<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D**
Under the Securities Exchange Act of 1934
(Amendment No. )*
Coyote Sports, Inc.
(Name of Issuer)
Common Stock, $0.001 Per Share
(Title of Class of Securities)
224071100
(CIC Number)
Mr. Mark A. Pappas
307 West Seventh Street
Suite 1210
Fort Worth, Texas 76102
(817) 810-0014
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
March 19, 1998
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
**The total number of shares of Stock reported herein is 685,004 shares, which
constitutes approximately 14.4% of the 4,758,004 shares of Stock outstanding.
<PAGE> 2
- --------------------------------------------------------------------------------
1. Name of Reporting Person:
Paragon Coyote Texas Ltd.
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group:
(a) / /
(b) / X /
- --------------------------------------------------------------------------------
3. SEC Use Only
- --------------------------------------------------------------------------------
4. Source of Funds: OO
- --------------------------------------------------------------------------------
5. Check box if Disclosure of Legal Proceedings is Required Pursuant
to Items 2(d) or 2(e):
/ /
- --------------------------------------------------------------------------------
6. Citizenship or Place of Organization: Texas
- --------------------------------------------------------------------------------
7. Sole Voting Power: 685,004 (1)(2)
Number of
Shares ------------------------------------------------------
Beneficially 8. Shared Voting Power: -0-
Owned By
Each ------------------------------------------------------
Reporting 9. Sole Dispositive Power: 685,004 (1)(2)
Person
With ------------------------------------------------------
10. Shared Dispositive Power: -0-
- --------------------------------------------------------------------------------
11. Aggregate Amount Beneficially Owned by Each Reporting Person:
685,004 (2)
- --------------------------------------------------------------------------------
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares:
/ /
- --------------------------------------------------------------------------------
13. Percent of Class Represented by Amount in Row (11): 14.4%
- --------------------------------------------------------------------------------
14. Type of Reporting Person: PN
- --------------------------------------------------------------------------------
- ------------
(1) Power is exercised through its sole general partner, Paragon
Management Group, Inc.
(2) Assumes exercise in full of Paragon Coyote Texas Ltd.'s option to
acquire up to 521,739 shares of the Stock. See Item 6.
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<PAGE> 3
- --------------------------------------------------------------------------------
1. Name of Reporting Person:
Paragon Management Group, Inc.
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group:
(a) / /
(b) / X /
- --------------------------------------------------------------------------------
3. SEC Use Only
- --------------------------------------------------------------------------------
4. Source of Funds: Not Applicable
- --------------------------------------------------------------------------------
5. Check box if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e):
/ /
- --------------------------------------------------------------------------------
6. Citizenship or Place of Organization: Texas
- --------------------------------------------------------------------------------
7. Sole Voting Power: 685,004 (1)(2)(3)
Number of
Shares ------------------------------------------------------
Beneficially 8. Shared Voting Power: -0-
Owned By
Each ------------------------------------------------------
Reporting 9. Sole Dispositive Power: 685,004 (1)(2)(3)
Person
With ------------------------------------------------------
10. Shared Dispositive Power: -0-
- --------------------------------------------------------------------------------
11. Aggregate Amount Beneficially Owned by Each Reporting Person:
685,004 (2)(3)
- --------------------------------------------------------------------------------
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares:
/ /
- --------------------------------------------------------------------------------
13. Percent of Class Represented by Amount in Row (11): 14.4%
- --------------------------------------------------------------------------------
14. Type of Reporting Person: CO
- --------------------------------------------------------------------------------
- ------------
(1) Acting through its President, Mark A. Pappas.
(2) Solely in its capacity as the sole general partner of Paragon Coyote
Texas Ltd.
(3) Assumes exercise in full of Paragon Coyote Texas Ltd.'s option to
acquire up to 521,739 shares of the Stock. See Item 6.
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<PAGE> 4
- --------------------------------------------------------------------------------
1. Name of Reporting Person:
Mark A. Pappas
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group:
(a) / /
(b) / X /
- --------------------------------------------------------------------------------
3. SEC Use Only
- --------------------------------------------------------------------------------
4. Source of Funds: Not Applicable
- --------------------------------------------------------------------------------
5. Check box if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e):
/ /
- --------------------------------------------------------------------------------
6. Citizenship or Place of Organization: USA
- --------------------------------------------------------------------------------
7. Sole Voting Power: 685,004 (1)(2)
Number of
Shares ------------------------------------------------------
Beneficially 8. Shared Voting Power: -0-
Owned By
Each ------------------------------------------------------
Reporting 9. Sole Dispositive Power: 685,004 (1)(2)
Person
With ------------------------------------------------------
10. Shared Dispositive Power: -0-
- --------------------------------------------------------------------------------
11. Aggregate Amount Beneficially Owned by Each Reporting Person:
685,004 (1)(2)
- --------------------------------------------------------------------------------
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares:
/ /
- --------------------------------------------------------------------------------
13. Percent of Class Represented by Amount in Row (11): 14.4%
- --------------------------------------------------------------------------------
14. Type of Reporting Person: IN
- --------------------------------------------------------------------------------
- ------------
(1) Solely in his capacity as the President of Paragon Management Group,
Inc.
(2) Assumes exercise in full of Paragon Coyote Texas Ltd.'s option to
acquire up to 521,739 shares of the Stock. See Item 6.
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Item 1. SECURITY AND ISSUER.
This statement relates to shares of the common stock, par value $0.001
per share (the "Stock"), of Coyote Sports, Inc., a Nevada corporation (the
"Issuer"). The principal executive offices of the Issuer are located at 2291
Arapahoe Avenue, Boulder, Colorado 80302.
Item 2. IDENTITY AND BACKGROUND.
(a) Pursuant to Rules 13d-1(f)(1)-(2) of Regulation 13D-G of the
General Rules and Regulations under the Act, the undersigned hereby file this
Schedule 13D Statement on behalf of Paragon Coyote Texas Ltd., a Texas limited
partnership (the "Partnership"), Paragon Management Group, Inc., a Texas
corporation ("Paragon"), and Mark A. Pappas ("MAP"). The Partnership, Paragon
and MAP are sometimes hereinafter collectively referred to as the "Reporting
Persons." The Reporting Persons are making this single, joint filing because
they may be deemed to constitute a "group" within the meaning of Section
13(d)(3) of the Act, although neither the fact of this filing nor anything
contained herein shall be deemed to be an admission by the Reporting Persons
that a group exists.
(b) - (c)
The Partnership
The Partnership is a Texas limited partnership the principal business
of which is investing in the Issuer. The principal business address of the
Partnership, which also serves as its principal office, is 307 West Seventh
Street, Suite 1210, Fort Worth, Texas 76102. Pursuant to Instruction C to
Schedule 13D of the Act, information with respect to Paragon, sole general
partner of the Partnership, is set forth below.
Paragon
Paragon is a Texas corporation the principal business of which is
investment management. Paragon's principal business address, which also serves
as its principal office, is 307 West Seventh Street, Suite 1210, Fort Worth,
Texas 76102. Pursuant to Instruction C to Schedule 13D of the Act, information
with respect to MAP, Paragon's sole officer, director and controlling person,
is set forth below.
MAP
MAP's principal occupation or employment is serving as the President
of Paragon. MAP's business address is 307 West Seventh Street, Suite 1210,
Fort Worth, Texas 76102.
(d) None of the entities or persons identified in this Item 2 has,
during the last five years, been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors).
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(e) None of the entities or persons identified in this Item 2 has,
during the last five years, been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to, federal or
state securities laws or finding any violation with respect to such laws.
(f) All of the natural persons identified in this Item 2 are citizens
of the United States of America.
Item 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The source and amount of the funds used by the Reporting Persons to
purchase shares of Stock are as follows:
<TABLE>
<CAPTION>
REPORTING PERSON SOURCE OF FUNDS AMOUNT OF FUNDS
<S> <C> <C>
The Partnership (1) $1,000,000 (1)
(2) $3,600,000 (3)
Paragon Not Applicable Not Applicable
MAP Not Applicable Not Applicable
</TABLE>
(1) The 163,265 shares of the Stock reported herein as
directly owned by the Partnership were issued in connection with the
$6,000,000 loan that the Partnership made to the Issuer. See Item 6.
(2) The source of the funds to be used by the Partnership
to exercise part or all of the Unifiber Option, assuming such
exercise, has not yet been determined. See Item 6.
(3) The indicated amount assumes exercise in full of the
Unifiber Option at the price of $6.90 per share of Stock. See Item 6.
Item 4. PURPOSE OF TRANSACTION.
The Partnership entered into the transactions described in Item 6 for
investment purposes. Depending on market conditions and other factors that the
Partnership may deem material to its investment decision, the Partnership may
exercise all or a portion of the Unifiber Option and/or may purchase shares of
the Stock in the open market or in private transactions. Depending on these
same factors, the Partnership may exercise none of the Unifiber Option, may
make no such purchases and/or may sell shares of the Stock in the open market
or in private transactions.
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As described in Item 6, (a) the Partnership made the Loan to, among
other things, facilitate the Issuer's acquisition of all of the outstanding
capital stock of Unifiber Corporation, a California corporation ("Unifiber"),
(b) under certain circumstances the Issuer may issue additional shares of the
Stock to the Partnership pursuant to the terms of the Loan Agreement and (c) in
connection with the transactions described therein (i) the Issuer increased the
size of its Board of Directors from four to five, (ii) the Issuer appointed MAP
to fill the newly-created vacancy and (iii) the Issuer's Chief Executive
Officer and President have agreed that, while any part of the Loan remains
outstanding, they shall vote all of the shares of the Stock owned by them in
favor of the election of (and against the removal of, if applicable) a
Partnership-designated nominee as a director of the Issuer.
See also Item 6, which is incorporated herein by reference.
Except as set forth herein or in the Exhibits filed or to be filed
herewith, the Reporting Persons have no present plans or proposals that relate
to or that would result in any of the actions specified in clauses (a) through
(j) of Item 4 of Schedule 13D of the Act.
Item 5. INTEREST IN SECURITIES OF THE ISSUER.
(a)
The Partnership
The aggregate number of shares of the Stock that the Partnership owns
beneficially, pursuant to Rule 13d-3 of the Act, is 685,004, which constitutes
approximately 14.4% of the outstanding shares of the Stock.
Paragon
Because of its position as the sole general partner of the
Partnership, Paragon may, pursuant to Rule 13d-3 of the Act, be deemed to be
the beneficial owner of 685,004 shares of the Stock in the aggregate, which
constitutes approximately 14.4% of the outstanding shares of the Stock.
MAP
Because of his position as the President of Paragon, MAP may, pursuant
to Rule 13d-3 of the Act, be deemed to be the beneficial owner of 685,004
shares of the Stock, which constitutes approximately 14.4% of the outstanding
shares of the Stock.
To the best of the knowledge of each of the Reporting Persons, other
than as set forth above, none of the persons named in Item 2 herein is the
beneficial owner of any shares of the Stock.
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(b)
The Partnership
Acting through its sole general partner and assuming exercise in full
of the Unifiber Option, the Partnership has the sole power to vote or to direct
the vote or to dispose or to direct the disposition of 685,004 shares of the
Stock.
Paragon
Acting through its President and assuming exercise in full of the
Unifiber Option, and in its capacity as the sole general partner of the
Partnership, Paragon has the sole power to vote or to direct the vote or to
dispose or to direct the disposition of 685,004 shares of the Stock.
MAP
In his capacity as Paragon's President and assuming exercise in full
of the Unifiber Option, MAP has the sole power to vote or to direct the vote or
to dispose or to direct the disposition of 685,004 shares of the Stock.
(c) Except as set forth in Item 6 of this Schedule 13D, to the
best of the knowledge of each of the Reporting Persons, none of the persons
named in response to paragraph (a) has effected any transactions in the Stock
during the past 60 days.
(d) Each of the Reporting Persons affirms that no person other
than such Reporting Person has the right to receive or the power to direct the
receipt of dividends from, or the proceeds from the sale of, the Stock owned by
such Reporting Person.
(e) Not applicable.
Item 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR
RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER.
On March 19, 1998, the Partnership closed a $6,000,000 loan to the
Issuer for the purpose of, among other things, facilitating the Issuer's
acquisition of all of the outstanding capital stock of Unifiber (the "Loan").
The description that follows of certain provisions of various documents relating
to the Loan, including the Loan Agreement filed as Exhibit 10.1 hereto (the
"Loan Agreement"), the Issuer's $6,000,000 Promissory Note filed as Exhibit 10.2
hereto (the "Issuer Note"), the Registration Rights Agreement filed as Exhibit
10.3 hereto (the "Registration Rights Agreement"), the Security Agreement
between Mel S. Stonebraker, the Issuer's Chief Executive Officer
("Stonebraker"), as Pledgor, and the Partnership, as Secured Party, filed as
Exhibit 10.4 hereto (the "Stonebraker Security Agreement"), the Security
Agreement between James M. Probst, the Issuer's President ("Probst"), as
Pledgor, and the Partnership, as Secured Party, filed as Exhibit 10.5 hereto
(the "Probst Security Agreement"), the Section 3 Agreement among, inter alia,
the Partnership and the Issuer filed as Exhibit 10.6 hereto (the "Section 3
8
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Agreement"), the Partnership's $6,000,000 Promissory Note filed as Exhibit 10.7
hereto (the "Partnership Note") and the Pledge Agreement between the
Partnership, as Pledgor, and Don & Marty Management Group, Inc., a Texas
corporation, as Secured Party, filed as Exhibit 10.8 hereto (the "Partnership
Pledge Agreement"), is not, and does not purport to be, complete, and is
qualified in its entirety by reference to such Exhibits. All undefined
capitalized terms used herein shall have the meanings respectively ascribed to
them in the Loan Agreement.
The Loan accrues interest at the rate of 12% per annum, with interest
payable quarterly in arrears and the principal due upon maturity on September
19, 1999. The Issuer may prepay the Loan at any time without penalty or
premium. At the Partnership's option, the Issuer generally shall be required to
prepay the Loan to the extent of any cash proceeds that the Issuer receives from
the sale of Issuer securities while any part of the Loan remains outstanding.
The Loan Agreement contains covenants that restrict the Issuer's ability to,
among other things, incur additional indebtedness, encumber its assets, declare
and pay dividends, repurchase its securities, issue additional securities or
enter into specified fundamental corporate transactions. Events of default
under the Loan include, in addition to customary events of default, the
Partnership's good faith belief that it is insecure with respect to the Loan,
the default by any party under the Unifiber Purchase Agreement, the
Partnership's ceasing at any time to have at least one person that it has
designated serving on the Issuer's Board of Directors and the Issuer's
increasing the size of its Board of Directors without the consent of the
Partnership-designated director. Also pursuant to the Loan Agreement, the
Issuer has unconditionally and irrevocably assigned to the Partnership the
Issuer's rights under Section 3 of the Unifiber Shareholder Agreement to
purchase the 521,739 shares of the Stock issued in connection with the Issuer's
acquisition of Unifiber at any time during the two-year period following the
closing thereof at 120% of the Issue Price, as defined in the Unifiber Purchase
Agreement (the "Unifiber Option"). All representations, warranties, covenants
and agreements in the Loan Agreement, the Issuer Note and the Other Transaction
Documents survive forever, and each of the Issuer, Stonebraker and Probst have
agreed to indemnify the Partnership against any damages that result from the
breach of any of their respective representations, warranties and covenants set
forth in the Loan Agreement. Also pursuant to the Loan Agreement, (I)
Stonebraker and Probst have agreed that, while any part of the Loan remains
outstanding, they shall vote all of the Collateral Shares in favor of the
election of (and against the removal of, if applicable) a Partnership-designated
nominee as a director of the Issuer and (II) the Partnership shall be entitled
to vote the Collateral Shares in the event that the Issuer is in default under
the Loan Agreement without the necessity of foreclosing on the Collateral
Shares. The Loan Agreement contains a power of attorney from Stonebraker and
Probst to effect the provision set forth in clause (II) of the
immediately-preceding sentence.
In connection with the Loan, the Issuer issued the Partnership 163,265
shares of the Stock, which represented $1,000,000 divided by the closing price
of the Stock on the NASDAQ Small Cap Market on the day immediately preceding the
closing of the Loan. The Loan Agreement provides that the Issuer shall issue to
the Partnership such additional number of shares of the Stock, if any, as are
necessary to make the aggregate value of all shares of Stock issued equal
$1,000,000 on the first anniversary of the Loan, upon the maturity of the Loan
and upon the prepayment, if any, of the Loan.
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As collateral for the Loan, Stonebraker pledged to the Partnership the
1,430,000 shares of the Stock owned by him (the "Stonebraker Collateral Shares")
pursuant to the Stonebraker Security Agreement, and Probst pledged to the
Partnership the 1,170,000 shares of the Stock owned by him (the "Probst
Collateral Shares") pursuant to the Probst Security Agreement. The Stonebraker
Security Agreement and the Probst Security Agreement are identical and contain
customary terms and conditions.
Pursuant to the Registration Rights Agreement, the Issuer has granted
to the Partnership and its assigns the right at any time during the five-year
period following the Closing (a) to demand up to two registrations of at least
50,000 shares of Stock each on Form S-3 and (b) to include shares of the Stock
in any registration of Issuer securities other than pursuant to an offering (i)
to directors, officers or employees of the Issuer or any of its subsidiaries
pursuant to a bona fide employee stock option, bonus or other plan or (ii) in
which such securities are to be sold for consideration other than cash. The
Issuer generally has agreed to pay all expenses of registration other than
underwriting discounts and commissions and transfer taxes, and has agreed not
to grant any additional registration rights unless (A) such rights are
subordinate to the registration rights granted to the Partnership and its
assigns pursuant to the Registration Rights Agreement or (B) the holders of at
least two-thirds of the Registrable Securities (as defined therein) shall have
given their prior written consent. The registration rights set forth in the
Registration Rights Agreement are subject to customary cutbacks, indemnities
and other provisions.
Pursuant to the Section 3 Agreement, the Shareholder (as defined
therein) has consented to the assignment of the Unifiber Option and has agreed
that no approval of the Issuer's Board of Directors shall be required as a
condition to the Partnership's exercise of the Unifiber Option.
The Partnership borrowed the funds to make the Loan from Don & Marty
Management Group, Inc., a Texas corporation, pursuant to the Partnership Note
and the Partnership Pledge Agreement. The terms and conditions of the
Partnership Note generally mirror those of the Issuer Note, except that (i) the
interest rate on the Partnership Note is 8% per annum and (ii) all of the
events of default under the Partnership Note are customary. Pursuant to the
Partnership Pledge Agreement, the indebtedness evidenced by the Partnership
Note is secured by the Pledged Rights (as defined in the Partnership Pledge
Agreement).
Except as set forth herein or in the Exhibits filed or to be filed
herewith, there are no other contracts, arrangements, understandings or
relationships with respect to the Stock owned by the Reporting Persons.
10
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Item 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 10.1 -- Loan Agreement dated as of March 19, 1998 by and among Coyote
Sports, Inc., Mel S. Stonebraker, James M. Probst and Paragon
Coyote Texas Ltd.
Exhibit 10.2 -- $6,000,000 Promissory Note dated as of March 19, 1998 made by
Coyote Sports, Inc. in favor of Paragon Coyote Texas Ltd.
Exhibit 10.3 -- Registration Rights Agreement dated as of March 19, 1998 by
and between Coyote Sports, Inc. and Paragon Coyote Texas Ltd.
Exhibit 10.4 -- Security Agreement dated as of March 19, 1998 by and between
Mel S. Stonebraker, as Pledgor, and Paragon Coyote Texas Ltd.,
as Secured Party.
Exhibit 10.5 -- Security Agreement dated as of March 19, 1998 by and between
James M. Probst, as Pledgor, and Paragon Coyote Texas Ltd., as
Secured Party.
Exhibit 10.6 -- Section 3 Agreement dated as of March 19, 1998 by and among
Robert W. Tennent, Special Trustee of the Tennent Family Trust
dated as of November 20, 1989, Coyote Sports, Inc. and Paragon
Coyote Texas Ltd.
Exhibit 10.7 -- $6,000,000 Promissory Note dated as of March 19, 1998 made by
Paragon Coyote Texas Ltd. in favor of Don & Marty Management
Group, Inc.
Exhibit 10.8 -- Pledge Agreement dated as of March 19, 1998 by and between
Paragon Coyote Texas Ltd., as Pledgor, and Don & Marty
Management Group, Inc., as Secured Party.
Exhibit 99.1-- Agreement pursuant to Rule 13d-1(f)(1)(iii).
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After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: March 30, 1998
PARAGON COYOTE TEXAS LTD.,
a Texas limited partnership
By: Paragon Management Group, Inc.,
a Texas corporation, General Partner
By: /s/ Mark A. Pappas
------------------------------------
Mark A. Pappas, President
PARAGON MANAGEMENT GROUP, INC.,
a Texas corporation
By: /s/ Mark A. Pappas
-----------------------------------------
Mark A. Pappas, President
/s/ Mark A. Pappas
---------------------------------------------
MARK A. PAPPAS
12
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
10.1 Loan Agreement dated as of March 19, 1998 by and among Coyote Sports, Inc., Mel S. Stonebraker, James
M. Probst and Paragon Coyote Texas Ltd., filed herewith.
10.2 $6,000,000 Promissory Note dated as of March 19, 1998 made by Coyote Sports, Inc. in favor of Paragon
Coyote Texas Ltd., filed herewith.
10.3 Registration Rights Agreement dated as of March 19, 1998 by and between Coyote Sports, Inc. and Paragon
Coyote Texas Ltd., filed herewith.
10.4 Security Agreement dated as of March 19, 1998 by and between Mel S. Stonebraker, as Pledgor, and
Paragon Coyote Texas Ltd., as Secured Party, filed herewith.
10.5 Security Agreement dated as of March 19, 1998 by and between James M. Probst, as Pledgor, and Paragon
Coyote Texas Ltd., as Secured Party, filed herewith.
10.6 Section 3 Agreement dated as of March 19, 1998 by and among Robert W. Tennent, Special Trustee of the
Tennent Family Trust dated as of November 20, 1989, Coyote Sports, Inc. and Paragon Coyote Texas Ltd.,
filed herewith.
10.7 $6,000,000 Promissory Note dated as of March 19, 1998 made by Paragon Coyote Texas Ltd. in favor of Don
& Marty Management Group, Inc., filed herewith.
10.8 Pledge Agreement dated as of March 19, 1998 by and between Paragon Coyote Texas Ltd., as Pledgor, and
Don & Marty Management Group, Inc., as Secured Party, filed herewith.
99.1 Agreement pursuant to Rule 13d-1(f)(1)(iii), filed herewith.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
LOAN AGREEMENT
THIS LOAN AGREEMENT is made and entered into as of March 19, 1998, by
and among Coyote Sports, Inc., a Nevada corporation whose principal executive
offices are located at 2291 Arapahoe Avenue, Boulder, Colorado 80302 (the
"Borrower"), Mel S. Stonebraker, the Chief Executive Officer and a director of
the Borrower ("Stonebraker"), James M. Probst, the President and a director
of the Borrower ("Probst" and, jointly with Stonebraker, the "Shareholders"),
and Paragon Coyote Texas Ltd., a Texas limited partnership whose principal
executive offices are located at 307 West Seventh Street, Suite 1210, Fort
Worth, Texas 76102 (the "Lender").
In consideration of the mutual covenants and agreements herein
contained and of the loan hereinafter referred to, the Borrower, the
Shareholders and the Lender hereby agree as follows:
ARTICLE 1
GENERAL TERMS
Section 1.01 Certain Definitions. As used in this Agreement, the
following terms shall have the meanings respectively ascribed to them below
unless the context clearly requires otherwise:
"Action" shall mean any claim, demand, action, suit,
proceeding, hearing or investigation, either at law or in equity, or
before any Governmental Authority, now pending, threatened or
proposed.
"Agreement" shall mean this Loan Agreement, as the same may
from time to time be amended or supplemented.
"Balance Sheet" shall mean the audited consolidated balance
sheet of the Borrower and its Subsidiaries for the Borrower's fiscal
year ended December 31, 1996.
"Business Day" shall mean any day other than a Saturday,
Sunday or day on which commercial banks are authorized or required to
be closed under the laws of the State of Colorado.
"CERCLA" shall mean the Comprehensive Environmental Response
Compensation and Liability Act, as amended.
"Code" shall mean the United States Internal Revenue Code of
1986, as amended.
<PAGE> 2
"Collateral Shares" shall mean the Stonebraker Collateral
Shares and the Probst Collateral Shares.
"Commission" shall mean the United States Securities and
Exchange Commission.
"Common Stock" shall mean the Borrower's common stock, par
value $0.001 per share.
"Consideration Shares" shall mean the Initial Consideration
Shares and the Contingent Issuance Shares.
"Contingent Issuance Shares" shall mean all of the shares of
the Common Stock contingently issuable to the Borrower after the
Closing on the terms and conditions set forth herein as part of an
origination fee in connection with the Loan.
"Contract" shall mean any contract, agreement, understanding,
arrangement, document or instrument to which the Borrower or any
Subsidiary is a party or by which the Borrower or any Subsidiary or
any of their respective Properties is or may be bound or affected.
"Damages" shall mean any and all liabilities, obligations,
losses, damages (including without limitation consequential and
punitive damages) and costs and expenses (including without limitation
interest, court costs, expert witness fees, attorneys fees and the
cost and expenses of investigating and asserting any of the foregoing
or of enforcing an indemnity).
"EEOC" shall mean the United States Equal Employment
Opportunity Commission.
"Environmental Laws" shall mean any and all applicable
Governmental Requirements relating to pollution or protection of the
environment, including without limitation Governmental Requirements
relating to emissions, discharges, generation, storage, releases or
threatened releases of Waste into the environment (including, without
limitation, ambient air, surface water, ground water, land surface or
subsurface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Waste including, without limitation, the Clean Water
Act, the Clean Air Act, the Resource Conservation and Recovery Act,
the Toxic Substances Control Act and CERCLA, and their respective
foreign, state and local counterparts.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
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<PAGE> 3
"Event of Default" shall mean the occurrence of any of the
events specified in Section 6.01 hereof, provided that any requirement
for notice or lapse of time or any other condition precedent has been
satisfied.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Expenses" shall include, without limitation, any and all
court costs, attorneys' fees (including, without limitation, for
trial, appellate or other proceedings), fees of auditors and
accountants and investigation and pre-litigation expenses that the
Lender may incur, directly or indirectly, together with interest at
the post-maturity rate specified in the Note on each such amount from
the date of written demand or request by the Lender for reimbursement
until the date of reimbursement to the Lender.
"Financial Statements" shall mean the audited consolidated
annual financial statements of the Borrower and its Subsidiaries for
the Borrower's fiscal year ended December 31, 1996, and the unaudited
consolidated interim financial statements of the Borrower and its
Subsidiaries for the Borrower's fiscal quarter ended September 30,
1997 (including all related schedules and notes thereto) that are
included within the Borrower's Form 10-QSB for the fiscal quarter
ended September 30, 1997 filed with the Commission.
"GAAP" shall mean United States generally-accepted accounting
principles.
"Governmental Authority" shall mean any domestic or foreign
federal, state, county, regional, municipal or other government,
department, commission, board, court, agency or tribunal, and any
instrumentality of any of the foregoing.
