EXHIBIT 2.1
CONVERTIBLE NOTE AGREEMENT
Dated as of July 31, 2000
by and among
WPI GROUP, INC.,
WPI ELECTRONICS, INC.
WPI MAGNETEC, INC., WPI MICRO PALM, INC.,
WPI POWER SYSTEMS, INC., WPI TERMIFLEX, INC.
WPI MICRO PROCESSOR SYSTEMS, INC.,
WPI DECISIONKEY, INC., WPI UK HOLDING, INC.
WPI UK HOLDING, II, INC., WPI OYSTER TERMINALS, INC.,
WPI HUSKY TECHNOLOGY, INC., and WPI INSTRUMENTS, INC.
as Borrowers,
and
SUNRISE CAPITAL PARTNERS, L.P.
as Lender
TABLE OF CONTENTS
Page
1. AMOUNT AND TERMS OF CREDIT
1.1 Purchase and Sale of Securities. 2
1.2 Scheduled Repayment of the Notes 4
1.3 Use of Proceeds 4
1.4 Interest on the Notes 4
1.5 Fees 6
1.6 Prepayments 6
1.7 Receipt of Payments 8
1.8 Loan Account and Accounting 8
1.9 Indemnity 8
1.10 Access 9
1.11 Taxes 10
1.12 Single Obligation 10
1.13 Appointment of Borrower Representative 10
2. CONVERSION OF NOTES
2.1 Conversion Privilege 11
2.2 Mandatory Conversion 11
2.3 Adjustments to Conversion Price 12
2.5 Fractional Shares 14
2.6 Documentary and Transfer Taxes 14
2.7 Reservation of Common Stock 14
2.8 Registration Rights 14
3. CONDITIONS TO THE PURCHASE OF SECURITIES
3.1 Conditions to the Purchase of the Term A
Securities 15
3.2 Conditions to the Purchase of the Term B
Securities 18
3.3 Conditions to the Purchase of the Term C
Securities 19
4. REPRESENTATIONS AND WARRANTIES OF BORROWERS
4.1 Corporate Existence; Compliance with Law 21
4.2 Executive Offices; FEIN 21
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4.3 Corporate Power, Authorization, Enforceable
Obligations 21
4.4 SEC Reports and Financial Statements 22
4.5 Projections 23
4.6 Material Adverse Effect 23
4.7 Ownership of Property: Liens 23
4.8 Labor Matters 24
4.9 Ventures; Subsidiaries and Affiliates;
Outstanding Stock and Indebtedness 25
4.10 Government Regulation 25
4.11 Margin Regulations 26
4.12 Taxes 26
4.13 ERISA 27
4.14 No Litigation 28
4.15 Brokers 28
4.16 Intellectual Property 28
4.17 Full Disclosure 28
4.18 Environmental Matters 29
4.19 Insurance 30
4.20 Bank Accounts 30
4.21 Government Contracts 30
4.22 Customer and Trade Relations 30
4.23 Agreements and Other Documents 31
4.24 Solvency 31
4.25 Valid Issuance of Securities 31
4A. REPRESENTATIONS AND WARRANTIES OF THE LENDER
4A.1 Acquisition for Own Account 31
4A.2 Adequate Information 32
4A.3 Acknowledgment of Risk 32
4A.4 Accredited Investor 32
4A.5 Restrictions on Distribution 32
5. COVENANTS: FINANCIAL STATEMENTS AND INFORMATION
5.1 Reports and Notices 33
5.2 Communication with Accountants 36
6. AFFIRMATIVE COVENANTS
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6.1 Maintenance of Existence and Conduct of
Business 36
6.2 Payment of Obligations 36
6.3 Books and Records 37
6.4 Insurance: Damage to or Destruction of
Collateral 37
6.5 Compliance with Laws 39
6.6 Supplemental Disclosure 39
6.7 Intellectual Property 39
6.8 Environmental Matters 39
6.9 Landlords' Agreements, Mortgagee Agreements
and Bailee Letters 40
6.11 Further Assurances 41
7. NEGATIVE COVENANTS
7.1 Mergers, Subsidiaries, Etc. 41
7.2 Investments; Notes and Advances 42
7.3 Indebtedness 42
7.4 Employee Notes and Affiliate Transactions 43
7.5 Capital Structure and Business 44
7.6 Guaranteed Indebtedness 45
7.7 Liens 45
7.8 Sale of Stock and Assets 45
7.9 ERISA 46
7.10 Financial Covenants 46
7.11 Hazardous Materials 46
7.12 Sale-Leasebacks 46
7.13 Cancellation of Indebtedness 46
7.14 Restricted Payments 47
7.15 Change of Corporate Name or Location; Change of
Fiscal Year 47
7.16 No Impairment of Intercompany Transfers 47
7.17 No Speculative Transactions 48
7.18 Leases 48
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8. TERM
8.1 Termination 48
8.2 Survival of Obligations Upon Termination
of Financing Arrangements 48
9. EVENTS OF DEFAULT: RIGHTS AND REMEDIES
9.1 Events of Default 49
9.2 Remedies 51
9.3 Waivers by Borrowers 51
10. ASSIGNMENTS AND PARTICIPATIONS
10.1 Assignments 52
11. SUCCESSORS AND ASSIGNS
11.1 Successors and Assigns 54
12. MISCELLANEOUS
12.1 Complete Agreement; Modification of Agreement54
12.2 Amendments and Waivers 55
12.3 Fees and Expenses 55
12.4 No Waiver 56
12.5 Remedies 57
12.6 Severability 57
12.7 Conflict of Terms 57
12.8 Confidentiality 57
12.9 GOVERNING LAW 58
12.10 Notices 58
12.11 Section Titles 60
12.12 Counterparts 60
12.13 WAIVER OF JURY TRIAL 60
12.14 Reinstatement 60
12.15 No Strict Construction 61
12.16 Joint and Several Obligations 61
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EXHIBITS
EXHIBIT A: Form of Term A Note
EXHIBIT B: Form of Term B Note
EXHIBIT C: Form of Term C Note
EXHIBIT D: Form of PIK Note
EXHIBIT E: Form of Warrant
EXHIBIT F: Form of Officer's Certificate
EXHIBIT G: Form of Registration Rights
Agreement
EXHIBIT H: Form of Stockholders Agreement
EXHIBIT I: Form of Participation Agreement
EXHIBIT J: Form of Bylaws Amendment
EXHIBIT K: Form of Opinion of Borrowers'
Counsel
EXHIBIT L: Form of Security Agreement
EXHIBIT M: Form of Pledge Agreement
EXHIBIT N: Form of Security Agreement
(Intellectual Property)
ANNEXES
ANNEX A: DEFINITIONS
ANNEX B: FINANCIAL COVENANTS
ANNEX C: ANG NOTES
ANNEX D: INITIAL PARTICIPANTS
ANNEX E: BOARD OF DIRECTOR RESIGNATIONS
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THIS CONVERTIBLE NOTE AGREEMENT, dated as of
July 31, 2000 (this "Agreement"), is by and among WPI
GROUP, INC., a New Hampshire corporation (the "Parent"),
and each of its wholly owned subsidiaries WPI ELEC
TRONICS, INC., WPI MAGNETEC, INC., WPI MICRO PALM, INC.,
WPI POWER SYSTEMS, INC., WPI TERMIFLEX, INC., WPI MICRO
PROCESSOR SYSTEMS, INC., WPI DECISIONKEY, INC., WPI UK
HOLDING, INC., WPI UK HOLDING II, INC., WPI OYSTER
TERMINALS, INC., and WPI INSTRUMENTS, INC., each a New
Hampshire corporation, and WPI HUSKY TECHNOLOGY, INC., a
Florida corporation (collectively, the "Subsidiary
Borrowers"), all such corporations having their chief
executive offices at 1155 Elm Street, Manchester, New
Hampshire 03101 (the Parent and the Subsidiary Borrowers
are hereinafter referred to individually as a "Borrower"
and collectively as the "Borrowers"), and Sunrise Capital
Partners, L.P., a Delaware limited partnership (the
"Lender").
RECITALS:
WHEREAS, the Borrowers have requested that
Lender enter into certain financing arrangements with the
Borrowers pursuant to which the Lender may purchase from
the Borrowers (i) certain promissory notes in the
principal amounts specified herein; (ii) certain shares
of common stock of Parent; and (iii) warrants
representing the right to purchase shares of Parent's
common stock, each on the terms and subject to the
conditions set forth herein.
WHEREAS, the proceeds from such purchase by the
Lenders will be used to refinance, in part, (i) amounts owed by
the Borrower under that Credit Agreement, dated as of
August 3, 1998, among the Parent and certain of its
subsidiaries, as Borrowers, the lenders party thereto and
Fleet Bank - NH, as Agent (as amended to date, the
"Existing Senior Credit Facility") and (ii) amounts owed
by WPI Instruments to certain Persons affiliated with
Allard-Nazarian Group, Inc. under a series of non-
negotiable promissory notes dated August 3, 1998 and
identified on Annex C hereto (the "ANG Notes");
WHEREAS, the Lender is willing to make such
purchases and provide such financial accommodations on
the terms and conditions set forth herein; and
WHEREAS, all capitalized terms used in this
Agreement shall have the meanings ascribed to them in
Annex A. All Annexes, Disclosure Schedules, Exhibits and
other attachments (collectively, "Appendices") hereto, or
expressly identified in this Agreement, are incorporated
herein by reference, and taken together, shall constitute
a single agreement. These Recitals shall be construed as
part of this Agreement;
NOW, THEREFORE, in consideration of the
premises and the mutual covenants contained herein, and
for other good and valuable consideration, the parties
hereto agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.1 Purchase and Sale of Securities.
--------------------------------
(1) Subject to the terms and conditions hereof, on the
Closing Date, the Lender shall purchase from the
Borrowers, and the Borrowers shall sell to the Lenders,
the Term A Securities for an aggregate purchase price of
$14,116,875.
As used in this Agreement, "Term A Securities"
means, collectively, (i) the convertible promissory notes
of the Borrowers, substantially in the form as attached
hereto as Exhibit A, in aggregate principal amount of
$14,116,875 (each, a "Term A Note" and collectively, the
"Term A Notes"); (ii) 1,833,906 shares of Common Stock,
representing in the aggregate 19.99% of the outstanding
shares of Parent on a fully-diluted basis (the "Term A
Shares"); and (iii) Common Stock Purchase Warrants, in
substantially the form as attached hereto as Exhibit E,
representing the right to purchase in the aggregate the
number of shares of Common Stock equal to (x) the number
of shares of Common Stock that would be issuable upon
conversion of the Term A Notes in accordance with the
provisions of Article 2 hereof multiplied by (y) .20 (the
"Term A Warrants").
(2) Subject to the terms and conditions hereof, at any
time during the Term B Commitment Period, the Lender
shall purchase from the Borrowers, and the Borrowers
shall sell to the Lenders, the Term B Securities for an
aggregate purchase price of $5,000,000.
As used in this Agreement, "Term B Securities"
means, collectively, (i) the convertible promissory notes
of the Borrowers, substantially in the form as attached
hereto as Exhibit B, in aggregate principal amount of
$5,000,000 (each, a "Term B Note" and collectively, the
"Term B Notes") and (ii) Common Stock Purchase Warrants,
in substantially the form as attached hereto as Exhibit
E, representing the right to purchase in the aggregate
the number of shares of Common Stock equal to (x) the
number of shares of Common Stock that would be issuable
upon conversion of the Term B Notes in accordance with
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the provisions of Article 2 hereof multiplied by (y) .20
(the "Term B Warrants").
(3) Subject to the terms and conditions hereof, at any
time during the Term C Commitment Period, the Lender may,
in its discretion, purchase from the Borrowers the Term C
Securities. The Lender shall notify the Borrowers of its
desire to purchase the Term C Securities by delivery to
Parent of a written notice (the "Term C Notice")
informing the Borrowers that the Lender is exercising its
ability to purchase such securities from the Borrowers.
The Term C Notice shall set forth (i) the aggregate
principal amount of Term C Notes (as defined below) that
Lender wishes to purchase and (ii) the date of the
purchase (which date shall not be more than five (5) days
after the termination of the Term C Commitment Period).
On the date specified in the Term C Notice, the Lender
shall purchase from the Borrowers, and the Borrowers
shall sell to the Lender, the Term C Securities for an
aggregate purchase price equal to the principal amount of
Term C Notes.
As used in this Agreement, "Term C Securities"
means, collectively, (i) the convertible promissory notes
of the Borrowers, substantially in the form as attached
hereto as Exhibit C, in an aggregate principal amount
specified by the Lender in the Term C Notice (each, a
"Term C Note" and collectively, the "Term C Notes") and
(ii) Common Stock Purchase Warrants, in substantially the
form as attached hereto as Exhibit E, representing the
right to purchase in the aggregate the number of shares
of Common Stock equal to (x) the number of shares of
Common Stock that would be issuable upon conversion of
the Term C Notes in accordance with the provisions of
Article 2 hereof multiplied by (y) .20 (the "Term C
Warrants").
(4) The purchase price for each purchase described above
shall be allocated among the Securities in accordance
with Annex F. The Borrowers and the Lender shall notify
one another and provide one another reasonable assistance
in the event of an examination or audit or other
proceeding regarding the allocation agreed to pursuant to
this Section 1.1(d).
0.1 Scheduled Repayment of the Notes.
---------------------------------
Unless otherwise converted pursuant to the terms of Article 2 of
this Agreement, the Borrowers shall repay the entire
principal amount of the Notes, together with any accrued
but unpaid interest and Fees thereon, on the Maturity
Date, if not sooner repaid in full. The Borrowers shall
not be entitled to re-borrow all or any portion of the
indebtedness represented by the Notes which shall be
converted, paid or repaid at any time.
1.2 Use of Proceeds.
----------------
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Borrowers shall utilize the proceeds of the
sale of securities to refinance in part the Existing
Senior Credit Facility and for the financing of Borrow
ers' ordinary working capital needs (but excluding in any
event the making of any Restricted Payment not
specifically permitted by Section 7.14). Section 1.3 of
the Disclosure Schedule contains a description of
Borrowers' sources and uses of funds on the Closing Date.
1.3 Interest on the Notes.
----------------------
(1) The outstanding principal balance of the Notes shall
accrue and bear interest at a rate per annum of 10.75%
(the "Interest Rate").
(2) Interest on the Notes shall be payable in cash by
Borrowers to Lender quarterly in arrears (on March 31,
June 30, September 30 and December 31 of each year),
except that no interest payment shall be required to be
paid by the Borrowers until the first anniversary of the
date of issuance of the Term A Notes; provided, however,
if no Event of Default has occurred and is continuing,
the Borrowers may defer any scheduled interest payment
until the Maturity Date. Upon each such deferral,
Borrowers shall deliver to Lender a convertible
promissory note substantially in the form of Exhibit D
hereto (each, a "PIK Note"). The outstanding principal
balance of the PIK Notes shall accrue and bear interest
at the Interest Rate, subject to adjustment in accordance
with Section 1.4(e). The PIK Notes shall be eligible for
conversion in accordance with Article 2 of this
Agreement.
(3) If any payment on the Notes (including payment of
interest and Fees) becomes due and payable on a day other
than a Business Day, the maturity thereof will be
extended to the next succeeding Business Day and, with
respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such
extension.
(4) All computations of interest and Fees calculated on
a per annum basis shall be made by the Lender on the
basis of a three hundred and sixty-five (365) day year,
in each case for the actual number of days occurring in
the period for which such interest and Fees are payable.
(5) So long as any Event of Default shall have occurred
and be continuing, the interest rates applicable to the
Notes shall be increased by two percentage points (2%)
per annum above the rates of interest or the rate of such
Fees otherwise applicable hereunder ("Default Rate"), and
all outstanding Obligations shall bear interest at the
Default Rate applicable to such Obligations. Interest at
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the Default Rate shall accrue from the initial date of
such Event of Default until that Event of Default is
cured or waived and shall be payable upon demand.
(6) Notwithstanding anything to the contrary set forth
in this Section 1.4, if a court of competent jurisdiction
determines in a final order that the rate of interest
payable on the Notes exceeds the highest rate of interest
permissible under law (the "Maximum Lawful Rate"), then
so long as the Maximum Lawful Rate would be so exceeded,
the rate of interest payable on the Notes shall be equal
to the Maximum Lawful Rate; provided, however, that if at
any time thereafter the rate of interest payable
hereunder is less than the Maximum Lawful Rate, Borrowers
shall continue to pay interest hereunder at the Maximum
Lawful Rate until such time as the total interest
received by the Lender is equal to the total interest
which would have been received had the interest rate
payable on the Notes been (but for the operation of this
paragraph) the interest rate payable since the Closing
Date as otherwise provided in this Agreement.
Thereafter, interest on the Notes shall be paid at the
rate(s) of interest and in the manner provided in
Sections 1.4(a) through (e) above, unless and until the
rate of interest again exceeds the Maximum Lawful Rate,
and at that time this paragraph shall again apply. In no
event shall the total interest received by the Lender
pursuant to the terms hereof exceed the amount which the
Lender could lawfully have received had the interest due
on the Notes been calculated for the full term hereof at
the Maximum Lawful Rate. If the Maximum Lawful Rate is
calculated pursuant to this paragraph, such interest
shall be calculated at a daily rate equal to the Maximum
Lawful Rate divided by the number of days in the year in
which such calculation is made. If, notwithstanding the
provisions of this Section 1.4(f), a court of competent
jurisdiction shall finally determine that the Lender has
received interest on the Notes in excess of the Maximum
Lawful Rate, the Lender shall, to the extent permitted by
applicable law, promptly apply such excess to repay the
principal amount of the Notes and thereafter shall refund
any excess to Borrowers or as a court of competent
jurisdiction may otherwise order.
(1)
1.4 Fees.
-----
(1) Borrowers shall pay to Lender (or to such party or
parties as Lender may designate) in cash on the date of
purchase of each series of Notes the Closing Fee
specified in the Sunrise Commitment Letter; provided,
however, at the option of the Parent, payment of the
Closing Fee may be deferred until the Maturity Date. If
the Borrower elects to defer payment of the Closing Fee,
Borrower shall deliver to Lender a PIK Note for the
amount of such Fee. The PIK Note evidencing the unpaid
5
amount of such Closing Fee shall accrue and bear interest
at the Interest Rate, subject to adjustment in accordance
with Section 1.4(e).
(2) Borrower shall pay to Sunrise Advisors, LLC in cash
on the Closing Date the Transaction Fee specified in the
Sunrise Commitment Letter.
(3) Borrowers shall pay to the Sunrise Advisors, LLC the
annual Administration Fee specified in the Sunrise
Commitment Letter. The administration fee shall be paid
in equal quarterly installments on March 31, June 30,
September 30 and December 31 of each year while the Notes
remain outstanding.
1.5 Prepayments.
------------
(1) Voluntary Prepayments. Borrowers may not prepay any
principal amount of the Notes before the Maturity Date
without prior written consent of the Lender.
(2) Mandatory Repayments.
(1) Change of Control. Upon the occurrence of a Change
of Control (other than a Change of Control resulting from
conversion of the Notes) or the sale of all or
substantially all of the assets of the Parent (including
Stock in any Borrowers), the Borrowers shall be obligated
to offer to repurchase the Notes from the Lender at a
price equal to 110% of the unpaid principal amount of the
Notes, plus any accrued but unpaid interest thereon.
(2) Asset Dispositions. Upon receipt by any Borrower of
Net Cash Proceeds from any asset disposition (including
condemnation and insurance proceeds, but excluding
proceeds of asset dispositions permitted by Section 7.8
(a), (b), and (c)), Borrowers shall, within three (3)
Business Days of receipt of such proceeds, apply such Net
Cash Proceeds (A) first, to the extent the Borrowers are
required, to prepay or repay any amounts outstanding
under the Existing Senior Credit Facility (as amended or
superseded through the date of such asset disposition);
(B) second, if the Net Cash Proceeds from any asset
disposition does not exceed $500,000, to reinvest such
proceeds in tangible assets to be used by the Borrowers
in their line of business; and (C) third, to the extent
of the balance of such Net Cash Proceeds remaining after
application in accordance with clauses (A) and (B), to
offer to repurchase the Notes from the Lender in
accordance with the provisions of paragraph (c) of this
Section 1.6.
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(3) Issuance of Capital Stock.
--------------------------
If Parent issues Stock,
no later than the Business Day following the date of
receipt of proceeds thereof, Parent shall apply the
proceeds from the sale of such Stock, net of underwriting
discounts and commissions and other reasonable costs,
fees and expenses paid to Non-Affiliates in connection
therewith (A) first, to the extent the Borrowers are
required, to prepay or repay any amounts outstanding
under the Existing Senior Credit Facility (as amended or
superseded through the date of such stock issuance); and
(B) second, to the extent of the balance of such Net Cash
Proceeds remaining after application in accordance with
clause (A), to offer to repurchase the Notes from the
Lender in accordance with the provisions of paragraph (c)
of this Section 1.6.; provided, that repayments or offers
to repurchase pursuant to this clause (iii) shall only be
made to the extent such proceeds from the sale or
issuance of Stock exceed $1,000,000.
(3) Offers to Repurchase.
---------------------
Any offer by the Borrowers
to repurchase Notes from the Lender pursuant to clause
(b) above shall be made in writing to the Lender, who
shall have thirty (30) days to tender its Notes to the
Borrower for repurchase. In the event that the Borrowers
make an offer to repurchase the Notes pursuant to this
Section 1.6, the Borrowers shall comply with any
applicable securities laws and regulations.
(4) Nothing in this Section 1.6 shall be construed to
constitute the Lender's consent to any transaction
referred to in clause (b) above which is not permitted by
other provisions of this Agreement or the other Note
Documents.
1.6 Receipt of Payments.
--------------------
Borrowers shall make each payment under this
Agreement not later than 2:00 p.m. (New York, New York
time) on the day when due in immediately available funds
in Dollars to the Lender (or to such other party or
parties as Lender may designate in writing). For
purposes of computing interest and Fees, all payments
shall be deemed received on the day of receipt of
immediately available funds therefor in the account or
accounts designated by the Lender for payments prior to
2:00 p.m. New York, New York time. Payments received
after 2:00 p.m. New York, New York time on any Business
Day shall be deemed to have been received on the
following Business Day.
