1
Exhibit 10.23
CONVERTIBLE DEBENTURE LOAN AGREEMENT
BY AND BETWEEN
TOPRO, INC.
AND ITS SUBSIDIARIES:
Advanced Control Technology, Inc.
Management Design and Consulting Services, Inc.
Topro Systems Integration, Inc.
Visioneering Holding Corporation
ALL AS CO-BORROWERS
AND
RENAISSANCE U.S. GROWTH & INCOME TRUST, PLC
AS LENDER
This Convertible Debenture Loan Agreement (the "Loan Agreement") is entered
into as of OCTOBER 30, 1996, by and between TOPRO, INC. (a Colorado
corporation) its subsidiaries Advanced Control Technology, Inc. (an Oregon
corporation), Management Design and Consulting Services, Inc. (a Georgia
corporation),Visioneering Holding Corporation (a California corporation) and
Topro Systems Integration, Inc. (a Colorado corporation) all as co-borrowers
(collectively hereinafter referred to as "BORROWER") and RENAISSANCE U.S.
GROWTH & INCOME TRUST, PLC (a public limited company registered in England and
Wales) (together with any assignees or successors in interest hereinafter
referred to as "LENDER").
WITNESSETH:
WHEREAS, Borrower seeks to obtain up to ONE MILLION TWO HUNDRED THOUSAND
DOLLARS ($1,200,000) in convertible debenture financing for working capital
purposes.
WHEREAS, Borrower has requested that Lender provide such funding by
furnishing a loan as herein provided and Lender is willing to furnish such to
Borrower upon the terms and subject to the conditions and for the
considerations hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises herein contained and
for other valuable consideration, receipt and sufficiency of which is
acknowledged, the parties hereto agree as follows:
2
ARTICLE I - DEFINITION OF TERMS
SECTION 1.01. DEFINITIONS.
(a) For the purposes of this Loan Agreement, unless the context otherwise
requires, the following terms shall have the respective meanings assigned to
them in this Article I or in the section or recital referred to below:
"Affiliate" with respect to any Person shall mean (i) any person directly or
indirectly owning, controlling or holding power to vote 10% or more of the
outstanding voting securities of any Person; (ii) any person, 10% or more of
whose outstanding voting securities are directly or indirectly owned,
controlled or held with power to vote by any Person; (iii) any person
directly or indirectly controlling, controlled by or under common control
with any Person; (iv) any officer, director or partner of any Person; and
(v) if a Person is an officer, director or partner, any company for which
any Person acts in such capacity. For purposes of this Agreement, any
partnership of which any Person is a general partner, or any joint venture
in which any Person is a joint venture, is an Affiliate of each Person.
"Capital Expenditure" shall mean an expenditure for assets that will be used in
years subsequent to the year in which the purchase is made and which asset
is properly classifiable in financial statements as equipment, real property
or improvements, or similar type of capitalized asset.
"Capital Lease" shall mean any lease of property, real or personal, which is in
substance a financing lease and which would be capitalized on a balance
sheet of the lessee, including without limitation, any lease under which (i)
such lessee will have an obligation to purchase the property for a fixed
sum, (ii) an option to purchase the property at an amount less than a
reasonable estimate of the fair market value of such property as of the date
such lease is executed, or (iii) the term of the lease approximates or
exceeds the expected useful life of the property leased thereunder.
"Consolidated Subsidiaries" shall mean those corporations of which 50% or more
of the voting stock is owned by Borrower and their financial statements are
consolidated with those of the Borrower.
"Conversion" or "Conversion Rights" shall mean exchange of, or the rights to
exchange, the Principal Amount of the loan, or any part thereof, for
Borrower's fully paid and non assessable common stock on the terms and
conditions as provided in the Debenture.
"Common Stock" shall mean the Borrower's common stock, $0.0001 par value.
"Debentures" shall mean the Debentures executed by Borrower and delivered
pursuant to the terms of this Loan Agreement, together with any renewals,
extensions or modifications thereof.
"Debtor Laws" shall mean all applicable liquidation, conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency,
reorganization or similar laws from time to time in effect affecting the
rights of creditors generally.
"Default" shall mean any of the events specified in Article VIII.
"Dividends", in respect of any corporation, shall mean (i) cash distributions
or any other distributions on, or in respect of, any class of capital stock
of such corporation, except for distributions made solely in shares of stock
of the same class, and (ii) any and all funds, cash and other payments made
in respect of the redemption, repurchase or acquisition of such stock,
unless such stock shall be redeemed or acquired through the exchange of such
stock with stock of the same class.
"ERISA" shall mean the Employee Retirement Income Security Act, as amended,
together with all regulations issued pursuant thereto.
"GAAP" shall mean generally accepted accounting principles applied on a
consistent basis, set forth in the Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants, or their
successors, which are applicable in the circumstances as of the date in
question. The requisite that such principles be applied on a consistent
basis shall mean that the accounting principles observed in a current period
are comparable in all material respects to those applied in a preceding
period.
"Governmental Authority" shall mean any government (or any political
subdivision or jurisdiction thereof), court, bureau, agency or other
governmental authority having jurisdiction over Borrower or a Subsidiary or
any of its or their business, operations or properties.
"Guaranty" of any Person shall mean any contract, agreement or understanding of
such Person pursuant to which such Person in effect guarantees the payment
of any Indebtedness of any other Person (the "Primary
2
3
Obligor") in any manner, whether directly or indirectly, including without
limitation agreements: (i) to purchase such Indebtedness or any property
constituting security therefor, (ii) to advance or supply funds primarily
for the purpose of assuring the holder of such Indebtedness of the ability
of the Primary Obligor to make payment, or (iii) otherwise to assure the
holder of the Indebtedness of the Primary Obligor against loss in respect
thereof, except that "Guaranty" shall not include the endorsement by
Borrower or a Subsidiary in the ordinary course of business of negotiable
instruments or documents for deposit or collection.
"Holder" shall mean the owner of Registrable Securities.
"Indebtedness" shall mean, with respect to any Person, the following
indebtedness, obligations and liabilities of such Person: (i) all
"liabilities" that would be reflected on a balance sheet of such Person,
(ii) all obligations of such Person in respect of any Guaranty, (iii) all
obligations of such Person in respect of any Capital Lease, (iv) all
obligations, indebtedness and liabilities secured by any lien or any
security interest on any property or assets of such Person, and (v) all
preferred stock of such Person which is subject to a mandatory redemption
requirement, valued at the greater of its involuntary redemption price or
liquidation preference plus accrued and unpaid dividends.
"Investment" in any Person shall mean any investment, whether by means of share
purchase, loan, advance, extension of credit, capital contribution or
otherwise, in or to such Person, the Guaranty of any Indebtedness of such
Person, or the subordination of any claim against such Person to other
Indebtedness of such Person, provided however, that "Investment" shall not
include any demand deposits in a duly chartered state or national bank or
other cash equivalent investments.
"IRS Code" shall mean the Internal Revenue Code of 1986, as amended, together
with all regulations issued thereunder.
"Lien" shall mean any lien, mortgage, security interest, tax lien, pledge,
encumbrance, conditional sale or title retention arrangement, or any other
interest in property designed to secure the repayment of Indebtedness,
whether arising by agreement or under any statute or law, or otherwise.
"Loan" shall mean the money lent to Borrower pursuant to this Loan Agreement,
along with any accrued interest thereon.
"Loan Closing" or "Loan Closing Date" shall mean the initial disbursement of
Loan funds which shall occur on a date 30 days from the date hereof or such
earlier date on which Borrower requests, and Lender approves, as the date at
which the initial advance of the Loan funds shall be consummated, provided
that such date may be mutually extended beyond 30 days, but only by written
agreement of the parties hereto.
"Loan Documents" shall mean this Loan Agreement, the Debentures (including any
renewals, extensions and refundings thereof), the Security Agreement, the
Pledge Agreement and any other agreements or documents (and with respect to
this Loan Agreement, and such other agreements and documents, any amendments
or supplements thereto or modifications thereof) executed or delivered
pursuant to the terms of this Loan Agreement.
"Material Adverse Effect" or "Material Adverse Change" shall mean any change,
factor or event that shall (i) have a material adverse effect upon the
validity, performance or enforceability of any Loan Documents, (ii) have a
material adverse effect upon the financial condition or business operations
of Borrower or any Subsidiaries, (iii) have a material adverse effect upon
the ability of the Borrower to fulfill its obligations under the Loan
Documents, or (iv) any event that causes an Event of Default or which, with
notice or lapse of time or both, could become an Event of Default.
"Obligation" shall mean: (i) all present and future indebtedness, obligations
and liabilities of Borrower to Lender arising pursuant to this Loan
Agreement, regardless of whether such indebtedness, obligations and
liabilities are direct, indirect, fixed, contingent, joint, several, or
joint and several; (ii) all present and future indebtedness, obligations and
liabilities of Borrower to Lender arising pursuant to or represented by the
Debentures and all interest accruing thereon, and reasonable attorneys' fees
incurred in the enforcement or collection thereof; (iii) all present and
future indebtedness, obligations and liabilities of Borrower and any
Subsidiary evidenced by or arising pursuant to any of the Loan Documents;
(iv) all costs incurred by
3
4
Lender, including but not limited to reasonable attorneys' fees and legal
expenses related to this transaction; and (v) all renewals, extensions and
modifications of the indebtedness referred to in the foregoing clauses, or
any part thereof.
"Permitted Liens" shall mean: (i) Liens (if any) granted to Lender to secure
the Obligation, (ii) pledges or deposits made to secure payment of worker's
compensation insurance (or to participate in any fund in connection with
worker's compensation insurance), unemployment insurance, pensions or social
security programs, (iii) Liens imposed by mandatory provisions of law such
as for landlord's, materialmen's, mechanics', warehousemen's and other like
Liens arising in the ordinary course of business, securing Indebtedness
whose payment is not yet due, (iv) Liens for taxes, assessments and
governmental charges or levies imposed upon a Person or upon such Person's
income or profits or property, if the same are not yet due and payable or if
the same are being contested in good faith and as to which adequate cash
reserves have been provided or if an extension is obtained with respect
thereto, (v) Liens arising from good faith deposits in connection with
tenders, leases, real estate bids or contracts (other than contracts
involving the borrowing of money), pledges or deposits to secure public or
statutory obligations and deposits to secure (or in lieu of) surety, stay,
appeal or customs bonds and deposits to secure the payment of taxes,
assessments, customs duties or other similar charges, (vi) encumbrances
consisting of zoning restrictions, easements, or other restrictions on the
use of real property, provided that such items do not materially impair the
use of such property for the purposes intended, and none of which is
violated by existing or proposed structures or land use, (vii) mortgages,
financing statements, equipment leases or other encumbrances incurred in
connection with the acquisition of property or equipment or the replacement
of existing property or equipment, provided that such liens shall be limited
to the property or equipment then being acquired, and (viii) Liens granted
to secure the debt held by U.S Bank and Garfield Bank.
"Person" shall include an individual, a corporation, a joint venture, a general
or limited partnership, a trust, an unincorporated organization or a
government or any agency or political subdivision thereof.
"Plan" shall mean an employee benefit plan or other plan maintained by Borrower
for employees of Borrower and/or any Subsidiaries and covered by Title IV of
ERISA, or subject to the minimum funding standards under Section 412 of the
Internal Revenue Code of 1986, as amended.
"Principal Amount" shall mean, as of any time, the then aggregate outstanding
face amount of the Debentures after any conversions or redemptions and after
giving effect to any installment payments received by Lender.
"Registrable Securities" shall mean (i) the Common Stock issued upon Conversion
of the Debentures, (ii) any Common Stock issued upon Conversion which is
issued with respect to the Common Stock referred to in clause (i) by way of
stock dividend; any other distribution with respect to or in exchange for,
or in replacement of Common Stock; stock split; or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization; excluding in all cases, however, any Registrable Security
that is not a Restricted Security and any Registrable Securities sold or
transferred by a person in a transaction in which the rights under this Loan
Agreement are not assigned.
"Registrable Securities Then Outstanding" shall mean an amount equal to the
number of Registrable Securities outstanding which have been issued pursuant
to the Conversion of the Debentures.
"Rentals" of any Person shall mean, as of any date, the aggregate amount of the
obligations and liabilities (including future obligations and liabilities
not yet due and payable) of such Person to make payments under all leases,
subleases and similar arrangements for the use of real, personal or mixed
property, other than leases which are Capital Leases.
"Restricted Security" shall mean a security that has not been (i) effectively
registered under the 1933 Act or (ii) distributed to the public pursuant to
Rule 144 (or any similar provisions that are in force) under the ▇▇▇▇ ▇▇▇.
"SEC" shall mean the Securities and Exchange Commission.
"1933 Act" shall refer to the Securities Act of 1933, as amended.
"1934 Act" shall refer to the Securities Exchange Act of 1934, as amended.
4
5
"Solvent" shall mean, with respect to any Person on a particular date, that on
such date (i) the fair value of the property of such Person is greater than
the total amount of liabilities, including, without limitation, contingent
liabilities, of such Person, (ii) the present fair salable value, in the
ordinary course of business, of the assets of such Person is not less than
the amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured, (iii) such Person
is able to realize upon its assets and pay its debts and other liabilities,
contingent obligations and other commitments as they mature in the normal
course of business, (iv) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's
ability to pay as such debts and liabilities mature, and (v) such Person is
not engaged in business or a transaction, and is not about to engage in
business or a transaction, for which such Person's property would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount which, in light of all the facts
and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"Subordinated Debt" shall mean any indebtedness of the Borrower or any
Subsidiaries, now existing or hereafter incurred, which indebtedness is, by
its terms, junior in right of repayment to the payment of the Debentures.
"Subsidiary" shall mean any corporation whether now existing or hereafter
acquired of which fifty percent (50%) or more of the Voting Shares are
owned, directly or indirectly, by Borrower.
"Voting Shares" of any corporation shall mean shares of any class or classes
(however designated) having ordinary voting power for the election of at
least a majority of the members of the Board of Directors (or other
governing bodies) of such corporation, other than shares having such power
only by reason of the happening of a contingency.
SECTION 1.02. OTHER DEFINITION PROVISIONS.
(a) All terms defined in this Loan Agreement shall have the above-defined
meanings when used in the Debentures or any other Loan Documents, certificate,
report or other document made or delivered pursuant to this Loan Agreement,
unless the context therein shall otherwise require.
(b) Defined terms used herein in the singular shall import the plural and
vice versa.
(c) The words "hereof," "herein," "hereunder" and similar terms when used in
this Loan Agreement shall refer to this Loan Agreement as a whole and not to
any particular provision of this Loan Agreement.
(d) References to financial statements and reports shall be deemed to be a
reference to such statements and reports prepared in accordance with GAAP
recognized as such by the American Institute of Certified Public Accountants
acting through its Accounting Principles Board or by the Financial Accounting
Standards Board which principles are consistently applied, on the basis used by
Borrower in prior years, for all periods after the date hereof so as to
properly reflect the financial condition, and the results of operations and
statement of cash flows, of Borrower and its Consolidated Subsidiaries, if any.
(e) Accounting terms not specifically defined above, or not defined in the
Loan Agreement, shall be construed in accordance with GAAP as recognized as of
this date by the American Institute of Certified Public Accountants.
ARTICLE II - LOAN PROVISIONS
SECTION 2.01. LOAN CLOSING.
(a) Subject to the terms and conditions of this Loan Agreement, and the
compliance with such terms and conditions by all parties, Lender agrees to lend
to Borrower, and Borrower agrees to borrow from Lender, the aggregate sum of up
to ONE MILLION TWO HUNDRED THOUSAND DOLLARS ($1,200,000) which shall be
disbursed at the Loan Closing.
(b) Such disbursement is to be at such time and subject to the conditions
as provided hereunder and such borrowing shall be evidenced by Borrower's duly
executed Debenture (in one or more counterparts in the
5
6
aggregate sum of the Principal Amount advanced, each such counterpart
singularly or collectively herein the "Debenture" or "Debentures")
substantially in the form of Exhibit 2.01(b)*** attached hereto and made a part
hereof, with appropriate insertion of names, dates and amounts. In the event
of any differences in terms between the Loan Agreement and the Debenture, the
Debenture will be controlling, provided, however, that the holder of the
Debenture shall be entitled to all the rights and benefits of the Lender
provided in this Agreement.
(c) Unless otherwise mutually agreed, closing shall be at the offices of
Renaissance Capital Group, Inc. in Dallas, Texas.
(d) If, within 30 days of the date of this Agreement (i) Borrower has failed
to comply with the conditions precedent to the Loan Closing as specified in
Article III hereof (unless compliance with such conditions in whole or in part
has been waived or modified by Lender in its sole discretion) or (ii) the Loan
Closing has not occurred (unless the date of such Loan Closing has been
mutually extended) then, in either such case the obligations of Lender under
this Loan Agreement shall terminate, provided however that Borrower shall be
obligated for payment of the commitment fees and Lender expenses as provided in
Section 2.07 due and payable as of such date of termination.
SECTION 2.02. USE OF PROCEEDS.
(a) The money advanced hereunder shall be used by Borrower for the following
purposes:
General Working Capital Purposes $1,200,000
Total = $1,200,000
Topro, Inc., Advanced Control Technology, Inc., Management Design and
Consulting Services, Inc. Topro Systems Integration, Inc. and Visioneering
Holding Corporation all hereby acknowledge that the proceeds from the Loan
shall be used by each company individually for the growth of their business by
providing working capital.
6
7
SECTION 2.03. INTEREST RATE AND INTEREST PAYMENTS.
