SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
December 19, 1995
PACKAGING RESEARCH CORPORATION
(Exact name of Registrant as specified in its charter)
Colorado 11426 84-0750762
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File No.) Identification No.)
2582 South Tejon Street, Englewood, Colorado 80110
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code:
(303) 936-2363
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Items 1-4. Not Applicable.
Item 5. Other Events.
On December 19, 1995, the Registrant and its subsidiary
Mama Rizzo's, Inc. (collectively referred to as the "Borrower")
issued a $3,200,000 Convertible Debenture (the "Debenture") to
Renaissance Capital Growth & Income Fund III, Inc.
("Renaissance") in consideration for $3,200,000 less closing
costs and fees. The Debenture is secured by all the assets of
the Borrower and is subject to the terms of a Convertible
Debenture Loan Agreement (the "Agreement") between the Borrower
and Renaissance.
Interest on the Debenture accrues at the rate of nine
percent per annum and is payable monthly. Interest only will be
payable until January 1, 1999, at which time monthly mandatory
principal redemption installment payments of $10 per $1,000 of
the then remaining principal amount will be required. The loan
will mature on January 1, 2003, at which time all remaining
principal is due.
Renaissance has the right, at any time, to convert all
or any part of the Debenture into common stock of the Registrant
at a conversion price of $1.50 per share. Such conversion price
is subject to anti-dilution protection and adjustment as set
forth in the Agreement.
Commencing on January 1, 1996, the Borrower has the
right upon ninety days' prior notice to redeem, in whole but not
in part, the Debenture on any monthly interest payment date at
120 percent of par, if the common stock of the Registrant has
been trading for at least $6.00 per share for 20 trading days
prior to the redemption notice and if the Registrant has earned
at least $0.30 per share, in the aggregate, for its last four
consecutive fiscal quarters preceding the notice.
The Borrower must, if (i) the Registrant's stock is not
listed for exchange on the NASDAQ National Market, the New York
Stock Exchange, American Stock Exchange or quoted on the NASDAQ
Small Cap System, or (ii) there is a change of control with
respect to the majority of the Registrant's voting stock, be
redeemed at 111 percent of par prior to January 1, 1997,
thereafter at 123 percent of par until January 1, 1998,
thereafter at 137 percent of par until January 1, 1999,
thereafter at 152 percent of par until January 1, 2000, and
thereafter at 167 percent of par.
The proceeds from the sale of the Debenture will be
utilized by the Borrower for the repayment of debt and for
general working capital purposes.
Item 6. Not Applicable.
Item 7. Financial Statements and Exhibits.
(a)-(b). Not Applicable.
(c) Exhibits.
4.1 Convertible Debenture Loan Agreement dated
December 14, 1995.
Item 8. Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
PACKAGING RESEARCH CORPORATION
Date: December 29, 1996 By: /s/ Robert A. Fillingham
Robert A. Fillingham
President
CONVERTIBLE DEBENTURE LOAN AGREEMENT
BY AND BETWEEN
PACKAGING RESEARCH CORPORATION
AND ITS SUBSIDIARY
MAMA RIZZO'S, INC.
AS CO-BORROWERS
AND
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
AS LENDER
This Convertible Debenture Loan Agreement (the "Loan
Agreement) is entered into as of December 14, 1995, by and
between Packaging Research Corporation (a Colorado corporation)
its subsidiary Mama Rizzo's, Inc. (a Colorado corporation) as
co-borrowers (collectively hereinafter referred to as "Borrower")
and Renaissance Capital Growth & Income Fund III, Inc. (a Texas
corporation) (together with any assignees or successors in
interest hereinafter referred to as "Lender").
WITNESSETH:
WHEREAS, Borrower seeks to obtain up to Three Million Two
Hundred Thousand Dollars ($3,200,000) in convertible debenture
financing for working capital purposes and the repayment of debt;
and
WHEREAS, Borrower has requested that Lender provide such
funding by furnishing a loan as herein provided and Lender is
willing to furnish such to Borrower upon the terms and subject to
the conditions and for the considerations hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises
herein contained and for other valuable consideration, receipt
and sufficiency of which is acknowledged, the parties hereto
agree as follows:
ARTICLE I - DEFINITION OF TERMS
Section 1.01. Definitions.
(a) For the purposes of this Loan Agreement, unless the
context otherwise requires, the following terms shall have the
respective meanings assigned to them in this Article I or in the
section or recital referred to below:
"Affiliate" with respect to any Person shall mean (i) any person
directly or indirectly owning, controlling or holding power to
vote 10% or more of the outstanding voting securities of any
Person; (ii) any person, 10% or more of whose outstanding voting
securities are directly or indirectly owned, controlled or held
with power to vote by any Person; (iii) any person directly or
indirectly controlling, controlled by or under common control
with any Person; (iv) any officer, director or partner of any
Person; and (v) if a Person is an officer, director or partner,
any company for which any Person acts in such capacity. For
purposes of this Agreement, any partnership of which any Person
is a general partner, or any joint venture in which any Person is
a joint venture, is an Affiliate of each Person.
"Capital Expenditure" shall mean an expenditure for assets that
will be used in years subsequent to the year in which the
purchase is made and which asset is properly classifiable in
financial statements as equipment, real property or improvements,
or similar type of capitalized asset.
"Capital Lease" shall mean any lease of property, real or
personal, which is in substance a financing lease and which would
be capitalized on a balance sheet of the lessee, including
without limitation, any lease under which (i) such lessee will
have an obligation to purchase the property for a fixed sum, (ii)
an option to purchase the property at an amount less than a
reasonable estimate of the fair market value of such property as
of the date such lease is executed, or (iii) the term of the
lease approximates or exceeds the expected useful life of the
property leased thereunder.
"Consolidated Subsidiaries" shall mean those corporations of
which 50% or more of the voting stock is owned by Borrower and
their financial statements are consolidated with those of the
Borrower.
"Conversion" or "Conversion Rights" shall mean exchange of, or
the rights to exchange, the Principal Amount of the loan, or any
part thereof, for Borrower's fully paid and non assessable common
stock on the terms and conditions as provided in the Debenture.
"Common Stock" shall mean the Borrower's common stock, $0.01 par
value.
"Debentures" shall mean the Debentures executed by Borrower and
delivered pursuant to the terms of this Loan Agreement, together
with any renewals, extensions or modifications thereof.
"Debtor Laws" shall mean all applicable liquidation,
conservatorship, bankruptcy, moratorium, arrangement,
receivership, insolvency, reorganization or similar laws from
time to time in effect affecting the rights of creditors
generally.
"Default" shall mean any of the events specified in Article VIII
regardless of whether there shall have occurred any passage of
time or giving of notice or both that would be necessary in order
to constitute such event an Event of Default.
"Dividends", in respect of any corporation, shall mean (i) cash
distributions or any other distributions on, or in respect of,
any class of capital stock of such corporation, except for
distributions made solely in shares of stock of the same class,
and (ii) any and all funds, cash and other payments made in
respect of the redemption, repurchase or acquisition of such
stock, unless such stock shall be redeemed or acquired through
the exchange of such stock with stock of the same class.
"ERISA" shall mean the Employee Retirement Income Security Act,
as amended, together with all regulations issued pursuant
thereto.
"GAAP" shall mean generally accepted accounting principles
applied on a consistent basis, set forth in the Opinions of the
Accounting Principles Board of the American Institute of
Certified Public Accountants, or their successors, which are
applicable in the circumstances as of the date in question. The
requisite that such principles be applied on a consistent basis
shall mean that the accounting principles observed in a current
period are comparable in all material respects to those applied
in a preceding period.
"Governmental Authority" shall mean any government (or any
political subdivision or jurisdiction thereof), court, bureau,
agency or other governmental authority having jurisdiction over
Borrower or a Subsidiary or any of its or their business,
operations or properties.
"Guaranty" of any Person shall mean any contract, agreement or
understanding of such Person pursuant to which such Person in
effect guarantees the payment of any Indebtedness of any other
Person (the "Primary Obligor") in any manner, whether directly or
indirectly, including without limitation agreements: (i) to
purchase such Indebtedness or any property constituting security
therefor, (ii) to advance or supply funds primarily for the
purpose of assuring the holder of such Indebtedness of the
ability of the Primary Obligor to make payment, or (iii)
otherwise to assure the holder of the Indebtedness of the Primary
Obligor against loss in respect thereof, except that "Guaranty"
shall not include the endorsement by Borrower or a Subsidiary in
the ordinary course of business of negotiable instruments or
documents for deposit or collection.
"Holder" shall mean the owner of Registrable Securities.
"Indebtedness" shall mean, with respect to any Person, the
following indebtedness, obligations and liabilities of such
Person: (i) all "liabilities" that would be reflected on a
balance sheet of such Person, (ii) all obligations of such Person
in respect of any Guaranty, (iii) all obligations of such Person
in respect of any Capital Lease, (iv) all obligations,
indebtedness and liabilities secured by any lien or any security
interest on any property or assets of such Person, and (v) all
preferred stock of such Person which is subject to a mandatory
redemption requirement, valued at the greater of its involuntary
redemption price or liquidation preference plus accrued and
unpaid dividends.
"Investment" in any Person shall mean any investment, whether by
means of share purchase, loan, advance, extension of credit,
capital contribution or otherwise, in or to such Person, the
Guaranty of any Indebtedness of such Person, or the subordination
of any claim against such Person to other Indebtedness of such
Person, provided however, that "Investment" shall not include any
demand deposits in a duly chartered state or national bank or
other cash equivalent investments.
"IRS Code" shall mean the Internal Revenue Code of 1986, as
amended, together with all regulations issued thereunder.
"Lien" shall mean any lien, mortgage, security interest, tax
lien, pledge, encumbrance, conditional sale or title retention
arrangement, or any other interest in property designed to secure
the repayment of Indebtedness, whether arising by agreement or
under any statute or law, or otherwise.
"Loan" shall mean the money lent to Borrower pursuant to this
Loan Agreement, along with any accrued interest thereon.
"Loan Closing" or "Loan Closing Date" shall mean the initial
disbursement of Loan funds which shall occur on a date 30 days
from the date hereof or such earlier date on which Borrower
requests, and Lender approves, as the date at which the initial
advance of the Loan funds shall be consummated, provided that
such date may be mutually extended beyond 30 days, but only by
written agreement of the parties hereto.
"Loan Documents" shall mean this Loan Agreement, the Debentures
(including any renewals, extensions and refundings thereof), the
Security Agreement, the Pledge Agreement and any other agreements
or documents (and with respect to this Loan Agreement, and such
other agreements and documents, any amendments or supplements
thereto or modifications thereof) executed or delivered pursuant
to the terms of this Loan Agreement.
"Material Adverse Effect" or "Material Adverse Change" shall mean
any change, factor or event that shall (i) have a material
adverse effect upon the validity, performance or enforceability
of any Loan Documents, (ii) have a material adverse effect upon
the financial condition or business operations of Borrower or any
Subsidiaries, (iii) have a material adverse effect upon the
ability of the Borrower to fulfill its obligations under the Loan
Documents, or (iv) any event that causes an Event of Default or
which, with notice or lapse of time or both, could become an
Event of Default.
"Obligation" shall mean: (i) all present and future indebtedness,
obligations and liabilities of Borrower to Lender arising
pursuant to this Loan Agreement, regardless of whether such
indebtedness, obligations and liabilities are direct, indirect,
fixed, contingent, joint, several, or joint and several; (ii) all
present and future indebtedness, obligations and liabilities of
Borrower to Lender arising pursuant to or represented by the
Debentures and all interest accruing thereon, and reasonable
attorneys' fees incurred in the enforcement or collection
thereof, (iii) all present and future indebtedness, obligations
and liabilities of Borrower and any Subsidiary evidenced by or
arising pursuant to any of the Loan Documents; (iv) all costs
incurred by Lender, including but not limited to reasonable
attorneys' fees and legal expenses related to this transaction;
and (v) all renewals, extensions and modifications of the
indebtedness referred to in the foregoing clauses, or any part
thereof.
"Permitted Liens" shall mean: (i) Liens (if any) granted to
Lender to secure the Obligation, (ii) Liens or encumbrance
presently existing or hereafter incurred for Indebtedness
reflected on Borrower's financial statements as of the most
recent date provided under Section 4.06 hereof, and any
extension, renewal or replacement thereof, (iii) pledges or
deposits made to secure payment of worker's compensation
insurance (or to participate in any fund in connection with
worker's compensation insurance), unemployment insurance,
pensions or social security programs, (iv) Liens imposed by
mandatory provisions of law such as for landlord's,
materialmen's, mechanics', warehousemen's and other like Liens
arising in the ordinary course of business, securing Indebtedness
whose payment is not yet due, (v) Liens for taxes, assessments
and governmental charges or levies imposed upon a Person or upon
such Person's income or profits or property, if the same are not
yet due and payable or if the same are being contested in good
faith and as to which adequate cash reserves have been provided
or if an extension is obtained with respect thereto, (vi) Liens
arising from good faith deposits in connection with tenders,
leases, real estate bids or contracts (other than contracts
involving the borrowing of money), pledges or deposits to secure
public or statutory obligations and deposits to secure (or in
lieu of) surety, stay, appeal or customs bonds and deposits to
secure the payment of taxes, assessments, customs duties or other
similar charges, (vii) encumbrances consisting of zoning
restrictions, easements, or other restrictions on the use of real
property, provided that such items do not materially impair the
use of such property for the purposes intended, and none of which
is violated by existing or proposed structures or land use, and
(viii) mortgages, financing statements, equipment leases or other
encumbrances incurred in connection with the acquisition of
property or equipment or the replacement of existing property or
equipment, provided that such liens shall be limited to the
property or equipment then being acquired.
"Person" shall include an individual, a corporation, a joint
venture, a general or limited partnership, a trust, an
unincorporated organization or a government or any agency or
political subdivision thereof.
"Plan" shall mean an employee benefit plan or other plan
maintained by Borrower for employees of Borrower and/or any
Subsidiaries and covered by Title IV of ERISA, or subject to the
minimum funding standards under Section 412 of the Internal
Revenue Code of 1986, as amended.
"Principal Amount" shall mean, as of any time, the then aggregate
outstanding face amount of the Debentures after any conversions
or redemptions and after giving effect to any installment
payments received by Lender.
