THIS DOCUMENT IS A COPY OF THE 8-K FILED ON MAY 22, 1995 PURSUANT TO RULE 201
TEMPORARY HARDSHIP EXEMPTION.
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) May 5, 1995
Polyphase Corporation
(Exact name of registrant as specified in its charter)
Nevada 1-9083 23-2708876
(State or other
jurisdiction of
incorporation) (Commission File
Number) (IRS Employer
Identification
No.)
16885 Dallas Parkway, Dallas, Texas
75248
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 732-
0010
<PAGE>
Item 2. Acquisition or Disposition of Assets
On May 5, 1995, Polyphase Corporation (the "Company"),
through its wholly owned subsidiary, Overhill Farms, Inc.
("Overhill"), purchased (the "Purchase") substantially all of the
operating assets of IBM Foods, Inc., a California corporation
("IBM"), for approximately $29.7 million in cash (the "Purchase
Price"), subject to certain adjustments as specified in the Asset
Purchase Agreement, dated May 5, 1995 (the "Asset Purchase
Agreement"). The Company has guaranteed to IBM the performance
by Overhill of all of Overhill's duties and obligations under the
Asset Purchase Agreement. In addition, the sole shareholder of
IBM, Maurice H. Gettleman, has guaranteed to Overhill the
performance by IBM of all of IBM's duties and obligations under
the Asset Purchase Agreement.
Prior to its acquisition by Overhill, IBM was engaged in the
business of preparing packaged meals for customers, such as
airlines, hotels and health organizations (the "Business").
Overhill intends to use the assets acquired from IBM to engage in
substantially the same Business. The assets acquired by Overhill
pursuant to the Asset Purchase Agreement include, without
limitation, the following: (i) all accounts receivable of IBM,
(ii) all of the inventory of IBM, (iii) substantially all of the
contracts, licenses, current insurance policies and other
commitments and arrangements of IBM in existence on the closing
date of the acquisition (the "Closing Date"), (iv) all the rights
of IBM under leases of real property used in the Business, (v)
all supplies, recipes, product lines, and trade secrets of IBM
and (vi) certain other miscellaneous assets of IBM used in the
Business. Pursuant to the Asset Purchase Agreement, Overhill has
also agreed to assume certain of IBM's trade payables, accrued
expenses, leases and other obligations.
In addition to approximately $4,000,000 in cash contributed
directly by Overhill, payment of the Purchase Price was
facilitated through (i) the issuance by Overhill of a 13% Senior
Subordinated Note in the principal amount of $13,000,000 (the
"Senior Subordinated Note") to Rice Partners II, L.P. ("Rice"),
(ii) a draw down by Overhill of $9,700,000 under the terms of a
$12,000,000 revolving credit facility (the "Revolving Credit
Facility") with FINOVA Capital Corporation ("Finova"), which was
established by Overhill in connection with the Purchase, (iii)
the issuance by Overhill of a Secured Promissory Note in the
principal amount of $2,000,000 (the "First Secured Note") to
Finova and (iv) the issuance by Overhill of a Secured Promissory
Note in the principal amount of $4,000,000 (the "Second Secured
Note" and with the First Secured Note, the "Secured Notes").
The Senior Subordinated Note bears interest at 13% per annum
and interest is payable on the Senior Subordinated Note on the
last business day of each calendar quarter. Principal on the
Senior Subordinated Note is payable in two equal annual
installments of $6,500,000 on each of April 29, 2002 and
April 29, 2003. The Secured Notes bear per annum interest at
2.5% plus the rate of interest announced publicly by Citibank,
<PAGE>
N.A. from time to time as its "base rate" (the "Base Rate") and
interest is payable on the Secured Notes on the first business
day of each calendar month. Principal on the First Secured Note
is due and payable in 59 equal successive monthly installments of
$33,333 on the first business day of each calendar month,
commencing June 1, 1995, with all remaining amounts outstanding
due and payable in a final installment on May 1, 2000. Principal
on the Second Secured Note is due and payable in 47 equal
successive monthly installments of $83,333 on the first business
day of each calendar month, commencing June 1, 1995, with all
remaining amounts outstanding due and payable in a final
installment on May 1, 1999. Amounts outstanding from time to
time under the Revolving Credit Facility bear per annum interest
at 1.5% plus the Base Rate. The final maturity of the Revolving
Credit Facility is May 5, 1998. All amounts outstanding under
the Secured Notes are due and payable on the final maturity of
the Revolving Credit Facility, unless such facility is extended.
Amounts outstanding under the Revolving Credit Facility and
the Secured Notes are secured by all inventory, equipment,
receivables and general intangibles, now owned or hereafter
acquired, by Overhill. The Company has also guaranteed
Overhill's obligations under the Revolving Credit Facility and
the Secured Notes and has pledged all of the outstanding stock of
Overhill owned by the Company to secure such obligations pursuant
to that certain Nonrecourse Continuing Corporate Guaranty, dated
May 5, 1995, by the Company (the "Guaranty"). Pursuant to the
terms of an Intercreditor and Subordination Agreement, dated
May 5, 1995 (the "Intercreditor Agreement"), among Overhill, Rice
and Finova, subject to certain exceptions enumerated in the
Intercreditor Agreement, the Senior Subordinated Note is
expressly subordinate in right of payment to all amounts at any
time outstanding from Overhill to Finova.
The Company currently owns all of the outstanding capital
stock of Overhill. However, in connection with the issuance of
the Senior Subordinated Note, Overhill issued to Rice common
stock purchase warrants (the "Warrants") entitling Rice to
purchase up to 22.5% of the common stock, par value $.01 per
share, of Overhill for an aggregate exercise price of $100. The
Warrants are immediately exercisable and will expire on May 5,
2005.
The terms of the Asset Purchase Agreement, the Senior
Subordinated Note, the Revolving Credit Facility, the Secured
Notes, the Warrants and the Intercreditor Agreement are set forth
in the Asset Purchase Agreement, that certain Note Purchase
Agreement, dated May 5, 1995, among Overhill and Rice, that
certain Loan and Security Agreement, dated May 5, 1995, among
Overhill and Finova, that certain Warrant Purchase Agreement,
dated May 5, 1995, among Overhill, the Company and Rice, the
Guaranty, and the Intercreditor Agreement. Reference is made to
the documents listed above, each of which is included as an
exhibit to this current report, for a more complete description
of the terms and provisions of each such document. The terms of
the documents with Rice and Finova restrict the ability of the
<PAGE>
Company to realize cash from Overhill, whether by loan, dividend
or otherwise, to an amount of $250,000 per year.
Item 7. Financial Statements and Exhibits
The following exhibits are furnished in accordance with Item
601 of Regulation S-K.
1. Loan and Security Agreement, dated May 5, 1995, among
FINOVA Capital Corporation and Overhill Farms, Inc.
2. Secured Promissory Note in principal amount of
$2,000,000, dated May 5, 1995.
3. Secured Promissory Note in principal amount of
$4,000,000, dated May 5, 1995.
4. Intercreditor and Subordination Agreement, dated May 5,
1995, among FINOVA Capital Corporation, Rice Partners II, L.P.,
and Overhill Farms, Inc.
5. Note Purchase Agreement, dated May 5, 1995, among Rice
Partners II, L.P. and Overhill Farms, Inc.
6. Warrant Purchase Agreement, dated May 5, 1995, among
Rice Partners II, L.P., Polyphase Corporation and Overhill Farms,
Inc.
7. Warrant, dated May 5, 1995.
8. Shareholder Agreement, dated May 5, 1995, among Rice
Partners II, L.P., Polyphase Corporation and Overhill Farms, Inc.
9. Senior Subordinated Note in principal amount of
$13,000,000, dated May 5, 1995.
10. Asset Purchase Agreement, dated May 5, 1995, among IBM
Foods, Inc. and Overhill Farms, Inc., and acknowledged by
Polyphase Corporation and Maurice H. Gettleman.
11. Nonrecourse Continuing Corporate Guaranty, dated May 5,
1995, by Polyphase Corporation.
It is impracticable to provide the required financial
statements for the acquired business at this time. The
registrant will file such financial statements as soon as
practicable, but no later than 60 days after this report must be
filed.
<PAGE>
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 of the undersigned hereunto duly authorized.
POLYPHASE CORPORATION
(Registrant)
Date: May 22, 1995 By: /s/ Paul A. Tanner
Print Name: Paul A. Tanner
Title: President
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Exhibit Sequentially
Numbered Page
1 Loan and Security
Agreement, dated May 5,
1995, among FINOVA
Capital Corporation and
Overhill Farms, Inc.
2 Secured Promissory Note
in principal amount of
$2,000,000, dated May 5,
1995.
3 Secured Credit
Promissory Note in
principal amount of
$4,000,000, dated May 5,
1995.
4 Intercreditor and
Subordination Agreement,
dated May 5, 1995, among
FINOVA Capital
Corporation, Rice
Partners II, L.P., and
Overhill Farms, Inc.
5 Note Purchase Agreement,
dated May 5, 1995, among
Rice Partners II, L.P.
and Overhill Farms, Inc.
6 Warrant Purchase
Agreement, dated May 5,
1995, among Rice
Partners II, L.P.,
Polyphase Corporation
and Overhill Farms, Inc.
7 Warrant, dated May 5,
1995.
8 Shareholder Agreement,
dated May 5, 1995, among
Rice Partners II, L.P.,
Polyphase Corporation
and Overhill Farms, Inc.
9 Senior Subordinated Note
in principal amount of
$13,000,000, dated May
5, 1995.
<PAGE>
10 Asset Purchase
Agreement, dated May 5,
1995, among IBM Foods,
Inc. and Overhill Farms,
Inc., and acknowledged
by Polyphase Corporation
and Maurice H.
Gettleman.
11 Nonrecourse Continuing
Corporate Guaranty,
dated May 5, 1995, by
Polyphase Corporation
<PAGE>
FINOVA
Loan and Security Agreement
Borrower: Overhill Farms, Inc.
Address: 5730 Uplander Way
Culver City, California 90230
Date: As of May 5, 1995
THIS LOAN AND SECURITY AGREEMENT ("Agreement") dated the date set
forth above, is entered into by and between the borrower named
above (jointly and severally, the "Borrower"), whose address is
set forth above and FINOVA Capital Corporation ("FINOVA"), whose
address is 201 North Figueroa Street, Suite 900, Los Angeles,
California 90012.
1. LOANS.
1.1 Total Facility. Upon the terms and conditions set forth
herein and provided that no Event of Default or event which, with
the giving of notice or the passage of time, or both, would
constitute an Event of Default, shall have occurred and be
continuing, FINOVA shall, upon Borrower's request, make advances
to Borrower from time to time in an aggregate outstanding
principal amount not to exceed the Total Facility amount (the
"Total Facility") set forth on the schedule hereto (the
"Schedule"), subject to deduction of reserves for accrued
interest and such other reserves as FINOVA deems proper from time
to time, and less amounts FINOVA may be obligated to pay in the
future on behalf of Borrower. The Schedule is an integral part
of this Agreement and all references to "herein", "herewith" and
words of similar import shall for all purposes be deemed to
include the Schedule.
1.2 Loans. Advances under the Total Facility ("Loans") shall be
comprised of the amounts shown on the Schedule.
1.3 Overlines. If at any time or for any reason the outstanding
amount of advances made pursuant hereto exceeds any of the dollar
or percentage limitations contained in the Schedule (any such
excess, an "Overline"), then Borrower shall, upon FINOVA's
demand, immediately pay to FINOVA, in cash, the full amount of
such Overline. Without limiting Borrower's obligation to repay
to FINOVA on demand the amount of any Overline, Borrower agrees
to pay FINOVA interest on the outstanding principal amount of any
Overline, on demand, at the rate set forth on the Schedule.
1.4 Loan Account. All advances made hereunder shall be added to
and deemed part of the Obligations when made. FINOVA may from
time to time charge all Obligations of Borrower to Borrower's
loan account with FINOVA.
<PAGE>
2. CONDITIONS PRECEDENT.
2.1 Initial Advance. The obligation of FINOVA to make the
initial advance hereunder is subject to the fulfillment or waiver
in writing by FINOVA, to the satisfaction of FINOVA and its
counsel, of each of the following conditions on or prior to the
date set forth on the Schedule:
(a) Loan Documents. FINOVA shall have received each of the
following Loan Documents: (i) Fixed Asset Notes, if any, in
such amounts and on such terms and conditions as FINOVA shall
specify, executed by Borrower; (ii) Validity Guaranty executed
by the Validity Guarantor; (iii) such security agreements,
intellectual property assignments as FINOVA may require with
respect to this Agreement, executed by each of the parties
thereto and, if applicable, duly acknowledged for recording or
filing in the appropriate governmental offices; (iv)
Intercreditor and Subordination Agreement executed by the
Subordinating Creditor, together with copies of all instruments
subject thereto showing a legend indicating such subordination;
(v) such Blocked Account or Dominion Account agreements as it
shall determine; (vi) a pledge agreement and pledge of the stock
of Borrower; and (vii) such other documents, instruments and
agreements in connection herewith as FINOVA shall require,
executed, certified and/or acknowledged by such parties as FINOVA
shall designate;
(b) Terminations by Existing Lender. Borrower's (and IBM Foods,
Inc.'s ("Seller")) existing lender(s) shall have executed and
delivered UCC termination statements and other documentation
evidencing the termination of its liens and security interests in
the assets of Borrower or a subordination agreement in form and
substance satisfactory to FINOVA in its sole discretion;
(c) Charter Documents. FINOVA shall have received copies of
Borrower's By-laws and Articles or Certificate of Incorporation,
as amended, modified, or supplemented to the Closing Date,
certified by the Secretary of Borrower;
(d) Good Standing. FINOVA shall have received a certificate of
corporate status with respect to Borrower and Seller, dated
within ten (10) days of the Closing Date, by the Secretary of
State of the state of incorporation of Borrower and Seller, as
applicable, which certificate shall indicate that Borrower is in
good standing in such state;
(e) Foreign Qualification. FINOVA shall have received
certificates of corporate status with respect to Borrower, each
dated within ten (10) days of the Closing Date, issued by the
Secretary of State of each state in which Borrower's failure to
be duly qualified or licensed would have a material adverse
effect on its financial condition or assets, indicating that
Borrower is in good standing;
<PAGE>
(f) Authorizing Resolutions and Incumbency. FINOVA shall have
received a certificate from the Secretary of Borrower attesting
to (i) the adoption of resolutions of Borrower's Board of
Directors authorizing the borrowing of money from FINOVA and the
execution and delivery of this Agreement and the other Loan
Documents to which Borrower is a party, and authorizing specific
officers of Borrower to execute same, and (ii) the authenticity
of original specimen signatures of such officers;
(g) Property Insurance. FINOVA shall have received the
insurance certificates and certified copies of policies required
by Section 4.4 hereof, along with a BFU438 Lender's Loss Payable
Endorsement naming FINOVA as sole loss payee, all in form and
substance satisfactory to FINOVA and its counsel;
(h) Title Insurance. FINOVA shall have received binding
commitments to issue such title insurance with respect to
Collateral or security for Guaranties which is comprised of real
property as it shall determine;
(i) Searches; Certificates of Title. FINOVA shall have received
searches reflecting the filing of its financing statements and
fixture filings in such jurisdictions as it shall determine, and
shall have received certificates of title with respect to the
Collateral which shall have been duly executed in a manner
sufficient to perfect all of the security interests granted to
FINOVA;
(j) Fees. Borrower shall have paid all fees payable by it on
the Closing Date pursuant to this Agreement;
(k) Opinion of Counsel. FINOVA shall have received an opinion
of Borrower's counsel covering such matters as FINOVA shall
determine in its sole discretion;
(l) Officer Certificate. FINOVA shall have received a
certificate of the President and the Chief Financial Officer or
similar official of Borrower, attesting to the accuracy of each
of the representations and warranties of Borrower set forth in
this Agreement and the fulfillment of all conditions precedent to
the initial advance hereunder;
(m) Solvency Certificate. If requested by FINOVA, a signed
certificate of the Borrower s duly elected Chief Financial
Officer concerning the solvency and financial condition of
Borrower, on FINOVA s standard form;
(n) Blocked Account. The Blocked Account referred to in Section
7.3 hereof shall have been established to the satisfaction of
FINOVA in its sole discretion;
(o) Environmental Assessment. If required by FINOVA, Borrower
shall have caused a Phase I Environmental Assessment to be
conducted on the property or properties owned or occupied by
<PAGE>
Borrower at the Closing Date, all at Borrower's own expense and
the results of such assessment(s) shall have been in form and
substance satisfactory to FINOVA in its sole discretion. Such
assessment(s) shall have included, in FINOVA's discretion, core
samplings, and shall have been conducted by an environmental
engineer acceptable to FINOVA;
(p) Environmental Certificate. FINOVA shall have received an
Environmental Certificate from Borrower, in form and substance
satisfactory to FINOVA in its discretion, with respect to all
locations of Collateral; and
(q) Closing. The acquisition by Borrower of the assets of
Seller shall have closed and Borrower shall have good title to
the assets of Seller free and clear of liens other than that
granted to FINOVA hereunder.
(r) Equity. Guarantor shall have caused at least $4,000,000 to
be contributed to Borrower as permanent equity as evidenced by
payment to the Seller.
(s) Acquisition Documents. All acquisition documents between
Seller and Borrower shall be in form and substance acceptable to
FINOVA and its counsel, in their discretion.
(t) Review. FINOVA shall have received the results of a
"Special Purpose Review" from a "big six" accounting firm and the
results shall be acceptable to FINOVA in its discretion.
(u) Subordination. Borrower shall have received not less than
$10,000,000 in loans subject to the Intercreditor and
Subordination Agreement and an additional $3,000,000 by May 15,
1995.
(v) Inventory. FINOVA shall have obtained satisfactory
findings, in its discretion, of inventory test counts conducted
by FINOVA's auditors at each of the three production facilities
and the Los Angeles warehouse.
(w) Certain Landlord Waivers. FINOVA shall have received
landlord waivers from Maurice Gettleman as lessor at all
locations where applicable; and
(x) Other Matters. All other documents and legal matters in
connection with the transactions contemplated by this Agreement
shall have been delivered, executed or recorded and shall be in
form and substance satisfactory to FINOVA and its counsel.
2.2 Subsequent Advances. The obligation of FINOVA to make any
advance (including the initial advance) shall be subject to the
further conditions precedent that, on and as of the date of such
advance:
(a) the representations and warranties of Borrower set forth in
<PAGE>
this Agreement shall be accurate, before and after giving effect
to such advance or issuance and to the application of any
proceeds thereof;
(b) no Event of Default and no event which, with notice or
passage of time or both, would constitute an Event of Default
has occurred and is continuing, or would result from such advance
or issuance or from the application of any proceeds thereof;
(c) no event has occurred which would result in a Material
Adverse Effect; and
(d) FINOVA shall have received such other approvals, opinions or
documents as FINOVA shall reasonably request.
3. INTEREST RATE AND OTHER CHARGES.
3.1 Interest; Fees. Borrower shall pay FINOVA interest on the
daily outstanding balance of Borrower's loan account at the per
annum rate set forth on the Schedule. Borrower shall also pay
FINOVA the fees set forth on the Schedule.
3.2 Default Interest Rate. Upon the occurrence and during the
continuation of an Event of Default, Borrower shall pay FINOVA
interest on the daily outstanding balance of Borrower's loan
account at a rate per annum which is two percent (2%) in excess
of the rate which would otherwise be applicable thereto pursuant
to the Schedule.
3.3 Examination Fees. Borrower agrees to pay to FINOVA an
examination fee in the amount set forth on the Schedule in
connection with each audit or examination of Borrower performed
by FINOVA prior to or after the date hereof.
3.4 Excess Interest. The contracted for rate of interest of the
loan contemplated hereby, without limitation, shall consist of
the following: (i) the interest rate set forth on the Schedule,
calculated and applied to the principal balance of the
Obligations in accordance with the provisions of this Agreement;
(ii) interest after an Event of Default, calculated and applied
to the amount of the Obligations in accordance with the
provisions hereof; and (iii) all Additional Sums (as herein
defined), if any. Borrower agrees to pay an effective contracted
for rate of interest which is the sum of the above-referenced
elements. The examination fees, attorneys fees, expert witness
fees, letter of credit fees, collateral monitoring fees, closing
fees, facility fees, Termination Fees, Minimum Interest Charges,
other charges, goods, things in action or any other sums or
things of value paid or payable by Borrower (collectively, the
"Additional Sums"), whether pursuant to this Agreement or any
other documents or instruments in any way pertaining to this
lending transaction, or otherwise with respect to this lending
transaction, that under any applicable law may be deemed to be
interest with respect to this lending transaction, for the
<PAGE>
purpose of any applicable law that may limit the maximum amount
of interest to be charged with respect to this lending
transaction, shall be payable by Borrower as, and shall be deemed
to be, additional interest and for such purposes only, the agreed
upon and "contracted for rate of interest" of this lending
transaction shall be deemed to be increased by the rate of
interest resulting from the inclusion of the Additional Sums.
It is the intent of the parties to comply with the usury laws
of the State of Arizona (the "Applicable Usury Law").
Accordingly, it is agreed that notwithstanding any provisions to
the contrary in this Agreement, or in any of the documents
securing payment hereof or otherwise relating hereto, in no event
shall this Agreement or such documents require the payment or
permit the collection of interest in excess of the maximum
contract rate permitted by the Applicable Usury Law (the "Maximum
Interest Rate"). In the event (a) any such excess of interest
otherwise would be contracted for, charged or received from
Borrower or otherwise in connection with the loan evidenced
hereby, (b) the maturity of the Obligations is accelerated in
whole or in part, or (c) all or part of the Obligations shall be
prepaid, so that under any of such circumstances the amount of
interest contracted for, shared or received in connection with
the loan evidenced hereby, would exceed the Maximum Interest
Rate, then in any such event (1) the provisions of this paragraph
shall govern and control, (2) neither Borrower nor any other
person or entity now or hereafter liable for the payment of the
Obligations shall be obligated to pay the amount of such interest
to the extent that it is in excess of the Maximum Interest Rate,
(3) any such excess which may have been collected shall be either
applied as a credit against the then unpaid principal amount of
the Obligations or refunded to Borrower, at FINOVA's option, and
(4) the effective rate of interest shall be automatically reduced
to the Maximum Interest Rate. It is further agreed, without
limiting the generality of the foregoing, that to the extent
permitted by the Applicable Usury Law; (x) all calculations of
interest which are made for the purpose of determining whether
such rate would exceed the Maximum Interest Rate shall be made by
amortizing, prorating, allocating and spreading during the period
of the full stated term of the loan evidenced hereby, all
interest at any time contracted for, charged or received from
Borrower or otherwise in connection with such loan; and (y) in
the event that the effective rate of interest on the loan should
at any time exceed the Maximum Interest Rate, such excess
interest that would otherwise have been collected had there been
no ceiling imposed by the Applicable Usury Law shall be paid to
FINOVA from time to time, if and when the effective interest rate
on the loan otherwise falls below the Maximum Interest Rate, to
the extent that interest paid to the date of calculation does not
exceed the Maximum Interest Rate, until the entire amount of
interest which would otherwise have been collected had there been
no ceiling imposed by the Applicable Usury Law has been paid in
full. Borrower further agrees that should the Maximum Interest
Rate be increased at any time hereafter because of a change in
<PAGE>
the Applicable Usury Law, then to the extent not prohibited by
the Applicable Usury Law, such increases shall apply to all
indebtedness evidenced hereby regardless of when incurred; but,
again to the extent not prohibited by the Applicable Usury Law,
should the Maximum Interest Rate be decreased because of a change
in the Applicable Usury Law, such decreases shall not apply to
the indebtedness evidenced hereby regardless of when incurred.
4. COLLATERAL.
4.1 Security Interest in the Collateral. To secure the payment
and performance of the Obligations when due, Borrower hereby
grants to FINOVA a security interest in all of Borrower's now
owned or hereafter acquired or arising Inventory, Equipment,
Receivables, and General Intangibles, including, without
limitation, all of Borrower's Deposit Accounts, money, any and
all property now or at any time hereafter in FINOVA's possession
(including claims and credit balances), and all proceeds
(including proceeds of any insurance policies, proceeds of
proceeds and claims against third parties), all products and all
books and records related to any of the foregoing (all of the
foregoing, together with all other property in which FINOVA may
be granted a lien or security interest, is referred to herein,
collectively, as the "Collateral").
4.2 Perfection and Protection of Security Interest. Borrower
shall, at its expense, take all actions reasonably requested by
FINOVA at any time to perfect, maintain, protect and enforce
FINOVA's security interest and other rights in the Collateral and
the priority thereof from time to time, including, without
limitation, (i) executing and filing financing or continuation
statements and amendments thereof and executing and delivering
such documents and titles in connection with motor vehicles as
FINOVA shall require, all in form and substance satisfactory to
FINOVA, (ii) maintaining a perpetual inventory consistent with
past practices and complete and accurate stock records,
(iii) delivering to FINOVA warehouse receipts covering any
portion of the Collateral located in warehouses and for which
warehouse receipts are issued, and transferring Inventory to
warehouses designated by FINOVA, (iv) placing notations on
Borrower's books of account to disclose FINOVA's security
interest therein, and (v) delivering to FINOVA all letters of
credit on which Borrower is named beneficiary. FINOVA may file,
without Borrower's signature, one or more financing statements
disclosing FINOVA's security interest under this Agreement.
Borrower agrees that a carbon, photographic, photostatic or other
reproduction of this Agreement or of a financing statement is
sufficient as a financing statement. If any Collateral is at any
time in the possession or control of any warehouseman, bailee or
any of Borrower's agents or processors, Borrower shall notify
such Person of FINOVA's security interest in such Collateral and,
upon the occurrence and continuation of an Event of Default and
at FINOVA's request, instruct them to hold all such Collateral
<PAGE>
for FINOVA's account subject to FINOVA's instructions. From time
to time, Borrower shall, upon FINOVA's reasonable request,
execute and deliver confirmatory written instruments pledging the
Collateral to FINOVA, but Borrower's failure to do so shall not
affect or limit FINOVA's security interest or other rights in and
to the Collateral. Until the Obligations have been fully
satisfied and FINOVA's obligation to make further advances
hereunder has terminated, FINOVA's security interest in the
Collateral shall continue in full force and effect.
4.3 Preservation of Collateral. FINOVA may, in its discretion
reasonably exercised, at any time discharge any lien or
encumbrance on the Collateral or bond the same, pay any
insurance, maintain representatives of FINOVA at the premises of
Borrower, pay any service bureau, obtain any record or take any
other action to preserve the Collateral and charge the cost
thereof to Borrower's loan account as an Obligation.
4.4 Insurance. Borrower shall insure the Collateral against
loss or damage by fire, theft, burglary, pilferage, loss in
transit and such other hazards as FINOVA shall specify, in
amounts, form, under policies and by insurers acceptable to
FINOVA, with a rating by A.M. Best Company, Inc., of at least AA.
Each policy shall include a provision requiring thirty (30) days'
prior written notice to FINOVA of any cancellation or substantial
modification and shall contain a lender's loss payable
indorsement in favor of FINOVA in form acceptable to FINOVA. All
premiums shall be paid by Borrower as and when due and accurate
and complete copies of the policies shall be delivered by
Borrower to FINOVA. If Borrower fails to do so, FINOVA may (but
shall not be required to) procure such insurance at Borrower's
expense and to charge the cost thereof to Borrower's loan account
as an Obligation.
5. EXAMINATION OF RECORDS; FINANCIAL REPORTING.
5.1 Examinations. FINOVA shall at all reasonable times during
normal business hours have full access to and the right to
examine, audit, make abstracts and copies from and inspect
Borrower's records, files, books of account and all other
documents, instruments and agreements relating to the Collateral
and the right to check, test and appraise the Collateral.
Borrower shall deliver to FINOVA any instrument necessary for
FINOVA to obtain records from any service bureau maintaining
records for Borrower. All instruments and certificates prepared
by Borrower showing the value of any of the Collateral shall be
accompanied, upon FINOVA's request, by copies of related purchase
orders and invoices. FINOVA may, at any time after the
occurrence of an Event of Default, remove from Borrower's
premises Borrower's books and records (or copies thereof) or
require Borrower to deliver such books and records or copies to
FINOVA. FINOVA may, without expense to FINOVA, use such of
Borrower's personnel, supplies and premises as may be reasonably
necessary for maintaining or enforcing FINOVA's security
<PAGE>
interest.
5.2 Reporting Requirements. Borrower shall furnish FINOVA, upon
request, such information and statements as FINOVA shall request
from time to time regarding Borrower's business affairs,
financial condition and the results of its operations. Without
limiting the generality of the foregoing, Borrower shall provide
FINOVA with (i) copies of sales invoices, customer statements and
credit memoranda issued, remittance advices and reports and
copies of deposit slips, daily; (ii) copies of shipping and
delivery documents, upon request; (iii) on or prior to the date
set forth on the Schedule, monthly agings and reconciliations of
Receivables, payables reports, inventory reports and unaudited
financial statements with respect to the prior month prepared on
a basis consistent with such statements prepared in prior months
and otherwise in accordance with generally accepted accounting
principles, consistently applied; (iv) audited annual
consolidated and consolidating financial statements, prepared in
accordance with generally accepted accounting principles applied
on a basis consistent with the most recent Prepared Financials
provided to FINOVA by Borrower, including balance sheets, income
and cash flow statements, accompanied by the unqualified report
thereon of independent certified public accountants acceptable to
FINOVA, as soon as available, and in any event, within one
hundred twenty (120) days after the end of each of Borrower's
fiscal years; and (v) such certificates relating to the foregoing
as FINOVA may request, including, without limitation, a monthly
certificate from the president and the chief financial officer of
Borrower showing Borrower's compliance with each of the financial
covenants set forth in this Agreement, and stating whether any
Event of Default has occurred or event which, with giving of
notice or the passage of time, or both, would constitute an Event
of Default, and if so, the steps being taken to prevent or cure
such Event of Default.
5.3 Validity Guarantor's Financial Statements and Tax Returns.
Borrower shall cause each of the Validity Guarantors to deliver
to FINOVA such Validity Guarantor's annual financial statement
(in form acceptable to FINOVA) and a copy of its federal income
tax return with respect to the corresponding year, in each case
on the date when such tax return is due or, if earlier, on the
date when available.
6. COLLATERAL REPORTING; INVENTORY.
6.1 Invoices. Borrower shall not re-date any invoice or sale
from the original date thereof or make sales on extended terms
beyond those customary in Borrower's industry, or otherwise
extend or modify the term of any Receivable. If Borrower becomes
aware of any matter affecting any Receivable, including
information affecting the credit of the account debtor thereon,
Borrower shall promptly notify FINOVA in writing.
6.2 Instruments. In the event any Receivable is or becomes
<PAGE>
evidenced by a promissory note, trade acceptance or any other
instrument for the payment of money, Borrower shall immediately
deliver such instrument to FINOVA appropriately endorsed to
FINOVA and, regardless of the form of any presentment, demand,
notice of dishonor, protest or notice of protest with respect
thereto, Borrower shall remain liable thereon until such
instrument is paid in full.
6.3 Physical Inventory. Borrower shall conduct a physical count
of the Inventory at the end of each calendar quarter and promptly
supply FINOVA with a copy of such accounts accompanied by a
report of the value (calculated at the lower of cost or market
value on a first in, first out basis) of the Inventory and such
additional information with respect to the Inventory as FINOVA
may request from time to time.
6.4 Returns. For so long as no Event of Default has occurred
and is continuing and subject to the provisions of Section 9.2,
if any account debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower shall promptly
determine the reason for such return and promptly issue a credit
memorandum to the account debtor (sending a copy to FINOVA) in
the appropriate amount. In the event any attempted return occurs
after the occurrence of any Event of Default, Borrower shall
(i) hold the returned Inventory in trust for FINOVA,
(ii) segregate all returned Inventory from all of Borrower's
other property, (iii) conspicuously label the returned Inventory
as FINOVA's property, and (iv) immediately notify FINOVA of the
return of any Inventory, specifying the reason for such return,
the location and condition of the returned Inventory, and on
FINOVA's request deliver such returned Inventory to FINOVA.
Borrower shall not consign any Inventory.
7. PRINCIPAL PAYMENTS; PROCEEDS OF COLLATERAL.
7.1 Principal Payments. Except where evidenced by notes or
other instruments issued or made by Borrower to FINOVA
specifically containing payment provisions which are in conflict
with this Section 7.1 (in which event the conflicting provisions
of said notes or other instruments shall govern and control),
that portion of the Obligations consisting of principal payable
on account of Receivable Loans and Inventory Loans (if any) shall
be payable by Borrower to FINOVA immediately upon the earliest of
(i) the receipt by FINOVA or Borrower of any proceeds of any of
the Collateral, to the extent of said proceeds, (ii) the
occurrence of an Event of Default in consequence of which FINOVA
elects to accelerate the maturity and payment of such loans, and
(iii) any termination of this Agreement pursuant to Section 16
hereof; provided, however, that any Overline shall be payable on
demand pursuant to the provisions of Section 1.3 hereof.
7.2 Collections. Until FINOVA notifies Borrower to the
contrary, Borrower may make collection of all Receivables for
FINOVA and shall receive all payments as trustee of FINOVA and
<PAGE>
immediately deliver all payments to FINOVA in their original form
as set forth below, duly endorsed in blank. FINOVA or its
designee may, at any time, notify account debtors that the
Receivables have been assigned to FINOVA and of FINOVA's security
interest therein, and may collect the Receivables directly and
charge the collection costs and expenses to Borrower's loan
account. Borrower agrees that, in computing the charges under
this Agreement, all items of payment shall be deemed applied by
FINOVA on account of the Obligations one Business Day after
receipt by FINOVA of good funds which have been finally credited
to FINOVA's account, whether such funds are received directly
from Borrower or from the Blocked Account bank or the Dominion
Account bank, pursuant to Section 7.3 hereof. FINOVA is not,
however, required to credit Borrower's account for the amount of
any item of payment which is unsatisfactory to FINOVA in its sole
discretion and FINOVA may charge Borrower's loan account for the
amount of any item of payment which is returned to FINOVA unpaid.
7.3 Establishment of a Lockbox Account or Dominion Account. All
proceeds of Collateral shall, at the direction of FINOVA, be
deposited by Borrower into a lockbox account, or such other
"blocked account" as FINOVA may require (each, a "Blocked
Account") pursuant to an arrangement with such bank as may be
selected by Borrower and be acceptable to FINOVA. Borrower shall
issue to any such bank an irrevocable letter of instruction
directing said bank to transfer such funds so deposited to
FINOVA, either to any account maintained by FINOVA at said bank
or by wire transfer to appropriate account(s) of FINOVA. All
funds deposited in a Blocked Account shall immediately become the
sole property of FINOVA and Borrower shall obtain the agreement
by such bank to waive any offset rights against the funds so
deposited. FINOVA assumes no responsibility for any Blocked
Account arrangement, including without limitation, any claim of
accord and satisfaction or release with respect to deposits
accepted by any bank thereunder. Alternatively, FINOVA may
establish depository accounts in the name of FINOVA at a bank or
banks for the deposit of such funds (each, a "Dominion Account")
and Borrower shall deposit all proceeds of Receivables and all
cash proceeds of any sale of Inventory or, to the extent
permitted herein, Equipment or cause same to be deposited, in
kind, in such Dominion Accounts of FINOVA in lieu of depositing
same to Blocked Accounts.
7.4 Payments Without Deductions. Borrower shall pay principal,
interest, and all other amounts payable hereunder, or under any
related agreement, without any deduction whatsoever, including,
but not limited to, any deduction for any setoff or counterclaim.
7.5 Collection Days Upon Repayment. In the event Borrower
repays the Obligations in full at any time hereafter, such
payment in full shall be credited (conditioned upon final
collection) to Borrower's loan account one (1) Business Day after
FINOVA's receipt thereof.
<PAGE>
7.6 Monthly Accountings. FINOVA shall provide Borrower monthly
with an account of advances, charges, expenses and payments made
pursuant to this Agreement. Such account shall be deemed
correct, accurate and binding on Borrower and an account stated
(except for reverses and reapplications of payments made and
corrections of errors discovered by FINOVA), unless Borrower
notifies FINOVA in writing to the contrary within ninety (90)
days after each account is rendered, describing the nature of any
alleged errors or admissions.