1.7 Loan Account and Accounting.
----------------------------
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The Lender shall maintain a loan account (the
"Loan Account") on its books to record the outstanding
principal amount of all Notes, all payments made by
Borrowers, and all other debits and credits as provided
in this Agreement with respect to the Notes or any other
Obligations. All entries in the Loan Account shall be
made in accordance with the Lender's customary accounting
practices as in effect from time to time. The balance in
the Loan Account, as recorded on the Lender's most recent
printout or other written statement, shall, absent
manifest error, be presumptive evidence of the amounts
due and owing to the Lender by each Borrower under the
Notes; provided, that any failure to so record or any
error in so recording shall not limit or otherwise affect
any Borrower's duty to pay the Obligations. Borrower
shall receive, upon request to Lender, a summary of the
Loan Account maintained by Lender; provided that Borrower
shall not request such summary more than once each fiscal
quarter.
1.8 Indemnity.
----------
Each Borrower shall jointly and severally
indemnify and hold harmless the Lender and its
Affiliates, and each such Person's respective officers,
directors, employees, attorneys, agents and
representatives (each, an "Indemnified Person"), from and
against any and all suits, actions, proceedings, claims,
damages, losses, liabilities and expenses (including
reasonable attorneys' fees and disbursements and other
costs of investigation or defense, including those
incurred upon any appeal) which may be instituted or
asserted against or incurred by any such Indemnified
Person as the result of the purchase of the Securities
(including the Notes), any credit having been extended,
suspended or terminated under this Agreement and the
other Note Documents and the administration of the Notes
or such credit, and in connection with or arising out of
the transactions contemplated hereunder and thereunder
and any actions or failures to act in connection
therewith, including any and all Environmental
Liabilities and legal costs and expenses arising out of
or incurred in connection with disputes between or among
any parties to any of the Note Documents (collectively,
"Indemnified Liabilities"); provided, that no such
Borrower shall be liable for any indemnification to an
Indemnified Person to the extent that any such suit,
action, proceeding, claim, damage, loss, liability or
expense results from that Indemnified Person's gross
negligence or willful misconduct. NO INDEMNIFIED PERSON
SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO ANY
Note Document, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY
BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING
CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT,
PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE
ALLEGED AS A RESULT OF THE SALE OF THE SECURITIES, ANY
8
CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED
UNDER ANY Note Document OR AS A RESULT OF ANY OTHER
TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.
1.9 Access.
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Each Borrower shall, during normal business
hours, from time to time upon three (3) Business Days'
prior notice as frequently as the Lender determines to be
appropriate: (a) provide the Lender and any of its
officers, employees and agents access to its properties,
facilities, advisors and employees (including officers)
of each Borrower and to the Collateral, (b) permit the
Lender, and any of its officers, employees and agents, to
inspect, audit and make extracts from any Borrower's
books and records, and (c) permit the Lender, and its
officers, employees and agents, to inspect, review,
evaluate and make test verifications and counts of the
Accounts, Inventory and other Collateral of any Borrower.
If a Default or Event of Default shall have occurred and
be continuing, each such Borrower shall provide such
access to the Lender at all times and without advance
notice. Furthermore, so long as any Event of Default
shall have occurred and be continuing, Borrowers shall
provide the Lender with access to their suppliers and
customers. Each Borrower shall make available to the
Lender and its counsel, as quickly as is possible under
the circumstances, originals or copies of all books and
records which the Lender may request. Each Borrower
shall deliver any document or instrument necessary for
the Lender, as it may from time to time request, to
obtain records from any service bureau or other Person
which maintains records for such Borrower, and shall
maintain duplicate records or supporting documentation on
media, including computer tapes and discs owned by such
Borrower consistent with past practices.
1.10 Taxes.
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(1) Any and all payments by each Borrower hereunder or
under the Notes shall be made, in accordance with this
Section 1.11, free and clear of and without deduction for
any and all present or future Taxes. If any Borrower
shall be required by law to deduct any Taxes from or in
respect of any sum payable hereunder or under the Notes,
(i) the sum payable shall be increased as much as shall
be necessary so that after making all required deductions
(including deductions applicable to additional sums
payable under this Section 1.11) the Lender receives an
amount equal to the sum they would have received had no
such deductions been made, (ii) such Borrower shall make
such deductions, and (iii) such Borrower shall pay the
full amount deducted to the relevant taxing or other
authority in accordance with applicable law. Within
thirty (30) days after the date of any payment of Taxes,
Parent shall furnish to the Lender the original or a
certified copy of a receipt evidencing payment thereof.
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(2) Each Borrower shall jointly and severally indemnify
and, within ten (10) days of demand therefor, pay the
Lender for the full amount of Taxes (including any Taxes
imposed by any jurisdiction on amounts payable under this
Section 1.11) paid by Lender, as appropriate, and any
liability (including penalties, interest and expenses)
arising therefrom or with respect thereto, whether or not
such Taxes were correctly or legally asserted.
1.11 Single Obligation.
------------------
The Notes purchased by the Lender and all of
the other Obligations of Borrowers arising under this
Agreement and the other Note Documents shall constitute
one general joint and several obligation of the Borrowers
secured, until the Termination Date, by all of the
Collateral.
1.12 Appointment of Borrower Representative.
---------------------------------------
Each Borrower hereby designates Parent as its representative
and agent on its behalf for the purposes of giving and
receiving all other notices and consents hereunder or
under any of the other Note Documents and taking all
other actions (including in respect of compliance with
covenants) on behalf of any Borrower or Borrowers under
the Note Documents. Parent hereby accepts such
appointment. The Lender may regard any notice or other
communication pursuant to any Note Document from Parent
as a notice or communication from all Borrowers, and may
give any notice or communication required or permitted to
be given to any Borrower or Borrowers hereunder to Parent
on behalf of such Borrower or Borrowers. Each Borrower
agrees that each notice, election, representation and
warranty, covenant, agreement and undertaking made on its
behalf by Parent shall be deemed for all purposes to have
been made by such Borrower and shall be binding upon and
enforceable against such Borrower to the same extent as
if the same had been made directly by such Borrower.
2. CONVERSION OF NOTES
2.1 Conversion Privilege.
---------------------
(1) At any time or from time to time before the Maturity
Date, the Lender may convert any or all of the
outstanding principal amount of the Notes, and any
accrued but unpaid interest and Fees thereon, into Common
Stock. The number of shares of Common Stock issuable
upon conversion shall be determined by dividing the
amount of unpaid principal, interest and Fees designated
by the Lender for conversion (the "Optional Conversion
Amount") by the Conversion Price in effect at the time of
such conversion.
10
(2) To convert any amounts pursuant to this Section
2.1, the Lender must give notice to the Borrowers setting
forth the Optional Conversion Amount. The date on which
the Lender gives such notice is the effective date of the
conversion (the "Optional Conversion Date"). As soon as
practicable, but in no event later than five (5) business
days following the Optional Conversion Date, Parent shall
deliver to Lender or a party designated by the Lender a
certificate for the number of full shares of Common Stock
issuable upon the conversion with any fractional share
being rounded up to a full share. The person in whose
name the certificate is registered shall be treated as a
shareholder of record on and after the Optional
Conversion Date.
2.2 Mandatory Conversion.
---------------------
(3) Upon the occurrence of Trading Price Conversion
Event (as defined below), Parent may require the Lender
to convert the entire unpaid principal amount of the
Notes, together with any accrued but unpaid interest and
Fees thereon (the "Mandatory Conversion Amount"), into
Common Stock. The number of shares of Common Stock
issuable upon such conversion shall be determined by
dividing the Mandatory Conversion Amount by the
Conversion Price in effect at the time of the Trading
Price Conversion Event.
For purposes of this Agreement, a "Trading
Price Conversion Event" shall be deemed to occur if (a)
the Borrowers are in full compliance with all the terms
of the Existing Senior Credit Facility (as in effect at
such time), and no event of default has occurred or is
continuing thereunder; (b) no Default or Event of Default
has occurred and is continuing hereunder; (c) the Parent
has maintained and at the time is maintaining the listing
of its Common Stock on the NASDAQ National Market or the
New York Stock Exchange; (d) Parent's Common Stock
maintains a trading price at or above $4.50 per share for
a period of forty-five (45) consecutive trading days; and
(e) the trading volume of the Parent's Common Stock on
such exchange on any day in such forty-five (45) day
period is not less than 40,000 shares.
(4) If, upon the occurrence of a Trading Price
Conversion Event, Parent elects to effect a mandatory
conversion in accordance with the terms of this Section
2.2, Parent shall deliver written notice to the Lender to
11
such effect. The date on which the Lender receives such
notice from Parent is the effective date of the
conversion (the "Mandatory Conversion Date"). As soon as
practicable, but in no event later than five (5) business
days after the Mandatory Conversion Date, Parent shall
deliver to the Lender (or such party or parties as Lender
shall designate) a certificate for the number of full
shares of Common Stock issuable upon the conversion of
the Notes with any fractional share being rounded up to a
full share. The person in whose name the certificate is
registered shall be treated as a shareholder of record on
and after the Mandatory Conversion Date.
2.2 Adjustments to Conversion Price.
---------------------------------
(1) If, on or after the Closing Date, Parent:
(1) pays a dividend or makes a distribution on its
Common Stock in shares of Common Stock;
(2) splits or subdivides its outstanding shares of
Common Stock into a greater number of shares;
(3) combines its outstanding shares of Common Stock into
a smaller number of shares;
(1)
(4) makes a distribution on its Common Stock in shares
of its Stock other than Common Stock; or
(5) issues by reclassification of its Common Stock any
shares of its Stock;
then the conversion privilege and the Conversion Price in
effect immediately prior to such action shall be adjusted
so that the Lender may receive the number of shares of
Common Stock which would be owned immediately following
such action if Lender had converted the Notes (or any
portion thereof) immediately prior to such action.
The adjustment shall become effective immediately
after the record date in the case of a dividend or
distribution and immediately after the effective date in
the case of a subdivision, combination or
reclassification.
(2) If, upon receipt of a Term C Notice, the Borrowers
shall fail to sell to the Lenders the Term C Securities
or shall otherwise fail to comply with the terms of
Section 1.1(c), then the Conversion Price in effect
immediately prior to the delivery of the Term C Notice
12
shall be adjusted to a price equal to: (A) the total
principal amount of all loans outstanding divided by (B)
the sum of (x) the number of shares of Common Stock
issuable upon conversion of all outstanding Notes at the
then-current Conversion Price, plus (y) the number of
shares of Common Stock that would be issuable upon
conversion of the Term C Notes at the then-current Conver
sion Price, had such Term C Notes been sold to the
Lender.
(3) No adjustment in the Conversion Price need be made
unless the adjustment would require an increase or
decrease of at least 1% in the Conversion Price. Any
adjustments that are not made shall be carried forward
and taken into account in any subsequent adjustment.
2.3 Reorganization, Reclassifications.
----------------------------------
Without limiting the requirements of Section 1.6(b) of this
Agreement, if Parent is a party to a Change of Control,
consolidation or merger which reclassifies or changes its
outstanding Common Stock, upon consummation of such
transaction the Notes shall automatically become
convertible into the kind and amount of securities, cash
or other assets which the Lender would have owned
immediately after such transaction if the Lender had
converted the Notes immediately before the effective date
of the transaction. The Borrowers shall not effect any
such transaction unless, prior to the consummation
thereof, the entity whose Stock is to be issued upon
conversion of the Notes thereafter, shall expressly
assume by written instrument delivered to the Lender, the
obligation to deliver to the Lender such shares of Stock
or property the Lender would be entitled to receive upon
conversion of the Notes. Nothing in this Section 2.4
shall be construed to permit a Change of Control,
consolidation, merger or other transaction which is
otherwise prohibited by this Agreement.
2.4 Fractional Shares.
-------------------
Parent will not issue any fractional shares of Common Stock upon
any conversion pursuant to this Article 2. Each fractional share will
be rounded up to a full share.
2.5 Documentary and Transfer Taxes.
-------------------------------
All documentary, stamp or similar issue or transfer tax due upon the
issuance of Common Stock upon any conversion pursuant to
this Article 2 shall be paid by Parent. Neither Parent
nor Borrowers shall be required to pay any transfer taxes
incurred by reason of the issuance of any shares of
Common Stock in the name of any person other than the
Lender or an Affiliate thereof.
2.6 Reservation of Common Stock.
----------------------------
Parent agrees that at all times while any amounts are outstanding
under this Agreement there shall be reserved for issuance and
13
delivery upon any conversion of the Notes pursuant to
this Article 2 shares of Common Stock issuable upon such
conversion. All such shares shall be fully authorized,
fully paid and non-assessable, free and clear of all
liens, security interests, charges and other encumbrances
or restrictions on sale and free and clear of all
preemptive rights.
2.7 Registration Rights.
--------------------
The shares of Common Stock issuable upon conversion pursuant to
this Article 2 shall constitute Registrable Securities (as such term is
defined in the Registration Rights Agreement).
2.8 Cancellation of Notes.
----------------------
Upon conversion of any Notes pursuant to this Article 2, such
Notes will be marked by the Lender "paid" to the extent of the amount
converted. If any Note shall have been fully converted
pursuant to this Article 2, such Note shall be marked by
the Lender "Paid In Full."
3. CONDITIONS TO THE PURCHASE OF SECURITIES
3.1 Conditions to the Purchase of the Term A Securities.
-----------------------------------------------------
The obligation of the Lender to purchase the
Term A Securities and to perform any obligations
hereunder on the Closing Date shall be subject to the
satisfaction of, or waiver by the Lender of, the
following conditions on or before the Closing Date:
(1) Credit Agreement; Note Documents. This Agreement
and the other Note Documents shall have been duly
executed by, and delivered to, the Borrowers and the
Lender, and the Lender shall have received such
documents, instruments, agreements and legal opinions as
Lender shall reasonably request in connection with the
transactions contemplated by this Agreement and the other
Note Documents, each in form and substance satisfactory
to the Lender.
(2) Delivery of Convertible Notes. The Borrowers shall
have issued to Lender the Term A Notes.
(3) Issuance of Warrants. Parent shall have delivered
to Lender (or such party or parties as Lender shall
designate) certificates representing the Term A Warrants.
14
(4) Payment of Fees. Borrowers shall have paid the Fees
payable pursuant to Section 1.5 hereof (including the
Fees specified in the Sunrise Commitment Letter), and
shall have reimbursed the Lender for all fees, costs and
expenses of closing presented as of the Closing Date.
All such amounts may be paid with proceeds of the sale of
Securities as made on the Closing Date and, in such case,
will be reflected in the funding notice and wiring
instructions given by the Borrowers to the Lenders before
the Closing Date.
(5) Issuance of Common Stock Parent shall have issued
to Lender (or such party or parties as Lender shall
designate) certificates representing the Term A Shares.
(6) Amendments to Existing Senior Credit Facility. The
Lender shall have received fully executed copies of the
Senior Credit Amendments, in form and substance
satisfactory to the Lender, as duly authorized, executed
and delivered by the Borrowers and the Agent and Lenders
named under the Existing Senior Credit Facility.
(7) [Intentionally Omitted]
(8) Approvals. The Lender shall have received
satisfactory evidence that the Borrowers have obtained
all required consents and approvals of all Persons
(including all requisite Governmental Authorities) to the
execution, delivery and performance of this Agreement and
the other Note Documents and the consummation of the
transactions contemplated hereby and thereby, and all
waiting periods shall have been terminated or lapsed
without extension or the imposition of any conditions or
restrictions.
(9) No Material Adverse Effect. There shall not have
occurred a Material Adverse Effect on any of the
Borrowers, or any event reasonably likely to result in a
Material Adverse Effect on any of the Borrowers, since
December 31, 1999.
(10) Registration Rights Agreement. Parent and Borrower
shall have executed the Registration Rights Agreement in
substantially the form as attached hereto as Exhibit G.
(11) Stockholders Agreement. The Stockholders Agreement,
in substantially the form attached hereto as Exhibit H,
shall have been executed by the parties thereto and
delivered to Lender.
15
(12) Participation Agreements. The ANG Notes shall have
been repaid in full. Participation Agreements, in
substantially the form as attached hereto as Exhibit I,
shall have been executed and delivered by the parties
identified on Annex D hereof with respect to the amounts
set forth thereon.
(13) Employee Confidentiality and Non-Disclosure
Agreements. The Lender shall have received evidence
satisfactory to it that employees of the Borrowers have
executed or are otherwise bound by confidentiality and
proprietary information agreements.
(14) Bylaws Amendment. The Board of Directors of Parent
shall have adopted the Bylaws Amendment.
(15) Director Resignations. The members of the Board of
Directors of Parent identified on Annex E shall have
resigned from their positions on the Board of Directors
of Parent, and the Sunrise Directors shall have been
elected to fill the vacancies created by such
resignations.
(16) Officer's Certificate. The Borrowers shall have
delivered to the Purchaser a certificate executed by (a)
the Chairman of the Board or the President or one of the
Vice Presidents of the Parent and (b) the Treasurer or
one of the Assistant Treasurers of the Parent, in
substantially the form as annexed hereto as Exhibit F,
certifying on behalf of each of the Borrowers that the
conditions specified in this Section 3.1 have been
fulfilled.
(17) Secretary's Certificates. Lender shall have
received a certificate from each of the Borrowers, dated
as of the Closing Date and signed by the Secretary or an
Assistant Secretary of each such Borrower, certifying
that the attached copies of the Articles of
Incorporation, bylaws, and resolutions of the Board of
Directors of such Borrower approving the Note Documents
and the transactions contemplated thereby, are all true,
complete and correct and remain unamended and in full
force and effect.
(18) Opinion of Counsel. The Lender shall have received
an opinion of counsel to the Borrowers, dated as of the
Closing Date substantially in the form of Exhibit K
hereto.
(19) Security. The Lender shall have received evidence,
in form and substance reasonably satisfactory to the
Lender, that it has a valid and perfected security
16
interests in, and liens upon, the Collateral and other
property which is intended to be security for the
Obligations or the liability of any Obligor in respect
thereof, subject only to the security interests and liens
permitted herein or in the Existing Senior Credit
Facility, as amended by the Senior Credit Amendments.
(20) Insurance. The Lender shall have received evidence
of insurance and loss payee endorsements required
hereunder and under the other Note Documents, and
certificates of insurance policies and/or endorsements
naming the Lender as loss payee with respect thereto, in
each case in form and substance reasonably satisfactory
to the Lender.
3.2 Conditions to the Purchase of the Term B Securities.
----------------------------------------------------
The obligation of the Lender to purchase the
Term B Securities shall be subject to the satisfaction
of, or waiver by the Lender of, the following conditions:
(1) Representations and Warranties. Each of the
representations and warranties of the Borrowers contained
in this Agreement that is qualified as to Material
Adverse Effect shall be true and correct, and each of the
representations and warranties of the Borrowers contained
in this Agreement that is not so qualified shall be true
and correct in all material respects, at and as of such
date except to the extent that such representations and
warranties relate solely to an earlier date, in which
case such representations and warranties shall be true
and correct in all material respects as of such earlier
date as if made at and as of such date.
(2) Compliance with the Terms and Conditions of this
Agreement; No Default. Each of the Borrowers shall have
duly and properly performed and complied with all of the
agreements, covenants and obligations set forth herein
that are required to be performed or complied with by
such Borrower on or before such date, and no Default or
Event of Default shall have occurred and be continuing on
such date or would result after giving effect to the sale
of the Term B Securities.
(3) No Material Adverse Effect. There shall not have
occurred a Material Adverse Effect on any of the
Borrowers, or any event reasonably likely to result in a
Material Adverse Effect on any of the Borrowers, since
December 31, 1999.
(4) Delivery of Convertible Notes. The Borrowers shall
have delivered to the Purchaser the Term B Notes.
17
(5) Issuance of Additional Warrants. Parent shall have
delivered to Lender (or such party or parties as Lender
shall designate) certificates representing the Term B
Warrants.
(6) Payment of Fees. Borrowers shall have paid the Fees
payable pursuant to Section 1.5 hereof (including the
Fees specified in the Sunrise Commitment Letter).
(7) Participation Agreements. Participation Agreements,
in substantially the form as attached hereto as Exhibit
I, shall have been executed and delivered by the parties
identified on Annex D hereof with respect to the amounts
set forth thereon.
(8) Stockholder Approval. Parent shall have obtained
Stockholder Approval at its annual meeting or a special
meeting duly called therefor and the Charter Amendment
shall have been adopted.
The request and acceptance by the Borrower
Representative of the proceeds from the sale of the Term
B Securities shall be deemed to constitute, as of the
date of such request or acceptance, (i) a representation
and warranty by Borrowers that the conditions in this
Section 3.2 have been satisfied and (ii) a reaffirmation
by the Borrowers of the granting and continuance of the
Lender's Liens pursuant to the Collateral Documents.
3.3 Conditions to the Purchase of the Term C Securities.
----------------------------------------------------
The obligation of the Lender to purchase the
Term C Securities and to perform any obligations
hereunder on the Closing Date shall be subject to the
satisfaction of, or waiver by the Lender of, the
following conditions:
(1) Representations and Warranties. Each of the
representations and warranties of the Borrowers contained
in this Agreement that is qualified as to Material
Adverse Effect shall be true and correct, and each of the
representations and warranties of the Borrowers contained
in this Agreement that is not so qualified shall be true
and correct in all material respects, at and as of such
date except to the extent that such representations and
warranties relate solely to an earlier date, in which
case such representations and warranties shall be true
and correct in all material respects as of such earlier
date as if made at and as of such date.
18
(2) Compliance with the Terms and Conditions of this
Agreement; No Default. Each of the Borrowers shall have
duly and properly performed and complied with all of the
agreements, covenants and obligations set forth herein
that are required to be performed or complied with by
such Borrower on or before such date, and no Default or
Event of Default shall have occurred and be continuing on
such date or would result after giving effect to the sale
of the Term C Securities.
(3) No Material Adverse Effect. There shall not have
occurred a Material Adverse Effect on any of the
Borrowers, or any event reasonably likely to result in a
Material Adverse Effect on any of the Borrowers, since
December 31, 1999.
(4) Sale of Term B Securities. The Term B Securities
shall have been purchased by the Lender.
(5) Delivery of Convertible Notes. The Borrowers shall
have delivered to the Purchaser the Term C Notes.
(6) Issuance of Additional Warrants. Parent shall have
delivered to Lender (or such party or parties as Lender
shall designate) certificates representing the Term B
Warrants.
(7) Payment of Fees. Borrowers shall have paid the Fees
payable pursuant to Section 1.5 hereof (including the
Fees specified in the Sunrise Commitment Letter).
