Exhibit 10.1
Form 8-K
Viking Systems, Inc.
File No. 000-49636
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of March 22,
2005, among (i) Viking Systems, Inc., a Nevada corporation ("Viking"), (ii) St.
Cloud Capital Partners, L.P., a Delaware limited partnership ("St. Cloud"), as
"Lead Lender" and "Collateral Agent" and (iii) St. Cloud, Donald Tucker, Brian
Miller, and any other Person signing the signature page of this Agreement as an
Investor or that becomes an Investor after the date hereof in accordance with
this Agreement (collectively, the "Investors").
Recitals
The capitalized terms used in these Recitals shall have the respective
meanings set forth for such terms in Section 1 hereof.
Viking desires to borrow up to $2,750,000 from Investors on the terms and
conditions of this Agreement and each of the Investors hereby agrees to make a
Loan to Viking on the terms and conditions of this Agreement.
Viking has agreed to secure the Obligations by granting to the Investors a
Second Priority Lien on the Collateral. Such Second Priority Lien is junior to
and subordinate to a first priority Lien of Silicon Valley Bank.
As additional consideration for each of the Investors making a Loan to
Viking, each Investor will be given the right to convert his, her or its Loan
into shares of Viking's Common Stock and each Investor will be given a Warrant
to purchase additional shares of Viking Common Stock.
Each of the Investors hereby appoints St. Cloud as the "Collateral Agent"
to act hereunder on behalf of all of the Investors under the Security Agreement.
Simultaneously with the execution and delivery of this Agreement by each of
the Investors (or an Addendum Agreement to this Agreement, as applicable), (a)
each Investor shall lend Viking the amount set forth opposite such Investor's
name on Annex A of this Agreement, which maximum Loan to be made by all
Investors as a group is an aggregate of $2,750,000, (b) Viking shall issue to
each of the Investors a Promissory Note in the principal amount of such
Investor's Loan substantially in the form of Exhibit A, (c) Viking shall grant
each of the Investors a Warrant to purchase shares of Viking's Common Stock
substantially in the form of Exhibit B, and (d) each of the Investors and Viking
shall execute and deliver a Registration Rights Agreement substantially in the
form of Exhibit C (or a Joinder to such Registration Rights Agreement, as
applicable). In addition, as of the date hereof, each of the Collateral Agent
and Viking shall execute and deliver a Security Agreement substantially in the
form of Exhibit D.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
Agreement
1. Definitions. For purposes of this Agreement, the following terms shall
have the meaning set forth below:
(a) "Acceptance Period" is defined in Section 15.1.
(b) "Agent-Related Persons" is defined in Section 18.2.
(c) "Agent's Liens" is defined in Section 18.8.
(d) "Business" is defined in Section 11.18.
(e) "CERCLA" is defined in Section 11.15.
(f) "Closings" is defined in Section 3.
(g) "Closing Fee" is defined in Section 2.3.
(h) "Closing Date" is defined in Section 3.
(i) "Code" is defined in Section 11.16.
(j) "Collateral" means Viking's right, title and interest in, to and
under all tangible and intangible personal property of Viking, in each case
whether now owned or existing or hereafter acquired or arising and wherever
located.
(k) "Collateral Agent" is defined in the preamble of this Agreement.
(l) "Common Stock" means the $.001 par value common stock of Viking.
(m) "Conversion Notice" is defined in Section 4.1.
(n) "Conversion Price" is $0.20 per share, subject to adjustment as
set forth in Section 7 of this Agreement.
(o) "Conversion Rights" means each Investor's right under the
Promissory Note, to convert all or part of the outstanding balance of the
Promissory Note into Common Stock at the Conversion Price.
(p) "Convertible Securities" means any securities of Viking
convertible into or exercisable or exchangeable for Common Stock.
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(q) "Co-Sale Right" is defined in Section 15.2.
(r) "Current Balance Sheet" is defined in Section 11.6.
(s) "Default" means a condition or event that, after notice or lapse
of time, or both, would constitute an Event of Default.
(t) "Default Conversion Price" is $0.05 per share, subject to
adjustment as set forth in Section 7 of this Agreement.
(u) "Eligible Preemptive Shares" is defined in Section 15.1.
(v) "Environment" means soil, land surface or subsurface strata,
surface waters (including navigable waters, ocean waters, streams, ponds,
drainage basins and wetlands), groundwater, drinking water supply, stream
sediments, ambient air (including indoor air), plant and animal life and
any other environmental medium or natural resource.
(w) "Environmental and Safety Requirements" shall mean all federal,
state, local and foreign statutes, regulations, rules, ordinances, and
similar provisions having the force or effect of law, all judicial and
administrative orders, judgments, directives, and determinations, all
contractual obligations, permits, licenses and all common law, in each case
concerning public health and safety, worker health and safety and pollution
or protection of the environment (including, without limitation, all those
relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling,
testing, processing, discharge, release, threatened release, control or
cleanup of any hazardous or otherwise regulated materials, substances or
wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation), each as amended and as now
or hereafter in effect.
(x) "Event of Default" means the occurrence of any of the conditions
or events set forth in Section 6 of the Promissory Notes.
(y) "Exchange Act" is defined in Section 11.5
(z) "Financial Statements" is defined in Section 11.5.
(aa) "First Closing Date" means March 22, 2005, or such other date as
Viking and St. Cloud mutually agree upon.
(bb) "GAAP" is defined in Section 11.5.
(cc) "Governmental Agency" means any government or any agency, bureau,
commission, court, department, official, political subdivision, tribunal or
other instrumentality of any government, whether federal, state or local,
domestic or foreign.
(dd) "Indemnified Liabilities" is defined in Section 19.
(ee) "Indemnified Person" is defined in Section 19.
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(ff) "Investor" is defined in the preamble of this Agreement.
(gg) "Lead Lender/Collateral Agent" is defined in the preamble of this
Agreement.
(hh) "Lead Lender Director" is defined in Section 10.1.
(ii) "Lien" means any lien, mortgage, pledge, assignment, security
interest, charge or encumbrance of any kind (including any agreement to
give any of the foregoing, any conditional sale or other title retention
agreement, and any lease in the nature thereof) and any option, trust or
other preferential arrangement having the practical effect of any of the
foregoing.
(jj) "Loan" means the loan to be made by each of the Investors to
Viking pursuant to the terms of this Agreement as evidenced by the
Promissory Notes in the amount set forth opposite such Investors' names on
Annex A of this Agreement.
(kk) "Loan Documents" means, collectively, the Promissory Note,
Security Instruments, Registration Rights Agreement, the Warrant and this
Agreement, as each may be amended, supplemented or restated from time to
time.
(ll) "Major Shareholder" is defined in Section 15.2.
(mm) "Major Shareholder Notice" is defined in Section 15.2.
(nn) "Mandatory Conversion Notice" is defined in Section 4.3.
(oo) "Mandatory Conversion Right" means Viking's right to require all
or part of the Loan of each Investor to be converted into Common Stock
pursuant to Section 4.2 of this Agreement.
(pp) "Material Adverse Change" is defined in Section 11.6.
(qq) "Material Adverse Effect" is defined in Section 11.6.
(rr) "Maturity Date" is defined in Section 2.
(ss) "Multiemployer Plan" is defined in Section 11.16.
(tt) "New Issuance" is defined in Section 7.
(uu) "Obligations" means obligations of Viking from time to time
arising under or in respect of (i) the Loans, (ii) this Agreement and/or
(iii) the other Loan Documents owing to Investors.
(vv) "Observer" is defined in Section 10.1.
(ww) "Parties" means Viking, the Lead Lender/Collateral Agent and the
Investors.
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(xx) "Pension Plan" is defined in Section 11.16.
(yy) "Permitted Transferee" is defined in Section 15.2.
(zz) "Person" shall mean any corporation, limited liability company,
trust, partnership, individual, association or other entity.
(aaa) "Preemptive Right" is defined in Section 15.1.
(bbb) "Preemptive Right Notice" is defined in Section 15.1.
(ccc) "Promissory Note" shall mean and refer to each of the Secured
Convertible Promissory Notes substantially in the form of Exhibit "A,"
dated as of the applicable Closing Date, and issued by Viking to evidence
the Loans by each of the Secured Parties, as the same may be amended,
restated or supplemented from time to time.
(ddd) "Proprietary Information" is defined in Section 11.10.
(eee) "Registration Rights Agreement" means a registration rights
agreement substantially in the form of Exhibit "C" attached hereto, as the
same may be amended, restated or supplemented from time to time.
(fff) "Regulatory Problem" shall mean any transaction, circumstance or
situation whereby (i) a Person and such Person's affiliates would own,
control or have power over a quantity of securities of any kind issued by
Viking or any other entity greater than is permitted under any requirement
of any applicable governmental authority, or (ii) it has been asserted by
any governmental regulatory agency, or such Person believes, that such
Person or its affiliates are not entitled to hold, or exercise any
significant right under or with respect to, the Securities.
(ggg) "Regulatory Violation" shall mean, with respect to Lead Lender,
(i) a diversion of the proceeds of the issuance by Viking of the Securities
from the use reported thereof on the SBA form No. 1031 delivered at
Closing, if such diversion was effected without obtaining the prior written
consent of Lead Lender (which may be withheld in its sole discretion) or
(ii) a change in the principal business activity of Viking to an ineligible
business activity (within the meaning of the SBIC Regulations) if such
change occurs within one year after the date of the Closing.
(hhh) "Required Investors" means Investors holding a majority in
interest of the outstanding principal amount of the Promissory Notes,
including the affirmative vote, consent or approval (as applicable) of St.
Cloud.
(iii) "St. Cloud" is defined in the preamble of this Agreement.
(jjj) "SBA" is defined in Section 3.1.
(kkk) "SBIC" means a small business investment company licensed under
the SBIC Act.
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(lll) "SBIC Act" means the Small Business Investment Act of 1958, as
amended.
(mmm) "SBIC Regulations" means the Small Business Investment Company
Act of 1958, as amended, and the regulations issued by the SBA thereunder,
codified at Title 13 of the Code of Federal Regulations ("13 C.F.R."), 107
and 121, as amended.
(nnn) "SEC Filings" is defined in Section 11.
(ooo) "SEC Reports" is defined in Section 11.11.
(ppp) "Second Priority" means, with respect to any Lien purported to
be created in any Collateral pursuant to the Security Instruments, that
such Lien is the only Lien to which such Collateral is subject, other than
the first priority Lien of Silicon Valley Bank granted to Silicon Valley
Bank pursuant to that certain Silicon Valley Bank Loan and Security
Agreement, dated as of September 14, 2004, between Silicon Valley Bank and
Viking (the "SVB Loan Agreement").
(qqq) "Secured Parties" means each of the Investors.
(rrr) "Securities" means the Promissory Notes, the Warrants and the
Common Stock issuable upon conversion or exercise of the Promissory Notes
and the Warrants.
(sss) "Securities Act" is defined in Section 2.4.
(ttt) "Security Agreement" means a security agreement substantially in
the form of Exhibit "D" attached hereto, as the same may be amended,
restated or supplemented from time to time.
(uuu) "Security Instruments" means the Security Agreement, and UCC-1
Financing Statement and such other documents as may be reasonably required
by the Investors to establish, preserve and perfect the Second Priority
Lien on the Collateral and secure the Promissory Note.
(vvv) "Shareholders" is defined in Section 13.5.
(www) "Transaction Expenses" shall mean and include (i) all
out-of-pocket fees and expenses incurred by Lead Lender and Collateral
Agent in connection with its due diligence review of Viking, the
preparation, negotiation, execution, interpretation and enforcement of this
Agreement, the Securities and the other Loan Documents and the agreements
contemplated hereby and thereby, and the consummation of all of the
transactions contemplated hereby and thereby (including, without
limitation, all travel expenses incurred by representatives or agents of
Lead Lender and Collateral Agent and all reasonable fees and expenses of
legal counsel, accountants and other third parties), (ii) all reasonable
fees and expenses incurred with respect to any amendments or waivers
(whether or not the same become effective) under or in respect of each of
the Loan Documents and the other agreements and instruments contemplated
hereby and thereby, (iii) all recording and filing fees, stamp and other
taxes which may be payable in respect of the execution and delivery of the
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Loan Documents or the issuance, delivery or acquisition of the Securities,
and (iv) the fees and expenses incurred by Lead Lender and Collateral Agent
in any filing with any governmental agency with respect to its investment
in Viking or in any other filing with any governmental agency with respect
to Viking which mentions Lead Lender and Collateral Agent.
(xxx) "Viking" is defined in the preamble of this Agreement.
(yyy) "Viking Benefit Plan" is defined in Section 11.16.
(zzz) "Warrant" means the Warrant issued to each Investor as
additional consideration for an Investor's Loan substantially in the form
attached hereto as Exhibit B, as the same may be amended, restated or
supplemented from time to time.
2. The Loan. Viking agrees to borrow from the Investors, and each Investor,
severally and not jointly, agrees to lend to Viking, subject to the terms and
conditions set forth herein, the amount set forth opposite such Investor's name
on Annex A, which Loan by such Investors in the aggregate shall be (a) in the
minimum aggregate principal amount of $1,300,000 as of the First Closing Date
and (b) in the maximum aggregate principal amount of $2,750,000 (the "Maximum
Aggregate Principal Amount"). Each Loan shall be due on the date that is twelve
months from the date hereof ("Maturity Date"). If on the First Closing Date, the
Company shall not have issued to the Investors Promissory Notes in the maximum
aggregate principal amount of $2,750,000, Viking shall have the right, at any
time on or prior to the date that is two (2) weeks after the First Closing Date,
to issue Promissory Notes to one or more Investors in an amount not to exceed
the Maximum Aggregate Principal Amount, provided that any such additional
Investor shall be required to execute an Addendum Agreement to this Agreement
substantially in the form of Exhibit E. Any such additional Person so making a
Loan to Viking pursuant to the terms of this Agreement shall be considered an
"Investor" for purposes of this Agreement.
2.1. Use of Loan Proceeds. The Loan proceeds shall be used by Viking
pursuant to the use of proceeds as set forth on the certificate delivered
pursuant to Section 3.1.10.
2.2. Promissory Note and Grant of Security Interest. Each Loan shall
be evidenced by a Promissory Note and secured by a Second Priority Lien
against all of the Collateral as set forth in the Security Instruments. On
the First Closing Date, Viking shall execute a Security Agreement which
shall grant to each Investor and Collateral Agent a security interest in
the Collateral in order to secure prompt repayment of any and all
Obligations owed by Viking to each Investor and in order to secure prompt
performance by Viking of its covenants and obligations under the Loan
Documents. The Investors agree to enter into a customary subordination
agreement as may reasonably be requested by Silicon Valley Bank relating to
the subordination of Investor's loan to the rights and preferences of
Silicon Valley Bank pursuant to the SVB Loan Agreement.
