CONVERTIBLE LOAN AGREEMENT
DATED JUNE 22, 2001
BY AND AMONG
DIGITAL RECORDERS, INC.
AS BORROWER
AND
RENAISSANCE US GROWTH & INCOME TRUST PLC
AND
BFSUS SPECIAL OPPORTUNITIES TRUST PLC
AS LENDER
AND
RENAISSANCE CAPITAL GROUP, INC.
AS AGENT FOR THE LENDER
TABLE OF CONTENTS
Page
ARTICLE I. - DEFINITION OF TERMS.................................................................................. 1
SECTION 1.01 DEFINITIONS....................................................................................... 1
SECTION 1.02 OTHER DEFINITION PROVISIONS....................................................................... 8
ARTICLE II. - LOAN PROVISIONS..................................................................................... 8
SECTION 2.01 THE LOAN.......................................................................................... 8
SECTION 2.02 USE OF PROCEEDS................................................................................... 8
SECTION 2.03 INTEREST RATE AND INTEREST PAYMENTS............................................................... 9
SECTION 2.04 MATURITY.......................................................................................... 9
SECTION 2.05 MANDATORY PRINCIPAL REPAYMENT..................................................................... 9
SECTION 2.06 REDEMPTION........................................................................................ 9
SECTION 2.07 CONVERSION........................................................................................ 9
SECTION 2.08 FEES AND EXPENSES................................................................................. 9
SECTION 2.09 FINDER'S FEES..................................................................................... 9
SECTION 2.10 TAXES.............................................................................................10
SECTION 2.11 SUBSIDIARY GUARANTY, SECURITY AGREEMENTS AND PLEDGE AGREEMENT.....................................10
ARTICLE III. - CONDITIONS PRECEDENT...............................................................................11
SECTION 3.01 DOCUMENT REQUIREMENTS.............................................................................11
SECTION 3.02 ACQUISITION OF MOBITEC HOLDING AB.................................................................12
ARTICLE IV. - REPRESENTATIONS AND WARRANTIES OF BORROWER..........................................................12
SECTION 4.01 ORGANIZATION AND GOOD STANDING....................................................................12
SECTION 4.02 AUTHORIZATION AND POWER...........................................................................12
SECTION 4.03 NO CONFLICTS OR CONSENTS..........................................................................13
SECTION 4.04 ENFORCEABLE OBLIGATIONS...........................................................................13
SECTION 4.05 NO LIENS..........................................................................................13
SECTION 4.06 FINANCIAL CONDITION...............................................................................13
SECTION 4.07 NO DEFAULT........................................................................................14
SECTION 4.08 MATERIAL AGREEMENTS...............................................................................14
SECTION 4.09 NO LITIGATION.....................................................................................14
SECTION 4.10 TAXES.............................................................................................14
SECTION 4.11 CAPITALIZATION....................................................................................15
SECTION 4.12 USE OF PROCEEDS...................................................................................15
SECTION 4.13 EMPLOYEE MATTERS..................................................................................15
SECTION 4.14 EMPLOYEE BENEFIT PLANS............................................................................16
SECTION 4.15 COMPLIANCE WITH LAWS..............................................................................16
SECTION 4.16 LICENSES AND PERMITS..............................................................................17
SECTION 4.17 CONTRACTS.........................................................................................17
SECTION 4.18 SHARES ISSUABLE UPON CONVERSION...................................................................17
SECTION 4.19 INSIDER...........................................................................................17
SECTION 4.20 SUBSIDIARIES......................................................................................17
SECTION 4.21 CASUALTIES........................................................................................18
SECTION 4.22 INVESTMENT COMPANY ACT............................................................................18
SECTION 4.23 SUFFICIENCY OF CAPITAL............................................................................18
SECTION 4.24 CORPORATE NAMES...................................................................................18
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SECTION 4.25 INSURANCE.........................................................................................18
SECTION 4.26 INTELLECTUAL PROPERTY.............................................................................18
SECTION 4.27 REAL PROPERTY.....................................................................................19
SECTION 4.28 ENVIRONMENTAL.....................................................................................20
SECTION 4.29 SURVIVAL OF REPRESENTATIONS AND WARRANTIES........................................................21
SECTION 4.30 FULL DISCLOSURE...................................................................................22
ARTICLE V. - AFFIRMATIVE COVENANTS OF BORROWER....................................................................22
SECTION 5.01 FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS.......................................................22
SECTION 5.02 PREPARATION OF BUDGETS............................................................................23
SECTION 5.03 PAYMENT OF TAXES AND OTHER INDEBTEDNESS...........................................................23
SECTION 5.04 MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS..........................................24
SECTION 5.05 SEC FILINGS.......................................................................................24
SECTION 5.06 NOTICE............................................................................................24
SECTION 5.07 COMPLIANCE WITH LOAN DOCUMENTS....................................................................24
SECTION 5.08 COMPLIANCE WITH MATERIAL AGREEMENTS...............................................................24
SECTION 5.09 OPERATIONS AND PROPERTIES.........................................................................24
SECTION 5.10 BOOKS AND RECORDS; ACCESS.........................................................................25
SECTION 5.11 COMPLIANCE WITH LAW...............................................................................25
SECTION 5.12 INSURANCE.........................................................................................25
SECTION 5.13 AUTHORIZATIONS AND APPROVALS......................................................................25
SECTION 5.14 ERISA COMPLIANCE..................................................................................25
SECTION 5.15 FURTHER ASSURANCES................................................................................26
SECTION 5.16 INDEMNITY BY BORROWER.............................................................................26
SECTION 5.17 RESERVATION OF SHARES; SHAREHOLDER APPROVAL.......................................................27
SECTION 5.18 OWNERSHIP OF SUBSIDIARIES.........................................................................27
SECTION 5.19 RETENTION OF STOCK OWNERSHIP......................................................................27
SECTION 5.20 SUBSEQUENTLY FORMED U.S. SUBSIDIARIES.............................................................27
SECTION 5.21 QUARTERLY PAYMENT OF FUNDS BY EUROPEAN SUBSIDIARIES...............................................27
ARTICLE VI. - NEGATIVE COVENANTS OF BORROWER......................................................................28
SECTION 6.01 LIMITATION ON INDEBTEDNESS........................................................................28
SECTION 6.02 LIMITATION ON LIENS...............................................................................28
SECTION 6.03 LIMITATION ON INVESTMENTS.........................................................................28
SECTION 6.04 ALTERATION OF MATERIAL AGREEMENTS.................................................................28
SECTION 6.05 TRANSACTIONS WITH AFFILIATES......................................................................28
SECTION 6.06 LIMITATIONS ON ACQUISITION OF NONRELATED BUSINESS.................................................29
SECTION 6.07 LIMITATION ON SALE OF PROPERTIES..................................................................29
SECTION 6.08 FISCAL YEAR AND ACCOUNTING METHOD.................................................................29
SECTION 6.09 LIQUIDATION.......................................................................................29
SECTION 6.10 MATERIAL AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS........................................29
SECTION 6.11 EXECUTIVE COMPENSATION............................................................................29
SECTION 6.12 RESTRICTED PAYMENTS...............................................................................30
SECTION 6.13 PROHIBITION ON TRANSFER OF FUNDS TO EUROPEAN SUBSIDIARIES.........................................30
SECTION 6.14 CONSOLIDATION OR MERGER...........................................................................30
ARTICLE VII. - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS....................................................30
SECTION 7.01 FINANCIAL RATIOS..................................................................................30
ARTICLE VIII. - EVENTS OF DEFAULT.................................................................................30
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SECTION 8.01 EVENTS OF DEFAULT.................................................................................30
SECTION 8.02 REMEDIES UPON EVENT OF DEFAULT....................................................................32
SECTION 8.03 PERFORMANCE BY THE LENDER.........................................................................32
SECTION 8.04 PAYMENT OF EXPENSES INCURRED BY THE LENDER........................................................33
ARTICLE IX. - REGISTRATION RIGHTS.................................................................................33
SECTION 9.01 DEMAND REGISTRATION...............................................................................33
SECTION 9.02 "PIGGY-BACK" REGISTRATION.........................................................................34
SECTION 9.03 SHELF REGISTRATION................................................................................35
SECTION 9.04 OBLIGATIONS OF BORROWER...........................................................................35
SECTION 9.05 FURNISH INFORMATION...............................................................................36
SECTION 9.06 EXPENSES OF REGISTRATION..........................................................................37
SECTION 9.07 INDEMNIFICATION REGARDING REGISTRATION RIGHTS.....................................................37
SECTION 9.08 REPORTS UNDER THE 1934 ACT........................................................................39
SECTION 9.09 ASSIGNMENT OF REGISTRATION RIGHTS.................................................................40
SECTION 9.10 OTHER MATTERS.....................................................................................40
ARTICLE X. - BOARD OF DIRECTORS...................................................................................40
SECTION 10.01 BOARD REPRESENTATION OR ATTENDANCE BY OBSERVER...................................................40
SECTION 10.02 LIMITATION OF AUTHORITY OF PERSONS DESIGNATED AS A DIRECTOR NOMINEE..............................41
SECTION 10.03 NONLIABILITY OF THE LENDER.......................................................................41
ARTICLE XI. - AGENCY PROVISIONS...................................................................................41
SECTION 11.01 THE LENDER'S REPRESENTATIONS AND WARRANTIES TO AGENT.............................................41
SECTION 11.02 WAIVER OF LOAN PROVISIONS OR INTEREST OR PRINCIPAL PAYMENTS......................................42
SECTION 11.03 AGENCY...........................................................................................42
ARTICLE XII. - MISCELLANEOUS......................................................................................44
SECTION 12.01 STRICT COMPLIANCE................................................................................44
SECTION 12.02 WAIVERS AND MODIFICATIONS........................................................................44
SECTION 12.03 LIMITATION ON LIABILITY..........................................................................44
SECTION 12.04 CHOICE OF FORUM; CONSENT TO SERVICE OF PROCESS AND JURISDICTION..................................44
SECTION 12.05 INVALID PROVISIONS...............................................................................45
SECTION 12.06 MAXIMUM INTEREST RATE............................................................................45
SECTION 12.07 PARTICIPATIONS AND ASSIGNMENTS OF THE DEBENTURES.................................................46
SECTION 12.08 CONFIDENTIALITY..................................................................................46
SECTION 12.09 BINDING EFFECT...................................................................................46
SECTION 12.10 NO THIRD PARTY BENEFICIARY.......................................................................47
SECTION 12.11 ENTIRETY.........................................................................................47
SECTION 12.12 HEADINGS.........................................................................................47
SECTION 12.13 SURVIVAL.........................................................................................47
SECTION 12.14 MULTIPLE COUNTERPARTS............................................................................47
SECTION 12.15 KNOWLEDGE OF BORROWER............................................................................47
SECTION 12.16 NOTICES..........................................................................................47
SECTION 12.17 GOVERNING LAW....................................................................................49
iii
Agreement
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THIS AGREEMENT, dated as of June 22, 2001, by and among Digital
Recorders, Inc., a North Carolina corporation ("Borrower"), and Renaissance US
Growth & Income Trust PLC, a public limited company registered in England and
Wales (individually referred to as "Renaissance PLC") and BFSUS Special
Opportunities Trust PLC, a public limited company registered in England and
Wales ("BFSUS") (Renaissance PLC and BFSUS, together with any permitted
assignees or successors in interest referred to as the "Lender") and
Renaissance Capital Group, Inc., a Texas corporation, as agent for the Lender
(the "Agent"). All references herein to Borrower shall include the
Subsidiaries, unless the context otherwise requires.
WITNESSETH:
WHEREAS, Borrower seeks to borrow a total of Three Million Dollars
($3,000,000) from the Lender; and
WHEREAS, Borrower has requested that the Lender provide such loan as
herein provided, and that the Lender is willing to furnish such to Borrower
upon the terms and subject to the conditions and for the considerations
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises herein
contained and for other valuable consideration, receipt and sufficiency of
which is acknowledged, the parties hereto agree as follows:
ARTICLE I. - DEFINITION OF TERMS
SECTION 1.01 DEFINITIONS.
For the purposes of this Agreement, the following terms shall have
the respective meanings assigned to them in this Article I or in the section
or recital referred to below:
"Acquisition Indebtedness" shall mean Indebtedness of
Borrower or a Subsidiary incurred in connection with, or to provide all or any
portion of the funds or credit support utilized to consummate the transaction
or series of related transactions pursuant to which such Subsidiary became a
Subsidiary or was acquired by Borrower.
"Affiliate" with respect to any Person shall mean a person
that directly or indirectly, through one or more intermediaries, controls or
is controlled by, or is under common control with, such Person.
"BFSUS" shall mean BFSUS Special Opportunities Trust PLC, a
public limited company registered in England and Wales.
"Capital Expenditure" shall mean an expenditure for assets
that is properly classifiable as a capital expenditure in accordance with GAAP.
"Capital Lease" shall mean any lease of property, real or
personal, which would be properly classifiable as a capital lease in
accordance with GAAP.
1
Agreement (Continued)
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"Common Stock" shall mean Borrower's common stock, $.10 per
share.
"Consolidated Trailing Twelve Months Free Cash Flow" shall
mean for any Person, for the immediately preceding twelve-month period on such
date, Net Income of such Person for such twelve-month period, plus (a) all
deferred income tax expense of such Person and its Subsidiaries for such
twelve-month period, (b) all depreciation expense of such Person and its
Subsidiaries for such twelve-month period, and (c) all amortization expense of
such Person and its Subsidiaries for such twelve-month period, less capital
expenditures of such Person and its Subsidiaries for such twelve-month period.
"Conversion" or "Conversion Rights" shall mean exchange of,
or the rights to exchange, the Principal Amount of the Loan, or any part
thereof, for fully paid and nonassessable Common Stock on the terms and
conditions provided in the Debentures.
"Current Assets" shall mean, for any Person as of any date,
the assets of such Person and its consolidated Subsidiaries which would be
reflected as current assets on a consolidated balance sheet for such Person
and its Subsidiaries prepared as of such date in accordance with GAAP.
"Current Liabilities" shall mean, for any Person as of any
date, the liabilities of such Person and its consolidated Subsidiaries which
would be reflected as current liabilities on a consolidated balance sheet for
such Person and its subsidiaries prepared as of such date in accordance with
GAAP. For purposes of calculating compliance with any covenant contained in
this Agreement or any other Loan Document, the principal amount of Current
Liabilities shall include any balance under any revolving credit facility of
the Borrower, regardless of whether such revolving credit facility would be
reflected as a current liability in accordance with GAAP.
"Current Ratio" shall mean, for any Person as of any date,
the ratio of such Person's current assets to current liabilities as of such
date.
"Debentures" shall mean the Debentures executed by Borrower
and delivered pursuant to the terms of this Agreement, together with any
renewals, extensions or modifications thereof.
"Debtor Laws" shall mean all applicable liquidation,
conservatorship, bankruptcy, moratorium, arrangement, receivership,
insolvency, reorganization or similar laws from time to time in effect
affecting the rights of creditors or debtors generally.
"Default" or "Event of Default" shall mean any of the events
specified in Article VIII.
"Dividends," in respect of any corporation, shall mean (i)
cash distributions or any other distributions on, or in respect of, any class
of capital stock of such corporation, except for distributions made solely in
shares of stock of the same class, and (ii) any and all funds, cash and other
payments made in respect of the redemption, repurchase or acquisition of such
stock, unless such stock shall be redeemed or acquired through the exchange of
such stock with stock of the same class.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended, together with all rules and regulations issued
pursuant thereto.
2
Agreement (Continued)
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"GAAP" shall mean United States generally accepted
accounting principles applied on a consistent basis, set forth in the Opinions
of the Accounting Principles Board of the American Institute of Certified
Public Accountants or the Financial Accounting Standards Board or their
successors, which are applicable in the circumstances as of the date in
question. The requirement that such principles be applied on a consistent
basis shall mean that the accounting principles observed in a current period
are comparable in all material respects to those applied in a preceding period.
"Governmental Authority" shall mean any government (or any
political subdivision or jurisdiction thereof), court, bureau, agency or other
governmental authority having jurisdiction over Borrower or a Subsidiary or
any of its or their businesses, operations or properties.
"Guaranty" of any Person shall mean any contract, agreement
or understanding of such Person pursuant to which such Person in effect
guarantees the payment of any Indebtedness of any other Person (the "Primary
Obligor") in any manner, whether directly or indirectly, including, without
limitation, agreements: (i) to purchase such Indebtedness or any property
constituting security therefor; (ii) to advance or supply funds primarily for
the purpose of assuring the holder of such Indebtedness of the ability of the
Primary Obligor to make payment; or (iii) otherwise to assure the holder of
the Indebtedness of the Primary Obligor against loss in respect thereof,
except that "Guaranty" shall not include the endorsement by Borrower or a
Subsidiary in the ordinary course of business of negotiable instruments or
documents for deposit or collection.
"Holder" shall mean the owner of Registrable Securities.
"Indebtedness" shall mean, with respect to any Person,
without duplication, the following indebtedness, obligations and liabilities
of such Person: (i) indebtedness for borrowed money; (ii) all obligations of
such Person in respect of any Guaranty; (iii) all obligations of such Person
in respect of any Capital Lease, (iv) all obligations, indebtedness and
liabilities secured by any lien or any security interest on any property or
assets of such Person, but only to the extent so secured; and (v) all
preferred stock of such Person which is subject, at the time of calculation of
Indebtedness, to a mandatory redemption requirement, valued at the greater of
its involuntary redemption price or liquidation preference plus accrued and
unpaid dividends, and all extensions, renewals, modifications and amendments
thereto.
"Intercreditor Agreement" shall mean the Intercreditor
Agreement, dated as of the date hereof, among the Borrower, Lender, TwinVision
Corp. of North America, Inc., a North Carolina corporation, Digital Audio
Corporation, a North Carolina corporation, Renaissance Group, in its capacity
as agent, and Guaranty Business Credit Corporation, a Delaware corporation.
"Interest Coverage Ratio" means for any period, the ratio of
(a) Borrower's consolidated net income after taxes for such period (excluding
Borrower's after tax gains or losses on the sale of assets (other than the
sale of Inventory in the ordinary course of business) and excluding other
after tax extraordinary gains or losses), PLUS depreciation and amortization
deducted in determining net income for such period, PLUS interest expense for
such period to (b) interest expense for such period, all as determined on a
consolidated basis in accordance with GAAP.
"Investment" in any Person shall mean any investment,
whether by means of share purchase, loan, advance, capital contribution or
otherwise, in or to such Person, the Guaranty of any Indebtedness of such
Person, or the subordination of any claim against such Person to other
Indebtedness of such Person; provided however, that "Investment" shall not
include (i) any demand deposits in a duly
3
Agreement (Continued)
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chartered state or national bank or other cash equivalent investments, (ii)
any loans permitted by Section 6.12, or (iii) any acquisitions of equity in
any other Person.
"IRS Code" shall mean the Internal Revenue Code of 1986, as
amended, together with all rules and regulations issued thereunder.
