- --------------------------------------------------------------------------------
REGENT ASSISTED LIVING, INC.
and
LTC EQUITY HOLDING COMPANY, INC.
$10,000,000 Principal Amount
of
7.5% Convertible Subordinated Notes Due March 31, 2008
CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT
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Dated as of March 30, 1998
TABLE OF CONTENTS
Page
SECTION 1. PURCHASE AND SALE OF NOTES..........................................1
1.1. Issue of Notes...................................................1
1.2. Purchase and Sale of Notes.......................................1
1.3. Maintenance of Note Register.....................................3
1.4. Issue Taxes......................................................3
1.5. Direct Payment...................................................4
1.6. Lost, Etc. Notes.................................................4
SECTION 2. CLOSING CONDITIONS..................................................4
2.1. Delivery of Documents............................................5
2.2. Delivery of Other Agreements.....................................6
2.3. Representations and Warranties, Agreements and Covenants.........6
2.4. No Event of Default..............................................6
2.5. Proceedings Satisfactory.........................................6
2.6. Consents and Permits.............................................7
2.7. No Material Adverse Change.......................................7
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................7
3.1. Organization; Power and Authority................................7
3.2. Authorization....................................................7
3.3. Capital Stock....................................................8
3.4. No Other Registration Rights.....................................8
3.5. No Violation or Conflict; No Default.............................9
3.6. Margin Regulations...............................................9
3.7. Private Offering.................................................9
3.8. Due Authorization of Material Contracts.........................10
3.9. Financial Statements............................................10
3.10. Litigation; Judgments..........................................11
3.11. Taxes..........................................................11
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3.12. Investment Company Act.........................................11
3.13. Environmental Matters..........................................11
3.14. Labor Relations................................................12
3.15. Real Property; Leases..........................................12
3.16. Intellectual Property; Licenses................................12
3.17. Defaults.......................................................13
3.18. Brokers........................................................13
3.19. Existing Indebtedness..........................................13
3.20. Compliance with Law; Permits...................................13
3.21. Insurance......................................................14
3.22. Material Events................................................14
3.23. SEC Documents; Undisclosed Liabilities.........................15
3.24. Material Misstatements or Omissions............................16
3.25. Survival of Representations and Warranties.....................16
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER...................16
4.1. Purchase for Own Account........................................16
4.2. Accredited Investor.............................................16
4.3. Authorization...................................................17
4.4. Brokers.........................................................17
SECTION 5. COVENANTS..........................................................17
5.1. Payment of Notes; Satisfaction of Obligations...................17
5.2. Notice of Default...............................................17
5.3. Limitation on Additional Indebtedness...........................18
5.4. Change of Control...............................................18
5.5. Stay, Extension and Usury Laws..................................20
5.6. Indemnification.................................................20
5.7. Corporate Existence; Merger; Successor Corporation..............22
5.8. Taxes...........................................................23
5.9. Investment Company Act..........................................23
5.10. Insurance......................................................23
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5.11. Inconsistent Agreements........................................23
5.12. Compliance with Laws...........................................24
5.13. Inspection of Properties and Records...........................24
SECTION 6. CONVERSION OF NOTES................................................24
6.1. Conversion......................................................24
6.2. Conversion Rate.................................................25
6.3. Fractional Shares...............................................25
6.4. Adjustments for Stock Splits, Combinations and Dividends........26
6.5. Reorganization, Mergers, Consolidations or Sales of Assets......26
6.6. Sale of Shares Below Market or Conversion Price.................27
6.7. Adjustment for Failure to Quote on Nasdaq National Market.......28
6.8. Accountants' Certificate of Adjustment..........................28
6.9. Reservation of Shares Issuable Upon Conversion..................29
6.10. No Impairment..................................................29
SECTION 7. DEFAULTS AND REMEDIES..............................................29
7.1. Events of Default...............................................29
7.2. Acceleration of Notes...........................................31
7.3. Other Remedies..................................................31
SECTION 8. SUBORDINATION......................................................31
8.1. Notes Subordinated to Senior Indebtedness.......................31
8.2. Company Not to Make Payments with Respect to Notes in Certain
Circumstances...................................................32
8.3. Subrogation of Notes............................................33
8.4. No Impairment of Subordination..................................34
8.5. Section 8 Not to Prevent Events of Default......................34
8.6. Securities Senior to Subordinated Indebtedness..................34
8.7. Assignment of Junior Claims.....................................34
SECTION 9. AMENDMENTS AND WAIVERS.............................................35
9.1. With Consent of Holders.........................................35
9.2. Revocation and Effect of Consents...............................36
iii
9.3. Notation on or Exchange of Notes................................37
SECTION 10. DEFINITIONS.......................................................37
10.1. Definitions....................................................37
10.2. Rules of Construction..........................................46
SECTION 11. MISCELLANEOUS.....................................................47
11.1. Notices........................................................47
11.2. Undertaking for Costs..........................................47
11.3. Successors and Assigns.........................................47
11.4. Counterparts...................................................47
11.5. Headings.......................................................48
11.6. Governing Law..................................................48
11.7. Entire Agreement...............................................48
11.8. Severability...................................................48
11.9. Transfer.......................................................48
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CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT
This CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT, is dated as of
March 30, 1998 (this "Agreement"), and entered into by and between REGENT
ASSISTED LIVING, INC., an Oregon corporation (the "Company") and LTC EQUITY
HOLDING COMPANY, INC., a Nevada corporation (the "Purchaser").
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in Section 10.1 hereof.
In consideration of the premises, mutual covenants and agreements
hereinafter contained and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the Company agrees as follows:
SECTION 1. PURCHASE AND SALE OF NOTES
1.1. Issue of Notes
On or before the Closing,
(a) The Company will have authorized the issue and sale of $10,000,000
aggregate principal amount of its 7.5% Convertible Subordinated Notes due March
31, 2008 (the "Notes") to the Purchaser, to be substantially in the form
attached hereto as Annex A.
(b) The Notes shall be substantially in the form attached hereto
as Annex A, including such other notations, legends or endorsements set forth
therefor or required by law. The Notes shall be dated the date of their
issuance. The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Agreement and, to the extent
applicable, the Company and the Purchaser, by their execution and delivery of
this Agreement, expressly agree to such terms and provisions and to be bound
thereby.
1.2. Purchase and Sale of Notes
(a) Purchase and Sale. The Company agrees to sell and, subject to
the terms and conditions set forth herein and in the Registration Rights
Agreement and in reliance on the representations and warranties of the Company
contained or incorporated herein, the Purchaser agrees to purchase the Notes for
an aggregate purchase price of $10,000,000 as follows:
(1) $4,000,000 principal amount of Notes will be issued and sold
to the Purchaser on the Closing Date, and
(2) the remaining $6,000,000 principal amount of Notes
shall be issued in increments of at least $1,000,000 (except that if more than
$9,000,000 but less than $10,000,000 principal amount of Notes have been issued
to the Purchaser, the last increment of Notes shall be issued in a principal
amount so that an aggregate of $10,000,000 principal amount of Notes shall have
been issued to the Purchaser) on or prior to March 31, 2000 upon the receipt of
the following:
(a) five (5) Business Days written notice by the Company to
the Purchaser;
(b) a Certificate executed by any two executive officers of
the Company, dated the date such additional principal amount of Notes is
delivered to the Purchaser (i) certifying and attaching a Disclosure Schedule
scheduling all Indebtedness of the Company and its Subsidiaries as of such date,
showing as to each item of such Indebtedness the creditor, the aggregate
principal amount outstanding, the agreement or instrument governing such
Indebtedness and a brief description of any security therefor; (ii) certifying
that the Company is not in default in the performance or observance in any
material respect of any of the terms, covenants or conditions contained in any
instrument evidencing Indebtedness listed on the Disclosure Schedule pursuant to
which such Indebtedness was issued or secured or has requested any waiver in
respect of any default and no event has occurred and is continuing which, with
notice or the lapse of time or both, would constitute such a default; and (iii)
certifying that all of the representations and warranties of the Company
contained or incorporated by reference herein that (A) are qualified as to
materiality are true and correct on and as of such date as though made on and as
of such date and that (B) are not qualified as to materiality are true and
correct in all material respects on and as of such date as though made on and as
of such date, and no event has occurred and is continuing, or would result from
the issuance of the Notes or the extension of borrowings under the Commitment
Letter, which constitutes or would constitute a Default or an Event of Default;
and
(c) If the date such additional principal amount of Notes is
delivered to the Purchaser is on or after March 31, 1999, an opinion, dated as
of such date, from David R. Gibson, counsel for the Company, as to the matters
set forth on Annex B; provided, however, any further issuance of Notes after
such date shall not require an opinion of counsel pursuant to this clause (c).
(b) Closing. The purchase and sale of the Notes referred to in
Section 1.2(a)(1) shall take place at a closing (the "Closing") at the offices
of Latham & Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, California
at 2:00 p.m. on March 30, 1998 (the "Closing Date"). At the Closing, the Company
will deliver to the Purchaser the Notes to be purchased by the Purchaser (in
such permitted denomination or denominations and registered in the Purchaser's
name or the name of such nominee or nominees as the Purchaser may request) on
the Closing Date, dated the Closing Date, against payment of the purchase price
therefor by intra-bank or federal funds bank wire transfer of same day funds to
such bank account as the Company shall designate at least two Business Days
prior to the Closing.
(c) Fees and Expenses. Whether or not the Notes are sold, the
Company agrees to pay or reimburse all expenses relating to this Agreement,
including but not limited to:
(1) the reasonable fees and other expenses of the Purchaser's
counsel, Latham & Watkins, in connection herewith (not to exceed $50,000 in the
aggregate, relating to this Agreement and similar agreements dated on or about
the date of this Agreement);
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(2) any reasonable out-of-pocket fees and expenses (including the
reasonable fees and expenses of counsel) in connection with any registration or
qualification of the Notes required in connection with the offer and sale of the
Notes at the Closing pursuant to this Agreement under the securities or "blue
sky" laws of any jurisdiction requiring such registration or qualification or in
connection with obtaining any exemptions from such requirements; and
(3) the Purchaser's reasonable out-of-pocket expenses (including
the reasonable fees and expenses of counsel) relating to any amendment, or
modification of, or any waiver, or consent or preservation of rights under this
Agreement, the Notes, the Registration Rights Agreement and any other documents
contemplated hereby or thereby.
Purchaser may deduct such expenses from the purchase price of the
Notes; provided that the Purchaser agrees to provide the Company with a
statement describing any amounts to be so paid at least one Business Day prior
to the Closing.
1.3. Maintenance of Note Register
The Company shall cause to be kept at its principal office a register
for the registration and transfer of the Notes (the "Note Register"). The names
and addresses of the Holders of Notes, the transfer of Notes, and the names and
addresses of the transferees of the Notes shall be registered in the Note
Register.
The Person in whose name any registered Note shall be registered shall
be deemed and treated as the owner and holder thereof for all purposes of this
Agreement and the Company shall not be affected by any notice to the contrary,
until due presentment of such Note for registration of transfer so provided in
this Section 1.3. Payment of or on account of the principal and interest on any
registered Notes shall be made to or upon the written order of such registered
holder.
1.4. Issue Taxes
The Company agrees to pay all taxes owed by or on behalf of the
Company in connection with the issuance, sale, delivery or transfer by the
Company to the Purchaser of the Notes and the execution and delivery of the
agreements and instruments contemplated hereby and any modification of any of
such Notes, agreements and instruments and will save the Purchaser harmless
without limitation as to time against any and all liabilities with respect to
all such taxes. The Purchaser agrees to pay all taxes owed by or on behalf of
the Purchaser in connection with the issuance, sale, delivery or transfer by the
Company to the Purchaser of the Notes and the execution and delivery of the
agreements and instruments contemplated hereby and any modification of any of
such Notes, agreements and instruments and will save the Company harmless
without limitation as to time against any and all liabilities with respect to
all such taxes. The obligations of the Company and the Purchaser under this
Section 1.4 shall survive the payment or prepayment of the Notes and the
termination of this Agreement.
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1.5. Direct Payment
(a) The Company will pay or cause to be paid all amounts payable with
respect to any Note (without any presentment of such Note and without any
notation of such payment being made thereon) by crediting (before 11:00 a.m.,
Pacific time), by federal funds bank wire transfer to each Holder's account in
any bank in the United States as may be designated and specified in writing by
such Holder at least two Business Days prior thereto.
(b) Notwithstanding anything to the contrary contained in the
Notes, if any principal amount payable with respect to a Note is payable on a
Legal Holiday, then the Company shall pay such amount on the next succeeding
Business Day, and interest shall accrue on such amount until the date on which
such amount is paid and payment of such accrued interest shall be made
concurrently with the payment of such amount, provided that the Company may
elect to pay in full (but not in part) any such amount on the last Business Day
prior to the date such payment otherwise would be due, and no such additional
interest shall accrue on such amount. Notwithstanding anything to the contrary
contained in the Notes, if any interest payable with respect to a Note is
payable on a Legal Holiday, then the Company shall pay such interest on the next
succeeding Business Day, and such extension of time shall be included in the
computation of the interest payment, provided that the Company may elect to pay
in full (but not in part) any such interest on the last Business Day prior to
the date such payment otherwise would be due, and such diminution in time may,
at the Company's option, be included in the computation of the interest payment.
1.6. Lost, Etc. Notes
Notwithstanding any provision to the contrary, if any Note of which
the Purchaser or any other Holder (or nominee thereof) which is a transferee is
the owner is mutilated, destroyed, lost or stolen, then the affidavit of the
Purchaser or such Holder, if an individual, or of the Purchaser's or such
Holder's treasurer or assistant treasurer (or other authorized officer), if a
Person other than an individual, briefly setting forth the circumstances with
respect to such mutilation, destruction, loss or theft, shall be accepted as
satisfactory evidence thereof, and no indemnity, note or payment of charges or
expenses shall be required as a condition to the execution and delivery by the
Company or the transfer agent with respect to such Note, of new Notes for a like
aggregate principal amount or number of shares, as applicable, in substitution
therefor, other than such Purchaser's or such Holder's unsecured written
agreement reasonably satisfactory to indemnify the Company or the transfer
agent, as the case may be, which written agreement may be required by the
Company.