(a) Interest on the Principal Amount outstanding from time to time shall
accrue at the rate of 9.00% per annum, with the first installment payable on
NOVEMBER 1, 1996 and subsequent payments at the first day of each month
thereafter. Overdue principal and interest on the Debentures shall bear
interest, to the extent permitted by applicable law, at a rate of 9.00% per
annum. Interest on the Principal Amount of each Debenture shall be calculated,
from time to time, on the basis of the actual days elapsed in a year consisting
of 365 days.
SECTION 2.04. MATURITY.
(a) If not sooner redeemed or converted, the Debentures shall mature on
OCTOBER 30, 2003, which time all the remaining unpaid principal, interest and
any other charges then due under the Loan Agreement shall be due and payable in
full.
SECTION 2.05. MANDATORY PRINCIPAL REDEMPTION INSTALLMENTS.
(a) Mandatory principal redemption installments on each Debenture shall be
as provided for in the Debentures.
SECTION 2.06. OPTIONAL REDEMPTION.
(a) Optional principal redemption on each Debenture shall be as provided for
in the Debentures.
SECTION 2.07. CLOSING FEES AND LOAN CLOSING COSTS.
(a) Borrower agrees to pay to Lender a Loan Commitment fee of 1% of the loan
amount available under this Loan Agreement such to be due and payable at Loan
Closing or upon termination of this Loan Agreement.
(b) Borrower agrees to pay to Lender a Loan Closing Fee of 1% of the amount
of Loan funds disbursed at each closing, such to be due and payable at Loan
Closing.
(c) In addition, at the Loan Closing Borrower agrees to pay Lender's
reasonable costs and expenses (including without limitation the reasonable fees
and expenses of Lender's legal counsel) in connection with the negotiation,
preparation, execution and delivery of this Loan Agreement, the Debentures, the
other Loan Documents and the Loan Closing or Subsequent Loan Closing, provided
that such expenses shall not, in the aggregate, exceed 0.5% of the loan amount
available under this Loan Agreement.
(d) Lender acknowledges the receipt of the payment by the Borrower of
$________ to cover Due Diligence expenses.
SECTION 2.08. PLACEMENT FEE.
The Borrower shall be responsible for payment of any placement fees and
commissions, brokerage fees or finders fees in connection with the Loan. All
such placement fee obligations are as listed in Schedule 2.08 attached hereto.
The Lender has incurred no placement fee on this transaction.
SECTION 2.09. TAXES.
(a) Payments by Borrower hereunder shall be made without deduction for any
present or future taxes, duties, charges or withholdings, (excluding, in the
case of the Lender, any foreign taxes, any federal, state or local income taxes
and any franchise taxes or taxes imposed upon it by the jurisdiction, or any
political subdivision thereof, under which the Lender is organized or is
qualified to do business) and all liabilities with respect thereto (herein
"Taxes") shall be paid by Borrower. If Borrower shall be required by law to
deduct any Taxes for which Borrower is responsible under the preceding sentence
from any sum payable hereunder to any Lender: (i) the sum payable shall be
increased so that after making all required deductions, such Lender receives an
amount equal to the sum it would have received had no such deductions been
made, (ii) Borrower shall make such deductions, and (iii) Borrower shall pay
the full amount deducted to the relevant taxing authority or other authority in
accordance with applicable law.
(b) Except as otherwise set forth in this Loan Agreement or the other Loan
Documents, Borrower shall pay any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies which arise
from any payment made hereunder or under the Loan Documents or from the
execution,
7
8
delivery or registration of, or otherwise with respect to, this Loan Agreement
or the other Loan Documents (hereinafter referred to as "Other Taxes").
(c) Borrower shall indemnify Lender for the full amount of Taxes and Other
Taxes reasonably paid by Lender or any liability (including any penalties or
interest assessed because of Borrower's defaults) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. This indemnification shall be made within thirty (30) days
from the date Lender makes written demand therefor. Lender shall subrogate any
and all rights and claims relating to such Taxes and Other Taxes to Borrower
upon payment of said indemnification.
(d) Without prejudice to the survival of any other agreement of Borrower
hereunder, the agreements and obligations of Borrower in this Section 2.09
shall survive the payment in full of the Obligation.
SECTION 2.10. STOCK CONVERSION RIGHTS AND REGISTRATION RIGHTS AGREEMENT.
(a) Each Debenture shall be exchangeable for shares of Borrower's common stock
on such terms and in such amounts as shall be stated in the Debenture. The
holders of the stock issued upon exercise of the right of conversion as
provided in said Debenture shall be entitled to all the rights of the Lender
as stated in this Loan Agreement or the other Loan Documents to the extent such
rights are specifically stated to survive the surrender of the Debenture for
conversion as therein provided.
(b) The holder of shares of common stock of Borrower issued upon conversion
shall be entitled to the registration rights as provided in Article IX of this
Agreement.
SECTION 2.11. COLLATERAL, SECURITY AGREEMENTS, PLEDGE AGREEMENT
(a) The due and prompt performance of the obligations of Borrower to Lender
under the Loan Agreement and the Debentures shall be secured by all assets of
Topro, Inc. and its subsidiaries listed above and such collateral shall be
evidenced by Security Agreements executed by and between the Lender and Topro,
Inc. and its subsidiaries listed above and financing statements shall be
executed in favor of Lender by Topro, Inc. and its subsidiaries listed above.
Topro, Inc. shall enter into a Pledge Agreement with Lender pledging its shares
in the subsidiary Advanced Control Technologies, Inc. and Visioneering Holding
Corporation. Borrower agrees to pledge the ACS/Pro Meta subsidiary upon
completion of the Acquisition.
ARTICLE III - CONDITIONS PRECEDENT
SECTION 3.01. DOCUMENT REQUIREMENTS.
(a) Loan Closing Date Requirements: The obligation of Lender to advance
funds at the Loan Closing Date hereof is subject to the condition precedent
that, on or before the date of such advance, Lender shall have received the
following in form and substance satisfactory to Lender:
(1) Debenture. One or more duly executed Debentures aggregating the
Principal Amount of Loan funds then advanced, each in amounts as requested by
Lender, which shall be styled "River Oaks Trust Company, FBO Renaissance U.S.
Growth & Income Trust, PLC", and in the form of Exhibit 2.01(a)(1) with
appropriate insertions of date, amount and conversion features.
(2) Security Agreements. One or more duly executed Security Agreements and
UCC-1 pledging all the assets of Borrower in the form of Exhibit 2.01(a)(3)
with appropriate insertions of date, amounts, and listings of collateral.
(3) Pledge Agreement. One duly executed Pledge Agreement pledging the stock
of Advanced Control Technology and Visioneering Holding Corporation. in the
form of Exhibit 2.01 (a)(3) and stock certificates evidencing said pledge with
blank stock powers.
(4) Opinion of Borrower's Counsel. An opinion of legal counsel for Borrower
dated as of the Loan Closing Date, satisfactory in form and substance to
Lender, as to due execution by the Borrower of the Loan Agreement, the
Debenture and other Loan Documents and the legal enforceability thereof.
(5) Officers' Certificate. A true and correct certificate signed by a duly
authorized officer of the Borrower and dated as of the Loan Closing Date
stating that to the best knowledge and belief of such officer, after
8
9
reasonable and due investigation and review of matters pertinent to the subject
matter of such certificate: (A) all of the representations and warranties
contained in Article IV hereof and the other Loan Documents are true and
correct as of the Loan Closing Date and (B) no event has occurred and is
continuing, or would result from the Loan, which constitutes a Default or an
Event of Default.
(6) Resolutions of Borrower. Copies of resolutions, as adopted by the
Borrower's Board of Directors, approving the execution, delivery and
performance of this Loan Agreement, the Debentures, and the other Loan
Documents, including the transactions contemplated herein and accompanied by a
certificate of the Secretary or Assistant Secretary of Borrower stating that
such resolutions have been duly adopted, are true and correct, have not been
altered or repealed and are in full force and effect.
(7) Incumbency Certificate of Borrower. A signed certificate of the
Secretary or Assistant Secretary of the Borrower which shall certify the names
of the officers of Borrower authorized to sign each of the Loan Documents to be
executed by such officer together with the true signatures of each of such
officers. It is herewith stipulated and agreed that Lender may thereafter rely
conclusively on the validity of this certificate as a representation of the
officers of Borrower duly authorized to act with respect to the Loan Documents
until such time as Lender shall receive a further certificate of the Secretary
or Assistant Secretary of Borrower canceling or amending the prior certificate
and submitting the signatures of the officers thereupon authorized in such
further certificate.
(8) Certificates. Certificates of good standing (or other similar
instrument) for the Borrower issued by the Secretary of State of the state of
incorporation of Borrower, and certificates of qualification and good standing
for Borrower issued by the Secretary of State of each of the states wherein
such Borrower has operating facilities of such nature so as to be required to
be qualified to do business as a foreign corporation, dated within ten (10)
days of Loan Closing.
(9) Charter and Bylaws. A copy of the Articles of Incorporation of the
Borrower and all amendments thereto, certified by the Secretary of State of the
state of incorporation and dated within ten (10) days of the date of Loan
Closing and a copy of the bylaws of Borrower and all amendments thereto,
certified by the Secretary or Assistant Secretary of Borrower, as being true,
correct and complete as of the date of such certification.
(10) Financial Information. Copies of the following financial statements
for Borrower: (A) An audited balance sheet and income statement for Borrower as
of June 30, 1996.
(11) Additional Information. Such other information and documents as may
reasonably be required by Lender and Lender's counsel to substantiate
Borrower's compliance with the requirements of this Loan Agreement.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
To induce Lender to make the Loan hereunder, Borrower represents and warrants
to Lender that:
SECTION 4.01. ORGANIZATION AND GOOD STANDING.
(a) Borrower is duly organized and existing in good standing under the laws
of the state of its incorporation, is duly qualified as a foreign corporation
and in good standing in all states in which failure to qualify would have a
Material Adverse Effect, and has the corporate power and authority to own its
properties and assets and to transact the business in which it is engaged and
is or will be qualified in those states wherein it proposes to transact
material business operations in the future.
SECTION 4.02. AUTHORIZATION AND POWER.
(a) Borrower has the corporate power and requisite authority to execute,
deliver and perform the Loan Documents to be executed by Borrower. The
Borrower is duly authorized to, and has taken all corporate action necessary to
authorize such to, execute, deliver and perform the Loan Documents executed by
Borrower. The Borrower is and will continue to be duly authorized to perform
the Loan Documents executed by Borrower.
9
10
SECTION 4.03. NO CONFLICTS OR CONSENTS.
(a) Except as disclosed to Lender pursuant to Exhibit 4.03 - Schedule of
Conflicts or Consents, neither the execution and delivery of the Loan
Documents, nor the consummation of any of the transactions therein
contemplated, nor compliance with the terms and provisions thereof, will
contravene or materially conflict with any provision of law, statute or
regulation to which Borrower is subject or any judgment, license, order or
permit applicable to Borrower, or any indenture, loan agreement, mortgage, deed
of trust, or other agreement or instrument to which Borrower is a party or by
which Borrower is or becomes bound, or to which Borrower is or becomes subject,
or violate any provision of the charter or bylaws of Borrower. No consent,
approval, authorization or order of any court or governmental authority or
third party is required in connection with the execution and delivery by
Borrower of the Loan Documents or to consummate the transactions contemplated
hereby or thereby except those that have been obtained.
SECTION 4.04. ENFORCEABLE OBLIGATIONS.
(a) The Loan Documents have been duly executed and delivered by the Borrower
and are the legal and binding obligations of the Borrower, enforceable in
accordance with their respective terms, except as limited by any applicable
bankruptcy, insolvency or similar laws now or hereafter in effect affecting
creditors rights generally.
SECTION 4.05. NO LIENS.
(a) Except for Permitted Liens, all of the properties and assets owned by
the Borrower are free and clear of all Liens and other adverse claims of any
nature, and such persons have good and marketable title to such properties and
assets. A true and complete list of all liens for borrowed money is disclosed
to Lender pursuant to Exhibit 4.05.
SECTION 4.06. FINANCIAL CONDITION.
(a) Borrower has delivered to Lender copies of the most recent audited
financial statements of Borrower, and the related statements of income,
stockholders' equity and statement of cash flow for the year ended JUNE 30,
1996, by its independent Certified Public Accountant. Such financial
statements are true and correct in all material respects, fairly represent the
financial condition of Borrower as of such dates and have been prepared in
accordance with GAAP (except unaudited financial statements omit certain
footnotes) applied on a basis consistent with that of prior periods; and as of
the date hereof, there are no obligations, liabilities or Indebtedness
(including contingent and indirect liabilities and obligations) of Borrower
which are (separately or in the aggregate) material and are not reflected in
such financial statements or otherwise disclosed herein. Except as set forth
on Schedule 4.06, since the date of the above referenced year end financial
statements there has not been: (i) any Material Adverse Change in the financial
condition, results of operations, business, prospects, assets or liabilities
(contingent or otherwise, whether due or to become due, known or unknown), of
the Borrower; (ii) any dividend declared or paid or distribution made on the
capital stock of the Borrower or any capital stock thereof redeemed or
repurchased; (iii) any incurrence of long-term debt by the Borrower; (iv) any
salary, bonus or compensation increases to any officers, key employees or
agents of the Borrower or (v) any other transaction entered into by the
Borrower except in the ordinary course of business and consistent with past
practice.
SECTION 4.07. FULL DISCLOSURE.
(a) To the best of Borrower's knowledge and belief after current
investigation, there is no material fact that Borrower has not disclosed to
Lender which could have a Material Adverse Effect on the properties, business,
prospects or condition (financial or otherwise) of Borrower. Neither the
financial statements referenced in Section 4.06 hereof, nor any business plan,
offering memorandum or prospectus, certificate or statement delivered herewith
or heretofore by Borrower to Lender in connection with negotiations of this
Loan Agreement, contained, any untrue statement of a material fact or omitted
to state any material fact necessary to keep the statements contained herein or
therein from being misleading.
SECTION 4.08. NO DEFAULT.
(a) No event has occurred and is continuing which constitutes a Default or
an Event of Default under this
10
11
Loan Agreement.
SECTION 4.09. MATERIAL AGREEMENTS.
(a) The Borrower is not in default in any material respect under any
material contract, lease, loan agreement, indenture, mortgage, security
agreement or other material agreement or obligation to which it is a party or
by which any of its properties is bound.
SECTION 4.10. NO LITIGATION.
(a) Except as disclosed to Lender pursuant to Exhibit 4.10 - Schedule of
Litigation, attached hereto, there are no actions, suits, investigations,
arbitrations or administrative proceedings pending, or to the knowledge of
Borrower threatened, against Borrower, and there has been no change in the
status of any of the actions, suits, investigations, litigation or proceedings
disclosed to Lender which could have a materially adverse effect on Borrower or
on any transactions contemplated by any Loan Document.
SECTION 4.11. BURDENSOME CONTRACTS.
(a) To the best knowledge of the Borrower, it is not a party to, or bound
by, any contract or agreement, the faithful performance of which is so onerous
so as to create or to likely create a Material Adverse Effect on the business,
operations or financial condition of the Borrower.
SECTION 4.12. TAXES.
(a) All tax returns required to be filed by Borrower in any jurisdiction
have been filed and all taxes (including mortgage recording taxes),
assessments, fees and other governmental charges upon Borrower or upon any of
its properties, income or franchises have been paid. To the best knowledge of
Borrower, there is no proposed tax assessment against Borrower and there is no
basis for such assessment.
SECTION 4.13. PRINCIPAL OFFICE, ETC.
(a) The principal office and principal place of business of the Borrower is
as follows:
Topro, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
SECTION 4.14. USE OF PROCEEDS.
(a) The Borrower hereby acknowledges that the proceeds from the Loan are to
be used as disclosed in Schedule 4.14.
SECTION 4.15. EMPLOYEE BENEFIT AND INCENTIVE PLANS; ERISA.
(a) Borrower is not obligated under any Plans.
(b) Borrower is not a party to any collective bargaining agreement and is
not aware of any activities of any labor union that is currently seeking to
represent or organize its employees. Borrower has not experienced any labor
problems, including work stoppages, disputes or slowdowns with respect to its
employees.
SECTION 4.16. COMPLIANCE WITH LAW.
(a) To the best knowledge of Borrower, Borrower is in compliance with all
laws, rules, regulations, orders and decrees which are applicable to Borrower
or its properties by reason of any Governmental Authority which are material to
the conduct of the business of Borrower or any of its properties.
SECTION 4.17. COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS.
(a) To the best knowledge of Borrower, all properties of Borrower are in
compliance with all federal, state or local environmental protection laws,
statutes and regulations which are material to the conduct of the business of
Borrower, or its properties, and the Borrower is currently in compliance with
all material reporting requirements, rules, and regulations which are
applicable to Borrower or its properties by reason of such governmental
environmental protective agencies.
SECTION 4.18. SCHEDULE OF CAPITAL STOCK AND SEC REQUIREMENTS.
(a) Set forth on Exhibit 4.18 - Schedule of Capital Stock is a true and
correct schedule of all classes of authorized, issued, and outstanding Capital
Stock of the Borrower, all stock options, warrants, conversion
11
12
rights, subscription rights and other rights or agreements to acquire
securities of Borrower and any shares held in treasury or reserved for issue
upon exercise of such stock options, warrants or conversion rights,
subscription rights and other rights or agreements to acquire securities
including date of termination of such right and the consideration therefor.
(b) Except as provided in Exhibit 4.18 - Schedule of Capital Stock, to the
best of the Borrower's knowledge, all securities of Borrower have been issued
in compliance with the requirements of the 1933 Act, and the rules and
regulation promulgated thereunder, or pursuant to an exemption therefrom.
