Exhibit 10.10
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PURCHASE AGREEMENT
dated as of March 27, 1997
by and between
SELECT COMFORT CORPORATION
and
GENERAL ELECTRIC CAPITAL CORPORATION
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TABLE OF CONTENTS
PURCHASE AGREEMENT
Section Page
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. PURCHASE OF NOTE AND WARRANTS . . . . . . . . . . . . . . . . . . . 11
2.1 Purchase of Note and Warrants. . . . . . . . . . . . . . . . 11
2.2 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.3 Optional Prepayment. . . . . . . . . . . . . . . . . . . . . 11
2.4 Mandatory Redemption . . . . . . . . . . . . . . . . . . . . 12
2.5 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . 12
2.6 Interest on Note . . . . . . . . . . . . . . . . . . . . . . 12
2.7 Original Issue Discount. . . . . . . . . . . . . . . . . . . 13
2.8 Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.9 Receipt of Payments. . . . . . . . . . . . . . . . . . . . . 14
2.10 Application of Payments. . . . . . . . . . . . . . . . . . . 14
2.11 Sharing of Payments. . . . . . . . . . . . . . . . . . . . . 14
2.12 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.13 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.14 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3. PURCHASER'S REPRESENTATIONS, WARRANTIES AND
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.1 Investment Intention . . . . . . . . . . . . . . . . . . . . 17
3.2 Accredited Investor. . . . . . . . . . . . . . . . . . . . . 17
3.3 Corporate Existence. . . . . . . . . . . . . . . . . . . . . 17
3.4 Corporate Power; Authorization; Enforceable
Obligations. . . . . . . . . . . . . . . . . . . . . . . . . 17
3.5 Restrictions on Transfer . . . . . . . . . . . . . . . . . . 17
3.6 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . 17
4. COMPANY'S REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . 18
4.1 Authorized and Outstanding Shares of
Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . 18
4.2 Authorization and Issuance of Note and
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.3 Securities Laws. . . . . . . . . . . . . . . . . . . . . . . 19
4.4 Corporate Existence; Compliance with Law . . . . . . . . . . 19
4.5 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 19
4.6 Corporate Power; Authorization; Enforceable
Obligations. . . . . . . . . . . . . . . . . . . . . . . . . 19
4.7 Financial Statements . . . . . . . . . . . . . . . . . . . . 20
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4.8 Ownership of Property. . . . . . . . . . . . . . . . . . . . 20
4.9 Material Contracts; Indebtedness . . . . . . . . . . . . . . 21
4.10 Environmental Protection . . . . . . . . . . . . . . . . . . 21
4.11 Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . 22
4.12 Other Ventures . . . . . . . . . . . . . . . . . . . . . . . 23
4.13 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.14 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . 24
4.15 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.16 Employment and Labor Agreements. . . . . . . . . . . . . . . 24
4.17 Patents, Trademarks, Copyrights and
Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.18 No Material Adverse Effect . . . . . . . . . . . . . . . . . 24
4.19 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.20 Registration Under Exchange Act; Registration
Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.21 Ordinary Course of Business. . . . . . . . . . . . . . . . . 26
4.22 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.23 Minute Books . . . . . . . . . . . . . . . . . . . . . . . . 26
4.24 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . 26
5. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.1 Affirmative and Financial Covenants. . . . . . . . . . . . 26
(a) Books and Records . . . . . . . . . . . . . . . . . . . 27
(b) Financial and Business Information. . . . . . . . . . . 27
(c) Communication with Accountants. . . . . . . . . . . . . 28
(d) Tax Compliance. . . . . . . . . . . . . . . . . . . . . 28
(e) Insurance . . . . . . . . . . . . . . . . . . . . . . . 28
(f) Employee Plans. . . . . . . . . . . . . . . . . . . . . 28
(g) Compliance with Laws. . . . . . . . . . . . . . . . . . 29
(h) Financial Covenants . . . . . . . . . . . . . . . . . . 29
(i) Maintenance of Existence and Conduct
of Business . . . . . . . . . . . . . . . . . . . . . . 30
5.2 Negative Covenants . . . . . . . . . . . . . . . . . . . . . 31
(a) Permitted Acquisitions and
Investments . . . . . . . . . . . . . . . . . . . . . . 31
(b) Sales of Assets; Liquidation. . . . . . . . . . . . . . 31
(c) Employee Loans. . . . . . . . . . . . . . . . . . . . . 31
(d) Preferred Stock . . . . . . . . . . . . . . . . . . . . 31
(e) Transactions with Affiliates. . . . . . . . . . . . . . 31
(f) Indebtedness. . . . . . . . . . . . . . . . . . . . . . 32
(g) Liens . . . . . . . . . . . . . . . . . . . . . . . . . 32
(h) Restricted Payments . . . . . . . . . . . . . . . . . . 32
(i) Mergers; Subsidiaries . . . . . . . . . . . . . . . . . 32
5.3 Additional Covenants . . . . . . . . . . . . . . . . . . . . 32
6. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . . . . 33
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6.1 Conditions Precedent . . . . . . . . . . . . . . . . . . . . 33
6.2 Additional Conditions. . . . . . . . . . . . . . . . . . . . 34
7. EVENTS OF DEFAULT; RIGHTS AND REMEDIES. . . . . . . . . . . . . . . 34
7.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . 34
7.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.3 Waivers by Company . . . . . . . . . . . . . . . . . . . . . 36
7.4 Right of Set-Off . . . . . . . . . . . . . . . . . . . . . . 37
8. SUBORDINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.1 Note Subordinated to Senior Debt . . . . . . . . . . . . . . 37
8.2 Priority and Payment Over of Proceeds in
Certain Events. . . . . . . . . . . . . . . . . . . . . . . 37
8.3 Rights of Holders of Senior Debt Not To Be
Impaired. . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.4 Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . 39
8.5 Obligations of Company Unconditional. . . . . . . . . . . . 40
8.6 Notice to Holders. . . . . . . . . . . . . . . . . . . . . . 40
8.7 Right of Any Holder as Holder of Senior
Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.8 Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . 40
9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.1 Complete Agreement; Modification of Agreement,
Sale of Interest . . . . . . . . . . . . . . . . . . . . . . 41
9.2 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . 42
9.3 No Waiver by Purchaser . . . . . . . . . . . . . . . . . . . 42
9.4 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.5 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . 43
9.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . 43
9.7 Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.8 Conflict of Terms. . . . . . . . . . . . . . . . . . . . . . 43
9.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . 43
9.10 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.11 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.12 Section Titles . . . . . . . . . . . . . . . . . . . . . . . 45
9.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 45
9.14 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . 45
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Schedules
Schedule 1(A) - Certain Shareholders
Schedule 1(B) - Certain Permitted Liens
Schedule 3.5 - Certain Competitors
Schedule 4.1 - Stockholders and Stock
Schedule 4.5 - Subsidiaries
Schedule 4.7 - Obligations and Dividends
Schedule 4.8 - Real Property
Schedule 4.9 - Material Contracts
Schedule 4.10 - Environmental Matters
Schedule 4.11 - Labor Matters
Schedule 4.12 - Other Ventures
Schedule 4.13 - Taxes
Schedule 4.14 - Litigation
Schedule 4.16 - Employment Contracts
Schedule 4.17 - Patents, Trademarks, Etc.
Schedule 4.18 - Material Adverse Effect
Schedule 4.19 - ERISA
Schedule 4.20 - Registration Rights
Schedule 4.22 - Insurance
Schedule 5.2(c) - Loans to Employees
Exhibits
Exhibit A Form of Note
Exhibit B Form of Series A Warrant
Exhibit C Form of Series B Warrant
Exhibit D Opinion of Company Counsel
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PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of March 27, 1997, by and between Select
Comfort Corporation, a Minnesota corporation ("Company"), and General Electric
Capital Corporation, a New York corporation ("GE Capital" or "Purchaser").
W I T N E S S E T H :
WHEREAS, Company has agreed to issue and sell to Purchaser, and Purchaser
has agreed to purchase from Company, upon the terms and conditions hereinafter
provided, a senior subordinated promissory note in the principal amount of
$15,000,000 (the "Note"), a warrant to purchase an aggregate of 1,100,000 shares
of common stock of Company (the "Series A Warrant") and a warrant to purchase
1,000,000 shares of common stock of Company (the "Series B Warrant"; and
collectively with the Series A Warrant, the "Warrants");
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, it is agreed as follows:
1. DEFINITIONS
"Affiliate" shall mean, with respect to any Person, (i) each Person that,
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, 5% or more of the Stock having ordinary voting
power in the election of directors of such Person, (ii) each Person that
controls, is controlled by or is under common control with such Person or any
Affiliate of such Person, (iii) each of such Person's officers, directors, joint
venturers and partners or (iv) each member of such Person's immediate family
(including spouse, parents, children, siblings and in-laws of a similar
relation). For the purpose of this definition, "control" of a Person shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of its management or policies, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" shall mean this Purchase Agreement including all amendments,
modifications and supplements hereto and any appendices, exhibits and schedules
hereto or thereto, and shall refer to the Agreement as the same may be in effect
at the time such reference becomes operative.
"Balance Sheet" shall have the meaning set forth in Section 4.7(a) hereof.
"Business Day" shall mean any day that is not a Saturday, a Sunday or a day
on which banks are required or permitted to be closed in the State of New York.
"Capital Lease" shall mean, with respect to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, either would be required to be classified and accounted
for as a capital lease on a balance sheet of such Person or otherwise be
disclosed as a capital lease in a note to such balance sheet, other than, in
1
the case of Company or a Subsidiary of Company, any such lease under which
Company or such Subsidiary is the lessor.
"Capital Lease Obligation" shall mean, with respect to any Capital Lease,
the amount of the obligation of the lessee thereunder that, in accordance with
GAAP, would appear on a balance sheet of such lessee in respect of such Capital
Lease or otherwise be disclosed in a note to such balance sheet.
"Cash Equivalents" shall mean (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency thereof
maturing within one year from the date of acquisition thereof; (ii) commercial
paper maturing no more than one year from the date of creation thereof and at
the time of their acquisition having an "investment grade" rating obtainable
from either Standard & Poor's Corporation or ▇▇▇▇▇'▇ Investors Service, Inc.;
and (iii) certificates of deposit, maturing not more than one year from the date
of creation thereof, issued by commercial banks incorporated under the laws of
the United States of America, each having combined capital, surplus and
undivided profits of not less than $200,000,000 and having a rating of "A" or
better by a nationally recognized rating agency.
"Change of Control" shall mean any of the following: (a) any person or
group of persons (within the meaning of the Exchange Act) (other than GE Capital
and its Affiliates and those existing shareholders of Company set forth on
Schedule 1(A) hereto) shall have acquired beneficial ownership (within the
meaning of Rule 13d-3 promulgated by the SEC under the Exchange Act) of 30% or
more of the issued and outstanding shares of Common Stock of Company; (b)
Company shall be a party to a merger or consolidation in which Company is not
the survivor or in which Company's stockholders immediately prior thereto own
less than a majority of the outstanding voting stock of the survivor; or (c)
Company shall have sold, leased or otherwise transferred all or substantially
all of its assets.
"Charges" shall mean all federal, state, county, city, municipal, local,
foreign or other governmental (including, without limitation, PBGC) taxes at the
time due and payable, levies, assessments, charges, liens, claims or
encumbrances upon or relating to (i) Company's or any of its Subsidiaries'
employees, payroll, income or gross receipts, (ii) Company's or any of its
Subsidiaries' ownership or use of any of its assets, or (iii) any other aspect
of Company's or any of the Subsidiaries' business.
"Closing" shall have the meaning set forth in Section 2.2 hereof.
"Closing Date" shall have the meaning set forth in Section 2.2 hereof.
"COBRA" shall have the meaning set forth in Section 4.19(j) hereof.
"Common Stock" shall mean the common stock, $0.01 par value per share, of
Company.
"Company" shall have the meaning set forth in the first paragraph of this
Agreement.
2
"Consolidated Net Worth" shall mean, with respect to Company on a
consolidated basis, its total stockholders' equity determined in accordance with
GAAP, plus any amount associated with amortizing the original issue discount
specified in Section 2.7 from the date hereof through the date on which
Consolidated Net Worth is being measured, to the extent deducted in calculating
Company's consolidated net income.
"Default" shall mean any event which, with the passage of time or notice or
both, would, unless cured or waived, become an Event of Default.
"EBITDA" shall mean, with respect to Company for any period, the
consolidated operating income (before extraordinary or nonrecurring items,
interest income or expense, taxes, depreciation and amortization) of Company and
its Subsidiaries determined in accordance with GAAP.
"Environmental Laws" shall mean all federal, state and local laws,
statutes, ordinances and regulations, now or (other than with respect to Section
4.10) hereafter in effect, and in each case as amended or supplemented from time
to time, and any judicial or administrative interpretation thereof, including,
without limitation, any applicable judicial or administrative order, consent
decree or judgment, relative to the applicable Real Estate, relating to the
regulation and protection of human health, safety, the environment and natural
resources (including, without limitation, ambient air, surface water,
groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic
species and vegetation). Environmental Laws include but are not limited to the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. Section 9601 ET SEQ.) ("CERCLA"); the Hazardous Material
Transportation Act, as amended (49 U.S.C. Section 1801 ET SEQ.); the Federal
Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. Section 136 ET
SEQ.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section
6901 ET SEQ.) ("RCRA"); the Toxic Substance Control Act, as amended (15 U.S.C.
Section 2601 ET SEQ.); the Clean Air Act, as amended (42 U.S.C. Section 740 ET
SEQ.); the Federal Water Pollution Control Act, as amended (33 U.S.C. Section
1251 ET SEQ.); the Occupational Safety and Health Act, as amended (29 U.S.C.
Section 651 ET SEQ.) ("OSHA"); and the Safe Drinking Water Act, as amended (42
U.S.C. Section 300f ET SEQ.), and any and all regulations promulgated
thereunder, and all analogous state and local counterparts or equivalents and
any transfer of ownership notification or approval statutes.
"Environmental Liabilities and Costs" shall mean all liabilities,
obligations, responsibilities, remedial actions, losses, damages, punitive
damages, consequential damages, treble damages, costs and expenses (including,
without limitation, all fees, disbursements and expenses of counsel, experts and
consultants and costs of investigation and feasibility studies), fines,
penalties, sanctions and interest incurred as a result of any claim, suit,
action or demand by any person or entity, whether based in contract, tort,
implied or express warranty, strict liability, criminal or civil statute or
common law (including, without limitation, any thereof arising under any
Environmental Law, permit, order or agreement with any Governmental Authority)
and which relate to any health or safety condition regulated under any
Environmental Law or in connection with any other environmental matter or Spill
or the presence of a Hazardous Substance or threatened Spill of any Hazardous
Substance.