"Governmental Requirement" shall mean any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction,
Permit, standard, specification or other directive or requirement
(including, without limitation, any of the foregoing that relate to
environmental standards or controls, energy regulations and
occupational, safety and health standards or controls) of any
Governmental Authority that exercises jurisdiction over the Borrower
or any of its Property or of any Subsidiary or any of such
Subsidiary's Property.
"Guaranty" shall mean each and every guaranty instrument or
agreement executed and delivered to the Lender by any Person to secure
any Indebtedness.
"Indebtedness" shall, mean any and all amounts, liabilities
and obligations owing or to be owing by the Borrower to the Lender in
connection with this Agreement, the Note and any Security Instruments
(together with any and all renewals, extensions, amendments and
restatements of all or part of any of the above), whether principal,
interest or otherwise, and all other amounts, liabilities and
obligations of the Borrower to the Lender from time to time existing,
whether in connection with this or any other transaction.
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"Initial Consideration Shares" shall mean such number of
validly-issued, fully-paid and nonassessable shares of Common Stock
that have not been registered under the Securities Act issued to the
Borrower at the Closing as are equal to (a) $1,000,000 divided by (b)
the per-share Common Stock closing price as quoted on the NASDAQ Small
Cap market system on the last trading day immediately preceding the
date of the Closing.
"Insurance Policies" shall mean all policies of fire,
liability, product liability, workers compensation, health and other
forms of insurance presently in effect with respect to the business
and Properties of the Borrower and its Subsidiaries.
"Lender Shares" shall mean the Collateral Shares in the hands
of the Lender following foreclosure, the Initial Consideration Shares
and the Contingent Issuance Shares.
"Lien" shall mean any security agreement, financing statement
filed with an appropriate Governmental Authority, conditional sale or
other title retention agreement, mortgage, lien, security interest,
claim, pledge, power (including without limitation a power of
attorney), license, equity, community or other marital property
interest, option, assessment, levy, easement, covenant, reservation,
right of reentry, possibility of reverter, encroachment, restriction,
right-of-way, exception, limitation, charge or encumbrance, lease,
consignment or bailment given for security purposes, preemptive right
(whether contractual or statutory), right of first refusal, adverse
interest, constructive trust or other trust, claim, attachment,
exception to or defect in title or other ownership interest of any
kind.
"Loan" shall mean the $6,000,000 loan made by the Lender to
the Borrower pursuant to this Agreement and the Note.
"Material Adverse Effect" shall mean any material and adverse
effect on (i) the Property, liabilities, financial condition,
business, operations, affairs or circumstances of the Borrower or any
Subsidiary individually (or of the Borrower and its Subsidiaries on a
consolidated basis) from those reflected in the Financial Statements
or from the facts represented or warranted in this Agreement or in any
Security Instrument, or (ii) the ability of the Borrower or any
Subsidiary individually (or of the Borrower and its Subsidiaries on a
consolidated basis) to carry out its business as at the date of this
Agreement or as proposed at the date of this Agreement to be conducted
or to perform its obligations under and in accordance with this
Agreement or any Other Transaction Document in full and on a timely
basis.
"Note" shall mean the promissory note evidencing the Loan made
by the Borrower in favor of the Lender in form and substance
satisfactory to the Lender, together with any and all renewals,
extensions, increases or rearrangements thereof.
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"Other Transaction Documents" shall mean the Note, the
Security Instruments and the Registration Rights Agreement.
"Permits" shall mean any and all permits, licenses,
franchises, certificates, authorizations, approvals and consents
issued or granted by any Governmental Authority, and any and all
certifications and qualifications issued or granted by any trade or
industry organization or association.
"Permitted Liens" shall mean: (i) Liens for taxes, assessments
or other governmental charges or levies not yet due and payable or
that are being diligently contested in good faith by appropriate
action by or on behalf of the Borrower or any Subsidiary and for which
adequate reserves have been established and (ii) Liens in existence on
the date hereof of which the Lender has been fully informed and (iii)
Liens in favor of the Lender or otherwise specifically permitted or
contemplated by this Agreement or by any Other Transaction Document.
"Person" shall mean any individual, corporation, partnership,
limited partnership, limited liability company, joint venture, joint
stock company, association, trust, unincorporated organization, or
federal, state or local government (domestic or foreign) or any agency
or political subdivision thereof, or any other form of entity.
"Personal Property" shall mean all personal Property owned or
leased (as lessee) by the Borrower and its Subsidiaries.
"Plan" shall mean any plan subject to Title IV of ERISA and
maintained by the Borrower or any Subsidiary, or any such plan to
which the Borrower or any Subsidiary is required to contribute on
behalf of its employees.
"Potential Default" shall mean the occurrence of any of the
events specified in Section 6.01 hereof, whether or not any
requirement for notice or lapse of time or other condition precedent
has been satisfied.
"Probst" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"Probst Collateral Shares" shall mean the 1,170,000 shares of
the Common Stock owned of record and beneficially by Probst that are
pledged to the Lender as collateral for the Loan pursuant to the
Probst Security Agreement.
"Probst Security Agreement" shall mean the security agreement
in form and substance satisfactory to the Lender entered into between
the Lender as secured party and Probst as debtor.
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"Property" shall mean any interest in any kind of property or
asset, whether real, personal or mixed, tangible or intangible.
"Real Property" shall mean all real Property owned or leased
(as lessee) by the Borrower and its Subsidiaries.
"Registration Rights Agreement" shall mean that certain
registration rights agreement of even date herewith by and among,
inter alia, the Lender and the Borrower that provides registration
rights for the Lender Shares under federal and state securities laws.
"Repurchase Rights" shall have the meaning set forth in
Section 2.05.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Security Instruments" shall mean collectively (a) the
Stonebraker Security Agreement, the irrevocable stock power pertaining
to the Stonebraker Collateral Shares and all financing statements
executed in connection therewith, (b) the Probst Security Agreement,
the irrevocable stock power pertaining to the Probst Collateral Shares
and all financing statements executed in connection therewith and (c)
any and all other agreements or instruments now or hereafter executed
and delivered by the Borrower or by any other Person in connection
with, or as security for the payment or performance of, any
Indebtedness (including, without limitation, the Indebtedness
represented by the Note and any and all financing, continuation and
termination statements related thereto), as such agreements and
instruments may be amended from time to time.
"Stock Rights" shall mean any and all rights, plans, options,
warrants or agreements for the purchase or acquisition (whether or not
contingent) of any capital stock or any other form of equity interest.
"Stonebraker" shall have the meaning set forth in the
introductory paragraph of this Agreement.
"Stonebraker Collateral Shares" shall mean the 1,430,000
shares of the Common Stock owned of record and beneficially by
Stonebraker that are pledged to the Lender as collateral for the Loan
pursuant to the Stonebraker Security Agreement.
"Stonebraker Security Agreement" shall mean the security
agreement in form and substance satisfactory to the Lender entered
into between the Lender as secured party and Stonebraker as debtor.
"Subsidiary" shall mean any Person of which issued and
outstanding securities representing more than fifty percent (50%) of
the aggregate voting power for the ordinary
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election of directors (or others with analogous power and authority)
is owned or controlled, directly or indirectly, by the Borrower.
"Taxes" shall mean and include any and all income, ad valorem,
excise, profits, franchise, occupation, Property, payroll, sales, use,
gross receipts, value added and other taxes, levies and assessments
(including any and all interest and penalties) imposed by any
Governmental Authority, whether or not disputed.
"Trade Rights" shall mean and include: (i) all trademark
rights, business identifiers, trade dress, service marks, trade names
and brand names, all registrations thereof and applications therefor
and all goodwill associated with the foregoing; (ii) all copyrights,
copyright registrations and copyright applications, and all other
rights associated with the foregoing and the underlying works of
authorship; (iii.) all patents and patent applications, and all
international proprietary rights associated therewith; (iv) all
contracts or agreements granting any right, title, license or
privilege under the intellectual property rights of any third party;
(v) all inventions, mask works and mask work registrations, know-how,
discoveries, improvements, designs, trade secrets, shop and royalty
rights, employee covenants and agreements respecting intellectual
property and non-competition and all other types of intellectual
property; and (vi) all claims for infringement or breach of any of the
foregoing.
"Unifiber" shall mean Unifiber Corporation, a California
corporation.
"Unifiber Purchase Agreement" shall mean that certain Stock
Purchase Agreement dated as of February 3, 1998 by and among, inter
alia, the Borrower and Unifiber.
"Unifiber Shareholder Agreement" shall mean that certain
Shareholder Agreement, the form of which is set forth as Exhibit 2.1
to the Unifiber Purchase Agreement.
"Waste" shall mean any and all pollutants, contaminants,
chemicals or industrial, toxic, hazardous or petroleum or
petroleum-based substances or wastes.
Section 1.02 Accounting Principles. Any and all determinations of
the character or amount of any asset or liability or item of income or expense
required to be determined or any consolidation or other accounting computation
required to be made under this Agreement shall be made in accordance with GAAP
applied on a basis consistent with the Financial Statements, except to the
extent that such principles are inconsistent with the requirements of this
Agreement. All determinations of financial amounts on the consolidated basis
of the Borrower and its Subsidiaries shall make due allowance for any minority
stock interest in such Subsidiaries.
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ARTICLE 2
TERMS OF LOAN
Section 2.01 Lender's Agreement to Make Loan. Subject to the
terms and conditions and relying materially on each and every representation
and warranty of the Borrower, Stonebraker and Probst contained in this
Agreement, the Lender agrees to make, on the date hereof, the Loan, which shall
be evidenced by the Borrower's issuance, execution and delivery of the Note.
Section 2.02 Payment Procedures. All of the Borrower's payments
and prepayments under the Note or this Agreement shall be made to the Lender at
its principal executive offices in immediately available funds before 5:00
p.m., Fort Worth, Texas time. Any payment that the Lender may receive and
accept after such time shall be considered for all purposes (including, to the
extent permitted by law, the calculation of interest) as having been made on
the Lender's next-following Business Day. If the date for any Loan payment or
prepayment hereunder falls on a day that is not a Business Day, then for all
purposes of the Note and this Agreement the same shall be deemed to have fallen
on the next-following Business Day, and such extension of time shall in such
case be included in the calculation of interest.
Section 2.03 Loan Prepayment at Lender's Option. At the Lender's
option (but, in the case of an underwritten offering, subject to the approval
of the Borrower's lead underwriter, which approval the Borrower shall use its
best efforts to obtain), the Borrower shall be required to prepay the Loan to
the extent of any cash proceeds that the Borrower receives from any sale of
Borrower securities.
Section 2.04 Collateral for the Loan. The Loan shall be secured
by a perfected first-priority security interest in the Collateral Shares.
Section 2.05 Borrower's Assignment of Certain Rights. In payment
of an origination fee to the Lender with respect to the Loan, the Borrower
hereby unconditionally and irrevocably assigns to the Lender the Borrower's
rights under Section 3 of the Shareholder Agreement (the "Repurchase Rights")
effective upon the closing under the Unifiber Purchase Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement, the Borrower,
Stonebraker and Probst jointly and severally represent and warrant to the
Lender (with each such representation and warranty's being conclusively and
independently deemed material and relied upon by the Lender irrespective of
whether such materiality and/or reliance actually exists) as follows:
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Section 3.01 Corporate Existence. The Borrower is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Nevada and is duly qualified to transact business as a foreign
corporation in all domestic and foreign jurisdictions (including, without
limitation, the State of Colorado) in which the Property owned or leased, or
the business transacted by, it makes such qualification necessary or desirable.
Each Subsidiary is a corporation or limited liability company, as the case may
be, duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization and is duly qualified to transact business as a
foreign corporation or limited liability company, as the case may be, in all
domestic and foreign jurisdictions in which the Property owned or leased, or
the business transacted by, it makes such qualification necessary or desirable.
Section 3.02 Corporate Power and Authorization. The Borrower is
duly authorized and empowered to create and issue the Note, to execute, deliver
and perform its obligations under this Agreement, and to execute, deliver and
perform its obligations under the Other Transaction Documents to which it is a
party. All corporate action on the Borrower's part necessary for the due
creation and issuance of the Note and for the due execution, delivery and
performance of this Agreement and of the Other Transaction Documents to which
it is a party has been duly and effectively taken.
Section 3.03 Binding Obligations. This Agreement, the Note and
the Other Transaction Documents to which the Borrower is a party constitute
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms. This Agreement and each Other
Transaction Document to which a Shareholder is a party constitutes its valid
and binding obligations, enforceable against it in accordance with its terms.
Section 3.04 No Violations. The Borrower's execution, delivery
and performance of the Note, this Agreement and the Other Transaction Documents
to which the Borrower is a party does not violate, and is not inconsistent
with, any provisions of its articles of incorporation, bylaws or any Contract
or Governmental Requirement to which the Borrower is subject, or result in the
creation or imposition of, or obligation to create, any Lien upon any Property
of the Borrower, other than any Lien permitted by this Agreement or by any
Other Transaction Document. Each Shareholder's execution, delivery and
performance of the Other Transaction Documents to which it is a party does not
violate, and is not inconsistent with, any provision of any Contract or
Governmental Requirement to which it is subject, or result in the creation or
imposition of, or obligation to create, any Lien upon any Property of such
Shareholder, other than any Lien permitted by this Agreement or by any Other
Transaction Document.
Section 3.05 No Required Consents or Approvals. The Borrower's
execution, delivery and performance of the Note, this Agreement and the Other
Transaction Documents to which it is a party does not require the consent or
approval of any other Person. Each Shareholder's execution, delivery and
performance of this Agreement and the Other Transaction Documents to which it
is a party does not require the consent or approval of any other Person.
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Section 3.06 Capitalization.
(a) The Borrower's issued and outstanding capital stock
consists solely of the capital stock set forth in Schedule 3.06
hereto. The Borrower has not issued, or agreed to issue, any Shares
or any securities convertible into, or exchangeable with, Shares or
entered into, issued or granted, or agreed to enter into, issue or
grant, any Stock Rights other than as set forth in such Schedule 3.06.
All of the Borrower's issued and outstanding capital stock (including
but not limited to the Collateral Shares) was duly authorized and
validly issued and is fully-paid and nonassessable. All of the
Borrower's issuances of its capital stock and Stock Rights were made
in compliance with all applicable laws and with all NASDAQ rules and
regulations.
(b) Except as to Sierra Materials LLC and ICE*USA, LLC, of
which the Borrower owns beneficially and of record 80% of the issued
and outstanding equity interests, respectively, and as to Pentiumatics
Sdn.Bhd, of which the Borrower owns beneficially and of record 77% of
the issued and outstanding equity interests, the Borrower owns,
directly or indirectly, 100% of the issued and outstanding equity
interests of all of the Subsidiaries. All of the equity interests of
each Subsidiary was duly authorized and validly issued and is
fully-paid and nonassessable. No Subsidiary has issued, or agreed to
issue, any equity interests (including without limitation shares of
capital stock) or any securities convertible into, or exchangeable
with, such equity interests or entered into, issued or granted, or
agreed to enter into, issue or grant, any Stock Rights.
Section 3.07 Financial Statements. The Financial Statements have
been delivered to the Lender, have been prepared in accordance with GAAP,
consistently applied on a basis consistent with past practice, and fully and
accurately present the financial condition and changes in financial position of
the Borrower and its Subsidiaries as at the date or dates and for the period or
periods therein stated, subject only to typical year-end audit adjustments.
Neither the Borrower nor any Subsidiary has made any investment in, advance to
or guarantee of the obligations of any Person except those the material details
of which are disclosed in the Financial Statements.
Section 3.08 No Undisclosed Liabilities. Except for liabilities
incurred in the ordinary course of business that could not have a Material
Adverse Effect, neither the Borrower nor any Subsidiary has any liabilities,
direct or contingent, except those the material details of which are set forth
in the Financial Statements or in Exhibit 4.5 to the Unifiber Purchase
Agreement. No unusual or unduly burdensome restriction, restraint or hazard
exists relating to the business or Property of the Borrower or any Subsidiary.
Section 3.09 Absence of Certain Changes. Since the date of the
Balance Sheet, no event has occurred with respect to the Property, operations,
business, condition (financial or otherwise) or prospects of the Borrower or
any Subsidiary that could have a Material Adverse Effect.
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Section 3.10 No Litigation. There are no Actions, and there are
no circumstances that could form the basis for any such Action, involving the
Borrower or any Subsidiary or either Shareholder, or any Property of any of
them.
Section 3.11 Taxes.
(a) Provision for Taxes. The provision made for Taxes on
the Balance Sheet is sufficient for the payment of all Taxes at the
date thereof and for all years and periods prior thereto. Since the
date of the Balance Sheet, neither the Borrower nor any Subsidiary has
incurred any Taxes other than Taxes incurred in the ordinary course of
business consistent in type and amount with past practice and
experience.
(b) Tax Returns Filed. No Tax returns of the Borrower or
of any Subsidiary have been audited by the United States Internal
Revenue Service or any other Governmental Authority, and neither the
Borrower nor any Subsidiary has received any notice from any
Governmental Authority of any underpayment or deficiency of Taxes that
has not been paid in full or any objection to any Tax return or report
that has not been cured. There are no outstanding agreements or
waivers extending the statutory period of limitations applicable to
any such Tax return or report.
(c) Other Tax Matters. Since January 1, 1993, neither
the Borrower nor any Subsidiary has (i) filed any consent or agreement
under Section 341(f) of the Code, (ii) applied for any Tax ruling,
(iii) entered into a closing agreement with any Governmental
Authority, (iv) filed an election under Code Sections 338(g) or
338(h)(10) (nor has any deemed election under Code Section 338(e)
occurred), (v) made any payments, or been a party to an agreement
(including this Agreement) that could obligate it to make payments
that will not be deductible because of Code Section 280G or (f) been a
party to any Tax allocation agreement or Tax sharing agreement. The
Borrower is not a "United States real property holding company" within
the meaning of Code Section 897.
Section 3.12 Title to and Condition of Property.
(a) Personal Property. Each of the Borrower and each
Subsidiary has good and marketable title to all of its Personal
Property free and clear of all Liens other than Permitted Liens.
Neither the Borrower nor any Subsidiary leases (as lessor) any
personal Property. The Borrower and each Subsidiary owns or leases
(as lessee) all personal Property used to carry on its business.
(b) Condition of Personal Property. The Personal
Property of the Borrower and of each Subsidiary is in good operating
condition and repair, normal wear and tear excepted, free from any
material defect, has been maintained consistent with the standards
generally followed in the industry and is sufficient as of the date
hereof to carry on the business of the Borrower or such Subsidiary, as
the case may be.
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(c) Real Property. The Borrower and each Subsidiary has
good and marketable title to all of its Real Property free and clear
of all Liens other than Permitted Liens. Neither the Borrower nor any
Subsidiary leases (as lessor) any real Property. The Borrower and
each Subsidiary owns or leases (as lessee) all real Property used to
carry on its business.
(d) Condition of Real Property. All Real Property is in
good operating condition and repair, normal wear and tear excepted,
free from any material defect, has been maintained consistent with the
standards generally followed in the industry and is sufficient to
carry on the business of the Borrower or such Subsidiary, as the case
may be. All buildings, plants and other structures and improvements
in, on or under the Real Property ("Improvements") are in good
condition and repair and have no structural defects or defects
affecting plumbing, electrical, sewerage or heating, ventilating or
air conditioning systems, normal wear and tear excepted.
(e) Governmental Requirements pertaining to Real
Property. There are now in full force and effect duly issued
certificates of occupancy permitting the Real Property and
Improvements to be legally used and occupied as the same are now used
and occupied. All of the Real Property has permanent rights of access
to dedicated public highways or roads. No fact or condition exists
that could prohibit or adversely affect the ordinary rights of access
to and from the Real Property from and to the existing highways and
roads and there is no pending or overtly threatened restriction or
denial, by any Governmental Authority or otherwise, with respect to
such ingress and egress. There is not (i) any claim of adverse
possession or prescriptive rights involving any of the Real Property,
(ii) any Improvement that encroaches on or over the boundaries of
neighboring or adjacent real property or (iii) any building, plant or
other structure or improvement of any other party that encroaches on
or over the boundaries of any of such Real Property. None of the Real
Property is located in a flood plain, flood hazard area, wetland or
lakeshore erosion area within the meaning of any Governmental
Requirement. No public improvements have been commenced, planned or
proposed that could result in special assessments against or otherwise
materially adversely affect any Real Property. No portion of any of
the Real Property (other than a marl hole at the United Kingdom
facility of a Subsidiary) has been used by the Borrower or any
Subsidiary or by any other Person as a landfill or for storage or
disposal of hazardous or toxic materials. There is no (i) planned or
proposed increase in assessed valuations of any Real Property or
Improvement, (ii) Governmental Requirement that requires repair,
alteration or correction of any existing condition affecting any Real
Property or Improvement or any condition or defect that could give
rise to a Governmental Requirement in such regard, (iii) underground
storage tanks, or any structural, mechanical, or other defects of
material significance affecting any Real Property or Improvement
(including, without limitation, inadequacy for normal use of
mechanical systems or disposal or water systems at or serving the Real
Property), or (iv) work that has been done or labor or materials that
has or have been furnished to any Real Property during the period of
six (6) months immediately preceding the date of this Agreement for
which liens could be filed against any of the Real Property or
Improvements.
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(f) No Condemnation or Expropriation. No portion of the
Personal Property or the Real Property of the Company or any
Subsidiary is subject to any order to be sold or is being condemned,
expropriated or otherwise taken by any Governmental Authority with or
without payment of compensation therefor, nor has any such
condemnation, expropriation or taking been proposed.
Section 3.13 Contracts. No party is in default, nor has any event
or circumstance occurred that, with the passage of time or the giving of notice
or both would constitute a default, under any Contract. Neither the Borrower
nor any Subsidiary has guaranteed the payment or performance of any Person or
agreed to indemnify, act as a surety or otherwise be contingently or
secondarily liable for the obligations of any Person other than the Borrower or
a Subsidiary. Neither the Borrower nor any Subsidiary is a party to or is
bound by any Contract requiring it to assign any interest in any trade secret
or proprietary information, or prohibiting or restricting it from competing in
any business or geographical area or soliciting customers or otherwise
restricting it from carrying on its business anywhere in the world.
Section 3.14 Casualties; Taking of Property. Since the date of
the Balance Sheet, neither the business nor the Property of the Borrower or any
Subsidiary have been materially and adversely affected as a result of any fire,
explosion, earthquake, flood, drought, windstorm, accident, strike or other
labor disturbance, embargo, requisition or taking of Property or cancellation
of contracts, permits or concessions by any domestic or foreign government or
any agency thereof, riot, activities of armed forces or acts of God or of any
public enemy.
Section 3.15 Compliance with Governmental Requirements. Neither
the Borrower nor any Subsidiary is in violation of any Governmental Requirement
or has failed to meet any Governmental Requirement necessary to or desirable in
connection with the ownership of any of its Property or the conduct of its
business.
Section 3.16 Employment Benefit Plans.
(a) Disclosure. True and correct copies of all pension,
thrift, savings, profit sharing, retirement, incentive bonus or other
bonus, medical, dental, life, accident insurance, benefit, employee
welfare, disability, group insurance, stock purchase, stock option,
stock appreciation, stock bonus, executive or deferred compensation,
hospitalization and other similar fringe or employee benefit plans,
programs and arrangements, and any employment or consulting contracts,
"golden parachutes," collective bargaining agreements, severance
agreements or plans, vacation and sick leave plans, programs,
arrangements and policies, including, without limitation, all
"employee benefit plans" (as defined in Section 3(3) of ERISA), all
employee manuals, and all written or binding oral statements of
policies, practices or understandings relating to employment (each an
"Employee Plans/Agreement"), that are provided to, for the benefit of,
or relate
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to, any persons ("Employees") employed by Borrower and its
Subsidiaries, including all amendments thereto, have heretofore been
provided to the Lender. Each of the Employee Plans/Agreements is one
or more of the following: an "employee pension benefit plan" (as
defined in Section 3(2) of ERISA), a "defined benefit plan" (as
defined in Section 414 of the Code), an "employee welfare benefit
plan" (as defined in Section 3(1) of ERISA), and/or as a plan intended
to be qualified under Section 401 of the Code. No Employee
Plan/Agreement is a "multiemployer plan" (as defined in Section 4001
of ERISA), and neither Borrower nor any Subsidiary has ever
contributed nor been obligated to contribute to any such multiemployer
plan.
(b) Terminations. Proceedings and Penalties. With
respect to each employee benefit plan (including, without limitation,
the Employee Plans/Agreements) that is subject to the provisions of
Title IV of ERISA ("Plan") and with respect to which the Borrower or
any Subsidiary or any of their respective Properties may, directly or
indirectly, be subject to any liability, contingent or otherwise, or
the imposition of any Lien (whether by reason of the complete or
partial termination of any such Plan, the funded status of any such
Plan, any "complete withdrawal" (as defined in Section 4203 of ERISA)
or "partial withdrawal" (as defined in Section 4205 of ERISA) by any
person from any such Plan, or otherwise):
(i) no such Plan has been terminated so as to
subject, directly or indirectly, any Property of the Borrower
or of any Subsidiary to any liability, contingent or
otherwise, or the imposition of any lien under Title IV of
ERISA;
(ii) no proceeding has been initiated or
threatened by any person (including the Pension Benefit
Guaranty Corporation ("PBGC")) to terminate any such Plan;
(iii) no condition or event exists or is
anticipated that could subject, directly or indirectly, any
Property of the Borrower or any Subsidiary to any liability,
contingent or otherwise, or the imposition of any Lien under
Title IV of ERISA, whether to the PBGC or to any other person
or otherwise on account of the termination of any such Plan;
(iv) if any such Plan were to be terminated as of
the date hereof, no Property of the Borrower or of any
Subsidiary would be subject, directly or indirectly, to any
liability, contingent or otherwise, or the imposition of any
Lien under Title IV of ERISA;
(v) no "reportable event" (as defined in Section
4043 of ERISA) has occurred with respect to any such Plan;
(vi) no such Plan that is subject to Section 302
of ERISA or to Code Section 412 has incurred any "accumulated
funding deficiency" (as defined in Section 302 of ERISA and
Code Section 412, respectively), whether or not waived; and
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(vii) no such Plan is a multiemployer plan or a
plan described in Section 4064 of ERISA.
(c) Prohibited Transactions. There have been no
"prohibited transactions" within the meaning of Sections 406 or 407 of
ERISA or Code Section 4975 for which a statutory or administrative
exemption does not exist with respect to any Employee Plan/Agreement,
and no event or omission has occurred in connection with which the
Borrower or any Subsidiary or any of their respective Properties or
any Employee Plan/Agreement, directly or indirectly, could be subject
to any liability under ERISA, the Code or any other Governmental
Requirement applicable to any Employee Plan/Agreement, or under any
agreement, instrument, law or order pursuant to or under which the
Borrower or any Subsidiary has agreed to indemnify or is required to
indemnify any person against liability incurred under any such
Governmental Requirement.
(d) Full Funding. The funds available under each
Employee Plan/Agreement that is intended to be a funded plan exceed
the amounts required to be paid, or that would be required to be paid
if such Employee Plan/Agreement were terminated, on account of rights
vested or accrued as of the date hereof (using the actuarial methods
and assumptions then used by the actuaries of the Borrower or of a
Subsidiary, as the case may be, in connection with the funding of such
Employee Plan/Agreement).