(8) Participation Agreements. Participation Agreements,
in substantially the form as attached hereto as Exhibit
I, shall have been executed and delivered by the parties
identified on Annex D hereof with respect to the amounts
set forth thereon.
The acceptance by the Borrower Representative
of the proceeds of the sale of the Term C Securities
shall be deemed to constitute, as of the date of such
request or acceptance, (i) a representation and warranty
by Borrowers that the conditions in this Section 3.3 have
been satisfied and (ii) a reaffirmation by the Borrowers
of the granting and continuance of the Lender's Liens
pursuant to the Collateral Documents.
4. REPRESENTATIONS AND WARRANTIES OF BORROWERS
19
To induce the Lender to purchase the Securities, the
Borrowers executing this Agreement, jointly and
severally, make the following representations and
warranties to the Lender with respect to all Borrowers,
each and all of which shall survive the execution and
delivery of this Agreement.
4.1 Corporate Existence; Compliance with Law.
------------------------------------------
Each Borrower (a) is a corporation duly
organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation; (b) is
duly qualified to conduct business and is in good
standing in each other jurisdiction where its ownership
or lease of property or the conduct of its business
requires such qualification, except where the failure to
be so qualified would not have a Material Adverse Effect;
(c) has the requisite corporate power and authority and
the legal right to own, pledge, mortgage or otherwise
encumber and operate its properties, to lease the
property it operates under lease and to conduct its
business as now, heretofore and proposed to be conducted;
(d) subject to specific representations set forth herein
regarding Environmental Laws, has all licenses, permits,
consents or approvals from or by, and has made all
filings with, and has given all notices to, all
Governmental Authorities having jurisdiction, to the
extent required for such ownership, operation and
conduct; (e) is in compliance with its charter and by-
laws; and (f) subject to specific representations set
forth herein regarding ERISA, Environmental Laws, tax and
other laws, is in compliance with all applicable
provisions of law, except where the failure to comply,
individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
4.2 Executive Offices; FEIN.
-------------------------
As of the Closing Date, the current location of
each Borrower's chief executive office and principal
place of business is set forth on Section 4.2 of the
Disclosure Schedule, and none of such locations have
changed within the twelve (12) months preceding the
Closing Date. In addition, Section 4.2 of the Disclosure
Schedule lists the federal employer identification number
of each Borrower.
4.3 Corporate Power, Authorization, Enforceable
-------------------------------------------
Obligations.
- ------------
The execution, delivery and performance by each
Borrower of each of the Note Documents to which it is a
party, the issuance of the Securities contemplated
thereby and the creation of all Liens provided for
therein: (a) are within such Person's corporate or
partnership power; (b) have been duly authorized by all
20
necessary or proper corporate, shareholder and other
action (other than receipt of Stockholder Approval of the
Charter Amendment necessary for issuance of the Term B
Notes); (c) do not contravene any provision of such
Person's charter, bylaws or partnership agreement; (d) do
not violate any law or regulation, or any order or decree
of any court or Governmental Authority; (e) do not
conflict with or result in the breach or termination of,
constitute a default under or accelerate or permit the
acceleration of any performance required by, any
indenture, instrument, mortgage, deed of trust, or any
material lease or other agreement to which such Person is
a party or by which such Person or any of its property is
bound; (f) do not result in the creation or imposition of
any Lien upon any of the property of such Person, other
than those in favor of the Lender pursuant to the Note
Documents; and (g) do not require the consent or approval
of any Governmental Authority or any other Person. On or
prior to the Closing Date, each of the Note Documents
shall have been duly executed and delivered by each
Borrower and each such Note Document shall then
constitute a legal, valid and binding obligation
enforceable in accordance with its terms.
4.4 SEC Reports and Financial Statements.
--------------------------------------
Parent has filed all required registration statements, prospectuses,
reports, schedules, forms, statements and other documents
required to be filed by it with the SEC since January 1,
1998 (the "SEC Reports"). No Subsidiary of Parent is
required to file any registration statement, prospectus,
report, schedule, form, statement or other document with
the SEC. None of the SEC Reports, as of their respective
dates (and, if amended or superseded by a filing prior to
the date of this Agreement, then on the date of such
filing), contained or will contain any untrue statement
of a material fact or omitted or will omit to state a
material fact required to be stated therein necessary to
make the statements therein, in light of the
circumstances under which they are made, not misleading.
Each of the financial statements (including the related
notes) included in the SEC Reports presents fairly, in
all material respects, the consolidated financial
position and results of operations and cash flows of
Parent and its Subsidiaries on a consolidated basis as of
the respective dates or for the respective periods set
forth therein, all in conformity with GAAP consistently
applied during the periods involved except as otherwise
noted therein and subject, in the case of the unaudited
interim financial statements, to the absence of notes and
normal year-end adjustments that have not been made and
are not expected to be material in amount. All of such
SEC Reports, as of their respective dates (and as of the
date of any amendment to the respective SEC Report)
complied as to form in all material respects with the
applicable requirements of the Securities Act and the
Exchange Act and the rules and regulations promulgated
thereunder.
21
4.5 Projections.
------------
The Projections delivered on the date hereof
and attached as Section 4.5 of the Disclosure Schedule
have been prepared by Borrowers in light of the past
operations of their businesses, but including future
payments of known contingent liabilities, and reflect
projections for the fiscal year ending September 30, 2000
beginning on the first day of the month immediately
following the Closing Date on a month by month basis for
the first year and on a year by year basis thereafter.
The Projections are based upon estimates and assumptions
stated therein, all of which Borrowers believe to be
reasonable and fair in light of current conditions and
current facts known to Borrowers and, as of the Closing
Date, reflect Borrowers' good faith and reasonable
estimates of the future financial performance of
Borrowers and of the other information projected therein
for the period set forth therein.
4.6 Material Adverse Effect.
------------------------
Except as set forth on Section 4.6 of the
Disclosure Schedule, between the September 30, 1999 and
the Closing Date, (a) no Borrower has incurred any
obligations, contingent or non-contingent liabilities,
liabilities for Charges, long-term leases or unusual
forward or long-term commitments which are not reflected
in the audited financial statements contained in the SEC
Reports and which, alone or in the aggregate, could
reasonably be expected to have a Material Adverse Effect,
(b) no contract, lease or other agreement or instrument
has been entered into by any Borrower or has become
binding upon any Borrower's assets and no law or regula
tion applicable to any Borrower has been adopted which
has had or could reasonably be expected to have a
Material Adverse Effect, and (c) no Borrower is in
default and to the best of Existing Borrowers' knowledge
no third party is in default under any material contract,
lease or other agreement or instrument, which alone or in
the aggregate could reasonably be expected to have a
Material Adverse Effect. Between September 30, 1999 and
the Closing Date no event has occurred, which alone or
together with other events, could reasonably be expected
to have a Material Adverse Effect.
4.7 Ownership of Property: Liens.
------------------------------
As of the Closing Date, the real estate listed
on Section 4.7 of the Disclosure Schedule (the "Real
Estate") constitutes all of the real property owned,
leased, subleased, or used by any Borrower. Each
Borrower owns good and marketable fee simple title to all
of its owned real estate, and valid and marketable
leasehold interests in all of its leased Real Estate, all
as described on Section 4.7 of the Disclosure Schedule,
22
and copies of all such leases or a summary of terms
thereof satisfactory to Lender have been delivered to
Lender. Section 4.7 of the Disclosure Schedule further
describes any Real Estate with respect to which any
Borrower is a lessor, sublessor or assignor as of the
Closing Date. Each Borrower also has good and marketable
title to, or valid leasehold interests in, all of its
personal properties and assets. As of the Closing Date,
none of the properties and assets of any Borrower are
subject to any Liens other than Permitted Encumbrances,
and there are no facts, circumstances or conditions known
to any Borrower that may result in any Liens (including
Liens arising under Environmental Laws) other than
Permitted Encumbrances. Each Borrower has received all
deeds, assignments, waivers, consents, non-disturbance
and recognition or similar agreements, bills of sale and
other documents, and has duly effected all recordings,
filings and other actions necessary to establish, protect
and perfect such Borrower's right, title and interest in
and to all such Real Estate and other properties and
assets. Section 4.17 of the Disclosure Schedule also
describes any purchase options, rights of first refusal
or other similar contractual rights pertaining to any
Real Estate. As of the Closing Date, no portion of any
Borrower's Real Estate has suffered any material damage
by fire or other casualty loss which has not heretofore
been repaired and restored in all material respects to
its original condition or otherwise remedied. As of the
Closing Date, all material permits required to have been
issued to enable the Real Estate to be lawfully occupied
and used for all of the purposes for which they are
currently occupied and used have been lawfully issued and
are in full force and effect.
4.8 Labor Matters.
--------------
As of the Closing Date (a) no strikes or other
material labor disputes against any Borrower are pending
or, to any Borrower's knowledge, threatened; (b) hours
worked by and payment made to employees of each Borrower
comply with the Fair Labor Standards Act and each other
federal, state, local or foreign law applicable to such
matter; (c) all payments due from any Borrower for
employee health and welfare insurance have been paid or
accrued as a liability on the books of such Borrower; (d)
except as set forth in Section 4.8 of the Disclosure
Schedule, no Borrower is a party to or bound by any
collective bargaining agreement, management agreement,
consulting agreement or any employment agreement (and
true and complete copies of any agreements described on
Section 4.8 of the Disclosure Schedule have been
delivered to the Lender); (e) there is no organizing
activity involving any Borrower pending or, to any
23
Borrower's knowledge, threatened by any labor union or
group of employees; (f) there are no representation
proceedings pending or, to any Borrower's knowledge,
threatened with the National Labor Relations Board, and
no labor organization or group of employees of any
Borrower has made a pending demand for recognition; and
(g) except as set forth in Section 4.8 of the Disclosure
Schedule, there are no complaints or charges against any
Borrower pending or, to the knowledge of any Borrower,
threatened to be filed with any Governmental Authority or
arbitrator based on, arising out of, in connection with,
or otherwise relating to the employment or termination of
employment by any Borrower of any individual.
4.9 Ventures; Subsidiaries and Affiliates; Outstanding
--------------------------------------------------
Stock and Indebtedness.
-----------------------
Except as set forth on Section 4.9 of the
Disclosure Schedule, no Borrower has any Subsidiaries, is
engaged in any joint venture or partnership with any
other Person, or is an Affiliate of any Person other than
the other Borrowers. All of the issued and outstanding
Stock of each Borrower that is a corporation is owned by
each of the stockholders and in the amounts set forth on
Section 4.9 of the Disclosure Schedule. Except as set
forth on Section 4.9 of Disclosure Schedule, there are no
outstanding rights to purchase, options, warrants or
similar rights or agreements pursuant to which any
Borrower may be required to issue, sell, repurchase or
redeem any of its Stock or other equity securities, or
interests or any Stock or other equity securities of its
Subsidiaries. As of the Closing Date, the Borrowers have
no Indebtedness or Guaranteed Indebtedness except as set
forth on Section 7.3 of the Disclosure Schedule.
4.10 Government Regulation.
----------------------
No Borrower is an "investment company" or an
"affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company," as such terms
are defined in the Investment Company Act of 1940, as
amended. No Borrower is subject to regulation under the
Public Utility Holding Company Act of 1935, as amended,
the Federal Power Act, as amended, or any other federal
or state statute that restricts or limits its ability to
incur Indebtedness or to perform its obligations
hereunder. The issuance of the Securities by the
Borrowers to the Lenders, the application of the proceeds
from the sale thereof and repayment thereof, and the
issuance of the Common Stock upon conversion of the Notes
or exercise of the Warrants will not violate any
provision of any such statute or any rule, regulation or
order issued by the Securities and Exchange Commission.
4.11 Margin Regulations.
--------------------
24
No Borrower is engaged, nor will it engage,
principally or as one of its important activities, in the
business of extending credit for the purpose of "pur
chasing" or "carrying" any "margin security" as such
terms are defined in Regulation U or G of the Federal
Reserve Board as now and from time to time hereafter in
effect (such securities being referred to herein as
"Margin Stock"). No Borrower owns any Margin Stock, and
none of the proceeds of the Notes or other extensions of
credit under this Agreement will be used, directly or
indirectly, for the purpose of purchasing or carrying any
Margin Stock, for the purpose of reducing or retiring any
Indebtedness which was originally incurred to purchase or
carry any Margin Stock or for any other purpose which
might cause any of the Notes or other extensions of
credit under this Agreement to be considered a "purpose
credit" within the meaning of Regulation G, U or X of the
Federal Reserve Board. No Borrower will take or permit
to be taken any action which might cause any Note
Document to violate any regulation of the Federal Reserve
Board.
4.12 Taxes.
------
All tax returns, reports and statements,
including information returns, required by any
Governmental Authority to be filed by any Borrower have
been filed with the appropriate Governmental Authority
and all Charges have been paid prior to the date on which
any fine, penalty, interest or late charge may be added
thereto for nonpayment thereof (or any such fine,
penalty, interest, late charge or loss has been paid),
excluding Charges or other amounts being contested in
accordance with Section 6.2(b). Proper and accurate
amounts have been withheld by each Borrower from its
respective employees for all periods in full and complete
compliance with all applicable federal, state, local and
foreign law and such withholdings have been timely paid
to the respective Governmental Authorities. Section 4.12
of the Disclosure Schedule sets forth as of the Closing
Date those taxable years for which any Borrower's tax
returns are currently being audited by the IRS or any
other applicable Governmental Authority and any
assessments or threatened assessments in connection with
such audit, or otherwise currently outstanding. Except
as described on Section 4.12 of the Disclosure Schedule,
no Borrower has executed or filed with the IRS or any
other Governmental Authority any agreement or other
document extending, or having the effect of extending,
the period for assessment or collection of any Charges.
None of the Borrowers and their respective predecessors
are liable for any Charges: (a) under any agreement
(including any tax sharing agreements) or (b) to each
Borrower's knowledge, as a transferee. As of the Closing
Date, no Borrower has agreed or been requested to make
any adjustment under IRC Section 481(a), by reason of a
change in accounting method or otherwise, which would
have a Material Adverse Effect.
25
4.13 ERISA.
-----
(1) Section 4.13 of the Disclosure Schedule lists and
separately identifies all Title IV Plans, Multiemployer
Plans, ESOPs and Retiree Welfare Plans. Copies of all
such listed Plans, together with a copy of the latest
form 5500 for each such Plan, have been delivered to the
Lender. Each Qualified Plan has been determined by the
IRS to qualify under Section 401 of the IRC, and the
trusts created thereunder have been determined to be
exempt from tax under the provisions of Section 501 of
the IRC, and nothing has occurred which would cause the
loss of such qualification or tax-exempt status. Each
Plan is in compliance with the applicable provisions of
ERISA and the IRC, including the filing of reports
required under the IRC or ERISA. No Borrower or ERISA
Affiliate has failed to make any contribution or pay any
amount due as required by either Section 412 of the IRC
or Section 302 of ERISA or the terms of any such Plan.
No Borrower or ERISA Affiliate has engaged in a
prohibited transaction, as defined in Section 4975 of the
IRC, in connection with any Plan, which would subject any
Borrower to a material tax on prohibited transactions
imposed by Section 4975 of the IRC.
(2) Except as set forth in Section 4.13 of the
Disclosure Schedule: (i) no Title IV Plan has any
Unfunded Pension Liability; (ii) no ERISA Event or event
described in Section 4062(e) of ERISA with respect to any
Title IV Plan has occurred or is reasonably expected to
occur; (iii) there are no pending, or to the knowledge of
any Borrower, threatened claims (other than claims for
benefits in the normal course), sanctions, actions or
lawsuits, asserted or instituted against any Plan or any
Person as fiduciary or sponsor of any Plan; (iv) no
Borrower or ERISA Affiliate has incurred or reasonably
expects to incur any liability as a result of a complete
or partial withdrawal from a Multiemployer Plan; (v)
within the last five years no Title IV Plan with Unfunded
Pension Liabilities has been transferred outside of the
"controlled group" (within the meaning of Section 4001
(a)(14) of ERISA) of any Borrower or ERISA Affiliate; and
(vi) no liability under any Title IV Plan has been
satisfied with the purchase of a contract from an
insurance company that is not rated AAA by the Standard &
Poor's Corporation or the equivalent by another
nationally recognized rating agency.
4.14 No Litigation.
--------------
No action, claim, lawsuit, demand,
investigation or proceeding is now pending or, to the
knowledge of any Borrower, threatened against any
Borrower, before any Governmental Authority or before any
arbitrator or panel of arbitrators (collectively,
26
"Litigation"), (a) which challenges any Borrower's right
or power to enter into or perform any of its obligations
under the Note Documents to which it is a party, or the
validity or enforceability of any Note Document or any
action taken thereunder, or (b) which has a reasonable
risk of being determined adversely to any Borrower and
which, if so determined, could reasonably be expected to
have a Material Adverse Effect. Except as set forth on
Section 4.14 of the Disclosure Schedule, as of the
Closing Date there is no Litigation pending or threatened
which seeks damages in excess of $100,000 or injunctive
relief or alleges criminal misconduct of any Borrower.
4.15 Brokers.
--------
Except as set forth on Section 4.15 of the
Disclosure Schedule, no broker or finder acting on behalf
of any Borrower brought about the issuance or sale of
the Securities or the transactions contemplated by this
Agreement, and no Borrower has any obligation to any
Person in respect of any finder's or brokerage fees in
connection therewith.
4.16 Intellectual Property.
-----------------------
As of the Closing Date, each Borrower owns or
has rights to use all Intellectual Property necessary to
continue to conduct its business as now or heretofore
conducted by it or proposed to be conducted by it, and
each Patent, Trademark, registered Copyright and License
is listed, together with application or registration
numbers, as applicable, on Section 4.16 of the Disclosure
Schedule. Each Borrower conducts its business and
affairs without infringement of or interference with any
Intellectual Property of any other Person.
4.17 Full Disclosure.
----------------
No information contained in this Agreement, any
of the other Note Documents, any Projections, Financial
Statements or Collateral Reports or other reports from
time to time delivered hereunder or any written statement
furnished by or on behalf of any Borrower to the Lender
pursuant to the terms of this Agreement contains or will
contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading
in light of the circumstances under which they were made.
The Liens granted to the Lender pursuant to the
Collateral Documents will at all times be fully perfected
first priority Liens in and to the Collateral described
therein, subject, as to priority, only to Permitted
Encumbrances with respect to the Collateral.
27
4.18 Environmental Matters.
----------------------
(1) Except as set forth on Section 4.18 of the
Disclosure Schedule, as of the Closing Date: (i) the Real
Estate is free of contamination from any Hazardous
Material except for such contamination that would not
result in Environmental Liabilities which could
reasonably be expected to have a Material Adverse Effect;
(ii) no Borrower has caused or suffered to occur any
Release of Hazardous Materials on, at, in, under, above,
to, from or about any of its Real Estate, except for such
Releases as would not result in Environmental Liabilities
which could reasonably be expected to have a Material
Adverse Effect; (iii) the Borrowers are and have been in
compliance with all Environmental Laws, except for such
noncompliance which would not result in Environmental
Liabilities which could reasonably be expected to have a
Material Adverse Effect; (iv) the Borrowers have
obtained, and are in compliance with, all Environmental
Permits required by Environmental Laws for the operations
of their respective businesses as presently conducted or
as proposed to be conducted, except where the failure to
so obtain or comply with such Environmental Permits would
not result in Environmental Liabilities which could
reasonably be expected to have a Material Adverse Effect,
and all such Environmental Permits are valid, uncontested
and in good standing; (v) no Borrower is involved in
operations or knows of any facts, circumstances or
conditions, including any Releases of Hazardous
Materials, that are likely to result in any Environmental
Liabilities of such Borrower which could reasonably be
expected to have a Material Adverse Effect, and no
Borrower has permitted any current or former tenant or
occupant of the Real Estate to engage in any such
operations; (vi) there is no Litigation arising under or
related to any Environmental Laws, Environmental Permits
or Hazardous Material which seeks damages, penalties,
fines, costs or expenses in excess of $25,000 or
injunctive relief, or which alleges criminal misconduct
by any Borrower; (vii) no notice has been received by any
Borrower identifying it as a "potentially responsible
party" or requesting information under CERCLA or
analogous state statutes, and to the knowledge of the
Borrowers, there are no facts, circumstances or
conditions that may result in any Borrower being
identified as a "potentially responsible party" under
CERCLA or analogous state statutes; and (viii) the
Borrowers have provided to the Lender copies of all
existing environmental reports and audits in their posses
sion pertaining to actual or potential Environmental
Liabilities, in each case relating to any Real Estate.
(2) Each Borrower hereby acknowledges and agrees that
the Lender (i) is not now, and has not ever been, in
control of any of the Real Estate or any Borrower's
affairs, and (ii) does not have the capacity through the
28
provisions of the Note Documents or otherwise to
influence any Borrower's conduct with respect to the
ownership, operation or management of any of its Real
Estate or compliance with Environmental Laws or
Environmental Permits.
4.19 Insurance.
----------
Section 4.19 of the Disclosure Schedule lists
all insurance policies of any nature maintained, as of
the Closing Date, for current occurrences by each
Borrower, as well as a summary of the terms of each such
policy.
4.20 Bank Accounts.
--------------
Section 4.20 of the Disclosure Schedule lists
all banks and other financial institutions at which any
Borrower maintains deposits and/or other accounts as of
the Closing Date, and such Schedule correctly identifies
the name, address and telephone number of each
depository, the name in which the account is held, a
description of the purpose of the account, and the
complete account number.
4.21 Government Contracts.
---------------------
Except as set forth on Section 4.21 of the
Disclosure Schedule, as of the Closing Date, no Borrower
is a party to any contract or agreement with any
Governmental Authority and no Borrower's Accounts are
subject to the Federal Assignment of Claims Act of 1940,
as amended (31 U.S.C. Section 3727), or any similar state
or local law.
4.22 Customer and Trade Relations.
-----------------------------
Except as set forth on Section 4.22 of the
Disclosure Schedule, as of the Closing Date, there exists
no actual or, to the knowledge of any Borrower,
threatened termination or cancellation of, or any
material adverse modification or change in: the business
relationship of any Borrower with any customer or group
of customers whose purchases during the preceding twelve
(12) months caused them to be ranked among the ten
largest customers of such Borrower; or the business
relationship of any Borrower with any supplier material
to its operations.
