EXHIBIT 10.1
CONVERTIBLE LOAN AGREEMENT
DATED AS OF FEBRUARY 27, 2004
BY AND AMONG
DIGITAL LEARNING INSTITUTE, INC.
AS BORROWER
▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, INC.
TO BE RENAMED
DIGITAL LEARNING MANAGEMENT CORPORATION
AS GUARANTOR
AND
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
AND
RENAISSANCE US GROWTH INVESTMENT TRUST PLC
AND
BFSUS SPECIAL OPPORTUNITIES TRUST PLC
AS LENDER
AND
▇▇▇▇ CAPITAL GROUP, INC.
AS AGENT FOR THE LENDER
TABLE OF CONTENTS
Page
ARTICLE I. - DEFINITION OF TERMS..................................................................................1
SECTION 1.01 DEFINITIONS.................................................................................1
SECTION 1.02 OTHER DEFINITION PROVISIONS.................................................................7
ARTICLE II. - LOAN PROVISIONS.....................................................................................7
SECTION 2.01 THE LOAN....................................................................................7
SECTION 2.02 USE OF PROCEEDS.............................................................................8
SECTION 2.03 INTEREST RATE AND INTEREST PAYMENTS.........................................................8
SECTION 2.04 MATURITY....................................................................................8
SECTION 2.05 MANDATORY PRINCIPAL REPAYMENT...............................................................8
SECTION 2.06 REDEMPTION..................................................................................8
SECTION 2.07 CONVERSION..................................................................................9
SECTION 2.08 FEES AND EXPENSES...........................................................................9
SECTION 2.09 FINDER'S FEES...............................................................................9
SECTION 2.10 TAXES.......................................................................................9
SECTION 2.11 SECURITY AGREEMENT.........................................................................10
ARTICLE III. - CONDITIONS PRECEDENT..............................................................................10
SECTION 3.01 PRE-CLOSING CONDITIONS.....................................................................10
ARTICLE IV. - REPRESENTATIONS AND WARRANTIES OF BORROWER.........................................................11
SECTION 4.01 ORGANIZATION AND GOOD STANDING.............................................................12
SECTION 4.02 AUTHORIZATION AND POWER....................................................................12
SECTION 4.03 NO CONFLICTS OR CONSENTS...................................................................12
SECTION 4.04 ENFORCEABLE OBLIGATIONS....................................................................12
SECTION 4.05 NO LIENS...................................................................................12
SECTION 4.06 FINANCIAL CONDITION........................................................................12
SECTION 4.07 NO DEFAULT.................................................................................13
SECTION 4.08 MATERIAL AGREEMENTS........................................................................13
SECTION 4.09 NO LITIGATION..............................................................................14
SECTION 4.10 TAXES......................................................................................14
SECTION 4.11 CAPITALIZATION.............................................................................14
SECTION 4.12 USE OF PROCEEDS............................................................................15
SECTION 4.13 EMPLOYEE MATTERS...........................................................................15
SECTION 4.14 EMPLOYEE BENEFIT PLANS.....................................................................15
SECTION 4.15 COMPLIANCE WITH LAWS.......................................................................16
SECTION 4.16 LICENSES AND PERMITS.......................................................................16
SECTION 4.17 CONTRACTS..................................................................................16
SECTION 4.18 SHARES ISSUABLE UPON CONVERSION............................................................17
SECTION 4.19 INSIDER....................................................................................17
SECTION 4.20 SUBSIDIARIES...............................................................................17
SECTION 4.21 CASUALTIES.................................................................................17
SECTION 4.22 INVESTMENT COMPANY ACT.....................................................................17
SECTION 4.23 SUFFICIENCY OF CAPITAL.....................................................................18
SECTION 4.24 CORPORATE NAMES............................................................................18
SECTION 4.25 INSURANCE..................................................................................18
SECTION 4.26 INTELLECTUAL PROPERTY......................................................................18
SECTION 4.27 REAL PROPERTY..............................................................................18
Page
SECTION 4.28 ENVIRONMENTAL..............................................................................19
SECTION 4.29 INTERNAL ACCOUNTING CONTROLS...............................................................21
SECTION 4.30 TRANSACTIONS WITH AFFILIATES AND EMPLOYEES.................................................21
SECTION 4.31 MERGER.....................................................................................21
SECTION 4.32 "OFF-BALANCE SHEET ARRANGEMENTS."..........................................................21
SECTION 4.33 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.................................................22
SECTION 4.34 FULL DISCLOSURE............................................................................22
ARTICLE V. - AFFIRMATIVE COVENANTS OF BORROWER...................................................................22
SECTION 5.01 FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS................................................22
SECTION 5.02 ANNUAL FINANCIAL STATEMENTS................................................................23
SECTION 5.03 QUARTERLY FINANCIAL STATEMENTS.............................................................24
SECTION 5.04 MONTHLY FINANCIAL STATEMENTS...............................................................24
SECTION 5.05 PREPARATION OF BUDGETS.....................................................................24
SECTION 5.06 PAYMENT OF TAXES AND OTHER INDEBTEDNESS....................................................25
SECTION 5.07 MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS...................................25
SECTION 5.08 SEC FILINGS................................................................................25
SECTION 5.09 NOTICE.....................................................................................25
SECTION 5.10 COMPLIANCE WITH LOAN DOCUMENTS.............................................................25
SECTION 5.11 COMPLIANCE WITH MATERIAL AGREEMENTS........................................................26
SECTION 5.12 OPERATIONS AND PROPERTIES..................................................................26
SECTION 5.13 BOOKS AND RECORDS; ACCESS..................................................................26
SECTION 5.14 COMPLIANCE WITH LAW........................................................................26
SECTION 5.15 INSURANCE..................................................................................26
SECTION 5.16 AUTHORIZATIONS AND APPROVALS...............................................................26
SECTION 5.17 ERISA COMPLIANCE...........................................................................27
SECTION 5.18 FURTHER ASSURANCES.........................................................................27
SECTION 5.19 INDEMNITY BY BORROWER......................................................................27
SECTION 5.20 RESERVATION OF SHARES......................................................................28
SECTION 5.21 OWNERSHIP OF SUBSIDIARIES..................................................................28
SECTION 5.22 RETENTION OF STOCK OWNERSHIP...............................................................28
SECTION 5.23 SUBSEQUENTLY FORMED SUBSIDIARIES...........................................................28
ARTICLE VI. - NEGATIVE COVENANTS OF BORROWER.....................................................................29
SECTION 6.01 LIMITATION ON INDEBTEDNESS.................................................................29
SECTION 6.02 LIMITATION ON LIENS........................................................................29
SECTION 6.03 LIMITATION ON INVESTMENTS..................................................................29
SECTION 6.04 ALTERATION OF MATERIAL AGREEMENTS..........................................................29
SECTION 6.05 TRANSACTIONS WITH AFFILIATES...............................................................29
SECTION 6.06 LIMITATIONS ON ACQUISITION OF NONRELATED BUSINESS..........................................29
SECTION 6.07 LIMITATION ON SALE OF PROPERTIES...........................................................30
SECTION 6.08 FISCAL YEAR AND ACCOUNTING METHOD..........................................................30
SECTION 6.09 LIQUIDATION................................................................................30
SECTION 6.10 MATERIAL AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS.................................30
SECTION 6.11 EXECUTIVE COMPENSATION.....................................................................30
SECTION 6.12 RESTRICTED PAYMENTS........................................................................30
SECTION 6.13 CONSOLIDATION OR MERGER....................................................................31
ARTICLE VII. - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS...................................................31
SECTION 7.01 FINANCIAL RATIOS...........................................................................31
Page
ARTICLE VIII. - EVENTS OF DEFAULT................................................................................31
SECTION 8.01 EVENTS OF DEFAULT..........................................................................31
SECTION 8.02 REMEDIES UPON EVENT OF DEFAULT.............................................................32
SECTION 8.03 PERFORMANCE BY THE LENDER..................................................................33
SECTION 8.04 PAYMENT OF EXPENSES INCURRED BY THE LENDER.................................................33
ARTICLE IX. - REGISTRATION RIGHTS................................................................................33
SECTION 9.01 "PIGGY-BACK" REGISTRATION..................................................................33
SECTION 9.02 SHELF REGISTRATION.........................................................................35
SECTION 9.03 OBLIGATIONS OF THE COMPANY.................................................................35
SECTION 9.04 FURNISH INFORMATION........................................................................36
SECTION 9.05 EXPENSES OF REGISTRATION...................................................................36
SECTION 9.06 INDEMNIFICATION REGARDING REGISTRATION RIGHTS..............................................36
SECTION 9.07 REPORTS UNDER THE 1934 ACT.................................................................38
SECTION 9.08 ASSIGNMENT OF REGISTRATION RIGHTS..........................................................39
SECTION 9.09 OTHER MATTERS..............................................................................39
ARTICLE X. - BOARD OF DIRECTORS..................................................................................40
SECTION 10.01 BOARD REPRESENTATION OR ATTENDANCE BY OBSERVER.............................................40
SECTION 10.02 LIMITATION OF AUTHORITY OF PERSONS DESIGNATED AS A DIRECTOR NOMINEE........................40
SECTION 10.03 NONLIABILITY OF THE LENDER.................................................................40
ARTICLE XI. - AGENCY PROVISIONS..................................................................................40
SECTION 11.01 THE LENDER'S REPRESENTATIONS AND WARRANTIES TO AGENT.......................................40
SECTION 11.02 WAIVER OF LOAN PROVISIONS OR INTEREST OR PRINCIPAL PAYMENTS................................41
SECTION 11.03 AGENCY.....................................................................................41
ARTICLE XII. - MISCELLANEOUS.....................................................................................42
SECTION 12.01 STRICT COMPLIANCE..........................................................................42
SECTION 12.02 WAIVERS AND MODIFICATIONS..................................................................43
SECTION 12.03 LIMITATION ON LIABILITY....................................................................43
SECTION 12.04 CHOICE OF FORUM; CONSENT TO SERVICE OF PROCESS AND JURISDICTION............................43
SECTION 12.05 INVALID PROVISIONS.........................................................................43
SECTION 12.06 MAXIMUM INTEREST RATE......................................................................44
SECTION 12.07 PARTICIPATIONS AND ASSIGNMENTS OF THE DEBENTURES...........................................44
SECTION 12.08 CONFIDENTIALITY............................................................................45
SECTION 12.09 BINDING EFFECT.............................................................................45
SECTION 12.10 NO THIRD PARTY BENEFICIARY.................................................................45
SECTION 12.11 ENTIRETY...................................................................................45
SECTION 12.12 HEADINGS...................................................................................45
SECTION 12.13 SURVIVAL...................................................................................46
SECTION 12.14 MULTIPLE COUNTERPARTS......................................................................46
SECTION 12.15 KNOWLEDGE OF BORROWER......................................................................46
SECTION 12.16 NOTICES....................................................................................46
SECTION 12.17 GOVERNING LAW..............................................................................48
SCHEDULES TO CONVERTIBLE LOAN AGREEMENT..........................................................................51
THIS AGREEMENT, dated as of February 27, 2004, by and among
▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, INC., a Nevada corporation (the "Company"), DIGITAL LEARNING
INSTITUTE, INC., a Delaware corporation ("Borrower"), and RENAISSANCE CAPITAL
GROWTH & INCOME FUND, III, INC., a Texas corporation (individually referred to
as "Renaissance III") and RENAISSANCE US GROWTH INVESTMENT TRUST PLC, a public
limited company registered in England and Wales (individually referred to as
"RUSGIT") and BFSUS SPECIAL OPPORTUNITIES TRUST PLC, a public limited company
registered in England and Wales ("BFSUS") (Renaissance III, RUSGIT and BFSUS,
together with any permitted assignees or successors in interest, collectively
referred to as the "Lender") and ▇▇▇▇ CAPITAL GROUP, INC., a Texas corporation,
as agent for the Lender (the "Agent"). All references herein to Borrower shall
include the Subsidiaries, unless the context otherwise requires.
WITNESSETH:
WHEREAS, Borrower seeks to borrow a total of Three Million Dollars
($3,000,000) from the Lender; and
WHEREAS, Borrower has requested that the Lender provide such loan as
herein provided, and that the Lender is willing to furnish such to Borrower upon
the terms and subject to the conditions and for the considerations hereinafter
set forth;
NOW, THEREFORE, in consideration of the mutual promises herein contained
and for other valuable consideration, receipt and sufficiency of which is
acknowledged, the parties hereto agree as follows:
ARTICLE I. - DEFINITION OF TERMS
SECTION 1.01 DEFINITIONS.
For the purposes of this Agreement, the following terms shall have the
respective meanings assigned to them in this Article I or in the section or
recital referred to below:
"Affiliate" with respect to any Person shall mean a person that directly
or indirectly, through one or more intermediaries, controls or is controlled by,
or is under common control with, such Person.
"BFSUS" shall mean BFSUS Special Opportunities Trust PLC, a public limited
company registered in England and Wales.
"Capital Expenditure" shall mean an expenditure for assets that is
properly classifiable as a capital expenditure in accordance with GAAP.
"Capital Lease" shall mean any lease of property, real or personal, which
would be properly classifiable as a capital lease in accordance with GAAP.
"Cash Flow" for any period, shall mean the sum of (i) EBITDA and all other
non-cash charges which were deducted in determining net income for such period,
minus (ii) (a) scheduled repayments of the Loan to the extent actually paid
during the period, and (b) non-cash credits which were taken into account in
determining EBITDA for such period.
1
"Closing Fee" shall mean that amount equal to 1.0% of the principal amount
of the Loan.
"Closing Expense Fee" shall mean reasonable legal expenses (including
attorneys' fees) incurred by the Lender and ▇▇▇▇ in connection with the Loan,
including document preparation and other reasonable closing costs.
"Commitment Fee" shall mean that amount equal to 1.0% of the principal
amount of the Loan, which shall be deposited by Borrower in an escrow account
established at a bank designated by ▇▇▇▇ upon notification that ▇▇▇▇ intends to
present the investment proposal to the Boards of Directors of the Lender.
"Common Stock" shall mean the Company's common stock, par value $0.01 per
share.
"Consolidated Trailing Twelve Months Free Cash Flow" shall mean for any
Person, for the immediately preceding twelve-month period on such date, Net
Income of such Person for such twelve-month period, plus (a) all deferred income
tax expense of such Person and its Subsidiaries for such twelve-month period,
(b) all depreciation expense of such Person and its Subsidiaries for such
twelve-month period, and (c) all amortization expense of such Person and its
Subsidiaries for such twelve-month period, less capital expenditures of such
Person and its Subsidiaries for such twelve-month period.
"Conversion" or "Conversion Rights" shall mean exchange of, or the rights
to exchange, the Principal Amount of the Loan, or any part thereof, for fully
paid and nonassessable Common Stock on the terms and conditions provided in the
Debentures.
"Current Assets" shall mean, for any Person as of any date, the assets of
such Person and its consolidated Subsidiaries which would be reflected as
current assets on a consolidated balance sheet for such Person and its
Subsidiaries prepared as of such date in accordance with GAAP.
"Current Liabilities" shall mean, for any Person as of any date, the
liabilities of such Person and its consolidated Subsidiaries which would be
reflected as current liabilities on a consolidated balance sheet for such Person
and its subsidiaries prepared as of such date in accordance with GAAP. For
purposes of calculating compliance with any covenant contained in this Agreement
or any other Loan Document, the principal amount of Current Liabilities shall
include any balance under any revolving credit facility of the Borrower,
regardless of whether such revolving credit facility would be reflected as a
current liability in accordance with GAAP.
"Current Ratio" shall mean, for any Person as of any date, the ratio of
such Person's Current Assets to Current Liabilities as of such date.
"Debentures" shall mean the Debentures executed by Borrower and delivered
pursuant to the terms of this Agreement, together with any renewals, extensions
or modifications thereof.
"Debtor Laws" shall mean all applicable liquidation, conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization or
similar laws from time to time in effect affecting the rights of creditors or
debtors generally.
"Default" or "Event of Default" shall mean any of the events specified in
Article VIII.
2
"Dividends," in respect of any corporation, shall mean (i) cash
distributions or any other distributions on, or in respect of, any class of
capital stock of such corporation, except for distributions made solely in
shares of stock of the same class, and (ii) any and all funds, cash and other
payments made in respect of the redemption, repurchase or acquisition of such
stock, unless such stock shall be redeemed or acquired through the exchange of
such stock with stock of the same class.
"Due Diligence Fee" shall mean a non-refundable due diligence fee, in the
amount of Five Thousand Two Hundred Fifty Dollars ($5,250), previously paid by
Borrower to Lender.
"Earnings Before Interest and Taxes" shall mean for any period the sum of
(i) net income (or loss) of Borrower for such period (excluding extraordinary
gains and losses) plus (ii) all interest expense of Borrower for such period,
plus (iii) all charges against income of Borrower for such period for federal,
state and local taxes actually paid. For any period during fiscal 2004 only, net
income (or loss) of Borrower for such period shall also exclude non-cash charges
relating to the issuance of the Loan and warrants.
"EBITDA" shall mean for any period the sum of (i) Earnings Before Interest
and Taxes for such period plus (ii) depreciation expenses for such period, plus
(iii) amortization expenses for such period.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, together with all rules and regulations issued pursuant thereto.
"GAAP" shall mean United States generally accepted accounting principles
applied on a consistent basis, set forth in the Opinions of the Accounting
Principles Board of the American Institute of Certified Public Accountants or
the Financial Accounting Standards Board or their successors, which are
applicable in the circumstances as of the date in question. The requirement that
such principles be applied on a consistent basis shall mean that the accounting
principles observed in a current period are comparable in all material respects
to those applied in a preceding period.
"Governmental Authority" shall mean any government (or any political
subdivision or jurisdiction thereof), court, bureau, agency or other
governmental authority having jurisdiction over Borrower or a Subsidiary or any
of its or their businesses, operations or properties.
