Exhibit 4.1
LOAN AND WARRANT AGREEMENT
This Loan and Warrant Agreement is entered into and dated as of
October 14, 2004 (as amended, supplemented or otherwise modified from time
to time, together with the Disclosure Schedule, this "AGREEMENT"), among
Zoltek Companies, Inc., a Missouri corporation (the "BORROWER"), the Lenders
identified on the signature pages hereto (each, a "LENDER" and collectively,
the "LENDERS"), and Omicron Master Trust, a Bermuda business trust ("OMT"),
as administrative agent for the Lenders (in such capacity, the
"ADMINISTRATIVE AGENT").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Borrower desires to borrow certain sums from each of the
Lenders and, in consideration thereof issue certain convertible notes and
warrants to each of the Lenders, and each Lender, severally and not jointly,
desires to make a loan to the Borrower and accept such notes and warrants
from the Borrower, all pursuant to the terms set forth herein.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained
in this Agreement, and for other good and valuable consideration the receipt
and adequacy of which are hereby acknowledged, the Borrower and the Lenders
agree as follows:
ARTICLE I.
DEFINITIONS
1.1. Definitions. In addition to the terms defined elsewhere in
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this Agreement, when used herein the following terms shall have the meanings
set forth in this Section 1.1:
"ACTION" means any action, suit, inquiry, notice of
violation, proceeding (including any partial proceeding such as a
deposition) or investigation pending or threatened in writing
against or affecting the Borrower, any Subsidiary or any property
of the Borrower or any Subsidiary before or by any court,
arbitrator, governmental or administrative agency, regulatory
authority (federal, state, county, local or foreign), stock market,
stock exchange or trading facility.
"AFFILIATE" means, with respect to any Person, any other
Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common
control with such Person, as such terms are used in and construed
under Rule 144.
"BORROWER COUNSEL" means Thompson Coburn LLP.
"BUSINESS DAY" means any day except Saturday, Sunday and
any day that is a federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by
law or other governmental action to close.
"CAPITAL LEASE OBLIGATIONS" of any Person shall mean the
obligations of such Person to pay rent or other amounts under any
lease of (or other arrangement conveying the right to use) real or
personal property, or a combination thereof, which obligations are
required to be classified and accounted for as capital leases on a
balance sheet of such
Person under GAAP and, for the purposes of this Agreement, the amount
of such obligations at any time shall be the capitalized amount
thereof at such time determined in accordance with GAAP.
"CASH EQUIVALENTS" means:
(a) investments in debt obligations maturing within
one year from the date of acquisition thereof to the extent the principal
thereof and interest thereon is backed by the full faith and credit of the
United States of America;
(b) investments in commercial paper maturing within
180 days or less from the date of acquisition thereof and having, at such
date of acquisition, the highest credit rating obtainable from Standard &
Poor's Ratings Services, a division of The McGraw Hill Companies, or any
successor thereto, or from Moody's Investors Service, Inc. or any successor
thereto;
(c) investments in certificates of deposit, banker's
acceptances and time deposits maturing within 180 days from the date of
acquisition thereof issued or guaranteed by or placed with, and money market
deposit accounts issued or offered by, any domestic office of any commercial
bank organized under the laws of the United States of America or any State
thereof that has a combined capital and surplus and undivided profits of not
less than $500,000,000, in each case denominated in dollars; and
(d) money market mutual funds, at least 90% of the
investments of which are in cash or investments contemplated by clauses (a),
(b) and (c) of this definition.
"CLOSING" means the closing of the loan and the purchase
and sale of Securities pursuant to Section 2.1.
"CLOSING DATE" means the Business Day immediately
following the date on which all the conditions set forth in
Sections 6.1 and 6.2 hereof are satisfied or waived by the
appropriate party.
"COLLATERAL SECURITY" all of the property subject to the
Lien of the Security Agreement or the Mortgage.
"COMMISSION" means the U.S. Securities and Exchange
Commission.
"COMMON STOCK" means the common stock of the Borrower,
$0.01 par value per share, and any securities into which such
common stock may hereafter be reclassified.
"COMMON STOCK EQUIVALENTS" means any securities of the
Borrower or any Subsidiary which entitle the holder thereof to
acquire Common Stock at any time, including without limitation, any
debt, preferred stock, rights, options, warrants or other
instrument that is at any time convertible into or exchangeable
for, or otherwise entitles the holder thereof to receive, Common
Stock or other securities that entitle the holder to receive,
directly or indirectly, Common Stock.
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"DISCLOSURE SCHEDULE" means the Disclosure Schedule
attached to this Agreement.
"DOLLARS" means U.S. dollars.
"EFFECTIVE DATE" means the date that a Registration
Statement is first declared effective by the Commission.
"ELIGIBLE MARKET" means any of the New York Stock
Exchange, the American Stock Exchange, the Nasdaq National Market
or the Nasdaq SmallCap Market.
"EQUITY INTEREST" means (i) shares of corporate stock,
partnership interests, membership interests and any other interest
that confers on a Person the right to receive a share of the
profits and losses of, or a distribution of the assets of, the
issuing Person and (ii) all warrants, options or other rights to
acquire any Equity Interest set forth in clause (i) of this defined
term.
"EXCHANGE ACT" means the U.S. Securities Exchange Act of
1934, as amended.
"EVENT OF DEFAULT" has the meaning assigned to such term
in the Notes.
"GAAP" means U.S. generally accepted accounting principles
as in effect from time to time applied on a consistent basis during
the periods involved.
"INTERCREDITOR AGREEMENT" has the meaning set forth in
Section 2.2(a)(viii).
"LENDER PERCENTAGE" means, with respect to any Lender as
of any date, the percentage equal to a fraction the numerator of
which shall be the outstanding principal balance of such Lender's
Notes and the denominator of which shall be the aggregate
outstanding principal balance of all Notes.
"LIEN" means (a) any lien, charge, claim, security
interest, encumbrance, right of first refusal or other restriction,
wherever created or charged, (b) with respect to any property, the
interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement relating to
such property, and (c) in the case of securities, any purchase
option, call or similar right of a third party with respect to such
securities.
"LOAN AMOUNT" means, with respect to each Lender, the loan
amount indicated below such Lender's name on its signature page of
this Agreement.
"NOTES" means, collectively, each of the senior secured
convertible promissory notes, due on the date that is 42 months
after the Closing Date, each issuable by the Borrower to one of the
Lenders pursuant to the terms hereof, in the form of Exhibit A
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hereto.
"OPCO" means Zoltek Vegyipari Reszvenytarsasag, a
corporation formed under the laws of the Republic of Hungary, whose
registered office is at H-2537 Nyergesujfalu,
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Varga Jozsef ter 1., registered by the Court of Komarom-Esztergom
county acting as Court of Registration under registration
No. 11-10-001447.
"PERMITTED LIENS" means: (a) liens for taxes, assessments
or governmental charges not delinquent or being contested in good
faith and by appropriate proceedings and for which adequate
reserves in accordance with GAAP are maintained on the books of the
Borrower or the applicable Subsidiary; (b) liens arising out of
deposits in connection with workers' compensation, unemployment
insurance, old age pensions or other social security or retirement
benefits legislation; (c) deposits or pledges to secure bids,
tenders, contracts (other than contracts for the payment of money),
leases, statutory obligations, surety and appeal bonds, and other
obligations of like nature arising in the ordinary course of
business of the Borrower or a Subsidiary; (d) liens imposed by law,
such as mechanics', workers', materialmens', carriers' or other
like liens arising in the ordinary course of business of the
Borrower or a Subsidiary which secure the payment of obligations
which are not past due or which are being diligently contested in
good faith by appropriate proceedings and for which adequate
reserves in accordance with GAAP are maintained on the books of the
Borrower or the applicable Subsidiary; (e) liens existing on the
Closing Date and disclosed in Section 1.1 of the Disclosure
Schedule, and any extensions, renewals or replacements thereof,
provided that no additional property shall be encumbered by such
liens and the unpaid principal amount of the Debt secured thereby
shall not be increased on or after the date of any such extension,
renewal or replacement; (f) purchase money security interests or
liens for the purchase of fixed assets to be used in the business
of the Borrower or a Subsidiary, securing solely the fixed assets
so purchased and the proceeds thereof; (g) capitalized leases which
do not violate any provision of this Agreement; (h) liens of
commercial depository institutions, arising in the ordinary course
of business, constituting a statutory or common law right of setoff
against amounts on deposit with such institution; (i) liens in
favor of the Administrative Agent and the Lenders pursuant to the
Transaction Documents; and (j) rights of way, zoning restrictions,
easements and similar encumbrances affecting the Borrowers' real
property which do not materially interfere with the use of such
property.
"PERSON" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
"PROCEEDING" means an action, claim, suit, investigation
or proceeding (including, without limitation, an investigation or
partial proceeding, such as a deposition), whether commenced or
threatened.
"REGISTRATION STATEMENT" means one or more registration
statements meeting the requirements of the Registration Rights
Agreement and covering the resale of Underlying Shares by the
Lenders who shall be named "selling shareholders" thereunder.
"REGISTRATION RIGHTS AGREEMENT" means the Registration
Rights Agreement, dated as of the date of this Agreement, among the
Borrower and the Lenders, in the form of Exhibit B hereto.
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"RELATED PARTIES" means, with respect to any specified
Person, such Person's Affiliates and the respective directors,
officers, employees, agents and advisors of such Person and such
Person's Affiliates.
"REQUIRED LENDERS" means one or more Lenders that made one
or more Loans in an initial principal amount representing greater
than 50% of the aggregate initial principal amount of all Loans.
"REQUIRED MINIMUM" means, as of any date, the maximum
aggregate number of shares of Common Stock then issued or
potentially issuable in the future pursuant to the Transaction
Documents that the Borrower is obligated to issue, whether
contingently or otherwise, including, without limitation, any
Underlying Shares issuable upon exercise or conversion (as
applicable) in full of all Warrants and Notes and assuming that any
previously unconverted Notes are held until the maturity date
thereof, and all interest on the Notes is paid with shares of
Common Stock.