SECTION 2. CLOSING CONDITIONS
The obligations of the Purchaser to purchase and pay for the Notes to
be delivered to such Purchaser at the Closing shall be subject to the
satisfaction of the following conditions on or before the Closing Date:
4
2.1. Delivery of Documents
The Company shall have delivered to the Purchaser, in form and
substance reasonably satisfactory to the Purchaser, the following:
(a) The Notes being purchased by the Purchaser pursuant to
Section 1.2(a)(1), duly executed by the Company, in the aggregate principal
amount of $4,000,000.
(b) An opinion, dated the Closing Date and addressed to the
Purchaser, from David R. Gibson, counsel for the Company, as to the matters set
forth on Annex B.
In rendering such opinion, such counsel may rely as to factual matters
upon certificates or other documents furnished by officers and directors of the
Company (copies of which shall be delivered to the Purchaser) and by government
officials, and upon such other documents as such counsel reasonably deems
appropriate as a basis for its opinion. Such counsel shall opine as to the
federal laws of the United States, the laws of the State of Oregon.
(c) Resolutions of the Board of Directors of the Company,
certified by the Secretary or Assistant Secretary, to be duly adopted and in
full force and effect on the Closing Date, authorizing (i) the execution,
delivery and performance of this Agreement, the Registration Rights Agreement
and the Commitment Letter and the consummation of transactions contemplated
hereby and thereby, (ii) the issuance of the Notes to be purchased by the
Purchaser and (iii) specific officers to execute and deliver this Agreement, the
Notes, the Registration Rights Agreement and the Commitment Letter.
(d) Certificates executed by any two executive officers of the
Company, dated the Closing Date, certifying (i) that all of the conditions set
forth in Section 2 of this Agreement are satisfied on and as of such date, (ii)
that all of the representations and warranties of the Company contained or
incorporated by reference herein that (A) are qualified as to materiality are
true and correct on and as of such date as though made on and as of such date
and that (B) are not qualified as to materiality are true and correct in all
material respects on and as of such date as though made on and as of such date,
and no event has occurred and is continuing, or would result from the issuance
of the Notes or the extension of borrowings under the Commitment Letter, which
constitutes or would constitute a Default or an Event of Default and (iii) as to
such other matters as the Purchaser may request in the exercise of its
reasonable discretion.
(e) Governmental certificates, dated the most recent practicable
date but in no event more than thirty (30) calendar days prior to the Closing
Date showing that the Company was incorporated under the Oregon Business
Corporation Act, is active on the records of the Corporation Division and is
qualified as a foreign corporation and in good standing in all other
jurisdictions in which it is qualified to transact business, except where the
failure to be so qualified would not have a Material Adverse Effect.
(f) Copies of each consent, license and approval required in
connection with the execution, delivery and performance by the Company of this
Agreement, the Notes, the
5
Registration Rights Agreement and the Commitment Letter and the consummation of
the transactions contemplated hereby and thereby.
(g) Copies of the Charter Documents of the Company, certified as
of a recent date but in no event more than thirty (30) calendar days prior to
the Closing Date by the Secretary of State of the State of Oregon and certified
by the Secretary or Assistant Secretary of the Company (or person possessing
comparable authority of the Company), as true and correct on and as of the
Closing Date.
(h) Certificates of the Secretary or an Assistant Secretary of
the Company as to the incumbency and signatures of the officers or
representatives of such entity executing this Agreement, the Notes, the
Registration Rights Agreement, the Commitment Letter and any other certificate
or other document to be delivered pursuant hereto or thereto on the Closing
Date, together with evidence of the incumbency of such Secretary or Assistant
Secretary;
(i) Copies of all agreements associated with or entered into in
connection with the investment of Prudential Private Equity Investors III, L.P.
in the Company's Preferred Stock and if requested by the Purchaser prior to the
Closing Date, copies of all lease agreements to which the Company is a party.
2.2. Delivery of Other Agreements
The Company shall have executed and delivered the Registration Rights
Agreement and the Commitment Letter.
2.3. Representations and Warranties, Agreements and Covenants
All of the representations and warranties of the Company contained
herein that (A) are qualified as to materiality shall be true and correct on and
as of the Closing Date, except to the extent any representation or warranty
expressly relates to an earlier date and that (B) are not qualified as to
materiality are true and correct in all material respects on and as of the
Closing Date, except to the extent any representation or warranty expressly
relates to an earlier date. The Company shall have performed or complied with
all agreements, covenants and conditions contained herein and in the
Registration Rights Agreement and the Commitment Letter which are required to be
performed or complied with by the Company on or before the Closing Date.
2.4. No Event of Default
No event shall have occurred and be continuing, or would result from
the purchase of the Notes or the extension of borrowings pursuant to the
Commitment Letter, which constitutes or would constitute a Default or an Event
of Default.
2.5. Proceedings Satisfactory
All proceedings taken in connection with the sale of the Notes, the
transactions contemplated hereby, and all documents and papers relating thereto,
shall be reasonably
6
satisfactory to the Purchaser. The Purchaser and its counsel shall have received
copies of such documents and papers as they may reasonably request in connection
therewith, all in form and substance satisfactory to the Purchaser. Any document
annexed to this Agreement or any other document contemplated by this Agreement
not approved by the Purchaser in writing as to form and substance on the date
this Agreement is executed shall be satisfactory in form and substance to the
Purchaser.
2.6. Consents and Permits
The Company shall have received all consents, approvals, and
authorizations and sent or made all notices, filings, registrations and
qualifications required for the issuance of the Notes, all of which are
disclosed on the Disclosure Schedule.
2.7. No Material Adverse Change
Since the date of this Agreement, neither the Company nor any of its
Subsidiaries shall have suffered any material adverse change in its properties,
business, prospects, operations, earnings, assets, liabilities or condition
(financial or otherwise) which would reasonably likely to result in a Material
Adverse Effect.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Disclosure Schedule attached to this
Agreement (each scheduled item contained therein referencing the Section of this
Agreement that it qualifies), the Company represents and warrants as follows:
3.1. Organization; Power and Authority
The Company and each of its Subsidiaries are corporations duly
organized and validly existing in good standing under the laws of their
respective jurisdictions of incorporation. The Company and each of its
Subsidiaries have all requisite power and authority to own or hold under lease
the properties it purports so to own or hold except where the failure so to own
or hold could not have a Material Adverse Effect and to transact their
respective businesses as now transacted. The Company and each of its
Subsidiaries are duly qualified as foreign corporations and are in good standing
in each jurisdiction in which the character of the properties owned or held
under lease by them or the nature of the business transacted by them requires
such qualification, except where the failure so to be qualified or be in good
standing could not have a Material Adverse Effect.
3.2. Authorization
The Company has taken all actions necessary to authorize it (i) to
execute, deliver and perform all of its obligations under this Agreement, the
Registration Rights Agreement and the Commitment Letter, (ii) to issue and
perform all of its obligations under the Notes and (iii) to consummate the
transactions contemplated hereby and thereby. Each of this Agreement, the Notes,
the Registration Rights Agreement, and the Commitment Letter is a legally valid
and
7
binding obligation of the Company, enforceable against it in accordance with its
terms, except for (a) the effect thereon of bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting the
rights of creditors generally and (b) limitations imposed by federal or state
law or equitable principles upon the specific enforceability of any of the
remedies, covenants or other provisions thereof and upon the availability of
injunctive relief or other equitable remedies.
3.3. Capital Stock
The total number of shares of Capital Stock which the Company has
authority to issue is 30,000,000 shares, consisting of 25,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock. The Company has the power
and authority and has taken all actions (corporate or other) necessary to
authorize it to enter into and perform its obligations and undertakings under
this Agreement. As of March 30, 1998, there were 4,633,000 shares of Common
Stock issued and outstanding, and 1,666,667 shares of Preferred Stock issued and
outstanding. Such shares of Common Stock and Preferred Stock have been duly
authorized and were validly issued, are fully paid and nonassessable, were
issued in compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities of the Company. Neither the Company nor any of its
Subsidiaries has outstanding any securities convertible into or exchangeable for
any shares of Capital Stock nor does it have outstanding any rights to subscribe
for or to purchase, or any options for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any character relating to, any Capital Stock or
securities convertible into or exchangeable for any Capital Stock other than (i)
the Notes to be issued pursuant to this Agreement or pursuant to other similar
agreements dated on or about the date of this Agreement, (ii) 1,666,667 shares
of Preferred Stock convertible into Common Stock, and (iii) options and warrants
to purchase shares of Common Stock as set forth and for the numbers of shares
set forth on the Disclosure Schedule. The Company has duly authorized and
reserved for issuance the Conversion Shares, and the Conversion Shares will,
when issued, be duly and validly issued, fully paid and nonassessable and free
from all Liens.
3.4. No Other Registration Rights
Except for the Notes to be issued in connection with the transactions
contemplated by this Agreement or pursuant to other similar agreements dated on
or about the date of this Agreement, there are no contracts, agreements or
understandings between the Company and any other Person granting such Person the
right to require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company owned or to be
owned by such person or to require the Company to include such securities in the
securities registered pursuant to any other registration statement filed by the
Company under the Securities Act.
8
3.5. No Violation or Conflict; No Default
Neither the execution or delivery of this Agreement, the Registration
Rights Agreement or the Commitment Letter by the Company nor the issuance, sale
or delivery of the Notes nor the performance of its respective obligations
hereunder or thereunder will:
(a) violate any provision of the Charter Documents of the
Company;
(b) violate any statute, law, rule or regulation or any judgment,
decree, order, regulation or rule of any court or governmental authority to
which the Company, any of its Subsidiaries, or any of their respective
properties may be subject;
(c) permit or cause the acceleration of the maturity of any debt
or obligation of the Company or any of its Subsidiaries;
(d) violate, or be in conflict with, or constitute a default
under, or permit the termination of, or require the consent of any Person under,
or result in the creation of any Lien upon any property of the Company or any of
its Subsidiaries under, any mortgage, indenture, loan agreement, note, debenture
or other agreement for borrowed money or any other material agreement to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries (or their respective properties) may be bound, other than
such violations, conflicts, defaults, terminations and Liens, or such failures
to obtain consents, which could not reasonably be expected to result in a
Material Adverse Effect.
3.6. Margin Regulations
No part of the proceeds from the sale of the Notes hereunder will be
used, directly or indirectly, for the purpose of buying or carrying any "margin
stock" within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System (12 C.F.R. ss. 207), or for the purpose of buying or
carrying or trading in any securities under such circumstances as to involve the
Company in a violation of Regulation X of said Board (12 C.F.R. ss. 224) or to
involve any broker or dealer in a violation of Regulation T of said Board (12
C.F.R. ss. 220). The assets of the Company and its Subsidiaries do not include
any margin stock, and the Company does not have any present intention of
acquiring margin stock.
3.7. Private Offering
The sale of the Notes hereunder is exempt from the registration and
prospectus delivery requirements of the Securities Act. In the case of each
offer or sale of the Notes, no form of general solicitation or general
advertising was used by the Company or its respective representatives.
The Company agrees that neither it, nor anyone acting on its behalf,
will offer or sell the Notes, or any portion of them, if such offer or sale
might bring the issuance and sale of the Notes to the Purchaser within the
provisions of Section 5 of the Securities Act nor offer any similar Notes for
issuance or sale to, or solicit any offer to acquire any of the same from, or
9
otherwise approach or negotiate with respect thereto with, anyone if the sale of
the Notes and any such Notes could be integrated as a single offering for the
purposes of the Securities Act, including without limitation Regulation D.
3.8. Due Authorization of Material Contracts
The descriptions in the Incorporated Documents of statutes, legal and
governmental proceedings or contracts or other documents are accurate in all
material respects and fairly present the information required to be shown at the
time shown; and there are no statutes or legal or governmental proceedings
required to be described in the Incorporated Documents that are not described as
required and there is no document or contract of a character required to be
described in the Incorporated Documents or to be filed as an exhibit to the
Incorporated Documents which is not described or filed as required. All
contracts described in the Incorporated Documents or filed as an exhibit to the
Incorporated Documents to which the Company or any of its Subsidiaries is a
party have been duly authorized, executed and delivered by the Company or such
Subsidiary, constitute valid and binding agreements of the Company or such
Subsidiary and are enforceable against and by the Company or such Subsidiary in
accordance with the terms thereof, except as the enforcement thereof may be
limited by bankruptcy and laws relating to the rights and remedies of the
creditors generally or by the availability of general equitable remedies.
3.9. Financial Statements
The financial statements and schedules of the Company and its
consolidated subsidiaries included in the Incorporated Documents comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, present fairly
the financial condition of the Company and its consolidated subsidiaries, as of
the respective dates thereof and the results of operations and cash flows of the
Company and its consolidated subsidiaries, for the respective periods covered
thereby, all in conformity with GAAP (except in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto) and fairly present the consolidated financial position of the Company
and its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments). No
other financial statements or schedules of the Company and its consolidated
subsidiaries or any other company or entity are required by the Securities Act,
the Exchange Act or the rules and regulations of the SEC to be included in the
Incorporated Documents. The Independent Auditors, who have reported on certain
of such financial statements and schedules, are, and were during the periods
covered by their reports included in the Incorporated Documents, independent
accountants with respect to the Company and its consolidated subsidiaries, as
required by the Securities Act, the Exchange Act and the rules and regulations
of the SEC. The summary financial and statistical data included in the
Incorporated Documents present fairly the information shown therein and have
been compiled on a basis consistent with the financial statements presented
therein. The unaudited consolidated financial statements included in the
Incorporated Documents comply as to form in all material
10
respects with the applicable accounting requirements of the Securities Act, the
Exchange Act and the rules and regulations of the SEC, and such statements
fairly present the consolidated financial position and results of operations and
the other information purported to be shown therein at the respective dates or
for the respective periods therein specified.
3.10. Litigation; Judgments
Except as described in the Incorporated Documents, there are no
actions, suits or proceedings (formal or informal) pending or, to the Knowledge
of the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties, assets, or directors or
officers, in their capacity as such, before or by any Federal or state court,
commission, regulatory body, administrative agency or other governmental body,
domestic or foreign, wherein an unfavorable ruling, decision or finding might
reasonably be expected to, individually or in the aggregate, and after giving
effect to the sale and issuance of the Notes, result in a Material Adverse
Effect.
3.11. Taxes
Each of the Company and its Subsidiaries has filed all federal, state,
local and foreign income tax returns which have been required to be filed and
has paid all taxes and assessments received by it to the extent that such taxes
have become due. None of the Company nor its Subsidiaries has any tax deficiency
which has been or might be asserted or threatened against it which could
reasonably be expected to result in a Material Adverse Effect.