"Guaranty" of any Person shall mean any contract, agreement or
understanding of such Person pursuant to which such Person in effect guarantees
the payment of any Indebtedness of any other Person (the "Primary Obligor") in
any manner, whether directly or indirectly, including, without limitation,
agreements: (i) to purchase such Indebtedness or any property constituting
security therefor; (ii) to advance or supply funds primarily for the purpose of
assuring the holder of such Indebtedness of the ability of the Primary Obligor
to make payment; or (iii) otherwise to assure the holder of the Indebtedness of
the Primary Obligor against loss in respect thereof, except that "Guaranty"
shall not include the endorsement by Borrower or a Subsidiary in the ordinary
course of business of negotiable instruments or documents for deposit or
collection.
"Holder" shall mean the owner of Registrable Securities.
"Indebtedness" shall mean, with respect to any Person, without
duplication, the following indebtedness, obligations and liabilities of such
Person: (i) indebtedness for borrowed money; (ii) all obligations of such Person
in respect of any guaranty; (iii) all obligations of such Person in respect of
any Capital Lease, (iv) all obligations, indebtedness and liabilities secured by
any lien or any security interest on any property or assets of such Person, but
only to the extent so secured; and (v) all preferred stock of such Person which
is subject, at the time of calculation of Indebtedness, to a mandatory
redemption requirement, valued at the greater of its involuntary redemption
price or liquidation preference plus accrued and unpaid dividends, and all
extensions, renewals, modifications and amendments thereto.
3
"Interest Coverage Ratio" means for any period the ratio of (a) Borrower's
consolidated net income after taxes for such period (excluding Borrower's after
tax gains or losses on the sale of assets (other than the sale of Inventory in
the ordinary course of business) and excluding other after tax extraordinary
gains or losses), plus depreciation and amortization deducted in determining net
income for such period, plus interest expense for such period to (b) interest
expense for such period, all as determined on a consolidated basis in accordance
with GAAP. For any period during fiscal 2004 only, net income after taxes of
Borrower for such period shall also exclude non-cash charges relating to the
issuance of the Loan and warrants.
"Investment" in any Person shall mean any investment, whether by means of
share purchase, loan, advance, capital contribution or otherwise, in or to such
Person, the guaranty of any Indebtedness of such Person, or the subordination of
any claim against such Person to other Indebtedness of such Person; provided
however, that "Investment" shall not include (i) any demand deposits in a duly
chartered state or national bank or other cash equivalent investments, (ii) any
loans permitted by Section 6.12, or (iii) any acquisitions of equity in any
other Person.
"IRS Code" shall mean the Internal Revenue Code of 1986, as amended,
together with all rules and regulations issued thereunder.
"Lien" shall mean any lien, mortgage, security interest, tax lien, pledge,
encumbrance, conditional sale or title retention arrangement, or any other
interest in property designed to secure the repayment of Indebtedness, whether
arising by agreement or under any statute or law, or otherwise.
"Loan" shall mean the money lent to Borrower pursuant to this Agreement,
along with any accrued, unpaid interest thereon.
"Loan Closing" or "Loan Closing Date" shall mean the disbursement of Loan
funds, which shall occur within ten (10) days of the execution and delivery of
this Agreement.
"Loan Documents" shall mean this Agreement, the Debentures and any other
agreements or documents required to be executed or delivered by Borrower
pursuant to the terms of this Agreement (and any amendments or supplements
hereto or modifications hereof).
"Lock-Up Agreement" shall mean the "lock-up" agreements to be executed by
certain executive officers and principal shareholders of Borrower pursuant to
Section 5.19 of this Agreement.
"Material Adverse Effect" or "Material Adverse Change" shall mean (i) any
change, factor or event that shall (a) have a material adverse effect upon the
validity or enforceability of any Loan Documents, (b) have a material adverse
effect upon the financial condition, results of operations, business,
properties, operations or assets of Borrower or its Subsidiaries, or (c) have a
material adverse effect upon the ability of Borrower to fulfill its obligations
under the Loan Documents, or (ii) any event that causes an Event of Default or
which, with notice or lapse of time or both, could reasonably be expected to
become an Event of Default.
"Net Income" shall mean, for any Person for any period, net income of such
Person and its consolidated Subsidiaries for such period which would be
reflected in accordance with GAAP.
4
"Obligation" shall mean: (i) all present and future Indebtedness,
obligations and liabilities of Borrower to the Lender arising pursuant to this
Agreement, regardless of whether such Indebtedness, obligations and liabilities
are direct, indirect, fixed, contingent, joint, several, or joint and several;
(ii) all present and future Indebtedness, obligations and liabilities of
Borrower to the Lender arising pursuant to or represented by the Debentures and
all interest accruing thereon, and reasonable attorneys' fees incurred in the
enforcement or collection thereof; (iii) all present and future Indebtedness,
obligations and liabilities of Borrower and any Subsidiary evidenced by or
arising pursuant to any of the Loan Documents; (iv) all costs incurred by the
Lender or Agent including, but not limited to, reasonable attorneys' fees and
legal expenses related to this transaction; and (v) all renewals, extensions and
modifications of the indebtedness referred to in the foregoing clauses, or any
part thereof.
"Permits" shall have the meaning set forth in Section 4.16.
"Permitted Indebtedness" shall mean Indebtedness outstanding as of the
date hereof or incurred in compliance with Section 6.01 and the other terms of
this Agreement that constitutes (i) Senior Obligations, (ii) obligations under
Capital Leases, (iii) letters of credit, (iv) debt associated with Permitted
Liens, (v) Subordinated Debt, (vi) purchase money Indebtedness, (vi)
intercompany Indebtedness, (viii) Indebtedness under this Agreement or the
Debentures, and (ix) any refunding, refinancing or extension of any of the
above.
"Permitted Liens" shall mean: (i) Liens (if any) granted for the benefit
of the Lender; (ii) Liens to secure the Permitted Indebtedness; (iii) pledges or
deposits made to secure payment of worker's compensation insurance (or to
participate in any fund in connection with worker's compensation insurance),
unemployment insurance, pensions or social security programs; (iv) Liens imposed
by mandatory provisions of law such as for carriers', landlord's, materialmen's,
mechanics', warehousemen's, vendors' and other like Liens arising in the
ordinary course of business, securing Indebtedness whose payment is made within
30 days of the date such Lien arises, or that are being contested in good faith
by appropriate proceedings as to which adequate reserves have been established
to the extent required by GAAP; (v) Liens for taxes, assessments and
governmental charges or levies imposed upon a Person or upon such Person's
income or profits or property, if the same are not yet due and payable or if the
same are being contested in good faith and as to which adequate cash reserves
have been provided or if an extension is obtained with respect thereto; (vi)
Liens arising from good faith deposits in connection with tenders, leases, bids
or contracts (other than contracts involving the borrowing of money), pledges or
deposits to secure public or statutory obligations and deposits to secure (or in
lieu of) surety, stay, appeal or customs bonds and deposits to secure the
payment of taxes, assessments, customs duties or other similar charges; (vii)
encumbrances consisting of zoning restrictions, easements, reservations,
licenses, covenants and other minor irregularities of title or other
restrictions on the use of real property (whether owned or leased), provided
that such items do not materially impair the intended use of such property, and
none of which is violated by Borrower's existing structures or land use; (viii)
mortgages, financing statements, equipment leases or other encumbrances incurred
in connection with the acquisition of property or equipment or the replacement
of existing property or equipment, provided that such liens shall be limited to
the property or equipment then being acquired; (ix) Liens which secure Senior
Obligations approved by Lender; and (x) Liens listed in Schedule 4.05.
"Person" shall include an individual, a corporation, a joint venture, a
general or limited partnership, a trust, an unincorporated organization or a
government or any agency or political subdivision thereof.
"Plan" shall mean an employee benefit plan or other plan maintained by
Borrower for employees of Borrower and/or any Subsidiaries and covered by Title
IV of ERISA, or subject to the minimum funding standards under Section 412 of
the IRS Code.
"Principal Amount" shall mean, as of any time, the then aggregate
outstanding face amount of the Debentures after any conversions or redemptions
and after giving effect to any installment payments received by the Lender.
5
"Registrable Securities" shall mean (a) the Common Stock issuable upon
Conversion of the Debentures and (b) any shares of Common Stock issued or
issuable upon the exercise of any warrant, right or other security that is
issued with respect to the Common Stock, by way of (i) a stock dividend; (ii)
any other distribution with respect to, or in exchange for, or in replacement of
Common Stock; (iii) a stock split; and (iv) in connection with a combination of
shares, recapitalization, merger or consolidation excluding in all cases,
however, any Common Stock that is not a Restricted Security and any Registrable
Securities sold or transferred by a Person in a transaction in which the rights
under this Agreement are not assigned.
"Registrable Securities Then Outstanding" shall mean the Registrable
Securities then outstanding.
"Renaissance III" shall mean Renaissance Growth & Income Fund III, Inc., a
Texas corporation.
"▇▇▇▇ Group" shall mean ▇▇▇▇ Capital Group, Inc., a Texas corporation.
"Restricted Security" shall mean a security that has not been (i)
registered under the 1933 Act or (ii) distributed to the public pursuant to Rule
144 (or any similar provisions that are in force) under the 1933 Act.
"RUSGIT" shall mean Renaissance US Growth Investment Trust PLC, a public
limited company registered in England and Wales.
"SEC" shall mean the Securities and Exchange Commission, or any other
federal agency at the time administering the 1933 Act and the 1934 Act.
"1933 Act" shall refer to the Securities Act of 1933, as amended, or any
similar federal statute and rules and regulations promulgated thereunder, all as
the same may be in effect from time to time.
"1934 Act" shall refer to the Securities Exchange Act of 1934, as amended,
or any similar federal statute and rules and regulations promulgated thereunder,
all as the same may be in effect from time to time.
"1940 Act" shall refer to the Investment Company Act of 1940, as amended,
or any similar federal statute and rules and regulations promulgated thereunder,
all as the same may be in effect from time to time.
"Senior Documents" shall mean all loan documents evidencing the Senior
Obligations, as each may now or hereafter be amended, modified, supplemented,
renewed or extended from time to time.
"Senior Obligations" shall mean one or more senior debt facilities
(including loans and other extensions of credit under the Senior Documents) with
banks or other institutional lenders providing for revolving credit loans, term
loans, asset-based secured loans, capital expenditure loans, or letters of
credit, or any other indebtedness senior to the Loan, as now existing or
hereafter incurred, and, in each case, as amended, restated, modified, renewed
or extended from time to time.
"Solvent" shall mean, with respect to any Person on a particular date,
that on such date: (i) the fair value of the assets of such Person is greater
than the total amount of liabilities of such Person; (ii) the estimated present
fair salable value, in the ordinary course of business, of the assets of such
Person is not less than the amount that will be required to pay the probable
liability of such Person on its debts as they become absolute and matured; (iii)
such Person is able to realize upon its assets and pay its debts and other
liabilities, contingent obligations and other commitments as they mature in the
normal course of business; (iv) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities mature; and (v) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's assets would constitute unreasonably small
capital after giving due consideration to the prevailing practice in the
industry in which such Person is engaged. In computing the amount of contingent
liabilities at any time, it is intended that such liabilities will be computed
at the amount which, in light of all the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability.
6
"Subordinated Debt" shall mean any unsecured indebtedness of Borrower or
any Subsidiaries, now existing or hereafter incurred, which indebtedness is, by
its terms, junior in right of repayment to the payment of the Debentures.
"Subsidiary" or "Subsidiaries" shall mean any or all corporations or
entities, whether now existing or hereafter acquired, of which over 50% the
Voting Shares or equity interests are owned, directly or indirectly, by
Borrower.
"Voting Shares" of any corporation shall mean shares of any class or
classes (however designated) having ordinary voting power for the election of at
least a majority of the members of the Board of Directors (or other governing
bodies) of such corporation, other than shares having such power only by reason
of the happening of a contingency.
SECTION 1.02 OTHER DEFINITION PROVISIONS.
(a) All terms defined in this Agreement shall have the above-defined
meanings when used in the Debentures or any other Loan Documents, certificate,
report or other document made or delivered pursuant to this Agreement, unless
the context therein shall otherwise require.
(b) Defined terms used herein in the singular shall import the plural and
vice versa.
(c) The words "hereof," "herein," "hereunder" and similar terms, when used
in this Agreement, shall refer to this Agreement as a whole and not to any
particular provision of this Agreement.
(d) References to financial statements and reports shall be deemed to be a
reference to such statements and reports prepared in accordance with GAAP.
(e) Accounting terms not specifically defined above in this Agreement
shall be construed in accordance with GAAP.
ARTICLE II. - LOAN PROVISIONS
SECTION 2.01 THE LOAN.
Subject to the terms and conditions of this Agreement, and the compliance
with such terms and conditions by all parties, Lender agrees to lend to
Borrower, and Borrower agrees to borrow from the Lender, the total Principal
Amount of up to Three Million Dollars ($3,000,000) as follows:
7
ENTITY AMOUNT
Renaissance Capital Growth & Income Fund III, Inc. $1,000,000
Renaissance US Growth Investment Trust PLC $1,000,000
BFSUS Special Opportunities Trust PLC $1,000,000
(b) The Loan shall be disbursed at Loan Closing, subject to the conditions
provided hereunder, and shall be evidenced by the Debentures, in the Principal
Amount specified above. The Debentures shall be senior in right of payment to
all Indebtedness of the Company, other than Senior Obligations approved by the
Lender.
(c) Unless otherwise mutually agreed, the Loan Closing shall be at the
offices of ▇▇▇▇ Group, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇.
SECTION 2.02 USE OF PROCEEDS.
(a) Borrower intends to use the Loan proceeds for working capital.
(b) Borrower hereby acknowledges that the proceeds from the Loan shall be
of benefit to Borrower for the growth of its business by providing capital,
which will provide additional opportunities for Borrower.
SECTION 2.03 INTEREST RATE AND INTEREST PAYMENTS.
Interest on the Principal Amount outstanding from time to time shall
accrue at the rate of 7.00% per annum, with the first installment of accrued,
unpaid interest being due and payable on April 1, 2004 and subsequent payments
of accrued, unpaid interest being due and payable on the first day of each month
thereafter. Overdue principal and interest on the Debentures shall bear interest
at the maximum rate permitted by applicable law. Interest on the Principal
Amount of the Debentures shall be calculated, from time to time, on the basis of
the actual days elapsed in a year consisting of 365 days.
SECTION 2.04 MATURITY.
If not sooner redeemed or converted, the Debentures shall mature on
February 27, 2011, at which time all the remaining unpaid principal, interest
and any other charges then due under this Agreement shall be due and payable in
full. The Debentures shall be prepaid pro rata with any prepayments of
Indebtedness, other than Senior Obligations.
SECTION 2.05 MANDATORY PRINCIPAL REPAYMENT.
The Debentures shall be subject to mandatory principal repayment as
provided in the Debentures.
SECTION 2.06 REDEMPTION.
The Debentures shall be subject to redemption as provided in the
Debentures.
8
SECTION 2.07 CONVERSION.
The Debentures shall be subject to conversion as provided in the
Debentures.
SECTION 2.08 FEES AND EXPENSES.
Upon Loan Closing, Borrower shall pay at Loan Closing to Agent, or at its
direction, the Closing Fee and Closing Expense Fee and shall have previously
paid the Commitment Fee and Due Diligence Fee, all as set forth in the
preliminary terms letter between the Borrower and ▇▇▇▇ Group.
SECTION 2.09 FINDER'S FEES.
Borrower represents to the Lender that, except as set forth in Schedule
2.09, no placement fees, commissions, brokerage or finder's fees were incurred
by Borrower in connection with this Agreement or the Debentures. Borrower shall
be responsible for the payment of all such placement fees, commissions,
brokerage or finder's fees.
SECTION 2.10 TAXES.
(a) The Debentures shall be convertible into shares of Common Stock and on
such terms as are stated in the Debentures. Such conversion shall be made
without deduction for any present or future taxes, duties, charges or
withholdings, (excluding, in the case of the Lender, any foreign taxes, any
federal, state or local income taxes and any franchise taxes or taxes imposed
upon it by the jurisdiction, or any political subdivision thereof, under which
the Lender is organized or are qualified to do business), and all liabilities
with respect thereto (herein "Taxes") shall be paid by Borrower. If Borrower
shall be required by law to deduct any Taxes for which Borrower is responsible
under the preceding sentence from any sum payable hereunder to the Lender: (i)
the sum payable shall be increased so that after making all required deductions,
the Lender shall receive an amount equal to the sum it would have received had
no such deductions been made; (ii) Borrower shall make such deductions; and
(iii) Borrower shall pay the full amount deducted to the relevant taxing
authority or other authority in accordance with applicable law. Borrower shall
be entitled to any refunds or returns from any such taxing authority.
(b) Except as otherwise set forth in this Agreement or the other Loan
Documents, Borrower shall pay any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies which arise
from any payment made hereunder or under the Loan Documents or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or the other Loan Documents (hereinafter referred to as "Other
Taxes").
(c) Borrower shall indemnify the Lender for the full amount of Taxes and
Other Taxes reasonably paid by the Lender or any liability (including any
penalties or interest assessed because of Borrower's defaults) arising therefrom
or with respect thereto, whether or not such Taxes or Other Taxes were correctly
or legally asserted. This indemnification shall be made within thirty (30) days
from the date the Lender makes written demand therefor. The Lender shall
subrogate any and all rights and claims relating to such Taxes and Other Taxes
to Borrower upon payment of said indemnification.
(d) Without prejudice to the survival of any other agreement of Borrower
hereunder, the agreements and obligations of Borrower in this Section 2.09 shall
survive the payment in full of the Obligation.
(e) Borrower shall have no liability or obligation with respect to taxes
on income recognized by the Lender with respect to the Debentures.
9
SECTION 2.11 SECURITY AGREEMENT.