"RESTRICTED PAYMENT" means, as to any Person, (a) any
dividend or other distribution by such Person (whether in cash,
securities or other property) with respect to any Equity Interests
of such Person, (b) any payment (whether in cash, securities or
other property), including any sinking fund or similar deposit, on
account of the purchase, redemption, retirement, acquisition,
cancellation or termination of any such Equity Interest, (c) the
acquisition for value by such Person of any Equity Interests issued
by such Person or any other Person that controls such Person and
(d) any payment by such Person to its officers or directors other
than (i) in compliance with existing Borrower stock option plans,
(ii) salaries in the ordinary course of business, and (iii)
payments required by the terms of the 2003 Debentures (as defined
in the Notes), the 2004 Debentures (as defined in the Notes) and
the Notes, in each case to the extent held by such officers and
directors.
"RULE 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted
by the Commission having substantially the same effect as such
Rule.
"SECURITIES" means the Notes, the Warrants and the
Underlying Shares issuable under the Notes and the Warrants.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SECURITY AGREEMENT" has the meaning set forth in
Section 2.2(a)(v).
"SHAREHOLDER AGREEMENT" has the meaning set forth in
Section 2.2(a)(vii).
"STRATEGIC TRANSACTION" means a transaction or
relationship in which (1) the Borrower issues shares of Common
Stock to a Person which the Board of Directors of the Borrower
determines in good faith is, itself or through its Subsidiaries, an
operating company in a business synergistic with the business of
the Borrower and (2) the Borrower expects to receive benefits in
addition to the investment of funds, but shall not
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include a transaction in which the Borrower issues securities
primarily for the purpose of raising capital or to an entity whose
primary business is investing in securities.
"SUBSIDIARY" means, with respect to any Person (the
"PARENT") at any date, any corporation, limited liability company,
partnership, association or other entity the accounts of which
would be consolidated with those of the parent in the parent's
consolidated financial statements if such financial statements were
prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership,
association or other entity of which securities or other ownership
interests representing 50% or more of the equity or 50% or more of
the ordinary voting power is or, in the case of a partnership, 50%
or more of the general partnership interests are, as of such date,
owned, controlled or held by the parent or one or more subsidiaries
of the parent. Unless otherwise expressly provided, "Subsidiary"
shall mean a Subsidiary of the Borrower.
"TRADING DAY" means (i) a day on which the Common Stock is
traded on a Trading Market (other than the OTC Bulletin Board), or
(ii) if the Common Stock is not traded on a Trading Market (other
than the OTC Bulletin Board), a day on which the Common Stock is
traded in the over-the-counter market, as reported by the OTC
Bulletin Board or the National Quotation Bureau Incorporated, or
(iii) if the Common Stock is not traded on any Trading Market and
not quoted on the OTC Bulletin Board, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization
or agency succeeding to its functions of reporting prices);
provided, that in the event that the Common Stock is not listed or
quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day
shall mean a Business Day.
"TRADING MARKET" means Nasdaq National Market, the OTC
Bulletin Board or any Eligible Market on which the Common Stock is
then listed or quoted.
"TRANSACTION DOCUMENTS" means this Agreement, the Notes,
the Warrants, the Registration Rights Agreement, the Security
Agreement, the Mortgage, the Guarantee Agreement, the Intercreditor
Agreement and any other documents or agreements executed or
delivered in connection with the transactions contemplated
hereunder.
"UNDERLYING SHARES" means the shares of Common Stock
issuable upon conversion of the Notes, as payment of interest
thereunder, and upon exercise of the Warrants, and in satisfaction
of any other obligation of the Borrower to issue shares of Common
Stock pursuant to the Transaction Documents.
"WARRANTS" means the Common Stock purchase warrants in the
form of Exhibit C, issuable pursuant to Section 2.2(a)(ii).
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ARTICLE II.
LOAN; PURCHASE AND SALE
2.1. Closing. Subject to the terms and conditions set forth in
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this Agreement, at the Closing each Lender shall severally make a loan to
the Borrower in a principal amount equal to the Loan Amount with respect to
such Lender (with respect to each Lender, a "LOAN") and, in consideration
thereof, Borrower shall execute and deliver to such Lender a Note evidencing
such Loan and a Warrant. The Closing shall take place at the offices of
Bryan Cave LLP, 1290 Avenue of the Americas, New York, NY 10104 on the date
this Agreement is executed and delivered by the parties or at such other
location or time as the parties may agree.
2.2. Closing Deliveries.
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(a) At the Closing, the Borrower shall deliver or cause
to be delivered to each Lender the following, appropriately dated (the
"BORROWER DELIVERABLES"):
(i) a Note, in the aggregate principal amount of the
Loan Amount indicated below such Lender's name on its signature page
of this Agreement, registered in the name of such Lender;
(ii) a Warrant, duly executed by the Borrower and
registered in the name of such Lender, pursuant to which such Lender
shall have the right to acquire 30% of the number of shares of Common
Stock issuable upon an assumed conversion in full of the Note referred
to in Section 2.2(a)(i);
(iii) a mortgage agreement, duly executed by Opco, the
Administrative Agent and each other Lender, in the form attached
hereto as Exhibit D (as amended, supplemented or otherwise modified
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from time to time, the "MORTGAGE");
(iv) a guarantee agreement, duly executed by Opco, the
Borrower and each other Lender, in the form attached hereto as
Exhibit E (as amended, supplemented or otherwise modified from time
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to time, the "GUARANTEE AGREEMENT");
(v) a security agreement, duly executed by Opco, the
Administrative Agent and each other Lender, in the form attached
hereto as Exhibit F (as amended, supplemented or otherwise modified
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from time to time, the "SECURITY AGREEMENT");
(vi) the Registration Rights Agreement, duly executed
by the Borrower;
(vii) a letter agreement, duly executed by Zsolt Rumy,
Chief Executive Officer of the Borrower, in his individual
capacity, and accepted and agreed to by the Borrower (as amended,
supplemented or otherwise modified from time to time, the
"SHAREHOLDER AGREEMENT");
(viii) an intercreditor agreement, duly executed by the
Borrower, Opco, the Administrative Agent and each other Lender, in
the form attached hereto as Exhibit H
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(as amended, supplemented or otherwise modified from time to time,
the "INTERCREDITOR AGREEMENT");
(ix) evidence of proper applications made to, and
approvals received from, each Trading Market with respect to the
trading of Underlying Securities thereon;
(x) the legal opinion of Borrower Counsel, in agreed
form, addressed to the Administrative Agent and such Lender;
(xi) a legal opinion of Hungarian counsel to the
Borrower and Opco as to certain matters (including, without limitation,
perfection, tax and qualification matters) arising under the
Guarantee Agreement and the Security Agreement, all in form and
substance satisfactory to the Administrative Agent and such Lender;
(xii) any and all consents from all Persons that are
necessary or reasonably required by the Administrative Agent or
such Lender in connection with the Transaction Documents,
including, without limitation (1) the consents and certificates
referred to in Section 6.1(g), and (2) relating to the Republic of
Hungary or any local governmental authority contained therein;
(xiii) appropriate lien and record search reports showing
that there are no liens on the collateral security granted under
the Mortgage and the Security Agreement, other than Liens expressly
permitted thereby; and
(xiv) any other document reasonably requested by the
Administrative Agent or such Lender.
(b) At the Closing, each Lender shall deliver or cause to be
delivered to the Borrower the following:
(i) the Loan Amount indicated below such Lender's name
on the signature page of this Agreement, in United States dollars and
in immediately available funds, by wire transfer to an account
designated in writing by the Borrower for such purpose;
(ii) the Registration Rights Agreement, duly executed
by such Lender;
(iii) the Mortgage, duly executed by such Lender;
(iv) the Intercreditor Agreement duly executed by such
Lender;
(v) the Guarantee Agreement duly executed by such
Lender; and
(vi) the Security Agreement, duly executed by such
Lender.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Borrower. Subject to
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the qualifications and disclosures set forth beside the specific reference to
this Agreement in the Disclosure Schedule (the parties hereto agreeing that
a reference in the Disclosure Schedule to a particular Section shall only
apply to the representation in such Section), the Borrower hereby makes the
following representations and warranties to the Administrative Agent and
each Lender:
(a) Subsidiaries. The Borrower does not directly or
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indirectly control or own any Equity Interest in any Subsidiary, other than
as listed in Section 3.1(a) of the Disclosure Schedule. Except as disclosed
in Section 3.1(a) of the Disclosure Schedule, the Borrower owns, directly or
indirectly, all of the Equity Interests of each Subsidiary free and clear of
any Lien, and all the issued and outstanding Equity Interests of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights.
(b) Organization and Qualification. Each of the Borrower
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and each Subsidiary is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation or organization (as applicable), with the requisite power
and authority to own and use its properties and assets and to carry on its
business as currently conducted. Neither the Borrower nor any Subsidiary is
in violation of any of the provisions of its respective certificate or
articles of incorporation, bylaws or other organizational or charter
documents. Each of the Borrower and each Subsidiary is duly qualified to
conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could
not, individually or in the aggregate, have or reasonably be expected to
result in (i) an adverse effect on the legality, validity or enforceability
of any Transaction Document or any Lien created under the Security Agreement
or the Mortgage, (ii) a material and adverse effect on the results of
operations, assets, prospects, business or condition (financial or
otherwise) of the Borrower and the Subsidiaries, taken as a whole, or (iii)
an adverse impairment to the Borrower ability to perform on a timely basis
its obligations under any Transaction Document (any of (i), (ii) or (iii), a
"MATERIAL ADVERSE EFFECT").
(c) Authorization; Enforcement. Each of the Borrower and
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Opco has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by each of the Transaction
Documents and otherwise to carry out its obligations thereunder. The
execution and delivery by the Borrower and Opco of each of the Transaction
Documents to which it is a party and the consummation by it of the
transactions contemplated thereunder have been duly authorized by all
necessary corporate action on the part of the Borrower or Opco, as the case
may be, and no further consent or action is required by the Borrower, Opco,
or their respective Boards of Directors or shareholders. Each of the
Transaction Documents has been (or upon delivery will be) duly executed by
the Borrower or Opco, as the case may be, and, when delivered in accordance
with the terms hereof, will constitute the valid and binding obligation of
the Borrower and Opco, to the extent a party thereto, enforceable against
the Borrower or Opco, as the case may be, in accordance with its
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terms except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating
to, or affecting generally the enforcement of, creditors' rights and
remedies or by equitable principles of general application.