2.3 Loan Closing Fee. On the applicable Closing Date for each such
Investor, a total of two percent (2%) of the Loan from an Investor shall be
deducted from the Loan proceeds from such Investor and shall be retained by
such Investor as a closing fee (the "Closing Fee"). Accordingly, on such
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Closing Date, Viking shall receive ninety-eight percent (98%) of the total
Loan proceeds and each of the Investors shall retain two percent (2%) of
such Investor's Loan as a Closing Fee.
2.4 Accredited Investors Only. The Promissory Notes will be offered
and sold to only a limited number of selected sophisticated Investors, each
of whom Viking has reasonable grounds to believe and does believe,
immediately before making an offer, qualifies as an "accredited investor,"
as that term is defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), and has such
knowledge and experience of financial and business matters that such
prospective purchaser is capable of evaluating the merits and risks of
investing in the Promissory Notes.
3. Deliveries at Closing. Subject to the terms and conditions set forth
herein, the closings of the transactions contemplated herein (each, a "Closing")
shall take place at the offices of Latham & Watkins LLP, 633 West Fifth Street,
Los Angeles, California, (i) on the First Closing Date, with respect to St.
Cloud, and (ii) on such other dates as Viking and such other Investor mutually
agree upon, with respect to the other Investor, provided that such date shall be
on or prior to two (2) weeks from the First Closing Date (as applicable to each
such Investor, a "Closing Date").
3.1 Deliveries by Viking at Closing. The obligations of each Investor
under this Agreement are subject to the fulfillment, on or before the
Closing of each of the following conditions, unless otherwise waived. At
the Closing, Viking will have delivered to each Investor or its counsel all
of the following documents:
3.1.1 This Agreement, signed by a duly authorized officer of
Viking;
3.1.2 A Promissory Note, in the aggregate principal amount of the
Loan, signed by a duly authorized officer of Viking;
3.1.3 A Warrant to purchase the number of shares of Common Stock
("Warrant Shares") set forth opposite such Investor's name on Annex A,
signed by a duly authorized officer of Viking;
3.1.4 The Security Agreement, signed by a duly authorized officer
of Viking;
3.1.5 The Registration Rights Agreement, signed by a duly
authorized officer of Viking;
3.1.6 A certificate, dated as of the Closing Date, signed by the
Chief Executive Officer and President of Viking, in the form
reasonably acceptable to Lead Lender's counsel, certifying (i) that
the representations and warranties of Viking contained in Section 11
are true and correct in all respects on and as of the Closing with the
same effect as though such representations and warranties had been
made on and as of the Closing Date (except, with respect to Closings
subsequent to the First Closing Date, for changes resulting from the
transactions contemplated by this Agreement); (ii) that Viking has
performed and complied with all covenants, agreements, obligations and
conditions contained in the Agreement that are required to be
performed or complied with by it on or before the Closing; (iii) a
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true and complete copy of the Articles of Incorporation and Bylaws of
Viking, as amended or supplemented to the Closing Date, (iv)
resolutions of the Board of Directors of Viking (and, if required, the
stockholders of Viking) authorizing the execution, delivery and
performance of this Agreement, the other Loan Documents and the
consummation of the transactions contemplated thereby, and (v)
resolutions of the Board electing Cary Fitchey as director and
designee of Lead Lender to serve on the Board, and Larry Haimovitch as
Observer (as defined below), effective as of the Closing Date.
3.1.7 A closing statement (substantially in the form provided by
Lead Lender), signed by a duly authorized officer of Viking;
3.1.8 With respect to each Investor, the Closing Fees and, with
respect to the Lead Lender, the Transaction Expenses, an estimate of
which shall be provided by Lead Lender to Viking and which Transaction
Expenses may be deducted or withheld from the amount paid by Lead
Lender to Viking in connection with the Lead Lender's Loan at the
First Closing; provided, however, that Lead Lender shall provide
Viking with the aggregate amount of Transaction Expenses as of the
First Closing Date within thirty (30) days after the First Closing
Date and to the extent such amount is less than the estimated amount
deducted at the Closing on the First Closing Date, such difference
shall be promptly paid by Lead Lender to Viking, and to the extent
such amount is greater than the estimated amount deducted at the
Closing on the First Closing Date, such difference shall be promptly
paid by Viking to Lead Lender;
3.1.9 Completed Small Business Administration ("SBA") forms No.
480 (Size Status Declaration), No. 652 (Assurance of Compliance) and
No. 1031 (Portfolio Financing Report, Parts A and B);
3.1.10 A certificate, dated as of the Closing Date, signed by the
Chief Executive Officer and President of Viking, certifying as to the
use of proceeds from the issuance of the Promissory Note.
3.1.11 An opinion from Cohne, Rappaport & Segal, counsel to
Viking, dated as of the Closing Date and addressed to Lead Lender, in
the form acceptable to Lead Lender.
3.1.12 Such other documents relating to the transactions
contemplated by this Agreement as Lead Lender or its counsel may
reasonably request.
3.2 Deliveries by Investor at Closing. The obligations of Viking under
this Agreement are subject to the fulfillment, on or before the Closing of
each of the following conditions, unless otherwise waived. At the Closing,
each Investor will have delivered to Viking or its counsel:
3.2.1. A wire transfer to the account listed in Schedule 3.2.1
hereto in an amount equal to such Investor's Loan less the Closing
Fees (and in the case of Lead Lender, less the Transaction Expenses);
and
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3.2.2 This Agreement, signed by a duly authorized officer of each
Investor, or if Investor is an individual, by such Investor (or, if
after the First Closing Date, an Addendum Agreement to this
Agreement);
3.2.3 The Registration Rights Agreement, signed by a duly
authorized officer of each Investor, or if Investor is an individual,
by such Investor (or, if after the Closing Date, a Joinder to the
Registration Rights Agreement); and
3.2.4 The Security Agreement, signed by a duly authorized officer
of each Investor, or if Investor is an individual, by such Investor.
4. Note Conversion Rights. Each Investor shall have the right from time to
time, and at any time on or prior to the Maturity Date of such Investor's
Promissory Note, to convert all or any part of the amount then outstanding under
such Investor's Promissory Note into fully paid and non-assessable shares of
Common Stock, at the Conversion Price. Notwithstanding the foregoing, in the
event that any sums due under a Promissory Note are not repaid on the Maturity
Date, in lieu of accepting repayment of the Promissory Note from Viking, the
Investor will have the option at any time and from time to time to convert the
entirety of the debt then outstanding, plus any accrued but unpaid interest
thereon, under such Promissory Note into fully paid and non-assessable shares of
Common Stock, at the Default Conversion Price.
4.1. Conversion Procedure. To convert a Promissory Note into Common
Stock, the holder thereof shall surrender to Viking the Promissory Note,
and give written notice ("Conversion Notice") to Viking that such holder
elects to convert all or a portion of such Promissory Note into Common
Stock. The Conversion Notice shall specify (i) the amount of the Promissory
Note to be converted and the name or names in which such holder wishes the
certificate or certificates for Common Stock and any portion of the
Promissory Note not to be so converted to be issued and (ii) the address to
which such holder wishes delivery to be made of such new certificates (and,
if applicable, a replacement Promissory Note reflecting the portion of such
Promissory Note that shall not have been converted) to be issued upon such
conversion. As promptly as practicable on or after the conversion date,
Viking shall issue and shall deliver a certificate or certificates for the
number of full shares of Common Stock issuable upon conversion, together
with payment in lieu of any fractional share, as hereinafter provided, to
the person or persons entitled to receive the same. In the event that there
shall have been surrendered a Promissory Note only part of which is to be
converted, Viking shall issue and deliver to such holder or such holder's
designee a new Promissory Note representing that portion of the Promissory
Note which shall not have been converted.
4.2. Mandatory Conversion Rights. Viking shall have the right to
require an Investor to convert all or a portion of such Investor's Loan at
the Conversion Price in the event that:
(i) no Event of Default exists or is continuing at the time of
such mandatory conversion; and
(ii) Viking has raised a minimum of $3,000,000 in public and/or
private equity offerings on or prior to the one-year anniversary date
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of the Closing at an average price equal to or greater than $0.30 per
share of Common Stock. For purposes of this Section 4.2, equity
attributed to the issuance or conversion of the Promissory Notes or
the Warrants shall not be included in the calculation of such average
price.
4.3. Procedure for Mandatory Conversion. In the event that Viking
elects to cause the mandatory conversion of Promissory Notes into Common
Stock pursuant to Section 4.2 of this Agreement, Viking shall give written
notice of mandatory conversion ("Mandatory Conversion Notice") to each
Investor instructing the Investor to surrender to Viking the Promissory
Note, and give written notice to each of the Investors that Viking elects
to convert all or a portion of a holder's Promissory Note into Common Stock
pursuant to Section 4.2 of this Agreement. Such Mandatory Conversion Notice
shall specify the amount of the Promissory Note to be converted. If less
than all of the entire unpaid balance of all of the Promissory Notes are
converted in full, then in such event, the mandatory conversion shall be
effected on a pro rata basis for all Investors. Immediately upon Viking's
mailing of a Mandatory Conversion Notice, the Promissory Notes shall, to
the extent of the amount to be converted as set forth in the Mandatory
Conversion Notice, be deemed to be converted into Common Stock and no
interest shall thereafter accrue on the amount to be converted as set forth
in the Mandatory Conversion Notice. As promptly as practicable after
Viking's receipt of an Investor's Promissory Note, Viking shall issue and
shall deliver a certificate or certificates for the number of full shares
of Common Stock issuable upon such conversion, together with a new
Promissory Note for the remaining outstanding principal balance of each
Promissory Note if less than the entire original Promissory Note is
converted.
5. Warrants. As additional consideration for an Investor making a Loan to
Viking pursuant to this Agreement, Viking shall issue each Investor a Warrant to
purchase shares of Viking's Common Stock. Each Warrant is exercisable at $.40
per share, subject to adjustment pursuant to the terms of such Warrant, and each
Warrant shall be for a term of forty-two (42) months from the date hereof. An
Investor shall be issued a Warrant to purchase one (1) share of Common Stock for
each four (4) shares issuable upon conversion of the Promissory Note at the
Conversion Price, subject to adjustment pursuant to the terms of the Warrant.
For example, if an Investor loans $500,000 to Viking hereunder, such Investor
shall be issued Warrants to purchase 625,000 shares of Common Stock.
6. Registration Rights. The Common Stock issuable upon the conversion of
the Promissory Notes and the Common Stock issuable upon exercise of the Warrants
shall be subject to a Registration Rights Agreement substantially in the form
attached hereto as Exhibit "C."
7. Adjustments to Conversion Price and Warrant Exercise Price. The
Conversion Price and the Default Conversion Price in effect at any time and from
time to time shall be subject to adjustment from time to time upon the happening
of certain events as follows:
7.1 New Issuances. If at any time after the issuance of a Promissory
Note and prior to the repayment in full or conversion in full of such
Promissory Note, Viking issues or sells (a "New Issuance") any shares of
common stock for a consideration per share less than the Conversion Price
or Default Conversion Price in effect immediately prior to such New
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Issuance, then, immediately upon such New Issuance, the Conversion Price
and the Default Conversion Price, as applicable, of the unpaid portion of
the Promissory Note shall be reduced to an amount equal to the price per
share of common stock issued in the New Issuance. If the New Issuance
involves the issuance of Convertible Securities, the Conversion Price and
Default Conversion Price, as applicable, shall be reduced to the effective
price of the common stock issuable under such Convertible Securities if
such effective price is less than the Conversion Price or Default
Conversion Price, as applicable.
7.2 Reorganization, Reclassification, Consolidation, Merger or Sale.
If any capital reorganization, reclassification or any other change of
capital stock of Viking, or any consolidation or merger of Viking with
another Person, or the sale or transfer of all or substantially all of its
assets to another Person shall be effected in such a way that holders of
shares of Common Stock shall be entitled to receive stock, securities or
assets with respect to or in exchange for their shares of Common Stock,
then provision shall be made by Viking, in accordance with this Section
7.2, whereby each holder of the Promissory Note shall thereafter have the
right to receive, upon the basis and upon the terms and conditions
specified herein and in addition to or in exchange for, as applicable, the
shares of Common Stock subject to the Promissory Note immediately
theretofore receivable upon conversion of such Promissory Note at the
Conversion Price or Default Conversion Price (depending on which is
applicable at the time of the actual conversion of the Promissory Note),
such securities or assets as would have been issued or payable with respect
to or in exchange for the aggregate shares of Common Stock immediately
theretofore receivable upon conversion of the Promissory Note if conversion
of the Promissory Note had occurred immediately prior to such
reorganization, reclassification, consolidation, merger or sale. Viking
will not effect any such consolidation, merger, sale, transfer or lease
unless prior to the consummation thereof the successor entity (if other
than Viking) resulting from such consolidation or merger or the entity
purchasing such assets shall assume by written instrument (i) the
obligation to deliver to the holder of the Promissory Note such securities
or assets as, in accordance with the foregoing provisions, the holder of
the Promissory Note may be entitled to receive upon conversion of the
Promissory Note, and (ii) all other obligations of Viking under the
Promissory Note. The provisions of this Section 7.2 shall similarly apply
to successive consolidations, mergers, exchanges, sales, transfers or
leases. In the event that in connection with any such capital
reorganization or reclassification, consolidation, merger, sale or
transfer, additional shares of Common Stock shall be issued in exchange,
conversion, substitution or payment, in whole or in part, for a security of
Viking other than Common Stock, any such issue shall be treated as an issue
of Common Stock covered by the provisions of Section 7.2 hereof.
7.3 Stock Dividends and Securities Distributions. If, at any time or
from time to time after the date hereof, Viking shall distribute to the
holders of shares of Common Stock (i) securities (including rights,
warrants, options or another form of convertible securities) other than
securities of Viking, (ii) property, other than cash, or (iii) cash,
without fair payment therefor, then, and in each such case, the holder of
the Promissory Note, upon conversion of the Promissory Note at the
Conversion Price or Default Conversion Price (depending on which is
applicable at the time of the actual conversion of the Promissory Note),
shall be entitled to receive such securities, property and cash which the
holder of the Promissory Note would hold on the date of such conversion if,
12
on the date of the distribution, the holder of the Promissory Note had been
the holder of record of the shares of Common Stock issued upon such
conversion and, during the period from the date hereof to and including the
date of such conversion, had retained such shares of Common Stock and the
securities, property and cash receivable by the holder of the Promissory
Note during such period, subject, however, to the holder of the Promissory
Note agreeing to any conditions to such distribution as were required of
all other holders of shares of Common Stock in connection with such
distribution.