3.12. Investment Company Act
Neither the Company nor any of its Subsidiaries is an "investment
company" or a Person directly or indirectly "controlled" by or acting on behalf
of an "investment company" within the meaning of the United States Investment
Company Act of 1940, as amended.
3.13. Environmental Matters
The operations of the Company and its Subsidiaries with respect to any
real property currently leased, owned, controlled or managed by the Company or
any of its Subsidiaries are, and with respect to any real property previously
leased, owned, managed or controlled were, when such real property was leased,
owned, managed or controlled by the Company or any of its Subsidiaries, in
compliance in all material respects with all applicable federal, state, and
local laws, ordinances, rules, and regulations relating to occupational health
and safety and the environment (collectively, "Environmental Laws"), and the
Company and its Subsidiaries have all material licenses, permits and
authorizations required under all Environmental Laws; neither the Company nor
any of its Subsidiaries has authorized or conducted or has knowledge of the
generation, transportation, storage, use, treatment, disposal or release of any
hazardous substance, hazardous waste, hazardous material, hazardous constituent,
toxic substance, pollutant, contaminant, petroleum product, natural gas,
liquefied gas or synthetic gas defined or regulated under any Environmental Law
on, in or under any real property currently leased, owned, controlled or managed
by the Company or any of its Subsidiaries or previously leased, owned,
controlled or managed by the Company or any of its Subsidiaries when such real
property was owned, leased, controlled or managed by the Company or any of its
Subsidiaries, except in compliance with applicable Environmental Laws; and there
is not pending or, to the Knowledge of the Company, any threatened claim,
litigation or any administrative agency proceeding, nor has the Company or any
of its Subsidiaries received any written or oral notice from any governmental
entity or third party, that: (i) alleges a violation of any Environmental Laws
by the Company or any of its Subsidiaries; (ii) alleges the Company or any of
its Subsidiaries is a liable party under CERCLA or any state superfund law;
(iii) alleges possible contamination of the environment by the Company or any of
its Subsidiaries; or (iv) alleges possible contamination of real property
currently leased, owned, controlled or managed by the Company or any of its
Subsidiaries or
11
previously leased, owned, controlled or managed by the Company or any of its
Subsidiaries when such real property was owned, leased, controlled or managed by
the Company or any of its Subsidiaries.
3.14. Labor Relations
No labor dispute with the employees of the Company or any of its
Subsidiaries exists or is threatened that could reasonably be expected to result
in a Material Adverse Effect; and the Company is not aware of any existing or
threatened labor disturbance by the employees of any other entity that could
reasonably be expected to result in a Material Adverse Effect.
3.15. Real Property; Leases
Each of the Company and its Subsidiaries has good and indefeasible
title to all properties and assets described in the Incorporated Documents as
owned by it, free and clear of all Liens except such as are described in the
Incorporated Documents or are not material, singly or in the aggregate, to the
Company. Each of the Company and its Subsidiaries has valid, subsisting and
enforceable leases for the properties described in the Incorporated Documents as
leased by it, except such as are described in the Incorporated Documents.
3.16. Intellectual Property; Licenses
Each of the Company and its Subsidiaries owns or has the right to use
all patents, patent applications, trademarks, trademark applications,
tradenames, copyrights, franchises, trade secrets, proprietary or other
confidential information and intangible properties and assets (collectively,
"Intangibles") reasonably necessary to conduct its business as now conducted;
and none of the Company or its Subsidiaries has any knowledge of any
infringement by it of Intangibles of others, and there is no claim being made
against the Company or any of its Subsidiaries, or to the Knowledge of the
Company, any employee of the Company or its Subsidiaries, regarding infringement
of any Intangibles of others which could reasonably be expected to have a
Material Adverse Effect and, to the Knowledge of the Company, there is no
infringement by others of Intangibles of the Company or any of its Subsidiaries.
12
3.17. Defaults
The continuation, validity and effectiveness of each contract,
agreement, arrangement or other instrument related to borrowed money (of any
amount) or involving payments in excess of $100,000 or that is material to the
Company or its Subsidiaries (each a "Material Contract") will not be adversely
affected by the execution, delivery and performance of this Agreement, the
Registration Rights Agreement, or the Commitment Letter, the issuance or sale of
the Notes, or the consummation of the transactions contemplated hereby or
thereby. The Company and its Subsidiaries are not in default in any respect, and
will not, with the giving of notice or the lapse of time, or both, be in default
in any respect, under any Material Contract upon or as a result of the
consummation of the transactions contemplated by this Agreement, the
Registration Rights Agreement or the Commitment Letter. To the Knowledge of the
Company, there is no default or claimed or purported or alleged default or state
of facts that with the giving of notice or the lapse of time, or both, would
constitute a default on the part of any party other than the Company or any of
its Subsidiaries under any Material Contract.
3.18. Brokers
The Company has not dealt with any broker, finder, commission agent or
other Person in connection with the sale of the Notes and the transactions
contemplated by this Agreement, and the Company is not under any obligation to
pay any broker's or finder's fee or commission or similar payment in connection
with such transactions.
3.19. Existing Indebtedness
The Disclosure Schedule sets forth a complete and correct list of all
Indebtedness of the Company and its Subsidiaries as of the date hereof, showing
as to each item of such Indebtedness the creditor, the aggregate principal
amount outstanding, the agreement or instrument governing such Indebtedness and
a brief description of any security therefor. With respect to each item of
Indebtedness listed on the Disclosure Schedule, the Company will deliver to the
Purchaser or its representatives, upon request, a true and complete copy of each
instrument evidencing such Indebtedness or pursuant to which such Indebtedness
was issued or secured (including each amendment, consent, waiver or similar
instrument in respect thereof), as the same is in effect on the date hereof. The
Company and its Subsidiaries are not in default in the performance or observance
in any material respect of any of the terms, covenants or conditions contained
in any instrument evidencing Indebtedness listed on the Disclosure Schedule or
pursuant to which such Indebtedness was issued or secured or has requested any
waiver in respect of any default and no event has occurred and is continuing
which, with notice or the lapse of time or both, would constitute such a
default.
3.20. Compliance with Law; Permits
(a) The Company and its Subsidiaries own or possess all
authorizations, approvals, orders, licenses, registrations, other certificates
and permits of and from all governmental regulatory officials and bodies,
necessary to conduct their respective businesses except where the failure to own
or possess all such authorizations, approvals, orders, licenses,
13
registrations, other certificates and permits would not have a Material Adverse
Effect. There is no proceeding pending or, to the Knowledge of the Company,
threatened (or any basis therefor known to the Company) which may cause any such
authorization, approval, order, license, registration, certificate or permit to
be revoked, withdrawn, canceled, suspended or not renewed; and the Company and
its Subsidiaries are conducting their respective business in compliance with all
laws, rules and regulations applicable thereto except where such noncompliance
could not reasonably be expected to result in a Material Adverse Effect.
(b) Neither the nature of the Company nor of any of its
businesses or properties, nor any relationship between the Company and any other
Person, nor any circumstance in connection with the offer, issuance, sale or
delivery of the Notes at the Closing, nor the performance by the Company of its
other obligations hereunder or under the Notes, the Registration Rights
Agreement or the Commitment Letter, as the case may be, is such as to require a
consent, approval or authorization of, or notice to, or filing, registration or
qualification with, any governmental authority or other Person on the part of
the Company as a condition to the execution and delivery of this Agreement, the
Registration Rights Agreement, the Commitment Letter or the offer, issuance,
sale or delivery of the Notes at the Closing, other than the filings,
registrations, qualifications or consents which shall have been made or obtained
on the Closing Date (and copies of which shall have been delivered to the
Purchaser). All required consents, approvals or authorizations of, or notices to
or filings, registrations or qualifications with, any governmental authority or
other Person required in connection with the transactions contemplated by this
Agreement, the Notes, the Registration Rights Agreement or the Commitment Letter
have been obtained or made.
3.21. Insurance
The Company maintains, and will maintain after giving effect to the
issuance and the sale of the Notes, insurance of the types and in the amounts
generally deemed adequate for its business, including, but not limited to,
insurance covering director and officer liability, workers compensation
liability, malpractice liability respecting the provision of assisted living
services, real and personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is and will be in full force and effect.
3.22. Material Events
Since December 31, 1997, there has not been with respect to the
Company or any of its Subsidiaries:
(a) any material adverse change in their properties, business,
prospects, operations, earnings, assets, liabilities or condition (financial or
otherwise) which could reasonably be expected to result in a Material Adverse
Effect; or
(b) any damage, destruction or loss to the properties or assets
of the Company or any of its Subsidiaries, whether or not covered by insurance,
that has or could reasonably be expected to have a Material Adverse Effect or
that in the aggregate exceed $100,000; or
14
(c) any loss or waiver by the Company or any of its Subsidiaries
of any right, not in the ordinary course of business, or any material debt owed
to it; or
(d) other than the sales of assets in the ordinary course of
business (including pursuant to sale leaseback transactions), any sale, transfer
or other disposition of, or agreement to sell, transfer or otherwise dispose of,
any assets by the Company or any of its Subsidiaries in excess of $100,000 in
the aggregate, or any cancellation or agreement to cancel any debts or claims of
the Company or any of its Subsidiaries; or
(e) other than dividends payable on the currently outstanding
Preferred Stock, any declaration or setting aside or payment of any dividend
(whether in cash, property or stock) or any distribution (whether in cash,
property or stock) or other payment with respect to any of the Capital Stock of
the Company or any of its Subsidiaries, or any repurchase, purchase or other
acquisition of, or agreement to repurchase, purchase or otherwise acquire, any
of the Company's or any of its Subsidiaries' capital stock; or
(f) any amendment or termination of any contract, agreement or
license to which the Company or any of its Subsidiaries is a party or by which
it is bound, except where such amendment or termination could not be reasonably
expected to have a Material Adverse Effect; or
(g) any resignation or termination of employment of any Key
Employee, and there is no impending or threatened resignation or resignations or
termination or terminations of employment of any Key Employee; or
(h) any labor dispute (including, without limitation, any negotiation,
or request for negotiation, for any labor representation or any labor contract)
affecting the Company or any of its Subsidiaries; or
(i) any application of any existing (or the enactment of any new)
Environmental Law or personnel, product safety law or other governmental
regulation that has or which could reasonably be expected to have a Material
Adverse Effect.
3.23. SEC Documents; Undisclosed Liabilities
The Company has been subject to the reporting requirements of Section
13 of the Exchange Act since at least January 1, 1996 and, except as set forth
in any Company SEC Document, has timely filed all required reports, schedules,
forms, statements and other documents required to be filed by the Company under
the Securities Act and the Exchange Act with the SEC since January 1, 1996 (the
"Company SEC Documents"). As of their respective dates, the Company SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Company SEC
Documents, and none of the Company SEC Documents at the time filed with the SEC
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
15
misleading. Except to the extent that information contained in any Company SEC
Document has been revised or superseded by a later filed Company SEC Document,
none of the Company SEC Documents contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
3.24. Material Misstatements or Omissions
No representation or warranty by the Company contained in this
Agreement (including the schedules and exhibits attached hereto), the
Registration Rights Agreement, the Commitment Letter or in any document,
exhibit, statement, certificate or schedule dated the Closing Date, signed by
the Company and furnished to the Purchaser pursuant hereto, or in connection
with the transactions contemplated hereunder, contains or will contain any
untrue statement of a material fact, or omits or will omit to state any material
fact necessary to make the statements or facts contained herein and therein not
misleading.
3.25. Survival of Representations and Warranties
All of the Company's representations and warranties hereunder and
under the Registration Rights Agreement and the Commitment Letter shall survive
the execution and delivery of the same, any investigation by the Purchaser and
the issuance of the Notes.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER
The Purchaser represents and warrants to the Company that:
4.1. Purchase for Own Account
The Purchaser is purchasing the Notes to be purchased by it solely for
its own account and not as nominee or agent for any other person and not with a
view to, or for offer or sale in connection with, any distribution thereof
(within the meaning of the Securities Act) that would be in violation of the
securities laws of the United States of America or any state thereof, without
prejudice, however, to its right at all times to sell or otherwise dispose of
all or any part of said Notes pursuant to a registration statement under the
Securities Act or pursuant to an exemption from the registration requirements of
the Securities Act.
4.2. Accredited Investor
The Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; it acknowledges that the Notes have not been
registered under the Securities Act and understands that the Notes must be held
indefinitely unless they are subsequently registered under the Securities Act or
such sale is permitted pursuant to an available exemption from such registration
requirement; it is able to bear the economic risk of its investment in the
Notes; it is an "accredited investor" as defined in Regulation D promulgated
under the Securities Act; and it has been afforded access to information about
the Company and the Company's financial condition, results of operations,
business, property, management and prospects
16
sufficient to enable it to evaluate its investment in the Notes. The Purchaser
acknowledges that it has conducted its own analysis of the Company's financial
condition and other foregoing factors.
4.3. Authorization
The Purchaser has taken all actions necessary to authorize it (i) to
execute, deliver and perform all of its obligations under this Agreement (ii) to
issue and perform all of its obligations under the Notes, as the case may be,
and (iii) to consummate the transactions contemplated hereby and thereby. This
Agreement is a legally valid and binding obligation of the Purchaser enforceable
against it in accordance with its terms, except for (a) the effect thereon of
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting the rights of creditors generally and (b) limitations
imposed by federal or state law or equitable principles upon the specific
enforceability of any of the remedies, covenants or other provisions thereof and
upon the availability of injunctive relief or other equitable remedies.
4.4. Brokers
The Purchaser has not dealt with any broker, finder, commission agent
or other Person in connection with the sale of the Notes and the transactions
contemplated by this Agreement, and the Purchaser is not under any obligation to
pay any broker's or finder's fee or commission or similar payment in connection
with such transactions.
SECTION 5. COVENANTS
So long as any of the Notes remain unpaid and outstanding, the Company
covenants to the Holders of outstanding Notes as follows:
5.1. Payment of Notes; Satisfaction of Obligations
The Company shall pay the principal of and interest on the Notes on
the dates and in the manner provided in the Notes. To the extent lawful, the
Company shall pay interest (including interest accruing after the commencement
of any proceeding under any Bankruptcy Law) on all unpaid amounts outstanding
under the Notes (including overdue installments of principal or interest) at a
rate equal to 7.5% per annum, payable quarterly on each January 1, April 1, July
1 and October 1, beginning July 1, 1998. Such interest rate is subject to
adjustment as set forth in Section 3(b) to the Registration Rights Agreement.