8. POWER OF ATTORNEY.
Borrower appoints FINOVA and its designees as Borrower's
attorney, with the power to endorse Borrower's name on any
checks, notes, acceptances, money orders or other forms of
payment or security that come into FINOVA's possession; to sign
Borrower's name on any invoice or bill of lading relating to any
Receivable, on drafts against customers, on assignments of
Receivables, on notices of assignment, financing statements and
other public records, on verifications of accounts and on notices
to customers or account debtors; to send requests for
verification of Receivables to customers or account debtors;
after the occurrence of any Event of Default and so long as it is
continuing, to notify the post office authorities to change the
address for delivery of Borrower's mail to an address designated
by FINOVA and to open and dispose of all mail addressed to
Borrower; and to do all other things FINOVA deems necessary or
desirable to carry out the terms of this Agreement. Borrower
hereby ratifies and approves all acts of such attorney. Neither
FINOVA nor any of its designees shall be liable for any acts or
omissions nor for any error of judgment or mistake of fact or law
while acting as Borrower's attorney other than as a result of
gross negligence or willful misconduct. This power, being
coupled with an interest, is irrevocable until the Obligations
have been fully satisfied and FINOVA's obligation to provide
loans hereunder shall have terminated.
9. RECEIVABLES.
9.1 Eligibility. Borrower represents and warrants that each
Receivable covers and shall cover a bona fide sale or lease and
delivery by it of goods or the rendition by it of services in the
ordinary course of its business, and shall be for a liquidated
amount and FINOVA's security interest shall not be subject to any
offset, deduction, counterclaim, rights of return or
cancellation, lien or other condition. If any representation or
warranty herein is breached as to any Receivable or any
Receivable ceases to be an Eligible Receivable for any reason
other than payment thereof, then FINOVA may, in addition to its
other rights hereunder, designate any and all Receivables owing
by that account debtor as not Eligible Receivables; provided,
that FINOVA shall in any such event retain its security interest
in all Receivables, whether or not Eligible Receivables, until
the Obligations have been fully satisfied and FINOVA's obligation
<PAGE>
to provide loans hereunder has terminated.
9.2 Disputes. Borrower shall notify FINOVA promptly of all
disputes or claims, to the extent such disputes or claims are
$5,000 or more for any single event or $15,000 in the aggregate
during any calendar quarter, and settle or adjust such disputes
or claims at no expense to FINOVA, but no discount, credit or
allowance shall be granted to any account debtor and no returns
of merchandise shall be accepted by Borrower without FINOVA's
consent, except for discounts, credits and allowances made or
given in the ordinary course of Borrower's business. FINOVA may,
at any time after the occurrence and during the continuation of
an Event of Default, settle or adjust disputes or claims directly
with account debtors for amounts and upon terms which FINOVA
considers advisable in its reasonable credit judgment and, in all
cases, FINOVA shall credit Borrower's loan account with only the
net amounts received by FINOVA in payment of any Receivables.
10. EQUIPMENT.
Borrower shall keep and maintain the Equipment in good operating
condition and repair and make all necessary replacements thereto
to maintain and preserve the value and operating efficiency
thereof at all times consistent with Borrower's past practice,
ordinary wear and tear excepted. Borrower shall not permit any
item of Equipment to become a fixture (other than a trade
fixture) to real estate or an accession to other property, except
with the prior written consent of FINOVA, which consent will not
be unreasonably withheld.
11. OTHER LIENS; NO DISPOSITION OF COLLATERAL.
Borrower represents, warrants and covenants that (a) all
Collateral is and shall continue to be owned by it free and clear
of all liens, claims and encumbrances whatsoever (except for
FINOVA's security interest, Permitted Encumbrances, and such
other liens, claims and encumbrances as may be permitted by
FINOVA in its sole discretion from time to time in writing), and
(b) Borrower shall not, without FINOVA's prior written approval,
sell, encumber or dispose of or permit the sale, encumbrance or
disposal of any Collateral or any interest of Borrower therein,
except for (i) the sale of Inventory in the ordinary course of
Borrower's business, and (ii) the sale of any Equipment in an
aggregate amount not to exceed $35,000 for each calendar year.
The proceeds of any such sales shall be remitted to FINOVA
pursuant to this Agreement for application to the Obligations.
12. GENERAL REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants that:
12.1 Due Organization. It is a corporation duly organized,
validly existing and in good standing under the laws of the State
set forth on the Schedule, is qualified and authorized to do
<PAGE>
business and is in good standing in all states in which such
qualification and good standing are necessary in order for it to
conduct its business and own its property, and has all requisite
power and authority to conduct its business as presently
conducted, to own its property and to execute and deliver each of
the Loan Documents to which it is a party and perform all of its
Obligations thereunder, and has not taken any steps to wind-up,
dissolve or otherwise liquidate its assets;
12.2 Other Names. Borrower has not, during the preceding five
(5) years, been known by or used any other corporate or
fictitious name except as set forth on the Schedule, nor has
Borrower been the surviving corporation of a merger or
consolidation or acquired all or substantially all of the assets
of any person during such time other than those of the Seller;
12.3 Due Authorization. The execution, delivery and performance
by Borrower of the Loan Documents to which it is a party have
been authorized by all necessary corporate action and do not and
shall not constitute a violation of any applicable law or of
Borrower's Articles or Certificate of Incorporation or By-Laws or
any other document, agreement or instrument to which Borrower is
a party or by which Borrower or its assets are bound;
12.4 Binding Obligation. Each of the Loan Documents to which
Borrower is a party is the legal, valid and binding obligation of
Borrower enforceable against Borrower in accordance with its
terms;
12.5 Intangible Property. Borrower possesses adequate assets,
licenses, patents, patent applications, copyrights, trademarks,
trademark applications and trade names for the present and
planned future conduct of its business without any known conflict
with the rights of others, and each is valid and has been duly
registered or filed with the appropriate governmental
authorities;
12.6 Capital. Borrower has capital sufficient to conduct its
business, is able to pay its debts as they mature and owns
property having a fair salable value greater than the amount
required to pay all of its debts (including contingent debts);
12.7 Material Litigation. Borrower has no pending or overtly
threatened litigation, actions or proceedings which would
materially and adversely affect its business, assets, operations,
prospects or condition, financial or otherwise, or the Collateral
or any of FINOVA's interests therein;
12.8 Title; Security Interests of FINOVA. Borrower has good,
indefeasible and merchantable title to the Collateral and, upon
the filing of UCC-1 Financing Statements and the recording of any
mortgages or deeds of trust with respect to real property, in
each case in the appropriate offices, this Agreement and such
documents shall create valid and perfected first priority liens
<PAGE>
in the Collateral, subject only to Permitted Encumbrances;
12.9 Restrictive Agreements; Labor Contracts. Borrower is not a
party or subject to any contract or subject to any charge,
corporate restriction, judgment, decree or order materially and
adversely affecting its business, assets, operations, prospects
or condition, financial or otherwise, or which restricts its
right or ability to incur Indebtedness (other than the
Subordinated Loan Documents and the Loan Documents), and it is
not party to any labor dispute. In addition, no labor contract
is scheduled to expire during the Initial Term of this Agreement,
except as disclosed to FINOVA in writing prior to the date
hereof;
12.10 Laws. Borrower is not in violation of any applicable
statute, regulation, ordinance or any order of any court,
tribunal or governmental agency, in any respect materially and
adversely affecting the Collateral or its business, assets,
operations, prospects or condition, financial or otherwise;
12.11 Consents. Borrower has obtained or caused to be obtained
or issued any required consent of a governmental agency or other
Person in connection with the financing contemplated hereby;
12.12 Defaults. Borrower is not in default with respect to any
note, indenture, loan agreement, mortgage, lease, deed or other
agreement to which it is a party or by which it or its assets are
bound, nor has any event occurred which, with the giving of
notice or the lapse of time, or both, would cause such a default;
12.13 Financial Condition. The Prepared Financials fairly
present Borrower's financial condition and results of operations
and those of such other Persons described therein as of the date
thereof; there are no material omissions from the Prepared
Financials or other facts or circumstances not reflected in the
Prepared Financials; and there has been no material and adverse
change in such financial condition or operations since the date
of the initial Prepared Financials delivered to FINOVA hereunder;
12.14 ERISA. None of Borrower, any ERISA Affiliate, or any Plan
is or has been in violation of any of the provisions of ERISA,
any of the qualification requirements of IRC Section 401(a) or
any of the published interpretations thereunder, nor has Borrower
or any ERISA Affiliate received any notice to such effect. No
notice of intent to terminate a Plan has been filed under Section
4041 of ERISA, nor has any Plan been terminated under ERISA. The
PBGC has not instituted proceedings to terminate, or appointed a
trustee to administer, a Plan. No lien upon the assets of
Borrower has arisen with respect to a Plan. No prohibited
transaction or Reportable Event has occurred with respect to a
Plan. Neither Borrower nor any ERISA Affiliate has incurred any
withdrawal liability with respect to any Multiemployer Plan.
Borrower and each ERISA Affiliate have made all contributions
required to be made by them to any Plan or Multiemployer Plan
<PAGE>
when due. There is no accumulated funding deficiency in any
Plan, whether or not waived;
12.15 Taxes. Borrower has filed all tax returns and such other
reports as it is required by law to file and has paid or made
adequate provision for the payment on or prior to the date when
due of all taxes, assessments and similar charges that are due
and payable;
12.16 Locations. Borrower's chief executive office and the
offices and locations where it keeps the Collateral (except for
Inventory in transit) are at the locations set forth on the
Schedule, except to the extent that such locations may have been
changed after notice to FINOVA in accordance with Section 13.5
below;
12.17 Business Relationships. There exists no actual or
threatened termination, cancellation or limitation of, or any
modification or change in, the business relationship between
Borrower and any customer or any group of customers whose
purchases individually or in the aggregate are material to the
business of Borrower, or with any material supplier, and there
exists no present condition or state of facts or circumstances
which would materially and adversely affect Borrower or prevent
Borrower from conducting such business after the consummation of
the transactions contemplated by this Agreement in substantially
the same manner in which it has heretofore been conducted; and
12.18 Reaffirmations. Each request for a loan made by Borrower
pursuant to this Agreement shall constitute (i) an automatic
representation and warranty by Borrower to FINOVA that there does
not then exist any Event of Default and (ii) a reaffirmation as
of the date of said request of all of the representations and
warranties of Borrower contained in this Agreement and the other
Loan Documents.
13. AFFIRMATIVE COVENANTS.
Borrower covenants that, so long as any Obligation remains
outstanding and this Agreement is in effect, it shall:
13.1 Expenses. Promptly reimburse FINOVA for all costs, fees
and expenses incurred by FINOVA in connection with the
negotiation, preparation, execution, delivery, administration and
enforcement of each of the Loan Documents, including, but not
limited to, the attorneys' and paralegals' fees of in-house and
outside counsel, expert witness fees, lien, title search and
insurance fees, appraisal fees, all charges and expenses incurred
in connection with any and all environmental reports and
environmental remediation activities, and all other costs,
expenses, taxes (other than franchise or those based on the net
income of FINOVA) and filing or recording fees payable in
connection with the transactions contemplated by this Agreement,
including without limitation all such costs, fees and expenses as
<PAGE>
FINOVA shall incur or for which FINOVA shall become obligated in
connection with (i) any inspection or verification of the
Collateral, (ii) any proceeding relating to the Loan Documents or
the Collateral, (iii) actions taken with respect to the
Collateral and FINOVA's security interest therein, including,
without limitation, the defense or prosecution of any action
involving FINOVA and Borrower or any third party,
(iv) enforcement of any of FINOVA's rights and remedies with
respect to the Obligations or Collateral, and (v) consultation
with FINOVA's attorneys and participation in any workout,
bankruptcy or other insolvency or other proceeding involving any
Loan Party or any Affiliate, whether or not suit is filed.
Borrower shall also pay all FINOVA charges in connection with
bank wire transfers, forwarding of loan proceeds, deposits of
checks and other items of payment, returned checks, establishment
and maintenance of lockboxes and other Blocked Accounts, and all
other bank and administrative matters, in accordance with
FINOVA s schedule of bank and administrative fees and charges in
effect from time to time;
13.2 Taxes. File all tax returns and pay or make adequate
provision for the payment of all taxes, assessments and other
charges on or prior to the date when due;
13.3 Notice of Litigation. Promptly notify FINOVA in writing of
any litigation, suit or administrative proceeding which may
materially and adversely affect the Collateral or Borrower's
business, assets, operations, prospects or condition, financial
or otherwise, whether or not the claim is covered by insurance;
13.4 ERISA. Notify FINOVA in writing (i) promptly upon the
occurrence of any event described in Paragraph 4043 of ERISA,
other than a termination, partial termination or merger of a Plan
or a transfer of a Plan's assets and (ii) prior to any
termination, partial termination or merger of a Plan or a
transfer of a Plan's assets;
13.5 Change in Location. Notify FINOVA in writing forty-five
(45) days prior to any change in the location of Borrower's chief
executive office or the location of any Collateral, or Borrower's
opening or closing of any other place of business;
13.6 Corporate Existence. Maintain its corporate existence and
its qualification to do business and good standing in all states
necessary for the conduct of its business and the ownership of
its property and maintain adequate assets, licenses, patents,
copyrights, trademarks and trade names for the conduct of its
business;
13.7 Labor Disputes. Promptly notify FINOVA in writing of any
material labor dispute to which Borrower is or may become subject
and the expiration of any material labor contract to which
Borrower is a party or bound;
<PAGE>
13.8 Violations of Law. Promptly notify FINOVA in writing of
any known violation of any law, statute, regulation or ordinance
of any governmental entity, or of any agency thereof, applicable
to Borrower which may materially and adversely affect the
Collateral or Borrower's business, assets, prospects, operations
or condition, financial or otherwise;
13.9 Defaults. Notify FINOVA in writing within five (5)
business days of Borrower's default under any note, indenture,
loan agreement, mortgage, lease or other agreement in excess of
$25,000 to which Borrower is a party or by which Borrower is
bound, or of any other default under any Indebtedness of
Borrower;
13.10 Capital Expenditures. On the first Business Day of each
month, promptly notify FINOVA in writing of the making of any
Capital Expenditure materially affecting Borrower's business,
assets, prospects, operations or condition, financial or
otherwise;
13.11 Books and Records. Keep adequate records and books of
account with respect to its business activities in which proper
entries are made in accordance with generally accepted accounting
principles consistently applied, reflecting all of its financial
transactions;
13.12 Leases; Warehouse Agreements. Provide FINOVA with (i)
copies of all agreements between Borrower and any landlord or
warehouseman which owns any premises at which any Collateral may,
from time to time, be located, and (ii) provide landlord and
mortgagee waivers in form acceptable to FINOVA with respect to
all locations where any Collateral is hereafter located;
13.13 Additional Documents. At FINOVA's request, promptly
execute or cause to be executed and delivered to FINOVA any and
all documents, instruments or agreements reasonably deemed
necessary by FINOVA to facilitate the collection of the
Obligations or the Collateral or otherwise to give effect to or
carry out the terms or intent of this Agreement or any of the
other Loan Documents. Without limiting the generality of the
foregoing, if any of the Receivables with a face value in excess
of $1,000.00 arises out of a contract with the United States of
America or any department, agency, subdivision or instrumentality
thereof, Borrower shall promptly notify FINOVA of such fact in
writing and shall execute any instruments and take any other
action required or requested by FINOVA to comply with the
provisions of the Federal Assignment of Claims Act; and
13.14 Excess Cash Flow Recapture. At the end of each fiscal
year, Borrower will pay fifty percent (50%) of its Excess Cash
Flow to FINOVA for application to the following Obligations in
the following order: first, to Term Loan B in the inverse order
of the maturities of the payments due thereunder until Term Loan
B is paid in full; next, to Term Loan A in the inverse order of
<PAGE>
the maturities of the payments due thereunder until Term Loan A
is paid in full; then, to the Revolving Loans. Such excess cash
flow recapture amount shall be determined and paid by Borrower
concurrently with the delivery of Borrower's monthly financial
statement required pursuant to Section 5.2 hereof for the last
month of the fiscal year. If the year end audited financial
statements reflects a greater sum owing to FINOVA under this
Section 13.14, Borrower will pay such additional sum on demand.
13.15 Landlord Waivers and Warehouse Agreements. For all
locations where any Collateral is located, Borrower will deliver
to FINOVA landlord waivers (other than the landlord waivers
delivered pursuant to Section 2.1(w) hereof) within thirty (30)
days after the Closing Date, and for all warehouses where
Borrower stores Inventory, Borrower will deliver to FINOVA a
warehouse agreement within ten (10) days after the Closing Date,
all in form and substance acceptable to FINOVA.
13.15 Financial Covenants. Comply with the financial covenants
set forth on the Schedule.
14. NEGATIVE COVENANTS.
Without FINOVA's prior written consent, which consent FINOVA may
withhold in its sole discretion, so long as any Obligation
remains outstanding and this Agreement is in effect, Borrower
shall not:
14.1 Mergers. Merge or consolidate with or acquire any other
Person, or make any other material change in its capital
structure (other than a change in capital structure arising from
the exercise of the Warrant) or in its business or operations
which might adversely affect the repayment of the Obligations or
have a Material Adverse Effect;
14.2 Loans. Make advances, loans or extensions of credit to, or
invest in, any Person other than Permitted Investments;
14.3 Dividends. Declare or pay cash dividends upon any of its
stock or distribute any of its property or redeem, retire,
purchase or acquire directly or indirectly any of its stock other
than on or after the fifth anniversary of the Closing Date,
redeem and purchase the Warrants, and any of its stock issued to
Subordinating Creditor upon exercise of the Warrants, in
accordance with the terms of the Warrant Documents unless an
Event of Default has occurred and is continuing or the foregoing
redemption or purchase would cause an Event of Default;
14.4 Adverse Transactions. Enter into any transaction which
materially and adversely affects the Collateral or its ability to
repay the Obligations in full as and when due;
14.5 Indebtedness of Others. Become directly or contingently
<PAGE>
liable for the Indebtedness of any Person, except by endorsement
of instruments for deposit;
14.6 Repurchase. Make a sale to any customer on a bill-and-
hold, guaranteed sale, sale and return, sale on approval,
consignment, or any other repurchase or return basis;
14.7 Name. Use any corporate or fictitious name other than its
corporate name as set forth in its Articles or Certificate of
Incorporation on the date hereof or as set forth on the Schedule;
14.8 Prepayment. Prepay any Indebtedness other than trade
payables and other than the Obligations;
14.9 Capital Expenditure. Make or incur any Capital Expenditure
if, after giving effect thereto, the aggregate amount of all
Capital Expenditures by Borrower in any fiscal year would exceed
the amount set forth on the Schedule;
14.10 Compensation. Pay total compensation, including salaries,
withdrawals, fees, bonuses, commissions, drawing accounts and
other payments, whether directly or indirectly, in money or
otherwise, during any fiscal year to all of Borrower's
executives, officers and directors (or any relative thereof) in
an amount in excess of the amount set forth on the Schedule;
14.11 Indebtedness. Create, incur, assume or permit to exist
any Indebtedness (including Indebtedness in connection with
Capital Leases) in excess of the amount set forth on the
Schedule, other than (i) the Obligations, (ii) trade payables and
other contractual obligations to suppliers and customers incurred
in the ordinary course of business, and (iii) other Indebtedness
existing on the date of this Agreement and reflected in the
Prepared Financials (except Indebtedness paid on the date of this
Agreement from proceeds of the initial advances hereunder) and
(iv) Indebtedness related to clause (f) of the definition of
Permitted Encumbrances;
14.12 Affiliate Transactions. Except as set forth below, sell,
transfer, distribute or pay any money or property to any
Affiliate, or invest in (by capital contribution or otherwise) or
purchase or repurchase any stock or Indebtedness, or any
property, of any Affiliate, or become liable on any guaranty of
the indebtedness, dividends or other obligations of any
Affiliate. Notwithstanding the foregoing, Borrower may pay
compensation permitted by Section 14.10 to employees who are
Affiliates and if no Event of Default has occurred and is
continuing, Borrower may pay Guarantor an amount not to exceed
$250,000 per year and, if no Event of Default has occurred and is
continuing, Borrower may engage in transactions with Affiliates
in the normal course of business, in amounts and upon terms which
are fully disclosed to FINOVA and which are no less favorable to
Borrower than would be obtainable in a comparable arm's length
<PAGE>
transaction with a Person who is not an Affiliate;
14.13 Nature of Business. Enter into any new business or make
any material change in any of Borrower's business objectives,
purposes or operations;
14.14 FINOVA's Name. Use the name of FINOVA in connection with
any of Borrower's business or activities, except in connection
with internal business matters or as required in dealings with
governmental agencies and financial institutions or with trade
creditors of Borrower, solely for credit reference purposes; or
14.15 Margin Security. Own, purchase or acquire (or enter into
any contract to purchase or acquire) any "margin security" as
defined by any regulation of the Federal Reserve Board as now in
effect or as the same may hereafter be in effect.
15. ENVIRONMENTAL MATTERS.
15.1 Definitions. The following definitions apply to the
provisions of this Section 15:
(a) the term "Applicable Law" shall include, but shall not be
limited to, each statute named or referred to in this Section
15.1 and all rules and regulations thereunder, and any other
local, state and/or federal laws, rules, regulations or
ordinances, whether currently in existence or hereafter enacted,
which govern, to the extent applicable to the Property or to
Borrower, (i) the existence, cleanup and/or remedy of
contamination on real property; (ii) the protection of the
environment from soil, air or water pollution, or from spilled,
deposited or otherwise emplaced contamination; (iii) the emission
or discharge of hazardous substances into the environment; (iv)
the control of hazardous wastes; or (v) the use, generation,
transport, treatment, removal or recovery of Hazardous
Substances;
(b) The term "Hazardous Substance" shall mean (i) any oil,
flammable substance, explosives, radioactive materials, hazardous
wastes or substances, toxic wastes or substances or any other
wastes, materials or pollutants which either pose a hazard to the
Property or to persons on or about the Property or cause the
Property to be in violation of any Applicable Law; (ii) asbestos
in any form which is or could become friable, urea formaldehyde
foam insulation, transformers or other equipment which contain
dielectric fluid containing levels of polychlorinated biphenyls,
or radon gas; (iii) any chemical, material or substance defined
as or included in the definition of "hazardous substances,"
"waste," "hazardous wastes," "hazardous materials," "extremely
hazardous waste," "restricted hazardous waste," or "toxic
substances" or words of similar import under any Applicable Law,
including, but not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 USC
Sect. 9601 et seq.; the Resource Conservation and Recovery Act
<PAGE>
("RCRA"), 42 USC Sect. 6901 et seq.; the Hazardous Materials
Transportation Act, 49 USC Sect. 1801 et seq.; the Federal Water
Pollution Control Act, 33 USC Sect. 1251 et seq.; the California
Hazardous Waste Control Law ("HWCL"), Cal. Health & Safety
Sect. 25100 et seq.; the Underground Storage of Hazardous
Substances Act (Cal. Health & Safety Sect. 25280 et seq.;
Hazardous Substance Account Act ("HSAA"), Cal. Health & Safety
Code Sect. 25300 et seq.; the Porter-Cologne Water Quality
Control Act (the "Porter-Cologne Act"), Cal. Water Code
Sect. 13000 et seq.; the Safe Drinking Water and Toxic
Enforcement Act of 1986 (Proposition 65); Title 22 of the
California Code of Regulations, Division 4, Chapter 30; (iv) any
other chemical, material or substance, exposure to which is
prohibited, limited or regulated by any governmental authority
which may or could pose a hazard to the health or safety of the
occupants of the Property or the owners and/or occupants of
property adjacent to or surrounding the Property, or any other
person coming upon the Property or adjacent property; and (v) any
other chemical, materials or substance which may or could pose a
hazard to the environment; and
(c) the term "Property" shall mean all real property, wherever
located, in which Borrower or any Affiliate of Borrower has any
right, title or interest, whether now existing or hereafter
arising, and including, without limitation, as owner, lessor or
lessee.
15.2 Covenants and Representations.
(a) Borrower represents and warrants that there have not been
during the period of Borrower's possession of any interest in the
Property and, to the best of its knowledge after reasonable
inquiry, there have not been at any other times, any activities
on the Property involving, directly or indirectly, the use,
generation, treatment, storage or disposal of any Hazardous
Substances except in compliance with Applicable Law (i) under, on
or in the land included in the Property, whether contained in
soil, tanks, sumps, ponds, lagoons, barrels, cans or other
containments, structures or equipment, (ii) incorporated in the
buildings, structures or improvements included in the Property,
including any building material containing asbestos, or
(iii) used in connection with any operations on or in the
Property.
(b) Without limiting the generality of the foregoing and to the
extent not included within the scope of this Section 15.2,
Borrower represents and warrants that, to the best of its
knowledge, it is in full compliance with Applicable Law and has
received no notice from any person or any governmental agency or
other entity of any violation by Borrower or its Affiliates of
any Applicable Law.
(c) Borrower shall be solely responsible for and agrees to
indemnify FINOVA, protect and defend FINOVA with counsel
<PAGE>
reasonably acceptable to FINOVA, and hold FINOVA harmless from
and against any claims, actions, administrative proceedings,
judgments, damages, punitive damages, penalties, fines, costs,
liabilities (including sums paid in settlements of claims),
interest or losses, attorneys' fees (including any fees and
expenses incurred in enforcing this indemnity), consultant fees,
expert fees, and other out-of-pocket costs or expenses actually
incurred by FINOVA (collectively, the "Environmental Costs"),
that may, at any time or from time to time, arise directly or
indirectly from or in connection with: (i) the presence,
suspected presence, release or suspected release of any Hazardous
Substance whether into the air, soil, surface water or
groundwater of or at the Property, or any other violation of
Applicable Law, or (ii) any breach of the foregoing
representations and covenants; except to the extent any of the
foregoing result from the actions of FINOVA, its employees,
agents and representatives. All Environmental Costs incurred or
advanced by FINOVA shall be deemed to be made by FINOVA in good
faith and shall constitute Obligations hereunder.
16. TERM; TERMINATION.
16.1 Term. The initial term of this Agreement shall be as set
forth on the Schedule (the "Initial Term") and shall be
automatically renewed for successive periods of one (1) year
(each, a "Renewal Term"), unless earlier terminated as provided
herein.
16.2 Prior Notice. Each party shall have the right to terminate
this Agreement at the end of the Initial Term or at the end of
any Renewal Term by giving the other party written notice not
less than sixty (60) days prior to the effective date of such
termination, by registered or certified mail.
16.3 Payment in Full. Upon the effective date of termination,
the Obligations shall become immediately due and payable in full
in cash.
16.4 Early Termination; Termination Fee. In addition to the
procedure set forth in Section 16.2, Borrower may terminate this
Agreement at any time but only upon sixty (60) days' prior
written notice and prepayment of the Obligations. Upon any such
early termination by Borrower or any termination of this
Agreement by FINOVA upon the occurrence of a material Event of
Default, then, and in any such event, Borrower shall pay to
FINOVA upon the effective date of such termination a fee (the
"Termination Fee") in an amount equal to the amount shown on the
Schedule. Notwithstanding the foregoing, if FINOVA materially
reduces the advance rate for Revolving Loans from that set forth
in this Agreement, Borrower may terminate this Agreement as set
forth in this Section 16.4 without a Termination Fee.
17. DEFAULT.
<PAGE>
17.1 Events of Default. Any one or more of the following events
shall constitute an Event of Default under this Agreement:
(a) Borrower fails to pay when due and payable any portion of
the Obligations at stated maturity, upon acceleration or
otherwise;
(b) Borrower or any other Loan Party fails or neglects to
perform, keep, or observe any Obligation including, but not
limited to, any term, provision, condition, covenant or agreement
contained in any Loan Document to which Borrower or such other
Loan Party is a party, except that with respect to Section 5.2
hereof, such failure or neglect by Borrower shall have continued
for a period of not more than five (5) days so long as such
extended period of time has not occurred more than three (3)
times during any calendar year;
(c) Any material adverse change occurs in Borrower's business,
assets, operations, prospects or condition, financial or
otherwise;
(d) The prospect of repayment of any portion of the Obligations
or the value or priority of FINOVA's security interest in the
Collateral is materially impaired;
(e) Any material portion of Borrower's assets is seized,
attached, subjected to a writ or distress warrant, is levied upon
or comes into the possession of any judicial officer;
(f) Borrower shall generally not pay its debts as they become
due or shall enter into any agreement (whether written or oral),
or offer to enter into any agreement, with all or a significant
number of its creditors regarding any moratorium or other
indulgence with respect to its debts or the participation of such
creditors or their representatives in the supervision, management
or control of the business of Borrower;
(g) Any bankruptcy or other insolvency proceeding is commenced
by Borrower, or any such proceeding is commenced against Borrower
and remains undischarged or unstayed for forty-five (45) days;
(h) Any notice of lien, levy or assessment is filed of record
with respect to any of Borrower's assets having a value in excess
of $50,000;
(i) Any judgments are entered against Borrower in an aggregate
amount exceeding $100,000 unless Borrower has posted a bond for
the full amount of such judgments;
(j) Any default shall occur under any material agreement between
Borrower and any third party including, without limitation, any
default which would result in a right by such third party to
accelerate the maturity of any Indebtedness of Borrower to such
third party;
<PAGE>
(k) Any representation or warranty made or deemed to be made by
Borrower, any Affiliate or any other Loan Party in any Loan
Document or any other statement, document or report made or
delivered to FINOVA in connection therewith shall prove to have
been misleading in any material respect;
(l) Any Guarantor terminates or attempts to terminate its
Guaranty or any security therefor or becomes subject to any
bankruptcy or other insolvency proceeding or any Validity
Guarantor dies, except that Borrower shall have sixty (60) days
to replace such Validity Guarantor with a Person acceptable to
FINOVA in its reasonable discretion;
(m) Any Prohibited Transaction or Reportable Event shall occur
with respect to a Plan which could have a material adverse effect
on the financial condition of Borrower; any lien upon the assets
of Borrower in connection with any Plan shall arise; Borrower or
any of its ERISA Affiliates shall fail to make full payment when
due of all amounts which Borrower or any of its ERISA Affiliates
may be required to pay to any Plan or any Multiemployer Plan as
one or more contributions thereto; Borrower or any of its ERISA
Affiliates creates or permits the creation of any accumulated
funding deficiency, whether or not waived;
(n) Any transfer of more than ten percent (10%) of the issued
and outstanding shares of common stock or other evidence of
ownership of Borrower (except in connection with the exercise of
the Warrant which may not exceed 22.5% of the outstanding voting
stock); or
(o) Any default shall occur under the Subordinated Loan
Documents.
17.2 Remedies. Upon the occurrence of an Event of Default,
FINOVA may, at its option and in its sole discretion and in
addition to all of its other rights under the Loan Documents,
terminate this Agreement and declare all of the Obligations to be
immediately payable in full. FINOVA shall also have all of its
rights and remedies under applicable law, including, without
limitation, the default rights and remedies of a secured party
under the Code. Further, upon the occurrence of an Event of
Default, FINOVA may, at any time, take possession of the
Collateral and keep it on Borrower's premises, at no cost to
FINOVA, or remove any part of it to such other place(s) as FINOVA
may desire, or Borrower shall, upon FINOVA's demand, at
Borrower's sole cost, assemble the Collateral and make it
available to FINOVA at a place reasonably convenient to FINOVA.
FINOVA may sell and deliver any Collateral at public or private
sales, for cash, upon credit or otherwise, at such prices and
upon such terms as FINOVA deems advisable, at FINOVA's
discretion, and may, if FINOVA deems it reasonable, postpone or
adjourn any sale of the Collateral by an announcement at the time
and place of sale or of such postponed or adjourned sale without
giving a new notice of sale. Borrower agrees that FINOVA has no
<PAGE>
obligation to preserve rights to the Collateral or marshall any
Collateral for the benefit of any Person. Upon the occurrence of
an Event of Default, FINOVA is hereby granted a license or other
right to use, without charge, Borrower's labels, patents,
copyrights, name, trade secrets, trade names, trademarks and
advertising matter, or any similar property, in completing
production, advertising or selling any Collateral and Borrower's
rights under all licenses and all franchise agreements shall
inure to FINOVA's benefit. Any requirement of reasonable notice
shall be met if such notice is mailed postage prepaid to Borrower
at its address set forth in the heading to this Agreement at
least five (5) days before sale or other disposition. The
proceeds of sale shall be applied, first, to all attorneys fees
and other expenses of sale, and second, to the Obligations in
such order as FINOVA shall elect, in its sole discretion. FINOVA
shall return any excess to Borrower and Borrower shall remain
liable for any deficiency to the fullest extent permitted by law.
17.3 Standards for Determining Commercial Reasonableness.
Borrower and FINOVA agree that the following conduct by FINOVA
with respect to any disposition of Collateral shall conclusively
be deemed commercially reasonable (but other conduct by FINOVA,
including, but not limited to, FINOVA's use in its sole
discretion of other or different times, places and manners of
noticing and conducting any disposition of Collateral shall not
be deemed unreasonable): Any public or private disposition: (i)
as to which on no later than the fifth calendar day prior thereto
written notice thereof is mailed or personally delivered to
Borrower and, with respect to any public disposition, on no later
than the fifth calendar day prior thereto notice thereof
describing in general non-specific terms, the Collateral to be
disposed of is published once in a newspaper of general
circulation in the county where the sale is to be conducted
(provided that no notice of any public or private disposition
need be given to the Borrower or published if the Collateral is
perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market); (ii) which is
conducted at any place designated by FINOVA, with or without the
Collateral being present; and (iii) which commences at any time
between 8:00 a.m. and 5:00 p.m. Without limiting the generality
of the foregoing, Borrower expressly agrees that, with respect to
any disposition of accounts, instruments and general intangibles,
it shall be commercially reasonable for FINOVA to direct any
prospective purchaser thereof to ascertain directly from Borrower
any and all information concerning the same, including, but not
limited to, the terms of payment, aging and delinquency, if any,
the financial condition of any obligor or account debtor thereon
or guarantor thereof, and any collateral therefor.
18. DEFINITIONS.
18.1 Defined Terms. As used in this Agreement, the following
terms have the definitions set forth below:
<PAGE>
"Affiliate" means any Person controlling, controlled by or under
common control with Borrower. For purposes of this definition,
"control" means the possession, directly or indirectly, of the
power to direct or cause direction of the management and policies
of any Person, whether through ownership of common or preferred
stock or other equity interests, by contract or otherwise.
Without limiting the generality of the foregoing, each of the
following shall be an Affiliate: any officer, director, employee
or other agent of Borrower, any shareholder or subsidiary of
Borrower, and any other Person with whom or which Borrower has
common shareholders, officers or directors.
"Business Day" means any day on which commercial banks in both
Los Angeles, California and Phoenix, Arizona are open for
business.
"Capital Expenditures" means all expenditures made and
liabilities incurred for the acquisition of any fixed asset or
improvement, replacement, substitution or addition thereto which
has a useful life of more than one year and including, without
limitation, those arising in connection with Capital Leases.
"Capital Lease" means any lease of property by Borrower that, in
accordance with generally accepted accounting principles, should
be capitalized for financial reporting purposes and reflected as
a liability on the balance sheet of Borrower.
"Closing Date" means the date of the initial advance made by
FINOVA pursuant to this Agreement.
"Code" means the Uniform Commercial Code as adopted and in effect
in the State of Arizona from time to time.
"Collateral" has the meaning set forth in Section 4.1 above.
"Current Assets" at any date means the amount at which the
current assets of Borrower would be shown on a balance sheet of
Borrower as at such date, prepared in accordance with generally
accepted accounting principles, provided that amounts due from
Affiliates and investments in Affiliates shall be excluded
therefrom.
"Current Liabilities" at any date means the amount at which the
current liabilities of Borrower would be shown on a balance sheet
of Borrower as at such date, prepared in accordance with
generally accepted accounting principles.
"Deposit Accounts" has the meaning set forth in Section 9105 of
the California Commercial Code.