(d) No Conflicts. The execution, delivery and performance
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of the Transaction Documents by the Borrower and Opco and the consummation
by the Borrower and Opco of the transactions contemplated thereby do not and
will not (i) conflict with or violate any provision of the Borrower's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become
a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both)
of, any agreement, contract, credit facility, debt or other instrument
(evidencing debt of the Borrower or a Subsidiary or otherwise) or other
understanding to which the Borrower or any Subsidiary is a party or by which
any property or asset of the Borrower or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Borrower or any Subsidiary is subject
(including federal and state securities laws and regulations) and the rules
and regulations of any self-regulatory organization to which the Borrower or
its securities are subject, or by which any property or asset of the
Borrower or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect.
Payments of cash on account of principal of or interest under the Notes,
upon any Event of Default under the Notes, as a result of liquidated damages
under any Transaction Document or upon a Buy-In under and as such term is
defined in a Warrant will not require the consent of, any payment to, or the
springing of any Lien in favor of any lender to or creditor of the Borrower
or any Subsidiary (under a credit facility, loan agreement or otherwise) and
will not result in a default under any such credit facilities, loans or
other agreements.
(e) Filings, Consents and Approvals. Neither the Borrower
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nor Opco is required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court
or other federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance by it of
any Transaction Document to which it is a party, other than (i) the filing
with the Commission of one or more Registration Statements in accordance
with the requirements of the Registration Rights Agreement, (ii) the
application(s) to the Trading Market on which the Common Stock is listed for
trading for the listing of the Underlying Shares for trading thereon in the
time and manner required thereby which have been made and obtained prior to
the Closing Date, and (iii) the requirements, disclosed in Section 3.1(e) of
the Disclosure Schedule, of Hungarian laws, rules and regulations with
respect to the Guarantee Agreement, the Mortgage and the Security Agreement.
(f) Issuance of the Securities. Each of the Securities
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have been duly authorized and, when issued and paid for in accordance with
the Transaction Documents or otherwise, have been or, when issued, will be
duly and validly issued, fully paid and nonassessable, free and clear of all
Liens. The Borrower has reserved from its duly authorized capital stock a
number of shares of Common Stock issuable upon conversion of the Notes (as
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may be issued on account of interest thereunder) and exercise of the
Warrants, which number of reserved shares is not less than the Required
Minimum calculated as of the date hereof.
(g) Capitalization. The number of shares and type of all
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authorized, issued and outstanding capital stock of the Borrower, and all
shares of Common Stock reserved for issuance under the Borrower's various
option and incentive plans and all warrants, debentures and Common Stock
Equivalents (on a pro forma basis immediately after giving effect to the
transactions contemplated by the Transaction Documents), is set forth in
Section 3.1(g) of the Disclosure Schedule. Except as set forth in Section
3.1(g) of the Disclosure Schedule, no securities of the Borrower are
entitled to preemptive or similar rights, and no Person has any right of
first refusal, preemptive right, right of participation, or any similar
right to participate in the transactions contemplated by the Transaction
Documents. Except as a result of the purchase and sale of the Securities and
except as set forth in Section 3.1(g) of the Disclosure Schedule, there are
no outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights
or obligations convertible into or exchangeable for, or giving any Person
any right to subscribe for or acquire, any shares of Common Stock, or any
contract, commitment, understanding or arrangement by which the Borrower is
or may become bound to issue additional shares of Common Stock or Common
Stock Equivalents. The issue and sale of the Securities will not,
immediately or with the passage of time, obligate the Borrower to issue
shares of Common Stock or other securities to any Person (other than the
Lenders) and will not result in a right of any holder of Borrower securities
to adjust the exercise, conversion, exchange or reset price under such
securities.
(h) SEC Reports; Financial Statements. The Borrower has
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filed all reports required to be filed by it under the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the twelve months
preceding the date hereof (or such shorter period as the Borrower was
required by law to file such material) (the foregoing materials being
collectively referred to herein as the "SEC REPORTS" and, together with this
Agreement and Section 3.1(h) of the Disclosure Schedule to this Agreement,
the "DISCLOSURE MATERIALS") on a timely basis or has timely filed a valid
extension of such time of filing and has filed any such SEC Reports prior to
the expiration of any such extension. As of their respective dates, the SEC
Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Borrower included in
the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have
been prepared in accordance GAAP, except as may be otherwise specified in
such financial statements or the notes thereto, and fairly present in all
material respects the financial position of the Borrower and its
consolidated Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case
of unaudited statements, to normal, immaterial, year-end audit adjustments
and the absence of footnotes. All material agreements to which the Borrower
or any Subsidiary is a party or to which the property or assets of the
Borrower or any Subsidiary are subject are included as part of or
specifically identified in the SEC Reports.
11
(i) Press Releases. The press releases disseminated by
--------------
the Borrower during the two (2) years preceding the date of this Agreement
taken as a whole do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(j) Material Changes. Since the date of the latest audited
----------------
financial statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Borrower has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice
and (B) liabilities not required to be reflected in the Borrower's financial
statements pursuant to GAAP or not required to be disclosed in filings made
with the Commission, (iii) the Borrower has not altered its method of
accounting or the identity of its auditors, (iv) the Borrower has not
declared or made any dividend or distribution of cash or other property to
its shareholders or purchased, redeemed or made any agreements to purchase
or redeem any shares of its capital stock, and (v) the Borrower has not
issued any equity securities to any officer, director or Affiliate, except
pursuant to existing Borrower stock incentive plans. Except as noted in the
Borrower's SEC Reports, the Borrower does not have pending before the
Commission any request for confidential treatment of information.
(k) Litigation. There is no Action which (i) adversely
----------
affects or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) except as otherwise set
forth in the SEC Reports, could, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect. Neither the
Borrower nor any Subsidiary, nor any director or officer thereof, is or has
been the subject of any Action involving a claim of violation of or
liability under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been, and to the knowledge of the Borrower,
there is not pending or contemplated, any investigation by the Commission
involving the Borrower or any current or former director or officer of the
Borrower. The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the
Borrower or any Subsidiary under the Exchange Act or the Securities Act.
(l) Labor Relations. No material labor dispute exists or,
---------------
to the knowledge of the Borrower, is imminent with respect to any of the
employees of the Borrower or any Subsidiary.
(m) Compliance. Neither the Borrower nor any Subsidiary
----------
(i) is in default under or in violation of (and no event has occurred that
has not been waived that, with notice or lapse of time or both, would result
in a default by the Borrower or any Subsidiary under), nor has the Borrower
or any Subsidiary received notice of a claim that it is in default under or
that it is in violation of, any indenture, loan or credit agreement or any
other agreement or instrument to which it is a party or by which it or any
of its properties is bound (other than defaults or violations that have been
cured or waived), (ii) is in violation of any order of any court, arbitrator
or governmental body, or (iii) is or has been in violation of any statute,
rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws
12
relating to taxes, environmental protection, occupational health and safety,
product quality and safety and employment and labor matters, except in each
case as could not, individually or in the aggregate, have or could not
reasonably be expected to result in a Material Adverse Effect. The Borrower
is in compliance with the applicable requirements of the Sarbanes-Oxley Act
of 2002, as amended, and the rules and regulations thereunder promulgated by
the Commission, except where such noncompliance could not have or reasonably
be expected to result in a Material Adverse Effect. The Borrower is not, to
the best of its knowledge (after due inquiry), in default in any material
respect with the terms, conditions or covenants set forth in (i) the
Securities Purchase Agreement, or the debentures or warrants issued pursuant
thereto, among the Borrower and the Lenders, dated as of December 19, 2003
or (ii) the Securities Purchase Agreement, or the debentures or warrants
issued pursuant thereto, among the Borrower and the Lenders, dated as of
March 11, 2004.
(n) Regulatory Permits. The Borrower and the Subsidiaries
------------------
possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as described in the SEC
Reports, except where the failure to possess such permits could not,
individually or in the aggregate, have or reasonably be expected to result
in a Material Adverse Effect ("MATERIAL PERMITS"), and neither the Borrower
nor any Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.
(o) Title to Assets. The Borrower and the Subsidiaries
---------------
have good and marketable title in fee simple to all real property owned by
them that is material to the business of the Borrower and the Subsidiaries
and good and marketable title in all personal property owned by them that is
material to the business of the Borrower and the Subsidiaries, in each case
free and clear of all Liens, except for Permitted Liens and except for such
Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Borrower and the Subsidiaries. Any real property and
facilities held under lease by the Borrower and the Subsidiaries that are
material to the business of the Borrower and the Subsidiaries are held by
them under valid, subsisting and enforceable leases of which the Borrower
and the Subsidiaries are in compliance.
(p) Patents and Trademarks. The Borrower and the
----------------------
Subsidiaries have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
licenses and other similar rights that are necessary or material for use in
connection with their respective businesses as described in the SEC Reports
and which the failure to so have could not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect (collectively, the "INTELLECTUAL PROPERTY RIGHTS"). Neither the
Borrower nor any Subsidiary has received a written notice that any
Intellectual Property Right violates or infringes upon the rights of any
Person. Except as set forth in the SEC Reports, to the knowledge of the
Borrower, all such Intellectual Property Rights are enforceable and there is
no existing infringement by another Person of any of the Intellectual
Property Rights.
(q) Insurance. The Borrower and the Subsidiaries are insured
---------
by insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which the Borrower and the Subsidiaries are engaged. Neither the Borrower
nor any Subsidiary has any reason to believe that it will not be
13
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business without a significant increase in cost.
(r) Transactions With Affiliates and Employees. Except as
------------------------------------------
set forth in the SEC Reports, none of the officers or directors of the
Borrower or any Subsidiary and, to the knowledge of the Borrower, none of
the employees of the Borrower or any Subsidiary is presently a party to any
transaction with the Borrower or any Subsidiary (other than for services as
employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to
the knowledge of the Borrower, any entity in which any officer, director, or
any such employee has a substantial interest or is an officer, director,
trustee or partner.
