EXHIBIT 4.1
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SILICON GAMING, INC.
_________________________
SECURITIES PURCHASE AGREEMENT
_________________________
300 UNITS
EACH CONSISTING OF
$100,000 AGGREGATE PRINCIPAL AMOUNT OF
SENIOR DISCOUNT NOTES
DUE SEPTEMBER 30, 2002
AND
1,250 WARRANTS TO PURCHASE COMMON STOCK,
PAR VALUE $.001 PER SHARE,
OF
SILICON GAMING, INC.
DATED AS OF SEPTEMBER 30, 1997
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TABLE OF CONTENTS
SECTION PAGE
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ARTICLE I DEFINITIONS AND ACCOUNTING TERMS....................................... 1
1.1 Definitions............................................................... 1
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1.2 Accounting Terms.......................................................... 22
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ARTICLE II PURCHASE AND SALE OF UNITS............................................ 22
2.1 Issuance of Units........................................................ 22
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2.2 Sale and Purchase of Units............................................... 23
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2.3 Closing of Sale of Units................................................. 23
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ARTICLE III CONDITIONS TO CLOSING................................................ 23
3.1 Conditions Precedent to Obligations of the Purchaser on the Closing Date. 23
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3.2 Conditions Precedent to Obligations of the Company on the Closing Date... 26
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ARTICLE IV REPRESENTATIONS AND WARRANTIES, ETC. ................................. 27
4.1 Organization and Qualification; Authority................................ 27
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4.2 Subsidiaries............................................................. 27
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4.3 Licenses................................................................. 28
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4.4 Corporate and Governmental Authorization; Contravention.................. 28
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4.5 Validity and Binding Effect.............................................. 28
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4.6 Capitalization........................................................... 29
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4.7 Litigation; Defaults..................................................... 29
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4.8 Outstanding Debt......................................................... 29
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4.9 No Material Adverse Change............................................... 30
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4.10 Employee Programs........................................................ 30
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4.11 Private Offering......................................................... 32
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4.12 Broker's or Finder's Commissions......................................... 32
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4.13 Disclosure............................................................... 33
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4.14 Foreign Assets Control Regulation, Etc................................... 33
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4.15 Federal Reserve Regulations and Other Matters............................ 33
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4.16 Investment Company Act................................................... 33
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4.17 Public Utility Holding Company Act....................................... 34
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4.18 Interstate Commerce Act.................................................. 34
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4.19 Environmental Regulation, Etc............................................ 34
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4.20 Properties and Assets.................................................... 35
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4.21 Insurance................................................................ 35
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4.22 Employment Practices..................................................... 36
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4.23 Financial Statements..................................................... 36
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4.24 Intellectual Property.................................................... 36
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(i)
SECTION PAGE
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4.25 Taxes.................................................................... 38
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4.26 Transactions with Affiliates............................................. 38
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4.27 Limitation on Subsidiary Payment Restrictions............................ 39
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4.28 No Other Business........................................................ 39
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ARTICLE V PURCHASE FOR INVESTMENT; SOURCE OF FUNDS............................... 39
5.1 Purchase for Investment.................................................. 39
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5.2 Authority................................................................ 39
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5.3 Broker's or Finder's Commissions......................................... 39
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5.4 Acknowledgment of Gaming Restrictions.................................... 40
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ARTICLE VI REDEMPTIONS AND OFFERS TO PURCHASE.................................... 40
6.1 Notice of Redemption..................................................... 40
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6.2 Selection of Senior Discount Notes to be Redeemed or Purchased........... 40
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6.3 Effect of Notice of Redemption........................................... 41
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6.4 Payment of Redemption Price.............................................. 41
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6.5 Senior Discount Notes Redeemed in Part................................... 41
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6.6 Optional and Mandatory Redemption........................................ 41
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6.7 Mandatory Offers......................................................... 43
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ARTICLE VII COVENANTS............................................................ 44
7.1 Payment of Senior Discount Notes......................................... 44
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7.2 Reports.................................................................. 45
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7.3 Compliance Certificate................................................... 45
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7.4 Stay, Extension and Usury Laws........................................... 46
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7.5 Limitation on Restricted Payments........................................ 47
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7.6 Corporate Existence...................................................... 47
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7.7 Limitation on Indebtedness............................................... 48
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7.8 Limitation on Transactions with Affiliates............................... 50
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7.9 Limitation on Liens...................................................... 51
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7.10 Payment of Taxes and Other Claims........................................ 51
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7.11 Restrictions Against Limitations on Upstream Payments.................... 52
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7.12 Change of Control........................................................ 52
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7.13 Redemption from the Proceeds of Securities Sales and Mezzanine Debt
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Financings............................................................... 52
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7.14 Maintenance of Properties................................................ 53
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7.15 Maintenance of Insurance................................................. 53
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7.16 Compliance with Laws..................................................... 53
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7.17 Limitation on Issuances and Dispositions of Capital Stock of Subsidiaries 54
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7.18 Limitation on Sale of Assets............................................. 54
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ARTICLE VIII SUCCESSORS.......................................................... 56
(ii)
SECTION PAGE
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8.1 Merger or Consolidation.................................................. 56
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8.2 Surviving Person Substituted............................................. 57
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ARTICLE IX DEFAULTS AND REMEDIES................................................. 57
9.1 Events of Default........................................................ 57
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9.2 Acceleration............................................................. 58
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9.3 Other Remedies........................................................... 59
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9.4 Waiver of Past Defaults.................................................. 59
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9.5 Control by a Majority.................................................... 59
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9.6 Rights of Holders to Receive Payment..................................... 59
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9.7 Holders May File Proofs of Claim......................................... 60
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9.8 Undertaking for Costs.................................................... 60
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ARTICLE X AMENDMENTS............................................................. 60
10.1 Amendments and Supplements Permitted Without Consent of Holders.......... 60
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10.2 Amendments and Supplements Requiring Consent of Holders; Other Consents.. 60
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10.3 Revocation and Effect of Consents........................................ 61
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10.4 Notation on or Exchange of Senior Discount Notes......................... 62
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10.5 Board Approval........................................................... 62
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ARTICLE XI THE SENIOR DISCOUNT NOTES............................................. 62
11.1 Form and Dating.......................................................... 62
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11.2 Execution and Authentication............................................. 62
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11.3 Transfer and Exchange.................................................... 63
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11.4 Replacement Senior Discount Notes........................................ 63
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11.5 Outstanding Senior Discount Notes........................................ 63
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11.6 Treasury Senior Discount Notes........................................... 64
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11.7 Temporary Senior Discount Notes.......................................... 64
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11.8 Cancellation............................................................. 64
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11.9 Defaulted Interest....................................................... 64
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11.10 Record Date.............................................................. 65
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11.11 CUSIP Number............................................................. 65
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11.12 Restrictive Legends...................................................... 65
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11.13 Notice of Transfer; Opinions of Counsel.................................. 66
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11.14 Security................................................................. 67
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ARTICLE XII INDEMNIFICATION...................................................... 69
12.1 Indemnification; Expenses, Etc........................................... 69
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ARTICLE XIII MISCELLANEOUS....................................................... 71
13.1 Survival of Representations and Warranties; Severability................. 71
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(iii)
SECTION PAGE
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13.2 Notices, Etc............................................................. 71
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13.3 Successors and Assigns................................................... 73
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13.4 Descriptive Headings..................................................... 73
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13.5 Satisfaction Requirement................................................. 73
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13.6 Governing Law............................................................ 73
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13.7 Service of Process....................................................... 73
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13.8 Counterparts............................................................. 74
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13.9 Disclosure to Other Persons.............................................. 74
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13.10 No Adverse Interpretation of Other Agreements............................ 74
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13.11 Waiver of Jury Trial..................................................... 74
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13.12 Merger................................................................... 75
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13.13 Expenses................................................................. 75
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13.14 Cooperation with Gaming Authorities...................................... 76
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13.15 Gaming Laws; Requisite Gaming Approvals.................................. 76
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13.16 Nevada Gaming Collateral................................................. 77
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13.17 Assistance with Gaming Approvals......................................... 77
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(iv)
SCHEDULES
Schedule 4.1 -- Qualified Jurisdictions
Schedule 4.2 -- Subsidiaries
Schedule 4.4 -- Approvals
Schedule 4.6 -- Agreements Affecting Securities
Schedule 4.7 -- Litigation; Defaults
Schedule 4.8 -- Debt and Other Liabilities
Schedule 4.9 -- Material Developments
Schedule 4.10 -- ERISA
Schedule 4.19 -- Environmental
Schedule 4.20 -- Liens
Schedule 4.21 -- Insurance
Schedule 4.22 -- Employment Matters
Schedule 4.24 -- Intellectual Property
Schedule 4.25 -- Taxes
Schedule 4.26 -- Transactions with Affiliates
Schedule 4.27 -- Subsidiary Payment Restrictions
EXHIBITS
Exhibit A -- Form of Senior Discount Note
Exhibit B -- Form of Opinion of ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Freidenrich
Exhibit C -- Form of Registration Rights Agreement
Exhibit D -- Form of Warrant Agreement
(v)
SILICON GAMING, INC.
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of September
30, 1997, is entered into by and between Silicon Gaming, Inc., a California
corporation (the "Company"), and the purchaser listed on the signature page
hereto (the "Purchaser"). Unless otherwise defined, capitalized terms used in
this Agreement are defined in Article I; references to a "Schedule" or an
"Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached
to this Agreement; references to a "section" or a "subdivision" are, unless
otherwise specified, to a section or a subdivision of this Agreement.
The Company, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, agrees with the Purchaser as
follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.1 Definitions. In addition to any terms defined elsewhere in this
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Agreement, unless otherwise specifically provided herein, the following terms
shall have the following meanings for all purposes when used in this Agreement,
and in any note, agreement, certificate, report or other document made or
delivered in connection with this Agreement:
"Additional Interest" has the meaning ascribed thereto in Section 11.14(f)
hereof.
"Accreted Value" means, with respect to any Senior Discount Note and as of
any date before September 30, 2002, the sum of (a) the issue price of such
Senior Discount Note (which shall be equal to $730.58 per $1,000 principal
amount at maturity of the Senior Discount Notes) and (b) the amount which has
accreted at such time calculated by applying an accretion rate of 16.64% per
annum to such issue price, compounding semi-annually on March 31 and September
30 of each year, from the date of issuance of the Senior Discount Notes to the
date as of which the Accreted Value is being determined, in proportion to the
number of days elapsed (if calculated on any date other than March 31 or
September 30 of any year) and based on an annual period of twelve 30-day months.
As of the dates set forth below, each Senior Discount Note will have the
Accreted Value per $1,000 principal amount at maturity appearing opposite such
dates:
Semi-annual Accretion Date Accreted Value
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Issue Date 730.58
March 31, 1998 791.37
September 30, 1998 857.21
March 31, 1999 897.29
September 30, 1999 909.45
March 31, 2000 922.62
September 30, 2000 936.89
March 31, 2001 952.34
September 30, 2001 962.90
March 31, 2002 980.52
September 30, 2002 1,000.00
"Acquired Indebtedness" means, with respect to any specified Person, (a)
Indebtedness of an Acquired Person existing at the time of such acquisition,
including Indebtedness issued in connection with, or in contemplation of, such
acquisition, and (b) Indebtedness incurred by such Person or its Subsidiaries
(i) the proceeds of which have been used to finance an Investment in a Related
Business, and (ii) which is secured by a Lien solely on the assets or Property
constituting such an Investment in a Related Business.
"Acquired Person" means, with respect to any specified Person, any other
Person acquired by such specified Person, whether by purchase, merger,
consolidation, other business combination or otherwise.
"Affiliate" means, with respect to any specified Person, any other Person
(a) directly or indirectly controlling (including, but not limited to, all
directors and executive officers of such Person), controlled by or under direct
or indirect common control with such specified Person, or (b) that directly or
indirectly owns more than 10% of the voting securities of such Person. A Person
shall be deemed to control a corporation if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.
"Affiliate Transaction" has the meaning ascribed thereto in Section 7.8
hereof.
"Agreement" means this Agreement, as amended, modified or supplemented from
time to time, together with any exhibits, schedules or other attachments
thereto.
"Approvals" means each and every approval, consent, filing or registration
by, or with any Governmental Body, or any creditor or shareholder of the
Company, necessary (a) to authorize or permit the execution, delivery or
performance by the Company of the Transaction Documents, and (b) for the
validity or enforceability of any of such Transaction Documents against the
Company.
"Asset Disposition" means any sale, lease, transfer, conveyance or other
disposition (in one or series of related transactions), including any such
disposition by means of a merger, consolidation or similar transaction, of
shares of Capital Stock of a Subsidiary (other than directors' qualifying
shares), Property or other assets (each referred to for the purposes of this
definition as a "disposition") by the Company or any of its Subsidiaries, but
excluding the following: (a) a disposition by a Subsidiary to the Company or by
the Company or a Subsidiary to a Wholly Owned Subsidiary, (b) a disposition of
tangible property or assets which have become obsolete or are otherwise not used
or useful, so long as such disposition is at fair market value (as
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determined by the Company in good faith) in the ordinary course of business, (c)
a disposition that constitutes a Restricted Payment or a Public Offering, in
each case so long as effected in accordance with all applicable provisions of
this Agreement, and (d) a disposition of inventory in the ordinary course of
business, in each case so long as effected in accordance with all applicable
provisions of this Agreement.
"Bankruptcy Law" means ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ Code, or any similar Federal
or state law for the relief of debtors.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any committee of the Board of Directors of such
Person duly authorized, with respect to any particular matter, to exercise the
power of the Board of Directors of such Person.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Indebtedness arrangements
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person in accordance with GAAP. The stated
maturity of such obligation shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares of, or interests,
rights, participations, and/or other equivalents in (however designated),
corporate stock or equity securities of such Person, including each class of
common stock and preferred stock of such Person and partnership or limited
liability company interests, whether general or limited, of such Person, and
including any securities convertible into or exercisable or exchangeable for, or
any right to acquire, any equity interest in such Person.
"Cash Equivalents" means: (a) marketable obligations issued or
unconditionally guaranteed by the United States government, in each case
maturing within 360 days after the date of acquisition thereof; (b) marketable
direct obligations issued by any state of the United States or any political
subdivision of any such state or any public instrumentality thereof maturing
within 360 days after the date of acquisition thereof and, at the time of
acquisition, having the highest rating obtainable from either Standard & Poor's
Corporation or ▇▇▇▇▇'▇ Investors Service, Inc.; (c) commercial paper maturing no
more than 360 days after the date of acquisition thereof, issued by a
corporation organized under the laws of any state of the United States or of the
District of Columbia and, at the time of acquisition, having a rating in one of
the two highest rating categories obtainable from either Standard & Poor's
Corporation or ▇▇▇▇▇'▇ Investors Service, Inc.; (d) money market funds whose
investments are made solely in securities described in clause
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(a) maturing within 360 days after the date of acquisition thereof; (e)
certificates of deposit maturing within 360 days after the date of acquisition
thereof, issued by any commercial bank that is a member of the Federal Reserve
System that has capital, surplus and undivided profits (as shown on its most
recent statement of condition) aggregating not less than $100,000,000 and is
rated A or better by ▇▇▇▇▇'▇ Investors Service, Inc. or Standard & Poor's
Corporation; and (f) repurchase agreements entered into with any commercial bank
of the nature referred to in clause (e), secured by a fully perfected Lien in
any obligation of the type described in any of clauses (a) through (e), having a
fair market value at the time such repurchase agreement is entered into of not
less than 100% of the repurchase obligation thereunder of such commercial bank.
"Change of Control" means any transaction or series of transactions in
which any of the following occurs: (a) any Person or group (within the meaning
of Rule 13d-3 under the Exchange Act and Sections 13(d) and 14(d) of the
Exchange Act) becomes the direct or indirect "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act) of 25% or more of the issued and outstanding
shares of Capital Stock entitled to vote in the election of directors of the
Company or the Surviving Person (if other than the Company); or (b) individuals
who at the Closing constituted the Board of Directors of the Company (together
with any new directors whose election by such Board of Directors or whose
nomination for election by the stockholders of the Company was approved by a
vote of at least a majority of the directors of the Company then still in office
who were either directors at the Closing or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
"Change of Control Trigger Date" has the meaning ascribed thereto in
Section 7.12 hereof.
"Charter Documents" has the meaning ascribed thereto in Section 4.1 hereof.
"Closing" has the meaning ascribed thereto in Section 2.3 hereof.
"Closing Date" has the meaning ascribed thereto in Section 2.3 hereof.
"Code" means the Internal Revenue Code of 1986, as the same may be amended
from time to time, or any successor thereto, and the rules and regulations
issued thereunder, as from time to time in effect.
"Collateral" means all of the assets of the Company and its Subsidiaries,
including, without limitation, all right, title and interest of the Company and
its Subsidiaries now owned or hereafter acquired in and to the following: (a)
all equipment and fixtures (including, without limitation, furniture, vehicles
and other machinery and office equipment), together with all additions and
accessions thereto and replacements therefor; (b) all inventory (including,
without limitation, (i) all raw materials, work in progress and finished goods
and (ii) all such goods which are returned to or repossessed by the Company),
together with all additions and accessions thereto, replacements therefor,
products thereof and documents therefor; (c) all accounts, chattel paper,
contract rights and rights to the payment of money; (d) all general intangibles
(including, without
4
limitation, (i) customer and supplier lists and contracts, books and records,
insurance policies, tax refunds, contracts for the purchase of real or personal
property, (ii) all copyrights, trademarks, tradenames and service marks, (iii)
all patents, and all registrations, recordings, reissues, continuations,
continuations-in-part and extensions thereof, and all pending applications
therefor, (iv) all licenses to use, applications for, and other rights to, such
patents, copyrights, trademarks, tradenames and service marks (other than
licenses whose terms prohibit the granting of a security interest therein), and
(v) all goodwill of the Company); (e) all deposit accounts, money, certificated
and uncertificated securities, instruments and documents; and (f) all proceeds
of the foregoing (including, without limitation, whatever is receivable or
received when Collateral or proceeds is sold, collected, exchanged, returned,
substituted or otherwise disposed of, whether such disposition is voluntary or
involuntary, including rights to payment and return premiums and insurance
proceeds under insurance with respect to any Collateral, and all rights to
payment with respect to any cause of action affecting or relating to the
Collateral).
"Commission" means the United States Securities and Exchange Commission or
any other Federal agency at the time administering the Securities Act.
"Common Stock" means the common stock, par value $.001 per share, of the
Company.
"Common Stock Purchase Warrants" means the warrants of the Company issued
pursuant to the Warrant Agreement representing the right to purchase shares of
Common Stock at the exercise price set forth therein.
"Company" means the party named as such above until a successor replaces it
and thereafter means the successor.
"Consolidated" or "consolidated," when used with reference to any
accounting term, means the amount described by such accounting term, determined
on a consolidated basis in accordance with GAAP, after elimination of
intercompany items.
"Consolidated EBIT" means, with respect to any Person, for any period, the
Consolidated Net Income of such Person and its consolidated Subsidiaries for
such period, plus or minus (a) a provision for taxes based on income or profits,
to the extent such provision for taxes was included in computing such
Consolidated Net Income, plus (b) Consolidated Interest Expense for such period,
all as determined on a consolidated basis in accordance with GAAP.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the Consolidated EBIT of such Person and its consolidated Subsidiaries for such
period, plus depreciation, amortization and all other non-cash charges, to the
extent such depreciation, amortization and other non-cash charges were deducted
in computing such Consolidated EBIT (including amortization of goodwill and
other intangibles), all as determined on a consolidated basis in accordance with
GAAP.
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"Consolidated Interest Coverage Ratio" means, as of any date of
determination, the ratio of (a) the Consolidated EBITDA for the period of the
most recent two consecutive fiscal quarters for which financial statements are
available to (b) Consolidated Interest Expense for such two fiscal quarters;
provided, however, that (i) if the Company or any Subsidiary has issued any
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Indebtedness since the beginning of such period that remains outstanding or if
the transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio is an issuance of Indebtedness, or both, Consolidated EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Indebtedness as if such Indebtedness had
been issued on the first day of such period and with respect to the discharge of
any other Indebtedness refinanced, refunded, exchanged or otherwise discharged
with the proceeds of such new Indebtedness as if any such discharge had occurred
on the first day of such period, (ii) if since the beginning of such period the
Company or any Subsidiary shall have made any Asset Disposition, Consolidated
EBITDA for such period shall be reduced by an amount equal to the Consolidated
EBITDA (if positive) directly attributable to the assets which are the subject
of such Asset Disposition for such period, or increased by an amount equal to
the Consolidated EBITDA (if negative) directly attributable thereto for such
period and Consolidated Interest Expense for such period shall be reduced by an
amount equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Subsidiary refinanced, refunded, exchanged or
otherwise discharged with respect to the Company and its continuing Subsidiaries
in connection with such Asset Dispositions for such period (or if the Capital
Stock of any Subsidiary is sold, the Consolidated Interest Expense for such
period directly attributable to the Indebtedness of such Subsidiary to the
extent the Company and its continuing Subsidiaries are no longer liable for such
Indebtedness after such sale), and (iii) if since the beginning of such period
the Company or any Subsidiary (by merger or otherwise) shall have made an
Investment in any Subsidiary (or any person which becomes a Subsidiary) or an
acquisition of assets or stock, including any acquisition of assets or stock
occurring in connection with a transaction causing a calculation to be made
hereunder, which constitutes all of an operating unit of a business,
Consolidated EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the issuing of any
Indebtedness), as if such Investment or acquisition occurred on the first day of
such period. For purposes of this definition, whenever pro forma effect is to
be given to an acquisition of assets, the amount of income or earnings relating
thereto, and the amount of Consolidated Interest Expense associated with any
Indebtedness issued in connection therewith, the pro forma calculations shall be
determined in good faith by a responsible financial or accounting Officer of the
Company. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period.
"Consolidated Interest Expense" means, with respect to any Person, for any
period, (a) the total aggregate amount of interest expense (including
amortization of original issue discount and non-cash interest payments or
accruals and the interest component of any Capital Lease Obligations, but
excluding any intercompany interest owed by any Subsidiary to any other
Subsidiary of such Person) of such Person and its consolidated Subsidiaries,
determined on a consolidated basis in accordance with GAAP, (b) all fees,
commissions, discounts and other
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charges of such Person and its consolidated Subsidiaries with respect to letters
of credit and bankers' acceptances, determined on a consolidated basis in
accordance with GAAP and (c) the product of (i) the total amount of dividends
declared on Disqualified Capital Stock other than common stock (whether accrued
or paid) of such Person and its consolidated Subsidiaries, times (ii) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local effective income tax
rate of such Person, expressed as a decimal, in each case, on a consolidated
basis and in accordance with GAAP (after consideration of any deferred tax
assets of such Person then available including without limitation, any amounts
of available net operating loss carryover).
"Consolidated Net Income," means, with respect to any Person, for any
period, the aggregate of the net income (or loss) of such Person and its
consolidated Subsidiaries for such period, before payment or accrual of
preferred dividends, on a consolidated basis, determined in accordance with
GAAP; provided that (a) the net income of any other Person in which such Person
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or any of its Subsidiaries has an interest (which interest does not cause the
net income of such other Person to be consolidated with the net income of such
Person and its Subsidiaries in accordance with GAAP) shall be included only to
the extent of the amount of dividends or distributions actually paid to such
Person or such Person's Subsidiaries by such other Person in such period; (b)
the net income of any Subsidiary of such Person that is subject to any Payment
Restriction shall be excluded to the extent such Payment Restriction actually
prevented the payment of an amount that otherwise could have been paid to, or
received by, such Person or a Subsidiary of such Person not subject to any
Payment Restriction, provided, however, that with respect to the Consolidated
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Net Income of the Company, the Consolidated Net Income of the Company's
Subsidiaries shall not be so excluded, notwithstanding the existence of any such
Payment Restriction, so long as the terms of any such Payment Restriction
limiting the payment of dividends by the Company's Subsidiaries are not more
restrictive at the time of determination of Consolidated Net Income than the
Payment Restrictions limiting such payment of dividends in effect on the date
hereof; (c) the net income (or loss) of any other Person shall not be included
for any periods during which such other Person is not a consolidated subsidiary
of such Person and the net income (or loss) of any successor to such Person by
consolidation or merger or transfer of all or substantially all assets shall not
be included for any periods prior to such consolidation, merger, or transfer of
all or substantially all assets; and (d) there shall be excluded the following:
(i) such Person's share, determined in accordance with GAAP, of the net loss of
any other Person in which such Person or any of its Subsidiaries has an interest
(which interest does not cause the net loss of such other Person to be
consolidated with the net income or loss of such Person and its Subsidiaries in
accordance with GAAP), (ii) the net income of any other Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition, (iii) all gains realized upon or in connection with or as a
consequence of the issuance of the Capital Stock of such Person or any of its
Subsidiaries, any gains on pension reversions received by such Person or any of
its Subsidiaries, or any proceeds from life insurance policies received by such
Person or any of its Subsidiaries, (iv) all gains, together with any related
provision for taxes, realized in connection with any sale of assets by such
Person or any of its Subsidiaries during such period (including, without
limitation, dispositions pursuant to sale and leaseback transactions), (v) all
gains realized in connection with the acquisition of debt securities
7
for a cost less than principal plus accrued interest, (vi) all extraordinary
gains, together with any related provision for taxes, realized by such Person or
any of its Subsidiaries during such period, and (vii) the cumulative effect of a
change in accounting principles in the year of adoption of such change.
"Consolidated Net Worth" means, with respect to any Person, as of the date
of determination, the Net Worth of such Person and its consolidated
Subsidiaries, determined in accordance with GAAP, as of the end of the most
recent fiscal quarter of such Person for which financial statements are
available prior to the taking of any action for the purpose of which the
determination is being made.
"Current Affiliate" has the meaning ascribed thereto in Section 4.10
hereof.
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator
or similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets in one
transaction or a series of related transactions.
"Disqualified Capital Stock" means, (a) with respect to any Person, any
Capital Stock of such Person or its Subsidiaries that, by its terms, by the
terms of any agreement related thereto or by the terms of any security into
which it is convertible, puttable or exchangeable, is, or upon the happening of
an event or the passage of time would be, required to be redeemed or repurchased
by such Person or its Subsidiaries, including at the option of the holder, in
whole or in part, or has, or upon the happening of an event or passage of time
would have, a redemption or similar payment due, on or prior to the stated
maturity date of the Senior Discount Notes, or (b) any other Capital Stock of
such Person or its Subsidiaries designated as Disqualified Capital Stock by such
Person at the time of issuance.
"Dollars" and "$" mean lawful currency of the United States of America.
"Employee Program" has the meaning ascribed thereto in Section 4.10 hereof.
"Environment" means soil, surface waters, groundwater, land, stream
sediments, surface or subsurface strata and ambient air.
"Environmental Law(s)" means and includes any federal, state, local or
foreign statute, law, ordinance, rule, regulation, code, order, writ, judgment,
injunction, decree or judicial or agency interpretation, policy or guidance
relating to pollution or protection of the Environment, health,
8
safety or natural resources, including, without limitation, those relating to
the use, handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as the
same may be amended from time to time, or any successor thereto, and the rules
and regulations issued thereunder, as from time to time in effect.
"Event of Default" has the meaning ascribed thereto in Section 9.1 hereof.
"Excess Proceeds" has the meaning ascribed thereto in Section 7.18(b).
"Excess Proceeds Date" has the meaning ascribed thereto in Section 7.18(d).
"Exchange Act" means the Securities Exchange Act of 1934, as the same may
be amended from time to time, or any successor thereto, and the rules and
regulations issued thereunder, as from time to time in effect.
"Fair Market Value" or "fair market value" means, with respect to any
assets or properties, the amount at which such assets or properties would change
hands between a willing buyer and a willing seller, within a commercially
reasonable time, each having reasonable knowledge of the relevant facts, neither
being under a compulsion to sell or buy, as such amount is determined by (a) the
Board of Directors of the Company acting in good faith or (b) an appraisal or
valuation firm of national or regional standing selected by the Company, with
experience in the appraisal or valuation of properties or assets of the type for
which Fair Market Value is being determined.