The due and prompt performance of the obligations of Borrower to the
Lender under the Loan Agreement and the Debentures shall be secured by all
tangible and intangible assets of Borrower and shall be evidenced by a Security
Agreement executed among the Lender and the Agent of the Borrower. A financing
statement shall be executed in favor of the Lender and Agent by Borrower.
ARTICLE III. - CONDITIONS PRECEDENT
SECTION 3.01 PRE-CLOSING CONDITIONS.
The obligation of the Lender to advance funds at the Loan Closing Date
hereof is subject to the condition precedent that, on or before the date of such
advance, the Lender shall have received the following:
(f) Loan Agreement. Duly executed Loan Agreement from Borrower and the
Company, which shall be in form and substance satisfactory to Lender and its
counsel.
(g) Debentures. Three duly executed Debentures from Borrower evidencing
the Loan, all of which shall be in form and substance acceptable to the Lender
and its counsel.
(h) Security Agreements. Duly executed Security Agreements from Borrower
and the Company, which shall be in form and substance acceptable to the Lender
and its counsel.
(i) Guaranty Agreement. Duly executed Guaranty Agreement from the Company,
which shall be in form and substance acceptable to the Lender and its counsel.
(j) CEO's Certificate. A certificate signed by the chief executive officer
of Borrower, in his capacity as such, and dated as of the Loan Closing Date
stating that, to the best knowledge and belief of such officer, after reasonable
and due investigation and review of matters pertinent to the subject matter of
such certificate: (i) all of the representations and warranties contained in
Article IV hereof and the other Loan Documents are true and correct in all
material respects as of the Loan Closing Date; and (ii) no event has occurred
and is continuing, or would result from the Loan, which constitutes, or with
notice or lapse of time or both would constitute, a Default or an Event of
Default.
(k) Secretary's Certificates. A signed certificate of the Secretary of
Borrower which shall certify (i) copies of the Articles of Incorporation (or
other organizational document) of Borrower and all amendments thereto, certified
by the Secretary of State of the state of incorporation (or other appropriate
authority) and dated within ten (10) days prior to Loan Closing, (ii) a copy of
the Bylaws of Borrower and all amendments thereto certified by the Secretary of
Borrower as of the date of such certification; (iii) copies of resolutions, as
adopted by Borrower's Board of Directors, approving the execution, delivery and
performance, as applicable, of this Agreement, the Debentures, the Security
Agreements, the Guaranty and the other Loan Documents, including the
transactions contemplated herein, stating that such resolutions have been duly
adopted, are true and correct, have not been altered or repealed and are in full
force and effect; (iv) certificates of good standing (or other similar
instrument) for Borrower issued by the appropriate official of the state of
incorporation of Borrower and certificates of qualification and good standing
for Borrower issued by the appropriate official of each of the states for which
Borrower is required to be qualified to do business as a foreign corporation,
dated within ten (10) days prior to Loan Closing; and (v) the names of the
officers of Borrower authorized to sign the Loan Documents to be executed by
such officer, together with the true signatures of each such officer. It is
herewith stipulated and agreed that the Lender may thereafter rely conclusively
on the validity of this certificate as a representation of the officers of
Borrower duly authorized to act with respect to the Loan Documents until such
time as the Lender shall receive a further certificate of the Secretary or
Assistant Secretary of Borrower canceling or amending the prior certificate and
submitting the signatures of the officers thereupon authorized in such further
certificate.
10
(l) Legal Opinions. A legal opinion from counsel to Borrower in form and
substance satisfactory to Lender and its counsel.
(m) "Lock-Up" Agreements. "Lock-Up" Agreements, in form and substance
satisfactory to the Lender and its counsel.
(n) No Litigation.
(i) No litigation, investigation or proceeding before or by any
arbitrator or Governmental Body shall be continuing or threatened against
Borrower or against the officers or directors of Borrower (A) in connection with
this Agreement, the Other Documents or any of the transactions contemplated
thereby and which, in the reasonable opinion of Agent, is deemed material or (B)
which could, in the reasonable opinion of Agent, have a Material Adverse Effect;
and
(ii) no injunction, writ, restraining order or other order of any
nature materially adverse to Borrower or the conduct of its business or
inconsistent with the due consummation of the Transactions shall have been
issued by any Governmental Body.
(o) Fees. Agent shall have received payment of the Commitment Fee, Closing
Fee, Closing Expense Fee, Due Diligence Fee and any other fees payable to Agent
and Lenders on or prior to the Closing Date hereunder.
(p) Consents. Agent shall have received any and all Consents necessary to
permit the effectuation of the transactions contemplated by this Agreement and
the Other Documents; and, Agent shall have received such Consents and waivers of
such third parties as might assert claims with respect to the Collateral, as
Agent and its counsel shall reasonably deem necessary.
(q) No Adverse Material Change. Since December 31, 2003, there shall not
have occurred any event, condition or state of facts at Borrower which could
reasonably be expected to have a Material Adverse Effect and, taken as a whole,
no representations made or information supplied to Agent or Lenders shall have
been proven to be inaccurate or misleading in any material respect.
(r) Other Conditions Precedent. Disbursement shall only be made after
Agent completes due diligence in a manner satisfactory to it, obtains the
approval of each Independent Board of Directors for every Investment Fund
comprising the Lender and receives confirmation that the Borrower has become
eligible for public trading of its stock.
ARTICLE IV. - REPRESENTATIONS AND WARRANTIES OF BORROWER
All references in this Article to Borrower shall include the Company and
any Subsidiaries, unless the context otherwise requires. To induce the Lender to
make the Loan hereunder, Borrower, including the Company and any Subsidiaries,
jointly and severally, represents and warrants to the Lender that:
11
SECTION 4.01 ORGANIZATION AND GOOD STANDING.
Borrower is duly organized and existing in good standing under the laws of
the state of its incorporation, is duly qualified as a foreign corporation and
in good standing in all states in which failure to qualify would have a Material
Adverse Effect, and has the corporate power and authority to own its properties
and assets and to transact the business in which it is engaged and is or will be
qualified in those states wherein it proposes to transact material business
operations in the future if the failure to so qualify would have a Material
Adverse Effect.
SECTION 4.02 AUTHORIZATION AND POWER.
Borrower has the corporate power and requisite authority to execute,
deliver and perform the Loan Documents to be executed by Borrower. Borrower is
duly authorized to, and has taken all corporate action necessary to authorize,
execute, deliver and perform the Loan Documents executed by Borrower. Borrower
is and will continue to be duly authorized to perform the Loan Documents
executed by Borrower.
SECTION 4.03 NO CONFLICTS OR CONSENTS.
Except as disclosed on Schedule 4.03, neither the execution and delivery
of the Loan Documents, nor the consummation of any of the transactions therein
contemplated, nor compliance with the terms and provisions thereof, will
contravene or materially conflict with any judgment, license, order or permit
applicable to Borrower, or any indenture, loan agreement, mortgage, deed of
trust, or other agreement or instrument to which Borrower is a party or by which
Borrower is or may become bound, or to which Borrower is or may become subject,
or violate any provision of the charter or bylaws of Borrower or trigger any
preemptive rights or rights of first refusal of any third party. No consent,
approval, authorization or order of any court or governmental authority or third
party is required in connection with the execution and delivery by Borrower of
the Loan Documents or to consummate the transactions contemplated hereby or
thereby except those that have been obtained.
SECTION 4.04 ENFORCEABLE OBLIGATIONS.
The Loan Documents have been duly executed and delivered by Borrower and
are the legal, valid and binding obligations of Borrower, enforceable in
accordance with their respective terms.
SECTION 4.05 NO LIENS.
Except for Permitted Liens, all of the properties and assets owned or
leased by Borrower are free and clear of all Liens and other adverse claims of
any nature, and Borrower has good and marketable title to such properties and
assets. A true and complete list of all known or recorded liens for borrowed
money is disclosed on Schedule 4.05.
SECTION 4.06 FINANCIAL CONDITION.
(a) Borrower has delivered to the Lender the balance sheet of Borrower as
of December 31, 2002, and the related statement of income, stockholders' equity
and statement of cash flow for the year then ended, audited by its independent
certified public accountant. Borrower has also delivered to the Lender the
unaudited balance sheet of Borrower as of September 30, 2003 and the related
unaudited statement of income, stockholders' equity and statement of cash flow
for the nine (9) months then ended. Such financial statements fairly present the
financial condition of Borrower as of such dates and have been prepared in
accordance with GAAP; and as of the date hereof, there are no obligations,
liabilities or Indebtedness (including contingent and indirect liabilities and
obligations) of Borrower which are (separately or in the aggregate) material and
are not reflected in such financial statements or otherwise disclosed herein or
in the Schedules. Except as set forth in Schedule 4.06(a), there are no Senior
Obligations. Since the date of the above-referenced year-end financial
statements, there have not been, except as disclosed in Schedule 4.06(a): (i)
any Material Adverse Change; (ii) any Dividend declared or paid or distribution
made on the capital stock of Borrower or any capital stock thereof redeemed or
repurchased; (iii) any incurrence of any Senior Obligations or any other
long-term debt by Borrower; (iv) any salary, bonus or compensation increases to
any officers, key employees or agents of Borrower, other than in the ordinary
course of business and consistent with past practice; or (v) any other material
transaction entered into by Borrower, except in the ordinary course of business
and consistent with past practice.
12
(b) The Company has delivered to the Lender the balance sheet of the
Company as of December 31, 2002, and the related statement of income,
stockholders' equity and statement of cash flow for the year then ended, audited
by its independent certified public accountant. The Company has also delivered
to the Lender the unaudited balance sheet of the Company as of September 30,
2003 and the related unaudited statement of income, stockholders' equity and
statement of cash flow for the nine (9) months then ended. Such financial
statements fairly present the financial condition of the Company as of such
dates and have been prepared in accordance with GAAP; and as of the date hereof,
there are no obligations, liabilities or Indebtedness (including contingent and
indirect liabilities and obligations) of the Company which are (separately or in
the aggregate) material and are not reflected in such financial statements or
otherwise disclosed herein or in the Schedules. Except as set forth in Schedule
4.06(b), there are no Senior Obligations. Since the date of the above-referenced
year-end financial statements, there have not been, except as disclosed in
Schedule 4.06(b): (i) any Material Adverse Change; (ii) any Dividend declared or
paid or distribution made on the capital stock of the Company or any capital
stock thereof redeemed or repurchased; (iii) any incurrence of any Senior
Obligations or any other long-term debt by the Company; (iv) any salary, bonus
or compensation increases to any officers, key employees or agents of the
Company, other than in the ordinary course of business and consistent with past
practice; or (v) any other material transaction entered into by the Company,
except in the ordinary course of business and consistent with past practice.
SECTION 4.07 NO DEFAULT.
No event has occurred and is continuing, which constitutes, or, with
notice or lapse of time or both, would constitute, a Default or an Event of
Default under this Agreement.
SECTION 4.08 MATERIAL AGREEMENTS.
Neither Borrower nor any Subsidiary nor any other party is in default, and
no event has occurred and is continuing which, with notice or lapse of time or
both, would constitute a default, under any contract, lease, loan agreement,
indenture, mortgage, security agreement, license agreement or other agreement or
obligation to which it is a party or by which any of its properties is subject
which could reasonably be expected to have a Material Adverse Effect, except as
described on Schedule 4.08. Borrower is not a party to, or bound by, any
contract or agreement, the faithful performance of which is so onerous so as to
create, or to likely create, a Material Adverse Effect on the business,
operations or financial condition of Borrower.
13
SECTION 4.09 NO LITIGATION.
Except as disclosed on Schedule 4.09, there are no actions, suits,
investigations, arbitrations or administrative proceedings pending or, to the
knowledge of Borrower, threatened against Borrower, and there has been no change
in the status of any of the actions, suits, investigations, litigation or
proceedings disclosed to the Lender which could reasonably be expected to have a
Material Adverse Effect on Borrower or on any transactions contemplated by any
Loan Document. Borrower has not received any claim that Borrower currently
violates any federal, state or local law, ordinance, rule or regulation, which
could have an adverse effect on its business and no such claim is or has been
threatened; and, except as disclosed on Schedule 4.09, there have been no
developments adverse to Borrower with respect to any pending or threatened
claim, action or proceeding of an administrative or judicial nature.
SECTION 4.10 TAXES.
All tax returns required to be filed by Borrower in any jurisdiction have
been filed and all taxes (including mortgage recording taxes), assessments, fees
and other governmental charges upon Borrower or upon any of its properties,
income or franchises now due have been paid, in each case, except where the same
are being contested in good faith by appropriate proceedings, as disclosed on
Schedule 4.10.
Except as disclosed on Schedule 4.10, Borrower has not received any notice
of deficiency or other adjustment from any taxing authority that is unresolved
as of the Loan Closing. No audit or examination, claim or proposed assessment by
any taxing authority is pending or threatened against Borrower or any of its
properties. All ad valorem and other property taxes imposed on Borrower, or that
may become a lien on Borrower's assets and that are due and payable, have been
paid in full. Borrower has withheld or collected from each payment made to each
of its U.S. employees the amount of all taxes (including federal income taxes,
Federal Insurance Contributions Act ("FICA") taxes, and state and local income,
payroll, and wage taxes, among others) required to be withheld or collected.
SECTION 4.11 CAPITALIZATION.
(a) The authorized capital stock of Borrower consists of no shares of
Preferred Stock and 75,000 shares of Common Stock, no par value per share, of
which 1,000 shares of Common Stock are issued and outstanding as of the date
hereof. All of such outstanding shares have been duly authorized and validly
issued, are fully paid and nonassessable, and were not issued in violation of
the preemptive rights or rights of first refusal of any person. Schedule 4.11(a)
sets forth all stock options, warrants, conversion rights, subscription rights,
preemptive rights, rights of first refusal and other rights or agreements to
acquire securities of Borrower and any shares held in treasury or reserved for
issuance upon exercise of such stock options, warrants or conversion rights,
subscription rights and other rights or agreements to acquire securities,
including the date of termination of such rights and the consideration therefor.
(b) The authorized capital stock of the Company consists of 5,000,000
shares of Preferred Stock, of which none are issued or outstanding as of the
date hereof, and 20,000,000 shares of Common Stock, $.001 par value per share,
of which 2,478,891 shares of Common Stock are issued and outstanding as of the
date hereof. All of such outstanding shares have been duly authorized and
validly issued, are fully paid and non-assessable, and were not issued in
violation of the preemptive rights or rights of first refusal of any person.
Schedule 4.11(b) sets forth all stock options, warrants, conversion rights,
subscription rights, preemptive rights, rights of first refusal and other rights
or agreements to acquire securities of the Company and any shares held in
treasury or reserved for issuance upon exercise of such stock options, warrants
or conversion rights, subscription rights and other rights or agreements to
acquire securities, including the date of termination of such rights and the
consideration therefor. As of the Loan Closing Date, the Company does not have a
class of securities with respect to which a member of a national securities
exchange, broker or dealer may extend or maintain credit to or for a customer
pursuant to rules or regulations adopted by the Board of Governors of the
Federal Reserve System under Section 7 of the 1934 Act. Schedule 4.11(b) sets
forth all stock options, warrants, conversion rights, subscription rights,
preemptive rights, rights of first refusal and other rights or agreements to
acquire securities of Borrower and any shares held in treasury or reserved for
issuance upon exercise of such stock options, warrants or conversion rights,
subscription rights and other rights or agreements to acquire securities,
including the date of termination of such rights and the consideration therefor.
14
SECTION 4.12 USE OF PROCEEDS.
Borrower intends to use proceeds from the Loan as disclosed in Section
2.02 hereof.
SECTION 4.13 EMPLOYEE MATTERS.
(a) Except as set forth on Schedule 4.13, Borrower is not a party to any
collective bargaining agreement and is not aware of any activities of any labor
union that is currently seeking to represent or organize its employees;
(b) Borrower is in compliance with all federal, state and municipal laws
respecting employment and employment practices, occupational health and safety,
and wages and hours, and is not engaged in any unfair labor practice, and there
are no arrears in the payment of wages or social security taxes, except in those
instances in which failure to comply would not have a Material Adverse Effect;
(c) there is no unfair labor practice complaint against Borrower pending
before the National Labor Relations Board or any state or local agency;
(d) there is no pending labor strike or other material labor trouble
affecting Borrower (including, without limitation, any organizational drive);
(e) there is no material labor grievance pending against Borrower;
(f) there is no pending representation question respecting the employees
of Borrower before any local, state or federal agency;
(g) except as set forth on Schedule 4.13, there are no pending proceedings
arising out of or under any collective bargaining agreement to which Borrower is
a party, or any basis for which a claim may be made under any collective
bargaining agreement to which Borrower is a party; and
(h) there are no pending proceedings arising out of any employment
discrimination claim or any basis for which any such claim may be made.
SECTION 4.14 EMPLOYEE BENEFIT PLANS.
Schedule 4.14 lists (i) any "employee benefit plans" as described in the
Employee Retirement Income Security Act of 1974, as amended, and the rules and
regulations promulgated thereunder ("ERISA") (other than a defined contribution
pension plan not requiring any contribution by Borrower, paid time-off policy or
vacation/holiday/sick leave policy, and employee group life and health plans
that are fully funded through commercial insurance); and (ii) any defined
benefit "employee pension benefit plans" (as defined in ERISA). Neither Borrower
nor any other person has engaged in a transaction with respect to any employee
benefit plan listed or required to be listed on Schedule 4.14 which could
subject any such plan, Borrower or the Lender to a penalty under ERISA or a tax
under the Internal Revenue Code of 1986, as amended (the "Code"), except for
those transactions which could not reasonably be expected to have a Material
Adverse Effect. Each of the employee benefit plans listed, or required to be
listed, on Schedule 4.14 has been operated and administered in accordance with
applicable law, including without limitation ERISA, except for any such failure
which would not subject Borrower or the Lender to any penalty or other liability
and except for any such failure which would not have an adverse effect upon the
applicable plan or any participant therein. Borrower has not incurred, nor
presently expects to incur, any liability under Title IV of ERISA that could
result in liability to the Lenders or Borrower. Each employee benefit plan
listed or required to be listed on Schedule 4.14 that is a group health plan
within the meaning of Section 5000(b)(1) of the Code, is in compliance with the
provisions of Section 4980B(f) of the Code, except for any such non-compliance
which would not subject Borrower or the Lender to any penalty or liability and
except for any such failure which would not have an adverse effect upon the
applicable plan or any participant therein. There is not any pending or
threatened claim by or on behalf of any employee benefit plan, by any employee
covered under any such plan or otherwise involving any employee benefit plan
(other than routine non-contested claims for benefits).
