EXHIBIT 2
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NOTE AND WARRANT PURCHASE AGREEMENT
DATED APRIL 26, 2002
BY AND AMONG
CONCEPTS DIRECT, INC.,
ST. CLOUD CAPITAL PARTNERS, LP,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
AND
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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TABLE OF CONTENTS
Page
1. AUTHORIZATION AND CLOSING...................................................1
1.1 Authorization of the Securities....................................1
1.2 Purchase and Sale of the Securities................................1
1.3 The Closing........................................................1
1.4 Closing Fees and Expenses..........................................2
2. DEFINITIONS.................................................................2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............................9
3.1 Organization; Good Standing; Qualification.........................9
3.2 Authorization; No Breach...........................................9
3.3 Reservation of Common Stock.......................................10
3.4 Capitalization and Related Matters................................10
3.5 Subsidiaries; Investments.........................................10
3.6 Consents..........................................................10
3.7 Contracts and Other Commitments...................................11
3.8 Absence of Certain Developments...................................12
3.9 Assets............................................................13
3.10 Compliance with Laws..............................................13
3.11 Litigation........................................................13
3.12 Offering..........................................................14
3.13 Financial Information.............................................14
3.14 Title, Liens and Encumbrances.....................................15
3.15 Tax Returns and Tax Matters.......................................15
3.16 Employee Matters..................................................15
3.17 Insurance.........................................................15
3.18 Intellectual Property Rights......................................15
3.19 Product Warranty..................................................16
3.20 Brokerage.........................................................16
3.21 Employee Benefits and Plans.......................................16
3.22 Environmental and Safety Matters..................................18
3.23 Minute Books......................................................19
3.24 Small Business Matters............................................19
3.25 Affiliated Transactions...........................................20
3.26 Solvency, etc.....................................................20
3.27 Investment Company................................................20
3.28 Margin Regulations................................................21
3.29 Public Utility Holding Company Act................................21
3.30 Disclosure........................................................21
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS............................21
4.1 Authorization.....................................................21
4.2 Purchase Entirely for Own Account.................................21
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4.3 Reliance upon the Investors' Representations......................22
4.4 Receipt of Information............................................22
4.5 Accredited Investor...............................................22
5. CONDITIONS OF THE INVESTORS' OBLIGATIONS AT CLOSING........................22
5.1 Representations and Warranties and Covenants; No Event of Default.22
5.2 Qualifications and Approvals......................................22
5.3 Compliance with Applicable Laws...................................22
5.4 Other Assurances..................................................23
5.5 Closing Documents.................................................23
5.6 Insurance.........................................................24
5.7 No Material Adverse Change........................................24
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.........................24
6.1 Representations and Warranties....................................24
6.2 Performance.......................................................24
6.3 Compliance with Applicable Laws...................................24
7. AFFIRMATIVE COVENANTS......................................................25
7.1 Accounting Records................................................25
7.2 Financial Reporting and Notices...................................25
7.3 Access............................................................26
7.4 Qualification to Do Business......................................27
7.5 Insurance.........................................................27
7.6 Taxes and Other Liabilities.......................................27
7.7 Governmental Approvals and Requirements...........................27
7.8 Liens and Perfection..............................................27
7.9 Change of Location................................................27
7.10 Compliance with Agreements and Transaction Documents..............28
7.11 Maintenance of Properties.........................................28
7.12 Compliance With Applicable Laws...................................28
7.13 Mandatory Prepayment of the Notes.................................28
8. NEGATIVE COVENANTS.........................................................29
8.1 Restricted Payments...............................................29
8.2 Indebtedness......................................................29
8.3 Mergers and Sale of Assets........................................29
8.4 Liquidation, Dissolution, Reorganization..........................29
8.5 Disposition of Assets.............................................29
8.6 Change of Name or Business........................................29
8.7 Accounting Policies...............................................30
8.8 Liens.............................................................30
8.9 Loans by the Company; Cancellation of Debts.......................30
8.10 Loans to Officers or Directors....................................30
8.11 Investments.......................................................30
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8.12 Agreements........................................................30
8.13 Use of Proceeds...................................................31
8.14 Organizational Documents..........................................31
8.15 Intellectual Property.............................................31
9. SBIC REGULATORY PROVISIONS.................................................31
9.1 Use of Proceeds...................................................31
9.2 Regulatory Violation..............................................32
9.3 Regulatory Compliance Cooperation.................................32
9.4 Economic Impact Information.......................................32
9.5 Sales to Securities to other SBIC Holders.........................33
9.6 Business Activity.................................................33
9.7 Number of Stockholders............................................33
9.8 Compliance With Non-Discrimination Requirements...................33
10. EVENTS OF DEFAULT..........................................................33
10.1 Events of Default.................................................33
10.2 Termination and Acceleration......................................35
11. MISCELLANEOUS..............................................................35
11.1 Expenses..........................................................35
11.2 Remedies..........................................................36
11.3 No Setoffs, etc...................................................36
11.4 Payment Set Aside.................................................36
11.5 Entire Agreement..................................................37
11.6 Survival of Covenants.............................................37
11.7 Survival of Warranties............................................37
11.8 Successors and Assigns............................................37
11.9 Confidentiality...................................................38
11.10 Indemnification...................................................38
11.11 Aggregation.......................................................39
11.12 Counterparts......................................................39
11.13 Titles and Subtitles..............................................39
11.14 Notices...........................................................39
11.15 Amendments and Waivers; Rights of Investors.......................40
11.16 Severability......................................................40
11.17 Construction......................................................40
11.18 Exculpation of Investors..........................................41
11.19 Jurisdiction and Venue............................................41
11.20 Waiver of Right to Jury Trial.....................................41
11.21 Limitation on Liability...........................................41
Exhibit A - Form of Note
Exhibit B - Form of Security Agreement
Exhibit C - Form of Warrant
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Exhibit D - Form of Investors' Rights Agreement
Exhibit E - Pro forma Projections of the Company
Exhibit F - Form of Opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇ LLP
Exhibit G - Schedule of Exceptions
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CONCEPTS DIRECT, INC.
NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT (this "Agreement") is
made as of April 26, 2002, by and among CONCEPTS DIRECT, INC., a Delaware
corporation (the "Company"), ST. CLOUD CAPITAL PARTNERS, LP, a Delaware limited
partnership ("St. Cloud"), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, an individual ("▇.▇▇▇▇▇▇"), and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, an individual ("▇.▇▇▇▇▇▇" and together with ▇.▇▇▇▇▇▇, referred
to herein as "▇▇▇▇▇▇"). St. Cloud and ▇▇▇▇▇▇ are together referred to herein as
the "Investors" and individually as an "Investor". ▇.▇▇▇▇▇▇ and ▇.▇▇▇▇▇▇ shall
act jointly for all purposes under this Agreement and the other Transaction
Documents and shall be considered one Investor.
THE PARTIES HERETO HEREBY AGREE AS FOLLOWS:
1. AUTHORIZATION AND CLOSING.
1.1 Authorization of the Securities. The Company has authorized the
issuance and sale to each Investor of (a) a 10.0% Senior Secured Promissory Note
in an aggregate principal amount of Two Million Dollars ($2,000,000.00), in the
form attached hereto as Exhibit A (each, a "Note", and together the "Notes"),
and secured by that certain Security Agreement, by and among the Company and the
Investors, in the form attached hereto as Exhibit B (the "Security Agreement")
and (b) a Common Stock Purchase Warrant, representing the right to acquire
275,000 shares of the Company's common stock, par value $0.10 per share (the
"Common Stock"), subject to adjustment, in the form attached hereto as Exhibit C
(each, a "Warrant", and together the "Warrants"). The Notes and the Warrants are
sometimes collectively referred to herein as the "Securities".
1.2 Purchase and Sale of the Securities. On the Closing Date (as
defined below), the Company shall sell to each Investor and, subject to the
terms and conditions set forth herein, each Investor shall purchase from the
Company a Note and Warrant for a purchase price equal to Two Million Dollars
($2,000,000.00). The Company and each Investor, having adverse interests and as
a result of arm's length bargaining, agree that: (a) none of the Investors nor
any of their affiliated companies has rendered any services to the Company in
connection with this Agreement, (b) the Warrants are not being issued as
compensation, (c) the fair market value of each Note, if issued apart from each
Warrant, is equal to One Million Four Hundred Sixty Six Thousand Five Hundred
Dollars ($1,466,500.00), and the fair market value of each Warrant, if issued
apart from each Note, is equal to Five Hundred Thirty Three Thousand and Five
Hundred Dollars ($533,500.00), (d) Twenty Four Thousand Seven Hundred Fifty
Dollars ($24,750.00) of the Two Million Dollar ($2,000,000.00) purchase price
paid by each Investor is an advance payment of $0.09 per share underlying the
Warrants with respect to the exercise price per share of the Warrants, and (e)
all Tax Returns and other information returns of each party relative to this
Agreement, the Notes, and the Warrants issued pursuant hereto shall consistently
reflect the matters agreed to in (a) through (d) above.
1.3 The Closing. The closing of the purchase and sale of the Securities
(the "Closing") shall take place at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, on the Closing Date, or at such other place as may be
mutually agreeable to the Company and the Investors. At the Closing, the Company
shall deliver to each Investor a Note and a Warrant, the Security Agreement and
the Investors' Rights Agreement (as defined below). At the Closing, each
Investor shall pay the Company an amount equal to Two Million Dollars
($2,000,000.00) for such Investor's Note and Warrant by wire transfer of
immediately available funds, to an account designated by the Company.
1.4 Closing Fees and Expenses. At the Closing, the Company shall pay to
each Investor a closing fee in the aggregate amount of Thirty Thousand Dollars
($30,000.00) and reimburse each Investor for fees and expenses as provided in
Section 11.1 hereto (to the extent such fees and payments are known as of the
Closing Date). The Investors may offset amounts owed to them pursuant to this
Section 1.4 from the purchase price being paid by such Investor pursuant to
Section 1.3.
2. DEFINITIONS. Except as otherwise expressly provided or unless the
context otherwise requires, the terms defined in this Section 2 shall, for all
purposes of this Agreement, have the meanings herein specified, the following
definitions being equally applicable to the singular and plural forms of any of
the terms herein defined:
"Action" shall mean any action, arbitration, audit, demand,
claim, complaint, dispute, hearing, inquiry, investigation, litigation,
prosecution or suit (whether civil, criminal, administrative, governmental,
judicial or investigative, whether formal or informal, whether public or
private).
"Affiliate" shall mean, when used with reference to any
specified Person, any other Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, such specified
Person. For the purposes of this definition, "control," when used with respect
to any specified Person, means the power to direct or cause the direction of
management or policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative of the foregoing.
"Agreement" shall mean this Note and Warrant Purchase
Agreement by and among the Company and the Investors (including the exhibits
attached hereto), as originally executed or as it may from time to time be
supplemented, modified or amended as provided herein.
"Board" shall mean the Board of Directors of the Company.
"Business" shall have the meaning set forth in Section 3.24(b)
hereof.
"Business Day" shall mean a day other than a Saturday, Sunday
or any other day on which commercial banks in Los Angeles, California are
required or authorized to be closed.
"Capitalized Lease Obligations" shall mean the amount of the
liability reflecting the aggregate discounted amount of future payments under
all Capitalized Leases calculated in accordance with GAAP consistently applied
and Statement of Financial Accounting Standards No. 13.
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"CERCLA" shall have the meaning set forth in Section 3.22
hereof.
"Cessation Date" shall have the meaning set forth in Section
11.6 hereof.
"Change of Control" shall mean: (a) any sale, transfer or
issuance or series of sales or issuances of the Company's capital stock by the
Company or any holder or holders thereof, or any merger, consolidation or other
transaction involving the Company where the stockholders of the Company
immediately prior to such event do not retain more than a fifty percent (50%)
voting power or interest in the Company or the successor corporation or other
entity, as the case may be, (b) any sale of all or substantially all of the
assets of Company on a consolidated basis, (c) after the Closing, any Person or
group of Persons (within the meaning of Section 13 or 14 of the Securities
Exchange Act of 1934, shall acquire beneficial ownership (within the meaning of
Rule 13d-3 promulgated under such Act) of more than twenty-five percent (25%) of
the outstanding securities (on a fully diluted basis and taking into account any
securities or contract rights exercisable, exchangeable or convertible into
equity securities) of the Company having voting rights in the election of
directors under normal circumstances, or (d) a majority of the members of the
Board shall cease to be Continuing Members (as defined below). For purposes of
the foregoing, "Continuing Members" shall mean a member of the Board who either
(i) was a member of the Board on the day before the Closing or (ii) became a
member of the Board after the day before the Closing and whose election or
nomination for election was approved by a vote of the majority of the Continuing
Members then members of the Board.
"Closing" shall have the meaning set forth in Section 1.3
hereof.
"Closing Date" shall mean April __, 2002, or such other date
as the Company and Investors shall mutually agree upon.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and the regulations issued thereunder.
"Collateral" shall have the meaning set forth in the Security
Documents.
"Collateral Agent" shall have the meaning set forth in the
Security Agreement.
"Common Stock" shall have the meaning set forth in Section 1.1
hereof.
"Company" shall have the meaning set forth in the preamble
hereof.
"Company Benefit Plan" shall have the meaning set forth in
Section 3.21(a) hereof.
"Confidential Information" shall have the meaning set forth in
Section 11.9 hereof.
"Environmental and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, rules, ordinances, and
similar provisions having the force or effect of law, all judicial and
administrative orders, judgments, directives, and determinations, all regulatory
policy or guidance, all contractual obligations, permits, licenses and all
common law,
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in each case concerning public health and safety, worker health and safety and
pollution or protection of the environment (including, without limitation, all
those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control or cleanup of any
hazardous or otherwise regulated materials, substances or wastes, chemical
substances or mixtures, pesticides, pollutants, contaminants, toxic chemicals,
petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise or
radiation), each as amended and as now or hereafter in effect.
"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 Affiliates" shall have the meaning set forth in Section
3.21(a) hereof.
"Event of Default" shall have the meaning set forth in Section
10.1 hereof.
"Financing" shall mean the purchase of the Securities by the
Investors hereunder.
"GAAP" shall mean United States generally accepted accounting
principles in effect from time to time applied consistently throughout the
period involved.
"Indebtedness" of a Person shall mean (a) any obligation of
such Person for borrowed money, (b) any obligation of such Person evidenced by
bonds, debentures, notes or other similar instruments, (c) any obligation of
such Person to pay the deferred purchase price of property or for services
(other than trade payables in the ordinary course of business), (d) any
Capitalized Lease Obligation or synthetic lease obligation of such Person, (e)
any obligation or liability of others secured by a lien on any asset of such
Person, whether or not such obligation or liability is assumed, (f) any
guarantee or indemnity with respect to the indebtedness, obligations or
liability of another Person (other than those incurred in the ordinary course of
business), (g) indebtedness of such Person consisting of reimbursement
obligations under letters of credit issued for the account of such person, (h)
all indebtedness created or arising under any conditional sale or other title
retention agreement 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), (i)
all obligations of such Person, contingent or otherwise, to purchase, redeem,
retire or otherwise acquire for value any capital stock of such Person, (j) all
obligations of such Person in respect of hedge agreements, swap agreements and
similar agreements and (k) the liquidation value of any mandatorily redeemable
preferred capital stock of such Person or any of its Subsidiaries held by any
Person other than such Person and its wholly owned Subsidiaries.
"Indemnitees" shall have the meaning set forth in Section
11.10 hereof.
"Intellectual Property Contracts" shall mean all contracts and
agreements relating to the Intellectual Property Rights (as defined below) to
which the Company is a party or by which the Company is bound, including without
limitation assignment, royalty and license agreements.
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"Intellectual Property Rights" shall mean any and all rights
in or affecting intellectual or industrial property or other proprietary rights
owned or used by the Company, existing now or in the future in the United States
or anywhere in the universe, including without limitation any and all rights in,
to, or subsisting in the following: (a) patents, patent applications, patent
disclosures and inventions, including all reissues, continuations,
continuations-in-part, divisions, renewals and extensions of patents; (b)
trademarks, service marks, trade dress, trade names, slogans, Internet domain
names, vanity telephone numbers, logos and corporate names, including all
registrations, applications for registration and renewals thereof, together with
all of the goodwill associated therewith; (c) copyrights, copyrightable works
and original works of authorship, including all registrations, applications for
registration and renewals thereof; (d) computer software, data, data bases and
Internet websites, and all documentation relating thereto; (e) trade secrets and
other confidential information (including, without limitation, ideas, formulas,
compositions, inventions (whether patentable or unpatentable and whether or not
reduced to practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, financial and marketing plans and
customer and supplier lists and information); (f) copies and tangible
embodiments thereof (in whatever form or medium); (g) licenses (under which the
applicable Person is licensor or licensee) relating to any of the foregoing and
(h) all other intangible assets, properties and rights, together with all other
interests accruing by reason of international conventions and treaties,
including without limitation all claims, causes of action and rights to ▇▇▇ for
past, present and future infringement or unconsented use of any of the
Intellectual Property Rights, the right to file applications and obtain
registrations, and all products, proceeds and revenues arising from or relating
to any and all of the foregoing.