"Financial Statements" has the meaning ascribed thereto in Section 4.23
hereof.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
entity as may be approved by a significant segment of the accounting profession,
which are applicable to the circumstances as of the date of determination, as in
effect from time to time.
"Gaming Authorities" means, collectively, the Mississippi Gaming
Commission, the Nevada Gaming Commission, the Nevada State Gaming Control Board,
and any other Governmental Body that holds regulatory, licensing or permit
authority over gaming activities conducted by the Company or its Gaming
Subsidiaries within its jurisdiction.
"Gaming Laws" means, collectively, (a) the Nevada Gaming Control Act, as
codified in Chapter 463 of the Nevada Revised Statutes, as amended from time to
time, together with the regulations of the Nevada Gaming Commission promulgated
thereunder, as amended from time to time, (b) the Mississippi Gaming Control
Act, as codified in Chapter 76 of the Mississippi Code Annotated, as amended
from time to time, together with the regulations of the Mississippi
9
Gaming Commission promulgated thereunder, as amended from time to time, and (c)
all other laws and regulations pursuant to which any Gaming Authority possesses
regulatory, licensing or permit authority over gaming activities conducted by
the Company or its Gaming Subsidiaries within its jurisdiction.
"Gaming Subsidiaries" means Silicon Gaming-Nevada, Inc., Silicon Gaming-
Mississippi, Inc., and any other Subsidiary that is subject to the regulatory,
licensing or permit authority and jurisdiction of any Gaming Authority.
"Gaming Subsidiaries Stock Restrictions" means the negative pledge (i.e.,
the agreement not to encumber pursuant to Section 7.9), and the restrictions on
transfers (i.e., pursuant to Sections 7.17, 7.18 and 8.1), of the capital stock
of the Company's Gaming Subsidiaries, in each case only to the extent such
negative pledge or restrictions require the approval of any Gaming Authority
pursuant to the Gaming Laws.
"Governmental Body" means any governmental or quasi-governmental authority
including, without limitation, any federal, state, territorial, county,
municipal or other governmental or quasi-governmental agency, board, branch,
bureau, commission, court, department or other instrumentality or political unit
or subdivision, whether domestic or foreign and any of the Gaming Authorities.
"Gross Proceeds" means, when used with respect to a Public Offering or a
private offering of Capital Stock, the number of shares of Capital Stock sold by
the Company in such offering multiplied by the price paid for such shares by the
purchasers thereof.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing any Indebtedness of any other Person (the "Primary
Obligor") in any manner, whether directly or indirectly, and including, without
limitation, any obligation of such Person, (a) to purchase or pay (or advance or
supply funds, for the purchase or payment of) such Indebtedness or to purchase
(or to advance or supply funds for the purchase of) any security for the payment
of such Indebtedness, (b) to purchase property, securities or services for the
purpose of assuring the holder of such Indebtedness of the payment of such
Indebtedness, or (c) to maintain working capital, equity capital or other
financial statement, condition or liquidity of the Primary Obligor so as to
enable the Primary Obligor to pay such Indebtedness (and "Guaranteed,"
"Guaranteeing" and "Guarantor" shall have meanings correlative to the
foregoing); provided, however, that the Guarantee by any Person shall not
-------- -------
include endorsements by such Person for collection or deposit, in either case,
in the ordinary course of business.
"Hazardous Materials" means petroleum or petroleum products, by-products or
breakdown products, radioactive materials, asbestos-containing materials,
polychlorinated biphenyls and radon gas, and any other chemicals, materials or
substances designated, classified or regulated as hazardous or toxic or as a
pollutant or contaminant under any Environmental Law.
10
"Hazardous Waste" means and includes any hazardous waste as defined or
regulated under any Environmental Law.
"Holder" means a Person in whose name a Senior Discount Note is registered.
"Illegal Transfer Notice" has the meaning ascribed thereto in Section 11.13
hereof.
"Incur" or "incur" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (by conversion, exchange or
otherwise), assume, Guarantee or otherwise become liable in respect of such
Indebtedness or other obligation, including by way of merger or acquisition of
another Person, or the recording, as required pursuant to GAAP or otherwise, of
any such Indebtedness or other obligation on the balance sheet of such Person
(and "Incurrence," "Incurred," "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing).
"Indebtedness" means, with respect to any Person, (a) all liabilities,
contingent or otherwise, of such Person (i) for borrowed money (whether or not
the recourse of the lender is to the whole of the assets of such Person or only
to a portion thereof and whether short-term or long-term, secured or unsecured),
(ii) evidenced by bonds, notes, debentures, drafts accepted or similar
instruments or letters of credit (including such liabilities representing the
balance deferred and unpaid of the purchase price of any property, other than
any such liability that represents an account payable or any other monetary
obligation to a trade creditor created, incurred, assumed or guaranteed by such
Person in the ordinary course of business in connection with obtaining goods,
materials or services, which account is not overdue according to the original
terms of sale, unless such account payable is being contested in good faith),
(iii) for the payment of money relating to Capital Lease Obligations; or (iv)
under the terms of any amendment, renewal, extension or refunding of any
liability of the types referred to in the preceding clauses (i), (ii) or (iii);
(b) the maximum fixed repurchase price of all Disqualified Capital Stock of such
Person or, if there is no such maximum fixed repurchase price, the liquidation
preference of such Disqualified Capital Stock, plus accrued but unpaid
dividends; (c) outstanding reimbursement obligations of such Person with respect
to letters of credit or bankers' acceptances issued for the benefit of such
Person; (d) net obligations of such Person with respect to Interest Rate or
Currency Protection Agreements; (e) all liabilities of others of the kind
described in the preceding clause (a), (b), (c) or (d) that such Person has
Guaranteed or that is otherwise its legal liability; and (f) all obligations of
others secured by a Lien to which any of the Property or assets of such Person
are subject (other than obligations of a lessor under any operating lease
pursuant to which the Company or any of its Subsidiaries leases Property, if
such lessor grants a Lien on such lease to secure such lessor's Indebtedness),
whether or not the obligations secured thereby shall have been assumed by such
Person or shall otherwise be such Person's legal liability (provided that if the
--------
obligations so secured have not been assumed by such Person or are not otherwise
such Person's legal liability, such obligations shall be deemed to be in an
amount equal to the fair market value of such Properties or assets, as
determined in good faith by the Board of Directors of such Person, which
determination shall be evidenced by a Board Resolution). For purposes of the
preceding sentence, the "maximum fixed repurchase price" of any Disqualified
Capital Stock
11
that does not have a fixed repurchase price shall be calculated in accordance
with the terms of such Disqualified Capital Stock as if such Disqualified
Capital Stock were purchased on any date on which Indebtedness shall be required
to be determined pursuant to this Agreement, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock (or any
equity security for which it may be exchanged or converted), such fair market
value shall be determined in good faith by the Board of Directors of such
Person, which determination shall be evidenced by a Board Resolution. For
purposes hereof, Indebtedness incurred by any Person that is a general
partnership (other than non-recourse Indebtedness) shall be deemed to have been
incurred by the general partners of such partnership pro rata in accordance with
their respective interests in the liabilities of such partnership unless any
such general partner shall, in the reasonable determination of the Board of
Directors of the Company, be unable to satisfy its pro rata share of the
liabilities of the partnership, in which case the pro rata share of any
Indebtedness attributable to such partner shall be deemed to be incurred at such
time by the remaining general partners on a pro rata basis in accordance with
their interests.
"Indemnified Party" or "Indemnified Parties" has the meaning ascribed
thereto in Section 12.1(a) hereof.
"Independent Financial Advisor" means a reputable accounting, appraisal or
a nationally recognized investment banking firm that is, in the reasonable
judgment of the Board of Directors of the Company, qualified to perform the task
for which such firm has been engaged hereunder and disinterested and independent
with respect to the Company and its Affiliates.
"Insolvency or Liquidation Proceeding" means, with respect to any Person,
(a) any insolvency or bankruptcy or similar case or proceeding, or any
reorganization, receivership, liquidation, dissolution or winding up of such
Person, whether voluntary or involuntary, or (b) any assignment for the benefit
of creditors or any other marshaling of assets and liabilities of such Person.
"Intellectual Property" has the meaning ascribed thereto in Section 4.24(a)
hereof.
"Interest Payment Date" means each January 1 and July 1 commencing July 1,
1999.
"Interest Rate or Currency Protection Agreements" means any interest rate
swap agreement, interest rate cap agreement, currency swap agreement or other
financial agreement or arrangement designed to protect the Company or any
Subsidiary against fluctuations in interest rates or currency exchange rates and
which shall have a notional amount no greater than the payments due with respect
to Indebtedness being hedged thereby.
"Investment" means any investment by any Person in any other Person,
whether by a purchase of assets, in any transaction or series of related
transactions, individually or in the aggregate, purchase of Capital Stock,
capital contribution, loan, advance (other than reasonable loans and advances to
employees for moving and travel expenses, as salary advances, and other similar
expenses incurred, in each case in the ordinary course of business consistent
with past
12
practice) or similar credit extension constituting Indebtedness of such other
Person, and any Guarantee of Indebtedness of such other Person.
"IRS" means the Internal Revenue Service or any successor agency.
"Issue Date" means the date of original issuance of the Senior Discount
Notes.
"Legal Holiday" means a Saturday, Sunday or a day on which banking
institutions in New York City, New York, or Boston, Massachusetts, or at such
place of payment, are not required to be open.
"License" or "Licenses" has the meaning ascribed thereto in Section 4.3
hereof.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property, or a security interest of any kind, whether or not filed, recorded or
otherwise perfected under applicable law (including any conditional sale or
other title retention agreement, any lease in the nature thereof, any option or
other agreement to sell which is intended to constitute or create a security
interest, mortgage, pledge or lien, and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction); provided that in no event shall an operating lease (as
--------
opposed to a Capital Lease Obligation) or a license with respect to any
intangible asset with any Person who is not an Affiliate be deemed to constitute
a Lien hereunder.
"Losses" has the meaning ascribed thereto in Section 12.1(a) hereof.
"Material Adverse Effect" means a material adverse effect on the business,
Property, operations or condition (financial or otherwise) or prospects of the
Company and its Subsidiaries taken as a whole.
"Mezzanine Debt Financing" means the issuance, transfer, conveyance, sale,
or other disposition for cash by the Company or any of its Subsidiaries of
unsecured Subordinated Indebtedness.
"Multiemployer Plan" has the meaning ascribed thereto in Section 4.10
hereof.
"Net Cash Proceeds" means, with respect to (a) any Mezzanine Debt
Financing, (b) any Securities Sale, or (c) any Asset Disposition, as the case
maybe, the aggregate amount of cash or Cash Equivalents actually received from
time to time (whether as initial consideration or through payment or disposition
of deferred consideration) by or on behalf of the Person issuing the
Indebtedness or securities, as the case may be, in connection with such
transaction after deducting therefrom only (without duplication) (i) brokerage
commissions, underwriting fees and discounts, legal fees, finder's fees,
accountants' fee and expenses, printers' fees and expenses, road show expenses
and other similar transaction fees and commissions incurred in connection with
such transaction, and (ii) the amount of Taxes payable in connection with or as
a result of such
13
transaction as determined in accordance with GAAP, but only to the extent that
the amounts so deducted are properly attributable to such transaction and are,
in the case of clause (i), at the time of receipt of such cash, actually paid to
a Person that is not an Affiliate of such Person and, in the case of clause
(ii), on the earlier of the dates on which the tax return covering such taxes is
filed or required to be filed, actually paid to a Person that is not an
Affiliate of such Person.
"Net Worth" means, with respect to any Person, the total of the amounts
shown on the balance sheet of such Person, determined in accordance with GAAP,
as of the end of the most recent fiscal quarter of such Person ending at least
45 days prior to the taking of any action for the purpose of which the
determination is being made, as (a) the par or stated value of all outstanding
Capital Stock of such Person plus (b) paid-in capital or capital surplus
relating to such Capital Stock plus (c) any retained earnings or earned surplus
less (i) any accumulated deficit, and (ii) any amounts attributable to (A)
unamortized debt discount, (B) capitalized expenses associated with the issuance
of Indebtedness if such Indebtedness is incurred after the date hereof, or (C)
write-ups of assets subsequent to the date hereof other than in connection with
the acquisitions of such assets.
"Notice of Default" has the meaning ascribed thereto in Section 9.1(b)
hereof.
"Obligations" with respect to any instrument or agreement means any and all
principal, interest, penalties, premiums, fees, indemnifications,
reimbursements, damages and other charges, obligations and liabilities existing
from time to time under such instrument or agreement, whether direct or
indirect, joint or several, actual, absolute or contingent, matured or
unmatured, liquidated or unliquidated, secured or unsecured, arising by
contract, operation of law or otherwise, including any obligations or
liabilities to repay, redeem, repurchase, retire, acquire or defease any
Indebtedness under such instrument or agreement, or any obligation to establish
a sinking fund for any such purpose.
"Offer" means an irrevocable offer by the Company to repurchase for cash
Senior Discount Notes after any Change of Control Trigger Date, Repayment
Trigger Date or Excess Proceeds Date.
"Officer" means, with respect to any Person, the Chairman of the Board (if
an officer), the Chief Executive Officer, the President, any Vice President, the
Chief Financial Officer, the Treasurer or the Secretary of such Person.
"Officers' Certificate" means a certificate executed on behalf of the
Company by (a) two Officers of the Company or (b) or by an Officer and an
Assistant Secretary of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Purchaser.
"pari passu" means, when used with respect to the ranking of any
---- -----
Indebtedness of any Person in relation to other Indebtedness of such Person,
that each such Indebtedness (a) either
14
(i) is not subordinated or junior in right of payment to any other Indebtedness
of such Person or (ii) is subordinate in right of payment to the same
Indebtedness of such Person as is the other and is so subordinate to the same
extent and (b) is not subordinate in right of payment to the other or to any
Indebtedness of such Person as to which the other is not so subordinate.
"Pari Passu Indebtedness" means any Indebtedness of the Company, other than
the Senior Discount Notes, whether outstanding on the date hereof or Incurred
hereafter, which (a) ranks pari passu with the Senior Discount Notes and (b) by
----------
its terms, or by the terms of any agreement or instrument pursuant to which such
Indebtedness is Incurred, (i) does not provide for payments of principal of such
Indebtedness at the final stated maturity thereof or by way of a sinking fund
applicable thereto or by way of any mandatory redemption, retirement or
repurchase thereof by the Company (including any redemption, retirement or
repurchase which is contingent upon events or circumstances, but excluding any
retirement required by virtue of acceleration of such Indebtedness upon an event
of default thereunder), in each case prior to the final stated maturity of the
Senior Discount Notes and (ii) does not permit redemption or other retirement
(including pursuant to an offer to purchase made by the issuer) of such other
Indebtedness at the option of the holder thereof prior to the final stated
maturity of the Senior Discount Notes, other than a redemption or other
retirement at the option of the holder of such Indebtedness (including pursuant
to an offer to purchase made by the issuer) which is conditioned upon the change
of control of the Company pursuant to provisions substantially similar to those
contained in Section 7.12 hereof.
"Payment Restriction" means, with respect to a Subsidiary of any Person,
any encumbrance, restriction or limitation, whether by operation of the terms of
its charter or by reason of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation, on the ability of (a) such Subsidiary
to (i) pay dividends or make other distributions on its Capital Stock or make
payments on any obligation, liability or Indebtedness owed to such Person or any
other Subsidiary of such Person, (ii) make loans or advances to such Person or
any other Subsidiary of such Person, or (iii) transfer any of its properties or
assets to such Person or any other Subsidiary of such Person, or (b) such Person
or any other Subsidiary of such Person to receive or retain any such (i)
dividends, distributions or payments, (ii) loans or advances, or (iii) transfers
of properties or assets.
"Permitted Disposition" means (a) any transfer, conveyance, sale, lease,
license or other disposition (a "sale") by the Company or any of its
Subsidiaries of its inventory or license of its intangible Property in the
ordinary course of its business; (b) any sale by the Company or any of its
Subsidiaries in the ordinary course of its business of its equipment or other
tangible or intangible Property that is obsolete or no longer useful or
necessary to its business; (c) any sale by the Company or any of its
Subsidiaries in the ordinary course of its business, and in a manner consistent
with its customary and usual cash management practices, of its Permitted
Investments of the kind described in clause (c) of the definition thereof; (d)
the creation or Incurrence of any Liens in any Property of the Company or any of
its Subsidiaries that are permitted by this Agreement and (e) any sale of
Property by or at the direction of a secured party holding a Lien on such
Property, which Lien is permitted by this Agreement, pursuant to the exercise by
such secured party of its rights as a creditor.
15
"Permitted Investment" by any Person means (a) any Investment in a Related
Business which becomes a Subsidiary following such Investment (including any
Investments held by such Subsidiary (or any Subsidiaries thereof) on the date
such Subsidiary is acquired), (b) Investments in securities or other Property
not constituting cash or Cash Equivalents and received in connection with an
Asset Disposition, to the extent permitted hereunder, or any other disposition
of assets not constituting an Asset Disposition, (c) Investments in cash and
Cash Equivalents, (d) Investments existing on the date hereof, (e) Investments
by any Subsidiary in other Subsidiaries, (f) Investments by the Company in any
of its Subsidiaries required by any instrument or agreement governing
Indebtedness to the extent that such Investments consist of (i) performance
under Guarantees Incurred by the Company in compliance with this Agreement with
respect to Indebtedness of its Subsidiaries not Incurred in violation of this
Agreement or (ii) Liens securing the Company's Obligations with respect to any
Guarantee described in the foregoing clause (i), (g) Investments in the form of
accounts receivable arising from sales of goods or services in the ordinary
course of business, provided that for any accounts receivable that are more than
--------
120 days overdue, appropriate reserves or allowances have been established in
accordance with GAAP, (h) Investments in the form of advances or prepayments to
suppliers or employees in the ordinary course of business and (i) Strategic
Investments which do not exceed an aggregate of $5,000,000.
"Permitted Liens" shall mean (a) Liens for Taxes, assessments, and similar
governmental charges to the extent (1) not delinquent or (2) being contested in
good faith by appropriate proceedings and as to which reserves have been set
aside on the books of the Company to the extent required by GAAP; (b) statutory
Liens of landlords and carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen, or other like Liens arising in the ordinary course of
business and with respect to amounts not yet delinquent or being contested in
good faith by appropriate process of law, and for which a reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been made
on the books of the Company; (c) pledges or deposits in the ordinary course of
business to secure lease obligations or nondelinquent obligations under workers'
compensation, unemployment insurance or other social security benefits; (d)
Liens to secure the performance of public statutory obligations that are not
delinquent, appeal bonds, performance bonds or other obligations of a like
nature (other than for borrowed money); (e) zoning restrictions, easements,
rights-of-way, restrictions, minor defects or irregularities in title and other
similar charges or encumbrances not interfering in any material respect with the
business of the Company or any Subsidiary incurred in the ordinary course of
business; (f) Liens in respect of purchase money or similar acquisition
Indebtedness Incurred to acquire furniture, fixtures, equipment or other
operating assets, provided that the principal amount of the Indebtedness secured
by such Lien does not exceed the acquisition cost of such assets; (g) Liens
securing Indebtedness which secures assets leased pursuant to Capital Lease
Obligations; (h) Liens on any assets of any Acquired Person securing Acquired
Indebtedness which assets or Acquired Person are acquired by the Company or a
Subsidiary subsequent to the date of the Agreement, and which Liens were in
existence on or prior to the acquisition of such assets or Acquired Person (to
the extent that such Liens were not created in connection with or in
contemplation of such acquisition), provided that such Liens are limited to the
assets or Acquired Person so acquired and the proceeds thereof; (i) Liens
securing Senior Indebtedness permitted to be incurred by Section 7.7(c)(iv);
(j) Liens imposed pursuant to condemnation or eminent domain or substantially
similar
16
proceedings; provided that in the case of clauses (f), (g) and (h), any
Indebtedness secured by such Liens was not Incurred in violation of Section 7.7;
and (k) the Securityholder Lien.
"Person" means any individual, corporation, limited or general partnership,
limited liability company, or Governmental Body.
"Pledge Date" has the meaning ascribed thereto in Section 11.14(a) hereof.
"Pledged Securities Requisite Gaming Approvals" has the meaning ascribed
thereto in Section 13.15 hereof.
"Post-Petition Interest" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the contract rate (including, without limitation, any
rate applicable upon default) specified in the agreement or instrument creating,
evidencing or governing such Indebtedness, whether or not, pursuant to
applicable law or otherwise, the claim for such interest is allowed as a claim
in such Insolvency or Liquidation Proceeding.
"Preferred Stock" as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Principal" of a debt security means the principal of the security
including the premium, if any, on the security.
"Property" or "property" means any assets or property of any kind or nature
whatsoever, real, personal, or mixed (including fixtures), whether tangible or
intangible.
"Public Offering" with respect to any Person, means a firm commitment
underwritten primary public offering of Capital Stock of such Person.
"Purchase Date" has the meaning ascribed thereto in Section 6.7 hereof.
"Purchaser" has the meaning ascribed thereto in the introduction hereof.
"Purchaser's Special Counsel" means ▇▇▇▇▇▇▇, Procter & ▇▇▇▇ LLP, a
partnership including professional corporations, acting as special counsel to
the Purchaser in connection with the transactions contemplated hereunder.
"Qualified Capital Stock" means, with respect to any Person, any and all
Capital Stock issued by such Person after the date hereof that is not
Disqualified Capital Stock.
17
"Record Date" means a record date specified in the Senior Discount Notes
whether or not such record date is a Business Day.
"Redeemable Convertible Preferred Stock" means, with respect to the
Company, the Company's (a) Series A1 Preferred Stock, liquidation preference
$0.75 per share, and (b) Series B1 Preferred Stock, liquidation preference $1.14
per share.
"Redemption Date" means, when used with respect to any Senior Discount Note
to be redeemed, the date fixed for such redemption pursuant to this Agreement
and the Senior Discount Notes.
"Redemption Price" means, when used with respect to any Senior Discount
Note to be redeemed, the price fixed for such redemption pursuant to this
Agreement and the Senior Discount Notes, which shall include, without
duplication, in each case, accrued and unpaid interest to the Redemption Date
(subject to Section 6.4 hereof).
"Refinancing Indebtedness" means Indebtedness of the Company or any of its
Subsidiaries Incurred or given in exchange for, or the proceeds of which are
used to, extend, refinance, renew, replace, substitute, defease or refund any
other Indebtedness of the Company or any of its Subsidiaries (and related
interest, premium, penalties, breakage costs, fees, expenses and other amounts
owing in respect of such Indebtedness, to the extent permitted to be Incurred by
Section 7.7(c)(iii)) Incurred in accordance with the terms of this Agreement,
including Section 7.7.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated the Closing Date, by and between the Company and the Purchaser, as the
same may be amended, modified, or supplemented from time to time in accordance
with the terms thereof.
"Related Business" means the businesses conducted (or proposed to be
conducted) by the Company and its Subsidiaries as of the date hereof and any and
all businesses that in the good faith judgment of the Board of Directors of the
Company are materially related businesses. Without limiting the generality of
the foregoing, Related Business shall include the design, development,
production, marketing and sale of interactive slot machines.
"Release" means any releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, disposing, or
dumping into the Environment.
"Repayment Trigger Date" has the meaning ascribed thereto in Section
7.13(b) hereof.
"Restricted Payment" means, with respect to any Person, without
duplication: (a) any dividend or other distribution, whether in cash or in
Property or securities, declared or paid on any shares of such Person's Capital
Stock (other than (i) in the case of the Company, dividends or distributions
payable solely in shares of Qualified Capital Stock of the Company or options,
warrants or other rights to acquire Qualified Capital Stock of the Company and
(ii) any dividends,
18
distributions or other payments in respect of any Capital Stock made by any
Subsidiary to the Company or a Wholly-Owned Subsidiary), or the making by such
Person or any of its Subsidiaries of any other distribution in respect of such
Person's Capital Stock or any warrants, rights or options to purchase or acquire
shares of any class of such Capital Stock (other than exchangeable or
convertible Indebtedness of such person); (b) the redemption, repurchase,
retirement or other acquisition for value by such Person or any of its
Subsidiaries, directly or indirectly, of such Person's Capital Stock (and, in
the case of a Subsidiary, Capital Stock of the Company) other than Capital Stock
owned by the Company or a Wholly-Owned Subsidiary, or any warrants, rights or
options to purchase or acquire shares of any class of such Capital Stock (other
than exchangeable or convertible Indebtedness of such Person), and other than,
in the case of the Company, through the issuance in exchange therefor solely of
Qualified Capital Stock of the Company; (c) any payment to purchase, redeem,
defease or otherwise acquire or retire for value any Pari Passu Indebtedness or
Subordinated Indebtedness (other than with the proceeds of Refinancing
Indebtedness permitted under this Agreement), except in accordance with the
mandatory redemption or repayment provisions set forth in the original
documentation governing such Indebtedness; and (d) any Investment other than
Permitted Investments.
"Restricted Security" has the meaning ascribed thereto in Section 11.13
hereof.
"Rule 144" means Rule 144 as promulgated by the Commission under the
Securities Act, and any successor rule or regulation thereto.
"Rule 144A" means Rule 144A as promulgated by the Commission under the
Securities Act, and any successor rule or regulation thereto.
"Sale" means any sale, lease, conveyance, exchange, transfer, assignment,
pledge, hypothecation or other disposition of any Property.
"SEC Reports" means the Company's Annual Report on Form 10-K under the
Exchange Act for the fiscal year ended December 31, 1996, as filed with the
Commission, together with each other registration statement, periodic report,
proxy statement, and other filing made by the Company with the Commission on or
after January 1, 1997.
"Securities" means, collectively, the Senior Discount Notes and the Common
Stock Purchase Warrants.
"Securities Act" means the Securities Act of 1933, as the same may be
amended from time to time, or any successor thereto, and the rules and
regulations issued thereunder, as from time to time in effect.
"Securities Sale" means the issuance or sale by the Company or any of its
Subsidiaries, for cash, of shares of Capital Stock (other than directors'
qualifying shares) or other ownership interests, or any securities convertible
into or exercisable or exchangeable for, or options, warrants, rights or any
other interests with respect to, any shares of Capital Stock or other
19
ownership interests of the Company or any such Subsidiary; provided, however,
-----------------
that the exercise of (a) warrants or (b) compensatory options to purchase
Capital Stock shall not constitute a Securities Sale.
"Security Date" has the meaning ascribed thereto in Section 11.14(a)
hereof.
"Security Documents" has the meaning ascribed thereto in Section 11.14(a)
hereof.
"Securityholder Lien" has the meaning ascribed thereto in Section 11.14(a)
hereof.
"Security Opinion Date" and "Pledge Opinion Date" mean the respective dates
on which the Company delivers to the Purchaser the opinion of counsel
contemplated in Section 11.14(c) hereof.
"Senior Indebtedness" means and includes all principal of, premium and
interest (including Post-Petition Interest) on and other Obligations with
respect to any Indebtedness of the Company (other than as otherwise provided in
this definition), whether outstanding on the date hereof or hereafter Incurred,
other than the Senior Discount Notes; provided, however, that the following
-------- -------
shall not constitute Senior Indebtedness: (a) any Indebtedness which by the
terms of the instrument creating or evidencing the same is pari passu,
---- -----
subordinated or junior in right of payment to the Senior Discount Notes in any
respect; (b) that portion of any Indebtedness Incurred in violation of this
Agreement; (c) any Preferred Stock; or (d) any Indebtedness of the Company which
is subordinated to or junior in right of payment in any respect to any other
Indebtedness of the Company. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include (i) Indebtedness evidenced by the Senior
Discount Notes, (ii) Indebtedness which when incurred and without respect to any
election under Section 1111(b) of ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ Code, is without
recourse to the Company, (iii) any liability for foreign, Federal, state, local
or other Taxes owed or owing by the Company, (iv) Indebtedness of the Company to
the extent such liability constitutes Indebtedness to a Subsidiary or any other
Affiliate of the Company or any of such Affiliate's Subsidiaries, (v)
Indebtedness for the purchase of goods or materials in the ordinary course of
business or (vi) Indebtedness owed by the Company for compensation to employees
or for services.
"Senior Discount Notes" means the Company's Senior Discount Notes due
September 30, 2002, as amended or supplemented from time to time in accordance
with the terms hereof, that are issued pursuant to this Agreement and each note
delivered in substitution or exchange for any such note.