(e) Payments and Compliance. With respect to each
Employee Plan/Agreement, (i) all payments due from the Borrower or a
Subsidiary, as the case may be, to date have been made and all amounts
properly accrued to date as liabilities that have not been paid have
been properly recorded on the books of the Borrower or such
Subsidiary, as the case may be, and are reflected in the Balance
Sheet; (ii) Borrower and each Subsidiary has complied with, and each
such Employee Plan/Agreement conforms in form and operation to, all
applicable Governmental Requirements, including but not limited to
ERISA and the Code, in all respects and all reports and information
relating to such Employee Plan/Agreement required to be filed with any
Governmental Authority have been timely filed; (iii) all reports and
information relating to each such Employee Plan/Agreement required to
be disclosed or provided to participants or their beneficiaries have
been timely disclosed or provided; (iv) each such Employee
Plan/Agreement that is intended to qualify under Section 401 of the
Code has received a favorable determination letter from the Internal
Revenue Service with respect to such qualification, its related trust
has been determined to be exempt from taxation under Section 501(a) of
the Code and nothing has occurred since the date of such letter that
has or could adversely affect such qualification or exemption; (iv)
there are no Actions (other than routine claims for benefits) pending
or threatened with respect to such Employee Plan/Agreement or against
the Property of such Employee Plan/Agreement; and (v) no Employee
Plan/Agreement is a plan that is established and maintained outside
the United States primarily for the benefit of individuals
substantially all of whom are nonresident aliens.
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(f) Post-Retirement Benefits. No Employee Plan/Agreement
provides benefits, including, without limitation, death or medical
benefits (whether or not insured) with respect to current or former
employees of the Borrower or its Subsidiaries beyond their retirement
or other termination of service other than (i) coverage mandated by
applicable law, (ii) death or retirement benefits under any Employee
Plan/Agreement that is an employee pension benefit plan, (iii)
deferred compensation benefits accrued as liabilities on the books and
records of Borrower (including the Balance Sheet) or its Subsidiaries,
(iv) disability benefits under any Employee Plan/ Agreement that is an
employee welfare benefit plan that have been fully provided for by
insurance or otherwise or (v) benefits in the nature of severance pay.
(g) No Triggering of Obligations. The consummation of the
transactions contemplated by this Agreement will not (i) entitle any
current or former employee of the Borrower or any Subsidiary to
severance pay, unemployment compensation or any other payment, (ii)
accelerate the time of payment or vesting, or increase the amount of
compensation due to any such employee or former employee or (iii)
result in any prohibited transaction described in Section 406 of ERISA
or Section 4975 of the Code for which an exemption is not available.
(h) Delivery of Documents. There has been delivered to
the Lender, with respect to each Employee Plan/Agreement:
(i) a copy of the annual report, if required
under ERISA, with respect to each such Employee Plan/Agreement
for the last two years;
(ii) a copy of the summary plan description,
together with each summary of material modifications, required
under ERISA with respect to such Employee Plan/Agreement, all
material employee communications relating to such Employee
Plan/Agreement, and, unless the Employee Plan/Agreement is
embodied entirely in an insurance policy to which the Borrower
or a Subsidiary is a party, a true and complete copy of such
Employee Plan/Agreement;
(iii) if the Employee Plan/Agreement is funded
through a trust or any third-party funding vehicle (other than
an insurance policy), a copy of the trust or other funding
agreement and the latest financial statements thereof; and
(iv) the most recent determination letter received
from the Internal Revenue Service with respect to each
Employee Plan/Agreement that is intended to be a "qualified
plan" under Section 401 of the Code.
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With respect to each Employee Plan/Agreement for which an annual
report has been filed and delivered to Buyer pursuant to clause (i)
hereof, no material adverse change has occurred with respect to the
matters covered by the latest such annual report since the date
thereof.
(i) Future Commitments. Neither the Borrower nor any
Subsidiary has announced any plan or legally- binding commitment to
create any additional Employee Plans/Agreements or to amend or modify
any existing Employee Plan/Agreement.
Section 3.17 Securities Law and SRO Requirements.
(a) The Borrower has timely filed with the Commission all
reports and information required by the Exchange Act. None of the
filings that the Borrower has made with the Commission (whether
pursuant to the Securities Act, the Exchange Act or otherwise)
contained or contains any misstatement of a material fact or omitted
or omits to state a material fact necessary to make the statements
contained therein not misleading in light of the circumstances under
which they were made.
(b) The Borrower is, and has at all times since the
listing of its Common Stock on the NASDAQ Small Cap market system
been, in compliance with all of the rules and regulations of the
National Association of Securities Dealers, Inc. and with the terms
and conditions of the Borrower's listing agreement.
Section 3.18 Trade Rights. The Borrower has disclosed to the
Lender all Trade Rights in which the Borrower or any Subsidiary has any
interest. All Trade Rights owned and registered by the Borrower or any
Subsidiary have been properly registered, all pending registrations and
applications by the Borrower and its Subsidiaries have been properly made and
filed and all annuity, maintenance, renewal and other fees relating to
registrations or applications are current. Neither the Borrower nor any
Subsidiary requires any Trade Rights that it does not already have in order to
conduct its business as currently conducted. Neither the Borrower nor any
Subsidiary is infringing or has infringed any Trade Rights of another in the
operation of its business, nor is any other person infringing any Trade Rights
of the Borrower or any Subsidiary. Neither the Borrower nor any Subsidiary has
granted any license or made any assignment of any of its Trade Rights, nor does
the Borrower or any Subsidiary pay any royalties or other consideration for the
right to use any Trade Rights of others. All Trade Rights of the Borrower and
its Subsidiaries are enforceable and there are no equitable defenses to
enforcement based on any act or omission of the Borrower or any Subsidiary.
The consummation of the transactions contemplated hereby will not impair any
Trade Rights of the Borrower or any Subsidiary.
Section 3.19 Permits. The Borrower and each Subsidiary has all
Permits necessary or desirable for the conduct of the business (as presently
conducted). All such Permits are in full force and effect, and there are no
present conditions or events that could result in the revocation or nonrenewal
of any such Permit. The Borrower and each Subsidiary is and has been in
compliance with all such Permits.
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Section 3.20 Labor Matters. Within the last five years, neither
the Borrower nor any Subsidiary has experienced any union or syndicate
organization attempts, any work stoppage due to labor disagreements or any
other material labor disputes in connection with its business. The Borrower
and each Subsidiary is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and is not engaged in any unfair labor practice. Within the
last five years, there has been no overt or threatened unfair labor practice
charge or complaint against the Borrower or any Subsidiary and there is no
basis for any such charge or complaint. There is no labor strike, material
labor dispute, request for representation, slowdown or stoppage pending or
threatened against or affecting the Borrower or any Subsidiary nor any
secondary boycott with respect to any products of the Borrower or any
Subsidiary. No question concerning union representation or collective
bargaining has been raised or is threatened respecting the employees of the
Borrower or of any Subsidiary. No grievance that might have a Material Adverse
Effect on the Borrower or any Subsidiary, individually or in the aggregate, nor
any arbitration proceeding arising out of or under union or syndicate
collective bargaining agreements, is pending or threatened. Within the last
five years, there have been no overt or threatened administrative charges or
court complaints against the Borrower or any Subsidiary concerning alleged
employment discrimination or other employment related matters before the EEOC
or any other Government Authority.
Section 3.21 Accounts Receivable. All accounts receivable of the
Borrower and of each Subsidiary reflected on the Balance Sheet, and as incurred
since the date thereof represent arm's length sales actually made in the
ordinary course of business, and are collectible (net of the reserve recorded
in the Balance Sheet for doubtful accounts) in the ordinary course of business.
Section 3.22 Inventory. All inventory of the Borrower and each
Subsidiary consists of a quality and quantity useable and salable in the
ordinary course of business and is valued in accordance with GAAP at the lower
of cost (on a FIFO basis) or market.
Section 3.23 Insurance. All Insurance Policies are valid,
outstanding and enforceable policies. No notice of cancellation or termination
has been received with respect to any such Insurance Policy, and there has been
no act or omission that could result in cancellation of any such Insurance
Policy prior to its scheduled expiration date. There is no claim by the
Borrower or any Subsidiary pending under any Insurance Policy as to which
coverage has been denied or disputed by the underwriters thereof. Neither the
Borrower nor any Subsidiary has received any written notice that it has not
provided to the Lender from or on behalf of any issuer of any Insurance Policy
that insurance rates therefor will hereafter be substantially increased (except
to the extent that insurance rates may be increased for all similarly situated
risks) or that there will hereafter be a cancellation or an increase in a
deductible (or an increase in premiums in order to maintain an existing
deductible) or nonrenewal of any such policy. The Insurance Policies are
sufficient to enable the Borrower and its Subsidiaries to comply with the
requirements of all contracts to which any of them is a party.
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Section 3.24 Environmental Matters. The Borrower and each
Subsidiary is in compliance with all limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in applicable Environmental Laws or contained in any regulations,
code, plan, order, decree, judgment, injunction, notice or demand letter
issued, entered, promulgated or approved thereunder. There is no Action
against the Borrower or any Subsidiary relating to any Environmental Laws or
any order issued, entered, promulgated or approved thereunder. There are no
past or present events, conditions, circumstances, activities, practices,
incidents, actions, omissions or plans that could interfere with or prevent the
compliance and continued compliance by the Borrower and its Subsidiaries with
any Environmental Laws or with any order issued, entered, promulgated or
approved thereunder, or that could give rise to any liability, including,
without limitation, liability under CERCLA or under any other Environmental
Laws, or otherwise form the basis of any Action or notice of violation based on
or related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the emission, discharge, release
or threatened release into the environment, of any Waste.
Section 3.25 Ownership of Collateral Shares.
(a) Stonebraker is the sole record and beneficial owner of the
Stonebraker Collateral Shares, which he owns free and clear of any and all
Liens. Upon delivery of the Stonebraker Collateral Shares to the Lender at the
Closing, the Lender will take possession of, and will have a perfected
first-priority security interest in, the Stonebraker Collateral Shares free and
clear of any and all Liens other than Liens in favor of the Lender as
contemplated hereby.
(b) Probst is the sole record and beneficial owner of the Probst
Collateral Shares, which he owns free and clear of any and all Liens. Upon
delivery of the Probst Collateral Shares to the Lender at the Closing, the
Lender will take possession of, and will have a perfected first-priority
security interest in, the Probst Collateral Shares free and clear of any and
all Liens other than Liens in favor of the Lender as contemplated hereby.
Section 3.26 Value of Repurchase Rights. The aggregate value of
the Repurchase Rights is no greater than $60,000.
Section 3.27 Product Warranties and Product Liability. Except as
stated in the written policies of the Borrower or its Subsidiaries with respect
to credits, returns and allowances and the standard warranty or warranties for
sales of Products or as existing under any Governmental Requirement, there are
no warranties, commitments or obligations of the Borrower or any Subsidiary
with respect to the granting of credits or the return or replacement of
Products. None of the Products has been the subject of any recall campaign by
the Borrower or any Subsidiary and no facts or conditions exist that could
result in such a recall campaign. Neither the Borrower nor any Subsidiary has
introduced into commerce any "adulterated" or "misbranded" product (as those
terms are defined in the Food, Drug and Cosmetic Act of 1938, as amended). The
Borrower and each Subsidiary follows manufacturing processes and practices that
are sufficient to prevent the
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introduction of "adulterated" products into commerce. The Products have been
formulated and manufactured so as to, and do, meet and comply with all
applicable Government Requirements. All Products have met all Governmental
Requirements necessary or desirable to allow their sale and intended use.
Section 3.28 Unifiber Purchase Agreement. All of the
representations and warranties of all parties to the Unifiber Purchase
Agreement are true and correct in all respects.
Section 3.29 Benefit of the Loan to the Shareholders.
(a) Stonebraker acknowledges and agrees that, inasmuch as he is the
Chief Executive Officer, a director and a significant shareholder of the
Borrower, the Loan will benefit him at least to the extent of the value of the
Stonebraker Collateral Shares.
(b) Probst acknowledges and agrees that, inasmuch as he is the
President, a director and a significant shareholder of the Borrower, the Loan
will benefit him at least to the extent of the value of the Probst Collateral
Shares.
Section 3.30 Brokers. All negotiations relative to the Loan and
to the other transactions contemplated hereby have been carried on without the
involvement of any Person as the result of any act of the Borrower or either
Shareholder that would give rise to any claim against the Lender for any
brokerage commission, finders fee, or other like payments, other than Lehman
Brothers, whose fees and commissions are and shall remain the Borrower's sole
responsibility.
Section 3.31 No Material Misstatements or Omissions. No
information that the Borrower or either Shareholder has furnished, directly or
indirectly, to the Lender in any form in connection with the negotiation of
this Agreement or the transactions contemplated hereby contained or contains
any misstatement of a material fact or omitted or omits to state a material
fact necessary to make the statements contained therein not misleading in light
of the circumstances under which they were made.
Section 3.32 No Usury. Without limiting the generality of any
other representation or warranty set forth herein or in any Other Transaction
Document, the Loan is not usurious under the laws of the State of Colorado
(including without limitation Colorado Revised Statutes Section 5-12-103).
ARTICLE 4
AFFIRMATIVE COVENANTS
The Borrower and the Shareholders, as the case may be, shall at all
times comply with the covenants contained in this Article 4:
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Section 4.01 Financial Statements and Reports. The Borrower shall
promptly furnish to the Lender from time to time such information regarding the
business and affairs and financial condition of the Borrower and its
Subsidiaries as the Lender may reasonably request, and shall also furnish to
the Lender the following:
(a) Annual Reports. Promptly after becoming available
and in any event within 140 days after the close of each fiscal year
of the Borrower (or such shorter period of time within which the
Borrower must file such information with the Commission), the audited
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as at the end of such year, the audited consolidated and
consolidating statements of profit and loss of the Borrower and its
Subsidiaries for such year and the audited consolidated and
consolidating statements of reconciliation of capital accounts of the
Borrower and its Subsidiaries for such year, setting forth in each
case in comparative form the corresponding figures for the preceding
fiscal year, accompanied by the related report of the Borrower's
independent public accountants, which report shall be to the effect
that such statements have been prepared in accordance with GAAP
consistently applied throughout the period indicated except to the
extent stated therein; and
(b) Quarterly Reports. Promptly after becoming available
and in any event within 60 (or such shorter period of time within
which the Borrower must file such information with the Commission)
days after the end of each of the first three quarterly periods in
each fiscal year of the Borrower, the consolidated and consolidating
balance sheets of the Borrower and its Subsidiaries as at the end of
such period, the consolidated and consolidating statements of profit
and loss of the Borrower and its Subsidiaries for such quarter and for
the period from the beginning of the fiscal year to the close of such
quarter, and the consolidated and consolidating statements of
reconciliation of capital accounts of the Borrower and its
Subsidiaries for such quarter and for the period from the beginning of
the fiscal year to the close of such quarter, setting forth in each
case in comparative form the corresponding figures for the
corresponding period of the immediately-preceding fiscal year,
certified by the principal financial officer of the Borrower to have
been prepared in accordance with GAAP consistently applied throughout
the period indicated except to the extent stated therein, subject to
typical changes resulting from year-end adjustments; and
(c) Audit Reports. Promptly upon receipt thereof, one
copy of each other report submitted to the Borrower or any Subsidiary
by independent accountants in connection with any annual, interim or
special audit made by them of the books of the Borrower or any
Subsidiary.
(d) Commission and Other Reports. Promptly upon their
becoming available, one copy of each financial statement, report,
notice or proxy statement sent by the Borrower to stockholders
generally, and of each regular or periodic report and any registration
statement, prospectus or written communication (other than transmittal
letters) in respect thereof filed by the Borrower with, or received by
the Borrower in connection therewith
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from, any securities exchange (including without limitation the NASDAQ
Small Cap market system) or the Commission.
Section 4.02 Certificates of Compliance. Concurrently with the
furnishing of the annual and quarterly financial statements pursuant to
Subsections 4.01(a) and (b) hereof, the Borrower shall furnish or cause to be
furnished to the Lender a certificate in form and substance satisfactory to the
Lender signed by the principal financial officer of the Borrower stating (i)
that the Borrower has fulfilled its obligations under this Agreement, the Note
and the Security Instruments; and (ii) that all representations made herein and
therein continue to be true and correct (or specifying the nature of any
change), or, if any Potential Default shall have occurred and be continuing,
specifying such Potential Default and the nature and status thereof; and (iii)
containing or accompanied by such financial or other details, information and
material as the Lender reasonably may request to evidence such compliance.
Section 4.03 Taxes and Liens. The Borrower shall pay and
discharge promptly all Taxes imposed upon the Borrower or any Subsidiary or
upon the income or any Property of the Borrower or any Subsidiary as well as
all claims of any kind (including claims for labor, materials, supplies and
rent) that, if unpaid, might become a Lien upon any or all of the Property of
the Borrower or any Subsidiary; provided, however, that neither the Borrower
nor any Subsidiary shall be required to pay any such tax, assessment, charge,
levy or claim if the amount, applicability or validity thereof shall currently
be contested in good faith by appropriate proceedings diligently conducted by
or on behalf of the Borrower or its Subsidiary, and if the Borrower or its
Subsidiary shall have set up reserves therefor adequate under GAAP.
Section 4.04 Maintenance of Rights and Property. The Borrower
shall and shall cause each Subsidiary to (a) maintain its corporate existence,
rights and franchises; (b) observe and comply with all Governmental
Requirements (other than any Governmental Requirement the violation of which,
either individually or in the aggregate, would not have a Material Adverse
Effect); and (c) maintain its Property in good operating condition at all times
and make all repairs, replacements, additions, betterments and improvements to
its Property as are necessary or appropriate to enable the Borrower and each
Subsidiary to conduct their respective businesses properly and efficiently at
all times.
Section 4.05 Insurance. In the case of any fire, accident or
other casualty causing loss or damage to any Property of the Borrower or a
Subsidiary, the proceeds of such policies shall be used (a) to repair or
replace the damaged Property or (b) to prepay the Indebtedness.
Section 4.06 Accounts and Records. The Borrower shall keep, and
shall cause each Subsidiary to keep, books of record and account in which full,
true and correct entries shall be made of all dealings or transactions in
relation to their respective business and activities, in accordance with GAAP,
consistently applied except for changes in accounting principles or practices
with which the Borrower's independent public accountants concur.
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Section 4.07 Right of Inspection.
(a) The Borrower shall permit any officer, employee or agent of
the Lender to visit and inspect any of the Borrower's Property, to examine the
Borrower's books of record and accounts and to take copies and extracts
therefrom, and to discuss the Borrower's affairs, finances and accounts with
the Borrower's officers, accountants and auditors, all at such times and places
as the Lender reasonably may require.
(b) The Borrower shall cause each Subsidiary to permit any
officer, employee or agent of the Lender to visit and inspect any of such
Subsidiary's Property, to examine such Subsidiary's books of record and
accounts and to take copies and extracts therefrom, and to discuss such
Subsidiary's affairs, finances and accounts with such Subsidiary's officers,
accountants and auditors, all at such times and places as the Lender reasonably
may require.
Section 4.08 Notice of Certain Events. The Borrower shall notify
the Lender promptly if the Borrower learns of the occurrence of:
(a) any event that constitutes a Potential Default, and
shall in such case provide with the notice a detailed statement by a
responsible officer of the Borrower of the steps being taken to cure
the effect of such Potential Default; or
(b) the receipt of any notice from, or the taking of any
other action by, the holder of any promissory note, debenture or other
evidence of indebtedness of the Borrower or any Subsidiary or of any
security (as defined in the Securities Act) of the Borrower or any
Subsidiary with respect to a claimed default, and shall in such case
provide with the notice a detailed statement by a responsible officer
of the Borrower specifying the notice given or other action taken by
such holder and the nature of the claimed default and what action the
Borrower or its Subsidiary is taking or proposes to take with respect
thereto; or
(c) any legal, judicial or regulatory proceedings
affecting the Borrower or any Subsidiary or any of their respective
Property in which the amount involved is material and is not covered
by insurance or that, if adversely determined, could have a Material
Adverse Effect; or
(d) any pending or threatened dispute between the
Borrower or any Subsidiary and any governmental or regulatory body or
any other Person that, if adversely determined, could have a Material
Adverse Effect.
Section 4.09 ERISA Information and Compliance. The Borrower shall
promptly furnish to the Lender (a), if the Lender requests, copies of each
annual and other report with respect to each Plan or any trust created
thereunder promptly after the filing thereof with the United States Secretary
of Labor or the Pension Benefit Guaranty Corporation and (b), immediately upon
becoming aware of the occurrence of any "reportable event," as such term is
defined in Section
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4043 of ERISA, or of any "prohibited transaction," as such term is defined in
Section 4975 of the Code, in connection with any Plan or any trust created
thereunder, a written notice signed by the President or the principal financial
officer of the Borrower specifying the nature thereof, what action the Borrower
or any of its Subsidiaries is taking or proposes to take with respect thereto
and, when known, any action taken by the Internal Revenue Service with respect
thereto. The Borrower shall fund, or shall cause its Subsidiaries to fund, all
current service pension liabilities as they are incurred under the provisions
of all Plans from time to time in effect for the benefit of employees of the
Borrower or any of its Subsidiaries, and comply with all applicable provisions
of ERISA.
Section 4.10 Use of Proceeds. The proceeds of the Note shall be
applied by the Borrower only for the following purposes and in the following
order:
(a) to fund the Unifiber acquisition pursuant to the
Unifiber Purchase Agreement;
(b) to pay the Borrower's indebtedness as set forth in
Schedule 4.11 hereto; and
(c) for working capital and other general corporate
purposes.
Section 4.11 NASDAQ Small Cap Exchange Listing. The Borrower
shall ensure at all times that:
(a) the Lender Shares are listed on the NASDAQ Small Cap
market system or other national securities exchange;
(b) the Borrower is not in default of its listing
agreement with NASDAQ; and
(c) trading in the Common Stock is not suspended for any
reason.
Section 4.12 Subsidiary Dividends. In the event that the Borrower
has insufficient funds available to pay all amounts then due and payable under
the Note, the Borrower shall cause one or more Subsidiaries to declare and pay
to the Borrower out of the funds legally available therefor dividends in an
aggregate amount to enable the Borrower to pay such amounts in full.
Section 4.13. First Anniversary Reset. In the event that, on the
first anniversary of the Closing, any principal of the Loan remains unpaid and
the aggregate value of the Initial Consideration Shares (the "Aggregate First
Anniversary Reset Value"), based on the per-share closing price of the Common
Stock on the last trading day immediately preceding the first anniversary of
the Closing as quoted on the NASDAQ Small Cap market system (the "Per-Share
First Anniversary Reset Value"), is less than $1,000,000, then the Borrower
promptly shall deliver to the Lender, at the Borrower's option, either (a) an
amount in cash equal to (i) $1,000,000 less (ii) the Aggregate First
Anniversary Reset Value (the "Aggregate First Anniversary Reset Value
Difference") or (b), free of any and all encumbrances (other than restrictions
on transfer imposed
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by applicable securities laws), such number of shares validly-issued,
fully-paid and nonassessable shares of Common Stock as are equal to (i) the
Aggregate First Anniversary Reset Value Difference divided by (ii) the
Per-Share First Anniversary Reset Value.
Section 4.14. Maturity Date Reset. In the event that, on the
Maturity Date, the aggregate value of the Initial Consideration Shares (the
"Aggregate Maturity Date Reset Value"), based on the per-share closing price of
the Common Stock on the last trading day immediately preceding the Maturity
Date as quoted on the NASDAQ Small Cap market system (the "Per-Share Maturity
Date Reset Value"), is less than $1,000,000, then the Borrower promptly shall
deliver to the Lender, at the Borrower's option, either (a) an amount in cash
equal to (i) $1,000,000 less (ii) the Aggregate Maturity Date Reset Value less
(iii) (A), if the Lender received a cash payment pursuant to Section 4.13, the
amount of such cash payment or (B), if the Lender received additional shares of
Common Stock pursuant to Section 4.13, an amount equal to (I) the number of
such additional shares that were issued to the Lender pursuant to Section 4.13
multiplied by (II) the Per-Share Maturity Date Reset Value (the "Aggregate
Maturity Date Reset Value Difference"), or (b), free of any and all
encumbrances (other than restrictions on transfer imposed by applicable
securities laws), such number of shares validly-issued, fully-paid and
nonassessable shares of Common Stock as are equal to (i) the Aggregate Maturity
Date Reset Value Difference divided by (ii) the Per-Share Maturity Date Reset
Value. Notwithstanding anything in this Section 4.14 to the contrary, any
Aggregate Maturity Date Reset Value Difference less than zero shall be deemed
to be zero.
Section 4.15. Prepayment Reset. In the event that the Loan is
prepaid in full prior to the Maturity Date and the aggregate value of the
Initial Consideration Shares on the date of such prepayment (the "Aggregate
Prepayment Date Reset Value"), based on the per-share closing price of the
Common Stock on the last trading day immediately preceding the date of such
prepayment as quoted on the NASDAQ Small Cap market system (the "Per-Share
Prepayment Date Reset Value"), is less than $1,000,000, then the Borrower
promptly shall deliver to the Lender, at the Borrower's option, either (a) an
amount in cash equal to (i) $1,000,000 less (ii) the Aggregate Prepayment Date
Reset Value less (iii) (A), if the Lender received a cash payment pursuant to
Section 4.13, the amount of such cash payment or (B), if the Lender received
additional shares of Common Stock pursuant to Section 4.13, an amount equal to
(I) the number of such additional shares that were issued to the Lender
pursuant to Section 4.13 multiplied by (II) the Per-Share Prepayment Date Reset
Value (the "Aggregate Prepayment Date Reset Value Difference"), or (b), free of
any and all encumbrances (other than restrictions on transfer imposed by
applicable securities laws), such number of shares validly-issued, fully-paid
and nonassessable shares of Common Stock as are equal to (i) the Aggregate
Prepayment Date Reset Value Difference divided by (ii) the Per-Share Prepayment
Date Reset Value. Notwithstanding anything in this Section 4.15 to the
contrary, any Aggregate Prepayment Date Reset Value Difference less than zero
shall be deemed to be zero.
Section 4.16 Voting of Collateral Shares. While any part of the
Loan remains outstanding, each of Stonebraker and Probst shall vote all of his
Collateral Shares in favor of the election of (and against the removal of, if
applicable) a Lender-designated nominee as a Borrower director.
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Section 4.17 Indemnification. From and after the Closing, each of
the Borrower, Stonebraker and Probst, jointly and severally, shall indemnify
and hold harmless in full the Lender from and against any and all Damages
arising in connection with the untruth of any representation or warranty set
forth in Article 3 hereof or with the failure of any of them to comply with the
covenants set forth in this Article 4 or in Article 5 hereof.
Section 4.18 Proceeds of Securities Offerings. At the Lender's
option (but, in the case of an underwritten offering, subject to the approval
of the Borrower's lead underwriter, which approval the Borrower shall use its
best efforts to obtain), the Borrower shall prepay the Loan to the extent of
any cash proceeds that the Borrower receives from any sale of securities of the
Borrower.