3
"ERISA" shall mean the Employee Retirement Income Security Act of 1974 (or
any successor legislation thereto), as amended from time to time and any
regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to Company, any trade or
business (whether or not incorporated) under common control with Company and
which, together with Company, are treated as a single employer within the
meaning of Section 414(b), (c), (m) or (o) of the IRC, excluding Purchasers and
each other person which would not be an ERISA Affiliate if Purchasers did not
own any issued and outstanding shares of Stock of Company.
"ERISA Event" shall mean, with respect to Borrower or any ERISA Affiliate,
(i) a Reportable Event with respect to a Title IV Plan or a Multiemployer Plan;
(ii) the withdrawal of Borrower, any of its Subsidiaries or any ERISA Affiliate
from a Title IV Plan subject to Section 4063 of ERISA during a plan year in
which it was a substantial employer, as defined in Section 4001 (a) (2) of
ERISA; (iii) the complete or partial withdrawal of Borrower, any of its
Subsidiaries or any ERISA Affiliate from any Mulletemployer Plan; (iv) the
filing of a notice of intent to terminate a Title IV Plan or the treatment of a
plan amendment as a termination under Section 4041 of ERISA; (v) the institution
of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC;
(vi) the failure to make required contributions to a Pension Plan; or (vii) any
other event or condition which might reasonably be expected to constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Title IV Plan or Multiemployer Plan or the
imposition of any liability under Title IV of ERISA, other than PBGC premiums
due but not delinquent under Section 4007 of ERISA.
"Event of Default" shall have the meaning set forth in Section 7.1 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and all rules and regulations promulgated thereunder.
"Financials" shall mean the financial statements referred to in Section
4.7(a) hereof.
"Fiscal Year" shall mean the twelve month period ending on the Saturday
closest to December 31. Subsequent changes of the fiscal year of Company shall
not change the term "Fiscal Year," unless the Required Holders shall consent in
writing to such changes.
"Fixed Charges" shall mean, with respect to Company for any period, the
aggregate of all consolidated interest expenses paid or accrued, plus scheduled
payments of principal with respect to Indebtedness, plus scheduled payments of
dividends on and scheduled mandatory redemption payments (which have not been
waived) on Company's outstanding preferred stock, in all cases during such
period by Company and its Subsidiaries, less any amount associated with
amortizing the original issue discount specified in Section 2.7 to the extent
included in calculating Company's consolidated interest expense.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect from time to time, except that for purposes of
the financial covenants
4
contained in Section 5.17(h) hereof, GAAP shall be as in effect on the date
of the most recent Financials and shall be applied in a manner consistent
therewith.
"GE Capital" shall have the meaning set forth in the first paragraph of
this Agreement.
"Governmental Authority" shall mean any nation or government, any state or
other political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guaranteed Indebtedness" shall mean, as to any Person, any obligation of
such Person (other than guaranties by Company or any of its Subsidiaries of
obligations of Company or any of its Subsidiaries) guaranteeing any
Indebtedness, lease, dividend, or other obligation ("primary obligations") of
any other Person (the "primary obligor") in any manner including, without
limitation, any obligation or arrangement of such Person (a) to purchase or
repurchase any such primary obligation, (b) to advance or supply funds (i) for
the purchase or payment of any such primary obligation or (ii) to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet condition of the primary
obligor, (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or (d) to
indemnify the owner of such primary obligation against loss in respect thereof.
"Hazardous Substance" shall have the meaning set forth in Section 4.10 (a)
hereof.
"Indebtedness" of any Person shall mean (i) all indebtedness of such Person
for borrowed money or for the deferred purchase price of property or services
(including, without limitation, reimbursement and all other obligations with
respect to surety bonds, letters of credit and bankers' acceptances, whether or
not matured, but not including obligations to trade creditors incurred in the
ordinary course of business), (ii) all obligations evidenced by notes, bonds,
debentures or similar instruments, (iii) all indebtedness created or arising
under any conditional sale or other title retention agreements with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (iv) all Capital Lease Obligations, (v)
all Guaranteed Indebtedness, (vi) all Indebtedness referred to in clause (i),
(ii), (iii), (iv) or (v) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or in property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness and (vii) all liabilities
under Title IV of ERISA.
"Interest Payment Date" shall have the meaning assigned to such term in
Section 2.6(a) hereof.
"IRC" shall mean the Internal Revenue Code of 1986, as amended, and any
successor thereto.
5
"IRS" shall mean the Internal Revenue Service, or any successor thereto.
"Lien" shall mean any mortgage or deed of trust, pledge, hypothecation,
assignment, deposit arrangement, lien, charge, claim, security interest,
easement or encumbrance, or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement perfecting a security interest
as to assets owned by the relevant Person under the Uniform Commercial Code or
comparable law of any jurisdiction).
"Loan Documents" shall mean this Agreement, the Note and all other
agreements, instruments, documents and certificates, including, without
limitation, pledges, powers of attorney, consents, assignments, contracts,
notices, and all other written matter whether heretofore, now or hereafter
executed by or on behalf of Company, and delivered to Purchaser, in its capacity
as a purchaser of the Note hereunder, in connection with this Agreement or the
transactions contemplated hereby, but not including the Warrants.
"Material Adverse Effect" shall mean a material adverse effect on (i) the
business, assets, operations, prospects or financial or other condition of
Company or of Company and its Subsidiaries taken as a whole or (ii) Company's
ability to pay the Obligations in accordance with the terms thereof.
"Material Contracts" means (i) all of Company's and its Subsidiaries'
contracts, agreements, leases (other than leases for real property) or other
instruments to which Company or any of its Subsidiaries is a party or by which
Company, its Subsidiaries or its properties are bound, which involve payments by
or to Company or its Subsidiaries of more than $100,000, (ii) all of Company's
and its Subsidiaries' loan agreements, bank lines of credit agreements,
indentures, mortgages, deeds of trust, pledge and security agreements, factoring
agreements, conditional sales contracts, letters of credit or other debt
instruments, (iii) all non-competition and similar agreements by which Company
is bound not to compete, (iv) all written contracts for the employment of any
officer or employee not terminable at will, (v) all agreements between Company
and any of its existing stockholders or their Affiliates, (vi) all consulting
agreements, (vii) any guarantees by Company or any of its Subsidiaries and
(viii) all other material contracts not made in the ordinary course of business.
"Maximum Lawful Rate" shall have the meaning set forth in Section 2.6(d)
hereof.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001 (a) (3) of ERISA, and to which Company, any of its Subsidiaries or
any ERISA Affiliate is making, is obligated to make, has made or been obligated
to make, contributions on behalf of participants who are or were employed by any
of them.
"Note" shall mean the $15,000,000 senior subordinated promissory note of
Company to be issued to Purchaser hereunder, substantially in the form of
Exhibit A hereto.
6
"Obligations" shall mean all amounts owing by Company to Purchaser and any
of its assignees pursuant hereto or the Note, including, without limitation, all
principal, interest, fees, expenses, attorneys' fees and any other sum
chargeable to Company under any of the Loan Documents.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor
thereto.
"Pension Plan" shall mean any "employee pension plan", as defined in
Section 3(2) of ERISA, maintained by Company, any of its Subsidiaries or any of
its ERISA Affiliates to which Company, any of its Subsidiaries or any of its
ERISA Affiliates contributed or is obligated to contribute thereunder.
"Permitted Indebtedness" means, with respect to Company and its
Subsidiaries, (i) taxes or assessments or other governmental charges or levies,
either not yet due and payable or to the extent that nonpayment thereof is
permitted by the terms of this Agreement; (ii) obligations under workmen's
compensation, unemployment insurance, social security or public liability laws
or similar legislation; (iii) bids, tenders, contracts (other than contracts for
the payment of money) or leases to which Company or any of its Subsidiaries is a
party as lessee made in the ordinary course of business; (iv) public or
statutory obligations of Company or any of its Subsidiaries; (v) all deferred
taxes and (vi) all unfunded pension fund and other employee benefit plan
obligations and liabilities but only to the extent permitted to remain unfunded
under applicable law.
"Permitted Liens" shall mean the following: (i) Liens for taxes or
assessments or other governmental charges or levies, either not yet due and
payable or to the extent that nonpayment thereof is permitted by the terms of
this Agreement; (ii) pledges or deposits securing obligations under workmen's
compensation, unemployment insurance, social security or public liability laws
or similar legislation; (iii) pledges or deposits securing bids, tenders,
contracts (other than contracts for the payment of money) or leases to which
Company or any of its Subsidiaries is a party as lessee made in the ordinary
course of business; (iv) Liens arising solely by virtue of any statutory or
common law provision relating to bankers' liens, rights of set-off or similar
rights and remedies as to deposit accounts or other funds maintained with a
creditor depository institution; (v) workers, mechanics, suppliers, carriers,
warehousemen's or other similar liens arising in the ordinary course of business
and securing indebtedness, not yet due and payable; (vi) deposits securing or in
lieu of surety, appeal or customs bonds in proceedings to which Company or any
of its Subsidiaries is a party; (vii) Liens arising in the ordinary course of
business in connection with obligations that are not overdue or which are being
contested in good faith and by appropriate proceedings, including, but not
limited to, Liens under bid, performance and other surety bonds, supersedeas and
appeal bonds, landlord Liens arising under leases of real property, Liens on
advance or progress payments received from customers under contracts for the
sale, lease or license of goods, software or services and upon the products
being sold or licensed, in each case securing performance of the underlying
contract or the repayment of such advances in the event final acceptance of
performance under such contracts does not occur, and Liens upon funds collected
temporarily from others pending payment or remittance on their behalf; (viii)
zoning restrictions, easements, licenses, or other restrictions on the use of
real property or other minor irregularities in title (including leasehold title)
thereto, so long as the
7
same do not materially impair the use, value, or marketability of such real
property, leases or leasehold estates; (ix) Liens existing on the date hereof
and described on Schedule 1(B) hereto; and (x) Liens granted to Purchaser or
any of Purchaser's Affiliates under any private label credit card
arrangements.
"Person" shall mean any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
"Plan" shall mean any "employee benefit plan", as defined in Section 3(3)
of ERISA, and any other employee benefit arrangements or payroll practices,
including, without limitation, severance pay, sick leave, vacation pay, salary
continuation for disability, consulting or other compensation agreements,
retirement, deferred compensation, bonus, stock purchase, hospitalization,
medical insurance, life insurance and scholarship programs maintained by Company
and any of its Subsidiaries to which Company or any of its Subsidiaries
contributed or is obligated to contribute thereunder.
"Purchaser" shall have the meaning set forth in the first paragraph of this
Agreement.
"Qualified IPO" means a sale of Company's Common Stock pursuant to an
initial public offering registered under the Securities Act which yields net
proceeds to Company (after underwriting discounts and commissions) of at least
$20,000,000 and which results in a post-offering valuation of Company's total
equity of at least $200,000,000 based on the per share offering price and the
number of issued and outstanding shares of Company's Common Stock.
"Reportable Event" shall mean any of the events described in Section
4043(b) (1), (2), (3), (5), (6), (8) or (9) of ERISA.
"Required Holders" shall mean Purchaser and any of its assignees who hold
at least a majority of the outstanding principal amount of the Note.
"Restricted Payment" shall mean (i) the declaration of any dividend or the
incurrence of any liability to make any other payment or distribution of cash or
other property or assets in respect of Company's Stock or (ii) any payment on
account of the purchase, redemption or other retirement of Company's Stock or
any other payment or distribution made in respect of any Stock of Company,
either directly or indirectly, which is not made in the form of Stock of
Company.
"Retiree Welfare Plan" shall refer to any Welfare Plan providing for
continuing coverage or benefits for any participant or any beneficiary of a
participant after such participant's termination of employment, other than
continuation coverage provided pursuant to COBRA or any comparable state law and
at the sole expense of the participant or the beneficiary of the participant.
8
"SEC" shall mean the U.S. Securities and Exchange Commission, or any
successor thereto.
"Securities Act" shall mean the Securities Act of 1933, as amended, and all
rules and regulations promulgated thereunder.
"Senior Debt" shall mean all principal of and premium, if any, and interest
on, and all other amounts owing in respect of Indebtedness (other than the Note)
of Company now or hereafter outstanding which is permitted hereunder to be
outstanding, other than Permitted Indebtedness.
"Series A Warrant" shall mean the warrant for 1,100,000 shares of Common
Stock to be issued by Company to Purchaser hereunder substantially in the form
of Exhibit B hereto.
"Series B Warrant" shall mean the warrant for 1,000,000 shares of Common
Stock to be issued by Company to Purchaser hereunder substantially in the form
of Exhibit C hereto.
"Solvent" shall mean, when used with respect to any Person, that:
(a) the present fair salable value of such Person's assets is in
excess of the total amount of such Person's liabilities;
(b) such Person is able to pay its debts as they become due; and
(c) such Person does not have unreasonably small capital to carry on
such Person's business as theretofore operated and all businesses in which
such Person is about to engage.
"Spill" shall have the meaning set forth in Section 4.10 (a) hereof.
"Stock" shall mean all shares, options, warrants, general or limited
partnership interests, limited liability company membership interest,
participations or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity whether
voting or nonvoting, including, without limitation, common stock, preferred
stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of
the General Rules and Regulations promulgated by the SEC under the Exchange
Act).
"Subordinated Debt" shall have the meaning set forth in Section 8.1 hereof.
"Subsidiary" shall mean, with respect to any Person, (a) any corporation of
which an aggregate of more than 50% of the outstanding Stock having ordinary
voting power to elect a majority of the board of directors of such corporation
(irrespective of whether, at the time, Stock of any other class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time, directly or indirectly, owned
legally or beneficially by such Person and/or one or more Subsidiaries of such
Person, and (b) any partnership or other entity in which such Person and/or one
or more Subsidiaries of such Person
9
shall have an interest (whether in the form of voting or participation in
profits or capital contribution) of more than 50%.
"Taxes" shall have the meaning set forth in Section 2.14 (a) hereof.
"Transaction Documents" shall mean this Agreement, the Note and the
Warrants.
"Title IV Plan" shall mean a Pension Plan, other than a Multiemployer Plan,
which is covered by Title IV of ERISA.
"Unfunded Pension Liability" shall mean, at any time, the aggregate amount,
if any, of the sum of (i) the amount by which the present value of all accrued
benefits under each Title IV Plan exceeds the fair market value of all assets of
such Title IV Plan allocable to such benefits in accordance with Title IV of
ERISA, all determined as of the most recent valuation date for each such Title
IV Plan using the actuarial assumptions in effect under such Title IV Plan for
funding purposes, and (ii) for a period of five (5) years following a
transaction reasonably likely to be covered by Section 4069 of ERISA, the
liabilities (whether or not accrued) that could be avoided by Borrower, any of
its Subsidiaries or any ERISA Affiliate as a result of such transaction.
"Warrants" shall mean the collective reference to the Series A Warrant and
Series B Warrant.
"Welfare Plan" shall mean any welfare plan, as defined in Section 3(1) of
ERISA, which is maintained or contributed to by Company, any of its Subsidiaries
or any ERISA Affiliate.
