantial part of its property to continue undischarged
or unstayed for a period of sixty days; or Borrower makes a general assignment
for the benefit of creditors; or any corporate action is authorized by Borrower
for the purpose of effecting any of the foregoing.
7.6 Security Documents. Any Security Document shall cease to
be in full force and effect, or shall cease to give Lender the Liens, rights,
powers and privileges purported to be created thereby, in favor of Lender,
superior to and prior to the rights of all third Persons and subject to no Liens
other than Liens expressly permitted by this Agreement and the applicable
Security Document.
7.7 Judgments. One or more judgments or decrees shall be
entered against Borrower involving a liability of $100,000 or more in the case
of any one such judgment or decree and $100,000 or more in the aggregate for all
such judgments and decrees (in either case in excess of the amount covered by
insurance as to which the insurance company has acknowledged coverage) and (i)
any such judgments or decrees shall not have been vacated,
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discharged, bonded or enforcement thereof stayed pending appeal within sixty
days from the entry thereof or (ii) any enforcement proceeding therefor shall
have been commenced.
Then, and in any such event, and at any time thereafter, if
any Event of Default shall then be continuing, Lender shall, by written notice
to Borrower, take any or all of the following actions, without prejudice to the
rights of Lender, to enforce its claims against Borrower; provided, however,
that, if an Event of Default specified in Section 7.5 shall occur, the result
which would occur upon the giving of written notice by Lender as specified in
clauses (i) and (ii) below shall occur automatically without the giving of any
such notice): (i) terminate the availability of any Loan not theretofore made to
Borrower and/or accelerate the maturity date of each Loan outstanding and
declare the principal of and accrued interest in respect of each such Loan, and
all other Obligations owing hereunder and under any Loan Document, to be
immediately due and payable, whereupon the same shall become, forthwith due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by Borrower, and/or (ii) enforce any or all of the
remedies created pursuant to the Security Documents.
SECTION 8. Miscellaneous.
8.1 Payment of Expenses, etc. Borrower agrees to: (i) pay all
reasonable out-of-pocket costs and expenses of Lender (including, without
limitation, the reasonable attorneys' fees and disbursements in connection with
the enforcement of, or the preservation of rights under, this Agreement and any
of the other Loan Documents (including, without limitation, in any bankruptcy,
insolvency, reorganization or similar proceedings); (ii) pay and hold Lender
harmless from and against any and all present and future stamp and other similar
taxes with respect to this Agreement and the other Loan Documents and save
Lender harmless from and against any and all liabilities with respect to or
resulting from any delay or omission (other than to the extent attributable to
Lender) to pay such taxes; (iii) pay all filing and recording fees relating to,
and taxes and other charges incurred in connection with, perfecting, maintaining
and protecting the Liens created or contemplated to be created pursuant to the
Security Documents; and (iv) indemnify Lender, its officers, directors,
employees, representatives and agents from and hold each of them harmless
against any and all losses, liabilities, claims, damages, costs or expenses
incurred by any of them (except to the extent resulting from their gross
negligence or willful misconduct) as a result of, or arising out of, or in any
way related to, or by reason of, any investigation, litigation or other
proceeding (whether or not Lender is a party thereto) related to the entering
into and/or performance of any Loan Document or the use of the proceeds of each
Loan hereunder or the consummation of any other transactions contemplated in any
Loan Document, including, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation,
litigation or other proceeding.
8.2 Right of Set-off. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and during the continuance of
an Event of Default, Lender is hereby authorized at any time or from time to
time thereafter, without presentment, demand, protest or other notice
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of any kind to Borrower or to any other Person, any such notice being hereby
expressly waived, to set off and to appropriate and apply any and all deposits
(general or special) and any other Indebtedness at any time held or owing by
Lender to or for the credit or the account of Borrower against and on account of
the Obligations of Borrower to Lender under this Agreement or under any of the
other Loan Documents, and all other claims of any nature or description arising
out of or connected with this Agreement or any other Loan Document, irrespective
of whether or not Lender shall have made any demand hereunder and although said
Obligations, liabilities or claims, or any of them, shall be contingent or
unmatured.
8.3 Notices. Except as otherwise expressly provided herein,
all notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, telecopier or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered, if to Borrower to:
▇▇▇▇/Biophile International Corp., ▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇. with a copy to: Marks & Murase LLP, ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇; if to Lender, at
Clearwater Fund IV, LLC, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ #▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇,
with a copy to: Rosenman & Colin LLP, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇; or, at such other address as shall be
designated by any party in a written notice to the other parties hereto. All
such notices and communications shall, when mailed, be effective upon receipt,
or when telegraphed, telexed, telecopied, or cabled or sent by overnight
courier, be effective when delivered to the telegraph company, cable company or
overnight courier, as the case may be, or when sent by telex or telecopier.
8.4 Benefit of Agreement. (a) This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto, all
future holders of each Note, and their respective successors and assigns.
Borrower may not assign or delegate any of its rights and obligations hereunder
without the prior written consent of Lender.
(b) Lender shall have the right to transfer or assign all or
any part of each Note. Lender may furnish any information concerning Borrower in
the possession of Lender from time to time to assignees (including prospective
assignees).
8.5 No Waiver; Remedies Cumulative. No failure or delay on the
part of Lender in exercising any right, power or privilege under this Agreement
or under any other Loan Document and no course of dealing between Borrower and
Lender shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power, or privilege hereunder or under any other Loan
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder or thereunder. The rights and remedies
herein expressly provided are cumulative and not exclusive of any rights or
remedies which Lender would otherwise have. No notice to or demand on Borrower
in any case shall entitle Borrower to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of Lender to
any other or further action in any circumstances without notice or demand.
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8.6 Governing Law; Submission to Jurisdiction; Venue.
(a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK
OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, BORROWER AND LENDER HEREBY IRREVOCABLY ACCEPT
FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTY, GENERALLY AND UNCONDITIONALLY,
THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS.
(b) BORROWER AND LENDER HEREBY IRREVOCABLY WAIVE ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE
AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE
(a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM
IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
8.7 Counterparts. This Agreement may be executed in any number
of counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument. A set of
counterparts executed by all the parties hereto shall be lodged with Borrower
and Lender.
8.8 Headings Descriptive. The headings of the several sections
and subsections of this Agreement are inserted for convenience only and shall
not in any way affect the meaning or construction of any provision of this
Agreement.
8.9 Amendment or Waiver. Neither this Agreement nor any other
Loan Document nor any terms hereof or thereof may be changed, waived, discharged
or terminated unless such change, waiver, discharge or termination is in writing
signed by the parties hereto.
8.10 WAIVER OF JURY TRIAL. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
8.11 Independence of Covenants. All covenants hereunder shall
be given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitation of, another covenant shall
not avoid the occurrence of a Default or an Event of Default if such action is
taken or condition exists.
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8.12 Entire Agreement. This Agreement together with the other
Loan Documents embodies the entire agreement and understanding among the parties
hereto and supersedes all prior agreements and understandings relating to the
subject matter hereof.
8.13 Execution by Facsimile Transmission. This Agreement may
be validly executed and delivered by exchange of executed signature pages by
facsimile transmission, provided that original executed signature pages are
promptly delivered to each party thereafter by overnight courier.
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IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Agreement to be duly executed and delivered as of the date
first above written.
CLEARWATER FUND IV, LLC
By: ____________________________________
Name:
Title:
▇▇▇▇/BIOPHILE INTERNATIONAL CORPORATION
By: ____________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇.
Title: Chairman & CEO
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