(s) Internal Accounting Controls. The Borrower and the
----------------------------
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to maintain asset accountability, (iii) access to assets is permitted only
in accordance with management's general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences. The Borrower has established disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the Borrower and
designed such disclosure controls and procedures to ensure that material
information relating to the Borrower, including its Subsidiaries, is made
known to the certifying officers by others within those entities,
particularly during the period in which the Borrower's Form 10-K or 10-Q, as
the case may be, is being prepared. The Borrower's certifying officers have
evaluated the effectiveness of the Borrower's controls and procedures in
accordance with Item 307 of Regulation S-K under the Exchange Act for the
Borrower's most recently ended fiscal quarter or fiscal year-end (such date,
the "EVALUATION DATE"). The Borrower presented in its most recently filed
Form 10-K or Form 10-Q the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no significant changes in the Borrower's internal controls (as such
term is defined in Item 308(c) of Regulation S-K under the Exchange Act) or,
to the Borrower's knowledge, in other factors that could significantly
affect the Borrower's internal controls.
(t) Solvency. Based on the financial condition of the
--------
Borrower as of the Closing Date (and assuming that the Closing shall have
occurred), (i) the Borrower's fair saleable value of its assets exceeds the
amount that will be required to be paid on or in respect of the Borrower's
existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Borrower's assets do not constitute
unreasonably small capital to carry on its business for the current fiscal
year as now conducted and as proposed to be conducted including its capital
needs taking into account the particular capital requirements of the
business conducted by the Borrower, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the
Borrower, together with the proceeds the Borrower would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses
of the cash, would be
14
sufficient to pay all amounts on or in respect of its debt when such amounts
are required to be paid. The Borrower does not intend to incur debts beyond
its ability to pay such debts as they mature (taking into account the timing
and amounts of cash to be payable on or in respect of its debt).
(u) Certain Fees. Except as set forth in Section 3.1(u) of
------------
the Disclosure Schedule, no brokerage or finder's fees or commissions are or
will be payable by the Borrower to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other Person
with respect to the transactions contemplated by this Agreement. Neither the
Administrative Agent nor any Lender shall have any obligation with respect
to any fees or with respect to any claims (other than such fees or
commissions owed by such Person pursuant to written agreements executed by
such Person which fees or commissions shall be the sole responsibility of
such Person) made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement.
(v) Certain Registration Matters. Assuming the accuracy of
----------------------------
the Lenders' representations and warranties set forth in Sections
3.2(b)-(e), no registration under the Securities Act is required for the
offer and sale of the Securities by the Borrower to the Lenders under the
Transaction Documents. The Borrower is eligible to register the resale of
its Common Stock for resale by the Lenders under Form S-3 promulgated under
the Securities Act. The Borrower has not granted or agreed to grant to any
Person any rights (including without limitation "piggy-back" registration
rights) to have any securities of the Borrower registered with the
Commission or any other governmental authority that have not been satisfied.
(w) Listing and Maintenance Requirements. Except as
------------------------------------
specified in the SEC Reports, the Borrower has not, in the two years
preceding the date hereof, received notice from any Eligible Market to the
effect that the Borrower is not in compliance with the listing or
maintenance requirements thereof. The Borrower is, and has no reason to
believe that it will not in the foreseeable future continue to be, in
compliance with the listing and maintenance requirements for continued
listing of the Common Stock on the Trading Market. The issuance and sale of
the Securities under the Transaction Documents does not contravene the rules
and regulations of the Trading Market, and no approval of the shareholders
of the Borrower thereunder is required for the Borrower to issue and deliver
to the Lenders the maximum number of Securities contemplated by Transaction
Documents, including as may be required pursuant to Nasdaq Rule Filing
SR-NASD-2003-40 (March 14, 2003) concerning shareholder approval
requirements when officers and directors participate in discounted private
placements and Nasdaq Rule Filing SR-NASD-2003-61 (March 28, 2003)
concerning shareholder approval requirements in connection with a change of
control.
(x) Environmental Matters. Neither the Borrower nor any
---------------------
Subsidiary (i) is in violation of any statute, rule, regulation, decision or
order of any governmental agency or body or any court, domestic or foreign,
relating to the use, disposal or release of hazardous or toxic substances or
relating to the protection or restoration of the environment or human
exposure to hazardous or toxic substances (collectively, "ENVIRONMENTAL
LAWS"), (ii) owns or operates any real property contaminated with any
substance that is subject to any Environmental Laws, (iii) is liable for any
off-site disposal or contamination pursuant to any Environmental Laws, and
(iv) is
15
subject to any claim relating to any Environmental Laws, which violation,
contamination, liability or claim has had or could reasonably be expected to
have a Material Adverse Effect, individually or in the aggregate; and there
is no pending investigation threatened in writing by any governmental
authority that might lead to such a claim.
(y) Investment Company. The Borrower is not, and is not
------------------
an Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(z) Application of Takeover Protections. The Borrower and
-----------------------------------
its Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or other
similar anti-takeover provision under the Borrower's Articles of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Administrative Agent
or the Lenders as a result of the Administrative Agent, the Lenders and the
Borrower fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation the Borrower's issuance
of the Securities and the Lenders' ownership of the Securities.
(aa) No Additional Agreements. The Borrower does not have
------------------------
any agreement or understanding with the Administrative Agent or any Lender
with respect to the transactions contemplated by the Transaction Documents
other than as specified therein, except that any officer or director who
participates in this transaction as a Lender shall not be entitled to any
anti-dilution protection (other than on account of stock splits, stock
combinations and similar events) under the Notes or the Warrants acquired by
them or their Affiliates so as not to violate Nasdaq Rule Filing
SR-NASD-2003-40 (March 14, 2003).
(bb) Disclosure. The Borrower confirms that neither it nor
----------
any Person acting on its behalf has provided the Administrative Agent or any
of the Lenders or their agents or counsel with any information that the
Borrower believes constitutes material, non-public information. The Borrower
understands and confirms that the Administrative Agent and the Lenders will
rely on the foregoing representations and warranties in effecting
transactions in securities of the Borrower. All disclosure provided to the
Administrative Agent and the Lenders regarding the Borrower, its business
and the transactions contemplated hereby, furnished by or on behalf of the
Borrower (including the Borrower's representations and warranties set forth
in this Agreement and the Disclosure Schedule) are true and correct and do
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
(cc) Acknowledgment Regarding Lenders' Purchase of Securities.
--------------------------------------------------------
The Borrower acknowledges and agrees that each of the Lenders is acting
solely in the capacity of an arm's length lender with respect to the
Transaction Documents and the transactions contemplated hereby. The Borrower
further acknowledges that neither the Administrative Agent nor any Lender is
acting as a financial advisor or fiduciary of the Borrower (or in any
similar capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and any advice given by the Administrative
Agent or any Lender or any of their respective
16
representatives or agents in connection with the Transaction Documents and
the transactions contemplated hereby is merely incidental to the Lenders'
purchase of the Securities or the Administrative Agent's performance of its
duties under the Transaction Documents. The Borrower further represents to
the Administrative Agent and each Lender that the Borrower's decision to
enter into this Agreement has been based solely on the independent
evaluation by the Borrower and its representatives.
3.2. Representations and Warranties of the Lenders. Each Lender,
---------------------------------------------
for itself and for no other Lender, hereby represents and warrants to the
Borrower as follows:
(a) Organization; Authority. Such Lender is an entity duly
-----------------------
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate, partnership,
limited liability company or other applicable like power and authority to
enter into and to consummate the transactions contemplated by the applicable
Transaction Documents and otherwise to carry out its obligations thereunder.
The execution, delivery and performance by such Lender of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or, if such Lender is not a corporation, such partnership, limited
liability company or other applicable like action, on the part of such
Lender. Each of this Agreement and the Registration Rights Agreement has
been duly executed by such Lender, and when delivered by such Lender in
accordance with terms hereof, will constitute the valid and legally binding
obligation of such Lender, enforceable against it in accordance with its
terms.
(b) Investment Intent. Such Lender is acquiring its Note
-----------------
and Warrant as principal for its own account for investment purposes only
and not with a view to or for distributing or reselling them or any part
thereof, without prejudice, however, to such Lender's right at all times to
sell or otherwise dispose of all or any part thereof in compliance with
applicable federal and state securities laws. Subject to the immediately
preceding sentence, nothing contained herein shall be deemed a
representation or warranty by such Lender to hold any Securities for any
period of time. Such Lender is acquiring such Note and Warrant in the
ordinary course of its business. Such Lender does not have any agreement or
understanding, directly or indirectly, with any Person to distribute any of
the Securities.
(c) Lender Status. At the time such Lender was offered its
-------------
Note and its Warrant, it was, and at the date hereof, it is, an "accredited
investor" as defined in Rule 501(a) under the Securities Act. Such Lender is
not a registered broker-dealer under Section 15 of the Exchange Act.
(d) General Solicitation. Such Lender is not taking the
--------------------
Note or the Warrant as a result of any advertisement, article, notice or
other communication regarding either of them published in any newspaper,
magazine or similar media or broadcast over television or radio or presented
at any seminar or any other general solicitation or general advertisement.
(e) Access to Information. Such Lender acknowledges that
---------------------
it has reviewed the Disclosure Materials and has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Borrower concerning the terms
and conditions of the offering of the Securities and the merits and risks of
investing in
17
the Securities; (ii) access to information about the Borrower and the
Subsidiaries and their respective financial condition, results of
operations, business, properties, management and prospects sufficient to
enable it to evaluate its investment; and (iii) the opportunity to obtain
such additional information that the Borrower possesses or can acquire
without unreasonable effort or expense that is necessary to make an informed
investment decision with respect to the investment. Neither such inquiries
nor any other investigation conducted by or on behalf of such Lender or its
representatives or counsel shall modify, amend or affect such Lender's right
to rely on the truth, accuracy and completeness of the Disclosure Materials
and the Borrower's representations and warranties contained in the
Transaction Documents.
(f) Limited Ownership. The purchase by such Lender of the
-----------------
Securities issuable to it at the Closing (including the Underlying Shares
that would be issuable upon the conversion and exercise of such Securities)
will not result in such Lender (individually or together with other Persons
with whom such Lender has identified, or will have identified, itself as
part of a "group" in a public filing made with the Commission involving the
Borrower's securities) acquiring, or obtaining the right to acquire, in
excess of 19.999% of the Common Stock or the voting power of the Borrower on
a post transaction basis that assumes that the Closing shall have occurred.