"Withdrawal Liability" means, at any time, the aggregate amount of the
liabilities, if any, pursuant to Section 4201 of ERISA, and any increase in
contributions pursuant to Section 4243 of ERISA with respect to all
Multiemployer Plans.
Any accounting term used in this Agreement shall have, unless otherwise
specifically provided herein, the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
consistently applied. That certain terms or computations are explicitly
modified by the phrase "in accordance with GAAP" shall in no way be construed to
limit the foregoing. The words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole, including the
Annexes, Exhibits and Schedules hereto, as the same may from time to time be
amended, modified or supplemented, and not to any particular section, subsection
or clause contained in this Agreement. Wherever from the context it appears
appropriate, each term stated in either the singular or plural shall include the
singular and the plural, and pronouns stated in the masculine, feminine or
neuter gender shall include the masculine, the feminine and the neuter.
2. PURCHASE OF NOTE AND WARRANTS
2.1 PURCHASE OF NOTE AND WARRANTS. Subject to the terms and conditions
set forth in this Agreement, Purchaser agrees to subscribe for and purchase from
Company, and Company agrees
10
to issue and sell to Purchaser, the Note, the Series A Warrant and the Series
B Warrant for an aggregate purchase price of $15,000,000, $1,100 and $1,000,
respectively, containing the terms set forth herein and in Exhibits A, B and
C hereto, respectively. The principal amount of the Note shall be
$15,000,000, and the maturity date thereof shall be March 31, 2003.
2.2 CLOSING. The closing of the purchase and sale of the Note and
Warrants (the "Closing") shall take place within five Business Days after the
satisfaction or waiver of the conditions set forth in Article 6 hereof or such
date and time as shall be mutually agreed to by the parties hereto (the "Closing
Date") at the offices of Weil, Gotshal & ▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇, or such other place as shall be mutually agreed to by the parties
hereto.
On the Closing Date, Company will deliver to Purchaser the Note and
Warrants payable to and registered in the name of Purchaser, respectively,
against delivery by Purchaser of the purchase price therefor by wire transfer of
funds to the account of Company.
2.3 OPTIONAL PREPAYMENT. Company shall have the right at any time or from
time to time and without premium or penalty, except as provided below, on 30
days' prior written notice to Purchaser, to voluntarily prepay all or any
portion (in multiples of not less than $500,000 or the amount outstanding on the
Note) of the Note. Each prepayment shall be accompanied by the payment of
accrued and unpaid interest on the amount being prepaid, through the date of
prepayment and shall be further accompanied by a prepayment premium in an amount
equal to the percentage of the principal amount being prepaid set forth below
based upon the number of years after the Closing Date during which such
prepayment occurs:
DURING YEARS PERCENTAGE
1 11%
2 8%
3 6%
4 4%
5 2%
thereafter 0%
Notwithstanding the foregoing, if the Note or any portion thereof is prepaid
within 60 days of a Qualified IPO, the prepayment premium shall be 11% of the
principal being repaid if occurring during the first year after the Closing Date
(less the aggregate amount of interest paid on the portion of the Note being
prepaid during such year, but not below zero) and 0% thereafter.
2.4 MANDATORY REDEMPTION. Upon the occurrence of a Change of Control,
Purchaser, by written notice to Company within thirty (30) days of the
occurrence thereof, may require Company to redeem (i) all or a portion of the
Note for a price which would then be applicable to a voluntary prepayment by
Company (without regard to the Qualified IPO provisions) pursuant to Section 2.3
hereof, and (ii) all or a portion of the Warrants or Common Stock issued upon
exercise thereof for a cash price equal to the highest price per share of Common
Stock paid in such Change of Control transaction (or allocable to a share of
Common Stock) multiplied by the
11
number of shares issuable upon exercise of the Warrants (less the applicable
exercise price) and number of such outstanding shares of Common Stock.
Upon the consummation of a Qualified IPO, Purchaser, by written notice to
Company within forty five (45) days of the occurrence thereof, may require
Company to redeem up to 50% of the Note for a price which would then be
applicable to a voluntary prepayment following a Qualified IPO pursuant to
Section 2.3 hereof.
At least 30 days prior to the redemption by Company of any shares of any
series of its outstanding preferred stock, Company shall provide Purchaser with
notice of any such redemption, setting forth (i) the number of shares of each
series of preferred stock to be redeemed, and (ii) the Highest Redemption Factor
(as hereinafter defined) relating to such redemption. Within such 30 day
period, Purchaser may require Company to redeem up to that portion of the Note
equal to the product of (x) $15,000,000, multiplied by (y) the Highest
Redemption Factor, for a price which would then be applicable to a voluntary
prepayment by Company (without regard to the Qualified IPO provisions) pursuant
to Section 2.3 hereof, which redemption shall occur prior to any such preferred
stock redemption. For purposes of this Section 2.4, the "Highest Redemption
Factor" shall be calculated as follows: Company shall calculate, with respect
to each series of its preferred stock being redeemed, a fraction, the numerator
of which shall equal the number of shares of such series of preferred stock
being redeemed, and the denominator of which shall equal the total number of
shares of such series of preferred stock outstanding on the Closing Date. The
highest of all fractions calculated pursuant to the immediately preceding
sentence shall be the "Highest Redemption Factor." In no event shall the
Highest Redemption Factor exceed 1/3 during any calendar year.
2.5 USE OF PROCEEDS. Company shall apply the proceeds of the purchase
price hereunder for working capital and general corporate purposes, and to repay
promissory notes of Company in an aggregate principal amount of $1,251,700
issued in November 1996 to certain holders of the Common Stock of Company.
2.6 INTEREST ON NOTE. (a) Company shall pay interest to Purchaser,
quarterly in arrears on the last day of each calendar quarter, commencing on
June 30, 1997 (each, an "Interest Payment Date"), at a rate equal to 11% per
annum, based on a year of 365 (or 366) days for the actual number of days
elapsed, and based on the amounts outstanding from time to time under the Note.
(b) If any payment on the Note becomes due and payable on a day
other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.
(c) So long as any Event of Default shall be continuing, the
interest rate applicable to the Note shall be increased by 2% per annum above
the rate otherwise applicable.
(d) Notwithstanding anything to the contrary set forth in this
Section 2.6, if at any time until payment in full of the Note, the interest rate
payable thereon exceeds the highest rate of interest permissible under any law
which a court of competent jurisdiction shall, in a final
12
determination, deem applicable hereto (the "Maximum Lawful Rate"), then in
such event and so long as the Maximum Lawful Rate would be so exceeded, the
rate of interest payable on the Note shall be equal to the Maximum Lawful
Rate; PROVIDED, HOWEVER, that if at any time thereafter the interest rate
payable thereon is less than the Maximum Lawful Rate, Company shall continue
to pay interest thereunder at the Maximum Lawful Rate until such time as the
total interest received by Purchaser is equal to the total interest which it
would have received had the interest rate on the Note been (but for the
operation of this paragraph) the interest rate payable since the Closing
Date. Thereafter, the interest rate payable shall be the stated interest rate
unless and until such rate again exceeds the Maximum Lawful Rate, in which
event this paragraph shall again apply. In no event shall the total interest
received by Purchaser pursuant to the terms hereof exceed the amount which it
could lawfully have received had the interest due hereunder been calculated
for the full term hereof at the Maximum Lawful Rate. In the event the
Maximum Lawful Rate is calculated pursuant to this paragraph, such interest
shall be calculated at a daily rate equal to the Maximum Lawful Rate divided
by the number of days in the year in which such calculation is made. In the
event that a court of competent jurisdiction, notwithstanding the provisions
of this Section 2.6(d), shall make a final determination that Purchaser has
received interest hereunder or under any of the Loan Documents in excess of
the Maximum Lawful Rate, Purchaser shall, to the extent permitted by
applicable law, promptly apply such excess first to any interest due and not
yet paid under the Note, then to the outstanding principal of the Note, then
to other unpaid Obligations and thereafter shall refund any excess to Company
or as a court of competent jurisdiction may otherwise order.
2.7 ORIGINAL ISSUE DISCOUNT. Company and Purchaser hereby acknowledge and
agree that the Warrants are part of an investment unit within the meaning of
Section 1273 (c) (2) of the IRC, which includes the Note. Notwithstanding
anything to the contrary contained herein, Company and Purchaser hereby further
acknowledge and agree that for United States federal, state and local income tax
purposes the "issue price" of the Series A Warrant, the Series B Warrant and the
Note under Section 1273(b) of the IRC shall equal $1,741,100, $681,000 and
$12,580,000, respectively. Company and Purchaser agree to use the foregoing
issue prices for all income tax purposes with respect to this transaction.
2.8 FEE. On the Closing Date, Company shall pay to Purchaser a
non-refundable fee of $65,000.
2.9 RECEIPT OF PAYMENTS. Company shall make each payment under the Note
not later than 2:00 P.M. (New York City time) on the day when due in lawful
money of the United States of America in immediately available funds to
Purchaser's depository bank in the United States as designated by Purchaser from
time to time for deposit in Purchaser's depositary account. For purposes only
of computing interest under the Note, all payments shall be applied by Purchaser
to the Note on the day payment has been credited by Purchaser's depository bank
to Purchaser's account in immediately available funds.
2.10 APPLICATION OF PAYMENTS. Company irrevocably waives the right to
direct the application of any and all payments at any time or times hereafter
received by Purchaser from or on behalf of Company pursuant to the terms of this
Agreement, and Company irrevocably agrees that Purchaser shall have the
continuing exclusive right to apply any and all such payments
13
against the then due and payable Obligations of Company and in repayment of
the Note as it may deem advisable. In the absence of a specific
determination by Purchaser with respect thereto, the same shall be applied in
the following order: (i) then due and payable fees and expenses; (ii) then
due and payable interest payments on the Note; and (iii) then due and payable
principal payments on the Note.
2.11 SHARING OF PAYMENTS. If any holder of the Note or a portion thereof
shall obtain any payment (whether voluntary, involuntary, through the exercise
of any right of set-off, or otherwise) on account of the Note held by it in
excess of its ratable share of payments on account of the Notes held by all
holders thereof, such holder shall forthwith purchase from each other holder
such participations in the Note held by it as shall be necessary to cause such
purchasing holder to share the excess payment ratably with each other holder;
PROVIDED, HOWEVER, that if all or any portion of such excess payment is
thereafter recovered from such purchasing holder, such purchase shall be
rescinded and such holder shall repay to the purchasing holder the purchase
price to the extent of such recovery together with an amount equal to such
holder's ratable share (according to the proportion of (i) the amount of such
holder's required repayment to (ii) the total amount so recovered from the
purchasing holder) of any interest or other amount paid or payable by the
purchasing holder in respect of the total amount so recovered. Company agrees
that any holder so purchasing a participation from another holder pursuant to
this Section 2.11 may, to the fullest extent permitted by law, exercise all its
rights of payment (including the right of set-off) with respect to such
participation as fully as if such holder were the direct creditor of Company in
the amount of such participation. Company further agrees to make all payments
on the Note to all holders thereof on a pro rata basis, based on the principal
amount of the Note held by each.
2.12 INDEMNITY. (a) Company shall indemnify and hold Purchaser and each
of its officers, directors and Affiliates harmless from and against any and all
suits, actions, proceedings, claims, damages, losses, liabilities and expenses
(including, without limitation, reasonable attorneys' fees and disbursements,
including those incurred upon any appeal) which may be instituted or asserted
against or incurred by Purchaser or such other indemnified person as the result
of Purchaser having entered into this Agreement or any of the other Loan
Documents or purchased the Note or Warrants hereunder or relating to or arising
out of any untrue representation, breach of warranty or failure to perform any
covenants or agreement by Company contained herein or in any Transaction
Document or arising out of any Environmental Law applicable to Company or its
Subsidiaries or otherwise relating to or arising out of the transactions
contemplated hereby; provided, however, that Company shall not be liable for
such indemnification to such indemnified Person to the extent that any such
suit, action, proceeding, claim, damage, loss, liability or expense results from
such indemnified Person's gross negligence or willful misconduct.
2.13 ACCESS. Purchaser and any of its officers, employees and/or agents
shall have the right, exercisable as frequently as it determines to be
appropriate, during normal business hours, to visit and inspect the properties
and facilities of Company and its Subsidiaries and to inspect, audit and make
extracts from all of Company's and its Subsidiaries' records, files, corporate
books and books of account and to discuss the affairs, finances and accounts of
Company and its Subsidiaries with the principal officers of Company, all at such
reasonable times, upon reasonable notice and as often as such Purchaser may
reasonably request. Company shall deliver
14
any document or instrument reasonably necessary for Purchaser, as it may
request, to obtain records from any service bureau maintaining records for
Company or its Subsidiaries. Company shall instruct its and its
Subsidiaries' banking and other financial institutions to make available to
Purchaser such information and records as it may reasonably request.
2.14 TAXES. (a) Any and all payments by Company hereunder or under the
Note shall be made, in accordance with this Section 2.14, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding taxes imposed on or measured by the net income of Purchaser, by the
jurisdiction under the laws of which it is organized or any political
subdivision thereof (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes").
If Company shall be required by law to deduct any Taxes from or in respect of
any sum payable hereunder or under the Note to Purchaser, (i) the sum payable
shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 2.14) Purchaser receives an amount equal to the sum it would have
received had no such deductions been made, (ii) Company shall make such
deductions, and (iii) Company shall pay the full amount deducted to the relevant
taxing or other authority in accordance with applicable law.
(b) In addition, Company agrees to pay any present or future stamp
or documentary taxes or any other sales, transfer, exercise, mortgage recording
or property taxes, charges or similar levies that arise from any payment made
hereunder or under the Note or from the execution, sale, transfer, delivery or
registration of, or otherwise with respect to, this Agreement, the Note, the
Warrants or the other Transaction Documents (hereinafter referred to as "Other
Taxes").
(c) Company shall indemnify Purchaser for the full amount of Taxes
or Other Taxes (including without limitation, any Taxes or Other Taxes imposed
by any jurisdiction on amounts payable under this Section 2.14) paid by
Purchaser and any liability (including penalties, interest and expenses) 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 30
days from the date Purchaser makes written demand therefor or.
(d) Within 30 days after the date of any payment of Taxes, Company
shall furnish to Purchaser the original or a certified copy of a receipt
evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement of
Company hereunder, the agreements and obligations of Company contained in this
Section 2.14 shall survive the payment in full of the Note.
(f) Each Holder (as hereinafter defined) of a Note which is
organized outside the United States shall deliver to Company such certificates,
documents or other evidence, as required by the IRC or Treasury Regulations
issued pursuant thereto, including Internal Revenue Service Form 1001, Form
4224, Form W-8 or any other required certificate or statement of exemption,
properly completed and duly executed by such Holder establishing that payment
hereunder or under the Note is (i) not subject to withholding under the IRC
because such
15
payment is effectively connected with the conduct by such Holder of a trade
or business in the United States or (ii) totally exempt from United States
tax under a provision of an applicable tax treaty. Unless Company has
received forms or other documents reasonably satisfactory to it indicating
that payment hereunder or under the Note is not subject to United States
withholding tax or is subject to such tax at a rate reduced by an applicable
tax treaty, Company shall withhold taxes from such payment at the applicable
statutory rate in the case of payments to or for any Holder organized under
the laws of a jurisdiction outside the United States.