5.2. Notice of Default
The Company will deliver to the Holders, forthwith upon (i) becoming
aware of any Default or Event of Default, (ii) becoming aware of any payment
default under any other loan agreement, mortgage, indenture or instrument
referred to in Sections 7.1(d) or (iii) the receipt by the Company of any notice
of any non-monetary default under any such loan agreement, mortgage, indenture
or instrument, an Officers' Certificate specifying in reasonable detail such
Default, Event of Default or default and the nature of any remedial or
corrective action the Company proposes to take with respect thereto.
17
5.3. Limitation on Additional Indebtedness
None of the Company, nor any of its Subsidiaries (including without
limitation, upon the creation or acquisition of such Subsidiary) shall, directly
or indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to (collectively, "incur") any
Indebtedness after the date of this Agreement, if a Default or an Event of
Default shall have occurred and be continuing at the time or would occur as a
consequence of the incurrence of such Indebtedness.
5.4. Change of Control
(a) Change of Control. Prior to the consummation of a Change of
Control (the date of such consummation being referred to herein as the "Change
of Control Date"), the Company shall give each Holder notice describing in
reasonable detail the nature of the Change of Control and offering to each
Approved Holder and Approved Purchaser the following rights, as applicable (such
written notice, the "Change of Control Notice"):
(1) to require the Company, with respect to any entity whose
executive officer is Andre Dimitriadis or Jim Pieczynski (an "Approved
Holder"), to repurchase all or any part of each Approved Holder's
Notes pursuant to the offer (the "Change of Control Repurchase Offer")
at a purchase price equal to 100% of the aggregate principal amount
thereof, together with unpaid interest to the date of repurchase (the
"Change of Control Price"). The obligation of the Company to
repurchase Notes pursuant to the Change of Control Repurchase Offer is
subject to the subordination provisions of Section 8 hereof; or
(2) to require the Company, in the event that (x) less than
$10,000,000 aggregate principal amount of Notes have been issued and
sold to the Purchaser pursuant to Section 1.2(a) and (y) either Andre
Dimitriadis or Jim Pieczynski serve as an executive officer of the
party that has the obligation to purchase Notes hereunder (the
"Approved Purchaser"), to issue and sell additional Notes to the
Approved Purchaser at a purchase price of 100% of the principal amount
thereof in such amount designated in writing by the Approved Purchaser
(but in no event shall more than $10,000,000 aggregate principal
amount of Notes be issued to the Approved Purchaser pursuant to
Section 1.2(a) and pursuant to this Section 5.4). The foregoing is
referred to herein as the "Change of Control Issuance of Additional
Notes."
(b) Timing of Notice. The Change of Control Notice shall be
mailed by the Company to all Holders at their last registered address no later
than fifteen (15) Business Days prior to the Change of Control Date.
(c) Procedure. The Change of Control Notice shall state a date
not later than five (5) Business Days following the Change of Control Date for
repurchase of the Notes pursuant to the Change of Control Repurchase Offer (such
date, the "Change of Control Repurchase Date") and shall state a date not later
than five (5) Business Days prior to the Change
18
of Control Date for issuance of additional Notes pursuant to the Change of
Control Issuance of Additional Notes (such date, the "Change of Control Issuance
Date"). The Change of Control Notice, which shall govern the terms of the Change
of Control Repurchase Offer and the Change of Control Issuance of Additional
Notes, shall state:
(1) that the Change of Control Repurchase Offer and the Change of
Control Issuance of Additional Notes is being made pursuant to this
Section 5.4;
(2) the Change of Control Price, the Change of Control Repurchase
Date and the Change of Control Issuance Date;
(3) that, unless the Company defaults in the payment of the
Change of Control Price, all Notes accepted for payment shall cease to
accrue interest on and after the Change of Control Repurchase Date;
(4) that Approved Holders electing to require the Company to
repurchase any Notes will be required to surrender the Note to the
address specified in the Change of Control Notice prior to the close
of business on the Business Day preceding the Change of Control
Repurchase Date;
(5) that the Approved Purchaser electing to require the Company
to issue additional Notes will be required to make payment for such
Notes by wire transfer of immediately available funds to an account
designated by the Company in such Change of Control Notice on or prior
to the close of business on the Change of Control Issuance Date;
(6) that the Approved Holders will be entitled to withdraw their
election to require the Company to repurchase any Notes on the terms
and conditions set forth in such Change of Control Notice by written
notice to the Company prior to the Change of Control Repurchase Date
and the Approved Purchaser will be entitled to withdraw its election
to require the Company to issue additional Notes on the terms and
conditions set forth in such Change of Control Notice by written
notice to the Company prior to the Change of Control Issuance Date;
and
(7) that the Approved Holders electing to require the Company to
repurchase any Notes in part will be issued a new Note in a principal
amount equal to the unpurchased portion of the Notes surrendered.
Any such Change of Control Repurchase Offer shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations to the extent applicable in connection with any Change of
Control Repurchase Offer.
(d) Acceptance of Notes/Issuance of Additional Notes.:
19
(1) On the Change of Control Repurchase Date, the Company shall
accept for payment all Notes or portions thereof validly tendered
pursuant to the Change of Control Repurchase Offer and promptly
thereafter mail or deliver to the Holders of Notes accepted for
repurchase payment in the amount equal to the aggregate Change of
Control Price for such Notes, and the Company shall execute and mail
or deliver to such Holders a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered; and
(2) On the Change of Control Issuance Date, the Company shall
issue additional Notes in the amount set forth in writing by the
Approved Purchaser, pursuant to this Section 5.4; deliver a
Certificate of the Chief Executive Officer and the Chief Financial
Officer of the Company, dated the date such additional principal
amount of Notes is delivered to the Approved Purchaser, certifying (x)
that all of the representations and warranties of the Company
contained or incorporated by reference in this Agreement are true and
correct on and as of such date as though made on and as of such date,
and no event has occurred and is continuing, or would result from the
issuance of the Notes or the extension of borrowings under the
Commitment Letter, which constitutes or would constitute a Default or
an Event of Default and (y) as to such other matters as the Approved
Purchaser may request in the exercise of its reasonable discretion and
(z) an opinion, dated the date such additional principal amount of
Notes is delivered to the Approved Purchaser and addressed to the
Approved Purchaser, from David R. Gibson, counsel for the Company, as
to the matters set forth on Annex B.
The Company will notify the Holders of the results of the Change of
Control Repurchase Offer and the Change of Control Issuance of Additional Notes
on the Change of Control Repurchase Date and Change of Control Issuance Date,
respectively.
5.5. Stay, Extension and Usury Laws
The Company covenants and agrees (to the extent that it may lawfully
do so) that it will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, and will use its best
efforts to resist any attempts to claim or take the benefit of any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
which may affect the covenants or the performance of its obligations under this
Agreement or the Notes; and the Company (to the extent it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not, by resort to any such law, hinder, delay or impede the
execution of any power herein granted to the Holders, but will suffer and permit
the execution of every such power as though no such law has been enacted.
5.6. Indemnification
The Company agrees to indemnify the Purchaser and each director,
officer, employee, counsel, Agent and Affiliate of such Purchaser (collectively,
the "Indemnified Parties") against, and hold it and them harmless from, all
losses, claims, damages, liabilities, taxes, deficiencies, expenses and costs
(including diminution in value and costs of preparation
20
and reasonable attorneys' fees and expenses) (collectively, "Losses") incurred
by it or them (A) arising from any breach of any representation or warranty or
the inaccuracy of any representation made by the Company in or pursuant to the
Agreement, the Registration Rights Agreement or the Commitment Letter (including
without limitation any breach or inaccuracy of any representation or warranty
relating to CERCLA, any equivalent state statute or any other Environmental
Law); and (B) arising from any breach of any covenant or agreement made by the
Company in or pursuant to the Agreement, the Registration Rights Agreement or
the Commitment Letter; provided, however, that the Company shall not be required
to indemnify any Indemnified Party for any Loss that results from (x) the action
of any Indemnified Party which is finally judicially determined to have resulted
from such Indemnified Party's negligence, intentionally wrongful acts or
intentionally wrongful omissions or (y) the Purchaser's failure to purchase
additional Notes from the Company pursuant to Section 1.2(a)(2) hereof;
provided, further, that no Indemnified Party shall be entitled to assert a claim
on account of the indemnity provided in this Section 5.6, unless and until the
aggregate amount of Losses with respect to all claims asserted under this
Section and under Section 5.6 of the purchase agreements for the Notes executed
on the date hereof by other purchasers exceeds $100,000 (in which case the
Company shall be liable for Losses in excess of such $100,000 that have
accrued).
The Company agrees to reimburse any Indemnified Party promptly for all
such Losses as they are incurred by such Indemnified Party. The Company's
liability to any such Indemnified Party hereunder shall not be extinguished
solely because any other Indemnified Party is not entitled to indemnity
hereunder. The obligations of the Company under this Section 5.6 shall survive
the payment or prepayment of the Notes, at maturity, upon acceleration,
repurchase or otherwise, any transfer of the Notes by any Purchaser to any
subsequent Holder and the termination of this Agreement, the Notes, the
Registration Rights Agreement and the Commitment Letter. The indemnity provided
in this Section 5.6 will be in addition to any liability which the Company may
otherwise have, including, without limitation, under this Agreement, the Notes,
the Registration Rights Agreement and the Commitment Letter.
In case any action shall be brought against any Indemnified Party with
respect to which indemnity may be sought against the Company, such Indemnified
Party shall promptly notify the Company in writing and the Company shall, if it
so desires, assume the defense thereof, including the employment of counsel
reasonably satisfactory to such Indemnified Party and payment of all reasonable
fees and expenses. The failure to so notify the Company shall not affect any
obligation it may have to any Indemnified Party under this Section 5.6 or
otherwise unless the Company is materially adversely affected by such failure.
Each Indemnified Party shall have the right to employ separate counsel
in such action and participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless: (i)
the Company has agreed in writing to pay such expenses; (ii) the Company has
failed to assume the defense and employ counsel; or (iii) the named parties to
any such action (including any impleaded parties) include any Indemnified Party
and the Company, and such Indemnified Party shall have been advised by outside
counsel that there may be one or more legal defenses available to it which are
inconsistent with those available to the Company; provided that, if such
Indemnified Party notifies the Company in
21
writing that it elects to employ separate counsel in the circumstances described
in clauses (i), (ii) or (iii) above, the Company shall not have the right to
assume the defense of such action or proceeding; provided, however, that the
Company shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
responsible hereunder for the fees and expenses of more than one such firm of
separate counsel (in addition to any necessary local counsel), which counsel
shall be designated by such Indemnified Party. The Company shall not be liable
for any settlement of any such action effected without its written consent
(which shall not be unreasonably withheld). The Company agrees that it will not,
without the Indemnified Party's prior consent, which shall not be unreasonably
withheld, settle or compromise any pending or threatened claim, action or suit
in respect of which indemnification may be sought hereunder unless the foregoing
contains an unconditional release of the Indemnified Parties from all liability
and obligation arising therefrom.
5.7. Corporate Existence; Merger; Successor Corporation
(a) The Company will do or cause to be done all things necessary
to preserve and keep in full force and effect its corporate existence in
accordance with its organizational documents and the corporate rights (charter
and statutory), licenses and franchises of the Company; provided, however, that
the Company shall not be required to preserve any such right, license or
franchise, or corporate existence if the Board of Directors of the Company shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and that the loss thereof is not adverse in any
material respect to any Holder.
(b) The Company shall not in a single transaction or through a
series of related transactions, (i) consolidate with or merge with or into any
other person, or transfer (by lease, assignment, sale or otherwise) all or
substantially all of its properties and assets as an entirety or substantially
as an entirety to another person or group of affiliated persons or (ii) adopt a
Plan of Liquidation, unless, in either case:
(1) the Company shall be the continuing Person, or the Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or to which all or substantially all of the properties and assets of
the Company as an entirety or substantially as an entirety are transferred (or,
in the case of a Plan of Liquidation, any Person to which assets are
transferred) (the Company or such other Person being hereinafter referred to as
the "Surviving Person") shall be a corporation organized and validly existing
under the laws of the United States, any State thereof or the District of
Columbia, and shall expressly assume, by an amendment to this Agreement, all the
obligations of the Company under the Notes and this Agreement;
(2) immediately after and giving effect to such transaction and
the assumption contemplated by clause (1) above and the incurrence or
anticipated incurrence of any Indebtedness to be incurred in connection
therewith, (ii) the Surviving Person shall have a Consolidated Net Worth equal
to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction;
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(3) immediately before and immediately after and giving effect to
such transaction and the assumption of the obligations as set forth in clause
(1) above and the incurrence or anticipated incurrence of any Indebtedness to be
incurred in connection therewith, no Default or Event of Default shall have
occurred and be continuing; and
(4) The Company shall have delivered to the Purchaser an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, transfer or adoption and such amendment to this Agreement
comply with this Section 5.7, that the Surviving Person agrees to be bound
hereby, and that all conditions precedent herein provided relating to such
transaction have been satisfied.
(c) Upon any consolidation or merger, or any transfer of assets
(including pursuant to a Plan of Liquidation) in accordance with this Section
5.7, the successor person formed by such consolidation or into which the Company
is merged or to which such transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Agreement
with the same effect as if such successor person had been named as the Company
herein; provided, however, that the Company shall not be released from the
obligations and covenants under this Agreement or under the Notes.
5.8. Taxes
The Company shall, and shall cause its Subsidiaries to, pay prior to
delinquency all material taxes, assessments and governmental levies except as
contested in good faith and by appropriate proceedings.
5.9. Investment Company Act
Neither the Company nor any of its Subsidiaries shall become an
investment company subject to registration under the Investment Company Act of
1940, as amended.
5.10. Insurance
The Company and its Subsidiaries shall maintain liability, casualty
and other insurance with a reputable insurer or insurers in such amounts and
against such risks as is carried by responsible companies engaged in similar
businesses and owning similar assets.
5.11. Inconsistent Agreements
The Company shall not, and shall not permit any of its Subsidiaries
to, (i) enter into any agreement or arrangement which is inconsistent with, or
would impair the ability of the Company to fulfill, its obligations under this
Agreement, the Notes, the Registration Rights Agreement or the Commitment Letter
or (ii) supplement, amend or otherwise modify the terms of their respective
Charter Documents, if the effect thereof would be materially adverse to the
Holders, including without limitation to increase the liquidation preference of,
or the rate of dividends payable on, any series of preferred stock.