Such Lender does not presently intend to, alone or together with others,
make a public filing with the Commission to disclose that it has (or that it
together with such other Persons have) acquired, or obtained the right to
acquire, as a result of the Closing (when added to any other securities of
the Borrower that it or they then own or have the right to acquire), in
excess of 19.999% of the Common Stock or voting power of the Borrower on a
post transaction basis that assumes that the Closing shall have occurred.
(g) Independent Investment Decision. Such Lender has
-------------------------------
independently evaluated the merits of its decision to invest in the Note and
the Warrant pursuant to this Agreement, such decision has been independently
made by such Lender and such Lender confirms that it has only relied on the
advice of its own business and/or legal counsel and not on the advice of any
other Lender's business and/or legal counsel in making such decision.
The Borrower acknowledges and agrees that no Lender makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2. The
Borrower acknowledges and agrees that the Administrative Agent does not make
and has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1. (a) Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of the
Securities other than pursuant to an effective registration statement, to
the Borrower, to an Affiliate of a Lender or in connection with a pledge as
contemplated in Section 4.1(b), the Borrower may require the transferor
thereof to provide to the Borrower an opinion of counsel selected by the
transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Borrower, to the effect that such transfer does not
require registration of such transferred Securities under the Securities Act.
18
(a) Certificates evidencing the Securities will contain
the following legend, so long as is required by this Section 4.1(b) or
Section 4.1(c):
[NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON
CONVERSION/EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED] [THESE
SECURITIES HAVE NOT BEEN REGISTERED] WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS
AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH
EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
BORROWER. [THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
CONVERSION/EXERCISE OF THESE SECURITIES] [THESE SECURITIES] MAY BE
PLEDGED IN A MANNER CONSISTENT WITH THE SECURITIES ACT IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.
The Borrower acknowledges and agrees that a Lender may
from time to time pledge, and/or grant a security interest in some or all of
the Securities pursuant to a bona fide margin agreement in connection with a
bona fide margin account in accordance with the Securities Act and, if
required under the terms of such agreement or account, such Lender may
transfer pledged or secured Securities to the pledgees or secured parties.
Such a pledge or transfer would not be subject to approval or consent of the
Borrower and no legal opinion of legal counsel to the pledgee, secured party
or pledgor shall be required in connection with the pledge, but such legal
opinion may be required in connection with a subsequent transfer, following
default, by the Lender transferee of the pledge. No notice shall be required
of such pledge. At the appropriate Lender's expense, the Borrower will
execute and deliver such reasonable documentation as a pledgee or secured
party of Securities may reasonably request in connection with a pledge or
transfer of the Securities including the preparation and filing of any
required prospectus supplement under Rule 424(b)(3) under the Securities Act
or other applicable provision of the Securities Act to appropriately amend
the list of Selling Stockholders thereunder.
(b) Certificates evidencing Underlying Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)): (i)
following a sale of such Securities under a registration statement
(including the Registration Statement), or (ii) following any sale of such
Securities pursuant to Rule 144, or (iii) while such Securities are eligible
for sale under Rule 144(k), or (iv) if such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the Commission).
Borrower may not make any notation on its records or give instructions to
any transfer agent of the Borrower that enlarge the restrictions on transfer
set forth in this Section.
19
4.2. Furnishing of Information. As long as any Lender owns the
-------------------------
Securities issued or issuable to it, the Borrower covenants to timely file
(or obtain extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Borrower after the
date hereof pursuant to the Exchange Act. Upon the request of any such
Person, the Borrower shall deliver to such Person a written certification of
a duly authorized officer as to whether it has complied with the preceding
sentence. As long as any Lender owns Securities, if the Borrower is not
required to file reports pursuant to such laws, it will prepare and furnish
to the Lenders and make publicly available in accordance with Rule 144(c)
such information as is required for the Lenders to sell the Underlying
Shares under Rule 144. The Borrower further covenants that it will take such
further action as any holder of Securities may reasonably request, all to
the extent required from time to time to enable such Person to sell such
Underlying Shares without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144.
4.3. Acknowledgment of Dilution. The Borrower acknowledges that
--------------------------
the issuance of the Securities (including the Underlying Shares) will result
in dilution of the outstanding shares of Common Stock, which dilution may be
substantial. The Borrower further acknowledges that its obligations under
the Transaction Documents, including without limitation its obligation to
issue the Securities (including the Underlying Shares) pursuant to the
Transaction Documents, are unconditional and absolute and not subject to any
right of set off, counterclaim, delay or reduction, regardless of the effect
of any such dilution or any claim that the Borrower may have against the
Administrative Agent or any Lender.
4.4. Integration. The Borrower shall not, and shall use its best
-----------
efforts to ensure that no Affiliate of the Borrower shall, sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in Section 2 of the Securities Act) that would be
integrated with the offer or sale of the Securities in a manner that would
require the registration under the Securities Act of the sale of the
Securities to the Lenders, or that would be integrated with the offer or
sale of the Securities for purposes of the rules and regulations of any
Trading Market.
4.5. Listing of Common Stock. From the date hereof through the
-----------------------
Effectiveness Period (as such term is defined in the Registration Rights
Agreement) the Borrower agrees (i) if the Borrower applies to have the
Common Stock traded on any Trading Market other than the Trading Market
which the Common Stock is currently listed for trading, it will include in
such application the Underlying Shares, and will take such other action as
is necessary or desirable to cause such securities to be listed on such
other Trading Market as promptly as possible and (ii) it will take all
action reasonably necessary to continue the listing and trading of its
Common Stock on a Trading Market and will comply in all material respects
with the Borrower's reporting, filing and other obligations under the bylaws
or rules of the Trading Market.
4.6. Reservation of Shares. The Borrower shall maintain a reserve
---------------------
from its duly authorized shares of Common Stock to comply with its conversion
obligations under the Notes and its exercise obligations under the Warrants.
If on any date the Borrower would be, if notice of exercise or conversion
were to be delivered on such date, precluded from issuing the number of
Underlying Shares, as the case may be, issuable upon conversion in full of
the Notes or exercise in full under the Warrants due to the unavailability
of a sufficient number of authorized but unissued or reserved shares of
Common Stock, then the Board of Directors of the Borrower
20
shall promptly prepare and mail to the shareholders of the Borrower proxy
materials or other applicable materials requesting authorization to amend
the Borrower's articles of incorporation or other organizational document to
increase the number of shares of Common Stock which the Borrower is
authorized to issue so as to provide enough shares for issuance of the
Underlying Shares. In connection therewith, the Board of Directors shall (a)
adopt proper resolutions authorizing such increase, (b) recommend to and
otherwise use its best efforts to promptly and duly obtain shareholder
approval to carry out such resolutions (and hold a special meeting of the
shareholders as soon as practicable, but in any event not later than the
60th day after delivery of the proxy or other applicable materials relating
to such meeting) and (c) within five Business Days of obtaining such
shareholder authorization, file an appropriate amendment to the Borrower's
articles of incorporation or other organizational document to evidence such
increase.
4.7. Conversion and Exercise Procedures. The form of Exercise
----------------------------------
Notice included in and as defined in the Warrants and the form of Conversion
Notice included in and as defined in the Notes set forth the totality of the
procedures required by the Lenders in order to exercise the Warrants and
convert the Notes. No additional legal opinion or other information or
instructions shall be necessary to enable the Lenders to exercise the
Warrants or convert Notes. The Borrower shall honor exercises of the
Warrants and conversions of the Notes and shall deliver Underlying Shares in
accordance with the terms, conditions and time periods set forth in the
Transaction Documents.
4.8. Subsequent Registrations; Subsequent Placements.
-----------------------------------------------
(a) From the Closing Date through and including the
Effective Date, the Borrower will not file a registration statement (other
than on a Form S-8 and pursuant to the Registration Rights Agreement) with
the Commission with respect to any securities of the Borrower.
(b) Prior to the first year anniversary of the Closing
Date, in the event the Borrower or any Subsidiary, directly or indirectly,
determines to offer, sell, grant any option to purchase, or otherwise
dispose of (or announces any offer, sale, grant or any option to purchase or
otherwise dispose of) any Common Stock or Common Stock Equivalents (other
than under and pursuant to the Notes and the Warrants) or any of its
Subsidiaries' equity or Common Stock Equivalents, including without
limitation, pursuant to a private placement, an equity line of credit or a
shelf registration statement in accordance with Rule 415 under the
Securities Act, (such offer, sale, grant, disposition or announcement being
referred to as "SUBSEQUENT PLACEMENT"), the Borrower shall deliver to each
Lender a written notice (the "SUBSEQUENT PLACEMENT NOTICE") of its intention
to effect such Subsequent Placement, which specifies in reasonable detail
all of the material terms of such Subsequent Placement, the amount of
proceeds intended to be raised thereunder, the names of the investors
(including the investment manager of such investors, if any) and the
investment bankers with whom such Subsequent Placement is proposed to be
effected, and attached to which shall be a term sheet or similar document.
Each Lender shall have until 6:30 p.m. (New York City time) on the fifth
Trading Day after their respective receipt of the Subsequent Placement
Notice to notify Borrower of its intention to participate, subject to
completion of mutually acceptable documentation, in such financing on the
same terms as set forth in the Subsequent Placement Notice. The Borrower
shall not be required to permit a Lender to participate in a Subsequent
Placement hereunder in an amount (whether in
21
terms of a purchase price or shares of Common Stock) in excess of the
greater of: (i) its pro rata portion (calculated by reference to its Lender
Percentage) of 25% of the aggregate amount of such Subsequent Placement and
(ii) its pro rata portion (calculated by reference to its Lender Percentage)
of that proportion of the Subsequent Financing equal to the outstanding
principal balance of the Notes held by such Lender divided by the aggregate
dollar amount of the Subsequent Placement.
(c) The period set forth in the first sentence of Section
4.8(b) shall be extended for the number of Trading Days during such period
in which (i) trading in the Common Stock is suspended by any Trading Market
or the Commission, or (ii) following the Effective Date, the Registration
Statement is not effective or the prospectus included in the Registration
Statement may not be used by the Lenders for the resale of the Underlying
Shares.