(g) Notwithstanding anything to the contrary herein, Company shall
not be required to pay any additional amounts to any Holder in respect of United
States withholding tax pursuant to paragraph (a) above if the obligation to pay
such additional amounts would not have arisen but for a failure by such Holder
to comply with the provisions of paragraph (f) above other than by reason of (i)
a change in applicable law, regulation or official interpretation thereof or
(ii) an amendment, modification or revocation of any applicable tax treaty or a
change in official position regarding the application or interpretation thereof,
in each case after the Closing Date (and in the case of an assignee, after the
date of assignment).
(h) If, a Holder determines that as a result of an event described
in subparagraph (i) or (ii) of paragraph (g) after the Closing Date (or, in the
case of an assignee, after the date of assignment), such Holder (i) is unable to
provide to Company a form otherwise required to be delivered by it pursuant to
paragraph (f) above, or such Holder is required to withdraw or cancel any such
form previously submitted or (ii) makes any payment or becomes liable to make
any payment on account of any Taxes with respect to payments by Company
hereunder, Company shall continue to make payments to such Holder under the
terms of this of Agreement and the Note, which payments shall be made in
accordance with paragraph (a) above. In that event, Holder agrees to take such
steps as reasonably may be available to it under applicable tax laws and any
applicable tax treaty or convention to obtain an exemption from, or reduction
(to the lowest applicable rate) of, such Taxes, except to the extent that taking
such a step would be disadvantageous to the Holder, as it determines in its sole
discretion.
3. PURCHASER'S REPRESENTATIONS. WARRANTIES AND COVENANTS
Purchaser makes the following representations, warranties and covenants to
Company, each and all of which shall survive the execution and delivery of this
Agreement and the Closing hereunder:
3.1 INVESTMENT INTENTION. Purchaser is purchasing the Note and Warrants
for its own account, for investment purposes and not with a view to the
distribution thereof. Purchaser will not, directly or indirectly, offer,
transfer, sell, assign, pledge, hypothecate or otherwise dispose of the Note and
Warrants (or solicit any offers to buy, purchase, or otherwise acquire the Note
and Warrants), except in compliance with the Securities Act.
3.2 ACCREDITED INVESTOR. Purchaser is an "accredited investor" (as that
term is defined in Rule 501 of Regulation D under the Securities Act) and by
reason of its business and financial experience, it has such knowledge,
sophistication and experience in business and financial matters as to be capable
of evaluating the merits and risks of the prospective investment, is able
16
to bear the economic risk of such investment and is able to afford a complete
loss of such investment.
3.3 CORPORATE EXISTENCE. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York.
3.4 CORPORATE POWER: Authorization; Enforceable Obligations. The
execution, delivery and performance by Purchaser of this Agreement and the other
Transaction Documents to be executed by it: (i) are within Purchaser's
corporate power; (ii) have been duly authorized by all necessary corporate
action; (iii) are not in contravention of any provision of Purchaser's
certificate of incorporation or by-laws; and (iv) will not violate any law or
regulation, or any order or decree of any court or governmental instrumentality
binding on Purchaser. This Agreement and the other Transaction Documents to
which Purchaser is a party have each been duly executed and delivered by
Purchaser and constitute the legal, valid and binding obligations of Purchaser,
enforceable against it in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity).
3.5 RESTRICTIONS ON TRANSFER. Purchaser agrees that it will not sell,
assign or otherwise transfer the Note, the Warrants or the Common Stock issuable
upon exercise thereof to a competitor of Company listed on Schedule 3.5 without
the prior written consent of Company, except that such consent shall not be
required if, at the time thereof, an Event of Default under Section 7.1(a)
hereof shall have occurred and been continuing for at least one year.
3.6 CONFIDENTIALITY. Purchaser agrees to keep information obtained by
it pursuant to the transactions contemplated by this Agreement confidential
for a period of two (2) years from the date it obtains such information and
agrees that during such time period it will only use such information in
connection with the transactions contemplated by this Agreement and not
disclose any of such information other than (i) to its employees,
representatives and agents who are or are expected to be involved in the
evaluation of such information in connection with the transactions
contemplated by this Agreement and who are advised of the confidential nature
of such information, (ii) to the extent such information presently is or
hereafter becomes available to it on a non-confidential basis from a source
other than Company, (iii) to the extent disclosure is required by law,
regulation or judicial order or requested or required by bank regulators or
auditors, or (iv) to assignees or participants or potential assignees or
participants who agree to be bound by the provisions of this sentence.
4. COMPANY'S REPRESENTATIONS AND WARRANTIES
Company makes the following representations and warranties to Purchaser,
each and all of which shall survive the execution and delivery of this Agreement
and the Closing hereunder:
4.1 AUTHORIZED AND OUTSTANDING SHARES OF CAPITAL STOCK. After giving
effect to the Closing, the authorized capital stock of Company consists of
25,000,000 shares of Common
17
Stock, of which 2,398,745 shares are issued and outstanding and 12,123,390
shares of convertible preferred stock of which the following number of shares
divided by series are issued and outstanding: 4,458,852 Series A, 2,400,000
Series B, 2,292,635 Series C, 2,083,332 Series D and 857,143 Series E. All
of such issued and outstanding shares are validly issued, fully paid and
non-assessable. Schedule 4.1 hereto contains a complete and correct list of
all stockholders of Company and the number of shares owned by each. Except
as set forth on Schedule 4.1, (i) there is no existing option, warrant, call,
commitment or other agreement to which Company is a party requiring, and
there are no convertible securities of Company outstanding which upon
conversion would require, the issuance of any additional shares of Stock of
Company or other securities convertible into shares of equity securities of
Company, other than the Warrants, and (ii) there are no agreements to which
Company is a party or, to the knowledge of Company, which any stockholder of
Company is a party, with respect to the voting or transfer of the Stock of
Company. Except as set forth on Schedule 4.1, there are no stockholders'
preemptive rights or rights of first refusal or other similar rights with
respect to the issuance of Stock by Company. True and correct copies of the
articles of incorporation and by-laws of Company have been delivered to
Purchaser.
4.2 AUTHORIZATION AND ISSUANCE OF NOTE AND WARRANTS. The issuance of
the Note and Warrants have been duly authorized by all necessary corporate
action on the part of Company and, upon delivery to Purchaser of the Note and
Warrants against payment in accordance with the terms hereof, the Note and
Warrants will have been validly issued, free and clear of all pledges, liens,
encumbrances and preemptive rights. The issuance of shares of Common Stock
upon exercise of the Warrants has been duly authorized by all necessary
corporate action on the part of Company and, when issued upon exercise of the
Warrants, such Common Stock will have been validly issued and fully paid and
non-assessable. Company has duly reserved 2,100,000 shares of Common Stock
for issuance pursuant to the terms of the Warrants.
4.3 SECURITIES LAWS. In reliance on the investment representations
contained in Sections 3.1 and 3.2 hereof, the offer, issuance, sale and delivery
of the Note and Warrants, as provided in this Agreement, are exempt from the
registration requirements of the Securities Act and all applicable state
securities laws, and are otherwise in compliance with such laws. Neither
Company nor any Person acting on its behalf has taken or will take any action
(including, without limitation, any offering of any securities of Company under
circumstances which would require the integration of such offering with the
offering of the Note and Warrants under the Securities Act and the rules and
regulations of the SEC thereunder) which might subject the offering, issuance or
sale of the Note and Warrants to the registration requirements of Section 5 of
the Securities Act.
4.4 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Company and each of its
Subsidiaries (i) is a corporation duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation,
which in the case of Company is Minnesota; (ii) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership or lease of property or the conduct of its business requires such
qualification (except for jurisdictions in which such failure to so qualify or
to be in good standing would not have a Material Adverse Effect); (iii) has the
requisite corporate power and authority and the legal right to own, pledge,
mortgage or otherwise encumber and operate its
18
properties, to lease the property it operates under lease, and to conduct its
business as now being conducted; (iv) has, or has applied for, all material
licenses, permits, consents or approvals from or by, and has made all
material filings with, and has given all material notices to, all
Governmental Authorities having jurisdiction, to the extent required for such
ownership, operation and conduct; (v) is in compliance with its articles of
incorporation and by-laws; and (vi) is in compliance with all applicable
provisions of law, except for such non-compliance which would not have a
Material Adverse Effect.
4.5 SUBSIDIARIES. There currently exist no Subsidiaries of Company
other than as set forth on Schedule 4.5 hereto, which sets forth such
Subsidiaries, together with their respective jurisdictions of organization, and
the authorized and outstanding capital Stock of each such Subsidiary, by class
and number and percentage of each class owned by Company or a Subsidiary of
Company or any other Person. There are no options, warrants, rights to purchase
or similar rights covering capital Stock for any such Subsidiary.
4.6 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The
execution, delivery and performance by Company of this Agreement, the other
Transaction Documents to which it is a party and all instruments and
documents to be delivered by Company, the issuance and sale of the Note and
Warrant and the consummation of the other transactions contemplated by any of
the foregoing: (i) are within Company's corporate power and authority; (ii)
have been duly authorized by all necessary or proper corporate action; (iii)
are not in contravention of any provision of Company's articles of
incorporation or by-laws; (iv) will not violate any law or regulation, or any
order or decree of any court or governmental instrumentality; (v) will not
conflict with or result in the breach or termination of, constitute a default
under or accelerate any performance required by, any indenture, mortgage,
deed of trust, lease, agreement or other instrument to which Company or any
of its Subsidiaries is a party or by which Company, any of its Subsidiaries
or any of their property is bound; (vi) will not result in the creation or
imposition of any Lien upon any of the property of Company or any of its
Subsidiaries; and (vii) do not require the consent or approval of, or any
filing with, any Governmental Authority or any other Person (except for those
filings required by the registration rights provisions of the Warrants and
filings and approvals which may be required in certain circumstances in
connection with an exercise of the Warrants under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Antitrust Improvements Act of 1976 and the rules and regulations promulgated
thereunder). At or prior to the Closing Date, each of this Agreement and the
other Transaction Documents shall have been duly executed and delivered by
Company and each shall then constitute a legal, valid and binding obligation
of Company, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent transfer or conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles
of equity, including principles of commercial reasonableness, good faith and
fair dealing (regardless of whether enforcement is sought in a proceeding at
law or in equity).
4.7 FINANCIAL STATEMENTS. (a) The audited consolidated balance sheet
of Company as at December 30, 1995, and the related consolidated statements of
income and cash flows for the year then ended, with the opinion thereon of KPMG
Peat Marwick LLP, and the unaudited consolidated balance sheet of Company and
its Subsidiaries as at December 28, 1996 (the "Balance Sheet") and the related
unaudited consolidated statements of income and cash flows for
19
the twelve months then ended, copies of which have previously been delivered
to Purchaser, have been prepared in conformity with GAAP consistently applied
throughout the periods involved and present fairly in all material respects
the consolidated financial position of Company and its Subsidiaries as at the
dates thereof, and the results of their operations and cash flows for the
periods then ended.
(b) Except as set forth on Schedule 4.7, neither Company nor any of
its Subsidiaries has any material obligations, contingent or otherwise,
including, without limitation, Indebtedness, liabilities for Charges, long-term
leases or unusual forward or long-term commitments which are not reflected in
the Balance Sheet, other than those incurred since December 28, 1996, in the
ordinary course of business.
(c) Except as set forth on Schedule 4.7, no dividends or other
distributions have been declared, paid or made upon any shares of capital Stock
of Company, nor have any shares of capital Stock of Company been redeemed,
retired, purchased or otherwise acquired for value by Company since December 28,
1996.
4.8 OWNERSHIP OF PROPERTY. (a) Except as set forth on Schedule 4.8,
neither Company nor any of its Subsidiaries owns any real estate. Each of
Company and its Subsidiaries has good and marketable and insurable fee simple
title to its real property, free and clear of all Liens. Each of Company and
its Subsidiaries has valid leasehold interests in the leases described in
Schedule 4.8 hereto, and, except as set forth on Schedule 4.8, good and
marketable title to, or valid leasehold interests in, all of its other
properties and assets free and clear of all Liens, except Permitted Liens.
(b) All real property leased by Company and its Subsidiaries is set
forth on Schedule 4.8. Each of such leases is valid and enforceable in
accordance with its terms (subject to applicable bankruptcy, insolvency,
fraudulent transfer or conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair-dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity)) and is in full force
and effect. Company has delivered or made available to Purchaser true and
complete copies of each of such leases set forth on Schedule 4.8(b) and all
documents affecting the rights or obligations of Company or any of its
Subsidiaries, including, without limitation, any non-disturbance and recognition
agreements, subordination agreements, attornment agreements and agreements
regarding the term or rental of any of the leases. Except as set forth on
Schedule 4.8, none of Company, any of its Subsidiaries nor, to its knowledge,
any other party to any such lease is in material default of its obligations
thereunder or has delivered or received any notice of default under any such
lease, nor has any event occurred which, with the giving of notice, the passage
of time or both, would constitute a default under any such lease, which could be
reasonably likely to result in a Material Adverse Effect.
(c) Except as disclosed on Schedule 4.8, neither Company nor any of
its Subsidiaries is obligated under or a party to, any option, right of first
refusal or any other
20
contractual right to purchase, acquire, sell, assign or dispose of any real
property owned or leased by Company or such Subsidiary.
4.9 MATERIAL CONTRACTS; INDEBTEDNESS. Schedule 4.9 contains a true,
correct and complete list and description of all Material Contracts, true and
complete copies of which have been delivered to Purchaser. Each Material
Contract is a valid and binding agreement of Company or its Subsidiaries (as the
case may be) enforceable against Company or such Subsidiary in accordance with
its terms (subject to applicable bankruptcy, insolvency, fraudulent transfer or
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally, and subject, as to enforceability, to general
principles of equity, including principles of commercial reasonableness, good
faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity)), and neither Company nor any of its
Subsidiaries has any knowledge that any Material Contract is not a valid and
binding agreement against the other parties thereto. Company and each of its
Subsidiaries has fulfilled all material obligations required pursuant to the
Material Contract to have been performed by Company or such Subsidiary on its
part. Except as set forth in Schedule 4.9, neither Company nor any of its
Subsidiaries is in default or breach, nor to Company's or such Subsidiary's
knowledge is any third party in default or breach, under or with respect to any
Material Contract which could be reasonably likely to result in a Material
Adverse Effect. Except as set forth on Schedule 4.9, neither Company nor any of
its Subsidiaries has any Indebtedness except Permitted Indebtedness.