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5.12. Compliance with Laws
The Company shall, and shall cause its Subsidiaries to, comply with
all statutes, ordinances, governmental rules and regulations, judgments, orders
and decrees (including all Environmental Laws) to which any of them is subject,
and obtain and keep in effect all licenses, permits, franchises and other
governmental authorizations necessary to the ownership or operation of their
respective properties or the conduct of their respective businesses, except to
the extent that the failure to so comply or obtain and keep in effect would not
have a Material Adverse Effect.
5.13. Inspection of Properties and Records
The Company agrees to allow, and to cause each of their respective
Subsidiaries to allow, the Purchaser and each subsequent Holder (or such Persons
as the Purchaser or subsequent Holder may designate) (individually and
collectively, "Inspectors") upon reasonable prior notice to visit and inspect
any of the properties of the Company or its Subsidiaries, to examine all their
books of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers, and independent public accountants with
representatives of the Company or its Subsidiaries present (and by this
provision the Company authorizes said accountants to discuss with such
Inspectors the finances and affairs of the Company and its Subsidiaries) all at
such reasonable times and as often as may be reasonably requested but not more
than twice in any twelve-month period for all Holders in the aggregate unless a
Default or an Event of Default shall have occurred; provided, however, that the
Purchaser shall not be so limited in the number of such inspections prior to
March 31, 2000 where such inspections are made in connection with the issuance
and sale by the Company of any additional Notes. If a Default or an Event of
Default shall have occurred and be continuing, the Company shall pay or
reimburse all Inspectors for expenses which such Inspectors may reasonably incur
in connection with any such visitations or inspections.
SECTION 6. CONVERSION OF NOTES
6.1. Conversion
(a) Each Note shall be convertible, in whole or in part, at the
option of the Holder thereof, at any time prior to the Maturity Date, at the
office of the Company or any transfer agent for the Notes, into that number of
fully paid and nonassessable shares of Common Stock determined in accordance
with the provisions of Section 6.2. In order to convert Notes into Conversion
Shares, the Holder thereof shall surrender the Notes therefor, duly endorsed, at
the office of the Company or to the transfer agent for the Notes, together with
written notice to the Company stating that it elects to convert the same and
setting forth the name or names in which it wishes the certificate or
certificates for Conversion Shares to be issued, and the principal amount of the
Notes being converted. The Company shall, as soon as practicable after the
surrender of the Notes for conversion at the office of the Company or the
transfer agent for the Notes, issue to each holder of such Notes, or its nominee
or nominees, a certificate or certificates evidencing the number of Conversion
Shares (and any other securities and property) to which it
24
shall be entitled, cash representing payment in full for all accrued but unpaid
interest on the Note (or portion thereof) surrendered for conversion, and, in
the event that only a part of the Notes presented are converted, a Note
evidencing the principal amount not so converted. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the Notes to be converted, and the person or persons
entitled to receive the Conversion Shares issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock at such date and shall, with respect to such shares, thereafter
have only those rights of a holder of Common Stock of the Company.
(b) In the event that the average trading price of the Common Stock
over thirty (30) consecutive trading days is equal to or exceeds $12 per share,
the Company shall have the right, but not the obligation, to force a conversion
of all then outstanding Notes, in whole but not in part, within the fifteen (15)
day period immediately following such thirty (30) consecutive trading days. Any
such forced conversion shall in all other respects be in accordance with this
Section 6, and, if the Company shall elect to force conversion of Notes, it
shall promptly provide notice of such forced conversion to all Holders of Notes.
The Company shall, as soon as practicable following the notice of such forced
conversion (and in no event later than sixty (60) calendar days after the date
of such notice) issue to each holder of such Notes, or its nominee or nominees,
a certificate or certificates evidencing the number of Conversion Shares (and
any other securities and property) to which it shall be entitled and cash
representing payment in full for all accrued but unpaid interest on the Note
surrendered for conversion. Such conversion shall be deemed to have been made at
the close of business on the date specified in such notice, and the person or
persons entitled to receive the Conversion Shares issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock at such date and shall, with respect to such shares, thereafter
have only those rights of a holder of Common Stock of the Company.
(c) The Company shall use its best efforts to quote and maintain
quotation of the Conversion Shares on the Nasdaq National Market or such other
principal national securities exchange on which the Common Stock is then listed
or quoted.
6.2. Conversion Rate
The number of shares of Common Stock issuable upon conversion of the
Notes shall be one (1) share for every $7.50 of principal amount of Notes being
converted (the "Conversion Rate"), and shall be subject to adjustment from time
to time as provided herein and as provided in Section 3(b) of the Registration
Rights Agreement.
6.3. Fractional Shares
No fractional shares of Common Stock shall be issued upon conversion
of Notes. Instead, the Company shall deliver cash in the form of its check for
the Fair Market Value of the fractional share.
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6.4. Adjustments for Stock Splits, Combinations and Dividends
If the outstanding shares of the Common Stock shall be subdivided into
a greater number of shares or combined into a lesser number of shares, the
Conversion Rate in effect immediately prior to such subdivision shall,
simultaneously with the effectiveness of such subdivision, be proportionately
increased or decreased, as the case may be. If the Company pays a dividend or
otherwise makes a distribution with respect to its Common Stock (whether in
cash, additional shares of Common Stock or other property) on or prior to March
31, 2003, then the Conversion Rate shall be increased by a fraction, the
numerator of which is the aggregate amount of the fair market value of such
dividend or distribution and the denominator of which is the number of shares of
Common Stock entitled to such dividend or other distribution. If the Company
pays a dividend or otherwise makes a distribution with respect to its Common
Stock (whether in cash, additional shares of Common Stock or other property)
after March 31, 2003 (the effective date of such dividend or other distribution,
the "Determination Date") and if the fair market value of such dividend or other
distribution, together with the fair market value of all other dividends and
distributions with respect to its Common Stock during the 12-month period
immediately preceding the Determination Date exceeds 2% of the Average Closing
Sales Price during such 12-month period, then the Conversion Rate shall be
increased by a fraction, the numerator of which is the aggregate amount of the
fair market value of the dividend or other distribution to be effected on the
Determination Date plus the aggregate amount of the fair market value of all
dividends and distributions effected during such 12-month period for which no
adjustment in the Conversion Rate was effected pursuant to this Section 6.4, and
the denominator of which is the number of shares of Common Stock entitled to
such dividend or other distribution on the Determination Date. Any adjustment to
the Conversion Rate under this Section 6.4 shall become effective at the close
of business on the date the subdivision, combination, dividend or other
distribution referred to herein becomes effective. For purposes of the
calculations made in this Section 6.4, the fair market value of any dividend or
other distribution that is in the form of property other than Common Stock or
cash shall be determined in good faith by the Board.
6.5. Reorganization, Mergers, Consolidations or Sales of Assets
In the event of any capital reorganization, any reclassification of
the Common Stock (other than a change in par value or as a result of a stock
dividend, subdivision, split-up or combination of shares), the consolidation or
merger of the Company with or into another person, or the sale or other
disposition of all or substantially all of the properties of the Company as an
entirety to another person (collectively referred to hereinafter as
"Reorganizations"), the Holders of the Notes shall thereafter be entitled to
receive, and provision shall be made therefor in any agreement relating to a
Reorganization, upon conversion of the Notes the kind and number of shares of
Common Stock or other securities or property (including cash) of the Company, or
the other corporation resulting from such consolidation or surviving such
merger, which would have been distributed to a holder of the number of shares of
Common Stock which the Notes entitled the holders thereof to convert to
immediately prior to such Reorganization; and in any such case appropriate
adjustment shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the Holders of the Notes,
to the end that the
26
provisions set forth herein (including the specified changes and other
adjustments to the Conversion Rate) shall thereafter be applicable, as nearly as
reasonably may be, in relation to any shares, other securities or property
thereafter receivable upon conversion of the Notes.
6.6. Sale of Shares Below Market or Conversion Price
(a) If at any time or from time to time the Company shall issue
or sell Additional Shares of Common Stock other than in a transaction which
falls within Section 6.1, Section 6.4 or Section 6.5, for an Effective Price
less than the greater of (x) the Fair Market Value of the Common Stock or (y)
the then effective conversion price calculated by dividing $7.50 by the then
existing Conversion Rate (the "Adjusted Conversion Price"), then, and in each
such case, the then existing Conversion Rate shall be adjusted to a rate per
$7.50 principal amount of Notes determined by multiplying that Conversion Rate
by a fraction (i) the numerator of which shall be the number of shares of Common
Stock outstanding at the close of business on the date of such issue after
giving effect to such issue of Additional Shares of Common Stock, and (ii) the
denominator of which shall be (A) the number of shares of Common Stock
outstanding at the close of business on the day next preceding the date of such
issue or sale, plus (B) the number of shares of Common Stock which the aggregate
consideration received (or by the express provisions hereof deemed to have been
received) by the Company for the total number of Additional Shares of Common
Stock so issued would purchase at such Adjusted Conversion Price.
(b) For the purpose of making any adjustment required in this
Section 6.6, the consideration received by the Company for any issue or sale of
securities shall:
(i) to the extent it consists of cash, the consideration received
by the Company therefor shall be deemed to be the net amount of cash
actually received by the Company, after deducting therefrom any
compensation, discounts, fees or expenses paid to (but not on behalf
of) any purchaser of such securities and any compensation, discounts,
fees or expenses that are not reasonable or are not customary (it
being understood that underwriters' discounts and compensation in
public offerings and brokers' commissions in private placements of
such securities shall be deemed reasonable and customary);
(ii) to the extent it consists of property other than cash, the
consideration other than cash shall be computed at the fair market
value thereof as determined in good faith by the Board of Directors of
the Company; and
(iii) if Additional Shares of Common Stock, Convertible
Securities or rights or options to purchase either Additional Shares
of Common Stock or Convertible Securities are issued or sold together
with other stock or securities or other assets of the Company for
consideration which covers both, the consideration received for the
Common Stock, Convertible Securities or rights or options shall be
computed as that portion of the consideration so received which is
reasonably determined in good faith by the Board of Directors of the
Company to
27
be allocable to such Additional Shares of Common Stock, Convertible
Securities or rights or options.
(c) For the purpose of making any adjustment in the Conversion
Rate provided in this Section 6.6, if at any time, or from time to time, the
Company issues any stock convertible into Additional Shares of Common Stock
(such convertible stock being hereinafter referred to as "Convertible
Securities") or issues any rights or options, other than options pursuant to the
Stock Option Plan, to purchase Additional Shares of Common Stock for Convertible
Securities (such rights or options being hereinafter referred to as "Rights"),
then, and in each such case, the Company shall be deemed to have issued at the
time of the issuance of such Rights or Convertible Securities the maximum number
of shares of Additional Shares of Common Stock issuable upon exercise (other
than options pursuant to the Stock Option Plan) or conversion thereof and to
have received in consideration for the issuance of such shares an amount equal
to the total amount of the consideration, if any, received by the Company for
the issuance of such Rights or Convertible Securities, plus in the case of such
Rights, the amount of consideration, if any, payable to the Company upon
exercise of such Rights, plus, in the case of Convertible Securities, the amount
of consideration, if any, payable to the Company upon the conversion thereof. No
further adjustment of the Conversion Rate, adjusted upon the issuance of such
Rights or Convertible Securities, shall be made as a result of the actual
issuance of Additional Shares of Common Stock on the exercise of any such Rights
or the conversion of any such convertible Securities. If any such Rights or the
conversion privilege represented by any such Convertible Securities shall expire
without having been exercised, the Conversion Rate adjusted upon the issuance of
such rights, options or convertible securities shall be readjusted to the
conversion rate which would have been in effect had an adjustment been made on
the basis that the only Additional Shares of Common Stock so issued were the
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such Rights of conversion of such Convertible Securities, and such
Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for granting of all such
Rights, whether or not exercised, plus consideration received for issuing or
selling the Convertible Securities actually converted, plus the consideration,
if any, actually received by the Company on the conversion of such Convertible
Securities.
6.7. Adjustment for Failure to Quote on Nasdaq National Market
In event that, from the time of effectiveness of the registration
statement to be filed pursuant to Section 3(a) of the Registration Rights
Agreement and until all Notes have been converted into Conversion Shares,
immediately prior to the conversion of any Notes into Conversion Shares pursuant
to this Section 6, such Conversion Shares have not been approved for quotation
on Nasdaq National Market (or any other national securities exchange where the
Common Stock is then listed or quoted), then the Conversion Rate with respect to
such Conversion Shares shall be increased by 10% immediately prior to the
conversion of any Notes into such Conversion Shares.
6.8. Accountants' Certificate of Adjustment
28
In each case of an adjustment or readjustment of the Conversion Rate
or the number of shares of Common Stock or other securities issuable upon
conversion of the Notes, the Company shall as soon as reasonably practicable
(and in no event less than thirty (30) days following the event causing such
adjustment or readjustment) compute such adjustment or readjustment in
accordance with this Agreement and prepare a certificate showing such adjustment
or readjustment, and shall mail such certificate, by first-class mail, postage
prepaid, to each Holder of the Notes at the Holder's address as shown on the
Company's note register. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (i) the Conversion Rate at the
time in effect for the Notes, and (ii) the number of shares of Common Stock and
the type and amount, if any, of other property which at the time would be
received upon conversion of the Notes. At the written request of the Requisite
Noteholders, the Company shall cause its Independent Auditors to verify the
computations contained in the certificate prepared by the Company.
6.9. Reservation of Shares Issuable Upon Conversion
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Notes, such number and class of its shares of
Common Stock as shall from time to time be sufficient to effect a conversion of
all outstanding Notes, and if at any time the number and class of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding Notes, the Company shall promptly seek such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number and class of
shares as shall be sufficient for such purpose. In the event of the
consolidation or merger of the Company with another corporation where the
Company is not the surviving corporation, effective provision shall be made in
the certificate or articles of incorporation, documents of merger or
consolidation, or otherwise, of the surviving corporation so that such
corporation will at all times reserve and keep available a sufficient number of
shares of Common Stock or other securities or property to provide for the
conversion of the Notes in accordance with the provisions of this Section 6.
6.10. No Impairment
The Company shall not amend its Charter Documents or participate in
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, for the principal
purpose of avoiding or attempting to avoid the observance or performance of any
of the terms to be observed or performed by the Company pursuant to this Section
6.