"Earnings Before Interest and Taxes" for any fiscal pe
riod of Borrower means the net income of Borrower for such fiscal
period, plus interest expense and provision for income taxes for
such fiscal period, and minus non-recurring miscellaneous income
<PAGE>
and expenses, all calculated in accordance with generally
accepted accounting principles, consistently applied.
"EBITDA" for any fiscal year means net income of Borrower as
calculated in accordance with generally accepted accounting
principles, consistently applied plus (to the extent deducted in
determining net income) interest expense incurred, federal and
state income taxes accrued (whether paid or unpaid), depreciation
and amortization expense and any management fees paid to
Guarantor to the extent permitted under this Agreement and to the
extent the fees were expensed and not paid as a dividend.
"Eligible Inventory" means Inventory which FINOVA, in its sole
judgment, deems Eligible Inventory, based on such considerations
as FINOVA may from time to time deem appropriate. Without
limiting the generality of the foregoing, no Inventory shall be
Eligible Inventory unless, in FINOVA's sole judgment, such
Inventory (i) consists of raw materials or finished goods, in
good, new and salable condition which are not obsolete or
unmerchantable, and are not comprised, in FINOVA's discretion, of
packaging, materials or supplies; (iii) meets all standards
imposed by any governmental agency or authority; (iv) conforms in
all respects to the warranties and representations set forth
herein; (v) is at all times subject to FINOVA's duly perfected,
first priority security interest; and (vi) is situated at a
location in compliance with Section 12.16 hereof.
"Eligible Receivables" means Receivables arising in the ordinary
course of Borrower's business from the sale of goods or rendition
of services which FINOVA, in its sole judgment, shall deem
eligible based on such considerations as FINOVA may from time to
time deem appropriate. Without limiting the foregoing, a
Receivable shall not be deemed to be an Eligible Receivable if
(i) the account debtor has failed to pay the Receivable within a
period of the sooner of 60 days past due or ninety (90) days
after invoice date, to the extent of any amount remaining unpaid
after such period; (ii) the account debtor has failed to pay more
than twenty five percent (25%) of all outstanding Receivables
owed by it to Borrower within the sooner of 60 days past due or
ninety (90) days after invoice date; (iii) the account debtor is
an Affiliate of Borrower; (iv) the goods relating thereto are
placed on consignment, guaranteed sale or other terms pursuant to
which payment by the account debtor may be conditional; (v) the
account debtor is not located in the United States or Canada,
unless the Receivable is supported by a letter of credit or other
form of guaranty or security, in each case in form and substance
satisfactory to FINOVA; (vi) the account debtor is the United
States or any department, agency or instrumentality thereof or
any State, city or municipality of the United States;
(vii) Borrower is or may become liable to the account debtor for
goods sold or services rendered by the account debtor to Borrower
or if there are amounts owing under volume rebate or other rebate
programs; (viii) the account debtor's total obligations to
Borrower exceed fifteen percent (15%) (except 25% for Jenny Craig
<PAGE>
and American Airlines) of all Eligible Receivables, to the extent
of such excess; (ix) the account debtor disputes liability or
makes any claim with respect thereto (up to the amount of such
liability or claim), or is subject to any insolvency or
bankruptcy proceeding, or becomes insolvent, fails or goes out of
a material portion of its business; (x) the amount thereof
consists of late charges or finance charges; (xi) the amount
thereof consists of a credit balance more than ninety (90) days
past due; or (xii) the face amount thereof exceeds $10,000,
unless accompanied by evidence of shipment of the goods relating
thereto satisfactory to FINOVA in its sole discretion.
"Equipment" means all of Borrower's present and hereafter
acquired machinery, molds, machine tools, motors, furniture,
equipment, furnishings, fixtures, trade fixtures, motor vehicles,
tools, parts, dyes, jigs, goods and other tangible personal
property (other than Inventory) of every kind and description
used in Borrower's operations or owned by Borrower and any
interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions
or improvements to any of the foregoing, wherever located.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"ERISA Affiliate" means each trade or business (whether or not
incorporated and whether or not foreign) which is or may
hereafter become a member of a group of which Borrower is a
member and which is treated as a single employer under ERISA
Section 4001(b)(1), or IRC Section 414.
"Event of Default" means any of the events set forth in
Section 17.1 of this Agreement.
"Excess Cash Flow" for any fiscal year of Borrower means EBITDA
less the sum of Capital Expenditures except to the extent
financed with any Person other than FINOVA, federal and state
income taxes (paid in cash), interest expense, principal payments
paid to FINOVA and payments made under capitalized leases (other
than a cash sweep pursuant to Section 13.14).
"Fixed Asset Loans" has the meaning set forth on the Schedule.
"General Intangibles" means all general intangibles of Borrower,
whether now owned or hereafter created or acquired by Borrower,
including, without limitation, all choses in action, causes of
action, corporate or other business records, Deposit Accounts,
inventions, designs, drawings, blueprints, patents, patent
applications, trademarks and the goodwill of the business
symbolized thereby, names, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists,
security and other deposits, rights in all litigation presently
or hereafter pending for any cause or claim (whether in contract,
tort or otherwise), and all judgments now or hereafter arising
<PAGE>
therefrom, all claims of Borrower against FINOVA, rights to
purchase or sell real or personal property, rights as a licensor
or licensee of any kind, royalties, telephone numbers,
proprietary information, purchase orders, and all insurance
policies and claims (including without limitation credit,
liability, property and other insurance)tax refunds and claims,
computer programs, discs, tapes and tape files, claims under
guaranties, security interests or other security held by or
granted to Borrower to secure payment of any of the Receivables
by an account debtor, all rights to indemnification and all other
intangible property of every kind and nature (other than
Receivables).
"Guarantors" means the persons set forth on the Schedule.
"Indebtedness" means all of Borrower's present and future
obligations, liabilities, debts, claims and indebtedness,
contingent, fixed or otherwise, however evidenced, created,
incurred, acquired, owing or arising, whether under written or
oral agreement, operation of law or otherwise, and includes,
without limiting the foregoing (i) the Obligations, (ii)
obligations and liabilities of any Person secured by a lien,
claim, encumbrance or security interest upon property owned by
Borrower up to the amount of such lien, encumbrance or security
interest on such property, even though Borrower has not assumed
or become liable therefor, (iii) obligations and liabilities
created or arising under any lease (including Capital Leases) or
conditional sales contract or other title retention agreement
with respect to property used or acquired by Borrower, even
though the rights and remedies of the lessor, seller or lender
are limited to repossession, (iv) all unfunded pension fund
obligations and liabilities and (v) deferred taxes.
"Initial Term" has the meaning set forth on the Schedule.
"Intercreditor and Subordination Agreement" means that certain
Intercreditor and Subordination Agreement of even date herewith
between the Subordinating Creditor and FINOVA.
"Inventory" means all of Borrower's now owned and hereafter
acquired goods, merchandise or other personal property, wherever
located, to be furnished under any contract of service or held
for sale or lease, all raw materials, work in process, finished
goods and materials and supplies of any kind, nature or
description which are or might be used or consumed in Borrower's
business or used in connection with the manufacture, packing,
shipping, advertising, selling or finishing of such goods,
merchandise or other personal property, and all documents of
title or other documents representing them.
"Inventory Loans" has the meaning set forth on the Schedule.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
<PAGE>
"Letters of Credit" has the meaning set forth in Section 1.4
hereof.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower and payable to FINOVA, and any other
agreement entered into in connection with this Agreement,
together with all alterations, amendments, changes, extensions,
modifications, refinancings, refundings, renewals, replacements,
restatements, or supplements, of or to any of the foregoing.
"Loan Party" means Borrower, each Guarantor, each Subordinating
Creditor and each other party (other than FINOVA) to any Loan
Document.
"Management Group" means the three (3) most highly compensated
individuals of Borrower.
"Material Adverse Effect" means any event, condition or
occurrence which could reasonably be expected to have a material
adverse effect on Borrower's business, assets, operations,
prospects or condition, financial or otherwise, taken as a whole.
"Multiemployer Plan" means a "multiemployer plan" as defined in
ERISA Sections 3(37) or 4001(a)(3) or IRC Section 414(f) which
covers employees of Borrower or any ERISA Affiliate.
"Net Worth" at any date means the Borrower's net worth as
determined in accordance with generally accepted accounting
principles, consistently applied.
"Obligations" means all present and future loans, advances,
debts, liabilities, obligations, covenants, duties and
indebtedness at any time owing by Borrower to FINOVA, whether
evidenced by this Agreement, any note or other instrument or
document, whether arising from an extension of credit, opening of
a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect
(including, without limitation, those acquired by assignment and
any participation by FINOVA in Borrower's debts owing to others),
absolute or contingent, due or to become due, including, without
limitation, all interest, charges, expenses, fees, attorney's
fees, expert witness fees, examination fees, letter of credit
fees, collateral monitoring fees, closing fees, facility fees,
Termination Fees, Minimum Interest Charges and any other sums
chargeable to Borrower hereunder or under any other agreement
with FINOVA.
"Overlines" has the meaning set forth in Section 1.3 hereof.
"PBGC" means the Pension Benefit Guarantee Corporation.
"Permitted Encumbrance" means:
(a) Liens disclosed on Schedule 1.1 hereto;
<PAGE>
(b) Encumbrances consisting of easements, zoning restrictions,
or other restrictions on the use of real property or,
imperfections to title to real property that could not have a
Material Adverse Effect;
(c) Liens for taxes, assessments, or other governmental charges
that are not delinquent or which are being contested in good
faith and for which adequate reserves have been established and
for which Borrower has posted a bond for the full amount of the
claim;
(d) Liens of mechanics, materialmen, warehousemen, carriers,
landlords or other similar statutory liens (and, with respect to
landlords, contractual liens) securing obligations that are not
yet due and are incurred in the ordinary course of business or
which are being contested in good faith and for which adequate
reserves have been established and Borrower has posted a bond for
the full amount of such lien;
(e) Liens resulting from good faith deposits to secure payment
of workmen's compensation or other social security programs or to
secure the performance of tenders, statutory obligations, surety
and appeal bonds, bids, contracts (other than for payment of
debt), or leases, all in the ordinary course of business;
(f) Subject to the limitation on Indebtedness in Section 14
hereof, purchase-money liens on any property hereafter acquired
or the assumption after the Closing Date of any lien on property
existing at the time of such acquisition (and not created in
contemplation of such acquisition), or a lien incurred after the
Closing Date in connection with any conditional sale or other
title retention agreement or capital lease obligation; provided
that:
(i) any property subject to the foregoing is acquired
by the Borrower in the ordinary course of its business and
the lien on the property attaches concurrently or within
twenty (20) days after the acquisition thereof;
(ii) the debt secured by any lien so created, assumed
or existing shall not exceed the lesser of the cost or the
fair market value at the time of acquisition of the property
covered thereby; and
(iii) each such lien shall attach only to the property
so acquired and the proceeds thereof;
(g) Subject to the limitations on Indebtedness, liens
constituting financing statements filed as notices of operating
leases.
"Permitted Investments" means:
(a) Investments in securities issued or guaranteed by the United
<PAGE>
States of America or any agency thereof with maturities of one
year or less from the date of acquisition;
(b) Investments in fully insured certificates of deposit and
eurodollar time deposits with maturities of six months or less
from the date of acquisition issued by any commercial bank
operating in the United States of America, bankers' acceptances
with maturities not exceeding six months, and overnight bank
deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500,000,000;
(c) Investments in repurchase obligations with a term of not
more than seven (7) days for securities of the types described in
clause (b) above with any domestic commercial bank having capital
and surplus in excess of $500,000,000; and
(d) Investments in commercial paper of a domestic issuer rated
A-1 or better of P-1 or better by Standard & Poor's Corporation
or Moody's Investors Services, Inc., respectively, maturing not
more than six months from the date of acquisition.
"Person" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association,
corporation, government, or any agency or political division
thereof, or any other entity.
"Plan" means any plan described in ERISA Section 3(2) maintained
for employees of Borrower or any ERISA Affiliate, other than a
Multiemployer Plan.
"Prepared Financials" means the balance sheets of Borrower as of
the date set forth in the Schedule, and as of each subsequent
date on which audited balance sheets are delivered to FINOVA from
time to time hereunder, and the related statements of operations,
changes in stockholder's equity and changes in cash flow for the
periods ended on such dates.
"Prohibited Transaction" means any transaction described in
Section 406 of ERISA which is not exempt by reason of Section 408
of ERISA, and any transaction described in Section 4975(c) of the
IRC which is not exempt by reason of Section 4975(c)(2) of the
IRC.
"Receivable Loans" has the meaning set forth on the Schedule.
"Receivables" means all of Borrower's now owned and hereafter
acquired accounts (whether or not earned by performance),
proceeds of any letters of credit naming Borrower as beneficiary,
contract rights, chattel paper, instruments, documents and all
other forms of obligations at any time owing to Borrower, all
guaranties and other security therefor, whether secured or
unsecured, all merchandise returned to or repossessed by
Borrower, and all rights of stoppage in transit and all other
rights or remedies of an unpaid vendor, lienor or secured party.
<PAGE>
"Renewal Term" has the meaning set forth on the Schedule.
"Reportable Event" means a reportable event described in Section
4043 of ERISA or the regulations thereunder, a withdrawal from a
Plan described in Section 4063 of ERISA, or a cessation of
operations described in Section 4068(f) of ERISA.
"Subordinated Debt" means liabilities of Borrower the repayment
of which is subordinated, to the payment and performance of the
Obligations, pursuant to a subordination agreement acceptable to
and executed by FINOVA.
"Subordinating Creditor" means the persons set forth on the
Schedule.
"Subordinated Loan Documents" means the Subordinated Notes, that
certain Note Purchase Agreement of even date herewith between
Borrower and Subordinating Creditor, and all other instruments,
agreements, and documentation delivered concurrently therewith or
at any time hereafter to evidence the repayment of the
Subordinated Notes, to set forth agreements governing the
Subordinated Notes or to guaranty the Subordinated Notes, as each
of the foregoing may be amended from time to time.
"Subordinated Notes" means that certain Senior Subordinated Note
of even date herewith in the stated principal amount of
$13,000,000 from Borrower, as maker, to Subordinating Creditor,
as payee, and any amendments, renewals, extensions or
modifications thereof and all notes issued in exchange or
substitution therefor.
"Total Facility" has the meaning set forth on the Schedule.
"Warrant" means that certain Warrant of even date herewith issued
by Borrower to Subordinating Creditor.
"Warrant Documents" means, collectively, (a) the Warrant, (b)
that certain Warrant Purchase Agreement of even date herewith
executed by and between Borrower and Subordinating Creditor with
respect to the issuance to Subordinating Creditor of the Warrant,
and (c) that certain Shareholders Agreement of even date herewith
executed by Borrower, Subordinating Creditor and Guarantor, as
each of the foregoing may be amended from time to time.
18.2 Other Terms. All accounting terms used in this Agreement,
unless otherwise indicated, shall have the meanings given to such
terms in accordance with generally accepted accounting
principles, consistently applied. All other terms contained in
this Agreement, unless otherwise indicated, shall have the
meanings provided by the Code, to the extent such terms are
defined therein.
19. MISCELLANEOUS.
<PAGE>
19.1 Recourse to Security; Certain Waivers. All Obligations
shall be payable by Borrower as provided for herein and, in full,
at the termination of this Agreement; recourse to security shall
not be required at any time. Borrower waives presentment and
protest of any instrument and notice thereof, notice of default
and, to the extent permitted by applicable law, all other notices
to which Borrower might otherwise be entitled.
19.2 No Waiver by FINOVA. Neither FINOVA's failure to exercise
any right, remedy or option under this Agreement, any supplement,
the Loan Documents or other agreement between FINOVA and Borrower
nor any delay by FINOVA in exercising the same shall operate as a
waiver. No waiver by FINOVA shall be effective unless in writing
and then only to the extent stated. No waiver by FINOVA shall
affect its right to require strict performance of this Agreement.
FINOVA's rights and remedies shall be cumulative and not
exclusive.
19.3 Binding on Successor and Assigns. All terms, conditions,
promises, covenants, provisions and warranties shall inure to the
benefit of and bind FINOVA's and Borrower's respective
representatives, successors and assigns.
19.4 Severability. If any provision of this Agreement shall be
prohibited or invalid under applicable law, it shall be
ineffective only to such extent, without invalidating the
remainder of this Agreement.
19.5 Amendments; Assignments. This Agreement may not be
modified, altered or amended, except by an agreement in writing
signed by Borrower and FINOVA. Borrower may not sell, assign or
transfer any interest in this Agreement or any other Loan
Document, or any portion thereof, including, without limitation,
any of Borrower's rights, title, interests, remedies, powers and
duties hereunder or thereunder. Borrower hereby consents to
FINOVA's participation, sale, assignment, transfer or other
disposition, at any time or times hereafter, of this Agreement
and any of the other Loan Documents, or of any portion hereof or
thereof, including, without limitation, FINOVA's rights, title,
interests, remedies, powers and duties hereunder or thereunder.
In connection therewith, FINOVA may disclose all documents and
information which FINOVA now or hereafter may have relating to
Borrower or Borrower's business. To the extent that FINOVA
assigns its rights and obligations hereunder to a third party,
FINOVA shall thereafter be released from such assigned
obligations to Borrower and such assignment shall effect a
novation between Borrower and such third party.
19.6 Integration. This Agreement, together with the Schedule
(which is a part hereof) and the other Loan Documents, reflect
the entire understanding of the parties with respect to the
transactions contemplated hereby.
19.7 Governing Law; Waivers. THIS AGREEMENT SHALL BE
<PAGE>
INTERPRETED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE
CONFLICT OF LAWS RULES) OF THE STATE OF ARIZONA GOVERNING
CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. BORROWER
HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED WITHIN THE COUNTY OF MARICOPA, THE STATE OF
ARIZONA OR, AT THE SOLE OPTION OF FINOVA, IN ANY OTHER COURT IN
WHICH FINOVA SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND
WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN
CONTROVERSY. BORROWER WAIVES ANY OBJECTION OF FORUM NON
CONVENIENS AND VENUE. BORROWER WAIVES PERSONAL SERVICE OF ANY
AND ALL PROCESS UPON IT, AND CONSENTS THAT ALL SUCH SERVICE OF
PROCESS BE MADE IN THE MANNER SET FORTH IN SECTION 19.13 HEREOF
FOR THE GIVING OF NOTICE. BORROWER FURTHER WAIVES ANY RIGHT IT
MAY OTHERWISE HAVE TO COLLATERALLY ATTACK ANY JUDGMENT ENTERED
AGAINST IT.
19.8 Survival. All of the representations and warranties of
Borrower contained in this Agreement shall survive the execution,
delivery and acceptance of this Agreement by the parties. No
termination of this Agreement or of any guaranty of the
Obligations shall affect or impair the powers, obligations,
duties, rights, representations, warranties or liabilities of the
parties hereto and all shall survive any such termination.
19.9 Evidence of Obligations. Each Obligation may, in FINOVA's
discretion, be evidenced by notes or other instruments issued or
made by Borrower to FINOVA. If not so evidenced, such Obligation
shall be evidenced solely by entries upon FINOVA's books and
records.
19.10 Collateral Security. The Obligations shall constitute one
loan secured by the Collateral. FINOVA may, in its sole
discretion, (i) exchange, enforce, waive or release any of the
Collateral, (ii) apply Collateral and direct the order or manner
of sale thereof as it may determine, and (iii) settle,
compromise, collect or otherwise liquidate any Collateral in any
manner without affecting its right to take any other action with
respect to any other Collateral.
19.11 Application of Collateral. FINOVA shall have the
continuing and exclusive right to apply or reverse and re-apply
any and all payments to any portion of the Obligations. To the
extent that Borrower makes a payment or FINOVA receives any
payment or proceeds of the Collateral for Borrower's benefit
which is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee,
debtor in possession, receiver or any other party under any
bankruptcy law, common law or equitable cause, then, to such
extent, the Obligations or part thereof intended to be satisfied
shall be revived and continue as if such payment or proceeds had
not been received by FINOVA.
19.12 Loan Requests. Each oral or written request for a loan by
any Person who purports to be any employee, officer or authorized
<PAGE>
agent of Borrower shall be made to FINOVA on or prior to
11:00 a.m., Los Angeles time, on the Business Day on which the
proceeds thereof are requested to be paid to Borrower and shall
be conclusively presumed to be made by a Person authorized by
Borrower to do so and the crediting of a loan to Borrower's
operating account shall conclusively establish Borrower's
obligation to repay such loan. Unless and until Borrower
otherwise directs FINOVA in writing, all loans shall be wired to
Borrower's operating account set forth on the Schedule.
19.13 Notices. Any notice required hereunder shall be in
writing and addressed to the Borrower and FINOVA at their
addresses set forth at the beginning of this Agreement. Notices
hereunder shall be deemed received on the earlier of receipt,
whether by mail, personal delivery, facsimile, or otherwise, or
upon deposit in the United States mail, postage prepaid.
19.14 Brokerage Fees. Borrower represents and warrants to
FINOVA that, with respect to the financing transaction herein
contemplated, no Person (other than Capital Alliance) is entitled
to any brokerage fee or other commission and Borrower agrees to
indemnify and hold FINOVA harmless against any and all such
claims.
19.15 Disclosure. No representation or warranty made by
Borrower in this Agreement, or in any financial statement,
report, certificate or any other document furnished in connection
herewith contains any untrue statement of a material fact or
omits to state any material fact necessary to make the statements
herein or therein not misleading. There is no fact known to
Borrower or which reasonably should be known to Borrower which
Borrower has not disclosed to FINOVA in writing with respect to
the transactions contemplated by this Agreement which could have
a Material Adverse Effect.
19.16 Publicity. FINOVA is hereby authorized to issue
appropriate press releases and to cause a tombstone to be
published announcing the consummation of this transaction and the
aggregate amount thereof. FINOVA shall consult with Borrower on
the contents and timing of any such publication.
19.17 Captions. The Section titles contained in this Agreement
are without substantive meaning and are not part of this
Agreement.
19.18 Injunctive Relief. Borrower recognizes that, in the event
Borrower fails to perform, observe or discharge any of its
Obligations under this Agreement, any remedy at law may prove to
be inadequate relief to FINOVA. Therefore, FINOVA, if it so
requests, shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving actual
damages.
19.19 Counterparts. This Agreement may be executed in one or
<PAGE>
more counterparts, each of which taken together shall constitute
one and the same instrument.
19.20 Construction. The parties acknowledge that each party and
its counsel have reviewed this Agreement and that the normal rule
of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the
interpretation of this Agreement or any amendments or exhibits
hereto.
19.21 Time of Essence. Time is of the essence for the
performance by Borrower of the Obligations set forth in this
Agreement.
19.22 Limitation of Actions. Borrower agrees that any claim or
cause of action by Borrower against FINOVA, or any of FINOVA's
directors, officers, employees, agents, accountants or attorneys,
based upon, arising from, or relating to this Agreement, or any
other present or future agreement, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or
any other matter, cause or thing whatsoever, whether or not
relating hereto or thereto, occurred, done, omitted or suffered
to be done by FINOVA, or by FINOVA's directors, officers,
employees, agents, accountants or attorneys, whether sounding in
contract or in tort or otherwise, shall be barred unless asserted
by Borrower by the commencement of an action or proceeding in a
court of competent jurisdiction by the filing of a complaint
within one year after the first act, occurrence or omission upon
which such claim or cause of action, or any part thereof, is
based and service of a summons and complaint on an officer of
FINOVA or any other person authorized to accept service of
process on behalf of FINOVA, within 30 days thereafter. Borrower
agrees that such one-year period of time is a reasonable and
sufficient time for Borrower to investigate and act upon any such
claim or cause of action. The one-year period provided herein
shall not be waived, tolled, or extended except by a specific
written agreement of FINOVA. This provision shall survive any
termination of this Loan Agreement or any other agreement.
19.23 Liability. Neither FINOVA nor any FINOVA Affiliate shall
be liable for any indirect, special, incidental or consequential
damages in connection with any breach of contract, tort or other
wrong relating to this Agreement or the Obligations or the
establishment, administration or collection thereof (including
without limitation damages for loss of profits, business
interruption, or the like), whether such damages are foreseeable
or unforeseeable, even if FINOVA has been advised of the
possibility of such damages. Neither FINOVA, nor any FINOVA
Affiliate shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or
suffered by the Borrower through the ordinary negligence of
FINOVA, or any FINOVA Affiliate. "FINOVA Affiliate" shall mean
FINOVA s directors, officers, employees, agents, attorneys or
other person or entity affiliated with or representing FINOVA.
<PAGE>
19.24 Notice of Breach by FINOVA. Borrower agrees to give
FINOVA written notice of (i) any action or inaction by FINOVA or
any attorney of FINOVA in connection with any Loan Documents that
may be actionable against FINOVA or any attorney of FINOVA or
(ii) any defense to the payment of the Obligations for any
reason, including, but not limited to, commission of a tort or
violation of any contractual duty or duty implied by law.
Borrower agrees that unless such notice is fully given as
promptly as possible (and in any event within one hundred eighty
(180) days) after Borrower has actual knowledge, of any such
action, inaction or defense, Borrower shall not assert, and
Borrower shall be deemed to have waived, any claim or defense
arising therefrom.
19.25 MUTUAL WAIVER OF RIGHT TO JURY TRIAL. FINOVA AND BORROWER
EACH HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO:
(i) THIS AGREEMENT; (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT
OR AGREEMENT BETWEEN FINOVA AND BORROWER; OR (iii) ANY CONDUCT,
ACTS OR OMISSIONS OF FINOVA OR BORROWER OR ANY OF THEIR
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER
PERSONS AFFILIATED WITH FINOVA OR BORROWER; IN EACH OF THE
FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE.
Borrower:
Tax Identification No.: 75-2590292
Overhill Farms, Inc.
By____________________________
President or Vice President
FINOVA:
FINOVA CAPITAL CORPORATION
By____________________________Title_________________________
<PAGE>
<PAGE>
FINOVA
Schedule to
Loan and Security Agreement
Borrower: Overhill Farms, Inc.
Address: 5730 Uplander Way
Culver City, California 90230
Date: As of May 5, 1995
This Schedule forms an integral part of the Loan and Security
Agreement between the above Borrower and FINOVA Capital
Corporation dated the above date, and all references herein and
therein to "this Agreement" shall be deemed to refer to said
Agreement and to this Schedule.
TOTAL FACILITY (Section 1.1):
$18,000,000
LOANS (Section 1.2):
A. Revolving Loans: a revolving line of credit consisting
of loans against Borrower's Eligible Receivables ("Receivable
Loans") and against Borrower's Eligible Inventory ("Inventory
Loans") in an aggregate outstanding principal amount not to
exceed the lesser of:
(a) $12,000,000; or
(b) the sum of
(i) an amount equal to (A) 85% of the net amount
of Eligible Receivables; plus
(ii) an amount not to exceed the lesser of: (A)
60% until December 1, 1995 and 50% thereafter of the value
of Borrower's Eligible Inventory, calculated at the lower of
cost or market value and determined on a first-in, first-out
basis, or (B) Six Million Five Hundred Thousand Dollars
($6,500,000) until December 1, 1995, and Six Million Dollars
<PAGE>
($6,000,000) thereafter.
B. Fixed Asset Loans: term loans against the value of
Borrower's machinery, equipment and/or real estate ("Fixed Asset
Loans") in the principal amounts of $2,000,000 ("Term Loan A")
and $4,000,000 ("Term Loan B"); provided, that the Fixed Assets
Loans, if any, shall be in such amounts and on such terms as are
set forth on separate promissory notes of Borrower from time to
time, each in form and substance satisfactory to FINOVA in its
sole discretion.
CONDITIONS PRECEDENT (Section 2.1):
The obligation of FINOVA to make the initial advance
hereunder is subject to the fulfillment, to the satisfaction of
FINOVA and its counsel, of each of the following conditions, in
addition to the conditions set forth in Sections 2.1 and 2.2
above: (a) Borrower shall have excess borrowing availability
under the Receivable Loans facility of not less than $500,000,
after giving effect to the initial advance hereunder and after
having paid in full all of Borrower's accounts payable
outstanding 30 days or more past due and all book overdrafts; and
(b) there shall have been no material adverse change in the
business, operations, profits or prospects of Borrower or Seller,
or in the condition of the assets of Borrower or Seller, between
December 31, 1994 and the date hereof. Borrower shall cause the
conditions precedent set forth in Section 2.1 of this Agreement
and set forth above in this Schedule to be satisfied on or before
the Closing Date.
INTEREST AND FEES (Section 3.1):
Interest. Borrower shall pay FINOVA interest on the daily
outstanding balance of Borrower's loan account at a per annum
rate of 1.5% as to the Revolving Loans and 2.5% as to the Fixed
Asset Loans in excess of the rate of interest announced publicly
by Citibank, N.A., from time to time as its "base rate" (or any
successor thereto), which may not be such institution's lowest
rate (the "Base Rate"). The interest rate chargeable hereunder
shall be increased or decreased, as the case may be, without
notice or demand of any kind, upon the announcement of any change
in the Base Rate. Each change in the Base Rate shall be
effective hereunder on the first day following the announcement
of such change, provided, that a cumulative change of less than
one-fourth of one percent (0.25%) shall not be considered.
Interest charges and all other fees and charges herein shall be
computed on the basis of a year of 360 days and actual days
elapsed and shall be payable to FINOVA in arrears on the first
day of each month.
Minimum Interest Charge. With respect to each calendar
<PAGE>
month or portion thereof during the term of this Agreement
(excluding the calendar month in which this Agreement is
executed), Borrower shall also pay FINOVA, on the first day of
the next month, as a minimum charge, the amount by which accrued
interest pursuant to the section above for such month or portion
thereof is less than $10,000 (the "Minimum Interest Charge").
Notwithstanding the occurrence of any Event of Default hereunder
or termination of this Agreement by FINOVA as a result thereof,
the Minimum Interest Charge shall be paid by Borrower for the
unexpired portion of the Initial Term or any Renewal Term of this
Agreement.
Collateral Monitoring Fee. So long as any portion of Term
Loan B is outstanding, at the closing of this transaction and on
the first day of each month thereafter, Borrower shall pay FINOVA
a collateral monitoring fee of $20,000 per month which shall be
deemed fully earned at the time of each payment.
Closing Fee. At the closing of this transaction, Borrower
shall pay to FINOVA a closing fee in an amount equal to $240,000,
which shall be deemed fully earned at the time of payment.
Unused Line Fee. Borrower shall pay FINOVA an unused line
fee on the first day of each month, in arrears, of .25% per annum
on the difference between the revolving line of credit (presently
$12,000,000) and the average balance during the prior month of
outstanding loans under the revolving line of credit.
Facility Fee. Borrower shall pay to FINOVA a facility fee
equal to .50% per annum of the amount of the revolving line of
credit. The facility fee shall be deemed fully earned at the
time when due and is otherwise due and payable annually,
commencing upon the second anniversary of the date of this
Agreement and continuing on each subsequent anniversary thereof.
Examination Fees. Borrower agrees to pay to FINOVA an
examination fee in the amount of $500 per person per day in
connection with each audit or examination of Borrower performed
by FINOVA prior to or after the date hereof.
REPORTING REQUIREMENTS (Section 5.2):
1. Borrower shall provide FINOVA with monthly agings aged by due
date, reconciliations of Receivables and listings of concentrated
accounts within fifteen (15) days after the end of each month.
2. Borrower shall provide FINOVA with monthly accounts
payable agings aged by invoice date, outstanding or held check
registers and inventory certificates within fifteen (15) days
after the end of each month.
3. Borrower shall provide FINOVA with monthly perpetual
<PAGE>
inventory reports for the Inventory valued on a first-in, first-
out basis at the lower of cost or market (in accordance with
generally accepted accounting principles) or such other inventory
reports as are reasonably requested by FINOVA, all within fifteen
(15) days after the end of each month.
4. Borrower shall provide FINOVA with monthly unaudited
consolidated and consolidating financial statements within forty-
five (45) days after the end of each fiscal month.
5. Borrower shall provide FINOVA with annual operating
budgets (including income statements, balance sheets and cash
flow statements, by month) for the upcoming fiscal year of
Borrower within thirty (30) days prior to the end of each fiscal
year of Borrower.
BORROWER INFORMATION:
Borrower's State of Incorporation (Section 12.1): Nevada
Fictitious Names/Prior Corporate Names (Section 12.2): None.
Borrower Locations (Section 12.16): 5 7 3 0
Uplander Way
Culver City,
California
431 South Isis Avenue
Inglewood, California
524 South Isis Avenue
Inglewood, California
644 South Isis Avenue
Inglewood, California
3055 East 44th Street
Vernon, California
2716 East Vernon
Avenue
Vernon, California
2233 Jesse Street
Los Angeles,
California
6500 Inland Drive
P.O. Box 2926
Kansas City, Missouri
<PAGE>
Permitted Encumbrances (Section 18.1): See Schedule
1.1
FINANCIAL COVENANTS (Section 13.14):
Borrower shall comply with all of the following covenants.
Compliance shall be determined as of the end of each month,
except as otherwise specifically provided below:
Current Ratio. Borrower shall maintain a ratio of Current
Assets to Current Liabilities of not less
than as set forth below:
Period: Ratio:
For the five month period
ending September 30, 1995 1.05 to
1.0
From October 1, 1995 through
September 30, 1996 1.20 to 1.0
From October 1, 1996
and thereafter 1.25 to 1.0
Net Worth. Borrower shall maintain Net Worth of not less
than the amounts indicated below:
Period: Amount:
For the five month period
ending September 30, 1995
$4,000,000
From October 1, 1995 through
September 30, 1996 $4,700,000
From October 1, 1996 through
September 30, 1997 $6,500,000
From October 1, 1997 through
September 30, 1998 $8,300,000
From October 1, 1998 through
September 30, 1999 $10,000,000
From October 1, 1999
and thereafter $11,000,000
<PAGE>
Debt to Net Worth. Borrower shall maintain a ratio of
Indebtedness to Net Worth of not greater
than as set forth below:
Period: Ratio:
For the five month period
ending September 30, 1995 7.0 to
1.0
From October 1, 1995 through
September 30, 1996 6.0 to 1.0
From October 1, 1996 through
September 30, 1997 4.0 to 1.0
From October 1, 1997
and thereafter 3.0 to 1.0
Senior Debt
Coverage Ratio. Borrower shall maintain a ratio of EBITDA
less Capital Expenditures and taxes actually
paid in cash to the sum of principal, interest and
collateral monitoring fees paid to FINOVA and
payments made under capitalized leases of not
less than 1.75 to 1.0.
Total Debt
Coverage Ratio. Borrower shall maintain a ratio of EBITDA
less Capital Expenditures and taxes actually
paid in cash to the sum of all principal, interest,
payments under capitalized leases, collateral
monitoring fees and dividends paid or declared
to any Person of not less than 1.35 to 1.0.
NEGATIVE COVENANTS (Section 14):
Capital Expenditures: Borrower shall not make or incur any
Capital Expenditure if, after giving
effect thereto, the aggregate amount of
all Capital Expenditures by Borrower in
any fiscal year (beginning with May 6,
1995) would exceed (a) if Borrower is in
compliance with the Senior Debt Coverage
Ratio, an amount equal to $750,000, and
(b) if Borrower shall maintain a Senior
Debt Coverage Ratio of greater than 2.0 to
1.0, an amount equal to $1,000,000.
Compensation: Borrower shall not pay total compensation,
including salaries, withdrawals, fees,
<PAGE>
bonuses, commissions, drawing accounts and
other payments, whether directly or
indirectly, in money or otherwise, during any
fiscal year to the Management Group in an
amount in excess of $1,000,000.
Indebtedness: Borrower shall not create, incur, assume or
permit to exist any Indebtedness (including
Indebtedness in connection with Capital
Leases) in excess of the amounts indicated
below:
Period: Amount:
For the five month period
ending September 30, 1995 $125,000
For the fiscal year ended
September 30, 1996 $500,000
For the fiscal year ended
September 30, 1997 $700,000
For the fiscal year ended
September 30, 1998 and each
fiscal year thereafter $800,000
other than (i) the Obligations, (ii) trade
payables and other contractual obligations to
suppliers and customers incurred in the
ordinary course of business, (iii) Indebtedness
under than Subordinated Loan Documents and (iv)
other Indebtedness existing on the date of this
Agreement and reflected in the Prepared
Financials (other than Indebtedness paid on the
date of this Agreement from proceeds of the
initial advances hereunder).