Section 4.19 Voting of Collateral Shares. Each of Stonebraker and
Probst, by his execution of this Agreement, hereby grants to the Lender the
exclusive right, and hereby makes, constitutes and appoints the Lender, with
full power of substitution in the premises, his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead, to vote
any and all of the Stonebraker Collateral Shares and the Probst Collateral
Shares, respectively, on any and all matters that may properly be put to a vote
of the Borrower's shareholders, and to execute any and all written consents to
the same effect, and to do all such other acts and things that the Lender may
deem necessary or appropriate in such regard, in the event that (a) an Event of
Default shall have occurred and be continuing and (b) the Lender shall have
chosen not to exercise its rights under the Security Instruments to foreclose
on the Collateral Shares (each a "Power of Attorney"). Each Power of Attorney
shall be deemed irrevocable and coupled with an interest for so long as any
part of the Indebtedness remains outstanding and shall not be adversely
affected by the incapacity of the grantor thereof. The Borrower agrees that
the provisions of this Section 4.19 are not inconsistent with Section 2.12 of
the Borrower's Bylaws and acknowledges the Lender's exclusive right to vote the
Collateral Shares in accordance with the provisions of this Section 4.19.
ARTICLE 5
NEGATIVE COVENANTS
The Borrower shall at all times comply with the covenants contained in
this Article 5 so long as any part of the Indebtedness remains outstanding:
Section 5.01 Indebtedness.
(a) Without the Lender's prior express written consent in
each instance, the Borrower shall not, and shall not permit any
Subsidiary to, incur, create, assume or suffer
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to exist any indebtedness or obligation for payment of money
(including obligations for the payment of rentals) other than (i) the
Indebtedness and (ii) any such indebtedness or obligation outstanding
on the date hereof of which the Borrower has fully informed the
Lender.
(b) The Borrower shall not, and shall not permit any
Subsidiary to, guarantee or in any way to be or become liable in
respect of, or to be responsible for, any indebtedness or obligation
of any other Person in any way other than in the ordinary course of
business.
Section 5.02 Liens. The Borrower shall not, and shall not permit
any Subsidiary to, incur, create, assume or suffer to exist any Lien on any of
its Property (now held or hereafter acquired) other than (a) Liens securing the
payment of any Indebtedness, (b) Permitted Liens and (c) Liens outstanding on
the date hereof of which the Borrower has fully informed the Lender.
Section 5.03 Investments, Loans and Advances. The Borrower shall
not, and shall not permit any Subsidiary to, make or permit to remain
outstanding any loans or advances to or investments in any Person other than in
the ordinary course of business.
Section 5.04 Grants of Stock Rights, Dividends, Distributions and
Redemptions. Without the Lender's prior written consent, the Borrower shall
not grant any Stock Rights that, together with all Stock Rights previously
granted, would represent the right to acquire more than fifteen percent (15%)
of the Company's common equity on a fully-diluted basis. The Borrower shall
not declare or pay any dividend or distribution, or purchase, redeem, retire or
otherwise acquire for value any of its capital stock now or hereafter
outstanding, return any capital to its stockholders, or make any distribution
of its assets to its stockholders as such, or permit any of its Subsidiaries to
purchase or otherwise acquire for value any capital stock of the Borrower.
Section 5.05 Fundamental Transactions. Without the Lender's prior
written consent, the Borrower shall not merge or consolidate with, or sell,
assign, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all, substantially all or an integral portion of its
Property (whether now owned or hereafter acquired) to, any Person, or permit
any Subsidiary to do so, except that any Subsidiary may merge into or
consolidate with or transfer Property to any other Subsidiary and any
Subsidiary may merge into or transfer Property to the Borrower; provided,
however, that, in each case, immediately thereafter and giving effect thereto,
no event shall occur and be continuing that constitutes a Potential Default or
an Event of Default and that, in the case of any such merger or consolidation
to which the Borrower is a party, the Borrower is the surviving corporation.
Section 5.06 Sales and Leasebacks. The Borrower shall not, and
shall not permit any subsidiary to, enter into any arrangement, directly or
indirectly, with any Person whereby the Borrower or any Subsidiary shall sell
or transfer any Property, whether now owned or hereafter acquired, and whereby
the Borrower or any Subsidiary shall then or thereafter rent or lease as lessee
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such Property or any part thereof or other Property which the Borrower or any
Subsidiary intends to use for substantially the same purpose or purposes as the
Property sold or transferred.
Section 5.07 ERISA Compliance. The Borrower shall not at any time
permit any Plan maintained by it or any Subsidiary to:
(a) engage in any "prohibited transaction," as such term
is defined in Section 4975 of the Code, as amended;
(b) incur any "accumulated funding deficiency," as such
term is defined in Section 302 of ERISA; or
(c) terminate any such Plan in a manner that could result
in the imposition of a Lien on the Property of the Borrower or any
Subsidiary pursuant to Section 4068 of ERISA.
Section 5.08 Nature of Business. The Borrower shall not, and
shall not permit any Subsidiary to, materially change the character of its
business as carried on at the date hereof.
Section 5.09 Margin Stock. Neither the Borrower nor any
Subsidiary shall take any action that might cause the Note, this Agreement or
any of the Security Instruments to violate Regulation U of the Board of
Governors of the United States Federal Reserve System (12 C.F.R. Part 221) (the
"Federal Reserve Board") or any other regulation of the Federal Reserve Board
or to violate Section 7 of the Exchange Act or any rule or regulation
thereunder, in each case as now in effect or as the same may hereinafter be in
effect.
Section 5.10 NASDAQ Small Cap Exchange Listing. The Borrower
shall not de-list, or allow the de-listing of, the Common Stock from the NASDAQ
Small Cap market system (unless such de-listing occurs at a time when such
Shares are listed on another nationally-recognized United States securities
exchange), and shall ensure that the Lender Shares are listed thereon at the
earliest possible time.
ARTICLE 6
EVENTS OF DEFAULT
Section 6.01 Events. Any of the following events shall be
considered an "Event of Default:"
(a) the Borrower fails to pay when due any installment of
principal or interest on the Note or other Indebtedness; or
(b) any of the Borrower's representations or warranties
set forth herein, in the
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Note or in any Other Transaction Document to which it is a party, or
any of the representations or warranties of either Shareholder set
forth herein or in any Other Transaction Document to which it is a
party, proves to have been incorrect as of the date hereof or thereof;
or
(c) the Borrower fails duly, timely and fully to perform
or observe any of its covenants or agreements or to perform its
obligations set forth in any Other Transaction Document or in the
following Sections of this Agreement: 4.04(a); 4.07; 4.08; 4.09(b);
4.10; 4.11; 4.13; 4.14; 4.15; 4.16; 4.17; 4.18; 4.19; 5.01; 5.04;
5.05; 5.06; 5.07; 5.08; 5.09; and 5.10; or
(d) the Borrower fails duly, timely and fully to perform
or observe any of its covenants or agreements or to perform its
obligations set forth in this Agreement (other than any such
covenants, agreements and obligations set forth in clause (c) above),
and such failure continues unremedied for a period of 10 days after
the earlier of (i) the Lender's notice thereof to the Borrower and
(ii) such failure otherwise becomes known to the Borrower; or
(e) the Borrower in good faith deems itself insecure with
respect to the Note or any other Indebtedness; or
(f) an involuntary case or other proceeding is commenced
against the Borrower or either Shareholder that seeks liquidation,
reorganization or other relief with respect to it or its debts or
other liabilities under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of
it or any substantial part of its Property, and such involuntary case
or other proceeding shall remain undismissed or unstayed for a period
of 30 days; or an order for relief against the Borrower or either
Shareholder shall be entered in any such case under the Federal
Bankruptcy Code; or
(g) the Borrower or either Shareholder commences a
voluntary case or other proceeding seeking liquidation, reorganization
or other relief with respect to itself or its debts or other
liabilities under any bankruptcy, insolvency or other similar law now
or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its Property, or shall consent to any such relief
or to the appointment of or taking possession by any such official in
an involuntary case or other proceeding commenced against it, or shall
make a general assignment for the benefit of creditors, or shall fail
generally to, or shall admit in writing its inability to, pay its
debts generally as they become due, or shall take any corporate action
to authorize or effect any of the foregoing; or
(h) the Borrower or any Subsidiary discontinues or
materially alters its usual business; or
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<PAGE> 30
(i) the Borrower fails to make any payment due on any
other indebtedness or obligation for the payment of money; or any
event shall occur or any condition shall exist in respect of any such
indebtedness or obligation, or under any agreement or instrument under
or by which any such indebtedness or obligation is created, evidenced
or secured, the effect of which, with notice, lapse of time, or both,
is to cause or to permit any holder of such indebtedness or obligation
to cause such indebtedness or obligation, or a portion thereof, to
become due prior to its stated maturity or prior to its regularly
scheduled dates of payment; or
(j) the Borrower shall fail within 10 days to pay, bond
or otherwise discharge any judgment or order for the payment of money
in excess of $25,000 that is not otherwise being satisfied in
accordance with its terms or is not stayed on appeal; or
(k) any Subsidiary takes, suffers or permits to exist as
to such Subsidiary any of the events or conditions referred to in
Subsections 6.01(f), (g), (h), (i) or (j) hereof; or
(l) any Security Instrument shall for any reason, except
to the extent permitted by the terms thereof, cease to be in full
force and effect and valid, binding enforceable in accordance with its
terms, or cease to create a valid and perfected Lien of the priority
required thereby on any of the collateral purported to be covered
thereby, or the Borrower or either Shareholder shall so state in
writing; or
(m) any party defaults under the Unifiber Purchase
Agreement; or
(n) the Borrower or any Subsidiary shall default (or an
event or condition shall occur that, with notice or the passage of
time or both would constitute a default) under any Contract; or
(o) the Lender ceases at any time to have at least one
person that it has designated serving on the Borrower's Board of
Directors (each a "Lender-designated Director"); or
(p) the Borrower increases the size of its Board of
Directors without the consent of each Lender-designated Director.
Section 6.02 Remedies. Upon the occurrence of any Event of
Default described in Subsection 6.01(f) or (g), hereof, or in Subsection
6.01(k) to the extent that such Subsection refers to Subsection 6.01(f) or (g)
hereof, the obligations, if any, of the Lender hereunder shall immediately
terminate, and the entire amount of all Indebtedness then outstanding shall
become automatically and immediately due and payable, all without written
notice and without presentment, demand, protest, notice of protest or dishonor,
notice of intention to accelerate, notice of acceleration or any other notice
of default of any kind, all of which are hereby expressly waived by the
Borrower. Upon the occurrence and at any time during the continuance of any
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<PAGE> 31
other Event of Default, by written notice to the Borrower the Lender may (i)
declare all Indebtedness to be immediately due and payable without presentment,
demand, protest, notice of protest or dishonor, notice of intention to
accelerate or other notice of default of any kind, all of which are hereby
expressly waived by the Borrower, and/or (ii) terminate the obligations, if
any, of the Lender hereunder unless and until the Lender shall reinstate same
in writing and /or (iii) exercise its right under Section 4.19 hereof to vote
the Collateral Shares. Notwithstanding anything in this Agreement to the
contrary, however, the facts and circumstances existing as of the date hereof
with respect to Borrower's default under its royalty agreement with Expedition
Trading Co., L. C. shall constitute a Potential Default, but shall not
constitute an Event of Default, for a period of six (6) months following the
Closing (unless extended by the Lender in its sole discretion), after which
time the special grace period set forth in this sentence shall be of no further
force or effect.
Section 6.03 Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, or if the Borrower becomes insolvent,
however evidenced, the Lender is hereby authorized at any time and from time to
time, without notice to the Borrower (any such notice being expressly waived by
the Borrower), to set-off and apply any and all moneys at any time held and
other indebtedness at any time owing by the Lender to the Borrower against any
and all of the Indebtedness of the Borrower, irrespective of whether or not the
Lender shall have made any demand under this Agreement or the Note and although
such obligations may be unmatured. The Lender agrees promptly to notify the
Borrower after any such setoff and application, provided that the failure to
give such notice shall not affect the validity of such set-off and application.
The rights of the Lender under this Section are in addition to other rights and
remedies (including, without limitation, other rights of set-off) that the
Lender may have.
ARTICLE 7
LOAN CLOSING AND CONDITIONS PRECEDENT
The obligation of the Lender to make the Loan is subject to the
conditions precedent stated in this Article 7 wherein each document to be
delivered to the Lender shall be in form and substance satisfactory to it.
Section 7.01 Closing. The closing of the Loan (the "Closing")
shall take place contemporaneously with the execution of this Agreement.
Section 7.02 Conditions Precedent to the Loan. As conditions
precedent to Lender's making of the Loan, the following shall occur prior to or
at the Closing:
(a) the Borrower shall have duly and validly issued,
executed and delivered the Note to the Lender;
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(b) the Borrower shall have delivered the Initial
Consideration Shares to the Lender free of any and all Liens and
restrictive legends (other than restrictions on transfer imposed by
applicable securities laws and restrictive legends making reference
thereto).
(c) the Borrower shall have effected the appointment or
election of one Lender-designated person to the Borrower's Board of
Directors;
(d) the Borrower shall have made the following additional
deliveries to the Lender:
(i) certificates of existence and good standing of the
Borrower in the State of Nevada, and certificates of
qualification as a foreign corporation and good standing in
the State of Colorado;
(ii) a certificate of the Borrower's Secretary certifying
(A) the Borrower's charter and bylaws, (B) duly adopted
resolutions of the Borrower's board of directors in form and
substance satisfactory to the Lender with respect to the
authorization of this Agreement, the Note and the Other
Transaction Documents to which the Borrower is a party and (C)
specimen signatures of the duly authorized officers of the
Borrower executing this Agreement or any Other Transaction
Document on the Borrower's behalf;
(iii) a legal opinion of counsel to the Borrower and the
Shareholders addressed to the Lender in form and substance
satisfactory to the Lender;
(iv) duly-executed originals (in such number as the Lender
reasonably shall request) of the Registration Rights
Agreement; and
(v) duly-executed originals (in such number as the Lender
reasonably shall request) of written evidence satisfactory in
form and substance to the Lender that the Borrower and the
Shareholder (as such term is defined in the Unifiber
Shareholder Agreement) have agreed that no approval by the
Borrower's Board of Directors pursuant to Section 3(a)(2) of
the Unifiber Shareholder Agreement shall be required upon the
Lender's purchase, if any, of the Shares (as such term is
defined in the Unifiber Shareholder Agreement) subsequent to
such assignment; and
(vi) such other documents and things as the Lender
reasonably shall request.
(e) Stonebraker shall have delivered one or more
certificates representing the Stonebraker Collateral Shares free of
any and all Liens and restrictive legends (other than restrictions on
transfer imposed by applicable securities laws and restrictive legends
making reference thereto), together with one or more irrevocable stock
power duly endorsed in blank;
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(f) Stonebraker shall have delivered to the Lender (in
such number as the Lender reasonably shall request) UCC-1 financing
statements relating to the Stonebraker Security Agreement and the
pledge of the Stonebraker Collateral Shares;
(g) Stonebraker and the Borrower shall have delivered to
each other duly-executed originals (in such number as the Lender
reasonably shall request) of the Stonebraker Security Agreement;
(h) Probst shall have delivered one or more certificates
representing the Probst Collateral Shares free of any and all Liens
and restrictive legends (other than restrictions on transfer imposed
by applicable securities laws and restrictive legends making reference
thereto), together with one or more irrevocable stock power duly
endorsed in blank;
(i) Probst shall have delivered to the Lender (in such
number as the Lender reasonably shall request) UCC-1 financing
statements relating to the Probst Security Agreement and the pledge of
the Probst Collateral Shares; and
(j) Probst and the Borrower shall have delivered to each
other duly-executed originals (in such number as the Lender reasonably
shall request) of the Probst Security Agreement.
Section 7.03 Closing Deliveries of the Lender. At the Closing and
following the satisfaction or waiver of the conditions precedent set forth in
Section 7.02, the Lender shall deliver the proceeds of the Loan by wire
transfer to such account as the Borrower reasonably shall request in writing at
least two (2) days prior to the Closing.
Section 7.04 Subsequent Delivery. Notwithstanding anything to the
contrary in this Article 7, the parties acknowledge and agree that, due to the
necessity of having the Closing occur at the earliest possible time, the
Borrower will not be able to satisfy the condition precedent to the Closing set
forth in Section 7.02(b) with regard to the delivery of the Initial
Consideration Shares prior to or at the Closing. In consideration of the
Lender's willingness to close the Loan without such satisfaction, the Borrower
covenants and agrees that the Borrower shall satisfy such condition precedent
set forth in Section 7.02(b) as soon as possible following the Closing, but in
any event no later than ten (10) days thereafter.
ARTICLE 8
MISCELLANEOUS
Section 8.01 Proof of Indebtedness. The Lender's records shall be
prima facie proof as to:
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(a) the amount of principal, interest or other amounts under the
Loan owing at any time;
(b) the existence of any default in the payment of any amounts
under the Note; and
(c) whether any demand for payment under the Note has been made.
Section 8.02 Time of Essence. Time shall be of the essence of
each and every provision hereof and of the Note.
Section 8.03 Notices. Any notice required or permitted to be
given under or in connection with this Agreement, the Security Instruments or
the Note shall (except as may otherwise be expressly required therein) be in
writing and shall be delivered (a) by certified mail, return receipt requested,
(b) by overnight delivery service, (c) by facsimile transmission, confirmed
telephonically or (d) personally to an executive officer of the receiving
party. All such communications shall be mailed, sent or delivered as follows:
If to the Borrower:
Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder CO 80302
Attention: Chief Executive Officer
Telephone: 303/417-0942
Facsimile: 303/417-1700
With a copy (which shall not constitute notice) to:
Micheal W. Sutton, Esq.
1050 Walnut Street, Suite 401
Boulder CO 80302
Telephone: 303/447-0123
Facsimile: 303/447-0556
If to the Lender:
Paragon Coyote Texas Ltd.
c/o Mark Pappas
307 West Seventh Street
Suite 1210
Fort Worth TX 76102
Telephone: 817/810-0014
Facsimile: 817/810-0089
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With a copy (which shall not constitute notice) to:
Brian D. Bowden, Esq.
Robinson & Bowden L.L.P.
512 Main Street, Suite 901
Fort Worth TX 76102
Telephone: 817/332-3370
Facsimile: 817/332-3381
If to Stonebraker:
Mel S. Stonebraker, Chief Executive Officer
Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder CO 80304
Telephone: 303/417-0942
Facsimile: 303/417-1700
If to Probst:
James M. Probst, President
Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder CO 80304
Telephone: 303/417-0942
Facsimile: 303/417-1700
Any communication delivered in accordance with this Section shall be deemed
received (a), if delivered by certified mail, return receipt requested, on the
date of delivery indicated on the return receipt, (b), if delivered by
overnight delivery service, on the following Business Day, (c), if delivered by
facsimile transmission, on the date that the transmission is confirmed
telephonically or (d), if personally to an executive officer of the receiving
party, on the date of such delivery.
Section 8.04 Amendments and Waivers. This Agreement may not be
modified, amended or terminated orally and no waiver of compliance with any
provision or condition hereof and no consent provided for herein shall be
effective unless evidenced by an instrument in writing duly executed by the
party hereto sought to be charged with such waiver or consent. No course of
dealing on the part of the Lender, its officers, employees, consultants or
agents, nor any failure or delay by the Lender with respect to exercising any
right, power or privilege of the Lender under this Agreement, the Note or any
Security Instrument shall operate as a waiver thereof. No waiver of any term
or provision hereof shall be construed as a further or continuing waiver of
such term or provision or any other term or provision.
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Section 8.05 Severability. If any provision of this Agreement or
the application thereof to any Person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by law
as long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party.
Section 8.06 Survival. All covenants and agreements of any party
to this Agreement set forth herein, in the Note or in any other Other
Transaction Document not fully performed before the Closing, and all
representations and warranties made by any party to this Agreement pursuant
hereto, to the Note or to any Other Transaction Document, shall survive the
Closing and shall never terminate.
Section 8.07 Successors and Assigns. All of the Borrower's
covenants and agreements set forth in this Agreement, the Note and the Security
Instruments shall bind its successors and assigns and shall inure to the
benefit of the Lender and its successors and assigns; provided, however, that
the Borrower may not assign its rights or obligations under this Agreement or
any interest herein, without in each instance the Lender's prior written
consent.
Section 8.08 Renewal, Extension or Rearrangement. All provisions
of this Agreement and of the Security Instruments relating to the Note or other
Indebtedness shall apply with equal force and effect to each and all promissory
notes hereafter executed that represent, in whole or in part, a renewal,
extension for any period, increase or rearrangement of any part of the
Indebtedness originally represented by the Note or of any part of such other
Indebtedness.
Section 8.09 Cumulative Rights. The Lender's rights and remedies
under this Agreement, the Note and each Security Instrument shall be
cumulative, and the exercise or partial exercise of any such right or remedy
shall not preclude the exercise of any other right or remedy.
Section 8.10 Further Assurances. At the Borrower's sole cost and
expense, each of the Lender, the Borrower and each Subsidiary covenants and
agrees to execute any and all such further documents and instruments and to do
such further things as the Lender in its sole discretion may deem necessary or
appropriate to implement fully and carry out the intent of this Agreement, the
Note and the Other Transaction Documents.
Section 8.11 Governing Law. This Agreement and the Note are
contracts made under, and shall be construed in accordance with and governed
by, the laws of the State of Colorado (exclusive of any such laws that pertain
to conflicts of laws).
Section 8.12 Entire Agreement. This Agreement, the Note and the
Other Transaction Documents embody the entire agreement and understanding
between the Lender and the Borrower with respect to the subject matter hereof
and thereof and supersede all prior agreements and understandings between such
parties in such regard.
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Section 8.13 Schedules and Exhibits. The schedules and exhibits
attached to this Agreement are incorporated herein and shall be considered a
part of this Agreement for the purposes stated herein, except that in the event
of any conflict between any of the provisions of such schedules and exhibits
and the provisions of the text of this Agreement, the provisions of the text of
this Agreement shall prevail.
Section 8.14 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same instrument. Signatures exchanged by
facsimile transmission shall be deemed to constitute original,
manually-executed signatures and shall be fully binding.
Section 8.15 Headings. Headings of the Articles and Sections of
this Agreement are for the convenience of the parties only, and shall be given
no substantive or interpretive effect whatsoever.
Section 8.16 Usury Savings Clause. The Borrower and the Lender
intend to conform strictly to applicable usury laws. Therefore, the total
amount of interest (as defined under applicable law) contracted for, charged or
collected with respect to the Loan shall never exceed the Highest Lawful Rate
(as defined in the Note). In the event that the Lender is found to have
contracted for, charged or received any interest on the Loan in excess of the
Highest Lawful Rate, such occurrence shall be deemed a mistake and the Lender
shall automatically reform the contract or charge to conform to applicable law.
In the event that the Lender is found to have received any interest on the Loan
in excess of the Highest Lawful Rate, the Lender shall either refund such
excess interest to the Borrower or credit the excess interest to the unpaid
principal amount of the Loan. All amounts found to constitute interest on the
Loan will be spread throughout the full term of the Loan in determining whether
the interest contracted for, charged or received thereon exceeds the Highest
Lawful Rate.
[The remainder of this page has intentionally been left blank]
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IN WITNESS WHEREOF, the parties hereto have entered into this Loan
Agreement as of the date first above written.
BORROWER: COYOTE SPORTS, INC.,
a Nevada corporation
By: /s/ James M. Probst
------------------------------------------
Name: James M. Probst
----------------------------------------
Title: President
---------------------------------------
LENDER: PARAGON COYOTE TEXAS LTD.,
a Texas limited partnership
By: Paragon Management Group, Inc.,
a Texas corporation, General Partner
By: /s/ Mark Pappas
----------------------------------
Mark Pappas, President
SHAREHOLDERS:
/s/ Mel S. Stonebraker
---------------------------------------------
MEL S. STONEBRAKER
/s/ James M. Probst
---------------------------------------------
JAMES M. PROBST
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Schedule 3.06
Capitalization
as of March 19, 1998
4,073,000 issued and outstanding shares of Common Stock
250,000 warrants to purchase an aggregate of 125,000 shares of Common Stock
1,000,000 shares authorized pursuant to the 1997 Stock Option Plan. 565,500
stock options granted under the 1997 Plan to purchase an aggregate of 565,500
shares of Common Stock
1,000,000 shares authorized pursuant to the 1998 Stock Option Plan. No stock
options granted to date.
105,000 warrants to purchase an aggregate of 105,000 shares of Common Stock
<PAGE> 40
Schedule 4.11
Indebtedness to be Paid with the Proceeds of the Loan
The amount of $6,000,000 will be wired to the Harrigan, Ruff, Sloardellati and
Moore, Attorney Client Trust Fund for disbursement and release of the following
liabilities:
<TABLE>
<S> <C>
Tennent Trust $3,000,000.00
Zurco, Inc. - principal and interest 2,054,667.21
Valle de Oro Bank - principal and 201,928.77
interest
Ronald and Janet Domnitz - 128,228.96
principal and interest
Schroder Wertheim & Co. 300,000.00
Tennent Trust 115,000.00
Coyote Sports, Inc. 200,175.06
</TABLE>
<PAGE> 1
EXHIBIT 10.2
PROMISSORY NOTE
March 19, 1998 $6,000,000.00
FOR VALUE RECEIVED, COYOTE SPORTS, INC., a Nevada corporation duly
qualified to transact business in the State of Colorado whose principal
business address is 2291 Arapahoe Avenue, Boulder, Colorado 80304 ("Maker"),
promises to pay to the order of PARAGON COYOTE TEXAS LTD., a Texas limited
partnership, or any subsequent holder hereof ("Lender"), on or before September
19, 1999, at its office at 307 West Seventh Street, Suite 1210, Fort Worth,
Texas 76102, or at such other location as Lender may designate, in immediately
available funds, SIX MILLION DOLLARS ($6,000,000). Maker will also pay
interest on the unpaid principal balance outstanding from time to time at a
fixed rate of twelve percent (12%) per annum, payable quarterly in arrears.
Interest will be computed on the basis of the actual number of days
elapsed and a year comprising 360 days, unless such calculation would result in
a usurious interest rate, in which case such interest will be calculated on the
basis of a 365 or 366 day year, as the case may be.
All past due principal and interest on this Note will, at Lender's
option, bear interest at the maximum nonusurious rate of interest ("Highest
Lawful Rate") or, if applicable law does not provide for a maximum nonusurious
rate of interest, at a rate per annum equal to 18%.
Maker covenants to apply the total amount advanced by Lender hereunder
only in the manner set forth in that certain Loan Agreement of even date
herewith among, inter alia, Maker and Lender (the "Agreement"). Maker
understands and acknowledges that Lender would not be willing to make the loan
evidenced hereby but for Maker's covenant set forth in the
immediately-preceding sentence.
All undefined capitalized terms used in this Note shall have the
meanings respectively ascribed to them in the Agreement.
In addition to all principal and accrued interest on this Note, Maker
agrees to pay: (a) all reasonable costs and expenses incurred by or on behalf
of Lender and all holders of this Note in attempting to collect this Note
through any judicial or other proceeding; and (b) reasonable attorneys fees if
and when this Note is placed in the hands of an attorney for collection. All
amounts payable hereunder are payable in the lawful money of the United States
of America. All payments on this Note shall be applied first to the payment of
accrued but unpaid interest and, after all such interest has been paid, to the
reduction of the outstanding principal balance hereof.