15
SECTION 4.15 COMPLIANCE WITH LAWS.
Each of Borrower and the Subsidiaries has all requisite licenses, permits
and certificates including without limitation, drug, environmental and health
and safety permits from federal, state and local authorities necessary to
conduct its business and own and operate its assets (collectively, the
"Permits"). Except as set forth on Schedule 4.15, neither Borrower nor any
Subsidiary is in violation of any law, regulation or ordinance relating to its
business, operations and properties which, individually or in the aggregate,
could have a Material Adverse Effect, and the business and operations of
Borrower or any Subsidiary do not violate, in any material respect, any federal,
state, local or foreign laws, regulations or orders. Except as set forth on
Schedule 4.15, Borrower and the Subsidiaries have not received any notice or
communication from any federal, state, local or foreign governmental or
regulatory authority or agency including without limitation, the U.S. Food and
Drug Administration of any such violation or noncompliance. Borrower and the
Subsidiaries have not engaged in any practices in violation of any antitrust law
or regulation of any federal, state, local or foreign Governmental Authority.
SECTION 4.16 LICENSES AND PERMITS.
Borrower and the Subsidiaries have all licenses and franchises relating to
the operation of their respective businesses as are necessary and required for
such ownership and operation, all of which are in good standing and, except as
expressly set forth on Schedule 4.16, are not subject to renewal within less
than one (1) year.
SECTION 4.17 CONTRACTS.
Schedule 4.17 lists all contracts to which Borrower or the Subsidiaries
are a party involving obligations in respect of the business for payment,
performance of services or delivery of goods in excess of $5,000 or which
require Borrower to continue to perform for a period of longer than twelve (12)
months (the "Scheduled Contracts"). Borrower has delivered to the Lender true
and correct copies of all the Scheduled Contracts (except that contracts from
Subsidiary shall be delivered within 5 business days after closing). All of such
Scheduled Contracts are valid and binding obligations of Borrower or the
Subsidiaries, are in full force and effect, and, Borrower or the Subsidiaries,
are enforceable against the parties thereto in accordance with their respective
terms. Neither Borrower nor the Subsidiaries has received any notice that the
other parties to the Scheduled Contracts are (i) in default under such Scheduled
Contracts, or (ii) consider Borrower to be in default thereunder. Except as
expressly noted in Schedule 4.17, no party to any of the Scheduled Contracts
intends to terminate or adversely modify its agreement(s) with respect thereto
or adversely change the volume of business done thereunder.
16
SECTION 4.18 SHARES ISSUABLE UPON CONVERSION.
The shares of Common Stock of the Company when issued to the Lender upon
conversion of and in accordance with the Debentures, will be duly and validly
issued, fully paid and nonassessable and in compliance with all applicable
securities laws. Such issuance will not give rise to preemptive rights, rights
of first refusal or similar rights by any other security holder of the Company.
SECTION 4.19 INSIDER.
(a) Neither the Company, nor any Person having "control" (as that term is
defined in the 1940 Act or in the regulations promulgated pursuant thereto) of
Borrower is an "executive officer," "director," or "principal shareholder" (as
those terms are defined in the ▇▇▇▇ ▇▇▇) of any Lender.
(b) The Company's SEC reports for the 12 months prior to the date hereof
disclose all material transactions required to be disclosed therein.
(c) All agreements between the Company and any of its officers, directors
and principal shareholders, including employment agreements, are disclosed in
the reports and filings made with the SEC or listed on Schedule 4.19.
SECTION 4.20 SUBSIDIARIES.
(a) All of the Subsidiaries of Borrower are listed on Schedule 4.20.
Except as disclosed on Schedule 4.20, Borrower owns all of the outstanding
capital stock or other equity interests of the Subsidiaries, free and clear of
all adverse claims, other than Liens securing the Senior Obligations. All of
such outstanding capital stock of each Subsidiary has been duly and validly
authorized and issued and is fully paid and nonassessable. All such Subsidiaries
are duly organized and existing in good standing under the laws of the
respective jurisdictions of their incorporation or organization, are duly
qualified as foreign corporations and in good standing in all jurisdictions in
which failure to qualify would have a Material Adverse Effect, and have the
corporate power and authority to own their respective properties and assets and
to transact the business in which they are engaged and are or will be qualified
in those jurisdictions wherein they propose to transact material business
operations in the future.
(b) Except as disclosed on Schedule 4.20, Borrower does not own any equity
or long-term debt interest in any other Person, or any right or option to
acquire any such interest in any such Person.
SECTION 4.21 CASUALTIES.
Except as disclosed on Schedule 4.21, neither the business nor the
properties of Borrower is currently affected by any environmental hazard, fire,
explosion, accident, strike, lockout or other labor dispute, drought, storm,
hail, earthquake, embargo, act of God or other casualty (whether or not covered
by insurance).
SECTION 4.22 INVESTMENT COMPANY ACT.
The Company is not an "investment company," as defined in Section 3 of the
1940 Act, nor a company that would be an investment company, except for the
exclusions from the definition of an investment company in Section 3(C) of the
1940 Act, and Borrower is not controlled by such a company.
17
SECTION 4.23 SUFFICIENCY OF CAPITAL.
Borrower is, and after consummation of this Agreement and giving effect to
all Indebtedness incurred and transactions contemplated in connection herewith
will be, Solvent.
SECTION 4.24 CORPORATE NAMES.
Borrower has not, during the preceding five (5) years, done business under
or used any assumed, fictitious or trade names, in its current businesses,
except as disclosed on Schedule 4.24.
SECTION 4.25 INSURANCE.
All of the insurable properties of Borrower are insured for its benefit
under valid and enforceable policies issued by insurers of recognized
responsibility in amounts and against such risks and losses as is customary in
Borrower's industry. Schedule 4.25 sets forth all of Borrower's property
insurance policies.
SECTION 4.26 INTELLECTUAL PROPERTY.
Borrower owns, or is licensed to use, all material trademarks, service
marks, trade names, patents and copyrights presently used to conduct its
business, except those for which the failure to obtain could not be reasonably
expected to have a Material Adverse Effect. Borrower has the right to use such
intellectual property rights without infringing or violating the rights of any
third parties. No claim has been asserted by any person to the ownership of or
right to use any such rights or challenging or questioning the validity or
effectiveness of any such license or agreement. Borrower is not in default of
any such license agreements in any material respect, and no event has occurred
and is continuing which, with notice or lapse of time or both, would constitute
a material default. Each license agreement is enforceable in accordance with its
terms and has not been canceled, abandoned or terminated, nor has Borrower
received notice thereof. There are no claims for trademark or copyright
infringement pending or, to the knowledge of Borrower, threatened against
Borrower or the Subsidiaries or their respective officers or directors. Neither
Borrower nor any Subsidiary is currently using copyrightable material for which
Borrower or any Subsidiary needs, but does not have, a license to conduct its
existing business. Neither Borrower nor any Subsidiary is currently using any
trademarks for which Borrower or any Subsidiary needs, but does not have, a
valid character or trademark license to conduct its existing business.
SECTION 4.27 REAL PROPERTY.
(a) Set forth on Schedule 4.27 is a list of the addresses of each parcel
of real property owned by or leased to Borrower, as indicated on the Schedule.
(b) Borrower has delivered to the Lender true and correct copies of all of
its leases or subleases and all related amendments, supplements and
modifications and related documents (the "Scheduled Lease Documents"), which
require payments or contingent payments by Borrower or any of the Subsidiaries
subsequent to the date hereof in excess of Twenty-Five Thousand Dollars
($25,000). There are no other agreements, written or oral, between Borrower and
any third parties claiming an interest in Borrower's interest in the Scheduled
Leases or otherwise relating to Borrower's use and occupancy of any leased real
property. All such leases are valid and binding obligations of the parties
thereto, are in full force and effect and enforceable against the parties
thereto in accordance with their terms; and no event has occurred including, but
not limited to, the executed, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby which (whether with or
without notice, lapse of time or both) would constitute a default thereunder. No
property leased under any lease which the Lender has agreed to assume is subject
to any lien, encumbrance, easement, right-of-way, building or use restriction,
exception, variance, reservation or limitation as might in any respect interfere
with or impair the present and continued use thereof in the usual and normal
conduct of Borrower's business.
18
(c) On the Loan Closing Date, Borrower will hold of record good,
marketable and insurable title to the property described in Schedule 4.27 free
and clear of all title defects, liens, pledges, claims, charges, rights of first
refusal, security interests or other encumbrances and not, in the case of the
real property, subject to any rights-of-way, building or use restrictions,
exceptions, variances, reservations or limitations of any nature whatsoever,
except with respect to all such properties, (i) matters set forth in Schedule
4.27, and (ii) liens for current taxes and assessments not in default
(collectively, the "Permitted Encumbrances"). Notwithstanding the foregoing,
Borrower's representations and warranties regarding title defects with respect
to the real property is limited to defects arising by, through or under
Borrower, but not otherwise. Borrower and the Subsidiaries have adequate title
insurance coverage for such properties. All real property and structures owned
or leased by Borrower, and all equipment owned or leased by Borrower, are in
good operating condition and repair (ordinary wear and tear excepted), taking
into account their respective ages and consistent with their past uses, and are
adequate for the uses to which they are being put. Except as set forth on
Schedule 4.27, the buildings and improvements owned or leased by Borrower are
structurally sound. Borrower has not received any notice of any violation of any
building, zoning or other law, ordinance or regulation in respect of such
property or structures or their use by Borrower. There is no existing, proposed
or contemplated plan to modify or realign any street or highway or any existing,
proposed or contemplated eminent domain proceeding that would result in the
taking of all or any part of the real property or that would materially
adversely affect the current or planned use of the real property or any part
thereof.
(d) The personal property of Borrower are subject to no liens or
encumbrances except the security interests of record set forth on Schedule 4.27,
which Schedule is a copy of a Uniform Commercial Code ("UCC") search duly
obtained by Borrower in the last thirty (30) days and which search shows
security interests of record relating to such facilities in the State of
California. Borrower agrees to remove all security interests reflected on such
UCC search, if any, prior to the Loan Closing (except those approved by the
Lender in writing) and to remove any other security interests filed with respect
to such facilities between the date of such UCC search and the date of the Loan
Closing.
SECTION 4.28 ENVIRONMENTAL.
(a) Borrower is currently in compliance with all Environmental Laws (as
defined below) which compliance includes, but is not limited to, the possession
by Borrower of all permits and other governmental authorization required under
applicable Environmental Laws, and compliance in all material respects with the
terms and conditions thereof, except in any case where the failure to be in
compliance would not have a Material Adverse Effect.
(b) Except as set forth on Schedule 4.28, Borrower has not stored,
disposed of or arranged for disposal of any Materials of Environmental Concern
(as defined below) on any of the real property, except in compliance with
applicable Environmental Laws.
(c) Borrower has not received any communication (written or oral), whether
from a governmental authority, citizens group, employee or otherwise, that
alleges that Borrower is not in full compliance with Environmental Laws, and
there are no circumstances that may prevent or interfere with such full
compliance in the future. There is no Environmental Claim (as defined below)
pending or threatened against, or which has been made known to, Borrower.
19
(d) Except as set forth on Schedule 4.28, during the period the facilities
have been held by Borrower, its affiliates or, to Borrower's best knowledge, its
predecessors in interest, there have been no actions, activities, circumstances,
conditions, events or incidents including, without limitation, the generation,
handling, transportation, treatment, storage, release, emission, discharge,
presence or disposal of any Hazardous Substance (as defined below), that could
form the basis of any Environmental Claim against Borrower under any
Environmental Law in effect at, or at any time prior to, the Loan Closing which
could reasonably be expected to have a Material Adverse Effect.
(e) Without in any way limiting the generality of the foregoing, (i) there
are no underground storage tanks located on the property owned or leased by
Borrower or the Subsidiaries, (ii) there is no asbestos contained in or forming
part of any building, building component, structure or office space owned or
leased by Borrower or the Subsidiaries, and (iii) no polychlorinated biphenyls
("PCBs") are used or stored at any property owned or leased by Borrower or the
Subsidiaries.
The following terms shall have the following meanings:
"Environmental Claim" means any claim, action, cause of action,
investigation or notice (written or oral) by any person or entity alleging
potential liability (including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries or penalties) arising out
of, based on or resulting from (a) the presence, or release into the
environment, of any Hazardous Substances at any location, whether or not owned
or operated by Borrower, or (b) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law.
"Environmental Laws" means the federal, state and local
environmental, health or safety laws, regulations, ordinances, rules and
policies and common law in effect on the date hereof and the Loan Closing Date
relating to the use, refinement, handling, treatment, removal, storage,
production, manufacture, transportation or disposal, emissions, discharges,
releases or threatened releases of materials of environmental concern, or
otherwise relating to protection of the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), as the same may be amended or modified to the date hereof and the Loan
Closing Date including, without limitation, the statutes listed below:
Federal Resources Conservation and Recovery Act of 1976, 42 U.S.C.
ss. 6901, et seq.
Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. ss. 9601, et seq.
Federal Clean Air Act, 42 U.S.C. ss. 7401, et seq.
Federal Water Pollution Control Act, Federal Clean Water Act of
1977, 33 ▇.▇.▇.▇▇. 1251, et seq.
Federal Insecticide, Fungicide and Rodenticide Act, Federal
Pesticide Act of 1978, 7 ▇.▇.▇.▇▇. 136, et seq. Federal Hazardous Materials
Transportation Act, 48 ▇.▇.▇.▇▇. 1801, et seq.
Federal Toxic Substances Control Act, 15 ▇.▇.▇.▇▇. 2601, et seq.
20
Federal Safe Drinking Water Act, 42 ▇.▇.▇.▇▇. 300f, et seq.
"Hazardous Substances" means any toxic or hazardous waste,
pollutants or substances including, without limitation, asbestos, PCBs,
petroleum products and byproducts, substances defined or listed as "hazardous
substance," "toxic substance," "toxic pollutant" or similarly identified
substance or mixture, in or pursuant to any Environmental Law.
SECTION 4.29 INTERNAL ACCOUNTING CONTROLS.
The Company maintains a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles consistently applied
and to maintain asset accountability, (iii) access to assets is permitted only
in accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
SECTION 4.30 TRANSACTIONS WITH AFFILIATES AND EMPLOYEES.
Except as set forth on Schedule 4.30, none of the officers or directors of
the Company and, to the knowledge of the Company, none of the employees of the
Company are presently a party to any transaction with the Company (other than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner. Since January 1, 2003, the Company has not (i) extended or maintained
credit, arranged for the extension of credit, or renewed an extension of credit,
in the form of a personal loan to or for any director or executive officer (or
equivalent thereof) of the Company, or (ii) materially modified any term of any
such extension or maintenance of credit. Schedule 5.25 identifies any loan or
extension of credit maintained by the Company to which the second sentence of
Section 13(k)(1) of the Securities Exchange Act of 1934, as amended, applies.
SECTION 4.31 MERGER.
The merger of Borrower with a subsidiary of the Company has been lawfully
effected, and no shareholder of Borrower or the Company may exercise any
dissenter's rights of appraisal. The Company has timely filed all required
reports and proxy statements pursuant to the 1934 Act and the rules and
regulations thereunder and shall timely file an amendment to its Form 8-K
containing the required financial information of the Borrower. All such filings
contain no material misstatements or omissions.
SECTION 4.32 "OFF-BALANCE SHEET ARRANGEMENTS."
The Company does not have any "off-balance sheet arrangements." For
purposes of the preceding sentence, "off-balance sheet arrangement" means with
respect to any Person, any securitization transaction to which it is party and
any other transaction, agreement or other contractual arrangement to which an
entity unconsolidated with that Person is a party, under which it, whether or
not a party to the arrangement, has, or in the future may have: (a) any
obligation under a direct or indirect guarantee or similar arrangement; (b) a
retained or contingent interest in assets transferred to an unconsolidated
entity or similar arrangement; (c) derivatives to the extent that the fair value
thereof is not fully reflected as a liability or asset in the financial
statements; or (d) any obligation or liability, including a contingent
obligation or liability, to the extent that it is not fully reflected in the
financial statements (excluding the footnotes thereto) (for this purpose,
obligations or liabilities that are not fully reflected in the financial
statements (excluding the footnotes thereto) include, without limitation: (i)
obligations that are not classified as a liability according to generally
accepted accounting principles; (ii) contingent liabilities as to which, as of
the date of the financial statements, it is not probable that a loss has been
incurred or, if probable, is not reasonably estimable; or (iii) liabilities as
to which the amount recognized in the financial statements is less than the
reasonably possible maximum exposure to loss under the obligation as of the date
of the financial statements, but exclude contingent liabilities arising out of
litigation, arbitration or regulatory actions (not otherwise related to
off-balance sheet arrangements)). Schedule 4.30 identifies all outstanding
guarantees, letters of credit, performance bonds, assurance bonds, surety
agreements, indemnity agreements and any other legally binding forms of
assurance or guaranty in connection with the business of the Company.
21
SECTION 4.33 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties of Borrower and the Company herein
shall survive the Loan Closing and the delivery of the Debentures, and any
investigation at any time made by or on behalf of the Lender shall not diminish
the Lender's right to rely on Borrower's or the Company's representations and
warranties as herein set forth.