"Registrable Securities" shall mean (i) the Common Stock issued
upon Conversion of the Debentures, (ii) Common Stock issued
pursuant to the Warrant, or (iii) any Common Stock issued upon
Conversion or exercise of any warrant, right or other security
which is issued with respect to the Common Stock referred to in
clause (i) and (ii) above by way of stock dividend; any other
distribution with respect to or in exchange for, or in
replacement of Common Stock; stock split; or in connection with a
combination of shares, recapitalization, merger, consolidation or
other reorganization; excluding in all cases, however, any
Registrable Security that is not a Restricted Security and any
Registrable Securities sold or transferred by a person in a
transaction in which the rights under this Loan Agreement are not
assigned.
"Registrable Securities Then Outstanding" shall mean an amount
equal to the number of Registrable Securities outstanding which
have been issued pursuant to the Conversion of the Debentures, or
issued pursuant to the Warrant.
"Rentals" of any Person shall mean, as of any date, the aggregate
amount of the obligations and liabilities (including future
obligations and liabilities not yet due and payable) of such
Person to make payments under all leases, subleases and similar
arrangements for the use of real, personal or mixed property,
other than leases which are Capital Leases.
"Restricted Security" shall mean a security that has not been (i)
effectively registered under the 1933 Act or (ii) distributed to
the public pursuant to Rule 144 (or any similar provisions that
are in force) under the 1933 Act.
"SEC" shall mean the Securities and Exchange Commission.
"1933 Act" shall refer to the Securities Act of 1933, as amended.
"1934 Act" shall refer to the Securities Exchange Act of 1934, as
amended.
"Solvent" shall mean, with respect to any Person on a particular
date, that on such date (i) the fair value of the property of
such Person is greater than the total amount of liabilities,
including, without limitation, contingent liabilities, of such
Person, (ii) the present fair salable value of the assets of such
Person is not less than the amount that will be required to pay
the probable liability of such Person on its debts as they become
absolute and matured, (iii) such Person is able to realize upon
its assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal
course of business, (iv) such Person does not intend to, and does
not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature, and
(v) such Person is not engaged in business or a transaction, and
is not about to engage in business or a transaction, for which
such Person's property would constitute unreasonably small
capital after giving due consideration to the prevailing practice
in the industry in which such Person is engaged. In computing
the amount of contingent liabilities at any time, it is intended
that such liabilities will be computed at the amount which, in
light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become
an actual or matured liability.
"Subordinated Debt" shall mean any indebtedness of the Borrower
or any Subsidiaries, now existing or hereafter incurred, which
indebtedness is, by its terms, junior in right of repayment to
the payment of the Debentures.
"Subsidiary" shall mean any corporation whether now existing or
hereafter acquired of which fifty percent (50%) or more of the
Voting Shares are owned, directly or indirectly, by Borrower.
"Voting Shares" of any corporation shall mean shares of any class
or classes (however designated) having ordinary voting power for
the election of at least a majority of the members of the Board
of Directors (or other governing bodies) of such corporation,
other than shares having such power only by reason of the
happening of a contingency.
Section 1.02. Other Definition Provisions.
(a) All terms defined in this Loan Agreement shall have the
above-defined meanings when used in the Debentures or any other
Loan Documents, certificate, report or other document made or
delivered pursuant to this Loan Agreement, unless the context
therein shall otherwise require.
(b) Defined terms used herein in the singular shall import
the plural and vice versa.
(c) The words "hereof," "herein," "hereunder" and similar
terms when used in this Loan Agreement shall refer to this Loan
Agreement as a whole and not to any particular provision of this
Loan Agreement.
(d) References to financial statements and reports shall be
deemed to be a reference to such statements and reports prepared
in accordance with GAAP recognized as such by the American
Institute of Certified Public Accountants acting through its
Accounting Principles Board or by the Financial Accounting
Standards Board which principles are consistently applied, on the
basis used by Borrower in prior years, for all periods after the
date hereof so as to properly reflect the financial condition,
and the results of operations and statement of cash flows, of
Borrower and its Consolidated Subsidiaries, if any.
(e) Accounting terms not specifically defined above, or not
defined in the Loan Agreement, shall be construed in accordance
with GAAP as recognized as of this date by the American Institute
of Certified Public Accountants.
ARTICLE 11 - LOAN PROVISIONS
Section 2.01. Loan Closing.
(a) Subject to the terms and conditions of this Loan
Agreement, and the compliance with such terms and conditions by
all parties, Lender agrees to lend to Borrower, and Borrower
agrees to borrow from Lender, the aggregate sum of up to Three
Million Two Hundred Thousand Dollars ($3,200,000) which shall be
disbursed at the Loan Closing.
(b) Such disbursement is to be at such time and subject to
the conditions as provided hereunder and such borrowing shall be
evidenced by Borrower's duly executed Debenture (in one or more
counterparts in the aggregate sum of the Principal Amount
advanced, each such counterpart singularly or collectively herein
the "Debenture" or "Debentures") substantially in the form of
Exhibit 2.01(b) attached hereto and made a part hereof, with
appropriate insertion of names, dates and amounts. In the event
of any differences in terms between the Loan Agreement and the
Debenture, the Debenture will be controlling, provided, however,
that the holder of the Debenture shall be entitled to all the
rights and benefits of the Lender provided in this Agreement.
(c) Unless otherwise mutually agreed, closing shall be at
the offices of Renaissance Capital Group, Inc. in Dallas, Texas.
(d) If, within 30 days of the date of this Agreement (i)
Borrower has failed to comply with the conditions precedent to
the Loan Closing as specified in Article III hereof (unless
compliance with such conditions in whole or in part has been
waived or modified by Lender in its sole discretion) or (ii) the
Loan Closing has not occurred (unless the date of such Loan
Closing has been mutually extended) then, in either such case the
obligations of Lender under this Loan Agreement shall terminate,
provided however that Borrower shall be obligated for payment of
the commitment fees and Lender expenses as provided in Section
2.07 due and payable as of such date of termination.
Section 2.02. Use of Proceeds.
(a) The money advanced hereunder shall be used by Borrower
for the following purposes:
Repayment of Debt $
Repayment of Bridge $
General Working Capital Purposes $2,000,000
Total = $3,200,000
Mama Rizzo's, Inc. and Packaging Research, Inc. both hereby
acknowledge that the proceeds from the Loan shall be used by each
company individually for the growth of their business by
providing working capital and capital for the repayment of debt.
Section 2.03. Interest Rate and Interest Payments.
(a) Interest on the Principal Amount outstanding from time
to time shall accrue at the rate of 9.00% per annum, with the
first installment payable on January 1, 1996 and subsequent
payments at the first day of each month thereafter. Overdue
principal and interest on the Debentures shall bear interest, to
the extent permitted by applicable law, at a rate of 9.00% per
annum. Interest on the Principal Amount of each Debenture shall
be calculated, from time to time, on the basis of the actual days
elapsed in a year consisting of 365 days.
Section 2.04. Maturity.
(a) If not sooner redeemed or converted, the Debentures
shall mature on January 1, 2003, at which time all the remaining
unpaid principal, interest and any other charges then due under
the Loan Agreement shall be due and payable in full.
Section 2.05. Mandatory Principal Redemption Installments.
(a) Mandatory principal redemption installments on each
Debenture shall be as provided for in the Debentures.
Section 2.06. Optional Redemption.
(a) Optional principal redemption on each Debenture shall be
as provided for in the Debentures.
Section 2.07 Closing Fees and Loan Closing Costs.
(a) Borrower agrees to pay to Lender a Loan Commitment fee
of 1% of the loan amount available under this Loan Agreement such
to be due and payable at Loan Closing or upon termination of this
Agreement.
(b) Borrower agrees to pay to Lender a Loan Closing Fee of
1% of the amount of Loan funds disbursed at each closing, such to
be due and payable at Loan Closing.
(c) In addition, at the Loan Closing Borrower agrees to pay
Lender's reasonable costs and expenses (including without
limitation the reasonable fees and expenses of Lender's legal
counsel) in connection with the negotiation, preparation,
execution and delivery of this Loan Agreement, the Debentures,
the other Loan Documents and the Loan Closing or Subsequent Loan
Closing, provided that such expenses shall not, in the aggregate,
exceed 0.5% of the loan amount available under this Loan
Agreement.
(d) Lender acknowledges the receipt of the payment by the
Borrower of $__,____ to cover Due Diligence expenses.
Section 2.08. Placement Fee.
The Borrower shall be responsible for payment of any
placement fees and commissions, brokerage fees or finders fees in
connection with the Loan. All such placement fee obligations are
as listed in Schedule 2.08 attached hereto.
Section 2.09. Taxes.
(a) Payments by Borrower hereunder shall be made without
deduction for any present or future taxes, duties, charges or
withholdings, (excluding, in the case of the Lender, any foreign
taxes, any federal, state or local income taxes and any franchise
taxes or taxes imposed upon it by the jurisdiction, or any
political subdivision thereof, under which the Lender is
organized or is qualified to do business) and all liabilities
with respect thereto (herein "Taxes") shall be paid by Borrower.
If Borrower shall be required by law to deduct any Taxes for
which Borrower is responsible under the preceding sentence from
any sum payable hereunder to any Lender: (i) the sum payable
shall be increased so that after making all required deductions,
such Lender receives an amount equal to the sum it would have
received had no such deductions been made, (ii) Borrower shall
make such deductions, and (iii) Borrower shall pay the full
amount deducted to the relevant taxing authority or other
authority in accordance with applicable law.
(b) Except as otherwise set forth in this Loan Agreement or
the other Loan Documents, Borrower shall pay any present or
future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment
made hereunder or under the Loan Documents or from the execution,
delivery or registration of, or otherwise with respect to, this
Loan Agreement or the other Loan Documents (hereinafter referred
to as "Other Taxes").
(c) Borrower shall indemnify Lender for the full amount of
Taxes and Other Taxes reasonably paid by Lender or any liability
(including any penalties or interest assessed because of
Borrower's defaults) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or
legally asserted. This indemnification shall be made within
thirty (30) days from the date Lender makes written demand
therefor. Lender shall subrogate any and all rights and claims
relating to such Taxes and Other Taxes to Borrower upon payment
of said indemnification.
(d) Without prejudice to the survival of any other agreement
of Borrower hereunder, the agreements and obligations of Borrower
herein shall survive the payment in full of the Obligation.
Section 2.10 Stock Conversion Rights and Registration Rights
Agreement.
(a) Each Debenture shall be exchangeable for shares of
Borrower's common stock on such terms and in such amounts as
shall be stated in the Debenture. The holders of the stock
issued upon exercise of the right of conversion as provided in
said Debenture shall be entitled to all the rights of the Lender
as stated in this Loan Agreement or the other Loan Documents to
the extent such rights shall survive the surrender of the
Debenture for conversion as therein provided.
(b) The holder of shares of common stock of Borrower issued
upon conversion shall be entitled to the rights as provided in
Article IX of this Agreement.
Section 2.11. Collateral, Security Agreements, Pledge Agreement.
(a) The due and prompt performance of the obligations of
Borrower to Lender under the Agreement and the Debentures shall
be secured by all assets of Packaging Research Corporation and
Mama Rizzo's, Inc. and such collateral shall be evidence by
Security Agreements executed by and between the Lender and
Packaging Research Corporation and Mama Rizzo's, Inc. and UCC-1
financing statements shall be executed in favor of Lender by
Packaging Research Corporation and Mama Rizzo's, Inc. Packaging
Research Corporation shall enter into a Pledge Agreement with
Lender pledging its shares in the subsidiary Mama Rizzo's, Inc.
ARTICLE III - CONDITIONS PRECEDENT
Section 3.01. Document Requirements.
(a) Loan Closing Date Requirements: The obligation of Lender
to advance funds at the Loan Closing Date hereof is subject to
the condition precedent that, on or before the date of such
advance, Lender shall have received the following in form and
substance satisfactory to Lender:
(1) Debenture. One or more duly executed Debentures
aggregating the Principal Amount of Loan funds then advanced,
each in amounts as requested by Lender, which shall be styled
"River Oaks Trust Company, FBO Renaissance Capital Growth &
Income Fund III, Inc.", and in the form of Exhibit 2.01(b) with
appropriate insertions of date, amount and conversion features.
(2) Security Agreements. One or more duly executed Security
Agreements and UCC-1 pledging all the assets of Borrower in the
form of Exhibit 2.01(a)(2) with appropriate insertions of date,
amounts, and listings of collateral.
(3) Pledge Agreement. One duly executed Pledge Agreement
pledging the stock of Mama Rizzo's in the form of Exhibit
2.01(a)(3) and a stock certificate evidencing said pledge.
(4) Opinion of Borrower's Counsel. An opinion of legal
counsel for Borrower dated as of the Loan Closing Date,
satisfactory in form and substance to Lender, as to due execution
by the Borrower of the Loan Agreement, the Debenture and other
Loan Documents and the legal enforceability thereof.
(5) Officers' Certificate. A true and correct certificate
signed by a duly authorized officer of the Borrower and dated as
of the Loan Closing Date stating that to the best knowledge and
belief of such officer, after reasonable and due investigation
and review of matters pertinent to the subject matter of such
certificate: (A) all of the representations and warranties
contained in Article IV hereof and the other Loan Documents are
true and correct as of the Loan Closing Date and (B) no event has
occurred and is continuing, or would result from the Loan, which
constitutes a Default or an Event of Default.
(6) Resolutions of Borrower. Copies of resolutions, as
adopted by the Borrower's Board of Directors, approving the
execution, delivery and performance of this Loan Agreement, the
Debentures, and the other Loan Documents, including the
transactions contemplated herein and accompanied by a certificate
of the Secretary or Assistant Secretary of Borrower stating that
such resolutions have been duly adopted, are true and correct,
have not been altered or repealed and are in full force and
effect.
(7) Incumbency Certificate of Borrower. A signed
certificate of the Secretary or Assistant Secretary of the
Borrower which shall certify the names of the officers of
Borrower authorized to sign each of the Loan Documents to be
executed by such officer together with the true signatures of
each of such officers. It is herewith stipulated and agreed that
Lender may thereafter rely conclusively on the validity of this
certificate as a representation of the officers of Borrower duly
authorized to act with respect to the Loan Documents until such
time as Lender shall receive a further certificate of the
Secretary or Assistant Secretary of Borrower canceling or
amending the prior certificate and submitting the signatures of
the officers thereupon authorized in such further certificate.