<TABLE>
<S> <C> <C>
Promissory Note Made by Coyote Sports, Inc.
in favor of Paragon Coyote Texas Ltd.
March 19, 1998 - Page 1 of 3 Initials of Maker's Authorized Signatory: /s/MSS
----------
</TABLE>
<PAGE> 2
Maker and Lender intend to conform strictly to applicable usury laws.
Therefore, the total amount of interest (as defined under applicable law)
contracted for, charged or collected with respect to the Loan shall never
exceed the Highest Lawful Rate. In the event that Lender is found to have
contracted for, charged or received any interest on the Loan in excess of the
Highest Lawful Rate, such occurrence shall be deemed a mistake and Lender shall
automatically reform the contract or charge to conform to applicable law. In
the event that Lender is found to have received any interest on the Loan in
excess of the Highest Lawful Rate, Lender shall either refund such excess
interest to Maker or credit the excess interest to the unpaid principal amount
of the Loan. All amounts found to constitute interest on the Loan will be
spread throughout the full term of the Loan in determining whether the interest
contracted for, charged or received thereon exceeds the Highest Lawful Rate.
The unpaid principal balance of this Note at any time will be the
total amount advanced by Lender, less the amount of all payments of principal.
Maker may at any time pay the full amount of this Note without the payment of
any premium, penalty or fee.
"Loan Document" means this Note and any document or instrument
evidencing, securing, guaranteeing or given in connection with this Note
including, without limitation, the Agreement and the Other Transaction
Documents. "Obligations" means all principal, interest and other amounts that
are or become owing under this Note, the Agreement or any Other Transaction
Document. "Obligor" means each of Maker, Stonebraker, Probst and any other
guarantor, surety, pledgor, co-signatory or other person who may now or
hereafter be obligated to pay all or any part of the Obligations.
Each Obligor severally waives notice, demand, presentment for payment,
notice of nonpayment, notice of intent to accelerate, notice of acceleration,
protest, notice of protest and the filing of suit and diligence in collecting
this Note and all other demands and notices, and consents and agrees that its
liabilities and obligations will not be released or discharged by any or all of
the following, whether with or without notice to it or any other Obligor, and
whether before or after the stated maturity hereof: (i) extensions of the time
of payment; (ii) renewals; (iii) acceptances of partial payments; (iv) releases
or substitutions of any collateral of any Obligor; and (v) failure, if any, to
perfect or maintain perfection of any security interest in any collateral.
Each Obligor agrees that acceptance of any partial payment will not constitute
a waiver and that waiver of any default will not constitute waiver of any prior
or subsequent default.
This Note shall be governed as to validity, interpretation,
construction, effect and in all other respects (including without limitation
all questions relating to usury) by the laws of the State of Colorado
(exclusive of any such laws that pertain to conflicts of laws). If any
provision of this Note is held to be illegal or unenforceable, such illegal or
unenforceable provision will not affect the remaining provisions of this Note.
Maker(s) agrees that service of process upon it may be
<TABLE>
<S> <C> <C>
Promissory Note Made by Coyote Sports, Inc.
in favor of Paragon Coyote Texas Ltd.
March 19, 1998 - Page 2 of 3 Initials of Maker's Authorized Signatory: /s/MSS
----------
</TABLE>
<PAGE> 3
made by certified or registered mail, return receipt requested, at its address
specified below. Lender may serve process in any other manner permitted by law
and may bring any action or proceeding against Maker(s) or with respect to any
of its property in courts in other proper jurisdictions or venues. Payment of
this Note is secured by the Collateral Shares pursuant to the Security
Instruments.
Maker's signature below may be delivered to Lender by facsimile
transmission, and any such facsimile signature shall be deemed for all purposes
to constitute an original, manually-executed signature and shall be fully
binding to the same extent as if it were in fact Maker's original,
manually-executed signature.
NO COURSE OF DEALING BETWEEN MAKER AND LENDER, NO COURSE OF
PERFORMANCE, NO TRADE PRACTICES AND NO EXTRINSIC EVIDENCE OF ANY NATURE MAY BE
USED TO CONTRADICT OR MODIFY ANY TERM OF THIS NOTE OR ANY OTHER LOAN DOCUMENT.
THIS NOTE IS SUBJECT TO ALL OF THE TERMS AND CONDITIONS SET FORTH IN THE
AGREEMENT. THIS NOTE, THE AGREEMENT AND THE OTHER LOAN DOCUMENTS COLLECTIVELY
REPRESENT THE FINAL AGREEMENT BETWEEN LENDER AND MAKER AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THEM. THERE ARE NO ORAL AGREEMENTS BETWEEN LENDER AND
MAKER.
IN WITNESS WHEREOF, Maker has executed this Note effective as of March 19,
1998.
MAKER:
COYOTE SPORTS, INC., a Nevada corporation
2291 Arapahoe Avenue
Boulder CO 80304
By: /s/ Mel S. Stonebraker
----------------------------------------
Name: Mel S. Stonebraker
--------------------------------------
Title: Chief Executive Officer
-------------------------------------
Promissory Note Made by Coyote Sports, Inc.
in favor of Paragon Coyote Texas Ltd.
March 19, 1998 - Page 3 of 3
<PAGE> 1
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (as the same may be modified,
amended, supplemented and/or restated from time to time, this "Agreement") is
entered into as of March 19, 1998, between COYOTE SPORTS, INC., a Nevada
corporation (the "Company"), PARAGON COYOTE TEXAS LTD., a Texas limited
partnership (the "Shareholder), and each Permitted Transferee (as defined in
Section 1.1(g) hereof) that has joined in this Agreement after the date hereof
pursuant to Section 7.6(b) hereof.
In accordance with that certain Loan Agreement of even date herewith
by and among, inter alia, the Company and the Shareholder (the "Loan Agreement")
and the Other Transaction Documents, the Company has issued and delivered to the
Shareholder the Initial Consideration Shares, the Company has agreed to issue
and deliver to the Shareholder the Contingent Issuance Shares under the
circumstances set forth in the Loan Agreement, Stonebraker has pledged to the
Shareholder the Stonebraker Collateral Shares and Probst has pledged to the
Shareholder the Probst Collateral Shares.
ARTICLE I
DEFINITIONS
1.1 Definitions of Certain Terms. For purposes of this Agreement, the
following terms shall have the meanings provided below:
(a) "Demand Registration" means a registration of Registrable
Securities made or to be made by the Company in satisfaction of a Demand Request
(as defined in Section 2.1 hereof).
(b) "Demanding Holders," with respect to any Demand Registration,
means the Demand Requesting Holders who have requested that the Company effect
such Demand Registration and the Remaining Holders (as defined in Section 2.2
hereof) who have requested that the Company include Registrable Securities held
by such Remaining Holders in such Demand Registration.
(c) "Holder" means the Shareholder and any Permitted Transferee who at
the time of determination holds any Registrable Securities.
(d) "Losses" means losses, claims, damages, liabilities, costs and
expenses (including without limitation attorneys' fees).
<PAGE> 2
(e) "Minimum Demand Number" means 50,000 Lender Shares that are
Registrable Securities.
(f) "Permitted Transfer" means any transfer of Registrable Securities
by the Shareholder in compliance with the Securities Act but not effected
pursuant to an effective Registration Statement (i) of which the Shareholder has
given the Company notice and in connection with which the Shareholder has
assigned the registration rights set forth herein with respect to such
transferred Registrable Securities or (i) that is an involuntary transfer by
operation of law.
(g) "Permitted Transferee" means a transferee of Registrable
Securities pursuant to a Permitted Transfer.
(h) "Piggyback Registration" means a registration of securities of the
Company in which Registrable Securities have been or are to be included in
satisfaction of a Piggyback Request (as defined in Section 3.1 hereof).
(i) "Registrable Securities" means any of the Lender Shares
beneficially owned by the Shareholder or any Permitted Transferee, as such
Lender Shares may be adjusted from time to time for any stock splits, stock
dividends, recapitalizations, reclassifications, mergers, consolidations or like
actions, or any such lesser number of Lender Shares that constitute all
Registrable Securities.
(j) "Registration Period" means the period beginning on the date
hereof and ending on the fifth anniversary of the date hereof, as the same may
be extended pursuant to Sections 2.3(b), 4.1(d) or 4.1(h) hereof.
(k) "Registration Statement" means a registration statement filed or
to be filed by the Company under the Securities Act.
1.2 Definitions of Certain Other Terms. Undefined capitalized terms
used herein shall have the meanings respectively ascribed to them in the Loan
Agreement.
ARTICLE II
DEMAND REGISTRATIONS
2.1 Demand Rights. Subject to the limitations set forth in this
Article II, during the Registration Period Holders of not less than the Minimum
Demand Amount ("Demand Requesting Holders") may deliver a written notice to the
Company (a "Demand Request"), requesting that the Company register Registrable
Securities held by such Demand Requesting Holders. Each Demand
2
<PAGE> 3
Request shall state (a) the name or names of the Demand Requesting Holders, (b)
with respect to each Demand Requesting Holder, the number of Registrable
Securities that such Demand Requesting Holder seeks to register pursuant to such
Demand Request and (c) the intended manner of offering of such Registrable
Securities.
2.2 Demand Right Procedures.
(a) Within ten (10) days after the receipt by the Company of a Demand
Request, the Company shall deliver a written notice thereof (a "Demand Request
Notice") to each Holder that is not a Demand Requesting Holder (the "Remaining
Holders"). The Demand Request Notice shall state that the Company has received a
Demand Request pursuant to this Agreement and shall offer to include, in any
Registration Statement filed by the Company in connection with such Demand
Request, all or part of the Registrable Securities held by the Remaining
Holders.
(b) During the ten (10) day period next following delivery of a Demand
Request Notice with respect to any Demand Request, each Remaining Holder may
deliver a written notice to the Company (an "Additional Registration Request")
requesting that the Company include, in any Registration Statement filed by the
Company in connection with such Demand Request, Registrable Securities held by
such Remaining Holder. An Additional Registration Request delivered by a
Remaining Holder shall state (i) the name of the Remaining Holder, (ii) the
number of Registrable Securities that such Remaining Holder seeks to register
pursuant to such Additional Registration Request and (iii) the intended manner
of offering of such Registrable Securities.
(c) Subject to the limitations set forth in this Article II, the
Company shall include in any Demand Registration (i) all Registrable Securities
that the Demand Requesting Holders have requested that the Company register in
such Demand Registration, as set forth in the applicable Demand Request, and
(ii) all Registrable Securities that the Remaining Holders have requested that
the Company register in such Demand Registration, as set forth in the applicable
Additional Registration Requests (the aggregate number of such Registrable
Securities being referred to herein as the "Demand Request Number").
2.3 Limitations on Demand Rights.
(a) The Holders of Registrable Securities shall be entitled to a
maximum of two (2) registrations under this Article II; provided, however, that
the Company shall not be required to take any action to effect any Demand
Registration if the Demand Request Number is less than the Minimum Demand Number
or unless a Demand Request with respect to such Demand Registration is made
prior to the expiration of the Registration Period.
(b) Notwithstanding anything to the contrary set forth in this Article
II: (i) the Company shall not be obligated to honor a Demand Request at any time
from and after the date on which it has filed a Registration Statement with the
Commission in connection with a bona fide
3
<PAGE> 4
public offering through and until sixty (60) days after such Registration
Statement is declared effective by the Commission or its abandonment, whichever
shall occur first; and (ii) the Company shall have the right to postpone the
filing or effectiveness of any Registration Statement filed or to be filed in
connection with a Demand Registration for a reasonable period of time (not to
exceed sixty (60) days) if at the time the Company receives the Demand Request
with respect to such Demand Registration the Company shall have furnished to the
Demanding Holders a certificate signed by the Chief Executive Officer, President
or chief financial officer of the Company stating either that (A) the Company is
conducting or is about to conduct a primary offering of the Company's securities
and the Company has been advised by its investment banker in writing that such
offering would be adversely affected by such Demand Registration (provided that
the Holders are entitled to include Registrable Securities under Article III
hereof) or (B) the Board of Directors of the Company has determined in good
faith that the offering of Registrable Securities pursuant to such Demand
Registration will interfere with a material financing, merger, acquisition, sale
of assets, recapitalization or other material transaction involving the Company
or any of its subsidiaries. If any Demand Registration is postponed pursuant to
this Section 2.3(b), a majority in interest of the Demand Requesting Holders who
have requested that the Company effect such Demand Registration may withdraw
such request by written notice delivered to the Company, in which case such
Demand Registration shall not count as a Demand Registration and the
Registration Period shall be automatically extended by a period of time equal to
the period of such postponement.
(c) The Company shall not be deemed to have effected a Demand
Registration unless and until the Registration Statement filed with the
Commission in connection with such Demand Registration has been declared
effective under the Securities Act and has remained in effect until the earlier
of (i) the completion of the distribution of all Registrable Securities
registered thereby and (ii) the expiration of the one hundred eighty (180) day
period commencing upon the effective date of such Registration Statement.
(d) The Company shall abandon any Demand Registration prior to the
effectiveness of such Demand Registration if all Demanding Holders registering
Registrable Securities pursuant to such Demand Registration request in writing
that the Company abandon such Demand Registration. Any Demand Registration
abandoned by the Company pursuant to this Section 2.3(d) shall be counted as a
Demand Registration for purposes of this Agreement notwithstanding such
abandonment, unless the Demanding Holders shall have paid all reasonable
expenses actually incurred by the Company in connection with such Demand
Registration and evidenced to the reasonable satisfaction of the Demanding
Holders.
(e) Neither the Company nor any other holder of Company securities
(other than Holders) may include shares in a Demand Registration without the
consent of the Holders holding two-thirds of the Registrable Securities sought
to be included in such Demand Registration unless the managing underwriter, if
any, of such offering shall have advised each Holder participating in such
offering in writing that the inclusion of such other securities would not (i)
limit the number
4
<PAGE> 5
of Registrable Securities sought to be included by the Holders or (ii) reduce
the offering price thereof.
(f) Notwithstanding anything in this Agreement to the contrary, the
Company shall not be obligated to effect any registration of Registrable
Securities pursuant to this Article II unless at the time of any such
registration the Company is eligible to use Form S-3 (or any successor form or
any similar short-form registration adopted by the Commission for which the
Company may then be eligible that is appropriate for the registration of
Registrable Securities). In such regard, the Company agrees to use its best
efforts to ensure that it is eligible to use Form S-3 (or any successor form or
any similar short-form registration adopted by the Commission for which the
Company may then be eligible that is appropriate for the registration of
Registrable Securities) at the earliest possible time and to maintain such
eligibility at all times thereafter.
2.4 Manner of Offering. All offerings of Registrable Securities
pursuant to a Demand Registration shall be made pursuant to a prescribed plan of
distribution satisfactory to a majority in interest of the Demand Requesting
Holders.
2.5 Priorities. In the event that the managing underwriter or
underwriters of a Demand Registration (or the Holders of a majority of the
Registrable Securities sought to be included in such Demand Registration, in the
case of a Demand Registration that is not being underwritten) shall determine
that the amount of securities of the Company (including Registrable Securities)
to be included in such Demand Registration exceeds the maximum amount of
securities (the "Maximum Demand Amount") that could be included in such
registration without materially adversely affecting the price at which such
securities are to be sold or the marketing of the offering thereof, the Company
shall include in such Demand Registration the Maximum Demand Amount of such
securities in accordance with the following order of priority:
(a) first, the Registrable Securities requested to be registered by
the Demanding Holders, pro rata, to the extent of the Maximum Demand Amount; and
(b) second, to the extent that the number of Registrable Securities
requested to be registered by the Demanding Holders and other securities to
included in such Demand Registration does not exceed the Maximum Demand Amount
and the Company and/or other holders of securities of the Company (other than
Holders) are entitled to so include such other securities under Section 2.3(e),
the remaining securities requested to be registered by the Company and such
holders shall be allocated in such manner as the Company may determine.
5
<PAGE> 6
ARTICLE III
PIGGYBACK REGISTRATIONS
3.1 Piggyback Rights. If at any time the Company proposes to register
under the Securities Act securities of the Company on a Registration Statement,
whether for its own account or the account of other holders (other than Holders)
of the Company's securities, the Company shall deliver a written notice thereof
(a "Piggyback Notice") to each Holder not less than thirty (30) days prior to
the date when such Registration Statement is to be filed with the Commission.
During the ten (10) day period next following delivery of a Piggyback Notice,
each Holder may deliver a written notice to the Company (a "Piggyback Request")
requesting that the Company include in such Registration Statement Registrable
Securities held by such Holder and stating (i) the name of the requesting
Holder, (ii) the number of Registrable Securities that such Holder seeks to
register pursuant to such Piggyback Request, and (iii) the intended manner of
offering of such Registrable Securities. Subject to the limitations set forth in
this Article III, the Company shall include in any Piggyback Registration all
Registrable Securities that the Holders have requested that the Company register
as set forth in Piggyback Requests delivered by such Holders in connection with
such Piggyback Registration.
3.2 Limitations on Piggyback Rights. (a) No Holder shall have the
right to make a Piggyback Request with respect to any Registration Statement to
be filed by the Company (i) after the Registration Period or (ii) if such
Registration Statement relates solely to Company securities that are to be
issued in an offering (A) solely to directors, officers or employees of the
Company or subsidiaries of the Company pursuant to a bona fide employee stock
option, bonus or other plan or (B) in which such securities are to be sold for
consideration other than cash.
(b) If any Piggyback Registration shall be underwritten in whole or in
part, the Company shall have the right to require that the Registrable
Securities requested for inclusion therein pursuant to this Article III be
included in the underwriting on the same terms and conditions as the securities
otherwise being sold through the underwriters.
3.3 Manner of Offering. All offerings of Registrable Securities
pursuant to a Piggyback Registration shall be made pursuant to a prescribed plan
of distribution reasonably satisfactory to the Company.
3.4 Priorities. In the event that the managing underwriter or
underwriters of a Piggyback Registration (or the Company, in the case of a
Piggyback Registration that is not being underwritten) shall determine that the
amount of Company securities (including Registrable Securities) to be included
in such Piggyback Registration exceeds the maximum amount of securities (the
"Maximum Piggyback Amount") that could be included in such registration without
materially adversely affecting the price at which such securities could be sold
or otherwise materially adversely affecting the market for such securities, the
Company shall include in such
6
<PAGE> 7
Piggyback Registration the Maximum Piggyback Amount of such securities
(including Registrable Securities) in accordance with the following order of
priority:
(a) first, if such offering is made pursuant to the exercise of demand
registration rights (other than those granted to Holders), the securities
requested to be included in such offering by the Persons exercising such demand
registration rights;
(b) second, the securities the Company proposes to sell for its own
account;
(c) third, the Registrable Securities requested to be registered by
the Holders thereof, on (to the extent necessary) a pro rata basis among the
Holders of such Registrable Securities according to the number of Registrable
Securities requested to be included by such Holders; and
(d) fourth, the remaining securities requested to be registered by the
holders thereof, on (to the extent necessary) a pro rata basis among the holders
of such other securities according to the number of such other securities
requested to be included by such holders.
3.5 Delay and Withdrawal of Piggyback Registrations. Notwithstanding
anything in this Article III to the contrary, the Company may, in its reasonable
discretion, delay the effectiveness of or abandon any Piggyback Registration.
ARTICLE IV
REGISTRATION PROCEDURES
4.1 Registration Procedures.
(a) Whenever Holders shall request the registration of any Registrable
Securities pursuant to any Demand Registration or Piggyback Registration, the
Company will use its best efforts (subject to Sections 2.3(b), 2.5, 3.4 and 3.5
hereof) to effect the registration of such Registrable Securities in accordance
with the intended method of disposition thereof as quickly as practicable.
(b) In connection with any Demand Registration, the Company as
promptly as possible will prepare and file with the Commission a Registration
Statement with respect to the Registrable Securities to be included in such
Demand Registration on Form S-3 (or any successor form or any similar short-form
registration adopted by the Commission for which the Company may then be
eligible that is appropriate for the registration of Registrable Securities).
(c) Prior to filing any Registration Statement or prospectus or any
amendments or supplements thereto (including any documents incorporated by
reference in any Registration
7
<PAGE> 8
Statement after the initial filing of such Registration Statement) in which
Registrable Securities are included pursuant to this Agreement, the Company
shall furnish to counsel for any managing underwriter of any underwritten public
offering of Registrable Securities and, whether or not the Registration
Statement relates to an underwritten public offering, to counsel engaged by the
Holders of a majority in interest of the Registrable Securities included in such
Registration Statement, copies of all such documents proposed to be filed with
the Commission, which documents shall be subject to the reasonable review of
such counsels and, if requested by such counsels, shall include such additional
material that in their judgment should be included therein (subject, however, to
the reasonable approval of counsel to the Company). Notwithstanding the
foregoing, in the case of periodic reports of the Company that are incorporated
by reference into any Registration Statement in which Registrable Securities are
included pursuant to this Agreement after the effective date of such
Registration Statement, the Company shall only be required to furnish such
periodic reports to counsel engaged by the Holders of a majority in interest of
the Registrable Securities included in such Registration Statement, if any,
concurrently with the filing of such periodic reports.
(d) The Company will notify each Holder of the Registrable Securities
included in any Registration Statement pursuant to this Agreement of any stop
order issued or, to the knowledge of the Company, threatened by the Commission
in connection with such Registration Statement and will take all actions
required to prevent the entry of such stop order or to remove it if entered at
the earliest possible time. The Registration Period shall automatically be
extended by a period of time equal to the periods during which any such stop
orders are in effect.
(e) The Company shall prepare and file with the Commission such
amendments and post-effective amendments to any Registration Statement filed
pursuant to a Demand Registration, and amendments and supplements to the
prospectus issued in connection therewith, as may be necessary to keep such
Registration Statement effective for the periods set forth in Section 2.3(c)
hereof and to comply with the requirements of the Securities Act and the rules
and regulations thereunder relating to the sale or other disposition of the
securities covered by such Registration Statement.
(f) The Company shall furnish to the counsel engaged by the Holders of
a majority in interest of the Registrable Securities included in any
Registration Statement pursuant to this Agreement and the underwriter or
underwriters and each Holder of Registrable Securities included in such
Registration Statement such number of copies of the Registration Statement,
including exhibits, and each post-effective amendment thereto, and the
prospectus (including each preliminary prospectus) and any amendments or
supplements thereto, and any documents incorporated by reference in such
Registration Statement, as such counsel, underwriter or Holder may reasonably
request in order to facilitate the disposition of the Registrable Securities
being sold and to satisfy the prospectus delivery requirements of the Securities
Act.
8
<PAGE> 9
(g) The Company shall notify each Holder of Registrable Securities
that are included in any Registration Statement pursuant to this Agreement at
any time when a prospectus relating to such Registrable Securities is required
to be delivered under the Securities Act, of the happening of any event that
causes such prospectus as then in effect to contain an untrue statement of a
material fact or to omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading and, if necessary in
the reasonable judgment of counsel for the Company, the Company will promptly
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus will
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein not misleading.
(h) Upon receipt of any notice of the happening of any event of the
kind described in Section 4.1(g) hereof, each Holder will immediately
discontinue disposition of the Registrable Securities to which the applicable
prospectus relates until such Holder shall have received the copies of the
supplemented or amended prospectus contemplated by Section 4.1(g) hereof or
until the Company shall have advised such Holder in writing that the use of the
prospectus may be resumed and, if so directed by the Company, such Holder will,
or will request the managing underwriter or underwriters (if any) to, deliver to
the Company all copies, other than permanent file copies then in such Holder's
possession, of the prospectus covering such Registrable Securities current at
the time of receipt of such notice. Notwithstanding the above, the Registration
Period shall be automatically extended for a period of time equal to the periods
during which any such suspensions are required.
(i) If requested by the managing underwriter or underwriters of any
registration or by any Holder of the Registrable Securities included in any
Registration Statement, the Company shall, subject to the approval of counsel to
the Company in its reasonable judgment, promptly incorporate in a prospectus
supplement or post-effective amendment such information as such managing
underwriter or underwriters or such Holder reasonably shall furnish to the
Company in writing and request to be included therein including, without
limitation, with respect to the number of Registrable Securities being sold by
such Holder to such underwriter or underwriters, the purchase price being paid
therefor by such underwriter or underwriters and with respect to any other terms
of the underwritten offering of the Registrable Securities to be sold in such
offering; and make all required filings of such prospectus supplement or
post-effective amendment as soon as possible after being notified of the matters
to be incorporated in such prospectus supplement or post-effective amendment.
(j) The Company shall use its best efforts to register or qualify the
Registrable Securities covered by any Registration Statement pursuant to this
Agreement for offer and sale under the securities or blue sky laws of each state
and other jurisdiction of the United States as any Holder of such Registrable
Securities or underwriter shall reasonably request in writing, and to do any and
all other acts or things necessary or advisable to enable the disposition in all
such jurisdictions of the Registrable Securities covered by such Registration
Statement; provided,
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however, that the Company will not be required to qualify generally to do
business (or subject itself to taxation) in any jurisdiction in which it is not
then so qualified (or subject) or to take any action that would subject it to
general service of process in any such jurisdiction in which it is not then so
subject.
(k) The Company shall cooperate with the Holders of the Registrable
Securities covered by any Registration Statement pursuant to this Agreement and
the managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold under such Registration Statement, in such denominations and registered
in such names as the managing underwriter or underwriters, if any, or such
Holders may request.
(l) Prior to the effectiveness of any Registration Statement filed
pursuant to a Demand Registration or with respect to which Holders have
exercised their piggyback registration rights pursuant to Article III hereof,
the Company and the Holders of Registrable Securities covered thereby shall
enter into such customary agreements (including, if such Registration Statement
relates to an underwritten offering, an underwriting agreement as provided in
Section 4.1(n) hereof) and shall take all such other customary actions
(including, without limitation, delivery of customary legal opinions and
officers' certificates) as the Holders of such Registrable Securities being sold
or the underwriters participating in an underwritten public offering, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities.
(m) The Company may require each Holder of Registrable Securities as
to which any registration is being effected pursuant to this Agreement to
furnish to the Company such information regarding such Holder and such Holder's
intended method of distribution of such Registrable Securities as the Company
may from time to time reasonably request in writing. Each such Holder agrees (i)
to notify the Company as promptly as practicable of any inaccuracy or change in
information previously furnished by such Holder to the Company or of the
occurrence of any event as a result of which, in either case, any prospectus
relating to such registration contains or would contain an untrue statement of a
material fact regarding such Holder or such Holder's intended method of
distribution of such Registrable Securities or omits or would omit to state any
material fact regarding such Holder or such Holder's intended method of
distribution of such Registrable Securities required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing and (ii) promptly to furnish to the Company any
additional information required to correct and update any previously furnished
information or required so that such prospectus shall not contain, with respect
to such Holder or the distribution of such Registrable Securities, an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing.
(n) Each Holder participating in any offering agrees (i) to make any
sales of its Registrable Securities on the basis provided in any underwriting
arrangements (A) approved by
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the Company in its reasonable discretion, in the case of a Piggyback
Registration or (B) approved by the Holders of a majority in interest of such
Registrable Securities, in the case of a Demand Registration, and (ii) to
complete and execute all questionnaires, powers of attorney, custody agreements,
indemnities, underwriting agreements and other documents consistent with the
terms of this Agreement and reasonably required under the terms of such
underwriting arrangements.