SECTION 4.34 FULL DISCLOSURE.
Neither the representations or warranties of Borrower or the Company, the
schedules to this Agreement, the financial statements referenced in Section
4.06, nor any SEC registration statement, report or proxy statement filed by the
Borrower or the Company within the past 12 months contains or will contain, as
of the date thereon, any untrue statement of a material fact or omits or will
omit to state any material fact necessary to keep the statements contained
herein or therein from being misleading in any material respect.
ARTICLE V. - AFFIRMATIVE COVENANTS OF BORROWER
So long as any part of the Debentures remains unpaid or has not been
redeemed or converted hereunder, and until such payment, redemption or
conversion in full, unless the Lender shall otherwise consent in writing,
Borrower agrees that:
SECTION 5.01 FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS.
(a) Borrower shall accurately and fairly maintain its books of account in
accordance with GAAP, retain such firm of independent certified public
accountants requested by Borrower and approved by the Lender, to make annual
audits of its accounts in accordance with generally accepted auditing standards.
(b) The Company shall provide the following reports and information to
Lender:
(i) As soon as available, and in any event within ten (10) days
after the due date for filing the Company's annual report on Form 10-KSB with
exhibits for each period.
22
(ii) As soon as available, and in any event within ten (10) days
after the due date for filing the Company's quarterly report on Form 10-QSB with
exhibits for each period.
(iii) Each fiscal quarter and year, concurrent with the periodic
report required above, a certificate executed by the Chief Financial Officer or
Chief Executive Officer of the Company (A) stating that a review of the
activities of the Company during such fiscal period has been made under his
supervision and that the Company has observed, performed and fulfilled each and
every obligation and covenant contained herein and is not in Default under any
of the same or, if any such Default shall have occurred, specifying the nature
and status thereof, and (B) stating that the Company and the Subsidiaries are in
compliance as of the end of such fiscal quarter with the agreed minimum
financial ratios and standards set forth in Schedule 7.01 to this Agreement.
(iv) Promptly (but in any event within five (5) business days) upon
becoming aware of the existence of any condition or event which constitutes a
Default or which, with notice or the passage of time or both would become a
Default or an Event of Default, written notice specifying the nature and period
of existence thereof and the action which the Company is taking or proposes to
take with respect thereto.
(v) Promptly (but in any event within five (5) business days) upon
the receipt thereof by the Company or the Board of Directors of the Company,
copies of all reports, all management letters and other detailed information
submitted to the Company or the Board by independent accountants in connection
with each annual or interim audit or review of the accounts or affairs of the
Company made by such accountants.
(vi) Promptly (but in any event within five (5) business days), such
other information relating to the finances, budgets, properties, business and
affairs of the Company and each Subsidiary, as the Lender or the Agent may
reasonably request from time to time.
(vii) Promptly upon its becoming available, one copy of each
financial statement, report, press release, notice or proxy statement sent by
the Company to stockholders generally, and of each regular or periodic report,
registration statement or prospectus filed by the Company with any securities
exchange or the SEC or any successor agency, and of any order issued by any
Governmental Authority in any proceeding to which the Company is a party.
(viii) As soon as available, and in any event within fifteen (15)
days after the close of each fiscal quarter, a report setting forth the number
of stock options, and their respective prices and terms, issued during such
quarter and cumulatively.
SECTION 5.02 ANNUAL FINANCIAL STATEMENTS.
Solely for the purpose of monitoring the Loan, furnish Agent within ninety
(90) days after the end of each fiscal year of Borrower, audited financial
statements of Borrower including, but not limited to, statements of income and
stockholders' equity and cash flow from the beginning of the current fiscal year
to the end of such fiscal year and the balance sheet as at the end of such
fiscal year, all prepared in accordance with GAAP applied on a basis consistent
with prior practices, and in reasonable detail and reported upon without
qualification by an independent certified public accounting firm selected by
Borrower and satisfactory to Agent (the "Accountants"). The report of the
Accountants shall be accompanied by a statement of the Accountants certifying
that (i) they have caused this Agreement to be reviewed, (ii) in making the
examination upon which such report was based either no information came to their
attention which to their knowledge constituted an Event of Default or a Default
under this Agreement or any related agreement or, if such information came to
their attention, specifying any such Default or Event of Default, its nature,
when it occurred and whether it is continuing, and such report shall contain or
have appended thereto calculations which set forth Borrower's compliance with
the requirements or restrictions imposed by Article VII hereof. In addition, the
reports shall be accompanied by a certificate of Borrower's Chief Financial
Officer which shall state that, based on an examination sufficient to permit him
to make an informed statement, no Default or Event of Default exists, or, if
such is not the case, specifying such Default or Event of Default, its nature,
when it occurred, whether it is continuing and the steps being taken by Borrower
with respect to such event, and such certificate shall have appended thereto
calculations which set forth Borrower's compliance with the requirements or
restrictions imposed by Article VII.
23
SECTION 5.03 QUARTERLY FINANCIAL STATEMENTS.
Solely for the purpose of monitoring the Loan, furnish Agent within
forty-five (45) days after the end of each fiscal quarter, an unaudited balance
sheet of Borrower and unaudited statements of income and stockholders' equity
and cash flow of Borrower reflecting results of operations from the beginning of
the fiscal year to the end of such quarter and for such quarter, prepared on a
basis consistent with prior practices and complete and correct in all material
respects, subject to normal and recurring year end adjustments that individually
and in the aggregate are not material to Borrower's business. The reports shall
be accompanied by a certificate signed by the Chief Financial Officer of
Borrower, which shall state that, based on an examination sufficient to permit
him to make an informed statement, no Default or Event of Default exists, or, if
such is not the case, specifying such Default or Event of Default, its nature,
when it occurred, whether it is continuing and the steps being taken by Borrower
with respect to such default and, such certificate shall have appended thereto
calculations which set forth Borrower's compliance with the requirements or
restrictions imposed by Article VII.
SECTION 5.04 MONTHLY FINANCIAL STATEMENTS.
Solely for the purpose of monitoring the Loan, for so long as Agent has
the right to designate a nominee to serve as a member of the Board of Directors
of the Borrower, furnish Agent within thirty (30) days after the end of each
month, an unaudited balance sheet of Borrower and unaudited statements of income
and stockholders' equity and cash flow of Borrower reflecting results of
operations from the beginning of the fiscal year to the end of such month and
for such month, prepared on a basis consistent with prior practices and complete
and correct in all material respects, subject to normal and recurring year end
adjustments that individually and in the aggregate are not material to
Borrower's business. The reports shall be accompanied by a certificate of
Borrower's Chief Financial Officer, which shall state that, based on an
examination sufficient to permit him to make an informed statement, no Default
or Event of Default exists, or, if such is not the case, specifying such Default
or Event of Default, its nature, when it occurred, whether it is continuing and
the steps being taken by Borrower with respect to such event and, such
certificate shall have appended thereto calculations which set forth Borrower's
compliance with the requirements or restrictions imposed by Article VII.
SECTION 5.05 PREPARATION OF BUDGETS.
Solely for the purpose of monitoring the Loan,
(a) Prior to the beginning of Borrower's fiscal year Borrower agrees
to prepare and submit to the Board and furnish to Lender a copy of an annual
plan for such year which shall include, without limitation, plans for expansion,
if any, plans for incurrences of Indebtedness and projections regarding other
sources of funds, quarterly projected capital and operating expense budgets,
cash flow statements, profit and loss statements and balance sheet projections,
itemized in such detail as the Board may request.
24
(b) Borrower shall furnish to the Lender monthly financial reports,
including budgets (as currently used by management in the conduct of business)
within 30 days of the end of each month thereafter.
(c) Borrower agrees that it will review its operations with Agent.
Such operations reviews will be in such depth and detail as Agent shall
reasonably request and will be held as reasonably necessary, generally once a
fiscal quarter.
SECTION 5.06 PAYMENT OF TAXES AND OTHER INDEBTEDNESS.
Borrower shall, and shall cause its Subsidiaries to, pay and discharge (i)
all taxes, assessments and governmental charges or levies imposed upon it or
upon its income or profits, or upon any property belonging to it, before
delinquent, (ii) all lawful claims (including claims for labor, materials and
supplies) which, if unpaid, will give rise to a Lien upon any of its property,
other than a Permitted Lien, and (iii) all of its other Indebtedness in
accordance with their respective terms, except as prohibited hereunder;
provided, however, that Borrower and its Subsidiaries, if any, shall not be
required to pay any such tax, assessment, charge, levy or other claim if and so
long as the amount, applicability or validity thereof shall currently be
contested in good faith by appropriate proceedings and appropriate accruals and
reserves therefor have been established in accordance with GAAP.
SECTION 5.07 MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS.
Subject to Section 6.13, Borrower shall, and shall cause its operating
Subsidiaries to, preserve and maintain their respective corporate existence and
all of their respective material rights and privileges necessary in the normal
conduct of their respective businesses, and to conduct their respective
businesses in an orderly and efficient manner consistent with good business
practices and in accordance with all valid regulations and orders of any
Governmental Authority. Borrower shall keep its principal place of business
within the United States.
SECTION 5.08 SEC FILINGS.
The Company has a class of securities registered pursuant to Section 12(g)
of the 1934 Act and shall timely file, when due, all reports and proxy
statements required of a company whose securities are registered for public
trading under and pursuant to the 1934 Act and the rules and regulations issued
thereunder.
SECTION 5.09 NOTICE.
Borrower shall promptly notify the Lender of (i) any Material Adverse
Change, (ii) any default under any Senior Obligations, other Indebtedness,
material agreement, contract or other instrument to which it is a party or by
which any of its properties are bound, or any acceleration of the maturity of
any Indebtedness, (iii) any material adverse claim against or affecting Borrower
or its Subsidiaries, if any, or any of its properties, and (iv) the commencement
of, and any determination in, any material litigation with any third party or
any proceeding before any Governmental Authority.
SECTION 5.10 COMPLIANCE WITH LOAN DOCUMENTS.
Borrower shall, and shall cause its Subsidiaries to, promptly comply with
any and all covenants and provisions of the Loan Documents.
25
SECTION 5.11 COMPLIANCE WITH MATERIAL AGREEMENTS.
Borrower shall, and shall cause each of its Subsidiaries to, comply in all
material respects with all Senior Documents, material agreements, indentures,
mortgages or documents binding on it or affecting its properties or business.
SECTION 5.12 OPERATIONS AND PROPERTIES.
Borrower shall, and shall cause each of its Subsidiaries to, act prudently
and in accordance with customary industry standards in managing or operating its
assets, properties, business and investments. Borrower shall, and shall cause
each of its Subsidiaries to, keep in good working order and condition, ordinary
wear and tear excepted, all of its assets and properties which are necessary to
the conduct of its business.
SECTION 5.13 BOOKS AND RECORDS; ACCESS.
Borrower shall, and shall cause each of its Subsidiaries to, maintain
complete and accurate books and records of its transactions in accordance with
good accounting practices. Borrower shall give each duly authorized
representative of the Lender access during all normal business hours, upon
reasonable notice, to, and shall permit such representative to examine, copy or
make excerpts from, any and all books, records and documents in the possession
of Borrower and its Subsidiaries and relating to its affairs, and to inspect any
of the properties of Borrower and its Subsidiaries; provided that the Lender
agrees that any such inspection will be performed so as not to interfere with
Borrower's normal business operations. Borrower shall make a copy of this
Agreement, along with any waivers, consents, modifications or amendments,
available for review at its principal office by the Lender or the Lender's
representatives.
SECTION 5.14 COMPLIANCE WITH LAW.
Borrower shall, and shall cause each of its Subsidiaries to, comply in all
material respects with all applicable laws, rules, regulations, ordinances and
all orders and decrees of any Governmental Authority applicable to it or any of
its properties, businesses or operations.
SECTION 5.15 INSURANCE.
Borrower shall, and shall cause each of its Subsidiaries to, maintain such
worker's compensation insurance, liability insurance and insurance on its
properties, assets and business, now owned or hereafter acquired, against such
casualties, risks and contingencies, and in such types and amounts, as are
consistent with customary practices and standards of companies engaged in
similar businesses.
SECTION 5.16 AUTHORIZATIONS AND APPROVALS.
Borrower shall, and shall cause each of its Subsidiaries to, promptly
obtain, from time to time and at its own expense, all such governmental
licenses, authorizations, consents, permits and approvals as may be required to
enable it to comply with its obligations hereunder and under the other Loan
Documents.
26
SECTION 5.17 ERISA COMPLIANCE.
Borrower shall, at all times,(i) make prompt payment of all contributions
required under all Plans, if any, and shall meet the minimum funding standards
set forth in ERISA with respect to its Plans subject to ERISA, if any, (ii)
notify the Lender immediately of any fact in connection with any of its Plans,
which might constitute grounds for termination thereof by the Pension Benefit
Guaranty Corporation or for the appointment, by the appropriate United States
District Court, of a trustee to administer such Plan, together with a statement,
if requested by the Lender, as to the reason therefor and the action, if any,
proposed to be taken with respect thereto, and (iii) furnish to the Lender, upon
its request, such additional information concerning any of its Plans as may be
reasonably requested.
SECTION 5.18 FURTHER ASSURANCES.
Borrower shall, and shall cause each of its Subsidiaries to, make, execute
or endorse, and acknowledge and deliver or file or cause the same to be done,
all such notices, certifications and additional agreements, undertakings,
transfers, assignments or other assurances, and take any and all such other
action as the Lender may, from time to time, deem reasonably necessary or proper
in connection with any of the Loan Documents, or the obligations of Borrower or
its Subsidiaries, if any, thereunder, which the Lender may request from time to
time.
SECTION 5.19 INDEMNITY BY BORROWER.
Borrower (including the Company) shall indemnify, save and hold harmless
the Lender and its directors, officers, lenders, attorneys and employees (the
"Indemnitee") from and against (i) any and all claims, demands, actions or
causes of action that are asserted against any Indemnitee if the claim, demand,
action or cause of action, directly or indirectly, relates to this Agreement and
the other Loan Documents, the Loan, the use of proceeds of the Loan or the
relationship of Borrower and the Lender under this Agreement or any transaction
contemplated pursuant to this Agreement, (ii) any administrative or
investigative proceeding by any Governmental Authority, directly or indirectly,
related to a claim, demand, action or cause of action described in clause (i)
above, and (iii) any and all liabilities, losses, costs or expenses (including
reasonable attorneys' fees and disbursements) that any Indemnitee suffers or
incurs as a result of any of the foregoing; provided, however, that Borrower
shall have no obligation under this Section 5.16 to the Lender with respect to
any of the foregoing arising out of the gross negligence or willful misconduct
of the Lender or its assignees or the breach by Lender or its assignees of this
Agreement or any other Loan Document or other document executed in connection
with any of the aforesaid, the breach by the Lender or its assignees of any
intercreditor or participation agreement or commitment with other parties, the
violation or alleged violation of any law, rule or regulation by the Lender or
its assignees, or from the transfer or disposition by the Lender of any
Debentures or the Common Stock issued upon conversion of the Debentures. If any
claim, demand, action or cause of action is asserted against any Indemnitee,
such Indemnitee shall promptly notify Borrower, but the failure to so promptly
notify Borrower shall not affect Borrower's obligations under this Section
unless such failure materially prejudices Borrower's right or ability to
participate in the contest of such claim, demand, action or cause of action, as
hereinafter provided. In the event that such Indemnitee's failure to properly
notify Borrower materially prejudices Borrower's right or ability to participate
in the contest of such claim, demand action or cause of action, then said
Indemnitee shall have no right to receive, and Borrower shall have no obligation
to pay, any indemnification amounts hereunder. Borrower may elect to defend any
such claim, demand, action or cause of action (at its own expense) asserted
against said Indemnitee and, if requested by Borrower in writing and so long as
no Default or Event of Default shall have occurred and be continuing, such
Indemnitee (at Borrower's expense) shall, in good faith, contest the validity,
applicability and amount of such claim, demand, action or cause of action and
shall permit Borrower to participate in such contest. Any Indemnitee that
proposes to settle or compromise any claim or proceeding for which Borrower may
be liable, for payment to or on behalf of an Indemnitee hereunder, shall give
Borrower written notice of the terms of such proposed settlement or compromise
reasonably in advance of settling or compromising such claim or proceeding and
shall obtain Borrower's written concurrence thereto. In the event that said
Indemnitee fails to obtain Borrower's prior written consent to any such
settlement or compromise, said Indemnitee shall have no right to receive, and
Borrower shall have no obligation to pay, any indemnification amounts hereunder.
Each Indemnitee may employ counsel, which counsel shall be reasonably acceptable
to Borrower, in enforcing its rights hereunder and in defending against any
claim, demand, action or cause of action covered by this Section 5.16; provided,
however, that each Indemnitee shall endeavor in connection with any matter
covered by this Section 5.16 which also involves any other Indemnitee, use
reasonable efforts to avoid unnecessary duplication of effort by counsel for all
Indemnitees, including allowing Borrower to select one lawyer for all parties,
such selection to be subject to the approval of such parties, which approval
shall not be unreasonably withheld. Any obligation or liability of Borrower to
any Indemnitee under this Section 5.16 shall survive the expiration or
termination of this Agreement and the repayment of the Debentures.
27
SECTION 5.20 RESERVATION OF SHARES.
The Company shall, at all times, reserve and keep available sufficient
authorized and unissued shares of Common Stock to effect the conversion of the
Debentures. The Company has obtained any necessary approval of its shareholders
to issue to the Lender upon conversion of the Debentures all of the shares of
Common Stock to which it is then entitled.
SECTION 5.21 OWNERSHIP OF SUBSIDIARIES.
The Company and the Borrower shall own, at all times, all of the capital
stock of all of the Subsidiaries, including DLI, and shall not pledge or grant a
security interest in the capital stock of DLI or the Subsidiaries.