(8) Certificates. Certificates of good standing (or other
similar instrument) for the Borrower issued by the Secretary of
State of the state of incorporation of Borrower, and certificates
of qualification and good standing for Borrower issued by the
Secretary of State of each of the states wherein such Borrower
has operating facilities of such nature so as to be required to
be qualified to do business as a foreign corporation, dated
within ten (10) days of Loan Closing.
(9) Charter and Bylaws. A copy of the Articles of
Incorporation of the Borrower and all amendments thereto,
certified by the Secretary of State of the state of incorporation
and dated within ten (10) days of the date of Loan Closing and a
copy of the bylaws of Borrower and all amendments thereto,
certified by the Secretary or Assistant Secretary of Borrower, as
being true, correct and complete as of the date of such
certification.
(10) Financial Information. Copies of the following
financial statements for Borrower: (A) An audited balance sheet
and income statement for Borrower as of December 31, 1994 and (B)
unaudited balance sheet and income statement for Borrower as of
September 30, 1995.
(11) Additional Information. Such other information and
documents as may reasonably be required by Lender and Lender's
counsel to substantiate Borrower's compliance with the
requirements of this Agreement.
Section 3.02. Repayment of Bank Debt and Release of Liens.
The obligation of Lender to advance funds at the Loan Closing
Date hereof is subject to the condition precedent that,
simultaneous with Closing, Borrower shall deliver documentation
evidencing that the Borrower's senior lender has been paid in
full and has released its security interest in the Borrower's
assets.
Section 3.03. Converting share Ownership in Mama Rizzo's to
Packaging Research Corporation.
The obligation of Lender to advance funds at the Loan Closing
Date hereof is subject to the condition precedent that the
Borrower shall have converted all ownership, or contract for
future ownership, in Mama Rizzo's into ownership in Packaging
Research Corporation with the exception to 110,000 options on
shares of Mama Rizzo's, Inc. common stock held by former
employees that the Company shall continue to endeavor to
extinguish.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
To induce Lender to make the Loan hereunder, Borrower represents
and warrants to Lender that:
Section 4.01. Organization and Good Standing.
(a) Borrower is duly organized and existing in good standing
under the laws of the state of its incorporation, is duly
qualified as a foreign corporation and in good standing in all
states in which failure to qualify would have a Material Adverse
Effect, and has the corporate power and authority to own its
properties and assets and to transact the business in which it is
engaged and is or will be qualified in those states wherein it
proposes to transact material business operations in the future.
Section 4.02. Authorization and Power.
(a) Borrower has the corporate power and requisite authority
to execute, deliver and perform the Loan Documents to be executed
by Borrower. The Borrower is duly authorized to, and has taken
all corporate action necessary to authorize such to, execute,
deliver and perform the Loan Documents executed by Borrower. The
Borrower is and will continue to be duly authorized to perform
the Loan Documents executed by Borrower.
Section 4.03. No Conflicts or Consents.
(a) Except as disclosed to Lender pursuant to Exhibit 4.03-
Schedule of Conflicts or Consents, neither the execution and
delivery of the Loan Documents, nor the consummation of any of
the transactions therein contemplated, nor compliance with the
terms and provisions thereof, will contravene or materially
conflict with any provision of law, statute or regulation to
which Borrower is subject or any judgment, license, order or
permit applicable to Borrower, or any indenture, loan agreement,
mortgage, deed of trust, or other agreement or instrument to
which Borrower is a party or by which Borrower may be bound, or
to which Borrower may be subject, or violate any provision of the
charter or bylaws of Borrower. No consent, approval,
authorization or order of any court or governmental authority or
third party is required in connection with the execution and
delivery by Borrower of the Loan Documents or to consummate the
transactions contemplated hereby or thereby except those that
have been obtained.
Section 4.04. Enforceable Obligations.
(a) The Loan Documents have been duly executed and delivered
by the Borrower and are the legal and binding obligations of the
Borrower, enforceable in accordance with their respective terms,
except as limited by any applicable bankruptcy, insolvency or
similar laws now or hereafter in effect affecting creditors
rights generally.
Section 4.05. No Liens.
(a) Except for Permitted Liens, all of the properties and
assets of the Borrower are free and clear of all Liens and other
adverse claims of any nature, and such persons have good and
marketable title to such properties and assets. A true and
complete list of all liens for borrowed money is disclosed to
Lender pursuant to Exhibit 4.05.
Section 4.06. Financial Condition.
(a) Borrower has delivered to Lender copies of the most
recent audited financial statements of Borrower, and the related
statements of income, stockholders' equity and statement of cash
flow for the year ended December 31, 1994, by its independent
Certified Public Accountant. Borrower has also delivered to
Lender copies of the balance sheet of Borrower as of September
30, 1995, and the related statements of income, stockholders'
equity and statement of cash flow for the period ended such date,
which financial statements have not been certified by its
independent Certified Public Accountant. Such financial
statements are true and correct in all material respects, fairly
represent the financial condition of Borrower as of such dates
and have been prepared in accordance with GAAP (except unaudited
financial statements omit certain footnotes) applied on a basis
consistent with that of prior periods; and as of the date hereof,
there are no obligations, liabilities or Indebtedness (including
contingent and indirect liabilities and obligations) of Borrower
which are (separately or in the aggregate) material and are not
reflected in such financial statements or otherwise disclosed
herein. Since the date of the above referenced year end
financial statements and quarterly financial statements, there
has not been: (i) any Material Adverse Change in the financial
condition, results of operations, business, prospects, assets or
liabilities (contingent or otherwise, whether due or to become
due, known or unknown), of the Borrower; (ii) any dividend
declared or paid or distribution made on the capital stock of the
Borrower or any capital stock thereof redeemed or repurchased;
(iii) any incurrence of long-term debt by the Borrower; (iv) any
salary, bonus or compensation increases to any officers, key
employees or agents of the Borrower or (v) any other transaction
entered into by the Borrower except in the ordinary course of
business and consistent with past practice. Borrower hereby
acknowledges that Mama Rizzo's lost money during the Month of
October, 1995 and the Borrower is aware of a compensation
increases granted to Mr. Fillingham and Mr. Porter.
Section 4.07. Full Disclosure.
(a) To the best of Borrower's knowledge and belief after
current investigation, there is no material fact that Borrower
has not disclosed to Lender which could have a Material Adverse
Effect on the properties, business, prospects or condition
(financial or otherwise) of Borrower. Neither the financial
statements referenced in Section 4.06 hereof, nor any business
plan, offering memorandum or prospectus, certificate or statement
delivered herewith or heretofore by Borrower to Lender in
connection with negotiations of this Loan Agreement, contained,
any untrue statement of a material fact or omitted to state any
material fact necessary to keep the statements contained herein
or therein from being misleading.
Section 4.08. No Default.
(a) No event has occurred and is continuing which
constitutes a Default or an Event of Default under this Loan
Agreement.
Section 4.09. Material Agreements.
(a) The Borrower is not in default in any material respect
under any contract, lease, loan agreement, indenture, mortgage,
security agreement or other material agreement or obligation to
which it is a party or by which any of its properties is bound.
Section 4.10. No Litigation.
(a) Except as disclosed to Lender pursuant to Exhibit 4.10 -
Schedule of Litigation, attached hereto, there are no actions,
suits, investigations, arbitrations or administrative proceedings
pending, or to the knowledge of Borrower threatened, against
Borrower, and there has been no change in the status of any of
the actions, suits, investigations, litigation or proceedings
disclosed to Lender which could have a materially adverse effect
on Borrower or on any transactions contemplated by any Loan
Document.
Section 4.11. Burdensome Contracts.
(a) To the best knowledge of the Borrower, it is not a party
to, or bound by, any contract or agreement, the faithful
performance of which is so onerous so as to create or to likely
create a Material Adverse Effect on the business, operations or
financial condition of the Borrower.
Section 4.12. Taxes.
(a) All tax returns required to be filed by Borrower in any
jurisdiction have been filed and all taxes (including mortgage
recording taxes), assessments, fees and other governmental
charges upon Borrower or upon any of its properties, income or
franchises have been paid. To the best knowledge of Borrower,
there is no proposed tax assessment against Borrower and there is
no basis for such assessment.
Section 4.13 Principal Office, Etc.
(a) The principal office and principal place of business of
the Borrower is as follows:
Packaging Research Corporation
2582 South Tejon Street
Englewood, Colorado 80110
Section 4.14. Use of Proceeds.
(a) The Borrower hereby acknowledges that the proceeds from
the Loan are to be used as disclosed in Schedule 4.14.
Section 4.15. Employee Benefit and Incentive Plans: ERISA.
(a) Borrower is not obligated under any Plans.
(b) Borrower is not a party to any collective bargaining
agreement and is not aware of any activities of any labor union
that is currently seeking to represent or organize its employees.
Borrower has not experienced any labor problems, including work
stoppages, disputes or slowdowns with respect to its employees.
Section 4.16. Compliance with Law,
(a) To the best knowledge of Borrower, Borrower is in
compliance with all laws, rules, regulations, orders and decrees
which are applicable to Borrower or its properties by reason of
any Governmental Authority which are material to the conduct of
the business of Borrower or any of its properties.
Section 4.17. Compliance with Environmental Requirements.
(a) To the best knowledge of Borrower, all properties of
Borrower are in compliance with all federal, state or local
environmental protection laws, statutes and regulations which are
material to the conduct of the business of Borrower, or its
properties, and the Borrower is currently in compliance with all
material reporting requirements, rules, and regulations which are
applicable to Borrower or its properties by reason of such
governmental environmental protective agencies.
Section 4.18. Schedule of Capital Stock and SEC Requirements.
(a) Set forth on Exhibit 4.18 - Schedule of Capital Stock is
a true and correct schedule of all classes of authorized, issued,
and outstanding Capital Stock of the Borrower, all stock options,
warrants, conversion rights, subscription rights and other rights
or agreements to acquire securities of Borrower and any shares
held in treasury or reserved for issue upon exercise of such
stock options, warrants or conversion rights, subscription rights
and other rights or agreements to acquire securities including
date of termination of such right and the consideration therefor.
(b) Except as provided in Exhibit 4.18 - Schedule of Capital
Stock, all securities of Borrower have been issued in compliance
with the requirements of the 1933 Act, and the rules and
regulation promulgated thereunder, or pursuant to an exemption
therefrom.
(c) The shares of common stock of the Borrower when issued
to Lender upon conversion of the Debentures will be duly and
validly issued, fully paid and nonassessable. Such issuance will
not give rise to preemptive rights or similar rights by any other
security holder of Borrower. Borrower shall at all times reserve
and keep available sufficient authorized and unissued shares of
common stock to effectuate the conversion of the Debentures.
Section 4.19. Insider.
(a) The Borrower, nor any Person having "control" (as that
term is defined in the Investment Company Act of 1940, as
amended, or in regulations promulgated pursuant thereto (herein
the "1940 Act")) of the Borrower is, an "executive officer,"
"director," or "principal shareholder" (as those terms are
defined in the 1940 Act) of Lender.
(b) Except as set forth in Exhibit 4.19 - Schedule of
Affiliate Transactions, and to the best knowledge of Borrower,
there are no transactions between the Borrower and any affiliates
of Borrower.
(c) All agreements between the Borrower and any officers,
directors, and principal shareholders including employment
agreements are listed on Exhibit 4.19 - Schedule of Affiliate
Transactions.
Section 4.20. Subsidiaries.
(a) As of the date hereof, all Subsidiaries of the Borrower
are as set forth in Schedule 4.20.
(b) Except as disclosed in the Financial Statements and
except for Subsidiaries, the Borrower does not own any equity or
debt interest or any form of proprietary interest in any entity,
or any right or option to acquire any such interest in any such
entity, except for accounts receivable which have arisen in the
ordinary course of business.
Section 4.21. Casualties.
(a) Neither the business nor the properties of Borrower is
currently affected by any environmental hazard, fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm,
hail, earthquake, embargo, act of God or other casualty (whether
or not covered by insurance), which could have a Material Adverse
Effect.
Section 4.22 Investment Company Act.
(a) Borrower is not an "investment company" as defined in
Section 3 of the 1940 Act nor a company that would be an
investment company except for the exclusions from the definition
of an investment company in Section 3(c) of the 1940 Act and
Borrower is not controlled by such a company.
Section 4.23. Sufficiency of Capital.
(a) Borrower is, and after consummation of this Loan
Agreement and giving effect to all Indebtedness incurred and
transactions contemplated in connection herewith will be,
Solvent.
Section 4.24. Corporate Name.
(a) The Borrower has not, during the preceding five (5)
years, been known as or used any other corporate, fictitious or
Tradenames except as disclosed on Exhibit 4.24 - Schedule of
Corporate Name, Mergers and Consolidations. Except as disclosed
on Exhibit 4.24, the Borrower has not, during the preceding five
(5) years, been the surviving corporation of a merger or
consolidation or acquired all or substantially all of the assets
of any Person.
Section 4.25 Margin Regulation.
(a) As of the Loan Closing date, the Borrower does not have
class of securities with respect to which a member of a national
securities exchange, broker, or dealer may extend or maintain
credit to or for a customer pursuant to rules or regulation
adopted by the Board of Governors of the Federal Reserve System
under Section 7 of the 1934 Act.
Section 4.26 Insurance.
(a) All of the insurable properties of the Borrower are
insured for its benefit under valid and enforceable policies,
issued by insurers of recognized responsibility in amounts and
against such risks and losses as is customary in such industry.
Such policies are listed in Exhibit 4.26 - Schedule of Insurance.
Section 4.27 Patents, Trademarks and Copyrights.