"Lien" shall mean any lien, mortgage, security interest, tax
lien, pledge, encumbrance, conditional sale or title retention arrangement, or
any other interest in property designed to secure the repayment of
Indebtedness, whether arising by agreement or under any statute or law, or
otherwise.
"Loan" shall mean the money lent to Borrower pursuant to
this Agreement, along with any accrued, unpaid interest thereon.
"Loan Closing" or "Loan Closing Date" shall mean the
disbursement of Loan funds, which shall occur within ten (10) days of the
execution and delivery of this Agreement.
"Loan Documents" shall mean this Agreement, the Debentures
and any other agreements or documents required to be executed or delivered by
Borrower pursuant to the terms of this Agreement (and any amendments or
supplements hereto or modifications hereof).
"Lock-Up Agreement" shall mean the "lock-up" agreements to
be executed by the executive officers, directors and principal shareholders of
Borrower pursuant to Section 5.19 of this Agreement.
"Material Adverse Effect" or "Material Adverse Change" shall
mean (i) any change, factor or event that shall (a) have a material adverse
effect upon the validity or enforceability of any Loan Documents, (b) have a
material adverse effect upon the financial condition, results of operations,
business, properties, operations or assets of Borrower or its Subsidiaries
taken as a whole, or (c) have a material adverse effect upon the ability of
Borrower to fulfill its obligations under the Loan Documents, or (ii) any
event that causes an Event of Default or which, with notice or lapse of time
or both, could reasonably be expected to become an Event of Default.
"Net Excess Working Capital" shall be defined as net cash
held by Mobitec AB, Transit Media gmbh, and DRI Europa (the "Group"), computed
on a quarterly basis. Net cash held by the Group shall be defined as after-tax
operating income of the Group, plus non-cash financial items such as
depreciation and amortization; and less (i) cash retained for pre-approved
capital expenditure acquisitions or working capital in excess of (iv) below;
(ii) ordinary repayment of current third party financings; (iii) any financial
effect caused by foreign currency exchange rate differences; and (iv) minimum
available Group cash working capital of $100,000 US.
"Net Income" shall mean, for any Person for any period,
consolidated net income of such Person and its consolidated Subsidiaries for
such period which would be reflected in accordance with GAAP, but excluding
(a) any gain or loss arising from the sale of capital assets, (b) any gain or
loss arising from any write-up or write-down of assets, (c) income or loss of
any Person, substantially all of the assets of which have been acquired by
such Person in any manner, to the extent that such earnings or losses were
realized by such other Person prior to the date of such acquisition, (d)
income or loss of any Person in which the Person has any ownership interests
(other than consolidated subsidiaries of such Person), unless such earnings
have actually been received or paid by the Person or its consolidated
4
Agreement (Continued)
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Subsidiaries in the form of cash distributions or additional cash calls, (e)
income or loss of any Person to which assets of the Person or its consolidated
subsidiaries shall have been sold, transferred or disposed of, or into which
the Person shall have merged, to the extent that such earnings or losses of
any other Person arise prior to the date of such transaction, (f) any gain or
loss arising from the acquisition of any securities of the Person or any of
its consolidated subsidiaries, and (g) any extraordinary gain or loss realized
by such Person or any of its consolidated subsidiaries during such period.
"Obligation" shall mean: (i) all present and future
Indebtedness, obligations and liabilities of Borrower to the Lender arising
pursuant to this Agreement, regardless of whether such Indebtedness,
obligations and liabilities are direct, indirect, fixed, contingent, joint,
several, or joint and several; (ii) all present and future Indebtedness,
obligations and liabilities of Borrower to the Lender arising pursuant to or
represented by the Debentures and all interest accruing thereon, and
reasonable attorneys' fees incurred in the enforcement or collection thereof;
(iii) all present and future Indebtedness, obligations and liabilities of
Borrower and any Subsidiary evidenced by or arising pursuant to any of the
Loan Documents; (iv) all costs incurred by the Lender or Agent including, but
not limited to, reasonable attorneys' fees and legal expenses related to this
transaction; and (v) all renewals, extensions and modifications of the
indebtedness referred to in the foregoing clauses, or any part thereof.
"Permits" shall have the meaning set forth in Section 4.16.
"Permitted Indebtedness" shall mean Indebtedness outstanding
as of the date hereof or incurred in compliance with Section 6.01 and the
other terms of this Agreement that constitutes (i) Senior Obligations, (ii)
obligations under Capital Leases, (iii) Subordinated Debt, (iv) purchase money
Indebtedness, (v) intercompany Indebtedness, (vi) Indebtedness under this
Agreement or the Debentures, and (vii) any refunding, refinancing or extension
of any of the above.
"Permitted Liens" shall mean: (i) Liens (if any) granted for
the benefit of the Lender; (ii) Liens to secure the Permitted Indebtedness;
(iii) pledges or deposits made to secure payment of worker's compensation
insurance (or to participate in any fund in connection with worker's
compensation insurance), unemployment insurance, pensions or social security
programs; (iv) Liens imposed by mandatory provisions of law such as for
carriers', landlord's, materialmen's, mechanics', warehousemen's, vendors' and
other like Liens arising in the ordinary course of business, securing
Indebtedness whose payment is made within 30 days of the date such Lien
arises, or that are being contested in good faith by appropriate proceedings
as to which adequate reserves have been established to the extent required by
GAAP; (v) Liens for taxes, assessments and governmental charges or levies
imposed upon a Person or upon such Person's income or profits or property, if
the same are not yet due and payable or if the same are being contested in
good faith and as to which adequate cash reserves have been provided; (vi)
Liens arising from good faith deposits in connection with tenders, leases,
bids or contracts (other than contracts involving the borrowing of money),
pledges or deposits to secure public or statutory obligations and deposits to
secure (or in lieu of) surety, stay, appeal or customs bonds and deposits to
secure the payment of taxes, assessments, customs duties or other similar
charges; (vii) encumbrances consisting of zoning restrictions, easements,
reservations, licenses, covenants and other minor irregularities of title or
other restrictions on the use of real property (whether owned or leased),
provided that such items do not materially impair the intended use of such
property, and none of which is violated by Borrower's existing structures or
land use; (viii) mortgages, financing statements, equipment leases or other
encumbrances incurred in connection with the acquisition of property or
equipment or the replacement of existing property or equipment, provided that
such liens shall be limited to the property or equipment then being acquired;
and (ix) Liens which secure Senior Obligations.
5
Agreement (Continued)
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"Person" shall include an individual, a corporation, a joint
venture, a general or limited partnership, a trust, an unincorporated
organization or a government or any agency or political subdivision thereof.
"Plan" shall mean an employee benefit plan or other plan
maintained by Borrower for employees of Borrower and/or any Subsidiaries and
covered by Title IV of ERISA, or subject to the minimum funding standards
under Section 412 of the IRS Code.
"Principal Amount" shall mean, as of any time, the then
aggregate outstanding face amount of the Debentures after any conversions or
redemptions and after giving effect to any installment payments received by
the Lender.
"Registrable Securities" shall mean (i) the Common Stock
issuable upon Conversion of the Debentures, and (ii) any Common Stock issuable
upon exercise of the Warrants, or (iii) any warrant, right or other security
that is issued with respect to the Common Stock by way of (a) a stock
dividend; (b) any other distribution with respect to, or in exchange for, or
in replacement of Common Stock; (c) a stock split; and (d) in connection with
a combination of shares, recapitalization, merger or consolidation excluding
in all cases, however, any Common Stock that is not a Restricted Security and
any Registrable Securities sold or transferred by a Person in a transaction in
which the rights under this Agreement are not assigned.
"Registrable Securities Then Outstanding" shall mean the
Registrable Securities then outstanding.
"Renaissance PLC" shall mean Renaissance US Growth & Income
Trust PLC, a public limited company registered in England and Wales.
"Renaissance Group" shall mean Renaissance Capital Group,
Inc., a Texas corporation.
"Restricted Security" shall mean a security that has not
been (i) registered under the 1933 Act or (ii) distributed to the public
pursuant to Rule 144 (or any similar provisions that are in force) under the
1933 Act.
"SEC" shall mean the Securities and Exchange Commission, or
any other federal agency at the time administering the 1933 Act and the 1934
Act.
"1933 Act" shall refer to the Securities Act of 1933, as
amended, or any similar federal statute and rules and regulations promulgated
thereunder, all as the same may be in effect from time to time.
"1934 Act" shall refer to the Securities Exchange Act of
1934, as amended, or any similar federal statute and rules and regulations
promulgated thereunder, all as the same may be in effect from time to time.
"1940 Act" shall refer to the Investment Company Act of
1940, as amended, or any similar federal statute and rules and regulations
promulgated thereunder, all as the same may be in effect from time to time.
6
Agreement (Continued)
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"Senior Documents" shall mean all loan documents evidencing
the Senior Obligations, as each may now or hereafter be amended, modified,
supplemented, renewed or extended from time to time.
"Senior Obligations" shall mean one or more senior debt
facilities (including loans and other extensions of credit under the Senior
Documents) with banks or other institutional lenders providing for revolving
credit loans, term loans, asset-based secured loans, capital expenditure
loans, or letters of credit, or any other indebtedness senior to the Loan, as
now existing or hereafter incurred, and, in each case, as amended, restated,
modified, renewed or extended from time to time.
"Solvent" shall mean, with respect to any Person on a
particular date, that on such date: (i) the fair value of the assets of such
Person is greater than the total amount of liabilities of such Person; (ii)
the estimated present fair salable value, in the ordinary course of business,
of the assets of such Person is not less than the amount that will be required
to pay the probable liability of such Person on its debts as they become
absolute and matured; (iii) such Person is able to realize upon its assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business; (iv) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature; and (v) such Person is not engaged in business or a transaction, and
is not about to engage in business or a transaction, for which such Person's
assets would constitute unreasonably small capital after giving due
consideration to the prevailing practice in the industry in which such Person
is engaged. In computing the amount of contingent liabilities at any time, it
is intended that such liabilities will be computed at the amount which, in
light of all the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured
liability.
"Subordinated Debt" shall mean any unsecured indebtedness of
Borrower or any Subsidiaries, now existing or hereafter incurred, which
indebtedness is, by its terms, junior in right of repayment to the payment of
the Debentures.
"Subsidiary" or "Subsidiaries" shall mean any or all
corporations or entities, whether now existing or hereafter acquired, of which
over 50% the Voting Shares or equity interests are owned, directly or
indirectly, by Borrower.
"Subsidiary Documents" shall mean the Subsidiaries' Guaranty
and Subsidiaries' Security Agreement and any other agreements or documents
required to be executed or delivered by any Subsidiary pursuant to the terms
of this Agreement (and any amendments or supplements hereto or modifications
hereof).
"Voting Shares" of any corporation shall mean shares of any
class or classes (however designated) having ordinary voting power for the
election of at least a majority of the members of the Board of Directors (or
other governing bodies) of such corporation, other than shares having such
power only by reason of the happening of a contingency.
"Warrants" shall mean the Warrants executed by the Borrower
and delivered to the Lender pursuant to this Agreement.
7
Agreement (Continued)
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SECTION 1.02 OTHER DEFINITION PROVISIONS.
(a) All terms defined in this Agreement shall have the
above-defined meanings when used in the Debentures or any other Loan
Documents, certificate, report or other document made or delivered pursuant to
this Agreement, unless the context therein shall otherwise require.
(b) Defined terms used herein in the singular shall import the
plural and vice versa.
(c) The words "hereof," "herein," "hereunder" and similar terms,
when used in this Agreement, shall refer to this Agreement as a whole and not
to any particular provision of this Agreement.
(d) References to financial statements and reports shall be
deemed to be a reference to such statements and reports prepared in accordance
with GAAP.
(e) Accounting terms not specifically defined above in this
Agreement shall be construed in accordance with GAAP.
ARTICLE II. - LOAN PROVISIONS
SECTION 2.01 THE LOAN.
(a) Subject to the terms and conditions of this Agreement, and
the compliance with such terms and conditions by all parties, Lender agrees to
lend to Borrower, and Borrower agrees to borrow from the Lender, the total
Principal Amount of Three Million Dollars ($3,000,000).
(b) The Loan shall be disbursed at Loan Closing, expected to
occur on June 27, 2001, subject to the conditions provided hereunder, and
shall be evidenced by the Debentures, in the Principal Amount specified above.
The Debentures shall rank PARI PASSU with all Indebtedness of Borrower, other
than the Senior Obligations and the Subordinated Debt.
(c) Unless otherwise mutually agreed, the Loan Closing shall be
at the offices of Renaissance Capital Group, Inc., 8080 North Central
Expressway, Suite 210, Dallas, Texas.
(d) If, within 10 days of the date of this Agreement, (i)
Borrower has failed to comply with the conditions precedent to the Loan
Closing as specified in Article III hereof (unless compliance with such
conditions in whole or in part has been waived or modified by the Lender its
sole discretion) or (ii) the Loan Closing has not occurred (unless the date of
such Loan Closing has been mutually extended), other than as a result of any
failure of Lender to comply with the terms of this Agreement, then, in either
such case, the obligations of the Lender under this Agreement shall terminate;
provided, however, that Borrower shall be obligated for payment of the fees
and expenses provided in Section 2.07 due and payable as of such date of
termination.
SECTION 2.02 USE OF PROCEEDS.
(a) Borrower intends to use the Loan proceeds for general
corporate purposes, including the acquisition of Mobitec Holding AB.
8
Agreement (Continued)
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(b) Borrower hereby acknowledges that the proceeds from the Loan
shall be of benefit to Borrower for the growth of its business by providing
capital which will provide additional opportunities for Borrower.
SECTION 2.03 INTEREST RATE AND INTEREST PAYMENTS.
Interest on the Principal Amount outstanding from time to time shall
accrue at the rate of 8.00% per annum, with the first installment of accrued,
unpaid interest being due and payable on AUGUST 1, 2001 and subsequent payments
of accrued, unpaid interest being due and payable on the first day of each month
thereafter. Overdue principal and interest on the Debentures shall bear interest
at the maximum rate permitted by applicable law. Interest on the Principal
Amount of the Debentures shall be calculated, from time to time, on the basis of
the actual days elapsed in a year consisting of 365 days.
SECTION 2.04 MATURITY.
If not sooner redeemed or converted, the Debentures shall mature on
JUNE 27, 2008, at which time all the remaining unpaid principal, interest and
any other charges then due under this Agreement shall be due and payable in
full. The Debentures shall be prepaid PRO RATA with any prepayments of
Indebtedness, other than Senior Obligations.
SECTION 2.05 MANDATORY PRINCIPAL REPAYMENT.
The Debentures shall be subject to mandatory principal repayment as
provided in the Debentures.
SECTION 2.06 REDEMPTION.
The Debentures shall be subject to redemption as provided in the
Debentures.
SECTION 2.07 CONVERSION.
The Debentures shall be subject to conversion as provided in the
Debentures.
SECTION 2.08 FEES AND EXPENSES.
Upon Loan Closing, Borrower shall pay at Loan Closing to Agent, or at
its direction, a Closing Fee equal to 1.0% of the Loan proceeds as well as any
unpaid portion of the Commitment Fee, Closing Expense Fee and Due Diligence Fee,
all as set forth in the preliminary terms letter dated November 28, 2000 between
the Borrower and Renaissance Group.
SECTION 2.09 FINDER'S FEES.
Borrower represents to the Lender that, except as set forth in Schedule
2.08, no placement fees, commissions, brokerage or finder's fees were incurred
by Borrower in connection with this Agreement or the Debentures. Borrower shall
be responsible for the payment of all such placement fees, commissions,
brokerage or finder's fees.
9
Agreement (Continued)
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SECTION 2.10 TAXES.
(a) The Debentures shall be convertible into shares of Common
Stock and on such terms as are stated in the Debentures. Such conversion shall
be made without deduction for any present or future taxes, duties, charges or
withholdings, (excluding, in the case of the Lender, any foreign taxes, any
federal, state or local income taxes and any franchise taxes or taxes imposed
upon it by the jurisdiction, or any political subdivision thereof, under which
the Lender is organized or are qualified to do business), and all liabilities
with respect thereto (herein "Taxes") shall be paid by Borrower. If Borrower
shall be required by law to deduct any Taxes for which Borrower is responsible
under the preceding sentence from any sum payable hereunder to the Lender: (i)
the sum payable shall be increased so that after making all required
deductions, the Lender shall receive an amount equal to the sum it would have
received had no such deductions been made; (ii) Borrower shall make such
deductions; and (iii) Borrower shall pay the full amount deducted to the
relevant taxing authority or other authority in accordance with applicable
law. Borrower shall be entitled to any refunds or returns from any such taxing
authority.
(b) Except as otherwise set forth in this Agreement or the other
Loan Documents, Borrower shall pay any present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or under the Loan Documents or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or the other Loan Documents (hereinafter referred to as "Other
Taxes").
(c) Borrower shall indemnify the Lender for the full amount of
Taxes and Other Taxes reasonably paid by the Lender or any liability
(including any penalties or interest assessed because of Borrower's defaults)
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted. This indemnification shall be made
within thirty (30) days from the date the Lender makes written demand
therefor. The Lender shall subrogate any and all rights and claims relating to
such Taxes and Other Taxes to Borrower upon payment of said indemnification.
(d) Without prejudice to the survival of any other agreement of
Borrower hereunder, the agreements and obligations of Borrower in this Section
2.09 shall survive the payment in full of the Obligation.
(e) Borrower shall have no liability or obligation with respect
to taxes on income recognized by the Lender with respect to the Debentures.
SECTION 2.11 SUBSIDIARY GUARANTY, SECURITY AGREEMENTS AND PLEDGE AGREEMENT.
The due and prompt performance of the obligations of Borrower to the
Lender under the Loan Agreement and the Debentures shall be guaranteed by
certain of the Subsidiaries and secured by all tangible and intangible assets of
Borrower and certain of the Subsidiaries (exclusive of mortgages on real
property) and shall be evidenced by Security Agreements executed by and between
the Lender, the Borrower and certain of the Subsidiaries. Financing statements
shall be executed in favor of the Lender by Borrower and certain of the
Subsidiaries. Borrower shall enter into a Pledge Agreement with the Lender
pledging all of the capital stock of certain of the Subsidiaries. There shall be
no prior security interests on any such U.S. subsidiary capital stock assets,
except to secure certain Senior Obligations, and all such prior security
interests shall be subject to the Intercreditor Agreement.
10
Agreement (Continued)
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ARTICLE III. - CONDITIONS PRECEDENT
SECTION 3.01 DOCUMENT REQUIREMENTS.
The obligation of the Lender to advance funds at the Loan Closing Date
hereof is subject to the condition precedent that, on or before the date of such
advance, the Lenders shall have received the following:
(a) DEBENTURES. Duly executed Debentures from Borrower each in
the Principal Amount of $1,500,000, styled "The Frost National Bank, Custodian
FBO Renaissance US Growth and Income Trust PLC, Trust No. W00740100" and HSBC
Global Custody Nominee (U.K.) Limited, Designation No. 896414, respectively,
both of which shall be in form and substance acceptable to the Lender and its
counsel.
(b) PLEDGE AGREEMENT AND BORROWER'S SECURITY AGREEMENT. Duly
executed Pledge Agreement and Security Agreement from Borrower, which shall be
in form and substance acceptable to the Lender and its counsel.
(c) SUBSIDIARIES' GUARANTY AND SUBSIDIARIES' SECURITY AGREEMENT.
Duly executed Subsidiaries' Guaranty and Subsidiaries' Security Agreement from
each of the U.S. Subsidiaries of Borrower, which shall be in form and
substance acceptable to the Lender and its counsel.
(d) INTERCREDITOR AGREEMENT. Duly executed Intercreditor
Agreement from Borrower, its U.S. subsidiaries, the Lender, Renaissance Group,
and Guaranty Business Credit Corporation, which shall be form and substance
acceptable to the Lender and its counsel.
(e) CEO'S CERTIFICATE. A certificate signed by the chief
executive officer of Borrower, in his capacity as such, and dated as of the
Loan Closing Date stating that: (i) all of the representations and warranties
contained in Article IV hereof and the other Loan Documents are true and
correct in all material respects as of the Loan Closing Date; and (ii) no
event has occurred and is continuing, or would result from the Loan, which
constitutes, or with notice or lapse of time or both would constitute, a
Default or an Event of Default.
(f) SECRETARY'S CERTIFICATES. A signed certificate of the
Secretary of Borrower which shall certify (i) copies of the Articles of
Incorporation (or other organizational document) of Borrower and each
Subsidiary and all amendments thereto, certified by the Secretary of State of
the state of incorporation (or other appropriate authority) and dated within
ten (10) days prior to Loan Closing, a copy of the Articles of Incorporation
(or other organizational document) of each Subsidiary and all amendments
thereto, certified by the Secretary of Borrower as of the date of such
certification; (ii) a copy of the Bylaws of Borrower and each Subsidiary and
all amendments thereto certified by the Secretary of Borrower and each such
Subsidiary as of the date of such certification; (iii) copies of resolutions,
as adopted by Borrower's and each Subsidiary's Board of Directors, approving
the execution, delivery and performance, as applicable, of this Agreement, the
Debentures, the Guaranties and the other Loan Documents, including the
transactions contemplated herein, stating that such resolutions have been duly
adopted, are true and correct, have not been altered or repealed and are in
full force and effect; (iv) certificates of good standing (or other similar
instrument) for Borrower and each Subsidiary issued by the appropriate
official of the state of incorporation of Borrower and each Subsidiary and
certificates of qualification and good standing for Borrower and each
Subsidiary issued by the appropriate official of each of the states for which
11
Agreement (Continued)
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Borrower and each Subsidiary is required to be qualified to do business as a
foreign corporation, dated within ten (10) days prior to Loan Closing; and (v)
the names of the officers of Borrower and each Subsidiary authorized to sign
the Loan Documents to be executed by such officer, together with the true
signatures of each such officer. It is herewith stipulated and agreed that the
Lender may thereafter rely conclusively on the validity of this certificate as
a representation of the officers of Borrower and each Subsidiary duly
authorized to act with respect to the Loan Documents until such time as the
Lender shall receive a further certificate of the Secretary or Assistant
Secretary of Borrower and each Subsidiary canceling or amending the prior
certificate and submitting the signatures of the officers thereupon authorized
in such further certificate.
(g) LEGAL OPINIONS. Legal opinions from counsel to Borrower and
its U.S. subsidiaries and from counsel to Swedish and German subsidiaries in
form and substance satisfactory to the Lender and its counsel.
(h) "LOCK-UP" AGREEMENTS. "Lock-Up" Agreements, in form and
substance satisfactory to the Lender and its counsel.
(i) WARRANTS. The Borrower shall issue to the Lender five-year
Warrants to purchase a total of 200,000 shares of Common Stock at an exercise
price equal to the closing price on the date preceding the Loan Closing.
(j) OTHER DOCUMENTS. Such other information, documents and
agreements as may reasonably be required by the Lender and the Lender's
counsel to substantiate Borrower's compliance with the requirements of this
Agreement and the Lender's compliance with the 1940 Act.
SECTION 3.02 ACQUISITION OF MOBITEC HOLDING AB.
The acquisition of Mobitec Holding AB shall occur simultaneously with,
and be a concurrent condition to, the Loan Closing.
ARTICLE IV. - REPRESENTATIONS AND WARRANTIES OF BORROWER
All references in this Article to Borrower shall include the
Subsidiaries, unless the context otherwise requires. To induce the Lender to
make the Loan hereunder, Borrower represents and warrants to the Lender that:
SECTION 4.01 ORGANIZATION AND GOOD STANDING.
Borrower is duly organized and existing in good standing under the laws
of the state of its incorporation, is duly qualified as a foreign corporation
and in good standing in all states in which failure to qualify would have a
Material Adverse Effect, and has the corporate power and authority to own its
properties and assets and to transact the business in which it is engaged and is
or will be qualified in those states wherein it proposes to transact material
business operations in the future.
SECTION 4.02 AUTHORIZATION AND POWER.
Borrower has the corporate power and requisite authority to execute,
deliver and perform the Loan Documents to be executed by Borrower. Borrower is
duly authorized to, and has taken all corporate
12
Agreement (Continued)
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action necessary to authorize, execute, deliver and perform the Loan Documents
executed by Borrower. Borrower is and will continue to be duly authorized to
perform the Loan Documents executed by Borrower.
SECTION 4.03 NO CONFLICTS OR CONSENTS.
Except as disclosed on Schedule 4.03, neither the execution and
delivery of the Loan Documents, nor the consummation of any of the transactions
therein contemplated, nor compliance with the terms and provisions thereof, will
contravene or materially conflict with any judgment, license, order or permit
applicable to Borrower, or any indenture, loan agreement, mortgage, deed of
trust, or other agreement or instrument to which Borrower is a party or by which
Borrower is or may become bound, or to which Borrower is or may become subject,
or violate any provision of the charter or bylaws of Borrower or trigger any
preemptive rights or rights of first refusal of any third party. No consent,
approval, authorization or order of any court or governmental authority or third
party is required in connection with the execution and delivery by Borrower of
the Loan Documents or to consummate the transactions contemplated hereby or
thereby except those that have been obtained.
SECTION 4.04 ENFORCEABLE OBLIGATIONS.
The Loan Documents have been duly executed and delivered by Borrower
and are the legal, valid and binding obligations of Borrower, enforceable in
accordance with their respective terms.
SECTION 4.05 NO LIENS.
Except for Permitted Liens, all of the properties and assets owned or
leased by Borrower are free and clear of all Liens and other adverse claims of
any nature, and Borrower has good and marketable title to such properties and
assets. A true and complete list of all known or recorded liens for borrowed
money is disclosed on Schedule 4.05.
SECTION 4.06 FINANCIAL CONDITION.
Borrower has delivered to the Lender the balance sheet of Borrower as
of December 31, 2000, and the related statement of income, stockholders' equity
and statement of cash flow for the year then ended, audited by its independent
certified public accountant. Borrower has also delivered to the Lender the
unaudited balance sheet of Borrower as of March 31, 2001 and the related
unaudited statement of income, stockholders' equity and statement of cash flow
for the three (3) months then ended. Such financial statements fairly present
the financial condition of Borrower as of such dates and have been prepared in
accordance with GAAP (except that unaudited financial statements omit certain
footnotes); and as of the date hereof, there are no obligations, liabilities or
Indebtedness (including contingent and indirect liabilities and obligations) of
Borrower which are (separately or in the aggregate) material and are not
reflected in such financial statements or otherwise disclosed herein or in the
Schedules. Since the date of the above-referenced year end financial statements,
there have not been, except as disclosed in Schedule 4.06: (i) any Material
Adverse Change; (ii) any Dividend declared or paid or distribution made on the
capital stock of Borrower or any capital stock thereof redeemed or repurchased;
(iii) any incurrence of long-term debt by Borrower; (iv) any salary, bonus or
compensation increases to any officers, key employees or agents of Borrower,
other than in the ordinary course of business and consistent with past practice;
or (v) any other material transaction entered into by Borrower, except in the
ordinary course of business and consistent with past practice.
13
Agreement (Continued)
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SECTION 4.07 NO DEFAULT.
No event has occurred and is continuing which constitutes, or, with
notice or lapse of time or both, would constitute, a Default or an Event of
Default under this Agreement.
SECTION 4.08 MATERIAL AGREEMENTS.
Neither Borrower nor any Subsidiary nor any other party is in default,
and no event has occurred and is continuing which, with notice or lapse of time
or both, would constitute a default, under any contract, lease, loan agreement,
indenture, mortgage, security agreement, license agreement or other agreement or
obligation to which it is a party or by which any of its properties is subject
which could reasonably be expected to have a Material Adverse Effect, except as
described on Schedule 4.08. To the best knowledge of Borrower, it is not a party
to, or bound by, any contract or agreement, the faithful performance of which is
so onerous so as to create, or to likely create, a Material Adverse Effect on
the business, operations or financial condition of Borrower.
SECTION 4.09 NO LITIGATION.
Except as disclosed on Schedule 4.09, there are no actions, suits,
investigations, arbitrations or administrative proceedings pending or, to the
best knowledge of Borrower, threatened, against Borrower, and there has been no
change in the status of any of the actions, suits, investigations, litigation or
proceedings disclosed to the Lender which could reasonably be expected to have a
Material Adverse Effect on Borrower or on any transactions contemplated by any
Loan Document. Borrower has not received any claim that Borrower currently
violates any federal, state or local law, ordinance, rule or regulation, which
could have an adverse effect on its business and, to the best of Borrower's
knowledge, no such claim is or has been threatened; and, except as disclosed on
Schedule 4.09, there have been no developments adverse to Borrower with respect
to any pending or threatened claim, action or proceeding of an administrative or
judicial nature.
SECTION 4.10 TAXES.
All tax returns required to be filed by Borrower in any jurisdiction
have been filed and all taxes (including mortgage recording taxes), assessments,
fees and other governmental charges upon Borrower or upon any of its properties,
income or franchises now due have been paid, in each case, except where the same
are being contested in good faith by appropriate proceedings, as disclosed on
Schedule 4.10.
Except as disclosed on Schedule 4.10, Borrower has not received any
notice of deficiency or other adjustment from any taxing authority that is
unresolved as of the Loan Closing. No audit or examination, claim or proposed
assessment by any taxing authority is pending or, to the best knowledge of
Borrower, threatened against Borrower or any of its properties. All ad valorem
and other property taxes imposed on Borrower, or that may become a lien on
Borrower's assets and that are due and payable, have been paid in full. Borrower
has withheld or collected from each payment made to each of its U.S. employees
the amount of all taxes (including federal income taxes, Federal Insurance
Contributions Act ("FICA") taxes, and state and local income, payroll, and wage
taxes, among others) required to be withheld or collected.
14
Agreement (Continued)
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SECTION 4.11 CAPITALIZATION.
The authorized capital stock of Borrower consists of 1,000,000 shares
of Preferred Stock, $.10 par value, of which 354 shares are issued and
outstanding as of the date hereof, and 10,000,000 shares of Common Stock, $.10
par value, of which 3,274,475 shares of Common Stock are issued and outstanding
as of the date hereof. All of such outstanding shares have been duly authorized
and validly issued, are fully paid and nonassessable, and were not issued in
violation of the preemptive rights or rights of first refusal of any person.
Schedule 4.11 sets forth all stock options, warrants, conversion rights,
subscription rights, preemptive rights, rights of first refusal and other rights
or agreements to acquire securities of Borrower and any shares held in treasury
or reserved for issuance upon exercise of such stock options, warrants or
conversion rights, subscription rights and other rights or agreements to acquire
securities, including the 430,000 shares of Common Stock to be issued in
connection with the acquisition of Mobitec Holding AB, the date of termination
of such rights and the consideration therefor. As of the Loan Closing Date,
Borrower does not have class of securities with respect to which a member of a
national securities exchange, broker or dealer may extend or maintain credit to
or for a customer pursuant to rules or regulations adopted by the Board of
Governors of the Federal Reserve System under Section 7 of the 1934 Act.
Borrower has, and will continue to have as long as the Debentures remains
outstanding, authorized and reserved an adequate number of shares of Common
Stock to permit Conversion of the Debentures.
SECTION 4.12 USE OF PROCEEDS.
Borrower intends to use proceeds from the Loan as disclosed in Section
2.02 hereof.
SECTION 4.13 EMPLOYEE MATTERS.
(a) Except as set forth on Schedule 4.13, Borrower is not a
party to any collective bargaining agreement and is not aware of any
activities of any labor union that is currently seeking to represent or
organize its employees;
(b) Borrower is in compliance with all federal, state and
municipal laws respecting employment and employment practices, occupational
health and safety, and wages and hours, and is not engaged in any unfair labor
practice, and there are no arrears in the payment of wages or social security
taxes;
(c) there is no unfair labor practice complaint against Borrower
pending before the National Labor Relations Board or any state or local agency;
(d) to the best knowledge of Borrower, there is no pending labor
strike or other material labor trouble affecting Borrower (including, without
limitation, any organizational drive);
(e) to the best knowledge of Borrower, there is no material
labor grievance pending against Borrower;
(f) there is no pending representation question respecting the
employees of Borrower before any local, state or federal agency;
15
Agreement (Continued)
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(g) except as set forth on Schedule 4.13, there are no pending
proceedings arising out of or under any collective bargaining agreement to
which Borrower is a party, or to the best knowledge of Borrower, any basis for
which a claim may be made under any collective bargaining agreement to which
Borrower is a party; and
(h) there are no pending proceedings arising out of any
employment discrimination claim or any basis for which any such claim may be
made.
SECTION 4.14 EMPLOYEE BENEFIT PLANS.
Schedule 4.14 lists (i) any "employee benefit plans" as described in
the Employee Retirement Income Security Act of 1974, as amended, and the rules
and regulations promulgated thereunder ("ERISA") (other than a defined
contribution pension plan not requiring any contribution by Borrower, paid
time-off policy or vacation/holiday/sick leave policy, and employee group life
and health plans that are fully funded through commercial insurance); and (ii)
any defined benefit "employee pension benefit plans" (as defined in ERISA).
Neither Borrower nor, to the best knowledge of Borrower, any other person has
engaged in a transaction with respect to any employee benefit plan listed or
required to be listed on Schedule 4.14 which could subject any such plan,
Borrower or the Lender to a penalty under ERISA or a tax under the Internal
Revenue Code of 1986, as amended (the "Code"), except for those transactions
which could not reasonably be expected to have a Material Adverse Effect. Each
of the employee benefit plans listed, or required to be listed, on Schedule 4.14
has been operated and administered in accordance with applicable law, including
without limitation ERISA, except for any such failure which would not subject
Borrower or the Lender to any penalty or other liability and except for any such
failure which would not have an adverse effect upon the applicable plan or any
participant therein. Borrower has not incurred, nor presently expects to incur,
any liability under Title IV of ERISA that could result in liability to the
Lenders or Borrower. Each employee benefit plan listed or required to be listed
on Schedule 4.14 that is a group health plan within the meaning of Section
5000(b)(1) of the Code, is in compliance with the provisions of Section 4980B(f)
of the Code, except for any such non-compliance which would not subject Borrower
or the Lender to any penalty or liability and except for any such failure which
would not have an adverse effect upon the applicable plan or any participant
therein. There is not any pending or, to the best knowledge of Borrower,
threatened claim by or on behalf of any employee benefit plan, by any employee
covered under any such plan or otherwise involving any employee benefit plan
(other than routine non-contested claims for benefits).
SECTION 4.15 COMPLIANCE WITH LAWS.
Each of Borrower and the Subsidiaries has all requisite licenses,
permits and certificates including without limitation, drug, environmental and
health and safety permits from federal, state and local authorities necessary to
conduct its business and own and operate its assets (collectively, the
"Permits"). Except as set forth on Schedule 4.15, neither Borrower nor any
Subsidiary is in violation of any law, regulation or ordinance relating to its
business, operations and properties which, individually or in the aggregate,
could have a Material Adverse Effect, and the business and operations of
Borrower or any Subsidiary do not violate, in any material respect, any federal,
state, local or foreign laws, regulations or orders. Except as set forth on
Schedule 4.15, Borrower and the Subsidiaries have not received any notice or
communication from any federal, state, local or foreign governmental or
regulatory authority or agency including without limitation, the U.S. Food and
Drug Administration of any such violation or noncompliance. Borrower and the
Subsidiaries have not engaged in any practices in violation of any antitrust law
or regulation of any federal, state, local or foreign Governmental Authority.
16
Agreement (Continued)
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SECTION 4.16 LICENSES AND PERMITS.
Borrower and the Subsidiaries have all licenses and franchises relating
to the operation of their respective businesses as are necessary and required
for such ownership and operation, all of which are in good standing and, except
as expressly set forth on Schedule 4.16, are not subject to renewal within less
than one (1) year.
SECTION 4.17 CONTRACTS.
Schedule 4.17 lists all contracts to which Borrower or the Subsidiaries
are a party involving obligations in respect of the business for payment,
performance of services or delivery of goods in excess of $25,000 or which
require Borrower to continue to perform for a period of longer than twelve (12)
months (the "Scheduled Contracts"). Borrower has delivered to the Lender true
and correct copies of all the Scheduled Contracts. All of such Scheduled
Contracts are valid and binding obligations of Borrower or the Subsidiaries, are
in full force and effect, and, to the best knowledge of Borrower or the
Subsidiaries, are enforceable against the parties thereto in accordance with
their respective terms. Neither Borrower nor the Subsidiaries has received any
notice that the other parties to the Scheduled Contracts are (i) in default
under such Scheduled Contracts, or (ii) consider Borrower to be in default
thereunder. Except as expressly noted in Schedule 4.17, to the best knowledge of
Borrower or the Subsidiaries, no party to any of the Scheduled Contracts intends
to terminate or adversely modify its agreement(s) with respect thereto or
adversely change the volume of business done thereunder.
SECTION 4.18 SHARES ISSUABLE UPON CONVERSION.
The shares of Common Stock of Borrower when issued to the Lender upon
conversion of the Debentures, will be duly and validly issued, fully paid and
nonassessable and in compliance with all applicable securities laws. Such
issuance will not give rise to preemptive rights, rights of first refusal or
similar rights by any other security holder of Borrower.
SECTION 4.19 INSIDER.
(a) Neither Borrower, nor any Person having "control" (as that
term is defined in the 1940 Act or in the regulations promulgated pursuant
thereto) of Borrower is an "executive officer," "director," or "principal
shareholder" (as those terms are defined in the 1940 Act) of any Lender.
(b) Borrower's SEC reports disclose all material transactions
required to be disclosed therein.
(c) All agreements between Borrower and any of its officers,
directors and principal shareholders, including employment agreements, are
disclosed in the reports and filings made with the SEC or listed on Schedule
4.19.
SECTION 4.20 SUBSIDIARIES.
(a) All of the Subsidiaries of Borrower are listed on Schedule
4.20. Except as disclosed on Schedule 4.20, Borrower owns all of the
outstanding capital stock or other equity interests of the Subsidiaries, free
and clear of all adverse claims, other than Liens securing the Senior
Obligations. All of such outstanding capital stock of each Subsidiary has been
duly and validly authorized and issued and is fully paid and nonassessable.
All such Subsidiaries are duly organized and existing in good standing
17
Agreement (Continued)
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under the laws of the respective jurisdictions of their incorporation or
organization, are duly qualified as foreign corporations and in good standing
in all jurisdictions in which failure to qualify would have a Material Adverse
Effect, and have the corporate power and authority to own their respective
properties and assets and to transact the business in which they are engaged
and are or will be qualified in those jurisdictions wherein they propose to
transact material business operations in the future.
(b) Except as disclosed on Schedule 4.20, Borrower does not own
any equity or long-term debt interest in any other Person, or any right or
option to acquire any such interest in any such Person.
(c) There are no restrictions on the payment of dividends by or
advances from any Subsidiary to Borrower.
SECTION 4.21 CASUALTIES.
Except as disclosed on Schedule 4.21, neither the business nor the
properties of Borrower is currently affected by any environmental hazard, fire,
explosion, accident, strike, lockout or other labor dispute, drought, storm,
hail, earthquake, embargo, act of God or other casualty (whether or not covered
by insurance).
SECTION 4.22 INVESTMENT COMPANY ACT.
Borrower is not an "investment company," as defined in Section 3 of the
1940 Act, nor a company that would be an investment company, except for the
exclusions from the definition of an investment company in Section 3(C) of the
1940 Act, and Borrower is not controlled by such a company.
SECTION 4.23 SUFFICIENCY OF CAPITAL.
Borrower is, and after consummation of this Agreement and giving effect
to all Indebtedness incurred and transactions contemplated in connection
herewith will be, Solvent.
SECTION 4.24 CORPORATE NAMES.
Borrower has not, during the preceding five (5) years, done business
under or used any assumed, fictitious or trade names, in its current businesses,
except as disclosed on Schedule 4.24.
SECTION 4.25 INSURANCE.
All of the insurable properties of Borrower are insured for its benefit
under valid and enforceable policies issued by insurers of recognized
responsibility in amounts and against such risks and losses as is customary in
Borrower's industry. Schedule 4.25 sets forth all of Borrower's property
insurance policies.
SECTION 4.26 INTELLECTUAL PROPERTY.
Borrower owns, or is licensed to use, all material trademarks, service
marks, trade names, patents and copyrights presently used to conduct its
business, except those for which the failure to obtain could not be reasonably
expected to have a Material Adverse Effect. To the best of its knowledge,
Borrower has the right to use such intellectual property rights without
infringing or violating the rights of any third parties. No claim has been
asserted by any person to the ownership of or right to use any such rights or
18
Agreement (Continued)
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challenging or questioning the validity or effectiveness of any such license or
agreement. Borrower is not in default of any such license agreements in any
material respect, and no event has occurred and is continuing which, with notice
or lapse of time or both, would constitute a material default. Each license
agreement is enforceable in accordance with its terms and has not been canceled,
abandoned or terminated, nor has Borrower received notice thereof. There are no
claims for trademark or copyright infringement pending or threatened against
Borrower or the Subsidiaries or their respective officers or directors. Neither
Borrower nor any Subsidiary is currently using copyrightable material for which
Borrower or any Subsidiary needs, but does not have, a license to conduct its
existing business. Neither Borrower nor any Subsidiary is currently using any
trademarks for which Borrower or any Subsidiary needs, but does not have, a
valid character or trademark license to conduct its existing business.
SECTION 4.27 REAL PROPERTY.
(a) Set forth on Schedule 4.27 is a list of the addresses of
each parcel of real property owned by or leased to Borrower, as indicated on
the Schedule.
(b) Borrower has delivered to the Lender true and correct copies
of all of its leases or subleases and all related amendments, supplements and
modifications and related documents (the "Scheduled Lease Documents"), which
require payments or contingent payments by Borrower of any of the Subsidiaries
subsequent to the date hereof in excess of $25,000. There are no other
agreements, written or oral, between Borrower and any third parties claiming
an interest in Borrower's interest in the Scheduled Leases or otherwise
relating to Borrower's use and occupancy of any leased real property. All such
leases are valid and binding obligations of the parties thereto, are in full
force and effect and enforceable against the parties thereto in accordance
with their terms; and no event has occurred including, but not limited to, the
executed, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby which (whether with or without notice,
lapse of time or both) would constitute a default thereunder. No property
leased under any lease which the Lender has agreed to assume is subject to any
lien, encumbrance, easement, right-of-way, building or use restriction,
exception, variance, reservation or limitation as might in any respect
interfere with or impair the present and continued use thereof in the usual
and normal conduct of Borrower's business.
(c) On the Loan Closing Date, Borrower will hold of record good,
marketable and insurable title to the property described in Schedule 4.27 free
and clear of all title defects, liens, pledges, claims, charges, rights of
first refusal, security interests or other encumbrances and not, in the case
of the real property, subject to any rights-of-way, building or use
restrictions, exceptions, variances, reservations or limitations of any nature
whatsoever, except with respect to all such properties, (i) matters set forth
in Schedule 4.27, and (ii) liens for current taxes and assessments not in
default (collectively, the "Permitted Encumbrances"). Notwithstanding the
foregoing, Borrower's representations and warranties regarding title defects
with respect to the real property is limited to defects arising by, through or
under Borrower, but not otherwise. Borrower and the Subsidiaries have adequate
title insurance coverage for such properties. All real property and structures
owned or leased by Borrower, and all equipment owned or leased by Borrower,
are in good operating condition and repair (ordinary wear and tear excepted),
taking into account their respective ages and consistent with their past uses,
and are adequate for the uses to which they are being put. Except as set forth
on Schedule 4.27, to Borrower's best knowledge, the buildings and improvements
owned or leased by Borrower are structurally sound. Borrower has not received
any notice of any violation of any building, zoning or other law, ordinance or
regulation in respect of such property or structures or their use by Borrower.
To Borrower's best knowledge, there is no existing, proposed or contemplated
plan to modify or realign any street or highway or any existing,
19
Agreement (Continued)
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proposed or contemplated eminent domain proceeding that would result in the
taking of all or any part of the real property or that would materially
adversely affect the current or planned use of the real property or any part
thereof. The facilities consisting of owned personal property are subject to
no liens or encumbrances except the security interests of record set forth on
Schedule 4.27, which Schedule is a copy of a Uniform Commercial Code ("UCC")
search duly obtained by Borrower in the last thirty (30) days and which search
shows security interests of record relating to such facilities in the States
of North Carolina and Texas. Borrower agrees to remove all security interests
reflected on such UCC search, if any, prior to the Loan Closing (except those
approved by the Lender in writing) and to remove any other security interests
filed with respect to such facilities between the date of such UCC search and
the date of the Loan Closing. Schedule 4.27 also describes all construction
work, if any, which Borrower has contracted for and which is presently in
progress in respect of the business, and also contains a good faith estimate,
as of the date of this Agreement, of the cost and timetable to complete each
such project. Copies of the architect's and the contractor's, if any, plans
and specifications with respect to such construction in progress have been
delivered to the Lender.
SECTION 4.28 ENVIRONMENTAL.
(a) Borrower is currently in compliance with all Environmental
Laws (as defined below) which compliance includes, but is not limited to, the
possession by Borrower of all permits and other governmental authorization
required under applicable Environmental Laws, and compliance in all material
respects with the terms and conditions thereof, except in any case where the
failure to be in compliance would not have a Material Adverse Effect.
(b) Except as set forth on Schedule 4.28, Borrower has not
stored, disposed of or arranged for disposal of any Materials of Environmental
Concern (as defined below) on any of the real property, except in compliance
with applicable Environmental Laws.
(c) Borrower has not received any communication (written or
oral), whether from a governmental authority, citizens group, employee or
otherwise, that alleges that Borrower is not in full compliance with
Environmental Laws, and there are no circumstances that may prevent or
interfere with such full compliance in the future. There is no Environmental
Claim (as defined below) pending or, to Borrower's best knowledge, threatened
against, or which has been made known to, Borrower.
(d) Except as set forth on Schedule 4.28, during the period the
facilities have been held by Borrower, its affiliates or, to Borrower's best
knowledge, its predecessors in interest, there have been no actions,
activities, circumstances, conditions, events or incidents including, without
limitation, the generation, handling, transportation, treatment, storage,
release, emission, discharge, presence or disposal of any Hazardous Substance
(as defined below), that could form the basis of any Environmental Claim
against Borrower under any Environmental Law in effect at, or at any time
prior to, the Loan Closing.
(e) Without in any way limiting the generality of the foregoing
to the best knowledge of Borrower, (i) there are no underground storage tanks
located on the property owned or leased by Borrower or the Subsidiaries, (ii)
there is no asbestos contained in or forming part of any building, building
component, structure or office space owned or leased by Borrower or the
Subsidiaries, and (iii) no polychlorinated biphenyls ("PCBs") are used or
stored at any property owned or leased by Borrower or the Subsidiaries.
The following terms shall have the following meanings:
20
Agreement (Continued)
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"Environmental Claim" means any claim, action, cause of
action, investigation or notice (written or oral) by any person or entity
alleging potential liability (including, without limitation, potential liability
for investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries or penalties) arising out
of, based on or resulting from (a) the presence, or release into the
environment, of any Hazardous Substances at any location, whether or not owned
or operated by Borrower, or (b) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law.
"Environmental Laws" means the federal, state and local
environmental, health or safety laws, regulations, ordinances, rules and
policies and common law in effect on the date hereof and the Loan Closing Date
relating to the use, refinement, handling, treatment, removal, storage,
production, manufacture, transportation or disposal, emissions, discharges,
releases or threatened releases of materials of environmental concern, or
otherwise relating to protection of the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), as the same may be amended or modified to the date hereof and the Loan
Closing Date including, without limitation, the statutes listed below:
Federal Resources Conservation and Recovery Act of
1976, 42 U.S.C. Section 6901, ET SEQ.
Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Section 9601, ET SEQ.
Federal Clean Air Act, 42 U.S.C. Section 7401, ET
SEQ.
Federal Water Pollution Control Act, Federal Clean
Water Act of 1977, 33 U.S.C. Section 1251, ET SEQ.
Federal Insecticide, Fungicide and Rodenticide Act,
Federal Pesticide Act of 1978, 7 U.S.C. Section 136, ET SEQ.
Federal Hazardous Materials Transportation Act, 48
U.S.C. Section 1801, ET SEQ.
Federal Toxic Substances Control Act, 15 U.S.C.
Section 2601, ET SEQ.
Federal Safe Drinking Water Act, 42 U.S.C. Section
300f, ET SEQ.
"Hazardous Substances" means any toxic or hazardous waste,
pollutants or substances including, without limitation, asbestos, PCBs,
petroleum products and byproducts, substances defined or listed as "hazardous
substance," "toxic substance," "toxic pollutant" or similarly identified
substance or mixture, in or pursuant to any Environmental Law.
SECTION 4.29 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties of Borrower herein shall survive the
Loan Closing and the delivery of the Debentures, and any investigation at any
time made by or on behalf of the Lender shall not diminish the Lender's right to
rely on Borrower's representations and warranties as herein set forth.
21
Agreement (Continued)
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SECTION 4.30 FULL DISCLOSURE.
Neither the representations or warranties of Borrower, the schedules to
this Agreement, the financial statements referenced in Section 4.06, nor any SEC
registration statement, report or proxy statement filed by the Borrower contains
or will contain, as of the date thereon, any untrue statement of a material fact
or omits or will omit to state any material fact necessary to keep the
statements contained herein or therein from being misleading.
ARTICLE V. - AFFIRMATIVE COVENANTS OF BORROWER
So long as any part of the Debentures remains unpaid or has not been
redeemed or converted hereunder, and until such payment, redemption or
conversion in full, unless the Lender shall otherwise consent in writing,
Borrower agrees that:
SECTION 5.01 FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS.
(a) Borrower shall accurately and fairly maintain its books of
account in accordance with GAAP, retain such firm of independent certified
public accountants requested by Borrower and approved by the Lender, to make
annual audits of its accounts in accordance with generally accepted auditing
standards.
(b) Borrower shall provide the following reports and information
to Lender:
(i) As soon as available, and in any event within forty-five
(45) days after the close of each fiscal quarter, Borrower's quarterly reports
on Form 10-QSB with exhibits for said period. As soon as available, Borrower's
reports on Form 8-K with any exhibits.
(ii) As soon as available, and in any event within ninety (90)
days after the close of each fiscal year, Borrower's annual report on Form
10-KSB with exhibits for said period.
(iii) Each fiscal quarter, concurrent with the periodic report
required above, a certificate executed by the Chief Financial Officer or Chief
Executive Officer of Borrower (A) stating that a review of the activities of
Borrower during such fiscal period has been made under his supervision and that
Borrower has observed, performed and fulfilled each and every obligation and
covenant contained herein and is not in Default under any of the same or, if any
such Default shall have occurred, specifying the nature and status thereof, and
(B) stating that Borrower and the Subsidiaries are in compliance as of the end
of such fiscal quarter with the agreed minimum financial ratios and standards
set forth in Schedule 7.01 to this Agreement.
(iv) Promptly (but in any event within five (5) business days)
upon becoming aware of the existence of any condition or event which constitutes
a Default or which, with notice or the passage of time or both would become a
Default or an Event of Default, written notice specifying the nature and period
of existence thereof and the action which Borrower is taking or proposes to take
with respect thereto.
22
Agreement (Continued)
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(v) Promptly (but in any event within five (5) business days)
upon the receipt thereof by Borrower or the Board of Directors of Borrower,
copies of all reports, all management letters and other detailed information
submitted to Borrower or the Board by independent accountants in connection with
each annual or interim audit or review of the accounts or affairs of Borrower
made by such accountants.
(vi) Promptly (but in any event within five (5) business
days), such other information relating to the finances, budgets, properties,
business and affairs of Borrower and each Subsidiary, as the Lender or the Agent
may reasonably request from time to time.
(vii) Promptly upon its becoming available, one copy of each
financial statement, report, press release, notice or proxy statement sent by
Borrower to stockholders generally, and of each regular or periodic report,
registration statement or prospectus filed by Borrower with any securities
exchange or the SEC or any successor agency, and of any order issued by any
Governmental Authority in any proceeding to which Borrower is a party.
(viii) As soon as available, and in any event within fifteen
(15) days after the close of each fiscal quarter, a report setting forth the
number of stock options, and their respective prices and terms, issued during
such quarter and cumulatively.
SECTION 5.02 PREPARATION OF BUDGETS.
(a) Prior to the beginning of Borrower's fiscal year Borrower
agrees to prepare and submit to the Board and furnish to Lender a copy of an
annual plan for such year which shall include, without limitation, plans for
expansion, if any, plans for incurrences of Indebtedness and projections
regarding other sources of funds, quarterly projected capital and operating
expense budgets, cash flow statements, profit and loss statements and balance
sheet projections, itemized in such detail as the Board may request.
(b) Borrower shall furnish to the Lender monthly financial
reports, including budgets (as currently used by management in the conduct of
business) within 30 days of the end of each month thereafter.
(c) Borrower agrees that it will review its operations with
Agent. Such operations reviews will be in such depth and detail as Agent shall
reasonably request and will be held as reasonably necessary, generally once a
fiscal quarter.
SECTION 5.03 PAYMENT OF TAXES AND OTHER INDEBTEDNESS.
Borrower shall, and shall cause its Subsidiaries to, pay and discharge
(i) all taxes, assessments and governmental charges or levies imposed upon it or
upon its income or profits, or upon any property belonging to it, before
delinquent, (ii) all lawful claims (including claims for labor, materials and
supplies) which, if unpaid, will give rise to a Lien upon any of its property,
other than a Permitted Lien, and (iii) all of its other Indebtedness in
accordance with their respective terms, except as prohibited hereunder;
provided, however, that Borrower and its Subsidiaries, if any, shall not be
required to pay any such tax, assessment, charge, levy or other claim if and so
long as the amount, applicability or validity thereof shall currently be
contested in good faith by appropriate proceedings and appropriate accruals and
reserves therefor have been established in accordance with GAAP.
23
Agreement (Continued)
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SECTION 5.04 MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS.
Subject to Section 6.13, Borrower shall, and shall cause its operating
Subsidiaries to, preserve and maintain their respective corporate existence and
all of their respective material rights and privileges necessary in the normal
conduct of their respective businesses, and to conduct their respective
businesses in an orderly and efficient manner consistent with good business
practices and in accordance with all valid regulations and orders of any
Governmental Authority. Borrower shall keep its principal place of business
within the United States.
SECTION 5.05 SEC FILINGS.
So long as Borrower has a class of securities registered pursuant to
Section 12 of the 1934 Act, Borrower shall duly file, when due, all reports and
proxy statements required of a company whose securities are registered for
public trading under and pursuant to the 1934 Act and any rules and regulations
issued thereunder.
SECTION 5.06 NOTICE.
Borrower shall promptly notify the Lender of (i) any Material Adverse
Change, (ii) any default under any Senior Obligations, other Indebtedness having
an aggregate principal amount in excess of $25,000, material agreement, contract
or other instrument to which it is a party or by which any of its properties are
bound, or any acceleration of the maturity of any Indebtedness having an
aggregate principal amount in excess of $25,000, if any, (iii) any material
adverse claim against or affecting Borrower or its Subsidiaries, if any, or any
of its properties, and (iv) the commencement of, and any determination in, any
material litigation with any third party or any proceeding before any
Governmental Authority.
SECTION 5.07 COMPLIANCE WITH LOAN DOCUMENTS.
Borrower shall, and shall cause its Subsidiaries to, promptly comply
with any and all covenants and provisions of the Loan Documents.
SECTION 5.08 COMPLIANCE WITH MATERIAL AGREEMENTS.
Borrower shall, and shall cause each of its Subsidiaries to, comply in
all material respects with all Senior Documents, material agreements,
indentures, mortgages or documents binding on it or affecting its properties or
business.
SECTION 5.09 OPERATIONS AND PROPERTIES.
Borrower shall, and shall cause each of its Subsidiaries to, act
prudently and in accordance with customary industry standards in managing or
operating its assets, properties, business and investments. Borrower shall, and
shall cause each of its Subsidiaries to, keep in good working order and
condition, ordinary wear and tear excepted, all of its assets and properties
which are necessary to the conduct of its business.
24
Agreement (Continued)
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SECTION 5.10 BOOKS AND RECORDS; ACCESS.
Borrower shall, and shall cause each of its Subsidiaries to, maintain
complete and accurate books and records of its transactions in accordance with
good accounting practices. Borrower shall give each duly authorized
representative of the Lender access during all normal business hours, upon
reasonable notice, to, and shall permit such representative to examine, copy or
make excerpts from, any and all books, records and documents in the possession
of Borrower and its Subsidiaries and relating to its affairs, and to inspect any
of the properties of Borrower and its Subsidiaries; provided that the Lender
agrees that any such inspection will be performed so as not to interfere with
Borrower's normal business operations. Borrower shall make a copy of this
Agreement, along with any waivers, consents, modifications or amendments,
available for review at its principal office by the Lender or the Lender's
representatives.
SECTION 5.11 COMPLIANCE WITH LAW.
Borrower shall, and shall cause each of its Subsidiaries to, comply in
all material respects with all applicable laws, rules, regulations, ordinances
and all orders and decrees of any Governmental Authority applicable to it or any
of its properties, businesses or operations.
SECTION 5.12 INSURANCE.
Borrower shall, and shall cause each of its Subsidiaries to, maintain
such worker's compensation insurance, liability insurance and insurance on its
properties, assets and business, now owned or hereafter acquired, against such
casualties, risks and contingencies, and in such types and amounts, as are
consistent with customary practices and standards of companies engaged in
similar businesses.
SECTION 5.13 AUTHORIZATIONS AND APPROVALS.
Borrower shall, and shall cause each of its Subsidiaries to, promptly
obtain, from time to time and at its own expense, all such governmental
licenses, authorizations, consents, permits and approvals as may be required to
enable it to comply with its obligations hereunder and under the other Loan
Documents.
SECTION 5.14 ERISA COMPLIANCE.
Borrower shall, at all times,(i) make prompt payment of all
contributions required under all Plans, if any, and shall meet the minimum
funding standards set forth in ERISA with respect to its Plans subject to ERISA,
if any, (ii) notify the Lender immediately of any fact in connection with any of
its Plans, which might constitute grounds for termination thereof by the Pension
Benefit Guaranty Corporation or for the appointment, by the appropriate United
States District Court, of a trustee to administer such Plan, together with a
statement, if requested by the Lender, as to the reason therefor and the action,
if any, proposed to be taken with respect thereto, and (iii) furnish to the
Lender, upon its request, such additional information concerning any of its
Plans as may be reasonably requested.
25
Agreement (Continued)
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SECTION 5.15 FURTHER ASSURANCES.
Borrower shall, and shall cause each of its Subsidiaries to, make,
execute or endorse, and acknowledge and deliver or file or cause the same to be
done, all such notices, certifications and additional agreements, undertakings,
transfers, assignments or other assurances, and take any and all such other
action as the Lender may, from time to time, deem reasonably necessary or proper
in connection with any of the Loan Documents, or the obligations of Borrower or
its Subsidiaries, if any, thereunder, which the Lender may request from time to
time.
SECTION 5.16 INDEMNITY BY BORROWER.
Borrower shall indemnify, save and hold harmless the Lender and its
directors, officers, lenders, attorneys and employees (the "Indemnitee") from
and against (i) any and all claims, demands, actions or causes of action that
are asserted against any Indemnitee if the claim, demand, action or cause of
action, directly or indirectly, relates to this Agreement and the other Loan
Documents issued pursuant thereto, the use of proceeds of the Loans, or the
relationship of Borrower and the Lender under this Agreement or any transaction
contemplated pursuant to this Agreement, (ii) any administrative or
investigative proceeding by any Governmental Authority, directly or indirectly,
related to a claim, demand, action or cause of action described in clause (i)
above, and (iii) any and all liabilities, losses, costs or expenses (including
reasonable attorneys' fees and disbursements) that any Indemnitee suffers or
incurs as a result of any of the foregoing; PROVIDED, HOWEVER, that Borrower
shall have no obligation under this Section 5.16 to the Lender with respect to
any of the foregoing arising out of the gross negligence or willful misconduct
of the Lender or its assignees or the breach by Lender or its assignees of this
Agreement or any other Loan Document or other document executed in connection
with any of the aforesaid, the breach by the Lender or its assignees of any
intercreditor or participation agreement or commitment with other parties, the
violation or alleged violation of any law, rule or regulation by the Lender or
its assignees, or from the transfer or disposition by the Lender of any
Debentures or the Common Stock issued upon conversion of the Debentures. If any
claim, demand, action or cause of action is asserted against any Indemnitee,
such Indemnitee shall promptly notify Borrower, but the failure to so promptly
notify Borrower shall not affect Borrower's obligations under this Section
unless such failure materially prejudices Borrower's right or ability to
participate in the contest of such claim, demand, action or cause of action, as
hereinafter provided. In the event that such Indemnitee's failure to properly
notify Borrower materially prejudices Borrower's right or ability to participate
in the contest of such claim, demand action or cause of action, then said
Indemnitee shall have no right to receive, and Borrower shall have no obligation
to pay, any indemnification amounts hereunder. Borrower may elect to defend any
such claim, demand, action or cause of action (at its own expense) asserted
against said Indemnitee and, if requested by Borrower in writing and so long as
no Default or Event of Default shall have occurred and be continuing, such
Indemnitee (at Borrower's expense) shall, in good faith, contest the validity,
applicability and amount of such claim, demand, action or cause of action and
shall permit Borrower to participate in such contest. Any Indemnitee that
proposes to settle or compromise any claim or proceeding for which Borrower may
be liable, for payment to or on behalf of an Indemnitee hereunder, shall give
Borrower written notice of the terms of such proposed settlement or compromise
reasonably in advance of settling or compromising such claim or proceeding and
shall obtain Borrower's written concurrence thereto. In the event that said
Indemnitee fails to obtain Borrower's prior written consent to any such
settlement or compromise, said Indemnitee shall have no right to receive, and
Borrower shall have no obligation to pay, any indemnification amounts hereunder.
Each Indemnitee may employ counsel, which counsel shall be reasonably acceptable
to Borrower, in enforcing its rights hereunder and in defending against any
claim, demand, action or cause of action covered by this Section 5.16; PROVIDED,
HOWEVER, that each Indemnitee
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Agreement (Continued)
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shall endeavor in connection with any matter covered by this Section 5.16 which
also involves any other Indemnitee, use reasonable efforts to avoid unnecessary
duplication of effort by counsel for all Indemnitees, including allowing
Borrower to select one lawyer for all parties, such selection to be subject to
the approval of such parties, which approval shall not be unreasonably
withheld. Any obligation or liability of Borrower to any Indemnitee under this
Section 5.16 shall survive the expiration or termination of this Agreement and
the repayment of the Debentures.
SECTION 5.17 RESERVATION OF SHARES; SHAREHOLDER APPROVAL.
Borrower shall, at all times, reserve and keep available sufficient
authorized and unissued shares of Common Stock to effect the conversion of the
Debentures. The Borrower has obtained the approval of its shareholders to issue
to the Lender upon conversion of the Debentures all of the shares of Common
Stock to which it is then entitled.
SECTION 5.18 OWNERSHIP OF SUBSIDIARIES.
Borrower shall own, at all times, all of the capital stock of, or other
equity interests in, the Subsidiaries, except as disclosed on Schedule 5.18.
SECTION 5.19 RETENTION OF STOCK OWNERSHIP.
(a) Borrower shall not offer, sell or otherwise dispose of any shares
of Common Stock or securities exercisable or convertible into shares of Common
Stock for a period of twelve (12) months following the Loan Closing without the
written approval of the Lender, other than (i) Common Stock issued upon the
conversion of any of the Debentures; and (ii) Common Stock issued upon exercise
of any presently outstanding employee stock options or warrants.
(b) All officers, directors and ten percent (10%) shareholders will
execute and deliver Lock-Up Agreements at the Loan Closing which shall provide
that they will not offer, sell or otherwise dispose of the shares of Common
Stock beneficially owned or controlled by them (including subsequently acquired
shares or securities exercisable or convertible into shares) for a period of
twelve (12) months following the Loan Closing. Thereafter, each such person
shall only sell such shares pursuant to Rule 144, without the consent of the
Lender, until the Debentures has been paid in full. Notwithstanding the
foregoing, each such person may sell such shares at any time at a price in
excess of $5.00 per share.
SECTION 5.20 SUBSEQUENTLY FORMED U.S. SUBSIDIARIES.
Borrower shall cause all subsequently formed U.S. Subsidiaries to
execute the Subsidiaries' Guaranty and Security Agreement referenced in Section
3.01(c).
SECTION 5.21 QUARTERLY PAYMENT OF FUNDS BY EUROPEAN SUBSIDIARIES.
Borrower shall cause each of its European Subsidiaries to pay to
Borrower within 20 days of the end of every fiscal quarter all of their
respective Net Excess Working Capital for such fiscal quarter.
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Agreement (Continued)
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ARTICLE VI. - NEGATIVE COVENANTS OF BORROWER
So long as any part of the Debentures has not been redeemed or
converted hereunder, and until such redemption or conversion in full, unless the
Lender shall otherwise consent in writing, Borrower agrees that:
SECTION 6.01 LIMITATION ON INDEBTEDNESS.
At Loan Closing, Borrower and its Subsidiaries shall not have any
outstanding Indebtedness, except Indebtedness arising under this Agreement, the
Debentures, the Guaranties, or Permitted Indebtedness. Borrower and its
Subsidiaries will not incur or guarantee any Indebtedness senior to or PARI
PASSU with the Debentures, without the consent of the Lender, except for Senior
Obligations and Acquisition Indebtedness.
SECTION 6.02 LIMITATION ON LIENS.
Borrower shall not, and shall not permit its Subsidiaries to, create,
cause, incur, permit or suffer to exist any Lien upon any of its properties or
assets, other than Permitted Liens.
SECTION 6.03 LIMITATION ON INVESTMENTS.
Borrower shall not, and shall not permit its Subsidiaries to, make or
have outstanding any Investments in any Person, except for Borrower's or any
Subsidiary's acquisition or ownership of stock of or other equity interests in
Subsidiaries (including Persons that will be Subsidiaries after giving effect to
such Investments), loans and other transactions between Borrower and any
Subsidiaries, short term bank deposits, money market investments,
investment-grade commercial paper, government securities and such other "cash
equivalent" investments as the Lender may, from time to time, approve, and
customer obligations and receivables arising out of sales or leases made or the
rendering of services in the ordinary course of business.
SECTION 6.04 ALTERATION OF MATERIAL AGREEMENTS.
Borrower shall not, and shall not permit its Subsidiaries to, consent
to or permit any alteration, amendment, modification, release, waiver or
termination of any Senior Documentation or material agreement to which it is a
party, other than in the ordinary course of business.
SECTION 6.05 TRANSACTIONS WITH AFFILIATES.
Except as disclosed in Schedule 6.05, Borrower shall not, and shall not
permit its Subsidiaries to, enter into any transaction not in the ordinary
course of business with, or pay any management fees to, any Affiliate, except
for intercompany transactions, without the consent of the Lender, unless the
terms thereof (i) are no less favorable to Borrower or such Subsidiary than
those that could be obtained at the time of such transaction in arm's-length
dealings with a Person who is not an Affiliate, or (ii) if such transaction
involves an amount less than $25,000, are set forth in writing and have been
approved by a majority of the members of the Board of Directors having no
personal stake in the transaction. Notwithstanding the foregoing, Borrower may
grant options to employees or directors if otherwise permitted under this
Agreement.
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Agreement (Continued)
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SECTION 6.06 LIMITATIONS ON ACQUISITION OF NONRELATED BUSINESS.
Borrower shall not, and shall not permit its Subsidiaries to, engage in
any line of business, or acquire any new product lines or business, or acquire
any companies unless such new product line or business acquired is primarily
involved in, or substantially similar or related to, Borrower's current lines of
business or extensions thereof.
SECTION 6.07 LIMITATION ON SALE OF PROPERTIES.
Borrower shall not, and shall not permit its Subsidiaries to, (i) sell,
assign, convey, exchange, lease or otherwise dispose of any of its properties,
rights, assets or business (including the capital stock of its operating
Subsidiaries), whether now owned or hereafter acquired, without the consent of
the Lender, except in the ordinary course of business, or (ii) sell, assign or
discount any accounts receivable, except in the ordinary course of business
(which shall include receivable financing or securitization), in each case
without the consent of the Lender.
SECTION 6.08 FISCAL YEAR AND ACCOUNTING METHOD.
Borrower shall not, and shall not permit its Subsidiaries to, change
its fiscal year or method of accounting, except as permitted by GAAP.
SECTION 6.09 LIQUIDATION.
Borrower shall not, and shall not permit its Subsidiaries to, (i)
dissolve or liquidate (except for dissolution or liquidation of inactive
Subsidiaries in the ordinary course of business), or (ii) enter into any other
transaction that has a similar effect.
SECTION 6.10 MATERIAL AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS.
Borrower shall not, and shall not permit its Subsidiaries to, amend its
Certificate or Articles of Incorporation (or other charter document) or bylaws
in any material respect, without the consent of the Lender.
SECTION 6.11 EXECUTIVE COMPENSATION.
(a) Borrower will not increase the salary, bonus, or other compensation
programs (whether in cash, securities or other property, and whether payment is
deferred or current) of its chief executive officer and chief financial officer,
unless such compensation increase is approved by a majority of the Board or a
Compensation Committee of the Board, a majority of whom shall be nonemployee
Directors. Compensation to other senior executive officers, including division
managers, shall be consistent with the policies of the Compensation Committee.
(b) Borrower shall not implement any bonus, profit sharing or other
incentive plans, until such plans are formally adopted by the majority of the
Board or a Compensation Committee of the Board, a majority of whom shall be
nonemployee Directors. Borrower's executive compensation shall be consistent
with the general compensation policies adopted by the Compensation Committee of
the Board.
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Agreement (Continued)
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SECTION 6.12 RESTRICTED PAYMENTS.
Borrower shall not (i) without the consent of the Lender, declare or
pay any Dividend (other than stock dividends) or make any other cash
distribution on any Common Stock or any Preferred Stock, (ii) purchase, redeem
or otherwise acquire any shares of Common Stock or any shares of Preferred
Stock, without the consent of the Lender, (iii) make any payments of
Indebtedness (other than Senior Obligations) which are PARI PASSU or
subordinated to the Debentures, if at the time of such payment, Borrower is in
Default with respect to the Loan, or (iv) make any prepayments of Indebtedness
(other than Senior Obligations) which are PARI PASSU or subordinated to the
Debentures, unless the Debentures is prepaid on a PRO RATA basis, without the
consent of the Lender. Borrower shall not permit its Subsidiaries to enter into
any agreements restricting the payment of dividends from the Subsidiaries to
Borrower, without the consent of the Lender. Notwithstanding the foregoing, the
Borrower may pay regular dividends to the holders of the Series AAA Preferred
Stock and may redeem the Series AAA Preferred Stock in accordance with its
terms.
SECTION 6.13 PROHIBITION ON TRANSFER OF FUNDS TO EUROPEAN SUBSIDIARIES.
Borrower shall not, and shall not permit any of its U.S. Subsidiaries,
to transfer any funds to its European Subsidiaries, without the prior written
consent of the Lender.
SECTION 6.14 CONSOLIDATION OR MERGER.
Borrower shall not consolidate with or merge into any other
corporation, unless the surviving corporation, after such merger or
consolidation, will not be in Default and the surviving corporation becomes a
party to this Agreement. Subsidiaries shall only consolidate with or merge into
Borrower or another Subsidiary; provided, however, that a Subsidiary may merge
or consolidate with any other entity as long as such Subsidiary is the surviving
corporation of such merger or consolidation, and Borrower is not in Default.
ARTICLE VII. - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS
SECTION 7.01 FINANCIAL RATIOS.
So long as any of the Debentures has not been redeemed or converted
hereunder, and until such redemption or conversion has been made in full, or
unless the Lender shall otherwise consent in writing, Borrower, on a
consolidated basis, shall be in compliance with the agreed minimum financial
ratios and standards provided in Schedule 7.01, as of the end of each fiscal
quarter of Borrower and as set forth in its most recent quarterly compliance
certificates delivered pursuant to Section 5.01.
ARTICLE VIII. - EVENTS OF DEFAULT
SECTION 8.01 EVENTS OF DEFAULT.
An "Event of Default" shall exist if any one or more of the following
events (herein collectively called "Events of Default") shall occur and be
continuing:
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Agreement (Continued)
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(a) Borrower shall fail to pay when due (or shall state in writing an
intention not to pay or its inability to pay) any installment of interest on or
principal of, any Debentures or any fee, expense or other payment required
hereunder;
(b) Any representation or warranty made under this Agreement, or any of
the other Loan Documents, or in any certificate or statement furnished or made
to Agent pursuant hereto or in connection herewith or with the Loans hereunder,
or in any Subsidiary Document shall prove to be untrue or inaccurate in any
material respect as of the date on which such representation or warranty was
made;
(c) Default shall occur in the performance of any of the covenants or
agreements of Borrower or of its Subsidiaries contained herein, or in any of the
other Loan Documents or in any Subsidiary Document;
(d) Default shall occur in the payment of any Senior Obligations or in
the payment of any other Indebtedness having an aggregate principal amount in
excess of $25,000, or nonmonetary default shall occur in respect of any note,
loan agreement or credit agreement relating to any Indebtedness having an
aggregate principal amount in excess of $25,000, and such default continues for
more than the period of grace, if any, specified therein or any Indebtedness
having an aggregate principal amount in excess of $25,000, shall become due
before its stated maturity by acceleration of the maturity, or any indebtedness
having an aggregate principal amount in excess of $25,000, shall become due by
its terms and shall not be promptly paid or extended;
(e) Any of the Loan Documents shall cease to be legal, valid and
binding agreements enforceable against Borrower in accordance with the
respective terms, or shall, in any way, be terminated or become or be declared
by any court or by Borrower or any Subsidiary in any legal proceeding to be
ineffective or inoperative, or shall in any way whatsoever cease to give or
provide the respective rights, titles, interests, remedies, powers or privileges
stated therein to be created thereby;
(f) Borrower or its Subsidiaries shall (i) apply for or consent to the
appointment of a receiver, trustee, custodian, intervenor or liquidator of
itself, or of all or substantially all of such Person's assets, (ii) file a
voluntary petition in bankruptcy, admit in writing that such Person is unable to
pay such Person's debts as they become due or generally not pay such Person's
debts as they become due, (iii) make a general assignment for the benefit of
creditors, (iv) file a petition or answer seeking reorganization or an
arrangement with creditors or to take advantage of any bankruptcy or insolvency
laws, (v) file an answer admitting the material allegations of, or consent to,
or default in answering, a petition filed against such Person in any bankruptcy,
reorganization or insolvency proceeding, or (vi) take corporate action for the
purpose of effecting any of the foregoing;
(g) An involuntary petition or complaint shall be filed against
Borrower or any of its Subsidiaries seeking bankruptcy or reorganization of such
Person or the appointment of a receiver, custodian, trustee, intervenor or
liquidator of such Person, or all or substantially all of such Person's assets,
and such petition or complaint shall not have been dismissed within sixty (60)
days of the filing thereof or an order, order for relief, judgment or decree
shall be entered by any court of competent jurisdiction or other competent
authority approving a petition or complaint seeking reorganization of Borrower
or its subsidiary or appointing a receiver, custodian, trustee, intervenor or
liquidator of such Person, or of all or substantially all of such Person's
assets;
31
Agreement (Continued)
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(h) Any final judgment(s) for the payment of money in excess of the sum
of $100,000 in the aggregate shall be rendered against Borrower or any
Subsidiary and such judgment or judgments shall not be satisfied or discharged
prior to the date on which any of its assets could be lawfully sold to satisfy
such judgment; or
(i) Borrower shall fail to issue and deliver shares of Common Stock as
provided herein upon conversion of the Debentures or exercise of the Warrants.
(j) Borrower or the U.S. Subsidiaries shall transfer, directly or
indirectly, any funds to Svenska Handelsbanken pursuant to the Letter of Support
issued by the Borrower.
SECTION 8.02 REMEDIES UPON EVENT OF DEFAULT.
(a) If an Event of Default shall have occurred and be continuing, then
the Lender may exercise any one or more of the following rights and remedies,
and any other remedies provided in any of the Loan Documents, as the Lender in
its sole discretion may deem necessary or appropriate:
(i) declare the unpaid Principal Amount (after application of any
payments or installments received by the Lender) of, and all interest then
accrued but unpaid on, the Debentures and any other liabilities hereunder to be
forthwith due and payable, whereupon the same shall forthwith become due and
payable without presentment, demand, protest, notice of default, notice of
acceleration or of intention to accelerate or other notice of any kind, all of
which Borrower hereby expressly waives, anything contained herein or in the
Debentures to the contrary notwithstanding;
(ii) reduce any claim to judgment; and
(iii) without notice of default or demand, pursue and enforce
any of the Lender's rights and remedies under the Loan Documents and the
Subsidiary Documents, or otherwise provided under or pursuant to any applicable
law or agreement, all of which rights may be specifically enforced.
(b) In the event of a violation by Borrower of the negative covenants
set forth in Article VI, the Lender may, in its sole discretion, (i) waive
compliance with the covenants, provided Borrower is in compliance with Section
7.01 hereof; or (ii) require Borrower to redeem the Debentures at the higher of
market value or the unpaid principal amount of the Debentures, together with an
amount equal to an 18% annual yield on the principal amount through the
Redemption Date, whichever is greater.
SECTION 8.03 PERFORMANCE BY THE LENDER.
Should Borrower or any Subsidiary fail to perform any covenant, duty or
agreement contained herein or in any of the other Loan Documents or in any
Subsidiary Document, Lender or Agent may perform or attempt to perform such
covenant, duty or agreement on behalf of Borrower. In such event, Borrower
shall, at the request of Lender or Agent, promptly pay any amount reasonably
expended by Lender or Agent in such performance or attempted performance to
Lender or Agent at its principal office, together with interest thereon, at the
interest rate specified in the Debentures, from the date of such expenditure
until paid. Notwithstanding the foregoing, it is expressly understood that
Lender or Agent assumes no liability or responsibility for the performance of
any duties of Borrower or any Subsidiary hereunder or under any of the other
Loan Documents or under any Subsidiary Document.
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Agreement (Continued)
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SECTION 8.04 PAYMENT OF EXPENSES INCURRED BY THE LENDER.
Upon the occurrence of a Default or an Event of Default, which
occurrence is not cured within the notice provisions, if any, provided herein,
Borrower agrees to pay and shall pay all costs and expenses (including
reasonable attorneys' fees and expenses) incurred by Lender or Agent in
connection with the preservation and enforcement of the Lender's rights under
this Agreement, the Debentures or any other Loan Document.
ARTICLE IX. - REGISTRATION RIGHTS
SECTION 9.01 DEMAND REGISTRATION.
(a) Borrower hereby agrees to register all or any portion of the
Registrable Securities on one occasion if, and only if, it shall receive a
written request from a Holder (the "Initiating Holder") that Borrower file a
registration statement under the 1933 Act covering the registration of at
least 25% of the Registrable Securities Then Outstanding. Borrower shall,
within 20 days of its receipt thereof, give written notice of such request to
all Holders of record of Registrable Securities. The Holders of said
Registrable Securities shall then have 15 days from the date of mailing of
such notice by Borrower to request that all or a portion of their respective
Registrable Securities be included in said registration.
(b) If the Holders intend to distribute the Registrable
Securities covered by their request by means of a firm underwriting, they
shall so advise Borrower as a part of their request made pursuant to this
Agreement, and Borrower shall include such information in the written notice
to the other Holders of Registrable Securities referred to in Section 9.01(a).
In such event, the right of any Holder to include its Registrable Securities
in such registration shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting (unless otherwise mutually agreed by Borrower, the
underwriter, the Initiating Holder and such Holder) is limited to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with Borrower as provided in Section
9.04(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by mutual agreement
of Borrower and the Initiating Holder, which agreement shall not be
unreasonably withheld. Notwithstanding any other provision of this Section
9.01, if the underwriter advises the Initiating Holder and Borrower in writing
that marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holder shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated on a pro rata basis among all Holders that
have requested to participate in such registration. The rights of the Holders
shall be PARI PASSU to those of any other Persons previously granted demand
registration rights and senior to those of any other Person subsequently
granted demand registration rights.
(c) Each such registration shall remain effective for a period
of 180 days, unless the Initiating Holder otherwise determines.
Notwithstanding the foregoing, if the Holders' elect not to sell all or any
portion of the Registrable Securities pursuant to a demand registration which
has become effective, such demand registration right shall nonetheless be
deemed satisfied.
(d) If, after a registration statement becomes effective,
Borrower advises the Holders that the registration statement is required to be
amended under applicable federal securities laws, the Holders shall suspend
any further sales of their Registrable Securities, until the Company advises
them that the
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Agreement (Continued)
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registration statement has been amended, but not more than thirty (30) days.
The 180-day time period referred to in subsection (c) during which the
registration statement must be kept current after its effective date shall be
extended for an additional number of business days equal to the number of
business days during which the right to sell the Registrable Securities was
suspended pursuant to the preceding sentence.
(e) No demand for registration may be made for a one hundred
eighty (180)-day period following completion of another underwritten offering
of Borrower's equity securities.
SECTION 9.02 "PIGGY-BACK" REGISTRATION.
If Borrower proposes to register any of its capital stock under the
1933 Act in connection with the public offering of such securities for its own
account or for the account of its security holders, other than Holders of
Registrable Securities pursuant hereto (a "Piggy-Back Registration Statement"),
except for (i) a registration relating solely to the sale of securities to
participants in Borrower's stock or stock option plans or employee benefit plans
or (ii) a registration relating solely to a transaction for which Form S-4 may
be used, then:
(a) Borrower shall give written notice of such determination to
each Holder of Registrable Securities, and each such Holder shall have the
right to request, by written notice given to Borrower within 15 days of the
date that such written notice was mailed by Borrower to such Holder, that a
specific number of Registrable Securities held by such Holder be included in
the Piggy-Back Registration Statement (and related underwritten offering, if
any) and the states in which such Registrable Securities are to be sold;
(b) If the Piggy-Back Registration Statement relates to an
underwritten offering, the notice given to each Holder shall specify the name
or names of the managing underwriter or underwriters for such offering. In
addition, such notice shall also specify the number of securities to be
registered for the account of Borrower and for the account of its shareholders
(other than the Holders of Registrable Securities), if any;
(c) If the Piggy-Back Registration Statement relates to an
underwritten offering, each Holder of Registrable Securities to be included
therein must agree (i) to sell such Holder's Registrable Securities on the
same basis as provided in the underwriting arrangement approved by Borrower,
and (ii) to timely complete and execute all questionnaires, powers of
attorney, indemnities, hold-back agreements, lock-up agreements, underwriting
agreements and other documents required under the terms of such underwriting
arrangements or by the SEC or by any state securities regulatory body;
(d) If the managing underwriter or underwriters for the
underwritten offering under the Piggy-Back Registration Statement determines
that inclusion of all or any portion of the Registrable Securities in such
offering would materially adversely affect the ability of the underwriters for
such offering to sell all of the securities requested to be included for sale
in such offering at the best price obtainable therefor, the aggregate number
of Registrable Securities that may be sold by the Holders shall be limited to
such number of Registrable Securities, if any, that the managing underwriter
or underwriters determine may be included therein without such adverse effect
as provided below. If the number of securities proposed to be sold in such
underwritten offering exceeds the number of securities that may be sold in
such offering, there shall be included in the offering, first, up to the
maximum number of securities to be sold by Borrower for its own account and
for the account of other stockholders (other than
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Agreement (Continued)
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Holders of Registrable Securities), as they may agree among themselves, and
second, as to the balance, if any, Registrable Securities requested to be
included therein by the Holders thereof (pro rata as between such Holders
based upon the number of Registrable Securities initially proposed to be
registered by each), or in such other proportions as the managing underwriter
or underwriters for the offering may require; PROVIDED, HOWEVER, that in the
event that the number of securities proposed to be sold in such underwritten
offering exceeds the number of securities that may be sold in such offering
pursuant to the terms and conditions set forth above and the Piggy-Back
Registration Statement is a result of public offering by Borrower of its
securities for its own account, there shall be included in the offering,
first, up to the maximum number of securities to be sold by Borrower for its
own account and second, as to the balance, if any, securities to be sold for
the account of Borrower's stockholders (both the Holders of Registrable
Securities requested and such other stockholders of Borrower requested to be
included therein) on a PRO RATA basis;
(e) Holders of Registrable Securities shall have the right to
withdraw their Registrable Securities from the Piggy-Back Registration
Statement, but if the same relates to an underwritten offering, they may only
do so during the time period and on the terms agreed upon among the
underwriters for such underwritten offering and the Holders of Registrable
Securities;
(f) The exercise of the registration rights of the Holders with
respect to any specific underwritten offering shall be subject to a 90-day
delay at the request of the managing underwriter;
(g) All demand and piggy-back registration rights of the Holders
shall terminate when all of the Registrable Securities Then Outstanding may be
sold pursuant to Rule 144(k).
SECTION 9.03 SHELF REGISTRATION.
Borrower shall file a "shelf" registration statement on Form S-3 under
the 1933 Act (the "Shelf Registration") covering all of the Registrable
Securities within 180 days of the date of the Debentures, and Borrower shall use
its best efforts to cause the Shelf Registration to be declared effective and to
keep the Shelf Registration continuously effective until all of the Registrable
Securities registered therein cease to be Registrable Securities. The securities
shall cease to be Registrable Securities (a) when the Shelf Registration shall
have become effective under the 1933 Act and such securities shall have been
disposed of pursuant to the Shelf Registration, or (b) such securities shall
have been sold as permitted by Rule 144 under the 1933 Act or the date on which
the Registrable Securities may be sold pursuant to Rule 144(k), whichever is the
first to occur. Borrower agrees, if necessary, to supplement or amend the Shelf
Registration, as required by the registration form utilized by Borrower or by
the instructions applicable to such registration form or by the 1933 Act, and
Borrower agrees to furnish to the holders of the Registrable Securities copies
of any such supplement or amendment prior to its being used.
SECTION 9.04 OBLIGATIONS OF BORROWER.
Whenever required to effect the registration of any Registrable
Securities pursuant to this Agreement, Borrower shall, as expeditiously as
reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become effective, subject to the receipt of all
required information from the Holders, and keep such registration statement
effective until the sooner of all such Registrable Securities having been
distributed, or until 120 days have elapsed
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Agreement (Continued)
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since such registration statement became effective (subject to an extension of
this period as provided below);
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the 1933 Act with respect to the disposition of all
securities covered by such registration statement, or 120 days have elapsed
since such registration statement became effective (subject to the extension
of this period as provided below);
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them;
(d) Use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities
or Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that Borrower shall not be required, in connection therewith
or as a condition thereto, to qualify as a broker-dealer in any states or
jurisdictions or to do business or to file a general consent to service of
process in any such states or jurisdictions;
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement with the managing
underwriter of such offering, in usual and customary form reasonably
satisfactory to Borrower and the Holders of a majority of the Registrable
Securities to be included in such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such an
agreement;
(f) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto and
covered by such registration statement is required to be delivered under the
1933 Act, of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing; and
(g) In the event of the notification provided for in Section
9.04(f) above, Borrower shall use its best efforts to prepare and file with
the SEC (and to provide copies thereof to the Holders) as soon as reasonably
possible an amended prospectus complying with the 1933 Act, and the period
during which the prospectus referred to in the notice provided for in Section
9.04(f) above cannot be used and the time period prior to the use of the
amended prospectus referred to in this Section 9.04(g) shall not be counted in
the 120 day period of this Section 9.04.
SECTION 9.05 FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations of
Borrower to take any action pursuant to this Article IX that the selling
Holders shall furnish to Borrower any and all information reasonably requested
by Borrower, its officers, directors, employees, counsel, agents or
representatives, the underwriter or underwriters, if any, and the SEC or any
other Governmental Authority, including, but not limited to: (i) such
information regarding themselves, the Registrable Securities held by them, and
the intended method of disposition of such securities, as shall be required to
effect the registration of their
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Agreement (Continued)
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Registrable Securities; and (ii) the identity of and compensation to be paid
to any proposed underwriter or broker-dealer to be employed in connection
therewith.
(b) In connection with the preparation and filing of each
registration statement registering Registrable Securities under the 1933 Act,
Borrower shall give the Holders of Registrable Securities on whose behalf such
Registrable Securities are to be registered and their underwriters, if any,
and their respective counsel and accountants, at such Holders' sole cost and
expense (except as otherwise set forth herein), such access to copies of
Borrower's records and documents and such opportunities to discuss the
business of Borrower with its officers and the independent public accountants
who have certified its financial statements as shall be reasonably necessary
in the opinion of such Holders and such underwriters or their respective
counsel, to conduct a reasonable investigation within the meaning of the 1933
Act.
SECTION 9.06 EXPENSES OF REGISTRATION.
Except for a demand registration statement, the cost of which shall be
borne by the Holders participating in such registration, all expenses, other
than underwriting discounts and commissions applicable to the Registrable
Securities sold by selling Holders, incurred in connection with the registration
of the Registrable Securities pursuant to this Article, including, without
limitation, all registration, filing and qualification fees, printer's expenses,
and accounting and legal fees and expenses of Borrower, shall be borne by
Borrower; provided, however, selling Holders shall be responsible for all costs
of their due diligence and legal counsel and other advisors in connection with a
registration of Registrable Securities.
SECTION 9.07 INDEMNIFICATION REGARDING REGISTRATION RIGHTS.
If any Registrable Securities are included in a registration statement
under this Article:
(a) To the extent permitted by law, Borrower will indemnify and
hold harmless each Holder, the officers and directors of each Holder, any
underwriter (as defined in the 1933 Act) for such Holder and each person, if
any, who controls such Holder or underwriter within the meaning of the 1933
Act or the 1934 Act, against any losses, claims, damages, liabilities (joint
or several) or any legal or other costs and expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action to which they may become subject under the 1933
Act, the 1934 Act or state law, insofar as such losses, claims, damages,
costs, expenses or liabilities (or actions in respect thereof) arise out of or
are based upon any of the following statements, omissions or violations (each
a "Violation"): (i) any untrue statement or alleged untrue statement of a
material fact with respect to Borrower or its securities contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements therein; (ii)
the omission or alleged omission to state therein a material fact with respect
to Borrower or its securities required to be stated therein or necessary to
make the statements therein not misleading; or (iii) any violation or alleged
violation by Borrower of the 1933 Act, the 1934 Act, any state securities law
or any rule or regulation promulgated under the 1933 Act, the 1934 Act or any
state securities law. Notwithstanding the foregoing, the indemnity agreement
contained in this Section 9.07(a) shall not apply and Borrower shall not be
liable (i) in any such case for any such loss, claim, damage, costs, expenses,
liability or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon, and in conformity with, written
information furnished expressly for use in connection with such registration
by any such Holder or its authorized agent, underwriter or controlling person,
or (ii) for amounts paid in settlement of any such
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Agreement (Continued)
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loss, claim, damage, liability or action if such settlement is effected
without the prior written consent of Borrower, which consent shall not be
unreasonably withheld.
(b) To the extent permitted by law, each Holder who participates
in a registration pursuant to the terms and conditions of this Agreement shall
indemnify and hold harmless Borrower, each of its directors and officers who
have signed the registration statement, each Person, if any, who controls
Borrower within the meaning of the 1933 Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the 1933 Act, the
1934 Act or any state securities law, each of Borrower's employees, agents,
counsel and representatives, any underwriter and any other Holder selling
securities in such registration statement, or any of its directors or
officers, or any person who controls such Holder, against any losses, claims,
damages, costs, expenses or liabilities (joint or several) to which Borrower
or any such director, officer, controlling person, employee, agent,
representative, underwriter or other such Holder, or director, officer or
controlling person thereof, may become subject, under the 1933 Act, the 1934
Act or other federal or state law, only insofar as such losses, claims,
damages, costs, expenses or liabilities or actions in respect thereto arise
out of or are based upon any Violation, in each case to the extent, and only
to the extent, that such Violation occurs in reliance upon and in conformity
with written information furnished by such Holder expressly for use in
connection with such Registration. Each such Holder will indemnify any legal
or other expenses reasonably incurred by Borrower or any such director,
officer, employee, agent, representative, controlling person, underwriter or
other Holder, or officer, director or any controlling person thereof, in
connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the indemnity agreement contained
in this Section 9.07(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, costs, expenses, liability or action if such
settlement is effected without the prior written consent of the Holder, which
consent shall not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this
Section 9.07 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 9.07,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party
shall have the right to retain its own counsel, with the reasonable fees and
expenses of such counsel to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential conflict
of interests between such indemnified party and any other party represented by
such counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve the indemnifying party of its obligations under this
Section 9.07, except to the extent that the failure results in a failure of
actual notice to the indemnifying party and such indemnifying party is
materially prejudiced in its ability to defend such action solely as a result
of the failure to give such notice.
(d) If the indemnification provided for in this Section 9.07 is
unavailable to an indemnified party under this Section in respect of any
losses, claims, damages, costs, expenses, liabilities or actions referred to
herein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, costs, expenses,
liabilities or actions in such proportion as is appropriate to reflect the
relative fault of Borrower, on the one hand and of the Holder, on the other,
in connection with the Violation that resulted in such losses, claims,
damages, costs, expenses, liabilities or actions. The relative fault of
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Agreement (Continued)
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Borrower, on the one hand, and of the Holder, on the other, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of the material fact or the omission to state a material fact
relates to information supplied by Borrower or by the Holder, and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission.
(e) Borrower, on the one hand, and the Holders, on the other,
agree that it would not be just and equitable if contribution pursuant to this
Section 9.07 were determined by a PRO RATA allocation or by any other method
of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of losses, claims, damages, costs,
expenses, liabilities and actions referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses incurred by such indemnified
party in connection with defending any such action or claim. Notwithstanding
the provisions of this Section 9.07, neither Borrower nor the Holders shall be
required to contribute any amount in excess of the amount by which the total
price at which the securities were offered to the public exceeds the amount of
any damages which Borrower or each such Holder has otherwise been required to
pay by reason of such Violation. No person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.
SECTION 9.08 REPORTS UNDER THE 1934 ACT.