4.2 Restrictions on Public Sale.
(a) If and to the extent requested in writing by the managing
underwriter or underwriters for any Demand Registration (or by the Company, in
the case of any such Demand Registration that is not being underwritten), each
Holder agrees not to sell or offer to sell any Registrable Securities during the
seven (7) days prior to, and during the forty-five (45) day period beginning on,
the effective date of such Demand Registration (except as part of such
registration).
(b) In the case of a Demand Registration involving an offering by
Demand Requesting Holders of at least 100,000 Lender Shares that are Registrable
Securities, if and to the extent requested in writing by the managing
underwriter or underwriters (or the Demand Requesting Holders holding at least
75% of the Registrable Securities sought to be included in such Demand
Registration, in the case of any such Demand Registration that is not being
underwritten), the Company agrees not to sell or offer to sell in a registered
public offering any securities of the same class as Registrable Securities
during the seven (7) days prior to, and during the forty-five (45) day period
beginning on, the effective date of such Demand Registration (except as part of
such registration).
ARTICLE V
EXPENSES
5.1 Expenses Borne by the Company. Except as otherwise provided in
Section 5.2 hereof, the Company will bear the following fees, costs and expenses
with respect to any Demand Registration or Piggyback Registration hereunder: (i)
all Commission and National Association of Securities Dealers, Inc. registration
and filing fees and expenses; (ii) all fees, costs and expenses of compliance
with state securities or blue sky laws; (iii) all costs and expenses related to
the preparation, printing, distribution and reproduction of Registration
Statements required to be filed in connection with such Demand Registration or
Piggyback Registration (as the case may be), the prospectuses included therein
or prepared for distribution pursuant thereto and any amendments or supplements
to the foregoing; (iv) all messenger and delivery costs and expenses and
internal costs and expenses, including, without limitation, all salaries and
expenses of the Company's officers and employees performing legal or accounting
duties; (v) the fees and disbursements of counsel and independent certified
public accountants for the Company; (vi) the fees and disbursements of one
counsel and one firm of independent certified public accountants
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for all Holders including Registrable Securities in such registration; (vii) in
the case of a Piggyback Registration initiated by the Company, the fees and
disbursements of counsel to the underwriters; and (viii) all fees, costs and
expenses incurred by the Holders including Registrable Securities in such
registration not expressly listed above or in Section 5.2 hereof.
5.2 Expenses Borne by the Holders. The Holders of Registrable
Securities included in any Demand Registration or Piggyback Registration
hereunder shall bear the following fees, costs and expenses with respect
thereto: (i) all fees and disbursements of separate counsel and accountants for
such Holders to the extent not covered under Section 5.1(vi) hereof; (ii) all
underwriting discounts and commissions attributable to the offer or sale of such
Registrable Securities; and (iii) all transfer taxes relating to such
Registrable Securities.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification by the Company. The Company agrees to indemnify,
protect and hold harmless in full each Holder of Registrable Securities to be
included in any registration pursuant to this Agreement, any underwriter and
each Person who "controls" such Holder or underwriter (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act), from and
against any and all Losses to which any of the foregoing Persons may become
subject, under the Securities Act or otherwise, insofar as such Losses arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement under which such
Registrable Securities were registered under the Securities Act, or any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a prospectus, in light
of the circumstances under which they were made) not misleading, except to the
extent that any such Losses arises out of or is based upon any information that
any such Holder, underwriter or controlling Person furnished in writing to the
Company expressly for use therein or by the failure of any such Holder,
underwriter or controlling Person to deliver a copy of the Registration
Statement or prospectus or any amendments or supplements thereto after the
Company has furnished such Holder, underwriter or controlling Person with a
sufficient number of copies of the same.
6.2 Indemnification by Holders of Registrable Securities. In
connection with any registration pursuant to this Agreement in which a Holder of
Registrable Securities is participating, such Holder agrees, severally and not
jointly, to indemnify, protect and hold harmless in full the Company, its
directors and officers, any underwriter, each other Holder so participating and
each Person who "controls" the Company, such underwriter or other Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act), and all other Holders of
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<PAGE> 13
Registrable Securities so participating, from and against any Losses to which
any of the foregoing Persons may become subject, under the Securities Act or
otherwise, insofar as such Losses arise out of or are based upon an untrue or
alleged untrue statement of a material fact contained in any Registration
Statement under which such Registrable Securities were registered under the
Securities Act, or any preliminary, final or summary prospectus contained
therein, or any amendment or supplement thereto, or arise out of or are based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein (in the case of
a prospectus, in the light of the circumstances under which they were made) not
misleading, to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished by such Holder to the
Company or any underwriter specifically for inclusion therein; provided,
however, that the obligations of each Holder shall be limited to an amount equal
to the net proceeds received by such Holder upon sale of its Registrable
Securities.
6.3 Conduct of Indemnification Actions.
(a) Any Person entitled to indemnification hereunder agrees to give
prompt written notice to the indemnifying Person after the receipt by such
indemnified Person of any written notice of the commencement of any action,
suit, proceeding or investigation or threat thereof (an "Action") made in
writing for which such Person may claim indemnification or contribution pursuant
to this Agreement and to permit the indemnifying Person to assume the defense of
such Action with counsel reasonably satisfactory to such indemnified Person;
provided, however, that, if the defendants in any Action include both the
indemnified and indemnifying Persons and one or more indemnified Persons
reasonably shall have concluded that there may be defenses available to it that
are different from or additional to those of the indemnifying Person or if the
indemnifying Person shall not within thirty (30) days following receipt of the
indemnified Person's notice have employed counsel reasonably satisfactory to
such indemnified Person, then the indemnified Person shall have the right to
select separate counsel to participate in the defense of such Action on behalf
of such indemnified Person at the Company's sole cost and expense. After notice
from the indemnifying Person to such indemnified Person of its election so to
assume the defense of an Action, the indemnifying Person shall not be liable to
such indemnified Person pursuant to the provisions of Section 6.1 or 6.2 hereof
for any legal fees or disbursements subsequently incurred by such indemnified
Person in connection with the defense of such Action other than reasonable costs
of investigation, unless (i) the indemnified Person shall have employed counsel
in accordance with the proviso of the immediately preceding sentence, (ii) the
indemnifying Person shall not have employed counsel reasonably satisfactory to
the indemnified Person within a reasonable time after the notice of the
commencement of the Action or (iii) the indemnifying Person has expressly
authorized the employment of counsel for the indemnified Person at the cost and
expense of the indemnifying Person. Notwithstanding the foregoing, however, the
parties hereto understand and agree that the indemnifying Person shall, in
connection with any one Action or separate but substantially similar or related
Actions in the same jurisdiction arising out of the same general
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<PAGE> 14
allegations or circumstances, be liable for the fees and disbursements of only
one separate firm of attorneys (in addition to any local counsel) at any time
for all indemnified Persons not having actual or potential differing interests
with the other parties among themselves.
(b) Whether or not the defense of an Action is assumed by the
indemnifying Person (i) the indemnifying Person will not be subject to any
liability for any settlement made without its consent (but such consent will not
be unreasonably withheld or delayed) and (ii) without the consent of the
indemnified Person, no indemnifying Person will consent to entry of any judgment
or enter into any settlement that does not include as an unconditional term
thereof the giving by the claimant or plaintiff of a release of such indemnified
Person from all liability in respect of such claim or litigation.
6.4 Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in this
Article VI is for any reason held to be unenforceable although applicable in
accordance with its terms, the Company and the Holders of Registrable Securities
being registered, as among themselves, shall contribute to the Losses described
herein in such proportions so that the portion thereof for which the selling
Holders shall be responsible shall be limited to the portion determined by a
court or the parties to any settlement to be attributable to an untrue statement
of a material fact or an omission to state a material fact in a Registration
Statement, preliminary, final or summary prospectus, or amendment or supplement
thereto, in specific reliance upon and in conformity with information furnished
to the Company by such Holders for use therein, and the Company shall be
responsible for the balance, excluding any information provided to the Company
by underwriters (subject to any other rights the Company may have against any
other selling security holder not a Holder of Registrable Securities the
securities of which were included in such Registration Statement, preliminary,
final or summary prospectus, amendment or supplement). As among themselves, the
Holders of Registrable Securities selling securities in such offering shall
contribute to amounts payable by other selling holders, if any, in such manner
as shall give effect, to the extent permitted by law, to the provisions of this
Section 6.4. Notwithstanding the provisions of this Section 6.4, however, no
Holder shall be required to contribute any amount in excess of the amount, if
any, by which the net proceeds of the sales of its Registrable Securities
received by such Holder exceeds the aggregate amount of any Losses for which
such Holders otherwise would be responsible in respect of the same or any
substantially similar claim. No Person guilty of "fraudulent misrepresentation"
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
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<PAGE> 15
ARTICLE VII
MISCELLANEOUS
7.1 Rule 144. The Company shall timely file the reports required to be
filed under the Securities Act and the Exchange Act (including without
limitation the reports under Sections 13 and 15(d) of the Exchange Act referred
to in subparagraph (c)(1) of Rule 144 under the Securities Act adopted by the
Commission ("Rule 144")) and the rules and regulations adopted by the Commission
thereunder (or, if the Company is not required to file such reports, will, upon
the request of any Holder, make publicly available such information) and will
take such further action as any Holder may reasonably request, all to the extent
required from time to time to enable such Holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions therefrom provided by (a) Rule 144 or (b) any similar rule or
regulation hereafter adopted by the Commission. Upon the request of any Holder,
the Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
7.2 Other Registration Rights. From and after the date hereof, the
Company shall not grant any registration rights to any holder or prospective
holder of Company securities unless (a) such registration rights are subordinate
to the registration rights granted to the Holders hereunder or (b) the Holders
of at least two-thirds of all Registrable Securities then outstanding shall have
given their prior written consent. The Company represents and warrants to the
Holders that there are no outstanding registration rights with respect to
Company securities as of the date hereof other than the registration rights
granted pursuant to (i) this Agreement and (ii) that certain Representative's
Warrant Agreement dated as of September 18, 1997 by and between the Company and
Cohig & Associates, Inc. (the "Cohig Agreement"). The Company represents and
warrants to the Holders that this Agreement is not inconsistent with the Cohig
Agreement.
7.3 Remedies. No remedy conferred upon any party to this Agreement is
intended to be exclusive of any other remedy herein or by law provided or
permitted, but each such remedy shall be cumulative or shall be in addition to
every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute. Each party hereto agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
the provisions of this Agreement and hereby agrees to waive, in any action for
specific performance, the defense that a remedy at law would be adequate.
7.4 Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers of or consents to departures from the provisions hereof may not be
given, except (a) in writing duly executed on the Company's behalf, in the case
of amendments, modifications, supplements, waivers or consents sought to be
enforced against the Company, or (b) in writing duly signed by the Holders of
two-thirds of the Registrable Securities then outstanding affected by such
amendment,
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<PAGE> 16
modification, supplement, waiver or consent, in the case of amendments,
modifications, supplements, waivers or consents sought to be enforced against
the Holders of Registrable Securities.
7.5 Notices. All notices and other communications that are required or
permitted to be given under this Agreement shall be in writing and shall be
delivered personally or by certified mail (return receipt requested) or
telecopied and addressed as follows:
(a) if to the Company, to:
Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder CO 80302
Attention: Chief Executive Officer
Telephone: 303/417-0942
Facsimile: 303/417-1700
with a copy (which shall not constitute notice) to:
Laurie P. Glasscock, Esq.
Chrisman, Bynum & Johnson, P.C.
1900 Fifteenth Street
Boulder CO 80302
Telephone: 303/444-4820
Facsimile: 303/449-5426
(b) if to the Shareholder, to:
Paragon Coyote Texas Ltd.
c/o Mark Pappas
307 West Seventh Street
Suite 1210
Fort Worth TX 76102
Telephone: 817/810-0014
Facsimile: 817/810-0089
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with a copy (which shall not constitute notice) to:
Brian D. Bowden, Esq.
Robinson & Bowden L.L.P.
512 Main Street, Suite 901
Fort Worth TX 76102
Telephone: 817/332-3370
Facsimile: 817/332-3381
(c) if to any Permitted Transferee, to the address of such
Permitted Transferee as shown in the records of the Company,
or to such other address as any of the above shall have specified by notice
hereunder. Each notice or other communication delivered personally, mailed or
telecopied in the manner described above shall be deemed sufficiently given,
served, sent, received or delivered for all purposes at such time as it is
delivered to the addressee (with the return receipt, the delivery receipt or the
affidavit of messenger being deemed conclusive, but not exclusive, evidence of
such delivery) or at such time as delivery is refused by the addressee upon
presentation.
7.6 Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of each of the parties hereto; provided, however,
that (i) no Holder shall have the right to assign or otherwise transfer (whether
by operation of law or otherwise) any of the rights granted to such Holder under
this Agreement, except, subject to compliance with the provisions of Section
7.5(b) hereof, for the assignment of any such rights to a Permitted Transferee
of Registrable Securities, and (ii) this Agreement and the respective rights of
the parties to receive performance of any obligations hereunder and to make
claims in respect of breaches of their Agreement may be assigned as security to
any Person or entity directly or indirectly extending credit to such Holder.
(b) Each Permitted Transferee pursuant to a Permitted Transfer who is
not a party to this Agreement prior to such Permitted Transfer shall execute and
deliver, as a condition to such Permitted Transfer, such documentation as the
Company reasonably may request to evidence such Permitted Transferee's joinder
in, acceptance of and agreement with the obligations of Holders of Registrable
Securities under this Agreement.
7.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be effective only upon delivery and thereafter
shall be deemed to be an original, and all of which shall be taken to be one and
the same instrument with the same effect as if each of the parties hereto had
signed the same signature page. Any signature page of this Agreement may be
detached from any counterpart of this Agreement without impairing the legal
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effect of any signature thereon and may be attached to another counterpart of
this Agreement identical in form hereto and having attached to it one or more
additional signature pages.
7.8 Headings. The section and other headings contained in this
Agreement are for convenience only and shall not be deemed to limit,
characterize or interpret any provisions of this Agreement.
7.9 Governing Law. This Agreement and the rights of the parties
hereunder shall be construed and interpreted in accordance with the laws of the
State of Colorado, without application of the rules regarding conflicts of law.
7.10 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law but, if any provision of this Agreement shall be unenforceable or
invalid under applicable law, such provision shall be ineffective only to the
extent of such unenforceability or invalidity, and the remaining provisions of
this Agreement shall continue to be binding and in full force and effect so long
as the essential purposes of this Agreement are not impaired.
7.11 Entire Agreement. This Agreement (together with the Loan
Agreement and the Other Transaction Documents) contains the entire agreement,
and supersedes all prior agreements and understandings and arrangements, oral or
written, between the parties hereto with respect to the subject matter hereof.
[The remainder of this page has intentionally been left blank]
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IN WITNESS WHEREOF, this Registration Rights Agreement has been signed
by each of the parties hereto as of the date first above written.
COYOTE SPORTS, INC.,
a Nevada corporation
By: /s/ James M. Probst
----------------------------------------
Name: James M. Probst
--------------------------------------
Title: President
-------------------------------------
PARAGON COYOTE TEXAS LTD.,
a Texas limited partnership
By: Paragon Management Group, Inc.,
a Texas corporation, General Partner
By: /s/ Mark A. Pappas
-------------------------------------
Mark Pappas, President
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<PAGE> 1
EXHIBIT 10.4
SECURITY AGREEMENT
(Pledge of Securities)
THIS SECURITY AGREEMENT is entered into as of March 19, 1998 by and
between MEL S. STONEBRAKER, a resident of Boulder County, Colorado ("Pledgor"),
and PARAGON COYOTE TEXAS LTD., a Texas limited partnership ("Secured Party").
RECITALS
A. Secured Party has agreed to make a loan to Coyote Sports,
Inc., a Nevada corporation duly qualified to transact business in the State of
Colorado ("Borrower"), in the principal amount of $6,000,000 pursuant to the
terms and conditions set forth in that certain Loan Agreement of even date
herewith by and among, inter alia, Pledgor, Secured Party and Borrower (as
renewed, extended, amended or restated, the "Loan Agreement"), the Note and the
Other Transaction Documents.
B. As a material inducement to Secured Party to make the Loan to
Borrower, Pledgor has agreed to pledge the Probst Collateral Shares to Secured
Party.
C. In as much as Pledgor is a director, executive officer and
principal shareholder of Borrower, the Loan will benefit Pledgor at least to
the extent of the value of the Probst Collateral Shares.
D. Pledgor understands that Secured Party would not be willing to
make the Loan to Borrower but for Pledgor's pledge of the Probst Collateral
Shares pursuant to this Security Agreement.
NOW, THEREFORE, in consideration of the premises and of other good and
valuable consideration, the receipt and sufficiency of which the parties hereto
hereby acknowledge, Pledgor and Secured Party hereby agree as follows:
1. Unless otherwise defined in this Security Agreement, undefined
capitalized terms shall have the meanings respectively ascribed to them in the
Loan Agreement.
2. Pledgor pledges, grants a security interest in, mortgages,
assigns, transfers, delivers, pledges, sets over and confirms unto Secured
Party the collateral described below (the "Collateral") to secure performance
and payment of the Indebtedness:
<PAGE> 2
All securities described in Schedule l and all securities or other property
delivered to or which shall hereafter be delivered to, or come into the
possession, custody, or control of Secured Party in any manner for the purpose
of securing the Indebtedness during the existence of this Security Agreement,
together with any and all present and future increases in, profits on,
combinations and reclassifications of, and substitutes and replacements for,
all or part of the foregoing, and all present and future accounts, contract
rights, general intangibles, chattel paper, documents, instruments, cash and
noncash proceeds and other rights whatsoever arising from or by virtue of, or
in connection with, or from the voluntary or involuntary sale, transfer or
other disposition of, or collections with respect to, or proceeds payable by
virtue of claims against any person or entity with respect to, all or any part
of the foregoing.
3. The security interest in the Collateral created and evidenced
hereby shall secure the full and timely payment and performance of the
Indebtedness.
4. Pledgor represents and warrants (with each such representation
and warranty's being conclusively and independently deemed material and relied
upon by Secured Party irrespective of whether such materiality and/or reliance
actually exists) that: (a) Pledgor owns all presently-existing Collateral, and
will acquire all hereafter-acquired Collateral, free and clear of any and all
Liens; (b) Pledgor has full and complete rights and authority to grant this
security interest in the Collateral and to perform Pledgor's obligations under
this Security Agreement; (c) all Collateral that is securities has been duly
authorized and validly issued and is fully paid and non-assessable, and the
transfer thereof is not subject to any restrictions other than restrictions
imposed by applicable securities laws; (d) none of the Collateral is
uncertificated securities; (e) no dispute, right of setoff, counterclaim or
defense exist with respect to any part of the Collateral; (f) except for any
financing statements that Secured Party has filed or may file, no financing
statement covering the Collateral or any part thereof has been filed with any
filing officer; (g) upon the delivery to Secured Party of the certificates
representing the Collateral that is securities, Secured Party will have a
perfected first-priority security interest in the Collateral, including the
proceeds and products thereof, subject to no prior Lien; (h) no other security
agreement covering the Collateral or any part thereof has been executed, and no
security interest, other than the one created by this Security Agreement, has
attached or been perfected in the Collateral or in any part thereof; (i)
Pledgor's address as set forth in the Loan Agreement is where Pledgor is
entitled to receive notices; and (j) all representations and warranties
contained in the Loan Agreement are true and correct in all respects. The
delivery at any time by Pledgor to Secured Parry of Collateral or of additional
specific descriptions of certain Collateral shall constitute a representation
and warranty by Pledgor under this Security Agreement that, with respect to
such Collateral and each item thereof, the matters heretofore warranted in this
Paragraph 4 are true and correct in all respects. All representations and
warranties set forth herein shall survive the execution and delivery of this
Security Agreement and the occurrence of the Closing and shall never terminate.
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<PAGE> 3
5. Pledgor covenants and agrees: (a) to deliver to Secured Party
all certificates or instruments representing or evidencing the Collateral in
suitable form for transfer by delivery, or accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to Secured Party; (b) to register (and to cooperate with Secured
Party in registering) all Collateral consisting of uncertificated securities in
the name of Secured Party on the books of the issuer thereof or on the books of
Secured Party as financial intermediary; (c) at any time and from time to time
promptly to execute and deliver to Secured Party all such other assignments,
certificates, supplemental writings and financing statements, and to do all
other acts or things, as Secured Party may request in order more fully to
evidence and perfect the security interest created by this Security Agreement
and to verify compliance with the provisions of this Security Agreement and the
accuracy of the representations and warranties made hereunder; (d) punctually
and properly to perform all of Pledgor's covenants and duties under any other
security agreement, deed of trust, collateral pledge agreement or contract of
any kind now or hereafter existing as security for or in connection with
payment of the Indebtedness or any part thereof; (e) to pay the Indebtedness in
accordance with the terms of the Note, the Loan Agreement, this Security
Agreement and any other promissory note or notes or other writing evidencing
the Indebtedness or any part thereof; (f) promptly to furnish Secured Party
with any information or writings that Secured Party may request concerning
Pledgor's financial condition or the Collateral; (g) to allow Secured Party to
inspect all records of Pledgor relating to the Collateral or to the
Indebtedness and to make and take away copies of such records; (h) promptly to
notify Secured Party of any change in any fact or circumstance as to which
Pledgor has warranted or represented in this Security Agreement or in any other
writing that Pledgor has furnished to Secured Party in connection with the
Collateral or the Indebtedness; (i) promptly to notify Secured Party of any
Action that could affect title to the Collateral or any part thereof or the
security interest herein and, at the request of Secured Party, to appear in and
defend (at Pledgor's sole cost and expense) any such Action; (j) except to the
extent prohibited by applicable law, pay any and all expenses incurred in the
custody, preservation, use or operation of the Collateral; (k) not transfer,
sell, assign, pledge, hypothecate, encumber, give or otherwise convey or
dispose of ("Transfer," with such term, when used as a noun, to have a
correlative meaning) any of Pledgor's rights in the Collateral; (l) to defend
Secured Party's title against the claims and demands of all Persons; (m) not to
grant, create, or permit to attach or exist any Lien on, of or against any of
the Collateral; and (n) in the event that Pledgor or Secured Party (solely in
its capacity as pledgee hereunder) (each a "holder") must comply with the
provisions of Rule 144 adopted by the Commission under the Securities Act
("Rule 144"), with respect to sales of any such securities, and to the extent
that such holder is not able to meet all criteria applicable under Rule 144(k),
if any, Pledgor shall (i) use his best efforts to cause the issuer of such
securities (A), upon receipt from any holder of written notice that such holder
intends to sell any such securities under Rule 144, to confirm in writing that
such issuer has complied with the provisions of Rule 144 in connection with the
availability of public information with respect to such issuer or to specify
the respects in which such issuer has not so complied, and to supply such
holder with such information as such holder shall request for purposes of such
sale and (B) to cooperate in good faith with any holder who desires to sell a
portion of such securities under Rule 144, (ii) not sell (directly or
indirectly), or permit any Affiliate (as such term is defined in Rule 12b-2
under the Exchange Act) of Pledgor
3
<PAGE> 4
to sell (directly or indirectly), any capital stock of such issuer or any other
securities of the same class as such securities, except for sales pursuant to
an effective registration statement under the Securities Act and (iii) not
enter into any agreement with any Person that restricts the Transfer of any
such securities. Should the Collateral or any part thereof ever in any manner
be converted by its issuer or maker into another type of property or should any
money or other proceeds ever be paid or delivered to Pledgor as a result of
Pledgor's rights in the Collateral, then, in any such event, all such property,
money and other proceeds (except only ordinary cash dividends unless and until
payable to Secured Party under Paragraph 6 hereof), shall become part of the
Collateral, and Pledgor covenants promptly to deliver or pay to Secured Party
all of the same to the extent that it is susceptible of delivery and,
contemporaneously therewith, Pledgor will properly endorse or assign the same
upon Secured Party's request. With respect to any of such property that is of
a kind or type that Secured Party deems requires one or more additional
security agreements, financing statements or other writings to perfect a
security interest therein in Secured Party's favor, Pledgor will promptly
execute and deliver to Secured Party whatever Secured Party may deem necessary
or appropriate for such purpose. Should Pledgor fail to perform or observe any
of its covenants, duties or agreements in accordance with their respective
terms hereunder, Secured Party may (but shall not be obligated to) perform or
attempt to perform such covenant, duty or agreement on Pledgor's behalf, and
any and all amounts that Secured Party may expend in connection with such
performance or attempted performance shall become a part of the Indebtedness
(except to the extent prohibited by applicable law) and, at the Secured Party's
request, Pledgor agrees to pay such amount promptly to Secured Party.
6. Secured Party shall have the unilateral power and authority to
have Collateral that is securities registered in Secured Party's name, or in
the name of Secured Party's nominee, without notice to Pledgor; provided,
however, that, notwithstanding the foregoing, Secured Party shall not have the
right, prior to a Default, to have transferred into itself or its nominee any
equity security (as defined in Rule 13d-l(d) of the General Rules and
Regulations under the Exchange Act or any successor thereof) constituting the
Collateral or any part thereof. With or without such registration, upon the
occurrence of an Default, Secured Party shall have the unilateral power and
authority to demand of the obligor issuing the same, and to execute and deliver
a receipt for, any and all dividends and other distributions payable in respect
thereof, regardless of the medium in which paid and whether ordinary or
extraordinary. Each obligor making payment to Secured Party hereunder shall be
fully protected in relying upon Secured Party's written statement that it then
holds a security interest that entitles it to receive such payment, and Secured
Party's receipt for such payment shall be full acquittance therefor to the one
making such payment.
7. Within five days prior to the maturity of any Collateral
consisting of Government Securities, Pledgor may provide a written notice to
Secured Party to reinvest the proceeds of such Government Securities upon their
maturity in other Government Securities and Secured Party shall make reasonable
efforts to invest such proceeds in the Government Securities requested in such
notice. If Pledgor does not provide such notice to Secured Party to reinvest
the proceeds of any Government Security, or if Secured Party is unable, after
reasonable efforts, to invest such proceeds as requested by Pledgor in its
written notice to Secured Party, Secured Party may reinvest such proceeds in
Government Securities as it shall determine in its sole discretion.
4
<PAGE> 5
8. Secured Party shall have no obligation under any
circumstances: (a) to notify Pledgor of the occurrence of a Default; (b) to fix
or preserve rights against prior parties to the Collateral; or (c) to use
diligence to collect any amounts payable in respect of the Collateral. Without
limiting the generality of clause (c) of the immediately-preceding sentence,
Secured Party shall be liable only to account to Pledgor for such amounts as
Secured Party may actually collect or receive on the Collateral and shall have
no responsibility for ascertaining any maturities, calls, conversions,
exchanges, offers, tenders or similar matters relating to any of the Collateral
or for informing Pledgor with respect to any of such matters (irrespective of
whether Secured Party actually may have, or may be deemed to have, knowledge
thereof). Secured Party shall have no obligation to take any action with
regard to the Collateral that Pledgor may authorize or request unless (i)
Secured Party shall determine, in its sole discretion, that such action will
not adversely affect the Collateral's value as collateral in the hands of the
Secured Party and (ii) such authorization or request is made in writing and is
actually received by Secured Party. The foregoing provisions of this paragraph
shall be fully applicable to all securities held in pledge hereunder,
irrespective of whether Secured Party may or may not have exercised any right
under Paragraph 6 above to have such other securities registered in its name or
in the name of its nominee.