SECTION 7. DEFAULTS AND REMEDIES
7.1. Events of Default
An "Event of Default" occurs if:
29
(a) the Company defaults in the payment of the principal of any
Note when the same becomes due and payable at maturity, upon repurchase or
otherwise;
(b) the Company defaults in the payment of interest on any Note
when the same becomes due and payable and the Default continues for the period
and after the notice specified below;
(c) the Company fails to comply with any of the agreements,
covenants, or provisions of this Agreement or the Notes and the Default
continues for the period and after the notice specified below;
(d) a default occurs under any mortgage, indenture or instrument
(other than a mortgage, indenture or instrument to which the Purchaser or its
Subsidiaries is a party) under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by the Company or
any of its Subsidiaries (or the payment of which is guaranteed by the Company or
any of its Subsidiaries), whether such Indebtedness or guaranteed Indebtedness
now exists or shall be created hereafter, which default (i) is caused by a
failure to pay principal of or premium, if any, on such Indebtedness prior to
the expiration of the grace period provided in such Indebtedness, or (ii)
results in the acceleration of such Indebtedness prior to its express maturity
and, in each case, the principal amount of such Indebtedness, together with the
principal amount of any other Indebtedness as to which there has been a payment
default or the maturity of which has been so accelerated, aggregates $1,000,000
or more;
(e) a final judgment for the payment of money is entered by a
court or courts of competent jurisdiction against the Company or any Subsidiary
of the Company and such remains undischarged for a period (during which
execution shall not be effectively stayed) of (1) ninety (90) days, if the
aggregate of all such judgments exceeds $1,000,000 but is less than $5,000,000
or (2) thirty (30) days if the aggregate of all such judgments exceeds
$5,000,000;
(f) the Company or any of its Subsidiaries pursuant to or within
the meaning of any Bankruptcy Law: (1) commences a voluntary case, (2) consents
to the entry of an order for relief against it in an involuntary case, (3)
consents to the appointment of a Custodian of it or for all or substantially all
of its property, (4) makes a general assignment for the benefit of its
creditors, (5) generally is unable to pay its debts as the same become due; or
(6) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (i) is for relief against the Company or any of its
Subsidiaries in an involuntary case, (ii) appoints a Custodian of the Company or
any of its Subsidiaries or for all or substantially all of its property, or
(iii) orders the liquidation of the Company or any of its Subsidiaries, and the
order or decree remains unstayed and in effect for 60 days.
A Default under clause (b) is not an Event of Default until a Holder
notifies the Company of such Default and the Company does not cure such Default
within two (2) Business Days after receipt of such notice. A Default under
clause (c) (other than a Default under Sections 5.3, 5.4, 5.6 or 5.7 of this
Agreement, which Default shall be an Event of Default without the notice or
passage of time specified in this paragraph) or (d) (other than a Default
resulting from the acceleration of any Indebtedness described therein, which
Default shall be an Event of
30
Default without the notice or passage of time specified in this paragraph) or
(e) is not an Event of Default until the Requisite Noteholders notify the
Company of the Default and the Company does not cure the Default within ten (10)
days after receipt of the notice. Any such notices must specify the Default,
demand that it be remedied and state that the notice is a "Notice of Default."
7.2. Acceleration of Notes
If an Event of Default (other than an Event of Default specified in
clauses (e) and (f) of Section 7.1) occurs and is continuing, the Requisite
Noteholders, by notice to the Company, may declare the unpaid principal of and
any accrued interest on all the Notes to be due and payable. Immediately upon
such declaration, the principal and interest shall be due and payable. If an
Event of Default specified in clause (e) or (f) of Section 7.1 occurs, such an
amount shall become and be immediately due and payable without any declaration
or other act on the part of any Holder. The Requisite Noteholders by notice to
the Company may rescind an acceleration of and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of the acceleration.
7.3. Other Remedies
If an Event of Default occurs and is continuing, Holders of the Notes
may pursue any available remedy to collect the payment of principal or interest
on the Notes or to enforce the performance of any provision of the Notes or this
Agreement.
A delay or omission by any Holder of any Notes in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 8. SUBORDINATION
8.1. Notes Subordinated to Senior Indebtedness
(a) The Notes are subordinated and junior in right of payment of
the principal of and interest and all other obligations (all of the foregoing, a
"Payment or Distribution") on such Notes to the prior payment in full of any
Senior Indebtedness whether outstanding on the date hereof or hereafter created,
incurred, assumed or guaranteed, the Notes shall comply with the provisions of
this Section 8, and each Holder by his acceptance thereof likewise agrees.
A Payment or Distribution shall include any asset of any kind or
character, and may consist of cash, securities or other property, by set-off or
otherwise, except that Holders may receive (i) securities that are subordinated
to at least the same extent as the Notes to (A) Senior Indebtedness and (B) any
securities issued in exchange for Senior Indebtedness.
(b) The Senior Indebtedness of the Company shall continue to be
Senior Indebtedness and entitled to the benefit of these subordination
provisions irrespective of any
31
amendment, modification or waiver of any term of any instrument relating to
refinancing of the Senior Indebtedness, whether with or without notice to
Holders.
(c) No right of any holder of any Senior Indebtedness to enforce
subordination as herein provided shall at any time or in any way be affected or
impaired by any act or failure to act on the part of the Company, the Holders or
the holders of the Senior Indebtedness, including without limitation any
non-compliance by the holders of the Senior Indebtedness with any of the terms,
provisions and covenants of the documents evidencing or securing the Senior
Indebtedness, or by any noncompliance by the Company or the Holders with any of
the terms, provisions and covenants of the Notes, regardless of any knowledge
thereof that any such holder of Senior Indebtedness may have or otherwise be
charged with.
8.2. Company Not to Make Payments with Respect to Notes in Certain
Circumstances
No Payment or Distribution shall be made by the Company on account of
principal of or interest on the Notes, whether upon the Maturity Date, upon
repurchase or acceleration, or otherwise, if there shall have occurred and be
continuing a default with respect to any Senior Indebtedness and notice of such
default in writing or by telegram has been given to the Company by any holder or
holders of Senior Indebtedness, unless and until the Company shall have received
written notice from such holder or holders that such default or event of default
shall have been cured or waived or shall have ceased to exist or, unless in the
event of a default that does not result in the acceleration of any Senior
Indebtedness or that does not involve a payment default with respect to any
Senior Indebtedness, upon the expiration of the 60-day period following the date
of such notice of default. Following such 60-day period, the Company shall be
obligated to make any and all outstanding Payments or Distributions with respect
to the Notes.
Upon acceleration of the principal of the Notes or any payment by the
Company or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to creditors upon any dissolution or
winding up or liquidation or reorganization of the Company, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or such other
proceedings, all amounts due or to become due upon all Senior Indebtedness shall
first be paid in full in cash, or payment thereof provided for to the
satisfaction of the holders thereof, before any Payment or Distribution is made
on account of the repurchase price or principal of or interest on the Notes; and
(subject to the power of a court of competent jurisdiction to make other
equitable provision, which shall have been determined by such court to give
effect to the rights conferred in this Section 8 upon the Senior Indebtedness
and the holders thereof with respect to the Notes or the Holders, by a lawful
plan of reorganization or readjustment under applicable law) upon any such
dissolution or winding up or liquidation or reorganization, any Payment or
Distribution by the Company or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, to which the Holders
would be entitled except for the provisions of this Section 8, shall be paid by
the Company or by any receiver, trustee in bankruptcy, liquidating trustee,
agent or other Person making such Payment or Distribution directly to the
holders of Senior Indebtedness of the Company or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any
32
instruments evidencing any Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay all Senior
Indebtedness in full in cash, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness, before any Payment or
Distribution is made to the Holders.
In the event that, notwithstanding the foregoing, any Payment or
Distribution by the Company of any kind or character, whether such payment shall
be in cash, property or securities is prohibited by the foregoing, and the
Company shall have made payment to the Holders before all Senior Indebtedness is
paid in full in cash, or provision is made for such payment to the satisfaction
of the holders thereof, such Holder, then and in such event such Payment or
Distribution shall be paid over by such Holder or delivered to the holders of
Senior Indebtedness or their representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in full
in cash, after giving effect to any concurrent Payment or Distribution to or for
the holders of such Senior Indebtedness, and, until so delivered, the same shall
be held in trust by any Holder as the property of the holders of Senior
Indebtedness.
The consolidation of the Company with, or the merger of the Company
into, another Person or the liquidation or dissolution of the Company following
the conveyance or transfer of its property as an entirety, or substantially as
an entirety, to another corporation upon the terms and conditions provided in
Section 5.7 shall not be deemed a dissolution, winding up, liquidation or
reorganization for the purpose of this Section if such other Person shall, as a
part of such consolidation, merger, conveyance or transfer, comply with the
conditions stated in Section 5.7.
The holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Holders without incurring
responsibility to the Holders and without impairing or releasing the obligations
of the Holders to the holders of the Senior Indebtedness: (i) change the manner,
place or terms of payment or change or extend the time of payment of, or renew
or alter, Senior Indebtedness, or otherwise amend in any manner Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and/or (iv) exercise or refrain from exercising any
rights against the Company and any other Person.
8.3. Subrogation of Notes
After all Senior Indebtedness is paid in full and until the Notes are
paid in full, the Holders shall be subrogated (equally and ratably with all
other Indebtedness pari passu with the Notes) to the rights of holders of Senior
Indebtedness to receive distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of Senior Indebtedness.
33
If any Payment or Distribution to which the Holders would otherwise
have been entitled but for the provisions of this Section 8 shall have been
applied pursuant to the provisions of this Section 8 to the payment of all
amounts payable in respect of the Senior Indebtedness, then and in such case,
the Holders, as with respect to the Company, shall be entitled to receive from
the holders of such Senior Indebtedness at the time outstanding any Payments or
Distributions received by such holders of Senior Indebtedness in excess of the
amount sufficient to pay all amounts payable in respect of the Senior
Indebtedness in full in cash or, at the option of the holders of Senior
Indebtedness, cash equivalents.
8.4. No Impairment of Subordination
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company,
any Holder, or by any act, or failure to act, in good faith, by any such holder
of Senior Indebtedness, or by any noncompliance by the Company or any Holder
with the terms, provisions and covenants of this Agreement regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
8.5. Section 8 Not to Prevent Events of Default
The failure to make a payment on account of principal of or interest
on the Notes by reason of any provision in this Section 8 shall not be construed
as preventing the occurrence of an Event of Default with respect to such series
under Section 7.1.
8.6. Securities Senior to Subordinated Indebtedness
The indebtedness represented by the Notes will be senior and prior in
right of payment to all Subordinated Indebtedness, to the extent and in the
manner provided in such Subordinated Indebtedness.
8.7. Assignment of Junior Claims
(a) So long as the Purchaser holds a sufficient amount of Notes
such that the Purchaser constitutes a Requisite Noteholder, paragraphs (b) and
(c) of this Section 8.7 shall have no force and effect. In the event the
Purchaser shall cease to hold a sufficient amount of Notes such that the
Purchaser is no longer a Requisite Noteholder, paragraphs (b) and (c) of this
Section 8.7 shall be in effect.
(b) In the event of an insolvency proceeding with respect to the
Company, each Holder will assign to a representative of the holders of Senior
Indebtedness (as identified in writing to each Holder by the holders of Senior
Indebtedness) (the "Senior Representative") each Holder's right, title and
interest in and to any claims such Holder has against the Company with respect
to the Notes (the "Junior Claims") and any security held therefor, and will
deliver to the Senior Representative from time to time any and all instruments
and documents evidencing such Junior Claims, or will have entered on such
instruments and documents such subordination legend as the Senior Representative
may reasonably request, and each Holder will execute such
34
other instruments and documents as the Senior Representative may from time to
time reasonably require in connection therewith. In the event that any Junior
Claim is not evidenced by a negotiable instrument, each Holder hereby agrees
that he will use all commercially reasonably efforts to obtain an instrument or
document from the Company evidencing such Junior Claim. In the event that such
debt is not evidenced by a document, it shall nevertheless be deemed
subordinated and assigned by virtue of this Section 8.7.
(c) In the event of an insolvency proceeding with respect to the
Company, each Holder will grant to the Senior Representative irrevocable
authority in the place and stead of such Holder and in the name of such Holder
or in the Senior Representative's name but for the Senior Representative's use
and benefit, at any time or times, after any default under the terms of any
Senior Indebtedness, in the Senior Representative's discretion to demand,
collect file proofs of claim with respect to, receive (by way of dividends or
otherwise) and take any and all legal proceedings for the recovery of any and
all moneys due or to become due on account of the Junior Claims or any thereof,
and to vote, give consents and take any other steps with regard thereto. Any and
all moneys so collected or received by the Senior Representative shall be
retained indefeasibly by the Senior Representative for application to the
payment in full of any amounts owing with respect to the Senior Indebtedness
then outstanding (the "Senior Claims"). If the Senior Representative receives
notice of any claim adverse to the rights or interests of each Holder in and to
either the Junior Claims or the Senior Claims, or any moneys held by the Senior
Representative in respect thereof, the Senior Representative shall be entitled
to retain any and all such moneys, documents and instruments evidencing such
Junior Claims and Senior Claims.
SECTION 9. AMENDMENTS AND WAIVERS
9.1. With Consent of Holders
The Company, when authorized by a resolution of the Board of Directors
of the Company and with the written consent of the Requisite Noteholders, may
amend this Agreement or the Notes, without notice to any other Holders. The
Requisite Noteholders may waive compliance by the Company with any provision of
this Agreement or the Notes without notice to any other Holder. Without the
consent of each Holder affected, however, no amendment or waiver may (with
respect to any Notes held by a non-consenting Holder of Notes):
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment or waiver of any provision of this Agreement or the
Notes;
(b) reduce the principal of or change the fixed maturity of any
Note;
(c) reduce the rate of or change the time for payment of interest
on any Note;
(d) waive a Default or Event of Default in the payment of
principal of or interest on the Notes (except a rescission of acceleration of
the Notes by the Requisite Noteholders and a waiver of the payment default that
resulted from such acceleration);
35
(e) make the principal of or the interest on, any Note payable in
any manner other than that stated in this Agreement and the Notes;
(f) make any change in the provisions of this Agreement relating
to waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of or interest on the Notes;
(g) make any change to the subordination provisions of this
Agreement that adversely affect any Holder; or
(h) make any change in the foregoing amendment and waiver
provisions.