(c) The shares of common stock of the Borrower when issued to Lender upon
conversion of the Debentures will be duly and validly issued, fully paid and
nonassessable. Such issuance will not give rise to preemptive rights or
similar rights by any other security holder of Borrower. Borrower shall at all
times reserve and keep available sufficient authorized and unissued shares of
common stock to effectuate the conversion of the Debentures.
SECTION 4.19. INSIDER.
(a) Neither the Borrower, nor any Person having "control" (as that term is
defined in the Investment Company Act of 1940, as amended, or in regulations
promulgated pursuant thereto (herein the "1940 Act")) of the Borrower is, an
"executive officer," "director," or "principal shareholder" (as those terms are
defined in the ▇▇▇▇ ▇▇▇) of Lender.
(b) Except as set forth in the Borrower's 10K dated for the period ending
June 30, 1996, there are no transactions between the Borrower and any
affiliates of Borrower.
(c) All agreements between the Borrower and any officers, directors, and
principal shareholders including employment agreements are listed on Exhibit
4.19 - Schedule of Affiliate Transactions.
SECTION 4.20. SUBSIDIARIES.
(a) As of the date hereof, the Borrower has the following subsidiaries: .
Advanced Control Technology, Inc., Management Design and Consulting Services,
Inc., Topro Systems Integration, Inc., Tech Sales, Inc. and Sharp Electric
Construction Company, Inc. and Visioneering Holding Corporation.
(b) Except as disclosed in the Financial Statements and except for
Subsidiaries, the Borrower does not own any equity or debt interest or any form
of proprietary interest in any entity, or any right or option to acquire any
such interest in any such entity, except for accounts receivable which have
arisen in the ordinary course of business.
SECTION 4.21. CASUALTIES.
(a) Neither the business nor the properties of Borrower is currently
affected by any environmental hazard, fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act
of God or other casualty (whether or not covered by insurance), which could
have a Material Adverse Effect.
SECTION 4.22 INVESTMENT COMPANY ACT.
(a) Borrower is not an "investment company" as defined in Section 3 of the
1940 Act nor a company that would be an investment company except for the
exclusions from the definition of an investment company in Section 3(C) of the
1940 Act and Borrower is not controlled by such a company.
SECTION 4.23. SUFFICIENCY OF CAPITAL.
(a) Borrower is after consummation of this Loan Agreement and giving effect
to all Indebtedness incurred and transactions contemplated in connection
herewith will be, Solvent.
SECTION 4.24. CORPORATE NAME.
(a) The Borrower has not, during the preceding five (5) years, been known as
or used any other corporate, fictitious or Tradenames except as disclosed on
Exhibit 4.24 - Schedule of Corporate Name, Mergers and Consolidations. Except
as disclosed on Exhibit 4.24, the Borrower has not, during the preceding five
(5) years, been the surviving corporation of a merger or consolidation or
acquired all or substantially all of the assets of any Person.
12
13
SECTION 4.25. MARGIN REGULATION.
(a) As of the Loan Closing date, the Borrower does not have class of
securities with respect to which a member of a national securities exchange,
broker, or dealer may extend or maintain credit to or for a customer pursuant
to rules or regulation adopted by the Board of Governors of the Federal Reserve
System under Section 7 of the 1934 Act.
SECTION 4.26. INSURANCE.
(a) All of the insurable properties of the Borrower are insured for its
benefit under valid and enforceable policies, issued by insurers of recognized
responsibility in amounts and against such risks and losses as is customary in
such industry. Such policies are listed in Exhibit 4.26 - Schedule of
Insurance.
SECTION 4.27. PATENTS, TRADEMARKS AND COPYRIGHTS.
(a) To the best of Borrower's knowledge and belief after current
investigation, Borrower owns all patents, trademarks and copyrights, if any,
necessary to conduct its business or possesses licenses or other rights, if
any, therefor. All such intangible property rights are listed in Exhibit 4.27 -
Schedule of Patents, Trademarks and Copyrights. Borrower has the right to use
such proprietary rights without infringing or violating the rights of any third
parties. No claim has been asserted by any person to the ownership of or right
to use any such proprietary right or challenging or questioning the validity or
effectiveness of any such license or agreement. Each of the proprietary rights
is valid and subsisting, has not been canceled, abandoned or otherwise
terminated.
SECTION 4.28. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) All representations and warranties by Borrower herein shall survive the
Loan Closing and any subsequent Loan Closings and the delivery of the
Debentures, and any investigation at any time made by or on behalf of Lender
shall not diminish Lender's right to rely on Borrower's' representations and
warranties as herein set forth.
ARTICLE V - AFFIRMATIVE COVENANTS
So long as any part of the Debentures remains unpaid or has not been
redeemed or converted hereunder, and until such payment, redemption or
conversion in full, unless the Lender shall otherwise consent in writing, which
consent shall not be unreasonably withheld, Borrower agrees that:
SECTION 5.01. FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS.
(a) The Borrower shall accurately and fairly maintain its books of account
in accordance with generally accepted accounting principles, employ a firm of
independent certified public accountants, which firm is ▇▇▇▇ + Associates or
one of the six largest national accounting firms or which is approved by the
Lender, to make annual audits of its accounts in accordance with generally
accepted auditing standards; permit the Lender and its representatives to have
access to and to examine its properties, books and records (and to copy and
make extracts therefrom) at such reasonable times and intervals as the Lender
may request and to discuss its affairs, finances and accounts with its officers
and auditors, all to such reasonable extent and at such reasonable times and
intervals as the Lender may request.
(b) The Borrower shall provide the following reports and information to
the Lender and or the Lender's designee:
(i) As soon as available, and in any event within forty-five (45)
days after the close of each quarter (subject to extensions as permitted under
rule 12b-25), the Company's report on Form 10-Q with exhibits for said period.
In addition, the Lender may at its sole discretion request internal monthly
reports for specific periods.
(ii) As soon as available, and in any event within ninety (90) days
after the close of each year (subject to extensions as permitted under rule
12b-25), the Company's report on Form 10-K with exhibits for said period.
(iii) Each quarter, concurrent with the periodic report required
above, a certificate executed by
13
14
the Chief Financial Officer or Chief Executive Officer of the Borrower, (a)
stating that a review of the activities of the Borrower during such fiscal
period has been made under his supervision and that the Borrower has observed,
performed and fulfilled each and every obligation and covenant contained herein
and is not in default under any of the same or, if any such default shall have
occurred, specifying the nature and status thereof, and (b) setting forth a
computation in reasonable detail as of the end of the period covered by such
statements, of compliance with the Agreed Minimum Financial Standards in
Exhibit 7.01 as provided therein.
(iv) So long as any Debentures remains outstanding, promptly (but
in any event within five business days) upon learning of the occurrence of a
Default or an Event of Default deliver a certificate signed by the Chief
Executive Officer or Chief Financial Officer of the Borrower describing such
Default, Event of Default and stating what steps are being taken to remedy or
cure the same.
(v) Promptly (but in any event within five business days) upon the
receipt thereof by the Borrower or the Board of Directors of the Borrower,
copies of all reports, all management letters and other detailed information
submitted to the Borrower or the Board by independent accountants in connection
with each annual or interim audit or review of the accounts or affairs of the
Borrower made by such accountants.
(vi) With reasonable promptness, such other information relating to
the finances, properties, business and affairs of the Borrower and each
Subsidiary, as Lender reasonably may request from time to time.
(vii) Promptly upon its becoming available, one copy of each
financial statement, report, press release, notice or proxy statement sent by
Borrower to stockholders generally and of each regular or periodic report,
registration statement or prospectus filed by Borrower with any securities
exchange or the SEC or any successor agency, and of any order issued by any
Governmental Authority in any proceeding to which the Borrower is a party.
SECTION 5.02. PREPARATION OF A BUDGET.
(a) At least thirty (30) days prior to the beginning of Borrower's fiscal
year, Borrower agrees to prepare and submit to the Board, and furnish to the
Lender a copy of, an annual plan for such year which shall include without
limitation plans for expansion, if any, plans for incurrences of Indebtedness
and projections regarding other sources of funds, monthly projected capital and
operating expense budgets, cash flow statements, profit and loss statements and
balance sheet projections, itemized in such detail as the Board and/or the
Lender may request.
SECTION 5.03. OPERATION REVIEW.
(a) Borrower agrees that it will review its operations with Lender. Such
operations reviews will be in such depth and detail as Lender shall reasonably
request. Operations reviews, which usually will require a day or less to
complete, will be held as reasonably necessary, generally once a fiscal
quarter.
SECTION 5.04. PAYMENT OF TAXES AND OTHER INDEBTEDNESS.
(a) Borrower shall, and shall cause its Subsidiaries, if any, to, pay and
discharge (i) all taxes, assessments and governmental charges or levies imposed
upon it or upon its income or profits, or upon any property belonging to it,
before delinquent, (ii) all lawful claims (including claims for labor,
materials and supplies), which, if unpaid, might give rise to a Lien upon any
of its property, and (iii) all of its other Indebtedness, except as prohibited
hereunder; provided, however, that Borrower and its Subsidiaries, if any, shall
not be required to pay any such tax, assessment, charge or levy if and so long
as the amount, applicability or validity thereof shall currently be contested
in good faith by appropriate proceedings and appropriate accruals and reserves
therefor have been established in accordance with GAAP.
SECTION 5.05. MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS.
(a) Borrower shall, and shall cause its Subsidiaries, if any, to, preserve
and maintain its corporate existence and all of its rights, privileges and
franchises necessary or desirable in the normal conduct of its business, and
conduct its business in an orderly and efficient manner consistent with good
business practices and in
14
15
accordance with all valid regulations and orders of any Governmental Authority.
Borrower shall keep its principal place of business within the United States.
SECTION 5.06. SEC FILING AND MAINTENANCE OF SEC REPORTING REQUIREMENTS.
(a) Once Borrower has a class of securities registered pursuant to Section
12 of the 1934 Act, Borrower shall duly file, when due, all reports and
statements required of a company whose securities are registered for public
trading under and pursuant to the 1934 Act, as amended, and any rules and
regulations issued thereunder, and to preserve and maintain its registration
thereunder and all of the rights of its security holders normally associated
with a publicly traded stock company.
SECTION 5.07. NOTICE OF DEFAULT.
(a) Borrower shall furnish to Lender, immediately upon becoming aware of the
existence of any condition or event which constitutes a Default or would with
the passage of time become a Default or an Event of Default, written notice
specifying the nature and period of existence thereof and the action which
Borrower is taking or proposes to take with respect thereto.
SECTION 5.08. OTHER NOTICES.
(a) Borrower shall promptly notify Lender of (i) any Material Adverse Change
in its financial condition or its business, (ii) any default under any material
agreement, contract or other instrument to which it is a party or by which any
of its properties are bound, or any acceleration of the maturity of any
Indebtedness owing by Borrower or its Subsidiaries, if any, (iii) any material
adverse claim against or affecting Borrower or its Subsidiaries, if any, or any
of its properties, and (iv) the commencement of, and any material determination
in, any litigation with any third party or any proceeding before any
Governmental Authority, the negative result of which has an adverse material
effect on Borrower or its Subsidiaries.
SECTION 5.09. COMPLIANCE WITH LOAN DOCUMENTS.
(a) Borrower shall, and shall cause each of its Subsidiaries, if any, to
promptly comply with any and all covenants and provisions of the Loan
Documents.
SECTION 5.10. COMPLIANCE WITH MATERIAL AGREEMENTS.
(a) Borrower shall, and shall cause each of its Subsidiaries, if any to
comply in all material respects with all material agreements, indentures,
mortgages or documents binding on it or affecting its properties or business.
SECTION 5.11. OPERATIONS AND PROPERTIES.
(a) Borrower shall, and shall cause each of its Subsidiaries, if any to, act
prudently and in accordance with customary industry standards in managing or
operating its assets, properties, business and investments. Borrower shall and
shall cause each of its Subsidiaries, if any, to, keep in good working order
and condition, ordinary wear and tear excepted, all of its material assets and
properties which are necessary to the conduct of its business.
SECTION 5.12. BOOKS AND RECORDS; ACCESS.
(a) Borrower shall, and shall cause each of its Subsidiaries, if any, to,
maintain complete and accurate books and records of its transactions in
accordance with good accounting practices. Borrower shall give each duly
authorized representative of Lender access during all normal business hours and
permit such representative to examine, copy or make excerpts from, any and all
books, records and documents in the possession of Borrower and its Subsidiaries
and relating to its affairs, and to inspect any of the properties of Borrower
and its Subsidiaries, if any. Borrower shall make a copy of this Loan
Agreement, along with any waivers, consents, modifications or amendments,
available for review at its principal office by Lender or Lender's
representatives.
SECTION 5.13. COMPLIANCE WITH LAW.
(a) Borrower shall, and shall cause each of its Subsidiaries, if any, to,
comply with all applicable laws, rules, regulations, and all orders of any
Governmental Authority applicable to it or any of its property, business
operations or transactions, a breach of which could have a Material Adverse
Effect.
15
16
SECTION 5.14. INSURANCE.
(a) Borrower shall, and shall cause each of its Subsidiaries, if any, to,
maintain such worker's compensation insurance, liability insurance and
insurance on its properties, assets and business, now owned or hereafter
acquired, against such casualties, risks and contingencies, and in such types
and amounts, as are consistent with customary practices and standards of
companies engaged in similar businesses.
SECTION 5.15. AUTHORIZATIONS AND APPROVALS.
(a) Borrower shall, and shall cause each of its Subsidiaries, if any, to,
promptly obtain, from time to time at its own expense, all such governmental
licenses, authorizations, consents, permits and approvals as may be required to
enable it to comply with its obligations hereunder and under the other Loan
Documents.
SECTION 5.16. ERISA COMPLIANCE.
(a) Borrower shall (i) at all times, make prompt payment of all
contributions required under all Plans, if any, and required to meet the
minimum funding standards set forth in ERISA with respect to its Plans subject
to ERISA, if any, (ii) notify Lender immediately of any fact in connection with
any of its Plans, which might constitute grounds for termination thereof or for
the appointment by the appropriate United States District Court of a trustee to
administer such Plan, together with a statement, if requested by Lender as to
the reason therefor and the action, if any, proposed to be taken with respect
thereto, and (iii) furnish to Lender upon its request such additional
information concerning any of its Plans as may be reasonably requested.
SECTION 5.17. FURTHER ASSURANCES.
(a) Borrower shall, and shall cause each of its Subsidiaries, if any, to,
make, execute or endorse, and acknowledge and deliver or file or cause the same
to be done, all such notices, certifications and additional agreements,
undertakings, transfers, assignments, or other assurances, and take any and all
such other action, as Lender may, from time to time, deem reasonably necessary
or proper in connection with any of the Loan Documents, or the obligations of
Borrower or its Subsidiaries, if any, thereunder, which Lender may request from
time to time.
SECTION 5.18. INDEMNITY BY BORROWER.
(a) Borrower shall indemnify, save, and hold harmless, Lender and its
directors, officers, agents, attorneys, and employees (collectively, the
"indemnitees") from and against: (i) any and all claims, demands, actions or
causes of action that are asserted against any indemnitee if the claim, demand,
action or cause of action directly or indirectly relates to the Loan Agreement
and the other Loan Documents issued pursuant thereto, the use of proceeds of
the Loans, or the relationship of Borrower and Lender under this Loan Agreement
or any transaction contemplated pursuant to this Loan Agreement, (ii) any
administrative or investigative proceeding by any Governmental Authority
directly or indirectly related to a claim, demand, action or cause of action
described in clause (i) above, and (iii) any and all liabilities, losses,
costs, or expenses (including reasonable attorneys' fees and disbursements)
that any indemnitee suffers or incurs as a result of any of the foregoing;
provided, however, that Borrower shall have no obligation under this Section to
Lender with respect to any of the foregoing arising out of the gross negligence
or willful misconduct of Lender or its assignees or the breach by the Lender or
its assignees of this Loan Agreement or any other Loan Document or other
document executed in connection with any of the aforesaid, the breach by Lender
or its assignees of any agreement or commitment with other parties, the
violation or alleged violation of any law, rule or regulation by Lender or its
assignees, or from the transfer or disposition by Lender of any Debenture or
the Common Stock issued upon conversion. If any claim, demand, action or cause
of action is asserted against any indemnitee, such indemnitee shall promptly
notify Borrower, but the failure to so promptly notify Borrower shall not
affect Borrower's obligations under this Section unless such failure materially
prejudices Borrower's right to participate in the contest of such claim,
demand, action or cause of action, as hereinafter provided. In the event that
such indemnitee's failure to properly notify the Borrower materially prejudices
Borrower's right to participate in the contest of such claim, demand, action,
or cause of action, then said indemnitees shall have no right to receive and
Borrower shall have no obligation to pay any indemnification amounts hereunder.
Borrower may elect to defend any such claim, demand, action or cause of action
(at its
16
17
own expense) asserted against said indemnitee and, if requested by Borrower in
writing and so long as no Default or Event of Default shall have occurred and
be continuing, such indemnitee (at Borrower's expense) shall in good faith
contest the validity, applicability and amount of such claim, demand, action or
cause of action and shall permit Borrower to participate in such contest. Any
indemnitee that proposes to settle or compromise any claim or proceeding for
which Borrower may be liable for payment to or on behalf of an indemnitee
hereunder shall give Borrower written notice of the terms of such proposed
settlement or compromise reasonably in advance of settling or compromising such
claim or proceeding and shall obtain Borrower's written concurrence thereto.