9. The term "Default," as used in this Security Agreement, means:
(a) an "Event of Default" as such term is defined in the Loan Agreement; (b)
any other failure by Pledgor punctually and properly to perform any covenant,
agreement or condition contained herein or in any other security agreement,
mortgage, deed of trust, assignment or contract of any kind securing or
assuming payment of the Indebtedness or any part thereof that is not corrected
to Lender's satisfaction within five days following Lender's notice thereof to
Pledgor; (c) Pledgor's death unless, within 20 days thereafter, the personal
representatives of Pledgor's estate in a writing delivered to Secured Party in
form and substance satisfactory to Secured Party (i) endorse or reaffirm in
full this Security Agreement, the Loan Agreement, the Note, the Other
Transaction Documents and each other instrument evidencing the Indebtedness,
(ii) agree that they, as such representatives, and the Pledgor's estate shall
be bound by the terms of this Security Agreement, the Loan Agreement, the Note,
the Other Transaction Documents and each other instrument evidencing the
Indebtedness to the same extent as if they were the original signatories hereto
and thereto and (iii) acknowledge and affirm Secured Party's status as a
secured creditor of the estate with a perfected first-priority security
interest in the Collateral; (d) the levy against the Collateral or any part
thereof of any execution, attachment, sequestration, or other writ; or (e)
Secured Party in good faith deems itself insecure with respect to the Note or
any other Indebtedness or believes that the prospect of Pledgor's performance
of any of Pledgor's covenants, agreements or other duties hereunder might be
impaired.
5
<PAGE> 6
10. Upon the occurrence of a Default, in addition to any and all
other rights and remedies that Secured Party may then have hereunder or under
the Loan Agreement, the Note, any Other Transaction Document, the uniform
commercial code as adopted by the State of Colorado (the "Code") as a secured
party or otherwise, Secured Party at its option may: (a) declare the entire
unpaid balance of principal of and all accrued but unpaid interest on the
Indebtedness immediately due and payable, without notice, demand or
presentment, which are hereby waived; (b) reduce its claim to judgment,
foreclose or otherwise enforce its security interest in all or any part of the
Collateral by any available judicial procedure; (c) after notification, if any,
provided for in Paragraph 11 hereof, sell or otherwise dispose of, at the
Secured Party's office or elsewhere, all or any part of the Collateral as a
unit or in parcels, by public or private proceedings and/or by way of one or
more contracts (its being agreed that the sale of any part of the Collateral
shall not exhaust Secured Party's power of sale, but that such sales may be
made at any time and from time to time until all of the Collateral has been
sold or until the Indebtedness has been paid in full), and at any such sale it
shall not be necessary to exhibit the Collateral; (d) if Secured Party is
entitled to do so under the Code, retain the Collateral in satisfaction of the
Indebtedness; (e) apply for the judicial appointment of a receiver for the
Collateral, or any part thereof (and Pledgor hereby consents to any such
appointment); (f) buy the Collateral at any public sale; and (g) buy the
Collateral at any private sale if the Collateral is of a type customarily sold
in a recognized market or is of a type that is the subject of widely
distributed standard price quotations. Secured Party shall be entitled to
apply the proceeds of any sale or other disposition of the Collateral first to
the payment of all of Secured Party's reasonable costs incurred in storing,
preparing for sale and selling all or any part of the Collateral and to the
payment of attorneys' fees as provided for herein or in any note or obligation
secured hereby, and to apply remaining proceeds, if any, toward payment of the
balance of the Indebtedness in such order and manner as Secured Party, in its
discretion, may deem advisable. Secured Party shall account to Pledgor for any
surplus.
11. Secured Party shall provide reasonable notice to Pledgor (and
to any other Person entitled under the Code to receive notice thereof) of the
time and place of any public sale of the Collateral, or reasonable notice of
the time after which Secured Party intends to conduct a private sale or other
disposition of the Collateral; provided, however, that, if the Collateral is
perishable, threatens to decline speedily in value or is of a type customarily
sold on a recognized market or is of a type that is the subject of widely
distributed standard price quotations, Secured Party may sell or otherwise
dispose of the Collateral without notification, advertisement or other notice
of any kind. Pledgor hereby agrees that notice given not less than five days
prior to the taking of the action to which the notice relates is reasonable
notification and notice for the purpose of this paragraph and the Code.
12. Secured Party shall have the right at any time and from time
to time to execute and file the original or a copy of this Security Agreement
as a financing statement, but the failure of Secured Party to do so shall not
impair in any respect the validity or enforceability of this Security
Agreement.
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<PAGE> 7
13. All rights and remedies of Secured Party hereunder are
cumulative of each other and of every other right or remedy that Secured Party
may otherwise have at law or in equity or under any other contract or other
writing for the enforcement of the security interest herein or the collection
of the Indebtedness (including without limitation the Loan Agreement, the Note
and the Other Transaction Documents), and the Secured Party's exercise of one
or more rights or remedies shall not prejudice or impair the concurrent or
subsequent exercise of other rights or remedies. Should Pledgor have
heretofore executed or hereafter execute any deed of trust, mortgage or any
other security agreement in favor of Secured Party, the security interest
thereby created and all other rights, powers and privileges vested in Secured
Party by the terms thereof shall exist concurrently with the security interest
created hereby, and the Secured Party's exercise or failure to exercise any
right or power conferred upon it in any such instrument shall not prejudice or
impair Secured Party's rights, titles, liens and powers existing hereunder.
14. Should any part of the Indebtedness be payable in
installments, the Secured Party's acceptance at any time and from time to time
of partial payment of the aggregate amount of all installments then matured
shall not be deemed to be a waiver of any Default then existing. No waiver by
Secured Party of any Default shall be deemed to be a continuing waiver nor a
waiver of any other subsequent Default. No delay or omission by Secured Party
in exercising any right or power hereunder, or under any other writings that
Pledgor may have executed as security for or in connection with the
Indebtedness, shall impair any such right or power to be construed as a waiver
thereof or any acquiescence therein, nor shall any single or partial exercise
of any such right or power preclude other or further exercise thereof or the
exercise of any other right or power of Secured Party hereunder or under such
other writings.
15. If the Indebtedness or any part thereof is given in renewal or
extension or applied toward the payment of indebtedness secured by a Lien,
Secured Party shall be, and is hereby, subrogated to all of the rights, titles
and Liens securing the indebtedness so renewed, extended or paid.
16. Pledgor and Secured Party intend to conform strictly to
applicable usury laws. Therefore, the total amount of interest (as defined
under applicable law) contracted for, charged or collected with respect to the
Loan shall never exceed the Highest Lawful Rate (as defined in the Note). In
the event that Secured Party is found to have contracted for, charged or
received any interest on the Loan in excess of the Highest Lawful Rate, such
occurrence shall be deemed a mistake and Secured Party shall automatically
reform the contract or charge to conform to applicable law. In the event that
Secured Party is found to have received any interest on the Loan in excess of
the Highest Lawful Rate, Secured Party shall either refund such excess interest
to Borrower or credit the excess interest to the unpaid principal amount of the
Loan. All amounts found to constitute interest on the Loan will be spread
throughout the full term of the Loan in determining whether the interest
contracted for, charged or received thereon exceeds the Highest Lawful Rate.
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<PAGE> 8
17. Because of the Securities Act and other laws or regulations,
there may be legal restrictions or limitations that could affect Secured
Party's ability to dispose of the Collateral and to enforce Secured Party's
rights and remedies hereunder. For these reasons, Pledgor hereby authorizes
Secured Party, in Secured Party's discretion, in the event of any Default
hereunder (but only if advised by counsel that Secured Party may not sell the
Collateral publicly pursuant to an effective registration statement under the
Securities Act), to sell all or any part of the Collateral at private sale
pursuant to one or more investment representation letters or in any other
manner that will not require the Collateral to be registered under the
Securities Act or the rules and regulations promulgated thereunder, or under
any other law, rule or regulation, at the best price that Secured Party
reasonably is able to obtain. Pledgor hereby further authorizes Secured Party,
in Secured Party's discretion, to take such actions, give such notices, obtain
such consents and do such other things as Secured Party may deem necessary or
appropriate in the event of a sale or disposition of part or all of the
Collateral. Pledgor understands and agrees that Secured Party, in Secured
Party's discretion, may approach a limited number of potential purchasers for
part or all of the Collateral and that a sale or sales under such circumstances
might yield a lower price for such Collateral than otherwise would be
obtainable if such Collateral were registered under the Securities Act and sold
in the open market. Pledgor agrees that, if Secured Party shall sell part or
all of the Collateral at such private sale or sales following a Default,
Secured Party shall have the right to rely upon the advice and opinion of any
member firm of a national securities exchange as to the best price reasonably
obtainable upon such a private sale thereof and that such reliance shall be
conclusive evidence that Secured Party's sale of part or all of the Collateral
was conducted in a commercially reasonable manner under the Code.
18. By his execution of this Security Agreement, Pledgor hereby
makes, constitutes and appoints Secured Party, with full power of substitution
in the premises, his true and lawful attorney-in-fact and agent, for him and in
his name, place and stead, upon the occurrence of a continuing Default or
Potential Default, to do all such acts and things that Secured Party may deem
necessary or advisable to accomplish the purposes of this Security Agreement.
The power of attorney set forth in the immediately-preceding sentence shall be
deemed irrevocable and coupled with an interest for so long as any part of the
Indebtedness remains outstanding and shall not be adversely affected by
Pledgor's incapacity.
19. This Security Agreement shall be binding upon and inure to the
benefit of Pledgor and Secured Party, and their respective heirs, personal
representatives, successors and assigns; provided, however, that Pledgor shall
not, directly or indirectly, assign or transfer, or attempt to assign or
transfer, any of his rights, duties or obligations under this Security
Agreement without Secured Party's prior express written consent.
20. This Security Agreement is a contract made under, and shall be
construed in accordance with and governed by, the laws of the State of Colorado
(exclusive of any such laws that pertain to conflicts of laws).
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<PAGE> 9
21. Pledgor declares that he has read this Security Agreement, the
Loan Agreement, the Note and the Other Transaction Documents, that he
understands the terms and conditions hereof and thereof and that he has
received a copy of each of the referenced documents.
22. THIS SECURITY AGREEMENT, THE LOAN AGREEMENT, THE NOTE AND THE
OTHER TRANSACTION DOCUMENTS COLLECTIVELY REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO ORAL AGREEMENTS
BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties have entered into this Security
Agreement as of the date first above written.
DEBTOR:
/s/ Mel S. Stonebraker
-----------------------------------------
MEL S. STONEBRAKER
SECURED PARTY: PARAGON COYOTE TEXAS LTD.,
a Texas limited partnership
By: Paragon Management Group, Inc.,
a Texas corporation, General Partner
By: /s/ Mark A. Pappas
--------------------------------
Mark Pappas, President
9
<PAGE> 10
Schedule 1 to Security Agreement
by and between
Mel S. Stonebraker and Paragon Coyote Texas Ltd.
Description of Collateral
1,430,000 shares of the Common Stock, par value $0.001 per share, of Coyote
Sports, Inc., a Nevada corporation, CUSIP number 224071 10 0, represented by
the following certificate numbers:
<TABLE>
<CAPTION>
Certificate # Number of Shares
------------- ----------------
<S> <C>
0125 1,035,000
0127 395,000
</TABLE>
<PAGE> 1
EXHIBIT 10.5
SECURITY AGREEMENT
(Pledge of Securities)
THIS SECURITY AGREEMENT is entered into as of March 19, 1998 by and
between JAMES M. PROBST, a resident of Boulder County, Colorado ("Pledgor"),
and PARAGON COYOTE TEXAS LTD., a Texas limited partnership ("Secured Party").
RECITALS
A. Secured Party has agreed to make a loan to Coyote Sports,
Inc., a Nevada corporation duly qualified to transact business in the State of
Colorado ("Borrower"), in the principal amount of $6,000,000 pursuant to the
terms and conditions set forth in that certain Loan Agreement of even date
herewith by and among, inter alia, Pledgor, Secured Party and Borrower (as
renewed, extended, amended or restated, the "Loan Agreement"), the Note and the
Other Transaction Documents.
B. As a material inducement to Secured Party to make the Loan to
Borrower, Pledgor has agreed to pledge the Probst Collateral Shares to Secured
Party.
C. In as much as Pledgor is a director, executive officer and
principal shareholder of Borrower, the Loan will benefit Pledgor at least to
the extent of the value of the Probst Collateral Shares.
D. Pledgor understands that Secured Party would not be willing to
make the Loan to Borrower but for Pledgor's pledge of the Probst Collateral
Shares pursuant to this Security Agreement.
NOW, THEREFORE, in consideration of the premises and of other good and
valuable consideration, the receipt and sufficiency of which the parties hereto
hereby acknowledge, Pledgor and Secured Party hereby agree as follows:
1. Unless otherwise defined in this Security Agreement, undefined
capitalized terms shall have the meanings respectively ascribed to them in the
Loan Agreement.
2. Pledgor pledges, grants a security interest in, mortgages,
assigns, transfers, delivers, pledges, sets over and confirms unto Secured
Party the collateral described below (the "Collateral") to secure performance
and payment of the Indebtedness:
<PAGE> 2
All securities described in Schedule l and all securities or other
property delivered to or which shall hereafter be delivered to, or come into
the possession, custody, or control of Secured Party in any manner for the
purpose of securing the Indebtedness during the existence of this Security
Agreement, together with any and all present and future increases in, profits
on, combinations and reclassifications of, and substitutes and replacements
for, all or part of the foregoing, and all present and future accounts,
contract rights, general intangibles, chattel paper, documents, instruments,
cash and noncash proceeds and other rights whatsoever arising from or by virtue
of, or in connection with, or from the voluntary or involuntary sale, transfer
or other disposition of, or collections with respect to, or proceeds payable by
virtue of claims against any person or entity with respect to, all or any part
of the foregoing.
3. The security interest in the Collateral created and evidenced
hereby shall secure the full and timely payment and performance of the
Indebtedness.
4. Pledgor represents and warrants (with each such representation
and warranty's being conclusively and independently deemed material and relied
upon by Secured Party irrespective of whether such materiality and/or reliance
actually exists) that: (a) Pledgor owns all presently-existing Collateral, and
will acquire all hereafter-acquired Collateral, free and clear of any and all
Liens; (b) Pledgor has full and complete rights and authority to grant this
security interest in the Collateral and to perform Pledgor's obligations under
this Security Agreement; (c) all Collateral that is securities has been duly
authorized and validly issued and is fully paid and non-assessable, and the
transfer thereof is not subject to any restrictions other than restrictions
imposed by applicable securities laws; (d) none of the Collateral is
uncertificated securities; (e) no dispute, right of setoff, counterclaim or
defense exist with respect to any part of the Collateral; (f) except for any
financing statements that Secured Party has filed or may file, no financing
statement covering the Collateral or any part thereof has been filed with any
filing officer; (g) upon the delivery to Secured Party of the certificates
representing the Collateral that is securities, Secured Party will have a
perfected first-priority security interest in the Collateral, including the
proceeds and products thereof, subject to no prior Lien; (h) no other security
agreement covering the Collateral or any part thereof has been executed, and no
security interest, other than the one created by this Security Agreement, has
attached or been perfected in the Collateral or in any part thereof; (i)
Pledgor's address as set forth in the Loan Agreement is where Pledgor is
entitled to receive notices; and (j) all representations and warranties
contained in the Loan Agreement are true and correct in all respects. The
delivery at any time by Pledgor to Secured Parry of Collateral or of additional
specific descriptions of certain Collateral shall constitute a representation
and warranty by Pledgor under this Security Agreement that, with respect to
such Collateral and each item thereof, the matters heretofore warranted in this
Paragraph 4 are true and correct in all respects. All representations and
warranties set forth herein shall survive the execution and delivery of this
Security Agreement and the occurrence of the Closing and shall never terminate.
2
<PAGE> 3
5. Pledgor covenants and agrees: (a) to deliver to Secured Party
all certificates or instruments representing or evidencing the Collateral in
suitable form for transfer by delivery, or accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to Secured Party; (b) to register (and to cooperate with Secured
Party in registering) all Collateral consisting of uncertificated securities in
the name of Secured Party on the books of the issuer thereof or on the books of
Secured Party as financial intermediary; (c) at any time and from time to time
promptly to execute and deliver to Secured Party all such other assignments,
certificates, supplemental writings and financing statements, and to do all
other acts or things, as Secured Party may request in order more fully to
evidence and perfect the security interest created by this Security Agreement
and to verify compliance with the provisions of this Security Agreement and the
accuracy of the representations and warranties made hereunder; (d) punctually
and properly to perform all of Pledgor's covenants and duties under any other
security agreement, deed of trust, collateral pledge agreement or contract of
any kind now or hereafter existing as security for or in connection with
payment of the Indebtedness or any part thereof; (e) to pay the Indebtedness in
accordance with the terms of the Note, the Loan Agreement, this Security
Agreement and any other promissory note or notes or other writing evidencing
the Indebtedness or any part thereof; (f) promptly to furnish Secured Party
with any information or writings that Secured Party may request concerning
Pledgor's financial condition or the Collateral; (g) to allow Secured Party to
inspect all records of Pledgor relating to the Collateral or to the
Indebtedness and to make and take away copies of such records; (h) promptly to
notify Secured Party of any change in any fact or circumstance as to which
Pledgor has warranted or represented in this Security Agreement or in any other
writing that Pledgor has furnished to Secured Party in connection with the
Collateral or the Indebtedness; (i) promptly to notify Secured Party of any
Action that could affect title to the Collateral or any part thereof or the
security interest herein and, at the request of Secured Party, to appear in and
defend (at Pledgor's sole cost and expense) any such Action; (j) except to the
extent prohibited by applicable law, pay any and all expenses incurred in the
custody, preservation, use or operation of the Collateral; (k) not transfer,
sell, assign, pledge, hypothecate, encumber, give or otherwise convey or
dispose of ("Transfer," with such term, when used as a noun, to have a
correlative meaning) any of Pledgor's rights in the Collateral; (l) to defend
Secured Party's title against the claims and demands of all Persons; (m) not to
grant, create, or permit to attach or exist any Lien on, of or against any of
the Collateral; and (n) in the event that Pledgor or Secured Party (solely in
its capacity as pledgee hereunder) (each a "holder") must comply with the
provisions of Rule 144 adopted by the Commission under the Securities Act
("Rule 144"), with respect to sales of any such securities, and to the extent
that such holder is not able to meet all criteria applicable under Rule 144(k),
if any, Pledgor shall (i) use his best efforts to cause the issuer of such
securities (A), upon receipt from any holder of written notice that such holder
intends to sell any such securities under Rule 144, to confirm in writing that
such issuer has complied with the provisions of Rule 144 in connection with the
availability of public information with respect to such issuer or to specify
the respects in which such issuer has not so complied, and to supply such
holder with such information as such holder shall request for purposes of such
sale and (B) to cooperate in good faith with any holder who desires to sell a
portion of such securities under Rule 144, (ii) not sell (directly or
indirectly), or permit any Affiliate (as such term is defined in Rule 12b-2
under the Exchange Act) of Pledgor
3
<PAGE> 4
to sell (directly or indirectly), any capital stock of such issuer or any other
securities of the same class as such securities, except for sales pursuant to
an effective registration statement under the Securities Act and (iii) not
enter into any agreement with any Person that restricts the Transfer of any
such securities. Should the Collateral or any part thereof ever in any manner
be converted by its issuer or maker into another type of property or should any
money or other proceeds ever be paid or delivered to Pledgor as a result of
Pledgor's rights in the Collateral, then, in any such event, all such property,
money and other proceeds (except only ordinary cash dividends unless and until
payable to Secured Party under Paragraph 6 hereof), shall become part of the
Collateral, and Pledgor covenants promptly to deliver or pay to Secured Party
all of the same to the extent that it is susceptible of delivery and,
contemporaneously therewith, Pledgor will properly endorse or assign the same
upon Secured Party's request. With respect to any of such property that is of
a kind or type that Secured Party deems requires one or more additional
security agreements, financing statements or other writings to perfect a
security interest therein in Secured Party's favor, Pledgor will promptly
execute and deliver to Secured Party whatever Secured Party may deem necessary
or appropriate for such purpose. Should Pledgor fail to perform or observe any
of its covenants, duties or agreements in accordance with their respective
terms hereunder, Secured Party may (but shall not be obligated to) perform or
attempt to perform such covenant, duty or agreement on Pledgor's behalf, and
any and all amounts that Secured Party may expend in connection with such
performance or attempted performance shall become a part of the Indebtedness
(except to the extent prohibited by applicable law) and, at the Secured Party's
request, Pledgor agrees to pay such amount promptly to Secured Party.
6. Secured Party shall have the unilateral power and authority to
have Collateral that is securities registered in Secured Party's name, or in
the name of Secured Party's nominee, without notice to Pledgor; provided,
however, that, notwithstanding the foregoing, Secured Party shall not have the
right, prior to a Default, to have transferred into itself or its nominee any
equity security (as defined in Rule 13d-l(d) of the General Rules and
Regulations under the Exchange Act or any successor thereof) constituting the
Collateral or any part thereof. With or without such registration, upon the
occurrence of an Default, Secured Party shall have the unilateral power and
authority to demand of the obligor issuing the same, and to execute and deliver
a receipt for, any and all dividends and other distributions payable in respect
thereof, regardless of the medium in which paid and whether ordinary or
extraordinary. Each obligor making payment to Secured Party hereunder shall be
fully protected in relying upon Secured Party's written statement that it then
holds a security interest that entitles it to receive such payment, and Secured
Party's receipt for such payment shall be full acquittance therefor to the one
making such payment.
7. Within five days prior to the maturity of any Collateral
consisting of Government Securities, Pledgor may provide a written notice to
Secured Party to reinvest the proceeds of such Government Securities upon their
maturity in other Government Securities and Secured Party shall make reasonable
efforts to invest such proceeds in the Government Securities requested in such
notice. If Pledgor does not provide such notice to Secured Party to reinvest
the proceeds of any Government Security, or if Secured Party is unable, after
reasonable efforts, to invest such proceeds as requested by Pledgor in its
written notice to Secured Party, Secured Party may reinvest such proceeds in
Government Securities as it shall determine in its sole discretion.
4
<PAGE> 5
8. Secured Party shall have no obligation under any
circumstances: (a) to notify Pledgor of the occurrence of a Default; (b) to fix
or preserve rights against prior parties to the Collateral; or (c) to use
diligence to collect any amounts payable in respect of the Collateral. Without
limiting the generality of clause (c) of the immediately- preceding sentence,
Secured Party shall be liable only to account to Pledgor for such amounts as
Secured Party may actually collect or receive on the Collateral and shall have
no responsibility for ascertaining any maturities, calls, conversions,
exchanges, offers, tenders or similar matters relating to any of the Collateral
or for informing Pledgor with respect to any of such matters (irrespective of
whether Secured Party actually may have, or may be deemed to have, knowledge
thereof). Secured Party shall have no obligation to take any action with
regard to the Collateral that Pledgor may authorize or request unless (i)
Secured Party shall determine, in its sole discretion, that such action will
not adversely affect the Collateral's value as collateral in the hands of the
Secured Party and (ii) such authorization or request is made in writing and is
actually received by Secured Party. The foregoing provisions of this paragraph
shall be fully applicable to all securities held in pledge hereunder,
irrespective of whether Secured Party may or may not have exercised any right
under Paragraph 6 above to have such other securities registered in its name or
in the name of its nominee.
9. The term "Default," as used in this Security Agreement, means:
(a) an "Event of Default" as such term is defined in the Loan Agreement; (b)
any other failure by Pledgor punctually and properly to perform any covenant,
agreement or condition contained herein or in any other security agreement,
mortgage, deed of trust, assignment or contract of any kind securing or
assuming payment of the Indebtedness or any part thereof that is not corrected
to Lender's satisfaction within five days following Lender's notice thereof to
Pledgor; (c) Pledgor's death unless, within 20 days thereafter, the personal
representatives of Pledgor's estate in a writing delivered to Secured Party in
form and substance satisfactory to Secured Party (i) endorse or reaffirm in
full this Security Agreement, the Loan Agreement, the Note, the Other
Transaction Documents and each other instrument evidencing the Indebtedness,
(ii) agree that they, as such representatives, and the Pledgor's estate shall
be bound by the terms of this Security Agreement, the Loan Agreement, the Note,
the Other Transaction Documents and each other instrument evidencing the
Indebtedness to the same extent as if they were the original signatories hereto
and thereto and (iii) acknowledge and affirm Secured Party's status as a
secured creditor of the estate with a perfected first-priority security
interest in the Collateral; (d) the levy against the Collateral or any part
thereof of any execution, attachment, sequestration, or other writ; or (e)
Secured Party in good faith deems itself insecure with respect to the Note or
any other Indebtedness or believes that the prospect of Pledgor's performance
of any of Pledgor's covenants, agreements or other duties hereunder might be
impaired.
5
<PAGE> 6
10. Upon the occurrence of a Default, in addition to any and all
other rights and remedies that Secured Party may then have hereunder or under
the Loan Agreement, the Note, any Other Transaction Document, the uniform
commercial code as adopted by the State of Colorado (the "Code") as a secured
party or otherwise, Secured Party at its option may: (a) declare the entire
unpaid balance of principal of and all accrued but unpaid interest on the
Indebtedness immediately due and payable, without notice, demand or
presentment, which are hereby waived; (b) reduce its claim to judgment,
foreclose or otherwise enforce its security interest in all or any part of the
Collateral by any available judicial procedure; (c) after notification, if any,
provided for in Paragraph 11 hereof, sell or otherwise dispose of, at the
Secured Party's office or elsewhere, all or any part of the Collateral as a
unit or in parcels, by public or private proceedings and/or by way of one or
more contracts (its being agreed that the sale of any part of the Collateral
shall not exhaust Secured Party's power of sale, but that such sales may be
made at any time and from time to time until all of the Collateral has been
sold or until the Indebtedness has been paid in full), and at any such sale it
shall not be necessary to exhibit the Collateral; (d) if Secured Party is
entitled to do so under the Code, retain the Collateral in satisfaction of the
Indebtedness; (e) apply for the judicial appointment of a receiver for the
Collateral, or any part thereof (and Pledgor hereby consents to any such
appointment); (f) buy the Collateral at any public sale; and (g) buy the
Collateral at any private sale if the Collateral is of a type customarily sold
in a recognized market or is of a type that is the subject of widely
distributed standard price quotations. Secured Party shall be entitled to
apply the proceeds of any sale or other disposition of the Collateral first to
the payment of all of Secured Party's reasonable costs incurred in storing,
preparing for sale and selling all or any part of the Collateral and to the
payment of attorneys' fees as provided for herein or in any note or obligation
secured hereby, and to apply remaining proceeds, if any, toward payment of the
balance of the Indebtedness in such order and manner as Secured Party, in its
discretion, may deem advisable. Secured Party shall account to Pledgor for any
surplus.