It shall not be necessary for the consent of the Holders under this
Section 9 to approve the particular form of any proposed amendment or waiver,
but it shall be sufficient if such consent approves the substance thereof.
After an amendment or waiver under this Section 9 becomes effective,
the Company shall mail to the Holders affected thereby a notice briefly
describing the amendment or waiver. Any failure of the Company to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such amendment or waiver.
In connection with any amendment to this Section 9, the Company may
offer, but shall not be obligated to offer, to any Holder who consents to such
amendment or waiver, consideration for such Holder's consent.
9.2. Revocation and Effect of Consents
Until an amendment or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent Holder of a
Note or portion of a Note that evidences the same debt as the consenting
Holder's Note, even if notation of the consent is not made on any Note. However,
any such Holder or subsequent Holder may revoke the consent as to his Note or
portion of his Note by notice to the Company received before the date on which
the Requisite Noteholders have consented (and not theretofore revoked such
consent) to the amendment or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment or
waiver, which record date shall be at least ten (10) Business Days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders at such record date (or their duly designated proxies),
and only those persons, shall be entitled to revoke any consent previously
given, whether or not such persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
After an amendment or waiver becomes effective, it shall bind every
Holder, unless it makes a change described in any of clauses (a) through (g) of
Section 9.1, in which case,
36
the amendment or waiver shall bind only each Holder of a Note who has consented
to it and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note; provided that any such waiver
shall not impair or affect the right of any Holder to receive payment of
principal of and interest on a Note, on or after the respective due dates
expressed in such Note, or to bring suit for the enforcement of any such payment
on or after such respective dates without the consent of such Holder.
9.3. Notation on or Exchange of Notes
If an amendment or waiver changes the terms of a Note, the Company may
require the Holder of the Note to deliver it to the Company. The Company may
place an appropriate notation on the Note about the changed terms and return it
to the Holder.
SECTION 10. DEFINITIONS
10.1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Closing Date, whether or not subsequently
reacquired or retired by the Company, other than the Conversion Shares; provided
that such term shall exclude shares of Common Stock issued under the Stock
Option Plan and shares of Common Stock issued or issuable upon the conversion of
Notes issued pursuant to agreements dated on or about the date of this Agreement
and the warrants scheduled on the Disclosure Schedule.
"Adjusted Conversion Price" shall have the meaning assigned to such
term in Section 6.6(a).
"Affiliate" means, with respect to any referenced Person, a Person (i)
which directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such referenced Person, (ii)
which directly or indirectly through one or more intermediaries beneficially
owns or holds 10% or more of the combined voting power of the total Voting
Securities of such referenced Person or (iii) of which 10% or more of the
combined voting power of the total Voting Securities directly or indirectly
through one or more intermediaries is beneficially owned or held by such
referenced Person, or a Subsidiary of such referenced Person. When used herein
without reference to any Person, Affiliate means an Affiliate of the Company.
For purposes of this definition, "control" when used with respect to any person
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of Voting Securities, by contract
or otherwise; and the terms "affiliated," controlling" and "controlled" have
meanings correlative to the foregoing.
"Agent" means any Person authorized to act and who acts on behalf of
the Purchasers with respect to the transactions contemplated by this Agreement,
the Registration Rights Agreement or the Commitment Letter.
37
"Agreement" means this Convertible Subordinated Note Purchase
Agreement dated as of March 30, 1998 by and between the Company and the
Purchaser.
"Approved Holder" shall have the meaning assigned to such term in
Section 5.4(a)(1).
"Approved Purchaser" shall have the meaning assigned to such term in
Section 5.4(a)(2).
"Average Closing Sales Price" as of a particular 12-month period means
the average closing sales price of the Common Stock for each Business Day during
such 12-month period. Such average shall be calculated as follows: (i) the
average of the closing sales prices of the Common Stock quoted on the Nasdaq
National Market for each Business Day during such 12-month period, or (ii) if no
such quotations are available, the average of the closing sales prices for each
Business Day during such 12-month period on the principal national securities
exchange on which the Common Stock is listed, or (iii) if not listed on any
national securities exchange, the average closing sales price for each Business
Day during such 12-month period in the over-the-counter market as reported by
the National Quotation Bureau, Incorporated or similar organization, or (iv) if
no of such sales prices are available for each Business Day in such 12-month
period, the average of the high bid and low asked quotations in the
over-the-counter market as so reported for such Business Days, or (v) if no such
quotations are available, the fair market value per share on such unreported
Business Days as determined by an independent investment banker or appraiser,
nationally recognized to be expert in making such valuations, selected by a
majority of the directors of the Company. In the event "Average Closing Sales
Price" is determined by an independent investment banker or appraiser pursuant
to clause (v) of the foregoing sentence, such determination shall be provided to
each Holder in writing together with a fair and accurate description of the
basis for making such determination. The Requisite Holders shall be permitted to
dispute such determination by written notice to the Company within ten (10)
Business Days of receipt of such determination. In the event of such dispute,
the Requisite Holders and the Company shall work together in good faith to
mutually agree upon a second independent investment banker or appraiser to make
a determination of "Average Closing Sales Price" whose fees and expenses shall
be paid by the Company. "Average Closing Sales Price" shall be the average of
the per share fair market values determined by both independent investment
bankers or appraisers.
"Bankruptcy Law" means title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Business Day" means any day which is not a Legal Holiday.
"Capital Lease" means any lease of any property which would in
accordance with GAAP be required to be classified and accounted for on the
balance sheet of the lessee as a capital lease.
"Capitalized Lease Obligation" means, with respect to any Person for
any period, any obligation of such Person to pay rent or other amounts under a
Capital Lease; the amount of
38
such obligation shall be the capitalized amount thereof determined in accordance
with such principles.
"Capital Stock" means any and all shares, interests, participation or
other equivalents (however designated) of corporate stock, including without
limitation all common stock and preferred stock.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act (42 U.S.C. ss. 9601 et. seq.).
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any Person or group (as such term is used in Section 13(d)(3) of the
Exchange Act); (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of which
is that any Person or group (as defined above), other than Walter C. Bowen or a
Related Party, becomes the "beneficial owner" (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is currently exercisable or is exercisable
only upon the occurrence of a subsequent condition), directly or indirectly, of
more than 50% of the Fully Diluted Voting Securities of the Company (measured by
voting power rather than number of shares) and (iv) the date on which a majority
of the Board of Directors of the Company shall cease to be Continuing Directors.
"Change of Control Date" shall have the meaning set forth in Section
5.4.
"Change of Control Issuance Date" shall have the meaning set forth in
Section 5.4.
"Change of Control Issuance of Additional Shares" shall have the
meaning set forth in Section 5.4.
"Change of Control Notice" shall have the meaning set forth in Section
5.4.
"Change of Control Price" shall have the meaning set forth in Section
5.4.
"Change of Control Repurchase Date" shall have the meaning set forth
in Section 5.4.
"Change of Control Repurchase Offer" shall have the meaning set forth
in Section 5.4.
"Charter Documents" means the Articles of Organization, Articles of
Incorporation or Certificate of Incorporation and Bylaws, as amended or restated
(or both) to date, of the Company or a Subsidiary, as applicable.
39
"Closing" shall have the meaning set forth in Section 1.2(b).
"Closing Date" shall have the meaning set forth in Section 1.2(b).
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor statute or law thereto.
"Commitment Letter" means that certain Commitment Letter dated as of
the Closing Date by and between the Company, LTC Properties and LTC West,
executed concurrently herewith.
"Common Stock" means the Common Stock, no par value, of the Company.
"Company" means Regent Assisted Living, Inc., an Oregon corporation.
"Company SEC Documents" shall have the meaning set forth in Section
3.23.
"Conversion Rate" shall have the meaning set forth in Section 6.2.
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Notes.
"Convertible Securities" shall have the meaning set forth in Section
6.6(c).
"Consolidated " or "consolidated," when used with reference to any
accounting term, means the amount described by such accounting term, determined
on a consolidated basis in accordance with GAAP, after elimination of
intercompany items.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock that by its terms is not entitled to
the payment of dividends unless such dividends may be declared and paid only out
of net earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
preferred stock, less (x) all write-ups (other than write-ups resulting from
foreign currency translations and write-ups of tangible assets of a going
concern business made within 12 months after the acquisition of such business)
subsequent to the Closing Date in the book value of any asset owned by such
Person or a consolidated Subsidiary of such Person, (y) all investments as of
such date in unconsolidated Subsidiaries and in Persons that are not
Subsidiaries, and (z) all unamortized debt discount and expense and unamortized
deferred charges as of such date, all of the foregoing determined in accordance
with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on March 30, 1998 or (ii) was nominated for election or
elected to such Board with the approval of a
40
majority of the Continuing Directors who were members of such Board at the time
of such nomination or election.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Determination Date" shall have the meaning set forth in Section 6.4.
"Effective Price" of Additional Shares of Common Stock shall mean the
quotient determined by dividing the total number of Additional Shares of Common
Stock issued or sold, or deemed to have been issued or sold by the Company under
Section 6.6, into the aggregate consideration received, or deemed to have been
received by the Company for such issue under Section 6.6, for such Additional
Shares of Common Stock.
"Environmental Laws" shall have the meaning set forth in Section 3.13.
"Equity Interest" means Capital Stock or warrants, options or other
rights to acquire Capital Stock (but excluding any debt note which is
convertible into, or exchangeable for, Capital Stock).
"Event of Default" shall have the meaning set forth in Section 7.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
from time to time, and any successor statute or law thereto.
"Fair Market Value" of Common Stock as of a particular date means the
Weighted Average trading price of the Common Stock for the ten (10) consecutive
Business Day period immediately preceding such date. Such Weighted Average shall
be calculated as follows: (i) the Weighted Average of the sales price of the
Common Stock quoted on the Nasdaq National Market for each of such ten (10)
Business Days, or (ii) if no such quotations are available, the Weighted Average
sales price for such ten (10) Business Days on the principal national securities
exchange on which the Common Stock is listed, or (iii) if not listed on any
national securities exchange, the Weighted Average sales price for such ten (10)
Business Days in the over-the-counter market as reported by the National
Quotation Bureau, Incorporated or similar organization, or (iv) if no of such
sales prices are available for each Business Day in such ten (10) Business Day
period, the Weighted Average of the high bid and low asked quotations in the
over-the-counter market as so reported for such ten (10) Business Days, or (v)
if no such quotations are available, the fair market value per share on such
date as determined by an independent investment banker or appraiser, nationally
recognized to be expert in making such valuations, selected by a majority of the
directors of the Company; provided, however, that in the event of an
underwritten public offering of Common Stock, "Fair Market Value" shall mean the
price to the public of such Common Stock in such underwritten public offering.
In the event "Fair Market Value" is determined by an independent investment
banker or appraiser pursuant to
41
clause (v) of the foregoing sentence, such determination shall be provided to
each Holder in writing together with a fair and accurate description of the
basis for making such determination. The Requisite Holders shall be permitted to
dispute such determination by written notice to the Company within ten (10)
Business Days of receipt of such determination. In the event of such dispute,
the Requisite Holders and the Company shall work together in good faith to
mutually agree upon a second independent investment banker or appraiser to make
a determination of "Fair Market Value" whose fees and expenses shall be paid by
the Company. "Fair Market Value" shall be the average of the per share fair
market values determined by both independent investment bankers or appraisers.
"Fully Diluted Voting Securities" means each class of Voting
Securities of a Person and each class of securities of a Person that, at the
time of determination, can immediately subscribe for and/or convert to Voting
Securities.
"GAAP" means generally accepted accounting principles as used in the
United States of America and applied in a manner consistent with past practices.
"Holder" or "Holders" means the Purchaser (so long as it holds any
Notes) and any other holder of any of the Notes.
"Incorporated Documents" means the following of the Company's
documents, each as filed with the SEC: (1) Form 10-K for the year ended December
31, 1997, (2) 1997 Proxy Statement dated April 10, 1997; and (3) Form 8-K dated
December 29, 1997.
"Indebtedness" means, with respect to any Person, the aggregate amount
of, without duplication, the following:
(a) all obligations for borrowed money;
(b) all obligations evidenced by bonds, debentures, notes or
other similar instruments;
(c) all obligations to pay the deferred purchase price of
property or services, except Trade Payables and obligations that do not exceed
$300,000 in the aggregate, accrued commissions and other similar accrued current
liabilities in respect of such obligations, in any case, not overdue and arising
in the ordinary course of business;
(d) all Capitalized Lease Obligations;
(e) all obligations or liabilities of others secured by a lien on
any asset owned by such Person or Persons whether or not such obligation or
liability is assumed;
(f) all obligations of such Person or Persons, contingent or
otherwise, in respect of any letters of credit or bankers' acceptances; and
(g) all guaranties.
42
"Indemnified Parties" shall have the meaning set forth in Section 5.6.
"Independent Auditors" shall mean the independent certified public
accountants of the Company. Until December 29, 1997, the Independent Auditors
were Coopers & Lybrand, L.L.P. After such date and as of the date of the
Agreement, the Independent Auditors are KPMG Peat Marwick LLP.
"Inspectors" shall have the meaning set forth in Section 5.13.
"Intangibles" shall have the meaning set forth in Section 3.16.
"Junior Claims" shall have the meaning set forth in Section 8.7.
"Key Employee" means Walter C. Bowen.
"Knowledge of the Company" means to the actual knowledge of each of
the Chairman, Chief Executive Officer, Chief Financial Officer, General Counsel,
President, Treasurer and any Senior or Executive Vice President of the Company,
after due inquiry and investigation.
"Legal Holiday" means a Saturday, Sunday or day on which banks and
trust companies in the principal place of business of the Company or in
California are not required to be open. If a payment date is a Legal Holiday,
payment may be made on the next succeeding day that is not a Legal Holiday, and
interest shall accrue for the intervening period.
"Lien" means any mortgage, pledge, lien, taxes, encumbrance, charge or
adverse claim affecting title or resulting in a charge against real or personal
property, or note interest of any kind (including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell and any filing of or agreement to
give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Losses" shall have the meaning set forth in Section 5.6.
"LTC Properties" means LTC Properties, Inc., a Maryland corporation.
"LTC West" means LTC West, Inc., a Nevada corporation.