"Strategic Investments" means any Investment which in the good faith
judgment of the Board of Directors of the Company (a) relates to a Related
Business and (b) adds strategic value or offers a potential competitive
advantage to the Company.
"Subordinated Indebtedness" means Indebtedness of the Company which is
subordinated or junior in right and priority of payment to the Senior Discount
Notes.
20
"Subsidiary" of any Person means any other Person with respect to which
either (i) more than 50% of the interests having ordinary voting power to elect
a majority of the directors or individuals having similar functions of such
other Person (irrespective of whether at the time interests of any other class
or classes of such Person shall or might have voting power upon the occurrence
of any contingency), or (ii) more than 50% of the equity interests of such other
Person is at the time directly or indirectly owned or controlled by such Person,
by such Person and one or more of its other Subsidiaries or by one or more of
such Person's other Subsidiaries. When used herein without reference to any
Person, Subsidiary means a Subsidiary of the Company.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"Taxes" any present or future federal, state, county, local, foreign or
other income, Property, excise, franchise, sales, use, value added, employees'
income withholding, social security, unemployment and other taxes, of any nature
whatsoever now or hereafter imposed, levied, collected, withheld, or assessed by
any Governmental Body, which have become due or payable by the Company or any of
its Subsidiaries, or by any predecessors thereto, including any fines or
penalties with respect thereto or interest thereon, whether disputed or not.
"Threat of Release" means a substantial likelihood of a Release which under
applicable Environmental Laws requires action to prevent or mitigate damage to
the Environment which may result from such Release.
"Transaction Documents" means, collectively, this Agreement, the Senior
Discount Notes, the Common Stock Purchase Warrants, the Registration Rights
Agreement, the Warrant Agreement and any and all agreements, certificates,
instruments and other documents contemplated thereby or executed and delivered
in connection therewith.
"Units" has the meaning ascribed thereto in Section 2.1(c) hereof.
"Warrant Agreement" means the Warrant Agreement of even date herewith by
and between the Company and the Purchaser, as amended, modified or supplemented
from time to time in accordance with the terms thereof.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment at final maturity, in respect thereof, with (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
21
"Wholly-Owned Subsidiary" means, with respect to any Person, a Subsidiary
100% of the equity interests in which (however measured) are owned by such
Person or a Wholly-Owned Subsidiary of such Person or such Person and one or
more Wholly-Owned Subsidiaries of such Person taken together, except in any case
for the minimum equity interest required to be held by directors, if any, to
satisfy the requirements of any applicable statute requiring that directors own
qualifying shares.
1.2 Accounting Terms. All accounting terms used and not defined in this
----------------
Agreement shall be construed in accordance with GAAP and all financial data
required to be delivered hereunder shall be prepared in accordance with such
principles.
ARTICLE II
PURCHASE AND SALE OF UNITS
2.1 Issuance of Units.
-----------------
(a) The Company has authorized the issuance and sale of up to
$30,000,000 aggregate principal amount of its Senior Discount Notes, to be
issued pursuant to and in accordance with the terms of this Agreement. Each
Senior Discount Note will be issued in the principal amount of $100,000,
substantially in the form set forth in Exhibit A hereto, with such changes
---------
thereto, if any, as may be approved by the Purchaser and the Company.
(b) The Company has authorized the issuance and sale of up to 375,000
Common Stock Purchase Warrants, each exercisable to purchase one share of the
Common Stock of the Company, to be acquired by the Purchaser in accordance with
the terms of this Agreement. The Common Stock Purchase Warrants will be
substantially in the form of the Warrant Certificate as set forth in Exhibit A
---------
of the Warrant Agreement, with such changes thereto, if any, as may be approved
by the Purchaser and the Company.
(c) The Senior Discount Notes and the Common Stock Purchase Warrants
will be issued in attached units ("Units") each consisting of $100,000 principal
amount of Senior Discount Notes and 1,250 Common Stock Purchase Warrants,
subject to detachment of the Common Stock Purchase Warrants from the Senior
Discount Notes upon the terms and subject to the conditions set forth herein.
(d) The Company and the Purchaser hereby agree that for Federal income
tax purposes, including for purposes of determining original issue discount and
the issue price of the Senior Discount Notes under sections 1271-1275 of the
Code and the regulations issued thereunder, the $83,333.33 issue price of each
Unit shall be allocated $730.58 to each $1,000 of principal amount of the Senior
Discount Notes and $8.22 to each Common Stock Purchase Warrant. The Company and
the Purchaser hereby further agree that the allocation of the issue price
pursuant to the preceding sentence shall be binding on the Company for purposes
of any
22
determination by the Company of the issue price of the Senior Discount Notes
pursuant to the first sentence of Treasury Regulations section 1.1273-2(f)(2).
2.2 Sale and Purchase of Units. At the Closing provided for in Section
--------------------------
2.3, the Company will issue and sell to the Purchaser and, subject to the terms
and conditions of this Agreement, the Purchaser will purchase from the Company,
the Units at the purchase price of $83,333.33 per Unit payable in cash by wire
transfer of immediately available funds.
2.3 Closing of Sale of Units. The purchase and delivery of the Units to
------------------------
be purchased by the Purchaser shall take place at the offices of ▇▇▇▇▇▇▇,
Procter & ▇▇▇▇ LLP, Exchange Place, Boston, Massachusetts, at a closing (the
"Closing") on September 30, 1997, or at such other place or on such other date
as the Purchaser and the Company may agree upon (such date on which the Closing
shall have actually occurred, the "Closing Date"). At the Closing, the Company
will deliver or cause to be delivered to the Purchaser the Units to be purchased
by it against payment of the purchase price therefor. Unless the Purchaser
otherwise notifies the Company at least two Business Days prior to the Closing
Date, the Units to be purchased hereunder shall be in the form of a single
Senior Discount Note and a single Common Stock Purchase Warrant certificate, in
each case dated the date of the Closing and registered in the Purchaser's name
or that of its nominee as set forth on the signature page hereto. If at the
Closing the Company shall fail to tender to the Purchaser any of the Units to be
purchased by it as provided in this Article II, or any of the conditions
specified in Article III for the benefit of the Purchaser or the Company, as the
case may be, shall not have been satisfied or waived in writing by the Purchaser
or the Company, as applicable, the Purchaser or the Company, as the case may be,
shall, at its election, be relieved of all further obligations under this
Agreement, without thereby waiving any other rights it may have by reason of
such failure or such non-fulfillment.
ARTICLE III
CONDITIONS TO CLOSING
3.1 Conditions Precedent to Obligations of the Purchaser on the Closing
-------------------------------------------------------------------
Date. The Purchaser's obligation to purchase and pay for the Units to be sold
----
to it at the Closing is subject to the fulfillment to its satisfaction, prior to
or at the Closing, of the following conditions, provided that any or all of the
following conditions may be waived, in whole or in part, by the Purchaser with
respect to this Agreement in its sole and absolute discretion:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Company and its Subsidiaries contained in this Agreement and
in the other Transaction Documents shall be correct in all material respects
when made and at the time of the Closing, after giving effect to the sale of the
Units, except that any representations and warranties that relate to a
particular date or period shall be correct in all material respects only as of
such date or for such period.
23
(b) Performance; No Default. The Company shall have performed and
-----------------------
complied in all material respects with all agreements and conditions contained
in this Agreement and the other Transaction Documents required to be performed
or complied with prior to or at the Closing, and at the time of the Closing,
after giving effect to the sale of the Units, no Default or Event of Default
shall have occurred and be continuing.
(c) Compliance Certificate. The Company shall have delivered to the
----------------------
Purchaser an Officers' Certificate, dated the Closing Date, certifying on behalf
of the Company that the conditions specified in Sections 3.1(a) and (b) have
been fulfilled.
(d) Opinion of Counsel. The Purchaser shall have received from ▇▇▇▇
------------------
▇▇▇▇ ▇▇▇▇ & Freidenrich, counsel for the Company, a favorable opinion
substantially in the form set forth in Exhibit B, addressed to the Purchaser,
---------
dated the Closing Date, and otherwise satisfactory in substance and form to the
Purchaser.
(e) Legal Investment. On the Closing Date, the Purchaser's purchase
----------------
of the Units shall be permitted by the laws and regulations of the jurisdiction
to which the Purchaser is subject (including, without limitation, Section 5 of
the Securities Act and Regulations G, T, U, or X of the Board of Governors of
the Federal Reserve System), and credit controls (whether voluntary or
mandatory) or similar restraints applicable to the Purchaser and shall not
subject the Purchaser to any tax, penalty, liability or other onerous condition
under or pursuant to any applicable law or governmental regulation (other than
applicable securities law restrictions on resale of the Units), and shall not be
enjoined (temporarily or permanently) under, prohibited by or contrary to any
injunction, order or decree applicable to the Purchaser.
(f) Compliance With Securities Laws. The offering, issuance and sale
-------------------------------
of the Units under this Agreement shall have complied with all applicable
requirements of the Federal securities laws and the Purchaser shall have
received evidence, if any, of such compliance in form and substance reasonably
satisfactory to the Purchaser.
(g) Proceedings and Documents. All corporate and other proceedings
-------------------------
contemplated by this Agreement, including, without limitation, the matters set
forth in the Transaction Documents and all of the other documents and
instruments incident thereto, shall be reasonably satisfactory to the Purchaser,
and the Purchaser shall have received all such counterpart originals or
certified or other copies of such documents as the Purchaser may reasonably
request.
(h) Completion of Other Transactions. Simultaneously with or prior to
--------------------------------
the issuance and sale to the Purchaser of the Units to be purchased by the
Purchaser at the Closing:
(i) the Company and the Purchaser shall have duly entered into
the Registration Rights Agreement substantially in the form of Exhibit C
---------
hereto, the Purchaser shall have received fully-executed counterparts of
the Registration Rights Agreement in such numbers reasonably requested by
it, and such agreement shall be in full force and effect;
24
(ii) the Company and the Purchaser shall have duly entered into
the Warrant Agreement substantially in the form of Exhibit D hereto, the
---------
Purchaser shall have received fully-executed counterparts of the Warrant
Agreement in such numbers reasonably requested by it, and such agreement
shall be in full force and effect; and
(iii) each of the other Transaction Documents and any other
agreements and documents contemplated thereby and in connection therewith
shall have been executed and delivered by all respective parties thereto
and shall be in full force and effect.
(i) Related Matters. As of the Closing, the Company's Charter
---------------
Documents shall not have been modified or amended since the date delivered to
the Purchaser by the Company.
(j) No Adverse U.S. Legislation, Action or Decision. No legislation,
-----------------------------------------------
order, rule, ruling or regulation shall have been enacted or made by or on
behalf of any governmental body, department or agency of the United States, nor
shall any decision of any court of competent jurisdiction within the United
States have been rendered which, in the Purchaser's reasonable judgment, could
materially and adversely affect any of the Units or any part thereof as an
investment. There shall be no action, suit, investigation or proceeding pending
or threatened against or affecting the Purchaser, any of its properties or
rights, or any of its Affiliates, associates, officers or directors (in such
capacity), before any court, arbitrator or administrative or governmental body
which (i) seeks to restrain, enjoin, prevent the consummation of or otherwise
affect the transactions contemplated by this Agreement and the other Transaction
Documents, or (ii) questions the validity or legality of any such transactions
or seeks to recover damages or to obtain other relief in connection with any
such transactions, and, to the Purchaser's knowledge, there shall be no valid
basis for any such action, proceeding or investigation.
(k) Governmental and Third Party Permits, Consents, Etc. Except as
---------------------------------------------------
set forth on Schedule 4.4, the Company and its Subsidiaries shall have duly
------------
applied for and obtained all Approvals from each Governmental Body, or pursuant
to any agreement to which the Company or any of its Subsidiaries is a party or
to which any of them or any of their assets is subject, which are required in
connection with this Agreement, the other Transaction Documents or any other
agreements and documents contemplated thereby and in connection therewith.
(l) Secretary's Certificate. The Purchaser shall have received a
-----------------------
certificate, dated the Closing Date, of the Secretary or Assistant Secretary of
each of the Company and each of its Subsidiaries, on behalf of such entity, (i)
certifying as true, complete and correct its Charter Documents and in the case
of the Company, resolutions relating to the transactions contemplated hereby
attached thereto, (ii) in the case of the Company, as to the absence of
proceedings or other action for dissolution, liquidation or reorganization of
the Company, (iii) in the case of any Subsidiary, as to the absence of
proceedings or other action for dissolution, liquidation or reorganization of
such Subsidiary, (iv) as to the incumbency and specimen signatures of officers
who shall have executed instruments, agreements and other documents in
connection with the transactions contemplated hereby, (v) in the case of the
Company, as to the effect that certain
25
agreements, instruments and other documents are in the form approved in the
resolutions referred to in clause (i) above, and (vi) covering such other
matters, and with such other attachments thereto, as Purchaser's Special Counsel
may reasonably request at least one Business Day before the Closing Date, which
certificates and attachments thereto shall be reasonably satisfactory in form
and substance to such Purchaser.
(m) Payment of Fees. The Company shall have paid (i)
---------------
contemporaneously with the Closing, the fees, expenses and disbursements of the
Purchaser's Special Counsel reflected in statements of such counsel rendered
prior to or on the Closing Date and agreed to pay such additional fees, expenses
and disbursements reflected in statements of such counsel rendered after the
Closing Date and (ii) contemporaneously with the execution hereof, a fee to the
Purchaser in the amount of $625,000 in consideration of Purchaser's execution of
the Transaction Documents.
3.2 Conditions Precedent to Obligations of the Company on the Closing
-----------------------------------------------------------------
Date. The Company's obligation to issue the Units at the Closing is subject to
the fulfillment to its satisfaction, prior to or at the Closing, of the
following conditions, provided that any or all of the following conditions may
be waived, in whole or in part, by the Company with respect to this Agreement in
its sole and absolute discretion:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Purchaser contained in this Agreement and in the other
Transaction Documents shall be correct in all material respects when made and at
the time of the Closing, after giving effect to the sale of the Units, except
that any representations and warranties that relate to a particular date or
period shall be correct in all material respects only as of such date or for
such period.
(b) Performance; No Default. The Purchaser shall have performed and
-----------------------
complied in all material respects with all agreements and conditions contained
in this Agreement and the other Transaction Documents required to be performed
or complied with prior to or at the Closing, and at the time of the Closing,
after giving effect to the sale of the Units, no Default or Event of Default
shall have occurred and be continuing.
(c) Related Matters. Contemporaneously with the Closing, the Company
---------------
shall have received payment in full for the Units to be issued pursuant to this
Agreement.
(d) No Adverse U.S. Legislation, Action or Decision. No legislation,
-----------------------------------------------
order, rule, ruling or regulation shall have been enacted or made by or on
behalf of any Governmental Body, nor shall any decision of any court of
competent jurisdiction within the United States have been rendered which, in the
Company's reasonable judgment, could materially and adversely affect any of the
Units or any part thereof as an investment. There shall be no action, suit,
investigation or proceeding pending or threatened in writing, against or
affecting the Company, any of its properties or rights, or any of its
Affiliates, associates, officers or directors, before any court, arbitrator or
administrative or governmental body which (i) seeks to restrain, enjoin, prevent
the consummation of or otherwise affect the transactions contemplated by this
Agreement and the other Transaction Documents, or (ii) questions the validity or
legality of any such
26
transactions or seeks to recover damages or to obtain other relief in connection
with any such transactions, and, to the Company's knowledge, there shall be no
valid basis for any such action, proceeding or investigation.
(e) Governmental and Third Party Permits, Consents, Etc. The
---------------------------------------------------
Purchaser and its Subsidiaries shall have duly applied for and obtained all
Approvals from each Governmental Body, or pursuant to any agreement to which the
Purchaser is a party or to which its assets are subject, which may be required
in connection with this Agreement, the other Transaction Documents or any other
agreements and documents contemplated thereby and in connection therewith.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES, ETC.
In order to induce the Purchaser to purchase the Units, the Company
represents and warrants that the statements contained in this Article IV are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made and as though the Closing Date
were substituted for the date of this Agreement throughout Article IV):
4.1 Organization and Qualification; Authority. The Company is a
-----------------------------------------
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has full corporate power and
authority to own and lease its properties and carry on its business as presently
conducted, is duly qualified, registered or licensed as a foreign corporation to
do business and is in good standing in each jurisdiction in which the ownership
or leasing of its properties or the character of its present operations makes
such qualification, registration or licensing necessary, except where the
failure so to qualify or be in good standing would not have a Material Adverse
Effect. The Company has heretofore delivered to Purchaser complete and correct
copies of the Articles of Incorporation and of the by-laws of the Company and
each of its Subsidiaries, each as amended to date and as presently in effect
(collectively, with respect to any such Person, "Charter Documents"). A list of
all jurisdictions in which the Company is qualified, registered or licensed to
do business as a foreign corporation is attached hereto as Schedule 4.1.
------------
4.2 Subsidiaries. The Company's Subsidiaries are set forth on Schedule
------------ --------
4.2 hereto. Each of the Subsidiaries is a corporation, limited liability
---
company or partnership duly incorporated or formed, validly existing and in good
standing under the laws of the jurisdiction of its organization, has full
corporate, limited liability company or partnership power and authority, as the
case may be, to own and lease its properties, and carry on its business as
presently conducted, is duly qualified, registered or licensed as a foreign
corporation, limited liability company or partnership to do business and is in
good standing in each jurisdiction in which the ownership or leasing of its
properties or the character of its present operations make such qualification,
registration or licensing necessary, except where the failure so to qualify or
be in good standing would not have a Material Adverse Effect. A list of all
jurisdictions in which
27
each of the Subsidiaries is qualified, registered or licensed to do business as
a foreign corporation, limited liability company or partnership is attached
hereto as Schedule 4.2. Except as disclosed on Schedule 4.2, the Company owns,
------------ -----------
directly or indirectly, all of the outstanding shares of Capital Stock or other
evidences of equity ownership of each of its Subsidiaries free of any Lien,
restriction (other than restrictions generally applicable to securities under
federal, provincial or state securities laws) or encumbrance, and said shares
have been duly issued and are validly outstanding.
4.3 Licenses. The Company and its Subsidiaries hold all material
--------
licenses, franchises, permits, consents, registrations, certificates and other
approvals (including, without limitation, those relating to environmental
matters, public and worker health and safety, buildings, highways or zoning)
(individually, a "License" and collectively, "Licenses") required for the
conduct of its business as now being conducted, and is operating in substantial
compliance therewith, except where the failure to hold any such License or to
operate in compliance therewith would not have a Material Adverse Effect. The
Company and its Subsidiaries are in substantial compliance with all laws,
regulations, orders and decrees applicable to it, except in each case where the
failure so to comply would not have a Material Adverse Effect, or a material
adverse effect on the ability of the Company or any of its Subsidiaries to
perform on a timely basis any obligation that it has or will have under any
Transaction Document to which it is a party.
4.4 Corporate and Governmental Authorization; Contravention. Except as
-------------------------------------------------------
set forth on Schedule 4.4, the execution, delivery and performance by the
------------
Company of the Transaction Documents to which it is a party and all other
instruments or agreements to be executed at the Closing in connection therewith,
and the issuance and sale to the Purchaser of the Units pursuant to this
Agreement, are within the Company's corporate power, having been duly authorized
by all necessary corporate action on the part of the Company; do not require any
License, authorization, approval, qualification or formal exemption from, or
other action by or in respect of, or filing of a declaration or registration
with, any court, Governmental Body, agency or official or other Person (except
such as have been obtained or as may be required under the Securities Act or
state securities or Blue Sky laws); do not contravene or constitute a default
under or violation of (a) any provision of applicable law or regulation of any
Governmental Body, (b) the respective Charter Documents of the Company or any of
its Subsidiaries, (c) any agreement (or require the consent of any Person under
any agreement that has not been obtained) to which the Company or any of its
Subsidiaries is a party, or (d) any judgment, injunction, order, decree or other
instrument binding upon the Company, any of its Subsidiaries or any of their
respective properties, except where such contravention, default or violation
would not have a Material Adverse Effect; and do not and will not result in the
creation or imposition of any Lien on any asset of the Company or any of its
Subsidiaries, other than Permitted Liens.
4.5 Validity and Binding Effect. Each of the Transaction Documents has
---------------------------
been duly executed and delivered by the Company and is a valid and binding
agreement of the Company, enforceable against the Company in accordance with
their respective terms, except for (a) the effect upon the Transaction Documents
of bankruptcy, insolvency, reorganization, moratorium
28
and other similar laws relating to or affecting the rights of creditors
generally, (b) limitations imposed by a court of competent jurisdiction under
general equitable principles upon the specific enforceability of any of the
remedies, covenants or other provisions of the Transaction Documents and upon
the availability of injunctive relief or other equitable remedies, and (c) any
applicable laws relating to the maximum permissible rate of interest.
4.6 Capitalization. Except as set forth in the SEC Reports or on Schedule
-------------- --------
4.6 hereto, there are no outstanding subscriptions, options, warrants, rights,
---
convertible or exchangeable securities or other agreements or commitments of any
character obligating the Company or its Subsidiaries to issue any securities.
Except as set forth in the SEC Reports or on Schedule 4.6, there are no voting
------------
trusts or other agreements or understandings to which the Company or its
Subsidiaries is a party with respect to the voting of the Capital Stock of the
Company or the Subsidiaries. Except as set forth in the SEC Reports or on
Schedule 4.6 or as contemplated by the Registration Rights Agreement, neither
------------
the Company nor any of its Subsidiaries has entered into any agreement to
register its equity or debt securities under the Securities Act.
4.7 Litigation; Defaults. Except as set forth on Schedule 4.7 or Schedule
-------------------- ------------ --------
4.19, there is no action, suit, proceeding or investigation pending or, to the
----
knowledge of the Company, threatened against or affecting the Company, any of
its Subsidiaries, or any properties of any of the foregoing, before or by any
court or arbitrator or any Governmental Body which (individually or in the
aggregate) could reasonably be expected to (i) have a Material Adverse Effect,
or (ii) impair the ability of the Company or any Subsidiary to perform fully on
a timely basis any material obligation which the Company or such Subsidiary has
or will have under any Transaction Document to which the Company or such
Subsidiary is a party. Except as set forth on Schedule 4.7 or Schedule 4.19,
------------ -------------
neither the Company nor any of its Subsidiaries is in violation of, or in
default under (and there does not exist any event or condition which, after
notice or lapse of time or both, would constitute such a default under), any
term of its respective Charter Documents, or of any term of any agreement,
instrument, judgment, decree, order, statute, injunction, governmental
regulation, rule or ordinance (including, without limitation, those relating to
zoning, city planning or similar matters) applicable to the Company or any of
its Subsidiaries or to which the Company or any of its Subsidiaries is bound, or
to any properties of the Company or any of its Subsidiaries, except in each case
to the extent that such violations or defaults, individually or in the
aggregate, could not reasonably be expected to (a) affect the validity of any
Transaction Document, (b) have a Material Adverse Effect, or (c) impair the
ability of the Company to perform fully on a timely basis any material
obligation which the Company has or will have under any Transaction Document to
which the Company is a party.
4.8 Outstanding Debt. Except as set forth in the SEC Reports or on
----------------
Schedule 4.8 hereto, neither the Company nor any of its Subsidiaries will have
------------
outstanding any debt for borrowed money, or obligations or liabilities evidenced
by bonds, debentures, notes or other similar instruments or under capital leases
other than short-term debt incurred in the ordinary course of business.
Schedule 4.8 contains a complete and accurate list of all material guarantees,
------------
assumptions, purchase agreements and similar agreements and arrangements whereby
the Company or any of its Subsidiaries is or may become directly or indirectly
liable or responsible
29
for the indebtedness or other obligations of another Person other than the
Company or any of its Subsidiaries, except for negotiable instruments endorsed
for collection or deposit in the ordinary course of its business, identifying,
with respect to each of the respective parties, amounts and maturities.
4.9 No Material Adverse Change. Except as set forth on Schedule 4.9 or in
-------------------------- ------------
the SEC Reports, since June 30, 1997, there has been (a) no material adverse
change in the condition (financial or other), assets, business, or results of
operations of the Company or any of its Subsidiaries, (b) no obligation or
liability (contingent or other) incurred by the Company or any of its
Subsidiaries, other than obligations and liabilities incurred in the ordinary
course of business, and no Lien placed on any of the properties of the Company
or any of its Subsidiaries which remains in existence on the date hereof, other
than Permitted Liens and liabilities and Liens described on Schedule 4.20
-------------
hereto, and (c) no acquisition or disposition of any material assets by the
Company or any of its Subsidiaries (or any contract or arrangement therefor), or
any other material transaction, otherwise than (i) for fair value in the
ordinary course of business, or (ii) Permitted Dispositions.
4.10 Employee Programs. Schedule 4.10 sets forth a list of every Employee
----------------- -------------
Program maintained by the Company or any Current Affiliate at any time during
the five-year period ending on the Closing Date or with respect to which a
liability of the Company or an Affiliate (as defined below) exists. Each
Employee Program (other than a Multiemployer Plan) which has been maintained by
the Company during the five-year period ending on the Closing Date and which has
been intended to qualify under Section 401(a) or Section 501(c)(9) of the Code
has received a favorable determination or approval letter from the Internal
Revenue Service regarding its qualification under such section or the remedial
amendment period under Section 401(b) of the Code has not yet expired with
respect to such Employee Program and, to the knowledge of the Company, nothing
has occurred that would adversely affect such qualification since the date of
such letter or application for a determination or approval letter has been
timely made and to the knowledge of the Company, no reason exists why a
favorable determination or approval shall not be granted. Except as set forth
on Schedule 4.10, the Company has no knowledge of any failure of any party to
-------------
comply with any laws applicable with respect to the Employee Programs that have
been maintained by the Company or any Current Affiliate, and no such failure
will result from completion of the transactions contemplated hereby. With
respect to any Employee Program ever maintained by the Company or an Affiliate,
there has been no "prohibited transaction," as defined in Section 406 of ERISA
or Code Section 4975, or breach of any duty under ERISA or other applicable law
or any agreement which in any such case could subject the Company to material
liability either directly or indirectly (including, without limitation, through
any obligation of indemnification or contribution) for any damages, penalties,
or taxes, or any other loss or expense. No litigation or governmental
administrative proceeding (or investigation) or other proceeding (other than
those relating to routine claims for benefits) is pending or threatened with
respect to any such Employee Program (other than a Multiemployer Plan).
The Company and its Current Affiliates have not incurred any liability
under title IV of ERISA which has not been paid in full prior to the Closing.
Neither the Company nor any of its
30
Current Affiliates is liable for any material "accumulated funding deficiency"
(whether or not waived) with respect to any Employee Program ever maintained by
the Company or any Affiliate and subject to Code Section 412 or ERISA Section
302. With respect to any Employee Program subject to title IV of ERISA, there
has been no (and the transactions contemplated by this Agreement will not result
in any) (a) "reportable event," within the meaning of ERISA Section 4043 or the
regulations thereunder (for which the notice requirement is not waived under 29
C.F.R. Part 2615) or (b) other event or condition which presents a material risk
of plan termination or any other event that may cause the Company or any Current
Affiliate to incur material liability or have a material Lien imposed on its
assets under title IV of ERISA. All payments and/or contributions required to
have been made by the Company and its Current Affiliates (under the provisions
of any agreements or other governing documents or applicable law) with respect
to all Employee Programs subject to title IV of ERISA ever maintained by the
Company or any Affiliate, for all periods prior to the Closing, have been timely
made. Except as described on Schedule 4.10, no Employee Program maintained by
-------------
the Company or an Affiliate and subject to title IV of ERISA (other than a
Multiemployer Plan) has any "unfunded benefit liabilities" within the meaning of
ERISA Section 4001(a)(18), as of the Closing Date. With respect to Multiemployer
Plans maintained by the Company or any Affiliate, Schedule 4.10 states the
-------------
aggregate amount of withdrawal liability or other termination liability that
would be incurred by the Company or any Affiliate if there were a withdrawal
from any such plan as determined by the most recent withdrawal liability
calculation prepared by such plan. Except as disclosed on Schedule 4.10, none of
-------------
the Employee Programs which is a welfare plan maintained by the Company or any
Affiliate provides health care or any other non-pension benefits to any
employees after their employment is terminated (other than as required by part 6
of subtitle B of title I of ERISA or comparable statutes or regulations) or has
ever promised to provide such post-termination benefits.