TERM (Section 16.1):
The initial term of this Agreement shall be three (3) year(s)
from the date hereof (the "Initial Term") and shall be
automatically renewed for successive periods of one (1) year each
(each, a "Renewal Term"), unless earlier terminated as provided
in Section 16 or 17 above or elsewhere in this Agreement.
<PAGE>
TERMINATION FEE (Section 16.4):
The Termination Fee provided in Section 16.4 shall be an
amount equal to the following percentage of the Revolving Loans:
(i) three percent (3%), if such early termination occurs on
or prior to the first anniversary of this Agreement;
(ii) two percent (2%), if such early termination occurs after
the first anniversary of this Agreement.
ADDITIONAL DEFINITIONS (Section 18.1):
"Guarantor" means Polyphase Corporation.
"Prepared Financials" means the balance sheets of Seller as of
December 31, 1994, and as of each
subsequent date on which audited balance
sheets are delivered to FINOVA from time
to time hereunder, and the related
statements of operations, changes in
stockholder's equity and changes in cash
flow for the periods ended on such dates.
"Validity Guarantor" means Paul A. Tanner.
"Subordinating Creditor" means Rice Partners II, L.P.
DISBURSEMENT (Section 19.12):
Unless and until Borrower otherwise directs FINOVA in writing,
all loans shall be wired to Borrower's following operating
account: City National Bank, 606 S. Olive Street, Los Angeles,
California 90014 (ABA Number 1220-16066).
<PAGE>
ADDITIONAL PROVISIONS:
1. None.
2. _________________________________________________
3. _________________________________________________
4. _________________________________________________
5. _________________________________________________
6. _________________________________________________
Borrower: FINOVA:
OVERHILL FARMS, INC. FINOVA CAPITAL CORPORATION
By_______________________________By______________________________
President or Vice President Title___________________________
<PAGE>
FINOVA
SECURED PROMISSORY NOTE (TERM LOAN A)
$2,000,000 As of May 5, 1995
FOR VALUE RECEIVED, the undersigned, Overhill Farms,
Inc., a Nevada corporation, hereby promises to pay to FINOVA
CAPITAL CORPORATION ("FINOVA"), or order, at 201 North Figueroa
Street, Suite 900, Los Angeles, California 90012, or at such
other address as the holder may specify in writing, the principal
sum of Two Million Dollars ($2,000,000) plus interest in the
manner and upon the terms and conditions set forth below. This
Secured Promissory Note ("Note") is made pursuant to that certain
Loan and Security Agreement of even date between the undersigned
and FINOVA (the "Agreement"), the provisions of which are
incorporated herein by this reference. Capitalized terms herein,
unless otherwise noted, shall have the meaning set forth in the
Agreement.
1.0 Rate And Payment Of Interest.
The principal balance of this Note shall bear interest
at a per annum rate of two and one half percent plus the Base
Rate (as defined in the Agreement) as the Base Rate may change
from time to time. Each change in the Base Rate shall be
effective hereunder on the first day following the announcement
of such change, provided that a cumulative charge of less than
one-fourth of one percent (0.25%) shall not be considered.
Interest charges and all other fees and charges herein shall be
computed on the basis of a year of 360 days and actual days
elapsed and shall be payable to FINOVA in arrears on the first
day of each month hereafter at its address set forth above.
Accrued but unpaid interest under this Note shall be due and
payable on the first day of each month, commencing June 1, 1995,
and at maturity, on which date all interest remaining unpaid
shall be due and payable.
2.0 Schedule Of Principal Payments.
Principal under this Note shall be due and payable in
accordance with the following schedule:
a. Fifty-nine (59) equal successive monthly
installments of Thirty-Three Thousand Three Hundred Thirty-Three
Dollars ($33,333) each on the first Business Day of each calendar
month, commencing June 1, 1995; and
b. a final installment of all remaining principal,
accrued and unpaid interest and all other sums payable pursuant
to the Loan Documents on May 1, 2000.
<PAGE>
This Note is subject to Excess Cash Flow recapture as
set forth in Section 13.14 of the Agreement.
3.0 Prepayment.
Prepayments may be made without penalty under this Note
in whole or in part.
4.0 Holder's Right Of Acceleration.
If the Agreement is terminated for any reason
whatsoever, or if there shall occur an Event of Default or if
this Note is not paid when due, the entire remaining principal
balance and all accrued and unpaid interest and other fees and
charges with respect to this Note shall, at FINOVA's option,
become immediately due and payable.
5.0 Holder's Rights Upon Default.
If any Event of Default occurs, then from the date such
Event of Default occurs until it is cured or waived in writing,
in addition to any agreed upon charges, the principal balance of
this Note shall thereafter, at FINOVA's option, bear interest at
two (2.00) percentage points per annum in addition to the rate
set forth in Section 1 above, calculated over a year of three
hundred sixty (360) days.
6.0 Additional Rights Of Holder.
If any installment of principal or interest hereunder
is not paid when due, the holder shall have, in addition to the
rights set forth herein, in the Agreement and under law, the
right to compound interest by adding the unpaid interest to
principal, with such amount thereafter bearing interest at the
rate provided in this Note.
7.0 General Provisions.
7.1 If this Note is not paid when due or upon the
occurrence of an Event of Default, the undersigned further
promises to pay all costs of collection, foreclosure fees,
reasonable attorneys' fees and expert witness fees incurred
by the holder, whether or not suit is filed hereon, and the
fees, costs and expenses as provided in the Agreement.
7.2 The undersigned hereby consents to any and all
renewals, replacements and/or extensions of time for payment
of this Note before, at or after maturity.
7.3 The undersigned hereby consents to the acceptance,
<PAGE>
release or substitution of security for this Note.
7.4 Presentment for payment, notice of dishonor, protest
and notice of protest are hereby expressly waived.
7.5 The contracted for rate of interest of the loan
contemplated hereby, without limitation, shall consist of
the following: (i) the interest rate set forth on the
Schedule, calculated and applied to the principal balance of
this Note in accordance with the provisions of this Note;
(ii) interest after an Event of Default, calculated and
applied to the amounts due under this Note in accordance
with the provisions hereof; and (iii) all Additional Sums
(as herein defined), if any. Borrower agrees to pay an
effective contracted for rate of interest which is the sum
of the above-referenced elements. All examination fees,
attorneys fees, expert witness fees, letter of credit fees,
collateral monitoring fees, closing fees, facility fees,
Termination Fees, Minimum Interest Charges, other charges,
goods, things in action or any other sums or things of value
paid or payable by Borrower (collectively, the "Additional
Sums"), whether pursuant to this Note, the Agreement or any
other documents or instruments in any way pertaining to this
lending transaction, or otherwise with respect to this
lending transaction, that under any applicable law may be
deemed to be interest with respect to this lending
transaction, for the purpose of any applicable law that may
limit the maximum amount of interest to be charged with
respect to this lending transaction, shall be payable by
Borrower as, and shall be deemed to be, additional interest
and for such purposes only, the agreed upon and "contracted
for rate of interest" of this lending transaction shall be
deemed to be increased by the rate of interest resulting
from the inclusion of the Additional Sums.
It is the intent of the parties to comply with the usury law
of the State of Arizona (the "Applicable Usury Law").
Accordingly, it is agreed that notwithstanding any
provisions to the contrary in this Note, or in any of the
documents securing payment hereof or otherwise relating
hereto, in no event shall this Note or such documents
require the payment or permit the collection of interest in
excess of the maximum contract rate permitted by the
Applicable Usury Law (the "Maximum Interest Rate"). In the
event (a) any such excess of interest otherwise would be
contracted for, charged or received from Borrower or
otherwise in connection with the loan evidenced hereby,
(b) the maturity of the indebtedness evidenced by this Note
is accelerated in whole or in part, or (c) all or part of
the principal or interest of this Note shall be prepaid, so
that under any of such circumstances the amount of interest
contracted for, shared or received in connection with the
loan evidenced hereby, would exceed the Maximum Interest
Rate, then in any such event (1) the provisions of this
<PAGE>
paragraph shall govern and control, (2) neither Borrower nor
any other person or entity now or hereafter liable for the
payment hereof shall be obligated to pay the amount of such
interest to the extent that it is in excess of the Maximum
Interest Rate, (3) any such excess which may have been
collected shall be either applied as a credit against the
then unpaid principal amount hereof or refunded to Borrower,
at FINOVA's option, and (4) the effective rate of interest
shall be automatically reduced to the Maximum Interest Rate.
It is further agreed, without limiting the generality of the
foregoing, that to the extent permitted by the Applicable
Usury Law; (x) all calculations of interest which are made
for the purpose of determining whether such rate would
exceed the Maximum Interest Rate shall be made by
amortizing, prorating, allocating and spreading during the
period of the full stated term of the loan evidenced hereby,
all interest at any time contracted for, charged or received
from Borrower or otherwise in connection with such loan; and
(y) in the event that the effective rate of interest on the
loan should at any time exceed the Maximum Interest Rate,
such excess interest that would otherwise have been
collected had there been no ceiling imposed by the
Applicable Usury Law shall be paid to FINOVA from time to
time, if and when the effective interest rate on the loan
otherwise falls below the Maximum Interest Rate, to the
extent that interest paid to the date of calculation does
not exceed the Maximum Interest Rate, until the entire
amount of interest which would otherwise have been collected
had there been no ceiling imposed by the Applicable Usury
Law has been paid in full. Borrower further agrees that
should the Maximum Interest Rate be increased at any time
hereafter because of a change in the Applicable Usury Law,
then to the extent not prohibited by the Applicable Usury
Law, such increases shall apply to all indebtedness
evidenced hereby regardless of when incurred; but, again to
the extent not prohibited by the Applicable Usury Law,
should the Maximum Interest Rate be decreased because of a
change in the Applicable Usury Law, such decreases shall not
apply to the indebtedness evidenced hereby regardless of
when incurred.
7.6 No delay or omission on the part of the holder of this
Note in exercising any right shall operate as a waiver
thereof or of any other right.
7.7 No waiver by the holder of this Note upon any one
occasion shall be effective unless in writing nor shall it
be construed as a bar or waiver of any right or remedy on
any future occasion.
7.8 Time is of the essence for the performance by the
undersigned of the obligations set forth in this Note.
7.9 Should any one or more of the provisions of this Note
<PAGE>
be determined illegal or unenforceable, all other provisions
shall nevertheless remain effective.
7.10 This Note cannot be changed, modified, amended or
terminated orally.
7.11 This Note shall be governed by, construed and enforced
in accordance with the laws of the State of Arizona, without
reference to the principles of conflicts of laws thereof.
7.12 THE UNDERSIGNED HEREBY WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION TO ENFORCE OR DEFEND ANY MATTER ARISING
FROM OR RELATED TO THIS NOTE, AND ACKNOWLEDGES THAT LENDER
ALSO WAIVES SUCH RIGHT.
8.0 Security For This Note.
This Note is secured pursuant to the Agreement and is
subject to all of the terms and conditions thereof, including,
but not limited to, the remedies specified therein.
IN WITNESS WHEREOF, this Note has been executed and
delivered as of the date first set forth above.
Overhill Farms, Inc.
By
Its
<PAGE>
FINOVA
SECURED PROMISSORY NOTE (TERM LOAN B)
$4,000,000 As of May 5, 1995
FOR VALUE RECEIVED, the undersigned, Overhill Farms,
Inc., a Nevada corporation, hereby promises to pay to FINOVA
CAPITAL CORPORATION ("FINOVA"), or order, at 201 North Figueroa
Street, Suite 900, Los Angeles, California 90012, or at such
other address as the holder may specify in writing, the principal
sum of Four Million Dollars ($4,000,000) plus interest in the
manner and upon the terms and conditions set forth below. This
Secured Promissory Note ("Note") is made pursuant to that certain
Loan and Security Agreement of even date between the undersigned
and FINOVA (the "Agreement"), the provisions of which are
incorporated herein by this reference. Capitalized terms herein,
unless otherwise noted, shall have the meaning set forth in the
Agreement.
1.0 Rate And Payment Of Interest.
The principal balance of this Note shall bear interest
at a per annum rate of two and one half percent plus the Base
Rate (as defined in the Agreement) as the Base Rate may change
from time to time. Each change in the Base Rate shall be
effective hereunder on the first day following the announcement
of such change, provided that a cumulative charge of less than
one-fourth of one percent (0.25%) shall not be considered.
Interest charges and all other fees and charges herein shall be
computed on the basis of a year of 360 days and actual days
elapsed and shall be payable to FINOVA in arrears on the first
day of each month hereafter at its address set forth above.
Accrued but unpaid interest under this Note shall be due and
payable on the first day of each month, commencing June 1, 1995,
and at maturity, on which date all interest remaining unpaid
shall be due and payable.
2.0 Schedule Of Principal Payments.
Principal under this Note shall be due and payable in
accordance with the following schedule:
a. Forty-seven (47) equal successive monthly
installments of Eighty-Three Thousand Three Hundred Thirty-Three
Dollars ($83,333) each on the first Business Day of each calendar
month, commencing June 1, 1995; and
b. a final installment of all remaining principal,
accrued and unpaid interest and all other sums payable pursuant
<PAGE>
to the Loan Documents on May 1, 1999.
This Note is subject to Excess Cash Flow recapture as
set forth in Section 13.14 of the Agreement.
3.0 Prepayment.
Prepayments may be made without penalty under this Note
in whole or in part.
4.0 Holder's Right Of Acceleration.
If the Agreement is terminated for any reason
whatsoever, or if there shall occur an Event of Default or if
this Note is not paid when due, the entire remaining principal
balance and all accrued and unpaid interest and other fees and
charges with respect to this Note shall, at FINOVA's option,
become immediately due and payable.
5.0 Holder's Rights Upon Default.
If any Event of Default occurs, then from the date such
Event of Default occurs until it is cured or waived in writing,
in addition to any agreed upon charges, the principal balance of
this Note shall thereafter, at FINOVA's option, bear interest at
two (2.00) percentage points per annum in addition to the rate
set forth in Section 1 above, calculated over a year of three
hundred sixty (360) days.
6.0 Additional Rights Of Holder.
If any installment of principal or interest hereunder
is not paid when due, the holder shall have, in addition to the
rights set forth herein, in the Agreement and under law, the
right to compound interest by adding the unpaid interest to
principal, with such amount thereafter bearing interest at the
rate provided in this Note.
7.0 General Provisions.
7.1 If this Note is not paid when due or upon the
occurrence of an Event of Default, the undersigned further
promises to pay all costs of collection, foreclosure fees,
reasonable attorneys' fees and expert witness fees incurred
by the holder, whether or not suit is filed hereon, and the
fees, costs and expenses as provided in the Agreement.
7.2 The undersigned hereby consents to any and all
renewals, replacements and/or extensions of time for payment
of this Note before, at or after maturity.
<PAGE>
7.3 The undersigned hereby consents to the acceptance,
release or substitution of security for this Note.
7.4 Presentment for payment, notice of dishonor, protest
and notice of protest are hereby expressly waived.
7.5 The contracted for rate of interest of the loan
contemplated hereby, without limitation, shall consist of
the following: (i) the interest rate set forth on the
Schedule, calculated and applied to the principal balance of
this Note in accordance with the provisions of this Note;
(ii) interest after an Event of Default, calculated and
applied to the amounts due under this Note in accordance
with the provisions hereof; and (iii) all Additional Sums
(as herein defined), if any. Borrower agrees to pay an
effective contracted for rate of interest which is the sum
of the above-referenced elements. All examination fees,
attorneys fees, expert witness fees, letter of credit fees,
collateral monitoring fees, closing fees, facility fees,
Termination Fees, Minimum Interest Charges, other charges,
goods, things in action or any other sums or things of value
paid or payable by Borrower (collectively, the "Additional
Sums"), whether pursuant to this Note, the Agreement or any
other documents or instruments in any way pertaining to this
lending transaction, or otherwise with respect to this
lending transaction, that under any applicable law may be
deemed to be interest with respect to this lending
transaction, for the purpose of any applicable law that may
limit the maximum amount of interest to be charged with
respect to this lending transaction, shall be payable by
Borrower as, and shall be deemed to be, additional interest
and for such purposes only, the agreed upon and "contracted
for rate of interest" of this lending transaction shall be
deemed to be increased by the rate of interest resulting
from the inclusion of the Additional Sums.
It is the intent of the parties to comply with the usury law
of the State of Arizona (the "Applicable Usury Law").
Accordingly, it is agreed that notwithstanding any
provisions to the contrary in this Note, or in any of the
documents securing payment hereof or otherwise relating
hereto, in no event shall this Note or such documents
require the payment or permit the collection of interest in
excess of the maximum contract rate permitted by the
Applicable Usury Law (the "Maximum Interest Rate"). In the
event (a) any such excess of interest otherwise would be
contracted for, charged or received from Borrower or
otherwise in connection with the loan evidenced hereby,
(b) the maturity of the indebtedness evidenced by this Note
is accelerated in whole or in part, or (c) all or part of
the principal or interest of this Note shall be prepaid, so
that under any of such circumstances the amount of interest
contracted for, shared or received in connection with the
loan evidenced hereby, would exceed the Maximum Interest
<PAGE>
Rate, then in any such event (1) the provisions of this
paragraph shall govern and control, (2) neither Borrower nor
any other person or entity now or hereafter liable for the
payment hereof shall be obligated to pay the amount of such
interest to the extent that it is in excess of the Maximum
Interest Rate, (3) any such excess which may have been
collected shall be either applied as a credit against the
then unpaid principal amount hereof or refunded to Borrower,
at FINOVA's option, and (4) the effective rate of interest
shall be automatically reduced to the Maximum Interest Rate.
It is further agreed, without limiting the generality of the
foregoing, that to the extent permitted by the Applicable
Usury Law; (x) all calculations of interest which are made
for the purpose of determining whether such rate would
exceed the Maximum Interest Rate shall be made by
amortizing, prorating, allocating and spreading during the
period of the full stated term of the loan evidenced hereby,
all interest at any time contracted for, charged or received
from Borrower or otherwise in connection with such loan; and
(y) in the event that the effective rate of interest on the
loan should at any time exceed the Maximum Interest Rate,
such excess interest that would otherwise have been
collected had there been no ceiling imposed by the
Applicable Usury Law shall be paid to FINOVA from time to
time, if and when the effective interest rate on the loan
otherwise falls below the Maximum Interest Rate, to the
extent that interest paid to the date of calculation does
not exceed the Maximum Interest Rate, until the entire
amount of interest which would otherwise have been collected
had there been no ceiling imposed by the Applicable Usury
Law has been paid in full. Borrower further agrees that
should the Maximum Interest Rate be increased at any time
hereafter because of a change in the Applicable Usury Law,
then to the extent not prohibited by the Applicable Usury
Law, such increases shall apply to all indebtedness
evidenced hereby regardless of when incurred; but, again to
the extent not prohibited by the Applicable Usury Law,
should the Maximum Interest Rate be decreased because of a
change in the Applicable Usury Law, such decreases shall not
apply to the indebtedness evidenced hereby regardless of
when incurred.
7.6 No delay or omission on the part of the holder of this
Note in exercising any right shall operate as a waiver
thereof or of any other right.
7.7 No waiver by the holder of this Note upon any one
occasion shall be effective unless in writing nor shall it
be construed as a bar or waiver of any right or remedy on
any future occasion.
7.8 Time is of the essence for the performance by the
undersigned of the obligations set forth in this Note.
<PAGE>
7.9 Should any one or more of the provisions of this Note
be determined illegal or unenforceable, all other provisions
shall nevertheless remain effective.
7.10 This Note cannot be changed, modified, amended or
terminated orally.
7.11 This Note shall be governed by, construed and enforced
in accordance with the laws of the State of Arizona, without
reference to the principles of conflicts of laws thereof.
7.12 THE UNDERSIGNED HEREBY WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION TO ENFORCE OR DEFEND ANY MATTER ARISING
FROM OR RELATED TO THIS NOTE, AND ACKNOWLEDGES THAT LENDER
ALSO WAIVES SUCH RIGHT.
8.0 Security For This Note.
This Note is secured pursuant to the Agreement and is
subject to all of the terms and conditions thereof, including,
but not limited to, the remedies specified therein.
IN WITNESS WHEREOF, this Note has been executed and
delivered as of the date first set forth above.
Overhill Farms, Inc.
By
Its
<PAGE>
INTERCREDITOR AND SUBORDINATION AGREEMENT
This Intercreditor and Subordination Agreement (this
"Agreement"), dated as of May 5, 1995 is entered into by and
between Rice Partners II, L.P., a Delaware limited partnership
("Subordinated Lender") and FINOVA Capital Corporation ("Senior
Lender"), to determine the parties' respective rights, remedies
and interests with respect to Overhill Farms, Inc., a Nevada
corporation ("Borrower"). This Agreement is made with respect to
the following facts:
A. Subordinated Lender is or will be a creditor
of Borrower, as evidenced by certain subordinated debt
instruments carrying a coupon rate of 13% per annum in the
aggregate principal amount of Thirteen Million and No/100
Dollars ($13,000,000.00) (collectively, the "Subordinated
Instrument").
B. Senior Lender is proposing to extend various
secured financial accommodations to Borrower for the
purposes of, among others, providing working capital.
However, Senior Lender is unwilling to provide such
financial accommodations unless Subordinated Lender
subordinates its claims in the manner set forth below.
NOW, THEREFORE, for good and valuable consideration,
receipt of which is hereby acknowledged by the parties hereto,
and to induce Senior Lender to extend such financial
accommodations to Borrower as it may determine, and to better
secure Senior Lender with respect to the foregoing, the parties
hereby agree as follows:
1. Subordination and Standby.
a. Indebtedness. Except as set forth in
Section 2 of this Agreement, unless and until all Senior
Indebtedness (as herein defined) has been fully paid and
satisfied in cash, Subordinated Lender shall not accept or
receive, by setoff or in any other manner, from Borrower the
whole or any part of any sums which may now or hereafter be owing
to Subordinated Lender by Borrower, or any of its predecessors,
successors or assigns, including, without limitation, a receiver,
trustee or debtor in possession (the term "Borrower" shall
hereinafter include any such predecessors, successors or assigns)
under or in connection with the Subordinated Indebtedness (as
herein defined);
b. Liens and Security Interests. Subordinated
Lender represents and warrants that the Subordinated Indebtedness
shall not be secured by any assets of Borrower, whether now
existing or hereafter arising. Except as set forth in Sections 2
and 3 of this Agreement, unless and until all of the Senior
<PAGE>
Indebtedness has been fully paid and satisfied in cash:
(1) Subordinated Lender shall not commence,
prosecute or participate in any other action, whether
private, judicial, equitable, administrative or otherwise,
including, without limitation, any bankruptcy case against
Borrower or any of its assets, provided that, as more fully
set forth in Section 7 hereof, Subordinated Lender may file
a proof of claim in a bankruptcy or insolvency proceeding
involving Borrower, which proof of claim shall indicate
Subordinated Lender's subordination hereunder; and
(2) Subordinated Lender shall have no right
either to possess any such assets, enforce any security
interests in, foreclose, levy or execute upon, or collect or
attach any such assets, whether by private or judicial
action or otherwise.
c. "Senior Indebtedness". The term "Senior
Indebtedness" shall mean, collectively, (i) all indebtedness and
other obligations of Borrower now or hereafter existing under
that certain Loan and Security Agreement of even date herewith
between Borrower and Senior Lender (the "Loan and Security
Agreement"), and the Promissory Notes and all other documents,
instruments and agreements executed by Borrower with or in favor
of Senior Lender in connection therewith, as they may be amended,
supplemented, extended, renewed, modified or restated from time
to time to the extent permitted hereunder, whether for principal,
premium, interest (including all interest accruing after the
initiation of any bankruptcy case, whether or not allowed), fees,
expenses, indemnities or otherwise; and (ii) all other
indebtedness for credit extended by Senior Lender to Borrower
from time to time, whether for principal, premium, interest
(including all interest accruing after the initiation of any
bankruptcy case, whether or not allowed), fees, expenses,
indemnities or otherwise; provided, however, that the Senior
Indebtedness shall not exceed, without Subordinated Lender's
prior written consent, the principal amount of $19,800,000, plus
all interest, costs, attorneys' fees, charges and other expenses
chargeable by Senior Lender to Borrower ("Maximum Senior
Indebtedness"). Notwithstanding the foregoing, Senior Lender
agrees not to re-lend as a term loan any principal amount repaid
on the term loan portion of the Senior Indebtedness or to make
any additional term loans to Borrower after the date of this
Agreement.
d. "Subordinated Indebtedness". The term
"Subordinated Indebtedness" shall mean, collectively, all
indebtedness and other obligations of Borrower to Subordinated
Lender under the Subordinated Instrument and any other document,
instrument, or agreement, whether the sums represent principal,
interest, dividends, costs, attorneys' fees, charges, or other
obligations due or not due, whether incurred directly or
indirectly and whether absolute or contingent.
<PAGE>
2. Permitted Payments. Subject to the conditions set
forth herein, Borrower may pay to Subordinated Lender, and
Subordinated Lender may accept or receive and shall not be
required to hold in trust, those payments described on Schedule 1
attached hereto (collectively, the "Permitted Payments");
provided, that no payment on any of the Subordinated Indebtedness
may be made during any Payment Blockage instituted pursuant to
Section 3 of this Agreement. Other than as set forth on Schedule
1 hereto, Subordinated Lender agrees that prepayments of the
Subordinated Indebtedness or payments resulting from either the
breach of any covenant or warranty contained in the Subordinated
Instrument or the acceleration of any amounts due thereunder
shall not be Permitted Payments for purposes of this Agreement.
3. Payment Blockages.
a. Payment Blockage Notices. Upon the
occurrence and at any time during the continuation of any Default
(as herein defined) under the Loan Agreement, Senior Lender may
deliver written notice thereof to Subordinated Lender in the
manner set forth herein (each a "Payment Blockage Notice"),
specifying the Default or Defaults upon which such Payment
Blockage Notice is based. A Payment Blockage shall be in effect
for the purposes of Section 2 hereof and for purposes of this
Section 3 from the date of delivery or deemed delivery of any
Payment Blockage Notice through the earlier of (i) the date on
which the Default or Defaults are cured (if curable) or waived in
writing, or the benefits of such Payment Blockage are waived in
writing by Senior Lender, and (ii) the date which is 180 days
after the date of delivery or deemed delivery of such Payment
Blockage Notice; provided, however, that the occurrence of any of
the following events shall terminate any Payment Blockage then in
effect: (i) the commencement by Borrower of any bankruptcy or
other insolvency proceeding or the entry of an Order for Relief,
(ii) the payment in full of the Senior Indebtedness in accordance
with the terms of Loan and Security Agreement and the termination
of Senior Lender's obligations thereunder, (iii) the passage of
forty-five (45) days from the date on which Senior Lender
accelerates and declares due and payable all of the Senior
Indebtedness, or (iv) the passage of sixty (60) days from the
date on which Senior Lender initiates an action against Borrower
or its assets under Section 9502 or 9504 of the Uniform
Commercial Code. Only one payment blockage notice may be sent
every 365 days. Notwithstanding Section 1 hereof, so long as no
Payment Blockage Notice is in effect, Subordinated Lender may
take such action against Borrower or its assets as permitted by
law to enforce the Subordinated Indebtedness provided that in no
event will Subordinated Lender take any actions to possess,
collect or garnish Borrower's Accounts (as defined in the Uniform
Commercial Code).
b. "Defaults". For the purposes of this
Agreement, "Default" shall mean any one or more of the following
events:
<PAGE>
(1) failure by Borrower to pay any portion
of the principal of, premium, if any, or interest on any
Senior Indebtedness as and when due and payable (as a result
of maturity, acceleration or otherwise), or any failure by
Borrower to pay any other amounts owing to Senior Lender as
and when due and payable;
(2) breach by Borrower of any negative
covenant set forth in Section 14 of the Loan and Security
Agreement;
(3) breach by Borrower of any financial
reporting requirement provided for in Section 5.2 of the
Loan and Security Agreement or in the Schedule thereto;
(4) breach of or noncompliance with any of
the financial covenants provided for in Section 13.14 of the
Loan and Security Agreement or in the Schedule thereto;
(5) failure by Borrower to comply with any
covenant or agreement on its part regarding the perfection
or continued perfection of Senior Lender's security interest
in the "Collateral" (as defined in the Loan and Security
Agreement), or the inaccuracy of any representation or
warranty related thereto;
(6) any default shall occur in the payment
or performance of Borrower's obligations to Subordinated
Lender which Subordinated Lender does not waive;
(7) the inaccuracy of any representation or
warranty by Borrower pertaining to (i) Borrower's due
authorization, execution and delivery of the Loan and
Security Agreement and each of the other "Loan Documents"
(as defined in the Loan and Security Agreement), (ii)
Borrower's ability to enter into the transactions
contemplated thereby, or (iii) the binding nature of
Borrower's obligations thereunder;
(8) the breach by Borrower of any covenant
or agreement, or the inaccuracy of any representation or
warranty, relating to Borrower's good standing as a
corporation and its authorization to do business;
(9) the breach by Borrower of any covenant
or agreement, or the inaccuracy of any representation or
warranty, relating to (i) payment of taxes or insurance,
(ii) the making of payroll deductions, or (iii) Borrower's
compliance with applicable laws;
(10) any material portion of Borrower's
assets is seized, attached, subjected to a writ or distress
warrant, is levied upon or comes into the possession of any
judicial officer;
<PAGE>
(11) any bankruptcy or other insolvency
proceeding is commenced by Borrower, or any such proceeding
is commenced against Borrower and remains undischarged or
unstayed for forty-five (45) days;
(12) any of the Collateral becomes subject to
any lien, levy or assessment, other than a "Permitted
Encumbrance" (as defined in the Loan and Security
Agreement); or
(13) any failure by Borrower to remit to
Senior Lender collections or other proceeds of the
Collateral in accordance with the terms of the Loan and
Security Agreement.
c. Limitation on Payment Blockage Notices.
Senior Lender shall not institute a Payment Blockage as provided
above based solely on the continuation of a Default which was the
basis for a previous Payment Blockage Notice, or based solely on
a Default of which Senior Lender had actual knowledge at the time
of giving such previous Payment Blockage Notice. Nothing in this
subsection, however, shall be deemed to prohibit Senior Lender
from instituting repeated Payment Blockages based on multiple
breaches of the same covenant or agreement, or based on the same
type of event of default.
d. Enforcement Notices. At Subordinated
Lender's option, Subordinated Lender may send written notice to
Senior Lender stating that a default or an event of default under
any provision of the Subordinated Indebtedness has occurred and
that Subordinated Lender intends to take enforcement action as a
consequence thereof ("Enforcement Notice"). Upon Senior Lender's
actual receipt of any Enforcement Notice, it shall have thirty
(30) days in which to issue a Payment Blockage Notice, during
which 30-day period Subordinated Lender shall be prohibited from
taking any enforcement action. If Senior Lender issues a Payment
Blockage Notice within such 30-day period, the 180-day blockage
period shall commence on the date of Senior Lender's receipt of
the Enforcement Notice. If Senior Lender does not issue a
Payment Blockage Notice within such 30-day period, Senior Lender
may not thereafter issue a Payment Blockage Notice with respect
to Subordinated Lender's rights and remedies with respect to the
default of Borrower as set forth in the Enforcement Notice.
Nothing in this subsection shall be deemed to affect the relative
rights and priorities of Subordinated Lender and Senior Lender
with respect to Borrower set forth in this Agreement.
4. Modifications of Indebtedness.
a. Senior Indebtedness. Senior Lender shall
have the right, without notice to or the consent of Subordinated
Lender, to amend, supplement or modify the Senior Indebtedness in
any manner whatsoever, including, without limitation, any
<PAGE>
extensions or shortening of time of payments (even if such
shortening causes any Senior Indebtedness to be due on demand or
otherwise), any revision of any amortization schedule with
respect thereto, and any increase in the amount of the Senior
Indebtedness; provided, however, that Senior Lender may not,
without Subordinated Lender's prior written consent, charge
interest in excess of that provided for under the Loan and
Security Agreement as in effect on the date hereof, which
permitted interest includes any applicable default interest, or
increase the Senior Indebtedness above the Maximum Senior
Indebtedness.
b. Subordinated Indebtedness. Subordinated
Lender shall be permitted to modify and amend the terms of the
Subordinated Instrument and any other document, instrument or
agreement evidencing all or any part of the Subordinated
Indebtedness; provided, however, that Subordinated Lender cannot,
without Senior Lender's prior written approval: (i) shorten the
amortization period of the Subordinated Indebtedness, (ii)
increase the interest rate applicable to the Subordinated
Indebtedness (except for the default rate of interest as
permitted on Schedule 1 of this Agreement), or (iii) modify the
terms or conditions of the Subordinated Indebtedness in any
manner which, in the reasonable judgment of Senior Lender, would
cause a violation by Borrower of the terms or conditions of the
Loan and Security Agreement, or would adversely affect (a) the
Collateral subject to Senior Lender's security interest, (b) the
ability of Borrower to comply with the terms and conditions of
the Loan and Security Agreement, or (c) the financial condition
or prospects of Borrower.
5. Subordinated Indebtedness Owed Only to
Subordinated Lender. Subordinated Lender warrants and represents
that it has not previously assigned any interest in the
Subordinated Indebtedness, that no other party owns an interest
in any of the Subordinated Indebtedness (whether as joint
holders, participants or otherwise), and that the entire
Subordinated Indebtedness is owing only to Subordinated Lender.
Subordinated Lender covenants and agrees that the
entire Subordinated Indebtedness shall continue to be owing only
to it; provided that Subordinated Lender may assign some or all
of its interest in the Subordinated Indebtedness after the
assignee has executed and delivered to Senior Lender an agreement
subordinating, in the manner set forth herein, all rights,
remedies and interests with respect to the assigned Subordinated
Indebtedness.
Subordinated Lender further warrants and represents
that the only indebtedness owing by Borrower to it is the
Subordinated Indebtedness; that to the best of its knowledge as
of the date hereof, there is no default or breach with respect to
any of such indebtedness; and, specifically, that nothing herein
contained and nothing contained in any other document, instrument
<PAGE>
or agreement with or in favor of Senior Lender constitutes a
default or breach with respect to any of such indebtedness.
6. Payments Received by Subordinated Lender. If any
payment, distribution or any collateral proceeds thereof is
received by Subordinated Lender from Borrower with respect to the
Subordinated Indebtedness during the effective period of any
Payment Blockage Notice or the payment is not a Permitted Payment
and prior to the satisfaction in full of all the Senior
Indebtedness in cash, Subordinated Lender shall receive and hold
the same in trust as trustee for the benefit of Senior Lender and
shall forthwith deliver such assets to Senior Lender in precisely
the form received (except for the endorsement or assignment by
Subordinated Lender where necessary), for application on any of
the Senior Indebtedness, due or not due. In the event of the
failure of Subordinated Lender to make any such endorsement or
assignment to Senior Lender, Senior Lender and any of its
officers or agents are hereby irrevocably authorized to make such
endorsement or assignment.
7. Claims in Bankruptcy. In the event of any
bankruptcy, assignment for the benefit of creditors or similar
proceedings against Borrower, Subordinated Lender shall file all
claims it may have against Borrower, and shall direct the debtor
in possession or trustee in bankruptcy, as appropriate, to pay
over to Senior Lender all amounts due to Subordinated Lender on
account of the Subordinated Indebtedness until the Senior
Indebtedness has been paid in full in cash. If Subordinated
Lender fails to file such claims as requested by Senior Lender
within fifteen (15) days prior to any bar date or any statutorily
imposed deadline, Senior Lender may file such claims on
Subordinated Lender's behalf. Subordinated Lender shall have all
voting rights with respect to its claim as provided in the United
States Bankruptcy Code.
8. Postpetition Financing; Liens. In the event of
any bankruptcy case against Borrower or any of the assets of
Borrower, Subordinated Lender hereby expressly consents to the
granting by Borrower to Senior Lender of senior liens and
priorities in connection with any post-petition financing of
Borrower by Senior Lender so long as the amount of pre-petition
and post-petition Senior Indebtedness does not exceed the Maximum
Senior Indebtedness.