SECTION 5.22 RETENTION OF STOCK OWNERSHIP.
(a) The Company shall not offer, sell or otherwise dispose of any shares
of Common Stock or securities exercisable or convertible into shares of Common
Stock for a period of twelve (12) months following the Loan Closing without the
written approval of the Lender, other than (i) Common Stock issued upon the
conversion of any of the Debentures; and (ii) Common Stock issued upon exercise
of any presently outstanding employee stock options or warrants or employee
stock options or warrants granted in the ordinary course of business consistent
with past practices.
(b) ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇ will execute and deliver Lock-Up
Agreements at the Loan Closing which shall provide that they will not offer,
sell or otherwise dispose of the shares of Common Stock beneficially owned or
controlled by them (including subsequently acquired shares or securities
exercisable or convertible into shares) for a period of twelve (12) months
following the Loan Closing, except for intra-family transfers or estate planning
purposes, without the consent of the Lender. Thereafter, each such person shall
only sell such shares pursuant to Rule 144, without the consent of the Lender,
until the Debentures have been paid in full.
SECTION 5.23 SUBSEQUENTLY FORMED SUBSIDIARIES.
Borrower (including the Company) shall cause all subsequently formed
Subsidiaries to execute a Subsidiaries' Guaranty and Security Agreement
referenced in Section 3.01(c)
28
ARTICLE VI. - NEGATIVE COVENANTS OF BORROWER
So long as any part of the Debentures has not been redeemed or converted
hereunder, and until such redemption or conversion in full, unless the Lender
shall otherwise consent in writing, Borrower (including the Company for purposes
of this Article) agrees that:
SECTION 6.01 LIMITATION ON INDEBTEDNESS.
At Loan Closing, Borrower and its Subsidiaries shall not have any
outstanding Indebtedness, except Indebtedness arising under this Agreement, the
Debentures, the Guaranties, or Permitted Indebtedness or as set forth in
Schedule 6.01. Borrower and its Subsidiaries will not incur or guarantee any
Indebtedness senior to or pari passu with the Debentures, without the consent of
the Lender, except for Senior Obligations and asset-backed loans for operations
or acquisitions.
SECTION 6.02 LIMITATION ON LIENS.
Borrower shall not, and shall not permit its Subsidiaries to, create,
cause, incur, permit or suffer to exist any Lien upon any of its properties or
assets, other than Permitted Liens.
SECTION 6.03 LIMITATION ON INVESTMENTS.
Borrower shall not, and shall not permit its Subsidiaries to, make or have
outstanding any Investments in any Person, except for Borrower's or any
Subsidiary's acquisition or ownership of stock of or other equity interests in
Subsidiaries (including Persons that will be Subsidiaries after giving effect to
such Investments), loans and other transactions between Borrower and any
Subsidiaries, short term bank deposits, money market investments,
investment-grade commercial paper, government securities and such other "cash
equivalent" investments as the Lender may, from time to time, approve, and
customer obligations and receivables arising out of sales or leases made or the
rendering of services in the ordinary course of business.
SECTION 6.04 ALTERATION OF MATERIAL AGREEMENTS.
Borrower shall not, and shall not permit its Subsidiaries to, consent to
or permit any alteration, amendment, modification, release, waiver or
termination of any Senior Documentation or material agreement to which it is a
party, other than in the ordinary course of business.
SECTION 6.05 TRANSACTIONS WITH AFFILIATES.
Borrower shall not, and shall not permit its Subsidiaries to, enter into
any transaction not in the ordinary course of business with, or pay any
management fees to, any Affiliate, except for intercompany transactions, without
the consent of the Lender. Notwithstanding the foregoing, Borrower may grant
options to employees or directors if otherwise permitted under this Agreement.
SECTION 6.06 LIMITATIONS ON ACQUISITION OF NONRELATED BUSINESS.
Borrower shall not, and shall not permit its Subsidiaries to, engage in
any line of business, or acquire any new product lines or business, or acquire
any companies unless such new product line or business acquired is primarily
involved in, or substantially similar or related to, Borrower's current lines of
business or extensions thereof.
29
SECTION 6.07 LIMITATION ON SALE OF PROPERTIES.
Borrower shall not, and shall not permit its Subsidiaries to, (i) sell,
assign, convey, exchange, lease or otherwise dispose of any of its properties,
rights, assets or business (including the capital stock of its operating
Subsidiaries, including DLI), whether now owned or hereafter acquired, without
the consent of the Lender, except in the ordinary course of business, or (ii)
sell, assign or discount any accounts receivable, except in the ordinary course
of business (which shall include receivable financing or securitization), in
each case without the consent of the Lender; provided, however, that Borrower
may sell its securities to unaffiliated third parties at the current trading
price, but not less than the conversion price and to employees under its
existing stock option plan.
SECTION 6.08 FISCAL YEAR AND ACCOUNTING METHOD.
Borrower shall not, and shall not permit its Subsidiaries to, change its
fiscal year or method of accounting, except as permitted by GAAP.
SECTION 6.09 LIQUIDATION.
Borrower shall not, and shall not permit its Subsidiaries to, (i) dissolve
or liquidate (except for dissolution or liquidation of inactive Subsidiaries in
the ordinary course of business), or (ii) enter into any other transaction that
has a similar effect.
SECTION 6.10 MATERIAL AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS.
Borrower shall not, and shall not permit its Subsidiaries to, amend its
Certificate or Articles of Incorporation (or other charter document) or bylaws
in any material respect, without the consent of the Lender, other than to change
the name of the Company.
SECTION 6.11 EXECUTIVE COMPENSATION.
(a) Borrower will not increase the salary, bonus, or other compensation
programs (whether in cash, securities or other property, and whether payment is
deferred or current) of its chief executive officer and chief financial officer,
unless such compensation increase is approved by a majority of the Board or a
Compensation Committee of the Board, a majority of whom shall be nonemployee
Directors. Compensation to other senior executive officers, including division
managers, shall be consistent with the policies of the Compensation Committee.
(b) Borrower shall not implement any bonus, profit sharing or other
incentive plans, until such plans are formally adopted by the majority of the
Board or a Compensation Committee of the Board, a majority of whom shall be
nonemployee Directors. Borrower's executive compensation shall be consistent
with the general compensation policies adopted by the Compensation Committee of
the Board.
SECTION 6.12 RESTRICTED PAYMENTS.
Borrower shall not (i) without the consent of the Lender, declare or pay
any Dividend or make any other distribution of cash or property on (a) any
Common Stock, (b) any Preferred Stock, (ii) purchase, redeem or otherwise
acquire any shares of Common Stock or any shares of Preferred Stock, without the
consent of the Lender, (iii) make any regularly scheduled payments of
Indebtedness (other than Senior Obligations) which are pari passu or
subordinated to the Debentures, if at the time of such payment or as a result of
such payment, Borrower is in Default with respect to the Loan, or (iv) make any
prepayments of Indebtedness (other than Senior Obligations) which are pari passu
or subordinated to the Debentures, unless the Debentures is prepaid on a pro
rata basis, without the consent of the Lender. Borrower shall not permit its
Subsidiaries to enter into any agreements restricting the payment of dividends
from the Subsidiaries to Borrower, without the consent of the Lender.
30
SECTION 6.13 CONSOLIDATION OR MERGER.
Borrower shall not consolidate with or merge into any other corporation,
unless the surviving corporation, after such merger or consolidation, will not
be in Default and the surviving corporation becomes a party to this Agreement.
Subsidiaries shall only consolidate with or merge into Borrower or another
Subsidiary; provided, however, that a Subsidiary may merge or consolidate with
any other entity as long as such Subsidiary is the surviving corporation of such
merger or consolidation, and Borrower is not in Default.
ARTICLE VII. - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS
SECTION 7.01 FINANCIAL RATIOS.
So long as any of the Debentures has not been redeemed or converted
hereunder, and until such redemption or conversion has been made in full, or
unless the Lender shall otherwise consent in writing, Borrower, on a
consolidated basis, shall be in compliance with the agreed minimum financial
ratios and standards provided in Schedule 7.01, as of the end of each fiscal
quarter of Borrower and as set forth in its most recent quarterly compliance
certificates delivered pursuant to Section 5.01.
ARTICLE VIII. - EVENTS OF DEFAULT
SECTION 8.01 EVENTS OF DEFAULT.
An "Event of Default" shall exist if any one or more of the following
events (herein collectively called "Events of Default") shall occur and be
continuing:
(a) Borrower shall fail to pay when due (or shall state in writing an
intention not to pay or its inability to pay) any installment of interest on or
principal of, any Debentures or any fee, expense or other payment required
hereunder and such failure is not cured within three business days;
(b) Any representation or warranty made under this Agreement, or any of
the other Loan Documents, or in any certificate or statement furnished or made
to Agent or Lender pursuant hereto or in connection herewith or with the Loans
hereunder, shall prove to be untrue or inaccurate in any material respect as of
the date on which such representation or warranty was made;
(c) Default shall occur in the performance of any of the non-monetary
covenants or agreements of Borrower or of its Subsidiaries contained herein, or
in any of the other Loan Documents or in any Subsidiary Document and the Company
shall remain in default for a period of ten (10) days;
(d) An event of default, default, or an event which, with the passage of
time, would result in a default under any Senior Documents or in the payment of
any Senior Obligations;
(e) Default shall occur in the payment of any other Indebtedness having an
aggregate principal amount in excess of Ten Thousand Dollars ($10,000) or
nonmonetary default shall occur in respect of any note, loan agreement or credit
agreement relating to any Indebtedness having an aggregate principal amount in
excess of Ten Thousand Dollars ($10,000), and such default continues for more
than the period of grace, if any, specified therein (or, no longer than 90 days
in the case of vendor payables) or any Indebtedness having an aggregate
principal amount in excess of Ten Thousand Dollars ($10,000), shall become due
before its stated maturity by acceleration of the maturity, or any indebtedness
having an aggregate principal amount in excess of Ten Thousand Dollars
($10,000), shall become due by its terms and shall not be promptly paid or
extended, unless the payment of such Indebtedness is contested in good faith and
is fully reserved against by the Borrower;
31
(f) Any of the Loan Documents shall cease to be legal, valid and binding
agreements enforceable against Borrower in accordance with the respective terms,
or shall, in any way, be terminated or become or be declared by any court or by
Borrower or any Subsidiary in any legal proceeding to be ineffective or
inoperative, or shall in any way whatsoever cease to give or provide the
respective rights, titles, interests, remedies, powers or privileges stated
therein to be created thereby;
(g) Borrower or its Subsidiaries shall (i) apply for or consent to the
appointment of a receiver, trustee, custodian, intervenor or liquidator of
itself, or of all or substantially all of such Person's assets, (ii) file a
voluntary petition in bankruptcy, admit in writing that such Person is unable to
pay such Person's debts as they become due or generally not pay such Person's
debts as they become due, (iii) make a general assignment for the benefit of
creditors, (iv) file a petition or answer seeking reorganization or an
arrangement with creditors or to take advantage of any bankruptcy or insolvency
laws, (v) file an answer admitting the material allegations of, or consent to,
or default in answering, a petition filed against such Person in any bankruptcy,
reorganization or insolvency proceeding, or (vi) take corporate action for the
purpose of effecting any of the foregoing;
(h) An involuntary petition or complaint shall be filed against Borrower
or any of its Subsidiaries seeking bankruptcy or reorganization of such Person
or the appointment of a receiver, custodian, trustee, intervenor or liquidator
of such Person, or all or substantially all of such Person's assets, and such
petition or complaint shall not have been dismissed within sixty (60) days of
the filing thereof or an order, order for relief, judgment or decree shall be
entered by any court of competent jurisdiction or other competent authority
approving a petition or complaint seeking reorganization of Borrower or its
subsidiary or appointing a receiver, custodian, trustee, intervenor or
liquidator of such Person, or of all or substantially all of such Person's
assets;
(i) Any final judgment(s) for the payment of money in excess of the sum of
Fifteen Thousand Dollars ($15,000) in the aggregate shall be rendered against
Borrower or any Subsidiary and such judgment or judgments shall not be satisfied
or discharged prior to the date on which any of its assets could be lawfully
sold to satisfy such judgment; or
(j) The Company shall fail to issue and deliver shares of Common Stock as
provided herein upon conversion of the Debentures; or
(k) The Company shall have failed to redeem the Debentures pursuant to
Section 5(b) thereof after having given notice to Holders.
SECTION 8.02 REMEDIES UPON EVENT OF DEFAULT.
(a) If an Event of Default shall have occurred and be continuing, then the
Lender may exercise any one or more of the following rights and remedies, and
any other remedies provided in any of the Loan Documents, as the Lender in its
sole discretion may deem necessary or appropriate:
(i) declare the unpaid Principal Amount (after application of any
payments or installments received by the Lender) of, and all interest then
accrued but unpaid on, the Debentures and any other liabilities hereunder to be
forthwith due and payable, whereupon the same shall forthwith become due and
payable without presentment, demand, protest, notice of default, notice of
acceleration or of intention to accelerate or other notice of any kind, all of
which Borrower hereby expressly waives, anything contained herein or in the
Debentures to the contrary notwithstanding;
32
(ii) reduce any claim to judgment; and
(iii) without notice of default or demand, pursue and enforce any of
the Lender's rights and remedies under the Loan Documents, or otherwise provided
under or pursuant to any applicable law or agreement, all of which rights may be
specifically enforced.
(b) In the event of a violation by Borrower of the negative covenants set
forth in Article VI, the Lender may, in its sole discretion, (i) waive
compliance with the covenants, provided Borrower is in compliance with Section
7.01 hereof; or (ii) require Borrower to redeem the Debentures at the higher of
market value or the unpaid principal amount of the Debentures, together with an
amount equal to an 18% annual yield on the principal amount through the
Redemption Date, whichever is greater.
SECTION 8.03 PERFORMANCE BY THE LENDER.
Should Borrower or any Subsidiary fail to perform any covenant, duty or
agreement contained herein or in any of the other Loan Documents or in any
Subsidiary Document, Lender or Agent may perform or attempt to perform such
covenant, duty or agreement on behalf of Borrower. In such event, Borrower
shall, at the request of Lender or Agent, promptly pay any amount reasonably
expended by Lender or Agent in such performance or attempted performance to
Lender or Agent at its principal office, together with interest thereon, at the
interest rate specified in the Debentures, from the date of such expenditure
until paid. Notwithstanding the foregoing, it is expressly understood that
Lender or Agent assumes no liability or responsibility for the performance of
any duties of Borrower or any Subsidiary hereunder or under any of the other
Loan Documents or under any Subsidiary Document.
SECTION 8.04 PAYMENT OF EXPENSES INCURRED BY THE LENDER.
Upon the occurrence of a Default or an Event of Default, which occurrence
is not cured within the notice provisions, if any, provided herein, Borrower and
the Company agree to pay and shall pay all costs and expenses (including
reasonable attorneys' fees and expenses) incurred by Lender or Agent in
connection with the preservation and enforcement of the Lender's rights under
this Agreement, the Debentures or any other Loan Document.
ARTICLE IX. - REGISTRATION RIGHTS
SECTION 9.01 "PIGGY-BACK" REGISTRATION.
If the Company proposes to register any of its capital stock under the
1933 Act in connection with the public offering of such securities for its own
account or for the account of its security holders, other than Holders of
Registrable Securities pursuant hereto (a "Piggy-Back Registration Statement"),
except for (i) a registration relating solely to the sale of securities to
participants in the Company's stock or stock option plans or employee benefit
plans or (ii) a registration relating solely to a transaction for which Form S-4
may be used, then:
(a) The Company shall give written notice of such determination to each
Holder of Registrable Securities, and each such Holder shall have the right to
request, by written notice given to the Company within 15 days of the date that
such written notice was mailed by the Company to such Holder, that a specific
number of Registrable Securities held by such Holder be included in the
Piggy-Back Registration Statement (and related underwritten offering, if any)
and the states in which such Registrable Securities are to be sold;
33
(b) If the Piggy-Back Registration Statement relates to an underwritten
offering, the notice given to each Holder shall specify the name or names of the
managing underwriter or underwriters for such offering. In addition, such notice
shall also specify the number of securities to be registered for the account of
the Company and for the account of its shareholders (other than the Holders of
Registrable Securities), if any;
(c) If the Piggy-Back Registration Statement relates to an underwritten
offering, each Holder of Registrable Securities to be included therein must
agree (i) to sell such Holder's Registrable Securities on the same basis as
provided in the underwriting arrangement approved by the Company, and (ii) to
timely complete and execute all questionnaires, powers of attorney, indemnities,
hold-back agreements, lock-up agreements, underwriting agreements and other
documents required under the terms of such underwriting arrangements or by the
SEC or by any state securities regulatory body;
(d) If the managing underwriter or underwriters for the underwritten
offering under the Piggy-Back Registration Statement determines that inclusion
of all or any portion of the Registrable Securities in such offering would
materially adversely affect the ability of the underwriters for such offering to
sell all of the securities requested to be included for sale in such offering at
the best price obtainable therefor, the aggregate number of Registrable
Securities that may be sold by the Holders shall be limited to such number of
Registrable Securities, if any, that the managing underwriter or underwriters
determine may be included therein without such adverse effect as provided below.