(a) To the best of Borrower's knowledge and belief after
current investigation, Borrower owns all patents, trademarks and
copyrights, if any, necessary to conduct its business or
possesses licenses or other rights, if any, therefor. All such
intangible property rights are listed in Exhibit 4.27 - Schedule
of Patents, Trademarks and Copyrights. Borrower has the right to
use such proprietary rights without infringing or violating the
rights of any third parties. No claim has been asserted by any
person to the ownership of or right to use any such proprietary
right or challenging or questioning the validity or effectiveness
of any such license or agreement. Each of the proprietary rights
is valid and subsisting, has not been canceled, abandoned or
otherwise terminated and, if applicable, has been duly issued or
filed.
Section 4.28. Survival of Representations and Warranties.
(a) All representations and warranties by Borrower herein
shall survive the Loan Closing and any subsequent Loan Closings
and the delivery of the Debentures, and the conversion of the
Debentures into stock, and any investigation at any time made by
or on behalf of Lender shall not diminish Lender's right to rely
on Borrower's' representations and warranties as herein set
forth.
ARTICLE V - AFFIRMATIVE COVENANTS
So long as any part of the Debentures remains unpaid or has
not been redeemed or converted hereunder, and until such payment,
redemption or conversion in full unless the Lender shall
otherwise consent in writing which consent shall not be
unreasonably withheld, Borrower agrees that:
Section 5.01. Financial Statements, Reports and Documents.
(a) The Borrower shall accurately and fairly maintain its
books of account in accordance with generally accepted accounting
principles, employ a firm of independent certified public
accountants, which firm is either one of the six largest national
accounting firms or which is approved by the Lender, to make
annual audits of its accounts in accordance with generally
accepted auditing standards; permit the Lender and its
representatives to have access to and to examine its properties,
books and records (and to copy and make extracts therefrom) at
such reasonable times and intervals as the Lender may request and
to discuss its affairs, finances and accounts with its officers
and auditors, all to such reasonable extent and at such
reasonable times and intervals as the Lender may request.
(b) The Borrower shall provide the following reports and
information to the Lender and or the Lender's designee:
(i) As soon as available, and in any event within
forty-five (45) days after the close of each quarter, the
Company's report on Form 10-Q with exhibits for said period. In
addition, the Lender may at its sole discretion request internal
monthly reports for specific periods.
(ii) As soon as available, and in any event within
ninety (90) days after the close of each year, the Company's
report on Form 10-K with exhibits for said period.
(iii) Each quarter, concurrent with the periodic
report required above, a certificate executed by the Chief
Financial Officer or Chief Executive Officer of the Borrower, (a)
stating that a review of the activities of the Borrower during
such fiscal period has been made under his supervision and that
the Borrower has observed, performed and fulfilled each and every
obligation and covenant contained herein and is not in default
under any of the same or, if any such default shall have
occurred, specifying the nature and status thereof, and (b)
setting forth a computation in reasonable detail as of the end of
the period covered by such statements, of compliance with the
Agreed Minimum Financial Standards in Exhibit 7.01 as provided
therein.
(iv) So long as any Debentures remains outstanding,
promptly (but in any event within five business days) upon
learning of the occurrence of a Default or an Event of Default or
a condition or event which with the giving of notice or the lapse
of time, or both, would constitute a Default or an Event of
Default, a certificate signed by the Chief Executive Officer or
Chief Financial Officer of the Borrower describing such Default,
Event of Default or condition or event and stating what steps are
being taken to remedy or cure the same.
(v) Promptly (but in any event within five business
days) upon the receipt thereof by the Borrower or the Board of
Directors of the Borrower, copies of all reports, all management
letters and other detailed information submitted to the Borrower
or the Board by independent accountants in connection with each
annual or interim audit or review of the accounts or affairs of
the Borrower made by such accountants.
(vi) With reasonable promptness, such other information
relating to the finances, properties, business and affairs of the
Borrower and each Subsidiary, as Lender reasonably may request
from time to time.
(vii) Promptly upon its becoming available, one copy
of each financial statement, report, press release, notice or
proxy statement sent by Borrower to stockholders generally and of
each regular or periodic report, registration statement or
prospectus filed by Borrower with any securities exchange or the
SEC or any successor agency, and of any order issued by any
Governmental Authority in any proceeding to which the Borrower is
a party.
Section 5.02. Preparation of a Budget.
(a) At least thirty (30) days prior to the beginning of
Borrower's fiscal year, Borrower agrees to prepare and submit to
the Board, and furnish to the Lender a copy of, an annual plan
for such year which shall include without limitation plans for
expansion, if any, plans for incurrences of Indebtedness and
projections regarding other sources of funds, monthly projected
capital and operating expense budgets, cash flow statements,
profit and loss statements and balance sheet projections,
itemized in such detail as the Board and/or the Lender may
request.
Section 5.03. Operation Review.
(a) Borrower agrees that it will review its operations with
Lender. Such operations reviews will in such depth and detail as
Lender shall reasonably request. Operations reviews, which
usually will require a day or less to complete, will be held as
reasonably necessary, generally once a fiscal quarter.
Section 5.04. Payment of Taxes and Other Indebtedness.
(a) Borrower shall, and shall cause its Subsidiaries, if
any, to, pay and discharge (i) all taxes, assessments and
governmental charges or levies imposed upon it or upon its income
or profits, or upon any property belonging to it, before
delinquent, (ii) all lawful claims (including claims for labor,
materials and supplies), which, if unpaid, might give rise to a
Lien upon any of its property, and (iii) all of its other
Indebtedness, except as prohibited hereunder; provided, however,
that Borrower and its Subsidiaries, if any, shall not be required
to pay any such tax, assessment, charge or levy if and so long as
the amount, applicability or validity thereof shall currently be
contested in good faith by appropriate proceedings and
appropriate accruals and reserves therefor have been established
in accordance with GAAP.
Section 5.05. Maintenance of Existence and Rights: Conduct of
Business.
(a) Borrower shall, and shall cause its Subsidiaries, if
any, to, preserve and maintain its corporate existence and all of
its rights, privileges and franchises necessary or desirable in
the normal conduct of its business, and conduct its business in
an orderly and efficient manner consistent with good business
practices and in accordance with all valid regulations and orders
of any Governmental Authority. Borrower shall keep its principal
place of business within the United States.
Section 5.06. SEC Filing and Maintenance of SEC Reporting
Requirements.
(a) Once Borrower has a class of securities registered
pursuant to Section 12 of the 1934 Act, Borrower shall duly file,
when due, all reports and statements required of a company whose
securities are registered for public trading under and pursuant
to the 1934 Act, as amended, and any rules and regulations issued
thereunder, and to preserve and maintain its registration
thereunder and all of the rights of its security holders normally
associated with a publicly traded stock company.
Section 5.07. Notice of Default.
(a) Borrower shall furnish to Lender, immediately upon
becoming aware of the existence of any condition or event which
constitutes a Default or would with the passage of time become a
Default or an Event of Default, written notice specifying the
nature and period of existence thereof and the action which
Borrower is taking or proposes to take with respect thereto.
Section 5.08. Other Notices.
(a) Borrower shall promptly notify Lender of (i) any
Material Adverse Change in its financial condition or its
business, (ii) any default under any material agreement, contract
or other instrument to which it is a party or by which any of its
properties are bound, or any acceleration of the maturity of any
Indebtedness owing by Borrower or its Subsidiaries, if any, (iii)
any material adverse claim against or affecting Borrower or its
Subsidiaries, if any, or any of its properties, and (iv) the
commencement of, and any material determination in, any
litigation with any third party or any proceeding before any
Governmental Authority, the negative result of which has an
adverse material effect on Borrower or its Subsidiaries.
Section 5.09. Compliance with Loan Documents.
(a) Borrower shall, and shall cause each of its
Subsidiaries, if any, to promptly comply with any and all
covenants and provisions of the Loan Documents.
Section 5.10. Compliance with Material Agreements.
(a) Borrower shall, and shall cause each of its
Subsidiaries, if any to comply in all material respects with all
material agreements, indentures, mortgages or documents binding
on it or affecting its properties or business.
Section 5.11. Operations and Properties.
(a) Borrower shall, and shall cause each of its
Subsidiaries, if any to, act prudently and in accordance with
customary industry standards in managing or operating its assets,
properties, business and investments. Borrower shall and shall
cause each of its Subsidiaries, if any, to, keep in good working
order and condition, ordinary wear and tear excepted, all of its
assets and properties which are necessary to the conduct of its
business.
Section 5.12. Books and Records; Access.
(a) Borrower shall, and shall cause each of its
Subsidiaries, if any, to, maintain complete and accurate books
and records of its transactions in accordance with good
accounting practices. Borrower shall give each duly authorized
representative of Lender access during all normal business hours
and permit such representative to examine, copy or make excerpts
from, any and all books, records and documents in the possession
of Borrower and its Subsidiaries and relating to its affairs, and
to inspect any of the properties of Borrower and its
Subsidiaries, if any. Borrower shall make a copy of this Loan
Agreement, along with any waivers, consents, modifications or
amendments, available for review at its principal office by
Lender or Lender's representatives.
Section 5.13. Compliance with Law.
(a) Borrower shall, and shall cause each of its
Subsidiaries, if any, to, comply with all applicable laws, rules,
regulations, and all orders of any Governmental Authority
applicable to it or any of its property, business operations or
transactions, a breach of which could have a Material Adverse
Effect.
Section 5.14. Insurance.
(a) Borrower shall, and shall cause each of its
Subsidiaries, if any, to, maintain such worker's compensation
insurance, liability insurance and insurance on its properties,
assets and business, now owned or hereafter acquired, against
such casualties, risks and contingencies, and in such types and
amounts, as are consistent with customary practices and standards
of companies engaged in similar businesses.
Section 5.15. Authorizations and Approvals.
(a) Borrower shall, and shall cause each of its
Subsidiaries, if any, to, promptly obtain, from time to time at
its own expense, all such governmental licenses, authorizations,
consents, permits and approvals as may be required to enable it
to comply with its obligations hereunder and under the other Loan
Documents.
Section 5.16. ERISA Compliance.
(a) Borrower shall (i) at all times, make prompt payment of
all contributions required under all Plans, if any, and required
to meet the minimum funding standards set forth in ERISA with
respect to its Plans subject to ERISA, if any, (ii) notify Lender
immediately of any fact in connection with any of its Plans,
which might constitute grounds for termination thereof or for the
appointment by the appropriate United States District Court of a
trustee to administer such Plan, together with a statement, if
requested by Lender as to the reason therefor and the action, if
any, proposed to be taken with respect thereto, and (iii) furnish
to Lender upon its request such additional information concerning
any of its Plans as may be reasonably requested.
Section 5.17. Further Assurances.
(a) Borrower shall, and shall cause each of its
Subsidiaries, if any, to, make, execute or endorse, and
acknowledge and deliver or file or cause the same to be done, all
such notices, certifications and additional agreements,
undertakings, transfers, assignments, or other assurances, and
take any and all such other action, as Lender may, from time to
time, deem reasonably necessary or proper in connection with any
of the Loan Documents, or the obligations of Borrower or its
Subsidiaries, if any, thereunder, which Lender may request from
time to time.
Section 5.18. Indemnity by Borrower.
(a) Borrower shall indemnify, save, and hold harmless,
Lender and its directors, officers, agents, attorneys, and
employees (collectively, the "indemnitees") from and against: (i)
any and all claims, demands, actions, or causes of action
asserted against any indemnitee by any Person if the claim,
demand, action, or cause of action directly or indirectly relates
to a claim, demand, action, or cause of action that the Person
asserts or may assert against Borrower, or any Affiliate of
Borrower or any officer, director or shareholder of Borrower,
(ii) any and all claims, demands, actions or causes of action
that are asserted against any indemnitee if the claim, demand,
action or cause of action directly or indirectly relates to the
Loan Agreement and the other Loan Documents issued pursuant
thereto, the use of proceeds of the Loans, or the relationship of
Borrower and Lender under this Loan Agreement or any transaction
contemplated pursuant to this Loan Agreement (iii) any
administrative or investigative proceeding by any Governmental
Authority directly or indirectly related to a claim, demand,
action or cause of action described in clauses (i) or (ii) above,
and (iv) any and all liabilities, losses, costs, or expenses
(including reasonable attorneys' fees and disbursements) that any
indemnitee suffers or incurs as a result of any of the foregoing;
provided, however, that Borrower shall have no obligation under
this Section to Lender with respect to any of the foregoing
arising out of the gross negligence or willful misconduct of
Lender or its assignees or the breach by the Lender or its
assignees of this Loan Agreement or any other Loan Document or
other document executed in connection with any of the aforesaid,
the breach by Lender or its assignees of any agreement or
commitment with other parties, the violation or alleged violation
of any law, rule or regulation by Lender or its assignees, or
from the transfer or disposition by Lender of any Debenture or
the Common Stock issued upon conversion. If any claim, demand,
action or cause of action is asserted against any indemnitee,
such indemnitee shall promptly notify Borrower, but the failure
to so promptly notify Borrower shall not affect Borrower's
obligations under this Section unless such failure materially
prejudices Borrower's right to participate in the contest of such
claim, demand, action or cause of action, as hereinafter
provided. In the event that such indemnitee's failure to
properly notify the Borrower materially prejudices Borrower's
right to participate in the contest of such claim, demand,
action, or cause of action, then said indemnitees shall have no
right to receive and Borrower shall have no obligation to pay any
indemnification amounts hereunder. Borrower may elect to defend
any such claim, demand, action or cause of action (at its own
expense) asserted against said indemnitee and, if requested by
Borrower in writing and so long as no Default or Event of Default
shall have occurred and be continuing, such indemnitee (at
Borrower's expense) shall in good faith contest the validity,
applicability and amount of such claim, demand, action or cause
of action and shall permit Borrower to participate in such
contest. Any indemnitee that proposes to settle or compromise
any claim or proceeding for which Borrower may be liable for
payment to or on behalf of an indemnitee hereunder shall give
Borrower written notice of the terms of such proposed settlement
or compromise reasonably in advance of settling or compromising
such claim or proceeding and shall obtain Borrower's concurrence
thereto. In the event that said indemnitee fails to obtain
Borrower's prior written consent to any such settlement or
compromise, said indemnitee shall have no right to receive and
Borrower shall have no obligation to pay any indemnification
amounts hereunder. Each indemnitee is to employ counsel in
enforcing its rights hereunder and in defending against any
claim, demand, action, or cause of action covered by this
Section; provided, however, that each indemnitee shall endeavor,
but shall not be obligated, in connection with any matter covered
by this Section which also involves other indemnitees, to use
reasonable efforts to avoid unnecessary duplication of effort by
counsel for all indemnitees, including by allowing indemnitor to
select one lawyer for all parties, such selection to be subject
to the indemnitee's approval, which approval shall not be
unreasonably withheld. Any obligation or liability of Borrower
to any indemnitee under this Section shall survive the expiration
or termination of this Agreement and the repayment of the
Debentures.
