EXHIBIT 10.3
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SPECIALIZED SMALL BUSINESS INVESTMENT COMPANY
3% PREFERRED STOCK REPURCHASE AGREEMENT
BETWEEN
Capital Dimensions Venture Fund, Inc. (the "SSBIC"), BUYER,
and
U.S. Small Business Administration, ("SBA"), SELLER
Dated March 31, 1993
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TABLE OF CONTENTS
Article 1 Definitions . . . . . . . . . . . . . . . . . . .
Article 2 Repurchase and Sale of Shares . . . . . . . . . .
Article 3 Preferential Liquidating Interest . . . . . . . .
Article 4 Conditions Precedent. . . . . . . . . . . . . . .
Article 5 Covenants, Representations and Warranties
of the SSBIC. . . . . . . . . . . . . . . . . . .
Article 6 Expenses. . . . . . . . . . . . . . . . . . . . .
Article 7 Events of Default and Remedies. . . . . . . . . .
Article 8 Termination . . . . . . . . . . . . . . . . . . .
Article 9 Miscellaneous . . . . . . . . . . . . . . . . . .
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SPECIALIZED SMALL BUSINESS INVESTMENT COMPANY
3% PREFERRED STOCK REPURCHASE AGREEMENT
This Repurchase Agreement ("Agreement") , dated March 31, 1993, by and between
Capital Dimensions Venture Fund, Inc. (the "SSBIC"), a small business investment
company licensed under Section 301(d) of the Small Business Investment Act of
1958, as amended (15 U.S.C. Sections 661 ET. SEQ.) (the "Act"), having an office
at ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇ and the U.S.
Small Business Administration ("SBA"), an agency of the United States and its
successors and assigns, having an office at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇,
▇.▇. ▇▇▇▇▇.
W I T N E S S E T H:
WHEREAS, pursuant to Public Law 101-162 (November 21, 1989), SBA is authorized
to allow the issuer of any 3% preferred stock sold to SBA to redeem or
repurchase such stock upon the payment to SBA of an amount less than the par
value of the stock;
WHEREAS, SBA is the owner of 20,000 shares of $500.00 par value per share three
percent (3%) preferred stock (the "Preferred Stock"), of which the SSBIC is the
issuer, of which 20,000 shares (the "Shares") are being repurchased by the SSBIC
from SBA pursuant to this Agreement;
WHEREAS, the SSBIC has completed an "Application for Repurchase of 3% Preferred
Stock held by the Small Business Administration pursuant to Public Law 101-162,
November 21, 1989," dated August 25, 1992 (the "Application"), which is hereby
incorporated herein by reference, pursuant to which the SSBIC has applied to SBA
for the repurchase of the Shares; and
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WHEREAS, the SSBIC desires to repurchase from SBA, and SBA desires to sell to
the SSBIC, the Shares upon the terms and subject to the conditions set forth
herein;
NOW, THEREFORE, in consideration of the value received and the covenants
contained herein, the parties hereto hereby represent and agree as follows:
ARTICLE 1. DEFINITIONS
For the purposes of the Repurchase Documents (as defined below), the following
terms shall have the meanings assigned to them in this Article 1; all other
capitalized terms shall have the meanings assigned to them in Part 107 of Title
13 of the Code of Federal Regulations:
"APPLICATION" shall mean the Application dated August 25, 1992 for the
Repurchase of 3% Preferred Stock Held By the U.S. Small Business Administration
Pursuant to Public Law 101-162, November 21, 1989.
"ASSETS" shall mean all of the SSBIC's real or personal property (tangible or
intangible) of whatever nature and wherever located, whether now owned or
hereafter acquired, including but not limited to, all fixed assets, fixtures,
cash, inventory, notes receivable, accounts receivable, contract rights, choses
in action, causes of action, instruments, documents, electronic business
records, licenses, warranties, rights to indemnification, leasehold and
subleasehold interests in real or personal property, security interests held by
or granted to the SSBIC, tax refunds, tax refund claims, partnership and joint
venture interests, goodwill, general intangibles, all securities including
common stock, preferred stock, stock options, warrants, rights to purchase
securities,
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and debentures, and all rights to payment of money, together with all additions
and accessions thereto, all replacements and substitutions thereof, all proceeds
thereof, and all assets created therefrom.
"COLLATERAL" shall have the meaning set forth in the Security Agreement as
defined below.
"CORPORATE OFFICIAL" shall mean those officer(s) of the corporation authorized
in the name and on the behalf of the SSBIC to prepare, file, and execute all
documentation and instruments required by SBA in connection with the
Application.