For purposes of this section:
(i) "Employee Program" means (A) any employee benefit plan within
the meaning of Section 3(3) of ERISA and employee benefit plans (such as
foreign or excess benefit plans) which are not subject to ERISA, and (B)
any stock option plans, bonus or incentive award plans, severance pay
policies or agreements, deferred compensation arrangements, supplemental
income arrangements, vacation plans, and all other employee benefit plans,
agreements, and arrangements not described in (A) above, and (C) any trust
used to fund benefits under the foregoing maintained by the Company or any
Affiliate.
(ii) For purposes of this Section 4.10, an entity is an
"Affiliate" of the Company if it would have ever been considered a single
employer with the Company under ERISA Section 4001(b) or part of the same
"controlled group" as the Company for purposes of ERISA Section
302(d)(8)(C); an entity is a "Current Affiliate" if it currently would be
considered a single employer with the Company under ERISA Section 4001(b)
or part of the same "controlled group" as the Company for purposes of ERISA
Section 302(d)(8)(C); and each reference to the Company includes its
Subsidiaries.
31
(iii) An entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides benefits under such Employee Program,
or has any obligation (by agreement or under applicable law) to contribute
to or provide benefits under such Employee Program, or if such Employee
Program provides benefits to or otherwise covers employees of such entity
(or, in respect of such employees, their spouses, dependents, or
beneficiaries).
(iv) "Multiemployer Plan" means a (pension or non-pension)
employee benefit plan to which more than one employer contributes and which
is maintained pursuant to one or more collective bargaining agreements.
4.11 Private Offering. No form of general solicitation or general
----------------
advertising, including, but not limited to, advertisements, articles, notices or
other communications, published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising, was used
by the Company or any of its Subsidiaries or any of the Company's or such
Subsidiary's representatives, or, to the knowledge of the Company, any other
Person acting on behalf of the Company or any of its Subsidiaries, in connection
with the offering of the Units being purchased under this Agreement. During the
six months prior to the Closing, neither the Company, any of its Subsidiaries
nor any Person acting on the Company's or such Subsidiary's behalf has directly
or indirectly offered the Units, or any part thereof or any other similar
securities, for sale to, or sold or solicited any offer to buy any of the same
from, or otherwise approached or negotiated in respect thereof with any Person
or Persons other than the Purchaser and other investors who the Company
reasonably believed had such knowledge and experience in financial and business
matters that they were capable of evaluating the merits and risks of purchasing
the Units. The Company further represents to the Purchaser that, assuming the
accuracy of the representations of the Purchaser as set forth in Section 5
hereof, neither the Company, any of its Subsidiaries nor any Person acting on
the Company's or such Subsidiary's behalf has taken or will take any action
which would subject the issue and sale of the Units to the provisions of Section
5 of the Securities Act, except as contemplated by the Registration Rights
Agreement. The Company has not sold the Units to anyone other than the
Purchaser designated in this Agreement. During the six months prior to the
Closing, no securities of the same class or series as the securities comprising
the Units have been issued and sold by the Company. Each Senior Discount Note
and Common Stock Purchase Warrant certificate shall bear substantially the same
legend set forth in Section 11.12 hereof, as applicable, for at least so long as
such restrictions apply.
4.12 Broker's or Finder's Commissions. Other than Deutsche ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------------
Inc., neither the Company nor any of its Subsidiaries has engaged any broker or
finder or has incurred or become liable for any broker's commission or finder's
fee relating to or in connection with the transactions contemplated by this
Agreement. In addition to and not in limitation of any other rights hereunder,
the Company and its Subsidiaries agree that they will indemnify and hold
harmless the Purchaser from and against any and all claims, demands or
liabilities for broker's, finder's, placement agent's or other similar fees or
commissions and any and all liabilities with respect to any taxes (including
interest and penalties) payable or incurred or alleged to have been
32
incurred by the Company or any of its Subsidiaries or any Person acting or
alleged to have been acting on the Company's or such Subsidiary's behalf, in
connection with this Agreement, the issuance or sale of the Units or any other
transaction contemplated by any of the Transaction Documents.
4.13 Disclosure.
----------
(a) The historical financial and operating information delivered to
the Purchaser has been derived from the consolidated books and records of the
Company and its Subsidiaries prepared in accordance with GAAP.
(b) There is no material fact known to the Company which the Company
has not disclosed to the Purchaser in writing which has or, insofar as the
Company can reasonably foresee, may have or will have a Material Adverse Effect
or a material adverse effect on the ability of the Company to perform its
obligations under any of the Transaction Documents or in respect of the Units or
any document contemplated hereby or thereby.
4.14 Foreign Assets Control Regulation, Etc. Neither the issue and sale of
--------------------------------------
the Units by the Company nor its use of the proceeds thereof as contemplated by
this Agreement will violate the Foreign Assets Control Regulations, the
Transaction Control Regulations, the Cuban Assets Control Regulations, the
Foreign Funds Control Regulations, the Iranian Assets Control Regulations, the
Nicaraguan Trade Control Regulations, the South African Transactions Control
Regulations, the Libyan Sanctions Regulations, the Soviet Gold Coin Regulations,
the Panamanian Transactions Regulations, the Haitian Transactions Regulations,
or the Iraqi Sanctions Regulations of the United States Treasury Department (31
C.F.R., Subtitle B, Chapter V, as amended) or Executive Orders 12722 and 12724
(transactions with Iraq).
4.15 Federal Reserve Regulations and Other Matters. Neither the Company
---------------------------------------------
nor any of its Subsidiaries will, directly or indirectly, use any of the
proceeds from the sale of the Units for the purpose, whether immediate,
incidental or ultimate, of buying any "margin stock," or of maintaining,
reducing or retiring any indebtedness originally incurred to purchase any stock
that is currently a "margin stock," or for any other purpose which might
constitute the transactions contemplated hereby a "purpose credit," in each case
within the meaning of Regulations G or U of the Board of Governors of the
Federal Reserve System (12 C.F.R. 207 and 221, as amended, respectively), or
otherwise take or permit to be taken any action which would involve a violation
of such Regulation G or Regulation U or of Regulations T or X of the Board of
Governors of the Federal Reserve System (12 C.F.R. 220 and 224, as amended,
respectively) or any other regulation of such Board. No indebtedness that may
be maintained, reduced or retired with the proceeds from the sale of the Units
was incurred for the purpose of purchasing or carrying any "margin stock" and
neither the Company nor any of its Subsidiaries own any such "margin stock" or
have any present intention of acquiring, directly or indirectly any such "margin
stock."
4.16 Investment Company Act. Neither the Company nor any of its
----------------------
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
33
4.17 Public Utility Holding Company Act. To the Company's knowledge,
----------------------------------
neither the Company nor any of its Subsidiaries is a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended.
4.18 Interstate Commerce Act. To the Company's knowledge, neither the
-----------------------
Company nor any of its Subsidiaries is, nor will be, a "rail carrier," or a
Person controlled by or affiliated with a "rail carrier," within the meaning of
Title 49, U.S.C. Neither the Company nor any of its Subsidiaries is a "carrier"
or other Person to which 49 U.S.C. Section 11301(b)(1) is applicable.
4.19 Environmental Regulation, Etc.
------------------------------
(a) Except as set forth on Schedule 4.19, to the knowledge of the
-------------
Company, each of the Company and its Subsidiaries (i) has no liability under any
Environmental Law or common law cause of action relating to or arising from
environmental conditions which could have a Material Adverse Effect, and any
property owned, operated, leased, or used by the Company and its Subsidiaries
and any facilities and operations thereon comply with all applicable
Environmental Laws except to the extent that failure to comply could have a
Material Adverse Effect; (ii) has not entered into or been subject to any
judgment, consent decree, compliance order, or administrative order with respect
to any environmental or health and safety matter or received any request for
information, notice, demand letter, administrative inquiry, or formal or
informal complaint or claim with respect to any environmental or health and
safety matter or the enforcement of any Environmental Law which could have a
Material Adverse Effect; and (iii) has no reason to believe that any of the
items enumerated in clause (ii) of this paragraph will be forthcoming.
(b) Except as set forth on Schedule 4.19, to the knowledge of the
-------------
Company: (i) each of the Company and its Subsidiaries has not generated,
transported, used, stored, treated, disposed of, or managed any Hazardous Waste,
except in accordance with applicable Environmental Laws; (ii) the Company has no
knowledge of any Release or Threat of Release of a Hazardous Material at any
site presently or formerly owned, operated, leased, or used by the Company or
any of its Subsidiaries; (iii) the Company and its Subsidiaries have never had
Hazardous Material transported from any site presently or formerly owned,
operated, leased, or used by the Company or any of its Subsidiaries for
treatment, storage, or disposal at any other place, except in accordance with
applicable Environmental Laws except such noncompliance which could not
reasonably be expected to have a Material Adverse Effect; (iv) the Company and
its Subsidiaries do not presently own, operate, lease or use any site on which
underground storage tanks are or were located; (v) the Company and its
Subsidiaries have never placed underground storage tanks on any site owned,
operated, leased or used by the Company or any of its Subsidiaries; (vi) the
Company and its Subsidiaries have never removed underground storage tanks from
any site presently or formerly owned, operated, leased or used by the Company or
any of its Subsidiaries; and (vii) the Company and its Subsidiaries have never
had a Lien imposed by any
34
Governmental Body on any property, facility, machinery, or equipment owned,
operated, leased, or used by the Company or any of its Subsidiaries in
connection with the presence of any Hazardous Material.
4.20 Properties and Assets. The Company and its Subsidiaries have good
---------------------
record and marketable fee title to (or, in the case of licensed Property, valid
licenses to) all real Property and all other Property and assets, whether
tangible or intangible, owned by them and reasonably necessary in the conduct of
business of the Company or such Subsidiaries, except defects in title which do
not and will not have a Material Adverse Effect. All of the leases necessary in
any material respect for the operation of their respective properties and
assets, under which the Company or any of its Subsidiaries holds any Property or
assets, real or personal, are valid, subsisting and enforceable and afford
peaceful and undisturbed possession of the subject matter of the lease, and no
material default by the Company or any of its Subsidiaries exists under any of
the provisions thereof. All buildings, machinery and equipment of the Company
and its Subsidiaries are in good repair and working order, except for ordinary
wear and tear, and except as would have a Material Adverse Effect. All material
current and proposed uses of such Property or assets of the Company and its
Subsidiaries are permitted as of right and no regulation or ordinance interferes
with such current or proposed uses. To the knowledge of the Company, there is
no pending or formally proposed change in any such laws, regulations and
ordinances which would have a Material Adverse Effect. Except as set forth on
Schedule 4.20, no condemnation proceeding is pending or, to the knowledge of the
-------------
Company, threatened against the Company or any of its Subsidiaries. All
Property and assets of any kind (real or personal, tangible or intangible) of
the Company and its Subsidiaries are free from all Liens except for (a) Liens
which would not have a Material Adverse Effect; (b) Liens disclosed on Schedule
--------
4.20 hereto; and (c) Permitted Liens. Except as set forth on Schedule 4.20
---- -------------
hereto, neither the Company nor any of its Subsidiaries has signed any material
financing statement, as debtor or lessee, or any security agreement authorizing
any secured party thereunder to file any such financing statement.
4.21 Insurance. A list of all insurance policies and fidelity bonds
---------
covering the assets, business, equipment, properties, operations, employees,
officers and directors under which the Company or any of its Subsidiaries may
derive any material benefit is set forth on Schedule 4.21 hereof. There is no
-------------
claim by the Company or any of its Subsidiaries pending under any of such
policies or bonds as to which coverage has been questioned, reserved, denied or
disputed by the underwriters of such policies or bonds or their agents where
such question, reservation, denial or dispute would have a Material Adverse
Effect. All premiums due and payable under all such policies and bonds have
been paid, and the Company and its Subsidiaries are otherwise in full compliance
with the terms and conditions of all such policies and bonds. Except as set
forth on Schedule 4.21, such policies of insurance and bonds (or other policies
-------------
and bonds providing substantially similar insurance coverage) are and have been
in full force and effect for at least the last year or since the inception of
the Company or any of its Subsidiaries, as the case may be, and remain in full
force and effect. Such policies of insurance and bonds are of the type and in
amounts customarily carried by Persons conducting business similar to that
presently conducted by the Company and its Subsidiaries. The Company knows of
no threatened termination of any such policies or bonds.
35
4.22 Employment Practices. Except as set forth on Schedule 4.22 hereto,
-------------------- -------------
neither the Company nor any of its Subsidiaries is a party to or in the process
of negotiating any collective bargaining or labor agreement or union contract.
As of the date of this Agreement, there is no (a) charge, complaint or suit
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries respecting employment, hiring for employment,
terminating from employment, employment practices, employment discrimination,
terms and conditions of employment, safety, wrongful termination, or wages and
hours, (b) unfair labor practice charge or complaint pending or, to the
knowledge of the Company, threatened against, or decision or order in effect and
binding on, the Company or any of its Subsidiaries before or of the National
Labor Relations Board, (c) grievance or arbitration proceeding arising out of or
under collective bargaining agreements pending or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries, (d) strike,
labor dispute, slow-down, work stoppage or other interference with work pending
or, to the knowledge of the Company, threatened against the Company or its
Subsidiaries, or (e) to the knowledge of the Company, union organizing
activities or union representation question threatened or existing with respect
to any groups of employees of the Company or any of its Subsidiaries, which in
the case of (a)-(e) above could be reasonably expected to have a Material
Adverse Effect.
4.23 Financial Statements.
--------------------
(a) The consolidated financial statements contained in the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997, and
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 together
with the notes thereto (the "Financial Statements") fairly present in all
material respects the financial position of the Company and its Subsidiaries on
a consolidated basis on the dates of such statements and the results of their
operations on the applicable basis for the periods covered thereby in accordance
with GAAP, except, with respect to unaudited financial statements, the absence
of notes thereto and statements of cash flows and subject to customary year-end
adjustments; and have been prepared in accordance with GAAP consistently
applied, except as otherwise stated therein.
(b) As of December 31, 1996 and as of the date hereof and the Closing
Date, and except as set forth in the Schedules hereto or in the SEC Reports,
there are no material liabilities or claims relating to the Company or its
Subsidiaries of any nature, whether accrued, absolute, contingent or otherwise,
asserted or, to the Company's knowledge, unasserted, except liabilities or
claims stated or adequately reserved against in the Financial Statements or
liabilities or claims incurred in the ordinary course of the Company's and its
Subsidiaries' operations which are not required to be reflected in the Financial
Statements or in the notes thereto under GAAP. Nothing has come to the
attention of the Company since the date of the Financial Statements which would
indicate that the Financial Statements did not fairly present in all material
respects the financial position of the Company and its Subsidiaries as of the
respective dates thereof.
4.24 Intellectual Property.
---------------------
(a) Except as described on Schedule 4.24, the Company and its
-------------
Subsidiaries
36
have exclusive ownership of, or exclusive license to use, all patent, copyright,
trade secret, trademark, or other proprietary rights used in the business of the
Company or any of its Subsidiaries and material to the Company and its
Subsidiaries on a consolidated basis (collectively, "Intellectual Property").
There are no claims or demands of any other Person pertaining to any of such
Intellectual Property and no proceedings have been instituted, or are pending
or, to the knowledge of the Company, threatened, which challenge the rights of
the Company or any of its Subsidiaries in respect thereof. The Company and its
Subsidiaries have the right to use, free and clear of claims or rights of other
Persons, all customer lists, designs, manufacturing or other processes, computer
software systems, data compilations, research results and other information
required for or incident to their products or their business as presently
conducted or contemplated.
(b) All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights which are owned by or
licensed to the Company or any of its Subsidiaries or used or to be used by the
Company or any of its Subsidiaries in their business as presently conducted, and
which are material to the Company and its Subsidiaries on a consolidated basis
are listed on Schedule 4.24. All of such patents, patent applications,
-------------
trademarks, trademark applications and registrations and registered copyrights
have been duly registered in, filed in or issued by the United States Patent and
Trademark Office, the United States Register of Copyrights, or the corresponding
offices of other jurisdictions as identified on Schedule 4.24, and have been
-------------
properly maintained and renewed in accordance with all applicable provisions of
law and administrative regulations in the United States and each such
jurisdiction.
(c) All material licenses or other agreements under which the Company
or any of its Subsidiaries is granted rights in Intellectual Property are listed
on Schedule 4.24. Except as set forth on Schedule 4.24, all said licenses or
------------- -------------
other agreements are in full force and effect and there is no material default
by any party thereto.
(d) The Company and its Subsidiaries have taken all steps required in
accordance with sound business practice and business judgment to establish and
preserve their ownership of all material copyright, trade secret and other
proprietary rights with respect to their products and technology. The Company
and its Subsidiaries regularly require all professional and technical employees,
and other employees having access to valuable non-public information of the
Company or any of its Subsidiaries, to execute agreements under which such
employees are required to convey to the Company or any of its Subsidiaries, as
applicable, ownership of all inventions and developments conceived or created by
them in the course of their employment and to maintain the confidentiality of
all such information of the Company and its Subsidiaries. To the Company's
knowledge, neither the Company nor its Subsidiaries made any such information
available to any Person other than employees of the Company or any of its
Subsidiaries except pursuant to written agreements requiring the recipients to
maintain the confidentiality of such information and appropriately restricting
the use thereof. To the knowledge of the Company, there are no infringements by
others of any of its or any Subsidiary's Intellectual Property rights.
(e) To the knowledge of the Company, the present business, activities
and products of the Company or any of its Subsidiaries do not infringe any
intellectual property of any
37
other Person, except where such infringement would not have a Material Adverse
Effect. No proceeding charging the Company or any of its Subsidiaries with
infringement of any adversely held Intellectual Property has been filed or is,
to the knowledge of the Company, threatened to be filed. To the Company's
knowledge, there exists no unexpired patent or patent application which includes
claims that would be infringed by or otherwise have a Material Adverse Effect.
Neither the Company nor any of its Subsidiaries is making unauthorized use of
any confidential information or trade secrets of any Person, including without
limitation any former employer of any past or present employee of the Company or
any of its Subsidiaries, except where such use would not have a Material Adverse
Effect. Except as set forth on Schedule 4.24, neither the Company or any of its
-------------
Subsidiaries nor, to the knowledge of the Company, any of its or any
Subsidiary's employees have any agreements or arrangements with any Persons
other than the Company or any of its Subsidiaries related to confidential
information or trade secrets of such Persons or restricting any such employee's
engagement in business activities of any nature. The activities of the Company
or any of its Subsidiaries or any of its or any Subsidiary's employees on behalf
of the Company or any of its Subsidiaries do not violate any such agreements or
arrangements known to the Company which any such employees have with other
Persons (to the extent that such agreements and arrangements are enforceable
under applicable law).
4.25 Taxes. The Company and its Subsidiaries, and any predecessors to the
-----
Company and any of its Subsidiaries, have filed or obtained extensions of all
Tax returns heretofore required by law to be filed by any of them. All material
Taxes have been paid in full or are adequately provided for in accordance with
GAAP on the financial statements of the applicable Person. All material
deposits, Taxes and other assessments and levies required by law to be made,
withheld, collected or provided for by the Company or any of its Subsidiaries
including deposits with respect to Taxes constituting employees' income
withholding taxes, have been duly made, withheld, collected or provided for and
have been paid over to the proper federal, state or local authority, or are held
by the applicable Person for such payment. No Liens arising from or in
connection with Taxes have been filed and are currently in effect against the
Company or any of its Subsidiaries, except for Liens for Taxes which are not yet
due. Except as set forth on Schedule 4.25 hereto, neither the Company nor any
-------------
of its Subsidiaries, nor any predecessors thereto, has executed or filed with
the IRS or any other taxing authority any agreement or document extending, or
having the effect of extending, the period for assessment or collection of any
Taxes. The federal income tax returns of the Company and each of its
Subsidiaries, and any predecessors thereto, have been examined by the IRS, or
the statute of limitations with respect to federal income taxes has expired, for
all tax years to and including the fiscal year ended December 31, 1994 and,
except as set forth on Schedule 4.25, any deficiencies have been paid in full or
-------------
are being contested in good faith by appropriate action or appropriate reserves
therefor in accordance with GAAP have been established on the Company's or
applicable Subsidiaries' books. Except as set forth on Schedule 4.25, neither
-------------
the Company nor any of its Subsidiaries is a party to any tax sharing agreement
or arrangement. Except as set forth on Schedule 4.25, no audits or
-------------
investigations are pending or, to the knowledge of the Company, threatened with
respect to any tax returns or taxes of the Company or any of its Subsidiaries,
or any predecessor thereto.
4.26 Transactions with Affiliates. Except as set forth on Schedule 4.26,
---------------------------- -------------
there are no
38
material transactions, agreements or understandings, existing or presently
contemplated between or among the Company or any of its Subsidiaries and any of
its officers or directors or stockholders or any of their Affiliates or
associates.
4.27 Limitation on Subsidiary Payment Restrictions. Except as set forth on
---------------------------------------------
Schedule 4.27 hereto, neither the Company nor any of its Subsidiaries is subject
-------------
to any consensual restriction on the ability of any such Subsidiary (a) to pay
dividends or make any other distributions on such Subsidiary's Capital Stock to,
or pay any indebtedness owing to, or repurchase or redeem any of such
Subsidiary's Capital Stock from, the Company or any other Subsidiary of the
Company, (b) to make any loans or advances to the Company or any other
Subsidiary of the Company, or (c) to transfer any of its Property or assets to
the Company or any other Subsidiary.
4.28 No Other Business. The Company has not and is not engaged in any
-----------------
material respect in any business other than the design, development, production,
marketing and sale of interactive slot machines.
ARTICLE V
PURCHASE FOR INVESTMENT; SOURCE OF FUNDS
5.1 Purchase for Investment. The Purchaser represents that (a) by reason
-----------------------
of its business and financial experience, and the business and financial
experience of those persons, if any, retained by it to advise it with respect to
its investment in the Units, it together with such advisers have such knowledge,
sophistication and experience in business and financial matters as to be capable
of evaluating the merits and risk of the prospective investment, (b) it is an
accredited investor as defined in Regulation D under the Securities Act and (c)
it is purchasing the Units for its own account or for one or more separate
accounts maintained by it or for the account of one or more institutional
investors on whose behalf the Purchaser has authority to make this
representation for investment and not with a view to the distribution or other
disposition thereof or with any present intention of distributing or selling any
of the Units except in compliance with the Securities Act and except to one or
more such institutional investors, provided that the disposition of the
Purchaser's or such investor's property shall at all times be within its
control. The Purchaser understands and agrees that the Units have not been
registered under the Securities Act and may be resold (which resale is not now
contemplated) only if registered pursuant to the provisions thereunder or if an
exemption from registration is available.
5.2 Authority. The Purchaser represents that it has full power and
---------
authority and has taken all action necessary to authorize it to enter into and
perform its obligations under this Agreement and all other Transaction Documents
and other documents or instruments contemplated hereby or thereby. This
Agreement is the legal, valid and binding obligation of such Purchaser, and is
enforceable against it in accordance with its terms.
5.3 Broker's or Finder's Commissions. In addition to and not in
--------------------------------
limitation of any other
39
rights hereunder, the Purchaser agrees that it will indemnify and hold harmless
the Company and its Subsidiaries from and against any and all claims, demands or
liabilities for broker's, finder's, placement agent's or other similar fees or
commissions and any and all liabilities with respect to any taxes (including
interest and penalties) payable or incurred or alleged to have been incurred by
the Purchaser or any Person acting or alleged to have been acting on the
Purchaser's behalf, in connection with this Agreement, the issuance or sale of
the Units or any other transaction contemplated by any of the Transaction
Documents.
5.4 Acknowledgment of Gaming Restrictions. The Purchaser acknowledges
-------------------------------------
that pursuant to the Gaming Laws approvals from the Gaming Authorities shall be
required in order for the Purchaser or any Holder to acquire control (as defined
in the Gaming Laws) of the Company.
ARTICLE VI
REDEMPTIONS AND OFFERS TO PURCHASE
6.1 Notice of Redemption. If the Company elects or is required to redeem
--------------------
Senior Discount Notes pursuant to Section 6.6 hereof, at least 30 days but not
more than 60 days before any Redemption Date, the Company shall mail by first
class mail a notice of redemption to the registered address of each Holder of
Senior Discount Notes or portions thereof that are to be redeemed. With respect
to any redemption of Senior Discount Notes, the notice shall identify the Senior
Discount Notes or portions thereof to be redeemed and shall state: (i) the
Redemption Date; (ii) the Redemption Price for the Senior Discount Notes and the
amount of unpaid and accrued interest on such Senior Discount Notes as of the
date of redemption; (iii) if any Senior Discount Note is being redeemed in part,
the portion of the principal amount of such Senior Discount Note to be redeemed
and that, after the Redemption Date, upon surrender of such Senior Discount
Note, a new Senior Discount Note or Senior Discount Notes in principal amount
equal to the unredeemed portion will be issued; (iv) that Senior Discount Notes
called for redemption must be surrendered to the Company to collect the
Redemption Price for such Senior Discount Notes; (v) that, unless the Company
defaults in paying the Redemption Price, interest on Senior Discount Notes
called for redemption ceases to accrue on and after the Redemption Date and the
only remaining right of the Holders of such Senior Discount Notes is to receive
payment of the Redemption Price upon surrender to the Company of the Senior
Discount Notes redeemed; and (vi) if fewer than all the Senior Discount Notes
are to be redeemed, the identification of the particular Senior Discount Notes
(or portion thereof) to be redeemed, as well as the aggregate principal amount
of Senior Discount Notes to be redeemed and the aggregate principal amount of
Senior Discount Notes to be outstanding after such partial redemption.
6.2 Selection of Senior Discount Notes to be Redeemed or Purchased. If
--------------------------------------------------------------
less than all outstanding Senior Discount Notes are to be redeemed or if less
than all Senior Discount Notes tendered pursuant to an Offer are to be accepted
for payment, the Company shall select the outstanding Senior Discount Notes to
be redeemed or accepted for payment in compliance with the requirements of the
principal national securities exchange, if any, on which the Senior
40
Discount Notes are listed or, if the Senior Discount Notes are not listed on a
securities exchange, on a pro rata basis, by lot or by any other method that the
Company deems fair and appropriate. The Company shall select for redemption or
purchase Senior Discount Notes or portions of Senior Discount Notes in principal
amounts of $1,000 or integral multiples thereof; except that if all of the
Senior Discount Notes of a Holder are selected for redemption or purchase, the
aggregate principal amount of the Senior Discount Notes held by such Holder,
even if not a multiple of $1,000, may be redeemed or purchased. Except as
provided in the preceding sentence, provisions of this Agreement that apply to
Senior Discount Notes called for redemption or tendered pursuant to an Offer
also apply to portions of Senior Discount Notes called for redemption or
tendered pursuant to an Offer.
6.3 Effect of Notice of Redemption. Once notice of redemption is mailed
------------------------------
to the Holders, Senior Discount Notes called for redemption become due and
payable on the Redemption Date at the Redemption Price. Upon surrender to the
Company, the Senior Discount Notes called for redemption shall be paid at the
Redemption Price on the Redemption Date.
6.4 Payment of Redemption Price. On or prior to any Redemption Date, the
---------------------------
Company shall segregate money sufficient to pay the Redemption Price of all
Senior Discount Notes to be redeemed on that date. Unless the Company defaults
in the payment of such Redemption Price, interest on the Senior Discount Notes
to be redeemed will cease to accrue on such Senior Discount Notes on the
applicable Redemption Date, whether or not such Senior Discount Notes are
presented for payment. If a Senior Discount Note is redeemed on or after an
interest Record Date but on or prior to the related Interest Payment Date, then
any accrued and unpaid interest shall be paid to the Person in whose name such
Senior Discount Note was registered at the close of business on such Record
Date. If any Senior Discount Note called for redemption shall not be so paid
upon surrender for redemption, interest will be paid on the unpaid principal,
premium, if any, and interest from the Redemption Date until such principal,
premium and interest is paid, at the rate of interest provided in the Senior
Discount Notes and Section 7.1. If a Redemption Date is a non-Business Day,
payment shall be made on the next succeeding Business Day and no interest shall
accrue for the period from the Redemption Date to such succeeding Business Day.