In the event that said indemnitee fails to obtain Borrower's prior written
consent to any such settlement or compromise, said indemnitee shall have no
right to receive and Borrower shall have no obligation to pay any
indemnification amounts hereunder. Each indemnitee is to employ counsel in
enforcing its rights hereunder and in defending against any claim, demand,
action, or cause of action covered by this Section; provided, however, that
each indemnitee shall endeavor, but shall not be obligated, in connection with
any matter covered by this Section which also involves other indemnitees, to
use reasonable efforts to avoid unnecessary duplication of effort by counsel
for all indemnitees, including by allowing indemnitor to select one lawyer for
all parties, such selection to be subject to the indemnitee's approval, which
approval shall not be unreasonably withheld. Any obligation or liability of
Borrower to any indemnitee under this Section shall survive the expiration or
termination of this Loan Agreement and the repayment of the Debentures.
5.19. PAYMENT OF MANAGEMENT FEE/MONITORING FEE
Borrower shall pay to Renaissance U.S. Growth and Income Trust PLC. a
financial advisory fee of $750 per month.
5.20. PLEDGE OF ACQUIRED SUBSIDIARY/EXECUTION OF SECURITY AGREEMENTS AND
FINANCING STATEMENTS
Borrower shall pledge to Renaissance U.S. Growth & Income Trust PLC and its
assigns shares representing 100% of ACS Pro Meta acquired by Borrower. In
addition, Borrower shall cause ACS Pro Meta to execute security agreements and
financing statements with Renaissance U.S. Growth & Income Trust PLC and its
assigns pledging all assets, both tangible and intangible. The foregoing shall
apply only if Borrower acquires ACS Pro Meta.
ARTICLE VI - NEGATIVE COVENANTS
So long as any part of the Debentures have not been redeemed or converted
hereunder, and until such redemption or conversion in full, unless the Lender
shall otherwise consent in writing, which consent shall not be unreasonably
withheld, Borrower agrees that, unless permitted otherwise:
SECTION 6.01. LIMITATION ON INDEBTEDNESS.
(a) Borrower and its Subsidiaries shall not incur, create, contract, waive,
assume, have outstanding, guarantee or otherwise be or become, directly or
indirectly, liable in respect of any Indebtedness, except
(i) Indebtedness arising out of this Loan Agreement or otherwise
contemplated herein,
(ii) Indebtedness secured by the Permitted Liens,
(iii) current liabilities for accounts payable or obligations accrued (other
than for borrowed funds or purchase money obligations) and incurred in the
ordinary course of business, and for taxes and assessments;
(i) Short term working capital borrowings in the ordinary course of
business not in excess of $250,000 in the aggregate amount at any one
time.
(i) Indebtedness as listed on Exhibit 4.05
SECTION 6.02. NEGATIVE PLEDGE.
(a) Borrower shall not, and shall not permit its Subsidiaries, if any, to,
create, incur, permit or suffer to exist any Lien upon any of its property or
assets other than Permitted Liens, or payments upon any Subordinated Debt other
than regularly scheduled installments of principal and interest and shall not
directly or indirectly make any payment of any Subordinated Debt which would
violate the terms of the Loan
17
18
Agreement or of such Subordinated Debt or any subordination agreement
applicable to such Subordinated Debt.
SECTION 6.03. LIMITATION ON INVESTMENTS.
(a) Borrower shall not, and shall not permit its Subsidiaries, if any, to
make or have outstanding any Investments in any Person, except for Borrower's
(and any Subsidiaries') ownership of stock of Subsidiaries, loans and other
transactions between the Borrower and any Subsidiaries, short term bank
deposits or money market investments, and such other "cash equivalent"
investments as Lender may from time to time approve.
SECTION 6.04. ALTERATION OF MATERIAL AGREEMENTS.
(a) Borrower shall not, and shall not permit its Subsidiaries, if any, to,
consent to or permit any alteration, amendment, modification, release, waiver
or termination of any material agreement to which it is a party other than in
the ordinary course of business.
SECTION 6.05. CERTAIN TRANSACTIONS.
(a) Borrower shall not, and shall not permit its Subsidiaries, if any, to,
enter into any transaction with, or pay any management fees to, any Affiliate;
provided, however, that Borrower and any Subsidiary may enter into transactions
with Affiliates upon terms not less favorable to Borrower and any Subsidiary
than would be obtainable at the time in comparable transactions of Borrower and
any Subsidiaries in arms-length dealings with Persons other than Affiliates.
SECTION 6.06. LIMITATIONS ON ACQUISITION OF NON-RELATED BUSINESS.
Borrower shall not, and shall not permit its Subsidiaries, if any, to,
engage in any line of business or acquire any new product lines or business or
acquire any companies unless such new product line or business of the company
acquired is primarily involved in the systems integration business.
SECTION 6.07. LIMITATION ON SALE OF PROPERTIES.
(a) Borrower shall not, and shall not permit its Subsidiaries if any, to (i)
sell, assign, convey, exchange, lease or otherwise dispose of any of its
properties, rights, assets or business, whether now owned or hereafter
acquired, except in the ordinary course of its business and for a fair
consideration, or (ii) sell, assign or discount any accounts receivable except
in the ordinary course of business or to secure bank or commercial working
capital loans.
SECTION 6.08. FISCAL YEAR AND ACCOUNTING METHOD.
(a) Borrower shall not, and shall not permit its Subsidiaries, if any, to,
change its method of accounting except as permitted by GAAP.
SECTION 6.09. LIQUIDATION, MERGERS, CONSOLIDATIONS AND DISPOSITIONS OF
SUBSTANTIAL ASSETS.
(a) Borrower shall not permit its Subsidiaries, if any, to dissolve or
liquidate, or become a party to any merger or consolidation, or sell, transfer,
lease or otherwise dispose of all or any substantial part of its property or
assets or business.
SECTION 6.10. NO AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS.
(a) Borrower shall not, and shall not permit its Subsidiaries, if any, to
materially amend its Articles of Incorporation or bylaws except as is necessary
to fulfill the conditions of this Loan Agreement.
SECTION 6.11. LIMITATION ON INCREASED EXECUTIVE COMPENSATION AND BONUS, PROFIT
SHARING OR OTHER INCENTIVE PAYMENTS.
(a) Borrower will not increase salary, bonus, or other compensation
programs (whether in cash, securities, or other property, and whether payment
is deferred or current) of the top five executive officers of the Borrower
unless such compensation increase is approved by a majority of the Board or a
Compensation Committee of the Board of Directors, a majority of which shall be
disinterested Directors.
(b) Borrower shall not pay any Bonus, Profit Sharing or Other Incentive
Payments until such plans are formally adopted by the majority of the Board or
a Compensation Committee of the Board of Directors, a majority of which shall
be disinterested Directors.
18
19
ARTICLE VII - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS
SECTION 7.01. FINANCIAL RATIOS.
(a) So long as any part of the Debentures has not been redeemed or converted
hereunder, and until such redemption or conversion in full, or unless the
Lender (or if any portion of the Debentures has been assigned, the holders of a
majority in amount of the outstanding Principal Amount) shall otherwise consent
in writing, the Borrower will at all times maintain the agreed minimum
financial ratios or standards as provided and set forth in Exhibit 7.01 -
Agreed Minimum Financial Standards as attached hereto and made a part hereof.
Borrower shall deliver to Lender a compliance certificate covering these ratios
as required in Section 5.01(b)(iii).
ARTICLE VIII - EVENTS OF DEFAULT
SECTION 8.01. EVENTS OF DEFAULT.
(a) An "Event of Default" shall exist if any one or more of the following
events (herein collectively called "Events of Default") shall occur and be
continuing:
(i) Borrower shall fail to pay (or shall state in writing an intention not
to pay or its inability to pay), not later than ten (10) days after the due
date, any installment of interest on or principal of, any Debenture or any
fee, expense or other payment required hereunder or a default shall occur in
respect to the Security Agreement or Pledge Agreement securing the Debenture;
(ii) Any representation or warranty made under this Loan Agreement, or any
of the other Loan Documents, or in any certificate or statement furnished or
made to Lender pursuant hereto or in connection herewith or with the Loans
hereunder, shall prove to be untrue or inaccurate in any material respect as of
the date on which such representation or warranty was made;
(iii) Default shall occur in the performance of any of the covenants or
agreements of Borrower or of its Subsidiaries, if any, contained herein, or in
any of the other Loan Documents, which is not remedied within thirty (30) days
after written notice thereof to Borrower from Lender;
(iv) Default shall occur in the payment of any material indebtedness of the
Borrower or its Subsidiaries, if any, (other than the Obligation) or default
shall occur in respect of any note, loan agreement or credit agreement relating
to any such indebtedness and such default shall continue for more than the
period of grace, if any, specified therein and any such indebtedness shall
become due before its stated maturity by acceleration of the maturity thereof
or shall become due by its terms and shall not be promptly paid or extended.
(v) Any of the Loan Documents shall cease to be legal, valid and binding
agreements enforceable against the Borrower in accordance with the respective
terms thereof or shall in any way be terminated or become or be declared
ineffective or inoperative or shall in any way whatsoever cease to give or
provide the respective rights, titles, interests, remedies, powers or
privileges intended to be created thereby;
(vi) Borrower or its Subsidiaries, if any, shall (A) apply for or consent to
the appointment of a receiver, trustee, custodian, intervenor or liquidator of
itself, or of all or substantially all of such Person's assets, (B) file a
voluntary petition in bankruptcy, admit in writing that such Person is unable
to pay such Person's debts as they become due or generally not pay such
Person's debts as they become due, (C) make a general assignment for the
benefit of creditors, (D) file a petition or answer seeking reorganization or
an arrangement with creditors or to take advantage of any bankruptcy or
insolvency laws, (E) file an answer admitting the material allegations of, or
consent to, or default in answering, a petition filed against such Person in
any bankruptcy, reorganization or insolvency proceeding, or (F) take final
corporate action for the purpose of effecting any of the foregoing;
(vii) An involuntary petition or complaint shall be filed against Borrower
or any of its Subsidiaries, if any, seeking bankruptcy or reorganization of
such Person or the appointment of a receiver, custodian, trustee, intervenor or
liquidator of such Person, or all or substantially all of such Person's assets,
and such petition
19
20
or complaint shall not have been dismissed within sixty (60) days of the filing
thereof or an order, order for relief, judgment or decree shall be entered by
any court of competent jurisdiction or other competent authority approving a
petition or complaint seeking reorganization of Borrower or its subsidiary, if
any, or appointing a receiver, custodian, trustee, intervenor or liquidator of
such Person, or of all or substantially all of such Person's assets;
(viii) Any final judgment(s) for the payment of money in excess of the sum
of $250,000 in the aggregate shall be rendered against Borrower or any
subsidiary and such judgment or judgments shall not be satisfied or discharged
at least ten (10) days prior to the date on which any of its assets could be
lawfully sold to satisfy such judgment;
(ix) The Borrower shall fail to issue and deliver shares of Common Stock as
provided herein upon conversion of the Debenture. or
(x) The Borrower shall fail to submit Lender's nominee, if any, for
election to the Board of Directors of the Borrower or shall remove Lender's
nominee from the Board of Directors of Borrower other than for cause.
(xi) The Borrower shall fail to execute and deliver Pledge Agreement and
pledged stock or Security Agreement as required under this Agreement.
SECTION 8.02. REMEDIES UPON EVENT OF DEFAULT.
(a) If an Event of Default shall have occurred and be continuing, then
Lender may exercise any one or more of the following rights and remedies, and
any other remedies provided in any of the Loan Documents, as Lender in its sole
discretion may deem necessary or appropriate:
(i) declare the unpaid Principal Amount (after application of any payments
or installments received by Lender) of, and all interest then accrued but
unpaid on, the Debentures and any other liabilities hereunder to be forthwith
due and payable, whereupon the same shall forthwith become due and payable
without presentment, demand, protest, notice of default, notice of acceleration
or of intention to accelerate or other notice of any kind, all of which
Borrower hereby expressly waives, anything contained herein or in the
Debentures to the contrary notwithstanding,
(ii) reduce any claim to judgment, and/or
(iii) without notice of default or demand, pursue and enforce any of
Lender's rights and remedies under the Loan Documents, or otherwise provided
under or pursuant to any applicable law or agreement, all of which rights may
be specifically enforced.
SECTION 8.03. PERFORMANCE BY LENDER.
(a) Should Borrower fail to perform any covenant, duty or agreement
contained herein or in any of the other Loan Documents, Lender may perform or
attempt to perform such covenant, duty or agreement on behalf of Borrower. In
such event, Borrower shall, at the request of Lender, promptly pay any amount
reasonably expended by Lender in such performance or attempted performance to
Lender at its principal office in Dallas, Texas, together with interest
thereon, at the interest rate specified in the Debenture, from the date of such
expenditure until paid. Notwithstanding the foregoing, it is expressly
understood that Lender assumes no liability or responsibility for the
performance of any duties of Borrower hereunder or under any of the other Loan
Documents.
SECTION 8.04. PAYMENT OF EXPENSES INCURRED BY LENDER.
(a) Upon the occurrence of a Default or an Event of Default, which
occurrence is not cured within the notice provisions, if any, provided
therefore, Borrower agrees to pay and shall pay all costs and expenses
(including Lender's attorney's fees and expenses) reasonably incurred by Lender
in connection with the preservation and enforcement of Lender's rights under
the Loan Agreement, the Debentures, or any other Loan Document.
20
21
ARTICLE IX - REGISTRATION RIGHTS
SECTION 9.01. DEMAND FOR REGISTRATION.
(a) Subject to the Holder's right to convert the Debenture under the Loan
Agreement, the Borrower hereby agrees to register, subject to the terms and
conditions set forth herein, all or any portion of the Registrable Securities
at any time it shall receive a written request from the Holders of at least
fifty percent (50%) of the Registrable Securities Then Outstanding (or a lesser
percent if the anticipated aggregate offering price, net of underwriting
discounts and commissions, would exceed $1,000,000) that the Borrower file a
registration statement under the 1933 Act covering the registration of at least
a majority of the Registrable Securities Then Outstanding. The Borrower shall,
within 20 days of its receipt thereof, give written notice of such request to
all Holders of record of Registrable Securities. The Holders of said
Registrable Securities shall then have 15 days from the date of mailing of such
notice by the Borrower to request that all or a portion of their respective
Registrable Securities be included in said registration. The Borrower hereby
agrees, subject to the limitations hereof, to use its best lawful efforts to
effect as soon as reasonably possible, and in any event (if legally possible,
and as allowed by the SEC, and if no factor outside the Borrower's reasonable
control prevents it) within 150 days of the receipt of the initial written
registration request, to effect the registration under the 1933 Act of all
Registrable Securities which the Holders thereof (the "Initiating Holders")
have requested.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Borrower as a part of their request made pursuant to this Loan
Agreement, and the Borrower shall include such information in the written
notice to the other Holders of Registrable Securities referred to in Section
9.01(a). In such event, the right of any Holder to include his/her Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
the Borrower, the underwriter, a majority in interest of the Initiating Holders
and such Holder) is limited to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Borrower as provided in Section 9.03(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by mutual agreement of the Borrower and a
majority in interest of the Initiating Holders, which agreement shall not be
unreasonably withheld. Notwithstanding any other provision of this Section
9.01, if the underwriter advises the Initiating Holders and the Borrower in
writing that marketing factors require a limitation of the number of shares to
be underwritten, then the Initiating Holder(s) shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated on a pro rata basis among all Holders that have
requested to participate in such registration.
(c) Notwithstanding any provision to the contrary set forth herein, the
parties hereto hereby acknowledge and agree that the Borrower is obligated to
pay for two (2) registrations pursuant to this Loan Agreement. Lender shall
utilize Rule 144 if said exemption, in the Lender's determination, meets its
distribution requirements.
(d) Notwithstanding the foregoing, if the Borrower shall furnish to the
Initiating Holders a certificate signed by the President of the Borrower
stating that in the good faith judgment of the Board of Directors of the
Borrower, it would be materially detrimental to the Borrower and its
shareholders for such registration statement to be filed at that time, and it
is therefore essential to defer the filing of such registration statement, the
Borrower shall have the right to defer the commencement of such a filing for a
period of not more than 180 days after receipt of the request of the Initiating
Holders; provided, however, that at least 12 months must elapse between any two
such deferrals.
SECTION 9.02. "PIGGY-BACK" REGISTRATION.