If the number of securities proposed to be sold in such underwritten offering
exceeds the number of securities that may be sold in such offering, there shall
be included in the offering, first, up to the maximum number of securities to be
sold by the Company for its own account and for the account of other
stockholders (other than Holders of Registrable Securities), as they may agree
among themselves, and second, as to the balance, if any, Registrable Securities
requested to be included therein by the Holders thereof (pro rata as between
such Holders based upon the number of Registrable Securities initially proposed
to be registered by each), or in such other proportions as the managing
underwriter or underwriters for the offering may require; provided, however,
that in the event that the number of securities proposed to be sold in such
underwritten offering exceeds the number of securities that may be sold in such
offering pursuant to the terms and conditions set forth above and the Piggy-Back
Registration Statement is a result of public offering by the Company of its
securities for its own account, there shall be included in the offering, first,
up to the maximum number of securities to be sold by the Company for its own
account and second, as to the balance, if any, securities to be sold for the
account of the Company's stockholders (both the Holders of Registrable
Securities requested and such other stockholders of the Company requested to be
included therein) on a pro rata basis;
(e) Holders of Registrable Securities shall have the right to withdraw
their Registrable Securities from the Piggy-Back Registration Statement, but if
the same relates to an underwritten offering, they may only do so during the
time period and on the terms agreed upon among the underwriters for such
underwritten offering and the Holders of Registrable Securities;
(f) The exercise of the registration rights of the Holders with respect to
any specific underwritten offering shall be subject to a 90-day delay at the
request of the managing underwriter;
All piggyback registration rights of the Holders shall terminate when all
of the Registrable Securities Then Outstanding may be sold pursuant to Rule
144(k).
34
The Holders shall pay all underwriting fees and discounts on their
Registrable Securities, as well as the fees and expenses of their counsel.
SECTION 9.02 SHELF REGISTRATION.
The Company shall, at its expense, file a registration statement on Form
S-3 under the 1933 Act (the "Shelf Registration") covering all of the
Registrable Securities within one hundred eighty (180) days of the date of the
Debentures or sixty (60) days after the date the the Company first becomes
eligible to file the Shelf Registration, and the Company shall use its best
efforts to cause the Shelf Registration to be declared effective and to keep the
Shelf Registration continuously effective until all of the Registrable
Securities registered therein cease to be Registrable Securities. The securities
shall cease to be Registrable Securities (a) when the Shelf Registration shall
have become effective under the 1933 Act and such securities shall have been
disposed of pursuant to a registration statement, or (b) such securities shall
have been sold as permitted by Rule 144 under the 1933 Act or the date on which
the Registrable Securities may be sold pursuant to Rule 144(k), whichever is the
first to occur. The Company agrees, if necessary, to supplement or amend the
Shelf Registration, as required by the registration form utilized by the Company
or by the instructions applicable to such registration form or by the 1933 Act,
and the Company agrees to furnish to the holders of the Registrable Securities
copies of any prospectus, supplement or amendment prior to its being used.
SECTION 9.03 OBLIGATIONS OF THE COMPANY.
Whenever required to effect the registration of any Registrable Securities
pursuant to this Agreement, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the SEC a registration statement with respect to
such Registrable Securities and use all reasonable efforts to cause such
registration statement to become effective, subject to the receipt of all
required information from the Holders, and keep such registration statement
effective until the sooner of all such Registrable Securities having been
distributed, or until 120 days have elapsed since such registration statement
became effective (subject to an extension of this period as provided below);
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
1933 Act with respect to the disposition of all securities covered by such
registration statement, or 120 days have elapsed since such registration
statement became effective (subject to the extension of this period as provided
below);
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them;
(d) Use all reasonable efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required, in connection therewith or as a
condition thereto, to qualify as a broker-dealer in any states or jurisdictions
or to do business or to file a general consent to service of process in any such
states or jurisdictions;
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement with the managing
underwriter of such offering, in usual and customary form reasonably
satisfactory to the Company and the Holders of a majority of the Registrable
Securities to be included in such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such an
agreement;
35
(f) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto and
covered by such registration statement is required to be delivered under the
1933 Act, of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing; and
(g) In the event of the notification provided for in Section 9.03(f)
above, the Company shall use its best efforts to prepare and file with the SEC
(and to provide copies thereof to the Holders) as soon as reasonably possible an
amended prospectus complying with the 1933 Act, and the period during which the
prospectus referred to in the notice provided for in Section 9.03(f) above
cannot be used and the time period prior to the use of the amended prospectus
referred to in this Section 9.03(g) shall not be counted in the 120 day period
of this Section 9.03.
SECTION 9.04 FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Article IX that the selling Holders shall
furnish to the Company any and all information reasonably requested by the
Company, its officers, directors, employees, counsel, agents or representatives,
the underwriter or underwriters, if any, and the SEC or any other Governmental
Authority, including, but not limited to: (i) such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities, as shall be required to effect the registration
of their Registrable Securities; and (ii) the identity of and compensation to be
paid to any proposed underwriter or broker-dealer to be employed in connection
therewith.
(b) In connection with the preparation and filing of each registration
statement registering Registrable Securities under the 1933 Act, the Company
shall give the Holders of Registrable Securities on whose behalf such
Registrable Securities are to be registered and their underwriters, if any, and
their respective counsel and accountants, at such Holders' sole cost and expense
(except as otherwise set forth herein), such access to copies of the Company's
records and documents and such opportunities to discuss the business of the
Company with its officers and the independent public accountants who have
certified its financial statements as shall be reasonably necessary in the
opinion of such Holders and such underwriters or their respective counsel, to
conduct a reasonable investigation within the meaning of the 1933 Act.
SECTION 9.05 EXPENSES OF REGISTRATION.
All expenses, other than underwriting discounts and commissions applicable
to the Registrable Securities sold by selling Holders, incurred in connection
with the registration of the Registrable Securities pursuant to this Article,
including, without limitation, all registration, filing and qualification fees,
printer's expenses, and accounting and legal fees and expenses of the Company,
shall be borne by the Company; provided, however, selling Holders shall be
responsible for all costs of their due diligence and legal counsel and other
advisors in connection with a registration of Registrable Securities.
36
SECTION 9.06 INDEMNIFICATION REGARDING REGISTRATION RIGHTS.
If any Registrable Securities are included in a registration statement
under this Article:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, the officers and directors of each Holder, any underwriter
(as defined in the ▇▇▇▇ ▇▇▇) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the 1933 Act or the
1934 Act, against any losses, claims, damages, liabilities (joint or several) or
any legal or other costs and expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action to which they may become subject under the 1933 Act, the 1934 Act or
state law, insofar as such losses, claims, damages, costs, expenses or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (each a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact with respect
to the Company or its securities contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements therein; (ii) the omission or alleged omission to
state therein a material fact with respect to the Company or its securities
required to be stated therein or necessary to make the statements therein not
misleading; or (iii) any violation or alleged violation by the Company of the
1933 Act, the 1934 Act, any state securities law or any rule or regulation
promulgated under the 1933 Act, the 1934 Act or any state securities law.
Notwithstanding the foregoing, the indemnity agreement contained in this Section
9.06(a) shall not apply and the Company shall not be liable (i) in any such case
for any such loss, claim, damage, costs, expenses, liability or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon, and in conformity with, written information furnished expressly
for use in connection with such registration by any such Holder or its
authorized agent, underwriter or controlling person, or (ii) for amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld.
(b) To the extent permitted by law, each Holder who participates in a
registration pursuant to the terms and conditions of this Agreement shall
indemnify and hold harmless the Company, each of its directors and officers who
have signed the registration statement, each Person, if any, who controls the
Company within the meaning of the 1933 Act, the 1934 Act, any state securities
law or any rule or regulation promulgated under the 1933 Act, the 1934 Act or
any state securities law, each of the Company's employees, agents, counsel and
representatives, any underwriter and any other Holder selling securities in such
registration statement, or any of its directors or officers, or any person who
controls such Holder, against any losses, claims, damages, costs, expenses or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, employee, agent, representative, underwriter or
other such Holder, or director, officer or controlling person thereof, may
become subject, under the 1933 Act, the 1934 Act or other federal or state law,
only insofar as such losses, claims, damages, costs, expenses or liabilities or
actions in respect thereto arise out of or are based upon any Violation, in each
case to the extent, and only to the extent, that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such Registration. Each such Holder
will indemnify any legal or other expenses reasonably incurred by the Company or
any such director, officer, employee, agent, representative, controlling person,
underwriter or other Holder, or officer, director or any controlling person
thereof, in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this Section 9.06(b) shall not apply to amounts paid in settlement
of any such loss, claim, damage, costs, expenses, liability or action if such
settlement is effected without the prior written consent of the Holder, which
consent shall not be unreasonably withheld.
37
(c) Promptly after receipt by an indemnified party under this Section 9.06
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 9.06, deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to retain its
own counsel, with the reasonable fees and expenses of such counsel to be paid by
the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve the indemnifying party of its
obligations under this Section 9.06, except to the extent that the failure
results in a failure of actual notice to the indemnifying party and such
indemnifying party is materially prejudiced in its ability to defend such action
solely as a result of the failure to give such notice.
(d) If the indemnification provided for in this Section 9.06 is
unavailable to an indemnified party under this Section in respect of any losses,
claims, damages, costs, expenses, liabilities or actions referred to herein,
then each indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, costs, expenses, liabilities or actions
in such proportion as is appropriate to reflect the relative fault of the
Company, on the one hand and of the Holder, on the other, in connection with the
Violation that resulted in such losses, claims, damages, costs, expenses,
liabilities or actions. The relative fault of the Company, on the one hand, and
of the Holder, on the other, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of the material fact or
the omission to state a material fact relates to information supplied by the
Company or by the Holder, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(e) The Company, on the one hand, and the Holders, on the other, agree
that it would not be just and equitable if contribution pursuant to this Section
9.06 were determined by a pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of losses, claims, damages, costs, expenses,
liabilities and actions referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses incurred by such indemnified party in connection with
defending any such action or claim. Notwithstanding the provisions of this
Section 9.06, neither the Company nor the Holders shall be required to
contribute any amount in excess of the amount by which the total price at which
the securities were offered to the public exceeds the amount of any damages
which the Company or each such Holder has otherwise been required to pay by
reason of such Violation. No person guilty of fraudulent misrepresentations
(within the meaning of Section 11(f) of the ▇▇▇▇ ▇▇▇) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.
SECTION 9.07 REPORTS UNDER THE 1934 ACT.
So long as the Company has a class of securities registered pursuant to
Section 12 of the 1934 Act, with a view to making available to the Holders the
benefits of Rule 144 promulgated under the 1933 Act ("Rule 144") and any other
rule or regulation of the SEC that may at any time permit a Holder to sell
securities of the Company to the public without registration or pursuant to a
registration on Form S-3, if applicable, the Company agrees to use its
reasonable efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(b) File with the SEC, in a timely manner, all reports and other documents
required of the Company under the 1933 Act and the 1934 Act;
38
(c) Use its best efforts to include all Common Stock covered by such
registration statement on NASDAQ if the Common Stock is then quoted on NASDAQ;
or list all Common Stock covered by such registration statement on such
securities exchange or bulletin board on which any of the Common Stock is then
listed; or, if the Common Stock is not then quoted on NASDAQ or listed on any
national securities exchange or bulletin board, use its best efforts to have
such Common Stock covered by such registration statement quoted on NASDAQ or, at
the option of the Company, listed on a national securities exchange or bulletin
board if eligible for listing; and
(d) Furnish to any Holder, so long as the Holder owns any Registrable
Securities, (i) forthwith upon request, a copy of the most recent annual or
quarterly report of the Company and such other SEC reports and documents so
filed by the Company, and (ii) such other information (but not any opinion of
counsel) as may be reasonably requested by any Holder seeking to avail himself
of any rule or regulation of the SEC which permits the selling of any such
securities without registration or pursuant to such form.
SECTION 9.08 ASSIGNMENT OF REGISTRATION RIGHTS.
Subject to the terms and conditions of this Agreement, and the Debentures,
the right to cause the Company to register Registrable Securities pursuant to
this Agreement may be assigned by Holder to any transferee or assignee of such
securities; provided that (i) such transferee or assignee is a transferee or
assignee of at least ten percent (10%) of the Registrable Securities, (ii) such
transferee or assignee is not a Person who is a direct, material competitor of
the Company, (iii) the Company is, within a reasonable time after such transfer,
furnished with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned; and, (iv) such assignment shall be effective only if,
immediately following such transfer, the further disposition of such securities
by the transferee or assignee is restricted under the 1933 Act; it being the
intention that, so long as Holder holds any Registrable Securities hereunder,
either Holder or its transferee or assignee of at least ten percent may exercise
the piggy-back registration rights hereunder. Other than as set forth above, the
parties hereto hereby agree that the registration rights hereunder shall not be
transferable or assigned and any contemplated transfer or assignment in
contravention of this Agreement shall be deemed null and void and of no effect
whatsoever.
SECTION 9.09 OTHER MATTERS.
(a) Each Holder of Registrable Securities hereby agrees by acquisition of
such Registrable Securities that, with respect to each offering of the
Registrable Securities, whether each Holder is offering such Registrable
Securities in an underwritten or nonunderwritten offering, such Holder will
comply with Regulation M or such other or additional anti-manipulation rules
then in effect until such offering has been completed, and in respect of any
nonunderwritten offering, in writing will inform the Company, any other Holders
who are selling shareholders, and any national securities exchange upon which
the securities of the Company are listed, that the Registrable Securities have
been sold and will, upon the Company's request, furnish the distribution list of
the Registrable Securities. In addition, upon the request of the Company, each
Holder will supply the Company with such documents and information as the
Company may reasonably request with respect to the subject matter set forth and
described in this Section 9.09.
(b) Each Holder of Registrable Securities hereby agrees by acquisition of
such Registrable Securities that, upon receipt of any notice from the Company of
the happening of any event which makes any statement made in the registration
statement, the prospectus or any document incorporated therein by reference,
untrue in any material respect or which requires the making of any changes in
the registration statement, the prospectus or any document incorporated therein
by reference, in order to make the statements therein not misleading in any
material respect, such Holder will forthwith discontinue disposition of
Registrable Securities under the prospectus related to the applicable
registration statement until such Holder's receipt of the copies of the
supplemented or amended prospectus, or until it is advised in writing by the
Company that the use of the prospectus may be resumed, and has received copies
of any additional or supplemental filings which are incorporated by reference in
the prospectus.
39
ARTICLE X. - BOARD OF DIRECTORS
SECTION 10.01 BOARD REPRESENTATION OR ATTENDANCE BY OBSERVER.
(a) The Company herewith agrees that Agent shall have the right, from time
to time, to designate a nominee to serve as a member of the Board of Directors
of the Company. In the event of a monetary Default under Section 8.01 hereof,
the Agent shall have the right to designate one (1) additional nominee to serve
as a member of the Board of Directors of the Company. During such time as Agent
has not exercised such rights, the Agent shall have the right to designate an
observer, who shall be entitled to attend and participate (but not vote) in all
meetings of the Board of Directors and to receive all notices, reports,
information, correspondence and communications sent by the Company to members of
the Board of Directors. All costs and expenses incurred by any such designated
Director or observer, or by Agent on behalf of such Director or observer, shall
be promptly reimbursed by the Company.
(b) Any such Director or observer shall, if requested to do so, absent
himself or herself from the meeting in the event of, and so long as, the
Directors are considering and acting on matters pertaining to any rights or
obligations of the Company or the Lender under this Agreement, the Debentures,
the other Loan Documents.
SECTION 10.02 LIMITATION OF AUTHORITY OF PERSONS DESIGNATED AS A
DIRECTOR NOMINEE.
It is provided and agreed that the actions and advice of any person while
serving pursuant to Section 10.01 as a Director or an observer at meetings of
the Board of Directors shall be construed to be the actions and advice of that
person alone and not be construed as actions of the Lender as to any notice of
requirements or rights of Lender under this Agreement, the Debentures, the other
Loan Documents nor as actions of the Lender to approve modifications, consents,
amendments or waivers thereof; and all such actions or notices shall be deemed
actions or notices of the Lender only when duly provided in writing and given in
accordance with the provisions of this Agreement.
SECTION 10.03 NONLIABILITY OF THE LENDER.
The relationship between Borrower and the Lender is, and shall at all
times remain, solely that of borrower and lender. The Lender neither undertakes
nor assumes any responsibility or duty to Borrower to review, inspect,
supervise, pass judgment upon or inform Borrower of any matter in connection
with any phase of Borrower's business, operations or condition, financial or
otherwise. Borrower shall rely entirely upon its own judgment with respect to
such matters, and any review, inspection, supervision, exercise of judgment or
information supplied to Borrower by the Lender, or any representative or agent
of the Lender, in connection with any such matter is for the protection of the
Lender, and neither Borrower nor any third party is entitled to rely thereon.
ARTICLE XI. - AGENCY PROVISIONS
SECTION 11.01 THE LENDER'S REPRESENTATIONS AND WARRANTIES TO AGENT.
Lender represents and warrants to the Agent:
40
(a) It is legal for it to make the Loan, and the making of such Loan
complies with laws applicable to it;
(b) It has made, its own independent review (including any desired
investigations and inspections) of, and it accepts and approves, the Loan, this
Agreement and the associated documents and all other matters and information
which it deems pertinent. It acknowledges that the Loan Documents are a complete
statement of all understandings and respective rights and obligations between
and among the Lender, Subsidiaries and Borrower regarding the Loan;
(c) Lender has not made any express or implied representation or warranty
to any other lender with respect to this transaction;
(d) It will, independently and without reliance upon any other lender, and
based upon such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement, and will make such
investigation as it deems necessary to inform itself as to the Loan, the Loan
Documents, Borrower and any collateral; provided, however, nothing contained in
this Section shall limit Agent's obligation to provide the Lender with the
information and documents Agent is expressly required to deliver under this
Agreement;
(f) The Loan Documents executed by the Lender are valid and binding
obligations of the Lender.
SECTION 11.02 WAIVER OF LOAN PROVISIONS OR INTEREST OR PRINCIPAL PAYMENTS.
A waiver of an interest or principal payment, a declaration of a Default
or any amendment, modification or waiver of this Agreement or the Debentures
will require the consent of the Lender.
SECTION 11.03 AGENCY.