"Material Adverse Effect" means (i) any adverse effect upon the
issuance, validity or enforceability of a Note, this Agreement, the Registration
Rights Agreement or the Commitment Letter, (ii) any material adverse effect on
the results of operations, financial condition, properties, assets, business or
prospects of the Company and its Subsidiaries, taken as a whole, or (iii) any
adverse effect on the ability of the Company to fulfill its obligations under
the Notes, this Agreement, the Registration Rights Agreement or the Commitment
Letter or any document contemplated hereby or thereby.
"Material Contract" shall have the meaning set forth in Section 3.17.
43
"Maturity Date" means March 31, 2008.
"Note Register" shall have the meaning set forth in Section 1.3.
"Note" or "Notes" shall have the meaning set forth in Section 1.1.
"Officers' Certificate" means a certificate signed by any two
officers, one of whom must be the Chairman of the Board, the President, the
Treasurer or a Vice President of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Purchaser.
"Payment" or "Distribution" shall have the meaning set forth in
Section 8.1.
"Person" means an individual, partnership, corporation, limited
liability company, trust or unincorporated organization or a government or
agency or political subdivision thereof.
"Plan of Liquidation" means, with respect to any Person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such Person to holders of
Capital Stock of such Person.
"Preferred Stock" means the Series A Preferred Stock, no par value,
and the Series B Preferred Stock, no par value, of the Company.
"Property" or "property" means any assets or property of any kind or
nature whatsoever, real, personal or mixed (including fixtures), whether
tangible or intangible, provided that the terms "Property" or "property", when
used with respect to any Person, shall not include Notes issued by such.
"Purchaser" means the purchaser on the signature pages hereto.
"Registration Rights Agreement" means that certain Registration Rights
Agreement dated as of the Closing Date by and among the Company and the
Purchaser, executed concurrently herewith.
"Related Party" with respect to Walter C. Bowen means (A) any spouse
or immediate family member of such Person or (B) or trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding an 80% or more controlling interest of which
consist of Walter C. Bowen and/or such other Persons referred to in the
immediately preceding clause (A).
"Reorganizations" shall have the meaning set forth in Section 6.5.
44
"Requisite Noteholders" shall mean the holders of Notes whenever
issued to the Purchaser pursuant to this Agreement and the Notes issued to all
other purchasers pursuant to similar agreements dated on or about the date of
this Agreement with an aggregate principal amount equal to or greater than 50%
of the aggregate principal amount of all then outstanding Notes whenever issued
to the Purchaser pursuant to this Agreement and the Notes issued to all other
purchasers pursuant to similar agreements dated on or about the date of this
Agreement.
"Rights" shall have the meaning assigned to such term in Section
6.6(c).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and any successor statute or law thereto.
"Senior Claims" shall have the meaning set forth in Section 8.7.
"Senior Indebtedness" means the principal of, premium, if any, and
accrued interest on any other Indebtedness of the Company and all fees,
expenses, reimbursements, indemnities and other amounts payable with respect to
such Indebtedness, whether such Indebtedness is outstanding on the date of this
Agreement or thereafter created, incurred, assumed, or guaranteed by the Company
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or the assumption or guarantee thereof expressly provides
that such Indebtedness shall not be senior, or is pari passu or subordinate, in
right or payment to the Notes; provided that Senior Indebtedness shall not
include (i) in the case of each Note the other Notes (ii) Indebtedness of the
Company to a Subsidiary of the Company, (iii) Indebtedness of or amounts owed by
the Company for compensation to directors or members of senior management that
has not been approved by the Compensation Committee of the Board; (iv)
Indebtedness guaranteed by the Company on behalf of any equityholder, director,
officer or employee of the Company or of any equityholder, director, officer or
employee of any of the Company's Subsidiaries, (v) any Trade Payables (including
without limitation Indebtedness incurred for the purchase of goods or materials
or for services obtained in the ordinary course of business), (vi) Indebtedness
of the Company that is subordinated by its terms in right of payment to any
other Indebtedness of the Company, and (vii) Indebtedness incurred in violation
of this Agreement.
"Senior Representative" shall have the meaning set forth in Section
8.7.
"Subordinated Indebtedness" means the principal, premium, if any, and
interest on any Indebtedness of the Company which by its terms is expressly
subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person (the "parent"), any
corporation, association or other business entity of which Notes or other
ownership interests representing more than 50% of the ordinary voting power are,
at the time as of which any determination is being made, owned or controlled by
the parent or one or more subsidiaries of the parent or by the parent and one or
more subsidiaries of the parent.
45
"Stock Option Plan" shall mean the Company's 1995 Stock Incentive Plan
as in effect on the Closing Date.
"Surviving Person" shall have the meaning set forth in Section
5.7(b)(1).
"Total Price" means, with respect to the Common Stock on any Business
Day, the product of: (x) the closing sales price of the Common Stock quoted on
the Nasdaq National Market on such Business Day, or if no such quotations are
available, on the principal national securities exchange on which the Common
Stock is listed on such Business Day, or if not listed on any national
securities exchange, in the over-the-counter market as reported by the National
Quotation Bureau, Incorporated or similar organization on such Business Day, or
if no such sales prices are available, the high bid and low asked quotations in
the over-the-counter market on such Business Day multiplied by (y) the number of
shares of Common Stock traded on such market or exchange, as applicable, on such
Business Day.
"Trade Payables" means, with respect to any Person, accounts payable
and other similar accrued current liabilities in respect of obligations or
indebtedness to trade creditors created, assumed or guaranteed by such Person or
any of its Subsidiaries in the ordinary course of business in connection with
the obtaining of property or services.
"Voting Securities" means any class of Equity Interests of a Person
pursuant to which the holders thereof have, at the time of determination, the
general voting power under ordinary circumstances to vote for the election of
directors, managers, trustees or general partners of any Person (irrespective of
whether or not at the time any other class or classes will have or might have
voting power by reason of the happening of any contingency).
"Weighted Average" means, with respect to the Common Stock during any
ten (10) consecutive Business Day period, the sum of the Total Price of such
Common Stock for each Business Day during such ten (10) consecutive Business Day
period divided by ten (10).
10.2. Rules of Construction
Unless the context otherwise requires
(a) a term has the meaning assigned to it;
(b) "or" is not exclusive;
(c) words in the singular include the plural, and words in the
plural include the singular;
(d) provisions apply to successive events and transactions;
(e) "herein," "hereof" and other words of similar import refer to
this Agreement as a whole and not to any particular Section or other
subdivision; and
46
(f) the masculine shall include the feminine and neuter genders
as appropriate.
SECTION 11. MISCELLANEOUS
11.1. Notices
All notices and other communications provided for or permitted
hereunder shall be made by hand-delivery, first-class mail, telex, telecopier,
or overnight air courier guaranteeing next day delivery:
(a) if to any Purchaser at address set forth on the signature
pages hereto, with a copy to Latham & Watkins, 633 W. Fifth Street, Suite 4000,
Los Angeles, California 90071, Attention: Eva Herbst Davis, Esq.; and
(b) if to the Company, to Regent Assisted Living, Inc., 121 SW
Morrison, Suite 1000, Attention: General Counsel with a copy to Stoel Rives LLP,
900 SW Fifth Avenue, Suite 2300, Portland, Oregon 97204, Attention: Todd Bauman,
Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five (5) Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
The parties may change the addresses to which notices are to be given by giving
five days' prior notice of such change in accordance herewith.
11.2. Undertaking for Costs
In any suit for the enforcement of any right or remedy under this
Agreement, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
11.3. Successors and Assigns
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties.
11.4. Counterparts
This Agreement may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
47
11.5. Headings
The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
11.6. Governing Law
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of California.
11.7. Entire Agreement
This Agreement, together with the Notes, the Registration Rights
Agreement and the Commitment Letter is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement, together with the Notes, the Registration
Rights Agreement and the Commitment Letter supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
11.8. Severability
In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired or affected, it being
intended that the Purchaser's rights and privileges shall be enforceable to the
fullest extent permitted by law.
11.9. Transfer
The Notes may not be transferred, sold, assigned, pledged,
hypothecated or otherwise disposed of unless (a) such transfer is pursuant to an
effective registration statement under the Securities Act and any applicable
state securities laws, or (b) the Company has been furnished with a satisfactory
opinion of counsel for the Holder, at such Holder's expense, that such transfer
is exempt from the provisions of Section 5 of the Securities Act, the rules and
regulations in effect thereunder and any applicable state securities laws.
48
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties set forth below as of the date first written above.
REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By: WALTER C. BOWEN
-------------------------------------------------
Name: Walter C. Bowen
Title: President
LTC EQUITY HOLDING COMPANY, INC.,
a Nevada corporation
By: JAMES J. PIECZYNSKI
--------------------------------------------------
Name: James J. Pieczynski
Title: President and Chief Financial Officer
Address:
300 Esplanade Drive, Suite 1860
Oxnard, California 93030
49
ANNEX A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS (A) SUCH TRANSFER IS PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) THE
COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER
THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT, THE
RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE SECURITIES
LAWS.
REGENT ASSISTED LIVING, INC.
CONVERTIBLE SUBORDINATED NOTE DUE MARCH 31, 2008
Note No. ________ $_______________________
FOR VALUE RECEIVED, the undersigned, REGENT ASSISTED LIVING, INC., a
corporation organized and existing under the laws of Oregon (herein called the
"Company"), hereby promises to pay to the order of ____________________________
or registered assigns ("Holder"), the principal sum of
___________________________ DOLLARS (or so much thereof as shall remain
outstanding) on March 31, 2008. Payments are to be made as provided in the
Agreement (as defined herein).
This Note is one of the Notes issued pursuant to the Convertible
Subordinated Note Purchase Agreement dated as of March 30, 1998 (the
"Agreement"), by and between the Company and LTC Equity Holding Company, Inc., a
Nevada corporation, and is also entitled to the benefits thereof to the extent
provided in the Agreement. This Note is subject to (i) conversion, in whole or
in part, at the option of the Holder, pursuant to Section 6.1(a) of the
Agreement, (ii) conversion, in whole but not in part, at the option of the
Company upon the satisfaction of certain conditions pursuant to Section 6.1(b)
of the Agreement and (iii) repurchase, in whole or in part, upon a Change of
Control pursuant to Section 5.4 of the Agreement.
Upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and, at the
option of the holder, registered in the name of, the transferee. The Company may
deem and treat the person in whose name this Note is registered as the holder
and
owner hereof for the purpose of receiving payments and for all other purposes
whatsoever, and the Company shall not be affected by any notice to the contrary.
If an Event of Default shall occur and be continuing, this Note may,
under certain circumstances, become or be declared due and payable in the manner
and with the effect provided in the Agreement.
Certain terms and provisions of this Note may be amended or compliance
herewith waived on the terms and provisions provided for in the Agreement.
The Note is subordinated in both right of payment and time of payment
to certain Senior Indebtedness, as defined and described in Section 8 of the
Agreement.
Capitalized terms used herein without definition shall have the
meaning set forth for such terms in the Agreement.
REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By:__________________________________
Name:
Title:
2
ANNEX B
FORM OF OPINION OF COMPANY COUNSEL
1. The Company and each of its Subsidiaries are corporations duly
organized and validly existing in good standing under the laws of their
respective jurisdictions of incorporation.
2. The Company and each of its Subsidiaries have all requisite power
and authority to own or hold under lease the properties it purports so to own or
hold except where the failure so to own or hold could not have a Material
Adverse Effect and to transact their respective businesses as now transacted and
proposed to be transacted.
3. The Company and each of its Subsidiaries are duly qualified as
foreign corporations and are in good standing in each jurisdiction in which the
character of the properties owned or held under lease by them or the nature of
the business transacted by them requires such qualification, except where the
failure so to be qualified or be in good standing could not have a Material
Adverse Effect.
4. The Company has taken all actions necessary to authorize it (i) to
execute, deliver and perform all of its obligations under the Agreement, the
Registration Rights Agreement and the Commitment Letter, (ii) to issue and
perform all of its obligations under the Notes and (iii) to consummate the
transactions contemplated hereby and thereby.
5. The total number of shares of Capital Stock which the Company has
authority to issue is 30,000,000 shares, consisting of 25,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock.
6. As of March 30, 1998, there were 4,633,000 shares of Common Stock
issued and outstanding, and 1,666,667 shares of Preferred Stock issued and
outstanding. Such shares of Common Stock and Preferred Stock have been duly
authorized and were validly issued, are fully paid and nonassessable, were
issued in compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities of the Company.
7. Neither the Company nor any of its Subsidiaries has outstanding any
securities convertible into or exchangeable for any shares of Capital Stock nor
does it have outstanding any rights to subscribe for or to purchase, or any
options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, any Capital Stock or securities convertible into or
exchangeable for any Capital Stock other than (i) the Notes to be issued
pursuant to the Agreement or pursuant to other similar agreements dated on or
about the date of this Agreement, (ii) 1,666,667 shares of Preferred Stock
convertible into Common Stock, and (iii) options and
warrants to purchase shares of Common Stock as set forth and for the numbers of
shares set forth in the Disclosure Schedule to the Agreement.
8. The Company has duly authorized and reserved for issuance the
Conversion Shares, and the Conversion Shares will, when issued, be duly and
validly issued, fully paid and nonassessable and free from all Liens.
9. Neither the execution or delivery of the Agreement, the
Registration Rights Agreement or the Commitment Letter by the Company nor the
issuance, sale or delivery of the Notes nor the performance of its respective
obligations hereunder or thereunder will:
(a) violate any provision of the Charter Documents of the
Company;
(b) violate any statute, law, rule or regulation or any judgment,
decree, order, regulation or rule of any court or governmental authority to
which the Company, any of its Subsidiaries, or any of their respective
properties may be subject;
(c) permit or cause the acceleration of the maturity of any debt
or obligation of the Company or any of its Subsidiaries;
(d) violate, or be in conflict with, or constitute a default
under, or permit the termination of, or require the consent of any Person under,
or result in the creation of any Lien upon any property of the Company or any of
its Subsidiaries under, any mortgage, indenture, loan agreement, note, debenture
or other agreement for borrowed money or any other material agreement to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries (or their respective properties) may be bound, other than
such violations, conflicts, defaults, terminations and Liens, or such failures
to obtain consents, which could not reasonably be expected to result in a
Material Adverse Effect.
10. The sale of the Notes hereunder is exempt from the registration
and prospectus delivery requirements of the Securities Act.
11. Neither the Company nor any of its Subsidiaries is an "investment
company" or a Person directly or indirectly "controlled" by or acting on behalf
of an "investment company" within the meaning of the United States Investment
Company Act of 1940, as amended.
2