9. Instrument Legends. The faces of the Subordinated
Instrument and any other instrument evidencing the Subordinated
Indebtedness or any portion thereof will be forthwith inscribed
with a legend conspicuously indicating that payment thereon is
subordinated to the claims of Senior Lender pursuant to the terms
of this Agreement, and copies thereof will forthwith be delivered
to Senior Lender. Any instrument evidencing any of the
Subordinated Indebtedness or any portion thereof which is
hereafter executed will, on the date thereof, be inscribed with
the aforesaid legend, and copies thereof will be delivered to
<PAGE>
Senior Lender on the date of its execution or within ten (10)
business days thereafter.
10. Additional Remedies. If Subordinated Lender
violates any of the terms of this Agreement, in addition to any
remedies in law, equity or otherwise, Senior Lender may restrain
such violation in any court of law and may interpose this
Agreement as a defense in any action by Subordinated Lender.
11. Subordinated Lender's Waivers. All of the Senior
Indebtedness shall be deemed to have been made or incurred in
reliance upon this Agreement. Each of Senior Lender and
Subordinated Lender expressly waives all notice of the acceptance
of the subordination and other provisions of this Agreement and
agrees that the other party has made no warranties or
representations with respect to the legality, validity,
enforceability, collectability or perfection of the Senior
Indebtedness or the Subordinated Indebtedness or any liens or
security interests held in connection therewith.
Subordinated Lender agrees that Senior Lender shall be
entitled to manage and supervise its loans in accordance with
applicable law and its usual practices, modified from time to
time as it deems appropriate under the circumstances, without
regard to the existence of any rights that Subordinated Lender
may now or hereafter have in or to any assets. Senior Lender
shall have no liability to Subordinated Lender as a result of any
and all lawful actions which Senior Lender takes or omits to take
(including, without limitation, actions with respect to the
creation, perfection or continuation of its liens or security
interest, actions with respect to the occurrence of a Default,
actions with respect to the foreclosure upon, sale, release or
failure to realize upon, any of its collateral, and actions with
respect to the collection of any claim for all or any part of the
Senior Indebtedness from any account debtor or any other party),
regardless of whether any such actions or omissions may affect
Senior Lender's rights to deficiency or Subordinated Lender's
rights of subrogation or reimbursement.
Senior Lender may, from time to time, enter into
agreements and settlements with Borrower as it may determine,
including, without limitation, any substitution of collateral,
any release of any lien or security interest and any release of
Borrower. Subordinated Lender waives any and all rights it may
have to require Senior Lender to marshall assets.
12. Waivers. No waiver shall be deemed to be made by
Senior Lender or Subordinated Lender of any of their respective
rights hereunder unless it is in writing signed by the waiving
party. Each such waiver shall be a waiver only with respect to
the specific instance involved and shall in no way impair the
rights of the waiving party or the obligations of the other party
to the waiving party in any other respect at any other time.
<PAGE>
13. Information Concerning Financial Condition. To
the extent Subordinated Lender deems it necessary or prudent to
keep itself informed of the financial condition of Borrower and
of all other circumstances bearing upon the risk of nonpayment of
the Senior Indebtedness, Subordinated Lender hereby assumes
responsibility for keeping itself so informed, and agrees that
Senior Lender shall have no duty to advise it of information
known to Senior Lender regarding such condition or any such
circumstances. In the event Senior Lender, in its sole
discretion, undertakes, at any time or from time to time, to
provide any such information to Subordinated Lender, Senior
Lender shall be under no obligation (i) to provide any such
information to Subordinated Lender on any subsequent occasion,
(ii) to undertake any investigation not a part of its regular
business routine, or (iii) to disclose any information which,
pursuant to its commercial finance practices, Senior Lender
wishes to maintain confidential.
14. Third Party Beneficiaries. This Agreement is
solely for the benefit of Senior Lender, Subordinated Lender and
their respective successors and assigns, and neither Borrower nor
any other persons or entities are intended to be third party
beneficiaries hereunder or to have any right, benefit, priority
or interest under, or because of the existence of, or to have any
right to enforce, this Agreement. Senior Lender and Subordinated
Lender shall have the right to modify or terminate this Agreement
at any time without notice to or approval of Borrower or any
other person or persons.
Nothing in this Agreement is intended to or shall
impair, as between Borrower and Subordinated Lender, but without
affecting the rights of Senior Lender hereunder, the obligation
of Borrower, which is absolute and unconditional, to pay to
Subordinated Lender the principal of and interest on the
Subordinated Instrument and all of the Subordinated Indebtedness
as and when the same shall become due and payable in accordance
with their terms, or affect the relative rights of Subordinated
Lender and creditors of Borrower other than Senior Lender.
Notwithstanding any of the foregoing, if any third
party satisfies the Senior Indebtedness owing to Senior Lender,
Senior Lender may assign its rights and remedies hereunder to
such third party, and such third party shall be deemed to be
Senior Lender for all purposes of this Agreement. If a
determination is made in favor of any third party, including,
without limitation, a trustee in bankruptcy, that Senior Lender's
liens or security interests are invalid, avoidable or
unperfected, the subordination set forth in Section 1 hereinabove
shall be deemed null and void, but only to the extent of such
invalidity, avoidability and imperfection.
15. Notices. For the purposes of this Agreement,
written notices shall be sent by U.S. first class mail, postage
prepaid; or by U.S. certified mail, return receipt requested,
<PAGE>
postage prepaid; or by personal delivery; or by facsimile
confirmed by the recipient; and addressed to the notified party
at its address set forth below its signature line, or such other
address specified by the party with like notice. Notices shall
be deemed received three (3) business days after deposit in the
U.S. mail, if sent by first class mail; upon the date set forth
in the return receipt, if by certified mail; on the day of
confirmation of delivery by the recipient, if by facsimile; or on
the day of transmittal by personal delivery.
16. Costs and Attorneys' Fees. If there is any claim
or controversy litigated in any lawsuit between any of the
parties hereto in connection with this Agreement, the prevailing
parties in the lawsuit shall be entitled to recover from the
other parties their reasonable costs and attorneys' fees.
17. Consent to Jurisdiction; Additional Waivers.
Subordinated Lender and Senior Lender each consents to the
jurisdiction of any state or federal court located within
Maricopa County, Arizona. Subordinated Lender waives personal
service of any and all process upon it, and consents that all
service of process be made in the manner set forth in Section 16
of this Agreement. Subordinated Lender and Senior Lender each
waives, to the fullest extent each may effectively do so, any
defense or objection based upon forum non conveniens and any
defense or objection to venue of any action instituted within
Maricopa County, Arizona. EACH OF THE PARTIES HERETO WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION TO ENFORCE OR DEFEND ANY
MATTER ARISING FROM OR RELATED TO THIS AGREEMENT.
18. Governing Law. This Agreement has been delivered
and accepted at and shall be deemed to have been made in the
State of Arizona, and shall be interpreted, and the rights and
liabilities of the parties hereto determined, in accordance with
the internal laws (as opposed to conflicts of laws provisions) of
the State of Arizona.
19. Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties'
respective successors and assigns, subject to the provisions
hereof.
20. Integrated Agreement. This Agreement sets forth
the entire understanding of the parties with respect to the
within matters and may not be modified or amended except upon a
writing signed by all parties.
21. Authority. Each of the signatories hereto
certifies that such party has all necessary authority to execute
this Agreement.
<PAGE>
22. Counterparts. This Agreement may be executed in
one or more counterparts, each one of which when so executed
shall be deemed to be an original, and all of which taken
together shall constitute one and the same agreement.
"Subordinated Lender"
RICE PARTNERS II, L.P.
By: Rice Capital Group IV, L.P.,
its general partner
By: RMC Fund Management, L.P., its
general partner
By: Rice Mezzanine Corporation,
its general partner
By: _____________________
James P. Wilson,
Managing Director
Address for notices:
Rice Partners II, L.P.
c/o Rice Capital Group IV, L.P.
5847 San Felipe, Suite 4350
Houston, Texas 77057
Attn: James P. Wilson
Telecopy No.: (713) 783-9750
with a courtesy copy to:
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attn: Larry A. Makel, Esq.
Telecopy: No.: (214) 939-6100
[SIGNATURES CONTINUED]
<PAGE>
[SIGNATURES CONTINUED]
"Senior Lender"
FINOVA CAPITAL CORPORATION
By:_______________________________
Title:
Address for notices:
FINOVA Capital Corporation
201 N. Figueroa Street, Suite 900
Los Angeles, California 90012
Attn: Manager
Telecopy No.: (213) 580-5678
with a courtesy copy to:
Joseph R. D'Amore, Esq.
FINOVA Capital Corporation
1850 N. Central Avenue
Phoenix, Arizona 85002
Telecopy No.: (602) 207-5036
All of the foregoing is consented and agreed to as of
the date first set forth above:
"Borrower"
OVERHILL FARMS, INC.
By: _________________________________
Title:
Address for notices:
Overhill Farms, Inc.
5730 Uplander Way, Suite 201
Culver City, California 90230
Attn: Paul Tanner, President
Telecopy No.:
<PAGE>
NOTE PURCHASE AGREEMENT
This Note Purchase Agreement (this "Agreement"), dated as of
May 5, 1995, is by and between OVERHILL FARMS, INC., a Nevada
corporation (the "Company"), and RICE PARTNERS II, L.P., a
Delaware limited partnership ("Rice"). Capitalized terms used in
this Agreement are defined in Section 11.1.
To induce Rice to purchase the Senior Subordinated Note from
the Company, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, agree as follows.
I. DESCRIPTION OF SENIOR SUBORDINATED NOTE AND COMMITMENT
1.1 Description of Senior Subordinated Note. The Company
will authorize the issuance and sale of its Senior Subordinated
Note which shall be dated the Closing Date, shall be in the
aggregate original principal amount of $13,000,000, and shall
bear interest at the fixed rate of 13% per annum; provided,
however, that upon the occurrence of a Potential Default under
Section 8.1(a) hereof or any Event of Default, and during the
continuation thereof, the unpaid principal amount of the Senior
Subordinated Note shall bear interest at the rate of 15% per
annum. Interest on the Senior Subordinated Note shall be
computed on the basis of the actual number of days elapsed over a
360 day year. The Senior Subordinated Note shall be
substantially in the form attached hereto as Exhibit A.
1.2 Commitment; Funding. Subject to the terms and conditions
hereof and on the basis of the representations and warranties
hereinafter set forth, the Company agrees to issue and sell to
Rice and Rice agrees to purchase from the Company, the Senior
Subordinated Note in the principal amount of $13,000,000 at a
price of 100% of such principal amount. Delivery of the Senior
Subordinated Note shall be made on the Closing Date in the
offices of the Seller. Payment of the purchase price of the
Senior Subordinated Note shall be made in immediately available
funds to such Person as the Company shall designate in writing
and shall be disbursed as follows: (a) $10,000,000 of the
purchase price of the Senior Subordinated Note shall be disbursed
on the Closing Date, and (b) the remaining $3,000,000 of the
purchase price of the Senior Subordinated Note shall be disbursed
on May 17, 1995. The Senior Subordinated Note will be delivered
to Rice in fully registered form, and shall be issued in its name
or the name of its nominee. Simultaneously with purchase of the
Senior Subordinated Note, pursuant to the Senior Loan Agreement,
the Senior Lender will provide the Company with a revolving loan
facility in an amount not to exceed $12,000,000 and a term loan
facility in an amount not to exceed $6,000,000. The Company
<PAGE>
expects that a total of approximately $17,000,000 will be
advanced by the Senior Lender to the Company on the Closing Date.
1.3 Origination Fee. The Company shall pay to Rice an
origination fee of 2.0% of the face amount of the Senior
Subordinated Note, in immediately available funds, on the Closing
Date, which fee shall be deemed fully earned and nonrefundable on
the Closing Date. Rice may, at its option, deduct the amount of
the origination fee from the purchase price of the Senior
Subordinated Note.
1.4 Use of Proceeds. The proceeds from the sale of the
Senior Subordinated Note shall be used solely to finance a
portion of the purchase price of the assets of Seller which are
to be acquired by the Company pursuant to the Acquisition
Documents.
II. PAYMENT AND PREPAYMENT OF SENIOR SUBORDINATED OBLIGATIONS
2.1 Principal and Interest Payments. Principal and interest
on the Senior Subordinated Note shall be due and payable as
follows:
(a) Principal shall be due and payable in two equal
annual installments of $6,500,000 on each of April 29,
2002 and April 29, 2003, with all remaining principal
being due and payable in full on the Termination Date.
(b) Interest shall be due and payable (i) quarterly
in arrears on the last Business Day of each March, June,
September and December, commencing the last Business Day
of June, 1995, and (ii) on the Termination Date.
2.2 Optional Prepayments. At the Company's option, upon
notice given as provided below, the Company may, at any time
and from time to time, prepay all or any part of the principal
of the Senior Subordinated Note, by payment to Purchaser of an
amount equal to (a) the principal amount to be prepaid, plus
(b) accrued unpaid interest on the principal amount so prepaid,
plus (c) any expenses and/or damages for which Purchaser may be
entitled to receive payment or reimbursement hereunder or, if
the Senior Subordinated Note is being prepaid in full, the
aggregate amount of all other Senior Subordinated Obligations,
plus (d) a premium equal to the percentage of the principal
amount so prepaid which is applicable in accordance with the
following table based on the date on which such prepayment is
made (a "Prepayment Fee"):
Prepayment Date Premium
Closing Date through May 4, 1996 6%
May 5, 1996 through May 4, 1997 5%
May 5, 1997 through May 4, 1998 4%
<PAGE>
May 5, 1998 through May 4, 1999 3%
May 5, 1999 and thereafter 0%
Each partial prepayment under this Section 2.2 shall be in a
principal amount of not less than $250,000 or, if greater than
$250,000, then in integral multiples of $50,000. Each
prepayment under this Section 2.2 shall be applied first to
accrued interest on the principal amount prepaid, second to any
applicable Prepayment Fee, third to installments of principal
in the inverse order of their maturities, and fourth to any
expenses and/or damages for which Purchaser may be entitled.
The amount of any such prepayment may not be reborrowed by the
Company. The Company shall give notice of any optional
prepayment to Purchaser not less than ten (10) days nor more
than sixty (60) days before the date for prepayment, specifying
in each such notice the date upon which prepayment is to be
made and the principal amount (together with accrued interest
and any applicable Prepayment Fee) to be prepaid on such date.
Notice of prepayment having been so given, the applicable
prepayment amount shall become due and payable on the specified
prepayment date. The Company shall have no right to prepay the
Senior Subordinated Note except as provided in this Section 2.2
or in Section 2.3.
2.3 Mandatory Prepayments. Any prepayment under this
Section 2.3 shall be applied first to accrued interest, second
to any applicable Prepayment Fee, third to installments of
principal in the inverse order of their maturities and fourth
to any expenses and/or damages for which Purchaser may be
entitled. The amount of any such mandatory prepayment may not
be reborrowed by the Company. The Company shall make mandatory
prepayments in each of the following circumstances:
(a) In the event of any public or private offering by
the Company of any of the Company's debt or equity securities,
the Company shall prepay the Senior Subordinated Note in an
amount equal to the lesser of the (i) net proceeds of any such
public or private offering or (ii) the aggregate amount of all
Senior Subordinated Obligations (including any applicable
Prepayment Fee), such prepayment to be made within five (5)
Business Days of receipt of such net proceeds.
(b) If during any fiscal year the Company shall sell or
otherwise dispose of (other than a sale or disposition governed
by Section 2.3(c) below or a sale or disposition permitted by
Section 6.8 or Section 7.3) any property or properties, then
the Company shall prepay the Senior Subordinated Note in an
amount equal to the lesser of (i) the aggregate net cash
proceeds of such sales or other dispositions or (ii) the
aggregate amount of all Senior Subordinated Obligations
(including any applicable Prepayment Fee), such prepayment to
be made within five (5) Business Days of receipt of such net
<PAGE>
proceeds.
(c) In the event of any sale or other disposition of
all or substantially all of the stock or assets of the Company
or any Subsidiary of the Company in a single transaction or
series of transactions, the Company shall prepay the Senior
Subordinated Note in an amount equal to the lesser of (i) the
aggregate net cash proceeds of such sales or dispositions or
(ii) the aggregate amount of all Senior Subordinated
Obligations (including any applicable Prepayment Fee),
prepayment to be made within five (5) Business Days of receipt
of such net proceeds.
2.4 Additional Payments. Unless otherwise provided herein
or in the Other Agreements, all Senior Subordinated
Obligations, other than principal and interest on the Senior
Subordinated Note, shall be payable by the Company to the
Holder thereof, on demand, and shall bear interest from the
date of demand until paid at the rate of interest then
applicable under Section 1.1.
2.5 Liquidated Damages. Any Prepayment Fee payable pursuant
to Section 2.2 or Section 2.3 shall be payable as liquidated
damages for loss of the opportunity to recover loan origination
expenses and profits over the balance of the term of this
Agreement and not as a penalty.
2.6 Direct Payment. The Company will pay all sums becoming
due hereunder and on the Senior Subordinated Note to Purchaser
at the address specified for Purchaser on Annex I hereto, by
wire transfer in U.S. Dollars of Federal Reserve Funds or other
immediately available funds, to the account specified for
Purchaser on Annex I, or at such other address or in such other
form as Purchaser shall have designated by notice to the
Company at least five Business Days prior to the date of any
payment, in each case without presentment and without notations
being made thereon. All payments by the Company shall be made
without set-off or counterclaim. Any wire transfer shall
identify such payment as "Overhill Farms, Inc., 13% Senior
Subordinated Note" and shall identify the payment as principal,
premium, interest and/or reimbursement of costs and expenses,
together with the applicable date or period to which it
relates.
2.7 Payments Payable on Business Days. Payments of all
amounts due hereunder or under the Senior Subordinated Note
shall be made on a Business Day. Any payment due on a day that
is not a Business Day shall be made on the next Business Day,
together with all interest (if any) accrued in the interim.
2.8 Interest Laws. Notwithstanding any provision to the
contrary contained in this Agreement or any Other Agreement,
the Company shall not be required to pay, and Purchaser shall
not be permitted to contract for, take, reserve, charge or
<PAGE>
receive, any compensation which constitutes interest under
applicable law in excess of the maximum amount of interest
permitted by law ("Excess Interest"). If any Excess Interest
is provided for or determined by a court of competent
jurisdiction to have been provided for in this Agreement or in
any Other Agreement or otherwise contracted for, taken,
reserved, charged or received, then in such event: (a) the
provisions of this Section 2.8 shall govern and control; (b)
the Company shall not be obligated to pay any Excess Interest;
(c) any Excess Interest that Purchaser may have contracted for,
taken, reserved, charged or received hereunder shall be, at
Purchaser's option, (i) applied as a credit against the
outstanding principal balance of the Senior Subordinated
Obligations or accrued and unpaid interest (not to exceed the
maximum amount permitted by law), (ii) refunded to the payor
thereof, or (iii) any combination of the foregoing; (d) the
interest provided for shall be automatically reduced to the
maximum lawful rate allowed from time to time under applicable
law (the "Maximum Rate"), and this Agreement and the Other
Agreements shall be deemed to have been, and shall be,
reformed and modified to reflect such reduction; and (e) the
Company shall have no action against Purchaser for any damages
arising due to any Excess Interest. Notwithstanding the
foregoing, if for any period of time interest on any Senior
Subordinated Obligations is calculated at the Maximum Rate
rather than the applicable rate under this Agreement, and
thereafter such applicable rate becomes less than the Maximum
Rate, the rate of interest payable on such Senior Subordinated
Obligations shall remain at the Maximum Rate until Purchaser
shall have received the amount of interest which Purchaser
would have received during such period on such Senior
Subordinated Obligations had the rate of interest not been
limited to the Maximum Rate during such period. All sums paid
or agreed to be paid hereunder or under the Other Agreements
for the use, forbearance or detention of sums due shall, to the
extent permitted by applicable law, be amortized, pro-rated,
allocated and spread throughout the full term of the Senior
Subordinated Obligations until payment in full so that the rate
or amounts of interest on account of the Senior Subordinated
Obligations does not exceed the Maximum Rate. The terms of
this Section 2.8 shall be deemed incorporated into each Other
Agreement and any other document or instrument between the
Company and Purchaser or directed to the Company by Purchaser,
whether or not specific reference to this Section 2.8 is made.
III. REPRESENTATIONS AND WARRANTIES OF PURCHASER
To induce the Company to enter into this Agreement, Purchaser
represents and warrants to the Company that the following
statements are, and at the Closing will be, true, correct and
complete:
3.1 Existence. It is a limited partnership duly organized,
validly existing and in good standing under the laws of the
<PAGE>
jurisdiction of its organization.
3.2 Authority. It has the right and power and authority to
enter into, execute, deliver and perform its obligations under
this Agreement, and its partners, officers or agents executing
and delivering this Agreement are duly authorized to do so.
This Agreement has been duly and validly executed and delivered
and constitutes the legal, valid and binding obligation of
Purchaser, enforceable in accordance with its terms.
3.3 Investor Status. It (i) is an "accredited investor," as
that term is defined in Regulation D under the Securities Act
of 1933, as amended, and (ii) has such knowledge, skill,
sophistication and experience in business and financial
matters, based on actual participation, that it is capable of
evaluating the merits and risks of the purchase of the Senior
Subordinated Note from the Company and the suitability thereof
for Purchaser.
3.4 Investment for own Account. It is acquiring the Senior
Subordinated Note for investment for its own account and not
with a view to any distribution thereof in violation of
applicable securities laws.
3.5 Legend on Note. It agrees that the Senior Subordinated
Note will bear the appropriate legends referencing restrictions
on transfer and will not be offered, sold or transferred in the
absence of registration or exemption under applicable
securities laws.
IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
To induce Purchaser to enter into this Agreement, the Company
represents and warrants to Purchaser that the following
statements are, and after giving effect to the Acquisition will
be, true, correct and complete:
4.1. Corporate Existence and Authority. The Company (a) is a
corporation duly organized, validly existing, and in good
standing under the laws of Nevada; (b) has all requisite
corporate power and authority to own its assets and carry on
its business as now conducted; and (c) is qualified to do
business in all jurisdictions in which the nature of its
business makes such qualification necessary and where failure
to so qualify would have a Material Adverse Effect. The
Company has the corporate power and authority to execute,
deliver, and perform its obligations under this Agreement, the
Acquisition Documents, the Senior Loan Documents, and all Other
Agreements to which it is or in connection with the
transactions contemplated hereby, may become, a party.
4.2 Financial Statements. The Company has delivered to
Purchaser (a) unaudited financial statements of the Seller as
at and for the fiscal year ended September 30, 1994, (b)
<PAGE>
unaudited financial statements of the Seller for the six-month
period ended March 31, 1995, and (c) cash flow projections and
analyses of the Company for the five-year period following the
Closing Date together with a written statement of the
assumptions underlying them. The financial statements referred
to in clauses (a) and (b) of this Section 4.2 are true and
correct in all material respects, have been prepared in
accordance with GAAP (except as otherwise noted therein), and
fairly present both the financial condition of the Seller as of
the respective dates indicated therein and the results of the
Company's operations for the respective periods indicated
therein. The cash flow projections and analyses referred to in
clause (c) of this Section 4.2 fairly present the Company's
best estimate of the future cash flow position of the Company,
based on the Seller's historical performance and the Company's
knowledge of its business plans and assumptions underlying
them. It is the Company's good faith belief that such cash
flow projections are reasonably achievable by the Company. At
March 31, 1995, the Seller has no liabilities or obligations
(absolute, accrued, contingent or otherwise) of a nature
required by GAAP to be reflected in such financial statements
which are, individually or in the aggregate, material to the
condition, financial or otherwise, or operations of the Seller
as of that date which are not reflected on such financial
statements. There has been no material adverse change in the
condition, financial or otherwise, or operations of the Seller
since March 31, 1995 nor has there otherwise occurred a
Material Adverse Effect.
4.3 Default. Except as disclosed on Schedule 4.3, the
Company is not in default under any loan agreement, indenture,
mortgage, security agreement, lease, franchise, permit, license
or other agreement or obligation to which it is a party or by
which any of its properties may be bound. The Company is
paying its debts as they become due.
4.4 Authorization and Compliance with Laws and Material
Agreements. The execution, delivery and performance by the
Company of this Agreement, the Acquisition Documents, the
Senior Loan Documents and the Other Agreements to which it is
or may in connection with the transactions contemplated hereby
become a party, have been or prior to the consummation of such
transactions will be duly authorized by all requisite action on
the part of the Company and do not and will not violate its
Certificate of Incorporation or Bylaws or any law or any order
of any court, governmental authority or arbitrator, and do not
and will not upon the consummation of the transactions
contemplated hereby conflict with, result in a breach of, or
constitute a default under, or result in the imposition of any
Lien (except Permitted Liens) upon any assets of the Company
pursuant to the provisions of any loan agreement, indenture,
mortgage, security agreement, franchise, permit, license or
other instrument or agreement by which the Company or any of
its properties is bound. Except as set forth on Schedule 4.4,
<PAGE>
no authorization, approval or consent of, and no filing or
registration with, any court, governmental authority or third
Person is or will be necessary for the execution, delivery or
performance by the Company of this Agreement, the Acquisition
Documents, the Senior Loan Documents, and the Other Agreements
to which it is a party or the validity or enforceability
thereof. All such authorizations, approvals, consents, filings
and registrations described in Schedule 4.4 have been obtained.
The Company is not in violation of any term of its Certificate
of Incorporation or Bylaws or any contract, agreement, judgment
or decree and is in full compliance with all applicable laws,
regulations and rules, the noncompliance with which could
reasonably be expected to have a Material Adverse Effect.
4.5 Environmental Condition of the Property. Except as
disclosed on Schedule 4.5:
(a) The location, construction, occupancy, operation
and use of the Property do not violate any applicable law,
statute, ordinance, rule, regulation, order or determination of
any governmental authority or other body exercising similar
functions, or any restrictive covenant or deed restriction
(recorded or otherwise) affecting the Property, including,
without limitation, all applicable zoning ordinances and
building codes, flood disaster, occupational health and safety
laws and Environmental Laws and regulations (as referred to in
this Section 4.5, collectively, "applicable laws");
(b) Without limitation of clause (a) of this Section
4.5, neither the Company nor the Property is subject to any
existing, pending or threatened investigation or inquiry by any
governmental authority or subject to any remedial obligations
due to violations of applicable laws;
(c) The Company is not subject to any liability or
obligation relating to (i) the environmental conditions on,
under or about the Property, including, without limitation, the
soil and ground water conditions at the Property, or (ii) the
use, management, handling, transport, treatment, generation,
storage, disposal, release or discharge of any Polluting
Substance;
(d) There is no Polluting Substance or other substance
that may pose any risk to safety, health or the environment on,
under or about any Property;
(e) The Company has taken reasonable steps to determine
and hereby represents and warrants that no Polluting Substances
have been disposed of or otherwise released on, onto, into, or
from the Property, and the use which the Company makes and
intends to make of the Property does not and will not result in
the disposal or other release of any Polluting Substances on,
onto, into or from the Property; and
<PAGE>
(f) The Company and the Seller have been issued all
required federal, state and local licenses, certificates or
permits relating to, and the Property, the Company, the Seller
and their respective facilities, business, assets, leaseholds
and equipment are all in compliance in all material respects
with all applicable federal, state and local laws, rules and
regulations relating to, air emissions, water discharge, noise
emissions, solid or liquid waste disposal, Polluting
Substances, or other environmental, health or safety matters.
4.6 Solvency. After giving effect to the transactions
contemplated by the Senior Loan Agreement, this Agreement and
the Other Agreements, the Company will be solvent, able to pay
its debts as they mature, have capital sufficient to carry on
its business and all businesses in which it is about to engage,
and
(a) the assets of the Company, at a fair valuation,
exceed the total liabilities (including contingent,
subordinated, unmatured and unliquidated liabilities) of the
Company;
(b) current projections which are based on underlying
assumptions which provide a reasonable basis for the
projections and which reflect the Company's judgment based on
present circumstances, the most likely set of conditions and
the Company's most likely course of action for the period
projected, demonstrate that the Company will have sufficient
cash flow to enable it to pay its debts as they mature; and
(c) the Company does not have an unreasonably small
capital base with which to engage in its anticipated business.
For purposes of clause (a) of this Section 4.6, the "fair
valuation" of the assets of the Company shall be determined on
the basis of the amount which may be realized within a
reasonable time, either through collection or sale of such
assets at market value, deeming the latter as the amount which
could be obtained for the property in question within such
period by a capable and diligent businessman from an interested
buyer who is willing to purchase under ordinary selling
conditions.
4.7 Litigation and Judgments. Except as disclosed on
Schedule 4.7, there is no action, suit, proceeding or
investigation before any court, governmental authority or
arbitrator pending, or to the knowledge of the Company
threatened, against or affecting the Company, this Agreement,
the Acquisition Documents, the Senior Loan Documents and/or the
Other Agreements. Except as disclosed on Schedule 4.7, there
are no outstanding judgments against the Company. None of the
matters listed on Schedule 4.7 could reasonably be expected to
have, either individually or in the aggregate, a Material
Adverse Effect.
<PAGE>
4.8 Rights in Properties; Liens. The Company has good and
indefeasible title to all properties and assets reflected on
its balance sheets, and none of such properties or assets is
subject to any Liens, except Permitted Liens. The Company
enjoys peaceful and undisturbed possession under all leases
necessary for the operation of its other properties, assets,
and businesses and all such leases are valid and subsisting and
are in full force and effect. There exists no default under
any provision of any lease which would permit the lessor
thereunder to terminate any such lease or to exercise any
rights under such lease which, individually or together with
all other such defaults, could have a Material Adverse Effect.
The Company has the exclusive right to use all of the
Intellectual Property necessary to its business as presently
conducted, and the Company's use of the Intellectual Property
does not infringe on the rights of any other Person. To the
best of the Company's knowledge, no other Person is infringing
the rights of the Company in any of the Intellectual Property.
The Company owes no royalties, honoraria or fees to any Person
by reason of its use of the Intellectual Property.
4.9 Enforceability. This Agreement, the Acquisition
Documents, the Senior Loan Documents and the Other Agreements
to which the Company is a party, when delivered, shall
constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with
their respective terms.
4.10 Indebtedness. The Company has no Indebtedness, except
Permitted Indebtedness. All Indebtedness owed by the Company to
any Affiliate is set forth on Schedule 4.10.
4.11 Taxes. The Company has filed all tax returns (federal,
state, and local) required to be filed, including, without
limitation, all income, franchise, employment, property, and
sales taxes, and has paid all of its tax liabilities, other
than immaterial amounts and taxes that are being contested by
the Company in good faith by appropriate actions or proceedings
diligently pursued, and for which adequate reserves in
conformity with GAAP with respect thereto have been provided
for on the Company's books. The Company knows of no pending
investigation of the Company by any taxing authority or pending
but unassessed tax liability of the Company. The Company has
made no presently effective waiver of any applicable statute of
limitations or request for an extension of time to file a tax
return, and the Company is not a party to any tax-sharing
agreement.
4.12 Use of Proceeds; Margin Securities. The Company is not
engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing
or carrying margin stock (within the meaning of Regulations G,
U or X of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any extension of credit
<PAGE>
under this Agreement will be used to purchase or carry any such
margin stock or to extend credit to others for the purpose of
purchasing or carrying margin stock. Neither the Company nor
any Person acting on its behalf has taken any action that might
cause the transactions contemplated by this Agreement, the
Acquisition Documents, the Senior Loan Documents or any Other
Agreements to violate Regulations G, U or X or to violate the
Securities Exchange Act of 1934, as amended.
4.13 ERISA. All members of any Controlled Group have
complied with all applicable minimum funding requirements and
all other applicable and material requirements of ERISA and the
Code, applicable to the Employee Benefit Plans it or they
sponsor or maintain, and there are no existing conditions that
would give rise to material liability thereunder. With respect
to any Employee Benefit Plan, all members of any Controlled
Group have made all contributions or payments to or under each
Employee Benefit Plan required by law, by the terms of such
Employee Benefit Plan or the terms of any contract or
agreement. No Termination Event has occurred in connection
with any Pension Plan, and there are no unfunded benefit
liabilities, as defined in Section 4001(a)(18) of ERISA, with
respect to any Pension Plan which poses a risk of causing a
Lien to be created on the assets of the Company or which will
result in the occurrence of a Reportable Event. No member of
any Controlled Group has been required to contribute to a
multiemployer plan, as defined in Section 4001(a)(3) of ERISA,
since September 2, 1974. No material liability to the Pension
Benefit Guaranty Corporation has been, or is expected to be,
incurred by any member of a Controlled Group. The term
"liability," as referred to in this Section 4.13, includes any
joint and several liability. No prohibited transaction under
ERISA or the Code has occurred with respect to any Employee
Benefit Plan which could have a Material Adverse Effect or a
material adverse effect on the condition, financial or
otherwise, of an Employee Benefit Plan.
4.14 Delivery of Acquisition Documents. The Company has
furnished to Purchaser complete copies of the Acquisition
Documents and all documents executed in connection with the
Acquisition (including all exhibits, schedules and disclosure
letters referred to therein or delivered pursuant thereto, if
any) and all amendments thereto, waivers relating thereto and
other side letters or agreements affecting the terms thereof.
None of such documents and agreements has been amended or
supplemented, nor have any of the provisions thereof been
waived, except pursuant to a written agreement or instrument
which has heretofore been delivered to Purchaser.
4.15 Disclosure. No representation or warranty made by the
Company in the Senior Loan Documents, the Acquisition Documents
or any Other Agreement to which the Company is a party contains
any untrue fact or omits to state any material fact necessary
to make the statements herein or therein not misleading. There
<PAGE>
is no fact known to the Company which the Company has
determined has a Material Adverse Effect, or which the Company
has determined could reasonably be expected in the future to
have a Material Adverse Effect, that has not been disclosed in
writing to Purchaser.
4.16 Subsidiaries and Capitalization. The Company has no
Subsidiaries. All the issued and outstanding shares of capital
stock of the Company are duly authorized, validly issued, fully
paid and nonassessable. The capitalization of the Company on
the Closing Date is set forth on Schedule 4.16. No violation
of any preemptive rights of shareholders of the Company has
occurred by virtue of the transactions contemplated under this
Agreement, the Acquisition Documents, the Senior Loan Documents
or any Other Agreement. There are no outstanding contracts,
options, warrants, instruments, documents or agreements binding
upon the Company granting to any Person or group of Persons any
right to purchase or acquire shares of the Company's capital
stock, except pursuant to the Warrant Documents.
4.17 Current Locations. Schedule 4.17 identifies (a) the
Company's principal place of business and chief executive
office, (b) all the locations where the Company maintains any
books or records relating to any of its assets, (c) all other
locations where the Company has a place of business, and (d)
each address where any of the Company's assets are located.
Schedule 4.17 accurately indicates whether each such location
is owned or leased, and, if leased, identifies the owner of
such location. No Person other than the Company has possession
of any material amount of the assets of the Company except as
disclosed on Schedule 4.17.
4.18 Investment Company Act. Neither the Company nor any
company controlling the Company is required to be registered as
an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
4.19 Public Utility Holding Company Act. The Company is not
a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of a "holding company" or a "public
utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
4.20 Securities Laws. Based in part on the Purchaser's
representations contained herein, the Company has complied with
or is exempt from the registration and/or qualification
requirements of all federal and state securities or blue sky
laws applicable to the issuance or sale of the Senior
Subordinated Note.
4.21 No Labor Disputes. The Company is not involved in any
labor dispute. There are no strikes or walkouts or, except as
disclosed on Schedule 4.21, union organization of any of the
Company's employees threatened or in existence and no labor
<PAGE>
contract is scheduled to expire during the term of this
Agreement.
4.22 Brokers. Neither the Company nor any of its
shareholders has dealt with any broker, finder, commission
agent or other Person in connection with the Acquisition or
other transactions referenced in or contemplated by this
Agreement, nor is the Company or any of its shareholders under
any obligation to pay any broker's fee or commission in
connection with such transactions, except as set forth on
Schedule 4.22.
4.23 Insurance. To the best of the Company's knowledge, the
amount and types of insurance carried by the Company, and the
terms and conditions thereof, are substantially similar to the
coverage maintained by companies in the same or similar
business as the Company and similarly situated.