(d) The Borrower's obligations under Section 4.8(b) shall
not apply to any grant or issuance by the Borrower of any of the following:
(i) the issuance of securities upon the exercise or conversion of any Common
Stock Equivalents issued by the Borrower prior to the date of this Agreement
(but will apply to any amendments, modifications and reissuances thereof),
and (ii) the grant of options or warrants, or the issuance of additional
securities, under any duly authorized company stock option, restricted stock
plan or stock purchase plan in existence on the Closing Date, (iii) the
issuance of Common Stock in payment of interest on the Notes, or (iv) the
issuance of Common Stock Equivalents pursuant to a Strategic Transaction.
4.9. Securities Laws Disclosure; Publicity. By 8:30 a.m. (New
-------------------------------------
York City time) on both the Trading Day following the day this Agreement is
executed and on the Closing Date, the Borrower shall issue a press release
reasonably acceptable to the Lenders and the Administrative Agent disclosing
the transactions contemplated hereby on the date of this Agreement and file
a Current Report on Form 8-K disclosing the material terms of the
transactions contemplated hereby. The Borrower will file an additional
Current Report on Form 8-K on the Closing Date to disclose the Closing. In
addition, the Borrower will make such other filings and notices in the
manner and time required by the Commission and the Trading Market on which
the Common Stock is listed. Notwithstanding the foregoing, the Borrower
shall not publicly disclose the name of the Administrative Agent, any
Lender, or include the name of the Administrative Agent or any Lender in any
filing with the Commission (other than the Registration Statement and any
exhibits to filings made in respect of this transaction in accordance with
periodic filing requirements under the Exchange Act) or any regulatory
agency or Trading Market, without the prior written consent of the
Administrative Agent or such Lender, as the case may be, except to the
extent such disclosure is required by law or Trading Market regulations, in
which case the Borrower shall provide the Administrative Agent and the
Lenders with prior notice of such disclosure.
4.10. Limitation on Issuance of Future Priced Securities. Following
--------------------------------------------------
the Closing and for so long as Notes remain outstanding, the Borrower shall not
issue or agree to issue any "Future Priced Securities" as such term is
described by NASD IM-4350-1.
4.11. Indemnification of Lenders. In addition to the indemnity
--------------------------
provided in the Registration Rights Agreement and in Section 8.18, the
Borrower will indemnify and hold the Lenders and their directors, officers,
shareholders, partners, employees and agents (each, a
22
"LENDER PARTY") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Lender Party may suffer or incur as a
result of or relating to any misrepresentation, breach or inaccuracy of any
representation, warranty, covenant or agreement made by the Borrower in any
Transaction Document. In addition to the indemnity contained herein, the
Borrower will reimburse each Lender Party for its reasonable legal and other
expenses (including the cost of any investigation, preparation and travel in
connection therewith) incurred in connection therewith, as such expenses are
incurred.
4.12. Non-Public Information. The Borrower covenants and agrees
----------------------
that neither it nor any other Person acting on its behalf will provide the
Administrative Agent, any Lender or any agent or counsel to the
Administrative Agent or any Lender with any information that the Borrower
believes constitutes material non-public information. The Borrower
understands and confirms that the Administrative Agent and each Lender shall
be relying on the foregoing representations in effecting transactions in
securities of the Borrower.
4.13. Certain Trading Restrictions. Each Lender agrees that neither
----------------------------
it nor its Affiliates (taken as a whole) will enter into or maintain a net
short position with respect to the Common Stock. Accordingly, each Lender
agrees that neither it nor its Affiliates will enter into or maintain any
short sale of the Common Stock at a time when there is no equivalent
offsetting long position in the Common Stock held by such Lender. For
purposes of determining whether there is an equivalent offsetting long
position in the Common Stock held by such Lender, the Underlying Shares
issuable upon exercise of all warrants (including the Warrants) and
conversion of the debentures and Notes (including in each case any shares
issuable on account of interest thereunder) held by such Lender (without
regard to any exercise or conversion caps contained therein, and whether or
not any exercise or conversion notice shall have been tendered by such
Lender) shall be deemed held long by such Lender for purposes of this
Section.
4.14. Existence; Conduct of Business. The Borrower will, and will
------------------------------
cause each of the Subsidiaries to, do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises
material to the conduct of its business, provided that the foregoing shall
--------
not prohibit (a) any sale, lease, transfer or other disposition permitted by
Section 5.1, or (b) any merger of (i) any domestic Subsidiary with any other
domestic Subsidiary, (ii) any domestic Subsidiary with and into the
Borrower, (iii) any foreign Subsidiary (other than Opco and its
Subsidiaries) with any other foreign Subsidiary, or (iv) any Subsidiary of
Opco with Opco or any other Subsidiary of Opco.
4.15. Maintenance of Cash and Cash Equivalents. While any Notes are
----------------------------------------
outstanding, the Borrower will, at all times, maintain unrestricted cash and
Cash Equivalents, together with availability under the Borrower's revolving
line of credit, in an aggregate amount not less than $500,000, free and
clear of all Liens (other than Permitted Liens within the meaning of clauses
(a), (h) or (i) of such defined term) and any right of offset. In the event
that such unrestricted cash and Cash Equivalents maintained by the Borrower
hereunder shall at the end of any fiscal quarter (as reflected in Borrower's
Quarterly Report on Form 10-Q under the Exchange Act for such fiscal
quarter) be in an aggregate amount less than such amount, the Borrower shall
deliver
23
to each Lender at the Borrower's expense, a letter of credit (in form and
substance acceptable to such Lender) and issued by a bank reasonably
acceptable to such Lender in a face amount equal to the sum of 100% of the
then outstanding principal amount of such Lender's Note plus interest
payable thereon until the maturity date thereof. Such letters of credit
shall provide, among other things, that the beneficiary thereof shall have
the right to draw thereunder upon presentation of a draft together with a
certificate signed by such Lender referring to this Agreement and the Notes
held by such Lender and certifying that an Event of Default has occurred and
is continuing under the Transaction Documents.
4.16. Use of Proceeds. The Borrower shall use the net proceeds from
---------------
the sale of the Securities hereunder (i) for working capital purposes, but
not (a) for the satisfaction of any portion of the Borrower's debt (other
than payment of the Borrower's existing line of credit and trade payables
and accrued expenses in the ordinary course of the Borrower's business and
consistent with prior practices), (b) to redeem any Common Stock or Common
Stock Equivalents or (c) to settle any outstanding Action, and (ii) towards
the repayment of Opco's existing Indebtedness.
ARTICLE V.
NEGATIVE COVENANTS
The Borrower covenants and agrees that from and after the
Closing Date and so long as any there remains any outstanding principal
amount under the Notes, the Borrower shall not, and shall not permit its
Subsidiaries to:
5.1. Dispositions of Assets or Subsidiaries. Sell, convey, assign,
--------------------------------------
lease, abandon or otherwise transfer or dispose of, voluntarily or
involuntarily, any material properties or assets, tangible or intangible
(including any spin-offs of any divisions, lines of business or subsidiaries
and also including sale, assignment, discount or other disposition of
accounts, contract rights, chattel paper, equipment or general intangibles
with or without recourse or of capital stock, shares of beneficial interest,
partnership interests or limited liability company interests of a Subsidiary
of the Borrower), except:
(a) transactions involving the sale of inventory or upgrade
or exchange of machinery, in either case, in the ordinary course of business
and for usual and ordinary prices; or
(b) any sale, transfer, lease or other disposition of
assets, other than Collateral Security (except to the extent otherwise
permitted by the Security Agreement or the Mortgage).
5.2. Restricted Payments. Declare or make, or agree to pay for or
-------------------
make, directly or indirectly, any Restricted Payment, provided that (a) the
--------
Borrower may declare and pay, and agree to pay, dividends with respect to
its Equity Interests payable solely in Common Stock, (b) any wholly-owned
Subsidiary of the Borrower may declare and pay dividends with respect to its
Equity Interests to the Borrower or any other wholly-owned Subsidiary of the
Borrower, (c) the Borrower may pay bonuses to its officers, directors and
employees consistent with past practices, (d) the Borrower may pay
director's fees to its directors consistent with past practices, and (e) the
24
Borrower may pay fees to its directors for bona fide consulting services
consistent with past practices.
ARTICLE VI.
CONDITIONS PRECEDENT
6.1. Conditions Precedent to the Obligations of the Lenders. The
------------------------------------------------------
obligation of each Lender to make its Loan is subject to the satisfaction or
waiver by such Lender of each of the following conditions:
(a) Representations and Warranties. The representations
------------------------------
and warranties of the Borrower contained herein shall be true and correct in
all respects as of the date when made and as of the Closing Date as though
made on and as of such date;
(b) Performance. The Borrower shall have performed,
-----------
satisfied and complied in all respects with, and caused each of its
Subsidiaries to perform, satisfy and comply in all respects with, all
covenants, agreements and conditions required by the Transaction Documents
to be performed, satisfied or complied with by it at or prior to the
Closing;
(c) No Injunction. No treaty and no U.S. or foreign
-------------
statute, rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by the Transaction
Documents;
(d) Adverse Changes. Since the date of execution of this
---------------
Agreement, no event or series of events shall have occurred that reasonably
would be expected to have or result in a (i) an adverse effect on the
legality, validity or enforceability of any Transaction Document, or (ii) a
material and adverse effect on the results of operations, assets, business
or condition (financial or otherwise) of (i) the Borrower, (ii) Opco, or
(iii) the Borrower and the Subsidiaries, taken as a whole;
(e) No Suspensions of Trading in Common Stock; Listing.