ARTICLE VI - NEGATIVE COVENANTS
So long as any part of the Debentures have not been redeemed
or converted hereunder, and until such redemption or conversion
in full, unless the Lender shall otherwise consent in writing,
which consent shall not be unreasonably withheld, Borrower agrees
that, unless permitted otherwise:
Section 6.01, Limitation on Indebtedness.
(a) Borrower and its Subsidiaries shall not incur, create,
contract, waive, assume, have outstanding, guarantee or otherwise
be or become, directly or indirectly, liable in respect of any
Indebtedness, except
(i) Indebtedness arising out of this Loan Agreement or
otherwise contemplated herein,
(ii) Indebtedness secured by the Permitted Liens,
(iii) current liabilities for accounts payable or
obligations accrued (other than for borrowed funds or purchase
money obligations) and incurred in the ordinary course of
business, and for taxes and assessments;
(iv) Short term working capital borrowings in the
ordinary course of business not in excess of $1,000,000 in the
aggregate amount at any one time.
Section 6.02. Negative Pledge.
(a) Borrower shall not, and shall not permit its
Subsidiaries, if any, to, create, incur, permit or suffer to
exist any Lien upon any of its property or assets other than
Permitted Liens, or payments upon any Subordinated Debt other
than regularly scheduled installments of principal and interest
and shall not directly or indirectly make any payment of any
Subordinated Debt which would violate the terms of the Loan
Agreement or of such Subordinated Debt or any subordination
agreement applicable to such Subordinated Debt.
Section 6.03. Limitation on Investments.
(a) Borrower shall not, and shall not permit its
Subsidiaries, if any, to, make or have outstanding any
Investments in any Person, except for Borrower's (and any
Subsidiaries') ownership of stock of Subsidiaries, loans and
other transactions between the Borrower and any Subsidiaries,
short term bank deposits or money market investments, and such
other "cash equivalent" investments as Lender may from time to
time approve.
Section 6.04. Alteration of Material Agreements.
(a) Borrower shall not, and shall not permit its
Subsidiaries, if any, to, consent to or permit any alteration,
amendment, modification, release, waiver or termination of any
material agreement to which it is a party other than in the
ordinary course of business.
Section 6.05. Certain Transactions.
(a) Borrower shall not, and shall not permit its
Subsidiaries, if any, to, enter into any transaction with, or pay
any management fees to, any Affiliate; provided, however, that
Borrower and any Subsidiary may enter into transactions with
Affiliates upon terms not less favorable to Borrower and any
Subsidiary than would be obtainable at the time in comparable
transactions of Borrower and any Subsidiaries in arms-length
dealings with Persons other than Affiliates.
Section 6.06. Limitations on Acquisition of Non-Related Business.
Borrower shall not, and shall not permit its Subsidiaries, if
any, to, engage in any line of business or acquire any new
product lines or business or acquire any companies.
Section 6.07. Limitation on Sale of Properties.
(a) Borrower shall not, and shall not permit its
Subsidiaries if any, except as disclosed on Exhibit 6.07, to (i)
sell, assign, convey, exchange, lease or otherwise dispose of any
of its properties, rights, assets or business, whether now owned
or hereafter acquired, except in the ordinary course of its
business and for a fair consideration, or (ii) sell, assign or
discount any accounts receivable except in the ordinary course of
business or to secure bank or commercial working capital loans.
Section 6.08. Fiscal Year and Accounting Method.
(a) Borrower shall not, and shall not permit its
Subsidiaries, if any, to, change its method of accounting except
as permitted by GAAP.
Section 6.09. Liquidation, Mergers, Consolidations and
Dispositions of Substantial Assets.
(a) Borrower shall not permit its Subsidiaries, if any, to
dissolve or liquidate, or become a party to any merger or
consolidation, or sell, transfer, lease or otherwise dispose of
all or any substantial part of its property or assets or
business.
Section 6.10. No Amendments to Articles of Incorporation or
Bylaws.
(a) Borrower shall not, and shall not permit its
Subsidiaries, if any, to materially amend its Articles of
Incorporation or bylaws except as is necessary to fulfill the
conditions of this Loan Agreement.
Section 6.11. Limitation on Increased Executive Compensation and
Bonus, Profit Sharing or other Incentive Payments.
(a) Borrower will not increase salary, bonus, or other
compensation programs (whether in cash, securities, or other
property, and whether payment is deferred or current) of the top
five executive officers of the Borrower unless such compensation
increase is approved by a majority of the Board or a Compensation
Committee of the Board of Directors, a majority of which shall be
disinterested Directors.
(b) Borrower shall not pay any Bonus, Profit Sharing or
Other Incentive Payments until such plans are formally adopted by
the majority of the Board or a Compensation Committee of the
Board of Directors, a majority of which shall be disinterested
Directors.
ARTICLE VII - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS
Section 7.01. Financial Ratios.
(a) So long as any part of the Debentures has not been
redeemed or converted hereunder, and until such redemption or
conversion in full, or unless the Lender (or if any portion of
the Debentures has been assigned, the holders of a majority in
amount of the outstanding Principal Amount) shall otherwise
consent in writing, the Borrower will at all times maintain the
agreed minimum financial ratios or standards as provided and set
forth in Exhibit 7.01 - Agreed Minimum Financial Standards as
attached hereto and made a part hereof. Borrower shall deliver
to Lender a compliance certificate covering these ratios as
required in Section 5.01(b)(iii).
ARTICLE VIII - EVENTS OF DEFAULT
Section 8.01. Events of Default.
(a) An "Event of Default" shall exist if any one or more of
the following events (herein collectively called "Events of
Default") shall occur and be continuing:
(i) Borrower shall fail to pay (or shall state in
writing an intention not to pay or its inability to pay), when
due or not later than ten (10) days thereafter, any installment
of interest on or principal of, any Debenture or any fee, expense
or other payment required hereunder or a default shall occur in
respect to the Security Agreement of Pledge Agreement securing
the Debenture;
(ii) Any representation or warranty made under this Loan
Agreement, or any of the other Loan Documents, or in any
certificate or statement furnished or made to Lender pursuant
hereto or in connection herewith or with the Loans hereunder,
shall prove to be untrue or inaccurate in any material respect as
of the date on which such representation or warranty was made;
(iii) Default shall occur in the performance of any
of the covenants or agreements of Borrower or of its
Subsidiaries, if any, contained herein, or in any of the other
Loan Documents, which is not remedied within thirty (30) days
after written notice thereof to Borrower from Lender;
(iv) Default shall occur in the payment of any material
Indebtedness of the Borrower or its Subsidiaries, if any, (other
than the Obligation) or default shall occur in respect of any
note, loan agreement or credit agreement relating to any such
Indebtedness and such default shall continue for more than the
period of grace, if any, specified therein and any such
Indebtedness shall become due before its stated maturity by
acceleration of the maturity thereof or shall become due by its
terms and shall not be promptly paid or extended. Default shall
occur in the performance of any of the covenants or agreements of
Borrower or its Subsidiaries, if any, contained under the Loan
Agreement, or in any of the other Loan Documents, which default
is not remedied within thirty (30) days after written notice
thereof to Borrower from Lender, provided that such 30 day grace
period shall not apply to default of any payment requirement or
notice covenant made by Borrower;
(v) Any of the Loan Documents shall cease to be legal,
valid and binding agreements enforceable against the Borrower in
accordance with the respective terms thereof or shall in any way
be terminated or become or be declared ineffective or inoperative
or shall in any way whatsoever cease to give or provide the
respective rights, titles, interests, remedies, powers or
privileges intended to be created thereby;
(vi) Borrower or its Subsidiaries, if any, shall (A) apply
for or consent to the appointment of a receiver, trustee,
custodian, intervenor or liquidator of itself, or of all or
substantially all of such Person's assets, (B) file a voluntary
petition in bankruptcy, admit in writing that such Person is
unable to pay such Person's debts as they become due or generally
not pay such Person's debts as they become due, (C) make a
general assignment for the benefit of creditors, (D) file a
petition or answer seeking reorganization or an arrangement with
creditors or to take advantage of any bankruptcy or insolvency
laws, (E) file an answer admitting the material allegations of,
or consent to, or default in answering, a petition filed against
such Person in any bankruptcy, reorganization or insolvency
proceeding, or (F) take corporate action for the purpose of
effecting any of the foregoing;
(vii) An involuntary petition or complaint shall be
filed against Borrower or any of its Subsidiaries, if any,
seeking bankruptcy or reorganization of such Person or the
appointment of a receiver, custodian, trustee, intervenor or
liquidator of such Person, or all or substantially all of such
Person's assets, and such petition or complaint shall not have
been dismissed within sixty (60) days of the filing thereof or an
order, order for relief, judgment or decree shall be entered by
any court of competent jurisdiction or other competent authority
approving a petition or complaint seeking reorganization of
Borrower or its subsidiary, if any, or appointing a receiver,
custodian, trustee, intervenor or liquidator of such Person, or
of all or substantially all of such Person's assets;
(viii) Any final judgment(s) for the payment of money
in excess of the sum of $250,000 in the aggregate shall be
rendered against Borrower or any subsidiary and such judgment or
judgments shall not be satisfied or discharged at least ten (10)
days prior to the date on which any of its assets could be
lawfully sold to satisfy such judgment;
(ix) The Borrower shall fail to issue and deliver shares
of Common Stock as provided herein upon conversion of the
Debenture; or
(x) The Borrower shall fail to submit Lender's nominee,
if any, for election to the Board of Directors of the Borrower or
shall remove Lender's nominee from the Board of Directors of
Borrower other than for cause.
(xi) The Borrower shall fail to execute and deliver
Pledge Agreement and pledged stock or Security Agreement as
required under this Agreement.
Section 8.02. Remedies Upon Event of Default.
(a) If an Event of Default shall have occurred and be
continuing, then Lender may exercise any one or more of the
following rights and remedies, and any other remedies provided in
any of the Loan Documents, as Lender in its sole discretion may
deem necessary or appropriate:
(i) declare the unpaid Principal Amount (after
application of any payments or installments received by Lender)
of, and all interest then accrued but unpaid on, the Debentures
and any other liabilities hereunder to be forthwith due and
payable, whereupon the same shall forthwith become due and
payable without presentment, demand, protest, notice of default,
notice of acceleration or of intention to accelerate or other
notice of any kind, all of which Borrower hereby expressly
waives, anything contained herein or in the Debentures to the
contrary notwithstanding,
(ii) reduce any claim to judgment, and/or
(iii) without notice of default or demand, pursue
and enforce any of Lender's rights and remedies under the Loan
Documents, or otherwise provided under or pursuant to any
applicable law or agreement, all of which rights may be
specifically enforced.
Section 8.03. Performance by Lender.
(a) Should Borrower fail to perform any covenant, duty or
agreement contained herein or in any of the other Loan Documents,
Lender may perform or attempt to perform such covenant, duty or
agreement on behalf of Borrower. In such event, Borrower shall,
at the request of Lender, promptly pay any amount reasonably
expended by Lender in such performance or attempted performance
to Lender at its principal office in Dallas, Texas, together with
interest thereon, at the interest rate specified in the
Debenture, from the date of such expenditure until paid.
Notwithstanding the foregoing, it is expressly understood that
Lender assumes no liability or responsibility for the performance
of any duties of Borrower hereunder or under any of the other
Loan Documents.
Section 8.04. Payment of Expenses Incurred by Lender.
(a) Upon the occurrence of a Default or an Event of Default,
which occurrence is not cured within the notice provisions, if
any, provided therefor, Borrower agrees to pay and shall pay all
costs and expenses (including Lender's attorneys' fees and
expenses) reasonably incurred by Lender in connection with the
preservation and enforcement of Lender's rights under the Loan
Agreement, the Debentures, or any other Loan Document.
ARTICLE IX - REGISTRATION RIGHTS
Section 9.01. Demand For Registration.
(a) Subject to the Holder's right to convert the Debenture
under the Loan Agreement, the Borrower hereby agrees to register,
subject to the terms and conditions set forth herein, all or any
portion of the Registrable Securities at any time it shall
receive a written request from the Holders of at least fifty
percent (50%) of the Registrable Securities Then Outstanding (or
a lesser percent if the anticipated aggregate offering price, net
of underwriting discounts and commissions, would exceed
$1,000,000) that the Borrower file a registration statement under
the 1933 Act covering the registration of at least a majority of
the Registrable Securities Then Outstanding. The Borrower shall,
within 20 days of its receipt thereof, give written notice of
such request to all Holders of record of Registrable Securities.
The Holders of said Registrable Securities shall then have 15
days from the date of mailing of such notice by the Borrower to
request that all or a portion of their respective Registrable
Securities be included in said registration. The Borrower hereby
agrees, subject to the limitations hereof, to use its best lawful
efforts to effect as soon as reasonably possible, and in any
event (if legally possible, and as allowed by the SEC, and if no
factor outside the Borrower's reasonable control prevents it)
within 150 days of the receipt of the initial written
registration request, to effect the registration under the 1933
Act of all Registrable Securities which the Holders thereof (the
"Initiating Holders") have requested.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Borrower as a part of
their request made pursuant to this Loan Agreement, and the
Borrower shall include such information in the written notice to
the other Holders of Registrable Securities referred to in
Section 9.01(a). In such event, the right of any Holder to
include his/her Registrable Securities in such registration shall
be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting (unless otherwise mutually agreed
by the Borrower, the underwriter, a majority in interest of the
Initiating Holders and such Holder) is limited to the extent
provided herein. All Holders proposing to distribute their
securities through such underwriting shall (together with the
Borrower as provided in Section 9.03(e)) enter into an
underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by mutual agreement
of the Borrower and a majority in interest of the Initiating
Holders, which agreement shall not be unreasonably withheld.