4.24 Conduct of Business. On the Closing Date, the Company
is engaged only in businesses of the type described in Schedule
4.24.
V. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
Purchaser's obligations hereunder shall be subject to (a) the
performance by the Company of its obligations hereunder which
by the terms hereof are to be performed at or prior to delivery
of the Senior Subordinated Note, and (b) the satisfaction of
the following conditions on or before the Closing Date:
5.1 Effectiveness of Senior Loan Documents. The Senior Loan
Documents shall have been duly executed and delivered by the
parties thereto and shall be on terms and conditions
satisfactory to Purchaser. All conditions precedent to the
making of the Senior Loans shall have been satisfied or waived
with Purchaser's consent.
5.2 Cash Infusion. Parent shall have contributed a minimum
of $4,000,000 in exchange for the issuance of 775 shares of the
Company s common stock, and Purchaser shall have received
satisfactory evidence of the foregoing.
5.3 Effectiveness of Senior Subordination Agreement. The
Senior Subordination Agreement shall have been duly executed
and delivered by the parties thereto, and shall be on terms and
conditions which are satisfactory to Purchaser.
5.4 Minimum Availability. The Company shall have available
cash and immediately accessible availability under the Senior
Loans in an amount equal to not less than $500,000 on the
Closing Date after giving affect to the payment of, (a) all
fees payable to Purchaser under the terms of this Agreement,
and (b) all costs and expenses arising as a result of the
transactions contemplated by this Agreement, the Acquisition
<PAGE>
Documents, the Senior Loan Documents and any Other Agreement to
which the Company is a party, and Purchaser shall have received
satisfactory evidence thereof.
5.5 Acquisition. The terms and provisions of the
Acquisition Documents and the structure of the Acquisition
shall be satisfactory to Purchaser.
5.6 No Litigation; Consummation of Transactions. No
injunction, preliminary injunction, or temporary restraining
order shall be threatened or shall exist which prohibits or may
prohibit the transactions contemplated herein or any other
related transaction, and no litigation or similar proceeding
(including, without limitation, any litigation or other
proceeding seeking injunctive or similar relief) shall be
threatened or shall exist with respect to the transactions
contemplated herein, which, if adversely determined, could
reasonably be expected to have a Material Adverse Effect.
5.7 Documents. Purchaser shall have received the following,
each in form and substance satisfactory to Purchaser:
(a) Senior Subordinated Note. The Senior Subordinated
Note issued in the name of Rice duly executed by the Company;
(b) Warrant and Warrant Documents. The Warrant, duly
issued by the Company to Rice in the denomination specified on
Annex I hereto, along with the other fully executed Warrant
Documents and all other documents and instruments required
pursuant thereto;
(c) Other Agreements. All Other Agreements, duly
executed by the parties thereto;
(d) Insurance. Certified copies of all insurance
policies and endorsements thereto required by Section 6.12;
(e) Approvals and Consents. Copies, certified by the
Company of all consents, authorizations, filings, licenses and
approvals, if any, required in connection with the consummation
of the Acquisition, the execution, delivery and performance by
the Company, or the validity and enforceability of, this
Agreement, the Senior Loan Documents, the Acquisition Documents
or the Other Agreements to which the Company is a party;
(f) Opinion of Counsel to the Company. The written
legal opinion of Jenkens & Gilchrist, P.C., legal counsel to
the Company; and from McCutchen, Doyle, Brown & Nenersen,
special California counsel to the Company, and written
permission from each other firm issuing an opinion to the
Company or Senior Lender in connection with the Acquisition or
Senior Loans authorizing the Purchaser to rely on such
opinions.
<PAGE>
(g) General Certificate of the Company's Secretary. A
certificate of the Secretary of the Company together with true,
correct and complete copies of the following:
(i) Certificate of Incorporation. The Certificate
of Incorporation of the Company, including all amendments
thereto, certified by the Secretary of State of the state
of its incorporation and dated within thirty (30) days
prior to the Closing Date;
(ii) Bylaws. The Bylaws of the Company, including
all amendments thereto;
(iii) Resolutions. The resolutions of the Board
of Directors of the Company authorizing the execution,
delivery and performance of this Agreement, the
Acquisition Documents, the Senior Loan Documents, and the
Other Agreements to which the Company is a party;
(iv) Existence and Good Standing Certificates.
Certificates of the appropriate government officials of
the state of incorporation of the Company as to its
existence and good standing, and certificates of the
appropriate government officials in each state where the
Company does business and where failure to qualify as a
foreign corporation would have a Material Adverse Effect,
as to its good standing and due qualification to do
business in such state, each dated within thirty (30) days
prior to the Closing Date; and
(v) Incumbency. The names of the officers of the
Company authorized to sign this Agreement and the Other
Agreements to be executed by the Company, together with a
sample of the true signature of each such officer;
(h) General Certificate of the Parent's Secretary. A
certificate of the Secretary of the Parent together with true
and correct copies of the following:
(i) Certificate of Incorporation. The Certificate
of Incorporation of the Parent, including all amendments
thereto, certified by the Secretary of State of the state
of its incorporation and dated within thirty (30) days
prior to the Closing Date;
(ii) Bylaws. The Bylaws of the Parent, including all
amendments thereto;
(iii) Resolutions. The resolutions of the Board
of Directors of the Parent authorizing the execution,
delivery and performance of this Agreement, the
Acquisition Documents, the Senior Loan Documents, and the
Other Agreements to which the Parent is a party and
authorizing the issuance of the stock in compliance with
<PAGE>
Section 5.2;
(iv) Existence and Good Standing Certificates.
Certificates of the appropriate government officials of
the state of incorporation of the Parent as to its
existence and good standing, and certificates of the
appropriate government officials in each state where the
Parent does business and where failure to qualify as a
foreign corporation would have a Material Adverse Effect,
as to its good standing and due qualification to do
business in such state, each dated within thirty (30) days
prior to the Closing Date; and
(v) Incumbency. The names of the officers of the
Parent authorized to sign the Other Agreements to be
executed by the Parent, together with a sample of the true
signature of each such officer;
(i) Senior Loan Documents. Copies of the Senior Loan
Documents and each document relating thereto, and a certificate
of the Chief Executive Officer and Chief Financial Officer of
the Company certifying that the attached documents are a true,
correct and complete set of the Senior Loan Documents, that all
conditions precedent to funding of the Senior Loans have been
met or waived, and that those transactions are being
consummated simultaneously with the sale of the Senior
Subordinated Note;
(j) Acquisition Documents. Copies of the Acquisition
Documents and each document relating thereto, and a certificate
of the Chief Executive Officer and Chief Financial Officer of
the Company certifying that the attached documents are a true,
correct and complete set of the Acquisition Documents, that all
conditions precedent to funding to the Acquisition have been
met or waived, and that those transactions are being
consummated simultaneously with the sale of the Senior
Subordinate Note;
(k) Solvency Certificate. A certificate regarding the
solvency of the Company, which includes a pro forma balance
sheet and cash flow projections and analyses for the Company,
executed by the Chief Executive Officer and the Chief Financial
Officer of the Company;
(l) Sources and Uses Certificate. A certificate
executed by the Chief Executive Officer and Chief Financial
Officer of the Company, setting forth in reasonable detail the
sources and uses of funds in the transactions contemplated
herein, in the Senior Loan Documents and in the Other
Agreements;
(m) Communication with Accountants. Purchaser shall
have received a copy of a letter from the Company addressed to
its accountants authorizing such accountants to disclose to
<PAGE>
Purchaser any and all financial information concerning the
Company requested by Purchaser in determining compliance with
any of the financial covenants set forth in Sections 7.9 and
7.10;
(n) Asset Examination. Completed reports of
examinations of the Seller's assets and appraisals, the results
of which shall be satisfactory in form and substance to
Purchaser;
(o) Inducement Letter. A letter executed by Parent
evidencing its acknowledgment of and agreement to comply with
the remuneration and loan limitations set forth in Sections 7.5
and 7.11 of this Agreement;
(p) Transaction Certificate. A certificate of the
Chief Executive Officer and the Chief Financial Officer of the
Company that, to the best of their knowledge after due
investigation, all conditions precedent to the effectiveness of
this Agreement have been satisfied or waived;
(q) Environmental Reports. Environmental reports of an
independent environmental consulting firm satisfactory to the
Purchaser with respect to the Property and all improvements,
fixtures and equipment located thereon, which reports shall be
addressed to the Purchaser and which shall evidence no
violation of Environmental Laws or presence of Polluting
Substances which is unacceptable to Purchaser in its sole
discretion; and
(r) Additional Information, Other Documents and
Agreements. Such other information, documents, agreements,
commitments and undertakings as Purchaser or Purchaser's
counsel shall reasonably request.
5.8 Material Adverse Change. For the period from March 31,
1995 to the Closing Date, and except for the transactions
contemplated by this Agreement, the Other Agreements, and the
Senior Loan Documents, there shall have been (a) no occurrence
or event which, in Purchaser's good faith credit judgment, has
or could have a Material Adverse Effect, and (b) no occurrence
or event which would lead the Company or Purchaser to believe
that the Company would fail to meet the cash flow projections
delivered to Purchaser pursuant to Section 4.2.
5.9 Fees. A funding fee in the amount set forth in Section
1.3 shall have been paid to Purchaser. All other fees then
payable pursuant to this Agreement (including the fees,
expenses and disbursements of the Purchaser's counsel) shall
have been paid to Purchaser (or such counsel, as applicable).
5.10 No Event of Default. No Event of Default or Potential
Default shall have occurred and be continuing.
<PAGE>
5.11 Representations and Warranties. All representations and
warranties contained in this Agreement and the Other Agreements
shall be true and correct on the Closing Date.
5.12 Employment Agreement. The Company shall have entered
into an Employment Agreement with Rodney Stephens in form and
substance satisfactory to Purchaser.
5.13 Due Diligence. The results of Purchaser's due diligence
regarding the Company shall be satisfactory to Purchaser, and
Purchaser shall be satisfied with the books and records, and
financial condition of the Company.
VI. AFFIRMATIVE COVENANTS
The Company covenants and agrees that, from the date hereof
and until the Senior Subordinated Obligations have been finally
and irrevocably paid in full in accordance with the terms hereof
and thereof:
6.1 Financial Statements. The Company will furnish to
Purchaser:
(a) As soon as available, and in any event within ninety
(90) days after the end of each fiscal year of the Company,
beginning with the fiscal year ending September 30, 1995, (i) a
copy of the annual audit report of the Company for such fiscal
year containing a balance sheet, statement of income, statement
of stockholders' equity, and statement of cash flow as at the end
of such fiscal year and for the fiscal year then ended, in each
case setting forth in comparative form the figures for the
preceding fiscal year, along with management's discussion and
analysis of variances, all in reasonable detail and audited and
certified by an independent certified public accountants of
recognized national standing selected by the Company and
consented to by Purchaser (provided Purchaser's consent shall not
unreasonably be withheld) to the effect that such report has been
prepared in accordance with GAAP; (ii) a certificate delivered to
Purchaser by such independent certified public accountants
confirming the calculations set forth in the officers'
certificate delivered to Purchaser simultaneously therewith in
accordance with Section 6.2(a); and (iii) a comparison of the
actual results during such fiscal year to those originally
budgeted by the Company prior to the beginning of such fiscal
year. The annual audit report required hereby shall not be
qualified on the basis that the Company is not a going concern or
otherwise restricted or limited because of restricted or limited
examination by the accountant of any material portion of any of
the records of the Company.
(b) As soon as available, and in any event within
thirty (30) days after the end of each calendar month, a copy
of an unaudited financial report of the Company as of the end
of such calendar month and for the portion of the fiscal year
<PAGE>
then ended, containing balance sheets, statements of income,
statements of retained earnings, and statements of cash flow,
in each case setting forth in comparative form the figures for
the corresponding period of the preceding fiscal year.
(c) As soon as available, and in any event within
thirty (30) days after the Closing Date, a balance sheet of the
Company prepared by an independent nationally recognized
accounting firm selected by the Company and consented to by the
Purchaser (provided Purchaser's consent shall not unreasonably
be withheld), dated as of the Closing Date, which has been
restated using purchase accounting in accordance with APB 16
and which gives effect to the issuance of the Senior
Subordinated Note and the Warrant, and the financing
transactions contemplated by the Senior Loan Agreement,
certified by the Chief Executive Officer and the Chief
Financial Officer of the Company as fairly presenting the
Company's financial position.
(d) On or before thirty (30) days prior to the
beginning of each fiscal year of the Company, an annual budget
or business plan for such fiscal year, including a projected
consolidated and consolidating balance sheet, income statement,
and cash flow statement for such year, and, promptly during
each fiscal year, all revisions thereto approved by the Board
of Directors of the Company
6.2 Certificates; Other Information. The Company will
furnish to Purchaser all of the following:
(a) Concurrently with the delivery of each of the
financial statements referred to in Section 6.1(a) and Section
6.1(b), a certificate of an authorized officer of the Company
in the form of the officer's certificate attached hereto as
Exhibit B (i) stating that no Potential Default or Event of
Default has occurred and is continuing or, if such officer has
knowledge of a Potential Default or Event of Default, the
nature thereof and specifying the steps taken or proposed to
remedy such matter, (ii) showing in reasonable detail the
calculations showing compliance with Sections 7.9 and 7.10,
(iii) stating that the financial statements attached have been
prepared in accordance with GAAP and fairly and accurately
present (subject to year-end audit adjustments, for the annual
certificates) the financial condition and results of operations
of the Company at the date and for the period indicated
therein, (iv) containing summaries of accounts payable agings,
accounts receivable agings, and inventory, (v) containing a
schedule of the outstanding Indebtedness for borrowed money of
the Company and its Subsidiaries describing in reasonable
detail each such debt issue or loan outstanding and the
principal amount and amount of accrued and unpaid interest with
respect to each such debt issue or loan, (vi) containing
management's discussion and analysis of the business and
affairs of the Company which includes, but is not limited to, a
<PAGE>
discussion of the results of operations compared to those
originally budgeted for such period, and (vii) a report
detailing (A) all matters materially affecting the value,
enforceability or collectibility of any material portion of its
assets including, without limitation, the Company's reclamation
or repossession of, or the return to the Company of, a material
amount of goods and material claims or disputes asserted by any
customer or other obligor, and (B) any material adverse change
in the relationship between the Company and any of its material
suppliers or customers.
(b) As soon as available, (i) a copy of each financial
statement, report, notice or proxy statement sent by the
Company to its stockholders in their capacity as stockholders,
(ii) a copy of each regular, periodic or special report,
registration statement, or prospectus filed by the Company with
any securities exchange or the Securities and Exchange
Commission or any successor agency, (iii) any material order
issued by any court, governmental authority, or arbitrator in
any material proceeding to which the Company is a party, (iv)
copies of all press releases and other statements made
available generally by the Company to the public generally
concerning material developments in the Company's business, and
(v) a copy of all correspondence and reports sent by the
Company to the Senior Lender outside of the ordinary course of
business.
(c) Promptly, such additional information concerning
the Company as Purchaser may reasonably request.
6.3 Books and Records. The Company will keep (a) proper
books of record and account in which full, true and correct
entries will be made of all dealings or transactions of or in
relation to its business and affairs; (b) set up on its books
accruals with respect to all taxes, assessments, charges,
levies and claims; and (c) on a reasonably current basis set up
on its books from its earnings allowances against doubtful
receivables, advances and investments and all other proper
accruals (including, without limitation, by reason of
enumeration, accruals for premiums, if any, due on required
payments and accruals for depreciation, obsolescence, or
amortization of properties), which should be set aside from
such earnings in connection with its business. All
determinations pursuant to this subsection shall be made in
accordance with, or as required by, GAAP consistently applied.
6.4 Financial Disclosure. The Company hereby irrevocably
authorizes and directs all accountants and auditors employed by
it at any time during the term of this Agreement to exhibit and
deliver to Purchaser copies of any of the Company's financial
statements, trial balances or other accounting records of any
sort in the accountant's or auditor's possession, and to
disclose to Purchaser any information they may have concerning
the Company's financial status and business operations. The
<PAGE>
Company hereby irrevocably authorizes all federal, state and
municipal authorities to furnish to Purchaser copies of reports
or examinations relating to the Company, whether made by the
Company or otherwise.
6.5 Disclosure of Material Matters. The Company will,
immediately upon learning thereof, report to Purchaser (a) all
matters materially affecting the value, enforceability or
collectibility of any material portion of its assets including,
without limitation, changes to significant contracts, schedules
of equipment, changes of significant equipment or real
property, the reclamation or repossession of, or the return to
the Company of, a material amount of goods and material claims
or disputes asserted by any customer or other obligor, and (b)
any material adverse change in the relationship between the
Company and any of its suppliers or customers.
6.6 Performance of Obligations. The Company will duly and
punctually pay and perform its obligations under this
Agreement, the Senior Loan Documents and the Other Agreements
to which it is a party.
6.7 Preservation of Existence and Conduct of Business. The
Company will preserve and maintain its corporate existence and
all of its leases, privileges, franchises, qualifications and
rights that are necessary or useful in the ordinary conduct of
its business, and conduct its business as presently conducted
in an orderly and efficient manner in accordance with good
business practices.
6.8 Maintenance of Properties. The Company will operate and
maintain in good condition and repair (ordinary wear and tear
excepted) and replace as necessary, all of its assets and
properties which are necessary or useful in accordance with
sound business practices in the proper conduct of its business
so that the value and operating efficiency of its assets and
properties are maintained and preserved. The Company will at
all times maintain the Intellectual Property in full force and
effect, and will defend and protect the Intellectual Property
against all adverse claims.
6.9 Payment of Taxes and Claims. The Company will pay or
discharge, at or before maturity or before becoming delinquent
(a) all taxes, levies, assessments, vault, water and sewer
rents, rates, charges, levies, permits, inspection and license
fees and other governmental and quasi-governmental charges and
any penalties or interest for nonpayment thereof, heretofore or
hereafter imposed or which may become a Lien upon any property
owned by the Company or arising with respect to the occupancy,
use, possession or leasing thereof (collectively the
"Impositions") and (b) all lawful claims for labor, material,
and supplies, which, if unpaid, might become a Lien upon any of
its property; provided, however, the Company will not be
required to pay or discharge any claim for labor, material, or
<PAGE>
supplies or any Imposition which is being contested in good
faith by appropriate actions or proceedings diligently pursued,
and for which adequate reserves in conformity with GAAP with
respect thereto have been established to the reasonable
satisfaction of Purchaser.
6.10 Compliance with Laws. The Company will comply with all
acts, rules, regulations and orders of any legislative,
administrative or judicial body or official applicable to the
operation of the Company's business if noncompliance with such
acts, rules, regulations or orders could reasonably be expected
to have a Material Adverse Effect; provided, however, the
Company may contest or dispute any acts, rules, regulations,
orders and directions of those bodies or officials by
appropriate actions or proceedings diligently pursued, if
adequate reserves in conformity with GAAP with respect thereto
are established to the reasonable satisfaction of Purchaser.
6.11 Payment of Leasehold Obligations. The Company will at
all times pay, when and as due, its rental obligations under
all leases under which it is a tenant or lessee, and shall
otherwise comply, in all material respects, with all other
terms of such leases and keep them in full force and effect
and, at Purchaser's request, will provide evidence of its
having done so; provided, however, the Company may contest or
dispute its obligations under such leases by appropriate
actions or proceedings diligently pursued if adequate reserves
in conformity with GAAP with respect thereto are established to
the reasonable satisfaction of Purchaser.
6.12 Insurance. The Company will maintain, with financially
sound and reputable companies, insurance policies (a) insuring
its assets against loss by fire, explosion, theft and other
risks and casualties as are customarily insured against by
companies engaged in the same or a similar business, (b)
insuring it against liability for personal injury and property
damages relating to its assets, such policies to be in such
amounts and covering such risks as are usually insured against
by companies engaged in the same or a similar business, and
insuring such other matters as may from time to time be
requested by Purchaser. All general liability policies shall
be endorsed in favor of Purchaser as an additional insured.
The Company shall provide copies of all such insurance
policies to Purchaser within ten (10) days following
Purchaser's request for the same. The Company shall (i)
deliver all such policies to Purchaser immediately upon the
Company's receipt thereof, (ii) pay, or cause to be paid, all
premiums for such insurance on or before such premiums become
due, (iii) furnish to Purchaser satisfactory proof of the
timely making of such payments, (iv) deliver all renewal
policies to Purchaser at least five (5) days before the
expiration date of each expiring policy, and (v) cause such
policies to require the insurer to give notice to Purchaser of
termination of any such policy at least thirty (30) days before
<PAGE>
such termination is to be effective.
6.13 Inspection Rights. At any time during normal business
hours and from time to time, the Company will permit
representatives of Purchaser to examine and make copies of the
books and records of, and visit and inspect the properties of,
the Company, and to discuss the business, operations, and
financial condition of the Company with its respective officers
and employees and with its independent certified public
accountants. In accordance with the terms of Section 12.1
hereof, the Company will promptly reimburse Purchaser for all
expenses incurred by representatives of Purchaser in connection
with such inspections.
6.14 Notices. The Company will promptly, but in any event
within two (2) Business Days after first becoming aware
thereof, notify Purchaser in writing of:
(a) the commencement of any event, including but not
limited to, any action, suit, or proceeding against the
Company, that could have a Material Adverse Effect, which
notice shall specify the nature of such event and what action
the Company has taken or is taking or proposes to take with
respect thereto;
(b) the occurrence of an event of default, or an event
which with the passage of time or giving of notice or both
constitutes an event of default under the Senior Loan Documents
or under any instrument or agreement evidencing any other
Indebtedness of the Company, which notice shall specify the
nature of such event, condition or default and what action the
Company has taken or is taking or proposes to take with respect
thereto; or
(c) The occurrence of a Potential Default or an Event
of Default, which notice shall specify the nature of such
event, condition or default and what action the Company has
taken or is taking or proposes to take with respect thereto.
Any notification required by this Section 6.14 shall be
accompanied by a certificate of the Chief Executive Officer or
Chief Financial Officer setting forth the details of the
specified events and the action which the Company proposes to
take with respect thereto.
6.15 Senior Loan Document Amendments. The Company shall
promptly provide Purchaser with copies of all proposed
amendments to the Senior Loan Documents and of all other loan
agreements to which the Company is a party.
6.16 Further Assurances. The Company shall execute and
deliver to Purchaser from time to time, upon demand, such
supplemental agreements, statements, assignments and transfers,
or instructions or documents as Purchaser may request, in order
<PAGE>
that the full intent of this Agreement and the Other Agreements
may be carried into effect.
6.17 Compliance with ERISA and the Code. The Company will
comply, and will cause each other member of any Controlled
Group to comply, with all minimum funding requirements, and all
other material requirements, of ERISA and the Code, if
applicable, to any Employee Benefit Plan it or they sponsor or
maintain, so as not to give rise to any liability thereunder.
The Company will pay and will cause each other member of any
Controlled Group to pay when due any amount payable by it to
the Pension Benefit Guaranty Corporation. Promptly after the
filing thereof, the Company shall furnish to Purchaser with
regard to each Employee Benefit Plan, copies of each annual
report required to be filed pursuant to Section 104 of ERISA in
connection with each such plan for each plan year.
6.18 Compliance with Regulations G, U and X. Neither the
Company nor any Person acting on its behalf will take any
action which might cause this Agreement, the Senior
Subordinated Note, the Warrant Documents, the Senior Loan
Documents or any Other Agreements to violate, and the Company
will take all actions necessary to cause compliance with,
Regulations G, U and X of the Board of Governors of the Federal
Reserve System and the Securities Exchange Act of 1934, in each
case as now in effect or as the same may hereafter be in
effect.
6.19 Fiscal Year. The Company will cause its fiscal year to
be the twelve month period ending on September 30 of each year.
6.20 Board Observation and Membership. The Company will
deliver to Purchaser a copy of the minutes of and all materials
distributed at or prior to all meetings of the Board of
Directors of the Company, certified as true and accurate by the
Secretary of the Company, promptly following each such meeting.
The Company will (a) permit each Holder to designate one (1)
person, and permit Rice so long as Rice is a Holder or owns
any stock, warrants or other equity interest in the Company, to
designate two (2) persons to attend all meetings of the
Company's Board of Directors, (b) provide such designees not
less than ten (10) calendar days' actual notice of all regular
meetings and five (5) calendar days' actual notice of all
special meetings of the Company's Board of Directors, unless it
is an emergency meeting of the Board of Directors in which case
such notice shall be provided at the same time and in the same
manner as provided the members of the Board of Directors, (c)
permit such designees to attend such meetings as observers, and
(d) provide to such designees a copy of all materials and
information distributed at such meetings or otherwise to the
Directors of the Company. Such meetings shall be held in
person at least quarterly. The Company shall reimburse each
such observer for all reasonable out-of-pocket expenses
incurred in traveling to and from such meetings and attending
<PAGE>
such meetings.
6.21 Environmental Costs.
(a) The Company hereby indemnifies and holds Purchaser
harmless from and against any liability, loss, damage, suit,
action or proceeding pertaining to solid or hazardous waste
materials or other waste-like or toxic substances, including,
but not limited to, claims of any federal, state or municipal
government or quasi-governmental agency or any third person,
whether arising under any federal, state or municipal law or
regulation, or tort, contract or common law that relates to the
Company.
(b) To the extent the laws of the United States or any
state in which property, leased or owned, of the Company
provide that a lien upon the property of the Company may be
obtained for the removal of Polluting Substances which have
been released, no later than sixty (60) days after notice is
given by Purchaser to the Company, the Company shall deliver to
Purchaser a report issued by a qualified, third party
environmental consultant selected by the Company and approved
by Purchaser as to the existence of any Polluting Substances
located upon or beneath the specified property, leased or
owned. To the extent any such Polluting Substance is located
therein or thereunder that either (i) subjects the property to
Lien or (ii) requires removal to safeguard the health of any
Person, the Company shall remove, or cause to be removed, such
Lien and such Polluting Substance at the Company's expense.
6.22 Chief Executive Officer. The Company will, within one
hundred twenty (120) days of the date hereof, retain an
individual to serve as Chief Executive Officer of the Company
who is acceptable to the Purchaser in its sole discretion.
VII. NEGATIVE COVENANTS
The Company covenants and agrees that from the date hereof
until the Senior Subordinated Obligations have been finally and
irrevocably paid in full in accordance with the terms hereof and
thereof:
7.1 Indebtedness. The Company will not create, incur,
issue, assume, guarantee or otherwise become liable for any
Indebtedness except (a) Permitted Indebtedness; (b) any
extension, renewal or refinancing of any Permitted Indebtedness
(other than the Senior Loans) on such terms and conditions as
are, on the whole, no more onerous to the Company than the
terms and conditions of such Permitted Indebtedness on the date
of such extension, renewal or refinancing; and (c) any
replacement or refinancing of the Senior Loans; provided that
(i) the interest rate on such refinancing shall be no greater
than the interest rate provided for in the Senior Loan
Agreement in effect on the date hereof, (ii) the amortization
<PAGE>
of principal on such refinancing shall be for no shorter
period, and for no greater annual amounts, than the
amortization provided for in the Senior Loan Agreement in
effect on the date hereof, (iii) the amount so replaced or
refinanced shall be no greater than the maximum amount
permitted to be outstanding under the Senior Loan Agreement in
effect on the date hereof on the date of such replacement or
refinancing, (iv) the collateral security for such replacement
or refinancing does not extend to assets other than those
contemplated by the Senior Loan Agreement in effect on the date
hereof (and proceeds thereof) and (v) the other terms and
conditions of such replacement or refinancing are, on the
whole, no more onerous to the Company than the terms of the
Senior Loan Agreement in effect on the date hereof. Any
Permitted Indebtedness which is subordinated to the Senior
Subordinated Obligations shall continue to be subordinated to
the Senior Subordinated Obligations on terms and conditions
satisfactory to Purchaser.
7.2 Limitation on Liens. The Company will not incur,
create, assume, or permit to exist any Lien upon any of its
property, assets, or revenues, including, but not limited to,
its shares of capital stock of each of its Subsidiaries,
whether now owned or hereafter acquired, except Permitted
Liens.
7.3 Merger, Acquisition, Dissolution and Sale of Assets.
The Company will not (a) become a party to a merger or
consolidation, (b) purchase or otherwise acquire all or a
substantial part of the assets of any Person or any shares or
other evidence of beneficial ownership of any Person, (c)
dissolve or liquidate, (d) form, acquire or permit the
existence of any Subsidiary or Subsidiaries (e) without
Purchaser's prior written consent, sell (except inventory in
the ordinary course of business and other assets reasonably and
in good faith determined by the Company to be obsolete or no
longer necessary to the Company's business), assign or transfer
any of its assets.
7.4 Restricted Payments. The Company will not at any time
make or become obligated to make, directly or indirectly, any
(a) declaration of any dividend on, or any other payment or
distribution in respect of, any shares of the Company, (b)
except as otherwise provided for herein, any professional
consulting or management fees or any other payments to any
shareholders of the Company and/or Parent, (c) payment or
distribution on account of the purchase, repurchase,
redemption, put, call or other retirement of any shares of the
Company or of any warrant, option or other right to acquire
such shares (except pursuant to the Warrant Documents), or (d)
payment or distribution on account of any Indebtedness of the
Company which is subordinate to the Senior Subordinated Note.
7.5 Loans and Investments. Except for Permitted
<PAGE>
Investments, the Company will not make any advance, loan,
extension of credit, or capital contribution to or investment
in, or purchase any stock, bonds, notes, debentures, or other
securities of any Person.
7.6 Transactions with Affiliates. Except as contemplated by
this Agreement and the Other Agreements, the Company will not
enter into any transaction with any director, officer,
employee, shareholder, or Affiliate of the Company except
transactions (including those permitted by Section 7.5, if any)
upon terms which are fair and reasonable and which shall be at
least as favorable as would result in a comparable arm's-length
transaction with a Person not a director, officer, employee,
shareholder or Affiliate of the Company.
7.7 Nature of Business. The Company will not engage in any
business other than the businesses set forth on Schedule 4.25,
or any business reasonably related thereto.
7.8 Modification of Senior Loan Agreement. The Company will
not agree or consent to any modification, amendment or waiver
of any of the terms or provisions of the Senior Loan Documents
in effect on the date hereof without Purchaser's prior written
consent.
7.9 Capital Expenditures. The Company shall not make or
incur any Capital Expenditure if, after giving effect thereto,
the aggregate amount of all Capital Expenditures by the Company
during any fiscal year (beginning May 6, 1995) would exceed (a)
if the Company is in compliance Section 7.10(d) below
(hereinafter, the "Senior Debt Coverage Ratio"), an amount
equal to $825,000 and (b) if the Company shall maintain a
Senior Debt Coverage Ratio of greater than 2.0 to 1.0, an
amount equal to $1,100,000
7.10 Financial Covenants. The Company will:
(a) maintain, as of the last day of
each month during the periods set forth below,
a ratio of Current Assets to Current
Liabilities of not less than the ratio set
forth below:
Period:Ratio:
For the five month period
ending September 30, 19951.5 to 1.0
From October 1, 1995 through
September 30, 19961.35 to 1.0
From October 1, 1996 and thereafter1.38 to 1.0
(b) maintain, as of the last day of
<PAGE>
each month during the periods set forth below,
a Net Worth of not less than the amounts set
forth below:
Period:Amount:
For the five month period
ending September 30, 1995$3,600,000
From October 1, 1995 through
September 30, 1996$4,230,000
From October 1, 1996 through
September 30, 1997$5,850,000
From October 1, 1997 through
September 30, 1998$7,470,000
From October 1, 1998 through
September 30, 1999$9,000,000
From October 1, 1999 and thereafter$9,900,000
(c) maintain, as of the last day of
each month during the periods set forth below,
a ratio of Indebtedness to Net Worth of not
greater than the ratio set forth below:
Period:Ratio:
For the five month period
ending September 30, 19956.3 to 1.0
From October 1, 1995 through
September 30, 19965.4 to 1.0
From October 1, 1996 through
September 30, 19973.6 to 1.0
From October 1, 1997 and thereafter2.7 to 1.0
(d) maintain, as of the last day of
each month during the term of this Agreement, a
ratio of EBITDA less Capital Expenditures and
taxes actually paid in cash to the sum of
principal, interest and collateral monitoring
fees paid to Senior Lender and payments made
under capitalized leases of not less than 1.50
to 1.0.
(e) maintain, as of the last day of
each month during the term of this Agreement, a
ratio of EBITDA less Capital Expenditures and
taxes actually paid in cash to the sum of all
<PAGE>
principal, interest, payments under capitalized
leases, collateral monitoring fees and
dividends paid or declared to any Person of not
less than 1.20 to 1.0.
7.11 Remuneration. The Company will not and will not permit
any of its Subsidiaries to (a) pay any management, consulting,
or similar fees to any shareholder or Affiliate of the Company
or to any director, officer, employee or immediate family
member of any such Affiliate or shareholder; provided, however,
that a management fee may be paid by the Company to Parent, but
only if (i) the amount of the management fee paid to Parent
does not exceed $250,000 in the aggregate during any fiscal
year of the Company, and (ii) no Potential Default or Event of
Default has occurred or would occur as a result of any such
payment, or (b) pay compensation to the individuals identified
on Schedule 7.11 in excess of the amounts set forth on Schedule
7.11, whether such compensation consists of salary, bonus,
management, consulting or other fees, capital distributions, or
other benefits or otherwise, and regardless of whether such
compensation is paid by the Company and/or any Subsidiary or
Affiliate of the Company.
VIII. EVENTS OF DEFAULT AND REMEDIES THEREFOR
8.1 Events of Default. The occurrence of any one or more of
the following events shall constitute an "Event of Default":
(a) The Company shall fail to pay, when due (whether
upon acceleration or otherwise), any principal, interest or
other sums payable under the Senior Subordinated Note or this
Agreement, or shall fail to pay, when due (whether upon
acceleration or otherwise), any other Senior Subordinated
Obligations;
(b) The Company shall fail to pay when due and after
passage of any applicable notice and cure periods, whether upon
acceleration or otherwise, any Indebtedness (excluding the
Senior Loans and the Senior Subordinated Obligations) exceeding
in the aggregate (for all such nonpayments) $5,000;
(c) The Company shall fail to perform or observe any
agreement, covenant, term or condition contained in this
Agreement or in the Senior Subordinated Note;
(d) The Company shall fail to comply with any
agreement, indenture, mortgage, deed of trust, or other
agreement binding on it or affecting its properties or
business after the expiration of any applicable grace period
thereunder, including, without limitation, the Other Agreements
to which the Company is a party;
(e) Any representation, warranty or other material
<PAGE>
information whatsoever made or provided by the Company in
connection with this Agreement or otherwise to induce Purchaser
to purchase the Senior Subordinated Note or the Warrant was
incorrect or misleading in any respect, when made;
(f) The Company shall become subject to an Event of
Bankruptcy;
(g) Any judgment or order for payment of money shall be
rendered against the Company which exceeds $25,000 and either
(i) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order, or (ii) there shall be a
period of thirty (30) consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect;
(h) The occurrence or existence of any event of default
under the Senior Loan Documents, except for such defaults as
have been waived by the Senior Lender; or
(i) The occurrence of a material change in ownership or
management control, directly or indirectly of the Company
(except for a material change in ownership arising from the
exercise of the Warrant).
8.2 Remedies of Holders upon Occurrence of Event of Default.
When any Event of Default described in Section 8.1 above, other
than any Event of Default described in clause (f) thereof, has
occurred and is continuing, Purchaser may (in addition to any
other right, power or remedy permitted to Purchaser by law)
declare the entire amount of the Senior Subordinated
Obligations, including, without limitation, the entire
principal, Prepayment Premium (if any) and all interest accrued
then outstanding under the Senior Subordinated Note, to be, and
the same shall thereupon become, forthwith due and payable,
without any presentment, demand, protest, notice of default,
notice of intention to accelerate, notice of acceleration or
other notice of any kind, all of which are hereby expressly
waived, and in such event the Company shall (subject to the
terms of the Senior Subordination Agreement) forthwith pay to
Purchaser an amount equal to 100% of the amount thereof. When
any Event of Default described in clause (f) of Section 8.1
above shall occur, all of the Senior Subordinated Obligations,
including, without limitation, the entire principal, Prepayment
Fee (if any), and all accrued interest then outstanding under
the Senior Subordinated Note, shall thereupon be forthwith due
and payable without any presentment, demand, protest, notice of
default, notice of intention to accelerate, notice of
acceleration or other notice of any kind (including any notice
by the Holders of the Senior Subordinated Note), all of which
are hereby expressly waived by the Company, and the Company
will (subject to the terms of the Senior Subordination
Agreement) forthwith pay to Purchaser an amount equal to 100%
of the amount thereof.