So long as Borrower has a class of securities registered pursuant to
Section 12 of the 1934 Act, with a view to making available to the Holders the
benefits of Rule 144 promulgated under the 1933 Act ("Rule 144") and any other
rule or regulation of the SEC that may at any time permit a Holder to sell
securities of Borrower to the public without registration or pursuant to a
registration on Form S-3, if applicable, Borrower agrees to use its reasonable
efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144, at all times;
(b) File with the SEC, in a timely manner, all reports and other
documents required of Borrower under the 1933 Act and the 1934 Act;
(c) Use its best efforts to include all Common Stock covered by
such registration statement on NASDAQ if the Common Stock is then quoted on
NASDAQ; or list all Common Stock covered by such registration statement on
such securities exchange on which any of the Common Stock is then listed; or,
if the Common Stock is not then quoted on NASDAQ or listed on any national
securities exchange, use its best efforts to have such Common Stock covered by
such registration statement quoted on NASDAQ or, at the option of Borrower,
listed on a national securities exchange if eligible for listing; and
(d) Furnish to any Holder, so long as the Holder owns any
Registrable Securities, (i) forthwith upon request, a copy of the most recent
annual or quarterly report of Borrower and such other SEC reports and
documents so filed by Borrower, and (ii) such other information (but not any
opinion of counsel) as may be reasonably requested by any Holder seeking to
avail himself of any rule or regulation of the SEC which permits the selling
of any such securities without registration or pursuant to such form.
39
Agreement (Continued)
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SECTION 9.09 ASSIGNMENT OF REGISTRATION RIGHTS.
Subject to the terms and conditions of this Agreement, and the
Debentures, the right to cause Borrower to register Registrable Securities
pursuant to this Agreement may be assigned by Holder to any transferee or
assignee of such securities; provided that (i) such transferee or assignee is a
transferee or assignee of at least ten percent (10%) of the Registrable
Securities, (ii) such transferee or assignee is not a Person who is a direct,
material competitor of Borrower, (iii) Borrower is, within a reasonable time
after such transfer, furnished with written notice of the name and address of
such transferee or assignee and the securities with respect to which such
registration rights are being assigned; and, (iv) such assignment shall be
effective only if, immediately following such transfer, the further disposition
of such securities by the transferee or assignee is restricted under the 1933
Act; it being the intention that, so long as Holder holds any Registrable
Securities hereunder, either Holder or its transferee or assignee of at least
ten percent may exercise the demand right to registration and piggy-back
registration rights hereunder. Other than as set forth above, the parties hereto
hereby agree that the registration rights hereunder shall not be transferable or
assigned and any contemplated transfer or assignment in contravention of this
Agreement shall be deemed null and void and of no effect whatsoever.
SECTION 9.10 OTHER MATTERS.
(a) Each Holder of Registrable Securities hereby agrees by
acquisition of such Registrable Securities that, with respect to each offering
of the Registrable Securities, whether each Holder is offering such
Registrable Securities in an underwritten or nonunderwritten offering, such
Holder will comply with Regulation M or such other or additional
anti-manipulation rules then in effect until such offering has been completed,
and in respect of any nonunderwritten offering, in writing will inform
Borrower, any other Holders who are selling shareholders, and any national
securities exchange upon which the securities of Borrower are listed, that the
Registrable Securities have been sold and will, upon Borrower's request,
furnish the distribution list of the Registrable Securities. In addition, upon
the request of Borrower, each Holder will supply Borrower with such documents
and information as Borrower may reasonably request with respect to the subject
matter set forth and described in this Section 9.10.
(b) Each Holder of Registrable Securities hereby agrees by
acquisition of such Registrable Securities that, upon receipt of any notice
from Borrower of the happening of any event which makes any statement made in
the registration statement, the prospectus or any document incorporated
therein by reference, untrue in any material respect or which requires the
making of any changes in the registration statement, the prospectus or any
document incorporated therein by reference, in order to make the statements
therein not misleading in any material respect, such Holder will forthwith
discontinue disposition of Registrable Securities under the prospectus related
to the applicable registration statement until such Holder's receipt of the
copies of the supplemented or amended prospectus, or until it is advised in
writing by Borrower that the use of the prospectus may be resumed, and has
received copies of any additional or supplemental filings which are
incorporated by reference in the prospectus.
ARTICLE X. - BOARD OF DIRECTORS
SECTION 10.01 BOARD REPRESENTATION OR ATTENDANCE BY OBSERVER.
(a) Borrower herewith agrees that Agent shall have the right,
from time to time, to designate a nominee (initially, Russell Cleveland) to
serve as a member of the Board of Directors of Borrower. In
40
Agreement (Continued)
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the event of a monetary Default under Section 8.01 hereof, the Agent shall
have the right to designate one (1) additional nominee to serve as a member of
the Board of Directors of Borrower. Borrower will nominate and use its best
efforts to secure the election of such designee(s) as Director(s) of Borrower.
During such time as Agent has not exercised such rights, the Agent shall have
the right to designate an observer, who shall be entitled to attend and
participate (but not vote) in all meetings of the Board of Directors and to
receive all notices, reports, information, correspondence and communications
sent by Borrower to members of the Board of Directors. All reasonable and
appropriate costs and expenses incurred in connection therewith by any such
designated Director or observer, or by Agent on behalf of such Director or
observer, shall be reimbursed by Borrower.
(b) Any such Director or observer shall, if requested to do so,
absent himself or herself from the meeting in the event of, and so long as,
the Directors are considering and acting on matters pertaining to any rights
or obligations of Borrower or the Lender under this Agreement, the Debentures,
the other Loan Documents or the Subsidiary Documents.
SECTION 10.02 LIMITATION OF AUTHORITY OF PERSONS DESIGNATED AS A DIRECTOR
NOMINEE.
It is provided and agreed that the actions and advice of any person
while serving pursuant to Section 10.01 as a Director or an observer at meetings
of the Board of Directors shall be construed to be the actions and advice of
that person alone and not be construed as actions of the Lender as to any notice
of requirements or rights of Lender under this Agreement, the Debentures, the
other Loan Documents or the Subsidiary Documents nor as actions of the Lender to
approve modifications, consents, amendments or waivers thereof; and all such
actions or notices shall be deemed actions or notices of the Lender only when
duly provided in writing and given in accordance with the provisions of this
Agreement.
SECTION 10.03 NONLIABILITY OF THE LENDER.
The relationship between Borrower and the Lender is, and shall at all
times remain, solely that of borrower and lender. The Lender neither undertakes
nor assumes any responsibility or duty to Borrower to review, inspect,
supervise, pass judgment upon or inform Borrower of any matter in connection
with any phase of Borrower's business, operations or condition, financial or
otherwise. Borrower shall rely entirely upon its own judgment with respect to
such matters, and any review, inspection, supervision, exercise of judgment or
information supplied to Borrower by the Lender, or any representative or agent
of the Lender, in connection with any such matter is for the protection of the
Lender, and neither Borrower nor any third party is entitled to rely thereon.
ARTICLE XI. - AGENCY PROVISIONS
SECTION 11.01 THE LENDER'S REPRESENTATIONS AND WARRANTIES TO AGENT.
Lender represents and warrants to the Agent:
(a) It is legal for it to make the Loan, and the making of such
Loan complies with laws applicable to it;
(b) It has made, its own independent review (including any
desired investigations and inspections) of, and it accepts and approves, the
Loan, this Agreement and the associated documents and all other matters and
information which it deems pertinent. It acknowledges that the Loan Documents
41
Agreement (Continued)
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and the Subsidiary Documents are a complete statement of all understandings
and respective rights and obligations between and among the Lender,
Subsidiaries and Borrower regarding the Loan;
(c) Lender has not made any express or implied representation or
warranty to any other lender with respect to this transaction;
(d) It will, independently and without reliance upon any other
lender, and based upon such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement, and will
make such investigation as it deems necessary to inform itself as to the Loan,
the Loan Documents, the Subsidiary Documents, Borrower and any collateral;
PROVIDED, HOWEVER, nothing contained in this Section shall limit Agent's
obligation to provide the Lender with the information and documents Agent is
expressly required to deliver under this Agreement;
(f) The Loan Documents executed by the Lender are valid and
binding obligations of the Lender.
SECTION 11.02 WAIVER OF LOAN PROVISIONS OR INTEREST OR PRINCIPAL PAYMENTS.
A waiver of an interest or principal payment, a declaration of a
Default or any amendment, modification or waiver of this Agreement or the
Debentures will require the consent of the Lender.
SECTION 11.03 AGENCY.
(a) Lender hereby designates and appoints Renaissance Group as
its Agent under this Agreement and authorizes the Agent to take such action on
its behalf under the provisions of this Agreement and the other Loan Documents
and the Subsidiary Documents and to exercise such powers as are set forth
herein or therein, together with such other powers as are reasonably
incidental thereto. In performing its functions and duties under this
Agreement, the Agent shall act solely as agent of the Lender and does not
assume, and shall not be deemed to have assumed, any obligation toward or
relationship of agency or trust with or for Borrower. The Agent may perform
any of its duties under this Agreement, or under the other Loan Documents or
the Subsidiary Documents, by or through its agents or employees.
(b) The Agent shall have no duties or responsibilities except
those expressly set forth in this Agreement, in the other Loan Documents or in
the Subsidiary Documents. Except as expressly provided herein, the duties of
the Agent shall be mechanical and administrative in nature. The Agent shall
have, and may use, its sole discretion with respect to exercising or
refraining from taking any actions which the Agent is expressly entitled to
take or assert under this Agreement, the other Loan Documents and the
Subsidiary Documents. The Agent shall not have, by reason of this Agreement, a
fiduciary relationship with respect to the Lender. Nothing in this Agreement,
any of the other Loan Documents or any of the Subsidiary Documents, express or
implied, is intended to or shall be construed to impose upon the Agent any
obligations in respect of this Agreement, any of the other Loan Documents or
any of the Subsidiary Documents except as expressly set forth herein or
therein. If the Agent seeks the consent or approval of the Lender to the
taking or refraining from taking any action hereunder, the Agent shall send
notice thereof to the Lender. The Agent may employ agents, co-agents and
attorneys-in-fact and shall not be responsible to the Lender or Borrower,
except as to money or securities received by it or its authorized
42
Agreement (Continued)
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agents, for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care.
(c) Neither the Agent nor any of its officers, directors,
employees or agents shall be liable to the Lender for any action taken or
omitted by it or any of them under this Agreement, any of the other Loan
Documents or any of the Subsidiary Documents, or in connection herewith or
therewith, except that no Person shall be relieved of any liability imposed by
law, intentional tort or gross negligence. The Agent shall not be responsible
to the Lender for any recitals, statements, representations or warranties
contained in this Agreement or for the execution, effectiveness, genuineness,
validity, enforceability, collectability or sufficiency of this Agreement, any
of the other Loan Documents or any of the Subsidiary Documents or any of the
transactions contemplated thereby, or for the financial condition of Borrower
or the Subsidiaries. The Agent shall not be required to make any inquiry
concerning either the performance or observance of any of the terms,
provisions or conditions of this Agreement, any of the other Loan Documents or
any of the Subsidiary Documents or the financial condition of Borrower, or the
existence or possible existence of any Default or Event of Default. Agent
shall give the Lender notice of any Default or Event of Default of which Agent
has actual notice. The Agent may, at any time, request instructions from the
Lender with respect to any actions or approvals which, by the terms of this
Agreement, of any of the other Loan Documents or of any of the Subsidiary
Documents, the Agent is permitted or required to take or to grant, and if such
instructions are promptly requested, the Agent shall be absolutely entitled to
refrain from taking any action or to withhold any approval and shall not be
under any liability whatsoever to any Person for refraining from any action or
withholding any approval under any of the Loan Documents or any of the
Subsidiary Documents until it shall have received such instructions from the
Lender. Without limiting the foregoing, the Lender shall not have any right of
action whatsoever against the Agent as a result of the Agent acting or
refraining from acting under this Agreement, any of the other Loan Documents
or any of the Subsidiary Documents in accordance with the instructions of the
Lender.
(d) The Agent shall be entitled to rely upon any written
notices, statements, certificates, orders or other documents or any telephone
message believed by it, in good faith, to be genuine and correct and to have
been signed, sent or made by the proper Person, and with respect to all
matters pertaining to this Agreement, any of the other Loan Documents or any
of the Subsidiary Documents and its duties hereunder or thereunder, upon
advice of counsel selected by it.
(e) To the extent that the Agent is not reimbursed and
indemnified by Borrower, the Lender will reimburse and indemnify the Agent for
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, advances or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of this Agreement, any
of the other Loan Documents, or any of the Subsidiary Documents or any action
taken or omitted by the Agent under this Agreement, any of the other Loan
Documents or any of the Subsidiary Documents. The obligations of the Lender
under this indemnification provision shall survive the payment in full of the
Loans and the termination of this Agreement.
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Agreement (Continued)
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ARTICLE XII. - MISCELLANEOUS
SECTION 12.01 STRICT COMPLIANCE.
Any waiver by the Lender of any breach or any term or condition of this
Agreement, the other Loan Documents or the Subsidiary Documents shall not be
deemed a waiver of any other breach, nor shall any failure to enforce any
provision of this Agreement, the other Loan Documents or the Subsidiary
Documents operate as a waiver of such provision or of any other provision, nor
constitute nor be deemed a waiver or release of Borrower for anything arising
out of, connected with or based upon this Agreement, the other Loan Documents or
the Subsidiary Documents.
SECTION 12.02 WAIVERS AND MODIFICATIONS.
All modifications, consents, amendments or waivers (herein "Waivers")
of any provision of this Agreement, the Debentures, any other Loan Documents or
any Subsidiary Documents, and any consent to departure therefrom, shall be
effective only if the same shall be in writing by the Lender and then shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand given, in any case, shall constitute a waiver of the right to
take other action in the same, similar or other instances without such notice or
demand. No failure to exercise, and no delay in exercising, on the part of Agent
or Lender, any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right. The rights of Lender hereunder,
under the other Loan Documents and under the Subsidiary Documents shall be in
addition to all other rights provided by law.
SECTION 12.03 LIMITATION ON LIABILITY.
The duties, warranties, covenants and promises arising from the Loan
Documents and the Subsidiary Documents of Lender or Agent to Borrower shall be
several and not joint, and Borrower shall have no legal or equitable cause of
action against Lender or Agent (or their successors or assigns) for any
liability of the other (or its successors or assigns).
SECTION 12.04 CHOICE OF FORUM; CONSENT TO SERVICE OF PROCESS AND JURISDICTION.
Any suit, action or proceeding against Borrower with respect to this
Agreement or the Debentures or any judgment entered by any court in respect
thereof, may be brought in the courts of the State of Texas, County of Dallas,
or in the United States federal courts located in the State of Texas, as Lender
or Agent, in its sole discretion, may elect, and Borrower hereby submits to the
nonexclusive jurisdiction of such courts for the purpose of any such suit,
action or proceeding. Borrower hereby agrees that service of all writs, process
and summonses in any such suit, action or proceeding brought in the State of
Texas may be brought upon, and Borrower hereby irrevocably appoints, CT
Corporation System, Dallas, Texas, as its true and lawful attorney-in-fact in
the name, place and stead of Borrower to accept such service of any and all such
writs, process and summonses. Borrower hereby irrevocably waives any objections
which it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any Debentures
brought in such courts, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
any inconvenient forum.
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Agreement (Continued)
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SECTION 12.05 INVALID PROVISIONS.
If any provision of any Loan Document is held to be illegal, invalid or
unenforceable under present or future laws during the term of this Agreement,
such provision shall be fully severable; such Loan Document shall be construed
and enforced as if such illegal, invalid or unenforceable provision had never
comprised a part of such Loan Document; and the remaining provisions of such
Loan Document shall remain in full force and effect and shall not be affected by
the illegal, invalid or unenforceable provision or by its severance from such
Loan Document. Furthermore, in lieu of each such illegal, invalid or
unenforceable provision shall be added as part of such Loan Document a provision
mutually agreeable to Borrower and Lender as similar in terms to such illegal,
invalid or unenforceable provision as may be possible and be legal, valid and
enforceable. In the event Borrower and Lender are unable to agree upon a
provision to be added to the Loan Document within a period of ten (10) business
days after a provision of the Loan Document is held to be illegal, invalid or
unenforceable, then a provision acceptable to independent arbitrators, such to
be selected in accordance with the provisions of the American Arbitration
Association, as similar in terms to the illegal, invalid or unenforceable
provision as is possible and be legal, valid and enforceable shall be added
automatically to such Loan Document. In either case, the effective date of the
added provision shall be the date upon which the prior provision was held to be
illegal, invalid or unenforceable.
SECTION 12.06 MAXIMUM INTEREST RATE.
(a) Regardless of any provision contained in any of the Loan
Documents, Lender shall never be entitled to receive, collect or apply as
interest on the Debentures any amount in excess of interest calculated at the
Maximum Rate, and, in the event that Lender ever receives, collects or applies
as interest any such excess, the amount which would be excessive interest
shall be deemed to be a partial prepayment of principal and treated hereunder
as such; and, if the principal amount of the Obligation is paid in full, any
remaining excess shall forthwith be paid to Borrower. In determining whether
or not the interest paid or payable under any specific contingency exceeds
interest calculated at the Maximum Rate, Borrower and Lender shall, to the
maximum extent permitted under applicable law, (i) characterize any
nonprincipal payment as an expense, fee or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, and (iii)
amortize, pro rate, allocate and spread, in equal parts, the total amount of
interest throughout the entire contemplated term of the Debentures; provided
that, if the Debentures is paid and performed in full prior to the end of the
full contemplated term thereof, and if the interest received for the actual
period of existence thereof exceeds interest calculated at the Maximum Rate,
Lender shall refund to Borrower the amount of such excess or credit the amount
of such excess against the principal amount of the Debentures and, in such
event, Lender shall not be subject to any penalties provided by any laws for
contracting for, charging, taking, reserving or receiving interest in excess
of interest calculated at the Maximum Rate.
(b) "Maximum Rate" shall mean, on any day, the highest
nonusurious rate of interest permitted by applicable law on such day that, at
any time or from time to time, may be contracted for, taken, reserved, charged
or received on the Indebtedness evidenced by the Debentures under the laws
which are presently in effect of the United States of America and the laws of
any other jurisdiction which are or may be applicable to the holder of the
Debentures and such Indebtedness or, to the extent permitted by law, under
such applicable laws of the United States of America and the laws of any other
jurisdiction which are or may be applicable to the holder of the Debentures
and which may hereafter be in effect and which allow a higher maximum
nonusurious interest rate than applicable laws now allow.
45
Agreement (Continued)
- --------------------------------------------------------------------------------
SECTION 12.07 PARTICIPATIONS AND ASSIGNMENTS OF THE DEBENTURES.
(a) Lender and the Agent shall have the right to enter into a
participation agreement with any other party or its Affiliates with respect to
the Debentures, or to sell all or any part of the Debentures, but any
participation or sale shall not affect the rights and duties of Lender or the
Agent hereunder vis-a-vis Borrower. In the event that all or any portion of
the Loan shall be at any time, assigned, transferred or conveyed to other
parties, any action, consent or waiver (except for compromise or extension of
maturity), to be given or taken by Lender or the Agent hereunder (herein
"Action"), shall be such action as taken by the holder of a majority in amount
of the Principal Amount of the Debentures then outstanding, as such holder are
recorded on the books of Borrower and represented by the Agent as described in
subsection (b) below.