7.4 Other Adjustments. In addition to those adjustments set forth in
Section 7.2 and Section 7.3, but without duplication of the adjustments to
be made under such Sections, if Viking:
(i) makes a distribution on its Common Stock in shares of its
Common Stock;
(ii) subdivides or reclassifies its outstanding shares of Common
Stock into a greater number of shares;
(iii) combines or reclassifies its outstanding shares of Common
Stock into a smaller number of shares;
(iv) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; and/or
(v) issues, by reclassification of its Common Stock, any shares
of its capital stock;
then the Conversion Price in effect immediately prior to such action
(and the number and kind of capital stock purchasable upon conversion of
the Promissory Note, upon the occurrence of any of the events described in
(iv) and (v) above), shall be adjusted so that the holder of a Promissory
Note upon conversion thereof shall be entitled to receive the number of
shares of Common Stock (and such other securities) that the holder of the
Promissory Note would have owned or have been entitled to receive after the
happening of any of the events described above had the Promissory Note been
converted immediately prior to the happening of such event or any record
date with respect thereto, and the Default Conversion Price immediately
prior to such action shall be adjusted proportionately to the adjustment of
the Conversion Price. An adjustment made pursuant to this Section 7.4 shall
become effective immediately after the record date in the case of a
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or issuance. If,
as a result of an adjustment made pursuant to this Section 7.4, the holder
of the Promissory Note thereafter surrendered for conversion shall become
entitled to receive shares of two (2) or more classes of capital stock or
shares of Common Stock and any other class of capital stock of Viking, the
Board of Directors in good faith shall determine the allocation of the
adjusted Conversion Price and Default Conversion Price between or among
shares of such classes of capital stock or shares of Common Stock and such
other class of capital stock.
The adjustment to the Conversion Price and Default Conversion Price
(and number and kind of capital stock purchasable upon conversion of the
13
Promissory Note) described in this Section 7.4 shall be made each time any
event listed in paragraphs (i) through (v) of this Section 7.4 occurs.
(vi) In the event that at any time, as a result of an adjustment
made pursuant to this Section 7.4, the holder of the Promissory Note
thereafter shall become entitled to receive any shares of Viking,
other than Common Stock, thereafter the Conversion Price and Default
Conversion Price shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in this Section
7.4.
7.5 Notice of Adjustment. Upon any adjustment of the Conversion Price
or Default Conversion Price, then and in each such case Viking, at its sole
expense, shall give written notice thereof (i) by certified or registered
mail, postage prepaid, (ii) by a nationally known overnight delivery
service, or (iii) delivered by hand, addressed to the holder of the
Promissory Note at his address as shown on the books of Viking, which
notice shall state the conversion price resulting from such adjustment and
adjusted number of shares of Common Stock or other capital stock, as
applicable, issuable upon exercise of the Promissory Note, setting forth in
reasonable detail the method upon which such calculation is based.
7.6 Warrant Adjustments. The Warrant attached hereto as Exhibit "B"
contains a provision providing for the reduction of the Warrant exercise
price upon a New Issuance at less than the Conversion Price and for other
adjustments to the number of Warrant shares and the warrant exercise price.
8. [Reserved.]
9. Remedies. Upon the occurrence of an Event of Default and the expiration
of any notice and cure period provided for under the Loan Documents (if any),
the entire indebtedness owed to the Investor shall, at the option of the
Investor, immediately become due and payable without presentment, demand,
protest, or other notice of any kind, all of which are expressly waived by
Viking; provided that the occurrence of an Event of Default as set forth in
Section 6(iv) and Section 6(v) of the Promissory Note shall make all sums of
principal and interest then remaining unpaid and all other amounts payable under
the Loan Documents due and payable, all without demand, presentment, notice or
protest, all of which hereby are expressly waived, and will permit Investor to
exercise any other right available to it at law or in equity, all which rights
and powers may be exercised cumulatively. The Investor may proceed with every
remedy available at law or in equity or provided for in this Agreement or in any
of the Loan Documents, and all expenses incurred by the Investor in connection
with any remedy shall be deemed indebtedness of Viking to the Investor. The
Collateral Agent, on behalf of the Investor, may apply the proceeds from any
Collateral or from any other source against any part of the Loans as and in any
order the Collateral Agent sees fit but on a pro rata basis to each Investor.
No delay or failure of an Investor in the exercise of any right or remedy
provided for under this Agreement or under any of the Loan Documents shall be
deemed a waiver of such right by the Investor. No exercise or partial exercise
or waiver of any right or remedy shall be deemed a waiver of any further
exercise of such right or remedy or of any other right or remedy that the
Investor may have under this Agreement or under any of the Loan Documents.
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Enforcement of any of the Investor's rights as to any security for the Loan
shall not affect the Investor's right to enforce payment of the Loan and to
recover judgment for any portion thereof remaining unpaid. The rights and
remedies set forth in this Agreement and in any of the Loan Documents are
cumulative and not exclusive of any other right or remedy that an Investor may
have.
10. Lead Lender.
10.1. Board of Directors Matters. Until the Loans are repaid in full,
Lead Lender shall have the option of designating one person to serve on the
Board of Directors of Viking ("Lead Lender Director") and/or one observer
(the "Observer") to attend meetings of the Board of Directors of Viking.
Viking shall reimburse the reasonable travel costs and expenses of such
Lead Lender Director and Observer incurred in attending any Viking Board of
Directors meetings or committee meetings. In addition, any Lead Lender
Director shall be entitled to such other compensation or benefits, Viking
makes available to its other outside directors. If Lead Lender designates
an Observer to Viking's Board of Directors, then:
(i) such Observer shall have the right to attend, as an observer,
all meetings of Viking's Board of Directors and all meetings of
committees of Viking Board of Directors;
(ii) receive copies of all written documents and other
information (including copies of meeting minutes) provided to Viking's
Board members in connection with Board Meetings and Board committee
meetings at the same time such materials and information are provided
to Viking's Board members;
(iii) if Viking proposes to take any action through the written
consent of its Board of Directors, then Viking shall provide such
Observer with a written notice of such proposed Board actions prior to
the effective date thereof, describing in reasonable detail the nature
and substance of such action.
10.2. Financial Information. Viking shall furnish to Lead Lender such
financial information as may be reasonably requested by Lead Lender. Such
financial information shall include, but not be limited to:
(i) audited financial statements within one hundred twenty (120)
days of Viking's fiscal year end;
(ii) internally prepared financial statements within thirty (30)
days of each calendar month end; and
(iii) an annual budget for the upcoming fiscal year by month
within thirty (30) days of fiscal year end. All financial reports
should include a balance sheet, income statement and statement of cash
flows prepared in accordance with GAAP, accompanied by a management
discussion and analysis of the appropriate reporting period.
15
11. Representations and Warranties of Viking. Viking makes the following
representations and warranties to each Investor, which representations and
warranties shall be true and correct as of the date hereof and for so long as
any portion of any Promissory Note remains outstanding:
11.1. Existence; Qualification; No Subsidiary. Viking is a corporation
duly incorporated, validly existing and in good standing under the laws of
the State of Nevada, and has full corporate power and authority to conduct
its business and own and operate its business as now conducted and operated
and as proposed to be conducted. Viking is licensed or qualified as a
foreign corporation and is in good standing in each jurisdiction where it
is required to be so licensed or qualified, except where the failure to be
so licensed or qualified would not materially and adversely affect Viking.
Viking has no subsidiaries.
11.2. Authorization and Enforceability; Issuance of Common Shares.
(a) Viking has the full power and authority and has taken all
required corporate and other action necessary to permit Viking to
execute, deliver, and perform this Agreement, the Promissory Note, the
Warrant, the Security Instruments and the Registration Rights
Agreement and to issue the Securities, and none of such actions do or
will violate any provision of Viking's certificate of incorporation or
by-laws, or conflict with, result in the breach of, constitute a
default (or an event that, with notice or lapse of time or both, would
constitute a default) under, result in the creation of a Lien upon
Viking's capital stock or the assets of Viking pursuant to, give any
third party the right to accelerate any material obligation under,
require any authorization, consent or approval or other action by or
notice to under, any agreement, instrument, or understanding to which
Viking is a party or by which it is bound or any applicable law,
regulation, order, or judgment. Each of these Loan Agreements
constitutes a legal, valid, and binding obligation of Viking,
enforceable against Viking in accordance with its terms, except to the
extent limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and similar laws of general application related to the
enforcement of creditor's rights generally and general principles of
equity. (b) The Common Stock to be issued upon the conversion of the
Promissory Notes and the exercise of the Warrants will be duly
authorized and, when issued and delivered in accordance with the
Promissory Notes and Warrants, respectively, will be validly issued
and outstanding and will be fully paid and nonassessable. The copies
of the Articles of Incorporation and Bylaws of Viking furnished to
Lead Lender's counsel reflect all amendments made thereto at any time
prior to the Closing and are correct and complete in all respects.
11.3. Capitalization. As of the date of this Agreement, the authorized
capital stock of Viking is comprised of 100,000,000 shares of Common Stock
and 25,000,000 shares of preferred stock. As of the date of this Agreement,
there are 30,608,650 shares of Common Stock outstanding, and no shares of
preferred stock outstanding. All of Viking's outstanding shares of Common
Stock are duly and validly issued, fully paid, and nonassessable and have
been issued in compliance with all applicable laws. Except as set forth on
Schedule 11.3 or as contemplated by this Agreement, (i) there are no
outstanding options, convertible securities, warrants, debentures, phantom
stock, stock appreciation rights, preemptive rights, rights of first offer,
16
rights of first refusal, antidilution rights, registration rights, or
commitments of any kind relating to any issued or unissued shares of
capital stock (or other equity interests) of Viking; (ii) Viking is not
subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any Common Stock; and (iii) there are no
proxies, voting trust agreements or similar agreements or options granted
by the holders of Common Stock.
11.4. Private Sale. Subject to the accuracy of an Investor's
representations and warranties in this Agreement, neither the offer, sale,
and issuance of the Securities as contemplated by this Agreement nor the
issuance and delivery of any Common Stock upon exercise of the Warrant or
pursuant to the conversion of the Promissory Notes requires or will require
registration or qualification under the Securities Act or any state
securities laws. Neither Viking, nor any agent acting on Viking's behalf,
has offered or solicited or will offer or solicit any offers to buy any
securities from, any Person or Persons so as to require the issuance or
sale of the Securities to be registered pursuant to the provisions of
Section 5 of the Securities Act or prevent Viking from utilizing the
provisions of Section 25102(f) of the California Corporate Securities Law
of 1968 or any other applicable state securities law exemption from
qualification.
11.5. Disclosure. Viking's Annual Report on Form 10-K for the fiscal
year ended December 31, 2003, its Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, 2004, June 30, 2004 and September 30, 2004,
and its Current Reports filed with the Securities and Exchange Commission
(collectively, the "SEC Filings") comply with the requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), in all
material respects, do not contain any untrue statement of a material fact,
and do not omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The financial statements (together with the notes to
the financial statements) included in the SEC Filings (the "Financial
Statements") are in accordance with the books and records of Viking and the
Financial Statements fairly and accurately present the financial condition
and results of operations, the shareholders' equity and cash flows of
Viking, as of the dates and for the periods indicated, in accordance with
generally accepted accounting principles ("GAAP") consistently applied.
Viking has no material liabilities or obligations, absolute, contingent or
otherwise, other than (a) liabilities set forth in the Financial
Statements, (b) liabilities incurred in the ordinary course of business
subsequent to September 30, 2004, and (c) obligations under contracts and
commitments incurred in the ordinary course of business and not required
under GAAP to be reflected in such financial statements, which, in both
cases, individually or in the aggregate, are not material to the financial
condition, operations or prospects of Viking.
11.6. Absence of Certain Changes.
(a) Except as set forth in Schedule 11.6, since September 30,
2004, Viking has not:
(i) incurred any liabilities, other than current liabilities
incurred, or obligations under contracts entered into, in the
ordinary course of business and consistent with past practice;
(ii) paid, discharged, or satisfied any claim, lien, or
liability, other than any claim, lien, or liability (A) reflected
17
or reserved against on the consolidated balance sheet as of
September 30, 2004 included in the Financial Statements (the
"Current Balance Sheet") and paid, discharged, or satisfied in
the ordinary course of business and consistent with past practice
since the date of the Current Balance Sheet, or (B) incurred and
paid, discharged, or satisfied since the date of the Current
Balance Sheet in the ordinary course of business and consistent
with past practice;
(iii) sold, leased, assigned, or otherwise transferred any
of its assets or services, tangible or intangible (other than
sales in the ordinary course of business and consistent with past
practice);
(iv) permitted any of its assets, tangible or intangible, to
become subject to any lien, security interest, or other charge or
encumbrance (other than any Permitted Lien);
(v) written off as uncollectible any accounts receivable,
except for accounts receivable aggregating not more than $25,000;
(vi) terminated or amended, or suffered the termination or
amendment of, other than in the ordinary course of business and
consistent with past practice, or failed to perform in all
material respects, all its obligations, or suffered or permitted
any material default to exist under, any material agreement,
license, or permit;
(vii) suffered any damage, destruction, or loss of tangible
property (whether or not covered by insurance) that, in the
aggregate, exceeds $25,000;
(viii) made any loan to any person or entity (other than
advances to employees in the ordinary course of business and
consistent with past practice that do not exceed $25,000 in the
aggregate);
(ix) cancelled, waived, or released any debt, claim, or
right in an amount or having a value exceeding $25,000;
(x) paid any amount to, or entered into any agreement,
arrangement, or transaction with, any affiliate (including its
officers, directors, and employees), other than payments of
salary and benefits to employees in the ordinary course of
business and consistent with past practice;
(xi) declared, set aside, or paid any dividend or
distribution with respect to its capital stock, or redeemed,
purchased, or otherwise acquired any of its capital stock;
(xii) other than in the ordinary course of business and
consistent with past practice, granted any increase in the
compensation of any officer or employee or made any other change
in employment terms of any officer or employee;
(xiii) issued or agreed to issue any securities of any kind,
whether or not pursuant to agreements or rights existing on or
before September 30, 2004, except pursuant to agreements listed
in Schedule 11.3;
18
(xiv) made any change in accounting or cash management
practices;
(xv) suffered or caused any other occurrence, event, or
transaction outside the ordinary course of business; or
(xvi) agreed, in writing or otherwise, to any of the
foregoing.
(b) Since the September 30, 2004 Balance Sheet, there has not
been any material adverse change (a "Material Adverse Change" or a
"Material Adverse Effect") in the business, operations, properties,
prospects, assets or condition of Viking, excluding operating losses
in the ordinary course of business, an no event has occurred or
circumstance exists that may result in such a Material Adverse Change.
11.7. Litigation. As of the date of this Agreement, no claim, suit,
proceeding, or investigation is pending or, to the knowledge of Viking,
threatened against or affecting Viking or its officers or directors in
their capacities as such.
11.8. Licenses, Compliance with Law, Other Agreements. Viking has all
material franchises, permits, licenses, and other rights to allow it to
conduct its business and is not in violation, in any material respect, of
any order or decree of any court, or of any law, order, or regulation of
any governmental agency, or of the provisions of any material contract or
agreement to which it is a party or by it is bound, and neither the Loan
Documents, nor the transactions contemplated therein will result in any
such violation. Viking has conducted its business in compliance with all
applicable laws, rules, and regulations, except to the extent
non-compliance could not reasonably be expected to have a Material Adverse
Effect on Viking.