<PAGE>
8.3 Annulment of Acceleration. The provisions of the
foregoing Section 8.2 are subject to the condition that, if all
or any part of the Senior Subordinated Obligations have been
declared or have otherwise become immediately due and payable
by reason of the occurrence of any Event of Default, Purchaser
may, by written instrument delivered to the Company (an
"Annulment Notice"), rescind and annul such declaration and the
consequences thereof as to the Senior Subordinated Note,
provided that (a) at the time such Annulment Notice is
delivered no judgment or decree has been entered for the
payment of any monies due pursuant to such Senior Subordinated
Obligations in connection therewith, and (b) all arrears of
interest and all other sums payable on such Senior Subordinated
Obligations in connection therewith (except any principal,
interest or Prepayment Fee which has become due and payable
solely by reason of such declaration under Section 8.2 hereof)
shall have been duly paid or deferred by the Holder of the
Senior Subordinated Obligations agreeing to such rescission and
annulment; and provided further, that no such rescission and
annulment shall extend to or affect any subsequent default or
Event of Default or impair any right consequent thereto, and
shall not be deemed a waiver of the Event of Default giving
rise to the acceleration unless specifically waived in writing
by Purchaser.
8.4 Payment of Senior Subordinated Obligations. Subject to
the terms of the Senior Subordination Agreement, Purchaser
shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest on such Senior
Subordinated Note and payment of all other Senior Subordinated
Obligations on the date when due and, upon the occurrence and
continuance of an Event of Default, to institute suit against
the Company for the enforcement of any such payment. Such
rights shall not be impaired without Purchaser's prior written
consent.
8.5 Remedies. Subject to the terms of the Senior
Subordination Agreement, if any Event of Default shall occur
and be continuing, each and every Holder may exercise any right
or remedy it has at law, in equity or under this Agreement or
any Other Agreement. No right or remedy conferred upon or
reserved to Purchaser under this Agreement or any Other
Agreement is intended to be exclusive of any other right or
remedy, and every right and remedy shall be cumulative and in
addition to every other right or remedy given hereunder or now
or hereafter existing under any applicable law. Every right
and remedy given by this Agreement or by applicable law to
Purchaser may be exercised from time to time and as often as
may be deemed expedient by Purchaser.
8.6 Conduct No Waiver. No course of dealing on the part of
Purchaser, nor any delay or failure on the part of Purchaser to
exercise any of its rights, shall operate as a waiver of such
right or otherwise prejudice Purchaser's rights, powers and
<PAGE>
remedies. If the Company fails to pay, when due, the principal
of, Prepayment Fee (if any) or the interest on, the Senior
Subordinated Note, or fails to comply with any other provision
of this Agreement, the Company shall pay to the Holder, to the
extent permitted by law, on demand, such further amounts as
shall be sufficient to cover the cost and expenses, including,
but not limited to, reasonable attorney's fees, incurred by
Purchaser in collecting any sums due on the Senior Subordinated
Note or in otherwise enforcing any of Purchaser's rights.
IX. SUBORDINATION
Notwithstanding any provision in this Agreement to the
contrary, the Indebtedness evidenced by the Senior Subordinated
Note shall be subordinate in right of payment to all regularly
scheduled payments of principal and interest with respect to
Senior Debt, and Purchaser's rights and remedies hereunder
shall be subordinate to the rights and remedies of the Senior
Lender, in accordance with the terms of the Senior
Subordination Agreement. Nothing contained in this Article IX
or elsewhere in this Agreement, in the Senior Subordinated Note
or the Senior Subordination Agreement is intended to or shall
impair, as between the Company and Purchaser, the obligations
of the Company, which are absolute and unconditional, to pay to
Purchaser the principal of, Prepayment Fee (if any) and
interest on the Senior Subordinated Note and all other Senior
Subordinated Obligations as and when the same shall become due
and payable in accordance with their terms, or is intended to
or shall affect the relative rights of Purchaser and creditors
of the Company other than the holders of the Senior Debt, nor
shall anything herein or therein prevent Purchaser from
exercising all remedies otherwise permitted by applicable law
upon an Event of Default under this Agreement.
X. FORM OF SENIOR SUBORDINATED NOTE, REGISTRATION, TRANSFER
AND REPLACEMENT
10.1 Form of Senior Subordinated Note. The Senior
Subordinated Note initially delivered under this Agreement will
be a fully registered note on the books of the Company. The
Senior Subordinated Note is issuable only in fully registered
form in denominations of at least $1,000,000 (or the
then-remaining outstanding balance thereof, if less than
$1,000,000).
10.2 Senior Subordinated Note Register. The Company shall
cause to be kept at the principal office a register for the
registration and transfer of the Senior Subordinated Note. The
names and addresses of the Holder of the Senior Subordinated
Note, the transfer thereof and the name and address of the
transferee of the Senior Subordinated Note shall be recorded in
such register.
10.3 Issuance of New Senior Subordinated Note upon Exchange
<PAGE>
or Transfer. Upon surrender for exchange or registration of
transfer of the Senior Subordinated Note at the office of the
Company designated for notices in accordance with Section 12.3
hereof, the Company shall execute and deliver, at its expense,
one or more new Senior Subordinated Notes of any authorized
denomination requested by the Holder of the surrendered Senior
Subordinated Note, each dated the date to which interest has
been paid on the Senior Subordinated Note so surrendered (or,
if no interest has been paid, the date of the surrendered
Senior Subordinated Note), but in the same aggregate unpaid
principal amount as the surrendered Senior Subordinated Note,
and registered in the name of such Person or Persons as shall
be designated in writing by such Holder. Every Senior
Subordinated Note surrendered for registration of transfer
shall be duly endorsed, or be accompanied by a written
instrument of transfer duly executed, by the Holder of such
Senior Subordinated Note or by his attorney duly authorized in
writing.
10.4 Replacement of Senior Subordinated Note. Upon receipt
of evidence satisfactory to the Company of the loss, theft,
mutilation or destruction of the Senior Subordinated Note and,
in the case of any such loss, theft or destruction, upon
delivery of a bond of indemnity in such form and amount as
shall be reasonably satisfactory to the Company or, in the
event of such mutilation upon surrender and cancellation of the
Senior Subordinated Note, the Company, without charge to the
Holder thereof, will make and deliver a new Senior Subordinated
Note of like tenor and the same series in lieu of such lost,
stolen, destroyed or mutilated Senior Subordinated Note. If
any such lost, stolen or destroyed Senior Subordinated Note is
owned by Rice or any other Holder whose credit is satisfactory
to the Company, then the affidavit of an authorized officer of
such owner setting forth the fact of loss, theft or destruction
and of its ownership of the Senior Subordinated Note at the
time of such loss, theft or destruction shall be accepted as
satisfactory evidence thereof, and no further indemnity shall
be required as a condition to the execution and delivery of a
new Senior Subordinated Note, other than a written agreement of
such owner (in form reasonably satisfactory to the Company) to
indemnify the Company.
XI. INTERPRETATION OF AGREEMENT
11.1 Certain Terms Defined. When used in this Agreement, the
terms set forth below are defined as follows:
"Acquisition" means the transactions pursuant to which the
Company acquired the assets of the Seller, all pursuant
to the transactions evidenced by the Acquisition
Documents.
"Acquisition Agreement" means that certain Asset Purchase
Agreement dated as of May 5, 1995, between the Company and
<PAGE>
Seller.
"Acquisition Documents" means the Acquisition Agreement
and the agreements, documents and instruments executed in
connection therewith or contemplated thereby, and all
amendments thereto.
"Affiliate" means any Person directly or indirectly
controlling, controlled by, or under common control with,
the Person in question. A Person shall be deemed to
control a corporation if such Person possesses, directly
or indirectly, the power to direct or cause the direction
of the management and policies of such corporation,
whether through the ownership of voting securities, by
contract, or otherwise.
"Agreement" means this Note Purchase Agreement, including
all schedules and exhibits hereto, as the same may be
modified, supplemented, extended and/or amended from time
to time.
"Annulment Notice" is defined in Section 8.3.
"Business Day" means each day of the week except
Saturdays, Sundays, and days on which banking institutions
are authorized by law to close in the State of California.
"Capital Expenditures" means expenditures made and
liabilities incurred for the acquisition of any fixed
assets or improvements, replacements, substitutions or
additions thereto which have a useful life of more than
one (1) year, including, but not limited to, the direct or
indirect acquisition of such assets or incurrence of such
expenses by way of increased product or service charges,
offset items or otherwise and payments with respect to
capitalized lease obligations.
"Closing Date" means the date on which all of the
conditions stated in Article V of this Agreement have been
met to Purchaser's satisfaction and the purchase price for
the Senior Subordinated Note has been paid, but in any
event not later than May 5, 1995.
"Code" means the Internal Revenue Code of 1986, as amended
and in effect from time to time, and the regulations
promulgated thereunder.
"Company" means Overhill Farms, Inc., a Nevada corporation
and, unless the context requires otherwise, shall include
its Subsidiaries, if any.
"Controlled Group" means any group of organizations within
the meaning of Section 414(b), (c), (m) or (o) of the Code
of which the Company is a member.
<PAGE>
"Current Assets" means at any date the amount at which the
current assets of the Company would be shown on a balance
sheet of the Company as at such date, prepared in
accordance with GAAP, provided that amounts due from
Affiliates and investments in Affiliates shall be excluded
therefrom.
"Current Liabilities" means at any date the amount at
which the current liabilities of the Company would be
shown on a balance sheet of the Company as at such date,
prepared in accordance with GAAP.
"EBITDA" means, for any calendar year, the net income of
the Company as calculated in accordance with generally
accepted accounting principles, consistently applied plus
(to the extent deducted in determining net income)
interest expense incurred, federal and state income taxes
accrued (whether paid or unpaid), depreciation and
amortization expense and any management fees paid to
Guarantor to the extent permitted under this Agreement and
to the extent the fees were expensed and not paid as a
dividend.
"Employee Benefit Plan" means any employee benefit plan,
as defined in Section 3(3) of ERISA, which is, previously
has been or will be established or maintained by any
member of a Controlled Group.
"Environmental Laws" means all federal, state, or local
laws, ordinances, rules, regulations, interpretations and
orders of courts or administrative agencies or authorities
relating to pollution or protection of the environment
(including, without limitation, ambient air, surface
water, ground water, land surface, and subsurface strata),
and other laws relating to (a) Polluting Substances or (b)
the manufacture, processing, distribution, use, treatment,
handling, storage, disposal, or transportation of
Polluting Substances.
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended and in effect from time to time, and
the regulations promulgated thereunder.
"Event of Bankruptcy" means any of (a) the filing by a
Person of a voluntary petition in bankruptcy under any
provision of any bankruptcy law or a petition to take
advantage of any insolvency act, (b) the admission in
writing by the Company of its inability to pay its debts
generally as they become due, (c) the appointment of a
receiver or receivers for all or a material part of a
Person's assets with the consent of such Person, (d) the
filing of any bankruptcy, arrangement or reorganization
petition by or, with the consent of a Person, against such
Person under any provision of any bankruptcy law, (e) a
<PAGE>
receiver, liquidator or trustee of a Person or a
substantial part of its assets shall be appointed pursuant
to the Federal Bankruptcy Code by the order of a court of
competent jurisdiction which shall not be dismissed or
stayed within thirty (30) days, or (f) an involuntary
petition to reorganize or liquidate a Person pursuant to
the Federal Bankruptcy Code shall be filed against such
Person and shall not be dismissed or stayed within 30
days.
"Event of Default" is defined in Section 8.1.
"Excess Interest" is defined in Section 2.8.
"GAAP" means generally accepted accounting principles,
applied on a consistent basis, as set forth in Opinions of
the Accounting Principles Board of the American Institute
of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their
respective successors and which are applicable in the
circumstances as of the date in question, provided, that
the Company may not change the use or application of any
accounting method, practice or principle without the prior
written consent of Purchaser, which consent may require
that an adjustment be made to any and all the financial
covenants and the capital expenditure covenant set forth
herein. Accounting principles are applied on a
"consistent basis" when the accounting principles observed
in a current period are comparable in all material
respects to those accounting principles applied in a
preceding period.
"Holder" when used in reference to the Senior Subordinated
Note and/or the Senior Subordinated Obligations, means the
Person or Persons who, at the time of determination, is
the lawful owner of all or a portion of the Senior
Subordinated Note or an obligee of all or a portion of the
Senior Subordinated Obligations.
"Impositions" is defined in Section 6.9.
"Indebtedness" means for any Person: (a) all
indebtedness, whether or not represented by bonds,
debentures, notes, securities, or other evidences of
indebtedness, for the repayment of money borrowed, (b) all
indebtedness representing deferred payment of the purchase
price of property or assets, (c) all indebtedness under
any lease which, in conformity with GAAP, is required to
be capitalized for balance sheet purposes and leases of
property or assets made as a part of any sale and lease -
back transaction if required to be capitalized, (d) all
indebtedness under guaranties, endorsements, assumptions,
or other contractual obligations, including any letters of
credit, or the obligations in respect of, or to purchase
<PAGE>
or otherwise acquire, indebtedness of others, (e) all
indebtedness secured by a Lien existing on property owned,
subject to such Lien, whether or not the indebtedness
secured thereby shall have been assumed by the owner
thereof, (f) trade accounts payable more than 120 days
past due, (g) all amendments, renewals, extensions,
modifications and refundings of any indebtedness or
obligations referred to in clauses (a), (b), (c), (d) or
(e), excluding trade accounts payable in the ordinary
course of business.
"Intellectual Property" means all patents, patent rights,
patent applications, licenses, inventions, trade secrets,
know-how, proprietary techniques (including processes and
substances), trademarks, service marks, trade names and
copyrights.
"Lien" means any lien, mortgage, security interest, tax
lien, pledge, encumbrance, financing statement, or
conditional sale or title retention agreement, or any
other interest in property designed to secure the
repayment of Indebtedness or any other obligation, whether
arising by agreement, operation of law, or otherwise.
"Material Adverse Effect" means (a) a material adverse
effect upon the business, operations, properties, assets
or condition (financial or otherwise) of the Company or,
as the case may be, Parent and the Company, taken as a
whole or (b) the impairment of the ability of any party to
perform its obligations under the Agreement or any of the
Other Agreements to which it is a party or of Purchaser to
enforce or collect any of the Senior Subordinated
Obligations. In determining whether any individual event
would result in a Material Adverse Effect, notwithstanding
that such event does not of itself have such effect, a
Material Adverse Effect shall be deemed to have occurred
if the cumulative effect of such event and all other then
existing events would result in a Material Adverse Effect.
"Maximum Rate" is defined in Section 2.8.
"Net Worth" means at any date the Company's net worth as
determined in accordance with GAAP, consistently applied.
"Other Agreements" means the Senior Subordinated Note, the
Warrant Documents and all other agreements, instruments
and documents (including, without limitation, notes,
guarantees, powers of attorney, consents, assignments,
contracts, notices, subordination agreements and all other
written matter), and all renewals, modifications and
extensions thereof, whether heretofore, now or hereafter
executed by or on behalf of the Company and delivered to
and for the benefit of Purchaser or any Person
participating with Purchaser in the Senior Subordinated
<PAGE>
Note with respect to this Agreement or any of the
transactions contemplated by this Agreement.
"Parent" means Polyphase Corporation, a Nevada
corporation.
"Pension Plan" means any employee pension benefit plan, as
defined in Section 3(2) of ERISA, which is, was or will be
established or maintained by any member of the Controlled
Group.
"Permitted Indebtedness" means (a) any Indebtedness in
favor of the Senior Lender under the Senior Loan Agreement
and created pursuant thereto, (b) any Indebtedness in
favor of Purchaser under this Agreement and/or the Other
Agreements and created pursuant thereto, (c) presently
existing or hereafter arising purchase money Indebtedness
incurred by the Company to finance the acquisition of
capital assets by the Company, subject to the limitations
placed on capital expenditures in Section 7.9, (d) the
Indebtedness set forth on Exhibit D and approved by
Purchaser, and (e) other Indebtedness (in addition to the
Indebtedness referenced in clauses (a) through (d) above)
not exceeding $100,000 in the aggregate.
"Permitted Investments" means the following:
(a) securities issued or directly and fully
guaranteed or insured by the United States Government or
any agency or instrumentality thereof (provided that the
full faith and credit of the United States Government is
pledged in support thereof), having maturities of not more
than twelve (12) months from the date of acquisition;
(b) time deposits and certificates of deposit (i) of
any commercial bank incorporated in the United States of
recognized standing having capital and surplus in excess
of $100,000,000 with maturities of not more than twelve
months from the date of acquisition or (ii) which are
fully insured by the Bank Insurance Fund with maturities
of not more than twelve (12) months from the date of
acquisition;
(c) commercial paper issued by any Person
incorporated in the United States rated at least A-1 or
the equivalent thereof by Standard & Poor's Corporation or
at least P-1 or the equivalent thereof by Moody's
Investors Service, Inc. and in each case maturing not more
than twelve (12) months after the date of acquisition; or
(d) investments in money market funds substantially
all of whose assets are comprised of securities of the
types described in clauses (a) through (c) above.
<PAGE>
"Permitted Liens" means (a) Liens in favor of the Senior
Lender under the Senior Loan Agreement in effect on the
date hereof or created pursuant thereto, (b) Liens
securing purchase money Indebtedness incurred to finance
the acquisition of capital assets by the Company, subject
to the limitations placed on Capital Expenditures in
Section 7.9 hereof, but only so long as (i) such Lien
attaches only to the asset so financed, (ii) the
Indebtedness secured by such Lien does not exceed 100% of
the purchase price, including installation and freight, of
the asset so financed and (iii) no Potential Default or
Event of Default has occurred and is continuing, (c) Liens
for property taxes not yet due, (d) materialmen's,
mechanics', worker's, repairmen's, employees' or other
like Liens arising against the Company in the ordinary
course of business, in each case which are either not
delinquent or are being contested in good faith and by
appropriate actions or proceedings conducted with due
diligence and for the payment of which adequate reserves
in accordance with GAAP have been established with respect
thereto to the reasonable satisfaction of Purchaser, (e)
deposits to secure payment of worker's compensation,
unemployment insurance or other social security benefits
and (f) Liens disclosed on Exhibit E and approved by
Purchaser.
"Person" means any individual, sole proprietorship,
corporation, business trust, unincorporated organization,
association, company, partnership, joint venture,
governmental authority (whether a national, federal,
state, county, municipality or otherwise, and shall
include without limitation any instrumentality, division,
agency, body or department thereof), or other entity.
"Polluting Substances" means all pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or
wastes and shall include, without limitation, any
flammable explosives, radioactive materials, oil,
hazardous materials, hazardous or solid wastes, hazardous
or toxic substances or related materials defined in the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Resource Conservation and
Recovery Act of 1976, the Hazardous and Solid Waste
Amendments of 1984, and the Hazardous Materials
Transportation Act, as any of the same are hereafter
amended, and in the regulations adopted and publications
promulgated thereto; provided, in the event any of the
foregoing Environmental Laws is amended so as to broaden
the meaning of any term defined thereby, such broader
meaning shall apply subsequent to the effective date of
such amendment and, provided, further, to the extent that
the applicable laws of any state establish a meaning for
"hazardous substance," "hazardous waste," "hazardous
<PAGE>
material," "solid waste," or "toxic substance" which is
broader than that specified in any of the foregoing
Environmental Laws, such broader meaning shall apply.
"Potential Default" means the occurrence of any condition
or event which, with the passage of time or giving of
notice or both, would constitute an Event of Default.
"Prepayment Fee" is defined in Section 2.2 and includes
any Prepayment Fee arising as a result of Purchaser's
exercise of its rights and remedies under Section 8.2.
"Property" means all real property owned, leased or
operated by the Company.
"Purchaser" means Rice, together with all of their
respective transferees, successors and assigns of all or
any portion of the Senior Subordinated Note or the Senior
Subordinated Obligations and any nominees on whose behalf
any of the foregoing purchase or otherwise acquire any of
such Indebtedness of the Company, and shall include, but
not be limited to, each and every "Holder" as defined
herein. With respect to any right or action to be taken
by Purchaser under this Agreement, the term Purchaser
means (a) so long as Rice is a Holder, Rice, and (b) if
Rice is no longer a Holder, Holders representing a
majority in interest of the Senior Subordinated
Obligations.
"Reportable Event" means (i) any of the events set forth
in Sections 4043(b) (other than a merger, consolidation or
transfer of assets in which no Pension Plan involved has
any unfunded benefit liabilities), 4068(f) or 4063(a) of
ERISA, (ii) any event requiring any member of the
Controlled Group to provide security under Section
401(a)(29) of the Code, or (iii) any failure to make
payments required by Section 412(m) of the Code.
"Seller" means IBM Foods, Inc., a California corporation.
"Senior Debt" means, at any given time, the Indebtedness
(whether now outstanding or hereafter incurred) of the
Company in respect of the Senior Loan Agreement, in a
principal amount not to exceed $12,000,000 in revolving
loans and $6,000,000 in term loans (less the aggregate
amount of principal payments made by the Company to the
Senior Lender under such term loans), plus interest, fees,
expenses, indemnities and all other amounts payable under
the Senior Loan Agreement and any notes, security
documents, guaranties or other loan documents referred to
therein or pursuant thereto, secured by all assets of the
Company.
"Senior Loan Documents" means the Senior Loan Agreement
<PAGE>
and the agreements, documents and instruments executed in
connection therewith or contemplated thereby, and all
amendments thereto.
"Senior Lender" means FINOVA Capital Corporation, its
respective successors and assigns, and any Person who
replaces or refinances the Senior Loans under the terms
set forth in Section 7.1(c).
"Senior Loan Agreement" means the Loan and Security
Agreement between the Company and the Senior Lender, dated
as of May 5, 1995, and all documents and instruments
delivered pursuant thereto in connection with the loans
and advances made thereunder.
"Senior Loans" means revolving loans in the maximum
principal amount of $12,000,000 and terms loans in the
maximum principal amount of $6,000,000 made to the Company
by the Senior Lender under the Senior Loan Agreement and
any permitted replacements and refinancings thereof.
"Senior Subordinated Note" means a term promissory note
issued to a Purchaser pursuant to this Agreement, together
with all renewals, modifications, extensions,
substitutions and replacements thereof.
"Senior Subordinated Obligations" means and includes any
and all Indebtedness and/or liabilities of the Company to
Purchaser of every kind, nature and description, direct or
indirect, secured or unsecured, joint, several, joint and
several, absolute or contingent, due or to become due, now
existing or hereafter arising, under this Agreement or any
Other Agreement (regardless of how such Indebtedness or
liabilities arise or by what agreement or instrument they
may be evidenced or whether evidenced by any agreement or
instrument) and all obligations of the Company to
Purchaser to perform acts or refrain from taking any
action under any of the aforementioned documents, together
with all renewals, modifications, extensions, increases,
substitutions or replacements of any of such Indebtedness.
"Senior Subordination Agreement" means that certain
Intercreditor and Subordination Agreement of even date
herewith executed by the Company, the Senior Lender and
Purchaser pursuant to which the relative priorities of the
Senior Lender and Purchaser with respect to the repayment
of Senior Debt and the Senior Subordinated Obligations are
established, and all amendments and modifications thereto.
"Subsidiary" means any Person of which or in which the
Company and its other Subsidiaries own directly or
indirectly 50% or more of (a) the combined voting power of
all classes having general voting power under ordinary
circumstances to elect a majority of the board of
<PAGE>
directors or equivalent body of such Persons, if it is a
corporation, (b) the capital interest or profits interest
of such Person, if it is a partnership, joint venture or
similar entity, or (c) the beneficial interest of such
Person if it is a trust, association or other
unincorporated organization.
"Termination Date" means the earliest to occur of (a) May
4, 2003, (b) the date on which the Senior Subordinated
Note is accelerated pursuant to Article VIII, or (c) the
date on which the Senior Subordinated Obligations are paid
in full.
"Termination Event" means (a) a Reportable Event, (b) the
termination of a Pension Plan which has unfunded benefit
liabilities (including an involuntary termination under
Section 4042 of ERISA), (c) the filing of a Notice of
Intent to Terminate a Pension Plan, (d) the initiation of
proceedings to terminate a Pension Plan under Section 4042
of ERISA or (e) the appointment of a trustee to administer
a Pension Plan under Section 4042 of ERISA.
"Transfer" is defined in Section 12.5 hereof.
"Transferee" means any Person to whom a Transfer is made.
"Warrant" mean the warrant to purchase up to 22.5% of the
Company's common stock (on a fully diluted basis), as the
same may be amended from time to time.
"Warrant Documents" means, collectively, (a) the Warrant,
(b) the Warrant Purchase Agreement dated as of the Closing
Date executed by and between the Company and Rice, with
respect to the issuance to Rice of the Warrant, and (c)
the Shareholders Agreement dated as of the Closing Date
executed by Purchaser, the Company and the Parent, as each
of the foregoing may be amended from time to time.
Terms which are defined in other Sections of this Agreement
shall have the meanings specified therein. All other terms
contained in this Agreement shall have, when the context so
indicates, the meanings provided for by the Uniform Commercial
Code as adopted and in force in the State of California, as
from time to time in effect.
11.2 Accounting Principles. Where the character or amount of
any asset or liability or item of income or expense is required
to be determined or any consolidation or other accounting
computation is required to be made for the purposes of this
Agreement, the same shall be done, unless specified otherwise,
in accordance GAAP, except where such principles are
inconsistent with the requirements of this Agreement.
11.3 Directly or Indirectly. Where any provision in this
<PAGE>
Agreement refers to action to be taken by any Person, or which
such Person is prohibited from taking, such provision shall be
applicable whether the action in question is taken directly or
indirectly by such Person.
XII. MISCELLANEOUS
12.1 Expenses. The Company agrees to pay (a) all
out-of-pocket expenses of Purchaser (including reasonable fees,
expenses and disbursements of Purchaser's counsel and the
allocated costs of staff counsel) in connection with the
preparation, negotiation, enforcement, operation and
administration of this Agreement, the Senior Subordinated Note,
the Other Agreements, or any documents executed in connection
therewith, or any waiver, modification or amendment of any
provision hereof or thereof; and (b) if an Event of Default
occurs, all court costs and costs of collection, including,
without limitation, reasonable fees, expenses and disbursements
of counsel employed in connection with any and all collection
efforts. The attorneys' fees arising from such services,
including those of any appellate proceedings, and all expenses,
costs, charges and other fees incurred by such counsel or
Purchaser in any way or respect arising in connection with or
relating to any of the events or actions described in this
Article XII shall be payable by the Company to Purchaser, on
demand, and shall be additional Senior Subordinated
Obligations. Without limiting the generality of the foregoing,
such expenses, costs, charges and fees may include: recording
costs, appraisal costs, paralegal fees, costs and expenses;
accountants' fees, costs and expenses; court costs and
expenses; photocopying and duplicating expenses; court reporter
fees, costs and expenses; long distance telephone charges; air
express charges, telegram charges; facsimile charges;
secretarial overtime charges; and expenses for travel, lodging
and food paid or incurred in connection with the performance of
such legal services. The Company agrees to indemnify Purchaser
from and hold it harmless against any documentary taxes,
assessments or charges made by any governmental authority by
reason of the execution and delivery by the Company or any
other Person of this Agreement, the Other Agreements, and any
documents executed in connection therewith.
12.2 Indemnification. IN ADDITION TO AND NOT IN LIMITATION
OF THE OTHER INDEMNITIES PROVIDED FOR HEREIN OR IN ANY OTHER
AGREEMENTS, THE COMPANY HEREBY INDEMNIFIES AND HOLDS HARMLESS
PURCHASER AND ANY OTHER HOLDERS, AND EVERY AFFILIATE OF ANY OF
THE FOREGOING, AND THEIR RESPECTIVE OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS, FROM ANY CLAIMS, ACTIONS, DAMAGES, COSTS,
ATTORNEYS' FEES AND EXPENSES TO WHICH ANY OF THEM MAY BECOME
SUBJECT, INSOFAR AS SUCH LOSSES, LIABILITIES, CLAIMS, ACTIONS,
DAMAGES, COSTS AND EXPENSES ARISE FROM OR RELATE TO THIS
AGREEMENT OR THE OTHER AGREEMENTS, OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREBY, OR FROM ANY INVESTIGATION, LITIGATION, OR
OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED
<PAGE>
INVESTIGATION, LITIGATION OR OTHER PROCEEDING RELATING TO ANY
OF THE FOREGOING, OR FROM ANY VIOLATION OR CLAIM OF VIOLATION
OF ANY APPLICABLE ENVIRONMENTAL LAWS WITH RESPECT TO ANY REAL
OR PERSONAL PROPERTY, OR FROM ANY GOVERNMENTAL OR JUDICIAL
CLAIM, ORDER OR JUDGMENT WITH RESPECT TO ANY REAL OR PERSONAL
PROPERTY OF THE COMPANY, OR FROM ANY BREACH OF THE WARRANTIES,
REPRESENTATIONS OR COVENANTS CONTAINED IN THIS AGREEMENT OR THE
OTHER AGREEMENTS. THE FOREGOING INDEMNIFICATION INCLUDES ANY
SUCH CLAIMS, ACTIONS, DAMAGES, COSTS, AND EXPENSES INCURRED BY
REASON OF THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE PERSON TO
BE INDEMNIFIED, BUT EXCLUDES ANY OF THE SAME INCURRED BY REASON
OF SUCH PERSON'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
12.3 Notices. Except as otherwise expressly provided herein,
all communications provided for hereunder shall be in writing
and delivered or mailed by the United States mails, certified
mail, return receipt requested or by facsimile, (a) if to
Purchaser, addressed to Purchaser at the address specified on
Annex I hereto or to such other address as Purchaser may in
writing designate, (b) if to any other Holder, addressed to
such Holder at such address as such Holder may in writing
designate, and (c) if to the Company, addressed to the Company
at the address set forth next to its name on the signature
pages hereto or to such other address as the Company may in
writing designate. Notices shall be deemed to have been
validly served, given or delivered (and "the date of such
notice" or words of similar effect shall mean the date) five
(5) days after deposit in the United States mails, certified
mail, return receipt requested, with proper postage prepaid,
or upon actual receipt thereof (whether by noncertified mail,
telecopy, telegram, facsimile, express delivery or otherwise),
whichever is earlier.
12.4 Reproduction of Documents. This Agreement and all
documents relating hereto, including, without limitation (a)
consents, waivers and modifications which may hereafter be
executed, (b) documents received by Purchaser at the closing of
the purchase of the Senior Subordinated Note, and (c) financial
statements, certificates and other information previously or
hereafter furnished to Purchaser, may be reproduced by
Purchaser by any photographic, photostatic, microfilm,
microcard, miniature photographic or other similar process and
Purchaser may destroy any original document so reproduced. The
Company agrees and stipulates that any such reproduction which
is legible shall be admissible in evidence as the original
itself in any judicial or administrative proceeding (whether or
not the original is in existence and whether or not such
reproduction was made by you in the regular course of business)
and that any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence;
provided that nothing herein contained shall preclude the
Company from objecting to the admission of any reproduction on
the basis that such reproduction is not accurate, has been
altered, is otherwise incomplete or is otherwise inadmissible.
<PAGE>
12.5 Assignment, Sale of Interest. The Company may not sell,
assign or transfer this Agreement, or the Other Agreements or
any portion thereof, including, without limitation, the
Company's rights, title, interests, remedies, powers and/or
duties hereunder or thereunder. The Company hereby consents to
Purchaser's participation, sale, assignment, transfer or other
disposition (collectively, a "Transfer"), at any time or times
hereafter, of this Agreement, or the Other Agreements to which
the Company is a party, or of any portion hereof or thereof,
including, without limitation, Purchaser's rights, title,
interests, remedies, powers and/or duties hereunder or
thereunder. In connection with any Transfer, the Company
agrees to cooperate fully with Purchaser and any potential
Transferee. Such cooperation shall include, but is not limited
to, cooperating with any audits or other due diligence
investigation undertaken by any potential Transferee.
12.6 Successors and Assigns. This Agreement will inure to
the benefit of and be binding upon the parties hereto and their
respective successors and assigns.
12.7 Headings. The headings of the sections and subsections
of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
12.8 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall
be deemed an original, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one
such counterpart or reproduction thereof permitted by Section
12.4.
12.9 Reliance on and Survival Provisions. All covenants,
representations and warranties made by the Company herein and
in any certificates delivered pursuant hereto, whether or not
in connection with a closing, (a) shall be deemed to be
material and to have been relied upon by Purchaser,
notwithstanding any investigation heretofore or hereafter made
by Purchaser or on Purchaser's behalf, and (b) shall survive
the delivery of this Agreement and the Senior Subordinated Note
until all obligations of the Company under this Agreement shall
have been satisfied.
12.10 Integration and Severability. This Agreement
embodies the entire agreement and understanding between
Purchaser and the Company, and supersedes all prior agreements
and understandings relating to the subject matter hereof. In
case any one or more of the provisions contained in this
Agreement or in any Senior Subordinated Notes, or any
application thereof, shall be invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of
the remaining provisions contained herein and therein, and any
other application thereof, shall not in any way be affected or
impaired thereby.
<PAGE>
12.11 Law Governing. THIS AGREEMENT HAS BEEN
SUBSTANTIALLY NEGOTIATED AND IS BEING EXECUTED, DELIVERED, AND
ACCEPTED, AND IS INTENDED TO BE PERFORMED, IN PART IN THE STATE
OF CALIFORNIA. ALL OBLIGATIONS, RIGHTS AND REMEDIES HEREUNDER,
SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE
SENIOR SUBORDINATED NOTE SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE SPECIFIED
THEREIN. PURCHASER RETAINS ALL RIGHTS UNDER THE LAWS OF THE
UNITED STATES OF AMERICA, INCLUDING THOSE RELATING TO THE
CHARGING OF INTEREST.
12.12 Waivers; Modification. NO PROVISION OF THIS
AGREEMENT MAY BE WAIVED, CHANGED OR MODIFIED, OR THE DISCHARGE
THEREOF ACKNOWLEDGED, ORALLY, BUT ONLY BY AN AGREEMENT IN
WRITING SIGNED BY THE PARTY AGAINST WHOM THE ENFORCEMENT OF ANY
WAIVER, CHANGE, MODIFICATION OR DISCHARGE IS SOUGHT.
12.13 Waiver of Jury Trial. TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, THE COMPANY AND PURCHASER HEREBY
IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON
CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT, THE SENIOR SUBORDINATED NOTE OR ANY DOCUMENTS
ENTERED INTO IN CONNECTION THEREWITH OR THE TRANSACTIONS
CONTEMPLATED THEREBY OR THE ACTIONS OF PURCHASER IN THE
NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF.
<PAGE>
IN WITNESS WHEREOF, the Company and Purchaser have caused
this Agreement to be executed and delivered by their respective
officers thereunto duly authorized.
COMPANY:
OVERHILL FARMS, INC.
By:
Name:
Its:
Company's Address for Notices:
5730 Uplander Way
Suite 201
Culver City, California 90230
Attn:
Facsimile:
with a copy to:
JENKENS & GILCHRIST
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
Attn: Ronald J. Frappier, Esq.
Facsimile: (214) 855-4300
<PAGE>
RICE:
RICE PARTNERS II, L.P.
By:
Rice Capital Group IV, L.P., its general
partner
By:
RMC Fund Management, L.P., its general
partner
By:
Rice Mezzanine
Corporation, its general
partner
By:
Name:
James P. Wilson T i t l e :
Managing
Director
<PAGE>
NOTE PURCHASE AGREEMENT
dated as of May 5, 1995
by and between
RICE PARTNERS II, L.P.,
"Purchaser"
and
OVERHILL FARMS, INC.,
the "Company"
regarding
13% SENIOR SUBORDINATED NOTE
<PAGE>
TABLE OF CONTENTS
Page
I. DESCRIPTION OF SENIOR SUBORDINATED
NOTE
AND COMMITMENT1
1.1 Description of Senior
Subordinated Note1
1.2 Commitment; Funding 1
1.3 Origination Fee2
1.4 Use of Proceeds2
II. PAYMENT AND PREPAYMENT OF SENIOR
SUBORDINATED
OBLIGATIONS................................