(b) Assignment or sale of the Debentures shall be effective on
the books of Borrower only upon (i) endorsement of the Debentures, or part
thereof, to the proposed new holder, along with a current notation of the
amount of payments or installments received and net Principal Amount yet
unfunded or unpaid, and presentment of such Debentures to Borrower for issue
of a replacement Debentures, in the name of the new holder; and (ii) delivery
of an opinion of counsel, reasonably satisfactory to Borrower, that transfer
shall not require registration or qualification under applicable state or
federal securities laws.
(c) The Debentures may be sold, transferred or assigned only to
Affiliates of Lender or permitted transferees in multiples of $100,000.
SECTION 12.08 CONFIDENTIALITY.
(a) All financial reports or information that are furnished to
Lender or Holders, or their respective director designees or other
representatives, pursuant to this Agreement or pursuant to the Debentures, the
other Loan Documents or the Subsidiary Documents shall be treated as
confidential unless and to the extent that such information has been otherwise
disclosed by Borrower, but nothing herein contained shall limit or impair the
Lender's or Holders' right to disclose such reports to any appropriate
Governmental Authority, or to use such information to the extent pertinent to
an evaluation of the Obligation, or to enforce compliance with the terms and
conditions of this Agreement, or to take any lawful action which the Lender or
Holders deem necessary to protect their respective interests under this
Agreement.
(b) Lender and the Agent shall use their reasonable efforts to
protect and preserve the confidentiality of such information, except for such
disclosure as shall be required for compliance by Lender or its respective
director designees with SEC reporting requirements or any administrative or
judicial proceeding or otherwise as a matter of law. The provisions of Section
5.01 notwithstanding, Borrower may refuse to provide information as required
pursuant thereto to an assignee or successor in interest to Lender, unless and
until such assignee or successor shall have executed an agreement to maintain
the confidentiality of the information as provided herein.
SECTION 12.09 BINDING EFFECT.
The Loan Documents shall be binding upon and inure to the benefit of
Borrower and Lender and their respective successors, assigns and legal
representatives; PROVIDED, HOWEVER, that Borrower may not, without the prior
written consent of Lender, assign any rights, powers, duties or obligations
thereunder.
46
Agreement (Continued)
- --------------------------------------------------------------------------------
SECTION 12.10 NO THIRD PARTY BENEFICIARY.
The parties do not intend the benefits of this Agreement to inure to
any third party, nor shall this Agreement be construed to make or render Lender
liable to any materialman, supplier, contractor, subcontractor, purchaser or
lessee of any property owned by Borrower, or for debts or claims accruing to any
such persons against Borrower. Notwithstanding anything contained herein, in the
Debentures, in any other Loan Document or in any Subsidiary Document, no conduct
by any or all of the parties hereto, before or after signing this Agreement, any
other Loan Document nor any Subsidiary Document, shall be construed as creating
any right, claim or cause of action against Lender, or any of its respective
officers, directors, agents or employees, in favor of any materialman, supplier,
contractor, subcontractor, purchaser or lessee of any property owned by
Borrower, nor to any other person or entity other than Borrower.
SECTION 12.11 ENTIRETY.
This Agreement and the Debentures, the other Loan Documents, the
Subsidiary Documents and any other documents or instruments issued or entered
into pursuant hereto and thereto contain the entire agreement between the
parties and supersede all prior agreements and understandings, written or oral
(if any), relating to the subject matter hereof and thereof.
SECTION 12.12 HEADINGS.
Section headings are for convenience of reference only and, except as a
means of identification of reference, shall in no way affect the interpretation
of this Agreement.
SECTION 12.13 SURVIVAL.
All representations and warranties made by Borrower herein shall
survive delivery of the Debentures and the making of the Loans.
SECTION 12.14 MULTIPLE COUNTERPARTS.
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same agreement, and any of the
parties hereto may execute this Agreement by signing any such counterpart.
SECTION 12.15 KNOWLEDGE OF BORROWER.
As used herein or in any of the other Loan Documents, all references to
"Borrower's best knowledge" or "to the knowledge of Borrower" or words or
phrases of similar import (whether or not modified by any additional phrase)
shall in each case mean the knowledge of Borrower, the Subsidiaries or their
respective executive officers, directors and principal shareholders.
SECTION 12.16 NOTICES.
Any notices or other communications required or permitted to be given
by this Agreement or any other documents and instruments referred to herein must
be (i) given in writing and personally delivered, mailed by prepaid certified or
registered mail or sent by overnight service, such as FedEx, or (ii) made by
47
Agreement (Continued)
- --------------------------------------------------------------------------------
telex or facsimile transmission delivered or transmitted to the party to whom
such notice or communication is directed, with confirmation thereupon given in
writing and personally delivered or mailed by prepaid certified or registered
mail.
If to Borrower to:
Digital Recorders, Inc.
Sterling Plaza, Box 26
5949 Sherry Lane, Suite 1050
Dallas, Texas 75225
Attn.: David L. Turney
Chairman, CEO and President
Telephone: (214) 378-9429
Facsimile: (214) 378-8437
with a copy to:
David Furr, Esq.
Gray, Layton, Drum, Kersh, Solomon & Furr, PA
516 South New Hampton Road
P.O. Box 2636
Gastonia, North Carolina 28053-2637
Telephone: (704) 865-4400
Facsimile: (704) 866-8010
If to Lender to:
Renaissance US Growth & Income Trust PLC
c/o Renaissance Capital Group, Inc.
8080 North Central Expressway, Suite 210-LB59
Dallas, Texas 75206
Attn.: Robert C. Pearson
Senior Vice President
Telephone: (214) 891-8294
Facsimile: (214) 891-8291
BFSUS Special Opportunities Trust PLC
c/o Renaissance Capital Group, Inc.
8080 North Central Expressway, Suite 210-LB59
Dallas, Texas 75206
Attn.: Robert C. Pearson
Senior Vice President
Telephone: (214) 891-8294
Facsimile: (214) 891-8291
48
Agreement (Continued)
- --------------------------------------------------------------------------------
with a copy to:
Norman R. Miller, Esq.
Kirkpatrick & Lockhart LLP
1717 Main Street, Suite 3100
Dallas, Texas 75201
Telephone: (214) 939-4906
Facsimile: (214) 939-4949
If to Agent to:
Renaissance Capital Group, Inc.
8080 North Central Expressway, Suite 210-LB59
Dallas, Texas 75206
Attn.: Robert C. Pearson
Senior Vice President
Telephone: (214) 891-8294
Facsimile: (214) 891-8291
with a copy to:
Norman R. Miller, Esq.
Kirkpatrick & Lockhart LLP
1717 Main Street, Suite 3100
Dallas, Texas 75201
Telephone: (214) 939-4906
Facsimile: (214) 939-4949
Any notice delivered personally in the manner provided herein will be
deemed given to the party to whom it is directed upon the party's (or its
agent's) actual receipt. Any notice addressed and mailed in the manner provided
herein will be deemed given to the party to whom it is addressed at the close of
business, local time of the recipient, on the fourth business day after the day
it is placed in the mail, or, if earlier, the time of actual receipt.
SECTION 12.17 GOVERNING LAW.
THIS LOAN AGREEMENT HAS BEEN PREPARED, IS BEING EXECUTED AND DELIVERED,
AND IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS, AND THE SUBSTANTIVE LAWS
OF SUCH STATE AND THE APPLICABLE FEDERAL LAWS OF THE UNITED STATES OF AMERICA
SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS
LOAN AGREEMENT.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK; SIGNATURE PAGE
FOLLOWS.]
49
Agreement (Continued)
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be
executed and delivered, as of the date and year first above written.
BORROWER:
DIGITAL RECORDERS, INC.
By:
--------------------------------
David L. Turney
Chairman, CEO & President
LENDER:
RENAISSANCE US GROWTH & INCOME TRUST
PLC
By:
--------------------------------
Name: Russell Cleveland
Title: Director
BFSUS SPECIAL OPPORTUNITIES TRUST PLC
By:
--------------------------------
Name: Russell Cleveland
Title: Director
AGENT:
RENAISSANCE CAPITAL GROUP, INC.
By:
--------------------------------
Name: Russell Cleveland
Title: President and CEO
SCHEDULES TO CONVERTIBLE LOAN AGREEMENT
Schedule 2.08 Schedule of Brokers/Finders
Schedule 4.03 Schedule of Conflicts or Consents
Schedule 4.05 Schedule of Permitted Liens
Schedule 4.06 Schedule of Any Material Adverse Change
Schedule 4.08 Schedule of Material Agreements
Schedule 4.09 Schedule of Litigation
Schedule 4.10 Schedule of Unpaid Taxes
Schedule 4.11 Schedule of Capitalization
Schedule 4.13 Schedule of Employee Matters
Schedule 4.14 Schedule of Employee Benefit Plans
Schedule 4.15 Schedule of Compliance with Laws Matters
Schedule 4.16 Schedule of Licenses and Permits
Schedule 4.17 Schedule of Contracts
Schedule 4.19 Schedule of Agreements between Borrower and any of its
officers, directors, and principal shareholders, including
employment agreements
Schedule 4.20 Schedule of Subsidiaries
Schedule 4.21 Schedule of Casualties
Schedule 4.24 Schedule of Corporate Names
Schedule 4.25 Schedule of Insurance
Schedule 4.27 Schedule of Real Property
Schedule 4.28 Schedule of Environmental Matters
Schedule 5.18 Schedule of Ownership of Subsidiaries
Schedule 6.01 Schedule of Limitation on Indebtedness
Schedule 6.05 Schedule of Transactions with Affiliates
Schedule 7.01 Schedule of Financial Ratios
SCHEDULE 2.08 - BROKERS
-----------------------
John D. Higgins, a director of Digital Recorders, Inc., is an employee of
Investec Ernst & Company, a full service securities firm and investment bank
that is providing a fairness opinion from a financial point of view with respect
to the Mobitec Holdings AB transaction. Investec Ernst & Company will receive a
fee of $120,000, plus reasonable actual expenses, for furnishing the fairness
opinion. In addition, Mr. Higgins will receive a fee upon successful completion
of the Renaissance Capital Group, Inc. convertible debenture financing. Such fee
payable is based upon a percentage of the amount of financing. The fee will be
$17,500.
SCHEDULE 4.03 - NO CONFLICTS OR CONSENT
---------------------------------------
The consent from Guaranty Business Credit Corporation (successor to Finova
Capital Corporation)
SCHEDULE 4.05 - LIENS
---------------------
A UCC and lien search for North Carolina and Texas are attached.
SCHEDULE 4.06 - FINANCIAL CONDITION
-----------------------------------
None
SCHEDULE 4.08 - MATERIAL AGREEMENTS
-----------------------------------
None
SCHEDULE 4.09 - LITIGATION
--------------------------
A complaint was filed on November 27, 2000 in the Superior Court of
Forsyth County, N.C., by Flextronics International USA, INC. as plaintiff
("Flextronics"), claiming that Digital Recorders, Inc. ("DRI"), owed the sum of
$56,650.92 plus interest. (Flextronics had purchased the trade receivables of a
former vendor of Digital Recorders, Inc. with whom there were several problems;
the components received from the vendor were not acceptable, and the amounts
claimed had been specifically disputed in correspondence between the plaintiff's
collection agency and DRI.) Despite the actual knowledge of the current address
of DRI, Flextronics attempted service of process on the registered agent at a
former address, and then served through the Secretary of State, who also
acknowledged that the address listed was no longer valid, because DRI had moved.
Flextronics presented an "Entry of Default and Judgment by Default by Clerk"
which was signed by an assistant clerk of court and filed on March 7, 2001. On
May 14, 2001, Digital Recorders, Inc. received its first notice of the suit, by
execution on the default judgment issued by Flextronics at to DRI's correct,
current address. On May 24, 2001, DRI served a motion to set aside the default
and default judgment demonstrating the questionable service of process, the
absence of actual notice, and the existence of meritorious defenses to the
asserted claim. A hearing has been set for June 25, 2001. The company expects
the judgment to be set aside at the hearing.
SCHEDULE 4.10 - TAXES
---------------------
All required taxes have been filed and paid.
SCHEDULE 4.11 - CAPITALIZATION
------------------------------
There are 10,000,000 common shares authorized with a $.10 par value.
There is a total of 3,274,475 common shares outstanding. In addition, 430,000
shares shall be issued to Mattias Bodin and Tobias Bodin pursuant to the Stock
Purchase Agreement between Bengt Bodin, Annacarin Bodin, Mattias Bodin, Tobias
Bodin and Bertil Lindqvist and DRI.
There are 1,000,000 preferred shares authorized with a $.10 par value.
There is a total of 354 preferred shares outstanding.
There is a total of 819,600 shares of Common Stock reserved for
issuance under DRI's Stock Option Plan. Estimated options to be approved in 2001
are 160,000.
Other Warrants/Options/Convertibles
1) 221,250 per new AAA extension/conversion
2) Ritger Warrant of 75,000 (various prices) (37,500 @ $3.00/18750 @
$5.00/18,750 @ $7.50)
3) Dominick and Dominick Warrant of 150,000 shares at $3.75
4) University of Washington Warrant of 5,000 shares at $3.00
5) Bodin Warrant of 100,000 shares
6) Lite Vision Warrant of 100,000 at $2.4375
7) Publicly traded warrants of 1,265,000
SCHEDULE 4.13 - EMPLOYMENT
--------------------------
(a) None
(b) None
(c) None
(d) None
(e) None
(f) None
(g) None
(h) None
SCHEDULE 4.14 - EMPLOYEE BENEFIT PLANS
--------------------------------------
(1) THE GUARDIAN
o Major medical
o Medical prescription coverage
o Dental coverage
o Vision coverage
o Life insurance ($25,000 - base; additional if death is
accidental and/or common carrier coverage)
o Long term disability coverage
DRI pays the full premium for the life and the long term
disability coverage. Each employee pays a small portion toward
total premium for the others listed above ($22.10 for employee
only, $68.52 for employee and spouse, $62.85 for employee and
child(ren), and $113.77 for employee and family, per month).
Bundled with the health policy, is our FLEX PLAN for dependant
care and medical reimbursements.
(2) GREAT WEST
o 401K retirement accounts for employee's contributions
o incorporation of employer contributions to 401K, established
3/01 to be effective 7/01 for those already contributing
voluntarily (amounts to be established after end of fiscal
year and will be based primarily on profitability).
(3) VOLUNTARY POLICIES
o AFLAC
o American United Life (additional life and short term
disability policies)
(4) VACATION LEAVE
Ranges in length from 80 to 160 hours, based on length of service
(5) SICK/BEREAVEMENT LEAVE
Up to 40 hours per year
(6) HOLIDAY LEAVE
Observe nine days per calendar year
(7) FMLA
(8) EDUCATIONAL ASSISTANCE
(9) CIVIC LEAVE
(10) MILITARY LEAVE
(11) ANNUAL TEAMSMANSHIP AWARD
Awarded to the DRI team member, nominated by fellow co-workers,
who has most favorably influenced the company through exemplary
attitude, leadership, dedication, and diligence above and beyond
normal expectations.
(12) SOCIAL FUNCTIONS
Periodic all-employee dinners, company Christmas party and fall
picnic
(13) OMNIBUS STOCK OPTION PLAN
SCHEDULE 4.15 - COMPLIANCE WITH LAWS
------------------------------------
None
SCHEDULE 4.16 - LICENSE AND PERMITS
-----------------------------------
None other than ones in the ordinary course of business
SCHEDULE 4.17 - CONTRACTS
-------------------------
DRI has some purchase orders that may exceed 12 months. These purchase orders
have been generated in the ordinary course of business
SCHEDULE 4.19 - INSIDER AGREEMENTS NOT LISTED ON SEC FILINGS
------------------------------------------------------------
None
SCHEDULE 4.20 - SUBSIDIARIES
----------------------------
Digital Audio Corporation is a North Carolina corporation
Transit-Media GmbH is a corporation located in Etlingen, Germany
TwinVision of North America, Inc. is a North Carolina corporation
Robinson Turney International, Inc. is a shell Texas Corporation
SCHEDULE 4.21 - CASUALTIES
--------------------------
None
SCHEDULE 4.24 - CORPORATE NAMES
-------------------------------
List of trade names or other names which the company did business as during the
past five years:
Digital Recorders, Inc.
TwinVision of North America, Inc.
Robinson Turney International, Inc.
Digital Audio Corporation
Transit-Media GmbH
DRI
Talking Bus
SCHEDULE 4.25 - INSURANCE
-------------------------
See attached
SCHEDULE 4.27 - REAL PROPERTY
-----------------------------
Former Office & Warehouse, Digital Recorders, Inc. & TwinVision of North
America, Inc.:
2300 Englert Dr., Suite B
Durham County, Durham NC 27713
This facility has been subleased to Cartesian Technologies, Inc.
Landlord:
Realmark Property
Investors LTD Partnership
c/o Property Resources Mgmt
P.O. Box 19206
Raleigh, NC 27619
Offices of DRI Executives of CEO and CFO and RTI 5949 Sherry Lane, Suite
1050 Sterling Plaza Bldg, Box 26 Dallas, Texas 75225
Landlord:
Equity Office Properties Trust
Sterling Plaza
5949 Sherry Lane, Suite 1475
Dallas, Texas 75225
Offices & Warehouse & Assembly DAC division:
5121 Holly Ridge Rd.
Wake County, Raleigh, NC 27612
Landlord:
James E. Paul, Jr.
1133 Bal Harbor, #1139-132
Punta Gorda, FL 33950
Warehouse for Digital Recorders (a/k/a as TCS and TwinVision of
North America, Inc. plus offices for Digital Recorders corporate
administration, TwinVision North America, Inc., and TCS
administration:
4018 Patriot Dr., Suite 100
Wake County, Durham NC 27709
Landlord:
The Prudential Savings Bank, FSB
c/o C.B. Richard Ellis
PO Box 14385 Durham, NC 27709
SCHEDULE 4.28 - ENVIRONMENTAL
-----------------------------
None
SCHEDULE 5.18 - OWNERSHIP OF SUBSIDIARIES
-----------------------------------------
Digital Recorders, Inc. owns 100% of the outstanding shares of each of its
subsidiaries
SCHEDULE 6.01 - SCHEDULE OF LIMITATION ON INDEBTEDNESS
------------------------------------------------------
None
SCHEDULE 6.05 - TRANSACTIONS WITH AFFILIATES
--------------------------------------------
Other than in the ordinary course of business, there have been no particular
transactions with affiliates deemed material or significant.
SCHEDULE 7.01 FINANCIAL RATIOS
------------------------------
(a) CURRENT RATIO. The Borrower will not permit its Current Ratio as of the
end of each fiscal quarter to be less than 1.30:1.
(b) INTEREST COVERAGE RATIO. The Borrower will not permit its Interest
Coverage Ratio to be less than 1:1, with such ratio to be calculated
quarterly on a cumulative basis for the initial four (4) fiscal
quarters of Borrower after the date hereof and thereafter to be
calculated quarterly for the four (4) fiscal quarters of Borrower
immediately preceding the date of determination.