Notwithstanding any other provision of this Section 9.01, if the
underwriter advises the Initiating Holders and the Borrower in
writing that marketing factors require a limitation of the number
of shares to be underwritten, then the Initiating Holder(s) shall
so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of
shares of Registrable Securities that may be included in the
underwriting shall be allocated on a pro rata basis among all
Holders that have requested to participate in such registration.
(c) Notwithstanding any provision to the contrary set forth
herein, the parties hereto hereby acknowledge and agree that the
Borrower is obligated to pay for two (2) registrations pursuant
to this Loan Agreement. Borrower shall utilize Rule 144 if said
exemption, in the Borrower's sole determination, meets its
distribution requirements.
(d) Notwithstanding the foregoing, if the Borrower shall
furnish to the Initiating Holders a certificate signed by the
President of the Borrower stating that in the good faith judgment
of the Board of Directors of the Borrower, it would be materially
detrimental to the Borrower and its shareholders for such
registration statement to be filed at that time, and it is
therefore essential to defer the filing of such registration
statement, the Borrower shall have the right to defer the
commencement of such a filing for a period of not more than 180
days after receipt of the request of the Initiating Holders;
provided, however, that at least 12 months must elapse between
any two such deferrals.
Section 9.02. "Piggy-Back" Registration.
If, but without any obligation to do so, the Borrower
proposes to register any of its capital stock under the 1933 Act
in connection with the public offering of such securities for its
own account or for the account of its security holders, other
than Holders of Registrable Securities pursuant hereto (a
"Piggy-Back Registration Statement"), primarily for cash (other
than (i) a registration relating solely to the sale of securities
to participants in the Borrower's stock plans or employee benefit
plans or (ii) a registration relating solely to an SEC Rule 145
transaction or any rule adopted by the SEC in substitution
thereof or in amendment thereto), then:
(a) The Borrower shall give written notice of such
determination to each Holder of Registrable Securities, and each
such Holder shall have the right to request, by written notice
given to the Borrower within 15 days of the date that such
written notice was mailed by the Borrower to such Holder, that a
specific number of Registrable Securities held by such Holder
will be included in the Piggy-Back Registration Statement (and
related underwritten offering, if any);
(b) If the Piggy-Back Registration Statement relates to an
underwritten offering, the notice given to each Holder shall
specify the name or names of the managing underwriter or
underwriters for such offering. In addition such notice shall
also specify the number of securities to be registered for the
account of the Borrower and for the account of its shareholders
(other than the Holders of Registrable Securities), if any;
(c) If the Piggy-Back Registration Statement relates to an
underwritten offering, each Holder of Registrable Securities to
be included therein must agree (i) to sell such Holder's
Registrable Securities on the same basis as provided in the
underwriting arrangement approved by the Borrower, and (ii) to
timely complete and execute all questionnaires, powers of
attorney, indemnities, hold-back agreements, underwriting
agreements and other documents required under the terms of such
underwriting arrangements or by the SEC or by any state
securities regulatory body;
(d) If the managing underwriter or underwriters for the
underwritten offering under the Piggy-Back Registration Statement
determines that inclusion of all or any portion of the
Registrable Securities in such offering would adversely affect
the ability of the underwriters for such offering to sell all of
the securities requested to be included for sale in such offering
at the best price obtainable therefor, the aggregate number of
Registrable Securities that may be sold by the Holders shall be
limited to such number of Registrable Securities, if any, that
the managing underwriter or underwriters determine may be
included therein without such adverse effect as provided below.
If the number of securities proposed to bc sold in such
underwritten offering exceeds the number of securities that may
be sold in such offering, there shall be included in the
offering, first, up to the maximum number of securities to be
sold by the Borrower for its own account and for the account of
other stockholders (other than Holders of Registrable
Securities), as they may agree among themselves, and second, as
to the balance, if any, Registrable Securities requested to be
included therein by the Holders thereof (pro rata as between
such Holders based upon the number of Registrable Securities
initially proposed to be registered by each), or in such other
proportions as the managing underwriter or underwriters for the
offering may require; provided, however, that in the event that
the number of securities proposed to be sold in such underwritten
offering exceeds the number of securities that may be sold in
such offering pursuant to the terms and conditions set forth
above and the Piggy-Back Registration Statement is a result of
public offering by the Borrower of its securities for its own
account, there shall bc included in the offering, first, up to
the maximum number of securities to be sold by the Borrower for
its own account and second, as to the balance, if any, securities
to be sold for the account of the Borrower's stockholders (both
the Holders of Registrable Securities requested and such other
stockholders of the Borrower requested to be included therein) on
a pro rata basis;
(e) Holders of Registrable Securities shall have the right
to withdraw their Registrable Securities from the Piggy-Back
Registration Statement, but if the same relates to an
underwritten offer, they may only do so during the time period
and on the terms agreed upon among the underwriters for such
underwritten offering and the Holders of Registrable Securities.
Section 9.03. Obligations of the Borrower.
Whenever required to effect the registration of any
Registrable Securities pursuant to this Agreement the Borrower
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best
lawful efforts to cause such registration statement to become
effective, and keep such registration statement effective until
the sooner of all such Registrable Securities having been
distributed, or until 120 days have elapsed since such
registration statement became effective (subject to extension of
this period as provided below);
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus
used in connection with such registration statement as may be
necessary to comply with the provisions of the 1933 Act with
respect to the disposition of all securities covered by such
registration statement, or 120 days have elapsed since such
registration statement became effective (subject to the extension
of this period as provided below);
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity
with the requirements of the 1933 Act, and such other documents
as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them;
(d) Use its best lawful efforts to register and qualify the
securities covered by such registration statement under such
other securities or Blue Sky laws of such jurisdictions as shall
be reasonably requested by the Holders, provided that the
Borrower shall not be required in connection therewith or as a
condition thereto to qualify as a broker-dealer in any states or
jurisdictions or to do business or to file a general consent to
service of process in any such states or jurisdictions;
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement
with the managing underwriter of such offering, in usual and
customary form reasonably satisfactory to the Borrower and the
Holders of a majority of the Registrable Securities to be
included in such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations
under such an agreement;
(f) Notify each Holder of Registrable Securities covered by
such registration statement, at any time when a prospectus
relating thereto and covered by such registration statement is
required to be delivered under the 1933 Act, of the happening of
any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing; and
(g) In the event of the notification provided for in Section
9.03(f) above, the Borrower shall use its best efforts to prepare
and file with the SEC (and to provide copies thereof to the
Holders) as soon as reasonably possible an amended prospectus
complying with the 1933 Act, and the period during which the
prospectus referred to in the notice provided for in Section
9.03(f) above cannot be used and the time period prior to the use
of the amended prospectus referred to in this Section 9.03(g),
shall not be counted in the 120 day period of this Section 9.03.
Section 9.04. Furnish Information.
(a) It shall be a condition precedent to the obligations of
the Borrower to take any action pursuant to these registration
rights that the selling Holders shall furnish to the Borrower any
and all information reasonably requested by the Borrower, its
officers, directors, employees, counsel, agents or
representatives, the underwriter or underwriters, if any, and the
SEC or any other Governmental Authority, including but not
limited to (i) such information regarding themselves, the
Registrable Securities held by them, and the intended method of
disposition of such securities, as shall be required to effect
the registration of their Registrable Securities, and (ii) the
identity of and compensation to be paid to any proposed
underwriter or broker-dealer to be employed in connection
therewith.
(b) In connection with the preparation and filing of each
registration statement registering Registrable Securities under
the 1933 Act, the Borrower shall give the Holders of Registrable
Securities on whose behalf such Registrable Securities are to be
registered and their underwriters, if any, and their respective
counsel and accountants, at such Holders' sole cost and expense
(except as otherwise set forth herein), such access to copies of
the Borrower's records and documents and such opportunities to
discuss the business of the Borrower with its officers and the
independent public accountants who have certified its financial
statements as shall be reasonably necessary in the opinion of
such Holders and such underwriters or their respective counsel,
to conduct a reasonable investigation within the meaning of the
1933 Act.
Section 9.05. Expenses of Demand Registration.
Except as set forth below, all expenses, other than
underwriting discounts and commissions incurred in connection
with the demand registration pursuant to Section 9.01 above,
including, without limitation, all registration, filing and
qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Borrower, and the reasonable
fees and disbursements of one counsel for the selling Holders,
shall be borne by the Borrower; provided, however, that the
Borrower shall not be required to pay for any expenses of any
registration proceeding which was commenced pursuant to Section
9.01 if the registration request is subsequently withdrawn at the
written request of the Holders of the majority of the Registrable
Securities subject to such registration.
Section 9.06. Expenses of Piggy-Back Registration.
Each Holder shall bear and pay all commissions and discounts
attributable to the inclusion of such Holder's Registrable
Securities in any registration, filing or qualification of
Registrable Securities pursuant to Section 9.02 and the
reasonable fees and disbursements of the counsel for the selling
Holders.
Section 9.07. Indemnification Regarding Registration Rights.
If any Registrable Securities are included in a registration
statement under this Article IX:
(a) To the extent permitted by law, the Borrower will
indemnify and hold harmless each Holder, the officers and
directors of each Holder, any underwriter (as defined in the 1933
Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the 1933 Act or the
1934 Act, against any losses, claims, damages, liabilities (joint
or several) or any legal or other costs and expenses reasonably
incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action to which they
may become subject under the 1933 Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages,
costs, expenses or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any
untrue statement or alleged untrue statement of a material fact
with respect to the Borrower or its securities contained in such
registration statement, including any preliminary prospectus or
final prospectus contained therein or any amendments or
supplements therein, (ii) the omission or alleged omission to
state therein a material fact with respect to the Borrower or its
securities required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any violation or
alleged violation by the Borrower of the 1933 Act, the 1934 Act,
any federal or state securities law or any rule or regulation
promulgated under the 1933 Act, the 1934 Act or any state
securities law. Notwithstanding the foregoing, the indemnity
agreement contained in this Section 9.07(a) shall not apply and
the Borrower shall not be liable (i) in any such case for any
such loss, claim, damage, costs, expenses, liability or action to
the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling
person, or (ii) for amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected
without the prior written consent of the Borrower, which consent
shall not be unreasonably withheld.
(b) To the extent permitted by law, each Holder who
participates in a registration pursuant to the terms and
conditions of this Loan Agreement shall indemnify and hold
harmless the Borrower, each of its directors and officers who
have signed the registration statement, each person, if any, who
controls the Borrower within the meaning of the 1933 Act or the
1934 Act, each of the Borrower's employees, agents, counsel and
representatives, any underwriter and any other Holder selling
securities in such registration statement, or any of its
directors or officers, or any person who controls such Holder,
against any losses, claims, damages, costs, expenses, liabilities
(joint or several) to which the Borrower or any such director,
officer, controlling person, employee, agent, representative,
underwriter, or other such Holder, or director, officer or
controlling person thereof, may become subject, under the 1933
Act, the 1934 Act or other federal or state law, only insofar as
such losses, claims, damages, costs, expenses or liabilities or
actions in respect thereto arise out of or are based upon any
Violation, in each case to the extent and only to the extent that
such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in
connection with such. Each such Holder will reimburse any legal
or other expenses reasonably incurred by the Borrower or any such
director, officer, employee, agent representative, controlling
person, underwriter or other Holder, or officer, director or of
any controlling person thereof, in connection with investigating
or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this
Section 9.07(b) shall not apply to amounts paid in settlement of
any such loss, claim, damage, costs, expenses, liability or
action if such settlement is effected without the prior written
consent of the Holder, which consent shall not be unreasonably
withheld.
(c) Promptly after receipt by an indemnified party under
this Section 9.07 of notice of the commencement of any action
(including any governmental action), such indemnified party will,
if a claim in respect thereof is to be made against any
indemnifying party under this Section 9.07, deliver to the
indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate
in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have
the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying
party would be inappropriate due to actual or potential conflict
of interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not
relieve the indemnifying party of its obligations under this
Section 9.07, except to the extent that the failure results in a
failure of actual notice to the indemnifying party and such
indemnifying party is materially prejudiced in its ability to
defend such action solely as a result of the failure to give such
notice.
(d) If the indemnification provided for in this Section 9.07
is unavailable to an indemnified party under this Section in
respect of any losses, claims, damages, costs, expenses,
liabilities or actions referred to herein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, costs,
expenses, liabilities or actions in such proportion as is
appropriate to reflect the relative fault of the Borrower on the
one hand and of the Holder on the other in connection with the
Violation that resulted in such losses, claims, damages, costs,
expenses, liabilities or actions. The relative fault of the
Borrower on the one hand and of the Holder on the other shall be
determined by reference to, among other things, whether the
untrue or alleged untrue statement of the material fact or the
omission to state a material fact relates to information supplied
by the Borrower or by the Holder, and the parties' relative
intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(e) The Borrower on the one hand and the Holders on the
other hand agree that it would not be just and equitable if
contribution pursuant to this Section 9.07 were determined by a
pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to
in the immediately preceding paragraph. The amount paid or
payable by an indemnified party as a result of losses, claims,
damages, costs, expenses, liabilities and actions referred to in
the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any reasonable legal
or other expenses incurred by such indemnified party in
connection with defending any such action or claim.
Notwithstanding the provisions of this Section 9.07, neither the
Borrower nor the Holders shall be required to contribute any
amount in excess of the amount by which the total price at which
the securities were offered to the public exceeds the amount of
any damages which the Borrower or each such Holder has otherwise
been required to pay by reason of such Violation. No person
guilty of fraudulent misrepresentations (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who is not guilty of such fraudulent
misrepresentation.
Section 9.08. Reports Under the 1934 Act.