4.23 Agreements and Other Documents.
-------------------------------
As of the Closing Date, each Borrower has
provided to the Lender or its counsel, on behalf of
Lenders, accurate and complete copies (or summaries) of
29
all of the following agreements or documents to which any
it is subject and each of which are listed on Section
4.23 of the Disclosure Schedule: (a) supply agreements
and purchase agreements not terminable by such Borrower
within sixty (60) days following written notice issued by
such Borrower and involving transactions in excess of
$1,000,000 per annum; (b) any lease of Equipment having a
remaining term of one year or longer and requiring
aggregate rental and other payments in excess of $500,000
per annum; (c) licenses and permits held by the
Borrowers, the absence of which could be reasonably
likely to have a Material Adverse Effect; (d) instruments
or documents evidencing Indebtedness of such Borrower and
any security interest granted by such Borrower with
respect thereto; and (e) instruments and agreements
evidencing the issuance of any equity securities,
warrants, rights or options to purchase equity securities
of such Borrower.
4.24 Solvency.
---------
Immediately after giving effect to (a)
the sale of Securities by the Borrower on the Closing
Date or such other date as Notes requested hereunder are
issued, (b) the disbursement of the proceeds of the sale
of the Securities pursuant to the instructions of Parent,
and (c) the payment and accrual of all transaction costs
in connection with the foregoing, each Borrower is
Solvent.
4.25 Valid Issuance of Securities.
-----------------------------
Upon issuance and delivery of (a) certificates representing the Term A
Shares and (b) the shares of Common Stock issuable upon
conversion of any Notes or exercise of any Warrants, such
shares of Common Stock will be validly issued, fully
paid, non-assessable and free of preemptive rights or
similar rights of stockholders of Parent, and free and
clear of all Liens or other encumbrances.
4A. REPRESENTATIONS AND WARRANTIES OF THE LENDER
4A.1 Acquisition for Own Account. The Securities to
be purchased by the Lender hereunder shall be acquired
for investment for the Lender's own account, not as a
nominee or agent, and not with a view to the public
resale or distribution thereof, and, except with respect
to the sale of participations in the Securities discussed
herein, the Lender has no present intention of selling or
otherwise distributing the same. The Lender has not been
formed for the specific purpose of acquiring the
Securities.
4A.2 Adequate Information. The Lender has received
or has had full access to all the information it
considers necessary or appropriate to make an informed
investment decision with respect to the Securities to be
30
purchased under this Agreement. The Lender further has
had an opportunity to ask questions and receive answers
from the Borrowers regarding the terms and conditions of
the offering of the Securities and to obtain additional
information (to the extent the Borrowers possessed such
information or could acquire it without unreasonable
effort or expense) necessary to verify any information
furnished to the Lender or to which the Lender had
access.
4A.3 Acknowledgment of Risk. The Lender understands
that the purchase of the Securities involves substantial
risk. The Lender acknowledges that the Lender is able to
fend for itself, can bear the economic risk of the
Lender's investment in the Securities and has such
knowledge and experience in financial or business matters
that the Lender is capable of evaluating the merits and
risks of this investment in the Securities and protecting
its own interests in connection with this investment.
4A.4 Accredited Investor. The Lender is an
"accredited investor" within the meaning of Regulation D
promulgated under the Securities Act.
4A.5 Restrictions on Distribution. The Lender
understands that the Securities are characterized as
"restricted securities" under the Securities Act inasmuch
as they are being acquired from the Borrowers in a
transaction not involving a public offering and that
under the Securities Act and applicable regulations
thereunder such securities may be resold without
registration under the Securities Act only in certain
limited circumstances. Further, the Lender represents
that the Lender is familiar with Rule 144 of the
Commission, as presently in effect, and understands the
resale limitations imposed thereby and by the Securities
Act. The Lender understands that Parent is under no
obligation to register any of the securities sold
hereunder except as provided in the Registration Rights
Agreement.
5. COVENANTS: FINANCIAL STATEMENTS AND INFORMATION
5.1 Reports and Notices. Borrowers shall deliver or
cause to be delivered to the Lender the following:
(1) Quarterly Financials. Within forty-five (45) days
after the end of each Fiscal Quarter, consolidated
financial information regarding Borrowers, certified by
the Chief Financial Officer of Parent, including (i)
unaudited balance sheets as of the close of such Fiscal
Quarter and the related statements of income and cash
flow for that portion of the Fiscal Year ending as of the
close of such Fiscal Quarter and (ii) unaudited
statements of income and cash flows for such Fiscal
31
Quarter, in each case setting forth in comparative form
the figures for the corresponding period in the prior
year and the figures contained in the Projections for
such Fiscal Year, all prepared in accordance with GAAP
(subject to normal year-end adjustments). Such financial
information shall be accompanied by (A) a compliance
Certificate in respect of each of the financial covenants
set forth on Annex B which is tested on a quarterly basis
and (B) the certification of the Chief Financial Officer
of Parent that (i) such financial information presents
fairly in accordance with GAAP (subject to normal year-
end adjustments) the financial position, results of
operations and statements of cash flows of Borrowers and
their Subsidiaries, on a consolidated basis, as at the
end of such Fiscal Quarter and for the period then ended,
(ii) any other information presented is true, correct and
complete in all material respects and that there was no
Default or Event of Default in existence as of such time
or, if a Default or Event of Default shall have occurred
and be continuing, describing the nature thereof and all
efforts undertaken to cure such Default or Event of
Default. In addition, Borrowers shall deliver to the
Lender, within forty-five (45) days after the end of each
Fiscal Quarter, a management discussion and analysis
which includes a comparison to budget for that Fiscal
Quarter and a comparison of performance for that Fiscal
Quarter to the corresponding period in the prior year;
(2) Operating Plan. As soon as available, but not later
than thirty (30) days after the end of each Fiscal Year,
an annual operating plan for the Borrowers, approved by
the Board of Directors of Parent, for the following year,
which will include a statement of all of the material
assumptions on which such plan is based, will include
quarterly balance sheets and a quarterly budget for the
following year and will integrate sales, gross profits,
operating expenses, operating profit and cash flow
projections all prepared on the same basis and in similar
detail as that on which operating results are reported
(and in the case of cash flow projections, representing
management's good faith estimates of future financial
performance based on historical performance), and
including plans for personnel, Capital Expenditures and
facilities;
(3) Annual Audited Financials. Within ninety (90) days
after the end of each Fiscal Year, audited Financial
Statements for Borrowers and their Subsidiaries on a
consolidated basis, consisting of balance sheets and
statements of income and retained earnings and cash
flows, setting forth in comparative form in each case the
figures for the previous Fiscal Year which Financial
Statements shall be prepared in accordance with GAAP,
certified without qualification, by an independent
certified public accounting firm of national standing or
otherwise acceptable to the Lender. Such Financial
Statements shall be accompanied by (i) a statement
prepared in reasonable detail showing the calculations
used in determining compliance with each of the financial
covenants set forth on Annex B, (ii) a report from such
accounting firm to the effect that, in connection with
32
their audit examination, nothing has come to their
attention to cause them to believe that a Default or
Event of Default has occurred (or specifying those
Defaults and Events of Default that they became aware
of), it being understood that such audit examination
extended only to accounting matters that no special
investigation was made with respect to the existence of
Defaults or Events of Default, (iii) the annual letters
to such accountants in connection with their audit
examination detailing contingent liabilities and material
litigation matters, and (iv) the certification of the
Chief Executive Officer or Chief Financial Officer of
Borrowers that all such Financial Statements present
fairly in accordance with GAAP the financial position,
results of operations and statements of cash flows of
Borrowers and their Subsidiaries on a consolidated basis,
as at the end of such year and for the period then ended,
and that there was no Default or Event of Default in
existence as of such time or, if a Default or Event of
Default shall have occurred and be continuing, describing
the nature thereof and all efforts undertaken to cure
such Default or Event of Default; and (vi) a letter from
the Chief Financial Officer of Borrower addressed to the
Lender, in form and substance reasonably satisfactory to
the Lender, setting forth a comparison of the figures for
the previous Fiscal Year against the figures contained in
the Projections for such Fiscal Year;
(4) Management Letters. Within five (5) Business Days
after receipt thereof by any Borrower, copies of all
management letters, exception reports or similar letters
or reports received by such Borrower from its independent
certified public accountants;
(5) Default Notices. As soon as practicable, and in any
event within five (5) Business Days after an executive
officer of any Borrower has actual knowledge of the
existence of any Default, Event of Default or other event
which has had a Material Adverse Effect, telephonic or
telecopies notice specifying the nature of such Default
or Event of Default or other event, including the
anticipated effect thereof, which notice, if given
telephonically, shall be promptly confirmed in writing on
the next Business Day;
(6) SEC Filing and Press Releases. Promptly upon their
becoming available, copies of: (i) all SEC Reports made
publicly available by Parent to its security holders; and
(ii) all press releases and other statements made
available by any Parent to the public concerning material
adverse changes or developments in the business of any
such Person;
(7) Supplemental Schedules. To the Lender, supplemental
disclosures, if any, required by Section 6.6 of the
Agreement;
33
(8) Litigation. Promptly upon learning thereof, notice
of any Litigation commenced or threatened against any
Borrower that (i) seeks damages in excess of $100,000,
(ii) seeks injunctive relief, (iii) is asserted or
instituted against any Plan, its fiduciaries or its
assets or against any Borrower or ERISA Affiliate in
connection with any Plan, (iv) alleges criminal
misconduct by any Borrower, or (v) alleges the violation
of any law regarding, or seeks remedies in connection
with, any Environmental Liabilities;
(9) Insurance Notices. Disclosure of losses or
casualties required by Section 6.4 of the Agreement;
(10) Lease/Warehouse Notices. To Agent, copies of (i) any
and all default notices received under or with respect to
any leased location or public warehouse where Collateral
is located, and (ii) such other notices or documents as
Agent may request respecting such leased locations or
public warehouses; and
(11) Other Documents. Such other financial and other
information respecting any Borrower's business or
financial condition as the Lender shall, from time to
time, request in its reasonable discretion.
5.2 Communication with Accountants.
-------------------------------
Each Borrower executing this Agreement
authorizes the Lender to communicate directly with its
independent certified public accountants, and authorizes
and shall instruct those accountants and advisors to
disclose and make available to the Lender any and all
Financial Statements and other supporting financial
documents, schedules and information relating to any
Borrower (including copies of any issued management
letters) with respect to the business, financial
condition and other affairs of any Borrower in a manner
consistent with the policies of such accountants and
advisors.
6. AFFIRMATIVE COVENANTS
Each Borrower jointly and severally agrees as to all
Borrowers that from and after the date hereof and until
the Termination Date:
6.1 Maintenance of Existence and Conduct of Business.
-------------------------------------------------
34
Each Borrower shall do or cause to be done all
things necessary to preserve and keep in full force and
effect its corporate existence and its rights and
franchises; continue to conduct its business
substantially as now conducted or as otherwise permitted
hereunder; at all times maintain, preserve and protect
all of its assets and properties used or useful in the
conduct of its business, and keep the same in good
repair, working order and condition in all material
respects (taking into consideration ordinary wear and
tear) and from time to time make, or cause to be made,
all necessary or appropriate repairs, replacements and
improvements thereto consistent with industry practices;
and transact business only in such corporate and trade
names as are set forth on Section 6.1 of the Disclosure
Schedule.
6.2 Payment of Obligations.
-----------------------
(1) Subject to Section 6.2(b), each Borrower shall pay
and discharge or cause to be paid and discharged promptly
all Charges payable by it, including (A) Charges imposed
upon it, its income and profits, or any of its property
(real, personal or mixed) and all Charges with respect to
tax, social security and unemployment withholding with
respect to its employees, and (B) lawful claims for
labor, materials, supplies and services or otherwise,
before any thereof shall become past due.
(2) Each Borrower may in good faith contest, by
appropriate proceedings, the validity or amount of any
Charges or claims described in Section 6.2(a); provided,
that (i) at the time of commencement of any such contest
no Default or Event of Default shall have occurred and be
continuing, (ii) adequate reserves with respect to such
contest are maintained on the books of such Borrower, in
accordance with GAAP, (iii) such contest is maintained
and prosecuted continuously and with diligence and
operates to suspend collection or enforcement of such
Charges or claims or any Lien in respect thereof, (iv)
none of the Collateral becomes subject to forfeiture or
loss as a result of such contest, (v) no Lien shall be
imposed to secure payment of such Charges or claims other
than Permitted Encumbrances, (vi) such Borrower shall
promptly pay or discharge such contested Charges or
claims and all additional charges, interest, penalties
and expenses, if any, and shall deliver to the Lender
evidence acceptable to the Lender of such compliance,
payment or discharge, if such contest is terminated or
discontinued adversely to such Borrower or the conditions
set forth in this Section 6.2(b) are no longer met, and
(vii) the Lender has not advised Borrowers in writing
that Lender reasonably believes that nonpayment or
nondischarge thereof could have or result in a Material
Adverse Effect.
6.3 Books and Records.
------------------
35
Each Borrower shall keep adequate books and
records with respect to its business activities in which
proper entries, reflecting all financial transactions,
are made in accordance with GAAP and on a basis
consistent with the Financial Statements contained in the
SEC Reports.
6.4 Insurance: Damage to or Destruction of Collateral.
--------------------------------------------------
(1) The Borrowers shall, at their sole cost and expense,
maintain the policies of insurance described on Section
4.19 of the Disclosure Schedule as in effect on the date
hereof in form and with insurers acceptable to the
Lender. If any Borrower at any time or times hereafter
shall fail to obtain or maintain any of the policies of
insurance required above or to pay all premiums relating
thereto, the Lender may at any time or times thereafter
obtain and maintain such policies of insurance and pay
such premiums and take any other action with respect
thereto which the Lender deems advisable. The Lender
shall have no obligation to obtain insurance for any
Borrower or pay any premiums therefor. By doing so, the
Lender shall not be deemed to have waived any Default or
Event of Default arising from any Borrower's failure to
maintain such insurance or pay any premiums therefor.
All sums so disbursed, including attorneys' fees, court
costs and other charges related thereto, shall be payable
on demand by Borrowers to the Lender and shall be
additional Obligations hereunder secured by the
Collateral.
(2) The Lender reserves the right at any time upon any
change in any Borrower's risk profile (including any
change in the product mix maintained by any Borrower or
any laws affecting the potential liability of such
Borrower) to require additional forms and limits of
insurance to, in the Lender's opinion, adequately protect
Lender's interests in all or any portion of the
Collateral and to ensure that each Borrower is protected
by insurance in amounts and with coverage customary for
its industry. If requested by the Lender, each Borrower
shall deliver to the Lender from time to time a report of
a reputable insurance broker, satisfactory to the Lender,
with respect to its insurance policies.
(3) Each Borrower shall deliver to the Lender, in form
and substance satisfactory to the Lender, endorsements to
(i) all "All Risk" and business interruption insurance
naming the Lender as a loss payee, and (ii) all general
liability and other liability policies naming the Lender
as additional insured. Each Borrower irrevocably makes,
constitutes and appoints the Lender (and all officers,
employees or agents designated by the Lender), so long as
any Default or Event of Default shall have occurred and
be continuing, as such Borrower's true and lawful agent
36
and attorney-in-fact for the purpose of making, settling
and adjusting claims under such "All Risk" policies of
insurance, endorsing the name of such Borrower on any
check or other item of payment for the proceeds of such
"All Risk" policies of insurance and for making all
determinations and decisions with respect to such "All
Risk" policies of insurance. The Lender shall have no
duty to exercise any rights or powers granted to it
pursuant to the foregoing power-of-attorney. Parent
shall promptly notify the Lender of any loss, damage, or
destruction to the Collateral in the amount of $500,000
or more, whether or not covered by insurance. After
deducting from such proceeds the expenses, if any,
incurred by the Lender in the collection or handling
thereof, the Lender may, at its option, apply such
proceeds to the reduction of the Obligations in
accordance with Section 1.6(b), or permit or require the
applicable Borrower to use such money, or any part
thereof, to replace, repair, restore or rebuild the
Collateral in a diligent and expeditious manner with
materials and workmanship of substantially the same
quality as existed before the loss, damage or
destruction.
6.5 Compliance with Laws.
---------------------
Each Borrower shall comply with all federal,
state, local and foreign laws and regulations applicable
to it, including without limitation those relating to
licensing, ERISA and labor matters, except to the extent
that the failure to comply, individually or in the
aggregate, could not reasonably be expected to have a
Material Adverse Effect.
6.6 Supplemental Disclosure.
------------------------
From time to time as may be requested by the
Lender (which request will not be made more frequently
than twice each year absent the occurrence and
continuance of a Default or an Event of Default), the
Borrowers shall supplement each Disclosure Schedule
hereto, or any representation herein or in any other Note
Document, with respect to any matter hereafter arising
which, if existing or occurring at the date of this
Agreement, would have been required to be set forth or
described in such Disclosure Schedule or as an exception
to such representation or which is necessary to correct
any information in such Disclosure Schedule or
representation which has been rendered inaccurate thereby
(and, in the case of any supplements to any Disclosure
Schedule, such Disclosure Schedule shall be appropriately
marked to show the changes made therein);provided that
(a) no such supplement to any such Disclosure Schedule or
representation shall be or be deemed a waiver of any
Default or Event of Default resulting from the matters
disclosed therein, except as consented to by the Lender
in writing; and (b) no supplement shall be required as to
representations and warranties that relate solely to the
Closing Date.
37
6.7 Intellectual Property.
----------------------
Each Borrower will conduct its business and
affairs without infringement of or interference with any
Intellectual Property of any other Person which could
reasonably be expected to have a Material Adverse Effect.
6.8 Environmental Matters.
----------------------
Each Borrower shall and shall cause each Person
within its control to: (a) conduct its operations and
keep and maintain its Real Estate in compliance with all
Environmental Laws and Environmental Permits other than
noncompliance which could not reasonably be expected to
have a Material Adverse Effect; (b) implement any and all
investigation, remediation, removal and response actions
which are necessary to comply with Environmental Laws and
Environmental Permits pertaining to the presence,
generation, treatment, storage, use, disposal,
transportation or Release of any Hazardous Material on,
at, in, under, above, to, from or about any of its Real
Estate; (c) notify the Lender promptly after such
Borrower becomes aware of any violation of Environmental
Laws or Environmental Permits or any Release on, at, in,
under, above, to, from or about any Real Estate which is
reasonably likely to result in Environmental Liabilities
in excess of $500,000; and (d) promptly forward to the
Lender a copy of any order, notice, request for
information or any communication or report received by
such Borrower in connection with any such violation or
Release or any other matter relating to any Environmental
Laws or Environmental Permits that could reasonably be
expected to result in Environmental Liabilities in excess
of $1,000,000 in each case whether or not the
Environmental Protection Agency or any Governmental
Authority has taken or threatened any action in
connection with any such violation or Release. If the
Lender at any time has a reasonable basis to believe that
there may be a violation of any Environmental Laws or
Environmental Permits by any Borrower or any
Environmental Liability arising thereunder, or a Release
of Hazardous Materials on, at, in, under, above, to, from
or about any of its Real Estate, which, in each case,
could reasonably be expected to have a Material Adverse
Effect, then each Borrower shall, upon the Lender's
written request (i) cause the performance of such
environmental audits including subsurface sampling of
soil and groundwater, and preparation of such
environmental reports, at Borrowers' expense, as the
Lender may from time to time reasonably request, which
shall be conducted by reputable environmental consulting
firms reasonably acceptable to the Lender and shall be in
form and substance acceptable to the Lender, and (ii)
permit the Lender or its representatives to have access
to all Real Estate for the purpose of conducting such
environmental audits and testing as the Lender deems
reasonably appropriate, including subsurface sampling of
soil and groundwater. Borrowers shall reimburse the
Lender for the costs of such audits and tests and the
same will constitute a part of the Obligations secured
hereunder.
38
6.9 Landlords' Agreements, Mortgagee Agreements and
-----------------------------------------------
Bailee Letters.
---------------
Each Borrower shall use its best efforts to
obtain a landlord's agreement, mortgagee agreement or
bailee letter, as applicable, from the lessor of each
leased property or mortgagee of owned property or with
respect to any warehouse, processor or converter facility
or other location where Collateral is located, which
agreement or letter shall contain a waiver or
subordination of all Liens or claims that the landlord,
mortgagee or bailee may assert against the Inventory or
Collateral at that location, and shall otherwise be
satisfactory in form and substance to the Lender. After
the Closing Date, no real property or warehouse space
shall be leased or acquired by any Borrower and no
Inventory shall be shipped to a processor or converter
under arrangements established after the Closing Date
without the prior written consent of the Lender, unless
and until a satisfactory landlord or mortgagee agreement
or bailee letter, as appropriate, shall first have been
obtained with respect to such location. Each Borrower
shall timely and fully pay and perform its obligations
under all leases and other agreements with respect to
each leased location or public warehouse where any
Collateral is or may be located. If any Borrower obtains
an ownership interest in any real property following the
Closing Date, such Borrower shall execute and deliver all
documents and instruments necessary to grant the Lender a
fully perfected security interest in such real property.
6.10 Election of Directors.
----------------------
As long as any Notes
As long as any Notes remain outstanding, Parent shall use its
reasonable best efforts to cause the Sunrise Directors to be elected to
the Board of Directors of Parent at each annual meeting
of Parent's stockholders.
6.11 Further Assurances.
-------------------
Each Borrower agrees that it shall and shall
cause each other Borrower to, at such Borrower's expense
and upon request of the Lender, duly execute and deliver,
or cause to be duly executed and delivered, to the Lender
such further instruments and do and cause to be done such
further acts as may be necessary or proper in the
reasonable opinion of the Lender to carry out more
effectively the provisions and purposes of this Agreement
or any other Note Document.
39
7. NEGATIVE COVENANTS
Each Borrower jointly and severally agrees as to all
Borrowers that, without the prior written consent of the
Lender, from and after the date hereof until the
Termination Date:
7.1 Mergers, Subsidiaries, Etc.
---------------------------
No Borrower shall directly or indirectly, by
operation of law or otherwise, (a) form or acquire any
Subsidiary, or (b) merge with, consolidate with, acquire
all or substantially all of the assets or capital stock
of, or otherwise combine with or acquire, any Person.