6.5 Senior Discount Notes Redeemed in Part. Upon surrender of a Senior
--------------------------------------
Discount Note that is redeemed in part, the Company shall issue to the Holder
thereof at the Company's expense a new Senior Discount Note equal in principal
amount to the unredeemed portion of the Senior Discount Note surrendered.
6.6 Optional and Mandatory Redemption.
---------------------------------
(a) The Senior Discount Notes will be subject to redemption, in whole
or from time to time in part (in multiples of $1,000 of principal amount) at the
option of the Company at the price per $1,000 principal amount at maturity with
respect to any Redemption Date appearing opposite the period in which such
Redemption Date occurs, plus any accrued and unpaid interest to the Redemption
Date:
41
Period Price per $1,000 Principal Amount
------ ---------------------------------
October 1997 $ 833.33
November 1997 $ 837.19
December 1997 $ 848.49
January 1998 $ 859.78
February 1998 $ 871.08
March 1998 $ 882.38
April 1998 $ 894.61
May 1998 $ 906.85
June 1998 $ 919.09
July 1998 $ 931.32
August 1998 $ 943.56
September 1998 $ 955.79
October 1998 $ 969.05
November 1998 $ 982.30
December 1998 $ 995.56
January 1999 $ 997.20
February 1999 $ 998.84
After February 28, 1999 $1,000.00
(b) Notwithstanding any other provision hereof, if any Gaming
Authority requires that the Purchaser or any Holder or beneficial owner of the
Securities must be licensed, qualified or found suitable under any Gaming Laws
in order to maintain any material gaming license, registration or approval of
the Company, or its Gaming Subsidiaries under such Gaming Laws, and the
Purchaser, Holder or beneficial owner of the Securities fails to apply for a
license, qualification or finding of suitability within 30 days after being
requested to do so by any Gaming Authority (or such lesser period that may be
required by such Gaming Authority), or if such Purchaser, Holder or beneficial
owner is not so licensed, qualified or found suitable, the Purchaser, Holder or
beneficial owner of the Securities shall comply with any order by such Gaming
Authorities that such Person dispose of any Securities held by it; provided,
however, that in the event the Purchaser, Holder or beneficial owner of the
Securities does not comply with such order within the required period, the
Company shall have the option as its sole remedy with respect to the Senior
Discount Notes to call for redemption of the Senior Discount Notes of such
Purchaser, Holder or beneficial owner at a price in cash equal to the Accreted
Value thereof on the Redemption Date, plus accrued and unpaid interest to the
Redemption Date, and except as may be required by any Gaming Authority, the
Company shall comply with the procedures contained in the Senior Discount Notes
for redemption of the Senior Discount Notes. The Company shall pay or reimburse
any Purchaser, Holder or beneficial owner of the Securities who is required to
apply for a license, qualification or finding of suitability, for the costs or
expenses incurred therewith except with respect to any Purchaser, Holder or
beneficial owner of the Securities whose affirmative actions have directly
caused such Purchaser, Holder or beneficial owner to so apply.
(c) On the date which is four years following the Closing Date, the
Company shall redeem $5.0 million in principal amount of the Senior Discount
Notes (without prepayment
42
penalty or premium) at 100% of the principal amount so redeemed, plus any
accrued and unpaid interest thereon to the Redemption Date.
(d) Upon any partial prepayment or redemption of the Senior Discount
Notes, the principal amount so prepaid or redeemed shall be allocated to all
Senior Discount Notes at the time outstanding in proportion to the respective
outstanding principal amounts thereof, and a corresponding pro rata adjustment
shall be made in the minimum denomination of a Senior Discount Note pursuant to
Section 11.1.
6.7 Mandatory Offers.
----------------
(a) Within 10 Business Days after any Change of Control Trigger Date,
any Repayment Trigger Date or any Excess Proceeds Date, the Company shall mail a
notice to each Holder containing all instructions and materials necessary to
enable such Holders to tender Senior Discount Notes pursuant to the Offer and
stating: (i) that an Offer is being made pursuant to Section 7.12, 7.13 or
7.18, as the case may be, the length of time the Offer shall remain open, and
the maximum aggregate principal amount of Senior Discount Notes that the Company
is required to purchase pursuant to such Offer; (ii) the purchase price for the
Senior Discount Notes (as set forth in Section 7.12, 7.13 or 7.18, as the case
may be), the amount of accrued and unpaid interest on such Senior Discount Notes
as of the purchase date, and the purchase date (which shall be no earlier than
30 days nor later than 40 days from the date such notice is mailed (the
"Purchase Date")); (iii) that any Senior Discount Note not tendered will
continue to accrue interest if interest is then accruing; (iv) that, unless the
Company defaults in the payment of the purchase price on the Purchase Date,
interest shall cease to accrue on such Senior Discount Notes on the Purchase
Date; (v) that Holders electing to tender any Senior Discount Note or portion
thereof will be required to surrender their Senior Discount Note, with a form
entitled "Option of Holder to Elect Purchase" completed, to the Company at the
address specified in Section 13.2 hereof prior to the close of business on the
Business Day preceding the Purchase Date, provided that Holders electing to
--------
tender only a portion of any Senior Discount Note must tender a principal amount
of $1,000 or integral multiples thereof; (vi) that Holders will be entitled to
withdraw their election to tender Senior Discount Notes if the Company receives,
not later than the close of business on the second Business Day preceding the
Purchase Date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of Senior Discount Notes delivered
for purchase, and a statement that such Holder is withdrawing his election to
have such Senior Discount Notes purchased; (vii) that Holders whose Senior
Discount Notes are accepted for payment in part will be issued new Senior
Discount Notes equal in principal amount to the unpurchased portion of Senior
Discount Notes surrendered, provided that only Senior Discount Notes in a
--------
principal amount of $1,000 or integral multiples thereof will be accepted for
payment in part and (viii) if the Offer is made with respect to a Change of
Control, the circumstances and relevant facts regarding such Change of Control.
(b) On the Purchase Date for any Offer, the Company shall (i) in the
case of an Offer resulting from a Change of Control, accept for payment all
Senior Discount Notes or portions thereof tendered pursuant to such Offer, (ii)
in the case of an Offer resulting from one
43
or more Securities Sales or Mezzanine Debt Financings the aggregate Net Cash
Proceeds of which exceed $40,000,000, accept for payment all Senior Discount
Notes or portions thereof tendered pursuant to such Offer that can be purchased
out of such Net Cash Proceeds and (iii) in the case of an Offer resulting from
an Asset Disposition pursuant to which the Company or any Subsidiary has Excess
Proceeds, accept for payment the maximum principal amount of Senior Discount
Notes that can be purchased out of such Excess Proceeds.
(c) With respect to any Offer, (i) if less than all of the Senior
Discount Notes tendered pursuant to an Offer are to be accepted for payment by
the Company for any reason, the Company shall select on or prior to the Purchase
Date the Senior Discount Notes or portions thereof to be accepted for payment
pursuant to Section 6.2; and (ii) unless the Company defaults in the payment of
the purchase price for such Senior Discount Notes on the Purchase Date, interest
shall cease to accrue on such Senior Discount Notes on the Purchase Date;
provided, however, that if the Company fails to purchase all Senior Discount
-------- -------
Notes accepted for payment, the Company shall purchase on a pro rata basis all
Senior Discount Notes accepted for payment and interest shall continue to accrue
on all Senior Discount Notes not purchased.
(d) Promptly after the Purchase Date with respect to an Offer, (i) the
Company shall mail to each Holder of Senior Discount Notes or portions thereof
accepted for payment an amount equal to the purchase price for, plus any accrued
and unpaid interest on, such Senior Discount Notes, (ii) with respect to any
tendered Senior Discount Note not accepted for payment in whole or in part, the
Company shall return such Senior Discount Note to the Holder thereof, and (iii)
with respect to any Senior Discount Note accepted for payment in part, the
Company shall authenticate and mail to each such Holder a new Senior Discount
Note equal in principal amount to the unpurchased portion of the tendered Senior
Discount Note.
(e) The Company will (i) publicly announce the results of the Offer on
or as soon as practicable after the Purchase Date, and (ii) comply with Rule
14e-1 under the Exchange Act and any other securities laws and regulations to
the extent such laws and regulations are applicable to any Offer.
(f) Notwithstanding Section 7.12 and Section 6.7, upon the occurrence
of a Change in Control Trigger Date, in lieu of repurchasing Senior Discount
Notes as required by Section 7.12, the Company may elect, instead, to call for
redemption all Senior Discount Notes pursuant to Section 6.1 provided that the
related Notice of Redemption is mailed to all holders not later than the last
date that it would be required to commence a Mandatory Offer pursuant to Section
6.7 in respect of such Change in Control.
ARTICLE VII
COVENANTS
7.1 Payment of Senior Discount Notes. The Company shall pay the principal
--------------------------------
of, and premium, if any, and interest on, the Senior Discount Notes on the dates
and in the manner
44
provided in the Senior Discount Notes. Holders must surrender their Senior
Discount Notes to the Company to collect principal payments. Principal, premium,
or interest shall be considered paid on the date due if, by 2:00 p.m., Boston,
Massachusetts time, on such date, the Company shall have executed wire transfers
in immediately available funds designated for and sufficient to pay such
principal, premium or interest. To the extent lawful, the Company shall pay
interest (including Post-Petition Interest) on overdue principal, premium and
interest (without regard to any applicable grace period) at a rate equal to 1.5%
per annum in excess of the then applicable interest rate on the Senior Discount
Notes.
7.2 Reports.
-------
(a) To the extent permitted by applicable law or regulation, whether
or not the Company is subject to the requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall file with the Commission all quarterly and
annual reports and such other information, documents or other reports (or copies
of such portions of any of the foregoing as the Commission may by rules and
regulations prescribe) required to be filed pursuant to such provisions of the
Exchange Act. The Company shall mail to the holders of the Senior Discount
Notes and the Warrants at their addresses appearing in the register of Senior
Discount Notes or Warrants, as applicable, at the time of such mailing, within
10 days after it files the same with the Commission, all information, documents
and reports that it is required to file with the Commission pursuant to this
Section 7.2. If the Company is not permitted by applicable law or regulations
to file the aforementioned reports, the Company (at its own expense) shall mail
to the holders of the Senior Discount Notes and Warrants at their addresses
appearing in the register of Senior Discount Notes or Warrant, as applicable, at
the time of such mailing within 5 days after it would have been required to file
such information with the Commission, all information and financial statements,
including any notes thereto and with respect to annual reports, an auditors'
report by an accounting firm of established national reputation, and a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," comparable to the disclosure that the Company would have been
required to include in annual and quarterly reports, information, documents or
other reports, including, without limitation, reports on Forms 10-K, 10-Q and 8-
K, if the Company was subject to the requirements of such Section 13 or 15(d) of
the Exchange Act.
(b) At any time when the Company is not permitted by applicable law or
regulations to file the aforementioned reports, upon the request of a holder of
a Senior Discount Note or Warrant, the Company will promptly furnish or cause to
be furnished such information as is specified pursuant to Rule 144A(d)(4) under
the Securities Act (or any successor provision thereto) to such holder or to a
prospective purchaser of such Senior Discount Note or Warrant designated by such
holder, as the case may be, in order to permit compliance by such holder with
Rule 144A under the Securities Act.
7.3 Compliance Certificate.
----------------------
(a) The Company shall deliver to the Holders, within 135 days after
the end of each fiscal year of the Company, an Officers' Certificate stating
that (i) a review of the activities
45
of the Company and its Subsidiaries during the preceding fiscal year has been
made to determine whether the Company has kept, observed, performed and
fulfilled all of its obligations under this Agreement and the Senior Discount
Notes, (ii) such review was supervised by the Officers of the Company signing
such certificate, and (iii) that to the best knowledge of each Officer signing
such certificate, (A) the Company has kept, observed, performed and fulfilled
each and every covenant contained in this Agreement and is not in default in the
performance or observance of any of the terms, provisions and conditions of this
Agreement (or, if a Default or Event of Default occurred, describing all such
Defaults or Events of Default of which each such Officer may have knowledge and
what action the Company has taken or proposes to take with respect thereto), and
(B) no event has occurred and remains in existence by reason of which payments
on account of the principal of, or premium, if any, or interest on, the Senior
Discount Notes are prohibited or if such event has occurred, a description of
the event and what action the Company is taking or proposes to take with respect
thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the Officers' Certificate
delivered pursuant to Section 7.3(a) shall be accompanied by a written statement
of Deloitte & Touche LLP, the Company's independent public accountants (or
another independent accounting firm of established national reputation
reasonably satisfactory to the Holders), that in making the examination
necessary for certification of such financial statements nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Sections 7.1, 7.5, 7.7, 7.10, 7.13, or Article VIII, or if any
such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly to any Person for any failure to obtain knowledge of any such
violation.
(c) The Company will, so long as any of the Senior Discount Notes are
outstanding, deliver to the Holders, promptly after any Officer of the Company
becomes aware of (i) any Default or Event of Default, or (ii) any default or
event of default under any other mortgage, agreement or instrument that could
result in an Event of Default under Section 9.1, an Officers' Certificate
specifying such Default, Event of Default or default and what action the Company
is taking or proposes to take with respect thereto.
7.4 Stay, Extension and Usury Laws. The Company covenants (to the extent
------------------------------
that it may lawfully do so) that it will not at any time insist upon, plead, or
in any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
that might affect the covenants or the performance of its obligations under this
Agreement and the Senior Discount Notes; and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not, by resort to any such law, hinder, delay or
impede the execution of any power granted to the Holders pursuant to this
Agreement, but will suffer and permit the execution of every such power as
though no such law has been enacted.
46
7.5 Limitation on Restricted Payments.
---------------------------------
(a) The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, make any Restricted Payment, except (i) payments,
prepayments, repurchases, redemptions and acquisitions with respect to
Indebtedness not incurred in violation of Section 7.7, and (ii) Restricted
Payments by the Company or the Subsidiaries if (A) at the time of and after
giving effect to the proposed Restricted Payment no Default or Event of Default
shall have occurred and be continuing or would occur as a consequence thereof,
(B) at the time of and immediately after giving effect to the proposed
Restricted Payment, the Company could Incur at least $1.00 of additional
Indebtedness pursuant to Section 7.7(b) and (C) at the time of and immediately
after giving effect to the proposed Restricted Payment (the value of any such
payment if other than cash, as determined by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution, provided
--------
that in the event such value exceeds $1,000,000 such determination shall be
supported by a fairness opinion of an Independent Financial Advisor) the
aggregate amount of all Restricted Payments (excluding all payments,
investments, redemptions, repurchases, retirements and other acquisitions
described in clauses (ii), (iii) and (iv) of Section 7.5(b) below) declared or
made after the date hereof does not exceed an amount equal to the sum of (A) 50%
of the Consolidated Net Income accrued during the period (treated as one
accounting period) from the first day of the first month of the first fiscal
quarter after the date hereof in which Consolidated Net Income is positive
through the last full fiscal quarter for which quarterly or annual financial
statements are available prior to the date of such Restricted Payment (or, in
case such Consolidated Net Income shall be a deficit, minus 100% of such
deficit), plus (B) an amount equal to 100% of the aggregate Net Cash Proceeds
received by the Company from the issuance and sale (other than to a Subsidiary
of the Company) of Qualified Capital Stock to the extent that such proceeds are
not used to redeem, repurchase, return or otherwise acquire Capital Stock or any
Indebtedness of the Company or any Subsidiary pursuant to clause (iii) of
Section 7.5(b), plus (c) an amount equal to 100% of the aggregate principal
amount of any Indebtedness incurred after the date hereof converted into
Qualified Capital Stock.
(b) Notwithstanding Section 7.5(a), the following Restricted Payments
may be made: (i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of this Agreement; (ii) the payment of any dividend
on the Company's Redeemable Convertible Preferred Stock in accordance with the
dividend provisions set forth in the Company's Articles of Incorporation for
such Redeemable Convertible Preferred Stock as in effect on the date hereof;
(iii) the redemption, repurchase, retirement or other acquisition for value of
any Capital Stock or any Indebtedness of the Company or any Subsidiary in
exchange for, or out of the Net Cash Proceeds of, the substantially concurrent
sale (other than to the Company or a Subsidiary of the Company) of Qualified
Capital Stock of the Company; (iv) the redemption of the Senior Discount Notes
under the circumstances set forth in this Agreement and (v) Restricted Payments
which do not exceed an aggregate of $1,000,000 after the date hereof.
7.6 Corporate Existence. Subject to Article VIII, the Company will do or
-------------------
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and
47
the corporate or similar existence of each of its Subsidiaries in accordance
with the respective organizational documents of each of its Subsidiaries and the
rights (charter and statutory), licenses and franchises of the Company and each
of its Subsidiaries; provided, however, that the Company shall not be required
-------- -------
to preserve any such right, license or franchise, or the corporate or similar
existence of any Subsidiary, if the Company's Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries taken as a whole and that the loss
thereof is not adverse in any material respect to the holders of the Senior
Discount Notes and the Warrants.
7.7 Limitation on Indebtedness.
--------------------------
(a) Except as set forth in this Section 7.7, the Company shall not,
and shall not permit any Subsidiary, after the date hereof, directly or
indirectly, to Incur any Indebtedness (including Acquired Indebtedness). For
purposes of this Agreement, Indebtedness of any Acquired Person that is not a
Subsidiary, which Indebtedness is outstanding at the time such Person is
acquired by the Company or a Subsidiary or becomes, or is merged into or
consolidated with, a Subsidiary, shall be deemed to have been Incurred by the
Company or the acquiring Subsidiary at the time such Acquired Person becomes, or
is merged into or consolidated with, a Subsidiary.
(b) Notwithstanding Section 7.7(a) and in addition to Indebtedness
permitted to be Incurred under Section 7.7(c), the Company or any Subsidiary may
Incur Pari Passu Indebtedness or Subordinated Indebtedness if (i) no Default or
Event of Default shall have occurred and be continuing at the time or as a
consequence of the Incurrence of such Indebtedness, (ii) on the date of the
Incurrence of such Indebtedness, the Consolidated Interest Coverage Ratio of the
Company and its Subsidiaries at the time of such Incurrence, after giving pro
forma effect thereto, is not less than 2.0 to 1, and (iii) any Subordinated
Indebtedness so Incurred under this Section 7.7(b) by its terms, or by the terms
of any agreement or instrument pursuant to which such Subordinated Indebtedness
is Incurred, (A) does not provide for payments of principal of such Indebtedness
at the stated maturity thereof or by way of a sinking fund applicable thereto or
by way of any mandatory redemption, defeasance, retirement or repurchase thereof
by the Company (including any redemption, retirement or repurchase which is
contingent upon events or circumstances, but excluding any retirement required
by virtue of acceleration of such Indebtedness upon an event of default
thereunder), in each case prior to the final stated maturity of the Senior
Discount Notes and (B) does not permit redemption or other retirement thereof
(including pursuant to an offer to purchase made by the Company) at the option
of the holder thereof prior to the final stated maturity of the Senior Discount
Notes, other than a redemption or other retirement at the option of the holder
of such Subordinated Indebtedness (including pursuant to an offer to purchase
made by the Company) which is conditioned upon a change of control of the
Company pursuant to provisions substantially similar to those contained in
Section 7.12.
48
(c) Notwithstanding Section 7.7(a) and in addition to Indebtedness
permitted to be Incurred under Section 7.7(b), the Company and its Subsidiaries
may Incur, after the date hereof, any of the following Indebtedness:
(i) Indebtedness outstanding at the date hereof as set forth on
Schedule 4.8, including the Indebtedness evidenced by the Senior Discount
------------
Notes;
(ii) Indebtedness to any Wholly-Owned Subsidiary of the Company
or Indebtedness of any Subsidiary to the Company (provided that such
Indebtedness is at all times held by the Company or a Wholly-Owned
Subsidiary of the Company); provided, however, that for purposes of this
-------- -------
Section 7.7, upon either (A) the transfer or other disposition by any such
Wholly-Owned Subsidiary of any Indebtedness so permitted to a Person other
than the Company or another Wholly-Owned Subsidiary of the Company or (B)
the issuance, sale, lease, transfer or other disposition of shares of
Capital Stock (including by consolidation or merger) of such Wholly-Owned
Subsidiary to a Person other than the Company or another such Wholly-Owned
Subsidiary, the provisions of this clause (ii) shall no longer be
applicable to such Indebtedness and such Indebtedness shall be deemed to
have been Incurred by the Company at the time of such transfer or other
disposition;
(iii) Refinancing Indebtedness with respect to Indebtedness that
was Incurred prior to the date hereof or, if incurred after the date
hereof, was Incurred in compliance with the provisions of this Agreement;
provided, however, that (A) the principal amount of such Refinancing
-------- -------
Indebtedness shall not exceed the principal amount (or accreted value, in
the case of Indebtedness issued at a discount) of the Indebtedness so
extended, refinanced, renewed, replaced, substituted, defeased or refunded
(plus the amount of fees, costs and expenses incurred and the amount of any
premium, penalties, breakage costs and other similar amounts required to be
paid in connection with such refinancing pursuant to the terms of the
instrument governing the Indebtedness so extended, refinanced, renewed,
replaced, substituted, defeased or refunded or the amount of any premium
reasonably determined by the Company as necessary to accomplish a
refinancing by means of a tender offer or privately negotiated repurchase,
which determination shall be supported by a fairness opinion from an
Independent Financial Advisor, plus the fees, costs and expenses of such
tender offer or repurchase); and (B) the Refinancing Indebtedness shall (1)
have a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being extended,
refinanced, renewed, replaced, substituted, defeased or refunded; (2) not
have a final scheduled maturity earlier than the final scheduled maturity
of the Indebtedness being extended, refinanced, replaced, renewed,
substituted, defeased or refunded; (3) not permit redemption at the option
of the holder earlier than the earliest date of redemption at the option of
the holder of the Indebtedness being extended, refinanced, renewed,
replaced, substituted, defeased or refunded; and (4) rank no more senior or
be at least as subordinated, as the case may be, in right of payment to the
Senior Discount Notes as the
49
Indebtedness being extended, refinanced, replaced, renewed, substituted,
defeased or refunded;
(iv) Senior Indebtedness of the Company not to exceed an
aggregate of $10,000,000 Incurred in connection with the Company's
establishment of a senior secured credit facility with a bank or other
lending institution; and
(v) Indebtedness of the Company or any Subsidiary in an aggregate
amount not exceeding $10,000,000, whether or not secured by a Lien, the
proceeds of which are used solely to purchase assets acquired in the
ordinary course of business.
7.8 Limitation on Transactions with Affiliates.
------------------------------------------
(a) Neither the Company nor any of its Subsidiaries shall enter into
any transaction or series of transactions to sell, lease, transfer, exchange or
otherwise dispose of any of its properties or assets to or to purchase any
property or assets from, or for the direct or indirect benefit of, an Affiliate
of the Company or of any Subsidiary of the Company, make any Investment in or
enter into any contract, agreement, understanding, loan, advance or Guarantee
with, or for the direct or indirect benefit of, an Affiliate of the Company or
of any Subsidiary of the Company (each, including any series of transactions
with one or more Affiliates, an "Affiliate Transaction"), unless the Board of
Directors of the Company or the relevant Subsidiary determines, as evidenced by
a Board Resolution, that the terms of such Affiliate Transaction are fair and
reasonable to the Company and no less favorable to the Company or the relevant
Subsidiary than those that could have been obtained at that time in a comparable
arms-length transaction by the Company or such Subsidiary with an unrelated
Person.
(b) Neither the Company nor any of its Subsidiaries shall enter into
an Affiliate Transaction involving or having a potential aggregate value of more
than $1,000,000 unless, in addition to the requirements of (a) above, (i) such
transaction has been approved by a majority of the Board of Directors of the
Company or the relevant Subsidiary who have no direct or indirect interest in
the Affiliate Transaction or in the Affiliate that is a party to the Affiliate
Transaction, or in any other party that is an Affiliate of any such Affiliate,
and (ii) the Company shall have delivered to the Holders an Officers'
Certificate certifying that the conditions set forth in clause (b)(i) above have
been satisfied.
(c) Neither the Company nor any of its Subsidiaries shall enter into
an Affiliate Transaction involving or having a potential aggregate value of more
than $5,000,000 unless, in addition to the requirements of (a) and (b) above,
the Board of Directors of the Company or the relevant Subsidiary shall first
have received a written opinion from an Independent Financial Advisor for the
benefit of the Company and the Holders, which firm is not receiving any
contingent fee or other consideration directly or indirectly related to the
successful completion of the Affiliate Transaction, to the effect that the
proposed Affiliate Transaction is fair to the Company from a financial point of
view.
50
(d) The provisions of this Section 7.8 shall not apply to (i) any
Restricted Payment that is made in compliance with the provisions of Section
7.5, (ii) the reasonable and customary fees and compensation paid to or
indemnity provided on behalf of, officers, directors, employees or consultants
of the Company or any Subsidiary, as determined by the Board of Directors of the
Company or such Subsidiary or the senior management thereof in good faith, (iii)
transactions exclusively between or among the Company and any Wholly-Owned
Subsidiary or exclusively between or among Wholly-Owned Subsidiaries provided
such transactions are not otherwise prohibited by this Agreement, and (iv) any
Affiliate Transaction in existence as of the date hereof, the terms of which are
listed on Schedule 4.26.
-------------
7.9 Limitation on Liens. The Company shall not, and shall not permit any
-------------------
of its Subsidiaries to, Incur, assume, suffer to exist, create or otherwise
cause to be effective any Lien on any asset now owned or hereafter acquired, or
any income or profits therefrom or assign or convey any right to receive income
therefrom to secure any Indebtedness except: (a) Permitted Liens (other than
Permitted Liens described in clause (i) of the definition thereof), (b) Liens
existing as of the date hereof (and any extension, renewal or replacement Liens
upon the same Property subject to such Liens, provided the principal amount of
Indebtedness secured by each Lien constituting such an extension, renewal or
replacement Lien shall not exceed the principal amount of Indebtedness secured
by the Lien theretofore existing, plus amounts described in Section
7.7(c)(iii)(A) with respect to permitted Refinancing Indebtedness), (c) after
the Security Opinion Date, Liens securing Indebtedness of any Subsidiary of the
Company, provided that (i) such Liens are limited to Property or assets of such
--------
Subsidiary, (ii) the Indebtedness secured by such Liens was not Incurred in
violation of this Agreement and (iii) the Indebtedness secured by such Liens is
not subordinated to or junior in right or priority of payment in any respect to
any other Indebtedness of such Subsidiary; (d) after both the Security Opinion
Date and the Pledge Opinion Date, Liens as defined in clause (i) of the
definition of Permitted Liens; and (e) Liens replacing, extending or renewing,
in whole or in part, any Lien described in the foregoing clauses (a) through
(d), including in connection with any refinancing of the Indebtedness, in whole
or in part, secured by any such Lien effected in accordance with Section 7.7,
provided that if any such clauses limit the amount secured by or the Property or
--------
assets subject to such Liens, no such replacement, extension or renewal shall
increase the amount of Indebtedness or the Property or assets subject to such
Liens.
7.10 Payment of Taxes and Other Claims. The Company shall, and shall cause
---------------------------------
each of its Subsidiaries to, pay or discharge, before the same shall become
delinquent, (a) all Taxes, assessments and governmental charges (including
withholding taxes and penalties, interest and additions to taxes) levied or
imposed upon it or any of its Subsidiaries or properties of the Company or any
of its Subsidiaries and (b) all lawful claims for labor, materials and supplies
that, if unpaid might by law become a Lien upon the Property of it or any of its
Subsidiaries; provided, however, that the Company shall not be required to pay
-------- -------
or discharge or cause to be paid or discharged any such Tax, assessment, charge
or claim if either (i) the amount, applicability or validity thereof is being
contested in good faith by appropriate proceedings and an adequate reserve has
been established therefor to the extent required by GAAP or (ii) the failure to
make
51
such payment or effect such discharge (together with all other such failures)
would not have a Material Adverse Effect.