"Investment" as applied to any Person shall mean (a) any
direct or indirect purchase or other acquisition by such Person of any notes,
obligations, instruments, stock, securities or ownership interest (including
partnership interests, membership interests and joint venture interests) of any
other Person and (b) any capital contribution by such Person to any other
Person.
"Investor" or "Investors" shall have the meaning set forth in
the preamble hereof.
"Investors' Rights Agreement" shall mean that certain
Investors' Rights Agreement, to be entered into at the Closing by and among the
Company and the Investors, as originally executed or as it may from time to time
be supplemented, modified or amended, in the form attached hereto as Exhibit D.
"IRS" shall the Internal Revenue Service.
"Liabilities" shall have the meaning set forth in Section
11.10 hereof.
"Lien" shall mean any interest in property securing an
obligation, whether such interest is based on common law, statute or contract,
and including but not limited to any security interest or lien arising from a
mortgage, encumbrance, pledge, charge, easement, servitude, security agreement,
conditional sale or trust receipt or a lease, consignment or bailment for
security purposes.
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"Material Adverse Change" shall mean a material adverse change
in (a) the business, assets, operations, prospects or financial condition of the
Company, (b) the ability of the Company to pay the Obligations in accordance
with their terms, or (c) the Liens of the Investors on the Collateral or the
priority of such Liens.
"Material Adverse Effect" shall mean a material adverse effect
on (a) the business, assets, operations, prospects or financial condition of the
Company, (b) the ability of the Company to pay the Obligations in accordance
with their terms, or (c) the Liens of the Investors on the Collateral or the
priority of such Liens.
"Mortgage" shall mean that certain Deed of Trust to Public
Trustee, Security Agreement and Financing Statement, dated as of the Closing
Date, executed by the Company in favor of the Investors.
"Multiemployer Plan" shall have the meaning set forth in
Section 3.21(d) hereof.
"Net Proceeds" shall have the meaning set forth in Section
7.13(a) hereof.
"Note" shall have the meaning set forth in Section 1.1 hereof.
"Obligations" shall mean all loans, advances, debts,
liabilities, obligations, covenants and duties owing to any Investor by the
Company of any kind or nature, present or future, whether or not evidenced by
any note, guaranty or other instrument, arising under this Agreement, the Notes
or the Security Documents, whether or not for the payment of money, arising by
reason of an extension of credit, absolute or contingent, due or to become due,
now existing or hereafter arising, including all principal, interest, charges,
expenses, fees, attorneys' fees and disbursements and any other sum chargeable
to the Company under this Agreement or any other Transaction Document.
"Operating Lease" shall mean for any Person any lease of
property which would not be classified as a Capitalized Lease under GAAP
consistently applied, other than a lease under which such Person is the lessor.
"Other Assurances" shall mean any agreement, instrument,
conveyance, mortgage, pledge, hypothecation or other document executed and
delivered (or to be executed and delivered) pursuant to Section 5.4 hereof (as
amended, modified or supplemented from time to time).
"Pension Plan" shall have the meaning set forth in Section
3.21(d) hereof.
"Permitted Liens" shall mean: (a) the Liens created under the
Security Documents, (b) landlords', suppliers', Tax, assessment, governmental
and other like liens and charges arising in the ordinary course of business
securing obligations that are not incurred in connection with the obtaining of
any advance or credit and which are not overdue, or are being contested in good
faith by appropriate proceedings, provided that, in accordance with GAAP,
adequate reserves have been set aside on the books of the Company for the
eventual payment thereof in the event it is determined that such obligations are
payable by the Company, (c) Liens arising in connection with worker's
compensation, unemployment insurance, appeal and release
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bonds and progress payments under government contracts, (d) any "banker's lien"
or similar right of offset, (e) any Lien arising in connection with a
Capitalized Lease Obligation permitted hereunder on the asset which is the
subject of the related lease, (f) Liens of mechanics, materialmen, warehousemen
or carriers, and other like liens, securing obligations incurred in the ordinary
course of business that are not yet due and payable, and (g) Liens for any
Taxes, or other governmental charges, either not delinquent or secured by a bond
reasonably acceptable to each Investor or not yet due and being contested in
good faith and by appropriate proceedings, so long as (i) such proceedings could
not reasonably be expected to result in the sale, forfeiture or loss of the
Collateral or have a Material Adverse Effect on the Company, or (ii) a bond or
other security acceptable to the Collateral Agent, which acceptance may be
withheld in the Collateral Agent's sole and absolute discretion, has been posted
or provided in such manner and amount as to assure the Collateral Agent that any
amounts determined to be due will be promptly paid in full when such contest is
determined.
"Person" shall mean any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
or other entity or governmental body.
"Potential Event of Default" shall mean any event or
occurrence which with the passage of time or the giving of notice or both would
constitute an Event of Default.
"Real Estate Transfer" shall have the meaning set forth in
Section 7.13 hereof.
"Regulatory Problem" shall mean any transaction, circumstance
or situation whereby (a) a Person and such Person's Affiliates would own,
control or have power over a quantity of securities of any kind issued by the
Company or any other entity greater than is permitted under any requirement of
any governmental authority, or (b) it has been asserted by any governmental
regulatory agency, or such Person believes, that such Person and its Affiliates
are not entitled to hold, or exercise any significant right under or with
respect to, the Notes, the Warrants, or the Underlying Common Stock held by such
Person.
"Regulatory Violation" shall mean, with respect to any SBIC
Holder providing Financing under this Agreement, (a) a diversion of the proceeds
of such Financing from the use reported thereof on the SBA Form 1031 delivered
at the Closing, if such diversion was effected without obtaining the prior
written consent of the SBIC Holder (which may be withheld in its sole
discretion) or (b) a change in the principal business activity of the Company to
an ineligible business activity (within the meaning of the SBIC Regulations) if
such change occurs within one year after the date of the initial Financing
hereunder.
"Release" shall have the meaning set forth in CERCLA.
"Restricted Payment" shall mean (a) any dividend or other
distribution declared or paid by the Company on any of the shares now or
hereafter outstanding of the capital stock of the Company or return of capital
to its stockholders as such; and (b) any purchase or other acquisition for value
by the Company of (i) any shares of the capital stock of the Company (except
shares acquired solely upon the conversion thereof into other shares of its
capital stock)
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or (ii) any security convertible into, or any option, warrant or other right to
acquire, shares of the capital stock of the Company.
"SBA" shall mean the United States Small Business
Administration.
"SBIC" shall mean a small business investment company licensed
under the SBIC Act.
"SBIC Act" shall mean the Small Business Investment Act of
1958, as amended.
"SBIC Holder" shall mean St. Cloud and any other holder of
Notes or Underlying Common Stock which is an SBIC.
"SBIC Regulations" shall mean the Small Business Investment
Company Act of 1958, as amended, and the regulations issued by the SBA
thereunder, codified at Title 13 of the Code of Federal Regulations ("13 CFR"),
107 and 121, as amended.
"Securities" shall have the meaning set forth in Section 1.1
hereof.
"Securities Act" shall have the meaning set forth in Section
3.6 hereof.
"Securities and Exchange Commission" shall include any
governmental body or agency succeeding to the functions thereof.
"Security Agreement" shall have the meaning set forth in
Section 1.1 hereof.
"Security Documents" shall mean the Security Agreement, the
Mortgage and the Other Assurances.
"Subsidiary" shall mean, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (a) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (b) if a limited liability company, partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control (or have the power to be or control) a
managing director, manager or general partner of such limited liability company,
partnership, association or other business entity.
"Taxes" shall mean any tax, duty, fee, assessment or charge of
any nature whatsoever imposed by any taxing authority (including, without
limitation, any gross or net income, gross or net receipts, franchise, sales,
use, ad valorem, asset, value added, stamp,
8
transfer, franchise, withholding, payroll, employment, profit sharing, capital,
corporation, excise, occupation or property taxes), together with any and all
penalties, fines, additions to tax or interest thereon.
"Tax Return" shall mean any return, information report or
filing with respect to Taxes, including any schedules attached thereto and
including any amendment thereof.
"Transaction Documents" shall mean this Agreement, the Notes,
the Warrants, the Security Documents and the Investors' Rights Agreement.
"Underlying Common Stock" shall mean (a) the Common Stock
issued or issuable upon exercise of the Warrants and (b) any Common Stock issued
or issuable with respect to the securities referred to in clause (a) above by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization.
"Warrant" shall have the meaning set forth in Section 1.1
hereof.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. As a material
inducement to the Investors to enter into this Agreement and purchase the
Securities hereunder, the Company hereby represents and warrants to each
Investor that each of the following statements are true, complete and correct as
of the date of this Agreement and will be true, complete and correct as of the
Closing after giving effect the other transactions contemplated by the
Transaction Documents to occur on the date of the Closing:
3.1 Organization; Good Standing; Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, has all requisite corporate power and authority to own
and operate its properties and assets and to carry on its business as now
conducted and as proposed to be conducted, to execute and deliver the
Transaction Documents, to issue the Securities and to carry out the provisions
of the Transaction Documents. Except where failure to so qualify would not have
a Material Adverse Effect, the Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction listed on
Schedule 3.1, being all the jurisdictions in which the character of its
properties owned or leased or the nature of its activities make such
qualification necessary.
3.2 Authorization; No Breach. The execution, delivery and performance
of each of the Transaction Documents and all other agreements and instruments
contemplated hereby and thereby to which the Company is a party have been duly
authorized by the Company. Each of the Transaction Documents, the Company's
Certificate of Incorporation and all other agreements and instruments
contemplated hereby and thereby to which the Company is a party constitutes a
valid and binding obligation of the Company, enforceable in accordance with its
terms. The execution and delivery by the Company of each of the Transaction
Documents and all other agreements and instruments contemplated hereby and
thereby to which it is a party, the offering, sale and issuance of the
Securities hereunder, the issuance of the Underlying Common Stock and the
fulfillment of and compliance with the respective terms hereof and thereof by
the Company, do not and shall not (a) conflict with or result in a breach of the
terms, conditions or provisions of, (b) constitute a default under, (c) result
in the creation of any Lien upon the Company's
9
capital stock or assets pursuant to, (d) give any third party the right to
modify, terminate or accelerate any obligation under, (e) result in a violation
of, or (f) require any authorization, consent, approval, exemption or other
action by or notice or declaration to, or filing with, any court or
administrative or governmental body or agency pursuant to, the charter or bylaws
of the Company, or any law, statute, rule or regulation to which the Company is
subject (including any usury laws applicable to the Note), or any agreement,
instrument, order, judgment or decree to which the Company is subject.
3.3 Reservation of Common Stock. The Underlying Common Stock has been
duly and validly reserved for issuance and, upon issuance in accordance with the
terms of the Warrants and the Company's Certificate of Incorporation, will be
duly and validly issued, fully paid and nonassessable, and will be free of
restrictions on transfer other than restrictions on transfer under applicable
state and federal securities laws.
3.4 Capitalization and Related Matters.
(a) The authorized capital of the Company consists, or will
consist prior to the Closing, of 7,500,000 shares of Common Stock, 4,923,538
shares of which are issued and outstanding.
(b) Except as set forth on Schedule 3.4, the Company does not
have outstanding any stock or securities convertible or exchangeable
for any shares of its capital stock or containing any profit
participation features, or has outstanding any rights or options to
subscribe for or to purchase its capital stock or any stock or
securities convertible into or exchangeable for its capital stock or
any stock appreciation rights or phantom stock plans, except for the
Warrants. The Company is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of
its capital stock or any warrants, options or other rights to acquire
its capital stock. All of the outstanding shares of the Company's
capital stock are validly issued, fully paid and nonassessable and the
Underlying Common Stock will, when issued, be duly authorized and
validly issued, fully paid and nonassessable.
(c) The Company is not obligated to register under the
Securities Act any of its presently outstanding securities or any of its
securities that may subsequently be issued (other than the Underlying Common
Stock).
3.5 Subsidiaries; Investments. Except as set forth on Schedule 3.5, the
Company does not have any Subsidiaries. The Company has no direct or indirect
stock or other equity or ownership interest (whether controlling or not) in any
corporation, association, partnership, limited liability company, joint venture
or other entity.
3.6 Consents. Except as set forth on Schedule 3.6, no consent,
approval, qualification, order or authorization of, or filing with, any Person,
or any local, state, federal or foreign governmental authority is required on
the part of the Company in connection with the Company's valid execution,
delivery or performance of this Agreement or the other Transaction Documents,
the issuance of the Securities contemplated by this Agreement or the issuance of
the Underlying Common Stock except (a) such filings as have been made prior to
the Closing and
10
(b) any notices of sale required to be filed with the Securities and Exchange
Commission under Regulation D of the Securities Act of 1933, as amended (the
"Securities Act") and such post-closing filings as may be required under
applicable state securities laws, which will be timely filed within the
applicable periods therefor.
3.7 Contracts and Other Commitments.
(a) Except as expressly contemplated by this Agreement or as
set forth on Schedule 3.7, the Company is not a party to or bound by any written
or oral:
(i) pension, profit sharing, stock option, employee
stock purchase or other plan or arrangement providing for
deferred or other compensation to employees or any other
employee benefit plan or arrangement, or any collective
bargaining agreement or any other contract with any labor
union, or severance agreements, programs, policies or
arrangements;
(ii) contract for the employment of any officer,
individual employee or other Person on a full-time, part-time,
consulting or other basis providing annual compensation in
excess of $50,000 or contract relating to loans to officers,
directors or Affiliates;
(iii) contract under which the Company has advanced
or loaned any other Person amounts in the aggregate exceeding
$50,000;
(iv) agreement or indenture relating to borrowed
money or other Indebtedness or the mortgaging, pledging or
otherwise placing a Lien on any material asset or material
group of assets of the Company;
(v) guarantee of any obligation in excess of $50,000
(other than checks and other instruments endorsed in the
ordinary course of business);
(vi) lease or agreement under which the Company is
lessee or lessor of any property, real or personal, except for
any lease of real or personal property under which the
aggregate annual rental payments do not exceed $50,000;
(vii) Intellectual Property Contracts;
(viii) warranty agreement with respect to its
services rendered or its products sold or leased;
(ix) agreement under which it has granted any Person
any registration rights (including demand and piggyback
registration rights);
(x) sales, distribution or franchise agreement;
(xi) material agreement with a term of more than six
(6) months which is not terminable by the Company upon less
than thirty (30) days notice without penalty; or
11
(xii) contract or agreement prohibiting it from
freely engaging in any business or competing anywhere in the
world.
(b) All of the contracts, agreements and instruments set forth
on Schedule 3.7 are valid, binding and enforceable by the Company and against
any other party thereto, in each case in accordance with their respective terms.
The Company has performed all material obligations required to be performed by
them and are not in default under or in breach of nor in receipt of any claim of
default or breach under any material contract, agreement or instrument to which
the Company is subject; no event has occurred which with the passage of time or
the giving of notice or both would result in a default, breach or event of
noncompliance by the Company under any material contract, agreement or
instrument to which the Company is subject; the Company does not have any
present expectation or intention of not fully performing all such obligations;
the Company does not have knowledge of any breach or anticipated breach by the
other parties to any material contract, agreement, instrument or commitment to
which it is a party; the Company has not delivered or received written notice or
oral notice to an officer of, or has knowledge that any other party intends to
deliver any notice of, termination or non-renewal of term under any material
contract, agreement or instrument to which the Company is subject.
3.8 Absence of Certain Developments.
(a) Except as expressly contemplated by this Agreement or as
set forth on Schedule 3.8, since December 31, 2001, the Company has not:
(i) issued any notes, bonds or other debt securities
or any capital stock or other equity securities or any
securities convertible, exchangeable or exercisable into any
capital stock or other equity securities;
(ii) borrowed any amount or incurred or become
subject to any liabilities, except current liabilities
incurred in the ordinary course of business and liabilities
under contracts entered into in the ordinary course of
business;
(iii) discharged or satisfied any Lien or paid any
obligation or liability, other than current liabilities paid
in the ordinary course of business;
(iv) declared or made any payment or distribution of
cash or other property to its stockholders with respect to its
capital stock or other equity securities or purchased or
redeemed any shares of its capital stock or other equity
securities (including any warrants, options or other rights to
acquire its capital stock or other equity securities);
(v) mortgaged or pledged any of its properties or
assets or subjected them to any Lien, except Liens for current
property taxes not yet due and payable;
(vi) sold, assigned or transferred any of its
tangible assets, except in the ordinary course of business, or
canceled any debts or claims;
(vii) sold, assigned or transferred any Intellectual
Property Rights or other intangible assets;
12
(viii) suffered any extraordinary losses or waived
any rights of value, whether or not in the ordinary course of
business or consistent with past practice;
(ix) made capital expenditures or commitments
therefor that aggregate in excess of $150,000;
(x) made any loans or advances to, guarantees for the
benefit of, or any Investments in, any Persons in excess of
$50,000 in the aggregate;
(xi) suffered any damage, destruction or casualty
loss exceeding in the aggregate $50,000, whether or not
covered by insurance;
(xii) failed to pay or satisfy when due any
liabilities, except where the failure would not have a
Material Adverse Effect;
(xiii) changed its accounting methods, principles or
practices or increased or changed any assumption underlying or
methods of calculating any doubtful account contingency or
other reserves;
(xiv) reevaluated any of its assets, including
without limitation, writing down the value of inventory or
writing off notes or accounts receivable other than in the
ordinary course of business;
(xv) incurred any liabilities other than in the
ordinary course of business
(xvi) made any Investment in or taken steps to
incorporate any Subsidiary; or
agreed to do any of the foregoing.