7.2 Investments; Notes and Advances.
--------------------------------
Except as otherwise expressly permitted by this
Section 7, no Borrower shall make or permit to exist any
investment in, or make, accrue or permit to exist loans
or advances of money to, any Person, through the direct
or indirect lending of money, holding of securities or
otherwise, except that (a) Borrowers may hold investments
comprised of notes payable, or stock or other securities
issued by Account Debtors to any Borrower pursuant to
negotiated agreements with respect to settlement of such
Account Debtor's Accounts in the ordinary course of
business, so long as the aggregate amount of such
Accounts so settled by Borrowers does not exceed
$250,000; and (b) provided that no Event of Default shall
have occurred and be continuing and that the Lender has a
first priority perfected security interest therein
pursuant to a Control Letter, Borrowers may make and own
investments in (i) marketable direct obligations issued
or unconditionally guaranteed by the United States of
America or any agency thereof maturing within one year
from the date of acquisition thereof, (ii) commercial
paper maturing no more than one year from the date of
creation thereof and currently having the highest rating
obtainable from either Standard & Poor's Ratings Group or
Moody's Investors Service, Inc., (iii) certificates of
deposit maturing no more than one year from the date of
creation thereof or overnight repurchase obligations
issued by commercial banks incorporated under the laws of
the United States of America, each having combined
capital, surplus and undivided profits of not less than
$200,000,000 and having a senior unsecured rating of "A"
or better by a nationally recognized rating agency,
provided that the aggregate amount invested in such
certificates of deposit shall not at any time exceed
$500,000 for any one such certificate of deposit and
$1,000,000 for any one such bank, (iv) time deposits,
maturing no more than thirty (30) days from the date of
creation thereof with commercial banks or savings and
loan associations each having membership either in the
Federal Deposit Insurance Corporation or in the Federal
Savings and Loan Insurance Corporation and in amounts not
exceeding the maximum amounts of insurance thereunder,
and (v) any other type of investment not exceeding
$1,000,000 in the aggregate at any time outstanding.
40
7.3 Indebtedness.
-------------
(1) No Borrower shall create, incur, assume or permit to
exist any Indebtedness, except (without duplication) (i)
Indebtedness secured by purchase money security interests
permitted in clause (c) of Section 7.7, (ii) Indebtedness
under the Existing Senior Credit Facility in an aggregate
principal amount not to exceed $23.0 million at any time
outstanding; provided, that Indebtedness permitted by
this clause (ii) shall be $25.0 million if the Term B
Notes have not been sold to the Lender; (iii) the Notes
and the other Obligations, (iii) deferred taxes, (iv) un
funded pension fund and other employee benefit plan
obligations and liabilities to the extent they are
permitted to remain unfunded under applicable law, (v)
existing Indebtedness described on Section 7.3 of the
Disclosure Schedule and refinancings thereof or
amendments or modifications thereto which do not have the
effect of increasing the principal amount thereof or
changing the amortization thereof (other than to extend
the same) and which are otherwise on terms and conditions
no less favorable to any Borrower or the Lender, as
reasonably determined by the Lender, than the terms of
the Indebtedness being refinanced, amended or modified,
(vi) Indebtedness consisting of intercompany loans and
advances made by any Borrower to any other Borrower or
Foreign Subsidiary, provided that (A) each obligor of
such loans or advances shall have executed and delivered
to the Borrower making such loan or advances, on the
Closing Date, a demand note (collectively, the
"Intercompany Notes") to evidence any such intercompany
Indebtedness owing at any time by such obligor to such
Borrower, which Intercompany Notes shall be in form and
substance satisfactory to the Lender and shall be pledged
and delivered to the Lender pursuant to the applicable
Pledge Agreement or Security Agreement as additional
collateral security for the Obligations; (B) each
Borrower shall record all intercompany transactions on
its books and records in a manner satisfactory to the
Lender; (C) at the time any such intercompany loan or
advance is made by any Borrower to any other Borrower and
after giving effect thereto, each such Borrower shall be
Solvent; and (D) no Default or Event of Default would
occur and be continuing after giving effect to any such
proposed intercompany loan.
41
(2) No Borrower shall, directly or indirectly,
voluntarily purchase, redeem, defease or prepay any
principal of, premium, if any, interest or other amount
payable in respect of any Indebtedness, other than (i)
the Obligations, (ii) Indebtedness secured by a Permitted
Encumbrance if the asset securing such Indebtedness has
been sold or otherwise disposed of in accordance with
Sections 7.8(b), or (iii) other Indebtedness not in
excess of $500,000.
7.4 Employee Notes and Affiliate Transactions.
------------------------------------------
(1) Except as otherwise expressly permitted in this
Section 7 with respect to Affiliates, no Borrower shall
enter into or be a party to any transaction with any
other Borrower or any Affiliate thereof except (i)
transfers of equipment and sales of inventory between
Borrowers in the ordinary course of business; provided
that such assets are physically moved to the premises of
the transferee and each Borrower continues to be Solvent
after giving effect to any such transfer; and (ii) other
transactions in the ordinary course of and pursuant to
the reasonable requirements of such Borrower's business
(but expressly excluding any Restricted Payments except
as expressly permitted in Section 7.14) and, in each
case, upon fair and reasonable terms that are no less
favorable to such Borrower than would be obtained in a
comparable arm's length transaction with a Person not an
Affiliate of such Borrower. In addition, if any such
transaction or series of related transactions involves
payments in excess of $1,000,000 in the aggregate, the
terms of these transactions must be disclosed in advance
to the Lender. All such transactions existing as of the
date hereof are described on Section 7.4(a) of the
Disclosure Schedule.
(2) No Borrower shall enter into any lending or
borrowing transaction with any employees of any Borrower,
except loans to their respective employees on an arms-
length basis in the ordinary course of business
consistent with past practices for travel expenses,
relocation costs and similar purposes up to a maximum of
$100,000 to any employee and up to a maximum of $500,000
in the aggregate at any one time outstanding.
7.5 Capital Structure and Business.
-------------------------------
No Borrower shall (a) make any changes in any
of its business objectives, purposes or operations which
could in any way adversely affect the repayment of the
Notes or any of the other Obligations or could reasonably
be expected to result in a Material Adverse Effect, (b)
except as contemplated by this Agreement, make any change
in its capital structure as described on Section 4.9 of
42
the Disclosure Schedule, including the issuance of any
shares of Stock, warrants or other securities convertible
into Stock or any revision of the terms of its
outstanding Stock, except that Parent may issue shares to
Borrowers' employees upon exercise of options or pursuant
to Parent's employee stock option plan, or (c) amend its
charter or bylaws in a manner which would adversely
affect the Lender or such Borrower's duty or ability to
repay the Obligations. No Borrower shall engage in any
business other than the businesses currently engaged in
by it or businesses reasonably related thereto.
7.6 Guaranteed Indebtedness.
-------------------------
No Borrower shall create, incur, assume or
permit to exist any Guaranteed Indebtedness except (a) by
endorsement of instruments or items of payment for
deposit to the general account of any Borrower, and (b)
for Guaranteed Indebtedness incurred for the benefit of
any other Borrower if the primary obligation is expressly
permitted by this Agreement.
7.7 Liens.
------
No Borrower shall create, incur, assume or
permit to exist any Lien on or with respect to its
Accounts or any of its other properties or assets
(whether now owned or hereafter acquired) except for (a)
Permitted Encumbrances; (b) Liens in existence on the
date hereof and summarized on Section 7.7 of the
Disclosure Schedule; (c) Liens created after the date
hereof by conditional sale or other title retention
agreements (including Capital Leases) or in connection
with purchase money Indebtedness with respect to
Equipment and Fixtures acquired by any Borrower in the
ordinary course of business, involving the incurrence of
an aggregate amount of purchase money Indebtedness and
Capital Lease Obligations of not more than $500,000
outstanding at any one time for all such Liens (provided
that such Liens attach only to the assets subject to such
purchase money debt and such Indebtedness is incurred
within twenty (20) days following such purchase and does
not exceed 100% of the purchase price of the subject
assets). In addition, no Borrower shall become a party
to any agreement, note, indenture or instrument, or take
any other action, which would prohibit the creation of a
Lien on any of its properties or other assets in favor of
the Lender, on behalf of itself and Lenders, as
additional collateral for the Obligations, except
operating leases, Capital Leases or Licenses which
prohibit Liens upon the assets that are subject thereto.
7.8 Sale of Stock and Assets.
-------------------------
43
No Borrower shall sell, transfer, convey,
assign or otherwise dispose of any of its properties or
other assets, including the capital Stock of any of its
Subsidiaries and any of their Accounts, other than (a)
the sale of Inventory in the ordinary course of business,
(b) the sale, transfer, conveyance or other disposition
by a Borrower of Equipment or Fixtures that are obsolete
or no longer used or useful in such Borrower's business
and having a value not exceeding $100,000 in an, single
transaction or $500,000 in the aggregate in any Fiscal
Year, and (c) those dispositions set forth in Section 7.8
of the Disclosure Schedule. With respect to any
disposition of assets or other properties permitted
pursuant to clause (b) and clause (c) above, the Lender
agrees on reasonable prior written notice to release its
Lien on such assets or other properties in order to
permit the applicable Borrower to effect such disposition
and shall execute and deliver to Borrowers, at Borrowers'
expense, appropriate UCC-3 termination statements and
other releases as reasonably requested by Borrowers.
7.9 ERISA.
-----
No Borrower shall, or shall cause or permit any
ERISA Affiliate to, cause or permit to occur an event
which could result in the imposition of a Lien under
Section 412 of the IRC or Section 302 or 4068 of ERISA.
7.10 Financial Covenants.
--------------------
Borrowers shall not breach or fail to comply
with any of the Financial Covenants (the "Financial
Covenants") set forth on Annex B.
7.11 Hazardous Materials.
--------------------
No Borrower shall cause or permit a Release of
any Hazardous Material on, at, in, under, above, to, from
or about any of the Real Estate where such Release would
violate, or form the basis for Environmental Liabilities
under, any Environmental Laws or Environmental Permits,
other than such violations or Environmental Liabilities
which could not reasonably be expected to have a Material
Adverse Effect.
7.12 Sale-Leasebacks.
----------------
No Borrower shall engage in any sale-leaseback,
synthetic lease or similar transaction involving any of
its assets.
44
7.13 Cancellation of Indebtedness.
No Borrower shall cancel any claim or debt
owing to it, except for reasonable consideration
negotiated on an arms-length basis and in the ordinary
course of its business consistent with past practices.
7.14 Restricted Payments.
No Borrower shall make any Restricted Payment,
except (a) intercompany loans and advances between
Borrowers to the extent permitted by Section 7.3 above;
(b) dividends and distributions by a Borrower to such
Borrower as owns all of its capital stock; and (c)
employee loans permitted under Section 7.4(b) above.
7.15 Change of Corporate Name or Location; Change of
Fiscal Year.
No Borrower shall not (a) change its corporate
name, or (b) change its chief executive office, principal
place of business, corporate offices or warehouses or
locations at which Collateral is held or stored, or the
location of its records concerning the Collateral, in any
case without at least thirty (30) days prior written
notice to the Lender and after the Lender's written
acknowledgment that any reasonable action requested by
the Lender in connection therewith, including to continue
the perfection of any Liens in favor of the Lender in any
Collateral, has been completed or taken, and provided
that any such new location shall be in the continental
United States. Without limiting the foregoing, no
Borrower shall change its name, identity or corporate
structure in any manner which might make any financing or
continuation statement filed in connection herewith
seriously misleading within the meaning of Section 9-
402(7) of the Code or any other then applicable provision
of the Code except upon prior written notice to the
Lender and after the Lender's written acknowledgment that
any reasonable action requested by the Lender in
connection therewith, including to continue the
perfection of any Liens in favor of the Lender in any
Collateral, has been completed or taken. No Borrower
shall change its Fiscal Year.
7.16 No Impairment of Intercompany Transfers.
No Borrower shall directly or indirectly enter
into or become bound by any agreement, instrument,
45
indenture or other obligation (other than this Agreement
and the other Note Documents) which could directly or
indirectly restrict, prohibit or require the consent of
any Person with respect to the payment of dividends or
distributions or the making or repayment of intercompany
loans by a Subsidiary of any Borrower to any Borrower or
between Borrowers.
7.17 No Speculative Transactions.
No Borrower shall engage in any transaction
involving commodity options, futures contracts or similar
transactions, except solely to hedge against fluctuations
in the prices of commodities owned or purchased by it and
the values of foreign currencies receivable or payable by
it and interest swaps, caps or collars.
7.18 Leases.
No Borrower shall enter into any operating
lease for Equipment or Real Estate, if the aggregate of
all such operating lease payments payable in any year
for Borrowers on a consolidated basis would exceed
$500,000.
8. TERM
8.1 Termination.
The financing arrangements contemplated hereby
shall be in effect until the Maturity Date and the Notes
and all other Obligations shall be automatically due and
payable in full on such date.
8.2 Survival of Obligations Upon Termination of
Financing Arrangements.
Except as otherwise expressly provided for in
the Note Documents, no termination or cancellation
(regardless of cause or procedure) of any Note or any
financing arrangement under this Agreement shall in any
way affect or impair the obligations, duties and
liabilities of the Borrowers or the rights of the Lender
relating to any unpaid portion of the Notes or any other
Obligations, due or not due, liquidated, contingent or
unliquidated or any transaction or event occurring prior
to such termination, or any transaction or event, the
performance of which is required after the Commitment
Termination Date. Except as otherwise expressly provided
herein or in any other Note Document, all undertakings,
agreements, covenants, warranties and representations of
or binding upon the Borrowers, and all rights of the
Lender, all as contained in the Note Documents, shall not
terminate or expire, but rather shall survive any such
46
termination or cancellation and shall continue in full
force and effect until the Termination Date; provided
however, that in all events the provisions of Section 12,
the payment obligations under Sections 1.2, 1.4 and 1.5,
and the indemnities contained in the Note Documents shall
survive the Termination Date.
9. EVENTS OF DEFAULT: RIGHTS AND REMEDIES
9.1 Events of Default.
The occurrence of any one or more of the
following events (regardless of the reason therefor)
shall constitute an "Event of Default" hereunder:
(1) Any Borrower (i) fails to make any payment of
principal of, or interest on, or Fees owing in respect
of, the Notes or any of the other Obligations when due
and payable, whether by acceleration or otherwise, or
(ii) fails to pay or reimburse the Lender for any expense
reimbursable hereunder or under any other Note Document
within ten (10) days following the Lender demand for such
reimbursement or payment of expenses.
(2) Any Borrower shall fail or neglect to perform, keep
or observe any of the provisions of Sections 1.4, 1.5,
6.4 or 7, or any of the provisions set forth on Annex B.
(3) Any Borrower shall fail or neglect to perform, keep
or observe any of the provisions of Section 5 and the
same shall remain unremedied for three (3) Business Days
or more.
(4) Any Borrower shall fail or neglect to perform, keep
or observe any other provision of this Agreement or of
any of the other Note Documents (other than any provision
embodied in or covered by any other clause of this
Section 9.1) and the some shall remain unremedied for
thirty (30) days or more.
(5) A default or breach shall occur under any other
agreement, document or instrument to which any Borrower
is a party which is not cured within any applicable grace
period, and such default or breach (i) involves the
failure to make any payment when due in respect of any
Indebtedness (other than the Obligations) of any Borrower
in excess of $100,000 in the aggregate, or (ii) causes,
or permits any holder of such Indebtedness or a trustee
to cause, Indebtedness or a portion thereof in excess of
$200,000 in the aggregate to become due prior to its
stated maturity or prior to its regularly scheduled dates
of payment, regardless of whether such default is waived,
or such right is exercised, by such holder or trustee.
47
(6) Assets of any Borrower with a fair market value of
$200,000 or more shall be attached, seized, levied upon
or subjected to a writ or distress warrant, or come
within the possession of any receiver, trustee, custodian
or assignee for the benefit of creditors of any Borrower
and such condition continues for thirty (30) days or
more.
(7) A case or proceeding shall have been commenced
against any Borrower seeking a decree or order in respect
of any Borrower (i) under Title 11 of the United States
Code, as now constituted or hereafter amended or any
other applicable federal, state or foreign bankruptcy or
other similar law, (ii) appointing a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or similar
official) for any Borrower or of any substantial part of
any such Person's assets, or (iii) ordering the winding
up or liquidation of the affairs of any Borrower, and
such case or proceeding shall remain undismissed or
unstayed for sixty (60) days or more or such court shall
enter a decree or order granting the relief sought in
such case or proceeding.
(8) Any Borrower (i) shall file a petition seeking
relief under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable
federal, state or foreign bankruptcy or other similar
law, (ii) shall fail to contest in a timely and
appropriate manner or shall consent to the institution of
proceedings thereunder or to the filing of any such
petition or to the appointment of or taking possession by
a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or similar official) of any Borrower or of
any substantial part of any such Person's assets, (iii)
shall make an assignment for the benefit of creditors,
(iv) shall take any corporate action in furtherance of
any of the foregoing; or (v) shall admit in writing its
inability to, or shall be generally unable to, pay its
debts as such debts become due.
(9) A final judgment or judgments for the payment of
money in excess of $100,000 in the aggregate at any time
outstanding shall be rendered against any Borrower and
the same shall not, within thirty (30) days after the
entry thereof, have been discharged or execution thereof
stayed or bonded pending appeal, or shall not have been
discharged prior to the expiration of any such stay.
(10) Any material provision of any Note Document shall
for any reason cease to be valid, binding and enforceable
48
in accordance with its terms (or any Borrower shall
challenge the enforceability of any Note Document or
shall assert in writing, or engage in any action or
inaction based on any such assertion, that any provision
of any of the Note Documents has ceased to be or
otherwise is not valid, binding and enforceable in
accordance with its terms), or any security interest
created under any Note Document shall cease to be a valid
and perfected first priority security interest or Lien
(except as otherwise permitted herein or therein) in any
of the Collateral purported to be covered thereby.
(11) Any Change of Control shall occur.
(12) Any event shall occur, whether or not insured or
insurable, as a result of which revenue-producing
activities cease or are substantially curtailed at any
facility of Borrowers generating more than 25% of
Borrowers' consolidated revenues for the Fiscal Year
preceding such event and such cessation or curtailment
continues for more than thirty (30) days.
9.2 Remedies.
(1) If any Default or Event of Default shall have
occurred and be continuing, the Lender may, without
notice except as otherwise expressly provided herein,
increase the rate of interest applicable to the Notes to
the Default Rate as provided in Section 1.4(e).
(2) If any Event of Default shall have occurred and be
continuing, the Lender may, without notice, (i) declare
all or any portion of the Obligations, including all or
any portion of any Note to be forthwith due and payable,
all without presentment, demand, protest or further
notice of any kind, all of which are expressly waived by
Borrowers and each other Borrower; and (ii) exercise any
rights and remedies provided to the Lender under the Note
Documents and/or at law or equity, including all remedies
provided under the Code; provided, however, that upon the
occurrence of an Event of Default specified in Sections
9.1(g), (h) or (i), all of the Obligations, shall become
immediately due and payable without declaration, notice
or demand by any Person.
9.3 Waivers by Borrowers.
Except as otherwise provided for in this
Agreement or by applicable law, each Borrower waives:
(a) presentment, demand and protest and notice of
presentment, dishonor, notice of intent to accelerate,
notice of acceleration, protest, default, nonpayment,
maturity, release, compromise, settlement, extension or
renewal of any or all commercial paper, accounts,
49
contract rights, documents, instruments, chattel paper
and guaranties at any time held by the Lender on which
any Borrower may in any way be liable, and hereby
ratifies and confirms whatever the Lender may do in this
regard, (b) all rights to notice and a hearing prior to
the Lender's taking possession or control of, or to the
Lender's replevy, attachment or levy upon, the Collateral
or any bond or security which might be required by any
court prior to allowing the Lender to exercise any of its
remedies, and (c) the benefit of all valuation,
appraisal, marshaling and exemption laws.
10. ASSIGNMENTS AND PARTICIPATIONS
10.1 Assignments.
(1) The Borrowers signatory hereto consent to the
Lender's assignment of, and/or sale of participations in,
at any time or times, the Note Documents, Notes, or of
any portion thereof or interest therein, including the
Lender's rights, title, interests, remedies, powers or
duties thereunder, whether evidenced by a writing or not.
Any assignment by the Lender shall require the consent of
Borrowers (which shall not be unreasonably withheld or
delayed), except that the consent of Borrowers shall not
be required for an assignment by the Lender to an
affiliate (i.e., an entity controlling, controlled by or
under common control with the assigning Lender) or during
the existence and continuance of a Default or an Event of
Default, and the execution of an assignment agreement;
(ii) be conditioned on the assignee lender representing
to the assigning Lender that it is purchasing the
applicable Notes to be assigned to it for its own
account, for investment purposes and not with a view to
the distribution thereof; and (iii) if a partial
assignment, be in an amount at least equal to $1,000,000.
In the case of an assignment by the Lender under this
Section 10.1, the assignee shall have, to the extent of
such assignment, the same rights, benefits and
obligations as it would if it were a Lender hereunder.
The assigning Lender shall be relieved of its obligations
hereunder with respect to its Commitments or assigned
portion thereof from and after the date of such
assignment. Each Borrower hereby acknowledges and agrees
that any assignment will give rise to a direct obligation
of Borrowers to the assignee and that the assignee shall
have all the rights and remedies of the Lender. In the
event the Lender assigns or otherwise transfers all or
any part of a Note, the Lender shall so notify Borrowers
and Borrowers shall, upon the request of the Lender,
execute new Notes in exchange for the Notes being
assigned. Notwithstanding the foregoing provisions of
this Section 10.1(a), the Lender may at any time pledge
or assign all or any portion of its rights under this
Agreement and the other Note Documents to a Federal
Reserve Bank; provided, however, that no such pledge or
50
assignment shall release the Lender from its obligations
hereunder or under any other Note Document.
(2) Any participation by a Lender of all or any part of
any Note shall be made with the understanding that all
amounts payable by Borrowers hereunder shall be
determined as if that Lender had not sold such
participation, and that the holder of any such
participation shall not be entitled to require such
Lender to take or omit to take any action hereunder
except actions directly affecting (i) any reduction in
the principal amount of, or interest rate or Fees payable
with respect to, any Note in which such holder
participates, (ii) any extension of the scheduled
amortization of the principal amount of any Note in which
such holder participates or the final maturity date
thereof, and (iii) any release of all or substantially
all of the Collateral (other than in accordance with the
terms of this Agreement, the Collateral Documents or the
other Note Documents). Solely for purposes of Sections
1.9, 1.11, and 1.12, each Borrower acknowledges and
agrees that a participation shall give rise to a direct
obligation of Borrowers to the participant and the
participant shall be considered to be a "Lender". Except
as set forth in the preceding sentence no Borrower shall
have any obligation or duty to any participant.