7.11 Restrictions Against Limitations on Upstream Payments. The Company
-----------------------------------------------------
shall not, and shall not permit any Subsidiary of the Company to, create or
otherwise cause or suffer to exist or to become effective any Payment
Restriction or other encumbrance or restriction on the ability of any Subsidiary
of the Company to (a) pay dividends or make any other distributions on its
Capital Stock or any other interest or participation in, or measured by, its
profits owned by, or pay any Indebtedness owed to, the Company or a Subsidiary
of the Company, (b) make loans or advances to the Company or a Subsidiary of the
Company, or (c) transfer any of its Properties or assets to the Company or any
Subsidiary of the Company, except for such Payment Restrictions or encumbrances
existing under or by reason of: (i) applicable law; (ii) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was Incurred in contemplation of or in connection
with such acquisition), provided, that such restriction is not applicable to any
---------
Person, or the Property or assets of any Person, other than the Acquired Person;
(iii) non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices; (iv) instruments governing purchase
money Indebtedness for Property acquired in the ordinary course of business that
only impose restrictions on the Property so acquired; (v) any agreement for the
sale or disposition of the Capital Stock or assets of such Subsidiary, provided
--------
that such restriction is only applicable to such Subsidiary or assets, as
applicable; or (vi) Refinancing Indebtedness permitted under this Agreement with
respect to Indebtedness described in clauses (ii), (iii) or (iv), provided that
--------
the restrictions contained in the agreements governing such Refinancing
Indebtedness are no more restrictive in the aggregate than those contained in
the instrument governing the Indebtedness being refinanced immediately prior to
such refinancing.
7.12 Change of Control. Upon the occurrence of a Change of Control (such
-----------------
date being the "Change of Control Trigger Date"), each Holder will have the
right to require the Company to repurchase all or any part of such Holder's
Senior Discount Notes pursuant to the Offer (but, with respect to any partial
tender of Senior Discount Notes, the Company shall only be required to purchase
principal amounts in integral multiples of $1,000) at a purchase price in cash
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest to the Purchase Date. The Offer shall be effected in accordance with
Section 6.7 and Article VI (to the extent applicable) and the provisions of this
Section 7.12; provided, however, that this Section 7.12 shall not apply if the
Company instead elects to redeem all Senior Discount Notes as provided in
Section 6.7(f).
7.13 Redemption from the Proceeds of Securities Sales and Mezzanine Debt
-------------------------------------------------------------------
Financings.
----------
(a) The Company will not, and will not permit any of its Subsidiaries
to, undertake any Securities Sale or any Mezzanine Debt Financing, unless: (i)
the Company or the applicable Subsidiary receives consideration, which, at the
time of such Securities Sale or
52
Mezzanine Debt Financing, is at least equal to the fair market value of the
Capital Stock or other equity or debt securities sold or otherwise disposed of
(as determined in good faith by the Board of Directors of the Company evidenced
by a Board Resolution); and (ii) the Net Cash Proceeds received by the Company
or such Subsidiary, as the case may be, from such Securities Sale or Mezzanine
Debt Financing are applied in accordance with this Section 7.13.
(b) As soon as practicable, but in no event later than 10 Business
Days after any date (with respect to both a Securities Sale or a Mezzanine Debt
Financing, a "Repayment Trigger Date") that the aggregate amount of Net Cash
Proceeds from all such Securities Sales or Mezzanine Debt Financings occurring
on or after the date hereof exceed $40,000,000, the Company shall commence an
Offer to purchase the maximum principal amount of Senior Discount Notes that may
be purchased out of such Net Cash Proceeds, at an offer price per $1,000
principal amount equal to the price set forth in Section 6.6(a) opposite the
period in which the Purchase Date occurs, plus accrued and unpaid interest to
the Purchase Date. The Offer shall be effected in accordance with Section 6.7
and Article VI (to the extent applicable) and the provisions of this Section
7.13. To the extent that any such Net Cash Proceeds remain after completion of
an Offer, the Company may use the remaining amount for any purpose permitted by
this Agreement.
7.14 Maintenance of Properties. The Company will cause all properties used
-------------------------
or useful in the conduct of its business or the business of any Subsidiary of
the Company to be maintained and kept in good condition, repair and working
order, subject to normal wear and tear, and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section 7.14 shall prevent the Company from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is, as determined by the Company in good faith, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Holders.
7.15 Maintenance of Insurance. The Company shall, and shall cause its
------------------------
Subsidiaries to, (a) keep at all times all of their properties which are of an
insurable nature insured against loss or damage with financially sound and
reputable insurers to the extent that property of similar character is usually
so insured by corporations similarly situated and owning like properties in
accordance with good business practice, and (b) will maintain with financially
sound and reputable insurers insurance against other hazards and risks and
liability to persons and property to the extent and in a manner customary for
corporations in similar business similarly situated. The Company shall, and
shall cause its Subsidiaries to, use the proceeds from any such insurance policy
to repair, replace or otherwise restore the property to which such proceeds
relate, except to the extent that a different use of such proceeds is, as
determined by the Company, in good faith, desirable in the conduct of its
business or the business of any Subsidiary and not disadvantageous in any
material respect to the Holders.
53
7.16 Compliance with Laws. The Company shall comply, and shall cause each
--------------------
of its Subsidiaries to comply, with all applicable statutes, rules, regulations,
orders and restrictions of the United States of America, all states and
municipalities thereof, and of any governmental department, commission, board,
regulatory authority, bureau, agency and instrumentality of the foregoing, in
respect of the conduct of their respective businesses and the ownership of their
respective properties, except such as are being contested in good faith and by
appropriate proceedings and except for such noncompliance as would not in the
aggregate have a Material Adverse Effect.
7.17 Limitation on Issuances and Dispositions of Capital Stock of
------------------------------------------------------------
Subsidiaries. The Company (a) shall not, and shall not permit any Subsidiary
------------
to, transfer, convey, sell, or otherwise dispose of any Capital Stock, or
securities convertible into or exercisable or exchangeable for, or options,
warrants, rights or any other interest with respect to, Capital Stock of a
Subsidiary to any Person (other than the Company or a Wholly-Owned Subsidiary)
unless such transfer, conveyance, sale, lease or other disposition is of 100% of
the Capital Stock of such Subsidiary held by the Company and the Net Cash
Proceeds from such transfer, conveyance or sale are applied in accordance with
Section 7.18 hereof and (b) shall not permit any Subsidiary to issue shares of
its Capital Stock (other than directors' qualifying shares), or securities
convertible into or exercisable or exchangeable for, or options, warrants,
rights or any other interest with respect to, its Capital Stock to any Person
other than to the Company or a Wholly-Owned Subsidiary
7.18 Limitation on Sale of Assets.
----------------------------
(a) The Company shall not, and shall not permit any of its
Subsidiaries to undertake an Asset Disposition unless (i) the Board of Directors
of the Company or such Subsidiary, as applicable, determines in good faith that
the Company or such Subsidiary, as applicable, receives consideration at the
time of such Asset Disposition at least equal to the Fair Market Value of the
assets sold or otherwise disposed of, (ii) no Default or Event of Default would
occur as a consequence of (after giving effect, on a pro forma basis, to) such
Asset Disposition, and (iii) at least 75% of the consideration therefor received
by the Company or such Subsidiary is in the form of cash or Cash Equivalents;
provided that for purposes of this provision the amount of (A) any Indebtedness
(other than Senior Discount Notes) that is required to be repaid or assumed (and
is either repaid or assumed by the transferee of the related assets) by virtue
of such Asset Disposition and which is secured by a Lien on the property or
assets sold and (B) any securities or other obligations received by the Company
or any such Subsidiary from such transferee that are immediately converted by
the Company or such Subsidiary from such transferee into cash (or as to which
the Company or such Subsidiary has received at or prior to the consummation of
such Asset Disposition a commitment (which may be subject to customary
conditions) from a nationally recognized investment, merchant or commercial bank
to convert into cash within 90 days of the consummation of such Asset
Disposition and which are thereafter actually converted into cash within such
90-day period) will be deemed to be cash.
(b) Within 270 days after the receipt of any Net Cash Proceeds from an
Asset Disposition, the Company may invest or commit such Net Cash Proceeds,
pursuant to a binding
54
commitment subject only to reasonable, customary closing conditions, to be
invested (and providing such Net Cash Proceeds are, in fact, so invested, within
an additional 90 days) in assets and Property (other than notes, bonds,
obligations and securities of an entity not wholly-owned by the Company) which
in the good faith reasonable judgment of the Company will immediately constitute
or be part of a Related Business of the Company or such Subsidiary (if it
continues to be a Subsidiary) immediately following such transaction. Pending
the application of any such Net Cash Proceeds as described above, the Company
may invest such Net Cash Proceeds in any manner that is not prohibited by this
Agreement. Any Net Cash Proceeds from an Asset Disposition that are not applied
or invested as provided in the first sentence of this paragraph (including any
Net Cash Proceeds which were committed to be invested as provided in such
sentence but which are not in fact invested within the time period provided)
will be deemed to constitute "Excess Proceeds."
(c) Notwithstanding the provisions of (a) and (b) above:
(i) the Company and such Subsidiaries may convey, sell, lease,
transfer assign, or otherwise dispose of assets pursuant to and in
accordance with Article VIII hereof; and
(ii) the Company and such Subsidiaries may exchange assets held
by the Company or a Subsidiary for one or more Related Businesses of any
Person owning one or more Related Businesses; provided, that the Board of
Directors of the Company has determined that the terms of any such exchange
are fair and reasonable and the Fair Market Value of the assets received by
the Company are approximately equal to the Fair Market Value of the assets
exchanged by the Company.
(d) For purposes of this Section 7.18, "Excess Proceeds Date" means
each date on which the aggregate amount of Excess Proceeds exceeds $5,000,000.
Within 30 days after each Excess Proceeds Date, the Company will make an Offer
to each Holder to purchase, on a pro rata basis based on the respective
principal amounts of Senior Discount Notes held by such Holders, the maximum
principal amount of Senior Discount Notes then outstanding that may be purchased
out of such Excess Proceeds, at an offer price per $1,000 principal amount equal
to the price set forth in Section 6.6(a) opposite the period in which the
Purchase Date occurs, plus any accrued and unpaid interest thereon to the
Purchase Date. The Offer shall be effected in accordance with Section 6.7 and
Article VI (to the extent applicable) and the provisions of this Section 7.18.
(e) If the amount required to acquire all Senior Discount Notes
tendered pursuant to the Offer is less than the total Excess Proceeds, the
Excess Proceeds may be used by the Company for general corporate purposes
without restriction, unless otherwise restricted by the other provisions of this
Agreement. Upon commencement of any Offer made in accordance with the terms of
this Section 7.18, the amount of Excess Proceeds existing at the time of the
commencement of such Offer will be reduced to zero irrespective of the amount of
Senior Discount Notes tendered pursuant to the Offer.
55
ARTICLE VIII
SUCCESSORS
8.1 Merger or Consolidation.
-----------------------
(a) The Company shall not (i) consolidate with or merge into any other
Person; (ii) permit any other Person to consolidate with or merge into the
Company; (iii) permit any other Person to consolidate with, merge into or be
merged into by, any Subsidiary (in a transaction in which such Subsidiary (or
successor Person) remains (or becomes) a Subsidiary); and (iv) directly or
indirectly, transfer, convey, sell, lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety (except for any
Permitted Disposition, or the merger or consolidation of any Subsidiary of the
Company with or into, or the disposition of all or substantially all of the
assets of any Subsidiary of the Company to, the Company or any Wholly-Owned
Subsidiary of the Company) unless, in any such transaction:
------
(1) in the event the Company shall consolidate with or merge into
another Person or shall directly or indirectly transfer, convey, sell,
lease or otherwise dispose of all or substantially all of its properties
and assets as an entirety, the Person formed by such consolidation or into
which the Company is merged or the Person which acquires by transfer,
conveyance, sale, lease or other disposition all or substantially all of
the properties and assets of the Company as an entirety (for purposes of
this Article VIII, a "Successor Company") shall be a corporation,
partnership or trust, shall be organized and validly existing under the
laws of the United States of America, any State thereof or the District of
Columbia and shall expressly assume pursuant to the terms and conditions of
this Agreement, in form reasonably satisfactory to the Holders, the due and
punctual payment of the principal of (and premium, if any) and interest on
all the Senior Discount Notes and the performance of every covenant of this
Agreement on the part of the Company to be performed or observed;
(2) immediately before and after giving effect to such
transaction and treating any Indebtedness Incurred by the Company or a
Subsidiary of the Company as a result of such transaction as having been
Incurred by the Company or such Subsidiary at the time of such transaction,
no Default or Event of Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, and
treating any Indebtedness Incurred by the Company or any Subsidiary as a
result of such transaction as having been Incurred at the time of such
transaction, the Company or the Successor Company has a Consolidated Net
Worth greater than or equal to the Consolidated Net Worth of the Company
immediately prior to the closing of such transaction and the Company could
Incur at least $1.00 of additional Indebtedness pursuant to Section 7.7(b);
and
56
(4) the Company has delivered to the Holders an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer, lease or acquisition and, if
the assumption of the obligations of the Company under this Agreement is
required in connection with such transaction, such documents effecting such
assumption, complies with this Article VIII and that all conditions
precedent herein for relating to such transaction have been complied with,
and, with respect to such Officers' Certificate, setting forth the manner
of determination of the Consolidated Net Worth of the Company or, if
applicable, the Successor Company and of the Incurrence of at least $1.00
of additional Indebtedness pursuant to Section 7.7(b).
(b) For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties and assets of one or more Subsidiaries, the
Capital Stock of which constitutes all or substantially all of the properties
and assets of the Company, shall be deemed to be the transfer of all or
substantially all of the properties and assets of the Company.
8.2 Surviving Person Substituted. Upon any consolidation or merger, or
----------------------------
any transfer of assets in accordance with Section 8.1, the Surviving Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or to which such transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Agreement
with the same effect as if such Surviving Person had been named as the Company
herein. When a Successor Company assumes all of the obligations of the Company
hereunder and under the Senior Discount Notes and agrees to be bound hereby and
thereby, the predecessor shall be released from such obligations.
ARTICLE IX
DEFAULTS AND REMEDIES
9.1 Events of Default.
-----------------
(a) Each of the following constitutes an "Event of Default": (i) the
Company shall fail to make any payment in respect of (A) the principal of or
premium, if any, on the Senior Discount Notes as the same shall become due,
whether at maturity, upon acceleration, redemption or otherwise, or (B) interest
on or in respect of any Senior Discount Notes as the same shall become due, and
such failure shall continue for a period of 15 Business Days; (ii) failure by
the Company for 30 days after receipt of notice from the Holders of at least 25%
of the principal amount of the outstanding Senior Discount Notes to comply with
any other provisions of this Agreement or any Senior Discount Notes; (iii)
default under any mortgage, agreement or instrument under which there may be
Incurred or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Subsidiaries) whether such
Indebtedness now exists, or is created after the date hereof if (A) such default
results in the acceleration of such Indebtedness prior to its express maturity
or shall constitute a default in the payment of such
57
Indebtedness at final maturity of such Indebtedness, and (B) the principal
amount of any such Indebtedness that has been accelerated or not paid at
maturity, when added to the aggregate principal amount of all other such
Indebtedness that has been accelerated or not paid at maturity, exceeds
$1,000,000; (iv) failure by the Company or any of its Subsidiaries to pay final
judgments, the uninsured portion of which exceeds $1,000,000, which judgments
are not paid, discharged, bonded or stayed for a period of 90 days after the
date of entry thereof; (v) if under any Bankruptcy Law, (A) the Company or any
Subsidiary commences a voluntary case, consents to the entry of an order for
relief against it in an involuntary case, consents to the appointment of a
Custodian of it or for all or substantially all of its Property, or makes a
general assignment for the benefit of its creditors, or (B) a court of competent
jurisdiction enters an order or decree, and such order or decree remains
unstayed and in effect for 60 days, that is for relief against the Company or
any Subsidiary in an involuntary case, appoints a Custodian of the Company or
any Subsidiary or for all or substantially all of the Property of the Company or
any Subsidiary, or orders the liquidation of the Company or any Subsidiary; (vi)
if the Company by September 30, 1998 has not delivered to the Purchaser both the
opinions of counsel contemplated by Section 11.14(c) hereof; and (vii) any of
the Transaction Documents shall cease, for any reason, to be in full force and
effect in any material respect, except as a result of an amendment, waiver or
termination thereof as contemplated or permitted hereby, or the Company shall so
assert in writing.
(b) Any notice of default delivered to the Company by the Holders of
Senior Discount Notes must be in writing and must specify the Event of Default,
demand that it be remedied and state that the notice is a "Notice of Default."
9.2 Acceleration.
------------
(a) If an Event of Default (other than an Event of Default under
Section 9.1(a)(v)) occurs and is continuing, the Holders of at least 25% in
principal amount of the then outstanding Senior Discount Notes may declare all
outstanding Senior Discount Notes to be due and payable immediately and, upon
such declaration, the principal amount of, and premium, if any, and any accrued
and unpaid interest on, all such Senior Discount Notes, to the date of payment
shall be due and payable immediately.
(b) Notwithstanding anything to the contrary in this Agreement, if an
Event of Default arises under Section 9.1(a)(v) the principal amount of, and
premium, if any, and any accrued and unpaid interest on, all outstanding Senior
Discount Notes shall ipso facto become and be immediately due and payable
---- -----
without any declaration or other act on the part of any Holder.
(c) To the extent permitted under Section 10.2(b), the Holders of a
majority in aggregate principal amount of the then outstanding Senior Discount
Notes by notice to the Company may rescind any declaration of acceleration of
such Senior Discount Notes and its consequences if (i) the rescission would not
conflict with any judgment or decree, (ii) if all existing Defaults and Events
of Default (other than the nonpayment of principal of, or premium, if any, or
interest on, the Senior Discount Notes which shall have become due by such
declaration)
58
shall have been cured or waived, and (iii) the Company has delivered to the
Holders an Officers' Certificate to the effect of clauses (i) and (ii) above.
(d) In the event of a declaration of acceleration under this Agreement
because an Event of Default set forth in Section 9.1(a)(iii) has occurred and is
continuing, such declaration of acceleration shall be automatically rescinded
and annulled if either (i) the holders of the Indebtedness which is the subject
of such Event of Default have waived such failure to pay at maturity or have
rescinded the acceleration in respect of such Indebtedness within 10 days of
such maturity or declaration of acceleration, as the case may be, and no other
Event of Default has occurred during such 10-day period which has not been cured
or waived, or (ii) such Indebtedness shall have been discharged or the maturity
thereof shall have been extended such that it is not then due and payable, or
the underlying default has been cured within 10 days of such maturity or
declaration of acceleration as the case may be.
9.3 Other Remedies. If an Event of Default occurs and is continuing, the
--------------
Holders may pursue any available remedy to collect the payment of principal of,
or premium, if any, or interest on the Senior Discount Notes or to enforce the
performance of any provision of the Senior Discount Notes or this Agreement. A
delay or omission by any Holder in exercising any right or remedy accruing upon
an Event of Default shall not impair the right or remedy or constitute a waiver
of or acquiescence in the Event of Default. All remedies are cumulative to the
extent permitted by law.
9.4 Waiver of Past Defaults. Subject to the provisions of Sections 9.6
-----------------------
and 10.2 hereof, the Holders of a majority in aggregate principal amount of the
then outstanding Senior Discount Notes by notice to the Company may on behalf of
all Holders waive any existing Default or Event of Default and its consequences
under this Agreement, except a continuing Default or Event of Default in the
payment of the principal of, or premium, if any, or interest on, any Note (which
may only be waived with the consent of each Holder affected). Upon any such
waiver, such Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured for every purpose of this
Agreement; provided that no such waiver shall extend to any subsequent or other
--------
Default or impair any right consequent thereon.
9.5 Control by a Majority. The Holders of a majority in principal amount
---------------------
of the Senior Discount Notes may direct the time, method and place of conducting
any proceeding for any remedy available to the Holders.
9.6 Rights of Holders to Receive Payment. Notwithstanding any other
------------------------------------
provision of this Agreement, the right of any Holder of a Senior Discount Note
to receive payment of principal of, and premium, if any, and interest on such
Senior Discount Note, on or after the respective dates expressed in such Senior
Discount Note, or to bring suit for the enforcement of any such payment on or
after such respective dates, shall not be impaired or affected without the
consent of such Holder.
59
9.7 Holders May File Proofs of Claim. The Holders may file such proofs of
--------------------------------
claim and other papers or documents as may be necessary or advisable to have the
claims of the Holders allowed in any Insolvency or Liquidation Proceeding or
other judicial proceeding relative to the Company (or any other obligor upon the
Senior Discount Notes), its creditors or its property.
9.8 Undertaking for Costs. In any suit for the enforcement of any right
---------------------
or remedy under this Agreement, a court in its discretion may require the filing
by any party litigant in the suit of an undertaking to pay the costs of the
suit, and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant.
ARTICLE X
AMENDMENTS
10.1 Amendments and Supplements Permitted Without Consent of Holders.
---------------------------------------------------------------
Notwithstanding Section 10.2, the Company may amend or supplement this Agreement
or the Senior Discount Notes without the consent of any Holder to: (i) cure any
ambiguity, defect or inconsistency; provided that such amendment does not
adversely affect the rights of any Holder; (ii) provide for uncertificated
Senior Discount Notes in addition to or in place of certificated Senior Discount
Notes; (iii) provide for the assumption of the Company's obligations to the
Holders in the event of any Disposition involving the Company that is permitted
under Article VIII in which the Company is not the Surviving Person; or (iv)
make any change that would (A) provide any additional rights or benefits to
Holders or (B) not adversely affect the legal rights under this Agreement of any
Holder.
10.2 Amendments and Supplements Requiring Consent of Holders; Other
--------------------------------------------------------------
Consents.
--------
(a) Except as otherwise provided in Sections 10.1 and 10.2(c), this
Agreement and the Senior Discount Notes may be amended or supplemented with the
written consent of the Holders of at least a majority of the aggregate principal
amount of the then outstanding Senior Discount Notes (including consents
obtained in connection with a tender offer or exchange offer for the Senior
Discount Notes), and any existing Default or Event of Default or compliance with
any provision of this Agreement or the Senior Discount Notes may be waived with
the consent of Holders of at least a majority of the aggregate principal amount
of the then outstanding Senior Discount Notes (including consents obtained in
connection with a tender offer or exchange offer for the Senior Discount Notes).
(b) Without the consent of each Holder affected, no amendment,
supplement or waiver to this Agreement shall: (i) reduce the principal amount
of Senior Discount Notes whose Holders must consent to an amendment, supplement
or waiver; (ii) reduce the principal of or change the fixed maturity of any
Senior Discount Note, or alter the provisions with respect to the redemption of
the Senior Discount Notes in a manner adverse to the Holders; (iii) reduce the
rate of or change the time for payment of interest on any Senior Discount Note;
(iv) waive a
60
Default or Event of Default in the payment of principal of, or premium, if any,
or interest on, the Senior Discount Notes (except that Holders of at least a
majority in aggregate principal amount of the then outstanding Senior Discount
Notes may (A) rescind an acceleration of the Senior Discount Notes that resulted
from a non-payment default, and (B) waive the payment default that resulted from
such acceleration); (v) make any Senior Discount Note payable in money other
than that stated in the Senior Discount Notes; (vi) make any change in the
provisions of this Agreement relating to waivers of past Defaults or the rights
of Holders to receive payments of principal of, or premium, if any, or interest
on, the Senior Discount Notes; (vii) waive a redemption payment with respect to
any Senior Discount Note; or (viii) make any change in Section 9.4, Section 9.6
or this sentence.
(c) It shall not be necessary for the consent of the Holders under
this Section 10.2 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof. After an amendment, supplement or waiver under this Section 10.2
becomes effective, the Company shall mail to each Holder affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Agreement or waiver.
(d) Except as otherwise specified in this Agreement, if any consent or
approval of the Holders is required pursuant to the terms of this Agreement,
such consent or approval shall be deemed to have been given if given by at least
a majority of the aggregate principal amount of then outstanding Senior Discount
Notes.
10.3 Revocation and Effect of Consents.
---------------------------------
(a) Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Senior Discount Note is a continuing consent by
the Holder and every subsequent holder of a Senior Discount Note or portion of a
Senior Discount Note that evidences the same Indebtedness as the consenting
Holder's Senior Discount Note, even if notation of the consent is not made on
any such Senior Discount Note. However, any such Holder or subsequent Holder
may revoke the consent as to his or her Senior Discount Note or portion of a
Senior Discount Note if the Company receives the notice of revocation before the
date on which the Company mails to the Holders an Officers' Certificate
certifying that the Holders of the requisite principal amount of Senior Discount
Notes have consented (and not theretofore revoked such consent) to the amendment
or waiver.
(b) The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the holders of Senior Discount Notes entitled to
consent to any amendment or waiver. If a record date is fixed, then
notwithstanding the provisions of the immediately preceding paragraph, those
Persons who were holders of Senior Discount Notes at such record date (or their
duly designated proxies), and only those Persons, shall be entitled to consent
to such amendment or waiver or to revoke any consent previously given, whether
or not such Persons
61
continue to be holders of Senior Discount Notes after such record date. No
consent shall be valid or effective for more than 90 days after such record
date.
(c) After an amendment or waiver becomes effective it shall bind every
Holder, unless it is of the type described in Section 10.2(b), in which case the
amendment or waiver shall only bind each Holder that consented to it and every
subsequent holder of a Senior Discount Note that evidences the same debt as the
consenting Holder's Senior Discount Note.
10.4 Notation on or Exchange of Senior Discount Notes. The Company may
------------------------------------------------
place an appropriate notation about an amendment, supplement or waiver on any
Senior Discount Note thereafter issued in exchange for any Senior Discount Note
issued as of the date of such amendment, supplement or waiver. The Company in
exchange for all Senior Discount Notes may issue new Senior Discount Notes that
reflect the amendment, supplement or waiver. Failure to make the appropriate
notation or issue a new Senior Discount Note shall not affect the validity and
effect of such amendment, supplement or waiver.
10.5 Board Approval. The Company may not sign an amendment, supplement or
--------------
waiver with respect to this Agreement until the Board of Directors of the
Company approves it.
ARTICLE XI
THE SENIOR DISCOUNT NOTES
11.1 Form and Dating. The Senior Discount Notes shall be substantially in
---------------
the form of Exhibit A hereto, which exhibit is part of this Agreement. The
---------
Senior Discount Notes may have notations, legends or endorsements required by
law, stock exchange rule or usage. The Company shall approve the form of the
Senior Discount Notes and any notation, legend or endorsement on them. Subject
to adjustment as provided in Section 6.6(c) hereof, the Senior Discount Notes
shall be issued, and may be transferred only, in denominations of $100,000 and
integral multiples thereof. The terms and provisions contained in the Senior
Discount Notes shall constitute, and are hereby expressly made, a part of this
Agreement and to the extent applicable, the Company, by its execution and
delivery of this Agreement, expressly agrees to such terms and provisions and to
be bound thereby.
11.2 Execution and Authentication. Two Officers of the Company (each of
----------------------------
whom shall have been duly authorized by all requisite corporate actions) shall
sign each Senior Discount Note for the Company by manual or facsimile signature.
If an Officer whose signature is on a Senior Discount Note no longer holds that
office at the time the Senior Discount Note is issued, the Senior Discount Note
shall nevertheless be valid. The Company's seal shall be reproduced on each
Senior Discount Note.
With respect to the sale and issuance of the Senior Discount Notes, the
Company shall authorize for issuance, upon the execution and delivery of this
Agreement, Senior Discount Notes in an aggregate principal amount up to
$30,000,000. In no case shall the aggregate principal
62
amount of outstanding Senior Discount Notes exceed $30,000,000 at any time,
except as provided in Section 11.5.
11.3 Transfer and Exchange.
---------------------
(a) When Senior Discount Notes are presented to the Company with a
request to register a transfer or to exchange them for an equal principal amount
of Senior Discount Notes of other authorized denominations, the Company shall
register the transfer or make the exchange if its requirements for such
transaction are met; provided, however, that any Senior Discount Note presented
-------- -------
or surrendered for registration of transfer or exchange shall be duly endorsed
or accompanied by a written instruction of transfer in form satisfactory to the
Company or duly executed by the Holder of such Senior Discount Note or by its
attorney duly authorized in writing.