4.10 ENVIRONMENTAL PROTECTION. (a) Except as set forth on Schedule
4.10, to the best of Company's knowledge, all real property owned, leased or
otherwise operated by Company and its Subsidiaries (each, a "Facility") is free
of contamination from any substance, waste or material (i) currently identified
to be toxic or hazardous pursuant to, or which may result in liability under,
any Environmental Law or (ii) within the definition of a substance which is
toxic or hazardous under any Environmental Law, including, without limitation,
any asbestos, pcb, radioactive substance, methane, volatile hydrocarbons,
industrial solvents, oil or petroleum or chemical liquids or solids, liquid or
gaseous products, or any other material or substance which has in the past or
could at any time in the future cause or constitute a health, safety, or
environmental hazard to any Person or property or result in any Environmental
Liabilities and Costs ("Hazardous Substance") of more than $100,000 or which, in
either case, could have a Material Adverse Effect. Except as set forth on
Schedule 4.10, to the best of Company's knowledge, neither Company nor any of
its Subsidiaries has caused or suffered to occur any release, spill, migration,
leakage, discharge, spillage, uncontrolled loss, seepage, or filtration of
Hazard Substances at or from the Facility (a "Spill") which could result in
Environmental Liabilities and Costs in excess of $100,000.
(b) To the best of Company's knowledge, Company and each Subsidiary
has generated, treated, stored and disposed of any Hazardous Substances in full
compliance with applicable Environmental Laws, except for such non-compliances
which would not have a Material Adverse Effect.
(c) To the best of Company's knowledge, Company and each Subsidiary
has obtained, or has applied for, and is in full compliance with and in good
standing under all permits
21
required under Environmental Laws (except for such failures which would not
have a Material Adverse Effect), and neither Company nor any of its
Subsidiaries has any knowledge of any proceedings to substantially modify or
to revoke any such permit.
(d) Except as set forth on Schedule 4.10, to the best of Company's
knowledge, there are no investigations, proceedings or litigation pending or, to
Company's or its Subsidiaries' knowledge, threatened affecting or against
Company, any of its Subsidiaries or the Facilities relating to Environmental
Laws or Hazardous Substances.
(e) Since January 1, 1995, except for communications in connection
with the matters listed on Schedule 4.10, neither Company nor any of its
Subsidiaries has received any communication or notice (including, without
limitation, requests for information) indicating the potential of Environmental
Liabilities and Costs against Company or its Subsidiaries.
4.11 LABOR MATTERS. (a) There are no strikes or other labor disputes
against Company or any of its Subsidiaries pending or, to Company's or its
Subsidiaries' knowledge, threatened. Hours worked by and payment made to
employees of Company and its Subsidiaries have not been in violation of the Fair
Labor Standards Act or any other applicable law dealing with such matters. All
payments due from Company and each of its Subsidiaries on account of employee
health and welfare insurance have been paid or accrued as a liability on the
books of Company or such Subsidiary. There is no organizing activity involving
Company or any of its Subsidiaries pending or, to Company's or its Subsidiaries'
knowledge, threatened by any labor union or group of employees. There are no
representation proceedings pending or, to Company's or its Subsidiaries'
knowledge, threatened with the National Labor Relations Board, and no labor
organization or group of employees of Company or its Subsidiaries has made a
pending demand for recognition. Except as set forth on Schedule 4.11, there are
no complaints or charges against Company or any of its Subsidiaries pending or,
to Company's or its Subsidiaries' knowledge, threatened to be filed with any
federal, state, local or foreign court, governmental agency or arbitrator based
on, arising out of, in connection with, or otherwise relating to the employment
or termination of employment by Company or any of its Subsidiaries of any
individual.
(b) Neither Company nor any of its Subsidiaries is, or during the
five years preceding the date hereof was, a party to any labor or collective
bargaining agreement and there are no labor or collective bargaining agreements
which pertain to employees of Company or its Subsidiaries.
4.12 OTHER VENTURES. Except as set forth on Schedule 4.12, neither
Company nor any of its Subsidiaries is engaged in any joint venture or
partnership with any other Person.
4.13 TAXES. Except as set forth on Schedule 4.13, all federal and all
material state, local and foreign tax returns, reports and statements required
to be filed (after any permitted extensions) by Company and its Subsidiaries
have been filed with the appropriate Governmental Authority and all material
Charges and other impositions due and payable have been paid prior to the date
on which any fine, penalty, interest or late charge may be added thereto for
nonpayment thereof, or any such fine, penalty, interest, late charge or loss has
been paid. There are no Liens with respect to Charges upon any of the assets of
Company or its Subsidiaries, other than with
22
respect to Charges not yet due and payable. Proper and accurate amounts have
been withheld by Company and its Subsidiaries from its employees for all
periods in compliance in all material respects with the tax, social security
and unemployment withholding provisions of applicable federal, state, local
and foreign law and such withholdings have been timely paid to the respective
governmental agencies. Except as set forth on Schedule 4.13, neither Company
nor any of its Subsidiaries has executed or filed with the IRS or any other
Governmental Authority any agreement or other document extending, or having
the effect of extending, the period for assessment or collection of any
Charges. No audit or other proceedings by any Governmental Authority is
pending or threatened with respect to any Charges due from, or with respect
to, Company or any of its Subsidiaries. Except as set forth on Schedule 4.13,
no assessment of tax has been proposed against Company, any of its
Subsidiaries, or any of their respective assets. Neither Company nor any of
its Subsidiaries has filed a consent pursuant to IRC Section 341(f) or agreed
to have IRC Section 341(f) (2) apply to any dispositions of subsection (f)
assets (as such term is defined in IRC Section 34l(f)(4)). None of the
property owned by Company or any of its Subsidiaries is property which such
company is required to treat as being owned by any other Person pursuant to
the provisions of Section 168(f) (8) of the Internal Revenue Code of 1954, as
amended, and in effect immediately prior to the enactment of the Tax Reform
Act of 1986 or is "tax-exempt use property" within the meaning of IRC Section
168 (h). Neither Company nor any of its Subsidiaries has agreed or has been
requested to make any adjustment under IRC Section 481 (a) by reason of a
change in accounting method or otherwise. Neither Company nor any of its
Subsidiaries has any obligation under any written tax sharing agreement.
4.14 NO LITIGATION. Except as disclosed on Schedule 4.14, no action,
claim or proceeding is now pending or, to the knowledge of Company or its
Subsidiaries, threatened against Company or any of its Subsidiaries, at law, in
equity or otherwise, before any court, board, commission, agency or
instrumentality of any federal, state, or local government or of any agency or
subdivision thereof, or before any arbitrator or panel of arbitrators which, if
adversely determined, could reasonably be expected to have a Material Adverse
Effect.
4.15 BROKERS. Other than Duff & ▇▇▇▇▇▇ Securities Co., no broker or
finder acting on behalf of Company or any of its Subsidiaries brought about the
consummation of the transactions contemplated pursuant to this Agreement and
neither Company nor any of its Subsidiaries has any obligation to any Person in
respect of any finder's or brokerage fees (or any similar obligation) in
connection with the transactions contemplated by this Agreement.
4.16 EMPLOYMENT AND LABOR AGREEMENTS. Except as set forth on Schedule
4.16, there are no employment, consulting or management agreements covering
management of Company or any of its Subsidiaries.
4.17 PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES. Company and each of
its Subsidiaries owns all licenses, patents, patent applications, copyrights,
service marks, trademarks and registrations and applications for registration
thereof, and trade names necessary to continue to conduct its business as
heretofore conducted by it and now being conducted by it, each of which is
listed, together with Patent and Trademark Office or Copyright Office
application or registration numbers, where applicable, on Schedule 4.17 hereto.
To the best of Company's knowledge, Company and each of its Subsidiaries
conducts its businesses without infringement
23
or claim of infringement of any license, patent, copyright, service ▇▇▇▇,
trademark, trade name, trade secret or other intellectual property right of
others, except as set forth on Schedule 4.17 hereto. To the best of
Company's knowledge, there is no infringement by others of any license,
patent, copyright, service ▇▇▇▇, trademark, trade name, trade secret or other
intellectual property right of Company or any of its Subsidiaries, except as
set forth on Schedule 4.17 hereto.
4.18 NO MATERIAL ADVERSE EFFECT. Except as set forth on Schedule 4.18,
no event has occurred since December 28, 1996 which has had or could be
reasonably expected to have a Material Adverse Effect.
4.19 ERISA. (a) Schedule 4.19 sets forth all Plans currently
maintained by Company and any of its Subsidiaries or for which Company and any
of its Subsidiaries could be liable and Pension Plans currently maintained by
Company, any of its Subsidiaries or any ERISA Affiliate or for which Company,
any of its Subsidiaries or any ERISA Affiliate could be liable.
(b) No Pension Plan is subject to Title IV of ERISA, Section 302 of
ERISA or Section 412 of the Code.
(c) The Pension Plans intended to satisfy Section 401 (a) of the
Code have received a favorable determination letter from the IRS with respect to
such plan as adopted or most recently restated and the trusts maintained
pursuant thereto are exempt from federal income taxation under Section 501 of
the Code, and nothing has occurred with respect to the operation of the Pension
Plans which would reasonably be expected to result in the loss of such
qualification or exemption or the imposition of any material liability, penalty,
or tax under ERISA or the Code in connection with the failure by such plan to
satisfy such requirements.
(d) All contributions required by law or pursuant to the terms of
the Plans to any funds or trusts established thereunder or in connection
therewith have been made by the due date thereof (including any valid
extension).
(e) There is no material violation of ERISA with respect to the
filing of applicable reports, documents, and notices regarding the Plans with
the Secretary of Labor and the Secretary of the Treasury or the furnishing of
such documents to the participants or beneficiaries of the Plans which would
reasonably be expected to result in a material liability or penalty.
(f) True, correct and complete copies of the following documents,
if applicable, with respect to each of the Plans, have been made available or
delivered to Purchaser by Company: (A) any plans and related trust documents,
and amendments thereto, (B) the most recent Forms 5500, (C) the last IRS
determination letter, and (D) summary plan descriptions.
(g) There are no pending actions, claims or lawsuits which have
been asserted or instituted against the Plans, the assets of any of the trusts
under such plans or the plan sponsor or the plan administrator, or against any
fiduciary of the Plans with respect to the operation of such plans (other than
routine benefit claims), nor does Company or any of its Subsidiaries have
24
knowledge of facts which would reasonably be expected to form the basis for any
such claim or lawsuit.
(h) The Plans have been maintained in accordance with their terms
and with all provisions of ERISA (including rules and regulations thereunder)
and other applicable Federal and state law so as not to result in any material
liability to Company or any of its Subsidiaries. Neither Company nor any of its
Subsidiaries or "party in interest" or "disqualified person" with respect to the
Plans has engaged in a "prohibited transaction" within the meaning of Section
4975 of the Code or Section 406 of ERISA which would reasonably be expected to
result in a material liability.
(i) Except of set forth on Schedule 4.19, none of Company, any of
its Subsidiaries or any ERISA Affiliate maintains retired life and retired
health insurance plans which are Welfare Plans and which provide for continuing
benefits or coverage for any participant or any beneficiary of a participant
except as may be required under Section 4980B of the Code and Part 6 of Subtitle
B of Title I of ERISA ("COBRA") or any comparable state law and at the expense
of the participant or the participant's beneficiary. None of Company, any of
its Subsidiaries and any ERISA Affiliate which maintain a Welfare Plan would
reasonably be expected to have any material liability for failure to comply with
the notice and continuation requirements of COBRA and the regulations
thereunder.
(j) None of Company, any of its Subsidiaries or any ERISA Affiliate
has contributed or been obligated to contribute to a Multiemployer Plan as of
the Closing.
(k) None of Company, any of its Subsidiaries or any ERISA Affiliate
has withdrawn in a complete or partial withdrawal from any Multiemployer Plan
prior to the Closing Date, nor has any of them incurred any liability due to the
termination or reorganization of a Multiemployer Plan.
4.20 REGISTRATION UNDER EXCHANGE ACT; REGISTRATION RIGHTS. Neither
Company nor any of its Subsidiaries has registered any class of its securities
pursuant to Section 12 of the Exchange Act, no such registration is required by
the Exchange Act, and it is not required to file any reports thereunder. Except
as set forth in Schedule 4.20 hereto and as provided in the registration rights
provisions of the Warrants, neither Company nor any of its Subsidiaries is under
any obligation to register under the Securities Act any of its presently
outstanding securities or any securities which may hereafter be issued.
4.21 ORDINARY COURSE OF BUSINESS. Except as set forth on Schedule 4.7 or
in response to the events described therein, since December 28, 1996, Company
and each of its Subsidiaries has conducted its operations only in the ordinary
course of business consistent with past practice.
4.22 INSURANCE. Schedule 4.22 hereto contains a complete and correct
list of all policies of insurance of any kind or nature covering Company and its
Subsidiaries, including, without limitation, policies of life, fire, theft,
employee fidelity and other casualty and liability insurance, indicating the
type of coverage, name of insured, the insurer, the premium, the expiration date
of each policy and the amount of coverage, and such policies are in full force
and
25
effect. Complete and correct copies of each such policy have been furnished
or made available to Purchaser. Such policies are in amounts customary for the
industry in which Company or such Subsidiary operates.
4.23 MINUTE BOOKS. The minute books of Company, as previously made
available to Purchaser, accurately reflect all formal corporate action of the
stockholders and Board of Directors of Company.
4.24 FULL DISCLOSURE. No information contained in this Agreement, any
other Transaction Document, the Financial Statements or any written statement
furnished by or on behalf of Company pursuant to the terms of this Agreement
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein or therein, in light of
the circumstances under which made, not misleading.
5. COVENANTS
5.1 AFFIRMATIVE AND FINANCIAL COVENANTS. Company covenants and agrees
that, from and after the date hereof (except as otherwise provided herein, or
unless the Required Holders have given their prior written consent) so long as
the Note is outstanding:
(a) BOOKS AND RECORDS. Company shall, and shall cause its
Subsidiaries to, keep adequate records and books of account with respect to
their business activities, in which proper entries, reflecting all of their
financial transactions, are made in accordance with GAAP.
(b) FINANCIAL AND BUSINESS INFORMATION.
(i) MONTHLY INFORMATION. Company will deliver to Purchaser
as soon as practicable after the end of each month, but in any event
within 30 days thereafter: (A) an unaudited consolidated balance
sheet of Company and its Subsidiaries at the end of such month; (B)
unaudited consolidated statements of income and cash flows of
Company and its Subsidiaries for such month and for the portion of
such year ending with such month; (C) sales and selling margin by
store by class year for such month and for the portion of the Fiscal
Year ending with such month; and (D) copies of all reports and
summaries as are customarily delivered to the Board of Directors of
Company.
(ii) OUARTERLY INFORMATION. Company will deliver to
Purchaser as soon as practicable after the end of each of the first
three quarterly fiscal periods in each Fiscal Year of Company, but
in any event within 45 days thereafter, (A) an unaudited
consolidated balance sheet of Company and its Subsidiaries as at the
end of such quarter, and (B) unaudited consolidated statements of
income and cash flows of Company and its Subsidiaries for such
quarter and (in the case of the second and third quarters) for the
portion of the Fiscal Year ending with such quarter. Such
statements shall be (1) prepared in accordance with GAAP
consistently applied (except that such statements shall not reflect
any period-end
26
adjustments and shall not include footnotes), (2) in reasonable
detail and (3) certified by the principal financial or accounting
officer of Company.
(iii) ANNUAL INFORMATION. Company will deliver to Purchaser
as soon as practicable after the end of each Fiscal Year of Company,
but in any event within 90 days thereafter, (A) an audited
consolidated balance sheet of Company and its Subsidiaries as at the
end of such year, and (B) audited consolidated statements of income,
retained earnings and cash flows of Company and its Subsidiaries for
such year; setting forth in each case in comparative form the
figures for the previous year. Such statements shall be (1)
prepared in accordance with GAAP consistently applied, (2) in
reasonable detail and (3) certified by KPMG Peat Marwick LLP or such
other firm of independent certified public accountants of recognized
national standing selected by the Board of Directors of Company. In
addition, Company will deliver to Purchaser as soon as available a
completed annual budget for the next Fiscal Year, prepared with the
same level of detail as the financial projections delivered to
Purchaser during Purchaser's due diligence review of Company in
connection with the consummation of the transactions contemplated
hereby.
(iv) FILINGS. Company will deliver to Purchaser, promptly
upon their becoming available, one copy of each report, notice or
proxy statement sent by Company to its stockholders generally, and
of each regular or periodic report (pursuant to the Exchange Act)
and any registration statement, prospectus or other writing (other
than transmittal letters) (including, without limitation, by
electronic means) pursuant to the Securities Act filed by Company
with (i) the SEC or (ii) any securities exchange on which shares of
Common Stock of Company are listed.
(v) OTHER INFORMATION. If requested by Purchaser, Company
will deliver to Purchaser such other information respecting
Company's or any of its Subsidiaries' business, financial condition
or prospects as is readily available. Prior to a Qualified IPO,
Company shall deliver to Purchaser copies of all information
delivered to Company's directors and preferred stockholders
simultaneously with the delivery of such information to them.
(c) COMMUNICATION WITH ACCOUNTANTS. Purchaser may request that
Company consent to Purchaser communicating directly with Company's independent
certified public accountants and tax advisors, which consent shall not be
unreasonably withheld. Such consent would authorize those accountants to
disclose to Purchaser any and all financial statements and other supporting
financial documents and schedules including copies of any management letter with
respect to the business, financial condition and other affairs of Company and
any of its Subsidiaries.
(d) TAX COMPLIANCE. Company shall pay all transfer, excise or
similar taxes (not including income or franchise taxes) in connection with the
issuance, sale, delivery or transfer by Company to Purchaser of the Note and
Warrants and the Common Stock issuable
27
upon exercise of the Warrants, and shall indemnify and save Purchaser
harmless without limitation as to time against any and all liabilities with
respect to such taxes. Company shall not be responsible for any taxes in
connection with the transfer of the Note and Warrants or such Common Stock by
the holder thereof. The obligations of Company under this Section 5.6 shall
survive the payment or prepayment of the Note, the repurchase of the Warrants
and the termination of this Agreement.
(e) INSURANCE. Company shall and shall cause each Subsidiary of
Company to maintain insurance covering, without limitation, fire, theft,
burglary, public liability, property damage, product liability, workers'
compensation, directors' and officers' insurance, and any other insurance
covering risks and in amounts customary for the industry. Company shall, and
shall cause each of its Subsidiaries to, pay all insurance premiums payable by
them.
(f) EMPLOYEE PLANS. (i) With respect to other than a
Multiemployer Plan, for each Pension Plan hereafter adopted or maintained by
Company, any of its Subsidiaries or any ERISA Affiliate, Company shall (A)
(except for a Pension Plan which is unfunded and is maintained by Company or a
Subsidiary primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees) seek, or cause its
Subsidiaries or ERISA Affiliates to seek, and receive determination letters from
the IRS to the effect that such Pension Plan is qualified within the meaning of
Section 401 (a) of the IRC; and (B) from and after the adoption of any such
Pension Plan, cause such plan to be administered so as to avoid any material
liability to Company, any of its Subsidiaries or any ERISA Affiliates in
connection with any failure to comply with the requirements of ERISA and Section
401 (a) of the IRC.
(ii) With respect to each Welfare Plan hereafter adopted or
maintained by Company, any of its Subsidiaries or any ERISA Affiliate, Company
shall comply, or cause its Subsidiaries or ERISA Affiliates to comply, in good
faith and in all material respects with the notice and continuation coverage
requirements of COBRA and the regulations thereunder so as not to result in any
material liability to Company, any of its Subsidiaries or any ERISA Affiliates.
(iii) Company shall not, directly or indirectly, and shall
not permit its Subsidiaries or any ERISA Affiliate to directly or indirectly by
reason of an amendment or amendments to, or the adoption of, one or more Pension
Plans subject to Title IV of ERISA, permit an Unfunded Pension Liability to
exceed $250,000, or to give rise to the requirement that security must be
provided to any such plan under Section 401 (a) (29) of the IRC. Neither
Company nor any of its Subsidiaries shall establish or become obligated to any
new Retiree Welfare Plan, which would result in the present value of future
liabilities under any such plans to exceed $100,000. Neither Company nor any of
its Subsidiaries or ERISA Affiliates shall establish or become obligated to any
new unfunded Pension Plan, which would result in the present value of future
liabilities under any such plans to exceed $150,000.
(iv) Company, any of its Subsidiaries and any ERISA
Affiliate shall not contribute or become obligated to contribute to any
Multiemployer Plan.
28
(g) COMPLIANCE WITH LAWS. Company shall, and shall cause each of
its Subsidiaries to, comply with all laws, including Environmental Laws,
applicable to it where the failure to so comply could reasonably be expected to
have a Material Adverse Effect.
(h) FINANCIAL COVENANTS. Company and its Subsidiaries shall, on a
consolidated basis:
(i) maintain, at the end of each fiscal quarter, a ratio of
EBITDA to Fixed Charges for the latest 12 months of not less than the amounts
set forth below:
OUARTER ENDING MINIMUM RATIO
March 1997 (5.50) : 1.00
June 1997 (1.50) : 1.00
September 1997 1.25 : 1.00
December 1997 1.75 : 1.00
March 1998 and 2.00 : 1.00
each quarter thereafter
(ii) maintain, at the end of each fiscal quarter, commencing
with the quarter ending March 31, 1998, a ratio of total Indebtedness as of such
quarter-end to EBITDA for the latest 12 months of not greater than 3 to 1.
(iii) maintain, at the end of each fiscal quarter,
Consolidated Net Worth of at least the amount set forth opposite such quarter
below plus, in each case, an amount equal to 85% of any increase from the date
hereof in Consolidated Net Worth resulting from the issuance by Company of any
securities or capital contributions:
CONSOLIDATED
OUARTER ENDING NET WORTH
March 1997 $ 5,100,000
June 1997 5,200,000
September 1997 7,200,000
December 1997 11,800,000
March 1998 $11,500,000
June 1998 12,800,000
September 1998 14,600,000
December 1998 17,100,000
Each quarter thereafter $20,000,000
(i) MAINTENANCE OF EXISTENCE AND CONDUCT OF BUSINESS. Company
shall, and shall cause each of its Subsidiaries to: (i) except as permitted by
Section 5.2(i) hereof, do or cause to be done all things necessary to preserve
and keep in full force and effect its corporate existence, and its rights and
franchises; (ii) at all times maintain, preserve and protect all of its patents,
trademarks and trade names, and preserve all the remainder of its material
assets, in use
29
or useful in the conduct of its business and keep the same in
good repair, working order and condition (taking into consideration ordinary
wear and tear) and from time to time make, or cause to be made, all needful and
proper repairs, renewals and replacements, betterments and improvements thereto
except, in each case, to the extent Company determines that to do so is not
necessary or advisable for the ongoing operations of Company or its Subsidiaries
consistent with industry practices; and (iii) continue to conduct business
solely in its existing lines of business and businesses related thereto.
5.2 NEGATIVE COVENANTS. Company covenants and agrees that from and
after the date hereof (except as otherwise provided herein, or unless the
Required Holders have given their prior written consent) so long as the Note is
outstanding:
(a) PERMITTED ACQUISITIONS AND INVESTMENTS. Company shall not, and
shall not permit any of its Subsidiaries to, directly or indirectly in any
transaction or related series of transactions, acquire or invest in, whether for
cash, debt, stock, or other property or assets or by guaranty of any obligation,
any assets or business of any Person other than (i) acquisitions of assets in
the ordinary course of business of Company, (ii) Cash Equivalents, (iii)
acquisitions or investments (including investments in wholly-owned Subsidiaries
of Company) for consideration other than Stock issued by Company, the value of
the consideration for which, when added to the value of consideration for such
other acquisitions or investments made during the then preceding 12 months, does
not exceed 15% of the Consolidated Net Worth of Company, as of the then most
recent fiscal quarter immediately preceding, or (iv) any other acquisition or
investment made in consideration of Stock issued by Company.
(b) SALES OF ASSETS; LIQUIDATION. Company shall not, and shall not
permit any Subsidiary of Company to, (i) sell, transfer, convey or otherwise
dispose of any assets or properties or (ii) liquidate, dissolve or wind up
Company, except for transfers to Company, whether voluntary or involuntary;
PROVIDED, HOWEVER, that the foregoing shall not prohibit (i) the sale of
inventory in the ordinary course of business, (ii) the sale of surplus or
obsolete equipment and fixtures, (iii) transfers resulting from any casualty or
condemnation of assets or properties, (iv) transfers of assets to wholly-owned
Subsidiaries of Company to the extent permitted by paragraph (a) above, or (v)
any transfers, sales or dispositions, the book value of which when added to the
book value of all other such transfers, sales and dispositions over the then
preceding 12 months does not exceed 15% of the Consolidated Net Worth of Company
as of the then most recent fiscal quarter immediately preceding.
(c) EMPLOYEE LOANS. Other than as set forth on Schedule 5.2(c),
Company shall not, and shall not permit any Subsidiary of Company to, make or
accrue any loans or other advances of money to any employee of Company or such
Subsidiary, other than in the ordinary course of business consistent with past
practice in an aggregate amount outstanding not to exceed at any one time (i)
$100,000 with respect to any employee, and (ii) $375,000 with respect to all
employees.
(d) PREFERRED STOCK. (i) Company shall not issue or agree to issue
any additional shares of preferred stock with an aggregate redemption price,
liquidation preference or purchase price of more than $20,000,000.
30
(e) TRANSACTIONS WITH AFFILIATES. Company shall not, and shall not
permit any Subsidiary of Company to, enter into or be a party to any transaction
with any Affiliate of Company or such Subsidiary, except (i) transactions
expressly permitted hereby, (ii) transactions in the ordinary course of and
pursuant to the reasonable requirements of Company's or such Subsidiary's
business and upon fair and reasonable terms that are not less favorable to
Company or such Subsidiary than would be obtained in a comparable arm's-length
transaction with a Person not an Affiliate of Company or such Subsidiary, and
(iii) payment of compensation to employees and directors' fees.
(f) INDEBTEDNESS. Company shall not, and shall not permit any
Subsidiary of Company to, incur or suffer to exist any Indebtedness except: (i)
Indebtedness existing on the date hereof and listed on Schedule 5.2(f); (ii)
Permitted Indebtedness; (iii) Indebtedness to be incurred after the date hereof,
as set forth on Schedule 5.2(f); (iv) to the extent deemed Indebtedness,
obligations under any private label credit card arrangement entered into between
Company and Purchaser or any Affiliate of Purchaser; and (v) Indebtedness
(including the Note) in an aggregate amount outstanding at any one time not to
exceed $30,000,000, provided that Company would then be in compliance with the
covenant in Section 5.1(h) (ii) (without regard to the March 31, 1998 date
thereof) after giving effect to the incurrence of such Indebtedness.
(g) LIENS. Company shall not, and shall not permit any Subsidiary
of Company to, incur or suffer to exist any Liens on any of its assets, except
(i) Permitted Liens, and (ii) Liens securing Senior Debt permitted hereunder.
(h) RESTRICTED PAYMENTS. Company shall not make any Restricted
Payments nor shall Company permit any Subsidiary to make such payments with
respect to Company's Stock, other than (i) repurchases of the Warrants pursuant
to the provisions thereof, and (ii) mandatory redemption of Company's
outstanding preferred stock, provided that (x) no Default or Event of Default
exists or would result therefrom, and (y) the mandatory redemption provisions
provided for in Section 2.4 are complied with.
(i) MERGERS; SUBSIDIARIES. Company shall not, nor shall it
permit any of its Subsidiaries to, directly or indirectly, by operation of
law or otherwise, merge with, consolidate with, or otherwise combine with any
Person, nor shall Company create any Subsidiary, other than (i) the creation
of wholly-owned Subsidiaries or (ii) mergers of wholly-owned Subsidiaries of
Company into Company or any of its other wholly-owned Subsidiaries.
5.3 ADDITIONAL COVENANTS. Company covenants and agrees that, from and
after the Closing Date so long as the Note or at least 50% of the shares of
Common Stock issuable upon exercise of the Warrants (after giving effect to
any reduction in the number of shares subject to the Series B Warrant) and/or
Warrants exercisable for such amount of shares remain outstanding:
(a) Purchaser may designate one individual (an "Observer") to
attend all meetings of the Board of Directors of Company (and any formal
meetings of the audit or compensation committees thereof) in a non-voting
observer capacity. The Observer shall be entitled to receive all reports,
presentations and materials as if such Observer were a member of
31
the Board of Directors. Company shall reimburse the Observer for all
reasonable expenses incurred in connection with meetings of the Board of
Directors and committees thereof, including reasonable travel expenses. This
subparagraph (a) shall cease to apply following a Qualified IPO.
(b) Company shall keep Purchaser advised of the progress and status
of any negotiations resulting from an offer by a third party which could result
in a Change of Control. Company shall give Purchaser notice of any such offers
or negotiations.
6. CONDITIONS PRECEDENT
6.1 CONDITIONS PRECEDENT. The obligation of Purchaser to purchase the
Note and Warrants pursuant to Section 2.1 hereof, is subject to the condition
that Purchaser shall have received, on the Closing Date, the following, each
dated the Closing Date unless otherwise indicated, in form and substance
satisfactory to Purchaser:
(a) The Note and Warrants duly executed by Company and payable to
and registered, respectively, in the name of Purchaser.
(b) Favorable opinion of ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, counsel to
Company, substantially in the form attached hereto as Exhibit D, it being
understood that to the extent that such opinion of counsel to Company shall rely
upon any other opinion of counsel, each such other opinion shall be in form and
substance reasonably satisfactory to Purchaser and shall provide that Purchaser
may rely thereon.