11.9. Third-Party Approvals. Except as set forth in Schedule 11.9,
Viking is not required to obtain any order, consent, approval, or
authorization of, or to make any declaration or filing with, any
Governmental Agency or other third party (including under any state
securities or "blue sky" laws) in connection with the execution, delivery
and performance of the Loan Documents and related documents.
11.10 Assets.
(a) Viking has good and marketable title to, or a valid leasehold
interest in, all of its properties of any kind other than Proprietary
Information (as defined below) and interests in such properties, which
constitute all the properties and interests in property other than
Proprietary Information that are used in the business of Viking as
conducted or as currently proposed to be conducted, free and clear of
restrictions or conditions on transfer or assignment and free and
clear of Lines.
(b) Except as set forth on Schedule 11.10(b), Viking has good
title to and exclusive ownership of all patents, patent applications,
trademarks, service marks and domain names, together with the goodwill
of the business associated therewith, copyrights, trade names, mask
works, proprietary information, know-how, processes, models, designs,
trade secrets, customer and supplier lists, market surveys, plans,
procedures and other intellectual property rights (collectively the
19
"Proprietary Information"), which are used or held for use in the
operation or conduct of the business of Viking as presently conducted
and currently proposed to be conducted, free and clear of restrictions
or conditions on transfer or assignment and free and clear of payments
and fees and Liens. The business of Viking as presently conducted and
as currently proposed to be conducted does not and to the knowledge of
Viking, will not conflict or infringe with the Proprietary Information
of others. No affiliate, officer, consultant or employee of Viking has
any right in any of the Proprietary Information.
(c) Viking has taken commercially reasonable measures to protect
the secrecy, value and confidentiality of the Proprietary Information.
Viking has not disclosed the contents of any Proprietary Information
to Persons other than its officers and employees or to other Persons
who have executed appropriate confidentiality agreements. To the
knowledge of Viking, no officer, consultant or employee of Viking is
under any restriction, whether contractual, or by virtue of previous
employment or otherwise, that would prevent such Person from
performing his or her duties for Viking or prevent Viking from using
the Proprietary Information. Viking is not a party to any
nondisclosure or confidentiality agreements not entered into in the
ordinary course of business.
(d) Viking owns, or has a valid leasehold interest in, all of the
equipment and other fixed assets of Viking which are necessary and
sufficient for the efficient operation of the business of Viking as
currently conducted and currently proposed to be conducted and all of
such assets are in good operating condition, normal wear and tear
excepted.
11.11 Employee Compensation. All forms, reports and documents filed by
Viking with the SEC on or after January 28, 2004 ("SEC Reports") list all
executive officers of Viking and a description of all forms of compensation
and employee benefits payable to them required to be disclosed therein.
Except as set forth in the SEC Reports or on Schedule 11.11, Viking is not
a party to or bound by any employment agreement not terminable at will or
having more than one month's severance pay or which requires, or which
could require, compensation and benefits of more than Six Thousand Dollars
($6,000) per month, collective employment contracts, deferred compensation
agreements, bonus plans, profit sharing plans, pension plans or any other
plans or programs subject to ERISA or health, disability, sick pay or other
employee benefits. Viking believes that relations with its employees are
satisfactory
11.12 Material Agreements. Except as attached as exhibits to the SEC
Reports or on Schedule 11.12, Viking is not a party to, nor is any of its
property bound by, (a) any agreement requiring the performance by Viking of
any obligation for a period of time extending beyond one year from the date
hereof, calling for or which could result in the payment or receipt of
consideration of more than Fifty Thousand Dollars ($50,000), or licensing
any material Proprietary Information of Viking or any third party; (b) any
agreement or understanding between Viking and any officer, employee or
consultant of Viking, other than employee compensation and benefits entered
into in the ordinary course of business; (c) any loan or credit agreements
providing for the extension of credit in excess of Fifty Thousand Dollars
($50,000) to or from Viking; (d) any agreements or commitments containing a
provision limiting the ability of Viking to compete with any Person or
engage in any line of business; (e) any agreement requiring Viking to
guaranty the obligations of any Person; (f) any agreement requiring Viking
to provide indemnification to any officer or director of Viking; or (g) any
20
agreements providing for the payment of any royalties based on revenues (or
a specific revenue stream) of Viking. There is no default or event that
with notice or lapse of time, or both, would constitute a default by any
party to any of the foregoing agreements. Viking has not received notice
nor does it have knowledge that any party to any of these agreements
intends to cancel or terminate any of these agreements or to exercise or
not exercise any options under any of these agreements or to seek a
renegotiation or adjustment of any material provisions.
11.13 Insurance. The insurance coverage of Viking with respect to its
properties, assets and business is reasonable and customary for
corporations engaged in similar lines of business, including business
interruption insurance, and is in full force and effect. Viking shall use
commercially reasonable efforts to ensure that the insurance policies with
respect to such coverage include an additional insured endorsement payable
in favor of Investor, and Viking shall not cancel such insurance policies
without the consent of Collateral Agent.
11.14 Finder's or Broker's Fees. There are no claims for brokerage
commissions, finders' fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement binding upon Viking.
11.15 Environmental and Safety Matters.
(a) Viking is now and has always been in compliance in all
material respects with all Environmental and Safety Requirements.
(b) Without limiting the generality of the foregoing, Viking has
obtained and complied with, and is in compliance with, in all material
respects, all permits, licenses and other authorizations that may be
required pursuant to Environmental and Safety Requirements for the
occupation of its facilities and the operation of its business.
(c) Viking has not received any written or oral notice regarding
any actual or alleged material violation of Environmental and Safety
Requirements, or any material liabilities, obligations or
responsibilities or potential material liabilities, obligations or
responsibilities (whether accrued, absolute, contingent, unliquidated
or otherwise), including any investigatory, remedial or corrective
obligations, relating to Viking or its facilities arising under
Environmental and Safety Requirements, nor is Viking aware of any
information which might form the basis of any such notice.
(d) None of the following exists or, or to the knowledge of
Viking, formerly existed at any property or facility owned or operated
by Viking: (i) underground storage tanks; (ii) asbestos-containing
material in any form or condition; (iii) materials or equipment
containing polychlorinated biphenyls; (iv) landfills, surface
impoundments, or disposal areas, or (v) maintenance area or vehicle or
equipment wash area.
(e) Viking has not treated, stored, disposed of, arranged for or
permitted the disposal of, transported, handled, or released any
substance, including any hazardous substance, or owned or operated any
property or facility (and no such property or facility is contaminated
by any such substance) in a manner that has given or could give rise
to material liabilities, obligations or responsibilities of Viking,
including any liability for response costs, corrective action costs,
personal injury, property damage, natural resources damages or
attorney fees, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA") or the
21
Solid Waste Disposal Act, as amended, or any other Environmental and
Safety Requirements, nor has Viking released or waived any third
party, either expressly or by operation of law, from any liability,
obligation or responsibility relating to any Environmental and Safety
Requirements.
(f) To the knowledge of Viking, no facts, events or conditions
relating to the past or present facilities, properties or operations
of Viking will prevent, hinder or limit continued compliance in all
material respects with Environmental and Safety Requirements, give
rise to any investigatory, remedial or corrective obligations pursuant
to Environmental and Safety Requirements, or give rise to any other
material liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) pursuant to Environmental and Safety
Requirements, including any relating to onsite or offsite releases or
threatened releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage.
(g) Neither this Agreement nor the consummation of the
transaction that is the subject of this Agreement will result in any
obligations for site investigation or cleanup, or notification to or
consent of government agencies or third parties, pursuant to any of
the so-called "transaction-triggered" or "responsible property
transfer" Environmental and Safety Requirements.
(h) Viking has, neither expressly nor by operation of law,
assumed or undertaken any liability, including any obligation for
corrective or remedial action, of any other Person relating to
Environmental and Safety Requirements.
(i) Viking has provided each Investor with true, correct and
complete copies of all environmental reports, assessments or
investigations and all parts thereof (including any drafts of such
items) regarding any property currently or formerly owned, leased or
operated by such Viking.
11.16 Employee Benefits and Plans.
(a) Schedule 11.16(a) sets forth a true and complete list of each
"employee benefit plan" as defined in Section 3(3) of ERISA, and any
other plan, policy, program practice, agreement, understanding or
arrangement (whether written or oral) providing compensation or other
benefits to any current or former director, officer, employee or
consultant (or to any dependent or beneficiary thereof) of Viking or
any ERISA Affiliates (as defined below), which are now, or were within
the past six years, maintained, sponsored or contributed to by Viking
or any ERISA Affiliate, or under which Viking or any ERISA Affiliate
has any obligation or liability, whether actual or contingent,
including, without limitation, all incentive, bonus, deferred
compensation, vacation, holiday, cafeteria, medical, disability, stock
purchase, stock option, stock appreciation, phantom stock, restricted
stock or other stock-based compensation plans, policies, programs,
practices or arrangements (each a "Viking Benefit Plan"). For purposes
of this Agreement, "ERISA Affiliate" shall mean any entity (whether or
not incorporated) other than Viking that is considered under common
control and treated as one employer under Section 414(b), (c), (m) or
(o) of the Internal Revenue Code of 1986, as amended (the "Code").
Viking does not have, and to the knowledge of Viking, no other Person,
22
has any express or implied commitment, whether legally enforceable or
not, to modify, change or terminate any Viking Benefit Plan, other
than with respect to a modification, change or termination required by
ERISA, the Code or any other applicable law or governmental rule or
regulation.
(b) Each Viking Benefit Plan has been administered in all
material respects in accordance with its terms and all applicable
laws, including ERISA and the Code, and contributions required to be
made under the terms of any of the Viking Benefit Plans as of the date
of this Agreement have been timely made or, if not yet due, have been
properly reflected on the most recent consolidated balance sheet filed
or incorporated by reference in Parent's audited consolidated
financial statements prior to the date of this Agreement. With respect
to the Viking Benefit Plans, no event has occurred and, to the
knowledge of Viking, there exists no condition or set of circumstances
in connection with which Viking could be subject to any material
liability (other than for routine benefit liabilities) under the terms
of, or with respect to, such Viking Benefit Plans, ERISA, the Code or
any other applicable law or governmental rule or regulation.
(c) Except as disclosed on Schedule 11.16(c): (i) each Viking
Benefit Plan which is intended to qualify under Section 401(a),
Section 401(k), Section 401(m) or Section 4975(e)(6) of the Code has
received a favorable determination letter from the IRS as to its
qualified status, and each trust established in connection with any
Viking Benefit Plan which is intended to be exempt from federal income
taxation under Section 501(a) of the Code is so exempt, and to
Viking's knowledge no fact or event has occurred that could reasonably
be expected to adversely affect the qualified status of any such
Viking Benefit Plan or the exempt status of any such trust; (ii) to
Viking's knowledge there has been no prohibited transaction (within
the meaning of Section 406 of ERISA or Section 4975 of the Code and
other than a transaction that is exempt under a statutory or
administrative exemption) with respect to any Viking Benefit Plan that
could result in material liability to Viking or any ERISA Affiliate;
(iii) no suit, administrative proceeding, action or other litigation
has been brought, or to the knowledge of Viking is threatened, against
or with respect to any such Viking Benefit Plan, including any audit
or inquiry by the IRS or United States Department of Labor (other than
routine benefits claims); (iv) none of the assets of Viking or any
ERISA Affiliate is, or may reasonably be expected to become, the
subject of any lien arising under ERISA or Section 412(n) of the Code;
(v) neither Viking nor any ERISA Affiliate has any material liability
under ERISA Section 502; (vi) all tax, annual reporting and other
governmental filings required by ERISA and the Code have been timely
filed with the appropriate governmental entity with respect to each
Viking Benefit Plan; (vii) all contributions and payments to or under
each Viking Benefit Plan which can appropriately be deducted under
either Code Section 162 or 404 are, to the knowledge of Viking,
deductible; and (viii) no excise tax could be imposed upon any Viking
under Chapter 43 of the Code.
(d) No Viking Benefit Plan is a "multiemployer plan" (as defined
in Section 3(37) or 4001(a)(3) of ERISA) (a "Multiemployer Plan") or
is subject to Title IV of ERISA or Section 412 of the Code, and
neither Viking nor any ERISA Affiliate has sponsored or contributed to
or been required to contribute to a Multiemployer Plan or other
pension plan subject to Title IV of ERISA or Section 412 of the Code
(a "Pension Plan").
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(e) Except as set forth on Schedule 11.16(e) or as required by
applicable law, no Viking Benefit Plan provides any of the following
retiree or post-employment benefits to any person: medical, disability
or life insurance benefits. No Viking Benefit Plan is a voluntary
employee benefit association under Section 501(a)(9) of the Code.
Viking and each of its ERISA Affiliates are in compliance in all
material respects with (i) the requirements of the applicable health
care continuation and notice provisions of the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, and the regulations
(including proposed regulations) thereunder and any similar state law
and (ii) the applicable requirements of the Health Insurance
Portability and Accountability Act of 1996, as amended, and the
regulations thereunder.
(f) Viking does not maintain, sponsor, contribute to or has any
liability with respect to any employee benefit plan program or
arrangement that provides benefits to non-resident aliens with no
United States source income outside of the United States.
11.17 Taxes. Viking has filed all tax returns it was required to file,
and has paid all taxes shown on those tax returns as owing. Viking has
withheld and paid all taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party. There is no
dispute or claim concerning any tax liability of Viking, either (i) claimed
or raised by any authority in writing or (ii) to the knowledge of Viking,
claimed or raised by any agent of such authority.
11.18. Small Business Matters.
11.18.1 Viking acknowledges that Lead Lender is a federally
licensed SBIC under the SBIC Act. Viking, together with its
"affiliates" (as that term is defined in 13 C.F.R. Section 121.103),
is a "small business concern" within the meaning of the SBIC
Regulations, including 13 C.F.R. Section 121.103. After giving effect
to the transactions contemplated by the Loan Documents, Viking will
have 500 or fewer full-time equivalent employees. The information
regarding Viking and its affiliates set forth in the SBA forms Nos.
480, 652 and 1031 delivered at the Closing is accurate and complete.
Copies of such forms have been completed and executed by Viking and
delivered to Lead Lender at the Closing together with a written
statement of Viking regarding its planned use of the proceeds from the
transactions contemplated by the Loan Documents. Viking does not
presently engage in, and it shall not hereafter engage in, any
activities, nor shall it use directly or indirectly the proceeds of
the transactions contemplated by the Loan Documents for any purpose,
for which an SBIC is prohibited from providing funds by the SBIC
Regulations (including 13 C.F.R. Section 107.720).