.......... 2
2.1 Principal and Interest Payments2
2.2 Optional Prepayments3
2.3 Mandatory Prepayments3
2.4 Additional Payments3
2.5 Liquidated Damages4
2.6 Direct Payment4
2.7 Payments Payable on Business
Days 4
2.8 Interest Laws4
III. REPRESENTATIONS AND WARRANTIES OF
PURCHASER..........5
3.1 Existence5
3.2 Authority5
3.3 Investor Status5
3.4 Investment for own Account5
3.5 Legend on Note5
IV. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY 5
4.1 Corporate Existence and
Authority 6
4.2 Financial Statements...6
4.3 Default6
4.4 Authorization and Compliance
with Laws and
Material Agreements6
4.5 Environmental Condition of the
Property 7
4.6 Solvency8
4.7 Litigation and Judgments8
4.8 Rights in Properties; Liens8
4.9 Enforceability9
4.10 Indebtedness9
4.11 Taxes9
4.12 Use of Proceeds; Margin
<PAGE>
Securities 9
4.13 ERISA9
4.14 Delivery of Acquisition
Documents 10
4.15 Disclosure....10
4.16 Subsidiaries and Capitalization
10
4.17 Current Locations10
4.18 Investment Company Act11
4.19 Public Utility Holding Company
Act 11
4.20 Securities Laws11
4.21 No Labor Disputes11
4.22 Brokers11
4.23 Insurance11
4.24 Conduct of Business11
V. CONDITIONS PRECEDENT TO OBLIGATIONS OF
PURCHASER 11
5.1 Effectiveness of Senior Lender
Loan
Documents11
5.2 Cash Infusion12
5.3 Effectiveness of Senior
Subordination
Agreement12
5.4 Minimum Availability12
5.5
Acquisition................................
...........................................
............................12
5.6 No Litigation; Consummation of
Transactions12
5.7 Documents.12
5.8 Material Adverse Change15
5.9 Fees15
5.10 No Event of Default15
5.11 Representations and Warranties15
5.12 E m p l o y m e n t
Agreement..................................
...........................................
.... 15
5.13 D u e
Diligence..................................
...........................................
....................16
VI. AFFIRMATIVE COVENANTS16
6.1 Financial Statements16
6.2 Certificates; Other Information
17
6.3 Books and Records18
6.4 Financial Disclosure18
6.5 Disclosure of Material Matters18
<PAGE>
6.6 Performance of Obligations18
6.7 Preservation of Existence and
Conduct of Business18
6.8 Maintenance of Properties18
6.9 Payment of Taxes and Claims19
6.10 Compliance with Laws19
6.11 Payment of Leasehold
Obligations.19
6.12 Insurance19
6.13 Inspection Rights20
6.14 Notices20
6.15 Senior Loan Document Amendments
20
6.16 Further Assurances20
6.17 Compliance with ERISA and the
Code 21
6.18 Compliance with Regulations G,
U, and X 21
6.19 Fiscal Year.......21
6.20 Board Observation and Membership
21
6.21 Environmental Costs21
6.22 C h i e f E x e c u t i v e
Officer....................................
...........................................
... 22
VII. NEGATIVE COVENANTS22
7.1 Indebtedness22
7.2 Limitation on Liens23
7.3 Merger, Acquisition, Dissolution
and Sale of Assets....23
7.4 R e s t r i c t e d
Payments...................................
...........................................
.......... 23
7.5 Loans and Investments.23
7.6 Transactions with Affiliates23
7.7 Nature of Business....23
7.8 Modification of Senior Loan
Agreement 23
7.9 Capital Expenditures23
7.10 Financial Covenants23
7.11 Remuneration24
VIII. EVENTS OF DEFAULT AND REMEDIES
THEREFOR 24
8.1 Events of Default24
8.2 Remedies of Holders upon
Occurrence of Event of Default26
8.3 Annulment of Acceleration27
8.4 Payment of Senior Subordinated
Obligations27
8.5 Remedies27
<PAGE>
8.6 Conduct No Waiver28
IX. SUBORDINATION..28
28
X.28 FORM OF SENIOR SUBORDINATED NOTE,
REGISTRATION,
TRANSFER AND REPLACEMENT28
10.1 Form of Senior Subordinated
Note. 28
10.2 Senior Subordinated Note
Register 28
10.3 Issuance of New Senior
Subordinated Note
upon Exchange or Transfer.28
10.4 Replacement of Senior
Subordinated Note29
XI. INTERPRETATION OF AGREEMENT.....29
11.1 Certain Terms Defined29
11.2 Accounting Principles37
11.3 Directly or Indirectly37
XII. MISCELLANEOUS37
12.1 Expenses37
12.2 Indemnification.38
12.3 Notices38
12.4 Reproduction of Documents.......
39
12.5 Assignment, Sale of
Interest................39
12.6 Successors and Assigns39
12.7 Headings39
12.8
Counterparts...............................
. 39
12.9 Reliance on and Survival
Provisions 39
12.10 Integration and Severability40
12.11 Law Governing40
12.12 Waivers; Modification40
12.13 Waiver of Jury Trial40
ANNEX, SCHEDULES AND EXHIBITS
Annex I Information Concerning
Purchaser
Schedule 4.3 -Defaults under Existing
Agreements
Schedule 4.4 -Authorizations, Approvals,
Consents and Filings
Schedule 4.5 -Environmental Condition of
<PAGE>
Property
Schedule 4.7 -Litigation and Judgments
Schedule 4.16 -Capitalization
Schedule 4.17 -Current Locations
Schedule 4.21 -Labor Unions and
Organizations
Schedule 4.23 -Brokers
Schedule 4.24 -Conduct of Business
Schedule 7.11 -Remuneration
Exhibit A - Form of Senior Subordinated
Note
Exhibit B - Form of Legal Opinion
Exhibit C - Form of Officer's Compliance
Certificate
Exhibit D - Permitted Indebtedness
Exhibit E - Permitted Liens
<PAGE>
WARRANT PURCHASE AGREEMENT
WARRANT PURCHASE AGREEMENT (the "Agreement") made as of May 5,
1995, by and among OVERHILL FARMS, INC., a Nevada corporation
(the "Company"), POLYPHASE CORPORATION, a Nevada corporation (the
"Shareholder"), and RICE PARTNERS II, L.P., a Delaware limited
partnership ("Rice").
W I T N E S S E T H:
WHEREAS, the Shareholder owns beneficially and of record all
of the issued and outstanding capital stock of the Company;
WHEREAS, the Company has entered into a Note Purchase
Agreement (the "Note Agreement") dated of even date with this
Agreement with Rice (the "Purchaser");
WHEREAS, the Company and the Shareholder have entered into a
Shareholder Agreement (the "Shareholder Agreement") dated of even
date with this Agreement with the Purchaser; and
WHEREAS, the Purchaser is willing to enter into and consummate
the transactions contemplated by the Note Agreement only if,
among other things, the Company and the Shareholder enter into,
and perform under, this Agreement and the Shareholder Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants contained in this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Purchaser, the Shareholder, and the
Company, intending to be legally bound, agree as follows:
Article I
Definitions
As used in this Agreement, the following terms have the
meanings indicated:
Additional Securities. This term is defined in Section
2.08(a)(iv).
Adjustment Event. Any event in which (a) the Company issues
any shares of Capital Stock in an Adjustment Public Offering
for consideration per share that exceeds the amount received
per share by any Holder in connection with the exercise of
the Call Option or Put Option with respect to such Holder;
(b) the Shareholder sells, transfers, pledges or otherwise
disposes of any Capital Stock for consideration per share
that exceeds the amount received per share by any Holder in
connection with the exercise of the Call Option or the Put
Option with respect to such Holder; (c) any Person acquires
Capital Stock in connection with the acquisition of the
beneficial ownership of more than fifty percent (50%) of the
<PAGE>
voting securities of the Company, or acquires Capital Stock
and the right to elect a majority of the members of the
Company's board of directors for a consideration per share
or unit that exceeds the amount received per share by any
such Holder in connection with the exercise of such Call
Option or Put Option; (d) the Company sells all or a
majority of its assets or revenue or income generating
capacity for such amount of consideration that, if the
Company were liquidated on the date that such sale is
consummated, the holders of any class of Capital Stock would
receive per share distributions exceeding the amount
received per share by any such Holder in connection with the
exercise of such Call Option or Put Option; or (e) the
Company participates in any merger, consolidation,
reorganization, share exchange, recapitalization, or similar
transaction or series of related transactions involving a
change of control of the Company or disposition of all or a
majority of its assets or revenue or income generating
capacity, directly or indirectly, in which the holders of
any class of Capital Stock receive per share consideration
for, or distributions with respect to, their shares in an
amount that exceeds the amount received per share by such
Holder in connection with the exercise of such Call Option
or Put Option.
Adjustment Public Offering. Each primary public offering of
shares of any class of Capital Stock pursuant to a
registration statement filed with the Commission.
Affiliate. With respect to any Person, (a) a Person that,
directly or indirectly or through one or more
intermediaries, controls, is controlled by, or is under
common control with, such Person; (b) any Person of which
such Person or such Person's spouse is an officer, director,
security holder, partner, or, in the case of a trust, the
beneficiary or trustee, and (c) any Person that is an
officer, director, security holder, partner, or, in the case
of a trust, the beneficiary or trustee of such Person. The
term "control" as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities,
by contract, or otherwise.
Agreement. This term is defined in the preamble.
Appraised Value. The value determined in accordance with
the following procedures. For a period of 30 days after the
date of a Valuation Event (the "Negotiation Period"), each
party to this Agreement agrees to negotiate in good faith to
reach agreement upon the Appraised Value of the securities
or property at issue, as of the date of the Valuation Event,
which will be the fair market value of such securities or
property, without premium for control or discount for
<PAGE>
minority interests, illiquidity, or restrictions on
transfer. In the event that the parties are unable to agree
upon the Appraised Value of such securities or other
property by the end of the Negotiation Period, then the
Appraised Value of such securities or property will be
determined for purposes of this Agreement by a recognized
appraisal or investment banking firm mutually agreeable to
the Holders and the Company (the "Appraiser"). If the
Holders and the Company cannot agree on an Appraiser within
fifteen (15) days after the end of the Negotiation Period,
the Company, on the one hand, and the Holders, on the other
hand, shall each select an Appraiser within twenty-one (21)
days after the end of the Negotiation Period and those two
Appraisers shall select within twenty-five (25) days after
the end of the Negotiation Period an independent Appraiser
to determine the fair market value of such securities or
property, without premium for control or discount for
minority interests. Such independent Appraiser shall be
directed to determine fair market value of such securities
or property as soon as practicable, but in no event later
than thirty (30) days from the date of its selection. The
determination by an Appraiser of the fair market value will
be conclusive and binding on all parties to this Agreement.
Appraised Value of each share of Common Stock at a time when
(i) the Company is not a reporting company under the
Exchange Act and (ii) the Common Stock is not traded in the
organized securities markets, will, in all cases, be
calculated by determining the Appraised Value of the entire
Company taken as a whole and dividing that value by the sum
of (x) the number of shares of Common Stock then outstanding
plus (y) the number of shares of Common Stock Equivalents,
without premium for control or discount for minority
interests, illiquidity, or restrictions on transfer. The
costs of the Appraiser will be borne by the Company. In no
event will the Appraised Value of the Common Stock or Other
Securities be less than the per share consideration received
or receivable with respect to the Common Stock or securities
or property of the same class as the Other Securities, as
the case may be, in connection with a pending transaction
involving a sale, merger, recapitalization, reorganization,
consolidation, or share exchange, dissolution of the
Company, sale or transfer of all or a majority of its assets
or revenue or income generating capacity, or similar
transaction. The prevailing market prices for any security
or property will not be dispositive of the Appraised Value
thereof.
Appraiser. This term is defined in the definition of Fair
Market Value.
Average Market Value. The average of the Closing Price for
the security in question for the thirty (30) trading days
immediately preceding the date of determination.
<PAGE>
Book Value. With respect to shares of Common Stock, an
amount equal to the quotient determined by dividing (a) the
sum of (x) the total consolidated assets of the Company
shown on the consolidated balance sheet of the Company as of
the date of the Valuation Event in question minus (y) the
total consolidated liabilities of the Company as shown on
the consolidated balance sheet of the Company as of the date
of the Valuation Event by (b) the aggregate number of shares
of Common Stock and Common Stock Equivalents as of the date
of the Valuation Event. For the purposes of this Agreement,
the Book Value of the shares of Common Stock will be
determined by the independent certified public accountants
then retained by the Company as described in Section 4.06.
Call Option. This term is defined in Section 5.01 of the
Shareholder Agreement.
Call Option Closing. This term is defined in Section 5.04
of the Shareholder Agreement.
Call Option Period. This term is defined in Section 5.01 of
the Shareholder Agreement.
Capital Stock. As to any Person, its common stock and any
other capital stock of such Person authorized from time to
time, and any other shares, options, interests,
participations, or other equivalents (however designated) of
or in such Person, whether voting or nonvoting, including,
without limitation, common stock, options, warrants,
preferred stock, phantom stock, stock appreciation rights,
preferred stock, convertible notes or debentures, stock
purchase rights, and all agreements, instruments, documents,
and securities convertible, exercisable, or exchangeable, in
whole or in part, into any one or more of the foregoing.
Closing Date. May 5, 1995.
Closing Price.
(a) If the primary market for the security in question
is a national securities exchange registered under the
Exchange Act, the National Association of Securities Dealers
Automated Quotation System -- National Market System, or
other market or quotation system in which last sale
transactions are reported on a contemporaneous basis, the
last reported sales price, regular way, of such security for
such day, or, if there has not been a sale on such trading
day, the highest closing or last bid quotation therefor on
such trading day (excluding, in any case, any price that is
not the result of bona fide arm's length trading); or
(b) If the primary market for such security is not an
exchange or quotation system in which last sale transactions
are contemporaneously reported, the highest closing or last
<PAGE>
bona fide bid or asked quotation by disinterested Persons in
the over-the-counter market on such trading day as reported
by the National Association of Securities Dealers through
its Automated Quotation System or its successor or such
other generally accepted source of publicly reported bid
quotations as the Holders designate.
Common Stock. The common stock, $0.01 par value, of the
Company.
Common Stock Equivalent. Any option, warrant, right, or
similar security exercisable into, exchangeable for, or
convertible to Common Stock.
Commission. The Securities and Exchange Commission and any
successor federal agency having similar powers.
Company. Overhill Farms, Inc., and any successor or assign,
and, unless the context requires otherwise, the term Company
includes any Subsidiary.
Co-Sell Shares. This term is defined in Section 6.04(d) of
the Shareholder Agreement.
Co-Sellers. This term is defined in Section 6.04(d) of the
Shareholder Agreement.
Dilution Fee. This term is defined in Article III of the
Shareholder Agreement.
Election Notice. This term is defined in Section 6.02(b) of
the Shareholder Agreement.
Excess Consideration. The amount that a Holder would have
realized following the Adjustment Event had the Call Option
not been exercised by such Holder until such time, minus the
amount that such Holder realized due to the exercise of the
Call Option; provided, however, that the amount of Excess
Consideration will in all events be deemed to be at least
zero.
Exchange Act. The Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
Exercise Price. The price per share specified in Section
2.03 as adjusted from time to time pursuant to the
provisions of this Agreement.
Fair Market Value.
(a) As to securities regularly traded in the organized
securities markets, the Average Market Value; and
(b) As to all securities not regularly traded in the
<PAGE>
securities markets and other property, the fair market value
of such securities or property as determined in good faith
by the Board of Directors of the Company at the time it
authorizes the transaction (a "Valuation Event") requiring a
determination of Fair Market Value under this Agreement;
provided, however, that, at the election of the Holders, the
Fair Market Value of such securities and other property will
be determined as set forth below. For a period of 30 days
after the date of a Valuation Event (the "Negotiation
Period"), each party to this Agreement agrees to negotiate
in good faith to reach agreement upon the Fair Market Value
of such securities or property, as of the date of the
Valuation Event. In the event that the parties are unable
to agree upon the Fair Market Value of such securities or
other property by the end of the Negotiation Period, then
the Fair Market Value of such securities or property will be
determined for purposes of this Agreement by an appraiser
selected by the Holders (the "Appraiser") and whose
appraisal will be conclusive and binding on all parties to
this Agreement. Fair Market Value of each share of Common
Stock at a time when (i) the Company is not a reporting
company under the Exchange Act and (ii) the Common Stock is
not traded in the organized securities markets, will, in all
cases, be calculated by determining the Fair Market Value of
the entire Company taken as a whole and dividing that value
by the sum of (x) the number of shares of Common Stock then
outstanding plus (y) the number of shares of Common Stock
then issuable upon exercise of the Warrants, without premium
for control or discount for minority interests, illiquidity,
or restrictions on transfer. The costs of the Appraiser
will be borne by the Company. In no event will the Fair
Market Value of the Common Stock or Other Securities be less
than the per share consideration received or receivable with
respect to the Common Stock or securities or property of the
same class as the Other Securities, as the case may be, in
connection with a pending transaction involving a sale,
merger, recapitalization, reorganization, consolidation, or
share exchange, involving the Company, a dissolution of the
Company, a sale of all or a majority of its assets, or
similar transaction.
Holders. The Purchaser, and all Persons holding Registrable
Securities, except that neither the Company nor the
Shareholder nor any Affiliate of the Company or the
Shareholder will at any time be a Holder. Unless otherwise
provided in this Agreement, in each instance that the
Holders are required to request or consent in concert to an
action, the Holders will be deemed to have requested or
consented to such action if the Holders of a
majority-in-interest of the Registrable Securities so
request or consent.
Indemnified Party. This term is defined in Section 11.01 of
the Shareholder Agreement.
<PAGE>
Initial Holders. The Purchaser and any Affiliate of the
Purchaser to which any of the Warrants or any part of or
interest in the Warrants is assigned.
Intellectual Property. This term is defined in Section
3.01(g).
Issuable Warrant Shares. Shares of Common Stock or Other
Securities issuable on exercise of the Warrants.
Issued Warrant Shares. Shares of Common Stock or Other
Securities issued on exercise of the Warrants.
Negotiation Period. This term is defined in the definition
of Fair Market Value.
New Securities. Any Capital Stock other than Warrant
Shares.
Note Agreement. This term is defined in the preamble and
includes the Note Purchase Agreement of even date with this
Agreement between the Company and the Purchaser and all
documents evidencing indebtedness thereunder or otherwise
related to the Note Agreement as the same may be amended
from time to time, and any refinancing, refunding, or
replacements of the indebtedness under the Note Agreement.
Note. All or any portion of any of the Senior Subordinated
Note (as defined in the Note Agreement) and any and all
documents evidencing the indebtedness under the Note and any
refinancing, refunding, or replacement of the Note.
Notice of Sale. This term is defined in Section 6.02(a) of
the Shareholder Agreement.
Option Closing. This term is defined in Section 4.05 of the
Shareholder Agreement.
Other Securities. Any stock, other securities, property, or
other property or rights (other than Common Stock) that the
Holders become entitled to receive upon exercise of the
Warrants.
Person. This term will be interpreted broadly to include
any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association,
corporation, company, institution, entity, party, or
government (whether national, federal, state, county, city,
municipal, or otherwise, including, without limitation, any
instrumentality, division, agency, body, or department of
any of the foregoing).
Purchaser. This term is defined in the preamble.
<PAGE>
Put Option. This term is defined in Section 4.01 of the
Shareholder Agreement.
Put Option Period. This term is defined in Section 4.01 of
the Shareholder Agreement.
Put Price. This term is defined in Section 4.02 of the
Shareholder Agreement.
Put Shares. The Warrant Shares plus any other shares of
Capital Stock owned from time to time by a Holder.
"Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the
declaration or ordering of the effectiveness of such
registration statement.
Registrable Securities. (a) the Issuable Warrant Shares and
(b) the Issued Warrant Shares that have not been previously
sold to the public.
Related Party. An entity wholly owned by a Selling
Shareholder or one or more Related Parties.
Securities Act. The Securities Act of 1933, as amended, and
the rules and regulations thereunder.
Selling Shareholder. This term is defined in Section 6.02
of the Shareholder Agreement.
Senior Lender. This term is defined in Section 11.1 of the
Note Agreement.
Senior Loan Documents. This term is defined in Section 11.1
of the Note Agreement.
Shareholder. This term is defined in the preamble.
Shareholder Agreement. This term is defined in the preamble
and includes the Shareholder Agreement dated as of the
Closing Date between the Company, the Shareholder, and the
Purchaser in substantially the form attached to this
Agreement as Annex A and incorporated in this Agreement by
reference.
Stock Pledge Agreement. The Stock Pledge Agreement to be
executed on the Closing Date by the Shareholder for the
benefit of Senior Lender, as in effect on the Closing Date.
Subsidiary. Each Person of which or in which the Company or
its other Subsidiaries own directly or indirectly fifty-one
percent (51%) or more of (i) the combined voting power of
all classes of stock having general voting power under
<PAGE>
ordinary circumstances to elect a majority of the board of
directors or equivalent body of such Person, if it is a
corporation or similar person; (ii) the capital interest or
profits interest of such Person, if it is a partnership,
joint venture, or similar entity; or (iii) the beneficial
interest of such Person, if it is a trust, association, or
other unincorporated organization.
Valuation Event. This term is defined in the definition of
Fair Market Value.
Warrant Agreement. This term is defined in the preamble to
the Shareholder Agreement and includes this Agreement and
all documents related to this Agreement as this Agreement
may be amended from time to time.
Warrants. The Warrant referred to in Section 2.01, dated as
of the Closing Date, issued to the Initial Holder, and all
Warrants issued upon the transfer or division of, or in
substitution for, such Warrant.
Warrant Shares. The Issued Warrant Shares and the Issuable
Warrant Shares.
Article II
The Warrant
2.01 The Warrant. On the Closing Date, Purchaser agrees to
purchase from the Company at the purchase price set forth
beneath the name of such Purchaser on the signature page of this
Agreement, and the Company agrees to issue to Purchaser, a
Warrant in substantially the form attached to this Agreement as
Annex B and incorporated in this Agreement by reference to
purchase the number of shares of Common Stock set forth beneath
the name of Purchaser on the signature page of this Agreement,
all in accordance with the terms and conditions of this
Agreement.
2.02 Legend. The Company will deliver to Purchaser on the
Closing Date one or more certificates representing the Warrant in
such denominations as Purchaser requests. Such Warrant will be
issued in the Purchaser's name or in the names of its designees.
It is understood and agreed that the certificates evidencing the
Warrant will bear the following legend:
"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW
TO OR FOR SALE IN CONNECTION WITH THE DISTRIBUTION HEREOF.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT
BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE
<PAGE>
SECURITIES LAWS."
"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF ARE SUBJECT TO THE TERMS AND PROVISIONS OF A WARRANT
PURCHASE AGREEMENT AND A SHAREHOLDER AGREEMENT, EACH DATED
AS OF MAY 5, 1995, BETWEEN OVERHILL FARMS, INC. (THE
"COMPANY"), POLYPHASE CORPORATION AND RICE PARTNERS II, L.P.
(AS SUCH AGREEMENTS MAY BE SUPPLEMENTED, MODIFIED, AMENDED,
OR RESTATED FROM TIME TO TIME, THE "AGREEMENTS"). COPIES OF
THE AGREEMENTS ARE AVAILABLE AT THE EXECUTIVE OFFICES OF THE
COMPANY."
2.03 Exercise Price. The Exercise Price per share will be
$.01 for each share of Common Stock covered by the Warrants;
provided, however, that in no event will the aggregate Exercise
Price for all of the shares of Common Stock covered by all
Warrants exceed $100.00, whether as a result of any change in the
par value of the Common Stock or Other Securities, as a result of
any change in the number of shares purchasable as provided in
this Article II, or otherwise; provided, further, that such
limitation of the aggregate Exercise Price will have no effect
whatsoever upon the amount or number of Warrant Shares for which
the Warrants may be exercised.
2.04 Exercise.
(a) Each of the Warrants may be exercised at any time
or from time to time on or after the Closing Date until the
tenth (10th) anniversary of the date of this Agreement, on
any day that is a Business Day, for all or any part of the
number of Issuable Warrant Shares purchasable upon its
exercise. In order to exercise any Warrant, in whole or in
part, the Holder will deliver to the Company at the address
designated by the Company pursuant to Section 6.06, (i) a
written notice of such Holder's election to exercise its
Warrant, which notice will specify the number of Issuable
Warrant Shares to be purchased pursuant to such exercise,
(ii) payment of the Exercise Price, in an amount equal to
the aggregate purchase price for all Issuable Warrant Shares
to be purchased pursuant to such exercise, and (iii) the
Warrant. Such notice will be substantially in the form of
the Subscription Form appearing at the end of the Warrants.
Upon receipt of such notice, the Company will, as promptly
as practicable, and in any event within three (3) Business
Days, execute, or cause to be executed, and deliver to such
Holder a certificate or certificates representing the
aggregate number of full shares of Common Stock and Other
Securities issuable upon such exercise, as provided in this
Agreement. The stock certificate or certificates so
delivered will be in such denominations as may be specified
in such notice and will be registered in the name of such
Holder, or such other name as designated in such notice. A
Warrant will be deemed to have been exercised, such
certificate or certificates will be deemed to have been
<PAGE>
issued, and such Holder or any other Person so designated or
named in such notice will be deemed to have become a holder
of record of such shares for all purposes, as of the date
that such notice, together with payment of the Exercise
Price and the Warrant, is received by the Company. If the
Warrant has been exercised in part, the Company will, at the
time of delivery of such certificate of certificates,
deliver to such Holder a new Warrant evidencing the rights
of such Holder to purchase a number of Issuable Warrant
Shares with respect to which the Warrant has not been
exercised, which new Warrant will, in all other respects, be
identical with the Warrants, or, at the request of such
Holder, appropriate notation may be made on the Warrant and
the Warrant returned to such Holder.
(b) Payment of the Exercise Price will be made, at the
option of the Holder, by (i) company or individual check,
certified or official bank check, (ii) cancellation of any
debt owed by the Company to the Holder, or (iii)
cancellation of Warrants, valued at Fair Market Value. If
the Holder surrenders a combination of cash or cancellation
of any debt owed by the Company to the Holder or Warrants,
the Holder will specify the respective number of shares of
Common Stock to be purchased with each form of
consideration, and the foregoing provisions will be applied
to each form of consideration with the same effect as if the
Warrant were being separately exercised with respect to each
form of consideration; provided, however, that a Holder may
designate that any cash to be remitted to a Holder in
payment of debt be applied, together with other monies, to
the exercise of the portion of the Warrant being exercised
for cash.
2.05 Taxes. The issuance of any Common Stock or Other
Securities upon the exercise of the Warrant will be made without
charge to any Holder for any tax, other than income taxes
assessed on such Holder, in respect of such issuance.
2.06 Warrant Register. The Company will, at all times while
any of the Warrants remain outstanding and exercisable, keep and
maintain at its principal office a register in which the
registration, transfer, and exchange of the Warrants will be
provided for. The Company will not at any time, except upon the
dissolution, liquidation, or winding up of the Company, close
such register so as to result in preventing or delaying the
exercise or transfer of any Warrant.
2.07 Transfer and Exchange. The Warrants and all options and
rights under the Warrants are transferable, as to all or any part
of the number of Issuable Warrant Shares purchasable upon its
exercise, by the Holders of the Warrants, in person or by duly
authorized attorney, on the books of the Company upon surrender
of the Warrants at the principal offices of the Company, together
with the form of transfer authorization attached to the Warrants
<PAGE>
duly executed. Absent any such transfer and subject to the
Shareholder Agreement, the Company may deem and treat the
registered Holders of the Warrants at any time as the absolute
owners of the Warrants for all purposes and will not be affected
by any notice to the contrary. If any Warrant is transferred in
part, the Company will, at the time of surrender of such Warrant,
issue to the transferee a Warrant covering the number of Issuable
Warrant Shares transferred and to the transferor a Warrant
covering the number of Issuable Warrant Shares not transferred.
2.08 Adjustments to Number of Shares Purchasable.
(a) The Warrants will be exercisable for the number of shares
of Common Stock in such manner that, following the complete and
full exercise of the Warrant of each Holder, the amount of Common
Stock issued to all Holders will equal the aggregate number of
shares of Common Stock set forth beneath the names of such
Purchaser on the signature pages of this Agreement, as adjusted,
to the extent necessary, to give effect to the following events:
(i) In case at any time or from time to
time, the holders of any class of Common Stock or
Common Stock Equivalent have received, or (on or after
the record date fixed for the determination of
shareholders eligible to receive) have become entitled
to receive, without payment therefor:
(A) consideration (other than cash)
by way of dividend or distribution; or
(B) consideration (including cash)
by way of spin-off, split-up, reclassification
(including any reclassification in connection with
a consolidation or merger in which the Company is
the surviving corporation), recapitalization,
combination of shares into a smaller number of
shares, or similar corporate restructuring;
other than additional shares of Common Stock
issued as a stock dividend or in a stock-split
(adjustments in respect of which are provided for in
Sections 2.08(a)(ii) and (iii)), then, and in each such
case, the Holders, on the exercise of the Warrants,
will be entitled to receive for each share of Common
Stock issuable under the Warrants as of the record date
fixed for such distribution, the greatest per share
amount of consideration received by any holder of any
class of Common Stock or Common Stock Equivalent or to
which such holder is entitled less the amount of any
Dilution Fee actually and irrevocably paid to such
Holders. All such consideration receivable upon
exercise of the Warrant with respect to such a
distribution will be deemed to be outstanding and owned
<PAGE>
by such Holder for purposes of determining the amount
of consideration to which such Holder is entitled upon
exercise of the Warrant with respect to any subsequent
distribution.
(ii) If at any time there occurs any stock
split, stock dividend, reverse stock split, or other
subdivision of the Common Stock, then the number of
shares of Common Stock to be received by the Holder of
the Warrant and the Exercise Price, subject to the
limitations set forth in this Agreement, will be
proportionately adjusted.
(iii) In case of any reclassification or
change of outstanding shares of any class of Common
Stock or Common Stock Equivalent (other than a change
in par value, or from par value to no par value, or
from no par value to par value), or in the case of any
consolidation of the Company with, or merger or share
exchange of the Company with or into, another Person,
or in case of any sale of all or a majority of the
property, assets, business, income or revenue
generating capacity, or goodwill of the Company, the
Company, or such successor or other Person, as the case
may be, will provide that the Holder of the Warrant
will thereafter be entitled to receive the highest per
share kind and amount of consideration received or
receivable (including cash) upon such reclassification,
change, consolidation, merger, share exchange, or sale
by any holder of any class of Common Stock or Common
Stock Equivalent that the Warrant entitles the Holder
to receive immediately prior to such reclassification,
change, consolidation, merger, share exchange, or sale
(as adjusted pursuant to Section 2.08(a)(i) and
otherwise in this Agreement). Any such successor
Person, which thereafter will be deemed to be the
Company for purposes of the Warrants, will provide for
adjustments that are as nearly equivalent as may be
possible to the adjustments provided for by this
Section 2.08.
(iv) If at any time the Company issues or
sells any shares of any Common Stock or any Common
Stock Equivalent at a per unit or share consideration
(which consideration will include the price paid upon
issuance plus the minimum amount of any exercise,
conversion, or similar payment made upon exercise or
conversion of any Common Stock Equivalent) less than
the Exercise Price or the then current Fair Market
Value per share of Common Stock immediately prior to
the time such Common Stock or Common Stock Equivalent
is issued or sold (the "Additional Securities"), then:
(A) the Exercise Price will be
<PAGE>
reduced to the lower of the prices calculated by:
(I) dividing (x) an
amount equal to the sum of (1) the number of
shares of Common Stock outstanding on a fully
diluted basis immediately prior to such
issuance or sale multiplied by the then
existing Exercise Price plus (2) the
aggregate consideration, if any, received by
the Company upon such issuance or sale, by
(y) the total number of shares of Common
Stock outstanding immediately after such
issuance or sale on a fully diluted basis;
and
(II) multiplying the then
existing Exercise Price by a fraction, the
numerator of which is (x) the sum of (1) the
number of shares of Common Stock outstanding
on a fully diluted basis immediately prior to
such issuance or sale, multiplied by the Fair
Market Value per share of Common Stock
immediately prior to such issuance or sale,
plus (2) the aggregate consideration received
by the Company upon such issuance or sale,
(y) divided by the total number of shares of
Common Stock outstanding on a fully diluted
basis immediately after such issuance or
sale, and the denominator of which is the
Fair Market Value per share of Common Stock
immediately prior to such issuance or sale
(for purposes of this subsection (II), the
date as of which the Fair Market Value per
share of Common Stock will be computed will
be the earlier of the date upon which the
Company will (aa) enters into a firm contract
for the issuance of such shares, or (bb)
issues such shares); and
(B) the number of shares of Common
Stock for which any of the Warrants may be
exercised at the Exercise Price resulting from the
adjustment described in subsection (A) above will
be equal to the product of the number of shares of
Common Stock purchasable under such Warrants
immediately prior to such adjustment multiplied by
a fraction, the numerator of which is the Exercise
Price in effect immediately prior to such
adjustment and the denominator of which is the
Exercise Price resulting from such adjustment.
(v) In case any event occurs as to which the
preceding Sections 2.08(a)(i) through (iv) are not
strictly applicable, but as to which the failure to
<PAGE>
make any adjustment would not fairly protect the
purchase rights represented by the Warrants in
accordance with the essential intent and principles of
this Agreement, then, in each such case, the Holder may
appoint an independent investment bank or firm of
independent public accountants, which will give its
opinion as to the adjustment, if any, on a basis
consistent with the essential intent and principles
established in this Agreement, necessary to preserve
the purchase rights represented by the Warrants. Upon
receipt of such opinion, the Company will promptly
deliver a copy of such opinion to the Holder and will
make the adjustments described in such opinion. The
fees and expenses of such investment bank or
independent public accountants will be borne by the
Company and the Shareholder.
(b) The Company and the Shareholder will not
by any action including, without limitation, amending,
or permitting the amendment of, the charter documents,
bylaws, or similar instruments of the Company or
through any reorganization, reclassification, transfer
of assets, consolidation, merger, share exchange,
dissolution, issue or sale of securities, or any other
similar voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this
Agreement or the Warrants, but will at all times in
good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be
necessary or appropriate to protect the rights of the
Holders against impairment or dilution. Without
limiting the generality of the foregoing, each of the
Company and the Shareholder will (i) take all such
action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock and Other
Securities, free and clear of all liens, encumbrances,
equities, and claims and (ii) use its best efforts to
obtain all such authorizations, exemptions, or consents
from any public regulatory body having jurisdiction as
may be necessary to enable the Company to perform its
obligations under the Warrants. Without limiting the
generality of the foregoing, the Company represents and
warrants that the board of directors of the Company has
AND PROVISIONS OF THIS CONTINUING GUARANTY.
19. Entire Agreement. This Continuing Guaranty
contains the complete understanding of the parties hereto with
respect to the subject matter herein. Guarantor acknowledges
that it is not relying upon any statements or representations of
Lender not contained in this Continuing Guaranty and that such
statements or representations, if any, are of no force or effect
and are fully superseded by this Continuing Guaranty. This
Continuing Guaranty may only be modified by a writing executed by
Guarantor and Lender.
<PAGE>
IN WITNESS WHEREOF, Guarantor has caused this
Continuing Guaranty to be duly executed this 5th day of May,
1995.
"Guarantor"
POLYPHASE CORPORATION
By: _______________________________
Name:
Title:
Guarantor's address for notices:
16885 Dallas Parkway
Dallas, Texas 95248
Attention: President
Facsimile: (214) 732-6430
Lender's address for notices:
210 North Figueroa Street
Suite 900
Los Angeles, California 90012
Attention: Manager
Facsimile: (213) 580-5678
<PAGE>