--------------------------------------------------
Trading in the Common Stock shall not have been suspended by the Commission
or any Trading Market (except for any suspensions of trading of not more
than one Trading Day solely to permit dissemination of material information
regarding the Borrower) at any time since the date of execution of this
Agreement, and the Common Stock shall have been at all times since such date
listed for trading on a Trading Market;
(f) Nasdaq Listing. The Nasdaq Stock Market shall have
--------------
waived application of the 15 day prior notice contained in NASD Marketplace
Rule 4310(17)(D) or such timeframe shall have expired without objection;
(g) Bank Consent. The Borrower shall have received the
------------
consent of each bank or other lender or provider of credit to the Borrower
or Opco whose consent is required with respect to the transactions
contemplated by the Transaction Documents as well as an estoppel certificate
indicating the absence of any event of default or any default which could
25
with or without the passage of time or notice or both in an event of default
under any document or agreement governing the transactions with such bank,
lender or provider or credit;
(h) Borrower Deliverables. The Lenders shall have received
---------------------
the Borrower Deliverables;
(i) Intercreditor Agreement. Each Lender shall have
-----------------------
executed and delivered to the Administrative Agent the Intercreditor
Agreement; and
(j) Timing. The conditions to closing set forth herein
------
shall have occurred no later than October 22, 2004.
6.2. Conditions Precedent to the Obligations of the Borrower to
----------------------------------------------------------
deliver the Notes and the Warrants. The obligation of the Borrower to
- ----------------------------------
deliver the Notes and the Warrants is subject to the satisfaction or waiver
by the Borrower hereunder of each of the following conditions:
(a) Representations and Warranties. The representations
------------------------------
and warranties of each Lender contained herein shall be true and correct in
all respects as of the date when made and as of the Closing Date as though
made on and as of such date;
(b) Performance. Each Lender shall have performed,
-----------
satisfied and complied in all respects with all covenants, agreements and
conditions required by the Transaction Documents to be performed, satisfied
or complied with by such Lender at or prior to the Closing;
(c) No Injunction. No statute, rule, regulation, executive
-------------
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;
(d) Nasdaq Listing. The Nasdaq Stock Market shall have
--------------
waived application of the 15 day prior notice contained in NASD Marketplace
Rule 4310(17)(D) or such timeframe shall have expired without objection; and
(e) Timing. The conditions to closing set forth herein
------
shall have occurred no later than October 22, 2004.
ARTICLE VII.
ADMINISTRATIVE AGENT
Each Lender hereby irrevocably appoints the Administrative Agent as
its agent and authorizes the Administrative Agent to take such actions on
its behalf and to exercise such powers as are delegated to the
Administrative Agent by the terms hereof, together with such actions and
powers as are reasonably incidental thereto.
The Person serving as the Administrative Agent hereunder shall have
the same rights and powers in its capacity as a Lender as any other Lender
and may exercise the same as though it were not the Administrative Agent,
and such Person and its Affiliates may lend money to and
26
generally engage in any kind of business with the Borrower or any Subsidiary
or other Affiliate thereof as if it were not the Administrative Agent
hereunder.
The Administrative Agent shall not have any duties or obligations
except those expressly set forth herein. Without limiting the generality of
the foregoing, (i) the Administrative Agent shall not be subject to any
fiduciary or other implied duties, regardless of whether an Event of Default
(or an event which, with the giving of notice, lapse of time, or both, would
constitute an Event of Default) has occurred and is continuing, (ii) the
Administrative Agent shall not have any duty to take any discretionary
action or exercise any discretionary powers, except discretionary rights and
powers expressly contemplated by the Transaction Documents that the
Administrative Agent is required to exercise in writing by the Required
Lenders (or such other number or percentage of the Lenders as shall be
necessary under the circumstances as provided in Section 8.4), and (iii)
except as expressly set forth herein, the Administrative Agent shall not
have any duty to disclose, and shall not be liable for the failure to
disclose, any information relating to the Borrower, any Affiliate thereof or
any Subsidiary that is communicated to or obtained by the Person serving as
Administrative Agent or any of its Affiliates in any capacity. The
Administrative Agent shall not be liable for any action taken or not taken
by it with the consent or at the request of the Required Lenders (or such
other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 8.4) or in the absence of its own gross
negligence or willful misconduct. The Administrative Agent shall be deemed
not to have knowledge of any Event of Default (or any event which, with the
giving of notice, lapse of time, or both, would constitute an Event of
Default) unless and until written notice thereof is given to the
Administrative Agent by the Borrower or a Lender (and, promptly after its
receipt of any such notice, it shall give each Lender and the Borrower
notice thereof), and the Administrative Agent shall not be responsible for
or have any duty to ascertain or inquire into (a) any statement, warranty or
representation made in or in connection with any Transaction Document, (b)
the contents of any certificate, report or other document delivered
thereunder or in connection therewith, (c) the performance or observance of
any of the covenants, agreements or other terms or conditions set forth
therein, (d) the validity, enforceability, effectiveness or genuineness
thereof or any other agreement, instrument or other document or (e) the
satisfaction of any condition set forth in Article VI or elsewhere in the
Transaction Documents.
The Administrative Agent shall be entitled to rely upon, and shall
not incur any liability for relying upon, any notice, request, certificate,
consent, statement, instrument, document or other writing believed by it to
be genuine and to have been signed or sent by the proper Person. The
Administrative Agent also may rely upon any statement made to it orally or
by telephone and believed by it to be made by the proper Person, and shall
not incur any liability for relying thereon. The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrower or any
Subsidiary), independent accountants and other experts selected by it, and
shall not be liable for any action taken or not taken by it in accordance
with the advice of any such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties and
exercise its rights and powers by or through any one or more sub agents
appointed by the Administrative Agent, provided that no such delegation
--------
shall serve as a release of the Administrative Agent or waiver by the
Borrower or any Lender of any rights hereunder. The Administrative Agent and
any such sub agent may perform any and all its duties and exercise its
rights and powers through their respective Related Parties. The exculpatory
provisions of the preceding paragraphs shall apply to
27
any such sub agent and to the Related Parties of the Administrative Agent
and any such sub agent, and shall apply to their respective activities in
connection with the activities as Administrative Agent.
Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this paragraph, the Administrative Agent
may resign at any time by notifying the Lenders and the Borrower. Upon any
such resignation, the Required Lenders shall have the right to appoint a
successor. If no successor shall have been so appointed by the Required
Lenders and shall have accepted such appointment within 30 days after the
retiring Administrative Agent gives notice of its resignation, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent. Upon the acceptance of its appointment as
Administrative Agent hereunder by a successor, such successor shall succeed
to and become vested with all the rights, powers, privileges and duties of
the retiring Administrative Agent, and the retiring Administrative Agent
shall be discharged from its duties and obligations hereunder. The fees
payable by the Borrower to a successor Administrative Agent shall be the
same as those payable to its predecessor unless otherwise agreed between the
Borrower and such successor. After the Administrative Agent's resignation
hereunder, the provisions of this Article and Section 8.18 shall continue in
effect for the benefit of such retiring Administrative Agent, its sub agents
and their respective Related Parties in respect of any actions taken or
omitted to be taken by any of them while it was acting as Administrative
Agent.
Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make
its own decisions in taking or not taking action under or based upon any
Transaction Document, any related agreement or any document furnished
thereunder.
ARTICLE VIII.
MISCELLANEOUS
8.1. Fees and Expenses. The Borrower shall be responsible for the
-----------------
reasonable legal fees and expenses of the Administrative Agent and each
Lender in the event that the Borrower requests any waiver or amendment of
the provisions of any Transaction Document following the Closing. Except as
otherwise specified in the Transaction Documents (including without
limitation Section 8.18), and except that Borrower shall reimburse OMT for
its legal fees and expenses incurred in connection with its entering into
the Transaction Documents (OMT may deduct such amount from the Loan Amount
deliverable to the Borrower at Closing), each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of the Transaction
Documents. The Borrower shall pay all stamp and other taxes and duties
levied in connection with the sale of the Securities.
8.2. Entire Agreement. The Transaction Documents, together with
----------------
the Exhibits and Schedules thereto, contain the entire understanding of the
parties with respect to the subject
28
matter hereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters, which the parties acknowledge have
been merged into such documents, exhibits and schedules. At or after the
Closing, and without further consideration, each party will execute and
deliver to the other party hereto such further documents as may be
reasonably requested in order to give practical effect to the intention of
the parties under the Transaction Documents.
8.3. Notices. All notices or other communications or deliveries
-------
required or permitted to be provided hereunder shall be in writing and shall
be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile number specified in this Section prior to 6:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile number specified in this Section on a day that is not a
Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day,
(c) the Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt
by the party to whom such notice is required to be given. The addresses and
facsimile numbers for such notices and communications shall be as follows:
If to the Borrower: Zoltek Companies, Inc.
3101 McKelvey Rd.
St. Louis, Missouri 63044
Facsimile No.: (314) 291-9082
Attention: Chief Financial Officer
With a copy to: Thompson Coburn LLP
One U.S. Bank Plaza
St. Louis, Missouri 63101
Facsimile No.: (314) 552-7000
Attention: Thomas A. Litz, Esq.
If to any Lender: To the address and facsimile
number set forth under such
Lender's name on its
signature page attached hereto.
If to the
Administrative
Agent: To the address and facsimile
number set forth under the
Administrative Agent's name
on its signature page attached
hereto.
or such other address or facsimile number as may be designated in writing
hereafter, in the same manner, by such Person.
8.4. Amendments; Waivers
-------------------
(a) No failure or delay by the Administrative Agent or any
Lender in exercising any right or power under any Transaction Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or
29
discontinuance of steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Administrative Agent and the Lenders under the
Transaction Documents are cumulative and are not exclusive of any rights or
remedies that they would otherwise have. No waiver of any provision of any
Transaction Document or consent to any departure by the Borrower or any
Subsidiary therefrom shall in any event be effective unless the same shall
be permitted by paragraph (b) of this Section, and then such waiver or
consent shall be effective only in the specific instance and for the purpose
for which given.
(b) Neither any Transaction Document (which, for purposes
of this Section 8.4(b), shall include the Shareholders Agreement) nor any
provision thereof may be waived, amended or modified except pursuant to an
agreement or agreements in writing entered into by the Borrower and the
Required Lenders or by the Borrower and the Administrative Agent with the
consent of the Required Lenders, provided that no such agreement shall (i)
increase the amount of the Loan agreed to be made by any Lender without the
written consent of such Lender, (ii) change the rate of interest applicable
to any Loan or the conversion price with respect to any Note unless the
resulting rate of interest or conversion price (as the case may be) applies
to all Loans or Notes (as the case may be), (iii) change any other term of
any Transaction Document if, as a result thereof, the rights and obligations
of any Lender under the Transaction Documents would be disproportionately
(based on its pro rata share) affected relative to the rights and
obligations of any other Lender under the Transaction Documents, or (iv)
change any of the provisions of this Section or the definition of the term
"Required Lenders" or any other provision hereof specifying the number or
percentage of Lenders required to waive, amend or modify any rights
hereunder or make any determination or grant any consent hereunder, or
change the currency in which Loans are to be made or payments under the
Transaction Documents are to be made, or provide for additional borrowers,
without the written consent of each Lender, and provided further that no
such agreement shall amend, modify or otherwise affect the rights or duties
of the Administrative Agent without the prior written consent of the
Administrative Agent.