Once the Borrower has a class of securities registered
pursuant to Section 12 of the 1934 Act, with a view to making
available to the Holders the benefits of Rule 144 promulgated
under the 1933 Act and any other rule or regulation of the SEC
that may at any time permit a Holder to sell securities of the
Borrower to the public without registration or pursuant to a
registration on Form S-3, if applicable, the Borrower agrees to
use its best lawful efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times;
(b) File with the SEC in a timely manner all reports and
other documents required of the Borrower under the 1933 Act and
the 1934 Act;
(c) Use its best efforts to list all Common Stock covered by
such registration statement on such securities exchange on which
any of the Common Stock is then listed, or, if the Borrower's
Common Stock is not then quoted on NASDAQ or listed on any
national securities exchange, use its best efforts to have such
Common Stock covered by such registration statement quoted on
NASDAQ or, at the option of the Borrower, listed on a national
securities exchange, and
(d) Furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request a copy of the most
recent annual or quarterly report of the Borrower and such other
SEC reports and documents so filed by the Borrower, and (ii) such
other information (but not any opinion of counsel) as may be
reasonably requested by any Holder seeking to avail himself of
any rule or regulation of the SEC which permits the selling of
any such securities without registration or pursuant to such
form.
Section 9.09. Assignment of Registration Rights.
(a) Subject to the terms and conditions of the Loan
Agreement and the Debentures, the right to cause the Borrower to
register Registrable Securities pursuant to this Loan Agreement
may be assigned by Holder to any transferee or assignee of such
securities; provided that said transferee or assignee is a
transferee or assignee of at least ten percent (10%) of the
Registrable Securities and provided that the Borrower is, within
a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee or assignee and
the securities with respect to which such registration rights are
being assigned; and provided, further, that such assignment shall
be effective only if immediately following such transfer the
further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act; it being the intention
that so long as Holder holds any Registrable Securities
hereunder, either Holder or its transferee or assignee may
exercise the demand right to registration and piggy-back
registration rights hereunder. Other than as set forth above,
the parties hereto hereby agree that the registration rights
hereunder shall not be transferable or assigned and any
contemplated transfer or assignment in contravention of this Loan
Agreement shall be deemed null and void and of no effect
whatsoever.
Section 9.10. Other Matters.
(a) Each Holder of Registrable Securities hereby agrees by
acquisition of such Registrable Securities that, with respect to
each offering of the Registrable Securities, whether each Holder
is offering such Registrable Securities in an underwritten or
non-underwritten offering, such Holder will comply with Rules
10b-2, 10b-6 and 10b-7 of the 1934 Act and such other or
additional anti-manipulation rules then in effect until such
offering has been completed, and in respect of any
non-underwritten offering, in writing will inform the Borrower,
any other Holders who are selling shareholders, and any national
securities exchange upon which the securities of the Borrower are
listed, that the Registrable Securities have been sold and will,
upon the Borrower's request, furnish the distribution list of the
Registrable Securities. In addition, upon the request of the
Borrower, each Holder will supply the Borrower with such
documents and information as the Borrower may reasonably request
with respect to the subject matter set forth and described in
this Section 9.10.
(b) Each Holder of Registrable Securities hereby agrees by
acquisition of such Registrable Securities that, upon receipt of
any notice from the Borrower of the happening of any event which
makes any statement made in the registration statement, the
prospectus or any document incorporated therein by reference,
untrue in any material respect or which requires the making of
any changes in the registration statement, the prospectus or any
document incorporated therein by reference, in order to make the
statements therein not misleading in any material respect, such
Holder will forthwith discontinue disposition of Registrable
Securities under the prospectus related to the applicable
registration statement until such Holder's receipt of the copies
of the supplemented or amended prospectus, or until it is advised
in writing by the Borrower that the use of the prospectus may be
resumed, and has received copies of any additional or
supplemental filings which are incorporated by reference in the
prospectus.
(c) The Borrower hereby agrees not to effect any public sale
or other distribution of its equity securities, or any securities
convertible into or exchangeable or exercisable for such equity
securities, during the period commencing on the 7th day prior to,
and ending on the 120th day (subject to extension as provided in
Section 9.03 hereof) following the effective date of any
underwritten demand registration.
Section 9.11 Termination of Rights.
(a) The Holders' right to demand registration and to
participate in a Piggy-Back Registration, as granted to Holders
under this Article IX, shall terminate on January 1, 2006, or
after the Lender has exercised two demand registration rights at
the expense of the Borrower as provided in Article IX of this
Loan Agreement whichever is first to occur.
ARTICLE X - DIRECTORS AND BOARD MEETING ATTENDANCE
Section 10.01. Board Representation or Attendance by Lender
Designee.
(a) Borrower herewith agrees that Lender shall have the
right from time to time, at Lender's option and so long as the
Debentures have not been fully converted or redeemed, to
designate a nominee to the Board of Directors of the Borrower,
which designee is subject to the written approval of Borrower
which approval shall not be unreasonably withheld. Borrower
will, at all times, use its reasonable best efforts to secure the
election of such designee as a Director of the Borrower, provided
that such designee may, at his or her option, elect to serve only
as an "Advisory Director" with all the rights of the Directors in
regards to notice and attendance at meetings of the Board of
Directors, or committees thereof, but without voting rights. All
reasonable costs and expenses incurred by such Designee as a
Director or Advisory Director, or by Lender on behalf of such
Designee, shall be reimbursed by Borrower, consistent with
payment policies accorded to other independent directors.
(b) Further, though Lender may waive, from time to time, its
right to require a Board Designee, in such event it shall be
entitled, at its own expense, to have a representative of the
Lender attend meetings of the Board of Directors of the Borrower
or of its Subsidiaries and such representative may serve as an
observer but without voice in matters under discussion except as
requested.
(c) Any such Designee or representative of the Lender shall,
if requested to do so, absent themselves from the meeting in the
event of, and so long as, the Directors are considering and
acting on matters pertaining to any rights or obligations of the
Borrower or the Lender under the Loan Agreement, the Debenture,
or the other Loan Documents. Borrower will provide Lender's
designated representative with the same notice of Board meetings
and information as the Borrower shall provide to its duly elected
Directors.
Section 10.02. Borrower's Right to Request Lender to Provide a
Director Nominee.
(a) Lender herewith agrees that, so long as no Default or
Event of Default exists under the Loan Agreement and so long as
the Debentures have not been fully converted or redeemed, Lender
will, at the written request of Borrower, use its reasonable best
efforts to provide, from time to time, a person or persons,
reasonably believed knowledgeable in investor relations, such
person or persons to be available to consult with, and serve as
advisor to, the Borrower about its communications with its
shareholders and with the general investment public. Further, if
requested by Borrower, at least one such person will be available
to serve as a nominee to the Board of Directors of the Borrower
provided that such nominee may, at his or her option, elect to
serve only as an "Advisory Director" with all the rights of the
Directors in regards to notice and attendance at meetings of the
Board of Directors, or committees thereof, but without voting
rights. All reasonable costs and expenses incurred by such
person or persons, or by Lender on behalf of such persons, shall
be reimbursed by Borrower, consistent with payment policies
accorded to other independent directors.
Section 10.03. Limitation of Authority of Persons Designated as a
Director Nominee.
(a) It is provided and agreed that the actions and advice of
any person while serving pursuant to Section 10.01 or 10.02 as an
advisor to the Borrower or as a member of Borrower's Board of
Directors, or while serving solely as a representative of Lender
in attendance at meetings of the Board of Directors, shall be
construed to be the actions and advice of that person alone and
not be construed as actions of the Lender as to any notice of
requirements or rights of Lender under this Loan Agreement, the
Debenture or the other Loan Documents; nor as actions of the
Lender to approve modifications, consents, amendments or waivers
thereof; and all such actions or notices shall be deemed actions
or notices of the Lender only when duly provided in writing and
given in accordance with the provisions of this Loan Agreement.
Section 10.04. Nonliability of Lender.
(a) The provisions of Section 10.01 and 10.02
notwithstanding, the relationship between Borrower and Lender is,
and shall at all times remain, solely that of borrower and
lender, and except for the agreement to use its best efforts to
provide a knowledgeable advisor (whose actions and advice shall
be deemed to be solely advised by such person in an individual
capacity and not advice by Lender), Lender neither undertakes nor
assumes any responsibility or duty to the Borrower to review,
inspect, supervise, pass judgment upon, or inform Borrower of any
matter in connection with any phase of Borrower's business,
operations, or condition, financial or otherwise. Borrower shall
rely entirely upon its own judgment with respect to such matters,
and any review, inspection, supervision, exercise of judgment, or
information supplied to Borrower by any Lender, or any
representative or agent of Lender, in connection with any such
matter is for the protection of Lender, and neither Borrower nor
any third party is entitled to rely thereon.
ARTICLE XI - MISCELLANEOUS
Section 11.01. Strict Compliance.
(a) Any waiver by Lender of any breach or any term or
condition of this Loan Agreement or the other Loan Documents
shall not be deemed a waiver of any other breach, nor shall any
failure to enforce any provision of this Loan Agreement or the
other Loan Documents operate as a waiver of such provision or of
any other provision, nor constitute nor be deemed a waiver or
release of the Borrower for anything arising out of, connected
with or based upon this Loan Agreement or the other Loan
Documents.
Section 11.02. Waivers and Modifications.
(a) All modifications, consents, amendments or waivers
(herein "Waivers") of any provision of this Loan Agreement, the
Debentures or any other Loan Documents, and any consent to
departure therefrom, shall be effective only if the same shall be
in writing by Lender and then shall be effective only in the
specific instance and for the purpose for which given. No notice
or demand given in any case shall constitute a waiver of the
right to take other action in the same, similar or other
instances without such notice or demand. No failure to exercise,
and no delay in exercising, on the part of Lender, any right
hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right. The rights
of Lender hereunder and under the other Loan Documents shall be
in addition to all other rights provided by law.
Section 11.03. Notices.
(a) Any notices or other communications required or
permitted to be given by this Loan Agreement or any other
documents and instruments referred to herein must be (i) given in
writing and personally delivered, mailed by prepaid certified,
registered mail or sent by overnight service such as Federal
Express, or (ii) made by telex or facsimile transmission
delivered or transmitted to the party to whom such notice or
communication is directed, with confirmation thereupon given in
writing and personally delivered or mailed by prepaid certified
or registered mail.
(b) Any notice to be mailed, sent or personally delivered
shall be mailed or delivered to the principal offices of the
party to whom such notice is addressed, as that address is
specified herein on the signature page hereof. Any such notice
or other communication sham be deemed to have been given (whether
actually received or not) on the day it is mailed, postage
prepaid, or sent by overnight service or personally delivered or,
if transmitted by telex or facsimile transmission, on the day
that such notice is transmitted; provided, however, that any
notice by telex or facsimile transmission, received by any
Borrower or Lender after 4:00 p.m., Standard Time at the
recipient's address, on any day, shall be deemed to have been
given on the next succeeding day. Any party may change its
address for purposes of this Loan Agreement by giving notice of
such change to the other parties pursuant to this Section.
Section 11.04. Choice of Forum; Consent to Service of Process and
Jurisdiction.
(a) Any suit, action or proceeding against the Borrower with
respect to this Loan Agreement, the Debentures or any judgment
entered by any court in respect thereof, may be brought in the
courts of the State of Texas, County of Dallas, or in the United
States courts located in the State of Texas as Lender in its sole
discretion may elect and Borrower hereby submits to the
non-exclusive jurisdiction of such courts for the purpose of any
such suit, action or proceeding. Borrower hereby agrees that
service of all writs, process and summonses in any such suit,
action or proceeding brought in the State of Texas may be brought
upon, and Borrower hereby irrevocably appoints, the CT
Corporation, Dallas, Texas, as its true and lawful
attorney-in-fact in the name, place and stead of Borrower to
accept such service of any and all such writs, process and
summonses, and agrees that the failure of attorney-in-fact to
give any notice of such service of process to it shall not impair
or affect the validity of such service or of any judgment based
thereon. Borrower hereby irrevocably waives any objections which
it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Loan
Agreement or any Debenture brought in the courts located in the
State of Texas, County of Dallas, and hereby further irrevocably
waives any claim that any such suit, action or proceeding brought
in any such court has been brought in any inconvenient forum.
Section 11.05. Arbitration
(a) Upon the demand of the Lender or Borrower (collectively
the "parties'), made before the institution of any judicial
proceeding or not more than 60 days after service of a complaint,
third party complaint, cross-claim or counterclaim or any answer
thereto or any amendment to any of the above, any Dispute (as
defined below) shall be resolved by binding arbitration in
accordance with the terms of this arbitration clause. A
"Dispute" shall include any action, dispute, claim, or
controversy of any kind, whether founded in contract, tort,
statutory or common law, equity, or otherwise, now existing or
hereafter occurring between the parties arising out of,
pertaining to or in connection with this Agreement, any document
evidencing, creating, governing, or securing any indebtedness
guaranteed pursuant to the terms hereof, or any related
agreements, documents, or instruments (the "Documents"). The
parties understand that by this Agreement they have decided that
the Disputes may be submitted to arbitration rather that being
decided through litigation in court before a judge or jury and
that once decided by an arbitrator the claims involved cannot
later be brought, filed, or pursued in court.
(b) Governing Rules. Arbitrations conducted pursuant to
this Agreement, including selection of arbitrators, shall be
administered by the American Arbitration Association
("Administrator') pursuant to the Commercial Arbitration rules of
the Administrator. Arbitrations conducted pursuant to the terms
hereof shall be governed by the provisions of the Federal
Arbitration Act (Title 9 of the United States Code), and to the
extent the foregoing are inapplicable, unenforceable or invalid,
the laws of the State of Texas. Judgment upon any award rendered
hereunder may be entered in any court having jurisdiction;
provided, however, that nothing contained herein shall be deemed
to be a waiver by any party that is a bank of the protections
afforded to it under 12 U.S.C. 91 or similar governing state law.
Any party who fails to submit to binding arbitration following a
lawful demand by the opposing party shall bear all costs and
expenses, including reasonable attorneys' fees, incurred by the
opposing party in compelling arbitration of any Dispute.
(c) No Waiver, Preservation of Remedies, Multiple Parties.
No provision of, nor the exercise of any rights under, this
arbitration clause shall limit the right of any party to (1)
foreclose against any real or personal property collateral or
other security, (2) exercise self-help remedies (including
repossession and setoff rights) or (3) obtain provisional or
ancillary remedies such as injunctive relief, sequestration,
attachment, replevin, garnishment, or the appointment of a
receiver from a court having jurisdiction. Such rights can be
exercised at any time except to the extent such action is
contrary to a final award or decision in any arbitration
proceeding. The institution and maintenance of an action as
described above shall not constitute a waiver of the right of any
party, including the plaintiff, to submit the Dispute to
arbitration, nor render inapplicable the compulsory arbitration
provisions hereof. Any claim or Dispute related to exercise of
any self-help, auxiliary or other exercise of rights under this
section (c) shall be a Dispute hereunder.