11.18.2 The primary business activity of Viking does not involve,
directly or indirectly, providing funds to others, purchasing or
discounting debt obligations, factoring or long-term leasing of
equipment with no provision for maintenance or repair, and Viking is
not classified under Section 53 (Real Estate) of the NAICS manual. The
assets of the business of Viking (the "Business") will not be reduced
or consumed, generally without replacement, as the life of the
Business progresses, and the nature of the Business does not require
that a stream of cash payments be made to the Business's financing
sources, on a basis associated with the continuing sale of assets.
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11.19 Solvency. Viking is solvent as of the date of this Agreement and
will not become insolvent as a result of the consummation of the
transactions contemplated by this Agreement or the other Loan Documents.
Viking is, and after giving effect to the transactions contemplated by this
Agreement shall be, able to pay its debts as they become due, and Viking's
property now has, and after giving effect to the transactions contemplated
hereby shall have, a fair salable value greater than the amounts required
to pay its debts (including a reasonable estimate of the amount of all
contingent liabilities). Viking has adequate capital to carry on its
business, and after giving effect to the transactions contemplated by this
Agreement, Viking shall have adequate capital to conduct its business. No
transfer of property is being made and no obligation is being incurred in
connection with the transactions contemplated by this Agreement with the
intent to hinder, delay or defraud either present or future creditors of
Viking.
11.20. Disclosure. Neither this Agreement, nor any of the other Loan
Documents, nor any of the schedules, attachments, or certificates attached
to this Agreement or any of the other Loan Documents, delivered by Viking
at the Closing, contains any untrue statements of a material fact or omits
a material fact necessary to make the statements contained herein or
therein not misleading. To Viking's knowledge, there is no fact which
Viking has not disclosed to Investors, in writing, which could reasonably
be anticipated to have a Material Adverse Effect.
12. Representations and Warranties of Investors. Each Investor represents
and warrants to Viking as follows:
(a) The Investor is an "accredited investor" as such term is defined
in Rule 501 of Regulation D promulgated by the SEC.
(b) Investor has had the opportunity to ask questions of and to
receive answers from Viking and its executive officers concerning the
affairs and prospects of Viking in general, has received and read the SEC
filings of Viking, and desires no further information pertaining to Viking.
Investor will rely solely upon (i) such information and not any other
material heretofore received, and (ii) investigations made by Investor or
Investor's representatives in making Investor's investment decision.
(c) In Investor's opinion, Investor's overall commitment to
investments that are not readily marketable is not disproportionate to
Investor's net worth, and in Investor's opinion, Investor's investment in
the Promissory Notes will not cause such overall commitment to such
investments to become excessive.
(d) Investor has, either alone or together with Investor's purchaser
representative, if any, such knowledge and experience in financial, real
estate, and business matters that Investor is capable of evaluating the
merits and risks of this investment.
(e) Investor has adequate means of providing for Investor's current
needs and personal contingencies, and Investor has no need for liquidity in
Investor's investment in the Promissory Notes. Investor is, able to meet
Investor's obligations hereunder, and acknowledges that this investment is
long-term and speculative in nature.
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(f) Investor's personal financial circumstances, investment portfolio,
and tax bracket are such that Investor and Investor's purchaser
representative, if any, believe the purchase contemplated herein to be a
suitable investment. Investor is able to bear the economic risk of this
investment.
(g) The address set forth opposite such Investor's name on Annex A, if
Investor is an individual, Investor's true and correct residence and, if
Investor is an entity, Investor's principal place of business.
(h) Investor acknowledges that if a purchaser representative has been
utilized by Investor in evaluating the investment contemplated hereby, that
Investor's purchaser representative has advised Investor of the merits and
risks of an investment in Viking and the suitability of the investment.
(i) Investor confirms that Investor is financially prepared to hold
the Promissory Note for a substantial period of time and to withstand the
possibility of a loss of the investment.
(j) Investor understands that none of the Promissory Notes have been
registered under the Securities Act or under any state securities act in
reliance on an exemption for non-public offerings.
(k) The Promissory Note which the Investor is purchasing are being
acquired solely for Investor's own account, for investment purposes, and
are not being purchased with a view to or for resale, distribution,
subdivision, or fractionalization, and Investor has no plans to enter into
any such contract, undertaking, agreement, or arrangement. Investor agrees
that the Promissory Note to be received will bear a restrictive legend
limiting transfer.
(l) If Investor is a corporation, partnership, or trust, the
undersigned is authorized and otherwise duly qualified to purchase and hold
the Promissory Note, and Investor has its principal place of business as
set forth below and was not formed for the specific purpose of acquiring
the Securities, unless otherwise specifically set forth on the signature
page hereof.
(m) Investor has the full power and authority to execute and deliver
this Agreement, and Investor's execution and delivery of this Agreement and
will not conflict or result in a material breach of any other agreement or
obligation to which Investor is a Party.
13. Affirmative Covenants of Viking. Until the Promissory Notes are paid in
full, Viking shall:
13.1. Pay the Loans. Duly and punctually pay or cause to be paid all
principal, interest, and other amounts due on the Promissory Notes on the
date, in the place, and in the manner set forth in the Loan Documents and
perform and observe all other obligations of Viking under this Agreement
and the other Loan Documents.
13.2. Tax Returns. File all federal, state, and local tax returns or
requests for extensions that are required to be filed and pay and
discharge, when payable, all taxes, assessments and governmental charges
imposed upon its properties or upon the income or profits therefrom
received by Viking before delinquent.
26
13.3. Compliance With Laws. Comply promptly with all laws, rules,
regulations, resolutions, ordinances, and codes applicable to Viking or the
Collateral.
13.4. Compliance with Agreements. Comply with all other material
obligations which it incurs pursuant to any contract or agreement as such
obligations become due, unless and to the extent the same are being
contested in good faith and by appropriate proceedings and adequate
reserves have been set aside on its books with respect thereto.
13.5. Reporting Requirements. Viking shall file with the SEC in a
timely manner all reports and other documents required of Viking under the
Securities Act and the Exchange Act. Viking will furnish to the Investor:
(a) as soon as possible, and in any event within ten (10) days
after obtaining knowledge, notice of the occurrence of (A) an Event of
Default, (B) an event which, with the giving of notice or the lapse of
time or both, would constitute an Event of Default, or (C) a Material
Adverse Change, the written statement of the Chief Executive Officer
or the Chief Financial Officer of Viking, setting forth the details of
such Event of Default, event or Material Adverse Change and the action
which Viking proposes to take with respect thereto;
(b) promptly after the sending or filing thereof, copies of all
financial statements, reports, certificates of its Chief Executive
Officer, Chief Financial Officer or accountants and other information
which Viking sends to any holders (other than the Promissory Notes) of
its securities and, without duplication, the following:
(i) Within thirty (30) days after the end of each monthly
accounting period in each fiscal year (or when furnished to any
lender or other third party, if earlier), (A) unaudited
statements of Viking (prepared in form reasonably satisfactory to
Lead Lender), certified by Viking's principal financial officer
and principal executive officer, of income, retained earnings and
changes in financial position for such monthly period and for the
period from the beginning of such fiscal year to the end of such
monthly period and a balance sheet as of the end of such monthly
period, setting forth in each case comparisons to figures for the
corresponding periods in the preceding fiscal year and
comparisons to budgets prepared by Viking, and (B) a copy of any
borrowing base certificate or similar document submitted to any
lender or other third party.
(ii)Promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning
significant aspects of Viking's operations and financial affairs
or in conjunction with any annual or interim audit given to
Viking by its independent accountants (and not otherwise
contained in other materials provided pursuant to this Section).
(iii) Thirty (30) days prior to the commencement of each
fiscal year, a comprehensive annual budget or forecast which
shall include annual consolidated and consolidating budgets
prepared on a monthly basis for Viking for such fiscal year
(displaying anticipated statements of income, retained earnings,
27
changes in financial position and balance sheets and containing
such internal narrative as appropriate). In addition, said plan
will include a capital expenditure plan which shall be presented
to the Board for its approval within thirty (30) days after the
commencement of each fiscal year.
(iv)Promptly, but in any event within three (3) days after
Viking's receipt of notice of the intention of any customer that
has accounted for over ten percent (10%) of the Viking's
aggregate revenues for the immediately preceding 12-month period
to cease doing business with Viking or to materially reduce the
volume purchased from Viking.
(v) Within three (3) business days after transmission
thereof, copies of all such financial statements, proxy
statements and reports as Viking sends to its shareholders
("Shareholders"), and copies of all registration statements and
all regular, special or periodic reports which Viking files with
any state securities regulatory agency, the SEC or with any
securities exchange on which any of its securities are then
listed, and copies of all press releases and other statements
made available generally by Viking to the public concerning
material developments in Viking's business.
(c) At any time Viking is not subject to the reporting
requirements of the Securities Act and the Exchange Act:
(i) Within forty-five (45) days after the end of each
quarterly accounting period in each fiscal year (or furnished to
any lender or other third party, if earlier), unaudited
statements of Viking (prepared in form satisfactory to Lead
Lender), certified by Viking's principal financial officer and
principal executive officer, of income, retained earnings and
changes in financial position or such quarterly period and for
the period from the beginning of such fiscal year to the end of
such quarterly period and a balance sheet as of the end of such
quarterly period, setting forth in each case comparisons to
figures for the corresponding periods in the preceding fiscal
year and comparisons to budgets prepared by Viking.
(ii)Within ninety (90) days after the end of each fiscal
year (or furnished to any lender or other third party, if
earlier), statements of income, retained earnings and changes in
financial position of Viking for such fiscal year, and a balance
sheet of Viking as of the end of such fiscal year, setting forth
in each case in comparative form corresponding figures for the
preceding fiscal year.
(iii) All financial statements required to be delivered
hereby shall be (A) prepared in accordance with GAAP,
consistently applied, except in the case of unaudited financial
statements, which may not contain all footnotes required by GAAP;
(B) prepared on a consolidated and consolidating basis, as
applicable; (C) accompanied by a management discussion and
analysis of Viking's financial condition, changes in financial
condition and results of operations, as compared to the
28
comparable period in the preceding fiscal year; (D) in the case
of annual statements, be audited by an independent accounting
firm approved by the Board; and (E) in the case of quarterly
statements, shall be accompanied by a compliance certificate from
Viking's principal financial officer and principal executive
officer certifying as to Viking's compliance with each covenant
set forth in the Loan Documents and that no default has occurred
with respect to this Agreement, or any of the other Loan
Documents or with respect to any indebtedness in favor of banks
or other financial institutions.
(d) promptly after the commencement thereof, notice of each
action, suit or proceeding before any court or other governmental
authority or other regulatory body or any arbitrator as to which
there is a reasonable possibility of a determination that would
(A) materially impact the ability of Viking to conduct its
business, (B) materially and adversely affect the business,
operations or financial condition of Viking taken as a whole, or
(C) impair the validity or enforceability of the Promissory Notes
or the ability of Viking to perform its obligations under the
Loan Documents;
(e) promptly upon request, such other information concerning
the condition or operations, financial or otherwise, of Viking as
the holder from time to time may reasonably request.
13.6. Inspection of Property. Viking will permit any
representative designated by Lead Lender upon reasonable notice,
during normal business hours, to (i) visit and inspect any of the
properties of Viking, (ii) examine the financial records of Viking and
make copies thereof or extracts therefrom, and (iii) discuss the
affairs, finances and accounts of Viking with the officers, key
employees and independent accountants of Viking. If Lead Lender has
reasonable grounds for conducting an inspection, Viking shall
reimburse the Lead Lender for all commercially reasonable costs and
expenses incurred by Lead Lender in connection with any such
inspection.
13.7. Keeping of Records and Books of Account. Viking will keep
adequate records and books of account, with complete entries made in
accordance with generally accepted accounting principles, reflecting
all of its financial and other business transactions.
13.8 Additional Equity. Viking shall use its best efforts to
raise up to $3,000,000 of equity on terms acceptable to St. Cloud by
July 1, 2005.
14. Negative Covenants of Viking.
14.1.1 Until payment and performance in full of all obligations of
Viking to the Investors pursuant to the terms of this Agreement and the
Loan Documents, Viking shall not incur any liability or tax under Section
4971 of the Code in respect of an accumulated funding deficiency (or obtain
any waiver under Section 412(d) of the Code or Section 303 of ERISA) or
incur any material liability to the Pension Benefit Guaranty Corporation in
connection with any employee benefit plan. No Reportable Event, as defined
in Title IV of ERISA, will occur or continue with respect to any such plan.
29
14.1.2 Until payment and performance in full of all obligations of
Viking to the Investors pursuant to the terms of this Agreement and the
Loan Documents, Viking shall not, without the prior written consent of the
Required Investors, take any of the following actions:
(a) Incur any indebtedness (other than in the ordinary course of
its business or as contemplated by this Agreement and the Loan
Documents) or grant any liens with respect to any of its assets;
(b) Guaranty or otherwise in any way become or be responsible for
indebtedness for borrowed money, or for obligations, in either case of
any of its officers, directors or principal stockholders or any of
their affiliates, contingently or otherwise;
(c) Declare or pay dividends or make or authorize any
distribution or payment upon any of its equity securities, or effect a
reverse stock split or subdivision of any shares of capital stock of
Viking;
(d) Sell, transfer or dispose of, any of its assets other than in
the ordinary course of its business and for fair value;
(e) Purchase, redeem, retire or otherwise acquire for value any
of its capital stock or securities convertible into, or any option,
warrant or other right to acquire its capital stock now or hereafter
outstanding other than pursuant to the terms of the Loan Documents;
(f) Repay out of the proceeds of the Promissory Notes any
indebtedness for borrowed funds or any related party obligations
except for Promissory Notes heretofore issued to the Investors;
(g) Issue equity below $0.20 per share;
(h) Merge or consolidate with any Person, or sell, lease, license
or otherwise dispose of any of its assets (other than in the ordinary
course of business) or liquidate, dissolve, recapitalize or reorganize
in any form of transaction;
(i) Purchase, lease or otherwise acquire any assets pursuant to a
contract requiring expenditures in excess of One Hundred Thousand
Dollars ($100,000);
(j) Enter into the active management or operation of any business
other than the business as currently conducted by Viking;
(k) Amend the articles of incorporation or by-laws of Viking;
(l) Increase the total number of Directors to more than seven (7)
Directors;
(m) Execute, renew or modify any contract not in the ordinary
course of business involving obligations of Viking in excess of One
Hundred Thousand Dollars ($100,000);
30
(o) Increase compensation or other benefits to any Person, other
than in the ordinary course of business consistent with past practice
with respect to non-officer employees and except as may be approved by
the compensation committee of the Board of Directors with respect to
executives and officers;
(p) Enter into any transaction with any affiliate, director,
officer, or employee of Viking involving, in the aggregate, more than
Ten Thousand Dollars ($10,000), except that Borrower may enter into
employment arrangements approved by the compensation committee of the
Board of Directors;
(q) Create or form a Subsidiary whether by acquisition, new
capitalization, merger or otherwise; provided, that in the event that
the Required Investors shall consent to the formation or acquisition
by Viking of any new Subsidiary, or participation in any partnership
or joint venture, whether or not wholly owned, Viking shall promptly
and diligently take all actions necessary or required by Collateral
Agent to cause such corporation, partnership, or other entity or
venture to become a credit party for all purposes of this Agreement
and a "Grantor" under a security agreement in favor of Collateral
Agent, as agent for Investors (or any successor agent), in form and
substance similar to the Security Agreement;
(r) Enter or consummate any off-balance sheet transactions (as
defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the
Securities Act);
(s) Register any securities under the Securities Act in
connection with an underwritten public offering unless Lead Lender
reasonably consents to such registration (it being understood that it
would not be unreasonable for Lead Lender to withhold its consent in
any such registration in which Investors would not have registration
rights that are pari passu with each other holder of securities of
Viking having registration rights); or
(t) Take any action, or fail to take any action, which would
result in the invalidity, abandonment, misuse or unenforceability of
any Proprietary Information or which would, to the knowledge of
Viking, infringe upon or misappropriate any rights of other Persons.