(c) Resolutions of the board of directors of Company, certified by
the Secretary or Assistant Secretary of Company, as of the Closing Date, to be
duly adopted and in full force and effect on such date, authorizing (i) the
consummation of each of the transactions contemplated by this Agreement and (ii)
specific officers to execute and deliver this Agreement and each other
Transaction Document to which it is a party.
(d) Governmental certificates, dated the most recent practicable
date prior to the Closing Date, with telegram updates where available, showing
that Company is duly organized and in good standing in the State of Minnesota
and is qualified as a foreign corporation and in good standing in all other
jurisdictions in which it is qualified to transact business.
(e) A copy of the articles of incorporation and all amendments
thereto of Company (including, without limitation, an amendment of the
anti-dilution protection applicable to the shares of preferred stock of
Company, which amendment shall be in form and substance satisfactory to GE
Capital, in its sole discretion), certified as of a recent date by the
Secretary of State of the State of Minnesota, and copies of Company's
by-laws, certified by the Secretary or Assistant Secretary of Company as true
and correct as of the Closing Date.
(f) Certificates of the Secretary or an Assistant Secretary of
Company, dated the Closing Date, as to the incumbency and signatures of the
officers of Company executing this Agreement, the Note, the Warrants and any
other certificate or other document to be delivered
32
pursuant hereto or thereto, together with evidence of the incumbency of such
Secretary or Assistant Secretary.
(g) Certificate of the President or Chief Financial Officer of
Company, dated the Closing Date, stating that all of the representations and
warranties of Company contained herein or in the other Transaction Documents are
true and correct on and as of the Closing Date as if made on such date and that
no breach of any covenant contained in Article 5 and no Default or Event of
Default has occurred or would result from the Closing hereunder.
(h) Certificate of the Chief Financial Officer of Company, dated
the Closing Date, stating that neither the issuance nor the exercise of the
Warrants will result in a reduction (or other adjustment having a similar
effect) in the conversion price of any series of the outstanding shares of
preferred stock of Company other than the outstanding shares of Series E
preferred stock of Company, the conversion price of which will be reduced to the
weighted average exercise price of the Warrants after cancellation of any Series
B Warrants, whether or not any of the Warrants are exercised.
6.2 ADDITIONAL CONDITIONS. The obligation of Purchaser to purchase the
Note and Warrant pursuant to Section 2.1 hereof is subject to the additional
conditions precedent that:
(a) There shall not have occurred any Material Adverse Effect since
December 28, 1996.
(b) All of the representations and warranties of Company contained
herein or in the other Transaction Documents shall be true and correct on and as
of the Closing Date as if made on such date and no breach of any covenant
contained in Article 5 or Default or Event of Default shall have occurred or
would result from the Closing hereunder.
(c) The Closing shall have occurred no later than March 31, 1997.
7. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
7.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events (regardless of the reason therefor) shall constitute an "Event
of Default" hereunder and under the Note:
(a) Company shall fail to make any payment of principal of, or
interest on or any other amount owing in respect of, the Note, or any of the
other Obligations when due and payable or declared due and payable, provided
that (i) once in any Fiscal Year, with respect to interest only such failure
shall remain unremedied for a period of five (5) days, and (ii) with respect to
payments other than principal, prepayment premium or interest, such failure
shall remain unremedied for a period of ten (10) days.
(b) Company shall fail or neglect to perform, keep or observe any
of the provisions of Sections 4.4, 4.10, 4.13, 4.19, 4.22, 5.1(h) or 5.2 hereof.
33
(c) Company shall fail or neglect to perform, keep or observe any
other provision of this Agreement or of any of the other Loan Documents, and the
same shall remain unremedied for a period of thirty (30) days after Company
shall receive written notice of any such failure from Purchaser.
(d) A default shall occur under any other agreement, document or
instrument to which Company or any Subsidiary is a party or by which Company or
any of its Subsidiaries or any of their property is bound, and such default (i)
involves the failure to make any payment (whether of principal, interest or
otherwise) due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) in respect of any Indebtedness of Company or
any of its Subsidiaries in an aggregate amount exceeding $2,000,000, or (ii)
causes (or permits any holder of such Indebtedness or a trustee to cause) such
Indebtedness or a portion thereof in an aggregate amount exceeding $2,000,000,
to become due prior to its stated maturity or prior to its regularly scheduled
dates of payment.
(e) Any representation or warranty herein or in any Loan Document
or in any written statement pursuant thereto or hereto, report, financial
statement or certificate made or delivered to Purchaser by Company pursuant
hereto or thereto shall be untrue or incorrect in any material respect, as of
the date when made.
(f) Any of the assets of Company or any of its Subsidiaries in
excess of $250,000 in value shall be attached, seized, levied upon or subjected
to a writ or distress warrant, or come within the possession of any receiver,
trustee, custodian or assignee for the benefit of creditors of Company or any of
its Subsidiaries and shall remain unstayed or undismissed for sixty (60)
consecutive days; or Company or any of its Subsidiaries shall have concealed,
removed or permitted to be concealed or removed, any part of its property, with
intent to hinder, delay or defraud its creditors or any of them or made or
suffered a transfer of any of its property or the incurring of an obligation
which may be fraudulent under any bankruptcy, fraudulent conveyance or other
similar law.
(g) A case or proceeding shall have been commenced against Company
or any of its Subsidiaries in a court having competent jurisdiction seeking a
decree or order in respect of Company or any of its Subsidiaries (i) under title
11 of the United States Code, as now constituted or hereafter amended, or any
other applicable federal, state or foreign bankruptcy or other similar law, (ii)
appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator
(or similar official) of Company or any of its Subsidiaries or of any
substantial part of its or their properties, or (iii) ordering the winding-up or
liquidation of the affairs of Company or any of its Subsidiaries and such case
or proceeding shall remain undismissed or unstayed for sixty (60) consecutive
days or such court shall enter a decree or order granting the relief sought in
such case or proceeding.
(h) Company or any of its Subsidiaries shall (i) file a petition
seeking relief under title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable federal, state or foreign bankruptcy
or other similar law, (ii) consent to the institution of proceedings thereunder
or to the filing of any such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or similar
34
official) of Company or any of its Subsidiaries or of any substantial part of
its properties, (iii) fail generally to pay its debts as such debts become
due, or (iv) take any corporate action in furtherance of any such action.
(i) Final judgment or judgments (after the expiration of all times
to appeal therefrom) for the payment of money in excess of $1,000,000 in the
aggregate shall be rendered against Company or any of its Subsidiaries and the
same shall not be (i) covered by insurance with reasonable deductibles, or (ii)
vacated, stayed, bonded, paid or discharged for a period of thirty (30) days.
(j) (i) With respect to any Plan, a prohibited transaction within
the meaning of Section 4975 of the IRC or Section 406 of ERISA occurs which in
the reasonable determination of the Agent could result in direct or indirect
liability to Company or any of its Subsidiaries, (ii) with respect to any Title
IV Plan, the filing of a notice to voluntarily terminate any such plan in a
distress termination, (iii) with respect to any Multiemployer Plan, Company, any
of its Subsidiaries or any ERISA Affiliate shall incur any Withdrawal Liability,
(iv) with respect to any Pension Plan subject to Section 412 of the Code or
Section 302 of ERISA, Company, any of its Subsidiaries or any ERISA Affiliate
shall incur an accumulated funding deficiency or request a funding waiver from
the IRS, or (v) with respect to any Title IV Plan or Multiemployer Plan which
has an ERISA Event not described in clauses (ii) - (iv) hereof, in the
reasonable determination of the Agent there is a reasonable likelihood for
termination of any such plan by the PBGC; PROVIDED, HOWEVER, that the events
listed in clauses (i) - (v) hereof shall constitute Events of Default only if
the liability, deficiency or waiver request of Company, any of its Subsidiaries
or any ERISA Affiliate, whether or not assessed, exceeds $1,000,000 in any case
set forth in (i) - (v) above, or exceeds $1,000,000 in the aggregate for all
such cases.
7.2 REMEDIES. If any Event of Default specified in Section 7.1 shall
have occurred and be continuing, Purchaser may, without notice, declare all
Obligations to be forthwith due and payable, whereupon all such Obligations
shall become and be due and payable, without presentment, demand, protest or
further notice of any kind, all of which are expressly waived by Borrower;
PROVIDED, HOWEVER, that upon the occurrence of an Event of Default specified in
Section 7.1(f), (g) or (h) hereof, such Obligations shall become due and payable
without declaration, notice or demand by Purchaser.
Purchaser may (but shall not be obligated to) take such action, or refrain
from taking such action, with respect to such Default or Event of Default as it
shall deem advisable in its best interests, including any action (or the failure
to act) pursuant to the Loan Documents.
7.3 WAIVERS BY COMPANY. Except as otherwise provided for in this
Agreement and applicable law, Company waives (i) presentment, demand and protest
and notice of presentment, dishonor and notice of intent to accelerate, (ii) all
rights to notice and a hearing prior to Purchaser's taking possession or control
of, or to Purchaser's replevy, attachment or levy upon, the Collateral or any
bond or security which might be required by any court prior to allowing
Purchaser to exercise any of its remedies, and (iii) the benefit of all
valuation, appraisal and exemption laws. Company acknowledges that it has been
advised by counsel of its choice with
35
respect to this Agreement, the other Loan Documents and the transactions
evidenced by this Agreement and the other Loan Documents.
7.4 RIGHT OF SET-OFF. Upon the occurrence and during the continuance of
any Event of Default, Purchaser is hereby authorized at any time and from time
to time, to the fullest extent permitted by law, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by Purchaser to or for the
credit or the account of Company against any and all of the obligations of
Company now or hereafter existing under this Agreement and the Note held by
Purchaser irrespective of whether or not Purchaser shall have made any demand
under this Agreement or the Note and although such obligations may be unmatured.
Purchaser agrees promptly to notify Company after any such set-off and
application made by Purchaser; PROVIDED, HOWEVER, that the failure to give such
notice shall not affect the validity of such set-off and application. The
rights of Purchaser under this Section are in addition to other rights and
remedies (including, without limitation, other rights of set-off) which
Purchaser may have. This Section 7.4 shall not apply to any retail receivables
financing or private label credit card arrangements entered into between Company
and Purchaser or any of its Affiliates, and Purchaser waives any common law
rights of setoff with respect thereto.
8. SUBORDINATION
8.1 NOTE SUBORDINATED TO SENIOR DEBT. Company covenants and agrees, and
Purchaser and any other holder of the Note (Purchaser and such holders being
hereinafter referred to collectively as "Holder") by its acceptance thereof
likewise covenants and agrees, that all payments of the principal of and
interest on the Note and all other Obligations of Company pursuant to this
Agreement (collectively the "Subordinated Debt") shall be subordinated in
accordance with the provisions of this Section 8 to the prior payment in full of
all Senior Debt of Company. For purposes of this Section 8, the term "Senior
Debt" shall mean the Senior Debt of Company and shall include principal of and
premium, if any, and interest (including interest accruing at the rate provided
for in the documents evidencing such Senior Debt after the commencement of any
proceedings of the type referred to in Section 8.2(a) hereof, whether or not an
allowed claim in such proceeding) on all loans and other extensions of credit
under, and all expenses, fees, reimbursements, indemnities and other amounts
owing pursuant to, the Senior Debt, to the extent permitted to be incurred
pursuant hereto.
8.2 PRIORITY AND PAYMENT OVER OF PROCEEDS IN CERTAIN EVENTS.
(a) SUBORDINATION ON DISSOLUTION, LIQUIDATION OR REORGANIZATION OF
COMPANY. Upon payment or distribution of assets or securities of Company of any
kind or character, whether in cash, property or securities, upon any dissolution
or winding up or total or partial liquidation or reorganization of Company,
whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or
other proceedings or upon an assignment for the benefit of creditors or any
other marshalling of the assets and liabilities of Company, all Senior Debt
shall first be paid in full in cash, or payment provided for in cash or cash
equivalents in a manner satisfactory to the holders of Senior Debt, before any
direct or indirect payments or distributions, including, without limitation, by
exercise of set-off, of any cash, property or securities on account of
36
principal of (or premium, if any) or interest on the Note and to that end the
holders of Senior Debt shall be entitled to receive (pro rata on the basis of
the respective amounts of Senior Debt held by them) directly, for application
to the payment thereof (to the extent necessary to pay all Senior Debt in
full after giving effect to any substantially concurrent payment or
distribution to or provision for payment to the holders of such Senior Debt),
any payment or distribution of any kind or character, whether in cash,
property or securities, in respect of the Subordinated Debt. The holders of
Senior Indebtedness are hereby authorized to file an appropriate claim for
and on behalf of the Holders if they or any of them do not file, and there is
not otherwise filed on behalf of the Holders, a proper claim or proof of
claim in the form required in any such proceeding prior to 30 days before the
expiration of the time to file such claim or claims.
(b) SUBORDINATION ON DEFAULT IN SENIOR DEBT. No direct or indirect
payment by or on behalf of Company of principal of (premium, if any), or
interest on, the Subordinated Debt, whether pursuant to the terms of the Note,
upon acceleration or otherwise, shall be made if at the time of such payment
there exists (i) a default in the payment of all or any portion of principal of
(premium, if any), interest on, fees or other amounts owing in connection with
any Senior Debt, or (ii) any other default under any document or instrument
governing or evidencing any Senior Debt, and Purchaser has received written
notice of such default from a holder or representative of the holders of Senior
Debt, and, in either case, such default shall not have been cured or waived in
writing, PROVIDED HOWEVER, that if within the period specified in the next
sentence with respect to a default referred to in clause (ii) above, the holders
of Senior Debt have not declared the Senior Debt to be immediately due and
payable (or have declared such Senior Debt to be immediately due and payable and
within such period have rescinded such acceleration), then and in that event,
payment of principal of, and interest on, the Note shall be resumed. With
respect to any default under clause (ii) above, the period referred to in the
preceding sentence shall commence upon receipt by Purchaser of a written notice
or notices (which shall specify all defaults existing under the Senior Debt on
the date of such notice and of which the holder thereof of representative giving
such note had actual knowledge at such time) of the commencement of such period
from such holder or representative, and shall end at the completion of the 90th
day after the beginning of such period. Only one such 90 day period may
commence within any 360 consecutive days. Upon termination of any such period,
Borrower shall resume payments on account of the principal of (premium, if any),
and interest on, the Note, and on account of all other Subordinated Debt,
subject to the provisions of Sections 8.1 and 8.2 hereof.
(c) RIGHTS AND OBLIGATIONS OF HOLDERS.
(i) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, the Holders shall have received any
payment on account of the Subordinated Debt at a time when such payment is
prohibited by such provision before the Senior Debt is paid in full, then and in
such event, such payment or distribution shall be received and held in trust by
the Holders apart from their other assets and paid over or delivered to the
holders of the Senior Debt remaining unpaid to the extent necessary to pay in
full in cash the principal of (premium, if any), and interest on, such Senior
Debt in accordance with its terms and after giving effect to any concurrent
payment or distribution to the holders of such Senior Debt.