(a) Lender hereby designates and appoints ▇▇▇▇ Group as its Agent under
this Agreement and authorizes the Agent to take such action on its behalf under
the provisions of this Agreement and the other Loan Documents and to exercise
such powers as are set forth herein or therein, together with such other powers
as are reasonably incidental thereto. In performing its functions and duties
under this Agreement, the Agent shall act solely as agent of the Lender and does
not assume, and shall not be deemed to have assumed, any obligation toward or
relationship of agency or trust with or for Borrower. The Agent may perform any
of its duties under this Agreement, or under the other Loan Documents, by or
through its agents or employees.
(b) The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement or in the other Loan Documents. Except as
expressly provided herein, the duties of the Agent shall be mechanical and
administrative in nature. The Agent shall have, and may use, its sole discretion
with respect to exercising or refraining from taking any actions which the Agent
is expressly entitled to take or assert under this Agreement or the other Loan
Documents. The Agent shall not have, by reason of this Agreement, a fiduciary
relationship with respect to the Lender. Nothing in this Agreement, or in any of
the other Loan Documents, express or implied, is intended to or shall be
construed to impose upon the Agent any obligations in respect of this Agreement
or in any of the other Loan Documents except as expressly set forth herein or
therein. If the Agent seeks the consent or approval of the Lender to the taking
or refraining from taking any action hereunder, the Agent shall send notice
thereof to the Lender. The Agent may employ agents, co-agents and
attorneys-in-fact and shall not be responsible to the Lender or Borrower, except
as to money or securities received by it or its authorized agents, for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
with reasonable care.
41
(c) Neither the Agent nor any of its officers, directors, employees or
agents shall be liable to the Lender for any action taken or omitted by it or
any of them under this Agreement or in any of the other Loan Documents, or in
connection herewith or therewith, except that no Person shall be relieved of any
liability imposed by law, intentional tort or gross negligence. The Agent shall
not be responsible to the Lender for any recitals, statements, representations
or warranties contained in this Agreement or for the execution, effectiveness,
genuineness, validity, enforceability, collectability or sufficiency of this
Agreement or in any of the other Loan Documents, or any of the transactions
contemplated thereby, or for the financial condition of Borrower or the
Subsidiaries. The Agent shall not be required to make any inquiry concerning
either the performance or observance of any of the terms, provisions or
conditions of this Agreement or in any of the other Loan Documents or the
financial condition of Borrower, or the existence or possible existence of any
Default or Event of Default. Agent shall give the Lender notice of any Default
or Event of Default of which Agent has actual notice. The Agent may, at any
time, request instructions from the Lender with respect to any actions or
approvals which, by the terms of this Agreement, of any of the other Loan
Documents, the Agent is permitted or required to take or to grant, and if such
instructions are promptly requested, the Agent shall be absolutely entitled to
refrain from taking any action or to withhold any approval and shall not be
under any liability whatsoever to any Person for refraining from any action or
withholding any approval under any of the Loan Documents until it shall have
received such instructions from the Lender. Without limiting the foregoing, the
Lender shall not have any right of action whatsoever against the Agent as a
result of the Agent acting or refraining from acting under this Agreement or any
of the other Loan Documents in accordance with the instructions of the Lender.
(d) The Agent shall be entitled to rely upon any written notices,
statements, certificates, orders or other documents or any telephone message
believed by it, in good faith, to be genuine and correct and to have been
signed, sent or made by the proper Person, and with respect to all matters
pertaining to this Agreement or any of the other Loan Documents and its duties
hereunder or thereunder, upon advice of counsel selected by it.
(e) To the extent that the Agent is not reimbursed and indemnified by
Borrower, the Lender will reimburse and indemnify the Agent for and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, advances or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent in any way relating to or arising out of this Agreement or any of the
other Loan Documents, or any action taken or omitted by the Agent under this
Agreement or any of the other Loan Documents. The obligations of the Lender
under this indemnification provision shall survive the payment in full of the
Loans and the termination of this Agreement.
ARTICLE XII. - MISCELLANEOUS
SECTION 12.01 STRICT COMPLIANCE.
Any waiver by the Lender of any breach or any term or condition of this
Agreement or the other Loan Documents shall not be deemed a waiver of any other
breach, nor shall any failure to enforce any provision of this Agreement or the
other Loan Documents operate as a waiver of such provision or of any other
provision, nor constitute nor be deemed a waiver or release of Borrower for
anything arising out of, connected with or based upon this Agreement or the
other Loan Documents.
42
SECTION 12.02 WAIVERS AND MODIFICATIONS.
All modifications, consents, amendments or waivers (herein "Waivers") of
any provision of this Agreement, the Debentures, any other Loan Documents, and
any consent to departure therefrom, shall be effective only if the same shall be
in writing by the Lender and then shall be effective only in the specific
instance and for the purpose for which given. No notice or demand given, in any
case, shall constitute a waiver of the right to take other action in the same,
similar or other instances without such notice or demand. No failure to
exercise, and no delay in exercising, on the part of Agent or Lender, any right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right. The rights of Lender hereunder, under the other Loan
Documents shall be in addition to all other rights provided by law.
SECTION 12.03 LIMITATION ON LIABILITY.
The duties, warranties, covenants and promises arising from the Loan
Documents of Lender or Agent to Borrower shall be several and not joint, and
Borrower shall have no legal or equitable cause of action against Lender or
Agent (or their successors or assigns) for any liability of the other (or its
successors or assigns).
SECTION 12.04 CHOICE OF FORUM; CONSENT TO SERVICE OF PROCESS AND
JURISDICTION.
Any suit, action or proceeding against Borrower with respect to this
Agreement or the Debentures or any judgment entered by any court in respect
thereof, may be brought in the courts of the State of Texas, County of Dallas,
or in the United States federal courts located in Dallas, Texas, as Lender or
Agent, in its sole discretion, may elect, and Borrower hereby submits to the
nonexclusive jurisdiction of such courts for the purpose of any such suit,
action or proceeding. Borrower hereby agrees that service of all writs, process
and summonses in any such suit, action or proceeding brought in the State of
Texas may be brought upon, and Borrower hereby irrevocably appoints, CT
Corporation System, Dallas, Texas, as its true and lawful attorney-in-fact in
the name, place and stead of Borrower to accept such service of any and all such
writs, process and summonses. Borrower hereby irrevocably waives any objections
which it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any Debentures
brought in such courts, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
any inconvenient forum.
SECTION 12.05 INVALID PROVISIONS.
If any provision of any Loan Document is held to be illegal, invalid or
unenforceable under present or future laws during the term of this Agreement,
such provision shall be fully severable; such Loan Document shall be construed
and enforced as if such illegal, invalid or unenforceable provision had never
comprised a part of such Loan Document; and the remaining provisions of such
Loan Document shall remain in full force and effect and shall not be affected by
the illegal, invalid or unenforceable provision or by its severance from such
Loan Document. Furthermore, in lieu of each such illegal, invalid or
unenforceable provision shall be added as part of such Loan Document a provision
mutually agreeable to Borrower and Lender as similar in terms to such illegal,
invalid or unenforceable provision as may be possible and be legal, valid and
enforceable. In the event Borrower and Lender are unable to agree upon a
provision to be added to the Loan Document within a period of ten (10) business
days after a provision of the Loan Document is held to be illegal, invalid or
unenforceable, then a provision acceptable to independent arbitrators, such to
be selected in accordance with the provisions of the American Arbitration
Association, as similar in terms to the illegal, invalid or unenforceable
provision as is possible and be legal, valid and enforceable shall be added
automatically to such Loan Document. In either case, the effective date of the
added provision shall be the date upon which the prior provision was held to be
illegal, invalid or unenforceable.
43
SECTION 12.06 MAXIMUM INTEREST RATE.
(a) Regardless of any provision contained in any of the Loan Documents,
Lender shall never be entitled to receive, collect or apply as interest on the
Debentures any amount in excess of interest calculated at the Maximum Rate, and,
in the event that Lender ever receives, collects or applies as interest any such
excess, the amount which would be excessive interest shall be deemed to be a
partial prepayment of principal and treated hereunder as such; and, if the
principal amount of the Obligation is paid in full, any remaining excess shall
forthwith be paid to Borrower. In determining whether or not the interest paid
or payable under any specific contingency exceeds interest calculated at the
Maximum Rate, Borrower and Lender shall, to the maximum extent permitted under
applicable law, (i) characterize any nonprincipal payment as an expense, fee or
premium rather than as interest, (ii) exclude voluntary prepayments and the
effects thereof, and (iii) amortize, pro rate, allocate and spread, in equal
parts, the total amount of interest throughout the entire contemplated term of
the Debentures; provided that, if the Debentures is paid and performed in full
prior to the end of the full contemplated term thereof, and if the interest
received for the actual period of existence thereof exceeds interest calculated
at the Maximum Rate, Lender shall refund to Borrower the amount of such excess
or credit the amount of such excess against the principal amount of the
Debentures and, in such event, Lender shall not be subject to any penalties
provided by any laws for contracting for, charging, taking, reserving or
receiving interest in excess of interest calculated at the Maximum Rate.
(b) "Maximum Rate" shall mean, on any day, the highest nonusurious rate of
interest permitted by applicable law on such day that, at any time or from time
to time, may be contracted for, taken, reserved, charged or received on the
Indebtedness evidenced by the Debentures under the laws which are presently in
effect of the United States of America and the laws of any other jurisdiction
which are or may be applicable to the holder of the Debentures and such
Indebtedness or, to the extent permitted by law, under such applicable laws of
the United States of America and the laws of any other jurisdiction which are or
may be applicable to the holder of the Debentures and which may hereafter be in
effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.
SECTION 12.07 PARTICIPATIONS AND ASSIGNMENTS OF THE DEBENTURES.
(a) Lender and the Agent shall have the right to enter into a
participation agreement with any other party or its Affiliates with respect to
the Debentures, or to sell all or any part of the Debentures, but any
participation or sale shall not affect the rights and duties of Lender or the
Agent hereunder vis-a-vis Borrower. In the event that all or any portion of the
Loan shall be at any time, assigned, transferred or conveyed to other parties,
any action, consent or waiver (except for compromise or extension of maturity),
to be given or taken by Lender or the Agent hereunder (herein "Action"), shall
be such action as taken by the holder of a majority in amount of the Principal
Amount of the Debentures then outstanding, as such holder are recorded on the
books of Borrower and represented by the Agent as described in subsection (b)
below.
(b) Assignment or sale of the Debentures shall be effective on the books
of Borrower only upon (i) endorsement of the Debentures, or part thereof, to the
proposed new holder, along with a current notation of the amount of payments or
installments received and net Principal Amount yet unfunded or unpaid, and
presentment of such Debentures to Borrower for issue of a replacement
Debentures, in the name of the new holder; and (ii) delivery of an opinion of
counsel, reasonably satisfactory to Borrower, that transfer shall not require
registration or qualification under applicable state or federal securities laws.
44
(c) The Debentures may be sold, transferred or assigned only to Affiliates
of Lender or permitted transferees in multiples of One Hundred Thousand Dollars
($100,000).
SECTION 12.08 CONFIDENTIALITY.
(a) All financial reports or information that are furnished to Lender or
Holders, or their respective director designees or other representatives,
pursuant to this Agreement or pursuant to the Debentures or the other Loan
Documents shall be treated as confidential unless and to the extent that such
information has been otherwise disclosed by Borrower, but nothing herein
contained shall limit or impair the Lender's or Holders' right to disclose such
reports to any appropriate Governmental Authority, or to use such information to
the extent pertinent to an evaluation of the Obligation, or to enforce
compliance with the terms and conditions of this Agreement, or to take any
lawful action which the Lender or Holders deem necessary to protect their
respective interests under this Agreement.
(b) Lender and the Agent shall use their reasonable efforts to protect and
preserve the confidentiality of such information, except for such disclosure as
shall be required for compliance by Lender or its respective director designees
with SEC reporting requirements or any administrative or judicial proceeding or
otherwise as a matter of law. The provisions of Section 5.01 notwithstanding,
Borrower may refuse to provide information as required pursuant thereto to an
assignee or successor in interest to Lender, unless and until such assignee or
successor shall have executed an agreement to maintain the confidentiality of
the information as provided herein.
SECTION 12.09 BINDING EFFECT.
The Loan Documents shall be binding upon and inure to the benefit of
Borrower and Lender and their respective successors, assigns and legal
representatives; provided, however, that Borrower may not, without the prior
written consent of Lender, assign any rights, powers, duties or obligations
thereunder.
SECTION 12.10 NO THIRD PARTY BENEFICIARY.
The parties do not intend the benefits of this Agreement to inure to any
third party, nor shall this Agreement be construed to make or render Lender
liable to any materialman, supplier, contractor, subcontractor, purchaser or
lessee of any property owned by Borrower, or for debts or claims accruing to any
such persons against Borrower. Notwithstanding anything contained herein, in the
Debentures, in any other Loan Document or in any Subsidiary Document, no conduct
by any or all of the parties hereto, before or after signing this Agreement, any
other Loan Document nor any Subsidiary Document, shall be construed as creating
any right, claim or cause of action against Lender, or any of its respective
officers, directors, agents or employees, in favor of any materialman, supplier,
contractor, subcontractor, purchaser or lessee of any property owned by
Borrower, nor to any other person or entity other than Borrower.
SECTION 12.11 ENTIRETY.
This Agreement and the Debentures, the other Loan Documents, and any other
documents or instruments issued or entered into pursuant hereto and thereto
contain the entire agreement between the parties and supersede all prior
agreements and understandings, written or oral (if any), relating to the subject
matter hereof and thereof.
SECTION 12.12 HEADINGS.
Section headings are for convenience of reference only and, except as a
means of identification of reference, shall in no way affect the interpretation
of this Agreement.
45
SECTION 12.13 SURVIVAL.
All representations and warranties made by Borrower herein shall survive
delivery of the Debentures and the making of the Loans.
SECTION 12.14 MULTIPLE COUNTERPARTS.
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one and the same agreement, and any of the
parties hereto may execute this Agreement by signing any such counterpart.
SECTION 12.15 KNOWLEDGE OF BORROWER.
As used herein or in any of the other Loan Documents, all references to
"Borrower's best knowledge" or "to the knowledge of Borrower" or words or
phrases of similar import (whether or not modified by any additional phrase)
shall in each case mean the knowledge of Borrower, the Subsidiaries or their
respective executive officers, directors and principal shareholders.
SECTION 12.16 NOTICES.
Any notices or other communications required or permitted to be given by
this Agreement or any other documents and instruments referred to herein must be
(i) given in writing and personally delivered, mailed by prepaid certified or
registered mail or sent by overnight service, such as FedEx, or (ii) made by
telex or facsimile transmission delivered or transmitted to the party to whom
such notice or communication is directed, with confirmation thereupon given in
writing and personally delivered or mailed by prepaid certified or registered
mail.
If to Borrower: Digital Learning Institute, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
with a copy to:
Jinnah & Jinnah
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Al Jinnah, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company: ▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
with a copy to:
Jinnah & Jinnah
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Al Jinnah, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
46
If to Lender: Renaissance Capital Growth & Income
Fund III, Inc.
c/o RENN Capital Group, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇-▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
President and CEO
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Renaissance US Growth Investment
Trust PLC
c/o RENN Capital Group, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇-▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Director
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
BFSUS Special Opportunities Trust PLC
c/o RENN Capital Group, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇-▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Director
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
If to Agent: ▇▇▇▇ Capital Group, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇-▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
President and CEO
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Any notice delivered personally in the manner provided herein will be
deemed given to the party to whom it is directed upon the party's (or its
agent's) actual receipt. Any notice addressed and mailed in the manner provided
herein will be deemed given to the party to whom it is addressed at the close of
business, local time of the recipient, on the fourth business day after the day
it is placed in the mail, or, if earlier, the time of actual receipt.
47
SECTION 12.17 GOVERNING LAW.
THIS LOAN AGREEMENT HAS BEEN PREPARED, IS BEING EXECUTED AND DELIVERED,
AND IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS, AND THE SUBSTANTIVE LAWS
OF SUCH STATE AND THE APPLICABLE FEDERAL LAWS OF THE UNITED STATES OF AMERICA
SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS
LOAN AGREEMENT.
[Signature page follows.]
48
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
and year written above.
BORROWER:
DIGITAL LEARNING INSTITUTE, INC.
By:
--------------------------------------
--------------------------------------
COMPANY:
▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, INC.
By:
--------------------------------------
--------------------------------------
LENDER:
BFSUS SPECIAL OPPORTUNITIES TRUST PLC
By:
--------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Director
RENAISSANCE US GROWTH INVESTMENT TRUST PLC
By:
--------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Director
RENAISSANCE CAPITAL GROWTH & INCOME
FUND III, INC.
By: ▇▇▇▇ Capital Group, Inc.,
Investment Adviser
By:
---------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
President and CEO
AGENT:
▇▇▇▇ CAPITAL GROUP, INC.
By:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
President and CEO
SCHEDULES TO CONVERTIBLE LOAN AGREEMENT
Schedule 2.09 Finder's Fees
Schedule 4.03 Conflicts and Consents
Schedule 4.05 Permitted Liens
Schedule 4.06(a) and (b) Financial Condition
Schedule 4.08 Material Agreements
Schedule 4.09 Litigation
Schedule 4.10 Taxes
Schedule 4.11(a) and (b) Capitalization
Schedule 4.13 Employee Matters
Schedule 4.14 Employee Benefit Plans
Schedule 4.15 Permits
Schedule 4.16 Licenses and Permits
Schedule 4.17 Contracts
Schedule 4.19 Insider Agreements not listed on
SEC Filings
Schedule 4.20 Subsidiaries
Schedule 4.21 Casualties
Schedule 4.24 Corporate Names
Schedule 4.25 Insurance
Schedule 4.27 Real Property
Schedule 4.28 Environmental Matters
Schedule 4.30 Transactions with Affiliates
Schedule 4.32 Off-Balance Sheet Arrangements
Schedule 6.01 Limitation on Indebtedness
Schedule 7.01 Financial Ratios