(3) Except as expressly provided in this Section 10.1,
no Lender shall be relieved of any of its obligations
hereunder as a result of any sale, assignment, transfer
or negotiation of, or granting of participation in, all
or any part of the Notes or other Obligations owed to
such Lender.
(4) Each Borrower shall assist any Lender permitted to
sell assignments or participations under this Section
10.1 as reasonably required to enable the assigning or
selling Lender to effect any such assignment or
participation, including the execution and delivery of
any and all agreements, notes and other documents and
instruments as shall be requested and, if requested by
the Lender, the preparation of informational materials
for, and the participation of management in meetings
with, potential assignees or participants. Each Borrower
shall certify the correctness, completeness and accuracy
of all descriptions of the Borrowers and their affairs
contained in any selling materials provided by them and
all other information provided by them and included in
such materials, except that any Projections delivered by
Borrowers shall only be certified by Borrowers as having
been prepared by Borrowers in compliance with the
representations contained in Section 4.5.
(5) A Lender may furnish any information concerning
Borrowers in the possession of such Lender from time to
time to assignees (including prospective assignees).
Each Lender shall obtain from assignees or participants
confidentiality covenants substantially equivalent to
those contained in Section 12.8.
51
(6) So long as no Event of Default shall have occurred
and be continuing, the Lender shall not assign or sell
participations in any portion of its Notes, if, as of the
date of the proposed assignment or sale, the assignee or
participant would be subject to capital adequacy or
similar requirements under Section 1.12(a) or increased
costs under Section 1.12(b).
11. SUCCESSORS AND ASSIGNS
11.1 Successors and Assigns.
This Agreement and the other Note Documents
shall be binding on and shall inure to the benefit of
each Borrower, the Lender and their respective successors
and assigns (including, in the case of any Borrower, a
debtor-in-possession on behalf of such Borrower), except
as otherwise provided herein or therein. No Borrower may
assign, transfer, hypothecate or otherwise convey its
rights, benefits, obligations or duties hereunder or
under any of the other Note Documents without the prior
express written consent of the Lender. Any such
purported assignment, transfer, hypothecation or other
conveyance by any Borrower without the prior express
written consent of the Lender shall be void. The terms
and provisions of this Agreement are for the purpose of
defining the relative rights and obligations of each
Borrower and the Lenders with respect to the transactions
contemplated hereby and no Person shall be a third party
beneficiary of any of the terms and provisions of this
Agreement or any of the other Note Documents.
12. MISCELLANEOUS
12.1 Complete Agreement; Modification of Agreement.
The Note Documents constitute the complete
agreement between the parties with respect to the subject
matter thereof and may not be modified, altered or
amended except as set forth in Section 12.2 below. Any
letter of interest, commitment letter, and/or fee letter
(other than the Sunrise Commitment Letter) between any
Borrower and the Lender or any of their respective
affiliates, predating this Agreement and relating to a
financing of substantially similar form, purpose or
effect shall be superseded by this Agreement.
12.2 Amendments and Waivers.
52
No amendment, modification, termination or waiver of
any provision of this Agreement or any of the Notes, or
any consent to any departure by any Borrower therefrom,
shall in any event be effective unless the same shall be
in writing and signed by the Lender and Borrowers.
12.3 Fees and Expenses.
Borrowers shall reimburse the Lender for all
out-of-pocket expenses incurred in connection with the
preparation of the Note Documents (including the
reasonable fees and expenses of all of its counsel,
advisors, consultants and auditors retained in connection
with the Note Documents and the transactions contemplated
thereby and advice in connection therewith). Borrowers
shall reimburse the Lenders for all fees, costs and
expenses, including the reasonable fees, costs and
expenses of counsel or other advisors (including
environmental and management consultants and appraisers)
for advice, assistance, or other representation in
connection with:
(1) the forwarding to Borrowers or any other Person on
behalf of Borrowers of the proceeds of the sale of the
Notes or the other Securities;
(2) any amendment, modification or waiver of, or consent
with respect to, any of the Note Documents or advice in
connection with the administration of the loans evidenced
by the Notes made pursuant hereto or its rights hereunder
or thereunder;
(3) any litigation, contest, dispute, suit, proceeding
or action (whether instituted by the Lender, any Borrower
or any other Person) in any way relating to the
Collateral, any of the Note Documents or any other
agreement to be executed or delivered in connection
therewith or herewith, whether as party, witness, or
otherwise, including any litigation, contest, dispute,
suit, case, proceeding or action, and any appeal or
review thereof, in connection with a case commenced by or
against any or all of the Borrowers or any other Person
that may be obligated to the Lender by virtue of the Note
Documents; including any such litigation, contest,
dispute, suit, proceeding or action arising in connection
with any work-out or restructuring of the Notes during
the pendency of one or more Events of Default;
(4) any attempt to enforce any remedies of the Lender
against any or all of the Borrowers or any other Person
that may be obligated to Lender by virtue of any of the
Note Documents; including any such attempt to enforce any
such remedies in the course of any work-out or
restructuring of the Notes during the pendency of one or
more Events of Default;
53
(5) any work-out or restructuring of the Notes during
the pendency of one or more Events of Default;
(6) efforts to (i) monitor the Notes or any of the other
Obligations, (ii) evaluate, observe or assess any of the
Borrowers or their respective affairs, and (iii) verify,
protect, evaluate, assess, appraise, collect, sell,
liquidate or otherwise dispose of any of the Collateral,
provided that with respect to field audits or other
access reviews pursuant to Section 1.10 conducted while
there are no outstanding Events of Default, Borrowers
shall only be obligated to reimburse the Lender for
expenses incurred with respect to one such field audit
per Fiscal Year; including all attorneys' and other
professional and service providers' fees arising from
such services, including those in connection with any
appellate proceedings; and all expenses, costs, charges
and other fees incurred by such counsel and others in any
way or respect arising in connection with or relating to
any of the events or actions described in this Section
12.3 shall be payable, on demand, by Borrowers to the
Lender. Without limiting the generality of the
foregoing, such expenses, costs, charges and fees may
include: fees, costs and expenses of accountants,
environmental advisors, appraisers, field auditors,
management and other consultants and paralegals; court
costs and expenses; photocopying and duplication
expenses; court reporter fees, costs and expenses; long
distance telephone charges; air express charges; telegram
or telecopy charges; secretarial overtime charges; and
expenses for travel, lodging and food paid or incurred in
connection with the performance of such legal or other
advisory services.
12.4 No Waiver.
The Lender's failure, at any time or times, to
require strict performance by the Borrowers of any
provision of this Agreement and any of the other Note
Documents shall not waive, affect or diminish any right
of the Lender thereafter to demand strict compliance and
performance therewith. Any suspension or waiver of an
Event of Default shall not suspend, waive or affect any
other Event of Default whether the same is prior or
subsequent thereto and whether the same or of a different
type. Subject to the provisions of Section 12.2, none of
the undertakings, agreements, warranties, covenants and
representations of any Borrower contained in this
Agreement or any of the other Note Documents and no
Default or Event of Default by any Borrower shall be
deemed to have been suspended or waived by the Lender,
unless such waiver or suspension is by an instrument in
writing signed by an officer of or other authorized
employee of the Lender, and directed to Borrowers
specifying such suspension or waiver.
54
12.5 Remedies.
The Lenders' rights and remedies under this
Agreement shall be cumulative and nonexclusive of any
other rights and remedies which the Lender may have under
any other agreement, including the other Note Documents,
by operation of law or otherwise. Recourse to the
Collateral shall not be required.
12.6 Severability.
Wherever possible, each provision of this
Agreement and the other Note Documents shall be
interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to
the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the
remaining provisions of this Agreement.
12.7 Conflict of Terms.
Except as otherwise provided in this Agreement
or any of the other Note Documents by specific reference
to the applicable provisions of this Agreement, if any
provision contained in this Agreement is in conflict
with, or inconsistent with, any provision in any of the
other Note Documents, the provision contained in this
Agreement shall govern and control.
12.8 Confidentiality.
The Lender agrees to use commercially
reasonable efforts (equivalent to the efforts the Lender
applies to maintaining the confidentiality of its own
confidential information) to maintain as confidential all
confidential information provided to them by the
Borrowers and designated as confidential for a period of
two (2) years following receipt thereof, except that the
Lender may disclose such information (a) to Persons
employed or engaged by the Lender in evaluating,
approving, structuring or administering the Notes; (b) to
any bona fide assignee or potential assignee that has
agreed to comply with the covenant contained in this
Section 12.8 (and any such bona fide assignee or
participant or potential assignee or participant may
disclose such information to Persons employed or engaged
by them as described in clause (a) above); (c) as
required or requested by any Governmental Authority or
reasonably believed by the Lender to be compelled by any
55
court decree, subpoena or legal or administrative order
or process; (d) as, in the opinion of the Lender's
counsel, required by law; (e) in connection with the
exercise of any right or remedy under the Note Documents
or in connection with any Litigation to which the Lender
is a party; or (f) which ceases to be confidential
through no fault of the Lender.
12.9 GOVERNING LAW.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY
OF THE NOTE DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THE
NOTE DOCUMENTS AND THE OBLIGATIONS SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN THAT STATE. EACH BORROWER HEREBY CONSENTS
AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN
THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK SHALL
HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN THE BORROWER AND THE LENDER
PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER NOTE
DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OF THE OTHER NOTE DOCUMENTS. EACH
BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO
SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND EACH BORROWER HEREBY WAIVES ANY OBJECTION
WHICH SUCH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS.
12.10 Notices.
Except as otherwise provided herein, whenever
it is provided herein that any notice, demand, request,
consent, approval, declaration or other communication
shall or may be given to or served upon any of the
parties by any other parties, or whenever any of the
parties desires to give or serve upon any other parties
any communication with respect to this Agreement, each
such notice, demand, request, consent, approval,
declaration or other communication shall be in writing
and shall be deemed to have been validly served, given or
delivered (a) upon the earlier of actual receipt and
three (3) Business Days after deposit in the United
States Mail, registered or certified mail, return receipt
requested, with proper postage prepaid, (b) upon
transmission, when sent by telecopy or other similar
facsimile transmission (with such telecopy or facsimile
56
promptly confirmed by delivery of a copy by personal
delivery or United States Mail as otherwise provided in
this Section 12.10), (c) one (1) Business Day after
deposit with a reputable overnight courier with all
charges prepaid or (d) when delivered, if hand-delivered
by messenger, all of which shall be addressed to the
party to be notified and sent to the address or facsimile
number indicated below or to such other address (or
facsimile number) as may be substituted by notice given
as herein provided. The giving of any notice required
hereunder may be waived in writing by the party entitled
to receive such notice.
Any notices required under this Agreement shall be
delivered
if to the Lender:
Sunrise Capital Partners, L.P.
685 Third Avenue, 15th Floor
New York, NY 10017
Attention: Joseph Julian
Fax: (212) 582-3016
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
4 Times Square
New York, New York 10036
Attention: Eileen T. Nugent
Fax: (212) 735-2000
if to any Borrower:
WPI Group, Inc.
1155 Elm Street
Manchester, NH 03101
Attention: John Allard
Fax: 603-627-3150
with a copy to:
Nixon Peabody LLP
889 Elm Street
Manchester, NH 03101
Attention: Daniel W. Sklar
Fax: 603-628-4040
57
12.11 Section Titles.
The Section titles and Table of Contents
contained in this Agreement are and shall be without
substantive meaning or content of any kind whatsoever and
are not a part of the agreement between the parties
hereto.
12.12 Counterparts.
This Agreement may be executed in any number of
separate counterparts, each of which shall collectively
and separately constitute one agreement.
12.13 WAIVER OF JURY TRIAL.
THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO
RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT
OR OTHERWISE, AMONG THE LENDER AND ANY BORROWER ARISING
OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH,
THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER NOTE
DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
12.14 Reinstatement.
This Agreement shall remain in full force and
effect and continue to be effective should any petition
be filed by or against any Borrower for liquidation or
reorganization, should any Borrower become insolvent or
make an assignment for the benefit of any creditor or
creditors or should a receiver or trustee be appointed
for all or any significant part of any Borrower's assets,
and shall continue to be effective or to be reinstated,
as the case may be, if at any time payment and
performance of the Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in
amount, or must otherwise be restored or returned by any
obligee of the Obligations, whether as a "voidable
preference," "fraudulent conveyance," or otherwise, all
as though such payment or performance had not been made.
In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Obligations
58
shall be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or
returned.
12.15 No Strict Construction.
The parties hereto have participated jointly in
the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any
provisions of this Agreement.
12.16 Joint and Several Obligations.
The Notes and the other Obligations shall
constitute the joint and several obligations of the
Borrowers.
[SIGNATURE PAGE FOLLOWS]
59
IN WITNESS WHEREOF, this Amendment has been duly
executed as of the date first written above.
BORROWERS:
WPI GROUP, INC.,
WPI POWER SYSTEMS, INC.,
WPI MAGNETEC, INC.,
WPI ELECTRONICS, INC.,
WPI TERMIFLEX, INC.,
WPI MICRO PALM, INC.,
WPI MICRO PROCESSOR SYSTEMS,
INC.,
WPI DECISIONKEY, INC.,
WPI UK HOLDING, INC.,
WPI UK HOLDING II, INC.,
WPI OYSTER TERMINALS, INC.,
WPI HUSKY TECHNOLOGY, INC., and
WPI INSTRUMENTS, INC.
By:/s/ John W. Powers
------------------
Name: John W. Powers
Title: Vice President and
Chief Financial Officer
THE LENDER:
SUNRISE CAPITAL PARTNERS, L.P.
By: Sunrise Advisors, LLC,
its General Partner
By:/s/ Joseph A. Julian
--------------------
Name:Joseph A. Julian
Title:Principal
60
ANNEX A
to
CONVERTIBLE NOTE AGREEMENT
DEFINITIONS
Capitalized terms used in the Note Documents shall
have (unless otherwise provided elsewhere in the Note
Documents) the following respective meanings and all
section references in the following definitions shall
refer to Sections of the Agreement:
"Account Debtor" shall mean any Person who may
become obligated to any Borrower under, with respect to,
or on account of, an Account.
"Accounts" shall mean all "accounts," as such term
is defined in the Code, now owned or hereafter acquired
by any Borrower (for purposes of this definition, the
term "Borrower" shall include Foreign Subsidiaries) and,
in any event, including (a) all accounts receivable,
other receivables, book debts and other forms of obliga
tions (other than forms of obligations evidenced by
Chattel Paper, Documents or Instruments) now owned or
hereafter received or acquired by or belonging or owing
to any Borrower, whether arising out of goods sold or
services rendered by it or from any other transaction
(including any such obligations which may be
characterized as an account or contract right under the
Code), (b) all of each Borrower's rights in, to and under
all purchase orders or receipts now owned or hereafter
acquired by it for goods or services, (c) all of each
Borrowers rights to any goods represented by any of the
foregoing (including unpaid sellers' rights of
rescission, replevin, reclamation and stoppage in transit
and rights to returned, reclaimed or repossessed goods),
(d) all monies due or to become due to any Borrower,
under all purchase orders and contracts for the sale of
goods or the performance of services or both by such
Borrower or in connection with any other transaction
(whether or not yet earned by performance on the part of
such Borrower) now or hereafter in existence, including
the right to receive the proceeds of said purchase orders
and contracts, and (e) all collateral security and
guarantees of any kind, now or hereafter in existence,
given by any Person with respect to any of the foregoing.
"Affiliate" shall mean, with respect to any Person,
(a) each Person that, directly or indirectly, owns or
controls, whether beneficially, or as a trustee, guardian
or other fiduciary, five percent (5%) or more of the
Stock having ordinary voting power in the election of
directors of such Persons, (b) each Person that controls,
is controlled by or is under common control with such
Person, (c) each of such Person's officers, directors,
A-1
joint venturers and partners and (d) in the case of
Borrowers, the immediate family members, spouses and
lineal descendants of individuals who are Affiliates of
any Borrower.
"Agreement" shall mean the Convertible Note
Agreement, dated as of the Closing Date, by and among
Borrowers and the Lender.
"ANG Notes" shall have the meaning assigned to it in
the recitals to the Agreement.
"Appendices" shall have the meaning assigned to it
in the recitals to the Agreement.
"Borrowers" and "Borrower" shall have the respective
meanings assigned thereto in the recitals to the
Agreement.
"Business Day" shall mean any day that is not a
Saturday, a Sunday or a day on which banks are required
or permitted to be closed in the State of New York.
"Bylaws Amendment" shall mean the amendment to the
bylaws of Parent, substantially in the form of Exhibit J
attached to the Agreement.
"Capital Expenditures" shall mean, with respect to
any Person, all expenditures (by the expenditure of cash
or the incurrence of Indebtedness) by such Person during
any measuring period for any fixed assets or improvements
or for replacements, substitutions or additions thereto,
that have a useful life of more than one year and that
are required to be capitalized under GAAP.
"Capital Lease" shall mean, with respect to any
Person, any lease of any property (whether real, personal
or mixed) by such Person as lessee that, in accordance
with GAAP, would be required to be classified and
accounted for as a capital lease on a balance sheet of
such Person.
"Capital Lease Obligation" shall mean, with respect
to any Capital Lease of any Person, the amount of the
obligation of the lessee thereunder that, in accordance
with GAAP, would appear on a balance sheet of such lessee
in respect of such Capital Lease.
"Change of Control" shall mean any event,
transaction or occurrence as a result of which (a) Parent
shall cease to own and control all of the economic and
A-2
voting rights associated with all of the outstanding
Stock of the other Borrowers, or (b) if any person or
group of persons (within the meaning of the Securities
Exchange Act of 1934, as amended) shall have acquired
beneficial ownership (within the meaning of Rule 13d-3
promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended) of
20% or more of the issued and outstanding capital Stock
of Parent having the right to vote for the election of
directors of Parent under ordinary circumstances.
"Charges" shall mean all federal, state, county,
city, municipal, local, foreign or other governmental
taxes (including taxes owed to the PBGC at the time due
and payable), levies, assessments, charges, liens, claims
or encumbrances upon or relating to (a) the Collateral,
(b) the Obligations, (c) the employees, payroll, income
or gross receipts of any Borrower, (b) any Borrower's
ownership or use of any properties or other assets, or
(e) any other aspect of any Borrower's business.
"Charter Amendment" shall mean the amendment to
Parent's Articles of Incorporation increasing the number
of authorized shares of Common Stock of Parent from
20,000,000 to 75,000,000.
"Chattel Paper" shall mean any "chattel paper," as
such term is defined in the Code, now owned or hereafter
acquired by any Borrower, wherever located.
"Closing Date" shall mean the date on which all of
the conditions precedent to the purchase of the Term A
Securities shall have been satisfied by the Borrowers or
waived by Sunrise, or such other date as may be agreed
upon between the parties.
"Code" shall mean the Uniform Commercial Code as the
same may, from time to time, be enacted and in effect in
the State of New York; provided, however, in the event
that, by reason of mandatory provisions of law, any or
all of the attachment, perfection or priority of the
Lender's security interest in any Collateral is governed
by the Uniform Commercial Code as enacted and in effect
in a jurisdiction other than the State of New York, the
term "Code" shall mean the Uniform Commercial Code as
enacted and in effect in such other jurisdiction solely
for purposes of the provisions hereof relating to such
attachment, perfection or priority and for purposes of
definitions related to such provisions.
"Collateral" shall mean the property covered by the
Security Agreement, the Mortgages and the other
Collateral Documents and any other property, real or
personal, tangible or intangible, now existing or
hereafter acquired, that may at any time be or become
subject to a security interest or Lien in favor of the
Lender to secure the Obligations.
A-3
"Collateral Documents" shall mean the Security
Agreement, the Pledge Agreements, the Security Agreements
(Intellectual Property) and all similar agreements
entered into guaranteeing payment of, or granting a Lien
upon property as security for payment of, the
Obligations.
"Common Stock" shall mean the common stock, par
value $.01 per share, of Parent.
"Contracts" shall mean all "contracts," as such term
is defined in the Code, now owned or hereafter acquired
by any Borrower, in any event, including all contracts,
undertakings, or agreements (other than rights evidenced
by Chattel Paper, Documents or Instruments) in or under
which any Borrower may now or hereafter have any right,
title or interest, including any agreement relating to
the terms of payment or the terms of performance of any
Account.
"Control Letter" means a letter agreement between
the Lender and (i) the issuer of uncertificated
securities with respect to uncertificated securities in
the name of any Borrower, (ii) a securities intermediary
with respect to securities, whether certificated or
uncertificated, securities entitlements and other
financial assets held in a securities account in the name
of any Borrower, (iii) a futures commission merchant or
clearing house with respect to commodity accounts and
commodity contracts held by any Borrower, whereby, among
other things, the issuer, securities intermediary or
futures commission merchant disclaims any security
interest in the applicable financial assets, acknowledges
the Lien of the Lender on such financial assets, and
agrees to follow the instructions or entitlement orders
of the Lender without further consent by the affected
Borrower.
"Conversion Price" shall mean the Initial Conversion
Price as adjusted from time to time in accordance with
Section 2.3 of the Agreement.
"Copyright License" shall mean any and all rights
now owned or hereafter acquired by any Borrower under any
written agreement granting any right to use any Copyright
or Copyright registration.
"Copyrights" shall mean all of the following now
owned or hereafter acquired by any Borrower: (a) all
copyrights and general intangibles of like nature
(whether registered or unregistered), now owned or
existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all
applications in connection therewith, including all
registrations, recordings and applications in the United
States Copyright Office or in any similar office or
agency of the United States, any state or territory
thereof, or any other country or any political
subdivision thereof, and (b) all reissues, extensions or
renewals thereof.
A-4
"Current Assets" shall mean, with respect to any
Person, all current assets of such Person as of any date
of determination calculated in accordance with GAAP, but
excluding cash, cash equivalents and debts due from
Affiliates.
"Current Credit Facilities" shall have the meaning
assigned thereto in the recitals to the Agreement.
"Current Liabilities" shall mean, with respect to
any Person, all liabilities which should, in accordance
with GAAP, be classified as current liabilities, and in
any event shall include all Indebtedness payable on
demand or within one year from any date of determination
without any option on the part of the obligor to extend
or renew beyond such year, all accruals for federal or
other taxes based on or measured by income and payable
within such year, and the current portion of long-term
debt required to be paid within one year.