15. Grant of Preemptive Rights and Co-Sale Rights.
15.1. Preemptive Rights. Viking hereby grants to each Investor on the
terms and conditions set forth herein, a continuing right, exercisable by
the Investors, in whole or in part, at any time and from time to time (the
"Preemptive Right") to purchase from Viking, at the times set forth herein,
shares of Common Stock or Convertible Securities. Notwithstanding anything
else contained herein to the contrary, the Preemptive Right granted herein
shall only be available and may only be exercised by an Investor in the
event Viking issues or offers shares of its Common Stock or any Convertible
Securities in a non-registered, private offering (a "Private Offering").
15.1.1. Number of Shares. The number of shares of Common Stock
(or Convertible Securities representing such Common Stock) that may be
purchased by an Investor under the Preemptive Right shall be equal to
the product of (i) a fraction, the numerator of which is the total
number of shares of Common Stock owned by Investor at the time that
31
were acquired pursuant to this Agreement or upon exercise or
conversion of Securities acquired pursuant to this Agreement
(calculated on a fully-diluted basis assuming conversion of the
Promissory Notes and exercise of the Warrants) and the denominator of
which is the total number of such shares of Common Stock held by all
Investors that were acquired pursuant to this Agreement or upon
exercise or conversion of Securities acquired pursuant to this
Agreement (calculated on a fully-diluted basis assuming conversion of
the Promissory Notes and exercise of the Warrants), multiplied by (ii)
the number of shares of Common Stock (calculated on a fully-diluted
basis) to be issued or offered as set forth in the Preemptive Right
Notice (as so calculated, the "Eligible Preemptive Shares").
15.1.2. Notice. Not fewer than 10 business days prior to the
commencement of a Private Offering, Viking will notify in writing each
of the Investors (a "Preemptive Right Notice"). Each Preemptive Right
Notice must specify (a) the date on which Viking proposes to commence
such Private Offering, (b) the price, number and description of equity
securities Viking proposes to issue and the other terms and conditions
of such issuance, and (c) the number of equity securities the Investor
is entitled to purchase in such Private Offering.
15.1.3. Preemptive Right Exercise and Price. (a) The Preemptive
Right may be exercised by the Investor at any time within ten (10)
business days after receipt of a Preemptive Right Notice ("Acceptance
Period") by the delivery to Viking of a written notice to such effect
specifying the number of equity securities in such Private Offering
that that the Investors intends to purchase. Payment therefor shall be
in certified funds as payment in full for such equity securities,
against delivery of the securities at the principal offices of Viking,
within five (5) business days after giving Viking such notice, or, if
later, the closing date for such Private Offering. Each Investor shall
also have the option, exercisable by so specifying in such written
notice to Viking, to purchase on a pro rata basis similar to that
described above, any remaining Eligible Preemptive Shares not
purchased by the other Investors, in which case the Investor
exercising such further option shall be deemed to have elected to
purchase such remaining Eligible Preemptive Shares on a pro rata
basis, up to the aggregate number of Eligible Preemptive Shares which
such Investor shall have specified until either (i) no Investor shall
have elected to purchase any further amount of the Eligible Preemptive
Shares which are the subject of the Preemptive Right Notice or (ii)
all the Eligible Preemptive Shares which are the subject of the
Preemptive Right Notice shall have been subscribed for by the
Investors. Viking shall promptly notify each Investor in writing of
each notice of election received from Investors pursuant to this
Section.
(b) Viking may, during the sixty (60) day period following
the expiration of the Acceptance Period, offer the remaining
unsubscribed portion of the Common Stock (or Convertible
Securities representing such Common Stock) to any Person or
Persons at a price not less than, and upon terms no more
favorable to the offeree than those specified in the Preemptive
Right Notice. If Viking does not enter into an agreement for the
sale of the Common Stock (or Convertible Securities representing
such Common Stock) within such period, or if such agreement is
not consummated within ninety (90) days of the execution thereof,
the right provided hereunder shall be deemed to be revived and
such shares of Common Stock (or Convertible Securities
representing such Common Stock) shall not be sold unless first
reoffered to Investor in accordance herewith.
32
(c) The Preemptive Right may be assigned by Investor (or
assignee thereof), in whole or in part, to an assignee of
Investor.
15.1.4. Termination of Preemptive Right. The Preemptive Right for
an Investor shall terminate on the date that is six (6) months after
the date the Promissory Note of the Investor has been repaid in full
or converted in full into Common Stock; provided, however that with
respect to St. Cloud, such Preemptive Right shall terminate on the
later of (a) the date that is six (6) months from the date the
Promissory Note of St. Cloud has been repaid in full or converted in
full into Common Stock or (b) such date as St. Cloud shall have
invested in Viking a minimum of $2,000,000 in additional equity.
15.2. Co-Sale Rights. If Donald E. Tucker ("Major Shareholder")
proposes to sell or transfer any shares of Common Stock in a Private
Offering to any Person other than a Permitted Transferee (as defined
below), in one or more related transactions (other than a transfer pursuant
to an effective registration statement and other than transfers under Rule
144), such Major Shareholder shall provide Investors with written notice of
the proposed transfer stating the terms and conditions of such sale or
transfer including, without limitation, the number of Common Stock proposed
to be sold or transferred, the nature of such sale or transfer and the
consideration to be paid and the name and address of each prospective
purchaser or transferee (the "Major Shareholder Notice"). Investors shall
have the right (the "Co-Sale Right"), exercisable upon written notice to
such Major Shareholder within ten (10) business days after receipt of the
Major Shareholder Notice to participate in such Major Shareholder's sale of
Common Stock pursuant to the specified terms and conditions set forth in
the Major Shareholder Notice. To the extent Investors exercises such
Co-Sale Right in accordance with the terms and conditions set forth below,
the number of shares of Common Stock which such Major Shareholder may sell
or transfer pursuant to the proposed sale or transfer described in the
Major Shareholder Notice shall be correspondingly reduced. The Co-Sale
Right of Investors shall be subject to the following terms and conditions:
15.2.1. Calculation of Common Stock. Each Investor may sell all
or any part of its shares of Common Stock equal to the product
obtained by multiplying (i) the aggregate number of Common Stock
covered by the Major Shareholder Notice by (ii) a fraction, the
numerator of which is the total number of shares of Common Stock owned
by Investor at the time (calculated on a fully-diluted basis assuming
conversion of the Promissory Notes and exercise of the Warrants), and
the denominator of which is the sum of (A) the total number of Common
Stock owned by all Investors exercising Co-Sale Rights at the time
(calculated on a fully-diluted basis assuming conversion of the
Promissory Notes and exercise of the Warrants) plus (B) the total
number of shares of Common Stock at the time owned by such Major
Stockholder (calculated on a fully-diluted basis), including Common
Stock or Convertible Securities transferred by such Major Shareholder
to Permitted Transferees in accordance with this Agreement.
15.2.2. Delivery of Certificates. Investor may effect its
participation in the sale by delivering to such Major Shareholder for
33
transfer to the prospective purchaser one or more certificates,
properly endorsed for transfer, which represent the securities which
Investor elects to sell.
15.2.3. Transfer. The certificate or certificates which Investor
delivers to such Major Shareholder pursuant to Section 15.2.2 shall be
delivered by such Major Shareholder to the prospective purchaser in
consummation of the sale pursuant to the terms and conditions
specified in the Major Shareholder Notice, and such Major Shareholder
shall promptly thereafter remit to Investor that portion of the sale
proceeds to which Investor is entitled by reason of its participation
in such sale. To the extent that any prospective purchaser or
purchasers prohibits such assignment or otherwise refuses to purchase
securities from an Investor exercising its Co-Sale Right hereunder,
such Major Shareholder shall not sell to such prospective purchaser or
purchasers any Common Stock or Convertible Securities unless and
until, simultaneously with such sale, such Major Shareholder shall
purchase such securities from such Investor(s) for the same
consideration and on the same terms and conditions as the proposed
transfer described in the Major Shareholder Notice (which terms and
conditions shall be no less favorable than those governing the sale to
the purchaser by such Major Shareholder).
15.2.4. Permitted Transfers. The provisions of Section 15.2 of
this Agreement shall not pertain or apply to:
(i) Any bona fide gift;
(ii) Any transfer pursuant to applicable laws of descent and
distribution, to the spouse or any lineal descendant (including
by adoption) of such Major Shareholder; or
(iii) Any transfer to a trust of which such Major
Shareholder is the trustee and which is established for estate
planning purposes.
Provided that, in each case, that (i) such Major Shareholder
shall inform Investor of such transfer or gift prior to effecting it,
and (ii) the transferee or donee (each a "Permitted Transferee") shall
furnish Investor with a written agreement to be bound by and comply
with the provisions of this Section 15.2 applicable to such Major
Shareholder.
15.2.5. Assignment. The rights under this Section 15.2 may be
assigned by an Investor (or assignee thereof) to any assignee of such
Investor.
15.2.6 Termination. The Co-Sale Right for an Investor shall
terminate on the date that is two (2) years after the date the
Promissory Note of the Investor has been repaid in full or converted
in full into Common Stock.
16. Conditions Precedent. The obligations of the Investors to fund the
Loans hereunder, are subject to the following:
34
(a) existing promissory notes evidencing loans made by Donald E.
Tucker to Viking in the total principal amount of $500,000 shall have been
converted into Common Stock at the price of $0.40 per share prior to the
Closing Date; and
(b) the $100,000 certificate of deposit owned by Donald E. Tucker and
pledged to Silicon Valley Bank shall remain pledged to Silicon Valley Bank
until the loan relating to such pledged certificate of deposit has been
paid in full.
17. SBIC Regulatory Provisions.
17.1 Use of Proceeds.
17.1.1 At such times as Lead Lender reasonably requests, Viking
shall deliver to Lead Lender a written statement certified by Viking's
Chief Financial Officer describing in reasonable detail the use of the
proceeds from the transactions contemplated by the Loan Documents by
Viking. In addition to any other rights granted hereunder, Viking
shall grant Lead Lender and the SBA access to Viking's books and
records for the purpose of verifying the use of such proceeds and
verifying the certifications made by Viking in SBA forms Nos. 480, 652
and 1031, delivered pursuant to Section 3.1.10 and for the purpose of
determining whether the principal business activity of Viking
continues to constitute an eligible business activity (within the
meaning of the SBIC Regulations).
17.1.2 Viking shall not use any proceeds from the transactions
contemplated by the Loan Documents substantially for a foreign
operation, and no more than forty-nine percent (49%) of the employees
or tangible assets of Viking will be outside the United States (unless
Viking can show to the SBA's satisfaction, that proceeds from the
transactions contemplated by the Loan Documents will be used for a
specific domestic purpose).
17.1.3 Viking shall not use any proceeds from the transactions
contemplated by the Loan Documents for any purpose contrary to public
interest (including, but not limited to, activities which are in
violation of law) or inconsistent with free enterprise, in each case,
within the meaning of 13 C.F.R. Section 107.720.
17.2 Regulatory Violation
Upon the occurrence of a Regulatory Violation or in the event that
Lead Lender determines in its good faith judgment that a Regulatory
Violation has occurred, in addition to any other rights and remedies to
which it may be entitled as a holder of the Securities under any of the
Loan Documents, Lead Lender shall have the right to the extent required
under the SBIC Regulations to demand the immediate repayment of the
principal balance of the Promissory Notes, plus all accrued interest on the
Promissory Notes, by delivering written notice of such demand to Viking.
Viking shall make such payment by a cashier's or certified check or by wire
transfer of immediately available funds to Lead Lender within thirty (30)
days after Viking's receipt of the demand notice.
17.3 Regulatory Compliance Cooperation. In the event that Lead Lender
believes that it has a Regulatory Problem, Lead Lender shall have the right
to transfer its Securities without regard to any restrictions on transfer
35
set forth in this Agreement or any of the Loan Documents other than the
restrictions under applicable securities law, and Viking shall take all
such actions as are reasonably requested by Lead Lender in order to
effectuate and facilitate any transfer by Lead Lender of the Securities
then held by Lead Lender to any Person designated by Lead Lender.
17.4 Economic Impact Information. Promptly after the end of each
calendar year (but in any event prior to February 28 of each year), Viking
shall deliver to Lead Lender a written assessment of the economic impact of
Lead Lender's investment in Viking, specifying the full-time equivalent
jobs created or retained in connection with the investment, the impact of
the investment on the businesses of Viking and on Taxes paid by Viking and
its employees.
17.5 Business Activity. For a period of one (1) year following the
date hereof, Viking will not change its business activity if such change
would render Viking ineligible to receive financial assistance from Lead
Lender (within the meanings of 13 C.F.R. Sections 107.720 and 107.760(b)).
17.6 Number of Members. Viking will notify Lead Lender from time to
time when the number of its shareholders increases to or above or decreases
below fifty (50).
17.7 Compliance With Non-Discrimination Requirements. Viking shall
comply at all times with the non-discrimination requirements of 13 C.F.R.
Parts 112, 113 and 117.