(b) The Company shall not be required to issue, register the transfer
of or exchange any Senior Discount Note (i) selected for redemption, in whole or
in part, except the unredeemed portion of any Senior Discount Note being
redeemed in part may be transferred or exchanged, or (ii) during an Offer if
such Senior Discount Note is tendered pursuant to such Offer and not withdrawn.
(c) No service charge shall be made for any registration of transfer
or exchange (except as otherwise expressly permitted herein), but the Company
may require payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any such
transfer tax or similar governmental charge payable upon exchanges pursuant to
Sections 10.4 or 11.7 which the Company shall pay).
(d) Prior to due presentment for registration of transfer of any
Senior Discount Note, the Company may deem and treat the Person in whose name
any Senior Discount Note is registered as the absolute owner of such Senior
Discount Note (whether or not such Senior Discount Note shall be overdue and
notwithstanding any notation of ownership or other writing on such Senior
Discount Note made by anyone other than the Company) for the purpose of
receiving payment of principal of, and premium, if any, and interest on, such
Senior Discount Note and for all other purposes, and notice to the contrary
shall not affect the Company.
11.4 Replacement Senior Discount Notes. If any mutilated Senior Discount
---------------------------------
Note is surrendered to the Company, or if the Company receives evidence to its
satisfaction of the destruction, loss or theft of any Senior Discount Note, the
Company shall issue a replacement Senior Discount Note and each such replacement
Senior Discount Note shall be an additional obligation of the Company. If the
Company requires, the Holder must supply an indemnity bond that is sufficient in
the judgment of the Company to protect the Company from any loss that any of
them may suffer if a Senior Discount Note is replaced. The Company may charge
for its reasonable expenses in replacing a Senior Discount Note.
11.5 Outstanding Senior Discount Notes. The Senior Discount Notes
---------------------------------
outstanding at any time are all the Senior Discount Notes the Company has issued
except for those it has canceled,
63
those delivered to it for cancellation, and those described in this Section 11.5
as not outstanding. If a Senior Discount Note is replaced pursuant to Section
11.4 (other than a mutilated Note surrendered for replacement), it ceases to be
outstanding unless the Company receives proof satisfactory to it that a bona
fide purchaser holds the replaced Senior Discount Note. A mutilated Senior
Discount Note ceases to be outstanding upon surrender of such Senior Discount
Note and replacement thereof pursuant to Section 11.4 hereof. If the entire
principal of, and premium, if any, and accrued interest on, any Senior Discount
Note is considered paid under Section 6.1, it ceases to be outstanding and
interest on it ceases to accrue. Subject to Section 11.6, a Senior Discount Note
does not cease to be outstanding because the Company or any Affiliate of the
Company holds such Senior Discount Note.
11.6 Treasury Senior Discount Notes. In determining whether the Holders of
------------------------------
the required principal amount of Senior Discount Notes have concurred in any
directions, waiver or consent, Senior Discount Notes owned by the Company or any
Subsidiary or Affiliate of the Company shall be considered as though they are
not outstanding. Notwithstanding the foregoing, Senior Discount Notes that the
Company or any Affiliate of the Company offers to purchase or acquires pursuant
to an exchange offer, tender offer or otherwise shall not be deemed to be owned
by the Company or any Affiliate of the Company until legal title to such Senior
Discount Notes passes to the Company or such Affiliate, as the case may be.
11.7 Temporary Senior Discount Notes. Until definitive Senior Discount
-------------------------------
Notes are ready for delivery, the Company may prepare and issue temporary Senior
Discount Notes. Temporary Senior Discount Notes shall be substantially in the
form of definitive Senior Discount Notes but may have variations that the
Company considers appropriate for temporary Senior Discount Notes. Without
unreasonable delay, the Company shall prepare and issue definitive Senior
Discount Notes in exchange for temporary Senior Discount Notes. Until such
exchange, temporary Senior Discount Notes shall be entitled to the same rights,
benefits and privileges as definitive Senior Discount Notes.
11.8 Cancellation. The Company shall cancel any Senior Discount Notes
------------
surrendered to it for registration of transfer, exchange, replacement, payment
(including all Senior Discount Notes called for redemption and all Senior
Discount Notes accepted for payment pursuant to an Offer) or cancellation. The
Company may not issue new Senior Discount Notes to replace any Senior Discount
Notes that have been canceled. If the Company or any Affiliate of the Company
acquires any Senior Discount Notes (other than by redemption pursuant to Section
6.6 or an Offer pursuant to Section 6.7), such acquisition shall not operate as
a redemption or satisfaction of the Indebtedness represented by such Senior
Discount Notes unless and until such Senior Discount Notes are canceled pursuant
to this Section 11.8.
11.9 Defaulted Interest. If the Company defaults in a payment of interest
------------------
on the Senior Discount Notes, it shall pay the defaulted interest in any lawful
manner plus, to the extent lawful, interest payable on the defaulted interest,
to Holders on a subsequent special record date, in each case at the rate
provided in the Senior Discount Notes and Section 7.1. The Company shall fix or
cause to be fixed each such special record date and payment date. At least 15
days before the
64
special record date, the Company shall mail a notice that states the special
record date, the related payment date and the amount of interest (including
interest, if any, on the defaulted interest) to be paid.
11.10 Record Date. The record date for purposes of determining the
-----------
identity of Holders of Senior Discount Notes entitled to vote or consent to any
action by vote or consent authorized or permitted under this Agreement shall be
10 days prior to the first solicitation of such vote or consent.
11.11 CUSIP Number. A "CUSIP" number will be printed on the Senior
------------
Discount Notes, and the Company shall use the CUSIP number in notices of
redemption, purchase or exchange as a convenience to Holders, provided that any
such notice may state that no representation is made as to the correctness or
accuracy of the CUSIP number printed in the notice or on the Senior Discount
Notes and that reliance may be placed only on the other identification numbers
printed on the Senior Discount Notes. The Company will promptly notify the
Holders of any change in the CUSIP number.
11.12 Restrictive Legends. Except as otherwise permitted by this Section
-------------------
11.12, each Unit, and each constituent Senior Discount Note and Common Stock
Purchase Warrant certificate (or Common Stock certificate issued on exercise
thereof), issued pursuant to this Agreement shall be stamped or otherwise
imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR
PURSUANT TO THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE. SUCH
SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS
EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT,
OR (iii) ANY OTHER EXEMPTION FROM REGISTRATION UNDER SUCH ACT
RELATING TO SUCH ACT, PROVIDED THAT, IF REQUESTED BY THE COMPANY, AN
OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND SUBSTANCE IS
FURNISHED TO THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT IS AVAILABLE.
IN ADDITION, ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE OR OTHER
DISPOSITION OF THIS SECURITY IS RESTRICTED BY, AND THE RIGHTS OF THE
HOLDER OF SUCH SECURITY ARE SUBJECT TO THE TERMS AND
65
CONDITIONS CONTAINED IN, A SECURITIES PURCHASE AGREEMENT DATED AS OF
SEPTEMBER 30, 1997, A COMPLETE AND CORRECT COPY OF THE FORM OF WHICH
WILL BE FURNISHED BY THE ISSUER TO THE HOLDER HEREOF UPON WRITTEN
REQUEST AND WITHOUT CHARGE.
PURSUANT TO PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986 RELATING
TO ORIGINAL ISSUE DISCOUNT AND TREASURY REGULATIONS PUBLISHED
THEREUNDER, THE FOLLOWING INFORMATION IS PROVIDED: (1) THIS SECURITY
IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT IN THE AMOUNT OF
$269.42 PER $1,000 OF FACE AMOUNT; (2) THE ISSUE PRICE OF THIS
SECURITY IS $730.58 PER $1,000 FACE AMOUNT; (3) THE ISSUE DATE OF
THIS SECURITY IS SEPTEMBER 30, 1997; AND (4) THE YIELD TO MATURITY
OF THIS SECURITY IS 16.64%.
The Company shall maintain a copy of this Agreement and any amendments
thereto on file in its principal office, and will make such copy available
during normal business hours for inspection to any party thereto or will provide
such copy to the Purchaser upon its request.
Whenever the legend requirement imposed by this Section 11.12 shall
terminate, as hereinabove provided, the respective holders of Securities for
which such legend requirements have terminated shall be entitled to receive from
the Company, at the Company's expense, Senior Discount Notes or new Common Stock
Purchase Warrant certificates, as applicable, without such legend.
11.13 Notice of Transfer; Opinions of Counsel. The holder of each Senior
---------------------------------------
Discount Note and Common Stock Purchase Warrant certificate (or Common Stock
certificate issued on exercise thereof) bearing the restrictive legend set forth
in Section 11.12 above (a "Restricted Security") agrees in connection with any
transfer of such Restricted Security to give to the Company, upon request (a)
written description of the manner or circumstances of such transfer and/or an
opinion of counsel, which is knowledgeable in securities law matters (including
in-house counsel or regular counsel to such Purchaser or its investment
advisor), in form and substance reasonably satisfactory to the Company, to the
effect that the transfer of such Restricted Security may be effected without
registration of such Restricted Security under the Securities Act. If for any
reason the Company (after having been furnished with the opinion required to be
furnished pursuant to this Section 11.13) shall fail to notify such holder
within 5 days after such holder shall have delivered such description and/or
opinion to the Company that, in its or its counsel's opinion, the transfer may
not be legally effective (the "Illegal Transfer Notice"), such holders shall
thereupon be entitled to consummate the transfer of the Restricted Security as
proposed; provided, however, that such procedure shall not be required, and any
-----------------
such attempted transfer shall not be effective,
66
in respect of a proposed transfer which is expressly prohibited by the terms of
this Agreement because it represents an attempt to transfer Senior Discount
Notes in an aggregate principal amount of less than $1,000,000 (subject to
adjustment) in contravention of Section 11.1 hereof. If the holder of the
Restricted Security delivers to the Company an opinion of counsel (including in-
house counsel or regular counsel to such Purchaser or its investment adviser) in
form and substance reasonably satisfactory to the Company that subsequent
transfers of such Restricted Security will not require registration under the
Securities Act, or if the Company does not provide the holders with an Illegal
Transfer Notice as set forth above, the Company will promptly after such
contemplated transfer deliver new certificates for such Restricted Security
which do not bear the Securities Act legend set forth in Section 11.12 above.
The restrictions imposed by this Article XI upon the transferability of any
particular Restricted Security shall cease and terminate when such Restricted
Security has been sold pursuant to an effective registration statement under the
Securities Act or transferred pursuant to Rule 144 promulgated under the
Securities Act. The holder of any Restricted Security as to which such
restrictions shall have terminated shall be entitled to receive from the Company
a new security of the same type but not bearing the restrictive Securities Act
legend set forth in Section 11.12 and not containing any other reference to the
restrictions imposed by this Article XI. Notwithstanding any of the foregoing,
no opinion of counsel will be required to be rendered pursuant to this Section
11.13 with respect to the transfer of any Securities on which the restrictive
legend has been removed in accordance with this Section 11.13. As used in this
Section 11.13, the term "transfer" encompasses any sale, transfer or other
disposition of any Securities referred to herein.
11.14 Security.
--------
(a) In order to secure the due and punctual payment of the principal
of and interest on the Senior Discount Notes when and as the same shall be due
and payable, whether on an Interest Payment Date, at maturity, by acceleration,
call for redemption or otherwise, and interest on the overdue principal and, to
the extent permitted by applicable law, interest, if any, on the Senior Discount
Notes and the performance of all other obligations of the Company to the Holders
under this Agreement and the Senior Discount Notes according to the terms
hereunder or thereunder, the Company covenants and agrees to enter into, and to
cause its Subsidiaries to enter into, (i) as soon as practicable and in any
event no later than December 31, 1997 (the "Security Date") any security
agreements, mortgages, financing statements, pledge agreements or security
documents (the "Security Documents") as Purchaser shall reasonably require or
request in order to grant a security interest to the Holders in the Collateral
other than the Capital Stock of the Gaming Subsidiaries and (ii) as soon as
practicable and in any event no later than March 31, 1998 (the "Pledge Date")
any Security Documents as Purchaser shall reasonably require or request in order
to grant a security interest to the Holders in the Collateral constituting the
Capital Stock of the Gaming Subsidiaries, in each case for the equal and ratable
benefit and security of the Holders without preference, priority or distinction
of any thereof over any other by reason or difference in time of issuance, sale
or otherwise. At the time the Security Documents are executed, the Company will
have full right, power and lawful authority to grant, convey, hypothecate,
assign, mortgage and pledge the property constituting the Collateral, in the
manner and form done, or intended to be done, in this Agreement and the Security
Documents, free and
67
clear of all Liens whatsoever, except the Liens created by this Agreement and
the Security Documents and except to the extent otherwise provided herein and
therein, and the Company covenants an agrees to (i) forever warrant and defend
the title to the same against the claims of all Persons whatsoever, (ii)
execute, acknowledge and deliver to the Purchaser such further assignments,
transfers, assurances or other instruments as the Purchaser may reasonably
require or request, and (iii) do or cause to be done all such acts and things as
may be necessary or proper, or as may be reasonably required by the Purchaser,
to assure and confirm to the Purchaser the security interest in the Collateral
contemplated hereby and by the Security Documents, or any part thereof, as from
time to time constituted, so as to render the same available for the security
and benefit of this Agreement and of the Senior Discount Notes secured hereby,
according to the intent and purposes herein expressed. This Agreement and the
Security Documents will create in favor of the Holders a direct and valid first
priority Lien (the "Securityholder Lien") on the property constituting the
Collateral, as set forth herein and therein; provided, however, that the
Holders' Lien shall be subject to a priority Lien of any lender with respect to
any Liens created in connection with the Incurrence of Senior Indebtedness
permitted under Section 7.7(c)(iv) and Liens on assets acquired pursuant to
Section 7.7(c)(v) which Liens are created in connection with such purchase.
(b) The Company will, at its own expense, enter into, register, record
and file or rerecord or refile and renew the Security Documents, this Agreement
and all amendments or supplements thereto in such manner and in such place or
places, if any, as may be required by law in order fully to effectuate, preserve
and protect the Securityholder Lien and the Security Documents and to effectuate
and preserve the Securityholder Lien and all rights of the Holders in the
Collateral.
(c) The Company shall furnish to the Purchaser as promptly as possible
(i) an opinion of ▇▇▇▇, ▇▇▇▇, ▇▇▇▇ & Freidenrich (or other counsel satisfactory
to Purchaser), which opinion shall be in form and substance satisfactory to
Purchaser, either (A) stating that, in the opinion of such counsel, this
Agreement and the assignment of the Collateral other than the Capital Stock of
the Gaming Subsidiaries intended to be made by the Security Documents and all
other instruments of further assurance or amendment have been properly recorded,
registered and filed to the extent necessary to make effective the
Securityholder Lien intended to be created by the Security Documents, or (B)
stating that, in the opinion of such counsel, no such action is necessary to
make any Securityholder Lien and assignment effective; and (ii).an opinion of
▇▇▇▇, ▇▇▇▇, ▇▇▇▇ & Freidenrich (or other counsel satisfactory to Purchaser),
which opinion shall be in form and substance satisfactory to Purchaser, either
(A) stating that, in the opinion of such counsel, this Agreement and the
assignment of the Collateral constituting the Capital Stock of the Gaming
Subsidiaries intended to be made by the Security Documents and all other
instruments of further assurance or amendment have been properly recorded,
registered and filed to the extent necessary to make effective the
Securityholder Lien intended to be created by the Security Documents, or (B)
stating that, in the opinion of such counsel, no such action is necessary to
make any Securityholder Lien and assignment effective
68
(d) The Company shall be entitled to obtain a full release of all of
the Collateral from the Liens of the Security Documents upon payment in full of
its obligations the Senior Discount Notes.
(e) The Holders of a majority in aggregate principal amount of the
then outstanding Senior Discount Notes shall have power to institute and to
maintain such suits and proceedings as they may deem advisable to prevent any
impairment of the Collateral by any acts which may be unlawful or in violation
of the Security Documents, or this Agreement, and such suits and proceedings as
the Holders of a majority in aggregate principal amount of the then outstanding
Senior Discount Notes may deem expedient to preserve or protect their interests
in the Collateral (including power to institute and maintain suits or
proceedings to restrain the enforcement of or compliance with any legislative or
other governmental enactment, rule or order that may be unconstitutional or
otherwise invalid if the enforcement of, or compliance with, such enactment,
rule or order would impair the security hereunder or be prejudicial to the
interests of the Holders).
(f) In the event that the opinion of counsel contemplated by Section
11.14(c)(i) hereof is not delivered to the Purchaser on or prior to the Security
Date, interest on the Senior Discount Notes will accrue at 2.0% per annum (the
"Additional Interest") in excess of the interest rate then in effect commencing
on January 1, 1998 (unless Additional Interest is otherwise accruing). In the
event that the opinion of counsel contemplated by Section 11.14(c)(ii) hereof is
not delivered to the Purchaser on or prior to the Pledge Date, Additional
Interest will accrue in excess of the interest rate then in effect commencing on
April 1, 1998 (unless Additional Interest is otherwise accruing). In the event
that the Mississippi Gaming Commission has not approved issuance and transfer of
the Warrants (as set forth in Section 13.15(c) on or prior to December 31, 1997,
Additional Interest will accrue in excess of the interest rate then in effect
commencing on January 1, 1998 (unless Additional Interest is otherwise
accruing). The Company shall pay any accrued and unpaid Additional Interest to
the Holders of record (as determined on the fifteenth day of any month during
which Additional Interest is accruing) no later than the last Business Day of
any month during which Additional Interest is accruing. The Additional Interest
shall cease to accrue on any date on which the Company shall deliver to the
Purchaser the relevant opinion of counsel contemplated by Section 11.14(c)
hereof.
ARTICLE XII
INDEMNIFICATION
12.1 Indemnification; Expenses, Etc.
------------------------------
(a) In addition to any and all obligations of the Company to indemnify
the Purchaser hereunder or under the other Transaction Documents, the Company
agrees, without limitation as to time, to indemnify and hold harmless the
Purchaser, its Affiliates, and the employees, officers, directors, and agents of
the Purchaser and its Affiliates (individually, an "Indemnified Party" and,
collectively the "Indemnified Parties") from and against any and all
69
losses, claims, damages, liabilities, costs (including the costs of preparation
and attorneys' fees) and expenses (including expenses of investigation)
(collectively, "Losses") incurred or suffered by an Indemnified Party (i) in
connection with or arising out of any breach of any warranty, or the inaccuracy
of any representation, as the case may be, made by the Company, or the failure
of the Company to fulfill any agreement or covenant contained in this Agreement
or (ii) in connection with any proceeding against the Company or any Indemnified
Party brought by any third party arising out of or in connection with this
Agreement or the other Transaction Documents or the transactions contemplated
hereby or thereby, as the case may be, or any action taken in connection
herewith or therewith (or any other document or instrument executed herewith or
pursuant hereto or thereto), whether or not the transactions contemplated by
this Agreement are consummated or whether or not any Indemnified Party is a
formal party to any proceeding; provided, however, that the Company shall not be
-------- -------
liable for any losses resulting from action on the part of any Indemnified Party
which is finally determined in such proceeding to be wrongful or which is an act
of gross negligence, recklessness, or willful misconduct by such Indemnified
Party. The Company agrees promptly to reimburse any Indemnified Party for all
such Losses as they are incurred or suffered by such Indemnified Party.
Except as otherwise provided herein, the Company agrees (for the benefit of
the Purchaser) to pay, and to hold the Purchaser harmless from and against, all
costs and expenses (including, without limitation, attorneys' fees, expenses and
disbursements), if any, incurred in connection with the enforcement against the
Company of this Agreement or any other agreement to which the Company is a party
or any other agreement or instrument furnished pursuant hereto or thereto, as
the case may be, or in connection herewith or therewith in any action in which
the Purchaser shall prevail or in any action in which the Purchaser shall in
good faith assert any provision of any of the foregoing as a defense.
(b) If any Indemnified Party is entitled to indemnification hereunder,
such Indemnified Party shall give prompt notice to the Company of any claim or
of the commencement of any proceeding against the Company or any Indemnified
Party brought by any third party with respect to which such Indemnified Party
seeks indemnification pursuant hereto; provided, however, that the failure so to
-------- -------
notify the Company shall not relieve the Company from any obligation or
liability except to the extent the Company is prejudiced by such failure. The
Company shall have the right, exercisable by giving written notice to an
Indemnified Party promptly after the receipt of written notice from such
Indemnified Party of such claim or proceeding, to assume, at the expense of the
Company, the defense of any such claim or proceeding with counsel reasonably
satisfactory to such Indemnified Party. The Indemnified Party or Parties will
not be subject to any liability for any settlement made without its or their
consent (but such consent will not be unreasonably withheld). The Company shall
not consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by claimant or plaintiff to
such Indemnified Party or Parties of a release, in form and substance
satisfactory to the Indemnified Party or Parties, from all liability in respect
of such claim, litigation or proceeding.
70
(c) In addition to any other obligations of the Company to indemnify
the Purchaser herein or pursuant to any of the Transaction Documents or any
other agreements or documents executed and delivered in connection herewith or
therewith, the Company will pay, and will save the Purchaser and each other
holder of any of the Securities harmless from liability for the payment of, all
expenses arising in connection with such transactions, including, without
limitation: (a) all document production and duplication charges and the
reasonable fees, charges and expenses of Purchaser's Special Counsel (whether
arising before or after the Closing Date), the transactions contemplated hereby
and any subsequent proposed modification of, or proposed consent under, this
Agreement, whether or not such proposed modification shall be effected or such
proposed consent granted; (b) the costs of obtaining a private placement CUSIP
number from Standard & Poor's Corporation for the Securities; (c) the costs and
expenses, including attorneys' fees, incurred by the Purchaser in enforcing any
rights under this Agreement or in responding to any subpoena or other legal
process issued in connection with this Agreement or the transactions
contemplated hereby or thereby or by reason of the Purchaser's having acquired
any of the Securities, including, without limitation, costs and expenses
incurred by the Purchaser in any bankruptcy case; (d) the cost of delivering to
the Purchaser's principal office, insured to its satisfaction, the Units
delivered to the Purchaser hereunder and any Securities delivered to the
Purchaser upon any substitution of Securities pursuant to this Agreement or any
of the Transaction Documents and of the Purchaser's delivering any Securities,
insured to its satisfaction, upon any such substitution; and (e) the reasonable
out-of-pocket expenses incurred by the Purchaser in connection with such
transactions and any such amendments or waivers.
ARTICLE XIII
MISCELLANEOUS
13.1 Survival of Representations and Warranties; Severability. All
--------------------------------------------------------
representations and warranties contained in this Agreement or the Transaction
Documents or made in writing by or on behalf of the Company in connection with
the transactions contemplated by this Agreement or the Transaction Documents
shall survive, for the duration of any statutes of limitation applicable
thereto, the execution and delivery of this Agreement, any investigation at any
time made by the Purchaser or on the Purchaser's behalf, the purchase of the
Units by the Purchaser under this Agreement and any disposition of or payment on
the Units. All statements contained in any certificate or other instrument
delivered to the Purchaser by or on behalf of the Company pursuant to this
Agreement or the Transaction Documents at the Closing shall be deemed
representations and warranties of the Company under this Agreement. Any
provision of this Agreement that 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 or affecting the validity or enforceability of such provisions
in any other jurisdiction.
13.2 Notices, Etc. Any notice or communication under this Agreement shall
------------
be duly given if in writing and delivered in person, mailed by registered or
certified mail, postage prepaid, return receipt requested or delivered by
telecopier or overnight air courier guaranteeing next day delivery to the
other's address:
71
If to the Company: Silicon Gaming, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: President
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Freidenrich,
A Professional Corporation
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Purchaser: DDJ Capital Management, LLC
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇-▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: General Counsel
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇, Procter & ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, P.C.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
The Company or the Purchaser by notice to the other may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; the date receipt is acknowledged, if mailed by registered or
certified mail; when answered back, if telecopied; and the next Business Day
after timely delivery to the courier, if sent by overnight air courier
guaranteeing next day delivery.
Any notice or communication to any other Holder shall be mailed by first-
class mail to his or her address shown on the register maintained by the
Company. Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above within the time
prescribed, it is duly given, whether or not the addressee receives it.
72
13.3 Successors and Assigns. Whenever in this Agreement any of the parties
----------------------
hereto are referred to, such reference shall be deemed to include the successors
and assigns of such party; and all covenants, promises and agreements by or on
behalf of the respective parties which are contained in this Agreement shall
bind and inure to the benefit of the successors and assigns of all other
parties. The terms and provisions of this Agreement and the other Transaction
Documents shall inure to the benefit of and shall be binding upon any assignee
or transferee of the Purchaser, and in the event of such transfer or assignment,
the rights and privileges herein conferred upon the Purchaser shall
automatically extend to and be vested in, and become an obligation of, such
transferee or assignee, all subject to the terms and conditions hereof. In
connection therewith, such transferee or assignee may disclose all documents and
information which such transferee or assignee now or hereafter may have relating
to the Securities, this Agreement, the other Transaction Documents, the Company,
any other Persons referred to herein or any of the business of any of the
foregoing entities, subject to full compliance with Section 13.9 hereof.
13.4 Descriptive Headings. The headings in this Agreement are for purposes
--------------------
of reference only and shall not limit or otherwise affect the meaning hereof.
13.5 Satisfaction Requirement. If any agreement, certificate or other
------------------------
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to the Purchaser or to the holders of a specified
portion of the principal amount of any class of the Securities, the
determination of such satisfaction shall be made by the Purchaser or such
holders, as the case may be, in the sole and exclusive judgment (exercised in
good faith) of the Person or Persons making such determination.
13.6 Governing Law. THIS AGREEMENT AND THE UNITS SHALL BE CONSTRUED AND
-------------
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAW.
13.7 Service of Process. The Company (a) hereby irrevocably submits itself
------------------
to the jurisdiction of the state courts of the State of New York and to the
jurisdiction of the United States District Court for the Southern District of
New York for the purpose of any suit, action or other proceeding arising out of
or based upon this Agreement, the Securities, the other Transaction Documents or
the subject matter hereof or thereof brought by the Purchaser or its successors
or assigns and (b) hereby waives, and agrees not to assert, by way of motion, as
a defense, or otherwise, in any such suit, action or proceeding, any claim that
it is not subject personally to the jurisdiction of the above-named courts, that
its property is exempt or immune from attachment or execution, that the suit,
action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or that this Agreement or the subject
matter hereof may not be enforced in or by such court, and (c) hereby waives any
offsets or counterclaims in any such action, suit or proceeding (other than
compulsory counterclaims). The Company hereby consents to service of process by
registered mail at the address to which notices are to be given. The Company
agrees that its submission to jurisdiction and its consent to service of process
by
73
mail is made for the express benefit of the Purchaser. Final judgment against
the Company in any such action, suit or proceeding shall be conclusive and may
be enforced in other jurisdictions (a) by suit, action or proceeding on the
judgment, a certified or true copy of which shall be conclusive evidence of the
fact and of the amount of any indebtedness or liability of the Company therein
described or (b) in any other manner provided by or pursuant to the laws of such
other jurisdiction; provided, however, that the Purchaser may at its option
-------- -------
bring suit or institute other judicial proceedings against the Company or any of
the Company's assets in any state or federal court of the United States or in
any country or place where the Company or such assets may be found.
13.8 Counterparts. This Agreement may be executed simultaneously in two or
------------
more counterparts, each of which shall be deemed an original, and it shall not
be necessary in making proof of this Agreement to produce or account for more
than one such counterpart.