(d) Arbitrator Powers and Qualifications; Awards.
Arbitrator(s) shall resolve all Disputes in accordance with the
applicable substantive law of the State of Texas. Arbitrator(s)
may make an award of attorneys' fees and expenses if permitted by
law or the agreement of the parties. All statutes of limitation
applicable to any Dispute shall apply to any proceeding in
accordance with this arbitration clause. Any arbitrator selected
to act as the only arbitrator in a Dispute shall be required to
be a practicing attorney with not less than 5 years practice in
commercial law in the State of Texas. With respect to a Dispute
in which the claims or amounts in controversy do not exceed five
hundred thousand dollars ($500,000), a single arbitrator shall be
chosen and shall resolve the Dispute. In such case the
arbitrator shall have authority to render an award up to but not
to exceed five hundred thousand dollars ($500,000) including all
damages of any kind whatsoever, costs, fees and expenses.
Submission to a single arbitrator shall be a waiver of all
parties' claims to recover more than five hundred thousand
dollars ($500,000). A Dispute involving claims or amounts in
controversy exceeding five hundred thousand dollars ($500,000)
shall be decided by a majority vote of a panel of three
arbitrators ("Arbitration Panel"), one of whom would be qualified
to sit as a single arbitrator in a Dispute decided by one
arbitrator. If the arbitration is consolidated with one
conducted pursuant to the terms of an agreement between the
Lender and the Borrower related to the indebtedness guaranteed,
then the Arbitration Panel shall be one which meets the criteria
set forth between the Lender and Borrower. Arbitrator(s) may, in
the exercise of their discretion, at the written request of a
party, (1) consolidate in a single proceeding any multiple party
claims that are substantially identical and all claims arising
out of a single loan or series of loans including claims by or
against borrower(s), guarantors, sureties and/or owners of
collateral if different from the Borrower, and (2) administer
multiple arbitration claims as class actions in accordance with
Rule 23 of the Federal Rules of Civil Procedure. The
arbitrator(s) shall be empowered to resolve any dispute regarding
the terms of this Agreement or the arbitrability of any Dispute
or any claim that all or any part (including this provision) is
void or voidable but shall have no power to change or alter the
terms of this Agreement. The award of the arbitrator(s) shall be
in writing and shall specify the factual and legal basis for the
award.
(e) Miscellaneous. To the maximum extent practicable, the
Administrator, the arbitrator(s) and the parties shall take any
action necessary to require that an arbitration proceeding
hereunder be concluded within 180 days of the filing of the
Dispute with the Administrator. The arbitrator(s) shall be
empowered to impose sanctions for any party's failure to proceed
within the times established herein. Arbitration proceedings
hereunder shall be conducted in Texas at a location determined by
the Administrator. In any such proceeding a party shall state as
a counterclaim any claim which arises out of the transaction or
occurrence or is in any way related to the Documents which does
not require the presence of a third party which could not be
joined as a party in the proceeding. The provisions of this
arbitration clause shall survive any termination, amendment, or
expiration of the Documents and repayment in full of sums owed to
Lender by Borrower unless the parties otherwise expressly agree
in writing. Each party agrees to keep all Disputes and
arbitration proceedings strictly confidential, except for
disclosures of information required in the ordinary course of
business of the parties or as required by applicable law or
regulation.
Section 11.06. Invalid Provisions.
(a) If any provision of any Loan Document is held to be
illegal, invalid or unenforceable under present or future laws
during the term of this Loan Agreement, such provision shall be
fully severable; such Loan Document shall be construed and
enforced as if such illegal, invalid or unenforceable provision
had never comprised a part of such Loan Document; and the
remaining provisions of such Loan Document shall remain in full
force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance from such
Loan Document. Furthermore, in lieu of each such illegal,
invalid or unenforceable provision shall be added as part of such
Loan Document a provision mutually agreeable to Borrower and
Lender as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid
and enforceable. In the event Borrower and Lender are unable to
agree upon a provision to be added to the Loan Document within a
period of ten (10) business days after a provision of the Loan
Document is held to be illegal, invalid or unenforceable, then a
provision acceptable to independent arbitrators, such to be
selected in accordance with the provisions of the American
Arbitration Association, as similar in terms to the illegal,
invalid or unenforceable provision as is possible and be legal,
valid and enforceable shall be added automatically to such Loan
Document. In either case, the effective date of the added
provision shall be the date upon which the prior provision was
held to be illegal, invalid or unenforceable.
Section 11.07. Maximum Interest Rate.
(a) Regardless of any provision contained in any of the Loan
Documents, Lender shall never be entitled to receive, collect or
apply as interest on the Debentures any amount in excess of
interest calculated at the Maximum Rate, and, in the event that
any Lender ever receives, collects or applies as interest any
such excess, the amount which would be excessive interest shall
be deemed to be a partial prepayment of principal and treated
hereunder as such; and, if the principal amount of the Obligation
is paid in full, any remaining excess shall forthwith be paid to
Borrower. In determining whether or not the interest paid or
payable under any specific contingency exceeds interest
calculated at the Maximum Rate, Borrower and Lender shall, to the
maximum extent permitted under applicable law, (i) characterize
any non-principal payment as an expense, fee or premium other
than as interest; (ii) exclude voluntary prepayments and the
effects thereof, and (iii) amortize, pro rate, allocate and
spread, in equal parts, the total amount of interest throughout
the entire contemplated term of the Debentures; provided that, if
the Debentures are paid and performed in full prior to the end of
the full contemplated term thereof, and if the interest received
for the actual period of existence thereof exceeds interest
calculated at the Maximum Rate, Lender shall refund to Borrower
the amount of such excess or credit the amount of such excess
against the principal amount of the Debentures and, in such
event, Lender shall not be subject to any penalties provided by
any laws for contracting for, charging, taking, reserving or
receiving interest in excess of interest calculated at the
Maximum Rate.
(b) "Maximum Rate" shall mean, on any day, the highest
nonusurious rate of interest (if any) permitted by applicable law
on such day that at any time, or from time to time, may be
contracted for, taken, reserved, charged or received on the
Indebtedness evidenced by the Debentures under the laws which are
presently in effect of the United States of America and the State
of Texas or by the laws of any other jurisdiction which are or
may be applicable to the holders of the Debentures and such
Indebtedness or, to the extent permitted by law, under such
applicable laws of the United States of America and the State of
Texas or by the laws of any other jurisdiction which are or may
be applicable to the holder of the Debentures and which may
hereafter be in effect and which allow a higher maximum
nonusurious interest rate than applicable laws now allow.
Section 11.08. Participations and Assignments of the Debentures.
(a) The Lender shall have the right to enter into a
participation agreement with any other Lender with respect to the
Debentures, or to sell all or any part of the Debentures, but
such participation or sales shall not affect the rights and
duties of such Lender hereunder vis-i-vis Borrower. In the event
that all or any portion of this Loan shall be, at any time,
assigned, transferred or conveyed to other parties, any action,
consent or waiver (except for compromise or extension of
maturity), to be given or taken by Lender hereunder (herein
"Action"), shall be such action as taken by the holders of a
majority in amount of the principal Amount of the Debentures then
outstanding, as such holders are recorded on the books of the
Borrower and represented by Lender's Agent as described in
subsection (b) below.
(b) Assignment or sale shall be effective, on the books of
the Borrower, only upon (i) endorsement of the Debenture, or part
thereof, to the proposed new holder, along with a current
notation of the amount of payments or installments received and
net Principal Amount yet unfunded or unpaid, and presentment of
such Debenture to the Borrower for issue of a replacement
Debenture, or Debentures, in the name of the new holder; (ii) a
designation by the holders of a single Lender's Agent for Notice,
such agent to be the sole party to whom Borrower shall be
required to provide notice when notice to Lender is required
hereunder and who shall be the sole party authorized to represent
Lender in regard to modification or waivers under the Debenture,
the Loan Agreement, or other Loan Documents; and (iii) delivery
of an opinion of counsel, satisfactory to Borrower, that transfer
shall not require registration or qualification under applicable
state or federal securities laws.
(c) So long as the Borrower is not in default hereunder, the
Lender shall not sell or assign an interest in the Debentures or
rights under the Loan Agreement to any person or company that the
Borrower reasonably identifies to Lender as being engaged as a
direct competitor.
Section 11.09 Confidentiality.
(a) All financial reports or information which are furnished
to Lender, or its director designee or other representatives,
pursuant to this Loan Agreement or pursuant to the Debentures or
other Loan Documents shall be treated as confidential unless and
to the extent that such information has been otherwise disclosed
by the Borrower, but nothing herein contained shall limit or
impair Lender's right to disclose such reports to any appropriate
Governmental Authority, or to use such information to the extent
pertinent to an evaluation of the Obligation, or to enforce
compliance with the terms and conditions of this Loan Agreement,
or to take any lawful action which Lender deems necessary to
protect its interests under this Loan Agreement.
Lender, its director designees, and agents shall use their
reasonable best efforts to protect and preserve the
confidentiality of such information except for such disclosure as
shall be required for compliance by Lender or its director
designees with SEC reporting requirements or otherwise as a
matter of law. The provisions of Section 5.01(a)(1) and (6)
notwithstanding, Borrower may refuse to provide information as
required pursuant thereto to an assignee or successor in interest
to the Lender unless and until such assignee or successor shall
have executed an agreement to maintain the confidentiality of the
information as provided herein.
Section 1 1.1 0. Binding Effect.
(a) The Loan Documents shall be binding upon and inure to
the benefit of Borrower and Lender and their respective
successors, assigns and legal representatives; provided, however,
that Borrower may not, without the prior written consent of
Lender, assign any rights, powers, duties or obligations
thereunder.
Section 11.11. No Third Party Beneficiary.
(a) The parties do not intend the benefits of this Loan
Agreement to inure to any third party, nor shall this Loan
Agreement be construed to make or render Lender liable to any
materialman, supplier, contractor, subcontractor, purchaser or
lessee of any property owned by Borrower, or for debts or claims
accruing to any such persons against Borrower. Notwithstanding
anything contained herein or in the Debentures, or in any other
Loan Document, or any conduct or course of conduct by any or all
of the parties hereto, before or after signing this Loan
Agreement nor any other Loan Document shall be construed as
creating any right, claim or cause of action against Lender, or
any of its officers, directors, agents or employees, in favor of
any materialman, supplier, contractor, subcontractor, purchaser
or lessee of any property owned by Borrower, nor to any other
person or entity other than Borrower.
Section 11.12. Entirety.
(a) This Loan Agreement and the Debentures and the other
Loan Documents issued pursuant thereto contain the entire
agreement between the parties and supersede all prior agreements
and understandings, if any, relating to the subject matter hereof
and thereof.
Section 11.13. Headings.
(a) Section headings are for convenience of reference only
and, except as a means of identification of reference, shall in
no way affect the interpretation of this Loan Agreement.
Section 11.14. Survival.
(a) All representations and warranties made by Borrower
herein shall survive delivery of the Debentures and the making of
the Loans.
Section 11.15. Multiple Counterparts.
(a) This Loan Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one
and the same agreement, and any of the parties hereto may execute
this Loan Agreement by signing any such counterpart.
Section 11.16. GOVERNING LAW.
(a) THIS LOAN AGREEMENT HAS BEEN PREPARED, IS BEING EXECUTED
AND DELIVERED, AND IS INTENDED TO BE PERFORMED IN THE
STATE OF TEXAS, AND THE SUBSTANTIVE LAWS OF SUCH STATE
AND THE APPLICABLE FEDERAL LAWS OF THE UNITED STATES OF
AMERICA SHALL GOVERN THE VALIDITY, CONSTRUCTION,
ENFORCEMENT AND INTERPRETATION OF THIS LOAN AGREEMENT
AND ALL OF THE OTHER LOAN DOCUMENTS.
Section 11.17 Reference to Borrower.
(a) The term Borrower shall mean Packaging Research
Corporation and/or Mama Rizzo's, Inc. where the context of the
agreement makes such other reference appropriate.
(signature page follows)
IN WITNESS WHEREOF, the undersigned have executed this Loan
Agreement as of the day and year first above written.
CO-BORROWER
Address for Notice: Packaging Research Corporation
2582 South Tejon Street
Englewood, Colorado 80110 By: /s/ Robert A. Fillingham
Title: President
Attest by: /s/ Robert H. Porter
Title: Secretary
CO-BORROWER
Address for Notice: Mama Rizzo's, Inc.
8100 Westpark
Houston, Texas 77063
By: /s/ Robert A. Fillingham
Title: Chairman and CEO
Attest by: /s/ Robert H. Porter
Title: Secretary
LENDER
Address for Notice:
8080 North Central Expressway Renaissance Capital
Suite 210/LB59 Growth & Income Fund III, Inc.
Dallas, Texas 75206
214/891-8294
Fax: 214/891-8200 By: /s/ Vance M. Arnold
Title: Vice President
Attest
By: /s/ Barbe Butschek
Title: Secretary & Treasurer
THE STATE OF TEXAS )
COUNTY OF DALLAS )
This instrument was acknowledged before me on December 14,
1995, by Robert A. Fillingham, President of PRC, a Colorado
corporation.
Notary Public, State of TX
My Commission Expires: 4/13/96
Printed Name of Notary Cynthia S. Nelson
/s/ Cynthia S. Nelson
THE STATE OF TEXAS )
COUNTY OF DALLAS )
This instrument was acknowledged before me on December 14,
1995, by Robert A. Fillingham, Chairman of Mama Rizzo's, a
Colorado corporation.
Notary Public, State of TX
My Commission Expires: 4/13/96
Printed Name of Notary Cynthia S. Nelson
/s/ Cynthia S. Nelson
THE STATE OF TEXAS )
COUNTY OF DALLAS )
This instrument was acknowledged before me on December 14,
1995, by Vance M. Arnold, Vice President of RCG a Texas
corporation.
Notary Public, State of TX
My Commission Expires: 4/13/96
Printed Name of Notary Cynthia S. Nelson
/s/ Cynthia S. Nelson