"DISCOUNT" shall mean the amount by which the aggregate par value of the 3%
preferred stock being repurchased exceeds the Purchase Price.
"ESCROW AGENT" shall mean Legal and Security Services, Inc., or any successor
thereto, as agent of SBA, which agency is created pursuant to the Escrow
Agreement.
"ESCROW AGREEMENT" shall mean the Escrow Agreement, dated the date hereof, among
SBA, the SSBIC and the Escrow Agent, in the form set forth in Exhibit 1 hereto.
"INDEBTEDNESS" shall mean (a) all indebtedness for borrowed money, and (b) all
obligations evidenced by bonds, debentures, notes or other similar instruments,
other than indebtedness held or guaranteed by SBA.
"LIQUIDATING INTEREST" shall mean a preferential limited ownership interest in
the Restricted Contributed Capital surplus account granted to SBA by the SSBIC
as of the date of this Agreement. The initial value of the Liquidating Interest
shall equal the amount of the Discount.
"NOTE" shall have the meaning set forth in Section 2.2 hereof.
"PURCHASE PRICE" shall have the meaning set forth in Section 2.2 hereof.
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"REPURCHASE DOCUMENTS" shall mean this Agreement, the Note, the Security
Agreement, the Application, the Escrow Agreement, and any and all ancillary
documents and statements executed, delivered or filed in connection therewith,
as they may be amended from time to time.
"RESTRICTED CONTRIBUTED CAPITAL SURPLUS" shall have the meaning set forth in
Section 3.1 hereof.
"SBA REGULATIONS" shall mean Title 13 of the Code of Federal Regulations Part
107, as amended.
"SECURITY AGREEMENT" shall mean the Security Agreement, dated of even date
herewith, by the SSBIC in favor of SBA, in the form set forth in Exhibit 2
hereto.
"SHARES" shall mean the aggregate number of shares of 3% preferred stock being
repurchased, as set forth in the recitals hereto.
ARTICLE 2. REPURCHASE AND SALE OF SHARES
2.1 REPURCHASE AND SALE. On the terms and subject to the conditions
hereinafter set forth, the SSBIC hereby agrees to repurchase from SBA,
and SBA agrees to sell, convey, transfer and assign to the SSBIC the
Shares, including the right to any unpaid dividends accrued thereon.
2.2 PRICE TO BE PAID. The purchase price to be paid by the SSBIC to SBA
for the Shares is $178.5789 per share, or $3,571,578 (the "Purchase
Price"), to be paid as follows: $3,571,578 by promissory note of the
SSBIC payable to SBA, in the form set forth in Exhibit 3 hereto (the
"Note").
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ARTICLE 3. PREFERENTIAL LIQUIDATING INTEREST AND SECURITY INTEREST
3.1 GRANT OF LIQUIDATING INTEREST. In consideration for the approval and
sale of the Shares at the Purchase Price,
(a) the SSBIC has established a new capital account designated
RESTRICTED CONTRIBUTED CAPITAL SURPLUS which, pursuant to Section
5.17 hereof, the SSBIC agrees to credit in an amount equal to the
Discount, and
(b) the SSBIC hereby grants to SBA the Liquidating Interest in the
Restricted Contributed Capital Surplus Account.
The initial value of the Liquidating Interest shall be equal to the
amount of the Discount and shall decline on a straight-line basis at
the end of each quarter by an amount equal to 1/28th (3.571426%) of
its original amount. In the event the Note is paid in full subsequent
to the date sixty (60) months from the date of this Agreement, the
Liquidating Interest shall be extinguished. In the event the Note is
paid in full prior to sixty (60) months from the date of this
Agreement, then the balance of the Liquidating Interest as of such
date shall thereafter decline at the end of each month by an amount
equal to the remaining amount of the Liquidating Interest divided by
the difference between sixty (60) months and the number of months
expired since the date of this Agreement. Upon written notification
by SBA of the occurrence of any Event of Default (as hereinafter
defined), the value of the Liquidating Interest shall become fixed at
the level immediately preceding the Event of Default and shall not
decline further until such time as the default is
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cured or waived. Subsequent to the cure or waiver of the default, the
Liquidating Interest shall continue to decline at the rate set forth
in this Section 3.1.
3.2 EXPIRATION OF THE LIQUIDATING INTEREST. The Liquidating Interest
shall expire on the latest to occur of (i) the date sixty (60) months
from the date of this Agreement, (ii) the date that the Note shall be
paid and satisfied in full, or (iii) if an Event of Default has
occurred and such default has been cured or waived, such later date on
which the Liquidating Interest is fully amortized.
3.3 EFFECT OF LIQUIDATION. The SSBIC agrees that if, prior to the
expiration of the Liquidating Interest as set forth above, its Board
of Directors or its shareholders authorizes the liquidation of the
SSBIC, or a judicial order is issued directing the voluntary or
involuntary liquidation of the SSBIC, or SBA initiates receivership or
liquidation proceedings, any assets which are available after the
payment or the provision for the payment of all debts of the SSBIC
shall be distributed first to SBA, until the fair market value of such
assets is equal to the amount of the Liquidating Interest or all
remaining assets have been distributed to SBA.
3.4 SECURITY INTEREST. The SSBIC will grant SBA a security interest in
the Collateral. The nature and terms of this security interest are
contained in the Security Agreement of even date herewith. With
respect to any securities which are now or hereafter become publicly
traded, the SSBIC will allow SBA to perfect such security interest by
conveying all such securities to the Escrow Agent in accordance with
the Escrow Agreement, also of even date herewith.
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ARTICLE 4. CONDITIONS PRECEDENT
The agreement of SBA to sell the Shares to the SSBIC on the terms set forth
herein is subject to the satisfaction of the following conditions
precedent:
4.1 EXECUTION OF THIS AGREEMENT. SBA shall have received one or more
originals of this Agreement, executed and delivered by the Corporate
Official of the SSBIC.
4.2 NOTE. SBA shall have received the Note, conforming to the
requirements hereof and executed and delivered by the Corporate
Official of the SSBIC.
4.3 CORPORATE PROCEEDINGS. SBA shall have received a copy of the
resolutions, in form and substance satisfactory to SBA, of the Board
of Directors of the SSBIC authorizing:
(i) the execution, delivery and performance of the Repurchase
Documents,
(ii) the grant of the Liquidating Interest to SBA; and
(iii) the grant of a security interest in the Collateral pursuant
to the Security Agreement.
in each case certified by the Secretary of the SSBIC as of the date
hereof, with such certificate stating that the resolutions have not
been amended, modified, revoked or rescinded as of the date of such
certificate.
4.4 CHARTER AMENDMENT AND NEW CAPITAL ACCOUNT. SBA shall have received
evidence satisfactory to it that the SSBIC has amended its charter or
Articles of Incorporation to provide for the Liquidating Interest and
has established the Restricted Contributed Capital Surplus Account in
its system of accounts.
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4.5 REVISED CAPITAL ACCOUNTS. SBA shall have received revised financial
statements on SBA Form 468 which reflect adjustments to the SSBIC's
capital accounts as required by Section 5.18 of this Agreement.
4.6 SECURITY AGREEMENT. SBA shall have received the Security Agreement,
conforming to the requirements hereof and duly executed and delivered
by the SSBIC.
4.7 SECURITIES AND NEGOTIABLE INSTRUMENTS. SBA, or the Escrow Agent,
shall have received the securities and instruments in which SBA is
perfecting a security interest under the Security Agreement,
accompanied by an undated blank stock power or assignment for each
such item as is appropriate for such item, duly executed with the
signature guaranteed and delivered by the Corporate Official of the
SSBIC.
4.8 PERFECTION OF SBA SECURITY INTEREST. SBA shall have received evidence
satisfactory to it that the SSBIC has signed all documentation, taken
all actions, made all arrangements, and paid all fees necessary to
perfect the security interest granted by the Security Agreement.
4.9 OPINION OF COUNSEL. SBA shall have received an opinion of counsel, in
the form attached hereto as Exhibit 4, from independent counsel
satisfactory to SBA.
4.10 ESCROW AGREEMENT.. SBA shall have received the Escrow Agreement,
conforming to the requirements hereof and duly executed and delivered
by the SSBIC and the Escrow Agent.
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4.11 ADDITIONAL MATTERS. All proceedings and all documents, instruments
and other legal matters in connection with the repurchase and sale
contemplated herein shall be satisfactory in form and substance to
SBA.
ARTICLE 5. COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE SSBIC
In order to induce SBA to enter into this Agreement and to allow the SSBIC
to repurchase its 3% preferred stock at the Purchase Price, the SSBIC
hereby represents and warrants to and agrees with SBA that:
5.1 ORGANIZATION AND GOOD STANDING. The SSBIC is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. The SSBIC is duly licensed as a small
business investment company under Section 301(d) of the Act.
5.2 AUTHORITY. The SSBIC has the power, authority and legal right to
execute, deliver and perform the Repurchase Documents and the SSBIC
has taken all necessary action to authorize the execution, delivery
and performance of the Repurchase Documents. No consent of any other
person or entity is required in connection with the execution,
delivery, performance, validity or enforceability of the Repurchase
Documents by or against the SSBIC. The Repurchase Documents have been
executed and delivered by the Corporate Official of the SSBIC and the
Repurchase Documents constitute the legal, valid and binding
obligations of the SSBIC enforceable against the SSBIC in accordance
with their respective terms
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except as enforceability may be limited by bankruptcy, insolvency,
moratorium, reorganization or other similar laws affecting creditors'
rights generally and except as enforceability may be limited by
general principles of equity.
5.3 NO VIOLATIONS. The SSBIC is not in violation of its charter or
by-laws, or its small business investment company license, or any
material provision of the Act or the SBA Regulations except as
previously disclosed to SBA in writing. The execution, delivery and
performance of the Repurchase Documents will not violate any provision
of any existing law and will not result in any violation of the
charter or by-laws of the SSBIC and will not constitute a default
under or a violation of any agreement to which the SSBIC is a party,
and will not result in the imposition of any lien (other than under
the Security Agreement) on any of the SSBIC's assets.
5.4 MANAGEMENT AND OWNERSHIP. There has been no change in the officers,
directors, beneficial owners of 10 percent or more of the securities
of SSBIC, or the control (as defined in SBA Regulations) of the SSBIC,
since the issuance of its small business investment company license,
except as indicated by post-licensing amendment(s) heretofore filed
with and approved by SBA. The SSBIC will not change any of its
officers, directors, managers or investment advisers, and will not
allow any change in the beneficial owners of 10 percent or more of its
securities, without the prior written approval of SBA granted
subsequent to the date hereof.
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5.5 INVESTMENT POLICY, OPERATIONS AND CAPITAL. There has been no change
in the investment policy or operations, and no decrease in the
capital, of the SSBIC since the issuance of its small business
investment company license, except as indicated by post-licensing
amendment(s) and financial reports heretofore filed with and approved
by SBA. The SSBIC will not change its investment policy or operations
and will not decrease capital without the prior written approval of
SBA granted subsequent to the date hereto.
5.6 PROCEEDS FROM INELIGIBLE INVESTMENTS. The SSBIC agrees to liquidate
its holdings of publicly traded ineligible investments (as defined in
Section 5.19 hereof) within two years of the date of this Agreement.
With respect to non-publicly traded ineligible investments, the SSBIC
will submit a plan within 3 months of the date hereof, acceptable to
SBA, for the orderly liquidation of these investments. Upon the sale
of any ineligible investment, the SSBIC shall, at its option, use the
proceeds for any of the following four purposes:
(i) for investment in eligible small concerns,
(ii) to prepay principal installments of the Note, in inverse
order of maturity,
(iii) to pay operating expenses of the SSBIC incurred in the
normal course of business, or
(iv) to be held in an escrow account for the benefit of SBA.
5.7 MATERIAL ADVERSE CHANGE. There has been no material adverse change in
the financial condition of the SSBIC since the filing of its last
fiscal year-end audited
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Financial Report (SBA Form 468), dated December 31, 1991 (the "Audited
Financial Report"), except as indicated by the unaudited interim
Financial Report, dated June 30, 1992 filed with the Application (the
"Application Financial Report").
5.8 FINANCIAL CONDITION. The Audited Financial Report and the Application
Financial Report present fairly the financial condition of the SSBIC
as of their respective dates, and were prepared in accordance with SBA
Regulations. The SSBIC has no contingent assets in the form of claims
or contingent liabilities not provided for or disclosed in the Audited
Financial Report or the Application Financial Report.
5.9 NO LITIGATION. There is no claim, action, suit or proceeding pending
or, to the knowledge of the SSBIC, threatened against or relating to
the SSBIC or any of its affiliates before any court or governmental
authority (including without limitation any proceeding or action for
the assessment or collection of additional taxes) which might have a
material adverse effect on the business, assets or financial condition
of the SSBIC.
5.10 NO LIENS, ETC. The SSBIC has good and marketable title to all its
Assets, subject to no liens except the lien created under the Security
Agreement and other liens as set forth in Schedule I hereto. The
SSBIC has not contracted with any person or entity the result of which
is the attachment or perfection of any security interest in any of the
SSBIC's Assets or contingent claims, nor has the SSBIC pledged,
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hypothecated, or assigned any of its Assets or contingent claims,
except as reported in the Application.
5.11 INSIDER FINANCING. The SSBIC has no outstanding loans, investments
in, or advances to or from any officer, director, stockholder, or
other Associate (as defined in 13 CFR Section 107.3) of the SSBIC rot
heretofore disclosed to SBA and, if required, approved in writing by
SBA; nor has the SSBIC made or received any loan, investment, or
advance to or from any of its Associates or, knowingly, to or from any
Associate of another licensed specialized or regular small business
investment company, without disclosure to SBA or, if required, SBA's
prior written approval.
5.12 NO REDEMPTION. Notwithstanding the provisions of Section 107.802 of
SBA Regulations, as long as this Agreement is in effect, the SSBIC
will not purchase, redeem, retire or otherwise acquire directly or
indirectly any shareholder's interest in the SSBIC now or hereafter
outstanding, or set aside any sum for such purpose, without the prior
written consent of SBA granted subsequent to the date hereof.
5.13 NO DISPOSITION OF ASSETS. Without the prior written consent of SBA
granted subsequent to the date hereof, the SSBIC will not, other than
in the ordinary course of business, sell, contract to sell, lease,
assign, mortgage, dispose of or otherwise transfer any of its Assets,
or any part thereof or interest therein, whether now owned or
hereafter acquired, either permanently, temporarily, finally or
contingently. The SSBIC will notify SBA of each proposed disposal of
an asset in
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which SBA has a security interest except those disposed of in the
ordinary course of business.
5.14 INDEBTEDNESS. As long as this Agreement is in effect, the SSBIC will
not, without the prior written consent of SBA granted subsequent to
the date hereof, create, incur, assume or suffer to exist any
Indebtedness, except for:
(a) Indebtedness in respect of the Note; and
(b) Indebtedness existing on the date hereof set forth on Schedule II
hereof, and any Indebtedness resulting from the refinancing of
any such Indebtedness, PROVIDED that the principal amount of any
such refinancing Indebtedness (as determined as of the date of
the incurrence of such refinancing Indebtedness) does not exceed
the principal amount of the Indebtedness refinanced thereby.
5.15 NO SUBSIDIZED FUNDS. No portion of the Purchase Price, including any
and all payments made under the Note, shall be derived, either
directly or indirectly, from the issuance of preferred stock to SBA or
from funds acquired or borrowed from SBA after November 21, 1989.
Payments made within 90 days of such issuance of preferred stock or
receipt of subsidized funds shall be presumed to have been derived
therefrom. It is explicitly recognized by SBA and the SSBIC that the
refinancing of $3,000,000 of the SSBIC's Debentures by way of the
purchase by SBA of $3,000,000 of 4% Preferred Stock will not be deemed
to be funds
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acquired or borrowed from SBA with respect to the conditions and
limitations of this paragraph.
5.16 CANCELLATION OF STOCK. The SSBIC will take any and all action
necessary to cancel the Shares immediately upon the repurchase and
receipt thereof from SBA.
5.17 RESTRICTED CONTRIBUTED CAPITAL SURPLUS ACCOUNT. The SSBIC hereby
agrees that the Restricted Contributed Capital Surplus Account will be
used solely for the purpose of recording the Discount on the accounts
of the SSBIC. The SSBIC further agrees that, within 30 days of the
consummation of the purchase of the Shares, the appropriate series of
accounting entries will be made, in accordance with generally accepted
accounting principles, to reflect the purchase transaction and to
credit the Restricted Contributed Capital Surplus Account in a dollar
amount equal to the Discount.
5.18 REGULATORY TREATMENT. Notwithstanding anything contained in SBA
Regulations to the contrary, the balance in the Restricted Contributed
Capital Surplus Account shall:
(a) be included in the definition of Private Capital set forth in 13
CFR 107.3, DEFINITIONS,
(i) for the purpose of calculating the OVERLINE LIMITATION
pursuant to 13 CFR 107.303; and
(ii) for the purpose of calculating CAPITAL IMPAIRMENT pursuant
to SBA Regulations;
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(b) not be included in the definition of Private Capital set forth in
13 CFR 107.3, DEFINITIONS,
(i) for the purpose of reaching the MINIMUM CAPITAL requirement
pursuant o 13 CFR 107.101(d);
(ii) as the base for calculating leverage eligibility pursuant to
SBA Regulations; and
(iii)for any other purpose not set forth above;
and
(c) not be considered assets, income or gain for any purpose
whatsoever, including the determination of compensation for any
officer or employee of the SSBIC; and
(d) not be used for any other purpose not set forth above.
5.19 ADJUSTED REGULATORY CAPITAL. Contemporaneously with the adjustments
required in Section 5.17, the SSBIC will restate its capital accounts
as follows (all capitalized terms used in this Section 5.19 refer to
line items on SBA Form 468 and the conventions and requirements with
respect thereto):
(a) Any Unrealized Depreciation will be eliminated by writing down
the value of securities which have unrealized depreciation.
Valuations shall be as of March 31, 1993 in the case of publicly
traded and marketable securities, and December 31, 1992 in the
case of all other securities. The effect of
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this will be to increase the cumulative Net Realized Loss through
the date of the adjustment.
(b) Unrealized Appreciation will be eliminated by writing up the
value of securities to which the appreciation pertains, but only
for publicly traded and marketable securities. Valuations shall
be as of March 31, 1993. Where appropriate, values shall be
reduced for lack of liquidity, restrictions on sale, and other
conditions which would limit the ability to realize the current
market price.
(c) Following the adjustments in (a) and (b) above, the SSBIC will
eliminate the Undistributed Realized Deficit by simultaneously
reducing Paid-In Surplus.
(d) In addition, the SSBIC acknowledges that it has held and, as of
the date of this Agreement, continues to hold investments which
do not qualify as eligible investments for an SSBIC ("ineligible
investments"). A list of all such investments is set forth on
Schedule III hereto. In the determination of Private Capital for
leverage purposes, the SSBIC's capital accounts have been and
will continue to be reduced by the cost basis of these ineligible
investments. Conversion of ineligible investments into cash will
result in a dollar for dollar increase in Private Capital for all
SBIC program purposes, including leverage.
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(e) Paid-In Capital Stock and Surplus, as revised pursuant to
Paragraph (c) of this Section 5.19 and as set forth on Schedule
IV hereto, shall be the amount of the SSBIC'S Private Capital for
all purposes, including leverage eligibility and regulatory
compliance; PROVIDED, HOWEVER, that any adjustments required by
this Section 5.19 shall not give rise to an Event of Default for
failure to maintain minimum regulatory capital or for violation
of the OVERLINE LIMITATION pursuant to 13 CFR 107.303.
(f) All adjustments required by Section 5.19 will be reflected in the
financial statements immediately following the completion of the
repurchase transaction, and will form the basis of continuing
financial reporting to SBA. These adjustments will also be
subject to subsequent annual external audit for SBA purposes and
examination by the Office of SBIC Examinations.
5.20 ADDITIONAL PRIVATE CAPITAL. The SSBIC is currently exploring the
feasibility of issuing additional equity securities. In keeping with
one of the stated purposes of the repurchase program, the SSBIC will
use its best efforts to increase its Private Capital by $10,000,000
during the next five years.
5.21 LEVERAGE.
(a) The outstanding principal amount of the Note shall be included in
the aggregate amount of debentures outstanding for purposes of
determining the amount of leverage (as defined in 13 CFR 107.3)
available to the
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SSBIC. The balance in the Restricted Contributed Capital Surplus
Account shall not be considered leverage outstanding for purposes
of SBA Regulations.
(b) Contemporaneously with the consummation of this repurchase
transaction, SBA will refinance $3,000,000 of the SSBIC's
debentures currently on demand via the purchase by SBA of
$3,000,000 par value of the SSBIC's 4% Preferred Stock.
Following the conversion of the $3 million of demand debentures
and the execution and delivery of the Note, the SSBIC will be
ineligible for additional leverage until the SSBIC increases its
Private Capital by $3,600,000. For this purpose, Private Capital
can be increased by any one or combination of the following: (i)
the sale of new shares of common stock for cash, (ii)
capitalization of retained earnings available for capitalization
in accordance with SBA accounting guidelines, or (iii) conversion
of ineligible investments into cash. The SSBIC will be
prohibited from paying or accruing dividends or other similar
distributions to non-SBA stockholders until Private Capital has
been increased by $3,600,000.
5.22 MISREPRESENTATION. None of the Repurchase Documents, or any
statement, financial statement, or certification furnished to SBA by
or on behalf of the SSBIC in connection therewith, contains an untrue
statement of a material fact, or omits to state a material fact
necessary to make the statements contained therein not
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misleading or, insofar as the SSBIC can now foresee, may in the future
materially adversely affect the Collateral or the financial condition
of the SSBIC. All statements, representations and warranties made in
this Agreement and the other Repurchase Documents are true and
complete and are made for the purpose of inducing SBA to enter into
this Agreement and the other Repurchase Documents and consummate the
transactions contemplated hereunder and thereunder, and are made with
the full knowledge of the provisions of ▇▇ ▇.▇.▇. ▇▇▇, ▇▇ ▇.▇.▇. ▇▇▇▇,
and 18 U.S.C. 1006, which provide certain criminal penalties for
making false statements or representations.
ARTICLE 6. EXPENSES
The SSBIC agrees to pay all fees of the Escrow Agent and all reasonable
expenses incurred by the SSBIC and SBA which are directly related to the
negotiation and preparation of this Agreement and the other Repurchase
Documents or to the consummation of the transactions provided for herein
and therein. Such expenses include but are not limited to legal fees,
accounting fees, consultant fees, filing and documentary fees,
administrative fees, and any user fee SBA may deem appropriate to recover
the costs and provide for the administration of the transactions
contemplated herein and in the other Repurchase Documents. SBA represents
that the $5,000 paid in conjunction with the Repurchase Application and
related transactions will cover the SBA expenses incurred with respect to
this transaction.
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ARTICLE 7. EVENTS OF DEFAULT AND REMEDIES
7.1 EVENTS OF DEFAULT. The occurrence of one or more of the events listed
below ("Events of Default") shall constitute an Event of Default:
(a) PAYMENT. The SSBIC shall fail to pay any principal of, or
interest on, the Note within five days of the date on which any
payment of principal or interest is due; or fail to pay any of
the expenses referred to in Article 6 hereof within 15 days of
their due date; or
(b) COVENANTS AND AGREEMENTS. The SSBIC shall default in the
observance or performance of any covenant or agreement contained
in this Agreement or the other Repurchase Documents and such
default shall be material and shall continue un-remedied for a
period of 30 days after the SSBIC knew or should have known of
its existence, or such longer period as may be agreed to by SBA;
or
(c) REPRESENTATIONS AND WARRANTIES. The SSBIC shall have knowingly
made a false or materially incorrect representation or warranty
in any of the Repurchase Documents on or as of the date when made
or deemed to have been made, or any of the Repurchase Documents
shall prove to have been incomplete, incorrect, false or
misleading in any material respect on or as of the date thereof;
or
(d) SECURITY AGREEMENT EFFECTIVENESS. On or after the date of
execution and delivery thereof, if for any reason (other than any
act on the part of the
24
Escrow Agent or SBA and other than by mutual agreement between
the SSBIC, the Escrow Agent and SBA) the Security Agreement
ceases to be in full force and effect, or any of the security
interests intended to be created by the Security Agreement ceases
to be or is not a valid security interest having the priority
contemplated thereby, or any of the perfected security interests
intended to be created by the Security Agreement and the Escrow
Agreement ceases to be or is not a perfected security interest
having the priority contemplated thereby; or
(e) BANKRUPTCY OR REORGANIZATION.
(i) The SSBIC shall commence any case, proceeding or other
action:
(a) under any existing or future law of any jurisdiction
relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it
a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect
to it or its debts, or
(b) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any
substantial part of its assets, or the SSBIC shall make
a general assignment for the benefit of creditors,
25
(ii) there shall be commenced against the SSBIC any case,
proceeding or other action of a nature referred to in clause
(i) above which results in the entry of an order for relief
or any such adjudication or appointment or remains
undismissed, undischarged or unbonded for a period of 90
days,
(iii)there shall be commenced against the SSBIC any case,
proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against
all or any substantial part of its Assets which results in
the entry of an order for such relief which shall not have
been vacated, discharged, or stayed or bonded pending appeal
within 90 days from the entry thereof,
(iv) the SSBIC shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescent in,
any of the acts set forth in this Section 7.1, or
(v) the SSBIC shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as
they become due; or
(f) PRESERVATION OF SBA LIQUIDATING INTEREST. The SSBIC or any of
its Associates, without SBA's prior written approval granted
subsequent to the date hereof, enters into any transaction, or
permits any transaction the financial, legal, or economic effect
of which creates a significant
26
deterioration in the value of SBA s Liquidating Interest prior to
the expiration date thereof as set forth in this Agreement; or
(g) ENCUMBRANCE OR RESTRICTION ON ASSETS. The SSBIC or any of its
Associates, without SBA's prior written approval granted
subsequent to the date hereof, creates, incurs, assumes or
suffers to exist any mortgage, deed of trust, security interest,
pledge, hypothecation, assignment, deposit arrangement, set-off
right, purchase option, encumbrance, lien (statutory or other) or
other security agreement or preferential arrangement of any kind
or nature whatsoever upon any of the SSBIC's property or Assets,
whether now owned or hereafter acquired, except for:
(i) liens for taxes not yet due or which are being contested in
good faith and by appropriate proceedings if adequate
reserves with respect thereto are maintained on the books of
the SSBIC in accordance with generally accepted accounting
principles; and
(ii) liens in favor of SBA; or
(h) DIVIDENDS, DISTRIBUTIONS, BENEFITS, PAYMENTS. Until the SSBIC
has complied with Section 5.21(b) hereof, the SSBIC, without the
prior written consent of SBA granted subsequent to the date
hereof, declares, grants, contracts for, or pays any benefit,
dividend or distribution in cash or in kind (including any stock
dividend or transfer to surplus or retained earnings) to or for
the benefit of any of its Associates, directly or indirectly; or
makes
27
any payment, whether due or in advance of any due date, on any
obligation or debt due to any Associate (except for payments to
the SSBIC's parent company or the SSBIC's directors in the
ordinary course of business), or to any other regular or
specialized small business investment company or any Associate
thereof; or
(i) REMUNERATION, FEES, SALARIES, BENEFITS, EMOLUMENTS. The SSBIC,
without SBA's prior written approval granted subsequent to the
date hereof, increases the remuneration, fees salaries, benefits
or emoluments of any Associate; or
(j) JUDGMENTS AND DECREES. One or more judgments or decrees shall be
entered against the SSBIC involving in the aggregate a liability
(not paid or not fully covered by insurance as to which the
insurer has not disclaimed liability) of $500,000 or more and all
such judgments or decrees shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days
from the entry thereof; or
(k) VIOLATION OF GOVERNMENT REGULATIONS; CROSS-DEFAULT. The SSBIC
violates, knowingly or intentionally, any of the provisions of
the Act or SBA Regulations; or violates any provision of any
agreement with SBA; or is in default on any obligation to SBA
including the provisions of any Debenture or Preferred Stock
issued to SBA in connection with leverage (as defined in 13 CFR
107.3).
28
7.2 REMEDIES. Upon the occurrence of any Event of Default, SBA, directly
or through its duly appointed representative, shall be entitled to any
and all remedies available to it under the Repurchase Documents, the
Act, SBA Regulations, other applicable law and regulation and any
other agreement or instrument arising out of the repurchase of the
Shares, including but not limited to, declaring the Note to be
immediately due and payable, whereupon all unpaid principal of and
interest on the Note and other amounts declared or that automatically
become due and payable shall be and become immediately due and payable
without presentment, demand, protest or notice of any kind.
ARTICLE 8. TERMINATION
This Agreement shall be in all respects a continuing agreement and
shall remain in full force and affect until such time as the Note and
all other obligations under this Agreement and the other Repurchase
Documents shall be paid and satisfied in full and the Liquidating
Interest shall have expired.
ARTICLE 9. MISCELLANEOUS
9.1 NOTICES. All notices, consents, requests and demands to or upon the
respective parties hereto to be effective shall be in writing, and
shall be deemed to have been duly given or made when delivered by hand
or when deposited in the mail, certified mail, return receipt
requested, postage or delivery prepaid, to the address
29
appearing on the first page hereof or to such other address as may be
hereafter designated by any of the parties hereto.
9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made hereunder and in any document, certificate or
statement delivered pursuant hereto or in connection herewith,
including without limitation, the other Repurchase Documents and the
Application, shall survive the execution and delivery of this
Agreement.
9.3 NO WAIVER. SBA shall not by any act, delay, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have
acquiesced in any default or in any breach of any of the terms and
conditions hereof. The rights and remedies herein provided are not
exclusive of any rights or remedies provided by law.
9.4 SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
9.5 PARAGRAPH HEADINGS. The paragraph headings used in this Agreement are
for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the
interpretation hereof.
30
9.6 COUNTERPARTS. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts and
each such counterpart shall be deemed to be an original, and all such
counterparts taken together shall be deemed to constitute one and the
same instrument.
9.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the SSBIC and SBA and their respective
successors and assigns, except that the SSBIC may not assign or
transfer any of its respective rights or obligations under this
Agreement without the prior written consent of SBA.
9.8 GOVERNING LAW. This Agreement and the other Repurchase Documents and
the rights and obligations of the parties under this Agreement and the
other Repurchase Documents, shall be governed by, and construed and
interpreted in accordance with, applicable Federal law.
31
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
Capital Dimensions Venture Fund, Inc.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
----------------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
President
U. S. Small Business Administration
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
Associate Administrator for Investment
32
Schedule I
Liens
None
33
Schedule II
Indebtedness
None
34
Schedule III
Non Qualified SSBIC Investments
Post Reorganization
as of March 31, 1993
Cost
----
American Star Software $75,776
BI, Inc. 1,362,233
Cardinal Health Systems, Inc 741,446
Concourse Corporation 8,397
Micromedics 50,000
------
Total $2,237,852