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(ii) Nothing contained in this Section 8 will limit the right of the
Holders of Subordinated Debt to take any action to accelerate the maturity of
the Subordinated Debt pursuant to Section 7.2 hereof, PROVIDED, HOWEVER, that
all Senior Debt then due or thereafter declared to be due shall first be paid in
full before the Holders are entitled to receive any payment from Company of
principal of, or interest on, the Note.
(iii) Upon any payment or distribution of assets or securities
referred to in this Section 8, the Holders shall be entitled to rely upon any
order or decree of a court of competent jurisdiction in which such
dissolution, winding up, liquidation or reorganization proceedings are
pending, and upon a certificate of the receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making any such payment or
distribution, delivered to the Holders for the purpose of ascertaining the
persons entitled to participate in such distribution, the holders of Senior
Debt and other Indebtedness of Company, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Section 8.
8.3 RIGHTS OF HOLDERS OF SENIOR DEBT NOT TO BE IMPAIRED. No right of
any present or future holder of any Senior Debt to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act by any such holder, or by any noncompliance by Company
with the terms and provisions and covenants herein regardless of any knowledge
thereof such holder may have or otherwise be charged with.
The provisions of this Section 8 are intended to be for the benefit of, and
shall be enforceable directly by, the holders of the Senior Debt. Company and
each Holder of a Note, by its acceptance thereof, acknowledges that the holders
of the Senior Debt are relying upon the provisions of this Section 8 in
extending such Senior Debt.
8.4 SUBROGATION. Upon the payment in full of all Senior Debt, the
Holders shall be subrogated to the extent of the payments or distributions made
to the holders of, or otherwise applied to payment of, the Senior Debt pursuant
to the provisions of this Section 8 and to the rights of the holders of Senior
Debt to receive payments or distributions of assets of Company made on the
Senior Debt until the Note shall be paid in full; and for the purposes of such
subrogation, no payments or distributions to holders of Senior Debt of any cash,
property or securities to which Holders of the Note would be entitled except for
the provisions of this Section 8, and no payment over pursuant to the provisions
of this Section 8 to holders of Senior Debt by the Holders, shall, as between
Company, its creditors other than holders of Senior Debt and the Holders, be
deemed to be payment by Company to or on account of Senior Debt, it being
understood that the provisions of this Section 8 are solely for the purpose of
defining the relative rights of the holders of Senior Debt, on the one hand, and
the Holders, on the other hand.
If any payment or distribution to which the Holders would otherwise have
been entitled but for the provisions of this Section 8 shall have been applied,
pursuant to the provisions of this Section 8, to the payment of Senior Debt,
then and in such case, the Holders shall be entitled to receive from the holders
of Senior Debt at the time outstanding any payments or distributions received by
such holders of Senior Debt in excess of the amount sufficient to pay all Senior
Debt in full.
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8.5 OBLIGATIONS OF COMPANY UNCONDITIONAL. Nothing contained in this
Section 8 or elsewhere in this Agreement or in the Note is intended to or shall
impair, as between Company and the Holders, the obligations of Company, which
are absolute and unconditional, to pay to the Holders the principal of (premium,
if any), and interest on, the Note as and when the same shall become due and
payable in accordance with their terms, or is intended to or shall affect the
relative rights of the Holders and creditors of Company other than the holders
of the Senior Debt, nor shall anything herein or therein prevent any Holder from
exercising all remedies otherwise permitted by applicable law upon the
occurrence of a Default or Event of Default under this Agreement, subject to the
rights, if any, under this Section 8 of the holders of Senior Debt in respect of
cash, property or securities of Company received upon the exercise of any such
remedy.
The failure to make a payment on account of principal of, or interest on,
the Note by reason of any provision of this Section 8 shall not be construed as
preventing the occurrence of a Default or an Event of Default hereunder.
8.6 NOTICE TO HOLDERS. Company shall give prompt written notice to each
Holder of any fact known to Company which would prohibit the making of any
payment on or in respect of the Note, but failure to give such notice shall not
affect the subordination of the Subordinated Debt to the Senior Debt provided in
this Section 8. Notwithstanding the provisions of this Section 8 or any other
provision of this Agreement or the Note, no Holder shall be charged with
knowledge of the existence of any facts which would prohibit the making of any
payment to or in respect of the Note, unless and until the Holders shall have
received written notice thereof from Company or a representative of or holder of
Senior Debt, and, prior to the receipt of any such written notice, subject to
the provisions of this Section 8, the Holders shall be entitled in all respects
to assume no such facts exist. Nothing contained in this Section 8.6 shall
limit the right of the holders of Senior Debt to recover payments as
contemplated by Sections 8.1 and 8.2.
8.7 RIGHT OF ANY HOLDER AS HOLDER OF SENIOR DEBT. Any Holder in its
individual capacity shall be entitled to all the rights set forth in this
Section 8 with respect to any Senior Debt which may at any time be held by it,
to the same extent as any other holder of Senior Debt, and nothing in this
Agreement shall deprive such Holder of any of its rights as such holder.
8.8 REINSTATEMENT. The provisions of this Section 8 shall continue to
be effective or be reinstated, and the Senior Debt shall not be deemed to be
paid in full, as the case may be, if at any time any payment of any of the
Senior Debt is rescinded or must otherwise be returned by the holder thereof
upon the insolvency, bankruptcy or reorganization of the Company or otherwise,
all as though such payment had not been made.
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9. MISCELLANEOUS
9.1 COMPLETE AGREEMENT; MODIFICATION OF AGREEMENT; SALE OF INTEREST.
(a) The Transaction Documents constitute the complete agreement between the
parties with respect to the subject matter hereof and may not be modified,
altered or amended except as provided therein, or in the case of the Loan
Documents by an agreement in writing signed by Company and Purchaser in
accordance with Section 9.1(d) hereof. Company may not sell, assign or transfer
any of the Loan Documents or any portion thereof, including, without limitation,
Company's rights, title, interests, remedies, powers and duties hereunder or
thereunder. Company hereby consents to Purchaser's sale of participations,
assignment, transfer or other disposition, at any time or times, of any of the
Loan Documents or of any portion thereof or interest therein, including, without
limitation, Purchaser's rights, title, interests, remedies, powers or duties
thereunder, whether evidenced by a writing or not.
(b) In the event Purchaser assigns or otherwise transfers all or
any part of the Note, Company shall, upon the request of Purchaser issue new
Notes to effectuate such assignment or transfer.
(c) Except as provided in Section 3.5, Purchaser may sell, assign,
transfer or negotiate to one or more other lenders, commercial banks, insurance
companies, other financial institutions or any other Person acceptable to
Purchaser all or a portion of its rights and obligations under the Note held by
Purchaser and this Agreement; PROVIDED, HOWEVER, that acceptance of such
assignment by any assignee shall constitute the agreement of such assignee to be
bound by the terms of this Agreement applicable to Purchaser. From and after
the effective date of such an assignment, (x) the assignees thereunder shall, in
addition to the rights and obligations hereunder held by it immediately prior to
such effective date, have the rights and obligations hereunder that have been
assigned to it pursuant to such assignment and (y) the assignor thereunder
shall, to the extent that rights and obligations hereunder have been assigned by
it pursuant to such assignment, relinquish its rights and be released from its
obligations under this Agreement (and, in the case of an assignment and
acceptance covering all or the remaining portion of an assignor's rights and
obligations under this Agreement, such assignor shall cease to be a party
hereto).
(d) No amendment or waiver of any provision of this Agreement or
the Note or any other Loan Document, nor consent to any departure by Company
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Required Holders, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; PROVIDED, HOWEVER, that no amendment, waiver or consent shall, unless in
writing and signed by each holder of a Note affected thereby do any of the
following: (i) subject such holder to any additional obligations, (ii) reduce
the principal of, or interest on, the Note or other amounts payable hereunder or
release or discharge Company from its obligations to make such payments, (iii)
postpone any date fixed for any payment of principal of, or interest on, the
Note or other amounts payable hereunder, (iv) change the aggregate unpaid
principal amount of the Note, or the number of holders thereof, which shall be
required for such holders or any of them to take any action hereunder, or (v)
amend this Section 9.1(d).
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9.2 FEES AND EXPENSES. Company shall pay all reasonable out-of-pocket
expenses of Purchaser in connection with the preparation of the Transaction
Documents and the transactions contemplated thereby, including all reasonable
legal expenses. If, at any time or times, regardless of the existence of an
Event of Default (except with respect to paragraphs (ii), (iii) and (iv) below,
which shall be subject to an Event of Default (or in the case of paragraph (ii)
a Default) having occurred and be continuing), Purchaser shall employ counsel or
other advisors for advice or other representation or shall incur reasonable
legal or other costs and expenses in connection with:
(i) any amendment, modification or waiver, or consent with respect
to, any of the Loan Documents;
(ii) a Default or an Event of Default;
(iii) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by Purchaser, Company, any Subsidiary of Company or any
other Person) in any way relating to any of the Loan Documents or any other
agreements to be executed or delivered in connection herewith; or
(iv) any attempt to enforce any rights of Purchaser against
Company, any Subsidiary of Company or any other Person, that may be
obligated to Purchaser by virtue of any of the Loan Documents;
then, and in any such event, the reasonable attorneys' and other parties' fees
arising from such services, including those of any appellate proceedings, and
all reasonable expenses, costs, charges and other fees incurred by such counsel
and others in any way or respect arising in connection with or relating to any
of the events or actions described in this Section shall be payable, on demand,
by Company to Purchaser and shall be additional Obligations under this Agreement
and the other Loan Documents. Without limiting the generality of the foregoing,
such expenses, costs, charges and fees may include: reasonable paralegal fees,
costs and expenses; accountants' and investment bankers' fees, costs and
expenses; court costs and expenses; photocopying and duplicating expenses; court
reporter fees, costs and expenses; long distance telephone charges; air express
charges; telegram charges; secretarial overtime charges; and expenses for
travel, lodging and food paid or incurred in connection with the performance of
such legal services.
9.3 NO WAIVER BY PURCHASER. Purchaser's failure, at any time or times,
to require strict performance by Company of any provision of this Agreement and
any of the other Loan Documents shall not waive, affect or diminish any right of
Purchaser thereafter to demand strict compliance and performance therewith. Any
suspension or waiver by Purchaser of an Event of Default by Company under the
Loan Documents shall not suspend, waive or affect any other Event of Default by
Company under this Agreement and any of the other Loan Documents whether the
same is prior or subsequent thereto and whether of the same or of a different
type. None of the undertakings, agreements, warranties, covenants and
representations of Company contained in this Agreement or any of the other Loan
Documents and no Event of Default by Company under this Agreement and no
defaults by Company under any of the other Loan
41
Documents shall be deemed to have been suspended or waived by Purchaser,
unless such suspension or waiver is by an instrument in writing signed by an
officer of Purchaser and the Required Holders and directed to Company
specifying such suspension or waiver.
9.4 REMEDIES. Purchaser's rights and remedies under this Agreement
shall be cumulative and nonexclusive of any other rights and remedies which
Purchaser may have under any other agreement, including without limitation, the
Loan Documents, the other Transaction Documents, by operation of law or
otherwise.
9.5 WAIVER OF JURY TRIAL. The parties hereto waive all right to trial
by jury in any action or proceeding to enforce or defend any rights under the
Transaction Documents.
9.6 SEVERABILITY. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
9.7 PARTIES. This Agreement and the other Transaction Documents shall
be binding upon, and inure to the benefit of, the successors of Company and
Purchaser and the assigns, transferees and endorsees of Purchaser.
9.8 CONFLICT OF TERMS. Except as otherwise provided in this Agreement
or any of the other Loan Documents by specific reference to the applicable
provisions of this Agreement, if any provision contained in this Agreement is in
conflict with, or inconsistent with, any provision in any of the other Loan
Documents, the provision contained in this Agreement shall govern and control.
9.9 GOVERNING LAW. Except as otherwise expressly provided in any of the
Transaction Documents, in all respects, including all matters of construction,
validity and performance, this Agreement and the Obligations arising hereunder
shall be governed by, and construed and enforced in accordance with, the laws of
the State of New York applicable to contracts made and performed in such state,
without regard to the principles thereof regarding conflict of laws, and any
applicable laws of the United States of America. Purchaser and Company agree to
submit to personal jurisdiction and to waive any objection as to venue in the
County of New York, State of New York. Service of process on Purchaser or
Company in any action arising out of or relating to any of the Transaction
Documents shall be effective if mailed to such party at the address listed in
Section 9.10 hereof. Nothing herein shall preclude Purchaser or Company from
bringing suit or taking other legal action in any other jurisdiction.
9.10 NOTICES. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by another, or whenever any of the parties desires to give or serve upon
another any communication with respect to this Agreement, each such notice,
demand, request, consent, approval, declaration or other communication shall be
in writing and either shall be delivered in person with receipt acknowledged or
by registered or certified mail,
42
return receipt requested, postage prepaid, or telecopied and confirmed by
telecopy answerback addressed as follows:
(a) If to Company at:
Select Comfort Corporation
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Chief Financial Officer
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
With a Copy to:
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to Purchaser:
General Electric Capital Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Equity Capital Group-Select
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
General Electric Capital Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Equity Capital Group Legal
Counsel
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
and
43
Weil, Gotshal & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, telecopied and confirmed by telecopy answerback or
three (3) Business Days after the same shall have been deposited in the United
States mail. Failure or delay in delivering copies of any notice, demand,
request, consent, approval, declaration or other communication to the persons
designated above to receive copies shall in no way adversely affect the
effectiveness of such notice, demand, request, consent, approval, declaration or
other communication.
9.11 SURVIVAL. The representations and warranties of Company in this
Agreement shall survive the execution, delivery and acceptance hereof by the
parties hereto and the closing of the transactions described herein or related
hereto.
9.12 SECTION TITLES. The Section titles and Table of Contents contained
in this Agreement are and shall be without substantive meaning or content of any
kind whatsoever and are not a part of the agreement between the parties hereto.
9.13 COUNTERPARTS. This Agreement may be executed in any number of
separate counterparts, each of which shall, collectively and separately,
constitute one agreement.
9.14 PUBLICITY. Company shall not issue any press release or make any
public disclosure regarding the transactions contemplated hereby unless such
press release or public disclosure is approved by Purchaser in advance.
Notwithstanding the foregoing, Company may, in documents required to be filed by
it with the SEC or other regulatory bodies, make such statements with respect to
the transactions contemplated hereby as it may be advised by counsel is legally
necessary or advisable, subject to advance consultation with Purchaser.
IN WITNESS WHEREOF, Company and Purchaser have duly executed this Agreement
as of the day and year first above written.
SELECT COMFORT CORPORATION
By: /s/
---------------------------------------
Name:
Title: CFO and CAO
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GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/
---------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇.
Title:
45