18. Lead Lender and Collateral Agent.
18.1. Appointment and Authorization. Each Investor hereby designates
and appoints St. Cloud as Lead Lender and Collateral Agent under this
Agreement and the other Loan Documents and each Lender Investor irrevocably
authorizes the Lead Lender and Collateral Agent to take such action on its
behalf under the provisions of this Agreement and each other Loan Document
and to exercise such powers and perform such duties as are expressly
delegated to it by the terms of this Agreement or any other Loan Document,
together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in this
Agreement or in any other Loan Document, the Lead Lender and Collateral
Agent shall not have any duties or responsibilities, except those expressly
set forth herein or in the Security Agreement, nor shall the Lead Lender
and Collateral Agent have or be deemed to have any fiduciary relationship
with any Investor, and no implied covenants, functions, responsibilities,
duties, obligations or liabilities shall be read into this Agreement or any
other Loan Document or otherwise exist against the Lead Lender and
Collateral Agent. Without limiting the generality of the foregoing
sentence, the use of the term "agent" in this Agreement with reference to
the Collateral Agent is not intended to connote any fiduciary or other
implied (or express) obligations arising under agency doctrine of any
applicable law. Except as expressly otherwise provided in this Agreement,
the Agent shall have and may use its sole discretion with respect to
exercising or refraining from exercising any discretionary rights or taking
or refraining from taking any actions which the Collateral Agent is
expressly entitled to take or assert under this Agreement and the other
Loan Documents, including the exercise of remedies, and any action so taken
or not taken shall be deemed consented to by the Investors.
36
18.2. Delegation of Duties. The Lead Lender and Collateral Agent may
execute any of its duties under this Agreement or any other Loan Document
by or through agents, employees or attorneys-in-fact and shall be entitled
to advice of counsel concerning all matters pertaining to such duties. The
Lead Lender and Collateral Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects
as long as such selection was made without gross negligence or willful
misconduct.
18.3. Liability of Lead Lender and Collateral Agent. Neither the Lead
Lender nor the Collateral Agent (together with its affiliates, and the
officers, directors, employees, counsel, representatives, agents and
attorneys-in-fact of the Agent and such affiliates, the "Agent-Related
Persons") shall (i) be liable for any action taken or omitted to be taken
by any of them under or in connection with this Agreement or any other Loan
Document or the transactions contemplated hereby (except for its own gross
negligence or willful misconduct), or (ii) be responsible in any manner to
any of the Investors for any recital, statement, representation or warranty
made by Viking contained in this Agreement or in any other Loan Document,
or in any certificate, report, statement or other document referred to or
provided for in, or received by the Collateral Agent under or in connection
with, this Agreement or any other Loan Document, or the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement
or any other Loan Document, or for any failure of Viking or any other party
to any Loan Document to perform its obligations hereunder or thereunder. No
Agent-Related Person shall be under any obligation to any Investor to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of Viking.
18.4. Reliance by Agent. The Lead Lender and Collateral Agent shall be
entitled to rely, and shall be fully protected in relying, upon any
writing, resolution, notice, consent, certificate, affidavit, letter,
telegram, facsimile, telex or telephone message, statement or other
document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons, and upon
advice and statements of legal counsel (including counsel to Viking),
independent accountants and other experts selected by the Lead Lender and
Collateral Agent.
18.5. Notice of Default. The Lead Lender and Collateral Agent shall
not be deemed to have knowledge or notice of the occurrence of any Default
or Event of Default, unless the Lead Lender and Collateral Agent shall have
received written notice from an Investor or Viking referring to this
Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default." The Lead Lender and Collateral Agent
will notify the Investors of its receipt of any such notice. The Lead
Lender and Collateral Agent shall take such action with respect to such
Default or Event of Default as may be requested by the Required Investors
in accordance with the Security Agreement; provided, however, that unless
and until the Lead Lender and Collateral Agent has received any such
request, the Lead Lender and Collateral Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable.
18.6. Credit Decision. Each Investor acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and
that no act by the Lead Lender and Collateral Agent hereinafter taken,
37
including any review of the affairs of Viking, shall be deemed to
constitute any representation or warranty by any Agent-Related Person to
any Investor. Each Investor represents to the Lead Lender and Collateral
Agent that it has, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition
and creditworthiness of Viking, and all applicable bank regulatory laws
relating to the transactions contemplated hereby, and made its own decision
to enter into this Agreement and to extend credit to the Viking. Each
Investor also represents that it will, independently and without reliance
upon any Agent-Related Person and based on 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 the other Loan Documents, and to make such
investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of Viking. Except for notices, reports and other documents
expressly required to be furnished to the Investors by the Lead Lender and
Collateral Agent herein or under the Security Agreement, the Lead Lender
and Collateral Agent shall not have any duty or responsibility to provide
any Investor with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of Viking which may come into the possession of any of the
Agent-Related Persons.
18.7. Indemnification. Whether or not the transactions contemplated
hereby are consummated, the Investors shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of
Viking and without limiting the obligation of Viking to do so), in
accordance with their pro rata interest in the aggregate principal amount
of the Loans, from and against any and all Indemnified Liabilities as such
term is defined in Section 19; provided, however, that no Investor shall be
liable for the payment to the Agent-Related Persons of any portion of such
Indemnified Liabilities resulting solely from such Person's gross
negligence or willful misconduct. Without limitation of the foregoing, each
Investor shall reimburse the Lead Lender and Collateral Agent upon demand
for its pro rata interest in the aggregate principal amount of the Loans of
any costs or out-of-pocket expenses (including legal fees and expenses)
incurred by the Lead Lender and Collateral Agent in connection with the
preparation, execution, delivery, administration, modification, amendment
or enforcement (whether through negotiations, legal proceedings or
otherwise) of, or legal advice in respect of rights or responsibilities
under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that the Lead Lender
and Collateral Agent is not reimbursed for such expenses by or on behalf of
Viking. The undertaking in this Section shall survive the payment of all
Obligations hereunder and the resignation or replacement of the Lead Lender
and Collateral Agent.
18.8. Agent in Individual Capacity. The Lead Lender and its affiliates
may make loans to, issue letters of credit for the account of, accept
deposits from, acquire equity interests in and generally engage in any kind
of banking, trust, financial advisory, underwriting or other business with
Viking and affiliates as though the Lead Lender were not the Collateral
Agent hereunder and without notice to or consent of the Investors. The Lead
Lender or its affiliates may receive information regarding Viking
38
(including information that may be subject to confidentiality obligations
in favor of Viking) and the Investors acknowledge that the Collateral Agent
and the Lead Lender shall be under no obligation to provide such
information to them. With respect to its Loans, the Lead Lender shall have
the same rights and powers under this Agreement as any other Investor and
may exercise the same as though it were not the Collateral Agent, and the
terms "Investor" and "Investors" include the Lead Lender in its individual
capacity.
18.9. Successor Agent. The Collateral Agent may resign as Collateral
Agent upon at least ten (10) days' prior notice to the Investors and
Viking. Subject to the foregoing, if the Collateral Agent resigns under
this Agreement, the Required Investors shall appoint from among the
Investors a successor agent for the Investors. If no successor agent is
appointed prior to the effective date of the resignation of the Collateral
Agent, the Collateral Agent may appoint, after consulting with the
Investors and Viking, a successor agent from among the Investors. Upon the
acceptance of its appointment as successor agent hereunder, such successor
agent shall succeed to all the rights, powers and duties of the retiring
Collateral Agent and the term "Collateral Agent" shall mean such successor
agent and the retiring Collateral Agent's appointment, powers and duties as
Collateral Agent shall be terminated. After any retiring Collateral Agent's
resignation hereunder as Collateral Agent, the provisions of this Article
18 shall continue to inure to its benefit as to any actions taken or
omitted to be taken by it while it was Collateral Agent under this
Agreement.
18.10. Collateral Matters. (a) The Investors hereby irrevocably
authorize the Collateral Agent, at its option and in its sole discretion,
to release any Liens in the Collateral granted to the Investors, for the
benefit of the Investors pursuant to this Agreement and the other Loan
Documents ("Agent's Liens") (i) upon payment and satisfaction in full by
Viking of all Loans and all other Obligations; (ii) constituting property
being sold or disposed of if Viking certifies to the Collateral Agent that
the sale or disposition is made in compliance with the Security Agreement
(and the Collateral Agent may rely conclusively on any such certificate,
without further inquiry); (iii) constituting property in which Viking owned
no interest at the time the Lien was granted or at any time thereafter; or
(iv) constituting property leased to Viking under a lease which has expired
or been terminated in a transaction permitted under this Agreement. Except
as provided above, the Collateral Agent will not release any of the
Collateral Agent's Liens without the prior written authorization of the
Investors; provided that the Collateral Agent may, in its discretion,
release the Collateral Agent's Liens on Collateral valued in the aggregate
not in excess of $250,000 during each fiscal year without the prior written
authorization of the Investors and the Collateral Agent may release the
Collateral Agent's Liens on Collateral valued in the aggregate not in
excess of $500,000 during each fiscal year with the prior written
authorization of Required Investors. Upon request by the Collateral Agent
or Viking at any time, the Investors will confirm in writing the Collateral
Agent's authority to release any Agent's Liens upon particular types or
items of Collateral pursuant to this Section 18.10.
(b) Upon receipt by the Collateral Agent of any authorization
required pursuant to Section 18.10(a) from the Investors of the
Collateral Agent's authority to release Agent's Liens upon particular
types or items of Collateral, and upon at least five (5) Business Days
prior written request by Viking, the Collateral Agent shall (and is
39
hereby irrevocably authorized by the Investors to) execute such
documents as may be necessary to evidence the release of the
Collateral Agent's Liens upon such Collateral; provided, however, that
(i) the Collateral Agent shall not be required to execute any such
document on terms which, in the Collateral Agent's opinion, would
expose the Collateral Agent to liability or create any obligation or
entail any consequence other than the release of such Liens without
recourse or warranty, and (ii) such release shall not in any manner
discharge, affect or impair the Obligations or any Liens (other than
those expressly being released) upon (or obligations of Viking in
respect of) all interests retained by Viking, including the proceeds
of any sale, all of which shall continue to constitute part of the
Collateral.
(c) The Collateral Agent shall have no obligation whatsoever to
any of the Investors to assure that the Collateral exists or is owned
by Viking or is cared for, protected or insured or has been
encumbered, or that the Collateral Agent's Liens have been properly or
sufficiently or lawfully created, perfected, protected or enforced or
are entitled to any particular priority, or to exercise at all or in
any particular manner or under any duty of care, disclosure or
fidelity, or to continue exercising, any of the rights, authorities
and powers granted or available to the Collateral Agent pursuant to
any of the Loan Documents, it being understood and agreed that in
respect of the Collateral, or any act, omission or event related
thereto, the Collateral Agent may act in any manner it may deem
appropriate, in its sole discretion given the Collateral Agent's own
interest in the Collateral in its capacity as one of the Investors and
that the Collateral Agent shall have no other duty or liability
whatsoever to any Investor as to any of the foregoing.
18.11. Restrictions on Actions by Investors; Sharing of Payments. (a)
Each of the Investors agrees that it shall not, without the express consent
of all Investors, and that it shall, to the extent it is lawfully entitled
to do so, upon the request of all Investors, set off against the
Obligations, any amounts owing by such Investor to Viking or any accounts
of Viking now or hereafter maintained with such Investor. Each of the
Investors further agrees that it shall not, unless specifically requested
to do so by the Lead Lender and Collateral Agent, take or cause to be taken
any action to enforce its rights under this Agreement or against Viking,
including the commencement of any legal or equitable proceedings, to
foreclose any Lien on, or otherwise enforce any security interest in, any
of the Collateral.
(b) If at any time or times any Investor shall receive (i) by
payment, foreclosure, setoff or otherwise, any proceeds of Collateral
or any payments with respect to the Obligations of Viking to such
Investor arising under, or relating to, this Agreement or the other
Loan Documents, except for any such proceeds or payments received by
such Investor from the Lead Lender and Collateral Agent pursuant to
the terms of this Agreement, or (ii) payments from the Lead Lender and
Collateral Agent in excess of such Investor's ratable portion of all
such distributions by the Agent, such Investor shall promptly (1) turn
the same over to the Lead Lender and Collateral Agent, in kind, and
with such endorsements as may be required to negotiate the same to the
Lead Lender and Collateral Agent, or in same day funds, as applicable,
for the account of all of the Investors and for application to the
Obligations in accordance with the applicable provisions of this
Agreement, or (2) purchase, without recourse or warranty, an undivided
interest and participation in the Obligations owed to the other
Investors so that such excess payment received shall be applied
40
ratably as among the Investors in accordance with their pro rata
interest in the aggregate principal amount of the Loans; provided,
however, that if all or part of such excess payment received by the
purchasing party is thereafter recovered from it, those purchases of
participations shall be rescinded in whole or in part, as applicable,
and the applicable portion of the purchase price paid therefor shall
be returned to such purchasing party, but without interest except to
the extent that such purchasing party is required to pay interest in
connection with the recovery of the excess payment.
18.12. Agency for Perfection. Each Investor hereby appoints each other
Investor as agent for the purpose of perfecting the Investors' security
interest in assets which, in accordance with Article 9 of the UCC can be
perfected only by possession. Should any Investor (other than the
Collateral Agent) obtain possession of any such Collateral, such Investor
shall notify the Collateral Agent thereof, and, promptly upon the
Collateral Agent's request therefor shall deliver such Collateral to the
Collateral Agent or in accordance with the Collateral Agent's instructions.
18.13. Concerning the Collateral and the Related Loan Documents. Each
Investor authorizes and directs the Collateral Agent to enter into the
other Loan Documents, for the ratable benefit and obligation of the
Collateral Agent and the Investors. Each Investor agrees that any action
taken by the Collateral Agent or Required Investors, as applicable, in
accordance with the terms of this Agreement or the other Loan Documents,
and the exercise by the Collateral Agent or the Required Investors, as
applicable, of their respective powers set forth therein or herein,
together with such other powers that are reasonably incidental thereto,
shall be binding upon all of the Investors. The Investors acknowledge that
the Loans and all interest, fees and expenses hereunder constitute one debt
of Viking, secured pari passu by all of the Collateral.
18.14. Relation Among Investors. The Investors are not partners or
co-venturers, and no Investor shall be liable for the acts or omissions of,
or (except as otherwise set forth herein in case of the Collateral Agent)
authorized to act for, any other Investor.
19. Indemnity of the Agent and the Investors by Viking.
Except as set forth in the Registration Rights Agreement, Viking agrees to
defend, indemnify and hold the Agent-Related Persons, and each Investor and each
of its respective officers, directors, employees, counsel, representatives,
agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, charges, expenses and disbursements (including
attorney fees) of any kind or nature whatsoever which may at any time (including
at any time following repayment of the Loans and the termination, resignation or
replacement of the Collateral Agent) be imposed on, incurred by or asserted
against any such Person in any way relating to or arising out of this Agreement
or any document contemplated by or referred to herein, or the transactions
contemplated hereby, or any action taken or omitted by any such Person under or
in connection with any of the foregoing, including with respect to any
investigation, litigation or proceeding (including any insolvency proceeding or
appellate proceeding) related to or arising out of this Agreement, any other
Loan Document, or the Loans or the use of the proceeds thereof, whether or not
any Indemnified Person is a party thereto (all the foregoing, collectively, the
"Indemnified Liabilities"); provided, that Viking shall have no obligation
hereunder to any Indemnified Person with respect to Indemnified Liabilities
41
resulting solely from the willful misconduct of such Indemnified Person. The
agreements in this Section shall survive payment of all Obligations.