"Current Ratio" shall mean, with respect to any
Person as of any date of determination, the ratio of (a)
Current Assets, to (b) Current Liabilities.
"Default" shall mean any event which, with the
passage of time or notice or both, would, unless cured or
waived, become an Event of Default.
"Default Rate" shall have the meaning assigned to it
in Section 1.4(e) of the Agreement.
"Disclosure Schedules" shall mean the Schedules
prepared by Borrowers attached to the Agreement.
"Documents" shall mean any "documents," as such term
is defined in the Code, now owned or hereafter acquired
by any Borrower, wherever located.
"Dollars" or "$" shall mean lawful currency of the
United States of America.
"EBITDA" shall mean, with respect to Borrowers for
any fiscal period, an amount equal to (a) consolidated
net income of Borrowers for such period, minus (b) the
sum of (i) income tax credits, (ii) interest income,
(iii) gain from extraordinary items for such period, (iv)
any aggregate net gain during such period arising from
A-5
the sale, exchange or other disposition of capital assets
by Borrowers (including any fixed assets, whether
tangible or intangible, all inventory sold in conjunction
with the disposition of fixed assets and all securities),
and (v) any other non-cash gains which have been added in
determining consolidated net income, in each case to the
extent included in the calculation of consolidated net
income of Borrowers for such period in accordance with
GAAP, but without duplication, plus (c) the sum of (i)
any provision for income taxes, (ii) Interest Expense,
(iii) loss from extraordinary items for such period, (iv)
the amount of non-cash charges (including depreciation
and amortization) for such period, and (v) an aggregate
net loss during such period arising from the sale,
exchange or other disposition of capital assets by
Borrowers (including any fixed assets, whether tangible
or intangible, all inventory sold in conjunction with the
disposition of fixed assets and all securities), in each
case to the extent included in the calculation of
consolidated net income of Borrowers for such period in
accordance with GAAP, but without duplication. For
purposes of this definition, the following items shall be
excluded in determining consolidated net income of
Borrowers: (1) the income (or deficit) of any other
Person accrued prior to the date it became a Subsidiary
of, or was merged or consolidated into, a Borrower or any
Borrower's Subsidiaries; (2) the income (or deficit) of
any other Person (other than a Subsidiary) in which any
Borrower has an ownership interest, except to the extent
any such income has actually been received by a Borrower
in the form of cash dividends or distributions; (3) the
undistributed earnings of any Subsidiary of a Borrower to
the extent that the declaration or payment of dividends
or similar distributions by such Subsidiary is not at the
time permitted by the terms of any contractual obligation
or requirement of law applicable to such Subsidiary; (4)
any restoration to income of any contingency reserve,
except to the extent that provision for such reserve was
made out of income accrued during such period; (5) any
write-up of any asset; (6) any net gain from the
collection of the proceeds of life insurance policies;
(7) any net gain arising from the acquisition of any
securities, or the extinguishment, under GAAP, of any
Indebtedness, of a Borrower, (8) in the case of a
successor to a Borrower by consolidation or merger or as
a transferee of its assets, any earnings of such
successor prior to such consolidation, merger or transfer
of assets, and (9) any deferred credit representing the
excess of equity in any Subsidiary of a Borrower at the
date of acquisition of such Subsidiary over the cost to a
Borrower of the investment in such Subsidiary.
"Environmental Laws" shall mean all applicable
federal, state, local and foreign laws, statutes,
ordinances, codes, rules, standards and regulations, now
or hereafter in effect, and in each case as amended or
supplemented from time to time, and any applicable
judicial or administrative interpretation thereof,
including any applicable judicial or administrative
A-6
order, consent decree, order or judgment, imposing
liability or standards of conduct for or relating to the
regulation and protection of human health, safety, the
environment and natural resources (including ambient air,
surface water, groundwater, wetlands, land surface or
subsurface strata, wildlife, aquatic species and
vegetation). Environmental Laws include the Comprehensive
Environmental Response, Compensation, and Liability Act
of 1980 (42 U.S.C. 9601 et seq.) ("CERCLA"); the
Hazardous Materials Transportation Authorization Act of
1994 (49 U.S.C. 5101 et seq.); the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C.
136 et seq); the Solid Waste Disposal Act (42 U.S.C.
55 6901 et seq.); the Toxic Substance Control Act (15
U.S.C. 2601 et seq.); the Clean Air Act (42 U.S.C.
7401 et seq.); the Federal Water Pollution Control Act
(33 U.S.C. 1251 et seq.); the Occupational Safety and
Health Act (29 U.S.C. 651 et seq.); and the Safe
Drinking Water Act (42 U.S.C. 300(f) et seq.), each as
from time to time amended, and any and all regulations
promulgated thereunder, and all analogous state, local
and foreign counterparts or equivalents and any transfer
of ownership notification or approval statutes.
"Environmental Liabilities" shall mean, with respect
to any Person, all liabilities, obligations,
responsibilities, response, remedial and removal costs,
investigation and feasibility study costs, capital costs,
operation and maintenance costs, losses, damages,
punitive damages, property damages, natural resource
damages, consequential damages, treble damages, costs and
expenses (including all fees, disbursements and expenses
of counsel, experts and consultants), fines, penalties,
sanctions and interest incurred as a result of or related
to any claim, suit, action, investigation, proceeding or
demand by any Person, whether based in contract, tort,
implied or express warranty, strict liability, criminal
or civil statute or common law, including any arising
under or related to any Environmental Laws, Environmental
Permits, or in connection with any Release or threatened
Release or presence of a Hazardous Material whether on,
at, in, under, from or about or in the vicinity of any
real or personal property.
"Environmental Permits" shall mean all permits,
licenses, authorizations, certificates, approvals,
registrations required by any Governmental Authority
under any Environmental Laws.
"Equipment" shall mean all "equipment," as such term
is defined in the Code, now owned or hereafter acquired
by any Borrower, wherever located and, in any event,
including all such Borrower's machinery and equipment,
including processing equipment, conveyors, machine tools,
data processing and computer equipment with software and
peripheral equipment (other than software constituting
A-7
part of the Accounts), and all engineering, processing
and manufacturing equipment, office machinery, furniture,
materials handling equipment, tools, attachments,
accessories, automotive equipment, trailers, trucks,
forklifts, molds, dies, stamps, motor vehicles, rolling
stock and other equipment of every kind and nature, trade
fixtures and fixtures not forming a part of real
property, all whether now owned or hereafter acquired,
and wherever situated, together with all additions and
accessions thereto, replacements therefor, all parts
therefor, all substitutes for any of the foregoing, fuel
therefor, and all manuals, drawings, instructions,
warranties and rights with respect thereto, and all
products and proceeds thereof and condemnation awards and
insurance proceeds with respect thereto.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974 (or any successor legislation
thereto), as amended from time to time, and any
regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to any
Borrower, any trade or business (whether or not
incorporated) which, together with such Borrower, are
treated as a single employer within the meaning of
Sections 414(b), (c), (m) or (o) of the IRC.
"ERISA Event" shall mean, with respect to any
Borrower or any ERISA Affiliate, (a) any event described
in Section 4043(c) of ERISA with respect to a Title IV
Plan; (b) the withdrawal of any Borrower or ERISA
Affiliate from a Title IV Plan subject to Section 4063 of
ERISA during a plan year in which it was a substantial
employer, as defined in Section 4001 (a)(2) of ERISA; (c)
the complete or partial withdrawal of any Borrower or any
ERISA Affiliate from any Multiemployer Plan; (d) the
filing of a notice of intent to terminate a Title IV Plan
or the treatment of a plan amendment as a termination
under Section 4041 of ERISA; (e) the institution of
proceedings to terminate a Title IV Plan or Multiemployer
Plan by the PBGC; (f) the failure by any Borrower or
ERISA Affiliate to make when due required contributions
to a Multiemployer Plan or Title IV Plan unless such
failure is cured within 30 days; (g) any other event or
condition which might reasonably be expected to
constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to
administer, any Title IV Plan or Multiemployer Plan or
for the imposition of liability under Section 4069 or
4212(c) of ERISA; (h) the termination of a Multiemployer
Plan under Section 4041A of ERISA or the reorganization
or insolvency of a Multiemployer Plan under Section 4241
of ERISA; or (i) the loss of a Qualified Plan's
qualification or tax exempt status.
A-8
"ESOP" shall mean a Plan which is intended to
satisfy the requirements of Section 4975(e)(7) of the
IRC.
"Event of Default" shall have the meaning assigned
to it in Section 9.1.
"Excess Cash Flow" shall mean, without duplication,
with respect to any Fiscal Year of Borrowers,
consolidated net income plus (a) depreciation, amortiza
tion and Interest Expense to the extent deducted in
determining consolidated net income, plus decreases or
minus increases (as the case may be) in (b) Working
Capital minus (c) Capital Expenditures during such Fiscal
Year (excluding the financed portion thereof), minus (d)
Interest Expense paid (excluding any original issue
discount, interest paid in kind or amortized debt
discount, to the extent included in determining Interest
Expense) and scheduled principal payments paid or payable
in respect of Funded Debt, or minus (as the case may be),
(e) extraordinary gains or losses which are cash items
not included in the calculation of net income, minus (f)
mandatory prepayments paid in cash pursuant to Section
1.6 plus (g) taxes deducted in determining consolidated
net income to the extent not paid for in cash. For
purposes of this definition, "Working Capital" means
Current Assets less Current Liabilities.
"Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
"Existing Senior Credit Facility" shall have the
meaning assigned thereto in the Recitals of the
Agreement.
"Federal Reserve Board" means the Board of Governors
of the Federal Reserve System, or any successor thereto.
"Fees" shall mean any and all fees payable to the
Lender pursuant to the Agreement or any of the other Note
Documents, including without limitation all fees
specified in the Sunrise Commitment Letter.
"Financial Covenants" shall mean those covenants set
forth in Annex C.
"Financial Statements" shall mean the consolidated
and consolidating income statements, statements of cash
flows and balance sheets of Borrowers contained in the
SEC Reports.
A-9
"Fiscal Quarter" shall mean any of the quarterly
accounting periods of Borrowers, ending on each December
31, March 31, June 30 and September 30.
"Fiscal Year" shall mean any of the annual
accounting periods of Borrowers ending on each September
30.
"Fixed Charge Coverage Ratio" shall mean, with
respect to the Borrowers for any period on a combined
basis, the ratio of (a) EBITDA less income taxes paid in
cash and Capital Expenditures to (b) the sum of (i)
Interest Expense paid in cash and (ii) scheduled
principal payments on Funded Debt.
"Fixtures" shall mean any "fixtures" as such term is
defined in the Code, now owned or hereafter acquired by
any Borrower.
"Funded Debt" shall mean, with respect to any
Person, all Indebtedness for borrowed money evidenced by
notes, bonds, debentures, or similar evidences of
Indebtedness and which by its terms matures more than one
year from, or is directly or indirectly renewable or
extendible at such Person's option under a revolving
credit or similar agreement obligating the lender or
lenders to extend credit over a period of more than one
year from the date of creation thereof, and specifically
including Capital Lease Obligations, current maturities
of long-term debt, revolving credit and short-term debt
extendible beyond one year at the option of the debtor,
and also including, in the case of Borrowers, the
Obligations.
"GAAP" shall mean generally accepted accounting
principles in the United States of America as in effect
on the Closing Date, consistently applied.
"General Intangibles" shall mean any "general
intangibles," as such term is defined in the Code, now
owned or hereafter acquired by any Borrower, and, in any
event, including all right, title and interest which such
Borrower may now or hereafter have in or under any
Contract, all customer lists, Licenses, Copyrights,
Trademarks, Patents, and all applications therefor and
reissues, extensions or renewals thereof, rights in
Intellectual Property, interests in partnerships, joint
ventures and other business associations, licenses,
permits, copyrights, trade secrets, proprietary or
confidential information, inventions (whether or not
patented or patentable), technical information,
procedures, designs, knowledge, know-how, software, data
bases, data, skill, expertise, experience, processes,
models, drawings, materials and records, goodwill
(including the goodwill associated with any Trademark or
Trademark License), all rights and claims in or under
insurance policies (including insurance for fire, damage,
loss and casualty, whether covering personal property,
real property, intangible rights, all liability, life,
key man and business interruption insurance, and all
unearned premiums), uncertificated securities, choses in
action, deposit, checking and other bank accounts, rights
to receive tax refunds and other payments, rights of
indemnification, all books and records, correspondence,
credit files, invoices and other papers, including
without limitation all tapes, cards, computer runs and
other papers and documents in the possession or under the
control of such Borrower or any computer bureau or
service company from time to time acting for such
Borrower.
A-10
"Governmental Authority" shall mean any nation or
government, any state or other political subdivision
thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to
government.
"Guaranteed Indebtedness" shall mean, as to any
Person, any obligation of such Person guaranteeing any
indebtedness, lease, dividend, or other obligation
("primary obligations") of any other Person (the "primary
obligor") in any manner, including any obligation or
arrangement of such Person (a) to purchase or repurchase
any such primary obligation, (b) to advance or supply
funds (i) for the purchase or payment of any such primary
obligation or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain
the net worth or solvency or any balance sheet condition
of the primary obligor, (c) to purchase property, securi
ties or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability
of the primary obligor to make payment of such primary
obligation, or (d) to indemnify the owner of such primary
obligation against loss in respect thereof. The amount of
any Guaranteed Indebtedness at any time shall be deemed
to be an amount equal to the lesser at such time of (x)
the stated or determinable amount of the primary
obligation in respect of which such Guaranteed Indebt
edness is made and (y) the maximum amount for which such
Person may be liable pursuant to the terms of the
instrument embodying such Guaranteed Indebtedness; or, if
not stated or determinable, the maximum reasonably
anticipated liability (assuming full performance) in
respect thereof.
"Hazardous Material" shall mean any substance,
material or waste which is regulated by or forms the
basis of liability now or hereafter under, any Environmen
tal Laws, including any material or substance which is
(a) defined as a "solid waste," "hazardous waste,"
"hazardous material," "hazardous substance," "extremely
hazardous waste," "restricted hazardous waste,"
"pollutant," "contaminant," "hazardous constituent,"
"special waste," "toxic substance" under any
Environmental Laws, (b) petroleum or any fraction or by-
product thereof, asbestos, polychlorinated biphenyls
(PCB's), or any radioactive substance.
A-11
"Indebtedness" of any Person shall mean without
duplication (a) all indebtedness of such Person for
borrowed money or for the deferred purchase price of
property payment for which is deferred six (6) months or
more, but excluding obligations to trade creditors
incurred in the ordinary course of business that are not
overdue by more than six (6) months unless being
contested in good faith, (b) all reimbursement and other
obligations with respect to letters of credit, bankers'
acceptances and surety bonds, whether or not matured, (c)
all obligations evidenced by notes, bonds, debentures or
similar instruments, (d) all indebtedness created or
arising under any conditional sale or other title
retention agreement with respect to property acquired by
such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of
default are limited to repossession or sale of such
property), (e) all Capital Lease Obligations, (f) all
obligations of such Person under commodity purchase or
option agreements or other commodity price hedging
arrangements, in each case whether contingent or matured,
(g) all obligations of such Person under any foreign
exchange contract, currency swap agreement, interest rate
swap, cap or collar agreement or other similar agreement
or arrangement designed to alter the risks of that Person
arising from fluctuations in currency values or interest
rates, in each case whether contingent or matured, (h)
all Indebtedness referred to above secured by (or for
which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any
Lien upon or in property or other assets (including
accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for
the payment of such Indebtedness, and (k) the
Obligations.
"Indemnified Liabilities" shall have the meaning
assigned to it in Section 1.12 of the Agreement.
"Indemnified Persons" shall have the meaning
assigned to it in Section 1.12 of the Agreement.
"Initial Conversion Price" shall mean $1.75.
"Instruments" shall mean any "instrument," as such
term is defined in the Code, now owned or hereafter
acquired by any Borrower, wherever located, and, in any
event, including all certificated securities, all
certificates of deposit, and all notes and other, without
limitation, evidences of indebtedness, other than
instruments that constitute, or are a part of a group of
writings that constitute, Chattel Paper.
A-12
"Intellectual Property" shall mean any and all
Licenses, Patents, Copyrights, Trademarks, trade secrets
and customer lists.
"Intercompany Notes" shall have the meaning assigned
to it in Section 6.3 of the Agreement.
"Interest Expense" shall mean, with respect to any
Person for any fiscal period, interest expense (whether
cash or non-cash and including financing commitment fees)
of such Person determined in accordance with GAAP for the
relevant period ended on such date, including, in any
event, interest expense with respect to any Funded Debt
of such Person.
"Inventory" shall mean any "inventory," as such term
is defined in the Code, now or hereafter owned or
acquired by any Borrower (for purposes of this
definition, the term "Borrower" shall include Foreign
Subsidiaries), wherever located, and in any event
including inventory, merchandise, goods and other
personal property which are held by or on behalf of any
Borrower for sale or lease or are furnished or are to be
furnished under a contract of service, or which
constitute raw materials, work in process or materials
used or consumed or to be used or consumed in such
Borrower's business or in the processing, production,
packaging, promotion, delivery or shipping of the same,
including other supplies.
"Investment Property" shall have the meaning
ascribed thereto in Section 9-115 of the Code in those
jurisdictions in which such definition has been adopted
and shall include (i) all securities, whether
certificated or uncertificated, including stocks, bonds,
interests in limited liability companies, partnership
interests, treasuries, certificates of deposit, and
mutual fund shares; (ii) all securities entitlements of
any Borrower, including the rights of any Borrower to any
securities account and the financial assets held by a
securities intermediary in such securities account and
any free credit balance or other money owing by any
securities intermediary with respect to that account;
(iii) all securities accounts held by any Borrower; (iv)
all commodity contracts held by any Borrower; and (v) all
commodity accounts held by any Borrower.
"IRC" shall mean the Internal Revenue Code of 1986,
as amended.
"IRS" shall mean the Internal Revenue Service, or
any successor thereto.
"Lender" shall mean Sunrise Capital Partners, L.P.
A-13
"License" shall mean any Copyright License, Patent
License, Trademark License or other license of rights or
interests now held or hereafter acquired by any Borrower.
"Lien" shall mean any mortgage or deed of trust,
pledge, hypothecation, assignment, deposit arrangement,
lien, charge, claim, security interest, easement or
encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or
nature whatsoever (including any lease or title retention
agreement, any financing lease having substantially the
same economic effect as any of the foregoing, and the
filing of, or agreement to give, any financing statement
perfecting a security interest under the Code or
comparable law of any jurisdiction).
"Litigation" shall have the meaning assigned to it
in Section 4.14 of the Agreement..
"Loan Account" shall have the meaning assigned to it
in Section 1.8 of the Agreement.
"Mandatory Conversion Amount" shall have the meaning
ascribed thereto in Section 2.2.
"Mandatory Conversion Date" shall have the meaning
ascribed thereto in Section 2.2 of the Agreement.
"Margin Stock" shall have the meaning ascribed
thereto in Section 4.11 of the Agreement.
"Material Adverse Effect" shall mean a material
adverse effect on (a) the business, assets, operations,
prospects, or financial or other condition of any Bor
rower, (b) any Borrower's ability to pay any of the Notes
or any of the other Obligations in accordance with the
terms of the Agreement, (c) the Collateral or the
Lender's Liens on the Collateral or the priority of such
Liens, or (d) the Lender's rights and remedies under the
Agreement and the other Note Documents. Without limiting
the foregoing, any event or occurrence which results or
could reasonably be expected to result in costs or
liabilities in excess of $1,000,000 as of any date of
determination shall be deemed to have had Material
Adverse Effect.
"Maturity Date" shall mean the third anniversary of
the date of the Agreement.
A-14
"Maximum Lawful Rate" shall have the meaning
ascribed thereto in Section 1.4(f) of the Agreement.
"Multiemployer Plan" shall mean a "multiemployer
plan" as defined in Section 400l(a)(3) of ERISA, and to
which any Borrower or ERISA Affiliate is making, is
obligated to make, has made or been obligated to make,
contributions on behalf of participants who are or were
employed by any of them.
"Net Cash Proceeds" shall mean cash proceeds
received from an asset disposition, net of (A)
commissions and other reasonable and customary
transaction costs, fees and expenses properly
attributable to such transaction and payable by Borrowers
in connection therewith (in each case, paid to non-
Affiliates), (B) transfer taxes, (C) amounts payable to
holders of senior Liens (to the extent such Liens
constitute Permitted Encumbrances hereunder), if any, and
(D) an appropriate reserve for income taxes in accordance
with GAAP in connection therewith.
"Net Worth" shall mean, with respect to any Person
as of any date of determination, the book value of the
assets of such Person, minus (a) reserves applicable
thereto, and minus (b) all of such Person's liabilities
on a consolidated basis (including accrued and deferred
income taxes), all as determined in accordance with GAAP.
"Note Documents" shall mean the Agreement, the
Notes, the Collateral Documents and all other agreements,
instruments, documents and certificates executed and
delivered to, or in favor of the Lender and including all
other pledges, powers of attorney, consents, assignments,
contracts, notices, and all other written matter whether
heretofore, now or hereafter executed by or on behalf of
any Borrower, or any employee of any Borrower, and
delivered to the Lender in connection with the Agreement
or the transactions contemplated hereby. Any reference
in the Agreement or any other Note Document to a Note
Document shall include all appendices, exhibits or
schedules thereto, and all amendments, restatements,
supplements or other modifications thereto, and shall
refer to such Agreement as the same may be in effect at
any and all times such reference becomes operative.
"Notes" shall mean the Term A Notes, the Term B
Notes, the Term C Notes and the PIK Notes, collectively.
"Obligations" shall mean all loans, advances, debts,
liabilities and obligations, for the performance of
covenants, tasks or duties or for payment of monetary
amounts (whether or not such performance is then required
or contingent, or such amounts are liquidated or
A-15
determinable) owing by any Borrower to the Lender, and
all covenants and duties regarding such amounts, of any
kind or nature, present or future, whether or not
evidenced by any note, agreement or other instrument,
arising under the Agreement or any of the other Note
Documents. This term includes all principal, interest
(including all interest which accrues after the
commencement of any case or proceeding in bankruptcy
after the insolvency of, or for the reorganization of any
Borrower, whether or not allowed in such proceeding),
Fees, Charges, expenses, attorneys' fees and any other
sum chargeable to any Borrower under the Agreement, the
Notes or any of the other Note Documents.