13.9 Disclosure to Other Persons. The Purchaser agrees to keep
---------------------------
confidential any financial information delivered by the Company pursuant to this
Agreement (other than information that is publicly available) and such other
non-public proprietary information delivered by the Company that is clearly
designated in writing to be or otherwise known by the Purchaser to be
confidential; provided, however, that nothing herein shall prevent the Purchaser
-------- -------
from disclosing such information: (a) to any prospective purchaser who agrees
in writing to be bound by this Section 13.9, (b) to any Affiliate, director,
officer, employee, agent and professional consultant of any prospective
purchasers, in its capacity as such or any actual purchaser, participant,
assignee, or transferee of such Purchaser's or prospective purchaser's rights
under any Unit or any part thereof that agrees in writing to be bound by this
Section 13.9, (c) upon order of any court or administrative agency having
jurisdiction over such party, (d) upon the request or demand of any regulatory
agency or authority having jurisdiction over such party, (e) which has been
publicly disclosed through no breach of Purchaser, (f) which has been obtained
from any Person that is not a party hereto or an Affiliate of any such party,
(g) in connection with the exercise of any remedy hereunder, (h) to the
certified public accountants for the Purchaser or as required in summary
financial or descriptive business information disclosed by the Purchaser that is
an investment fund as part of its regular reports to its investors or partners,
or (i) as otherwise expressly contemplated by this Agreement. In order to
permit the Company to remove or limit any order, request or demand or to obtain
confidential treatment for any disclosure pursuant to (c) or (d) above, the
Purchaser will use reasonable efforts to inform the Company of any such request
for disclosure prior to disclosure. Nothing in this Section 13.9 shall be
construed to create or give rise to any fiduciary duty on the part of the
Purchaser to the Company.
13.10 No Adverse Interpretation of Other Agreements. This Agreement may
---------------------------------------------
not be used to interpret another agreement, indenture, loan or debt agreement of
the Company or any Subsidiary. Any such agreement, indenture, loan or debt
agreement may not be used to interpret this Agreement.
13.11 Waiver of Jury Trial. THE PARTIES HERETO HEREBY WAIVE TRIAL BY JURY
--------------------
IN ANY LITIGATION, SUIT OR PROCEEDING, IN ANY COURT WITH RESPECT
74
TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE SECURITIES, ANY
OTHER TRANSACTION DOCUMENTS, OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO
THIS AGREEMENT, THE SECURITIES OR ANY OTHER TRANSACTION DOCUMENTS, OR THE
VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF,
PROVIDED, HOWEVER, THAT WITH RESPECT TO ANY COMPULSORY COUNTERCLAIM (I.E., A
-------- -------
CLAIM BY ONE PARTY AGAINST ANOTHER PARTY WHICH IF NOT BROUGHT IN SUCH ACTION
WOULD RESULT IN THE PARTY BRINGING SUCH CLAIM BEING FOREVER BARRED FROM BRINGING
SUCH CLAIM), THE PARTY BRING SUCH CLAIM SHALL HAVE THE RIGHT TO RAISE SUCH
COMPULSORY COUNTERCLAIM IN ANY SUCH LITIGATION.
13.12 Merger. This Agreement and the Senior Discount Notes constitute the
------
entire agreement of the Company and the Holders and express the entire
understanding of the Company and the Holders with respect to the Senior Discount
Notes.
13.13 Expenses. The Company agrees to pay, on demand, all reasonable out-
--------
of-pocket expenses incurred by the Holders, including, without limitation, legal
and accounting fees, in connection with the collection of amounts upon the
occurrence of an Event of Default hereunder,
75
and the revision, protection or enforcement of any of the Holder's rights
against the Company under this Agreement and the Senior Discount Notes.
13.14 Cooperation with Gaming Authorities. The Purchaser and each Holder
-----------------------------------
of the Securities agree to cooperate with the Gaming Authorities in connection
with the administration of their regulatory jurisdiction over the Company and
its Gaming Subsidiaries, including, without limitation, the provision of such
documents or other information as may be requested by any such Gaming Authority
relating to the Purchaser or any Holder of the Securities, or to the Company or
its Gaming Subsidiaries, or to the Transaction Documents.
13.15 Gaming Laws; Requisite Gaming Approvals.
---------------------------------------
(a) Notwithstanding anything to the contrary therein, the Transaction
Documents and the exercise of all rights, powers and remedies thereunder, are
subject to all applicable provisions of the Gaming Laws.
(b) Notwithstanding anything to the contrary contained above or in the
Transaction Documents, it is understood and agreed that (i) the pledge of
Capital Stock of the Gaming Subsidiaries requires the prior approval of the
Gaming Authorities under the Gaming Laws (the "Pledged Securities Requisite
Gaming Approvals"), and (ii) to become effective, the Gaming Subsidiaries Stock
Restrictions require the approvals described in the definition thereof (the
"Gaming Subsidiaries Stock Restrictions Requisite Gaming Approvals"). On the
Closing Date, the Company and its Gaming Subsidiaries in good faith believe that
they will be able to obtain all Pledged Securities Requisite Gaming Approvals
and Gaming Subsidiaries Stock Restrictions Requisite Gaming Approvals within 180
days after the Closing Date. Notwithstanding anything to the contrary contained
above or in the Transaction Documents, unless and until (x) the relevant Pledged
Securities Requisite Gaming Approvals have been obtained with respect to the
pledge of the Capital Stock of the Gaming Subsidiaries, the pledge of such
Capital Stock will not be required, and (y) the relevant Gaming Subsidiaries
Stock Restrictions Requisite Gaming Approvals have been obtained, the Gaming
Subsidiaries Stock Restrictions contained in Section 7.9, 7.17, 7.18 and 8.1
shall not apply or be effective. To the extent the relevant Pledged Securities
Requisite Gaming Approvals are obtained with respect to one or more of the
Gaming Subsidiaries, the Capital Stock of such entity shall promptly (and in any
event within 10 days after obtaining such approvals) be pledged pursuant to the
relevant pledge agreement. Furthermore, the Company and its Gaming Subsidiaries
agree to use their best efforts to obtain all Pledged Securities Requisite
Gaming Approvals and Gaming Subsidiaries Stock Restrictions Requisite Gaming
Approvals as promptly as possible after the Closing Date.
(c) Notwithstanding anything to the contrary contained above or in the
transaction documents, the holders of the Units may not separate the Common
Stock Purchase Warrants from the Senior Discount Notes for the purpose of any
transfer of such Common Stock Purchase Warrants until such time as the
Mississippi Gaming Commission has issued its approval for the issuance and
transfer of the Common Stock Purchase Warrants.
76
(d) Notwithstanding anything to the contrary contained in this subparagraph
(b) above or in the Transaction Documents, it is understood and agreed that the
provisions of paragraph (b) shall not apply to the Company's subsidiary, Silicon
Gaming-Missouri, Inc., its stock, its license (if granted), and the obtaining of
the Gaming Subsidiaries Stock Restrictions Requisite Gaming Approvals or the
Pledged Securities Requisite Gaming Approvals contemplated therein.
13.16 Nevada Gaming Collateral. Subject to any release of any Capital
------------------------
Stock of Silicon Gaming-Nevada, Inc., pledged pursuant to the relevant pledge
agreement and as contemplated by any of the Transaction Documents, the
collateral agent shall, to the extent required by the Nevada Gaming Laws, retain
possession of all pledged collateral consisting of the Capital Stock of Silicon
Gaming-Nevada, Inc., within the State of Nevada at a location designated to the
Nevada State Gaming Control Board.
13.17 Assistance with Gaming Approvals. The Company and its Gaming
--------------------------------
Subsidiaries agree to assist the Purchaser and any Holder in obtaining all
approvals of any Gaming Authority or other Governmental Body that are required
by law, including, without limitation, the Gaming Laws, for or in connection
with any action or transaction contemplated by the Transaction Documents and, at
the request of any Holder after and during an Event of Default, to prepare, sign
and file with the appropriate Gaming Authorities the transferor's portion of any
application for consent to the transfer of control thereof necessary or
appropriate under the Gaming Laws for approval of any sale or transfer of any
applicable pledged collateral consisting of the Capital Stock of the Gaming
Subsidiaries pursuant to the exercise of the Holder's remedies hereunder and
under the Transaction Documents.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
77
SECURITIES PURCHASE AGREEMENT
UNITS OF SENIOR DISCOUNT NOTES AND COMMON STOCK PURCHASE WARRANTS
COMPANY SIGNATURE PAGE
If this Agreement is satisfactory, please so indicate by signing the
applicable attached signature page of this Agreement and delivering such
counterpart to the Company whereupon this Agreement will become binding among
the parties hereto in accordance with its terms.
SILICON GAMING, INC.,
a California corporation
By: _____________________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President and Chief Financial Officer
SECURITIES PURCHASE AGREEMENT FOR UNITS OF SENIOR DISCOUNT NOTES
AND COMMON STOCK PURCHASE WARRANTS
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Number and
date first written above: Purchase Price of Units
to be Purchased:
B III CAPITAL PARTNERS, L.P., Number of Units: 300, $25,000,000,
a Delaware limited partnership
Comprised of:
By: DDJ Capital III, LLC, Aggregate principal
its General Partner amount of Senior Discount Notes
By: DDJ Capital Management, LLC, to be Purchased: $30,000,000
its Manager
Aggregate Number of
Shares of Common Stock
Purchase Warrants to
By: ____________________________ be Purchased: 375,000
Name:
Title: Member Purchase Price: $25,000,000
Address: c/o DDJ Capital Management, LLC
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Nominee (name in which the Units are to be registered,
if different than name of Purchaser):
▇▇▇▇▇▇▇ ▇▇▇▇▇ & Company FFC: BIII Capital Partners, L.P.
--------------------------------------------------------
(Nominee's Name)
Tax I.D. Number: __________________
(if acquired in the name of a nominee, the taxpayer I.D.
number of such nominee)
Designated Bank:
_______________________________ __________________________________
Name ABA #
_______________________________ __________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
_______________________________ __________________________________
Account Number Attention
[FORM OF NOTE] EXHIBIT A
---------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE SECURITIES OR "BLUE
SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER
SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER
EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO SUCH ACT, PROVIDED THAT,
IF REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN
FORM AND SUBSTANCE IS FURNISHED TO THE COMPANY THAT AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
IN ADDITION, ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THIS
SECURITY IS RESTRICTED BY, AND THE RIGHTS OF THE HOLDER OF SUCH SECURITY ARE
SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN, A SECURITIES PURCHASE
AGREEMENT DATED AS OF SEPTEMBER 30, 1997, A COMPLETE AND CORRECT COPY OF THE
FORM OF WHICH WILL BE FURNISHED BY THE ISSUER TO THE HOLDER HEREOF UPON WRITTEN
REQUEST AND WITHOUT CHARGE. SUCH AGREEMENT, AMONG OTHER THINGS, RESTRICTS THE
DETACHMENT OF THIS SENIOR DISCOUNT NOTE FROM THE COMMON STOCK PURCHASE WARRANTS
ATTACHED HERETO.
PURSUANT TO PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986 RELATING TO ORIGINAL
ISSUE DISCOUNT AND TREASURY REGULATIONS PUBLISHED THEREUNDER, THE FOLLOWING
INFORMATION IS PROVIDED: (1) THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE
DISCOUNT IN THE AMOUNT OF $ 269.42 PER $1,000 OF FACE AMOUNT; (2) THE ISSUE
PRICE OF THIS SECURITY IS $ 730.58 PER $1,000 FACE AMOUNT; (3) THE ISSUE DATE OF
THIS SECURITY IS SEPTEMBER 30, 1997; AND (4) THE YIELD TO MATURITY OF THIS
SECURITY IS 16.64 %.
SILICON GAMING, INC.
SENIOR DISCOUNT NOTE DUE SEPTEMBER 30, 2002
No. 1 $30,000,000
Silicon Gaming, Inc., a California corporation (hereinafter called the
"Company", which term includes any successor entity under the Agreement
hereinafter referred to), for value received, hereby promises to pay to ▇▇▇▇▇▇▇
SACHS & COMPANY FFC: BIII CAPITAL PARTNERS, L.P., a Delaware limited
partnership, or registered assigns, the principal sum of Thirty Million Dollars
on September 30, 2002.
Interest Payment Dates: July 1 and January 1 commencing July 1, 1999
Record Dates: June 15 and December 15
Reference is hereby made to the further provisions of this Senior Discount
Note set forth on the following five (5) pages, which further provisions shall
for all purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Senior Discount Note to be
signed manually or by facsimile by its duly authorized officers and a facsimile
of its seal to be affixed hereto or imprinted hereto.
SILICON GAMING, INC.
By: _____________________________________
Name:
Title:
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Senior Discount Note due September 30, 2002
1. Interest. Silicon Gaming, Inc. (the "Company") promises to pay interest on
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the principal amount of this Senior Discount Note at the rate and in the manner
specified below. Interest on this Senior Discount Note will accrue at 12.5% per
annum from January 1, 1999 until maturity and will be payable semiannually in
cash on January 1 and July 1 of each year beginning on July 1, 1999, or if any
such day is not a Business Day on the next succeeding Business Day (each an
"Interest Payment Date"), to the holder of record on the immediately preceding
June 15, or December 15, as the case may be. Interest on this Senior Discount
Note will accrue from the most recent date on which interest has been paid or,
if no interest has been paid, from January 1, 1999, provided that the first
Interest Payment Date shall be July 1, 1999. The Company shall pay interest on
overdue principal and premium, if any, from time to time on demand at the rate
of 1.5% per annum in excess of the interest rate then in effect and shall pay
interest on overdue installments of interest (without regard to any applicable
grace periods) from time to time on demand at the same rate to the extent
lawful. The Company shall also pay interest from time to time after March 31,
1998 at the rate of 2.0% per annum in excess of the interest rate then in effect
if the Company shall fail to provide adequate evidence of the grant of a
security interest to the Holders. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
The Accreted Value of this Senior Discount Note shall accrete, for purposes
of calculating any Redemption Price or Purchase Price and for all other purposes
in determining Accreted Value, in the period during which this Senior Discount
Note remains outstanding, at 16.64% per annum from the date hereof until
September 30, 2002 on a semi-annual basis compounding on each March 31 and
September 30, using a 360-day year comprised of twelve 30-day months, commencing
on the date of issuance of this Senior Discount Note, and shall cease to accrete
upon payment in full on the earliest of September 30, 2002, any Redemption Date
or any Purchase Date.
2. Method of Payment. The Company will pay interest on this Senior
-----------------
Discount Note (except defaulted interest) to the Person who is the registered
Holder of this Senior Discount Note at the close of business on the record date
for the next Interest Payment Date even if such Senior Discount Note is canceled
after such record date and on or before such Interest Payment Date. Holders
must surrender Senior Discount Notes to the Company to collect principal
payments on such Senior Discount Notes. The Company will pay principal,
premium, if any, and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts. However, the
Company may pay principal, premium, if any, and interest by wire transfer of
Federal funds, or interest by check payable in such money, and any such check
may be mailed to a Holder's registered address.
3. Securities Purchase Agreement. The Company issued the Senior Discount
-----------------------------
Notes pursuant to a Securities Purchase Agreement, dated as of September 30,
1997 (the "Agreement"), by and between the Company, as issuer of the Senior
Discount Notes, and the Purchaser named therein. The terms of the Senior
Discount Notes are those stated in the Agreement and herein. The Senior
Discount Notes are subject to, and qualified by, all such terms, certain of
which are summarized herein, and Holders are referred to the Agreement (all
capitalized terms not defined herein shall have the meanings assigned them in
the Agreement). The Senior Discount Notes are general obligations of the
Company limited to $30,000,000 in aggregate principal amount. Reference is
hereby made to the Agreement for a description of the properties and assets in
which a security interest has been granted, the nature of the security, the
terms and conditions upon which the security interests were granted.
4. Redemption Provisions. The Senior Discount Notes will be subject to
---------------------
redemption, in whole or from time to time in part (in multiples of $1,000 of
principal amount) at the option of the Company at the price per $1,000 principal
amount at maturity with respect to any Redemption Date appearing opposite the
period in which such Redemption Date occurs, plus any accrued and unpaid
interest to the Redemption Date:
Period Price per $1,000 Principal Amount
------ ---------------------------------
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October 1997 $833.33
November 1997 $837.19
December 1997 $848.49
January 1998 $859.78
February 1998 $871.08
March 1998 $882.38
April 1998 $894.61
May 1998 $906.85
June 1998 $919.09
July 1998 $931.32
August 1998 $943.56
September 1998 $955.79
October 1998 $969.05
November 1998 $982.30
December 1998 $995.56
January 1999 $997.20
February 1999 $998.84
After February 28, 1999 $1,000.00
Notwithstanding the foregoing, if any Gaming Authority requires that any
Purchaser, Holder or beneficial owner of the Senior Discount Notes must be
licensed, qualified or found suitable under any Gaming Laws and such Purchaser,
Holder or beneficial owner of the Senior Discount Notes fails to apply for a
license, qualification or finding of suitability within 30 days after being
requested to do so by any Gaming Authority (or such lesser period that may be
required by such Gaming Authority), or, if any Purchaser, Holder or beneficial
owner of the Senior Discount Notes is not so licensed, qualified or found
suitable, the Purchaser, Holder or beneficial owner of the Senior Discount Notes
shall comply with any order by such Gaming Authorities requiring that such
Person dispose of any Securities held by it; provide, however, that in the event
the Purchaser, Holder or beneficial owner of the Senior Discount Notes does not
comply with such order within the required period, the Company shall have the
option as its sole remedy with respect to the Senior Discount Notes to call for
redemption the Senior Discount Notes held by such Purchaser, Holder or
beneficial owner at a price equal to the Accreted Value thereof on the
Redemption Date, plus accrued and unpaid interest to the Redemption Date.
Notwithstanding the foregoing, $5.0 million in aggregate principal amount
of Senior Discount Notes originally issued under the Agreement shall be redeemed
by the Company on the date which is four years following the date of original
issuance thereof, at a redemption price equal to 100% of the principal amount
thereof, together with accrued and unpaid interest to the date of redemption,
subject to certain conditions set forth in the Agreement.
In addition, if not previously redeemed, the Senior Discount Notes will be
subject to redemption (a "Change of Control Redemption") at the option of the
Holders, in whole or in part, at any time within 30 days after the completion of
an Offer made as a result of a Change of Control, at a redemption price equal to
101% of the principal amount thereof, plus accrued and unpaid interest to the
Purchase Date, subject to certain conditions set forth in the Agreement.
In addition, the Senior Discount Notes will be subject to redemption
("Securities Sale Redemption") at the option of the Holders, in whole or in
part, following a Securities Sale or a Mezzanine Debt Financing, from the Net
Cash Proceeds of such Securities Sale or Mezzanine Debt Financing; provided that
an Offer to make a Securities Sale Redemption shall be made by the Company only
if, and to the extent that, the aggregate amount of Net Cash Proceeds from all
such Securities Sales or Mezzanine Debt Financings occurring on or after the
date hereof exceed $40,000,000. In the event of a Securities Sale Redemption,
the Senior Discount Notes will be redeemable at a price per $1,000 principal
amount equal to the price set forth in Section 4 hereof opposite the period in
which the Purchase Date occurs, plus any accrued and unpaid interest to the
Purchase Date.
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5. Mandatory Offers. (a) Within 10 days after any Change of Control
----------------
Trigger Date, any Repayment Trigger Date or any Excess Proceeds Date, the
Company shall mail a notice to each Holder stating a number of items as set
forth in Section 6.7 of the Agreement.
(a) Holders may tender all or, subject to Section 8 below, any portion
of their Senior Discount Notes in an Offer by completing the form below entitled
"OPTION OF HOLDER TO ELECT PURCHASE."
(b) Promptly after consummation of an Offer, (i) the Company shall
mail to each Holder of Senior Discount Notes or portions thereof accepted for
payment an amount equal to the purchase price for, plus any accrued and unpaid
interest on, such Senior Discount Notes, (ii) with respect to any tendered
Senior Discount Note not accepted for payment in whole or in part, the Company
shall return such Senior Discount Note to the Holder thereof, and (iii) with
respect to any Senior Discount Note accepted for payment in part, the Company
shall authenticate and mail to each such Holder a new Senior Discount Note equal
in principal amount to the unpurchased portion of the tendered Senior Discount
Note.
(c) The Company will (i) publicly announce the results of the Offer to
Holders on or as soon as practicable after the Purchase Date, and (ii) comply
with Rule 14e-1 under the Securities Exchange Act of 1934, as amended, and any
other securities laws and regulations to the extent applicable to any Offer.
6. Notice of Redemption or Purchase. At least 30 days but not more than
--------------------------------
60 days before any Redemption Date the Company shall mail by first class mail a
notice of redemption to each Holder of Senior Discount Notes or portions thereof
that are to be redeemed.
7. Senior Discount Notes to be Redeemed or Purchased. The Senior
-------------------------------------------------
Discount Notes may be redeemed or purchased in part, but only in whole multiples
of $1,000 unless all Senior Discount Notes held by a Holder are to be redeemed
or purchased. On or after any date on which Senior Discount Notes are redeemed
or purchased, interest ceases to accrue on the Senior Discount Notes or portions
thereof called for redemption or accepted for purchase on such date.
8. Denominations, Transfer, Exchange. The Senior Discount Notes are in
---------------------------------
registered form without coupons in denominations of $100,000 and integral
multiples thereof (subject to adjustment as provided in the Agreement). The
transfer of Senior Discount Notes may be registered and Senior Discount Notes
may be exchanged as provided in the Agreement. Holders seeking to transfer or
exchange their Senior Discount Notes may be required, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes and
fees required by law or permitted by the Agreement. The Company need not
exchange or register the transfer of any Senior Discount Note or portion of a
Senior Discount Note selected for redemption or tendered pursuant to an Offer.
9. Persons Deemed Owners. The registered holder of a Senior Discount
---------------------
Note may be treated as its owner for all purposes.
10. Amendments and Waivers.
----------------------
(a) Subject to certain exceptions, the Agreement and the Senior
Discount Notes may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the then
outstanding Senior Discount Notes, and any existing Default or Event of Default
or compliance with any provision of the Agreement or the Senior Discount Notes
may be waived with the consent of the Holders of at least a majority in
principal amount of the then outstanding Senior Discount Notes.
(b) Notwithstanding Section 10(a) above, the Company may amend or
supplement the Agreement or the Senior Discount Notes without the consent of any
Holder to: cure any ambiguity, defect or inconsistency; provide for
uncertificated Senior Discount Notes in addition to or in place of certificated
Senior Discount Notes; provide for the assumption of the Company's obligations
to the Holders in the event
A-4
of any Disposition involving the Company that is permitted under Article VIII of
the Agreement and in which the Company is not the Surviving Person; or make any
change that would provide any additional rights or benefits to Holders or not
adversely affect the legal rights under the Agreement of any Holder.
(c) Certain provisions of the Agreement cannot be amended,
supplemented or waived without the consent of each Holder of Senior Discount
Notes affected.
11. Defaults and Remedies. Events of Default include: (i) the Company's
---------------------
failure to make any payment in respect of (A) the principal of or premium, if
any, on the Senior Discount Notes as the same shall become due, whether at
maturity, upon acceleration, redemption, or otherwise, or (B) interest on or in
respect of any Senior Discount Notes as the same shall become due and such
failure shall continue for a period of 15 Business Days; (ii) failure by the
Company for 30 days after receipt of notice from the Holders of at least 25% of
the outstanding Senior Discount Notes to comply with any other provisions of the
Agreement or the Senior Discount Notes; (iii) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
of its Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Subsidiaries) whether such Indebtedness now exists, or is created after
the date hereof, if (A) such default results in the acceleration of such
Indebtedness prior to its express maturity or shall constitute a default in the
payment of such Indebtedness at final maturity of such Indebtedness, and (B) the
principal amount of any such Indebtedness that has been accelerated or not paid
at maturity, when added to the aggregate principal amount of all other such
Indebtedness that has been accelerated or not paid at maturity, exceeds
$1,000,000; (iv) failure by the Company or any of its Subsidiaries to pay final
judgments, the uninsured portion of which exceeds $1,000,000, which judgments
are not paid, discharged, bonded or stayed for a period of 60 days after the
date of entry thereof; (v) if under any Bankruptcy Law, (A) the Company or any
Subsidiary commences a voluntary case, consents to the entry of an order for
relief against it in an involuntary case, consents to the appointment of a
Custodian of it or for all or substantially all of its property, or makes a
general assignment for the benefit of its creditors, or (B) a court of competent
jurisdiction enters an order or decree, and such order or decree remains
unstayed and in effect for 90 days, that is for relief against the Company or
any Subsidiary in an involuntary case, appoints a Custodian of the Company or
any Subsidiary or for all or substantially all of the Property of the Company or
any Subsidiary, or orders the liquidation of the Company or any Subsidiary; (vi)
if the Company by September 30, 1998 has not delivered to the Purchaser both of
the opinions of counsel contemplated by Section 11.14(c) of the Agreement; and
(vi) any of the Transactions Documents shall cease for any reason, to be in full
force and effect, in any material respect, except as a result of an amendment,
waiver or termination thereof as contemplated or permitted hereby, or the
Company shall so assert in writing.
12. No Recourse Against Others. No director, officer, employee,
--------------------------
incorporator or shareholder of the Company shall have any liability for any
obligation of the Company under the Agreement or the Senior Discount Notes or
for any claim based on, in respect of, or by reason of, any such obligation or
the creation of any such obligation. Each Holder by accepting a Senior Discount
Note waives and releases such Persons from all such liability, and such waiver
and release is part of the consideration for the Issuance of the Senior Discount
Notes.
13. Successor Substituted. Upon the merger, consolidation or other
---------------------
business combination involving the Company or upon the sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the Company's properties and assets, the Surviving Person (if other than the
Company) resulting from such Disposition shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under the Agreement
with the same effect as if such Surviving Person had been named as the Company
in the Agreement.
14. Governing Law. This Senior Discount Note shall be governed by and
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construed in accordance with the internal laws of the State of New York, without
regard to the conflict of laws provisions thereof.
15. CUSIP Numbers. The Company will use reasonable efforts to cause CUSIP
-------------
numbers to be printed on the Senior Discount Notes and to use CUSIP numbers in
notices of redemption as a convenience
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to Holders. No representation is made as to the accuracy of such numbers either
as printed on the Senior Discount Notes or as contained in any notice of
redemption and reliance may be placed only on the other identification numbers
printed on the securities.
16. Copies of Agreement. The Company will furnish to any Holder upon
-------------------
written request and without charge a copy of the Agreement, which has in it the
text of this Senior Discount Note. Requests may be made to: Silicon Gaming,
Inc., ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attn: President.
17. Certain Information Obligations. To the extent permitted by
-------------------------------
applicable law or regulation, whether or not the Company is subject to the
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file
with the Commission all quarterly and annual reports and such other information,
documents or other reports (or copies of such portions of any of the foregoing
as the Commission may by rules and regulations prescribe) required to be filed
pursuant to such provisions of the Exchange Act. At any time when the Company
is not permitted by applicable law or regulations to file the aforementioned
reports, the Company shall mail to the Holders, within five days after it would
have been required to file the same with the Commission, all information that
the Company would have had to provide to the Commission if the Company had been
subject to Section 13 or 15(d) of the Exchange Act. Also, at any time when the
Company is not permitted by applicable law or regulations to file the
aforementioned reports, upon the request of a Holder of a Senior Discount Note,
the Company will promptly furnish or cause to be furnished such information as
is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any
successor provision thereto) to such Holder or to a prospective purchaser of
such Senior Discount Note, as the case may be, in order to permit compliance by
such Holder with Rule 144A under the Securities Act.
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ASSIGNMENT FORM
To assign this Senior Discount Note, fill in the form below:
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s)
unto
________________________________________________________________________________
(Please insert social security or other identifying number of assignee)
at _____________________________________________________________________________
(Please print or typewrite name and address including postal zip code of
assignee)
________________________________________________________________________________
the within Senior Discount Note and all rights thereunder, hereby irrevocably
constituting and appointing ________________________________________ to transfer
said Senior Discount Note on the books of the Company. The agent may substitute
another to act for him.
Date:________________________
Your Signature:_______________________
(Sign exactly as your name appears on
the other side of this Senior Discount
Note)
Signature Guarantee: __________________________
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OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Senior Discount Note purchased by the Company
pursuant to Section 7.12 of the Agreement, check the box: [_]
If you elect to have this Senior Discount Note purchased by the Company
pursuant to Section 7.13 of the Agreement, check the box: [_]
If you elect to have this Senior Discount Note purchased by the Company
pursuant to Section 7.18 of the Agreement, check the box: [_]
If you elect to have only part of this Senior Discount Note purchased by
the Company pursuant to Section 7.12, 7.13 or 7.18 of the Agreement, state the
amount (multiples of $1,000 only):
$_________________________
Date ______________________ Your Signature: __________________________________
(Sign exactly as your name appears
on the other side of this Senior
Discount Note)
Signature Guarantee: _________________________