11. Secured Party shall provide reasonable notice to Pledgor (and
to any other Person entitled under the Code to receive notice thereof) of the
time and place of any public sale of the Collateral, or reasonable notice of
the time after which Secured Party intends to conduct a private sale or other
disposition of the Collateral; provided, however, that, if the Collateral is
perishable, threatens to decline speedily in value or is of a type customarily
sold on a recognized market or is of a type that is the subject of widely
distributed standard price quotations, Secured Party may sell or otherwise
dispose of the Collateral without notification, advertisement or other notice
of any kind. Pledgor hereby agrees that notice given not less than five days
prior to the taking of the action to which the notice relates is reasonable
notification and notice for the purpose of this paragraph and the Code.
12. Secured Party shall have the right at any time and from time
to time to execute and file the original or a copy of this Security Agreement
as a financing statement, but the failure of Secured Party to do so shall not
impair in any respect the validity or enforceability of this Security
Agreement.
6
<PAGE> 7
13. All rights and remedies of Secured Party hereunder are
cumulative of each other and of every other right or remedy that Secured Party
may otherwise have at law or in equity or under any other contract or other
writing for the enforcement of the security interest herein or the collection
of the Indebtedness (including without limitation the Loan Agreement, the Note
and the Other Transaction Documents), and the Secured Party's exercise of one
or more rights or remedies shall not prejudice or impair the concurrent or
subsequent exercise of other rights or remedies. Should Pledgor have
heretofore executed or hereafter execute any deed of trust, mortgage or any
other security agreement in favor of Secured Party, the security interest
thereby created and all other rights, powers and privileges vested in Secured
Party by the terms thereof shall exist concurrently with the security interest
created hereby, and the Secured Party's exercise or failure to exercise any
right or power conferred upon it in any such instrument shall not prejudice or
impair Secured Party's rights, titles, liens and powers existing hereunder.
14. Should any part of the Indebtedness be payable in
installments, the Secured Party's acceptance at any time and from time to time
of partial payment of the aggregate amount of all installments then matured
shall not be deemed to be a waiver of any Default then existing. No waiver by
Secured Party of any Default shall be deemed to be a continuing waiver nor a
waiver of any other subsequent Default. No delay or omission by Secured Party
in exercising any right or power hereunder, or under any other writings that
Pledgor may have executed as security for or in connection with the
Indebtedness, shall impair any such right or power to be construed as a waiver
thereof or any acquiescence therein, nor shall any single or partial exercise
of any such right or power preclude other or further exercise thereof or the
exercise of any other right or power of Secured Party hereunder or under such
other writings.
15. If the Indebtedness or any part thereof is given in renewal or
extension or applied toward the payment of indebtedness secured by a Lien,
Secured Party shall be, and is hereby, subrogated to all of the rights, titles
and Liens securing the indebtedness so renewed, extended or paid.
16. Pledgor and Secured Party intend to conform strictly to
applicable usury laws. Therefore, the total amount of interest (as defined
under applicable law) contracted for, charged or collected with respect to the
Loan shall never exceed the Highest Lawful Rate (as defined in the Note). In
the event that Secured Party is found to have contracted for, charged or
received any interest on the Loan in excess of the Highest Lawful Rate, such
occurrence shall be deemed a mistake and Secured Party shall automatically
reform the contract or charge to conform to applicable law. In the event that
Secured Party is found to have received any interest on the Loan in excess of
the Highest Lawful Rate, Secured Party shall either refund such excess interest
to Borrower or credit the excess interest to the unpaid principal amount of the
Loan. All amounts found to constitute interest on the Loan will be spread
throughout the full term of the Loan in determining whether the interest
contracted for, charged or received thereon exceeds the Highest Lawful Rate.
7
<PAGE> 8
17. Because of the Securities Act and other laws or regulations,
there may be legal restrictions or limitations that could affect Secured
Party's ability to dispose of the Collateral and to enforce Secured Party's
rights and remedies hereunder. For these reasons, Pledgor hereby authorizes
Secured Party, in Secured Party's discretion, in the event of any Default
hereunder (but only if advised by counsel that Secured Party may not sell the
Collateral publicly pursuant to an effective registration statement under the
Securities Act), to sell all or any part of the Collateral at private sale
pursuant to one or more investment representation letters or in any other
manner that will not require the Collateral to be registered under the
Securities Act or the rules and regulations promulgated thereunder, or under
any other law, rule or regulation, at the best price that Secured Party
reasonably is able to obtain. Pledgor hereby further authorizes Secured Party,
in Secured Party's discretion, to take such actions, give such notices, obtain
such consents and do such other things as Secured Party may deem necessary or
appropriate in the event of a sale or disposition of part or all of the
Collateral. Pledgor understands and agrees that Secured Party, in Secured
Party's discretion, may approach a limited number of potential purchasers for
part or all of the Collateral and that a sale or sales under such circumstances
might yield a lower price for such Collateral than otherwise would be
obtainable if such Collateral were registered under the Securities Act and sold
in the open market. Pledgor agrees that, if Secured Party shall sell part or
all of the Collateral at such private sale or sales following a Default,
Secured Party shall have the right to rely upon the advice and opinion of any
member firm of a national securities exchange as to the best price reasonably
obtainable upon such a private sale thereof and that such reliance shall be
conclusive evidence that Secured Party's sale of part or all of the Collateral
was conducted in a commercially reasonable manner under the Code.
18. By his execution of this Security Agreement, Pledgor hereby
makes, constitutes and appoints Secured Party, with full power of substitution
in the premises, his true and lawful attorney-in-fact and agent, for him and in
his name, place and stead, upon the occurrence of a continuing Default or
Potential Default, to do all such acts and things that Secured Party may deem
necessary or advisable to accomplish the purposes of this Security Agreement.
The power of attorney set forth in the immediately-preceding sentence shall be
deemed irrevocable and coupled with an interest for so long as any part of the
Indebtedness remains outstanding and shall not be adversely affected by
Pledgor's incapacity.
19. This Security Agreement shall be binding upon and inure to the
benefit of Pledgor and Secured Party, and their respective heirs, personal
representatives, successors and assigns; provided, however, that Pledgor shall
not, directly or indirectly, assign or transfer, or attempt to assign or
transfer, any of his rights, duties or obligations under this Security
Agreement without Secured Party's prior express written consent.
20. This Security Agreement is a contract made under, and shall be
construed in accordance with and governed by, the laws of the State of Colorado
(exclusive of any such laws that pertain to conflicts of laws).
8
<PAGE> 9
21. Pledgor declares that he has read this Security Agreement, the
Loan Agreement, the Note and the Other Transaction Documents, that he
understands the terms and conditions hereof and thereof and that he has
received a copy of each of the referenced documents.
22. THIS SECURITY AGREEMENT, THE LOAN AGREEMENT, THE NOTE AND THE
OTHER TRANSACTION DOCUMENTS COLLECTIVELY REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO ORAL AGREEMENTS
BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties have entered into this Security
Agreement as of the date first above written.
DEBTOR:
/s/ James M. Probst
---------------------------------------------
JAMES M. PROBST
SECURED PARTY: PARAGON COYOTE TEXAS LTD.,
a Texas limited partnership
By: Paragon Management Group, Inc.,
a Texas corporation, General Partner
By: /s/ Mark A. Pappas
------------------------------------
Mark Pappas, President
9
<PAGE> 10
Schedule 1 to Security Agreement
by and between
James M. Probst and Paragon Coyote Texas Ltd.
Description of Collateral
1,170,000 shares of the Common Stock, par value $0.001 per share, of Coyote
Sports, Inc., a Nevada corporation, CUSIP number 224071 10 0, represented by
the following certificate numbers:
<TABLE>
<CAPTION>
Certificate # Number of Shares
------------- ----------------
<S> <C>
0124 1,035,000
0126 135,000
</TABLE>
<PAGE> 1
EXHIBIT 10.6
SECTION 3 AGREEMENT
THIS SECTION 3 AGREEMENT is made as of March 18, 1998 by and among
Robert W. Tennent, Special Trustee of the Tennent Family Trust dated as of
November 20, 1989 (the "Shareholder"), Coyote Sports, Inc., a Nevada
corporation ("Coyote"), and Paragon Coyote Texas Ltd., a Texas limited
partnership ("Paragon").
RECITALS
WHEREAS, pursuant to that certain Stock Purchase Agreement dated as of
February 3, 1998 by and among, inter alia, the Shareholder, Coyote and Unifiber
Corporation, a California corporation ("Unifiber") of which the Shareholder is
the sole shareholder (the "Unifiber Acquisition Agreement"), Coyote has agreed
to buy all of the issued and outstanding capital stock of Unifiber from the
Shareholder subject to the terms and conditions set forth therein and in the
other documents contemplated thereby (the "Unifiber Acquisition"); and
WHEREAS, Paragon is lending Coyote the funds to enable Coyote to
consummate the Unifiber Acquisition (the "Paragon Financing"); and
WHEREAS, as a condition to its willingness to provide the Paragon
Financing, Paragon is requiring that Coyote irrevocably and unconditionally
assign all of its right, title and interest in and to Coyote's rights (the
"Rights") under Section 3 of the Shareholder Agreement attached as Exhibit 2.1
to the Unifiber Acquisition Agreement ("Section 3") effective upon the closing
of the Unifiber Acquisition (the "Assignment"); and
WHEREAS, Paragon and the Shareholder wish, among other things, to
memorialize the Shareholder's consent to the Assignment and to clarify the
application of Section 3 to Paragon following the Assignment; and
WHEREAS, the Paragon Financing will tangibly and directly benefit the
Shareholder.
NOW, THEREFORE, in consideration of the premises and of other good and
valuable consideration, the receipt and sufficiency of which the parties hereby
acknowledge, the Shareholder, Paragon and Coyote hereby agree as follows:
1. The Shareholder consents to the Assignment in accordance with
its terms.
2. The Shareholder agrees that no approval of Coyote's Board of
Directors pursuant to Section 3(a)(2) of the Shareholder Agreement shall be
required upon Paragon's purchase, if any, of the Shares (as such term is
defined in the Shareholder Agreement) upon exercise of the Rights subsequent to
the Assignment.
3. Each of the Shareholder and Coyote agrees that the Shareholder
Agreement shall be duly executed and delivered at the closing of the Unifiber
Acquisition without any change or
<PAGE> 2
modification, and that no terms or conditions of the Unifiber Acquisition shall
be changed or modified in such a way as to impair the value of the Rights in
the hands of Paragon. In the event of any conflict between the terms and
conditions of this Agreement and those of the Shareholder Agreement, the terms
and conditions of this Agreement shall control. Other than as expressly
provided in this Agreement, the terms and conditions of the Shareholder
Agreement shall remain unchanged.
4. Notices required under Section 3 shall be in writing and be
delivered or mailed by certified or registered mail, postage prepaid, as
follows, or to such other address as the Shareholder or Paragon, as the case
may be, shall furnish in writing to the other in the manner set forth herein:
If to Shareholder:
Richard L. Tennent
Judy R. Tennent
1000 Lakeshore Drive, Unit No. 4
Incline Village, Nevada 89451
With a copy to:
F. Gregory Pyke, Esq.
Harrigan, Ruff, Sbardellati & Moore, APC
101 West Broadway, Suite 1600
San Diego, California 92101
If to Paragon:
Mark Pappas, President
Paragon Management Group, Inc.
307 West Seventh Street, Suite 1210
Fort Worth, Texas 76102
With a copy to:
Brian D. Bowden, Esq.
Robinson & Bowden L.L.P.
512 Main Street, Suite 901
Fort Worth, Texas 76102
5. This Agreement may be executed in one or more counterparts,
each of which shall be an original and all of which taken together shall
constitute one and the same instrument. Signatures exchanged by facsimile
shall be deemed to constitute original, manually-executed signatures and shall
be fully binding.
2
<PAGE> 3
6. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado (other than laws that pertain
to conflict of laws).
IN WITNESS WHEREOF, the parties have entered into this Section 3
Agreement as of the date first above written.
/s/ Robert W. Tennent, Special Trustee
--------------------------------------------
Robert W. Tennent, Special Trustee of the
Tennent Family Trust dated as of
November 20, 1989
COYOTE SPORTS, INC.,
a Nevada corporation
By: /s/ Mel S. Stonebraker
------------------------------------------
Name: Mel S. Stonebraker
----------------------------------------
Title: Chief Executive Officer
---------------------------------------
PARAGON COYOTE TEXAS LTD.,
a Texas limited partnership
By: Paragon Management Group, Inc.,
a Texas corporation, General Partner
By: /s/ Mark A. Pappas
------------------------------------
Mark Pappas, President
3
<PAGE> 1
EXHIBIT 10.7
PROMISSORY NOTE
March 19, 1998 $6,000,000.00
FOR VALUE RECEIVED, PARAGON COYOTE TEXAS LTD., a Texas limited
partnership ("Maker"), promises to pay to the order of DON & MARTY MANAGEMENT
GROUP, INC., or any subsequent holder hereof ("Lender"), on or before September
19, 1999, at its office at 307 West Seventh Street, Suite 1210, Fort Worth,
Texas 76102, or at such other location as Lender may designate, in immediately
available funds, SIX MILLION DOLLARS ($6,000,000). Maker will also pay
interest on the unpaid principal balance outstanding from time to time at a
fixed rate of eight percent (8%) per annum, payable quarterly in arrears.
Interest will be computed on the basis of the actual number of days
elapsed and a year comprising 360 days, unless such calculation would result in
a usurious interest rate, in which case such interest will be calculated on the
basis of a 365 or 366 day year, as the case may be.
All past due principal and interest on this Note will, at Lender's
option, bear interest at the maximum nonusurious rate of interest ("Highest
Lawful Rate") or, if applicable law does not provide for a maximum nonusurious
rate of interest, at a rate per annum equal to 12%.
In addition to all principal and accrued interest on this Note, Maker
agrees to pay: (a) all reasonable costs and expenses incurred by or on behalf
of Lender and all holders of this Note in attempting to collect this Note
through any judicial or other proceeding; and (b) reasonable attorneys fees if
and when this Note is placed in the hands of an attorney for collection. All
amounts payable hereunder are payable in the lawful money of the United States
of America. All payments on this Note shall be applied first to the payment of
accrued but unpaid interest and, after all such interest has been paid, to the
reduction of the outstanding principal balance hereof.
Maker and Lender intend to conform strictly to applicable usury laws.
Therefore, the total amount of interest (as defined under applicable law)
contracted for, charged or collected with respect to the Loan shall never
exceed the Highest Lawful Rate. In the event that Lender is found to have
contracted for, charged or received any interest on the Loan in excess of the
Highest Lawful Rate, such occurrence shall be deemed a mistake and Lender shall
automatically reform the contract or charge to conform to applicable law. In
the event that Lender is found to have received any interest on the Loan in
excess of the Highest Lawful Rate, Lender shall either refund such excess
interest to Maker or credit the excess interest to the unpaid principal amount
of the Loan. All amounts found to constitute interest on the Loan will be
spread throughout the full term of the Loan in determining whether the interest
contracted for, charged or received thereon exceeds the Highest Lawful Rate.
<TABLE>
<S> <C> <C>
Promissory Note Made by Paragon Coyote Texas Ltd.
in favor of Don & Marty Management Group, Inc.
March 19, 1998 - Page 1 of 3 Initials of Maker's Authorized Signatory: /s/ MAP
-------
</TABLE>
<PAGE> 2
The unpaid principal balance of this Note at any time will be the
total amount advanced by Lender, less the amount of all payments of principal.
Maker may at any time pay the full amount of this Note without the payment of
any premium, penalty or fee, and must prepay this Note to the extent of any
prepayment of that certain promissory note of even date herewith made by Coyote
Sports, Inc., a Nevada corporation, in favor of Maker pursuant to that certain
Loan Agreement of even date herewith by and among, inter alia, Coyote and Maker
(the "Loan Agreement").
"Loan Document" means this Note and any document or instrument
evidencing, securing, guaranteeing or given in connection with this Note
including, without limitation, that certain Pledge Agreement of even date
herewith pursuant to which Maker has pledged all of its rights and interests in
the Collateral Shares (as defined in the Loan Agreement) granted to Maker
pursuant to the Security Instruments (as defined in the Loan Agreement) as
collateral for the loan evidenced by this Note (the "Pledge Agreement").
"Obligations" means all principal, interest and other amounts that are or
become owing under this Note or the Pledge Agreement. "Obligor" means Maker
and any other guarantor, surety, pledgor, co-signatory or other person who may
now or hereafter be obligated to pay all or any part of the Obligations.
Each of the following shall constitute an "Event of Default" under
this Note:
1) any Obligor shall fail to pay any Obligations when due and
payable;
2) any Obligor violates any covenant, condition or agreement
contained in any Loan Document;
3) any event of default occurs under any Loan Document;
4) a receiver, conservator or similar official is appointed for
any Obligor or any Obligor's assets;
5) any petition is filed by or against any Obligor under any
bankruptcy, insolvency or similar law;
6) any Obligor makes a general assignment for the benefit of
creditors; and
7) a final judgment is entered against any Obligor and remains
unsatisfied for 60 days after entry.
If any Event of Default occurs and is continuing, then Lender may
declare the Obligations to be immediately due and payable, without notice of
acceleration or of intention to accelerate, presentment and demand or protest
or notice of any kind, all of which are hereby expressly waived, and/or
exercise any and all other rights under the Loan Documents, at law, in equity
or otherwise.
<TABLE>
<S> <C> <C>
Promissory Note Made by Paragon Coyote Texas Ltd.
in favor of Don & Marty Management Group, Inc.
March 19, 1998 - Page 2 of 3 Initials of Maker's Authorized Signatory: /s/ MAP
-------
</TABLE>
<PAGE> 3
Each Obligor severally waives notice, demand, presentment for payment,
notice of nonpayment, notice of intent to accelerate, notice of acceleration,
protest, notice of protest and the filing of suit and diligence in collecting
this Note and all other demands and notices, and consents and agrees that its
liabilities and obligations will not be released or discharged by any or all of
the following, whether with or without notice to it or any other Obligor, and
whether before or after the stated maturity hereof: (i) extensions of the time
of payment; (ii) renewals; (iii) acceptances of partial payments; (iv) releases
or substitutions of any collateral of any Obligor; and (v) failure, if any, to
perfect or maintain perfection of any security interest in any collateral.
Each Obligor agrees that acceptance of any partial payment will not constitute
a waiver and that waiver of any default will not constitute waiver of any prior
or subsequent default.
This Note shall be governed as to validity, interpretation,
construction, effect and in all other respects (including without limitation
all questions relating to usury) by the laws of the State of Texas (exclusive
of any such laws that pertain to conflicts of laws). If any provision of this
Note is held to be illegal or unenforceable, such illegal or unenforceable
provision will not affect the remaining provisions of this Note. Maker(s)
agrees that service of process upon it may be made by certified or registered
mail, return receipt requested, at its address specified below. Lender may
serve process in any other manner permitted by law and may bring any action or
proceeding against Maker(s) or with respect to any of its property in courts in
other proper jurisdictions or venues. Payment of this Note is secured by the
Collateral Shares pursuant to the Security Instruments.
NO COURSE OF DEALING BETWEEN MAKER AND LENDER, NO COURSE OF
PERFORMANCE, NO TRADE PRACTICES AND NO EXTRINSIC EVIDENCE OF ANY NATURE MAY BE
USED TO CONTRADICT OR MODIFY ANY TERM OF ANY LOAN DOCUMENT. THE LOAN DOCUMENTS
COLLECTIVELY REPRESENT THE FINAL AGREEMENT BETWEEN LENDER AND MAKER AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THEM. THERE ARE NO ORAL AGREEMENTS BETWEEN LENDER AND
MAKER.
IN WITNESS WHEREOF, Maker has executed this Note effective as of March
19, 1998.
PARAGON COYOTE TEXAS LTD.,
a Texas limited partnership
By: Paragon Management Group, Inc.,
a Texas corporation, General Partner
By: /s/ Mark A. Pappas
-----------------------------------
Mark A. Pappas, President
<TABLE>
<S> <C> <C>
Promissory Note Made by Paragon Coyote Texas Ltd.
in favor of Don & Marty Management Group, Inc.
March 19, 1998 - Page 3 of 3 Initials of Maker's Authorized Signatory: /s/ MAP
-------
</TABLE>
<PAGE> 1
EXHIBIT 10.8
PLEDGE AGREEMENT
This Pledge Agreement (this "Agreement") is made as of March 19, 1998,
by Paragon Coyote Texas Ltd., a Texas limited partnership ("Pledgor"), and Don
& Marty Management Group, Inc., a Texas corporation ("Secured Party").
RECITALS
WHEREAS, Pledgor has executed a certain promissory note payable to
Secured Party of even date herewith (the "Note"); and
WHEREAS, Pledgor has entered into a Loan Agreement of even date
herewith (the "Loan Agreement") with Coyote Sports, Inc., a Nevada corporation
("Coyote"), Mel S. Stonebraker ("Stonebraker") and James M. Probst ("Probst")
pursuant to which Pledgor has lent Coyote $6,000,000 (the "Loan"). The Loan is
secured by (i) Stonebraker's pledge of the Stonebraker Collateral Shares
pursuant to the Stonebraker Security Agreement and (ii) Probst's pledge of the
Probst Collateral Shares pursuant to the Probst Security Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained in
this Agreement and other good and valuable consideration, the receipt and
sufficiency of which the parties hereby acknowledge, the parties hereby agree
as follows:
Section 1. Pledge
Pledgor pledges, assigns, hypothecates, transfers and delivers to
Secured Party, and grants to Secured Party, a first lien and security interest
on and in all of Pledgor's rights and interests in the Collateral Shares
granted to Pledgor pursuant to the Security Instruments (collectively, the
"Pledged Rights") and in all proceeds of the Pledged Rights, and any and all
proceeds of such property, as collateral security for the prompt and complete
payment when due (whether at the stated maturity, by acceleration or otherwise)
of the Note.
Section 2. Pledgor's Representations and Warranties
Pledgor represents and warrants to Secured Party that:
(a) Pledgor has full partnership power and authority to execute
the pledge provided for in this Agreement and to pledge the Pledged Rights to
Secured Party; and
(b) this Agreement has been duly authorized, executed and
delivered by Pledgor and constitutes a legal, valid and binding obligation of
Pledgor enforceable against Pledgor in accordance with its terms (except as
such enforcement may be limited by bankruptcy, insolvency and similar laws and
by general equitable principles).
<PAGE> 2
Section 3. Administration of Pledged Rights
(a) As long as there has been no event of default under the Note
(an "Event of Default"), Pledgor shall be entitled to enforce any and all of
the Pledged Rights on its own behalf in any manner not inconsistent with this
Agreement or the Note. Pledgor grants to Secured Party the irrevocable right,
effectively immediately upon an Event of Default, to enforce any and all of the
Pledged Rights and to receive any benefits or proceeds that may accrue as a
result of or out of the Pledged Rights, which benefits or proceeds will be used
to pay the Note effective immediately upon an Event of Default.
(b) Subject to Secured Party's enforcement, sale or other
disposition of the Pledged Rights or other property pursuant to this Agreement
upon the occurrence of an Event of Default, the Pledged Rights and any other
property then held as collateral under this Agreement shall revert back or
otherwise be returned to Pledgor upon full payment, satisfaction and
termination of the Note.
Section 5. Rights of Secured Party
Secured Party shall not be liable for failure to collect or realize
upon the Note or any collateral security or guarantee for the Note, or any part
of the Note, or for any delay in so doing. Upon the occurrence of an Event of
Default, Secured Party may exercise without notice any or all of the Pledged
Rights and any other rights, privileges or options pertaining to any of the
Pledged Rights to the same extent as if Secured Party were the original grantee
of the Pledged Rights, but Secured Party shall have no duty to exercise any of
such rights, privileges or options and shall not be responsible for any failure
to do so or delay in so doing. Secured Party shall have all rights and
remedies of a secured party under the Uniform Commercial Code of the State of
Texas in addition to any and all rights and remedies under the Note and this
Agreement.
Section 6. Limitation on Dispositions
Without the prior written consent of the Secured Party, Pledgor agrees
that it will not sell, assign, transfer, exchange, or otherwise dispose of, or
grant any option with respect to, the Pledged Rights, nor will it create, incur
or permit to exist any pledge, lien, mortgage, hypothecation, security
interest, charge, option or any other encumbrance with respect to any of the
Pledged Rights, or any interest in the Pledged Rights, or any proceeds of the
Pledged Rights, except for the liens and security interest provided for by this
Agreement. Upon any transfer of Pledged Rights, the liens and security
interest created under this Agreement shall continue, and Pledgor will, and
will cause any transferee of Pledgor to, execute any and all instruments that
Pledgor may deem necessary or appropriate to ensure the continuation of such
liens and security interest.
Section 7. Further Assurances
Pledgor agrees that, at any time and from time to time upon Secured
Party's written request, Pledgor will execute and deliver such further
documents (including but not limited to
2
<PAGE> 3
UCC-1 financing statements) and do such further acts and things as Secured
Party reasonably may request consistent with the provisions of this Agreement
in order to effect the purposes and intent hereof.
Section 8. Termination
This Agreement and the liens and security interest granted hereunder
shall terminate upon full and complete performance and satisfaction of the
Note.
Section 9. Miscellaneous
This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas. No party's failure to insist upon another
party's strict adherence to any provision of this Agreement shall constitute a
waiver of such provision or of any right or remedy under this Agreement on that
or any other occasion. This Agreement may be amended, and any right or remedy
under this Agreement may be waived, only in a writing signed by a party against
whom such amendment or waiver is sought to be enforced. If any provision of
this Agreement is held to be unenforceable for any reason, the balance of this
Agreement shall continue in full force and effect and be interpreted and
enforced in such manner as may be necessary to give effect as fully as possible
to the purpose and intent of the unenforceable provision. All undefined
capitalized terms shall have the meanings respectively ascribed to them in the
Loan Agreement.
IN WITNESS WHEREOF, the parties have executed this Pledge Agreement as
of the date first above written.
Secured Party: DON & MARTY MANAGEMENT GROUP, INC.,
a Texas corporation
By: /s/ Mark A. Pappas
------------------------------------------
Mark A. Pappas, Authorized Signatory
Pledgor: PARAGON COYOTE TEXAS LTD.,
a Texas limited partnership
By: Paragon Management Group, Inc.,
a Texas corporation, General
Partner
By: /s/ Mark A. Pappas
-------------------------------
Mark A. Pappas, President
3
<PAGE> 1
EXHIBIT 99.1
Pursuant to Rule 13d-1(f)(1)(iii) of Regulation 13D-G of the General
Rules and Regulations of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, the undersigned agrees that the
statement to which this Exhibit is attached is filed on behalf of each of them
in the capacities set forth below.
PARAGON COYOTE TEXAS LTD.,
a Texas limited partnership
By: Paragon Management Group, Inc.,
a Texas corporation, General Partner
By: /s/ Mark A. Pappas
------------------------------------
Mark A. Pappas, President
PARAGON MANAGEMENT GROUP, INC.,
a Texas corporation
By: /s/ Mark A. Pappas
-----------------------------------------
Mark A. Pappas, President
/s/ Mark A. Pappas
---------------------------------------------
MARK A. PAPPAS