"Optional Conversion Amount" shall have the meaning
ascribed thereto in Section 2.1 of the Agreement.
"Optional Conversion Date" shall have the meaning
ascribed thereto in Section 2.1 of the Agreement.
"Parent" shall have the meaning ascribed thereto in
the recitals to the Agreement.
"Participation Agreement" shall mean the
Participation Agreement, dated as of the date hereof,
between the Lender and Allard-Nazarian Group, Inc., in
substantially the form as attached to the Agreement as
Exhibit I.
"Patent Security Agreements" shall mean the Patent
Security Agreements made in favor of the Lender by each
applicable Borrower.
"Patent License" shall mean rights under any written
agreement now owned or hereafter acquired by any Borrower
granting any right with respect to any invention on which
a Patent is in existence.
"Patents" shall mean all of the following in which
any Borrower now holds or hereafter acquires any
interest: (a) all letters patent of the United States or
any other country, all registrations and recordings
thereof, and all applications for letters patent of the
United States or any other country, including
registrations, recordings and applications in the United
States Patent and Trademark Office or in any similar of
lice or agency of the United States, any State or
Territory thereof, or any other country, and (b) all
reissues, continuations, continuations-in-part or
extensions thereof.
A-16
"PBGC" shall mean the Pension Benefit Guaranty
Corporation or any successor thereto.
"Permitted Encumbrances" shall mean the following
encumbrances: (a) Liens securing the obligations of the
Borrowers under the Existing Senior Credit Facility; (b)
Liens for taxes or assessments or other governmental
Charges not yet due and payable or being contested in
accordance with Section 5.2(b) of the Agreement; (c)
pledges or deposits of money securing obligations under
workmen's compensation, unemployment insurance, social
security or public liability laws or similar legislation;
(d) pledges or deposits of money securing bids, tenders,
contracts (other than contracts for the payment of money)
or leases to which any Borrower is a party as lessee made
in the ordinary course of business; (e) deposits of money
securing statutory obligations of any Borrower for
workers compensation and similar charges; (f) inchoate
and unperfected workers', mechanics' or similar liens
arising in the ordinary course of business, so long as
such Liens attach only to Equipment, Fixtures and or Real
Estate; (g) carriers', warehousemen's, suppliers' or
other similar possessory liens arising in the ordinary
course of business and securing liabilities in an
outstanding aggregate amount not in excess of $25,000 at
any time, so long as such Liens attach only to Inventory;
(h) deposits securing, or in lieu of, surety, appeal or
customs bonds in proceedings to which any Borrower is a
party; (h) any attachment or judgment lien not
constituting an Event of Default under Section 8.1(j), so
long as such Lien only attaches to Real Estate; (j)
zoning restrictions, easements, licenses, or other
restrictions on the use of any Real Estate or other minor
irregularities in title (including leasehold title)
thereto, so long as the same do not materially impair the
use, value, or marketability of such Real Estate; (k)
presently existing or hereinafter created Liens in favor
of the Lender; and (l) Liens expressly permitted under
clauses (b) and (c) of Section 6.7 of the Agreement.
"Person" shall mean any individual, sole
proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation,
limited liability company, institution, public benefit
corporation, other entity or government (whether federal,
state, county, city, municipal, local, foreign, or
otherwise, including any instrumentality, division,
agency, body or department thereof).
"PIK Note" shall have the meaning ascribed thereto
in Section 1.4(b).
"Plan" shall mean, at any time, an employee benefit
plan, as defined in Section 3(3) of ERISA, which any
Borrower maintains, contributes to or has an obligation
to contribute to on behalf of participants who are or
were employed by any Borrower.
A-17
"Pledge Agreement" shall mean the Stock Pledge and
Security Agreement dated as of the Closing Date between
Borrowers and the Lender pledging to the Lenders the
stock of all Borrowers other than Parent and 65% of the
stock of each Foreign Subsidiary (as required by the
Agreement), in substantially the form as attached to the
Agreement as Exhibit M.
"Proceeds" shall mean "proceeds," as such term is
defined in the Code and, in any event, shall include (a)
any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to any Borrower from time to
time with respect to any of the Collateral, (b) any and
all payments (in any form whatsoever) made or due and
payable to any Borrower from time to time in connection
with any requisition, confiscation, condemnation, seizure
or forfeiture of all or any part of the Collateral by any
Governmental Authority (or any Person acting under color
of governmental authority), (c) any claim of any Borrower
against third parties (i) for past, present or future
infringement of any Patent or Patent License, or (ii) for
past, present or future infringement or dilution of any
Copyright, Copyright License, Trademark or Trademark
License, or for injury to the goodwill associated with
any Trademark or Trademark License, (d) any recoveries by
any Borrower against third parties with respect to any
litigation or dispute concerning any of the Collateral,
and (e) any and all other amounts from time to time paid
or payable under or in connection with any of the
Collateral, upon disposition or otherwise.
"Projections" means Borrowers' forecasted
consolidated: (a) balance sheets; (b) profit and loss
statements; (c) cash flow statements; and (d)
capitalization statements, all prepared on a Subsidiary
by Subsidiary or division by division basis, if
applicable, and otherwise consistent with the historical
Financial Statements of the Borrowers, together with
appropriate supporting details and a statement of underly
ing assumptions, and such additional detail as requested
by the Lender.
"Qualified Plan" shall mean a Plan which is intended
to be tax-qualified under Section 401(a) of the IRC.
"Real Estate" shall have the meaning assigned to it
in Section 3.6 of the Agreement.
"Registration Rights Agreement" shall mean the
Registration Rights Agreement, substantially in the form
attached as Exhibit F to the Agreement.
"Release" shall mean any spill, emission, leaking,
pumping. pouring, emitting, emptying, escape, injection,
deposit, disposal, discharge, dispersal, dumping,
A-18
leaching or migration of Hazardous Material in the indoor
or outdoor environment, including the movement of
Hazardous Material through or in the air, soil, surface
water, ground water or property.
"Restricted Payment" shall mean (a) the declaration
or payment of any dividend or the incurrence of any
liability to make any other payment or distribution of
cash or other property or assets in respect of a Person's
Stock, (b) any payment on account of the purchase,
redemption, defiance, sinking fund or other retirement of
a Person's Stock or any other payment or distribution
made in respect thereof, either directly or indirectly,
(c) any payment or prepayment of principal of, premium,
if any, or interest, fees or other charges on or with
respect to, and any redemption, purchase, retirement,
defiance, sinking fund or similar payment and any claim
for rescission with respect to, any Subordinated Debt;
(d) any payment made to redeem, purchase, repurchase or
retire, or to obtain the surrender of, any outstanding
warrants, options or other rights to acquire Stock of
such Person now or hereafter outstanding; (e) any payment
of a claim for the rescission of the purchase or sale of,
or for material damages arising from the purchase or sale
of, any shares of such Person's Stock or of a claim for
reimbursement, indemnification or contribution arising
out of or related to any such claim for damages or
rescission; (f) any payment, loan, contribution, or other
transfer of funds or other property to any Stockholder of
such Person; and (g) any payment of management fees (or
other fees of a similar nature) by such Person to any
Stockholder of such Person or their Affiliates.
"Retiree Welfare Plan" shall mean, at any time, a
Plan that is a "welfare plan" as defined in Section 3(2)
of ERISA, that provides for continuing coverage or
benefits for any participant or any beneficiary of a
participant after such participant's termination of
employment, other than continuation coverage provided
pursuant to Section 4980B of the IRC and at the sole
expense of the participant or the beneficiary of the
participant.
"SEC" shall mean the Securities and Exchange
Commission, or any successor entity or agency thereto.
"SEC Reports" shall have the meaning ascribed
thereto in Section 4.4 of the Agreement.
"Securities" shall mean the Term A Securities, the
Term B Securities, the Term C Securities and any other
Notes issued pursuant to the Agreement.
"Securities Act" shall mean the Securities Act of
1933, as amended.
A-19
"Security Agreement" shall mean the Master Security
Agreement, entered into among the Lender and each
Borrower on the Closing Date, in substantially the form
attached to the Agreement as Exhibit L.
"Security Agreement (Intellectual Property)" shall
mean the Security Agreement (Intellectual Property),
entered into among the Lender and each Borrower on the
Closing Date, in substantially the form attached to the
Agreement as Exhibit N.
"Senior Credit Amendments" shall mean the Loan
Modification Agreement, dated as of the date of the
Agreement, by and among the Borrowers and the lenders
under the Existing Senior Credit Facility.
"Solvent" shall mean, with respect to any Person on
a particular date, that on such date (a) the present fair
salable value 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; (b) 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 (c) such Person is not
engaged in a business or transaction, and is not about to
engage in a business or transaction, for which such
Person's property would constitute an unreasonably small
capital.
"Stock" shall mean all shares, options, warrants,
general or limited partnership interests or other
equivalents (regardless of how designated) of or in a
corporation, partnership or equivalent entity whether
voting or nonvoting, including common stock, preferred
stock or any other "equity security" (as such term is
defined in Rule 3a ll-l of the General Rules and
Regulations promulgated by the Securities and Exchange
Commission under the Exchange Act).
"Stockholder Approval" shall mean the affirmative
vote of the holders of a majority of the shares of Common
Stock of Parent entitled to vote on the Charter
Amendment.
"Stockholders Agreement" shall mean that certain
Stockholders Agreement, dated as of the date hereof,
between Parent, the Lender and the other parties named
therein, in substantially the form as attached to the
Agreement as Exhibit H.
"Subsidiary" shall mean, with respect to any Person,
(a) any corporation of which an aggregate of more than
fifty percent (50%) of the outstanding Stock having
ordinary voting power to elect a majority of the board of
A-20
directors of such corporation (irrespective of whether,
at the time, Stock of any other class or classes of such
corporation shall have or might have voting power by
reason of the happening of any contingency) is at the
time, directly or indirectly, owned legally or
beneficially by such Person and/or one or more
Subsidiaries of such Person, or with respect to which any
such Person has the right to vote or designate the vote
of fifty percent (50%) or more of such Stock whether by
proxy, agreement, operation of law or otherwise, and (b)
any partnership or limited liability company in which
such Person and/or one or more Subsidiaries of such
Person shall have an interest (whether in the form of
voting or participation in profits or capital
contribution) of more than fifty percent (50%) or of
which any such Person is a general partner or may
exercise the powers of a general partner.
"Sunrise Commitment Letter" shall mean that certain
letter agreement, dated May 17, 2000, among Parent and
the Lender.
"Sunrise Directors" shall mean each of David
Preiser, Joseph Julian, Michael Stewart and Irwin Gold.
"Taxes" shall mean taxes, levies, imposts,
deductions, Charges or withholdings, and all liabilities
with respect thereto, excluding taxes imposed on or
measured by the net income of the Lender by the
jurisdictions under the laws of which the Lender is
organized or any political subdivision thereof
"Term A Notes" shall have the meaning ascribed
thereto in Section 1.1(a) of the Agreement.
"Term A Securities" shall have the meaning ascribed
thereto in Section 1.1(a) of Agreement.
"Term A Shares" shall have the meaning ascribed
thereto in Section 1.1(a) of Agreement.
"Term A Warrants" shall have the meaning ascribed
thereto in Section 1.1(a) of Agreement.
"Term B Commitment Period" shall mean the period
between the Closing Date and the date which is 120 days
thereafter.
"Term B Notes" shall have the meaning ascribed
thereto in Section 1.1(b) of the Agreement.
A-21
"Term B Securities" shall have the meaning ascribed
thereto in Section 1.1(a) of Agreement.
"Term B Warrants" shall have the meaning ascribed
thereto in Section 1.1(a) of Agreement.
"Term C Commitment Period" shall mean the period
beginning on the date on which the Term B Securities are
purchased by the Lender and ending on January 31, 2001.
"Term C Notes" shall have the meaning ascribed
thereto in Section 1.1(c) of the Agreement.
"Term C Notice" shall have the meaning ascribed
thereto in Section 1.1(c) of the Agreement.
"Term C Securities" shall have the meaning ascribed
thereto in Section 1.1(a) of Agreement.
"Term C Warrants" shall have the meaning ascribed
thereto in Section 1.1(a) of Agreement.
"Termination Date" shall mean the date on which the
Notes have been indefeasibly repaid in full and all other
Obligations under the Agreement and the other Note
Documents have been completely discharged and none of
Borrowers shall have any further right to borrow any
monies under the Agreement.
"Title IV Plan" shall mean an employee pension
benefit plan, as defined in Section 3 (2) of ERISA (other
than a Multiemployer Plan), which is covered by Title IV
of ERISA, and which any Borrower or ERISA Affiliate
maintains, contributes to or has an obligation to
contribute to on behalf of participants who are or were
employed by any of them.
"Total Debt" shall mean, with respect to the
Borrowers as of any date of determination, Funded Debt.
"Total Debt to EBITDA Ratio" shall mean, with
respect to the Borrowers as of any date of determination,
the ratio of (a) Borrowers' Total Debt on a combined
A-22
basis to (b) combined EBITDA of Borrowers determined as
of the last day of each Fiscal Quarter for the four
Fiscal Quarters then ended.
"Trading Price Conversion Event" shall have the
meaning ascribed thereto in Section 2.2.
"Trademark Security Agreements" shall mean the
Trademark Security Agreements made in favor of the Lender
by each applicable Borrower.
"Trademark License" shall mean rights under any
written agreement now owned or hereafter acquired by any
Borrower granting any right to use any Trademark.
"Trademarks" shall mean all of the following now
owned or hereafter acquired by any Borrower: (a) all
trademarks, trade names, corporate names, business names,
trade styles, service marks, logos, other source or
business identifiers, prints and labels on which any of
the foregoing have appeared or appear, designs and
general intangibles of like nature (whether registered or
unregistered), now owned or existing or hereafter adopted
or acquired, all registrations and recordings thereof,
and all applications in connection therewith, including
registrations, recordings and applications in the United
States Patent and Trademark Office or in any similar of
rice or agency of the United States, any state or
territory thereof, or any other country or any political
subdivision thereof; (b) all reissues, extensions or
renewals thereof, and (c) all goodwill associated with or
symbolized by any of the foregoing.
"Unfunded Pension Liability" shall mean, at any
time, the aggregate amount, if any, of the sum of (a) the
amount by which the present value of all accrued benefits
under each Title TV Plan exceeds the fair market value of
all assets of such Title IV Plan allocable to such
benefits in accordance with Title IV of ERISA, all
determined as of the most recent valuation date for each
such Title IV Plan using the actuarial assumptions for
funding purposes in effect under such Title IV Plan, and
(b) for a period of five (5) years following a
transaction which might reasonably be expected to be
covered by Section 4069 of ERISA, the liabilities
(whether or not accrued) that could be avoided by any
Borrower or any ERISA Affiliate as a result of such
transaction.
"Warrants" shall mean the Term A Warrants, the Term
B Warrants and the Term C Warrants, collectively.
A-23
All other undefined terms contained in any of the
Note Documents shall, unless the context indicates
otherwise, have the meanings provided for by the Code as
in effect in the State of New York to the extent the same
are used or defined therein. Unless otherwise specified,
references in the Agreement or any of the Appendices to a
Section, subsection or clause refer to such Section,
subsection or clause as contained in the Agreement. The
words "herein," "hereof" and "hereunder" and other words
of similar import refer to the Agreement as a whole,
including all Annexes, Exhibits and Schedules, as the
same may from time to time be amended, restated, modified
or supplemented, and not to any particular section,
subsection or clause contained in the Agreement or any
such Annex, Exhibit or Schedule.
Wherever from the context it appears appropriate,
each term stated in either the singular of plural shall
include the singular and the plural, and pronouns stated
in the masculine, feminine or neuter gender shall include
the masculine, feminine or neuter genders. The words
"including", "includes" and "include" shall be deemed to
be followed by the words "without limitation"; references
to Persons include their respective successors and
assigns (to the extent and only to the extent permitted
by the Note Documents) or, in the case of governmental
Persons, Persons succeeding to the relevant functions of
such Persons; and all references to statutes and related
regulations shall include any amendments of the same and
any successor statutes and regulations. Whenever any
provision in any Note Document refers to the knowledge
(or an analogous phrase) of any Borrower, such words are
intended to signify that such Borrower has actual
knowledge or awareness of a particular fact or circum
stance or that such Borrower, if it had exercised
reasonable diligence, would have known or been aware of
such fact or circumstance.
A-24
ANNEX B
to
CONVERTIBLE NOTE AGREEMENT
FINANCIAL COVENANTS
Borrowers shall not breach or fail to comply with
any of the following financial covenants, each of which
shall be calculated in accordance with GAAP consistently
applied:
(1) Minimum Consolidated Tangible Net Worth. Borrowers
on a consolidated basis shall have, at the end of each
fiscal quarter set forth below, a Minimum Consolidated
Net Worth (as defined below) of an amount equal to or
greater than the amount set forth below for each
corresponding period:
From the Closing Date
through and including
September 30, 2000 ($28.0) Million
From October 1, 2000
through and including
December 31, 2000 ($31.0) Million
From January 1, 2001
through and including
March 31,2001 ($33.0) Million
From April 1, 2001 through
and including
June 30,2001 ($35.0) Million
2001
Thereafter ($35.0) Million
For purposes of this Agreement, "Consolidated
Tangible Net Worth" shall mean the total assets of the
Borrowers appearing on the consolidated balance sheet of
the Borrowers prepared in accordance with GAAP, minus (i)
any reserves applicable thereto, (ii) all assets which
would be treated as intangible under GAAP, including,
without limitation, such items as good will, trademarks,
trade names, service marks, brand names, copyrights,
patents and licenses, and rights with respect to the
foregoing, unamortized debt discount and expense, and
organizational expenses; (iii) any write-up in the book
value of any asset on the books of the Borrower resulting
from a revaluation thereof subsequent to the date of this
Agreement (other than the write-up of the book value of
an asset made in accordance with GAAP in connection with
the purchase of such asset); and (iv) all of the
Borrowers liabilities on a consolidated basis (including
accrued and deferred income taxes), all as determined in
accordance with GAAP.
B-1
(2) Minimum Net Borrowing Availability
Borrowers shall have, at the end of each month
during the periods set forth below, a Net Borrowing
Availability (as defined below) of an amount equal to or
greater than the amount set forth below for each
corresponding period:
For each month in the Minimum Borrowing
period between: Availability
The Closing Date through $2.5 Million
December 31, 2001
January 31, 2002 through $2.5 Million
June 30, 2002
July 31, 2002 through $3.0 Million
December 31, 2002
January 31, 2003 and $3.5 Million
thereafter
For purposes of this Agreement, "Net Borrowing
Availability"shall mean the Borrowing Availability (as
such term is defined in the Existing Senior Credit
Facility) of the Borrowers under the Existing Senior
Credit Facility on the date of such determination plus
all available cash and cash equivalents on deposit in any
account maintained by the Borrowers on such date.
B-2
ANNEX C
to
CONVERTIBLE NOTE AGREEMENT
ANG NOTES
Total Balance
Original Outstanding as of
Payee Amount the Closing Date
Payable
The Allard Children's $275,000.00 $171,875.00
Trust f/b/o Lisa
Dibrigida
The Allard Children's 275,000.00 171,875.00
Trust f/b/o Kim Allard
The Allard Children's 275,000.00 171,875.00
Trust f/b/o Michael E.
Allard
Gerald R. Allard 275,000.00 171,875.00
The Nazarian Family 458,150.00 286,343.75
Trust
The Samy Nazarian 458,425.00 286,515.63
Trust
Younes Nazarian 458,425.00 286,515.62
------------- -------------
Total $2,475,000.00 $1,546,875.00
C-1
ANNEX D
to
CONVERTIBLE NOTE AGREEMENT
PARTICIPATIONS
Term A Participations:
Incremental
ANG Convertiable Total
Participant Notes Notes Amount of
(Rollover) (New Cash) Participation
The John R. $ 0.00 $107,313.60 $107,313.60
Allard
Revocable Trust
of 1993
Lisa A. Dibrigida 171,875.00 107,313.60 279,188.60
Kim M. Socha 171,875.00 107,313.60 279,188.60
The Michael E. 171,875.00 107,313.60 279,188.60
Allard
Revocable Trust
of 1994
Gerald R. Allard 171,875.00 107,313.60 279,188.60
The Nazarian 286,343.75 0 286,343.75
Family Trust
The Samy Nazarian 286,515.63 178,856.00 465,371.63
Trust
Younes Nazarian 286,515.62 357,712.02 644,227.64
Richard A. Beyer 0.00 50,079.69 50,079.69
------------- ------------- -------------
Total $1,546,875.00 $1,123,215.71 $2,670,090.71
D-1
Term B Participations:
Amount
Participant of Participation
The John R. Allard Revocable $42,686.40
Trust of 1993
Lisa A. Dibrigida 42,686.40
Kim M. Socha 42,686.40
The Michael E. Allard Revocable 42,686.40
Trust of 1994
Gerald R. Allard 42,686.40
The Samy Nazarian Trust 71,144.00
Younes Nazarian 142,287.99
Richard A. Beyer 19,920.30
------------
Total $446,784.29
D-2
Term C Participations:
Amount of
Participant Participation
The John R. .85% of the Principal Amount of
Allard the Term C Note
Revocable Trust
of 1993
Lisa A. Dibrigida .85% of the Principal Amount of
the Term C Note
Kim M. Socha .85% of the Principal Amount of
the Term C Note
The Michael E.
Allard .85% of the Principal Amount of
Revocable Trust the Term C Note
of 1994
Gerald R. Allard .85% of the Principal Amount of
the Term C Note
The Samy 1.42% of the Principal Amount of
Nazarian Trust the Term C Note
Younes Nazarian 2.85% of the Principal Amount of
the Term C Note
Richard A. Beyer .40% of the Principal Amount of
the Term C Note
Total 8.93% of the Principal Amount of
the Term C Note
D-3
ANNEX E
to
CONVERTIBLE NOTE AGREEMENT
BOARD OF DIRECTOR RESIGNATIONS
Stephen Carlotti
Michael Foster
Irving Gutin
James Risher
Steven Shulman
E-1
ANNEX F
PURCHASE PRICE ALLOCATION
TERMS A & B
Value Total
per Unit # of Units Value
Common Stock $1.50 1,833,906 $2,750,859.00
Warrants $0.54 2,184,786 $1,179,784.44
Notes n/a n/a $15,186,231.56
--------------
Total Purchase Price $19,116,875.00
F-1