20. Representation by Counsel. Each party hereto represents and agrees with
each other that it has been represented by or had the opportunity to be
represented by, independent counsel of its own choosing, and that it has had the
full right and opportunity to consult with its respective attorney(s), that to
the extent, if any, that it desired, it availed itself of this right and
opportunity, that it or its authorized officers (as the case may be) have
carefully read and fully understand this Agreement in its entirety and have had
it fully explained to them by such party's respective counsel, that each is
fully aware of the contents thereof and its meaning, intent and legal effect,
and that it or its authorized officer (as the case may be) is competent to
execute this Agreement free from coercion, duress or undue influence. The
parties to this Agreement participated jointly in the negotiation and drafting
of this Agreement. If an ambiguity or question of intent or interpretation
arises, then this Agreement will be construed as if drafted jointly by the
parties to this Agreement, and no presumption or burden of proof will arise
favoring or disfavoring any party to this Agreement by virtue of the authorship
of any of the provisions of this Agreement.
21. General Provisions.
21.1. Expenses. Viking agrees to pay and save Lead Lender harmless
against liability for the payment of the Transaction Expenses.
21.2 Notice. Any notice required or desired to be given by the parties
hereto shall be in writing and may be personally delivered; mailed by
regular mail or certified mail, return receipt requested; sent by telephone
facsimile with a hard copy sent by regular mail; or sent by a nationally
recognized receipted overnight delivery service, including, by example and
not limitation, United Parcel Service, Federal Express, or Airborne
Express. Any such notice shall be deemed given when personally delivered;
if mailed by regular mail, three (3) days after deposit in the United
States mail, postage prepaid; if mailed by certified mail, return receipt
requested, three (3) days after deposit in the United States mail, postage
prepaid, or on the day of receipt by the recipient, whichever is sooner; if
sent by telephone facsimile, on the day sent if sent on a business day
during normal business hours of the recipient or on the next business day
if sent at any other time; or if sent by overnight delivery service, one
(1) business day after deposit in the custody of the delivery service. The
addresses and telephone numbers for the mailing, transmitting, or
delivering of notices shall be as follows:
If to Lead Lender and Collateral
Agent, to: St. Cloud Capital Partners, LP
10866 Wilshire Boulevard,
Suite 1450
Los Angeles, CA 90024
Facsimile: (310) 475-0550
Attn: Cary S. Fitchey
42
If to Viking, to: Viking Systems, Inc.
7514 Girard Avenue, Suite 1509
La Jolla, CA 92037
Facsimile: 858-225-0467
Attn: Tom Marsh
With copies to: Cohne, Rappaport & Segal
257 East 200 South, Suite 700
Salt Lake City, UT 84111
Facsimile: 801-355-1813
Attn: A. O. Headman, Jr.
If to the Investors: (see signature page or Annex A)
Notices of a change of address of a party shall be given in the same manner as
all other notices as hereinabove provided.
21.3. Terms Survive. All agreements, representations, warranties, and
covenants made by Viking shall survive the execution and delivery of this
Agreement and the Loan Documents and shall continue in full force and
effect so long as any obligation to the Investor contemplated by this
Agreement is outstanding and unpaid and thereafter as herein provided.
21.4. No Assignment. The parties agree that neither this Agreement nor
any of the Loan Documents may be assigned by Viking.
21.5. Governing Law. This Agreement and the Loan Documents shall be
governed by and construed in accordance with the laws of the State of
California.
21.6. Jurisdiction. The Parties agree and consent that the courts of
the State of California shall have jurisdiction with respect to enforcement
of this Agreement or any Loan Documents executed in connection herewith and
shall have jurisdiction with respect to any disputes or with respect to any
legal proceedings involving claims arising out of this Agreement or the
Loan Documents.
21.7. Amendments. No provision or term of this Agreement may be
amended, modified, revoked, supplemented, waived, or otherwise changed,
except by a written instrument duly executed by Viking and the Investors
(including St. Cloud) and designated as an amendment, supplement, or
waiver. Viking agrees to pay any fees incurred by Investors in connection
with any consent, waiver or amendment of any Loan Document.
21.8. Counting of Days. Unless otherwise indicated, the term "days"
when used herein shall mean calendar days. If any time period ends on a
Saturday, Sunday, or holiday officially recognized by the State of
California, the period shall be deemed to end on the next succeeding
business day.
43
21.9. Headings. The article and section headings herein are for
convenience only and shall not affect the construction hereof.
21.10. Entire Agreement. This Agreement and the other Loan Documents
constitute the final expression of the agreement and understanding of the
parties with respect to the general subject matter hereof and supersede any
previous understanding, negotiations, or discussions, whether written or
oral. This Agreement and the Loan Documents may not be contradicted by
evidence of any alleged oral agreement.
21.11. Conflict. If the term of any other Loan Document, except the
Promissory Note, shall be in conflict with this Agreement, this Agreement
shall govern to the extent of the conflict. If the terms of this Agreement
shall be in conflict with the Promissory Note, the Promissory Note will
govern to the extent of the conflict.
21.12. Use of Terms. As used herein, words in any gender shall be
deemed to include the other genders, and the singular shall be deemed to
include the plural, and vice versa.
21.13. Agency. Nothing in this Agreement shall be construed to
constitute the creation of a partnership or joint venture between the
Investors and Viking. No Investor is an agent or representative of Viking.
21.14. Authority to File Notices. Viking hereby appoints and
designates the Collateral Agent as its attorney-in-fact to file, for record
any notice that the Collateral Agent deems necessary to protect the Secured
Parties' interests under the Security Agreement. This power shall be deemed
coupled with an interest and shall be irrevocable while any sum or
performance remains due and owing under any of the Loan Documents.
21.15. Waiver. An Investor shall not be deemed to have waived any
rights hereunder unless such waiver is given in writing and signed by such
Investor. No delay or admission on the part of an Investor in exercising
any right shall operate as a waiver of such right or any other right. A
written waiver by an Investor of a provision of this Agreement shall not
prejudice or constitute a waiver of the Investor's rights otherwise to
demand strict compliance with that provision or any other provision of this
Agreement. No prior written waiver by the Investor, nor any course of
dealing between the Investor and Viking, shall constitute a waiver of any
of the Investor's rights or obligations. Whenever the consent of the
Investor is required under this Agreement, the granting of such consent by
the Investor in any instance shall not constitute continuing consent in
subsequent instances where such consent is required, and in all cases, such
consent may be granted or withheld in the sole discretion of the Investor.
21.16. Severability. If a court of competent jurisdiction finds any
provision of this Agreement or any of the Loan Documents to be invalid or
unenforceable as to any person or circumstance, such finding shall not
render that provision invalid or unenforceable as to any other persons or
circumstances. If feasible, any such offending provision shall be deemed to
be modified to be within the limits of enforceability or validity. However,
if the offending provision cannot be so modified, it shall be stricken, and
all other provisions of this Agreement in all other respects shall remain
valid and enforceable.
[Signature Page Follows]
44
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
IN WITNESS WHEREOF, each of the parties to this Agreement has executed this
Agreement on the day and year above written.
VIKING:
Viking Systems, Inc.,
a Nevada corporation
By: /s/ Thomas B. Marsh, President
LEAD LENDER and COLLATERAL
AGENT:
St. Cloud Capital Partners, L.P.
By: SCGP, LLC
Its: General Partner
By: /s/ Cary S. Fitchey
Name: Cary S. Fitchey
Title: Senior Managing Member
Address:
10866 Wilshire Boulevard, Suite 1450
Los Angeles, CA 90024
Facsimile: (310)475-0550
With a copy to:
Latham & Watkins LLP
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Facsimile: (213)891-8763
Attention: W. Alex Voxman, Esq.
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
SIGNATURE PAGE TO
SECURITIES PURCHASE AGREEMENT
DATED AS OF MARCH 22, 2005
BY AND AMONG
VIKING SYSTEMS, INC.,
ST. CLOUD CAPITAL PARTNERS, L.P.,
AS "LEAD LENDER" AND "COLLATERAL AGENT"
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Securities Purchase
Agreement (the "Securities Purchase Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Securities Purchase
Agreement and Signature Page, together with all counterparts of such Agreement
and signature pages of the other Investors named in such Securities Purchase
Agreement, shall constitute one and the same document in accordance with the
terms of such Securities Purchase Agreement.
INVESTORS:
By: /s/ Donald Tucker
Name: Donald Tucker
(Print)
Title: --------
(If applicable)
Address 1626 Clemson Circle
La Jolla, California 92037
Facsimile
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
SIGNATURE PAGE TO
SECURITIES PURCHASE AGREEMENT
DATED AS OF MARCH 22, 2005
BY AND AMONG
VIKING SYSTEMS, INC.,
ST. CLOUD CAPITAL PARTNERS, L.P.,
AS "LEAD LENDER" AND "COLLATERAL AGENT"
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Securities Purchase
Agreement (the "Securities Purchase Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Securities Purchase
Agreement and Signature Page, together with all counterparts of such Agreement
and signature pages of the other Investors named in such Securities Purchase
Agreement, shall constitute one and the same document in accordance with the
terms of such Securities Purchase Agreement.
INVESTORS:
By: /s/ Brian Miller
Name: Brian Miller
(Print)
Title: --------
(If applicable)
Address c/o EVP Strategic Alliances
One Market Plaza Spear Tower
Suite 700
San Francisco, CA 94105
Facsimile
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
ANNEX A
- -------------------------------------------------------------------------------
SCHEDULE OF INVESTORS
- --------------------------------------------------------------------------------
INVESTOR ADDRESS LOAN WARRANT SHARES
- --------------------------------------------------------------------------------
St. Cloud Capital Partners, 10866 Wilshire Boulevard $750,000 937,500
L.P. Suite 1450
Los Angeles, CA 90024
Facsimile: (310)475-0550
Attn: Cary Fitchey
- --------------------------------------------------------------------------------
Donald Tucker 1626 Clemson Circle $500,000 625,000
La Jolla, CA 92037
Facsimile: ________
- --------------------------------------------------------------------------------
Brian Miller c/o EVP Strategic $300,000 375,000
Alliances
One Market Plaza Spear
Tower,
Suite 700
San Francisco, CA 94105
Facsimile:_________
Attn: Brian Miller
- --------------------------------------------------------------------------------
Pacific Asset Partners Pacific Asset Partners $200,000 250,000
222 Kearny Street, Suite
410
San Francisco, CA 94108
Facsimile: _________
Attn: Robert M. Stafford
- --------------------------------------------------------------------------------
John S. Lemak 2828 Routh Street $100,000 125,000
Suite 500
Dallas, Texas 75201
Facsimile: (214)
849-9879
Attn: John S. Lemak
- --------------------------------------------------------------------------------
Sandor Capital Master Fund 2828 Routh Street $300,000 375,000
Suite 500
Dallas, Texas 75201
Facsimile: (214)
849-9879
Attn: John S. Lemak
- --------------------------------------------------------------------------------
Annex A-1
EXHIBIT A
PROMISSORY NOTE
EXHIBIT B
WARRANT
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
EXHIBIT D
SECURITY AGREEMENT
EXHIBIT E
FORM OF ADDENDUM AGREEMENT
ADDENDUM TO
SECURITIES PURCHASE AGREEMENT
This Addendum to the Securities Purchase Agreement (the "Addendum") is made
as of ___________, 2005, by and among Viking Systems, Inc., a Nevada corporation
("Viking"), and the individuals and entities listed on the signature page
attached hereto (the "Additional Investors").
On March, 22, 2005, Viking entered into a Securities Purchase Agreement
(the "Securities Purchase Agreement") with St. Cloud Capital Partners, L.P., a
Delaware limited partnership ("St. Cloud"), as "Lead Lender" and "Collateral
Agent," and St. Cloud, Brian Miller and Donald Tucker as Investors. The
Securities Purchase Agreement provides in Section 2 thereof that additional
Investors may, under the terms and pursuant to the conditions set forth therein,
become parties to the Securities Purchase Agreement.
AGREEMENT
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto mutually agree as follows:
1. Loan. Subject to the terms and conditions hereof, at the Closing (as
defined in Section 2 hereof), Viking agrees to borrow from each Additional
Investor, and each Additional Investor, severally and not jointly, agrees to
lend to Viking, the amount set forth opposite such Additional Investor's name on
Exhibit A hereto. Each of the Additional Investors, by their signatures hereto,
shall hereby (i) become parties to the Securities Purchase Agreement, (ii) be
considered an "Investor" for all purposes under the Securities Purchase
Agreement and (iii) have all the rights and obligations of an Investor
thereunder.
2. Closing. The closing of the transactions contemplated hereunder and
under the Securities Purchase Agreement (the "Closing") shall be held at the
offices of Latham & Watkins, 633 West Fifth Street, Los Angeles, California, at
_____ __.m., on __________, 2005, or at such other time and place as Viking and
the Additional Investors may agree.
3. Delivery. At the Closing, (i) Viking shall deliver to each Additional
Investor or its counsel, the instruments and documents set forth in Section 3.1
of the Securities Purchase Agreement; and (ii) each Additional Investor shall
deliver to Viking the instruments and documents set forth in Section 3.2 of the
Securities Purchase Agreement.
4. Representations and Warranties.
4.1 Representations and Warranties of Viking. Each Additional Investor
hereby acknowledges receipt of the Securities Purchase Agreement and the
exhibits thereto. Viking affirms to each Additional Investor that:
(i) The representations and warranties of Viking set forth in
Section 11 of the Securities Purchase Agreement were true and correct
in all respects when made;
(ii) Such representations and warranties, which are incorporated
herein by this reference and made a part hereof, remain true and
accurate in all respects as of the date hereof, except for changes
resulting from the transactions contemplated in the Securities
Purchase Agreement.
4.2 Representations and Warranties of Additional Investors. Each
Additional Investor acknowledges that such Additional Investor has reviewed
the representations and warranties set forth in Section 12 of the
Securities Purchase Agreement and agrees with Viking that such
representations and warranties, which are incorporated herein by this
reference and made a part hereof, are true and correct as of the date
hereof as they relate to such Additional Investor.
5. Miscellaneous.
5.1 Incorporation by Reference. The provisions set forth in Section 21
of the Purchase Agreement are incorporated herein by this reference and
made a part hereof.
5.2 Counterparts. This Addendum may be executed in any number of
counterparts, each of which may be executed by less than all of the
Additional Investors, each of which shall be enforceable against the
parties actually executing such counterparts, and all of which together
shall constitute one instrument.
[Signature Page Follows]
2
The parties hereto have executed this Addendum as of the date first set
forth above.
VIKING:
Viking Systems, Inc.,
a Nevada corporation
By:______________________________
Thomas B. Marsh, President
ADDITIONAL INVESTORS:
By:_______________________________
Name:_____________________________
(Print)
Title:____________________________
(If applicable)
Address___________________________
__________________________________
Facsimile_________________________
3