3.9 Assets. The Company has good and marketable title to, or a valid
leasehold interest in, the material properties and assets used by them, free and
clear of all Liens, except for Permitted Liens and except for properties and
assets disposed of in the ordinary course of business. The buildings, equipment
and other tangible assets of the Company are in good operating condition
(ordinary wear and tear excepted) and are fit for use in the ordinary course of
business. The Company owns, or has a valid leasehold interest in, all assets
necessary for the conduct of its business as presently conducted and as
presently proposed to be conducted and as conducted by the Company for the past
twelve (12) months.
3.10 Compliance with Laws. The Company has not violated and the Company
is in compliance in all material respects with all laws, governmental
regulations and governmental requirements. The Company has not received any
notice of any such violation.
3.11 Litigation. Except as set forth on Schedule 3.11, there is no
action, suit, Tax claim, proceeding or investigation pending or, to the
Company's knowledge, currently threatened (a) against the Company, (b) that
questions the validity of the Transaction Documents or the right of the Company
to enter into the Transaction Documents, or to consummate the transactions
contemplated hereby and thereby, or (c) that might result, either individually
or in
13
the aggregate, in any Material Adverse Change, or in any material change in the
current equity ownership of the Company. The Company is not aware that there is
any basis for any of the foregoing. The foregoing includes, without limitation,
actions, suits, claims, proceedings or investigations pending or threatened
involving the prior employment of any of the employees of the Company, its use
in connection with the business of the Company of any information or techniques
allegedly proprietary to any of its former employers, or its obligations under
any agreements with prior employers. The Company is not a party or subject to
the provisions of any order, writ, injunction, judgment or decree of any court
or government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or that the Company intends to
initiate.
3.12 Offering. Assuming the truth and accuracy of the representations
and warranties of the Investors contained in this Agreement, the offer, sale and
issuance of the Securities as contemplated by this Agreement and the Underlying
Common Stock are, or will be, exempt from the registration and prospectus
delivery requirements of the Securities Act, and are, or will be, exempt from
registration or qualification under the registration, permit or qualification
requirements of all applicable state securities laws. Neither the Company nor
any authorized agent acting on its behalf has solicited or will solicit any
offers to sell or has offered to sell or will offer to sell all or any part of
the Securities to any Person or Persons so as to bring the sale of such
Securities by the Company within the registration provisions of the Securities
Act or any state securities laws.
3.13 Financial Information.
(a) Financial Statements. The audited financial statements of
the Company dated as of December 31, 2001, copies of which have been furnished
to the Investors, have been prepared by the Company in accordance with GAAP, and
they contain no material misstatement or omission and fairly and accurately
present the financial position, assets and liabilities of the Company, as of the
respective dates thereof and the results of operations of the Company. The
Company has no material liabilities or obligations, absolute, contingent or
otherwise, other than (a) liabilities incurred in the ordinary course of
business subsequent to December 31, 2001 and (b) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
GAAP to be reflected in such financial statements, which, in both cases,
individually or in the aggregate, are not material to the financial condition,
operations or prospects of the Company. The Company is not a guarantor or
indemnitor of any Indebtedness or obligation of any other person, firm, or
corporation.
(b) Projections. Attached hereto as Exhibit E is a true and
complete copy of the latest pro forma projections of the consolidated income and
cash flows of the Company for the fiscal years ending December 31, 2002 through
December 31, 2004. Such projections are based on underlying assumptions of the
Company which provide a reasonable basis for the projections contained therein.
Such projections have been prepared on the basis of the assumptions set forth
therein, which the Company reasonably believes are fair and reasonable in light
of the historical financial performance of the Company and of current and
reasonably foreseeable business conditions and reflect the reasonable estimate
of the Company of the results of operations and other information projected
therein. However, the Company makes no warranty that the projections will be met
or exceeded.
14
3.14 Title, Liens and Encumbrances. Except for the Permitted Liens, the
Company has good and marketable title to and possession of all of the
Collateral, free and clear of all Liens. Except for the Permitted Liens, the
Company has not granted and will not grant any Liens on the Collateral which
would preclude the Investors from obtaining a first priority Lien on the
Collateral.
3.15 Tax Returns and Tax Matters. The Company has timely filed all Tax
Returns which are required to be filed, and all such Tax Returns are true,
correct and complete in all material respects. The Company has paid all Taxes
which are payable and due. There is no proposed, asserted or assessed Tax
deficiency against the Company, where any such deficiency or all such
deficiencies, considered in the aggregate, could have a Material Adverse Effect.
The Company has not received written notice from any taxing authority in a
jurisdiction in which such entity does not file a Tax Return stating that such
entity is or may be subject to taxation by that jurisdiction.
3.16 Employee Matters. The Company is not aware that any executive or
key employee of the Company or any group of employees of the Company has any
plans to terminate employment with the Company. The Company has complied in all
material respects with all laws relating to the employment of labor (including
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining and the payment of social security and other Taxes), and the Company
does not have any material labor relations problems (including any union
organization activities, threatened or actual strikes or work stoppages or
material grievances). Neither the Company nor any of its employees is subject to
any noncompete, nondisclosure, confidentiality, employment, consulting or
similar agreements relating to, affecting or in conflict with the present or
proposed business activities of the Company.
3.17 Insurance. Schedule 3.17 contains a complete and accurate list of
all policies or binders of fire, liability, title, worker's compensation,
directors and officers, product liability (which list shall be from January 1,
2001) and other forms of insurance (showing as to each policy or binder the
carrier, policy number, coverage limits, expiration dates, a general description
of the type of coverage provided) maintained by the Company. The Company and
maintains insurance with insurers duly licensed in the applicable jurisdictions,
in such amounts and against such risks and losses as are reasonable and
customary for its business and properties. All such insurance is in full force
and effect and all premiums with respect thereto have been paid to the date
hereof or paid in accordance with payment schedules previously applicable
thereto. There is no default under any such coverage nor has there been any
failure to give notice or present any claim under any such coverage in a due and
timely fashion. There are no outstanding unpaid premiums except in the ordinary
course of business and no notice of cancellation or nonrenewal of any such
coverage has been received.
3.18 Intellectual Property Rights.
(a) Schedule 3.18(a) sets forth a list of all material
Intellectual Property Rights and a list of all jurisdictions where the
Intellectual Property Rights are registered or protected or where applications
have been filed, together with all patent, registration and applications
numbers. Except as set forth on Schedule 3.18(a), the Company owns exclusively
and has the exclusive and unrestricted right to use, or, the case of licensed
rights, has valid rights
15
to use, these material Intellectual Property Rights, free and clear of all Liens
(other than Permitted Liens). No other intellectual property or other right is
necessary for the conduct of the business of the Company as presently conducted
or as proposed to be conducted. The consummation of the transactions
contemplated hereby will not result in the loss or impairment of any of the
material Intellectual Property Rights, or any right pertaining thereto. Schedule
3.18(a) also contains a list of all material Intellectual Property Contracts, in
each case identifying the subject Intellectual Property Rights. The Company has
taken all reasonable (i) actions to maintain and protect these material
Intellectual Property Rights which it owns and (ii) precautions and security
measures to protect the secrecy, confidentiality and value of its trade secrets.
The Company is in compliance in all material respects with the terms of its
website privacy policies and user agreements/terms of use.
(b) Except as set forth in Schedule 3.18(b), (i) the material
Intellectual Property Rights, and the business of the Company (as presently and
proposed to be conducted) do not infringe upon, violate or misappropriate the
rights of any Person, (ii) the material Intellectual Property Rights (including
the validity and title thereto) have not been questioned in or the subject of
any prior Action, are not being questioned in or the subject of any pending
Action, and, to the knowledge of the Company, are not the subject of any
threatened or proposed Action, (iii) the Company is not aware any infringement
or unauthorized use by any Person of any of the material Intellectual Property
Rights, (iv) the Company has not granted any sublicense or similar right with
respect to any material Intellectual Property Contract, and (v) there are no
outstanding and, to the knowledge of the Company, no threatened disputes or
disagreements with respect to any material Intellectual Property Contract. For
purposes of this Section 3.18, a material Intellectual Property Contract shall
mean an Intellectual Property Contract pursuant to which the underlying
Intellectual Property generates revenues to the Company in excess of $50,000 per
year or involves obligations in excess of $50,000.
3.19 Product Warranty. All products manufactured by the Company have in
all material respects been manufactured in conformity with all applicable
contractual commitments and all express or implied warranties. No such products
contain any latent design defect.
3.20 Brokerage. There are no claims for brokerage commissions, finders'
fees or similar compensation in connection with the transactions contemplated by
this Agreement and the other Transaction Documents based on any arrangement or
agreement binding upon the Company. The Company shall pay, and hold each
Investor harmless against, any liability, loss or expense (including reasonable
attorneys' fees and out-of-pocket expenses) arising in connection with any such
claim.
3.21 Employee Benefits and Plans.
(a) Schedule 3.21(a) sets forth a true and complete list of
each "employee benefit plan" as defined in Section 3(3) of the ERISA, and any
other plan, policy, program practice, agreement, understanding or arrangement
(whether written or oral) providing compensation or other benefits to any
current or former director, officer, employee or consultant (or to any dependent
or beneficiary thereof) of the Company or any ERISA Affiliate (as defined
below), which are now, or were within the past 6 years, maintained, sponsored or
contributed to by the Company or any ERISA Affiliate, or under which the Company
or any ERISA Affiliate
16
has any obligation or liability, whether actual or contingent, including,
without limitation, all incentive, bonus, deferred compensation, vacation,
holiday, cafeteria, medical, disability, stock purchase, stock option, stock
appreciation, phantom stock, restricted stock or other stock-based compensation
plans, policies, programs, practices or arrangements (each a "Company Benefit
Plan"). For purposes of this Agreement, "ERISA Affiliate" shall mean any entity
(whether or not incorporated) other than the Company that, together with the
Company, is considered under common control and treated as one employer under
Section 414(b), (c), (m) or (o) of the Code. Neither the Company, nor to the
knowledge of the Company, any other Person, has any express or implied
commitment, whether legally enforceable or not, to modify, change or terminate
any Company Benefit Plan, other than with respect to a modification, change or
termination required by ERISA, the Code or any other applicable law or
governmental rule or regulation.
(b) Each Company Benefit Plan has been administered in all
material respects in accordance with its terms and all applicable laws,
including ERISA and the Code, and contributions required to be made under the
terms of any of the Company Benefit Plans as of the date of this Agreement have
been timely made or, if not yet due, have been properly reflected on the most
recent consolidated balance sheet filed or incorporated by reference in the
Company's audited financial statements prior to the date of this Agreement. With
respect to the Company Benefit Plans, no event has occurred and, to the
knowledge of Company, there exists no condition or set of circumstances in
connection with which Company could be subject to any material liability (other
than for routine benefit liabilities) under the terms of, or with respect to,
such Company Benefit Plans, ERISA, the Code or any other applicable law or
governmental rule or regulation.
(c) Except as disclosed on Schedule 3.21(c): (i) each Company
Benefit Plan which is intended to qualify under Section 401(a), Section 401(k),
Section 401(m) or Section 4975(e)(6) of the Code has received a favorable
determination letter from the IRS as to its qualified status, and each trust
established in connection with any Company Benefit Plan which is intended to be
exempt from federal income taxation under Section 501(a) of the Code is so
exempt, and to Company's knowledge no fact or event has occurred that could
reasonably be expected to adversely affect the qualified status of any such
Company Benefit Plan or the exempt status of any such trust; (ii) to Company's
knowledge there has been no prohibited transaction (within the meaning of
Section 406 of ERISA or Section 4975 of the Code and other than a transaction
that is exempt under a statutory or administrative exemption) with respect to
any Company Benefit Plan that could result in material liability to the Company
or any ERISA Affiliate; (iii) no suit, administrative proceeding, action or
other litigation has been brought, or to the knowledge of Company is threatened,
against or with respect to any such Company Benefit Plan, including any audit or
inquiry by the IRS or United States Department of Labor (other than routine
benefits claims); (iv) no material liability under Title IV of ERISA has been
incurred by Company or any ERISA Affiliate that has not been satisfied in full,
and no condition exists that presents a material risk to the Company or any
Company ERISA Affiliate of incurring or being subject (whether primarily,
jointly or secondarily) to a material liability thereunder; (v) none of the
assets of Company or any Company ERISA Affiliate is, or may reasonably be
expected to become, the subject of any lien arising under ERISA or Section
412(n) of the Code; (vi) neither the Company nor any ERISA Affiliate has any
material liability under ERISA Section 502; (vii) all tax, annual reporting and
other governmental filings required by ERISA and the Code have been timely filed
with the appropriate governmental entity; (viii) all contributions and payments
17
to or under each Company Benefit Plan which can appropriately be deducted under
either Code Section 162 or 404 are deductible; (ix) no amount is subject to Tax
as unrelated business taxable income under Section 511 of the Code; and (x) no
excise tax could be imposed upon the Company under Chapter 43 of the Code.
(d) No Company Benefit Plan is a "multiemployer plan" (as
defined in Section 3(37) or 4001(a)(3) of ERISA) (a "Multiemployer Plan") or is
subject to Title IV of ERISA or Section 412 of the Code, and neither the Company
nor any ERISA Affiliate has sponsored or contributed to or been required to
contribute to a Multiemployer Plan or other pension plan subject to Title IV of
ERISA or Section 412 of the Code (a "Pension Plan").
(e) Except as required by applicable law, no Company Benefit
Plan provides any of the following retiree or post-employment benefits to any
person: medical, disability or life insurance benefits. No Company Benefit Plan
is a voluntary employee benefit association under Section 501(a)(9) of the Code.
The Company and each of its ERISA Affiliates are in compliance in all material
respects with (i) the requirements of the applicable health care continuation
and notice provisions of the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended, and the regulations (including proposed regulations)
thereunder and any similar state law and (ii) the applicable requirements of the
Health Insurance Portability and Accountability Act of 1996, as amended, and the
regulations thereunder.
(f) The Company does not maintain, sponsor, contribute to or
have any liability with respect to any employee benefit plan program or
arrangement that provides benefits to non-resident aliens with no United States
source income outside of the United States.
3.22 Environmental and Safety Matters. Except as set forth on Schedule
3.22
(a) The Company is now and has always been in compliance in
all material respects with all Environmental and Safety Requirements.
(b) Without limiting the generality of the foregoing, the
Company has obtained and complied with, and is in compliance with, in all
material respects, all permits, licenses and other authorizations that may be
required pursuant to Environmental and Safety Requirements for the occupation of
its facilities and the operation of its business; a list of all such permits,
licenses and other authorizations is set forth on Schedule 3.22.
(c) The Company has not received any written or oral notice
regarding any actual or alleged material violation of Environmental and Safety
Requirements, or any material liabilities, obligations or responsibilities or
potential material liabilities, obligations or responsibilities (whether
accrued, absolute, contingent, unliquidated or otherwise), including any
investigatory, remedial or corrective obligations, relating to the Company or
its facilities arising under Environmental and Safety Requirements, nor is the
Company aware of any information which might form the basis of any such notice.
(d) None of the following exists or formerly existed at any
property or facility owned or operated by the Company: (i) underground storage
tanks; (ii) asbestos-containing material in any form or condition; (iii)
materials or equipment containing polychlorinated
18
biphenyls; (iv) landfills, surface impoundments, or disposal areas, or (iv)
maintenance area or vehicle or equipment wash area.
(e) The Company has not treated, stored, disposed of, arranged
for or permitted the disposal of, transported, handled, or released any
substance, including any hazardous substance, or owned or operated any property
or facility (and no such property or facility is contaminated by any such
substance) in a manner that has given or could give rise to material
liabilities, obligations or responsibilities of the Company, including any
liability for response costs, corrective action costs, personal injury, property
damage, natural resources damages or attorney fees, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA") or the Solid Waste Disposal Act, as amended or any other
Environmental and Safety Requirements, nor has the Company released or waived
any third party, either expressly or by operation of law, from any liability,
obligation or responsibility relating to any Environmental and Safety
Requirements.
(f) No facts, events or conditions relating to the past or
present facilities, properties or operations of Company will prevent, hinder or
limit continued compliance in all material respects with Environmental and
Safety Requirements, give rise to any investigatory, remedial or corrective
obligations pursuant to Environmental and Safety Requirements, or give rise to
any other material liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) pursuant to Environmental and Safety Requirements,
including any relating to onsite or offsite releases or threatened releases of
hazardous materials, substances or wastes, personal injury, property damage or
natural resources damage.
(g) Neither this Agreement nor the consummation of the
transaction that is the subject of this Agreement will result in any obligations
for site investigation or cleanup, or notification to or consent of government
agencies or third parties, pursuant to any of the so-called
"transaction-triggered" or "responsible property transfer" Environmental and
Safety Requirements.
(h) The Company has not, either expressly or by operation of
law, assumed or undertaken any liability, including any obligation for
corrective or remedial action, of any other Person relating to Environmental and
Safety Requirements.
(i) The Company has provided true, correct and complete copies
of all environmental reports, assessments or investigations and all parts
thereof (including any drafts of such items) regarding any property currently or
formerly owned, leased or operated by the Company.
3.23 Minute Books. The minute books of the Company provided to Investor
upon its request contain a complete summary of all meetings of directors and
stockholders since the time of incorporation and reflect all transactions
referred to in such minutes accurately in all material respects.
3.24 Small Business Matters.
(a) The Company acknowledges that St. Cloud is a federally
licensed SBIC under the SBIC Act. The Company, together with its "affiliates"
(as that term is defined in 13
19
CFR Section 121.103), is a "small business concern" within the meaning of the
SBIC Regulations, including 13 CFR Section 121.103 because the Company,
including its affiliates, has a tangible net worth not in excess of $18 million,
and average net income after federal income taxes (excluding any carry-over
losses) for the preceding two completed fiscal years not in excess of $6
million. The information regarding the Company and its affiliates set forth in
the SBA Form 480, Form 652 and Form 793 delivered at the Closing is accurate and
complete, each in form and substance acceptable to St. Cloud. Copies of such
forms have been completed and executed by the Company and delivered to the
Investors at the Closing together with a written statement of the Company
regarding its planned use of the proceeds from the sale of the Notes and the
Warrants. The Company presently does not knowingly engage in, and it shall not
hereafter engage in, any activities, nor shall the Company use directly or
indirectly the proceeds of the Financing for any purpose, for which an SBIC is
prohibited from providing funds by the SBIC Regulations (including 13 CFR
Section 107.720).
(b) The Company's primary business activity does not involve,
directly or indirectly, providing funds to others, the purchasing or discounting
of debt obligations, factoring or long-term leasing of equipment with no
provision for maintenance or repair, and the Company is not classified under
Section 53 (Real Estate) of the NAICS manual. The assets of the business of the
Company (the "Business") will not be reduced or consumed, generally without
replacement, as the life of the Business progresses, and the nature of the
Business does not require that a stream of cash payments be made to the
Business's financing sources, on a basis associated with the continuing sale of
assets other than in the ordinary course of business.
3.25 Affiliated Transactions. Except for this Agreement, no officer,
director, employee, stockholder or Affiliate of the Company or any individual
related by blood, marriage or adoption to any such individual or any entity in
which any such Person or individual owns any beneficial interest, is a party to
any agreement, contract, commitment, transaction or arrangement with the Company
or has any material interest in any material property used by the Company,
except for (a) employment arrangements and compensation in the ordinary course
of business and (b) transactions which in the aggregate shall not exceed
$50,000.
3.26 Solvency, etc. The Company is, and after giving effect to the
transactions contemplated by this Agreement shall be, able to pay its debts as
they become due, and the Company's property now has, and after giving effect to
the transactions contemplated hereby shall have, a fair salable value greater
than the amounts required to pay its debts (including a reasonable estimate of
the amount of all contingent liabilities). No transfer of property is being made
and no obligation is being incurred in connection with the transactions
contemplated by this Agreement with the intent to hinder, delay or defraud
either present or future creditors of the Company.
3.27 Investment Company. The Company is not an "investment company" or
an "affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended, nor is the Company, directly or indirectly, controlled by or
acting on behalf of any Person which is an "investment company" within the
meaning of such act. The purchase of the Securities, the application of the
proceeds and repayment thereof by the Company and the consummation of the
20
transactions contemplated by this Agreement will not violate any provision of
such act or any rule, regulation or order issued by the Securities and Exchange
Commission thereunder.
3.28 Margin Regulations. The Company does not own any "margin stock,"
as the term is defined in Regulation U of the Federal Reserve Board, and the
proceeds of the Securities will be used only for the purposes contemplated
hereunder. None of the proceeds of the Securities will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin security, for
the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security or for any other purpose which
might cause the loans hereunder to be considered "purpose credit" within the
meaning of Regulations U or X of the Federal Reserve Board. The purchase of the
Securities will not constitute a violation of such Regulations U or X.
3.29 Public Utility Holding Company Act. The Company is not a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding company," or an "affiliate" of a "subsidiary company" of a "holding
company," within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
3.30 Disclosure. Neither this Agreement nor any of the schedules,
attachments, written statements, documents, certificates or other items prepared
or supplied to the Investors by or on behalf of the Company with respect to the
transactions contemplated hereby contain any untrue statement of a material fact
or omit a material fact necessary to make each statement contained herein or
therein not misleading. There is no fact which the Company has disclosed to the
Investors in writing and of which any of its officers, directors or executive
employees is aware (other than general economic conditions) and which has had or
would reasonably be expected to have a Material Adverse Effect.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. As a material
inducement to the Company to enter into this Agreement and sell the Securities
hereunder, each Investor hereby represents and warrants to the Company that each
of the following statements are true, complete and correct as of the date of
this Agreement and will be true, complete and correct as of the Closing after
giving effect the other transactions contemplated by the Transaction Documents
to occur on the date of the Closing:
4.1 Authorization. Each Investor has full power and authority to enter
into the Transaction Documents and the Transaction Documents constitute valid
and legally binding obligations of such Investor, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, usury and other
laws of general application affecting enforcement of creditors' rights generally
and (b) as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies.
4.2 Purchase Entirely for Own Account. The Transaction Documents are
made with each Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of the Transaction Documents, such
Investor hereby confirms, that the Securities will be acquired for investment
for such Investor's own account, not as a nominee or agent, and not with a view
to the resale or distribution of any part thereof, and that such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the
21
same. By executing the Transaction Documents, each Investor further represents
that such Investor does not have any contract, undertaking, agreement or
arrangement with any Person to sell, transfer or grant participation to such
Person or to any third person, with respect to any of the Securities.
4.3 Reliance upon the Investors' Representations. Each Investor
understands that the Securities are not registered under the Securities Act on
the ground that the issuance of Securities hereunder is exempt from registration
under the Securities Act pursuant to section 4(2) thereof, and that the
Company's reliance on such exemption is based on the Investors' representations
set forth herein.
4.4 Receipt of Information. Each Investor believes it has received all
the information it considers necessary or appropriate for deciding whether to
invest in the Securities. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 3 hereof or the right
of the Investors to rely thereon.
4.5 Accredited Investor. Each Investor represents and warrants that
such Investor is an "accredited investor" within the meaning of the Securities
and Exchange Rule 501 of Regulation D, as presently in effect.
5. CONDITIONS OF THE INVESTORS' OBLIGATIONS AT CLOSING. The obligations
of each Investor under Section 1 hereof are subject to the fulfillment on or
before the Closing of each of the following conditions, as applicable, the
waiver of which shall not be effective against an Investor who does not consent
in writing thereto:
5.1 Representations and Warranties and Covenants; No Event of Default.
The representations and warranties of the Company contained in Section 3 hereof
shall be true and correct at and as of the Closing (both immediately prior to
and immediately after giving effect to the transactions contemplated by the
Transaction Documents) as though then made, the Company shall have performed all
of the covenants required to be performed by it hereunder and under the other
documents, agreements and instruments executed in connection herewith that are
to be complied with or performed by the Company on or prior to the Closing, and
there shall not exist any Event of Default or Potential Event of Default.
5.2 Qualifications and Approvals. Except for the notices required or
permitted to be filed after the Closing, all authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful issuance
and sale of the Securities pursuant to this Agreement and the issuance of the
Underlying Common Stock shall be duly obtained and effective as of the Closing.
5.3 Compliance with Applicable Laws. The purchase of the Securities by
the Investors hereunder shall not be prohibited by any applicable law or
governmental rule or regulation and shall not subject any Investor to any
penalty, liability or, in each Investor's sole judgment, other onerous condition
under or pursuant to any applicable law or governmental rule or regulation, and
the purchase of the Securities by the Investors hereunder shall be permitted by
laws, rules and regulations of the jurisdictions and governmental authorities
and agencies to which any Investor is subject.
22
5.4 Other Assurances. The Company shall execute and deliver all Other
Assurances reasonably requested by any Investor and necessary to obtain, perfect
and enforce a perfected, first priority Lien in favor of the Investors on the
Collateral. Without limiting the generality of the foregoing, all applicable
UCC-1 financing statements shall have been recorded (or delivered for recording)
in the applicable filing office, the Mortgage shall have been recorded (or
delivered for recording) in the appropriate real property records, any
applicable security agreement with respect to any Intellectual Property Rights
shall have been recorded (or delivered for recording) in the appropriate
recording office. The Investors shall have received a commitment for title
insurance, satisfactory to each Investor, pursuant to which the title company,
which shall be a reputable title insurance company, agrees to insure, at its
regular rates, the property located in Weld County, Colorado and described in
more detail on Exhibit A attached to the Mortgage, subject only to the
exceptions shown on the preliminary title report attached hereto as Schedule
5.4. The Investors shall have received such other reports, appraisals or reviews
as they shall require.
5.5 Closing Documents. The Company shall have delivered to the
Investors all of the following documents:
(a) the Notes, duly completed and executed by the Company;
(b) the Warrants, duly completed and executed by the Company;
(c) each other Transaction Document to which either the
Company is a party to;
(d) an opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇ LLP, counsel to the Company,
in the form attached hereto as Exhibit G;
(e) an Officer's Certificate of the Company, dated the date of
the Closing, certifying that as of the Closing Date (i) the representations and
warranties of the Company contained in Section 3 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing, and (ii) the Company shall have performed in all material respects all
agreements and covenants required hereby to be performed by it on or before the
Closing;
(f) certified copies of the resolutions duly adopted by the
Board authorizing the execution, delivery and performance of each of the
Transaction Documents to which it is a party, the issuance and sale of the
Notes, the Warrants, the reservation for issuance upon exercise of the Warrants
of an aggregate of 550,000 shares of Common Stock, and the consummation of all
other transactions contemplated by this Agreement;
(g) a certificate of the secretary of the Company certifying
the names and the signatures of the officers of the Company authorized to sign
this Agreement, the Securities and each of the other agreements, documents and
instruments contemplated hereby;
(h) a certified copy of the Company's Certificate of
Incorporation and bylaws, each as in effect at the Closing;
23
(i) a certificate of good standing of the Company, dated not
more than five (5) days prior to the date of the Closing, issued by the
Secretary of State of the States of Delaware and Colorado;
(j) copies of all third party and governmental consents,
approvals and filings required in connection with the consummation of the
transactions hereunder (including all blue sky law filings);
(k) duly completed and executed SBA Form 480, Form 652 and
Form 793, each in form and substance acceptable to St. Cloud; (i)
(l) a written certification from the Company regarding its
intended use of proceeds from the Financing;
(m) a solvency certificate executed by the Company's chief
financial officer on behalf of the Company; and
(n) such other documents or information (including without
limitation, information required to enable St. Cloud to complete and file SBA
Form 1031) relating to the transactions contemplated by this Agreement as any
Investor or its respective counsel may reasonably request.
5.6 Insurance. The Company shall have supplied certificates of
insurance showing the (a) addition of each Investor as an additional insured
under all risk and liability insurance and each such other policies set forth on
Schedule 3.17 which an Investor requests and (b) coverage of each Investor
Director (as such term is defined in the Investors' Rights Agreement) under the
Company's directors and officers liability insurance, in amounts reasonably
acceptable to each Investor.
5.7 No Material Adverse Change. Since December 31, 2001, there shall
have been no material adverse change in the financial condition, operating
results, prospects, assets, liabilities, operations or supplier relations of the
Company.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to sell the Securities to the Investors under this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions by each Investor:
6.1 Representations and Warranties. The representations and warranties
of each Investor contained in Section 4 hereof shall be true on and as of the
Closing.
6.2 Performance. Each Investor shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by such Investor on or before the
Closing.
6.3 Compliance with Applicable Laws. At the Closing, the sale and
issuance by the Company, and the purchase by the Investors, of the Notes and the
Warrants, and the Company's execution and delivery of, or performance of
obligations under or the consummation of any
24
transaction contemplated by, the Transaction Document shall be legally permitted
by all laws and regulations to which any Investor or the Company is subject.
7. AFFIRMATIVE COVENANTS. The Company covenants and agrees that so long
as any Obligation is outstanding it will comply with the following provisions:
7.1 Accounting Records. The Company shall maintain adequate books and
accounts in accordance with sound business practices and GAAP consistently
applied. The Company shall promptly furnish to each Investor any information
regarding its business or finances as such Investor may reasonably request. Upon
request of any Investor, the Company will extend its cooperation and assistance
and comply with the requests of such Investor or its representative in
connection with an audit regarding the Collateral and will furnish any
information requested in respect thereof, including, without limitation,
appraisals of the Collateral, lien search reports and physical counts.
7.2 Financial Reporting and Notices. The Company shall furnish the
following financial statements and notices to the Investors:
(a) As soon as practicable after the end of each fiscal year
of the Company, and in any event within one hundred twenty (120) days
thereafter, a consolidated balance sheet of the Company as at the end of such
fiscal year, and consolidated statements of income and cash flows of the Company
for such fiscal year, prepared in accordance with GAAP consistently applied and
audited and certified by independent public accountants of nationally recognized
standing selected by the Company and acceptable to each Investor, and setting
forth in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail and certified by the principal financial or accounting
officer of the Company. The financial statements referred to in this subsection
(a) shall be accompanied by management discussion and analysis of the Company's
financial condition, changes in financial condition and results of operations,
as compared to the previous year and budget.
(b) As soon as practicable after the end of each quarterly
accounting period in each fiscal year of the Company, and in any event within
forty-five (45) days thereafter, a consolidated balance sheet of the Company, as
of the end of each such quarterly period, and consolidated statements of income
and cash flows of the Company for such period and for the current fiscal year to
date, prepared in accordance with GAAP consistently applied and setting forth in
comparative form the figures for the corresponding periods of the previous
fiscal year and to the Company's operating plan then in effect and approved by
the Board, subject to changes resulting from normal year-end audit adjustments,
all in reasonable detail and certified by the principal financial or accounting
officer of the Company. The financial statements referred to in this subsection
(b) shall be accompanied by management discussion and analysis of the Company's
financial condition, changes in financial condition and results of operations,
as compared to the previous year and budget.
(c) As soon as practicable after the end of each calendar
month in each fiscal year of the Company, and in any event within thirty (30)
days thereafter, an unaudited consolidated balance sheet of the Company, as of
the end of each such month, and unaudited consolidated statements of income and
cash flows of the Company for such period, prepared in
25
accordance with GAAP consistently applied and setting forth in comparative form
the figures for the corresponding periods of the previous fiscal year and to the
Company's operating plan then in effect and approved by the Board, subject to
changes resulting from normal year-end audit adjustments, all in reasonable
detail and certified by the principal financial or accounting officer of the
Company.
(d) Promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant aspects
operations or financial affairs of the Company, given to the Company by its
independent accountants (and not otherwise contained in other materials provided
hereunder).
(e) As soon as practicable after the end of each quarterly
accounting period in each fiscal year of the Company, and in any event within
forty-five (45) days thereafter, or in the case of the end of the fiscal year,
within sixty (60) days thereafter, a duly completed Certificate executed by the
chief financial officer or chief executive officer of the Company certifying
compliance with the covenants contained in each Transaction Document.
(f) Promptly, but in no event later than two (2) Business
Days, after the Company becomes aware of an occurrence of an Event of Default,
the Company shall notify each Investor of such an occurrence and shall include a
statement of an officer of the Company setting forth the details of such Event
of Default and the action which the Company proposes to take with respect
thereto.
(g) As soon as practicable, written notice of (i) any claims
made in writing, litigation, suits, governmental investigations, proceedings or
disputes involving individually a monetary amount in excess of $50,000, to the
extent not covered by insurance; (ii) any labor controversy which is reasonably
expected to result in a strike against the Company; or (iii) any investigation
or proceeding before or by any governmental authority, the effect of which could
reasonably be expected materially to limit, prohibit or restrict the manner in
which the Company currently conducts its business.
(h) Upon the request of any SBIC Holder, such financial
statements and other information as such SBIC Holder may from time request for
the purposes of assessing the Company's financial condition and all information
reasonably requested by such SBIC Holder in order for it to prepare and file SBA
Form 468 and any other information reasonably requested by any governmental
agency asserting jurisdiction over such SBIC Holder.
7.3 Access. The Company shall permit any representatives designated by
any Investor, upon reasonable notice and during normal business hours and at
such other times as any such holder may reasonably request, to (a) visit and
inspect any of the its properties, including conducting testing, (b) examine its
corporate and financial records and make copies thereof or extracts therefrom
and (c) discuss the affairs, finances and accounts of the Company with its
directors, officers, key employees and independent accountants. The presentation
of an executed copy of this Agreement by any Investor to the Company's
independent accountants shall constitute the Company's permission to its
independent accountants to participate in discussions with such Persons.
26
7.4 Qualification to Do Business. The Company shall cause to be done
all things necessary to maintain, preserve and renew its corporate existence,
rights, franchises, privileges and qualifications (except in those instances in
which the failure to be qualified to do business or in good standing in a
jurisdiction could not reasonably be expected to have a Material Adverse Effect)
and all material licenses, authorizations and permits necessary to the conduct
of its business.
7.5 Insurance. The Company, at its own expense, shall have and maintain
insurance at all times with respect to all Collateral that is insurable at a
reasonable cost against such risks and liabilities, with such carrier and in
such amounts as any Investor may reasonably require. Each Investor shall be an
additional insured with respect to all risk and liability insurance. All other
insurance shall provide that each Investor and the Company are joint loss payees
as their interests may appear and shall not be subject to cancellation or
reduction in coverage without thirty (30) days' prior written notice to each
Investor. The Company shall supply certificates of such insurance to any
Investor upon request.
7.6 Taxes and Other Liabilities. The Company shall pay and discharge
when payable all Taxes, assessments and governmental charges imposed upon its
properties or upon it or its income or profits (in each case before the same
becomes delinquent and before penalties accrue thereon) and all claims for
labor, materials or supplies which if unpaid would by law become a Lien upon any
of its property, unless and to the extent that the same are being contested in
good faith, diligently and by appropriate proceedings and adequate reserves (as
determined in accordance with GAAP consistently applied) have been established
on its books with respect thereto and such contest operates to suspend
collections of the same.
7.7 Governmental Approvals and Requirements. The Company shall apply
for, diligently pursue, and obtain or cause to be obtained, and shall thereafter
maintain in full force and effect all governmental approvals that shall now or
hereafter be necessary for the operation of the business of the Company. The
Company shall promptly notify each Investor in the event of any, and provide
each Investor with a copy of all notices of, denial, suspension, variance or
revocation of any material governmental approvals. The Company shall comply with
all terms and conditions of all governmental approvals and requirements except
where its failure to comply would not have a Material Adverse Effect.
7.8 Liens and Perfection. From and after the Closing, the Company shall
take all such further actions and execute and deliver or cause to be executed
and delivered to the Investors, any agreement, instrument, conveyance, mortgage,
pledge, hypothecation or financing statement, in form and substance satisfactory
to each Investor, which any Investor reasonably determines is necessary to
obtain, perfect or enforce a first priority Lien on any property received by the
Company upon its disposition of any of the Collateral. In addition, and without
limiting the generality of the foregoing, the Company shall from time to time do
all things and deliver all documents and instruments requested by any Investor
to perfect, protect and enforce the Liens granted under the Security Agreement
and pursuant to this Section.
7.9 Change of Location. The Company shall notify each Investor not
later than thirty (30) days in advance of any change in the location of its
corporate offices.
27
7.10 Compliance with Agreements and Transaction Documents. The Company
shall comply with all other material obligations which it incurs pursuant to any
contract or agreement, whether oral or written, express or implied, as such
obligations become due, unless and to the extent that the same are being
contested in good faith, diligently and by appropriate proceedings and adequate
reserves (as determined in accordance with GAAP consistently applied) have been
established on its books with respect thereto. The Company shall perform and
observe all of its obligations to (a) each holder of the Notes and all of its
obligations to each holder of Underlying Common Stock set forth in the Company's
Certificate of Incorporation and bylaws, (b) to each holder of the Warrants and
Underlying Common Stock set forth herein and therein, (c) to each holder of
Registrable Securities (as defined in the Investors' Rights Agreement) as set
forth in the Investors' Rights Agreement, and (d) under each of the other
Transaction Documents.
7.11 Maintenance of Properties. The Company shall maintain and keep its
material properties in good repair, working order and condition (ordinary wear
and tear excepted), and from time to time make all necessary or desirable
repairs, renewals and replacements, so that its business may be properly and
advantageously conducted in all material respects at all times.
7.12 Compliance With Applicable Laws. The Company shall comply in all
material respects with all applicable laws, rules and regulations of all
governmental authorities (including Environmental and Safety Requirements). The
Company shall (a) comply with all material Environmental and Safety Requirements
and all material permits, licenses or other authorizations issued thereunder,
(b) respond immediately to any Release or threatened Release of any hazardous
material, substance or waste in a manner which complies with all Environmental
and Safety Requirements and reasonably mitigates any risk to human health or the
environment and provide such documents or information, and (c) conduct at its
own cost such studies or assessments, relating to matters arising under the
Environmental and Safety Requirements as any Investor may reasonably request.
7.13 Mandatory Prepayment of the Notes. If, upon any sale, lease,
conveyance or other disposition of any real property or related facilities owned
in fee by the Company (including, without limitation, all rights, easements and
privileges appertaining or relating thereto, all buildings, fixtures, and
improvements located thereon) (each a "Real Estate Transfer"):
(a) the average closing price of the Common Stock on the
principal national securities exchange on which the Common Stock is admitted to
trading or listing for the ten (10) consecutive Business Days immediately prior
to the date of such Real Estate Transfer is above $5.00 per share, the Company
shall (except with respect to any Note if waived by the holder thereof) within
three (3) days after its receipt of the proceeds resulting from such Real Estate
Transfer (such proceeds, net only of documental, reasonable and customary costs
of sale are referred to herein as the "Net Proceeds"), apply such Net Proceeds
(pro rata among the holders of Notes) to prepay the Notes, provided that the
Company shall not be obligated to apply more than $750,000 of such Net Proceeds
to prepay the Notes under this Section 7.13(a); or
(b) the average closing price of the Common Stock on the
principal national securities exchange on which the Common Stock is admitted to
trading or listing for the ten (10) consecutive Business Days immediately prior
to the date of such Real Estate Transfer is equal to
28
or below $5.00 per share, the Company shall (except with respect to any Note if
waived by the holder thereof) within three (3) days after its receipt of the Net
Proceeds, apply 100% of such Net Proceeds (pro rata among the holders of the
Notes) to prepay the Notes.
8. NEGATIVE COVENANTS. The Company covenants and agrees that so long as
any Obligation is outstanding it will comply with all of the following
provisions (unless waived by each Investor in its sole discretion):
8.1 Restricted Payments. The Company shall not make Restricted Payments
to its stockholders.
8.2 Indebtedness. Except as set forth on Schedule 8.2, the Company
shall not incur, create, assume or permit to exist any Indebtedness except the
Obligations and except for (a) unsecured Indebtedness subordinated to the
Obligations in a manner acceptable to each Investor, (b) Indebtedness existing
and reflected on the Company's audited balance sheet as of December 31, 2001,
and (c) up to an aggregate of $100,000 of other Indebtedness outstanding at any
time. The Company shall not become a guarantor of any Indebtedness of any other
Person other than in the ordinary course of business. The Company shall not
prepay, redeem, purchase, defease or otherwise satisfy in any manner any
principal or interest on any Indebtedness except, with respect to existing
Indebtedness, in accordance with the terms of the agreements governing such
Indebtedness as in effect on the date hereof) other than the Indebtedness under
this Agreement and the Note.
8.3 Mergers and Sale of Assets. Except as required by the Security
Agreement, without the prior written consent of each Investor, the Company shall
not effect any sale, lease, assignment, transfer, or other conveyance of all or
substantially all of the assets of the Company, or any consolidation, merger or
other transaction involving a Change of Control of the Company.
8.4 Liquidation, Dissolution, Reorganization. Without the prior written
consent of each Investor, which consent shall not be unreasonably withheld, the
Company shall not liquidate, dissolve or effect a reorganization in any form of
transaction (including any reorganization into a limited liability company, a
partnership or any other non-corporate entity which is treated as a partnership
for federal income tax purposes and any reorganization after which the Company
becomes a subsidiary of any other Person).
8.5 Disposition of Assets. Except as required or permitted by the
Security Agreement, without the prior written consent of each Investor, which
consent shall not be unreasonably withheld, the Company shall not (a) sell,
lease or otherwise dispose of more than five percent (5%) of the assets of
Company in any twelve (12) month period (other than sales of inventory in the
ordinary course of business) or (b) sell or permanently dispose of any of its
material Intellectual Property Rights. Without limiting the generality of the
foregoing, without the prior written consent of each holder of the Notes, which
consent may be withheld in each such holder's sole discretion, the Company shall
not (except as required or permitted by the Security Agreement) effect a Real
Estate Transfer.
8.6 Change of Name or Business. The Company shall not change its name
without at least thirty (30) days' prior notice to each Investor. The Company
shall not change the nature of
29
its business or engage in any other business other than the business in which it
is engaged as of the Closing without the prior written consent of each holder of
the Notes, in each such holder's sole discretion, .
8.7 Accounting Policies. Except in order to comply with GAAP or in
order to comply with the policies of the Securities and Exchange Commission, the
Company shall not materially change any of its accounting policies or its fiscal
year.
8.8 Liens. The Company shall not create or permit to exist any Lien
upon any of its assets, except for Permitted Liens, or enter into any agreement
to ▇▇▇▇▇ ▇ ▇▇▇▇ (other than in connection with the granting or sufferance of a
Permitted Lien, provided that such agreement pertains only to the property
covered by the Permitted Lien) on any of its assets.
8.9 Loans by the Company; Cancellation of Debts. The Company shall not,
without the prior written consent of each Investor, which consent shall not be
unreasonably withheld, directly or indirectly, make any loan or advance in
excess of $50,000 or that would cause the aggregate of all such loans to exceed
$50,000. The Company shall not cancel any claim or debt owing to it, except for
reasonable consideration or in the ordinary course of business, and except for
the cancellation of debts or claims not to exceed $50,000 in any fiscal year.
8.10 Loans to Officers or Directors. The Company shall not, without the
prior written consent of each Investor, which consent shall not be unreasonably
withheld, directly or indirectly, make any loans or advances aggregating in
excess of $50,000 to any officer of director of the Company.
8.11 Investments. The Company shall not, without the prior written
consent of each Investor, which consent shall not be unreasonably withheld, make
any Investment in any company or business, except in the ordinary course of
business.
8.12 Agreements. The Company shall not, without the prior written
consent of each Investor, which consent shall not be unreasonably withheld:
(a) enter into, become subject to, amend, modify or waive, any
agreement or instrument which by its terms would (under any circumstances)
restrict the Company's right to perform any of the provisions of any of the
Transaction Documents, the Securities or its Certificate of Incorporation
(including provisions relating to the exercise of the Warrants, the payment of
principal and interest on the Notes);
(b) enter into, amend, modify or supplement any agreement,
transaction, commitment or arrangement with any officers, directors, employees,
stockholders, partners or Affiliates of the Company or with any individual
related by blood, marriage or adoption to any such individual or with any entity
in which any such Person or individual owns a beneficial interest, except for
customary employment arrangements and benefit programs on reasonable terms and
as otherwise expressly contemplated by this Agreement.
(c) Except as set forth on Schedule 8.12(c), enter into any
individual Operating Lease with annual lease payments exceeding $50,000 or
which, together with any
30
other Operating Leases entered into after the date hereof, would result in
annual lease payments for all such Operating Leases to exceed $250,000 in the
aggregate;
(d) amend or modify any stock option plan or employee stock
ownership plan as in existence as of the Closing or adopt any new stock option
plan or employee stock ownership plan, in any such case which would provide for
the redemption or put of any stock or options or other rights by any Person or
which would be adverse to any Investor; or
(e) enter into any contracts not in the ordinary course of
business involving obligations of the Company in excess of $100,000.
8.13 Use of Proceeds. The Company shall not, without the prior written
consent of each Investor, use the proceeds from the sale of the Securities other
than for (a) general corporate purposes or (b) payment of expenses related to
the transactions contemplated by this Agreement. Without limiting the generality
of the foregoing, the Company shall not use any proceeds from the sale of the
Notes hereunder, directly or indirectly, for the purposes of (i) providing
capital to any SBIC; (ii) acquiring farm land, (iii) funding production of a
single item or defined limited number of items, generally over a defined
production period, and such production constitutes the majority of the
activities that the Company, or (iv) purchasing or carrying any "margin
securities" within the meaning of Regulation U promulgated by the Board of
Governors of the Federal Reserve Board or for the purpose of arranging for the
extension of credit secured, directly or indirectly, in whole or in part by
collateral that includes any "margin securities."
8.14 Organizational Documents. The Company shall not, without the prior
written consent of each Investor, make any amendment to its Certificate of
Incorporation or bylaws, or file any resolution of the Board with its
jurisdiction of incorporation containing any provisions, which would adversely
affect or otherwise impair in any respect any rights or remedies of any Investor
or the rights or relative priority of the holders of the Underlying Common Stock
under this Agreement, its Certificate of Incorporation or bylaws.
8.15 Intellectual Property. The Company shall not, without the prior
written consent of each Investor, take any action, or fail to take any action,
which would result in the invalidity, abandonment, misuse or unenforceability of
any material Intellectual Property Rights or which would infringe upon or
misappropriate any rights of other Persons.
9. SBIC REGULATORY PROVISIONS
9.1 Use of Proceeds.
(a) At such times as any SBIC Holder reasonably requests, the
Company shall deliver such SBIC Holder a written statement certified by the
Company's chief financial officer describing in reasonable detail the use of the
proceeds of the Financing hereunder by the Company. In addition to any other
rights granted hereunder, the Company shall grant such SBIC Holder and the SBA
access to the Company's books, and records for the purpose of verifying the use
of such proceeds and verifying the certifications made by the Company in SBA
Form 480, Form 652 and Form 793, delivered pursuant to Section 5.5(k) and for
the purpose of determining whether the principal business activity of the
Company continues to constitute an eligible business activity (within the
meaning of the SBIC Regulations).
31
(b) The Company shall not use any proceeds from the Financing
substantially for a foreign operation, and no more than forty-nine percent (49%)
employees or tangible assets of the Company will be outside the United States
(unless the Company can show to the SBA's satisfaction, that proceeds from the
Financing will be used for a specific domestic purpose).
(c) The Company shall not use any proceeds from the Financing
for any purpose contrary to public interest (including, but not limited to,
activities which are in violation of law) or inconsistent with free enterprise,
in each case, within the meaning of 13 C.F.R. Section 107.720.
9.2 Regulatory Violation. Upon the occurrence of a Regulatory
Violation, in addition to any other rights and remedies to which it may be
entitled as a holder of the Notes, the Warrants or the Underlying Common Stock
(whether under this Agreement, the Notes, the Warrants, the Company's
Certificate of Incorporation or otherwise), each SBIC Holder shall have the
right to the extent required under the SBIC Regulations to demand the immediate
repurchase of all of the outstanding Securities and Underlying Common Stock
owned by such SBIC Holder at a price equal to the purchase price paid for such
Securities and Underlying Common Stock, plus all accrued interest on the Notes,
by delivering written notice of such demand to the Company. The Company shall
pay the purchase price for such Securities and Underlying Common Stock by a
cashier's or certified check or by wire transfer of immediately available funds
to each SBIC Holder demanding repurchase within thirty (30) days after the
Company's receipt of the demand notice, and upon such payment, each such SBIC
Holder shall deliver the certificates evidencing the Securities and Underlying
Common Stock to be repurchased duly endorsed for transfer or accompanied by duly
executed forms of assignment.
9.3 Regulatory Compliance Cooperation. In the event that any SBIC
Holder reasonably believes that it has a Regulatory Problem, such SBIC Holder
shall have the right to transfer its Securities and Underlying Common Stock,
without regard to any restrictions on transfer set forth in this Agreement or
any of the Transaction Documents other than the restrictions under applicable
securities law, and the Company shall at its option, either (a) effectuate and
facilitate any transfer by such SBIC Holder of the Securities then held by such
SBIC Holder to any Person designated by such SBIC Holder or (b) permit such SBIC
Holder (or any or its Affiliates) to exchange all or any portion of the Common
Stock then held by it on a share-for-share basis for shares of a class of
nonvoting common stock of the Company, which nonvoting common stock shall be
identical in all respects to such Common Stock, except that such common stock
shall be nonvoting and shall be convertible into Common Stock on such terms as
are requested by such SBIC Holder in light of regulatory considerations then
prevailing. If necessary to effectuate the actions either in clause (a) or (b)
in the foregoing sentence, the Company shall amend this Agreement and shall use
reasonable efforts to amend the Certificate of Incorporation and the bylaws of
the Company, and related agreements and instruments.
9.4 Economic Impact Information. Promptly after the end of each
calendar year (but in any event prior to February 28 of each year), the Company
shall deliver to each SBIC Holder a written assessment of the economic impact of
each SBIC Holder's investment in the Company, specifying the full-time
equivalent jobs created or retained in connection with the investment, the
impact of the Investment on the business of the Company and on Taxes paid by the
Company and its employees.
32
9.5 Sales to Securities to other SBIC Holders. To the Company's
knowledge, each small business investment company licensed under the SBIC Act
that owns any securities issued by the Company, together with a description of
the kinds and amounts of securities held, are listed on Schedule 9.5 attached
hereto. Without any SBIC Holder's consent, the Company will not issue securities
to any SBIC Holder in the future if such issuance would cause any SBIC Holder to
be deemed to be a member of an "Investor Group" in "Control" of the Company (as
such terms are defined in 13 CFR Section 107.865).
9.6 Business Activity. For a period of one year following the date
hereof, the Company will not change its business activity if such change would
render the Company ineligible to receive financial assistance from any SBIC
Holder (within the meanings of 13 CFR Sections 107.720 and 107.760(b)).
9.7 Number of Stockholders. The Company will notify each SBIC Holder
from time to time when the number of its stockholders decreases below fifty
(50), and if thereafter, the number of its stockholders increases to above fifty
(50).
9.8 Compliance With Non-Discrimination Requirements. The Company shall
comply at all times with the non-discrimination requirements of 13 C.F.R. Parts
112, 113 and 117.
10. EVENTS OF DEFAULT.
10.1 Events of Default. Each of the following shall constitute an
"Event of Default" under this Agreement:
(a) Payment. The Company fails to pay when due and payable
(whether at maturity or otherwise) the full amount of interest then accrued on
the Notes and the continuance thereof for ten (10) Business Days, or the full
amount of any principal payment (together with any applicable premium) on the
Notes or any other amounts payable under this Agreement or the Note on the date
due.
(b) Performance of Covenants. The Company shall default or
fail to observe or perform any agreement or covenant contained herein or in any
other Transaction Document in any material respect, and such default or failure
shall not have been remedied within thirty (30) days after the Company shall
become aware of such default (including, without limitation, as a result of
notice from any Investor).
(c) Breach of Representation or Warranty. One or more
representations or warranties made by or on behalf of the Company herein or in
any other Transaction Document shall prove to be false, incorrect or breached
unless such inaccuracies or breaches would not, in the aggregate, reasonably be
expected to result in a Material Adverse Effect.
(d) Judgment. A final and non-appealable judgment or judgments
shall be entered against the Company in the aggregate amount of $125,000 or more
on an uninsured claim or claims or a claim or claims which the insurer does not
undertake to pay, and such judgment or judgments shall remain unstayed,
unvacated, undischarged or unsatisfied for thirty (30) days.
33
(e) Cross-Default. The Company shall (i) default (unless
waived) in the payment when due, whether by acceleration or otherwise, on any of
its Indebtedness exceeding $125,000 in principal amount, or (ii) default (unless
waived) in the performance or observance (subject to any applicable grace
period) of any agreement, covenant or condition with respect to any such
Indebtedness if the effect of such default is to accelerate the maturity of any
such Indebtedness or to permit the holder or holders of any such Indebtedness,
or any trustee or agent for such holders, to cause such Indebtedness to become
due and payable prior to its expressed maturity or, if such Indebtedness is a
guaranty, to call upon such guaranty in advance of nonpayment of the guaranteed
indebtedness, or (iii) default (unless waived) in any payments to third party
vendors in the aggregate amount of $250,000 or more (not arising hereunder or
under any of the other Transaction Documents), and in the case of clause (i),
(ii) or (iii), such default is not cured within thirty (30) days.
(f) Collateral. A judgment creditor of the Company shall
obtain possession of any material portion of the Collateral by any means,
including, but not limited to, levy, distraint, replevin or self-help.
(g) Impairment of Collateral. The Investors' Lien, or the
priority thereof, on any portion of the Collateral shall become impaired or
otherwise unenforceable, and such impairment or unenforceability is not cured
within ten (10) days.
(h) Insolvency or Bankruptcy. The Company shall become
insolvent or admit in writing its inability to pay its debts generally as they
come due; or the Company shall institute a voluntary case seeking liquidation or
reorganization under the United States Bankruptcy Code, or shall consent to the
institution of an involuntary case thereunder against it; or the Company shall
file a petition initiating or shall otherwise institute any similar proceeding
under any other applicable federal or state law, or shall consent thereto; or
the Company shall apply for, or by consent or acquiescence there shall be an
appointment of, a receiver, liquidator, sequestrator, trustee or other officer
with similar powers, or the Company shall make an assignment for the benefit of
creditors; or, if an involuntary case shall be commenced seeking the liquidation
or reorganization of the Company under the United States Bankruptcy Code, or any
similar proceeding shall be commenced against the Company under any other
applicable federal or state law, and (i) the petition commencing the involuntary
case is not timely controverted, or (ii) the petition commencing the involuntary
case is not dismissed within thirty (30) days of its filing, or (iii) an interim
trustee is appointed to take possession of all or a portion of the property
and/or to operate all or any part of the business of the Company, or (iv) an
order for relief shall have been issued or entered therein; or a decree or order
of a court having jurisdiction in the premises for the appointment of a
receiver, liquidator, sequestrator, trustee or other officer having similar
powers over the Company, or of all or a part of the property of any of the
foregoing, shall have been entered; or any other similar relief shall be granted
against the Company under any applicable federal or state law.
(i) Invalidity of Transaction Documents. If any of the
Transaction Documents shall cease to be in full force and effect or the Company
shall disavow its obligations thereunder, shall declare that it does not have
any further obligation thereunder or shall contest the validity or
enforceability thereof.
34
The foregoing shall constitute Events of Default whatever the
reason or cause for any such Event of Default and whether it is voluntary or
involuntary or is effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body.
10.2 Termination and Acceleration.
(a) If any Event of Default has occurred and is continuing,
then the interest rate on the Notes shall increase immediately by an increment
of two (2) percentage points (or, if less, the highest rate permitted by law).
If any such Event of Default has occurred and continues for a period of three
hundred sixty (360) days thereafter, then the interest rate on the Notes shall
increase by a further increment of two (2) percentage points (for a total
increase of four (4) percentage points) (or, if less, the highest rate permitted
by law). Any increase of the interest rate resulting from the operation of this
subparagraph shall terminate as of the close of business on the date on which no
Events of Default exist (subject to subsequent increases pursuant to this
subparagraph).
(b) If an Event of Default of the type described in Section
10.1(h) has occurred, then the aggregate outstanding principal amount of each
Note (together with all accrued interest thereon and all other amounts due and
payable with respect thereto) shall become immediately due and payable without
any action on the part of any Investor, and the Company shall immediately pay to
each Investor all amounts due and payable with respect to its Note.
(c) If an Event of Default (other than under Section 10.1(h))
has occurred and is continuing, then any Investor may declare all or any portion
of the outstanding principal amount of such Investor's Note (together with all
accrued interest thereon and all other amounts due and payable with respect
thereto) to be immediately due and payable and may demand immediate payment of
all or any portion of the outstanding principal amount of such Note (together
with all such other amounts then due and payable) owed to such Investor. If any
such Investor demands immediate payment of all or any portion of its respective
Note, the Company shall immediately pay to each such Investor all amounts due
and payable with respect to the Note.
11. MISCELLANEOUS.
11.1 Expenses. The Company shall pay, and hold each Investor harmless
against liability for the payment of, and reimburse on demand as and when
incurred from and against, (a) all out-of-pocket fees and expenses incurred by
each Investor in connection with its due diligence review of the Company, the
preparation, negotiation, execution and interpretation of this Agreement, the
Securities, the Underlying Common Stock, the Investors' Rights Agreement, the
other Transaction Documents and the agreements contemplated hereby and thereby,
and the consummation of all of the transactions contemplated hereby and thereby
(including, without limitation, all travel expenses incurred by representatives
or agents of any Investor and all reasonable fees and expenses of legal counsel,
accountants and other third parties), which reasonable fees and expenses shall
not exceed One Hundred Fifteen Thousand Dollars ($115,000.00) and shall be
payable at the Closing or, if the Closing does not occur, payable upon
35
demand, (b) all reasonable fees and expenses incurred with respect to any
amendments or waivers (whether or not the same become effective) under or in
respect of each of the Transaction Documents and the other agreements and
instruments contemplated hereby and thereby, (c) all recording and filing fees,
stamp and other Taxes which may be payable in respect of the execution and
delivery of this Agreement or the issuance, delivery or acquisition of any
Securities or the Underlying Common Stock, (d) the reasonable fees and expenses
(including attorney's fees) incurred with respect to the enforcement of the
rights granted under this Agreement, the Securities, the other Transaction
Documents and other the agreements or instruments contemplated hereby and
thereby (including, without limitation, all court costs and costs of collection,
and including any such fees and expenses incurred in connection with any
bankruptcy, reorganization, workout or similar transaction and any fees and
expenses incurred in connection with any Collateral audit and any other fees and
expenses of any auditors and consultants), and (e) the fees and expenses
incurred by each such Person in any filing with any governmental agency with
respect to its investment in the Company or in any other filing with any
governmental agency with respect to the Company which mentions such Person. If
the Company fails to pay when due any amounts due to any Investor or fails to
comply with any of its obligations pursuant to this Agreement or any other
agreement, document or instrument executed or delivered in connection herewith,
the Company shall, upon demand by such Investor, pay to each such Investor such
further amounts as shall be sufficient to cover the cost and expense (including,
but not limited to attorneys' fees) incurred by or on behalf of any Investor in
collecting all such amounts due or in otherwise enforcing such Investor's rights
and remedies hereunder.
11.2 Remedies. Each holder of Securities and Underlying Common Stock
shall have all rights and remedies set forth in this Agreement, the Securities,
the other Transaction Documents and the Certificate of Incorporation of the
Company and all rights and remedies which any such holder has been granted at
any time under any other agreement or contract and all of the rights which any
such holder has under any law. No remedy hereunder or thereunder conferred is
intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or thereunder or now or hereafter existing at law or in equity or by
statute or otherwise. Any Person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law.
11.3 No Setoffs, etc. All payments hereunder and under the Notes and
the Warrants shall be made by the Company without setoff, offset, deduction or
counterclaim, free and clear of all Taxes, levies, imports, duties, fees and
charges, and without any withholding, restriction or conditions imposed by any
governmental authority. If the Company shall be required by any law to deduct,
setoff or withhold any amount from or in respect of any payment to any Investor
hereunder or under the Notes or the Warrants, then the amount so payable to such
Investor shall be increased as may be necessary so that, after making all
required deductions, setoffs and withholdings, such Investor shall receive an
amount equal to the sum they would have received had no such deductions, setoffs
or withholding been made.
11.4 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Investor hereunder or under the Notes or any Investor
enforces its rights or
36
exercises its right of setoff hereunder or thereunder, and such payment or
payments or the proceeds of such enforcement or setoff or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other Person under any law
(including any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
11.5 Entire Agreement. This Agreement, the Security Agreements and the
other Transaction Documents and the other documents executed in connection
herewith constitute the entire agreement among the parties with respect to the
subject matter hereof and no party shall be liable or bound to any other party
in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein.
11.6 Survival of Covenants. The obligations of the Company under
Section 7 and Section 8 of this Agreement shall terminate on the first date on
which each of the following conditions are satisfied: (a) all principal and
interest outstanding under each Note is paid in full by the Company, (b) all of
the Underlying Common Stock may be transferred in any three (3) month period
either pursuant to rule 144 under the Securities Act or as a result of the
registration statement contemplated by Section 1.2(b) of the Investors' Rights
Agreement having been declared effective, and (c) the limitations on the
transferability of the Warrants and/or Underlying Common Stock have expired
under Section 3 of the Investors' Rights Agreement (such date referred to herein
as the "Cessation Date"). On the Cessation Date, the Company shall have no
liability to any Investor with respect to a breach of the Company's obligations
under Section 7 and Section 8 of this Agreement, except for any breach occurring
prior to the Cessation Date). The foregoing provisions shall not limit or
restrict the availability of specific performance or other injunctive relief to
the extent that specific performance or such other relief would otherwise be
available to a party hereunder
11.7 Survival of Warranties. The warranties, representations and
covenants of the Company contained in or made pursuant to this Agreement shall
survive until the Cessation Date.
11.8 Successors and Assigns. All covenants and agreements contained in
this Agreement by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether or not so expressed; provided that the Company shall not be permitted to
assign its rights or obligations under this Agreement, the Notes, the Warrants
or the other Transaction Documents. In addition, and whether or not any express
assignment has been made, the provisions of this Agreement which are for any
Investor's benefit as a purchaser or holder of Securities or Underlying Common
Stock are also for the benefit of, and enforceable by, any subsequent holder of
such Securities or such Underlying Common Stock. Except as otherwise expressly
provided herein, nothing expressed in or implied from this Agreement, the Notes,
the Warrants or the Investors' Rights Agreement is intended to give, or shall be
construed to give, any Person, other than the parties hereto and thereto and
their permitted successors and assigns, any benefit or legal or equitable right,
remedy or claim under or by virtue of this Agreement or any such other document.
37
11.9 Confidentiality. The parties hereby acknowledge and agree that the
transactions contemplated by this Agreement and the other Transaction Documents
are of a confidential nature and shall not be disclosed except to consultants,
advisors and Affiliates, or as required by law, until such time as the Company
and the Investors agree to make a public announcement regarding the transaction.
The Investors acknowledge and agree that some of the information provided by the
Company with respect to the Investors' due diligence may be non-public,
confidential and proprietary to the Company. All such information prominently
labeled by the Company as confidential (if disclosed in written form) or
identified as confidential (if disclosed oral) is hereinafter referred to as the
"Confidential Information"; provided that Confidential Information shall not
include any information which (a) is or becomes generally available to the
public other than as a result of a disclosure by the Investors, (b) is or
becomes available to Investors by a third party that has no obligation to the
Company to maintain the confidentiality of such information, or (c) was in the
Investors' possession or available to the Investors prior to the time of
disclosure by the Company. Except as required by law or pursuant to an order of
a court of competent jurisdiction, the Investors agree to not disclose
Confidential Information regarding the Company, and will cause their respective
employees and advisors not to disclose Confidential Information regarding the
Company, without the prior written consent of the Company.
11.10 Indemnification. In consideration of the Investors' execution and
delivery of this Agreement and purchase of the Securities hereunder and in
addition to the Company's other obligations under this Agreement and in addition
to all other rights and remedies available at law or in equity, the Company
shall defend, protect and indemnify each Investor and each of its officers,
directors, shareholders, partners, affiliates, employees, agents,
representatives, successors and assigns (including those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees"), and save and hold each of them harmless from and against, and
pay on behalf of or reimburse such party on demand as and when incurred, any and
all actions, causes of action, suits, claims, losses (including diminutions in
value and consequential damages), costs, penalties, fees, liabilities and
damages and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), including reasonable attorneys' fees and disbursements, interest and
penalties and all amounts paid in investigation, defense or settlement of any of
the foregoing and claims relating to any of the foregoing (the "Liabilities"),
incurred by the Indemnitees or any of them as a result of, or arising out of, or
relating to (a) the execution, delivery, performance or enforcement of this
Agreement, any other Transaction Document or any other instrument, document or
agreement executed pursuant hereto by any of the Indemnitees, except to the
extent any such Liabilities are caused by the particular Indemnitee's gross
negligence or willful misconduct and (b) the past, present or future
environmental condition of any property owned, leased, operated or used by the
Company, its predecessors or successors or of any offsite treatment, storage or
disposal location associated therewith, including the presence on or under, or
the escape, seepage, leakage, spillage, discharge, emission, release, or
threatened release into, onto or from, any such property or location of any
toxic, chemical or hazardous substance, material or waste (including any losses,
liabilities, damages, injuries, penalties, fees, costs, expenses or claims
asserted or arising under any Environmental and Safety Requirement) regardless
of whether caused by, or within the control of, the Company. To the extent that
the foregoing undertaking by the Company may be
38
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Liabilities which is permissible
under applicable law.
11.11 Aggregation. For purposes of this Agreement and the Investors'
Rights Agreement, all holdings of Notes and Underlying Common Stock by Persons
who are Affiliates of each other shall be aggregated for purposes of meeting any
threshold tests under this Agreement and the Investors' Rights Agreement.
11.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.13 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
11.14 Notices. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by telecopy, electronic or digital transmission
method; the day after it is sent, if sent for next day delivery to a domestic
address by recognized overnight delivery service (e.g., Federal Express); and
upon receipt, if sent by certified or registered mail, return receipt requested.
In each case notice shall be sent to:
It to St. Cloud, addressed to:
St. Cloud Capital Partners, LP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Managing Partner - Finances & Administration
With a copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: W. ▇▇▇▇ ▇▇▇▇▇▇, Esq.
It to ▇▇▇▇▇▇, addressed to:
Concepts Direct, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
It to the Company, addressed to:
Concepts Direct, Inc.
39
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇ LLP
One ▇▇▇▇▇ Center
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
11.15 Amendments and Waivers; Rights of Investors. Any term of this
Agreement may be amended and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and each of the
Investors. No delay or omission to exercise any right, power or remedy accruing
to the Investors upon any breach or default of the Company under this Agreement
or under any of the other Transaction Documents shall impair any such right,
power or remedy of any of the Investors, nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default occurring thereafter, nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring theretofore or thereafter. Each Investor shall have the absolute right
to exercise or refrain from exercising any right or rights that such Investor
may have by reason of this Agreement, including without limitation the right to
consent to the waiver of any obligation of the Company under this Agreement and
to enter into an agreement with the Company for the purpose of modifying this
Agreement or any agreement effecting any such modification. Any amendment or
waiver effected in accordance with this Section shall be binding upon each
holder of any Securities purchased under this Agreement at the time outstanding
(including securities the Underlying Common Stock), each future holder of all
such securities and the Company.
11.16 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
11.17 Construction. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any of the provisions of this Agreement. The parties intend that each
representation, warranty, and covenant contained herein shall have independent
significance. If any party has breached any representation, warranty, or
covenant contained herein in any respect or any Event of Default shall occur,
the fact that there exists another representation, warranty, or covenant or
Event of Default relating to the same subject matter (regardless of the relative
levels
40
of specificity) which such party has not breached shall not detract from or
mitigate the fact that such party is in breach of the first representation,
warranty, or covenant or that the first Event of Default shall have occurred.
11.18 Exculpation of Investors. Each Investor acknowledges that it is
not relying upon any Person other than the Company and its officers and
directors, in making its investment or decision to invest in the Company.
11.19 Jurisdiction and Venue. THE VALIDITY, CONSTRUCTION AND EFFECT OF
THIS AGREEMENT, THE NOTES, THE WARRANTS AND EACH OF THE OTHER TRANSACTION
DOCUMENTS SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF CALIFORNIA. ANY
ACTION OF ANY TYPE OR NATURE WHATSOEVER WITH RESPECT TO THIS AGREEMENT OR ANY OF
THE OTHER TRANSACTION DOCUMENTS, WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE,
SHALL BE BROUGHT IN SUPERIOR COURT FOR THE CITY AND COUNTY OF LOS ANGELES,
CALIFORNIA OR U.S. DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA IN LOS
ANGELES, AND THE COMPANY ACCEPTS FOR ITSELF AND ITS ASSETS AND PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS. THE COMPANY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION IN ANY SUCH JURISDICTION.
NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE LENDER TO BRING PROCEEDINGS AGAINST
THE COMPANY IN THE COURT OF ANY OTHER JURISDICTION.
11.20 Waiver of Right to Jury Trial. THE COMPANY AND EACH HOLDER OF
NOTES AND WARRANTS HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION
WITH, OR ARISING OUT OF THIS AGREEMENT, THE NOTES OR THE WARRANTS THE VALIDITY,
PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF. THE COMPANY
AGREES THAT THIS SECTION 11.20 IS A SPECIFIC AND MATERIAL ASPECT OF THIS
AGREEMENT AND ACKNOWLEDGES THAT THE INVESTORS WOULD NOT PURCHASE THE NOTES OR
WARRANTS HEREUNDER IF THIS SECTION 11.20 WERE NOT PART OF THIS AGREEMENT.
11.21 Limitation on Liability. NEITHER THE INVESTORS NOR THE COMPANY
SHALL HAVE ANY LIABILITY UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF
THE OTHER TRANSACTION DOCUMENTS FOR SPECIAL, EXEMPLARY, PUNITIVE, INCIDENTAL,
INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY SORT IN ANY ACTION OF ANY TYPE OR
NATURE WHATSOEVER IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER
TRANSACTION DOCUMENTS OR IN ANY WAY RELATED TO THE NOTES, THE COLLATERAL OR THE
ADMINISTRATION OR ENFORCEMENT THEREOF AND, EXCEPT TO THE EXTENT PROHIBITED BY
LAW, THE COMPANY AND EACH INVESTOR WAIVE ANY RIGHT THEY MAY HAVE TO
41
CLAIM OR RECOVER IN ANY SUCH ACTION ANY SPECIAL, EXEMPLARY, PUNITIVE,
INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY SORT OTHER THAN ACTUAL
DAMAGES.
[Signature Page Follows]
42
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
THE COMPANY:
CONCEPTS DIRECT, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Chief Financial Officer
THE INVESTORS:
ST. CLOUD CAPITAL PARTNERS, LP
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Senior Manager
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
S-1
EXHIBIT A
FORM OF NOTE
EXECUTION VERSION
SENIOR SECURED PROMISSORY NOTE
$2,000,000.00 Los Angeles, California
April 26, 2002
FOR VALUE RECEIVED, the undersigned, CONCEPTS DIRECT, INC., a
Delaware corporation ("Borrower"), promises to pay to ST. CLOUD CAPITAL
PARTNERS, LP, a Delaware limited partnership ("Lender"), the principal amount of
Two Million Dollars ($2,000,000.00), with interest from the date hereof on the
unpaid principal balance under this Note at the rate of ten percent (10%) per
annum (on the basis of a 360-day year and the actual number of days elapsed).
This Note shall be due and payable in monthly installments in the amount of
Forty-Two Thousand Four Hundred Ninety-Four Dollars and Nine Cents ($42,494.09),
commencing on June 1, 2002 and continuing on the same day of each calendar month
thereafter; provided that all accrued and unpaid interest and the entire unpaid
principal amount shall be due and payable in a lump sum payment on the earlier
to occur of (the "Maturity Date"): (a) May 1, 2007 and (b) the date on which the
indebtedness under this Note is accelerated as provided for under this Note or
that certain Note and Warrant Purchase Agreement dated as of April 26, 2002 by
and among Borrower, Lender, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (as the same
may be amended, supplemented or otherwise modified from time to time, the "Note
Purchase Agreement"; capitalized terms used and not defined herein have the
meanings set forth in the Note Purchase Agreement). In addition, on the Maturity
Date, any and all costs and expenses provided for under this Note and the Note
Purchase Agreement, shall be due and payable.
All payments under this Note shall be made to Lender or its
order, in lawful money of the United States of America and in immediately
available funds delivered to Lender by automatic bank draft to Lender's account,
ABA No. ▇▇▇▇▇▇▇▇▇, Account No. 1891923136 at Comerica Bank, ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Credit to: St. Cloud Capital
Partners, LP, Reference: Concepts Direct or at such other place within the
United States as Lender or any holder hereof shall designate in writing for such
purpose from time to time. If a payment under this Note otherwise would become
due and payable on a Saturday, Sunday or legal holiday, the due date thereof
shall be extended to the next day which is not a Saturday, Sunday or legal
holiday, and interest shall be payable thereon during such extension. All
amounts due under this Note and the Note Purchase Agreement shall be payable
without defense, set off or counterclaim.
Each payment under this Note shall be applied in the following
order: (a) to the payment of costs and expenses which Borrower is required to
pay pursuant to the provisions of this Note or the Note Purchase Agreement; (b)
to the payment of accrued and unpaid interest; and (c) to the payment of
outstanding principal. Lender and each holder hereof shall have the continuing
and exclusive right to apply any and all payments under this Note.
This Note may be prepaid in whole or in part at any time upon not
less than five (5) days written notice of Borrower's intention to make any such
prepayment, which notice shall specify the date and amount of such prepayment.
The written notice of Borrower to make a prepayment under this Note shall create
an obligation of Borrower to pay the amount specified on the date specified in
such notice. Any prepayment made prior to April 26, 2003, except for
mandatory prepayments made upon a Real Estate Transfer, shall be subject to
Prepayment Premium (as defined below), which shall be due and payable on the
date of the prepayment. Any prepayment made on or after April 26, 2003 shall be
without premium or penalty. Interest shall be paid to the date of payment on the
principal amount prepaid. Any partial principal prepayment under this Note shall
be applied first against the installments of principal due under this Note in
the reverse order of their maturity, with no change in the required amount of
the monthly installments due under this Note prior to those installments prepaid
in whole or in part. For purposes of this Note, the "Prepayment Premium" shall
equal five percent (5%) of the principal balance outstanding at the time of
prepayment.
Upon the occurrence of a Real Estate Transfer, Borrower shall
apply the Net Proceeds of such Real Estate Transfer to prepay this Note as set
forth in Section 7.13 of the Note Purchase Agreement.
If any Event of Default has occurred and is continuing, then the
interest rate under this Note shall increase immediately by an increment of two
(2) percentage points. If any such Event of Default has occurred and continues
for a period of three hundred sixty (360) days thereafter, then the interest
rate under this Note shall increase by a further increment of two (2) percentage
points (for a total increase of four (4) percentage points). Any increase of the
interest rate resulting from the operation of this paragraph shall terminate as
of the close of business on the date on which no Events of Default exist
(subject to subsequent increases pursuant to this paragraph). If an Event of
Default of the type described in Section 10.1(h) of the Note Purchase Agreement
has occurred, then the aggregate outstanding principal amount due under this
Note (together with all accrued interest and all other amounts due and payable
hereunder) shall become immediately due and payable without any action on the
part of Lender, and Borrower shall immediately pay to Lender all amounts due and
payable under this Note. If an Event of Default (other than the type described
in Section 10.1(h) of the Note Purchase Agreement) has occurred and is
continuing, then Lender may declare all or any portion of the outstanding
principal amount due under this Note (together with all accrued interest and all
other amounts due and payable hereunder) to be immediately due and payable and
may demand immediate payment of all or any portion of the outstanding principal
amount due under this Note (together with all accrued interest and all other
amounts due and payable hereunder) owed to Lender. If Lender demands immediate
payment of all or any portion of this Note, Borrower shall immediately pay to
Lender all amounts due and payable under this Note. Notwithstanding the
foregoing, the remedies with respect to the Collateral shall be subject to the
terms and conditions of the Security Agreement. In no event shall interest be
charged under this Note which would violate any applicable law. If the rate of
interest provided for herein would otherwise exceed the maximum rate permitted
by applicable law, then the interest rate shall be reduced to the maximum rate
permitted by applicable law.
This Note is secured under the Security Documents. Reference is
hereby made to the Note Purchase Agreement and the Security Documents for a
description of the nature and extent of the security for this Note and the
rights with respect to such security of the holder of this Note. Nothing herein
shall be deemed to limit the rights of Lender under this Note or the any other
Transaction Document, all of which rights and remedies are cumulative.
No waiver or modification of any of the terms of this Note shall
be valid or binding unless set forth in a writing specifically referring to this
Note and signed by a duly authorized officer of Lender or any holder of this
Note, and then only to the extent specifically set forth therein.
If any default occurs in any payment due under this Note,
Borrower and all guarantors and endorsers hereof, and their successors and
assigns, promise to pay all costs and expenses, including attorneys' fees,
incurred by each holder hereof in collecting or attempting to collect the
indebtedness under this Note, whether or not any action or proceeding is
commenced. None of the provisions hereof and none of the holder's rights or
remedies under this Note on account of any past or future defaults shall be
deemed to have been waived by the holder's acceptance of any past due
installments or by any indulgence granted by the holder to Borrower.
Borrower and all guarantors and endorsers hereof, and their
successors and assigns, hereby waive presentment, demand, diligence, protest and
notice of every kind (except such notices as may be required under the Note
Purchase Agreement), and agree that they shall remain liable for all amounts due
under this Note notwithstanding any extension of time or change in the terms of
payment of this Note granted by any holder hereof, any change, alteration or
release of any property now or hereafter securing the payment hereof or any
delay or failure by the holder hereof to exercise any rights under this Note or
the Note Purchase Agreement. Borrower and all guarantors and endorsers hereof,
and their successors and assigns, hereby waive the right to plead any and all
statutes of limitation as a defense to a demand under this Note to the full
extent permitted by law.
This Note shall inure to the benefit of Lender, its successors
and assigns and shall bind the heirs, executors, administrators, successors and
assigns of Borrower. Each reference herein to powers or rights of Lender shall
also be deemed a reference to the same power or right of such assignees, to the
extent of the interest assigned to them.
In the event that any one or more provisions of this Note shall
be held to be illegal, invalid or otherwise unenforceable, the same shall not
affect any other provision of this Note and the remaining provisions of this
Note shall remain in full force and effect.
Any notice required or permitted hereunder or pursuant to the
Note Purchase Agreement shall be in writing and shall be deemed to have been
given upon delivery if personally delivered or upon deposit if deposited in the
United States mail for mailing by certified mail, postage prepaid and addressed
as follows:
If to Lender: St. Cloud Capital Partners, LP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Managing Partner - Finances &
Administration
With a copy to: ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: W. ▇▇▇▇ ▇▇▇▇▇▇, Esq.
If to Borrower: Concepts Direct, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇ ▇▇▇▇▇ LLP
One ▇▇▇▇▇ Center
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, IN ALL RESPECTS,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS NOTE AND
THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN THAT STATE, AND ANY APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE OR
FEDERAL COURTS LOCATED IN LOS ANGELES COUNTY, CITY OF LOS ANGELES, SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
BORROWER AND LENDER PERTAINING TO THIS NOTE OR TO ANY MATTER ARISING OUT OF OR
RELATING TO THIS NOTE, PROVIDED, THAT LENDER AND BORROWER ACKNOWLEDGE THAT ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF LOS
ANGELES COUNTY, CITY OF LOS ANGELES, AND, PROVIDED, FURTHER, NOTHING IN THIS
NOTE SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR TAKING
OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY
OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER IN FAVOR OF LENDER. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO
SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND
BORROWER HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH
ABOVE AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.
BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE
BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY
DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG LENDER AND
BORROWER ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED IN CONNECTION WITH, THIS NOTE OR THE TRANSACTIONS
RELATED HERETO.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
IN WITNESS WHEREOF, Borrower has caused this Senior Secured
Promissory Note to be duly executed the day and year first above written.
CONCEPTS DIRECT, INC.
a Delaware corporation
By:
------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Chief Financial Officer
S-1
EXHIBIT C
FORM OF WARRANT
EXECUTION VERSION
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS SO REGISTERED OR AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT IS AVAILABLE. THIS LEGEND SHALL BE
IMPRINTED ON ANY WARRANT ISSUED IN EXCHANGE FOR THIS WARRANT.
WARRANT AGREEMENT
FOR COMMON STOCK OF
CONCEPTS DIRECT, INC.
WARRANT NO. 2
THIS CERTIFIES that, for value received, ST. CLOUD CAPITAL
PARTNERS, LP, a Delaware limited partnership ("St. Cloud"), or its permitted
assigns (collectively, the "Holder"), is entitled to purchase from CONCEPTS
DIRECT, INC., a Delaware corporation (the "Company"), at any time, and from time
to time, during the exercise period referred to in Section 1 hereof, 275,000
fully paid, validly issued and nonassessable shares (the "Warrant Shares") of
common stock of the Company, par value $0.10 per share (the "Common Stock"), at
the exercise price of $0.10 per share, subject to adjustment as provided herein
(the "Warrant Share Price") (it being acknowledged and agreed that pursuant to
Section 1.3 of that certain Note and Warrant Purchase Agreement, by and among
the Company, St. Cloud, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, dated as of even
date hereof (the "Purchase Agreement"), St. Cloud, on its own behalf, and on
behalf of each Holder, has made an advance payment of $0.09 per share with
respect to the Warrant Share Price of each Warrant Share, and such advance
payment shall be taken into account for purposes of computing the remaining
Warrant Share Price required to be paid (the "Unpaid Warrant Share Price") upon
exercise of this Warrant and any adjustments thereto). Securities issuable upon
exercise of this Warrant and the unpaid exercise price payable therefor are
subject to adjustment from time to time as hereinafter set forth. As used
herein, the term "Warrant" shall include any warrant or warrants hereafter
issued in consequence of the exercise of this Warrant in part or transfer of
this Warrant in whole or in part and any warrant or warrants into which this
Warrant may be divided or exchanged.
1. Exercise; Payment for Ownership Interest.
1.1 Upon the terms and subject to the conditions set forth herein, this
Warrant may be exercised in whole or in part by the Holder hereof at any time,
or from time to time, on or after July 26, 2002 and prior to 5 p.m. New York
time on April 26, 2009 upon by presentation and surrender of this Warrant to the
principal offices of the Company, or
at the office of its Transfer Agent (as defined in Section 9 hereof), if any,
together with the Purchase Form attached hereto, duly executed, and accompanied
by payment to the Company of the Unpaid Warrant Share Price multiplied by the
number of Warrant Shares as to which this Warrant is then being exercised;
provided, however, that in the event of any merger, consolidation or sale of all
or substantially all the assets of the Company resulting in any distribution to
the Company's stockholders, prior to April 26, 2009, the Holder shall have the
right to exercise this Warrant commencing at such time through April 26, 2009
into the kind and amount of shares of stock and other securities and property
(including cash) receivable by a holder of the number of shares of Common Stock
into which this Warrant might have been exercisable immediately prior thereto.
Any transfer of Warrant Shares obtained by the Holder in exercise of this
Warrant is subject to the Investors' Rights Agreement, by and among the Company,
St. Cloud, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, dated as of even date hereof
(the "Investors' Rights Agreement") and the requirement that such securities be
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
applicable state securities laws or exempt from registration under such laws.
The Holder of this Warrant shall be deemed to be a stockholder of the Warrant
Shares as to which this Warrant is exercised in accordance herewith effective
immediately after the close of business on the date on which the Holder shall
have delivered to the Company this Warrant in proper form for exercise and
payment by certified or official bank check or wire transfer of the cash
purchase price for the number of Warrant Shares as to which the exercise is
being made, notwithstanding that the stock transfer books of the Company shall
be then closed or that certificates representing such Warrant Shares shall not
then be physically delivered to the Holder.
1.2 All or any portion of the Unpaid Warrant Share Price may be paid by
surrendering Warrants effected by presentation and surrender of this Warrant to
the Company, or at the office of its Transfer Agent, if any, with a Cashless
Exercise Form annexed hereto duly executed (a "Cashless Exercise"). Such
presentation and surrender shall be deemed a waiver by the Company of the
Holder's obligation to pay all or any portion of the aggregate Unpaid Warrant
Share Price. In the event of a Cashless Exercise, the Holder shall exchange its
Warrant for that number of shares of Common Stock determined by multiplying the
number of Warrant Shares for which the Holder desires to exercise this Warrant
by a fraction, the numerator of which shall be the difference between the then
current market price per share of the Common Stock and the Unpaid Warrant Share
Price, and the denominator of which shall be the then current market price per
share of Common Stock. For purposes of any computation under this Section 1.2,
the then current market price per share of Common Stock at any date shall be
deemed to be the average for the ten (10) consecutive business days immediately
prior to the Cashless Exercise of the daily closing prices of the Common Stock
on the principal national securities exchange on which the Common Stock is
admitted to trading or listed, or if not listed or admitted to trading on any
such exchange, the closing prices as reported by the Nasdaq National Market or,
if applicable, the Nasdaq SmallCap Market, or if not then included for quotation
on the Nasdaq National Market or the Nasdaq SmallCap
2
Market, the average of the highest reported bid and lowest reported asked prices
as reported by the OTC Bulletin Board or the National Quotations Bureau, as the
case may be, or if not then publicly traded, the fair market price, not less
than book value thereof, of the Common Stock as determined in good faith by the
independent members of the Board of Directors of the Company.
1.3 If this Warrant shall be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
Warrant evidencing the rights of the Holder thereof to purchase the balance of
the Warrant Shares purchasable hereunder as to which the Warrant has not been
exercised. If this Warrant is exercised in part, such exercise shall be for a
whole number of Warrant Shares. Upon any exercise and surrender of this Warrant,
the Company (a) will issue and deliver to the Holder a certificate or
certificates in the name of the Holder for the largest whole number of Warrant
Shares to which the Holder shall be entitled and, if this Warrant is exercised
in whole, in lieu of any fractional Warrant Share to which the Holder otherwise
might be entitled, cash in an amount equal to the fair value of such fractional
Warrant Share (determined in such reasonable and equitable manner as the Board
of Directors of the Company shall in good faith determine), and (b) will deliver
to the Holder such other securities, properties or cash which the Holder may be
entitled to receive upon such exercise, or the proportionate part thereof if
this Warrant is exercised in part, pursuant to the provisions of this Warrant.
2. Anti-Dilution Provisions. The Unpaid Warrant Share Price in
effect at any time and the number and kind of securities issuable upon exercise
of this Warrant and the Unpaid Warrant Share Price shall be subject to
adjustment from time to time upon happening of certain events as follows:
2.1 Reorganization, Reclassification, Consolidation, Merger or Sale. If
any capital reorganization, reclassification or any other change of capital
stock of the Company, or any consolidation or merger of the Company with another
person, or the sale or transfer of all or substantially all of its assets to
another person shall be effected in such a way that holders of shares of Common
Stock shall be entitled to receive stock, securities or assets with respect to
or in exchange for their shares of Common Stock, then provision shall be made by
the Company, in accordance with this Section 2.1, whereby the Holder hereof
shall thereafter have the right to purchase and receive, upon the basis and upon
the terms and conditions specified in this Warrant and in addition to or in
exchange for, as applicable, the Warrant Shares subject to this Warrant
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such securities or assets as would have been issued
or payable with respect to or in exchange for the aggregate Warrant Shares
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby if exercise of the Warrant had occurred immediately
prior to such reorganization, reclassification, consolidation, merger or sale.
The Company will not effect any such consolidation, merger, sale, transfer or
lease unless prior to the consummation thereof the successor entity (if other
3
than the Company) resulting from such consolidation or merger or the entity
purchasing such assets shall assume by written instrument (a) the obligation to
deliver to the Holder such securities or assets as, in accordance with the
foregoing provisions, the Holder may be entitled to purchase, and (b) all other
obligations of the Company under this Warrant. The provisions of this Section
2.1 shall similarly apply to successive consolidations, mergers, exchanges,
sales, transfers or leases. In the event that in connection with any such
capital reorganization or reclassification, consolidation, merger, sale or
transfer, additional shares of Common Stock shall be issued in exchange,
conversion, substitution or payment, in whole or in part, for a security of the
Company other than Common Stock, any such issue shall be treated as an issue of
Common Stock covered by the provisions of Section 2.2 hereof.
2.2 Stock Dividends and Securities Distributions. If, at any time or
from time to time after the date of this Warrant, the Company shall distribute
to the holders of shares of Common Stock (a) securities (including rights,
warrants, options or another form of convertible securities), (b) property,
other than cash, or (c) cash, without fair payment therefor, then, and in each
such case, the Holder, upon the exercise of this Warrant, shall be entitled to
receive such securities, property and cash which the Holder would hold on the
date of such exercise if, on the date of the distribution, the Holder had been
the holder of record of the shares of Common Stock issued upon such exercise
and, during the period from the date of this Warrant to and including the date
of such exercise, had retained such shares of Common Stock and the securities,
property and cash receivable by the Holder during such period, subject, however,
to the Holder agreeing to any conditions to such distribution as were required
of all other holders of shares of Common Stock in connection with such
distribution.
2.3 Other Adjustments. In addition to those adjustments set forth in
Section 2.1 and Section 2.2, but without duplication of the adjustments to be
made under such Sections, if the Company:
(a) declares or pays a dividend or makes a distribution on its
Common Stock in shares of its Common Stock;
(b) subdivides or reclassifies its outstanding shares of Common
Stock into a greater number of shares;
(c) combines or reclassifies its outstanding shares of Common
Stock into a smaller number of shares;
(d) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; and/or
(e) issues, by reclassification of its Common Stock, any shares
of its capital stock;
4
then the number and kind of Warrant Shares purchasable upon exercise of this
Warrant shall be adjusted so that the Holder upon exercise hereof shall be
entitled to receive the kind and number of Warrant Shares or other securities of
the Company that the Holder would have owned or have been entitled to receive
after the happening of any of the events described above had this Warrant been
exercised immediately prior to the happening of such event or any record date
with respect thereto. An adjustment made pursuant to this Section 2.3 shall
become effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or issuance. If, as a result of an
adjustment made pursuant to this Section 2.3, the Holder of this Warrant
thereafter surrendered for exercise shall become entitled to receive shares of
two (2) or more classes of capital stock or shares of Common Stock and any other
class of capital stock of the Company, the Board of Directors (whose
determination shall be conclusive and shall be described in a written notice to
all holders of Warrants promptly after such adjustment) shall determine the
allocation of the adjusted Unpaid Warrant Share Price between or among shares of
such classes of capital stock or shares of Common Stock and such other class of
capital stock.
The adjustment to the number of Warrant Shares purchasable upon
the exercise of this Warrant described in this Section 2.3 shall be made each
time any event listed in paragraphs (a) through (e) of this Section 2.3 occurs.
Simultaneously with all adjustments to the number and/or kind of
securities, property and cash under this Section 2.3 to be issued in connection
with the exercise of this Warrant, the Unpaid Warrant Share Price will also be
appropriately and proportionately adjusted.
(f) In the event that at any time, as a result of an adjustment
made pursuant to this Section 2.3, the Holder of this Warrant thereafter shall
become entitled to receive any shares of the Company, other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of this
Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Section 2.1 and Section 2.2 above.
2.4 Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Unpaid Warrant Share Price pursuant to this Section 2, the
Company at its expense will promptly compute such adjustment or readjustment in
accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment or readjustment, including a statement of the adjusted
Unpaid Warrant Share Price or adjusted number of shares of Common Stock, if any,
issuable upon exercise of each Warrant, describing the transaction giving rise
to such adjustments and showing in detail the facts upon which such adjustment
or readjustment is based. The Company will forthwith mail, by first class mail,
postage prepaid, a copy of each such certificate to the
5
Holder of this Warrant at the address of such Holder as shown on the books of
the Company, and to its Transfer Agent. Any Holder of this Warrant may change
his address by written notice to the Company at its office (or at such other
office or agency of the Company as it may from time to time designate in writing
to the Holder) requesting such change.
2.5 Other Notices. If at any time:
(a) the Company shall (i) offer for subscription pro rata to the
holders of shares of the Common Stock any additional equity in the Company or
other rights; (ii) pay a dividend in additional shares of the Common Stock or
distribute securities or other property to the holders of shares of the Common
Stock (including, without limitation, evidences of indebtedness and equity and
debt securities); or (iii) issue securities convertible into, or rights or
warrants to purchase, securities of the Company;
(b) there shall be any capital reorganization or reclassification
or consolidation or merger of the Company with, or sale, transfer or lease of
all or substantially all of its assets to, another entity; or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, to the Holder of this Warrant at the address of such
Holder as shown on the books of the Company, (a) at least fifteen (15) days'
prior written notice of the date on which the books of the Company shall close
or a record shall be taken for such subscription rights, dividend, distribution
or issuance, and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
fifteen (15) days' prior written notice of the date when the same shall take
place if no stockholder vote is required and at least fifteen (15) days' prior
written notice of the record date for stockholders entitled to vote upon such
matter if a stockholder vote is required. Such notice in accordance with the
foregoing clause (a) shall also specify, in the case of any such subscription
rights, the date on which the holders of shares of Common Stock shall be
entitled to exercise their rights with respect thereto, and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of shares of Common Stock shall be entitled to exchange their shares
of Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be. Failure to give the notice
referred to herein shall not affect the validity or legality of the action which
should have been the subject of the notice.
2.6 No Impairment. The Company shall not, by amendment of its
Certificate of Incorporation or Bylaws or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary
6
action, including, without limitation, voluntary bankruptcy proceedings, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company but shall at all times in good
faith assist in the carrying out of all the provisions of this Section 2 and in
the taking of all such action as may be necessary or appropriate on order to
protect the rights of the registered holder of this Warrant against impairment.
3. No Voting Rights. This Warrant shall not be deemed to confer
upon the Holder any right to vote or to consent to or receive notice as a
stockholder of the Company, as such, in respect of any matters whatsoever, or
any other rights or liabilities as a stockholder, prior to the exercise hereof.
4. Warrants Transferable. Subject to Section 3 of the Investors'
Rights Agreement, this Warrant and all rights hereunder are transferable, in
whole or in part, at the principal offices of the Company by the Holder hereof,
upon surrender of this Warrant properly endorsed; provided, however, that
without the prior written consent of the Company, this Warrant and all rights
hereunder may be transferred only (a) pursuant to an exemption from registration
under the 1933 Act, or (b) pursuant to the registration of this Warrant or the
Warrant Shares under the 1933 Act. It shall be a condition to transfer of this
Warrant that the transferee agrees to be bound by the restrictions on transfer
contained in the previous sentence.
5. Warrants Exchangeable; Assignment; Loss, Theft, Destruction,
Etc. This Warrant is exchangeable, without expense, upon surrender hereof by the
Holder hereof at the principal offices of the Company, or at the office of its
Transfer Agent, if any, for new Warrants of like tenor representing in the
aggregate the right to subscribe for and purchase the Warrant Shares which may
be subscribed for and purchased hereunder, each such new Warrant to represent
the right to subscribe for and purchase such Warrant Shares as shall be
designated by such Holder hereof at the time of such surrender. Upon surrender
of this Warrant to the Company at its principal office, or at the office of its
Transfer Agent, if any, with an instrument of assignment duly executed and funds
sufficient to pay any transfer tax, the Company shall, without charge, execute
and deliver a new Warrant in the name of the assignee named in such instrument
of assignment and this Warrant shall promptly be cancelled. This Warrant may be
divided or combined with other warrants which carry the same rights upon
presentation hereof at the principal office of the Company, or at the office of
its Transfer Agent, if any, together with a written notice specifying the names
and denominations in which new Warrants are to be issued and signed by the
Holder hereof. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant and, in the case of any such
loss, theft or destruction, upon delivery of a bond or indemnity satisfactory to
the Company, or, in the case of any such mutilation, upon surrender or
cancellation of this Warrant, the Company will issue to the Holder hereof a new
Warrant of like tenor, in lieu of this Warrant, representing the right to
subscribe for and purchase the Warrant Shares which may be subscribed for and
purchased hereunder. Any such new Warrant
7
executed and delivered shall constitute an additional contractual obligation of
the Company, whether or not this Warrant so lost, stolen, destroyed, or
mutilated shall be at any time enforceable by anyone.
6. Legends. Any certificate evidencing the securities issued upon
exercise of this Warrant shall bear a legend in substantially the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS SO REGISTERED
OR AN EXEMPTION FROM REGISTRATION UNDER SAID ACT IS AVAILABLE.
7. Modifications and Waivers. The terms of this Warrant may be
amended, modified or waived only by the written agreement of the Company and the
Holder.
8. Miscellaneous. The Company shall pay all expenses and other
charges payable in connection with the preparation, issuance and delivery of
this Warrant and all substitute Warrants. The Holder shall pay all taxes (other
than any issuance taxes, including, without limitation, documentary stamp taxes,
transfer taxes and other governmental charges, which shall be paid by the
Company) in connection with such issuance and delivery of this Warrant and the
Warrant Shares.
The Company shall maintain, at the office or agency of the
Company maintained by the Company, books for the registration and transfer of
the Warrant.
9. Reservation of Warrant Shares. The Company will at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued Common Stock or its authorized and issued Common
Stock held in its treasury, solely for the purpose of enabling it to satisfy any
obligation to issue Warrant Shares upon exercise of this Warrant, the maximum
number of shares of Common Stock which may then be deliverable upon the exercise
of this Warrant.
The Company or, if appointed, the Transfer Agent for the Common
Stock (the "Transfer Agent") and every subsequent transfer agent for any shares
of the Company's capital stock issuable upon the exercise of any of the rights
of purchase aforesaid will be irrevocably authorized and directed at all times
to reserve such number of authorized shares as shall be required for such
purpose. The Company will keep a copy of this Warrant on file with the Transfer
Agent and with every subsequent transfer agent for any shares of the Company's
capital stock issuable upon the exercise of the rights of purchase represented
by this Warrant. The Company will furnish such Transfer Agent a copy of all
notices of adjustments and certificates related thereto transmitted to the
Holder pursuant to Section 2.5 hereof.
8
The Company covenants that all Warrant Shares which may be issued
upon exercise of this Warrant will, upon issue, be fully paid, nonassessable,
free of preemptive rights and free from all taxes, liens, charges and security
interests with respect to the issue thereof.
10. Registration. The Holder shall be entitled to the
registration rights with respect to the Warrant Shares as set forth in the
Investors' Rights Agreement.
11. Descriptive Headings and Governing Law. The descriptive
headings of the several paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with the laws of the State of Delaware, and
the rights of the parties shall be governed by, the law of such State.
9
IN WITNESS WHEREOF, this Warrant has been executed as of the
26th day of April, 2002.
CONCEPTS DIRECT, INC.
By:
----------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Chief Financial Officer
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