If, but without any obligation to do so, the Borrower proposes to register
any of its capital stock under the 1933 Act in connection with the public
offering of such securities for its own account or for the account of
21
22
its security holders, other than Holders of Registrable Securities pursuant
hereto (a "Piggy-Back Registration Statement"), (other than (i) a registration
relating solely to the sale of securities to participants in the Borrower's
stock plans or employee benefit plans or (ii) a registration relating solely to
an SEC Rule 145 transaction or any rule adopted by the SEC in substitution
thereof or in amendment thereto), then:
(a) The Borrower shall give written notice of such determination to each
Holder of Registrable Securities, and each such Holder shall have the right to
request, by written notice given to the Borrower within 15 days of the date
that such written notice was mailed by the Borrower to such Holder, that a
specific number of Registrable Securities held by such Holder will be included
in the Piggy-Back Registration Statement (and related underwritten offering, if
any);
(b) If the Piggy-Back Registration Statement relates to an underwritten
offering, the notice given to each Holder shall specify the name or names of
the managing underwriter or underwriters for such offering. In addition such
notice shall also specify the number of securities to be registered for the
account of the Borrower and for the account of its shareholders (other than the
Holders of Registrable Securities), if any;
(c) If the Piggy-Back Registration Statement relates to an underwritten
offering, each Holder of Registrable Securities to be included therein must
agree (i) to sell such Holder's Registrable Securities on the same basis as
provided in the underwriting arrangement approved by the Borrower, and (ii) to
timely complete and execute all questionnaires, powers of attorney,
indemnities, hold-back agreements, underwriting agreements and other documents
required under the terms of such underwriting arrangements or by the SEC or by
any state securities regulatory body;
(d) If the managing underwriter or underwriters for the underwritten
offering under the Piggy-Back Registration Statement determines that inclusion
of all or any portion of the Registrable Securities in such offering would
adversely affect the ability of the underwriters for such offering to sell all
of the securities requested to be included for sale in such offering at the
best price obtainable therefor, the aggregate number of Registrable Securities
that may be sold by the Holders shall be limited to such number of Registrable
Securities, if any, that the managing underwriter or underwriters determine
may be included therein without such adverse effect as provided below. If the
number of securities proposed to be sold in such underwritten offering exceeds
the number of securities that may be sold in such offering, there shall be
included in the offering, first, up to the maximum number of securities to be
sold by the Borrower for its own account and for the account of other
stockholders (other than Holders of Registrable Securities), as they may agree
among themselves, and second, as to the balance, if any, Registrable Securities
requested to be included therein by the Holders thereof (pro rata as between
such Holders based upon the number of Registrable Securities initially
proposed to be registered by each), or in such other proportions as the
managing underwriter or underwriters for the offering may require; provided,
however, that in the event that the number of securities proposed to be sold in
such underwritten offering exceeds the number of securities that may be sold in
such offering pursuant to the terms and conditions set forth above and the
Piggy-Back Registration Statement is a result of public offering by the
Borrower of its securities for its own account, there shall be included in the
offering, first, up to the maximum number of securities to be sold by the
Borrower for its own account and second, as to the balance, if any, securities
to be sold for the account of the Borrower's stockholders (both the Holders of
Registrable Securities requested and such other stockholders of the Borrower
requested to be included therein) on a pro rata basis;
(e) Holders of Registrable Securities shall have the right to withdraw
their Registrable Securities from the Piggy- Back Registration Statement, but
if the same relates to an underwritten offer, they may only do so during the
time period and on the terms agreed upon among the underwriters for such
underwritten offering and the Holders of Registrable Securities.
SECTION 9.03. OBLIGATIONS OF THE BORROWER.
Whenever required to effect the registration of any Registrable Securities
pursuant to this Loan Agreement, the Borrower shall, as expeditiously as
reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect to
such Registrable Securities and
22
23
use its best lawful efforts to cause such registration statement to become
effective, and keep such registration statement effective until the sooner of
all such Registrable Securities having been distributed, or until 120 days have
elapsed since such registration statement became effective (subject to
extension of this period as provided below);
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
1933 Act with respect to the disposition of all securities covered by such
registration statement, or 120 days have elapsed since such registration
statement became effective (subject to the extension of this period as provided
below);
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them;
(d) Use its best lawful efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Borrower shall not be required in connection therewith or as
a condition thereto to qualify as a broker-dealer in any states or
jurisdictions or to do business or to file a general consent to service of
process in any such states or jurisdictions;
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement with the managing
underwriter of such offering, in usual and customary form reasonably
satisfactory to the Borrower and the Holders of a majority of the Registrable
Securities to be included in such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such an
agreement;
(f) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto and
covered by such registration statement is required to be delivered under the
1933 Act, of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing; and
(g) In the event of the notification provided for in Section 9.03(f)
above, the Borrower shall use its best efforts to prepare and file with the SEC
(and to provide copies thereof to the Holders) as soon as reasonably possible
an amended prospectus complying with the 1933 Act, and the period during which
the prospectus referred to in the notice provided for in Section 9.03(f) above
cannot be used and the time period prior to the use of the amended prospectus
referred to in this Section 9.03(g), shall not be counted in the 120 day period
of this Section 9.03.
SECTION 9.04. FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations of the Borrower
to take any action pursuant to these registration rights that the selling
Holders shall furnish to the Borrower any and all information reasonably
requested by the Borrower, its officers, directors, employees, counsel, agents
or representatives, the underwriter or underwriters, if any, and the SEC or any
other Governmental Authority, including but not limited to (i) such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities, as shall be required to effect the
registration of their Registrable Securities, and (ii) the identity of and
compensation to be paid to any proposed underwriter or broker-dealer to be
employed in connection therewith.
(b) In connection with the preparation and filing of each registration
statement registering Registrable Securities under the 1933 Act, the Borrower
shall give the Holders of Registrable Securities on whose behalf such
Registrable Securities are to be registered and their underwriters, if any, and
their respective counsel and accountants, at such Holders' sole cost and
expense (except as otherwise set forth herein), such access
23
24
to copies of the Borrower's records and documents and such opportunities to
discuss the business of the Borrower with its officers and the independent
public accountants who have certified its financial statements as shall be
reasonably necessary in the opinion of such Holders and such underwriters or
their respective counsel, to conduct a reasonable investigation within the
meaning of the 1933 Act.
SECTION 9.05. EXPENSES OF DEMAND REGISTRATION.
Except as set forth below, all expenses, other than underwriting discounts
and commissions incurred in connection with the demand registration pursuant to
Section 9.01 above, including, without limitation, all registration, filing and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Borrower, and the reasonable fees and disbursements of one
counsel for the selling Holders, shall be borne by the Borrower; provided,
however, that the Borrower shall not be required to pay for any expenses of any
registration proceeding which was commenced pursuant to Section 9.01 if the
registration request is subsequently withdrawn at the written request of the
Holders of the majority of the Registrable Securities subject to such
registration.
SECTION 9.06. EXPENSES OF PIGGY-BACK REGISTRATION.
Each Holder shall bear and pay all commissions and discounts attributable to
the inclusion of such Holder's Registrable Securities in any registration,
filing or qualification of Registrable Securities pursuant to Section 9.02 and
the reasonable fees and disbursements of the counsel for the selling Holders.
SECTION 9.07. INDEMNIFICATION REGARDING REGISTRATION RIGHTS.
If any Registrable Securities are included in a registration statement under
this Article IX:
(a) To the extent permitted by law, the Borrower will indemnify and hold
harmless each Holder, the officers and directors of each Holder, any
underwriter (as defined in the ▇▇▇▇ ▇▇▇) for such Holder and each person, if
any, who controls such Holder or underwriter within the meaning of the 1933 Act
or the 1934 Act, against any losses, claims, damages, liabilities (joint or
several) or any legal or other costs and expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action to which they may become subject under the 1933 Act, the
1934 Act or other federal or state law, insofar as such losses, claims,
damages, costs, expenses or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact with respect to the Borrower or its
securities contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements therein, (ii) the omission or alleged omission to state therein a
material fact with respect to the Borrower or its securities required to be
stated therein or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Borrower of the 1933 Act, the
1934 Act, any federal or state securities law or any rule or regulation
promulgated under the 1933 Act, the 1934 Act or any state securities law.
Notwithstanding the foregoing, the indemnity agreement contained in this
Section 9.07(a) shall not apply and the Borrower shall not be liable (i) in any
such case for any such loss, claim, damage, costs, expenses, liability or
action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person, or (ii) for amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is
effected without the prior written consent of the Borrower, which consent shall
not be unreasonably withheld.
(b) To the extent permitted by law, each Holder who participates in a
registration pursuant to the terms and conditions of this Loan Agreement shall
indemnify and hold harmless the Borrower, each of its directors and officers
who have signed the registration statement, each person, if any, who controls
the Borrower within the meaning of the 1933 Act or the 1934 Act, each of the
Borrower's employees, agents, counsel and representatives, any underwriter and
any other Holder selling securities in such registration statement, or any of
its directors or officers, or any person who controls such Holder, against any
losses, claims, damages, costs, expenses, liabilities (joint or several) to
which the Borrower or any such director, officer, controlling
24
25
person, employee, agent, representative, underwriter, or other such Holder, or
director, officer or controlling person thereof, may become subject, under the
1933 Act, the 1934 Act or other federal or state law, only insofar as such
losses, claims, damages, costs, expenses or liabilities or actions in respect
thereto arise out of or are based upon any Violation, in each case to the
extent and only to the extent that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly for
use in connection with such. Each such Holder will indemnify any legal or
other expenses reasonably incurred by the Borrower or any such director,
officer, employee, agent representative, controlling person, underwriter or
other Holder, or officer, director or of any controlling person thereof, in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 9.07(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, costs, expenses, liability or action if such
settlement is effected without the prior written consent of the Holder, which
consent shall not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this Section 9.07
of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 9.07, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve the indemnifying party of its
obligations under this Section 9.07, except to the extent that the failure
results in a failure of actual notice to the indemnifying party and such
indemnifying party is materially prejudiced in its ability to defend such
action solely as a result of the failure to give such notice.
(d) If the indemnification provided for in this Section 9.07 is
unavailable to an indemnified party under this Section in respect of any
losses, claims, damages, costs, expenses, liabilities or actions referred to
herein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, costs, expenses, liabilities or
actions in such proportion as is appropriate to reflect the relative fault of
the Borrower on the one hand and of the Holder on the other in connection with
the Violation that resulted in such losses, claims, damages, costs, expenses,
liabilities or actions. The relative fault of the Borrower on the one hand and
of the Holder on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of the material fact or
the omission to state a material fact relates to information supplied by the
Borrower or by the Holder, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission.
(e) The Borrower on the one hand and the Holders on the other hand agree
that it would not be just and equitable if contribution pursuant to this
Section 9.07 were determined by a pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of losses, claims, damages, costs, expenses,
liabilities and actions referred to in the immediately preceding paragraph
shall be deemed to include, subject to the limitations set forth above, any
reasonable legal or other expenses incurred by such indemnified party in
connection with defending any such action or claim. Notwithstanding the
provisions of this Section 9.07, neither the Borrower nor the Holders shall be
required to contribute any amount in excess of the amount by which the total
price at which the securities were offered to the public exceeds the amount of
any damages which the Borrower or each such Holder has otherwise been required
to pay by reason of such Violation. No person guilty of fraudulent
misrepresentations (within the meaning
25
26
of Section 11(f) of the ▇▇▇▇ ▇▇▇) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation.
SECTION 9.08. REPORTS UNDER THE 1934 ACT.
Once the Borrower has a class of securities registered pursuant to Section
12 of the 1934 Act, with a view to making available to the Holders the benefits
of Rule 144 promulgated under the 1933 Act and any other rule or regulation of
the SEC that may at any time permit a Holder to sell securities of the Borrower
to the public without registration or pursuant to a registration on Form S-3,
if applicable, the Borrower agrees to use its best lawful efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times;
(b) File with the SEC in a timely manner all reports and other documents
required of the Borrower under the 1933 Act and the 1934 Act;
(c) Use its best efforts to list all Common Stock covered by such
registration statement on such securities exchange on which any of the Common
Stock is then listed, or, if the Borrower's Common Stock is not then quoted on
NASDAQ or listed on any national securities exchange, use its best efforts to
have such Common Stock covered by such registration statement quoted on NASDAQ
or, at the option of the Borrower, listed on a national securities exchange;
and
(d) Furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request a copy of the most recent annual or
quarterly report of the Borrower and such other SEC reports and
documents so filed by the Borrower, and (ii) such other information (but not
any opinion of counsel) as may be reasonably requested by any Holder seeking to
avail himself of any rule or regulation of the SEC which permits the selling of
any such securities without registration or pursuant to such form.
SECTION 9.09. ASSIGNMENT OF REGISTRATION RIGHTS.
(a) Subject to the terms and conditions of the Loan Agreement and the
Debentures, the right to cause the Borrower to register Registrable Securities
pursuant to this Loan Agreement may be assigned by Holder to any transferee or
assignee of such securities; provided that said transferee or assignee is a
transferee or assignee of at least ten percent (10%) of the Registrable
Securities and provided that the Borrower is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act; it being the intention that so long as Holder
holds any Registrable Securities hereunder, either Holder or its transferee or
assignee of at least ten percent may exercise the demand right to registration
and piggy-back registration rights hereunder. Other than as set forth above,
the parties hereto hereby agree that the registration rights hereunder shall
not be transferable or assigned and any contemplated transfer or assignment in
contravention of this Loan Agreement shall be deemed null and void and of no
effect whatsoever.
SECTION 9.10. OTHER MATTERS.
(a) Each Holder of Registrable Securities hereby agrees by acquisition of
such Registrable Securities that, with respect to each offering of the
Registrable Securities, whether each Holder is offering such Registrable
Securities in an underwritten or non-underwritten offering, such Holder will
comply with Rules 10b-2, 10b-6 and 10b-7 of the 1934 Act and such other or
additional anti-manipulation rules then in effect until such offering has been
completed, and in respect of any non-underwritten offering, in writing will
inform the Borrower, any other Holders who are selling shareholders, and any
national securities exchange upon which the securities of the Borrower are
listed, that the Registrable Securities have been sold and will, upon the
Borrower's request, furnish the distribution list of the Registrable
Securities. In addition, upon the
26
27
request of the Borrower, each Holder will supply the Borrower with such
documents and information as the Borrower may reasonably request with respect
to the subject matter set forth and described in this Section 9.10.
(b) Each Holder of Registrable Securities hereby agrees by acquisition of
such Registrable Securities that, upon receipt of any notice from the Borrower
of the happening of any event which makes any statement made in the
registration statement, the prospectus or any document incorporated therein by
reference, untrue in any material respect or which requires the making of any
changes in the registration statement, the prospectus or any document
incorporated therein by reference, in order to make the statements therein not
misleading in any material respect, such Holder will forthwith discontinue
disposition of Registrable Securities under the prospectus related to the
applicable registration statement until such Holder's receipt of the copies of
the supplemented or amended prospectus, or until it is advised in writing by
the Borrower that the use of the prospectus may be resumed, and has received
copies of any additional or supplemental filings which are incorporated by
reference in the prospectus.
(c) The Borrower hereby agrees not to effect any public sale or other
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such equity securities, during the period
commencing on the 7th day prior to, and ending on the 120th day (subject to
extension as provided in Section 9.03 hereof) following the effective date of
any underwritten demand registration, other than pursuant to Form S-8..
SECTION 9.11 TERMINATION OF RIGHTS.
(a) The Holders' right to demand registration and to participate in a
Piggy-Back Registration, as granted to Holders under this Article IX, shall
terminate on February 1, 2006, or after the Holder has exercised two demand
registration rights at the expense of the Borrower as provided in Article IX of
this Loan Agreement, whichever is first to occur.
ARTICLE X - DIRECTORS AND BOARD MEETING ATTENDANCE
SECTION 10.01. BOARD REPRESENTATION OR ATTENDANCE BY LENDER DESIGNEE.
(a) Borrower herewith agrees that Lender shall have the right from time to
time, at Lender's option and so long as there is $100,000 face value of
Debentures that have not been fully converted or redeemed, to designate a
nominee to the Board of Directors of the Borrower, which designee is subject to
the written approval of Borrower which approval shall not be unreasonably
withheld. Borrower will, at all times, use its reasonable best efforts to
secure the election of such designee as a Director of the Borrower, provided
that such designee may, at his or her option, elect to serve only as an
"Advisory Director" with all the rights of the Directors in regards to notice
and attendance at meetings of the Board of Directors, or committees thereof,
but without voting rights. All reasonable costs and expenses incurred by such
Designee as a Director or Advisory Director, or by Lender on behalf of such
Designee, shall be reimbursed by Borrower, consistent with payment policies
accorded to other independent directors.
(b) Further, though Lender may waive, from time to time, its right to
require a Board Designee, in such event it shall be entitled, at its own
expense, to have a representative of the Lender attend meetings of the Board of
Directors of the Borrower or of its Subsidiaries and such representative may
serve as an observer but without voice in matters under discussion except as
requested.
(c) Any such Designee or representative of the Lender shall, if requested to
do so, absent themselves from the meeting in the event of, and so long as, the
Directors are considering and acting on matters pertaining to any rights or
obligations of the Borrower or the Lender under the Loan Agreement, the
Debenture, or the other Loan Documents. Borrower will provide Lender's
designated representative with the same notice of Board meetings and
information as the Borrower shall provide to its duly elected Directors.
27
28
SECTION 10.02. BORROWER'S RIGHT TO REQUEST LENDER TO PROVIDE A DIRECTOR
NOMINEE.
(a) Lender herewith agrees that, so long as no Default or Event of Default
exists under the Loan Agreement and so long as the Debentures have not been
fully converted or redeemed, Lender will, at the written request of Borrower,
use its reasonable best efforts to provide, from time to time, a person or
persons, reasonably believed knowledgeable in investor relations, such person
or persons to be available to consult with, and serve as advisor to, the
Borrower about its communications with its shareholders and with the general
investment public. Further, if requested by Borrower, at least one such person
will be available to serve as a nominee to the Board of Directors of the
Borrower provided that such nominee may, at his or her option, elect to serve
only as an "Advisory Director" with all the rights of the Directors in regards
to notice and attendance at meetings of the Board of Directors, or committees
thereof, but without voting rights. All reasonable costs and expenses incurred
by such person or persons, or by Lender on behalf of such persons, shall be
reimbursed by Borrower, consistent with payment policies accorded to other
independent directors.
SECTION 10.03. LIMITATION OF AUTHORITY OF PERSONS DESIGNATED AS A DIRECTOR
NOMINEE.
(a) It is provided and agreed that the actions and advice of any person
while serving pursuant to Section 10.01 or 10.02 as an advisor to the Borrower
or as a member of Borrower's Board of Directors, or while serving solely as a
representative of Lender in attendance at meetings of the Board of Directors,
shall be construed to be the actions and advice of that person alone and not be
construed as actions of the Lender as to any notice of requirements or rights
of Lender under this Loan Agreement, the Debenture or the other Loan Documents;
nor as actions of the Lender to approve modifications, consents, amendments or
waivers thereof; and all such actions or notices shall be deemed actions or
notices of the Lender only when duly provided in writing and given in
accordance with the provisions of this Loan Agreement.
SECTION 10.04. NONLIABILITY OF LENDER.
(a) The provisions of Section 10.01 and 10.02 notwithstanding, the
relationship between Borrower and Lender is, and shall at all times remain,
solely that of borrower and lender, and except for the agreement to use its
best efforts to provide a knowledgeable advisor (whose actions and advice shall
be deemed to be solely advised by such person in an individual capacity and not
advice by Lender), Lender neither undertakes nor assumes any responsibility or
duty to the Borrower to review, inspect, supervise, pass judgment upon, or
inform Borrower of any matter in connection with any phase of Borrower's
business, operations, or condition, financial or otherwise. Borrower shall
rely entirely upon its own judgment with respect to such matters, and any
review, inspection, supervision, exercise of judgment, or information supplied
to Borrower by any Lender, or any representative or agent of Lender, in
connection with any such matter is for the protection of Lender, and neither
Borrower nor any third party is entitled to rely thereon.
ARTICLE XI - MISCELLANEOUS
SECTION 11.01. STRICT COMPLIANCE.
(a) Any waiver by Lender of any breach or any term or condition of this Loan
Agreement or the other Loan Documents shall not be deemed a waiver of any other
breach, nor shall any failure to enforce any provision of this Loan Agreement
or the other Loan Documents operate as a waiver of such provision or of any
other provision, nor constitute nor be deemed a waiver or release of the
Borrower for anything arising out of, connected with or based upon this Loan
Agreement or the other Loan Documents.
SECTION 11.02. WAIVERS AND MODIFICATIONS.
(a) All modifications, consents, amendments or waivers (herein "Waivers") of
any provision of this Loan Agreement, the Debentures or any other Loan
Documents, and any consent to departure therefrom, shall be effective only if
the same shall be in writing by Lender and then shall be effective only in the
specific instance and for the purpose for which given. No notice or demand
given in any case shall constitute a waiver of the right to take other action
in the same, similar or other instances without such notice or demand. No
failure to exercise, and no delay in exercising, on the part of Lender, any
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise
28
29
thereof or the exercise of any other right. The rights of Lender hereunder and
under the other Loan Documents shall be in addition to all other rights
provided by law.
SECTION 11.03. NOTICES.
(a) Any notices or other communications required or permitted to be given by
this Loan Agreement or any other documents and instruments referred to herein
must be (i) given in writing and personally delivered, mailed by prepaid
certified, registered mail or sent by overnight service such as Federal
Express, or (ii) made by telex or facsimile transmission delivered or
transmitted to the party to whom such notice or communication is directed, with
confirmation thereupon given in writing and personally delivered or mailed by
prepaid certified or registered mail.
(b) Any notice to be mailed, sent or personally delivered shall be mailed or
delivered to the principal offices of the party to whom such notice is
addressed, as that address is specified herein on the signature page hereof.
Any such notice or other communication shall be deemed to have been given
(whether actually received or not) on the day it is mailed, postage prepaid, or
sent by overnight service or personally delivered or, if transmitted by telex
or facsimile transmission, on the day that such notice is transmitted;
provided, however, that any notice by telex or facsimile transmission, received
by any Borrower or Lender after 4:00 p.m., Standard Time at the recipient's
address, on any day, shall be deemed to have been given on the next succeeding
day. Any party may change its address for purposes of this Loan Agreement by
giving notice of such change to the other parties pursuant to this Section.
SECTION 11.04. CHOICE OF FORUM; CONSENT TO SERVICE OF PROCESS AND JURISDICTION.
(a) Any suit, action or proceeding against the Borrower with respect to this
Loan Agreement, the Debentures or any judgment entered by any court in respect
thereof, may be brought in the courts of the State of Texas, County of Dallas,
or in the United States courts located in the State of Texas as Lender in its
sole discretion may elect and Borrower hereby submits to the non-exclusive
jurisdiction of such courts for the purpose of any such suit, action or
proceeding. Borrower hereby agrees that service of all writs, process and
summonses in any such suit, action or proceeding brought in the State of Texas
may be brought upon, and Borrower hereby irrevocably appoints, the CT
Corporation, Dallas, Texas, as its true and lawful attorney-in-fact in the
name, place and stead of Borrower to accept such service of any and all such
writs, process and summonses. Borrower hereby irrevocably waives any
objections which it may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Loan Agreement or
any Debenture brought in the courts located in the State of Texas, County of
Dallas, and hereby further irrevocably waives any claim that any such suit,
action or proceeding brought in any such court has been brought in any
inconvenient forum.
SECTION 11.05. ARBITRATION
(a) Upon the demand of the Lender or Borrower (collectively the
"parties"), made before the institution of any judicial proceeding or not more
than 60 days after service of a complaint, third party complaint, cross-claim
or counterclaim or any answer thereto or any amendment to any of the above, any
Dispute (as defined below) shall be resolved by binding arbitration in
accordance with the terms of this arbitration clause. A "Dispute" shall
include any action, dispute, claim, or controversy of any kind, whether founded
in contract, tort, statutory or common law, equity, or otherwise, now existing
or hereafter occurring between the parties arising out of, pertaining to or in
connection with this Agreement, any document evidencing, creating, governing,
or securing any indebtedness guaranteed pursuant to the terms hereof, or any
related agreements, documents, or instruments (the "Documents"). The parties
understand that by this Agreement they have decided that the Disputes may be
submitted to arbitration rather that being decided through litigation in court
before a judge or jury and that once decided by an arbitrator the claims
involved cannot later be brought, filed, or pursued in court.
(b) Governing Rules. Arbitrations conducted pursuant to this Agreement,
including selection of arbitrators, shall be administered by the American
Arbitration Association ("Administrator") pursuant to the Commercial
Arbitration rules of the Administrator. Arbitrations conducted pursuant to the
terms hereof shall
29
30
be governed by the provisions of the Federal Arbitration Act (Title 9 of the
United States Code), and to the extent the foregoing are inapplicable,
unenforceable or invalid, the laws of the State of Texas. Judgment upon any
award rendered hereunder may be entered in any court having jurisdiction;
provided, however, that nothing contained herein shall be deemed to be a waiver
by any party that is a bank of the protections afforded to it under 12 U.S.C.
91 or similar governing state law. Any party who fails to submit to binding
arbitration following a lawful demand by the opposing party shall bear all
costs and expenses, including reasonable attorney's fees, incurred by the
opposing party in compelling arbitration of any Dispute.
(c) No Waiver, Preservation of Remedies, Multiple Parties. No provision
of, nor the exercise of any rights under, this arbitration clause shall limit
the right of any party to (1) foreclose against any real or personal property
collateral or other security, (2) exercise self-help remedies (including
repossession and setoff rights) or (3) obtain provisional or ancillary remedies
such as injunctive relief, sequestration, attachment, replevin, garnishment, or
the appointment of a receiver from a court having jurisdiction. Such rights
can be exercised at any time except to the extent such action is contrary to a
final award or decision in any arbitration proceeding. The institution and
maintenance of an action as described above shall not constitute a waiver of
the right of any party, including the plaintiff, to submit the Dispute to
arbitration , nor render inapplicable the compulsory arbitration provisions
hereof. Any claim or Dispute related to exercise of any self-help, auxiliary
or other exercise of rights under this section (C) shall be a Dispute
hereunder.
(d) Arbitrator Powers and Qualifications; Awards. Arbitrator(s) shall
resolve all Disputes in accordance with the applicable substantive law of the
State of Texas. Arbitrator(s) may make an award of attorneys' fees and
expenses if permitted by law or the agreement of the parties. All statutes of
limitation applicable to any Dispute shall apply to any proceeding in
accordance with this arbitration clause. Any arbitrator selected to act as the
only arbitrator in a Dispute shall be required to be a practicing attorney with
not less than 5 years practice in commercial law in the State of Texas. With
respect to a Dispute in which the claims or amounts in controversy do not
exceed five hundred thousand dollars ($500,000), a single arbitrator shall be
chosen and shall resolve the Dispute. In such case the arbitrator shall have
authority to render an award up to but not to exceed five hundred thousand
dollars ($500,000) including all damages of any kind whatsoever, costs, fees
and expenses. Submission to a single arbitrator shall be a waiver of all
parties' claims to recover more than five hundred thousand dollars ($500,000).
A Dispute involving claims or amounts in controversy exceeding five hundred
thousand dollars ($500,000) shall be decided by a majority vote of a panel of
three arbitrators ("Arbitration Panel"), one of whom would be qualified to sit
as a single arbitrator in a Dispute decided by one arbitrator. If the
arbitration is consolidated with one conducted pursuant to the terms of an
agreement between the Lender and the Borrower related to the indebtedness
guaranteed, then the Arbitration Panel shall be one which meets the criteria
set forth between the Lender and Borrower. Arbitrator(s) may, in the exercise
of their discretion, at the written request of a party, (1) consolidate in a
single proceeding any multiple party claims that are substantially identical
and all claims arising out of a single loan or series of loans including claims
by or against borrower(s), guarantors, sureties and/or owners of collateral if
different from the Borrower, and (2) administer multiple arbitration claims as
class actions in accordance with Rule 23 of the Federal Rules of Civil
Procedure. The arbitrator(s) shall be empowered to resolve any dispute
regarding the terms of this Agreement or the arbitrability of any Dispute or
any claim that all or any part (including this provision) is void or voidable
but shall have no power to change or alter the terms of this Agreement. The
award of the arbitrator(s) shall be in writing and shall specify the factual
and legal basis for the award.
(e) Miscellaneous. To the maximum extent practicable, the Administrator,
the arbitrator(s) and the parties shall take any action necessary to require
that an arbitration proceeding hereunder be concluded within 180 days of the
filing of the Dispute with the Administrator. The arbitrator(s) shall be
empowered to impose sanctions for any party's failure to proceed within the
times established herein. Arbitration proceedings hereunder shall be conducted
in Texas at a location determined by the Administrator. In any such proceeding
a party shall state as a counterclaim any claim which arises out of the
transaction or occurrence or is in any way related to the Documents which does
not require the presence of a third party
30
31
which could not be joined as a party in the proceeding, The provisions of this
arbitration clause shall survive any termination, amendment, or expiration of
the Documents and repayment in full of sums owed to Lender by Borrower unless
the parties otherwise expressly agree in writing. Each party agrees to keep
all Disputes and arbitration proceedings strictly confidential, except for
disclosures of information required in the ordinary course of business of the
parties or as required by applicable law or regulation.
SECTION 11.06. INVALID PROVISIONS.
(a) If any provision of any Loan Document is held to be illegal, invalid or
unenforceable under present or future laws during the term of this Loan
Agreement, such provision shall be fully severable; such Loan Document shall be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part of such Loan Document; and the remaining provisions
of such Loan Document shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
from such Loan Document. Furthermore, in lieu of each such illegal, invalid or
unenforceable provision shall be added as part of such Loan Document a
provision mutually agreeable to Borrower and Lender as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and be legal,
valid and enforceable. In the event Borrower and Lender are unable to agree
upon a provision to be added to the Loan Document within a period of ten (10)
business days after a provision of the Loan Document is held to be illegal,
invalid or unenforceable, then a provision acceptable to independent
arbitrators, such to be selected in accordance with the provisions of the
American Arbitration Association, as similar in terms to the illegal, invalid
or unenforceable provision as is possible and be legal, valid and enforceable
shall be added automatically to such Loan Document. In either case, the
effective date of the added provision shall be the date upon which the prior
provision was held to be illegal, invalid or unenforceable.
SECTION 11.07. MAXIMUM INTEREST RATE.
(a) Regardless of any provision contained in any of the Loan Documents,
Lender shall never be entitled to receive, collect or apply as interest on the
Debentures any amount in excess of interest calculated at the Maximum Rate,
and, in the event that any Lender ever receives, collects or applies as
interest any such excess, the amount which would be excessive interest shall be
deemed to be a partial prepayment of principal and treated hereunder as such;
and, if the principal amount of the Obligation is paid in full, any remaining
excess shall forthwith be paid to Borrower. In determining whether or not the
interest paid or payable under any specific contingency exceeds interest
calculated at the Maximum Rate, Borrower and Lender shall, to the maximum
extent permitted under applicable law, (i) characterize any non-principal
payment as an expense, fee or premium rather than as interest; (ii) exclude
voluntary prepayments and the effects thereof, and (iii) amortize, pro rate,
allocate and spread, in equal parts, the total amount of interest throughout
the entire contemplated term of the Debentures; provided that, if the
Debentures are paid and performed in full prior to the end of the full
contemplated term thereof, and if the interest received for the actual period
of existence thereof exceeds interest calculated at the Maximum Rate, Lender
shall refund to Borrower the amount of such excess or credit the amount of such
excess against the principal amount of the Debentures and, in such event,
Lender shall not be subject to any penalties provided by any laws for
contracting for, charging, taking, reserving or receiving interest in excess of
interest calculated at the Maximum Rate.
(b) "Maximum Rate" shall mean, on any day, the highest nonusurious rate of
interest (if any) permitted by applicable law on such day that at any time, or
from time to time, may be contracted for, taken, reserved, charged or received
on the Indebtedness evidenced by the Debentures under the laws which are
presently in effect of the United States of America and the State of Texas or
by the laws of any other jurisdiction which are or may be applicable to the
holders of the Debentures and such Indebtedness or, to the extent permitted by
law, under such applicable laws of the United States of America and the State
of Texas or by the laws of any other jurisdiction which are or may be
applicable to the holder of the Debentures and which may hereafter be in effect
and which allow a higher maximum nonusurious interest rate than applicable laws
now allow.
31
32
SECTION 11.08. PARTICIPATIONS AND ASSIGNMENTS OF THE DEBENTURES.
(a) The Lender shall have the right to enter into a participation agreement
with any other Lender with respect to the Debentures, or to sell all or any
part of the Debentures, but such participation or sales shall not affect the
rights and duties of such Lender hereunder vis-a-vis Borrower. In the event
that all or any portion of this Loan shall be, at any time, assigned,
transferred or conveyed to other parties, any action, consent or waiver (except
for compromise or extension of maturity), to be given or taken by Lender
hereunder (herein "Action"), shall be such action as taken by the holders of a
majority in amount of the Principal Amount of the Debentures then outstanding,
as such holders are recorded on the books of the Borrower and represented by
Lender's Agent as described in subsection (b) below.
(b) Assignment or sale shall be effective, on the books of the Borrower,
only upon (i) endorsement of the Debenture, or part thereof, to the proposed
new holder, along with a current notation of the amount of payments or
installments received and net Principal Amount yet unfunded or unpaid, and
presentment of such Debenture to the Borrower for issue of a replacement
Debenture, or Debentures, in the name of the new holder; (ii) a designation by
the holders of a single Lender's Agent for Notice, such agent to be the sole
party to whom Borrower shall be required to provide notice when notice to
Lender is required hereunder and who shall be the sole party authorized to
represent Lender in regard to modification or waivers under the Debenture, the
Loan Agreement, or other Loan Documents; and (iii) delivery of an opinion of
counsel, satisfactory to Borrower, that transfer shall not require registration
or qualification under applicable state or federal securities laws.
(c) So long as the Borrower is not in default hereunder, the Lender shall
not sell or assign an interest in the Debentures or rights under the Loan
Agreement to any person or company that the Borrower reasonably identifies to
Lender as being engaged as a direct competitor.
SECTION 11.09 CONFIDENTIALITY.
(a) All financial reports or information which are furnished to Lender, or
its director designee or other representatives, pursuant to this Loan Agreement
or pursuant to the Debentures or other Loan Documents shall be treated as
confidential unless and to the extent that such information has been otherwise
disclosed by the Borrower, but nothing herein contained shall limit or impair
Lender's right to disclose such reports to any appropriate Governmental
Authority, or to use such information to the extent pertinent to an evaluation
of the Obligation, or to enforce compliance with the terms and conditions of
this Loan Agreement, or to take any lawful action which Lender deems necessary
to protect its interests under this Loan Agreement.
Lender, its director designees, and agents shall use their reasonable best
efforts to protect and preserve the confidentiality of such information except
for such disclosure as shall be required for compliance by Lender or its
director designees with SEC reporting requirements or otherwise as a matter of
law. The provisions of Section 5.01(a)(1) and (6) notwithstanding, Borrower
may refuse to provide information as required pursuant thereto to an assignee
or successor in interest to the Lender unless and until such assignee or
successor shall have executed an agreement to maintain the confidentiality of
the information as provided herein.
SECTION 11.10. BINDING EFFECT.
(a) The Loan Documents shall be binding upon and inure to the benefit of
Borrower and Lender and their respective successors, assigns and legal
representatives; provided, however, that Borrower may not, without the prior
written consent of Lender, assign any rights, powers, duties or obligations
thereunder.
SECTION 11.11. NO THIRD PARTY BENEFICIARY.
(a) The parties do not intend the benefits of this Loan Agreement to inure
to any third party, nor shall this Loan Agreement be construed to make or
render Lender liable to any materialman, supplier, contractor, subcontractor,
purchaser or lessee of any property owned by Borrower, or for debts or claims
accruing to any such persons against Borrower. Notwithstanding anything
contained herein or in the Debentures, or in any other Loan Document, no
conduct by any or all of the parties hereto, before or after signing this Loan
32
33
Agreement nor any other Loan Document, shall be construed as creating any
right, claim or cause of action against Lender, or any of its officers,
directors, agents or employees, in favor of any materialman, supplier,
contractor, subcontractor, purchaser or lessee of any property owned by
Borrower, nor to any other person or entity other than Borrower.
SECTION 11.12. ENTIRETY.
(a) This Loan Agreement and the Debentures and the other Loan Documents
issued pursuant thereto contain the entire agreement between the parties and
supersede all prior agreements and understandings, if any, relating to the
subject matter hereof and thereof.
SECTION 11.13. HEADINGS.
(a) Section headings are for convenience of reference only and, except as a
means of identification of reference, shall in no way affect the interpretation
of this Loan Agreement.
SECTION 11.14. SURVIVAL.
(a) All representations and warranties made by Borrower herein shall survive
delivery of the Debentures and the making of the Loans.
SECTION 11.15. MULTIPLE COUNTERPARTS.
(a) This Loan Agreement may be executed in any number of counterparts, all
of which taken together shall constitute one and the same agreement, and any of
the parties hereto may execute this Loan Agreement by signing any such
counterpart.
SECTION 11.16. GOVERNING LAW.
(a) THIS LOAN AGREEMENT HAS BEEN PREPARED, IS BEING EXECUTED AND
DELIVERED, AND IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS, AND
THE SUBSTANTIVE LAWS OF SUCH STATE AND THE APPLICABLE FEDERAL LAWS OF
THE UNITED STATES OF AMERICA SHALL GOVERN THE VALIDITY, CONSTRUCTION,
ENFORCEMENT AND INTERPRETATION OF THIS LOAN AGREEMENT AND ALL OF THE
OTHER LOAN DOCUMENTS.
SECTION 11.17 REFERENCE TO BORROWER.
(a) The term Borrower shall mean Topro, Inc. and/or Advanced Control
Technology, Inc., Management Design and Consulting Services, Inc. and
Topro Systems Integration, Inc. where the context of the agreement
makes such other reference appropriate.
IN WITNESS WHEREOF, the undersigned have executed this Loan Agreement as of
the day and year first above written.
CO-BORROWER
Topro, Inc.
Address for Notice:
------- --- -------
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ By:
-----------------------------
Title: President
Attest by:
---------------------
Title: Assistant Secretary
33
34
CO-BORROWER
Address for Notice: Advanced Control Technology, Inc.
------- --- -------
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
By:
---------------------------
Title: President and CEO
Attest by:
--------------------
Title: Secretary
CO-BORROWER
Address for Notice: Management Design and Consulting
------- --- -------
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ Services, Inc.
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
By:
-----------------------------
Title: Executive Vice President
Attest by:
---------------------
Title: Secretary
CO-BORROWER
Address for Notice:
------- --- ------- Topro Systems Integration, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
By:
------------------------------
Title: President and CEO
Attest by:
---------------------
Title: Assistant Secretary
34
35
CO-BORROWER
Address for Notice: Visioneering Holding Corporation
------ --- -------
By:
-----------------------------
Title: President
Attest:
-------------------------
Title: Assistant Secretary
LENDER
Address for Notice:
------- --- -------
8080 North Central Expressway, Renaissance U.S. Growth & Income
Fund Trust PLC.
▇▇▇▇▇ ▇▇▇/▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ By:
▇▇▇ ▇▇▇ ▇▇▇▇ -----------------------------
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ Title: Vice President
Attest
by:
-----------------------------
Title:
35
36
THE STATE OF TEXAS Section
COUNTY OF DALLAS Section
This instrument was acknowledged before me on ___________, 199____, by
_________________________, ________________of__________________, a ____________
___________.corporation.
Notary Public, State of
-------------
My Commission Expires:
--------------
Printed Name of Notary
--------------
THE STATE OF TEXAS Section
COUNTY OF DALLAS Section
This instrument was acknowledged before me on ___________, 199____, by
_________________________, ________________of__________________, a ____________
___________ corporation.
Notary Public, State of
-------------
My Commission Expires:
--------------
Printed Name of Notary
--------------
THE STATE OF TEXAS Section
COUNTY OF DALLAS Section
This instrument was acknowledged before me on ___________, 199____, by
_________________________, ________________of__________________, a ____________
___________.corporation.
Notary Public, State of
-------------
My Commission Expires:
--------------
Printed Name of Notary
-------------
36
37
THE STATE OF TEXAS Section
COUNTY OF DALLAS Section
This instrument was acknowledged before me on ___________, 199____, by
_________________________, ________________of __________________, a ___________
____________.corporation.
Notary Public, State of
-------------
My Commission Expires:
--------------
Printed Name of Notary
-------------
THE STATE OF TEXAS Section
COUNTY OF DALLAS Section
This instrument was acknowledged before me on ___________, 199____, by
_________________________, ________________of __________________, a ___________
____________.corporation.
Notary Public, State of
-------------
My Commission Expires:
--------------
Printed Name of Notary
--------------
37
38
The Securities represented by this Debenture have not been registered under the
Securities Act of 1933, as amended ( Act ), or applicable state securities laws
( State Acts ) and shall not be sold, hypothecated, donated or otherwise
transferred unless the Company shall have received an opinion of Legal Counsel
for the Company, or such other evidence as may be satisfactory to Legal Counsel
for the Company, to the effect that any such transfer shall not require
registration under the Act and the State Acts.
TOPRO, INC.
AND ITS SUBSIDIARIES:
Advanced Control Technology, Inc.
Management Design and Consulting Services, Inc.
Topro Systems Integration, Inc.
Visioneering Holding Corporation
9.00% CONVERTIBLE DEBENTURE
$1,200,000.00No: 1
Date of Issue: October 30, 1996
TOPRO, INC. (a Colorado corporation) and its wholly owned subsidiaries
Advanced Control Technology, Inc. (an Oregon corporation), Management Design
and Consulting Services, Inc. (a Georgia corporation), Visioneering Holding
Corporation (a California corporation) and Topro Systems Integration, Inc. (a
Colorado corporation) (collectively hereinafter referred to as the "Company" or
"Borrower") is indebted and, for value received, herewith promises to pay to:
River Oaks Trust Company, FBO
RENAISSANCE U.S. GROWTH & INCOME TRUST, PLC
or to its order, (together with any assignee, jointly or severally, the
"Holder" or "Lender") on or before November 1, 2003 (the "Due Date") (unless
this Debenture shall have been sooner called for redemption or presented for
conversion as herein provided), the sum of One Million Two Hundred Thousand
Dollars ($1,200,000) (the "Principal Amount") and to pay interest on the
Principal Amount at the rate of Nine percent (9.00%) per annum as provided
herein. In furtherance thereof, and in consideration of the premises, the
Borrower covenants, promises and agrees as follows:
1. INTEREST: Interest on the Principal Amount outstanding from time to time
shall accrue at the rate of 9.00% per annum and be payable in monthly
installments commencing November 1, 1996, and subsequent payments shall be made
on the first day of each month thereafter until the Principal Amount and all
accrued and unpaid interest shall have been paid in full. Overdue principal
and interest on the Debenture shall, to the extent permitted by applicable law,
bear interest at the rate of 9.00% per annum. All payments of both principal
and interest shall be made at the address of the Holder hereof as it appears in
the books and records of the Borrower, or at such other place as may be
designated by the Holder hereof.
2. MATURITY: If not sooner redeemed or converted, this Debenture shall
mature on November 1, 2003 at which time all then remaining unpaid principal,
interest and any other charges then due under the Loan Agreement shall be due
and payable in full.
3. MANDATORY PRINCIPAL INSTALLMENTS: If this Debenture is not sooner
redeemed or converted, Borrower shall pay to Holder, commencing on November 1,
1999, and the first day of each successive month thereafter prior to maturity,
mandatory principal redemption installments, each of such installments to be in
the amount of Ten Dollars ($10) per Thousand Dollars ($1,000) of the then
remaining principal amount of the Debenture and further, at maturity, shall
make
39
a final installment of all of the remaining unpaid Principal Amount balance due
plus the amount of any unpaid interest and other charges then due. Each of
such installments shall be applied in partial redemption of the Debenture when
received by Holder.
4. CHANGE OF CONTROL: The Debenture shall, if (i) the Company's stock is not
listed for exchange on the Nasdaq National Market, the New York Stock Exchange,
American Stock Exchange or quoted on the Nasdaq Small Cap System, or (ii) there
is a change of control with respect to the majority of the Company's voting
stock, be redeemed at 111% of par prior to November 1, 1997, thereafter at 123%
of par until November 1, 1998, thereafter at 137% of par until November 1,
1999, thereafter at 152% of par until November 1, 2000, and thereafter at 167%
of par. If the Nasdaq changes its maintenance requirement the Company shall be
given a reasonable amount of time to meet the new requirements.
5. REDEMPTION: (a) On any interest payment date after November 1, 1996, and
after prior irrevocable notice as provided for below, the outstanding principal
amount of this Debenture is redeemable, in whole and but not in part, at 120%
of par if the following conditions are satisfied: (i) The closing bid price for
the Borrower's Common Stock averages at least $5.00 per share for the 20
consecutive trading days prior to the irrevocable notice and the Borrower's
Common Stock is listed on NASDAQ, AMEX or NYSE; (ii) the $5.00 bid price is
supported by the Borrower's minimum of $0.25 in net earnings per share in the
aggregate for the last four consecutive fiscal quarters preceding the date of
irrevocable notice excluding any extraordinary gains of the Borrower; and (iii)
the Company will have already begun, and will continue to use its absolute best
efforts to register the shares of Common Stock issuable upon conversion of the
Debentures and shall complete such registration no later than 90 days after the
Conversion Date. The foregoing earnings per share and bid price tests shall be
duly adjusted for share splits, stock dividends, mergers, consolidations, and
other recapitalizations.
(b) The Borrower may exercise this right to redeem prior to maturity by giving
notice (the "Redemption Notice") thereof to the holder of this Debenture as
such name appears on the books of the Borrower, which notice shall specify the
terms of redemption (including the place at which the holder may obtain
payment), the total principal amount to be redeemed (such principal amount plus
the premium thereon herein called the "Redemption Amount") and the date for
redemption (the "Redemption Date"), which date shall not be less than 90 days
nor more than 120 days after the date of the notice. On the Redemption Date,
the Borrower shall pay all accrued unpaid interest on the Debenture up to and
including the Redemption Date, and shall pay to the holder a dollar amount
equal to the Redemption Amount. In the case of Debentures called for
redemption, the conversion rights will expire at the close of business on the
Redemption Date.
6. CONVERSION RIGHT: The holder of this Debenture shall have the right, at
holder's option, at any time, to convert all, or, in multiples of $100,000, any
part of this Debenture into such number of fully paid and nonassessable shares
of common stock, $0.0001 par value, of Topro, Inc. (the "Common Stock") as
shall be provided herein. The holder of this Debenture may exercise the
conversion right by giving written notice (the "Conversion Notice") to Topro,
Inc. of the exercise of such right and stating the name or names in which the
stock certificate or stock certificates for the shares of Common Stock are to
be issued and the address to which such certificates shall be delivered. The
Conversion Notice shall be accompanied by the Debenture. The number of shares
of Common Stock that shall be issuable upon conversion of the Debenture shall
equal the face amount of the Debenture divided by the Conversion Price as
defined below and in effect on the date the Conversion Notice is given;
provided, however, that in the event that this Debenture shall have been
partially redeemed, shares of Common Stock shall be issued pro rata, rounded to
the nearest whole share. Conversion shall be deemed to have been effected on
the date the Conversion Notice is received (the "Conversion Date"). Within 20
business days after receipt of the Conversion Notice, Borrower shall issue and
deliver by hand against a signed receipt therefor or by United States
registered mail, return receipt requested, to the address designated in the
Conversion Notice, a stock certificate or stock certificates of Borrower
representing the number of shares of Common Stock to which Holder is entitled
and a check or cash in payment of all interest accrued and unpaid on the
Debenture up to and including the Conversion Date. The conversion rights will
be governed by the following provisions:
(a) Conversion Price: On the issue date hereof and until such time as an
adjustment shall occur, the Conversion price shall be $1.50 PER SHARE;
provided, however, that the Conversion Price shall be subject to adjustment at
the times, and in accordance with the provisions, as follows:
(i) Adjustment for Issuance of Shares at less than the Conversion Price: If
and whenever any Additional Common Stock shares shall be issued by Topro, Inc.
(the "Stock Issue Date") for a consideration per share less than the Conversion
Price, then in each such case the initial Conversion Price shall be reduced to
a new Conversion Price in an
2
40
amount equal to the consideration per share received by the Topro, Inc. for the
additional shares of Common Stock then issued and the number of shares issuable
to Holder upon conversion shall be proportionately increased; and, in the case
of shares issued without consideration, the initial Conversion Price shall be
reduced in amount and the number of shares issued upon conversion shall be
increased in an amount so as to maintain for the Holder the right to convert
the Debenture into shares equal in amount to the same percentage interest in
the Common Stock of Topro, Inc. as existed for the Holder immediately preceding
the Stock Issue Date. The provisions of this Section 6 shall not apply to
issuances of the first 40,000 shares of Additional Common Stock that are sold
or granted for less than the Conversion Price. The above adjustment provision
shall be subject to Topro, Inc.'s right to redeem the Debenture at 120% of
par, or a higher price if by effect of this Debenture a higher price is then
applicable, within 20 days after the Borrower's issuance of additional shares
at less than the Conversion Price; however, the Topro, Inc. right to redeem is
subject to the holder's right to waive said adjustment and refuse redemption.
Notice provisions for redemption found in Section 5(c) above shall apply to the
redemption right granted above.
(ii) Sale of Shares: In case of the issuance of Additional Common Stock for a
consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of the cash received by
Borrower for such shares, after any compensation or discount in the sale,
underwriting or purchase thereof by underwriters or dealers or others
performing similar services or for any expenses incurred in connection
therewith. In case of the issuance of any shares of Additional Common Stock
for a consideration part or all of which shall be other than cash, the amount
of the consideration therefor, other than cash, shall be deemed to be the then
fair market value of the property received.
(iii) Reclassification of Shares: In case of the reclassification of
securities into shares of Common Stock, the shares of Common Stock issued in
such reclassification shall be deemed to have been issued for a consideration
other than cash. Shares of Additional Common Stock issued by way of dividend
or other distribution on any class of stock of Borrower shall be deemed to have
been issued without consideration.
(iv) Split up or Combination of Shares: In case issued and outstanding shares
of Common Stock shall be subdivided or split up into a greater number of shares
of the Common Stock, the Conversion Price shall be proportionately decreased,
and in case issued and outstanding shares of Common Stock shall be combined
into a smaller number of shares of Common Stock, the Conversion Price shall be
proportionately increased, such increase or decrease, as the case may be,
becoming effective at the time of record of the split-up or combination, as the
case may be.
(v) Exceptions: The term "Additional Common Stock" herein shall mean all
shares of Common Stock hereafter issued by Topro, Inc. (including Common Stock
held in the treasury of Borrower), except (1) Common Stock issued upon the
conversion of any of the Debentures; (2) Common Stock issued upon exercise of
any warrants or stock purchase options issued and outstanding as of the date of
this Debenture; and (3) Common Stock issued pursuant to exercise of authorized
or outstanding options under any currently existing incentive stock option plan
for the officers, directors, and certain other key personnel as defined in said
stock option plans of Borrower as currently established.
(b) Adjustment for Mergers, Consolidations, Etc.:
(i) In the event of distribution to all Common Stock holders of any stock,
indebtedness of Borrower or assets (excluding cash dividends or distributions
from retained earnings) or other rights to purchase securities or assets, then,
after such event, the Debentures will be convertible into the kind and amount
of securities, cash and other property which the holder of the Debentures would
have been entitled to receive if the holder owned the Common Stock issuable
upon conversion of the Debentures immediately prior to the occurrence of such
event.
(ii) In case of any capital reorganization, reclassification of the stock of
Topro, Inc. (other than a change in par value or as a result of a stock
dividend, subdivision, split up or combination of shares), this Debenture shall
be convertible into the kind and number of shares of stock or other securities
or property of Topro, Inc. to which the holder of the Debenture would have been
entitled to receive if the holder owned the Common Stock issuable upon
conversion of the Debenture immediately prior to the occurrence of such event.
The provisions of these foregoing sentence shall similarly apply to successive
reorganizations, reclassifications, consolidations, exchanges, leases,
transfers or other dispositions or other share exchanges.
(iii) The term "Fair Market Value", as used herein, is the value ascribed to
consideration other than cash as determined by the Board of Directors of Topro,
Inc. in good faith, which determination shall be final, conclusive and binding.
If the Board of Directors shall be unable to agree as to such fair market
value, then the issue of fair market value shall be submitted to arbitration
under and pursuant to the rules and regulations of the American Arbitration
Association, and the decision of the arbitrators shall be final, conclusive and
binding, and a final judgment may be entered thereon,
3
41
provided however that such arbitration shall be limited to determination of the
fair market value of assets tendered in consideration for the issue of Common
Stock.
(iv) Notice of Adjustment. (A) In the event Topro, Inc. shall propose to take
any action which shall result in an adjustment in the Conversion Price, Topro,
Inc. shall give notice to the holder of this Debenture, which notice shall
specify the record date, if any, with respect to such action and the date on
which such action is to take place. Such notice shall be given on or before
the earlier of 10 days before the record date or the date which such action
shall be taken. Such notice shall also set forth all facts (to the extent
known) material to the effect of such action on the Conversion Price and the
number, kind or class of shares or other securities or property which shall be
deliverable or purchasable upon the occurrence of such action or deliverable
upon conversion of this Debenture. (B) Following completion of an event wherein
the Conversion Price shall be adjusted, Topro, Inc. shall furnish to the
holder of this Debenture a statement, signed by the Chief Executive Officer of
Packaging Research Corporation, of the facts creating such adjustment and
specifying the resultant adjusted Conversion Price then in effect.
7. ONE TIME ADJUSTMENT TO CONVERSION PRICE. The Conversion Price shall be
adjusted to the lower of (i) seventy-five percent (75%) of the average closing
bid price of the Common Stock for the 20 consecutive trading days following the
filing with the SEC of the Company's 10Q ("Adjustment Average") if the
Adjustment Average is less than $1.50 per share for the period ending December
31, 1996 or (ii) seventy-five percent (75%) of the average closing bid price of
the Common Stock for the 20 consecutive trading days following the filing with
the SEC of the Company's 10Q ("Adjustment Average") if the Adjustment Average
is less than $1.50 per share for the period ending December 31, 1997. If an
adjustment is required pursuant to Section 6, then the Borrower shall furnish
to the holder of this Debenture a statement, signed by the Chief Executive
Officer of Borrower, of the facts creating such adjustment and specifying the
resultant adjusted Conversion Price then in effect. The above mentioned
adjustment shall only be utilized to adjust the Conversion Price to a price
less than the then existing Conversion Price.
8. RESERVATION OF SHARES: Borrower warrants and agrees that it shall at all
times reserve and keep available, free from preemptive rights, sufficient
authorized and unissued shares of Common Stock to effect conversion of this
Debenture.
9. REGISTRATION RIGHTS: Shares issued upon conversion of this Debenture
shall be restricted from transfer by the holder except if and unless the shares
are duly registered for sale pursuant to the Securities Act of 1933, as
amended, or the transfer is duly exempt from registration.
The Holder has certain rights with respect to the registration of shares of
Common Stock issued upon the conversion of this Debenture pursuant to the terms
of the Loan Agreement. Borrower agrees that a copy of the Loan Agreement with
all amendments, additions or substitutions therefor shall be available to the
Holder at the offices of Borrower.
10. TAXES: The Borrower shall pay any documentary or other transactional
taxes attributable to the issuance or delivery of this Debenture or the shares
of Common Stock issued upon conversion by the Holder (excluding any federal,
state or local income taxes and any franchise taxes or taxes imposed upon the
Holder by the jurisdiction, or any political subdivision thereof, under which
such Holder is organized or is qualified to do business.)
11. DEFAULT:
(a) Event of Default: An "Event of Default" shall exist if any one or more of
the following events (herein collectively called "Events of Default") shall
occur and be continuing:
(i) Borrower shall fail to pay (or shall state in writing an intention not to
pay or its inability to pay), not later than 10 days after the due date, any
installment of interest on or principal of, any Debenture or any fee, expense
or other payment required hereunder;
(ii) Any representation or warranty made under the Loan Agreement, or any of
the other Loan Documents, or in any certificate or statement furnished or made
to Lender pursuant hereto or in connection herewith or with the Loans
hereunder, shall prove to be untrue or inaccurate in any material respect as of
the date on which such representation or warranty is made;
(iii) Default in the performance of any of the covenants or agreements of
Borrower or its Subsidiaries, if any, contained under the Loan Agreement,
Security Agreement, Pledge Agreement, or in any of the other Loan Documents,
which default is not remedied within thirty (30) days after written notice
thereof to Borrower from Lender, provided that such 30 day grace period shall
not apply to default of any payment requirement or notice covenant made by
Borrower;
(iv) Default shall occur in the payment of any material Indebtedness of the
Borrower or its Subsidiaries, if any, (other than the obligation) or default
shall occur in respect of any note, loan agreement or credit agreement relating
to any such Indebtedness and such default shall continue for more than the
period of grace, if any, specified therein and any such Indebtedness shall
become due before its stated maturity by acceleration of the maturity thereof
or shall become due
4
42
by its terms and shall not be promptly paid or extended;
(v) Any of the Loan Documents shall cease to be legal, valid and binding
agreements enforceable against the Borrower in accordance with the respective
terms thereof or shall in any way be terminated or become or be declared
ineffective or inoperative or shall in any way whatsoever cease to give or
provide the respective rights, titles, interests, remedies, powers or
privileges intended to be created thereby;
(vi) Borrower or its Subsidiaries (as defined in the Loan Agreement), if any,
shall (A) apply for or consent to the appointment of a receiver, trustee,
custodian, intervenor or liquidator of itself, or of all or substantially all
of such Person's assets, (B) file a voluntary petition in bankruptcy, admit in
writing that such Person is unable to pay such Person's debts as they become
due or generally not pay such Person's debts as they become due, (C) make a
general assignment for the benefit of creditors, (D) file a petition or answer
seeking reorganization or an arrangement with creditors or to take advantage of
any bankruptcy or insolvency laws, (E) file an answer admitting the material
allegations of, or consent to, or default in answering, a petition filed
against such Person in any bankruptcy, reorganization or insolvency proceeding,
or (F) take corporate action for the purpose of effecting any of the foregoing;
(vii) An involuntary petition or complaint shall be filed against Borrower or
any of its Subsidiaries, if any, seeking bankruptcy or reorganization of such
Person or the appointment of a receiver, custodian, trustee, intervenor or
liquidator of such Person, or all or substantially all of such Person's assets,
and such petition or complaint shall not have been dismissed within sixty (60)
days of the filing thereof or an order, order for relief, judgment or decree
shall be entered by any court of competent jurisdiction or other competent
authority approving a petition or complaint seeking reorganization of Borrower
or its Subsidiary, if any, or appointing a receiver, custodian, trustee,
intervenor or liquidator of such Person, or of all or substantially all of such
Person's assets;
(viii) Any final judgment(s) for the payment of money in excess of the sum of
$250,000 in the aggregate shall be rendered against Borrower or any Subsidiary
and such judgment or judgments shall not be satisfied or discharged at least
ten (10) days prior to the date on which any of its assets could be lawfully
sold to satisfy such judgment;
(ix) The failure of Borrower to issue and deliver shares of Common Stock as
provided herein upon conversion of the Debenture; or
(x) The failure to submit to common stockholders Lender's nominee, if any, for
election to the Board of Directors of Borrower for any reason other than good
cause.
(xi) The Borrower shall fail to execute and deliver pledged stock and
collateral as required under Loan Documents.
(b) Remedies Upon Event of Default: If an Event of Default shall have occurred
and be continuing, then Lender may exercise any one or more of the following
rights and remedies, and any other remedies provided in any of the Loan
Documents, as Lender in its sole discretion, may deem necessary or appropriate:
(i) declare the unpaid Principal Amount (after application of any payments or
installments received by Lender) of, and all interest then accrued but unpaid
on, the Debentures and any other liabilities hereunder to be forthwith due and
payable, whereupon the same shall forthwith become due and payable without
presentment, demand, protest, notice of default, notice of acceleration or of
intention to accelerate or other notice of any kind, all of which Borrower
hereby expressly waives.
(ii) reduce any claim to judgment, and/or
(iii) without notice of default or demand, pursue and enforce any of Lender's
rights and remedies under the Loan Documents, or otherwise provided under or
pursuant to any applicable law or agreement, all of which rights may be
specifically enforced.
(c) Remedies Nonexclusive: Each right, power or remedy of the holder hereof
upon the occurrence of any Event of Default as provided for in this Debenture
or now or hereafter existing at law or in equity or by statute shall be
cumulative and concurrent and shall be in addition to every other right, power
or remedy provided for in this Debenture or now or hereafter existing at law or
in equity or by statute, and the exercise or beginning of the exercise by the
holder or transferee hereof of any one or more of such rights, powers or
remedies shall not preclude the simultaneous or later exercise by the holder of
any or all such other rights, powers or remedies.
(d) Expenses: Upon the occurrence of a Default or an Event of Default, which
occurrence is not cured within the notice provisions, if any provided
therefore, Borrower agrees to pay and shall pay all costs and expenses
(including Lenders attorney's fees and expenses) reasonably incurred by Lender
in connection with the preservation and enforcement of Lender's rights under
the Loan Agreement, the Debentures, or any other Loan Document.
12. FAILURE TO ACT AND WAIVER: No failure or delay by the holder hereof to
require the performance of any term or
5
43
terms of this Debenture or not to exercise any right, or any remedy shall
constitute a waiver of any such term or of any right or of any default, nor
shall such delay or failure preclude the holder hereof from exercising any such
right, power or remedy at any later time or times. By accepting payment after
the due date of any amount payable under this Debenture, the holder hereof
shall not be deemed to waive the right either to require payment when due of
all other amounts payable, or to later declare a default for failure to effect
such payment of any such other amount. The failure of the holder of this
Debenture to give notice of any failure or breach of the Borrower under this
Debenture shall not constitute a waiver of any right or remedy in respect of
such continuing failure or breach or any subsequent failure or breach.
13. CONSENT TO JURISDICTION: The Borrower hereby agrees and consents that
any action, suit or proceeding arising out of this Debenture may be brought in
any appropriate court in the State of Texas including the United States
District Court for the Northern District of Texas, or in any other court having
jurisdiction over the subject matter, all at the sole election of the holder
hereof, and by the issuance and execution of this Debenture the Borrower
irrevocably consents to the jurisdiction of each such court. The Borrower
hereby irrevocably appoints CT Corporation, Dallas, Texas, as agent for the
Borrower to accept service of process for and on behalf of the Borrower in any
action, suit or proceeding arising out of this Debenture. Except for default
in payment of interest or principal when and as they become due, and except as
otherwise specifically set forth herein or otherwise agreed to in writing by
the parties, any action dispute, claim or controversy (all such herein called
"Dispute") between or among the parties as to the facts or the interpretation
of the Debenture shall be resolved by arbitration as set forth in Section 11.05
of the Loan Agreement.
14. HOLDERS RIGHT TO REQUEST MULTIPLE DEBENTURES: The Holder shall, upon
written request and presentation of the Debenture, have the right, at any
interest payment date, to request division of this Debenture into two or more
units, each of such to be in such amounts as shall be requested; provided
however that no Debentures shall be issued in denominations of face amount less
than $100,000.00.
15. TRANSFER: This Debenture may be transferred on the books of the Borrower
by the registered Holder hereof, or by Holder's attorney duly authorized in
writing, only upon (i) delivery to the Borrower of a duly executed assignment
of the Debenture, or part thereof, to the proposed new Holder, along with a
current notation of the amount of payments received and net Principal Amount
yet unfunded, and presentment of such Debenture to the Borrower for issue of a
replacement Debenture, or Debentures, in the name of the new Holder, (ii) the
designation by the new Holder of the Lender's agent for notice, such agent to
be the sole party to whom Borrower shall be required to provide notice when
notice to Lender is required hereunder and who shall be the sole party
authorized to represent Lender in regard to modification or waivers under the
Debenture, the Loan Agreement, or other Loan Documents; and any action, consent
or waiver, (other than a compromise of principal and interest), when given or
taken by Lender's agent for notice, shall be deemed to be the action of the
holders of a majority in amount of the Principal Amount of the Debentures, as
such holders are recorded on the books of the Borrower, and (iii) in compliance
with the legend to read "The Securities represented by this Debenture have not
been registered under the Securities Act of 1933, as amended ("Act"), or
applicable state securities laws ("State Acts") and shall not be sold,
hypothecated, donated or otherwise transferred unless the Company shall have
received an opinion of Legal Counsel for the Company, or such other evidence as
may be satisfactory to Legal Counsel for the Company, to the effect that any
such transfer shall not require registration under the Act and the State Acts."
The Borrower shall be entitled to treat any holder of record of the Debenture
as the Holder in fact thereof and of the Debenture and shall not be bound to
recognize any equitable or other claim to or interest in this Debenture in the
name of any other person, whether or not it shall have express or other notice
thereof, save as expressly provided by the laws of Texas.
16. NOTICES: All notices and communications under this Debenture shall be in
writing and shall be either delivered in person or by FedEx and accompanied by
a signed receipt therefor; or mailed first-class United States certified mail,
return receipt requested, postage prepaid, and addressed as follows: (i) if to
the Borrower at its address for notice as stated in the Loan Agreement; and,
(ii) if to the holder of this Debenture, to the address (a) of such holder as
it appears on the books of the Borrower, or (b) in the case of a partial
assignment to one or more holders, to the Lender's agent for notice, as the
case may be. Any notice of communication shall be deemed given and received as
of the date of such delivery if delivered; or if mailed, then three days after
the date of mailing.
17. MAXIMUM INTEREST RATE: Regardless of any provision contained in this
Debenture, Lender shall never be entitled to receive, collect or apply as
interest on the Debenture any amount in excess of interest calculated at the
Maximum Rate, and, in the event that Lender ever receives, collects or applies
as interest any such excess, the amount which would be excessive interest shall
be deemed to be a partial prepayment of principal and treated hereunder as
such; and, if the
6
44
principal amount of the Debenture is paid in full, any remaining excess shall
forthwith be paid to Borrower. In determining whether or not the interest paid
or payable under any specific contingency exceeds interest calculated at the
Maximum Rate, Borrower and Lender shall, to the maximum extent permitted under
applicable law, (i) characterize any non principal payment as an expense, fee
or premium rather than as interest; (ii) exclude voluntary prepayments and the
effects thereof, and (iii) amortize, pro rate, allocate and spread, in equal
parts, the total amount of interest throughout the entire contemplated term of
the Debenture; provided that, if the Debenture is paid and performed in full
prior to the end of the full contemplated term thereof, and if the interest
received for the actual period of existence thereof exceeds interest calculated
at the Maximum Rate, Lender shall refund to Borrower the amount of such excess
or credit the amount of such excess against the principal amount of the
Debenture and, in such event, Lender shall not be subject to any penalties
provided by any laws for contracting for, charging, taking, reserving or
receiving interest in excess of interest calculated at the Maximum Rate.
(b) "Maximum Rate" shall mean, on any day, the highest nonusurious rate of
interest (if any) permitted by applicable law on such day that at any time, or
from time to time, may be contracted for, taken, reserved, charged or received
on the Indebtedness evidenced by the Debenture under the laws which are
presently in effect of the United States of America and the State of Texas or
by the laws of any other jurisdiction which are or may be applicable to the
holders of the Debenture and such Indebtedness or, to the extent permitted by
law, under such applicable laws of the United States of America and the State
of Texas or by the laws of any other jurisdiction which are or may be
applicable to the holder of the Debenture and which may hereafter be in effect
and which allow a higher maximum nonusurious interest rate than applicable laws
now allow.
18. RIGHTS UNDER LOAN AGREEMENT: This Debenture is issued pursuant to that
certain Convertible Debenture Loan Agreement dated October 30, 1996 by and
between Topro, Inc. and its subsidiaries as co-borrower and Renaissance U.S.
Growth & Income Trust, PLC as Lender, (the "Loan Agreement"), and the holder
hereof is entitled to all the rights and benefits, and is subject to all the
obligations of Lender under said agreement, including the maximum interest
rates limitations as specified in Section 11.07 thereof. Both Borrower and
Lender have participated in the negotiation and preparation of the Loan
Agreement and of this Debenture. Borrower agrees that a copy of the Loan
Agreement with all amendments, additions and substitutions therefor shall be
available to the Holder at the offices of Borrower. This Debenture is secured
pursuant to a Security Agreement and Pledge Agreement dated October 30, 1996.
19. GOVERNING LAW: THIS DEBENTURE SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, OR, WHERE
APPLICABLE, THE LAWS OF THE UNITED STATES.
(Signature Page Follows)
7
45
IN WITNESS WHEREOF, the undersigned Borrower has caused this Debenture
to be duly issued and executed on the Date of Issue above stated.
CO-BORROWERS
Address for Notice: Topro, Inc.
------- --- -------
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
By:
-----------------------------------------
Title:
Attest by:
---------------------------------
Title: Secretary
CO-BORROWER
Address for Notice: Advanced Control Technology, Inc.
------ --- -------
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
By:
-----------------------------------------
Title:
Attest by:
---------------------------------
Title: Secretary
CO-BORROWER
Address for Notice: Management Design and Consulting Services,
------ --- ------- Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
By:
-----------------------------------------
Title:
Attest by:
---------------------------------
Title: Secretary
8
46
CO-BORROWER
Address for Notice: Topro Systems Integration, Inc.
------- --- -------
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
By:
----------------------------------------
Title:
Attest by:
--------------------------------
Title: Secretary
CO-BORROWER
Address for Notice Visioneering Holding Corporation
------------------
By:
----------------------------------------
Title: President
Attest by:
--------------------------------
Title: Assistant Secretary
9
47
This instrument was acknowledged before me on ___________, 199____, by
_________________________, ________________of__________________, a ____________
___________.corporation.
Notary Public, State of
-------------
My Commission Expires:
--------------
Printed Name of Notary
--------------
This instrument was acknowledged before me on ___________, 199____, by
_________________________, ________________of__________________, a ____________
___________.corporation.
Notary Public, State of
-------------
My Commission Expires:
--------------
Printed Name of Notary
--------------
This instrument was acknowledged before me on ___________, 199____, by
_________________________, ________________of __________________, a ___________
____________.corporation.
Notary Public, State of
-------------
My Commission Expires:
--------------
Printed Name of Notary
--------------
This instrument was acknowledged before me on ___________, 199____, by
_________________________, ________________of __________________, a ___________
____________.corporation.
Notary Public, State of
-------------
My Commission Expires:
--------------
Printed Name of Notary
-------------
This instrument was acknowledged before me on ___________, 199____, by
_________________________, ________________of __________________, a ___________
____________.corporation.
Notary Public, State of
-------------
My Commission Expires:
--------------
Printed Name of Notary
--------------
10