8.5. Construction. The headings herein are for convenience only,
------------
do not constitute a part of this Agreement and shall not be deemed to limit
or affect any of the provisions hereof. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their
mutual intent. This Agreement shall be construed as if drafted jointly by
the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement or any of the Transaction Documents.
8.6. Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties and their successors and permitted
assigns. The Borrower may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Lenders. Any
Lender may assign its rights under this Agreement to any Person to whom such
Lender assigns or transfers any Securities.
8.7. No Third-Party Beneficiaries. This Agreement is intended for
----------------------------
the benefit of the parties hereto and their respective successors and
permitted assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other Person.
30
8.8. Governing Law. All questions concerning the construction,
-------------
validity, enforcement and interpretation of this Agreement shall be governed
by and construed and enforced in accordance with the internal laws of the
State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all Proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement, the Notes, the Warrants and the Registration Rights
Agreement (whether brought against a party hereto or its respective
Affiliates, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the City of New York, Borough of Manhattan
(the "NEW YORK COURTS"). Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the
enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any Proceeding, any claim that it is not
personally subject to the jurisdiction of any such New York Court, or that
such Proceeding has been commenced in an improper or inconvenient forum.
Each party hereto hereby irrevocably waives personal service of process and
consents to process being served in any such Proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to
it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. Each party hereto hereby irrevocably waives, to the
fullest extent permitted by applicable law, any and all right to trial by
jury in any legal proceeding arising out of or relating to this Agreement or
the transactions contemplated hereby. If either party shall commence a
Proceeding to enforce any provisions of a Transaction Document, then the
prevailing party in such Proceeding shall be reimbursed by the other party
for its reasonable attorneys' fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such Proceeding.
8.9. Survival. The representations, warranties, agreements and
--------
covenants contained herein shall survive the Closing and the delivery,
exercise and conversion of the Securities.
8.10. Execution. This Agreement may be executed in two or more
---------
counterparts, all of which when taken together shall be considered one and
the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party, it being understood
that both parties need not sign the same counterpart. In the event that any
signature is delivered by facsimile transmission, such signature shall
create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) the same with the same force and effect
as if such facsimile signature page were an original thereof.
8.11. Severability. If any provision of this Agreement is held to
------------
be invalid or unenforceable in any respect, the validity and enforceability
of the remaining terms and provisions of this Agreement shall not in any way
be affected or impaired thereby and the parties will attempt to agree upon a
valid and enforceable provision that is a reasonable substitute therefor,
and upon so agreeing, shall incorporate such substitute provision in this
Agreement.
8.12. Rescission and Withdrawal Right. Notwithstanding anything to
-------------------------------
the contrary contained in (and without limiting any similar provisions of)
the Transaction Documents, whenever any Lender exercises a right, election,
demand or option under a Transaction
31
Document and the Borrower does not timely perform its related obligations
within the periods therein provided, then such Lender may rescind or
withdraw, in its sole discretion from time to time upon written notice to
the Borrower, any relevant notice, demand or election in whole or in part
without prejudice to its future actions and rights.
8.13. Replacement of Securities. If any certificate or instrument
-------------------------
evidencing any Securities is mutilated, lost, stolen or destroyed, the
Borrower shall issue or cause to be issued in exchange and substitution for
and upon cancellation thereof, or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Borrower of such loss, theft or destruction and
customary and reasonable indemnity, if requested. The applicants for a new
certificate or instrument under such circumstances shall also pay any
reasonable third-party costs associated with the issuance of such
replacement Securities.
8.14. Remedies. In addition to being entitled to exercise all
--------
rights provided herein or granted by law, including recovery of damages, the
Lenders and the Borrower will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive
in any action for specific performance of any such obligation the defense
that a remedy at law would be adequate.
8.15. Payment Set Aside. To the extent that the Borrower makes a
-----------------
payment or payments to any Lender pursuant to any Transaction Document or a
Lender enforces or exercises its rights thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Borrower, a trustee, receiver or any other
person under any law (including, without limitation, any bankruptcy law,
state or federal law, common law or equitable cause of action), then to the
extent of any such restoration the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and
effect as if such payment had not been made or such enforcement or setoff
had not occurred.
8.16. Independent Nature of Lenders. The obligations of each Lender
-----------------------------
under each Transaction Document are several and not joint with the
obligations of each other Lender, and no Lender shall be responsible in any
way for the performance or observance of the obligations of any other Lender
under any Transaction Document. The decision of each Lender to acquire
Securities pursuant to this Agreement has been made by such Lender and each
Lender confirms that it has only relied on the advice of its own business
and/or legal counsel and not on the advice of any other Lender's business
and/or legal counsel. Nothing contained herein, or in any Transaction
Document, and no action taken by any Lender pursuant hereto or thereto,
shall be deemed to constitute the Lenders (or any of them) as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Lenders are in any way acting in concert or as a group
with respect to the transactions contemplated by the Transaction Documents.
Except as specifically provided in the Transaction Documents, each Lender
shall be entitled to independently protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the
other Transaction Documents, without joining any other Lender as an
additional party in any proceeding for such purpose.
32
8.17. Limitation of Liability. Notwithstanding anything herein to
-----------------------
the contrary, the Borrower acknowledges and agrees that the liability of any
Lender arising directly or indirectly, under any Transaction Document, of
any and every nature whatsoever, shall be satisfied solely out of the assets
of such Lender, and that no trustee, officer, other investment vehicle
affiliated with such Lender or any investor, shareholder or holder of shares
of beneficial interest of such a Lender shall be personally liable for any
liabilities of such Lender.
8.18. Expenses; Indemnity; Damage Waiver
----------------------------------
(a) The Borrower shall pay (i) all reasonable
out-of-pocket costs and expenses incurred by the Administrative Agent and
its Related Parties, including the reasonable fees, charges and
disbursements of counsel for the Administrative Agent, in connection with
the administration of each Transaction Document, and (ii) all reasonable
out-of-pocket costs and expenses incurred by any Lender, including the
reasonable fees, charges and disbursements of any counsel for any Lender and
any consultant or expert witness fees and expenses, in connection with the
enforcement or protection of its rights in connection with the Transaction
Documents, including its rights under this Section, or in connection with
the Loans made, including all such reasonable out-of-pocket costs and
expenses incurred during any workout, restructuring or negotiations in
respect of such Loans.
(b) The Borrower shall indemnify each Lender and each
Related Party thereof (each such Person being called an "Indemnitee")
----------
against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, including the reasonable fees,
charges and disbursements of any counsel for any Indemnitee, incurred by or
asserted against any Indemnitee arising out of, in connection with, or as a
result of (i) the execution or delivery of any Transaction Document or any
agreement or instrument contemplated thereby, the performance by the parties
to the Transaction Documents of their respective obligations thereunder or
the consummation of the Transactions or any other transactions contemplated
thereby, (ii) any Loan or the use of the proceeds thereof, or (iii) any
actual or prospective claim, litigation, investigation or proceeding
relating to any of the foregoing, whether based on contract, tort or any
other theory and regardless of whether any Indemnitee is a party thereto,
provided that such indemnity shall not, as to any Indemnitee, be available
- --------
to the extent that such losses, claims, damages, liabilities or related
expenses are determined by a court of competent jurisdiction by final and
nonappealable judgment to have resulted from the gross negligence or willful
misconduct of such Indemnitee.
(c) To the extent that the Borrower or any Subsidiary
fails to pay any amount required to be paid by it to the Administrative
Agent under this Section 8.18, each Lender severally agrees to pay to the
Administrative Agent an amount equal to the product of such unpaid amount
multiplied by a fraction, the numerator of which is the outstanding
- -------------
principal balance of such Lender's Loans and the denominator of which is the
outstanding principal balance of all Lenders' Loans (in each case determined
as of the time that the applicable unreimbursed expense or indemnity payment
is sought or, in the event that no Lender shall have any outstanding Loans
at such time, as of the last time at which any Lender had any outstanding
Loans), provided that the unreimbursed expense or indemnified loss, claim,
--------
damage, liability or related expense, as applicable, was incurred by or
asserted against the Administrative Agent in its capacity as such.
33
(d) To the extent permitted by applicable law, the
Borrower shall not assert, and hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential
or punitive damages (as opposed to direct and actual damages) arising out
of, in connection with, or as a result of, any Transaction Document or any
agreement, instrument or other document contemplated thereby, the
transactions contemplated by the Loan Documents or the use of the proceeds
thereof.
(e) All amounts due under this Section shall be payable
promptly but in no event later than ten days after written demand therefor.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOW]
34
LOAN AND WARRANT AGREEMENT
--------------------------
IN WITNESS WHEREOF, the parties hereto have caused this
Loan and Warrant Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
ZOLTEK COMPANIES, INC.
By:
----------------------------------
Name:
Title:
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES OF LENDERS FOLLOW]
LOAN AND WARRANT AGREEMENT
--------------------------
IN WITNESS WHEREOF, the parties hereto have caused this
Loan and Warrant Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
OMICRON MASTER TRUST, in its capacity
as Administrative Agent
By:
----------------------------------
Name:
Title:
Address for Notice:
Facsimile:
LOAN AND WARRANT AGREEMENT
--------------------------
IN WITNESS WHEREOF, the parties hereto have caused this
Loan and Warrant Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
[LENDER]
By:
----------------------------------
Name:
Title:
Loan Amount:
Address for Notice:
Facsimile:
LOAN AND WARRANT AGREEMENT
--------------------------
IN WITNESS WHEREOF, the parties hereto have caused this
Loan and Warrant Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
[LENDER]
By:
----------------------------------
Name:
Title:
Loan Amount:
Address for Notice: