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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number: 1-9083
POLYPHASE CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 23-2708876
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16885 Dallas Parkway, Suite 400
Dallas, Texas 75248
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 732-0010
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ----------------------
Common Stock, $.01 par value per share American Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of voting stock held by non-affiliates of the
registrant, based on the closing price of such stock on December 31, 1997, was
approximately $7.8 million. For purposes of this computation, all executive
officers, directors and 10% beneficial owners of the registrant are deemed to be
affiliates. Such determination should not be deemed an admission that such
executive officers, directors and 10% beneficial owners are affiliates. As of
December 31, 1997 the registrant had issued and outstanding 14,376,171 shares
of the Company's common stock, $ .01 par value.
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POLYPHASE CORPORATION
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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Page
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Part I
Item 1 Description of Business 1
Item 2 Description of Property 7
Item 3 Legal Proceedings 8
Item 4 Submission of Matters to a Vote of Security 8
Holders
Part II
Item 5 Market for Registrant's Common Equity and 9
Related Stockholder Matters
Item 6 Selected Financial Data 11
Item 7 Management's Discussion and Analysis of
Financial Condition and
Results of Operation 12
Item 7A Quantitative and Qualitative Disclosures about 18
Market Risk
Item 8 Financial Statements 18
Item 9 Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 18
Part III
Item 10 Directors and Executive Officers of the 19
Registrant
Item 11 Executive Compensation 21
Item 12 Security Ownership of Certain Beneficial 23
Owners and Management
Item 13 Certain Relationships and Related Transactions 26
Part IV
Item 14 Exhibits, Financial Statement Schedules and 28
Reports on Form 8-K
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PART I
ITEM 1. Description of Business.
------------------------
General
The Company is a diversified holding company that, through its
subsidiaries, currently operates primarily in three industry segments: the food
segment, which produces high quality entrees, plated meals, soups, sauces and
poultry, meat and fish specialties (the "Food Group"); the forestry segment,
which distributes, leases and provides financing for industrial and logging
equipment (the "Forestry Group"); and the transformer manufacturing segment,
which manufactures and markets electronic transformers, inductors and filters
(the "Transformer Group"). The Company was incorporated in New Jersey in 1963
under the name Kappa Networks, Inc. In June 1991, through a merger with a
wholly owned subsidiary, the Company reincorporated in Pennsylvania and formally
changed its name to Polyphase Corporation. In June 1994, the Company, through a
merger with a wholly owned subsidiary, reincorporated in Nevada.
During 1993, under the direction of the current management team, the
Company embarked on an aggressive long-term program to diversify its activities
and expand its operations. At that time, the Company's sole operating entity
was Polyphase Instrument Co. ("PIC"), which conducts the Company's transformer-
related activities. PIC, active since 1956, manufactures and sells customized
transformers and communications filters, primarily to defense contractors and
their suppliers.
In connection with the Company's program of diversification and expansion,
the more significant acquisitions consummated by the Company were:
. Computer-Related Activities ("Computer Group") Through various
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transactions in fiscal 1993 and 1994, the Company acquired the operations of
several computer-related companies which were engaged in the computer marketing,
service and networking business and in software development. These operations
were all purchased from individuals and were generally accomplished through the
issuance of shares of various series of the Company's convertible preferred
stock. All such preferred stock issued was subsequently converted into shares
of the Company's common stock. The Company, during fiscal 1996, relinquished
control of the Computer Group, first by contributing the stock of Network
America, Inc. ("NAI"), Letronix, Inc., dba Computer Systems Concepts ("CSC"), PC
Repair of Florida, Inc. ("PCR") and Register-Mate, Inc. ("RMI") to a wholly-
owned subsidiary, PC Networx America, Inc. ("PCNA") and selling 51% of PCNA to
an unrelated corporation; and by selling 100% of the stock of Micro
Configurations, Inc. to the same unrelated entity. During fiscal 1997, the
Company disposed of its remaining 49% ownership interest, incurring a loss of
$3,614,000 in connection therewith. See "Management's Discussion and Analysis
of Financial Condition and Results of Operation-Liquidity and Capital
Resources."
. Texas Timberjack, Inc. ("Timberjack" or "TTI") In June 1994, the
----------------------------------------------
Company acquired all of the outstanding capital stock of TTI from Harold Estes,
current President of TTI. Timberjack, with locations in Lufkin, Jasper,
Cleveland and Atlanta, Texas, is a distributor of industrial and logging
equipment in East Texas and Western Louisiana. The capital stock of TTI was
acquired from Mr. Estes for consideration of approximately $4,000,000 in cash, a
$10,000,000 promissory note payable to the order of Mr. Estes, and 100,000
shares of the Company's Series A Preferred Stock, which were subsequently
converted into 2,000,000 shares of Common Stock. Subsequent to June 1994, the
Company and Mr. Estes have modified, renewed and extended the promissory note
payable. As of September 30, 1997 the promissory note has a balance of
$13,998,916 (including accrued and unpaid interest) and is due April 6, 1998.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operation- Liquidity and Capital Resources."
. Overhill Farms, Inc. ("Overhill") In May 1995, the Company acquired
---------------------------------
all the operating assets of IBM Foods, Inc. The purchase, which was
accomplished through Overhill, a newly-formed subsidiary of the
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Company, provided for cash payment to the seller of $31.3 million plus the
assumption by the Company of certain liabilities of the acquired business.
Overhill, located in Culver City, California, is a food processor that produces
high quality entrees, meals, soups, sauces and poultry, meat and fish
specialities primarily for customers in the weight loss, airline and restaurant
chain industries.
Products and Services
Food Group
The Food Group, through Overhill, is a value-added manufacturer of quality
frozen food products including entrees, plated meals, soups, sauces, poultry,
meat and fish specialities. Overhill's strategy has been to position itself as a
provider of prepared foods to a number of prominent customers such as American
Airlines, Jenny Craig, United Airlines, Albertsons, Carl's Jr., Jack in the Box
and King's Hawaiian. Historically, Overhill has served four industry segments:
airlines, weight loss, food service and retail.
Forestry Group
The Forestry Group, through Timberjack, is a distributor of industrial and
logging equipment with locations in Lufkin, Jasper, Cleveland and Atlanta,
Texas. TTI carries the Timberjack, Blount and Hyundai lines of industrial and
logging equipment and the Ford and New Holland lines of farm equipment. TTI is
involved in the sale, leasing and financing of the equipment it distributes as
well as the servicing of all major brands of related equipment. TTI's
operations are primarily concentrated in the forested areas of East Texas
although its market extends to surrounding states. TTI operates in a fragmented
industry where its major competition is from distributors and dealers of
Caterpillar and John Deere equipment. TTI estimates that it currently holds
approximately 60% of the shear (a machine that cuts the timber) market, 35% of
the skidder (a machine that transports the logs out of the forest onto a loader)
market and 70% of the loader (a machine that stacks trees onto trucks) market in
Texas.
Transformer Group
The Company's Transformer Group consists solely of PIC. Transformers are
electromagnetic mechanisms used in a wide variety of electronic and electro-
mechanical applications to convert electrical currents from one voltage level to
another. The Transformer Group's products include power transformers used in
direct current power supplies; audio transformers used in voice and audio signal
circuits for transferral of low level, precise signals; pulse transformers used
in radar, digital signaling and computer applications; telephone modem
transformers used in telephone circuits; and ferro-resonant transformers used in
computers and stabilized power systems. PIC manufactures a large line of
transformers ranging from miniaturized versions to oil-filled units, with power
levels ranging from microwatts to over 20 kilowatts, voltage levels of up to 20
kilovolts and currents ranging from micro-amperes to 700 amperes. PIC supplies
products to meet its customers' exact specification requirements.
Specifications include frequency response and temperature range; energy loss;
and voltage, current, and energy levels.
Sales and Marketing
Food Group
Overhill markets its products through an internal sales force and outside
food brokers. While Overhill will continue to service the airline and weight
loss industries, management has identified the retail and food service markets,
particularly the emerging home meal replacement market, as areas of potential
significant future growth. Overhill management has restructured its sales force
and redirected its marketing efforts to concentrate on these markets. During
fiscal 1997, Overhill began to see the effects of these efforts, with products
under both the Overhill brand and under private label now being sold in major
retail and food service chains.
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Approximately 56% of Overhill's sales in fiscal 1997 were derived from
three customers, Jenny Craig, Inc. (31%), American Airlines (13%) and King's
Hawaiian (12%). On a consolidated basis these three customers represented
approximately 20%, 8% and 8% of the Company's total sales, respectively.
Although the Company's relationships with these customers remains strong,
signified by Jenny Craig entering into a two year supplier agreement in August
1997 (with an option for a third year), there can be no assurance that these
relationships will continue. A decline in the sales of the Food Group's
products to these customers or the loss of, or a significant change in the
relationship between the Company and any of these key customers could have a
material adverse effect on the Company's business and operating results. It is
management's objective to reduce the reliance on this concentration of accounts
by further expansion into the retail and food service markets as described
above.
Forestry Group
Timberjack currently maintains sales and distribution offices in Lufkin,
Jasper, Cleveland and Atlanta, Texas primarily to serve Eastern Texas and
Western Louisiana. Sales are generated through repeat customers, advertisements
in various trade publications and direct marketing calls on companies located in
the area. A general sales manager and branch managers supply technical and
operational support at the Lufkin headquarters while nine salesman have direct
responsibility for customer relationships. TTI meets customers' orders for new
equipment and replacement parts out of existing inventory or through purchase
orders placed with the manufacturers TTI currently represents.
Approximately 54% of TTI sales during fiscal 1997 are from new equipment
sold to companies involved in the forestry industries. Additional revenues are
derived from sales of used equipment (24%), servicing of equipment (5%), sales
of parts (15%) and financing equipment sales (2%). No single customer accounts
for more than 10% of TTI's sales. Equipment sales financed by TTI are typically
for periods ranging from 12 to 24 months at interest rates ranging from 12.5% to
18% per annum.
Transformer Group
The Company sells transformers and filters directly to customers and
through commissioned sales representatives and outside brokers principally in
the Mid-Atlantic and Northeast regions of the United States. As of September 30,
1997, PIC had an in-house sales and marketing staff of two full-time employees.
To obtain new business, PIC relies on referrals from its existing customer base,
advertisements in various trade journals and leads generated by its reputation .
Approximately 83% of the transformers and filters sold by PIC are
components of systems used by the United States Armed Forces. Most of the
remaining 17% is utilized in various industrial processing systems and
commercial avionics. Major projects in which PIC's products are currently used
include the United States Navy's Aegis Destroyer, Airborne Self Protection
Jammer and new nuclear attack submarine as well as the United States Army's
Bradley Infantry Fighting Vehicle and PLGR Global Positioning System Receiver.
Approximately 5% of PIC's sales from these operations in fiscal 1997 were direct
spares procurement from various government activities.
PIC's products are sold to approximately 200 active accounts, consisting
principally of defense contractors and their suppliers. Nine customers
accounted for approximately 80%, 76%, and 78% of PIC's sales for fiscal 1997,
1996, and 1995, respectively, which percentages represented approximately 1%,
1%, and 2% of the Company's consolidated sales, respectively. The three largest
accounts, Lockheed Martin, Rockwell International, and ITT Avionics comprise
approximately 20%, 20% and 12%, respectively, of PIC's overall sales.
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Manufacturing and Sourcing
Food Group
Overhill's manufacturing operations are located in three separate
facilities near Los Angeles, California. The operations are labor intensive
requiring semi-skilled employees. All manufacturing employees are unionized
with contracts covering each plant. Such contracts are due to expire at various
times over the next three years. A single plant is currently concluding
negotiations with the local Teamsters Union to renew the labor contract which
expired on November 30, 1997 and anticipates ratification by the union in early
1998. Until ratification the union has agreed to work under the prior
contract. Management believes relations with the unions are excellent and does
not anticipate any problems which would affect future production. Each plant
specializes in different processing operations allowing efficiencies in
production of the product. In fiscal 1997, the plants each operated at
approximately 75% of capacity.
The Company's ability to economically produce large quantities of its
products, while at the same time maintaining a high degree of quality, depends
in a large part on its ability to procure raw materials on a reasonable basis.
The Company relies on a few large suppliers for its poultry products with the
remaining raw materials purchased from suppliers in the open market. The Company
does not anticipate any difficulty in acquiring these materials in the future.
Raw materials, packaging for production and finished goods are stored on site or
in a public frozen food storage facility until shipment is required.
Transformer Group
PIC operates a manufacturing facility in Fort Washington, Pennsylvania that
produces approximately 92% of the Transformer Group's transformers and all
filters. Transformers are also manufactured at a leased facility in Haiti. See
"Description of Property - Transformer Group."
The manufacturing process for PIC's products is labor intensive, involving
mostly low-technology, manually operated machinery. The process is not highly
automated since PIC's products are custom designed to customer specifications.
Wherever economically feasible, operations are automated. Given the nature of
PIC's products and their end uses, PIC maintains extensive test equipment for
its quality control operation.
Raw materials used by PIC include ferrites, laminates, copper wire and
electronic components purchased in predesigned configurations. Substantially
all raw materials and components are purchased from domestic sources and are
widely available. PIC carries adequate inventories of raw materials and other
product components as required to meet open customer orders.
Backlog
Food Group
At September 30, 1997, Overhill had unfilled purchase orders aggregating
approximately $2,400,000, as compared to $2,350,000 at September 30, 1996.
Substantially all of the backlog is expected to be delivered to customers within
the following twelve month period. Overhill typically delivers product directly
from finished goods inventory and as such does not maintain a large backlog.
The Company may experience variations in the total amount of the backlog at any
given date and, accordingly, Overhill's backlog is not necessarily indicative of
trends in its business. Orders are subject to changes in quantities or to
cancellation with thirty days notice without penalties to customers.
4
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Forestry Group
As a dealer, servicer and financier of forestry equipment, TTI does not
maintain a backlog of orders. Equipment ordered by a customer that is not in
inventory takes approximately one to six weeks to be shipped from the
manufacturer or another distributor.
Transformer Group
At September 30, 1997, PIC had unfilled purchase orders aggregating
approximately $2,200,000 as compared to $1,200,000 at September 30, 1996.
Orders may be subject to cancellation at the customer's discretion subject to
substantial cancellation charges. Based on current delivery schedules and
shipments, management believes that the Transformer Group will ship
substantially all of its current backlog within the following twelve months.
The Transformer Group's backlog may not provide meaningful period-to-period
comparisons and such comparisons and the backlog may not be indicative of future
results.
Product Development
Food Group
Overhill maintains a comprehensive test kitchen, staffed by four chefs,
which formulate recipes and upgrade specific products for current customers and
establish production and quality standards. Products are developed based upon
either customers' specifications, conventional recipes, or new product
developments. Overhill is continuously developing recipes as customers' tastes
change. Overhill also maintains a quality control department for testing and
quality control. In 1997 the Company continued its expansion into the retail
and food service areas with branded and private label entrees.
Forestry Group
TTI does not develop products for sale to the public. TTI relies primarily
upon two suppliers, Timberjack, Inc. and Blount, for a majority of its new units
and parts.
Transformer Group
PIC does not maintain a formal research and development program, nor are
material amounts expended for research and development. However, PIC's
engineering, marketing and operations staff are regularly engaged in engineering
design and product development since most products are designed to customers'
specifications. Customers either supply PIC with design specifications or submit
proposed designs and require PIC to determine whether such designs will meet the
customers' performance specifications. PIC continuously modifies and enhances
its transformers and communication filters to accommodate its customers' systems
and equipment and, in this manner, attempts to increase its market penetration.
Patents, Trademarks and Copyrights
The Company does not have patents or patent applications pending on any of
its products, although it may file such patent applications in the future. The
Company attempts to protect its proprietary interests in its products by
entering into non-disclosure agreements with customers.
The Company has registered the trademarks "Polyphase" and "Overhill Farms"
in the United States Patent and Trademark Office.
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Regulation
The Food Group is subject to strict government regulation particularly in
the health and environmental areas by the United States Department of
Agriculture ("USDA"), the Food and Drug Administration ("FDA"), Occupational
Safety and Health Organization ("OSHA") and the Environmental Protection Agency
("EPA"). The Food Group anticipates increased regulation by the USDA and FDA
concerning food processing and storage. The Company's food processing
facilities are subject to on-site examination, inspection and regulation by the
USDA. Compliance with the current applicable federal, state and local
environmental regulations has not had, and the Company does not believe that in
the future such compliance will have, a material effect on its financial
position, results of operations, expenditures or competitive position. During
1997, the Company implemented a Hazard Analysis Critical Point Plan to ensure
proper handling of all food items.
The Transformer and Forestry Groups are required to comply with various
governmental regulations and requirements concerning the discharge of materials
into the environment or otherwise relating to the protection of the environment.
Compliance with the current applicable federal, state and local environmental
regulations has not had, and the Company does not believe that in the future
such compliance will have, a material effect on its financial position, results
of operations, expenditures or competitive position.
The Company takes all reasonable precautions to ensure that its operations,
processing plants and facilities operate in a safe, sanitary and
environmentally-sound manner. However, events beyond the control of the
Company, such as the adoption by the government of more stringent environmental
regulations could adversely affect its operations. Management believes that the
Company is in substantial compliance with all applicable laws and regulations
relating to the operations of facilities.
Competition
In General
Competition in the industries in which the Company operates generally is
intense. Many of the Company's competitors have greater market recognition and
greater, financial, technical, marketing and human resources than the Company.
There can be no assurance that the Company will compete successfully against
existing companies or new entrants to the marketplace. Furthermore, the
development by competitors of new or improved products, services and/or
technologies may render the Company's products or services (or proposed products
or services) obsolete or less competitive.
Food Group
Overhill's food products, consisting primarily of poultry, pasta and to a
lesser extent beef and assorted related products, compete with those produced by
numerous regional and national firms. Many of these companies are divisions of
larger fully integrated companies such as Tyson Foods and ConAgra, which have
greater financial and marketing resources than the Company. Competition is
intense with most firms producing similar products for the food service and
retail industries. Competitive factors include price, product quality, product
development, customer service and, on a retail basis, brand name recognition.
Overhill competes in this market by its ability to produce small/custom product
runs within a short time frame and on a cost effective basis.
Forestry Group
Competition in the forestry segment is highly fragmented in the Eastern
Texas and Western Louisiana area where TTI principally operates. Because of it
lengthy historical presence in these regions, TTI believes it has established a
strong local identity in its field with a proven record of delivering equipment
on a timely basis, providing satisfactory financing and strong customer support
and service. TTI is one of only a few distributors of Timberjack and Blount
forestry equipment in its operating area. TTI has the added advantage of being
a leading seller and financier of various makes and models of used logging
equipment. Principal competitors include local John Deere and Caterpillar
distributors.
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Transformer Group
The business in which PIC is engaged is highly competitive, characterized
by ease of entry and intense regionally-based competition. Competition is based
on such factors as price, performance, reliability and product quality. The
Company believes that the reputation of PIC's engineering department and the
relationships it has established with its customers (having been in business
over 30 years) are important to its ability to compete successfully.
PIC competes directly with a number of manufacturers, primarily in the
United States, certain of which have financial and other resources substantially
greater than PIC. In addition, such manufacturers generally have more extensive
facilities than those that are, or in the foreseeable future may become,
available to PIC. In this market, changing governmental policies can rapidly
create or eliminate areas of competition and market share. There is no assurance
that PIC will be able to maintain or further increase its market share.
Employees
As of September 30, 1997, the Company had approximately 893 employees as
follows: approximately 725 full-time employees in the Food Group; 89 full-time
employees in the Forestry Group; 72 full-time employees in the Transformer
Group; and 7 full-time employees in the corporate office. All subsidiaries
presently provide group health plans for their domestic employees and pay a
portion of the costs associated with such plans. TTI also maintains a profit
sharing plan for its employees.
ITEM 2. Description of Property.
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Corporate Headquarters
The Company's corporate headquarters are located at 16885 Dallas Parkway,
Dallas, Texas 75248 and contain approximately 40,000 square feet of office
space. Effective December 1, 1997 the Company entered into an agreement to sell
its corporate headquarters building and expects to relocate in early 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Food Group
Overhill leases three manufacturing facilities in the Los Angeles,
California area. Plant No.1 is located in Inglewood, California and has 39,000
square feet of manufacturing area. Plants No. 2 and No. 3 are located in
Vernon, California and have 49,000 and 27,000 square feet of manufacturing area,
respectively. In addition to the manufacturing facilities, Overhill also leases
two dry goods warehouses of 13,500 and 11,500 square feet, a 7,700 square foot
frozen storage facility in Inglewood, California and a 7,900 square foot office
in Culver City, California. While Overhill believes that the existing
facilities are adequate to meet its requirements in the foreseeable future, the
Company is currently reviewing the cost effectiveness of consolidating all
manufacturing and administrative functions into one location.
Forestry Group
TTI owns three buildings in Lufkin, Texas, two buildings in Jasper, Texas
and leases buildings in Cleveland and Atlanta, Texas. One building in Lufkin,
Texas has 38,500 square feet, of which 18,900 square feet comprise the shop
area. The other two buildings in Lufkin have 3,600 and 4,200 square feet and
comprise the wash room and storage room, respectively. One building in Jasper,
Texas has 10,000 square feet of which 6,600 square feet comprises the shop area.
The other building in Jasper has 900 square feet and is used as a wash and paint
room. The Cleveland building has approximately 1,800 square feet and is used as
a shop and for parts.
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The Atlanta building has approximately 7,500 square feet of which 3,750
comprises the shop area. The remaining area is used for parts sales.
Transformer Group
PIC's domestic transformer and filter manufacturing operations are housed
in a 44,000 square foot, leased, single-story facility in Fort Washington,
Pennsylvania, located about 30 miles from Philadelphia. The Company is
currently in negotiations and intends to renew the lease for this facility,
which is due to expire in May 1998. PIC's foreign manufacturing operations are
based in an 8,400 square foot building in Port-au-Prince, Haiti, which is rented
by PIC on a month-to-month basis. Management believes that these facilities are
in suitable condition and are adequate for PIC's needs in the foreseeable
future.
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ITEM 3. Legal Proceedings.
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In January 1997, a suit was filed in District Court of Dallas County
against the Company by Rice Partners II, L.P., subordinated debt holders of
Overhill. The suit claimed, among other things, that the Company breached
covenants of the subordinated debt agreement and refused to cure the defaults
within a reasonable period of time. On December 4, 1997, the suit was settled
and the action has been dismissed by the Court. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation - Liquidity and
Capital Resources."
During fiscal 1997, five substantially identical complaints were filed in
the United States District Court for the District of Nevada against the Company
and certain of its officers and directors. The suits seek class action status
and assert liability based on alleged misrepresentations that resulted in the
market price of the stock being artificially inflated. The Company intends to
vigorously defend these actions. One of such suits was dismissed by the Court
subsequent to September 30, 1997.
The Company and its subsidiaries are involved in certain legal actions and
claims arising in the ordinary course of business. Management believes (based
on advice of legal counsel) that such litigation and claims will be resolved
without material effect on the Company's financial position or results of
operations.
The Company is not a party to any other material pending litigation.
ITEM 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
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PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
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The Common Stock is listed on the American Stock Exchange under the symbol
"PLY." The following table sets forth the range of high and low sales prices
for the Common Stock on the American Stock Exchange for the periods indicated:
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Fiscal 1997 High Low
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Quarter from October 1, 1996
to December 31, 1996 $ 7.4375 $ 3.8750
Quarter from January 1, 1997
to March 31, 1997(1) $ 5.5000 $ 3.8125
Quarter from April 1, 1997
to June 30, 1997(1) $ 2.6250 $ 1.2500
Quarter from July 1, 1997
to September 30, 1997 $ 2.5000 $ 0.8750
Fiscal 1996 High Low
----------- ---------------- ----------------
Quarter from October 1, 1995
to December 31, 1995 $ 4.7500 $ 3.1250
Quarter from January 1, 1996
to March 31, 1996 $ 4.3750 $ 2.7500
Quarter from April 1, 1996
to June 30, 1996 $ 4.2500 $ 3.0625
Quarter from July 1, 1996
to September 30, 1996 $ 7.2500 $ 1.8750
Fiscal 1995 High Low
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Quarter from October 1, 1994
to December 31, 1994 $ 5.7500 $ 3.1250
Quarter from January 1, 1995
to March 31, 1995 $ 3.7500 $ 2.1250
Quarter from April 1, 1995
to June 30, 1995 $ 3.6250 $ 2.6875
Quarter from July 1, 1995
to September 30, 1995 $ 3.8750 $ 3.0625
</TABLE>
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(1) On February 3, 1997, the Company agreed with the American Stock Exchange,
Inc. to temporarily halt trading of its Common Stock pending the filing of its
annual report on Form 10-K for the fiscal year ended September 30, 1996. On
June 16, 1997 the Form 10-K and the Forms 10-Q for the quarters ended December
31, 1996 and March 31, 1997, were filed and trading resumed on June 17, 1997.
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The Company has never paid cash dividends on its Common Stock and does not
anticipate doing so in the foreseeable future. Rather, the Company has
determined to utilize any earnings in the expansion of its business. Such
policy is, within the limitations and restrictions described below, subject to
change based on current industry and market conditions, as well as other factors
beyond the control of the Company.
The Company is restricted from paying dividends on its Common Stock
pursuant to the indenture (the "1999 Indenture") executed in connection with the
issuance of $4,000,000 of original principal amount of 12% Senior Convertible
Debentures due July 1, 1999 (the "1999 Bonds"). In general, the 1999 Indenture
prohibits the Company from paying or making within any 12-month period dividends
or distributions on its Common Stock having a value in excess of 50% of the
consolidated net income of the Company, unless each holder of the 1999 Bonds
receives an amount equal to its pro rata portion of the dividend or distribution
(on an as-converted into Common Stock basis). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital
Resources."
As of September 30, 1997, the Company estimates that there were
approximately 2,200 beneficial owners of the Company's Common Stock, represented
by 217 holders of record.
Recent Sales of Unregistered Equity Securities
In November 1995, the Company sold in a private transaction with Infinity
Investors, Ltd. ("Infinity") for $2,500,000 cash, 250,000 shares of Series A-3
Preferred Stock having an aggregate redemption value of $2,500,000 and
convertible into Common Stock as provided in the Certificate of Designations for
the Series A-3 Preferred Stock.
In August 1997, the Company sold in a private transaction with Black Sea
Investments, Ltd. ("Black Sea") for net proceeds of approximately $734,000 cash,
7,500 shares of Series F - 6% Convertible Preferred Stock having an aggregate
redemption value of $750,000 and convertible into Common Stock at a variable
rate equal to 75% of the average closing market price for the Company's common
stock for the previous five trading days prior to conversion.
The shares of Preferred Stock described above were not registered under the
Securities Act of 1933, as amended (the "Securities Act"), and were issued by
the Company in reliance on exemptions to the Securities Act. With respect to the
shares of Series A-3 Preferred Stock issued to Infinity, such shares were issued
pursuant to the exemption provided by Section 4(2) of the Securities Act.
Infinity was in compliance with the necessary requirements of Section 4(2) to
receive such exemption. Of the shares of Series A-3 Preferred Stock, that were
issued no such shares were issued to any party other than Infinity. With respect
to the shares of Series F - 6% Convertible Stock issued to Black Sea, such
shares were issued pursuant to the exemption provided by Regulation S of the
Securities Act. Black Sea is a non United States person as that term is defined
in the Securities Act. Of the shares of the Series F-6% Convertible Stock that
were issued, no such shares were issued to any party other than Black Sea.
11
<PAGE>
ITEM 6. Selected Financial Data
-----------------------
The table set forth below is selected financial data for the Company for
each of the last five fiscal years. This information should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations, and the Consolidated Financial Statements and Notes
included elsewhere herein.
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
- ----------------------------------------------------------------------------------------------------------
(Thousands of Dollars Except Per Share Data)
Income Statement Data: 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 151,949 $ 149,541 $ 102,035 $ 24,970 $ 7,326
Operating Income 6,584 6,665 6,752 355 390
Earnings (Loss) Before
Extraordinary Items and
Cumulative Effect of Change
in Accounting Principle (18,825) (242) 3,286 (1,384) 852
Net Income (Loss) $ (18,825) $ (242) $ 3,286 $ (1,017) $ 1,036
=========== =========== =========== ========== ==========
Income (Loss) per Common Share:
Before Cumulative Effect of
Extraordinary Item and Change
in Accounting Principle $ (1.41) $ (.03) $ .26 $ (.28) $ .24
Extraordinary Items - - - .01 .05
Cumulative Effect of
Accounting Change - - - .06 -
----------- ----------- ----------- ---------- ----------
Net Income (Loss) $ (1.41) $ (.03) $ .26 $ (.21) $ .29
=========== =========== =========== ========== ==========
Weighted Average Common
and Common Equivalent
Shares Outstanding 13,632,357 13,722,552 12,745,701 4,881,454 3,616,795
</TABLE>
<TABLE>
<CAPTION>
As of September 30
- ----------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
Balance Sheet Data: 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $ 72,149 $94,179 $88,159 $37,975 $ 9,034
Long-Term Debt 23,272 - 27,230 5,259 169
Total Liabilities 62,748 68,991 66,335 23,618 1,740
Accumulated (Deficit) (20,717) (1,488) (1,095) (4,381) (3,365)
Stockholders' Equity 7,402 23,998 21,137 14,357 7,293
</TABLE>
12
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operation.
-------------
Statements contained in this Form 10-K that are not historical facts,
including, but not limited to, any projections contained herein, are forward-
looking statements and involve a number of risks and uncertainties. The actual
results of the future events described in such forward-looking statements in
this Form 10-K could differ materially from those stated in such forward-looking
statements. Among the factors that could cause actual results to differ
materially are: adverse economic conditions, industry competition and other
competitive factors, government regulation and possible future litigation.
Fiscal Year Ended September 30, 1997 Compared to Fiscal Year Ended September 30,
1996
For the year ended September 30, 1997 the Company's revenues increased
$2,408,000 (1%), to $151,949,000 from $149,541,000 in fiscal 1996. Operating
income for the year ended September 30, 1997 decreased $81,000 (1%) to
$6,584,000 from $6,665,000 in fiscal 1996. Net loss attributable to common
stockholders for the year ended September 30, 1997 was $19,229,000, a decrease
of $18,837,000 from the net loss of $392,000 in fiscal 1996.
Revenues from the Forestry Group increased substantially as that industry
continues to recover from a slump in timber prices experienced in 1995 and 1996.
This revenue increase more than offset the revenue reductions resulting from
the disposal of the computer operations and the slight decrease in revenues of
the Food Group. Selling general and administrative expenses on a consolidated
basis decreased $3,210,000 primarily due to the disposal of the computer
operations in July 1996. Operating income on a consolidated basis remained flat
for fiscal 1997 as compared to fiscal 1996, primarily due to slightly lower
gross margins in the Food segment.
For the year ended September 30, 1997, the Company had nonrecurring charges
to income of $18,452,000 consisting of $14,838,000 from the Company's writeoff
of its related party receivable from Stadium Partners and $3,614,000 in losses
relating to the disposal of its remaining interest in the computer operations.
(See "Fiscal Year Ended September 30, 1996 Compared to Fiscal Year Ended
September 30, 1995"). The advances made to PLY Stadium Partners Inc. ("Stadium
Partners"), a private investment firm headed by Mr. Paul A. Tanner, Chairman and
Chief Executive Officer of the Company, during fiscal 1997, 1996 and 1995 were
deemed uncollectible, as the project could not secure long term financing on the
land or otherwise gain the support required to construct the stadium. The
Company is pursuing the recovery of at least a portion of its loans to Stadium
Partners either through the sale of assets or the guarantees of the principals.
Amounts due the Company consisted of convertible debt, cash advances and amounts
accrued in 1996 for management fees, services and interest. The Company
recorded a reserve for amounts due the Company for management fees, services,
and interest totaling $3,340,000 in fiscal 1996.
During fiscal 1997, the purchaser of the Computer Group elected to
discontinue that company's efforts to effect a public registration of DataTell's
stock, thus precluding the Company from making a distribution of the stock to
its shareholders; additionally, purchase price adjustments of $87,000 resulted
in the elimination of the note receivable set up in prior year. The purchaser
also elected not to further pursue the operation of MCC, and, since the Company
has been unsuccessful in its attempts to recover MCC's assets, the amount due
under the $951,000 note receivable set up in the prior year has been determined
not to be realizable. The Company, in response to these actions by DataTell,
made the decision to further reduce its involvement in computer-related
businesses and entered into a new agreement with the controlling shareholder to
dispose of its remaining direct ownership of DataTell. The notes and certain
other assets were exchanged with the same unrelated third party for $200,000
cash and preferred stock convertible into a 3% equity interest in DataTell.
This transaction resulted in a loss of $2,576,000, which in addition to the
$1,038,000 loss on notes receivable described above resulted in a total loss of
$3,614,000 being charged to operations during fiscal 1997 relating to the
disposal of its remaining interest in the computer operations.
The Company does not expect there to be any significant ongoing liabilities from
either the stadium or computer operations and intends to focus its direction on
expanding through acquisitions in its two remaining core businesses.
13
<PAGE>
The Company's interest expense increased $790,000 to $7,180,000 (12%) for
the year ended September 30, 1997 as compared to $6,390,000 for the prior year.
The increase was primarily due to the increased rate charged by Rice Partners,
LP on the subordinated debt at Overhill. The rate increased from 13% to a
default rate of 15% beginning January 1997 and continued through December 1997,
at which time the Company refinanced the debt. The Company also incurred
additional interest at 16% on the second lien note on the Company's corporate
headquarters building beginning in January 1997. See "Liquidity and Capital
Resources."
The Company recognized a tax benefit of approximately $654,000 for the year
ended September 30, 1997 as compared to tax expense of $1,594,000 for the year
ended September 30, 1996. The benefit in 1997 resulted primarily from the
statutory tax benefit of the $18.7 million loss by the Company, reduced by the
valuation allowance relating to the portion of the tax benefits that the Company
was not able to utilize through carryback of such losses to prior years.
The Company incurred a noncash charge for warrant accretion of $811,000 for
the year ended September 30, 1997, as compared to $503,000 for the year ended
September 30, 1996. The charge consisted of warrant accretion to fair market
value in anticipation of the redemption in connection with the refinancing of
the Rice debt in December 1997. See "Liquidity and Capital Resources."
Sales in the Food Group decreased $2,594,000 (2%) to $96,177,000 in fiscal
1997 from $98,771,000 in 1996. Increased competitive pressure, particularly in
the airline segment, resulted in a decline in gross profits to $14,696,000 or
15.3% as compared to $16,098,000 or 16.3% in the previous fiscal year. During
the period, management has implemented programs to restore margins to historical
levels, primarily through more aggressive raw materials purchasing procedures,
increased account profitability reviews, customer price adjustments where
possible and the further implementation of manufacturing cost reduction
procedures, including a significant reduction in inventory levels, especially in
the area of finished goods.
Sales in the Forestry Group increased $17,955,000 (52%) to $52,202,000 in
fiscal 1997 from $34,247,000 in fiscal 1996. Operating income increased
$1,243,000 (41%) to $4,282,000 in fiscal 1997 from $3,039,000 in fiscal 1996.
Increased revenues were primarily due to increased demand for new equipment in
East Texas as the lumber prices stabilized in fiscal 1997 and large operators
resumed making capital expenditures. Overall gross profit margin rates decreased
in fiscal 1997 due largely to a change in the sales mix, from used to new
equipment. During the year, sales of new units increased substantially and the
number of used units, which are traditionally sold at higher margins, decreased.
Management anticipates that this sales trend will continue through 1998, as
demand in the forestry industry remains strong for wood based products.
Operating income increased primarily as a result of higher sales volume, offset
by an increase in selling, general and administrative expenses associated with
the new facility in Lufkin, an additional sales office and a larger operations
staff.
The Transformer Group's sales increased $21,000 (1%) to $3,570,000 in
fiscal 1997 from $3,549,000 in fiscal 1996. Operating income decreased $144,000
(187%) primarily due to higher general and administrative costs during the year.
The Company anticipates that revenues and operating income will not increase
significantly as the industry is being affected by technical innovations in
alternative sources of electro-mechanical devices.
The Company has reviewed its operational and accounting computer systems
for compliance in the year 2000. Based upon management's assessment, the Year
2000 issue is not expected to have material impact on the Company.
Fiscal Year Ended September 30, 1996 Compared to Fiscal Year Ended September 30,
1995
For the year ended September 30, 1996 the Company's revenues increased
$47,506,000 (47%), to $149,541,000 from $102,035,000 in fiscal 1995. Operating
income for the year ended September 30, 1996 decreased $87,000 (1%) to
$6,665,000 from $6,752,000 in fiscal 1995. Net income attributable to common
shareholders for the year ended September 30, 1996 was a loss of $392,000, a
decrease of $3,678,000 (112%) from net income of $3,286,000 in fiscal 1995. The
increase in revenues was attributable to the inclusion of Overhill for a full
twelve months in fiscal 1996 as compared to twenty one weeks in fiscal 1995,
offset somewhat by reduced sales at TTI and the Computer Group, control of the
latter of which was divested in July 1996. The
14
<PAGE>
decrease in net income to common stockholders was attributable to increased
interest expense from the Overhill acquisition, the reduction of tax benefits
available during the year, reduction of profits at TTI, losses incurred by the
Computer Group and dividends on the outstanding preferred stock.
After evaluating the industry and growth potential of the Computer Group,
management determined current and future operating margins within the Computer
Group no longer met long term objectives. Consequently, in July 1996 the Company
sold a controlling interest in the Computer Group to an unrelated third party.
The sale of 51% of a newly-formed subsidiary, whose sole assets consisted of
the capital stock of Network America, Inc., PC Repair of Florida, Computer
Systems Concepts, and Register Mate, Inc., occurred in July 1996. For the year
ended September 30, 1996 the Computer Group contributed revenues of $10,398,000
and operating losses of $1,531,000. The Company, in fiscal 1996 without the
Computer Group, would have realized revenues of approximately $139,142,000 and
operating income of $8,196,000.
Also during fiscal 1996 the Company reached an agreement to manage the
development and construction of a domed stadium in Las Vegas, Nevada, a project
being developed by PLY Stadium Partners, Inc. ("Stadium Partners"), a private
investment firm headed by Mr. Paul A. Tanner, Chairman and Chief Executive
Officer of the Company. The Company's involvement was to include the marketing
of luxury suites, premium seating and sales of concessions, sponsorships and
other ancillary rights. The Company funded $4,000,000 of debt that (1) is
convertible into a 14% economic interest in Stadium Partners and (2) is
guaranteed by Mr. Tanner and the Pyrenees Group, a private investment firm
controlled by Mr. Tanner. Beginning in January 1996, the Company began
recording a monthly fee for managing the project. For the twelve months ended
September 30, 1996, the Company accrued management and service revenues of
$2,550,000 and interest income of $790,000 related to the Company's activities
with Stadium Partners. At September 30, 1996, the total amount receivable from
Stadium Partners amounted to approximately $13.3 million, which included the
convertible debt and management fees discussed above, as well as additional
advances made by the Company. The collectibility of this receivable, which
approximated $18 million, remains dependent upon the success of the project
and/or performance under the guarantees referred to above.
On November 15, 1996, Stadium Partners, through a newly-formed partnership
(the "Partnership"), purchased 62 acres in Las Vegas for the development of the
stadium and adjacent convention facility. Financing was provided by a Lehman
Brothers affiliate ("Lehman"), with the lender also receiving 50% equity
interest in the partnership. As a result of the new partnership arrangement,
Stadium Partners is precluded from making any revenue distributions until
permanent financing is arranged or until revenues from the sale of luxury
suites, premium seats and/or concession rights are sufficient to repay the
financing provided by Lehman. Stadium Partners launched its marketing campaign
in Las Vegas on January 15, 1997, but by March 15, 1997, sales were insufficient
to satisfy the Lehman repayment. As a result of Stadium Partners' failure to
make timely payment of its obligation to Polyphase, the Company was required to
establish a reserve of $3.34 million against the income accrued, which after
applicable taxes reduced net income by $2.2 million. The reserve will be
reduced as collections and distributions, if any, are made pursuant to the
Stadium Partner's loan agreements. There was no assurance that payments would
be made and the Company discontinued accruing for interest and management fees
after fiscal 1996.
Sales in the Food Group increased $58,376,000 (145%) to $98,771,000 in
fiscal 1996 from $40,395,000 for the twenty one week period during fiscal 1995
in which the Company owned the Overhill operations. Overall sales remained
stable during the year despite the downturn in the weight loss sectors and
airline sectors. Overhill's expansion into brand name entrees and restaurant
specialty products offset the sales decline in other sectors. Brand name frozen
entrees have begun to gain name recognition and sales momentum at the regional
level while specialty products for the restaurant industry are developing market
share in a competitive environment. Operating income for fiscal 1996 was
$6,260,000 as compared to $2,708,000 for the twenty one weeks of fiscal 1995.
Gross margins on sales increased while operating income as a percentage of
revenues decreased. The changes resulted from a change in the product mix as
more emphasis was placed on the higher margined specialty products which require
higher marketing and administrative expenses.
The Forestry Group sales decreased $8,531,000 (20%) from $42,778,000 in
fiscal 1995 to $34,247,000 in fiscal 1996. Operating income decreased
$1,651,000 (35%) from $4,691,000 in fiscal 1995 to $3,040,000 in fiscal 1996.
The decreases in revenues and operating income are attributable to unseasonable
weather in fiscal
15
<PAGE>
1996, contributing to weaker timber prices and decreased sales of logging
equipment. Timberjack also incurred additional expenses while moving its Lufkin
location to a larger facility and opening a sales office in Atlanta, Texas. See
"Business-Properties" and "Liquidity and Capital Resources."
The Transformer Group's sales decreased $54,000 (1%) from $3,603,000 in
fiscal 1995 to $3,549,000 in fiscal 1996. Operating income also decreased
$226,000 (75%) primarily due to higher general and administrative costs during
the year and the effects of a fire which closed the business for three weeks.
The Computer Group, as mentioned above, was consolidated into PC Networx
America, Inc., a 51% interest of which was sold July 1, 1996. Revenues for the
nine months of fiscal 1996 were $10,398,000 as compared to revenues of
$15,259,000 for twelve months in fiscal 1995. The group incurred operating
losses of $1,530,000 in fiscal 1996 as compared to operating income of $549,000
in fiscal 1995. The decreases in revenue and losses in Computer Group were
attributable to inventory adjustments in the third quarter of fiscal 1996 and
significant declines in prices of memory and other components. These factors
contributing with the lower gross margins on "clone" computers resulted in
management's decision to sell a controlling interest in the group.
Liquidity and Capital Resources
Principal sources of liquidity for the Company are cash flow from
operations, cash balances and additional financing capacity. The Company's cash
and cash equivalents increased $783,000 to $1,064,000 at September 30, 1997,
compared to $281,000 at September 30, 1996.
The Company generated $6,514,000 cash from operations in fiscal 1997 as
compared to $2,775,000 in fiscal 1996. The increase in cash flow from
operations results primarily from decreases in inventory levels at the Overhill
Farms subsidiary and increased operating profits from Texas Timberjack.
Management at Overhill continues to streamline the manufacturing operation and
reduce inventory levels by improvements in production scheduling and timing of
materials purchased.
The Company's investing activities for the year ended September 30, 1997
resulted in a use cash of approximately $4,750,000 as compared to $9,812,000 for
the year ended September 30, 1996. During fiscal 1997 and 1996 the Company's
use of cash consisted primarily of advances to Stadium Partners. The funds
advanced during fiscal 1997 included $2.4 million drawn from an existing line of
credit and $2.5 million from a six month term note described below. Capital
expenditures resulted in a use of cash of $758,000 in fiscal 1997, primarily
for new manufacturing equipment at Overhill.
The Company's financing activities for the year ended September 30, 1997
resulted in the use of cash of $981,000, compared to cash provided of $4,043,000
in fiscal 1996. During fiscal 1997, the Company borrowed $2.8 million on a note
payable secured by real estate and received $734,000, net of transaction costs,
in a private placement of preferred stock. The funds of these transactions were
used repay an existing real estate mortgage relating to the corporate office
building and to repay a note incurred for funds advanced to Stadium Partners
described below.
During January 1997, in connection with an advance made to Stadium
Partners, the Company borrowed $2.5 million on a 16% six month note,
collateralized by a second lien on the Company's corporate headquarters
building. When the Company was unable to make the principal payment when due,
the lender elected to post the real estate for foreclosure. Prior to the
foreclosure proceeding, the Company entered into two transactions described
below which enabled it to repay this loan as well as the unpaid balance of the
first mortgage payable to Comerica Bank-Texas in the amount of $773,000.
The Company in August 1997, through its subsidiary Dallas Parkway
Properties Incorporated ("DPPI"), whose principal asset is the corporate office
building, borrowed $2.8 million on a first mortgage note payable to National
Operating, L.P. The note, collateralized by the office building and guaranteed
by the Company, is payable monthly, interest only at 14% per annum through July
1, 1999, with all remaining interest and principal, together with an "exit fee"
of $56,000, due and payable on August 1, 1999. The Company sold DPPI effective
December 1, 1997, with the buyer assuming the debt on the corporate office
building. The Company, subsequent
16
<PAGE>
to the sale, is paying the buyer rent of approximately $13,000 on a month to
month basis and expects to relocate its corporate office in early 1998.
The Company also sold in August 1997, for net proceeds of approximately
$734,000 cash, 7,500 shares of newly-designated Series F 6% Convertible
Preferred Stock to Black Sea Investments, Ltd. ("Black Sea"). This preferred
stock is immediately convertible into the Company's Common Stock at a conversion
price equal to 75% of the average bid price of the Common Stock for the five
consecutive trading days immediately preceding the date of conversion. In
connection with this transaction, the Company recorded a non-cash dividend of
$250,000 representing the value assigned to the preferred stock's discount
feature. Subsequent to September 30, 1997, Black Sea has tendered 6,250 shares
of the Preferred Stock for conversion into 712,062 shares of the Company's
Common Stock. The Company also issued to Black Sea a warrant to purchase up to
500,000 shares of the Company's Common Stock at an exercise price of $1.50 per
share (subject to adjustment in certain circumstances) up to and including the
warrant expiration date of September 30, 2002. Such warrants were valued at
$150,000 and were recorded as a debt discount. The proceeds from the sale of
the preferred stock and the loan described in the preceding paragraph enabled
the Company to retire all previous indebtedness against the corporate office
real estate.
In connection with the acquisition of Texas Timberjack in 1994, the Company
sold $4.0 million in principal amount of the 1999 Bonds to Merrill Lynch World
Income Fund, Inc. and Convertible Holdings, Inc. (collectively, the "Purchasers"
or "Merrill Lynch"). Such Bonds bear interest at 12% per annum and are
convertible at any time prior to June 30, 1999 into such number of shares of
Common Stock as is equal to the principal amount of such Bond (or in $1,000
increments thereof) divided by a conversion price as provided in the agreements
equal to the approximate market price on the grant date. See "Market for Common
Equity and Related Stockholder Matters" relating to dividend restrictions
imposed by the Indenture. In December 1995, the Company sold $1.5 million of
principal amount of the 1997 Bonds to Merrill Lynch on generally the same terms
and conditions. See below for a description of the December 1997 refinancing
and payments of certain amounts due to Merrill Lynch.
Also in connection with the acquisition of Texas Timberjack, the Company
issued a note to Harold Estes, the seller and the current President of TTI, in
the original principal amount of $10.0 million, originally due on October 31,
1994, collateralized by all the capital stock of TTI as well as certain assets
of TTI. As of various maturity dates, the Company and Mr. Estes have entered
into subsequent agreements which have since modified, extended and renewed the
note. At September 30, 1997, the total amount unpaid under the note, including
accrued interest, was approximately $14.0 million, due December 1, 1997. The
note was further extended upon maturity at an interest rate of 16% and is
currently due on April 6, 1998. The Company anticipates that it will be
required to refinance this note upon maturity and is presently in negotiations
to accomplish this objective. There is no certainty, however, that the Company
will be able to refinance this note on acceptable terms, or at all, before April
6, 1998. In the event of default on the above note, the Company may be required
to transfer some or all of its ownership interest in TTI to Mr. Estes and the
Company would likely incur a noncash loss represented by the difference between
its net asset position in TTI (approximately $23 million at September 30, 1997)
and the note balance due Mr. Estes (approximately $14 million at September 30,
1997). Further, as of September 30, 1997, Polyphase is indebted to TTI for
approximately $6.4 million on a non-interest bearing intercompany advance from
TTI offset by an intercompany receivable due to Polyphase from TTI of
approximately $4.4 million. Theses amounts may be required to be settled in the
event of default on the Estes Note. The noteholder has no recourse against any
assets or capital stock of the Company, other than the stock of TTI, or any of
the Company's other subsidiaries except that Mr. Estes holds, as secondary
collateral, 2,000,000 shares of the Company's Common Stock owned by the Pyrenees
Group, a private investment firm owned in part by Paul A. Tanner, Chairman and
Chief Executive Officer of Polyphase. Also , in the event of default on this
Note, if the primary collateral, the Company's ownership in TTI, is not
sufficient to satisfy the balance owed to Mr. Estes, it is possible that some or
all of the Polyphase shares owned and pledged by Pyrenees as additional
collateral against the note would be retained by Mr. Estes.
Texas Timberjack currently has a $13.0 million revolving line of credit at
prime plus 1/2% at Comerica Bank-Texas. The line of credit is collateralized by
receivables and inventories of Timberjack, has been guaranteed by the Company
and expires in February 1998. The terms of the line of credit provide various
restrictive covenants, including, among other things, a limit on capital
expenditures to certain agreed levels, maintenance
17
<PAGE>
of specified debt to net worth and fixed charge coverage ratios, limits on the
amount of TTI's contingent liabilities and maintenance of agreed upon levels of
working capital and tangible net worth, as well as restrictions as to amounts
that may be paid to the Company as dividends. At September 30, 1997, $5.6
million was outstanding on the credit line, with remaining availability, subject
to the borrowing base limitations, of approximately $6.7 million. Management is
currently in negotiations with Comerica and believes that this line of credit
will be extended upon expiration on favorable terms.
During 1995, the Company, through Overhill, entered into a financing
arrangement which provided a senior credit facility of $18.0 million with Finova
Capital Corporation ("Finova") and a subordinated debt placement of $13.0
million with Rice Partners II, L.P. ("Rice"). These funds were used to provide
financing for the acquisition of the operating assets of IBM Foods, Inc.
The senior credit facility included a revolving line of credit limited to
the lesser of $12.0 million, or an amount determined by a defined borrowing base
(based upon eligible receivables and inventory), and two term loans in initial
principal amounts totalling $6.0 million. At September 30, 1997, approximately
$7.9 million was outstanding under the line of credit, which bears interest at
the Citibank base rate plus 1.5%, and a total of approximately $2.0 million
under the term loans. The term loans were repaid in December 1997 as described
below. The senior credit facility contains various covenants which include
without limitation, a restriction on Overhill's capital expenditures, specified
debt to net worth ratios, specified levels of net worth and a limitation on the
ability of the Company to realize monies, including dividends, management and
consulting fees, from Overhill to $250,000 per annum.
The subordinated debt placement with Rice provided $13.0 million, bearing
interest at 13% per annum, payable semiannually, with principal payment
requirements of $6.5 million each due in 2002 and 2003. Rice was also granted
warrants, exercisable at a nominal price of $100, to purchase up to 22.5% of
the common stock of Overhill; Rice was further granted a "put" of the warrants
to the Company at a price based upon the higher of fair market, book or
appraised value of Overhill. The subordinated debt facility contained covenants
similar to those described relating to the senior credit facility.
Noncompliance with certain of the covenants resulted in litigation between the
Company and Rice as described below and in Item 3. As summarized below, in
December 1997, all amounts due Rice under the subordinated debt facility were
repaid, the warrants repurchased and the litigation settled.
As of September 30, 1997, the Company had not complied with certain
covenants involving most of its loan agreements, particularly those with Merrill
Lynch, Finova and Rice. In addition, the Company was involved in litigation
with Rice relating to the breach of certain covenants of the subordinated debt
agreement and the failure to cure such defaults within a reasonable period of
time.
On December 4, 1997, the Company, with Overhill as the borrower and the
Company as guarantor, obtained a $24.1 million term loan from The Long Horizons
Fund, LP ("Long Horizons"). The note is payable monthly, interest-only at prime
plus 4% through April 1999 and thereafter provides for principal amortization of
$250,000 per month, plus interest, until a final payment of approximately $19.9
million is due in December 2000. During the term of the loan, Overhill is
required to pay, on a quarterly basis, annual loan servicing fees totalling
$140,000, $300,000 and $440,000 for the first, second and third years of the
loan, respectively. The lender also received commitment and closing fees
totalling approximately $1.7 million. In the event the loan is paid in full
prior to maturity, the principal amounts due under the loan are to be reduced by
$1.0 million if the loan is repaid in full during the first year and $500,000 if
paid during the second year of the loan. Long Horizons was also issued a
warrant which entitles the lender to acquire, at a nominal price of $.01 per
share, 30% of the outstanding stock of Overhill; the Company has the option,
under certain circumstances, to repurchase from the lender, during the two-year
period following the date of the agreement, warrants to purchase 25% of the
Overhill stock (5/6 of the warrant held by Long Horizons), at a redemption cost
of $2.0 million. The loan is collateralized by all the outstanding stock of
Overhill owned by the Company as well as certain assets of Overhill.
Upon closing of the loan in December 1997, certain payments were made and
other obligations restructured as follows:
18
<PAGE>
Merrill Lynch was paid in full all amounts due for principal and interest
under the 1997 bonds (approximately $1.6 million). Additionally, a partial
payment of $2.8 principal, plus accrued interest of approximately $200,000, was
made on the Merrill Lynch 1999 Bonds. The conversion price of the remaining
$1.2 million principal amount of 1999 Bonds was reduced to $3.00 per share (from
$5.65 per share), subject to further adjustment as provided by the Indenture.
Merrill Lynch was also granted warrants to purchase 400,000 shares of the
Company's Common Stock, exercisable over a five-year period, with certain
registration rights. The warrants are exercisable into 200,000 shares at $.01
per share and 200,000 shares at $1.125 per share, the market price on the date
of grant; the exercise prices are subject to adjustment to prevent dilution of
the holders' interests.
Finova was paid approximately $1.7 million, representing payment in full of
Term Loans A and B. Finova also entered into an Intercreditor Agreement with
Long Horizons and extended the revolving line of credit until December 2000 at
substantially the same terms and conditions.
Rice was paid all principal ($13.0 million) plus accrued interest and
expenses totalling approximately $362,000 under the subordinated debt facility.
Rice also received approximately $2.0 million as payment for the warrants and
legal expenses in connection with the litigation. The Company also agreed to
pay Rice an additional $2.0 million if Overhill were sold during the first six
months, or $750,000 ($2.0 million if to certain identified parties) during the
second six months, following the date of the agreement. These payments were
provided for under a Compromise and Settlement Agreement With Mutual Release and
resulted in the dismissal of all litigation between the Company and Rice. For
the quarter ended December 31, 1997 the Company anticipates recording a non cash
extraordinary pretax charge to income of approximately $600,000, resulting from
the early extinguishment of the Rice debt. The financing also provided the
Company with approximately $900,000 in working capital.
In addition, the Company has guaranteed, in certain circumstances, a loan
from Lehman Brothers Holdings, Inc. ("Lehman") to a Nevada partnership formed by
an entity headed by Mr. Tanner, and Lehman, to purchase a parcel of land in Las
Vegas, Nevada for the development of a multi-purpose sports facility and
adjacent convention center. The aforementioned Nevada partnership is currently
in default on its loan from Lehman and foreclosure proceedings by Lehman have
been initiated. The Company, based on the advice of legal counsel, does not
believe that it will incur any significant liability as a result of the
aforementioned guarantee. As a result, the Company believes the existence of
such guarantee will not have a material adverse effect on the Company's
financial condition or results of operations.
Furthermore, Polyphase may be required to retain legal representation on
various matters, including but not limited to those matters described in Notes
13 and 14, to the consolidated financial statements included elsewhere herein,
affecting the Company. The fees to be incurred could be substantial in relation
to the Company's cash position.
In addition, Polyphase is indebted to Overhill for approximately $11.0
million, including the $5.5 million intercompany advance in December 1997, on
non-interest bearing intercompany advances from Overhill, which eliminate in
consolidation. The Company intends to satisfy this intercompany obligation
through dividends or intercompany charges for Federal income taxes, management
and transaction fees, subject to obtaining the necessary approvals from the
Company's lenders. However, no assurance can be given that Polyphase will be
able to repay or otherwise reduce its obligation to Overhill.
Due to subsidiary debt covenant and other restrictions, the ability of the
Company's corporate office to obtain funds from its subsidiaries is limited (See
Note 3 to the Consolidated Financial Statement included elsewhere herein).
Additionally, the Company's corporate office has no operating revenues and may
be highly dependent on its subsidiaries for its liquidity needs, and there is no
assurance that, based upon the above, such liquidity will be available.
The Company has currently undertaken several initiatives at its corporate
office in order to reduce its corporate operating cash flow requirements. In
December 1997, the Company sold its Dallas Parkway Properties, Incorporated
subsidiary, whose principal asset was the Company's corporate headquarters
building, with the buyer assuming the related debt of approximately $2.8
million. The Company expects to relocate its corporate
19
<PAGE>
offices during the second quarter of fiscal 1998 and expects to reduce its cash
flow requirements as a result of lower expected future lease payments. In
addition, the Company has eliminated certain corporate level positions to
further reduce future corporate cash requirements.
As a result of the refinancing and restructuring, the Company obtained
waivers with respect to noncompliance under the various loan agreements referred
to above, effective December 5, 1997, and the Company expects that it will be
able to meet its liquidity requirements for fiscal year 1998.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk.
-----------------------------------------------------------
The Company does not own, nor does it have an interest in any market risk
sensitive investments.
ITEM 8. Financial Statements.
---------------------
See Index to Consolidated Financial Statements included in Item 14.
ITEM 9. Changes In and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
- ---------------------
None
20
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
The following table sets forth certain information regarding the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<S> <C> <C>
Paul A. Tanner 67 Chairman of the Board and Chief
Executive Officer
James Rudis 48 President and Director
William E. Shatley 51 Senior Vice President, Chief
Financial Officer and Treasurer
Michael F. Buck 60 Director
George R. Schrader 66 Director
Paul A. Tanner, Jr. 44 Director
Harold Estes 57 President of Texas Timberjack, Inc.
</TABLE>
- --------------------------------------------------------------------------------
Paul A. Tanner was elected to the Board of Directors in December 1992 and
has served as Chairman of the Board and Chief Executive Officer since that time.
He served as President from December 1992 until July 1997 and as Chief Financial
Officer and Chief Accounting Officer from December 1992 until March 1994. He
has been a licensed Texas Real Estate Broker for over 30 years and is President
of Southland Resources, Inc., a private investment firm. Since 1956, Mr. Tanner
has been the owner and Chief Executive Officer of several companies engaged in
oil and gas development, real estate development, computer manufacturing and the
national distribution of office and telecommunications products.
James Rudis was elected to the Board of Directors in December 1992 and has
served as President of the Company since July 1997. He served as Executive Vice
President of the Company from March 1994 until July 1997. He is President of
Quorum Corporation, a private consulting firm involved in acquisitions and
market development and has held that position since September 1984. From 1970
until 1984, he held various executive positions in CIT Financial Corporation,
including Vice President and Regional Manager of that company's Commercial
Finance Division.
William E. Shatley was named as Senior Vice President and Treasurer of the
Company in March 1994. He joined the Company in an executive capacity in October
1993, having previously served the Company on an advisory basis since the
relocation of its corporate offices to Texas in 1992. Mr. Shatley, a Certified
Public Accountant since 1970, previously conducted his own consulting and
accounting practice (1982-1993), after having served as Vice President and Chief
Financial Officer of Datotek, Inc., a manufacturer of electronic communications
security equipment (1977-1982) and in an executive capacity with Arthur Andersen
& Co. (1968-1977).
Michael F. Buck is President of Mimatian Co., an operations and materials
consulting firm. From August 1990 to August 1994, Mr. Buck served as Vice
President of Bath Iron Works, Inc., a company engaged in building Aegis Class
cruisers and destroyers for the United States Navy. From August 1989 to August
1990, Mr. Buck was a Vice President of Sabreliner Corporation, a company engaged
in building, maintaining and overhauling executive jet aircraft. From March
1986 to August 1989, Mr. Buck was Vice President and Director
21
<PAGE>
of Procurement for International Telephone and Telegraph. He became a director
of the Company in December 1989.
George R. Schrader was appointed as a director in March 1994 to fill a
vacancy on the Board. He is currently a named member of Schrader & Cline, LLC,
a financial and governmental management consulting firm. From 1983 to 1993, he
was a principal of Schrader Investment Company, whose activities paralleled
those of Schrader & Cline, LLC. Mr. Schrader's additional experience includes
ten years as City Manager for the city of Dallas, Texas and a total of nine
years experience as City Manager for the Texas cities of Mesquite and Ennis.
Paul A. Tanner, Jr. was elected as a director in February 1996. He served
as a Vice President of the Company's wholly owned subsidiary Letronix, Inc. from
October 1993 until its sale in July 1996. From February 1990 to October 1993,
he served as Vice President of Southland Resources, Inc., a private investment
firm controlled by Paul A. Tanner. He is the son of Paul A. Tanner.
Harold Estes was elected as a director in February 1996 and resigned from
the board in April 1997. He is the President of Texas Timberjack, Inc. a wholly
owned subsidiary of the Company. TTI is a distributor of industrial and
commercial timber and logging equipment with locations in Lufkin, Cleveland,
Atlanta and Jasper, Texas. Mr. Estes has been President of TTI since 1984, when
he acquired TTI from Eaton Corporation.
Meetings of the Board of Directors and its Committees
The Board has standing Compensation and Audit Review Committees. The
Compensation Committee is comprised of Messrs. Buck and Schrader. During fiscal
1997, the Compensation Committee did not meet. The Compensation Committee (i)
administers the Company's employee stock option plans and approves the granting
of stock options and (ii) approves compensation for officers.
The Audit Review Committee is composed of Messrs. Buck and Schrader.
During fiscal 1997, the Audit Review Committee did not meet. Its functions are
to (i) recommend the appointment of independent accountants; (ii) review the
arrangements for and scope of the audit by independent accountants; (iii)
consider the adequacy of the system of internal controls and review any proposed
corrective actions; and (iv)review and monitor the Company's policies regarding
business ethics and conflicts of interest.
The full Board of Directors met six times during fiscal 1997. No director
attended fewer than 75% of the total number of meetings of the Committee on
which such director served.
The Executive Committee, which was disbanded in June 1997, was composed of
Messrs. Tanner and Rudis. During fiscal 1997, the Executive Committee met seven
times. Except as restricted under Nevada law, the Executive Committee possessed
all of the power and authority of the Board of Directors between meetings of the
Board of Directors.
Section 16 (a) Beneficial Ownership Reporting Compliance
Section 16 (a) of the Securities Exchange Act of 1934 ("Exchange Act")
requires the Company's directors, officers and persons who own more than 10
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and the American Stock Exchange. Directors, officers and greater
than 10 percent beneficial owners are required by applicable regulations to
furnish the Company with copies of all forms they file with the Commission
pursuant to Section 16(a).
Based solely upon a review of the copies of forms furnished to the
Company, the Company believes that during fiscal 1997, all filing requirements
applicable to its directors, executive officers and greater than 10% beneficial
owners were satisfied.
22
<PAGE>
ITEM 11. Executive Compensation.
------------------------
EXECUTIVE COMPENSATION
The following table sets forth for fiscal 1997, 1996 and 1995 compensation
awarded or paid to Mr. Paul A. Tanner, the Company's Chairman of the Board and
Chief Executive Officer, Mr. James Rudis, the Company's President and Mr.
William E. Shatley, the Company's Senior Vice President, Treasurer and Chief
Financial Officer, (collectively, the "Named Executive Officers"). Other than
as indicated in the table below, no executive officer of the Company received
salary plus bonus in excess of $100,000 for the year ended September 30, 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
----------------------------------------- -------------
Name and Principal Fiscal Other Annual All Other
Position Year Salary Bonus Compensation Options/SARs Compensation
- ----------------------- -------- --------- ----- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Paul A. Tanner . . . . 1997 $224,640 $ 0 $ --(1) - $ -
Chairman, Chief 1996 $196,560 $ 0 $ --(1) 130,000 $ -
Executive Officer and 1995 $187,200 $ 0 $ --(1) - $ -
Director (2)
James Rudis . . . . . . 1997 $138,240 $ 0 $ --(1) - $ -
President and 1996 $120,960 $ 0 $ --(1) 130,000 $ -
Director (2) 1995 $115,200 $ 0 $ --(1) - $ -
William E. Shatley . . . 1997 $108,000 $ 0 $ --(1) - $ -
Senior Vice President, 1996 $ 94,500 $ 0 $ --(1) 100,000 $ -
Treasurer and Chief 1995 $ 90,000 $ 0 $ --(1) - $ -
Financial Officer
</TABLE>
- -----------------
(1) The Named Executive Officers each received certain perquisites and other
personal benefits from the Company during fiscal 1997, 1996 and 1995.
These perquisites and other personal benefits, however, did not equal or
exceed 10% of Named Executive Officers, salary and bonus during fiscal
1996,1995 or 1994.
(2) Mr. Rudis, formerly the Company's Executive Vice President, became
President in July 1997, replacing Mr. Tanner in that position.
No individual grants of stock options were made to the Named Executive
Officers during the fiscal year ended September 30, 1997.
23
<PAGE>
The following table describes for the Named Executive Officers options and
the potential realizable value for his options as of September 30, 1997, which
were granted in prior fiscal years.
<TABLE>
<CAPTION>
Fiscal Year End September 30, 1997 Option/SAR Values
Value of Unexercised
Number of Unexercised In-the-Money
Options/SARs at Options/SARs at
September 30, 1997 September 30, 1997(1)
------------------------------ ----------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Paul A. Tanner . 130,000 - $ - $ -
James Rudis . . . 276,500 - $ 155,656 $ -
William E. Shatley 246,500 - $ 155,656 $ -
</TABLE>
- -----------
(1) Based on $1.8125 per share of Common Stock, which was the closing price per
share of Common Stock on September 30, 1997 on the AMEX as reported by The
Wall Street Journal.
Director Compensation
Directors who are also employees of the Company receive no additional
compensation for services as directors. Nonemployee directors receive an annual
fee of $1,000 and are also reimbursed for all expenses incident to their service
on the Board of Directors.
During July 1996, the following directors were granted options to purchase
Common Stock, exercisable at $2.00 per share (the fair market value at the date
of grant) in whole or in part, expiring in July 2006, as follows:
<TABLE>
<CAPTION>
Name Option Shares
--------------------- -------------
<S> <C>
Michael Buck 30,000
George R. Schrader 30,000
Paul A. Tanner, Jr. 30,000
</TABLE>
In March 1994, Mr. Schrader was granted options to purchase 50,000 shares
of Common Stock. Mr. Schrader's options are exercisable at $5.25 per share (the
fair market value at the date of grant), in whole or in part, and will expire in
March 1999.
During July 1993, Mr. Buck was granted options to purchase 75,000 shares of
Common Stock, exercisable at $0.75 per share (the fair market value at the date
of grant). Such options were exercised in September 1996.
24
<PAGE>
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
The following table sets forth information regarding the beneficial
ownership of Common Stock as of December 31, 1997, by each person or group who
owned, to the Company's knowledge, more than five percent of the Common Stock,
each of the Company's directors, the Company's Chief Executive Officer, and all
of the Company's directors and executive officers as a group.
<TABLE>
<CAPTION>
Amount and
Nature of Percent
Beneficial of
Name Ownership (1) Class (1)
------------------------------- ----------------------------- -------------
<S> <C> <C>
Paul A. Tanner . . . . . . . . . 295,874 (2) 2
James Rudis . . . . . . . . . 557,900 (3) 3.8
Michael F. Buck . . . . . . . . 30,100 (4) *
George R. Schrader . . . . . . . 80,000 (5) *
Paul A. Tanner, Jr. . . . . . . 179,126 (6) 1.2
Harold Estes . . . . . . . . . 4,000,000 (7) 27.8
The Pyrenees Group . . . . . . . 173,000 (8) 1.2
Tanner Family Trust . . . . . . 59,685 (9) *
Elizabeth Carter Children's
Foundation . . . . . . . . . . 89,441 (10) *
Merrill Lynch . . . . . . . . . 800,000 (11) 5.3
Black Sea Investments, Ltd. . . 864,030 (12) 5.7
Infinity Investors Limited . . . 1,769,231 (13) 11.0
All directors and executive
officers as a group (6 persons) 1,547,700 (14) 10.2
</TABLE>
- ----------------
* Less than 1%.
(1) Except as noted, the listed persons have sole investment power and sole
voting power as to all shares of Common Stock for which they are identified
as being the beneficial owners. Information as to beneficial ownership has
been furnished to the Company by such individuals. Such presentation is
based on 14,376,171 shares of Common Stock outstanding as of December 31,
1997.
25
<PAGE>
(2) Includes 130,000 shares that could be purchased pursuant to the exercise of
stock options exercisable within 60 days subsequent to the date hereof.
Includes 23,874 shares that Mr. Paul A. Tanner may be deemed to
beneficially own as a 13.8% owner of the Pyrenees Group (see Footnote 8
below). Does not include 89,441 shares that Mr. Paul A. Tanner may be
deemed to beneficially own as a member of the board of trustees of the
Elizabeth Carter Children's Foundation, (the "Foundation") (see Footnote
10 below), and also does not include the remaining 149,126 shares of the
Pyrenees Group (that Mr. Paul A. Tanner does not own as owner), which Mr.
Paul A. Tanner may be deemed to beneficially own because he is the
president and sole director of the Pyrenees Group.
(3) Includes 276,500 shares that could be purchased pursuant to the exercise of
stock options exercisable within 60 days subsequent to the date hereof.
(4) Includes 30,000 shares that could be purchased pursuant to the exercise of
stock options exercisable within 60 days subsequent to the date hereof.
(5) Includes 80,000 shares that could be purchased pursuant to the exercise of
stock options exercisable within 60 days subsequent to the date hereof.
(6) Includes 30,000 shares that could be purchased pursuant to the exercise of
stock options exercisable within 60 days subsequent to the date hereof.
Includes 89,441 shares that Mr. Paul A. Tanner, Jr. may be deemed to
beneficially own as chairman of the board of trustees of the Foundation.
See Footnote 10 below. Also includes 59,685 shares that Mr. Paul A.
Tanner, Jr. may be deemed to beneficially own as trustee of the Tanner
Family Trust. See Footnote 9 below.
(7) Mr. Estes' address is Highway 59 South, Route 15, Box 9475, Lufkin, Texas
75901. Includes 2,000,000 shares owned by the Pyrenees Group, for which
Mr. Estes has sole voting power, and which is held as collateral by Mr.
Estes on the Company's note payable to Mr. Estes. See "Liquidity and
Capital Resources".
(8) The address of the Pyrenees Group is 2 Kelvingate Court, Dallas, Texas
75225. The Pyrenees Group, a Nevada corporation, is owned by Paul A.
Tanner (13.8%), the Tanner Family Trust (34.5%) and the Foundation (51.7%).
Does not include 2,000,000 shares held as collateral by Mr. Estes and for
which he holds sole voting power (see Footnote 7 above.)
(9) Includes 59,685 shares that the Tanner Family Trust may be deemed to
beneficially own as a stockholder in the Pyrenees Group. See Footnote 8.
The address of the Tanner Family Trust is 9909 Inwood Road, Dallas, Texas
75220. Mr. Paul A. Tanner, Jr., the trustee of the Tanner Family Trust, is
the adult son of Mr. Paul A. Tanner, the Chairman of the Board and Chief
Executive Officer of the Company. Unless otherwise indicated herein, all
references to "Mr. Tanner" shall mean Mr. Paul A. Tanner.
(10) Includes 89,441 shares that may be deemed to be beneficially owned by the
Foundation as a stockholder in the Pyrenees Group. The address of the
Foundation is 9909 Inwood Road, Dallas, Texas 75220. The Foundation was
formed to construct and operate a non-profit home for children. The shares
of the Pyrenees Group owned by the Foundation are voted by the board of
trustees of the Foundation, of which Mr. Paul A. Tanner, Jr. is chairman
and Mr. Paul A. Tanner is a member.
(11) For purposes of the table above, Merrill Lynch consists of Merrill Lynch
World Income Fund, Inc. ("MLW") and Convertible Holdings, Inc. ("CH"). The
address of MLW and CH is c/o Merrill Lynch Asset Management, 800 Scudders
Mill Road, Plainsboro, New Jersey 08536. This figure includes 400,000
shares of Common Stock into which certain of the Company's bonds held by
Merrill Lynch are convertible within 60 days subsequent to the date hereof;
such figure is subject to adjustment as specified in the indenture
governing the terms of such bonds. Also includes 400,000 shares that could
be purchased pursuant to the exercise of certain warrants held by Merrill
Lynch exercisable within 60 days subsequent to the date hereof.
26
<PAGE>
(12) The address of Black Sea Investments, Ltd. ("Black Sea") is Cockburn House,
Cockburn Town, Grand Turk, Turks & Caicos Islands. Includes 211,649 shares
of Common Stock into which certain of the Company's preferred stock held by
Black Sea is convertible within 60 days subsequent to the date hereof.
Also includes 500,000 shares that could be purchased pursuant to the
exercise of certain warrants held by Black Sea which are exercisable within
60 days subsequent to the date hereof.
(13) The address of Infinity Investors Limited ("Infinity") is 38 Hertford
Street, London W1Y7TG, England. Includes 1,769,231 shares of Common Stock
into which certain of the Company's preferred stock (and accrued dividends
thereon) held by Infinity is convertible within 60 days subsequent to the
date hereof.
(14) Includes 23,874 shares that may be deemed to be beneficially owned by Mr.
Paul A. Tanner due to his 13.8% ownership of the Pyrenees Group, but does
not include 89,441 shares that Mr. Paul A. Tanner may be deemed to
beneficially own as a trustee of the Foundation or the remaining 149,126
shares of the Pyrenees Group (that Mr. Paul A. Tanner does not own as a
13.8% owner), which Mr. Paul A. Tanner may be deemed to beneficially own
because he is the president and a director of the Pyrenees Group (see
Footnote 2 above). Includes 89,441 shares that Mr. Paul A. Tanner, Jr. may
be deemed to beneficially own as chairman of the board of trustees of the
Foundation; also includes 59,685 shares that Mr. Paul A. Tanner, Jr. may be
deemed to beneficially own as trustee of the Tanner Family Trust. Includes
793,000 shares that could be purchased pursuant to the exercise of stock
options exercisable within 60 days subsequent to the date hereof. Does not
include 2,000,000 shares owned by the Pyrenees Group held as collateral by
Mr. Estes (see Footnote 7 above).
ITEM 13. Certain Relationships and Related Transactions.
-----------------------------------------------
The Pyrenees Option
In October 1992, the Company's Board of Directors authorized the issuance to the
Pyrenees Group, or its assignees, options to purchase up to 1,000,000 shares of
convertible preferred stock for $10 per share. The options were issued subject
to approval by the Company's shareholders and were approved and ratified at the
Company's Annual Meeting held May 31, 1994. Pyrenees, a private investment firm
controlled by Paul A. Tanner, Chairman and Chief Executive Officer, was granted
these options as consideration for the sale to the Company of its collected due
diligence materials for acquisitions Pyrenees was contemplating, which were to
be used by the Company in its own acquisition program. The options, covering
Series A, B, C, D and E Preferred Stock, are summarized as follows:
<TABLE>
<CAPTION>
Preferred Conversion Common
Series Shares Price Shares
--------- ----------- ----------- ----------
<S> <C> <C> <C>
A 125,000 $ .50 2,500,000
B 100,000 1.00 1,000,000
C 100,000 2.00 500,000
D 200,000 4.00 500,000
E 475,000 10.00 475,000
--------- ---------
1,000,000 4,975,000
========= =========
</TABLE>
During fiscal 1994 and 1995 Pyrenees exercised and converted Series A, B, and C
Preferred Stock into common stock. In November, 1995, Pyrenees exercised the
Series D option through the issuance of a 7% recourse note in the amount of
$2,000,000, collateralized by the shares issued. During fiscal 1996 the shares
were converted to 500,000 shares of common stock. Principal payments of
approximately $1,025,000 were made on the note during fiscal 1996 and 1997. The
Series E option expired unexercised.
Advances to Related Parties
During fiscal 1994, the Company made aggregate non-interest bearing cash
advances to Mr. Tanner in the amount of approximately $282,000. At September
30, 1994, Mr. Tanner had repaid $150,000 of such advances. During fiscal 1995,
following the repayment of the unpaid 1994 advances, additional advances
amounting to
27
<PAGE>
approximately $63,000 were made to Mr. Tanner which were unpaid at
September 30, 1995. During fiscal 1996, additional amounts were advanced to or
on behalf of Mr. Tanner which aggregated approximately $1.5 million. On
December 8, 1995, the aforementioned advances and an unpaid promissory note
receivable from Mr. Tanner were refinanced through the issuance to the Company
of a 12% unsecured demand note from Mr. Tanner in the principal amount of
$2,000,872.
Also during the above described period, the Company made disbursements to the
Pyrenees Group totalling approximately $2.67 million, of which $1,153,000
represented repayment of existing advances from Pyrenees, with the balance
representing an advance to Pyrenees of approximately $1.5 million.
During January 1996, the Company reached an agreement to manage a project to
develop and build a multi-purpose sports facility in Las Vegas, Nevada. The
project was being developed by PLY Stadium Partners, Inc. ("Stadium Partners"),
a private investment firm headed by Mr. Tanner. As part of the agreement, the
Company was also entitled to participate in the facility's management, sales of
suites and seat options, concessions and events and was to be compensated for
such services. The Company agreed to provide to Stadium Partners up to $4
million of debt that (1) was convertible into a 14% economic interest in the
project and (2) was guaranteed by Mr. Tanner and Pyrenees. As part of this
agreement, the aforementioned accounts receivable from Mr. Tanner and Pyrenees
(approximately $3.5 million), together with subsequent amounts advanced, charged
or accrued to or on behalf of Stadium Partners were considered as components of
the $4 million of convertible debt, bearing interest at 12% and guaranteed by
Mr. Tanner and Pyrenees. Through September 30, 1996, the Company advanced an
additional $9.3 million.
During the twelve months ended September 30, 1996, the Company accrued
management and service revenues of $2,550,000 and interest income of $790,000
related to the Company's activities with Stadium Partners, the collectibility of
which was dependent upon the success of the project and/or the guarantees
referred to above. As a result of the terms of the financing arrangements with
Lehman described below, Stadium Partners was precluded from making any
distributions until permanent project financing was secured or stadium suite
sales were made that were sufficient to repay the financing from Lehman. As a
consequence of Stadium Partners' inability to effect such sales or obtain such
financing by March 15, 1997, in order to make its payment to the Company on such
date, the Company established a reserve of $3.34 million as of September 30,
1996, which represents the income accrued in 1996.
On November 15, 1996, Stadium Partners, through a newly-formed partnership,
purchased 62 acres in Las Vegas for the development of the stadium and adjacent
convention facility. Financing was provided by Lehman Brothers Holdings, Inc.
("Lehman") through a partnership, Nevada Stadium Partners Limited Partnership
("Nevada Partnership") with Lehman receiving an equity interest in the project.
The Company has guaranteed the repayment of the loan from Lehman to the Nevada
partnership in the above mentioned transaction, in certain circumstances or upon
the occurrence of certain events. Such guarantee is effective upon the
occurrence of certain conditions, including without limitation if Nevada
Partnership files for bankruptcy or insolvency, if representations by the
Partnership prove to be fraudulent regarding the financial condition of the
Partnership, the land securing the loan is further encumbered or ownership is
transferred without the consent of Lehman.
The loan agreement with Lehman required certain prepayments by Nevada
Partnership, the first of which, in the amount of $5.0 million became due in
January 1997. This was paid primarily with funds advanced by the Company, of
which $2.4 million was obtained from an existing credit line and $2.5 million
was obtained from a six month term note, collateralized by the Company's
corporate office building. In connection with the loan transaction, the Company
entered into a consulting agreement with a principal of the lender, whereby the
Company granted such party an option to purchase 200,000 shares of the
Company's common stock at $.01 per share; this option was assigned a value of
$973,000 which was charged to expense during fiscal 1997.
The second prepayment requirement of $20.0 million became due in May 1997; this
payment was not made. As a result of the failure to make this payment, another
agreement was entered into among the borrower, Lehman and the Company as of July
1, 1997. This agreement generally provided forbearance by Lehman until
September 30, 1997, to allow additional time to raise the funds to make the
principal payment.
28
<PAGE>
The terms of the forbearance agreement were not met by the September deadline,
and the note matured unpaid in November 1997. Stadium Partners and Mr. Tanner
continue to pursue various alternatives with respect to the repayment of amounts
due Lehman, including among other things, the sale or refinancing of the
property. There is no assurance that these efforts will be successful or that
the Company can expect to collect any amounts due from Stadium Partners or the
guarantors.
As a result of the above, the Company has recorded a charge to earnings for the
year ended September 30, 1997, in the amount of $14.8 million, representing all
amounts remaining unpaid by Stadium Partners, net of the reserve established in
1996. Amounts which may subsequently be recovered, if any, will be recognized
as income when collection is assured.
At September 30, 1997, the Company also had an outstanding balance due from Mr.
Tanner amounting to $173,526, resulting from advances made to or on Mr. Tanner's
behalf during fiscal 1997.
Other Transactions
Other assets include an insurance premium receivable from Mr. Harold Estes
representing insurance premiums paid by TTI on his behalf. As of September 30,
1997, the insurance premium receivable was $552,006.
In connection with the purchase of TTI, the Company acquired a note receivable
from an officer. The note is secured by marketable securities, is payable
within one year and bears interest at 3.96%. As of September 30, 1997 the
balance outstanding was $340,071.
29
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
---------------------------------------------------------------
(a) 1. and 2. Financial Statements and Financial Statement Schedules.
1. The following consolidated financial statements of Polyphase Corporation
and subsidiaries, included in the annual report of the registrant to its
shareholders for the year ended September 30, 1997, are included in Item
8:
Report of Independent Auditors F-2
Consolidated Balance Sheets-September 30, 1997 and 1996 F-3
Consolidated Statements of Operations-Years ended September 30, 1997,
1996 and 1995 F-5
Consolidated Statements of Stockholders' Equity-Years ended September
30, 1997, 1996 and 1995 F-6
Consolidated Statements of Cash Flows-Years ended September 30, 1997,
1996, and 1995 F-8
Notes to Consolidated Financial Statements F-11
2. The following consolidated financial statement schedules of Polyphase
Corporation and subsidiaries are included in item 14(d):
Schedule I - Condensed Financial Information of Registrant F-41
Schedule II - Valuation and Qualifying Accounts F-45
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore
have been omitted.
3. Exhibits
3.1 Articles of Incorporation of Polyphase Corporation, as amended
(incorporated by reference from Exhibits 4.1 and Exhibits 4.3 through
4.8 to the Company's registration statement on Form S-8 [No. 33-82008],
filed with the Commission on July 27, 1994 [the "1994 Form S-8"])
3.2 Bylaws of Polyphase Corporation (incorporated by reference from Exhibit
4.2 to the 1994 Form S-8)
4.1 Certificate of Designation relating to the Series A-2 Preferred Stock
(incorporated by reference from Exhibit 4.9 to the Company's
Registration Statement on Form SB-2 [No. 33-85334] filed with the
Commission on October 19, 1994 [the "Form SB-2"])
4.2 Certificate of Designation relating to the Series A-3 Preferred Stock
(incorporated by reference from Exhibit 4.2 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1995 [the "1995
Form 10-K"])
30
<PAGE>
10.1+ Stock Option Agreement for Paul A. Tanner (incorporated by reference
from Exhibit 4.12 to the 1994 Form S-8)
10.2+ Stock Option Agreement for Michael F. Buck (incorporated by reference
from Exhibit 4.13 to the 1994 Form S-8)
10.3+ Stock Option Agreement for Don E. McMillen (incorporated by reference
from Exhibit 4.14 to the 1994 Form S-8)
10.4+ Stock Option Agreement for George R. Schrader (incorporated by
reference from Exhibit 4.15 to the 1994 Form S-8)
10.5+ Stock Option Agreement for James Rudis (incorporated by reference from
Exhibit 10.5 to the Company's Form 8-B, filed with the Commission on
August 27, 1994 [the "Form 8-B"])
10.6+ Stock Option Agreement for William E. Shatley (incorporated by
reference from Exhibit 10.6 to the Form 8-B)
10.7+ Employment Agreement, dated as of November 1, 1993, between Harold
Estes and Texas Timberjack, Inc. (incorporated by reference from
Exhibit 2 to the 1994 Form 8-K)
10.8 Pledge Agreement, dated as of June 24, 1994, between Polyphase
Corporation and Harold Estes (incorporated by reference from Exhibit
10.10 to the Form 8-B)
10.9 Security Agreement, dated as of June 24, 1994, between Texas
Timberjack, Inc. and Harold Estes (incorporated by reference from
Exhibit 10.11 to the Form 8-B)
10.10 Stock Option Agreement, dated as of October 21, 1992, between Polyphase
Corporation and the Pyrenees Group (incorporated by reference from
Exhibit 10.12 to the Form 8-B)
10.11 Deed of Trust Note in the amount of $1,000,000, dated May 25, 1994, by
Polyphase Corporation in favor of Comerica Bank-Texas (incorporated by
reference from Exhibit 10.4 to the Company's Form 10-Q for the quarter
ended June 30, 1994 [the "1994 Form 10-Q"])
10.12 Deed of Trust (With Security Agreement and Assignment of Rents), dated
May 25, 1994, covering real property in Dallas County, Texas between
Polyphase Corporation and Comerica Bank-Texas (incorporated by
reference from Exhibit 10.3 to the 1994 Form 10-Q)
10.13 Letter Agreement, dated May 25, 1994, between Polyphase Corporation and
Comerica Bank -Texas (incorporated by reference from Exhibit 10.4 to
the 1994 Form 10-Q)
10.14 Securities Purchase Agreement, dated as of July 5, 1994, by and among
Polyphase Corporation, Merrill Lynch World Income Fund, Inc., and
Convertible Holdings, Inc. (incorporated by reference from Exhibit
10.16 to the Form 8-B)
10.15 Registration Rights Agreement, dated as of July 5, 1994, among
Polyphase Corporation, Merrill Lynch World Income Fund, Inc., and
Convertible Holdings, Inc. (incorporated by reference from Exhibit
10.17 to the Form 8-B)
10.16 Indenture, dated as of July 5, 1994, from Polyphase Corporation to IBJ
Schroder Bank & Trust Company (incorporated by reference from Exhibit
10.18 to the Form 8-B)
10.17 Form of 12% Senior Convertible Debenture No. 1, payable to Bridge Rope
& Co. or registered assigns (incorporated by reference from Exhibit
10.19 to the Form 8-B)
31
<PAGE>
10.18 Form of 12% Senior Convertible Debenture No. 2, payable to Vault & Co.
or registered assigns (incorporated by reference from Exhibit 10.20 to
the Form 8-B)
10.19 Asset Purchase Agreement among Champ Computer Systems, Inc., Liberty
United Trust and Polyphase Corporation, dated March 23, 1994
(incorporated by reference from Exhibit 10.25 to the Form SB-2)
10.20 Stock Purchase Agreement among PC Repair of Florida, Inc., Gene H.
Thurston, Jr. and Polyphase Corporation, dated February 15, 1994
(incorporated by reference from Exhibit 10.26 to the Form SB-2)
10.21 Agreement and Plan of Reorganization between the Shareholders of Micro
Configurations, Inc. and Polyphase Corporation, dated July 1, 1994
(incorporated by reference from Exhibit 10.27 to the Form SB-2)
10.22 Credit Agreement, dated August 29, 1994, between Texas Timberjack, Inc.
and Comerica Bank-Texas (incorporated by reference from Exhibit 10.28
to the Form SB-2)
10.23 Guaranty, dated August 29, 1994, from Polyphase Corporation to Comerica
Bank-Texas (incorporated by reference from Exhibit 10.29 to the
Form SB-2)
10.24 Deed of Trust, dated as of August 30, 1994, from Texas Timberjack, Inc.
to J. Patrick Faubion, Trustee (incorporated by reference from Exhibit
10.30 to the Form SB-2)
10.25 Security Agreement, dated as of August 29, 1994, between Texas
Timberjack, Inc. and Comerica Bank-Texas (incorporated by reference
from Exhibit 10.31 to the Form SB-2)
10.26 Fluctuating Rate Line of Credit Note from Texas Timberjack, Inc., as
maker, to Comerica Bank-Texas, dated August 29, 1994 (incorporated by
reference from Exhibit 10.32 to the Form SB-2)
10.27 First Amendment to Credit Agreement dated September 1, 1995, between
Texas Timberjack, Inc. and Comerica Bank-Texas (incorporated by
reference from Exhibit 10.27 to the 1995 Form 10-K)
10.28 Fluctuating Rate Line of Credit Note from Texas Timberjack, Inc., as
maker, to Comerica Bank-Texas, dated September 1, 1995 (incorporated by
reference from Exhibit 10.28 to the 1995 Form 10-K)
10.29 Promissory Note in the amount of $2,000,000, from Pyrenees Group, as
maker, to Polyphase Corporation, dated November 1, 1995, related to the
exercise of options on Series D Preferred Stock (incorporated by
reference from Exhibit 10.29 to the 1995 Form 10-K)
10.30 Security Agreement, dated as of November 1, 1995, between Pyrenees
Group and Polyphase Corporation (incorporated by reference from Exhibit
10.30 to the 1995 Form 10-K)
10.31 Promissory Note in the amount of $2,000,872, from Paul A. Tanner, as
maker, to Polyphase Corporation, dated December 8, 1995 (incorporated
by reference from Exhibit 10.31 to the 1995 Form 10-K)
10.32 Convertible Preferred Stock Purchase Agreement, dated as of November
10, 1995, by and between Polyphase Corporation and Infinity Investors,
Limited (incorporated by reference from Exhibit 10.32 to the 1995 Form
10-K)
10.33 Securities Purchase Agreement, dated as of December 1, 1995, by and
among Polyphase Corporation, Merrill Lynch World Income Fund, Inc., and
Convertible Holdings, Inc. (incorporated by reference from Exhibit
10.33 to the 1995 Form 10-K)
10.34 Registration Rights Agreement, dated as of December 1, 1995, among
Polyphase Corporation, Merrill Lynch World Income Fund, Inc. and
Convertible Holdings, Inc. (incorporated by reference from Exhibit
10.34 to the 1995 Form 10-K)
32
<PAGE>
10.35 Indenture, dated as of December 1, 1995, from Polyphase Corporation to
IBJ Schroder Bank & Trust Company (incorporated by reference from
Exhibit 10.35 to the 1995 Form 10-K)
10.36 Form of 12% Senior Convertible Debenture No. 1, dated December 1, 1995
payable to Bridge Rope & Co. or registered assigns (incorporated by
reference from Exhibit 10.36 to the 1995 Form 10-K)
10.37 Form of 12% Senior Convertible Debenture No. 2, dated December 1, 1995
payable to Kane & Co. or registered assigns (incorporated by reference
from Exhibit 10.37 to the 1995 Form 10-K)
10.38 Renewal Promissory Note in the amount of $12,842,916, dated December
31, 1996, payable by Polyphase Corporation to Harold Estes
(incorporated by reference from Exhibit 10.41 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1996 [the "1996
Form 10-K"])
10.39 Amended Pledge Agreement, dated as of December 31, 1996, between
Polyphase Corporation and Harold Estes (incorporated by reference from
Exhibit 10.42 to the 1996 Form 10-K)
10.40 Amended Security Agreement, dated as of December 31, 1996, between
Texas Timberjack, Inc. and Harold Estes (incorporated by reference from
Exhibit 10.43 to the 1996 Form 10-K)
10.41 Stock Purchase Agreement among Letronix Acquisition Corp. and Polyphase
Corporation dated June 28, 1996 (incorporated by reference from Exhibit
10.44 to the 1996 Form 10-K)
10.42 Security and Pledge Agreement, dated June 28, 1996 by and between
Letronix Acquisition Corp. and Polyphase Corporation (incorporated by
reference from Exhibit 10.45 to the 1996 Form 10-K)
10.43 Secured Promissory Note, dated June 28, 1996 by and between Letronix
Acquisition Corp. and Polyphase Corporation (incorporated by reference
from Exhibit 10.46 to the 1996 Form 10-K)
10.44 Security Agreement, dated July 1, 1996 by and between Letronix
Acquisition Corp. and Polyphase Corporation (incorporated by reference
from Exhibit 10.47 to the 1996 Form 10-K)
10.45 Promissory Note, dated July 1, 1996 by and between Letronix Acquisition
Corp. and Polyphase Corporation (incorporated by reference from Exhibit
10.48 to the 1996 Form 10-K)
10.46 Stock Purchase Agreement among Letronix Acquisition Corp. and Polyphase
Corporation dated July 1, 1996 (incorporated by reference from Exhibit
10.49 to the 1996 Form 10-K)
+10.47 Stock Option Agreement for Paul A. Tanner dated July 23, 1996
(incorporated by reference from Exhibit 10.50 to the 1996 Form 10-K)
+10.48 Stock Option Agreement for James Rudis dated July 23, 1996
(incorporated by reference from Exhibit 10.51 to the 1996 Form 10-K)
+10.49 Stock Option Agreement for William E. Shatley dated July 23, 1996
(incorporated by reference from Exhibit 10.52 to the 1996 Form 10-K)
+10.50 Stock Option Agreement for Michael F. Buck dated July 23, 1996
(incorporated by reference from Exhibit 10.53 to the 1996 Form 10-K)
+10.51 Stock Option Agreement for George R. Schrader dated July 23, 1996
(incorporated by reference from Exhibit 10.54 to the 1996 Form 10-K)
+10.52 Stock Option Agreement for Paul A. Tanner, Jr. dated July 23, 1996
(incorporated by reference from Exhibit 10.55 to the 1996 Form 10-K)
33
<PAGE>
10.53** Convertible Promissory Note, dated January 1, 1996 by and between PLY
Stadium Partners, Inc. and Polyphase Corporation.
10.54** Master Loan Agreement, dated January 1, 1996 by and between Polyphase
Corporation and PLY Stadium Partners, Inc.
10.55** Guaranty, dated January 1, 1996 by Paul A. Tanner to Polyphase
Corporation.
10.56** Guaranty, dated January 1, 1996 by Pyrenees Group, Inc. to Polyphase
Corporation.
10.57** Management Agreement, dated January 1, 1996 by and between PLY
Stadium Partners, Inc. and Polyphase Corporation.
10.58** Security Agreement, dated January 1, 1996, between Paul A. Tanner and
Polyphase Corporation.
10.59** Security Agreement, dated January 1, 1996, between Pyrenees Group,
Inc. and Polyphase Corporation.
+10.60** Stock Option Agreement for David Weinreb dated January 17, 1997
10.61** Amended Renewal Promissory Note in the amount of $14,341,256 dated
December 2, 1997, payable by Polyphase Corporation to Harold Estes.
10.62** Amended Pledge Agreement, dated as of December 2, 1997, between
Polyphase Corporation and Harold Estes
10.63** Amended Security Agreement, dated as of December 2, 1997, between
Texas Timberjack, Inc. and Harold Estes
10.64** Term Loan Agreement in the amount of $22,500,000, dated December 4,
1997, among Overhill Farms, Inc. as borrower, Polyphase Corporation
as guarantor and The Long Horizons, Fund, L.P. as lender.
10.65** Security Agreement, dated December 4, 1997, between Overhill Farms,
Inc. as grantor and The Long Horizons Fund, L.P. as lender.
10.66** Assignment for Security (Trademarks) dated December 4, 1997, between
Overhill Farms, Inc. as assignor and The Long Horizons Fund, L.P. as
assignee.
10.67** Pledge and Security Agreement, dated December 4, 1997, among
Polyphase Corporation as the pledgor, in favor of The Long Horizons
Fund, L.P. as the lender and Overhill Farms, Inc. as the borrower.
10.68** Registration Rights Agreement, dated December 4, 1997, between
Overhill Farms, Inc. and The Long Horizons Fund, L.P.
10.69** Common Stock Purchase Warrant, dated December 4, 1997, between
Overhill Farms, Inc. and The Long Horizons Fund, L.P.
10.70** Voting Rights Agreement, dated December 4, 1997, among Polyphase
Corporation, The Long Horizons Fund, L.P. and Overhill Farms, Inc.
10.71** Supplemental Indenture, dated as of December 5, 1997, from Polyphase
Corporation to IBJ Schroder Bank & Trust Company.
10.72** Compromise Settlement Agreement with Mutual Release between Polyphase
Corporation and Rice Partners II, L.P..
34
<PAGE>
10.73** Stock Purchase Agreement between Letronix Acquisition Corp. and
Polyphase Corporation dated July 1, 1997.
10.74** Certificate of Designation of Preferences of Series B Preferred Stock
of Letronix Acquisition Corporation dated July 2, 1997.
10.75** Term Loan Agreement in the amount of $2,800,000, dated August 29,
1997, between Dallas Parkway Properties, Incorporated and National
Operating, L.P.
10.76** Warrant to Purchase 500,000 Shares of Common Shares of Polyphase
Corporation by Black Sea Investments, Ltd., dated August 29,1997.
10.77** Offshore Securities Subscription Agreement to purchase 7,500 Shares
of Series F 6% Convertible Preferred between Polyphase Corporation
and Black Sea Investments, Ltd., dated August 29,1997.
10.78** Stock Exchange Agreement by and between Tollway Properties, Inc. and
Polyphase Corporation date as of December 1, 1997.
10.79** Release and Settlement Agreement between Dallas Parkway Properties,
Incorporated and Polyphase Corporation dated as of December 1, 1997.
10.80** General Release between Dallas Parkway Properties, Incorporated and
National Operating, L.P. dated as of December 1, 1997.
21.1** Subsidiaries of the Registrant.
23.1** Consent of Ernst & Young LLP
27.1** Financial Data Schedule
- ------------------------------
+ Management contract or compensatory plan or arrangement.
** Filed herewith.
(b). Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by the Registrant during the last quarter
of the Fiscal Year Ended September 30, 1997.
35
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
POLYPHASE CORPORATION
By: /s/ James Rudis February 5, 1998
---------------------------
James Rudis, President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
date indicated.
/s/ Paul A. Tanner February 5, 1998
- --------------------------------
Paul A. Tanner
Chief Executive Officer,
Chairman of the
Board and Director
(Principal Executive Officer)
/s/ James Rudis February 5, 1998
- --------------------------------
James Rudis
President and Director
/s/ William E. Shatley February 5, 1998
- --------------------------------
William E. Shatley
Senior Vice President, Treasurer
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ George R. Schrader February 5, 1998
- --------------------------------
George R. Schrader
Director
/s/ Paul A. Tanner, Jr. February 5, 1998
- --------------------------------
Paul A. Tanner, Jr.
Director
/s/ Michael F. Buck February 5, 1998
- --------------------------------
Michael F. Buck
Director
36
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors F-2
Financial Statements:
- ---------------------
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-11
Financial Statement Schedules:
- -----------------------------
Schedule I - Condensed Financial Information of Registrant F-41
Schedule II - Valuation and Qualifying Accounts F-45
F-1
<PAGE>
Report of Independent Auditors
To the Board of Directors and Stockholders of
Polyphase Corporation
We have audited the accompanying consolidated balance sheets of Polyphase
Corporation and subsidiaries as of September 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1997. Our audits also
include the financial statement schedules listed in the Index at Item 14 (a).
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Polyphase
Corporation and subsidiaries at September 30, 1997 and 1996 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1997 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly, in all material respects the information set forth
therein.
The accompanying financial statements have been prepared assuming that Polyphase
Corporation will continue as a going concern. As more fully described in Notes
3, 9 and 10, the Company has certain liquidity conditions that raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 3. The financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of these
uncertainties.
ERNST & YOUNG LLP
February 5, 1998
Dallas, Texas
F-2
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Assets
<TABLE>
<CAPTION>
September 30,
--------------------------
1997 1996
------------- -----------
<S> <C> <C>
Current assets:
Cash $ 1,064,259 $ 280,969
Receivables, net of allowance for doubtful
accounts of $576,192 and $519,104
in 1997 and 1996, respectively:
Trade accounts 11,576,650 12,098,852
Current portion of sales contracts 5,770,626 6,625,727
Notes receivable 939,621 972,422
Inventories 23,002,020 28,027,779
Prepaid expenses and other 1,607,644 2,676,336
------------- -----------
Total current assets 43,960,820 50,682,085
------------- -----------
Property and equipment:
Land 765,000 765,000
Buildings and improvements 4,660,582 4,279,917
Machinery, equipment and other 8,953,076 8,575,687
------------- -----------
14,378,658 13,620,604
Accumulated depreciation 5,954,554 4,212,872
------------- -----------
8,424,104 9,407,732
------------- -----------
Other assets:
Noncurrent receivables:
Sales contracts 2,027,518 1,333,150
Notes receivable - 1,037,890
Related parties, net of allowance of $0 and
$3,340,000 in 1997 and 1996, respectively 522,597 10,298,688
Excess of cost over fair value of net assets
acquired, net of accumulated amortization of
$2,370,455 and $1,557,165 in 1997 and 1996,
respectively 14,228,284 15,041,574
Other intangible assets 1,197,139 1,402,239
Restricted cash 717,358 882,383
Other 1,071,629 4,092,780
------------- -----------
19,764,525 34,088,704
------------- -----------
Total Assets $72,149,449 $94,178,521
============= ===========
</TABLE>
F-3
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
September 30,
----------------------------
1997 1996
------------ -----------
<S> <C> <C>
Current liabilities:
Notes payable $ 9,013,099 $ 9,516,219
Note payable and accrued interest to related
party 13,998,916 -
Accounts payable 7,775,022 8,581,071
Accrued expenses and other 2,251,035 4,415,011
Current maturities of long-term debt 5,720,000 31,573,716
------------ -----------
Total current liabilities 38,758,072 54,086,017
Note payable and accrued interest to related
party - 12,546,600
Long-term debt, less current maturities 23,272,280 -
Reserve for credit guarantees 717,358 882,383
Deferred income taxes - 1,475,897
------------ -----------
Total liabilities 62,747,710 68,990,897
Commitments and contingencies
Warrants to purchase common stock of subsidiary 2,000,000 1,189,224
Stockholders' equity:
Preferred stock, $.01 par value, authorized
50,000,000 shares, issued and outstanding,
132,500 and 250,000 in 1997 and 1996,
respectively 1,325 2,500
Common stock, $.01 par value, authorized
100,000,000 shares, issued and outstanding,
13,664,109 and 13,196,966 in 1997 and 1996,
respectively 136,641 131,970
Paid-in capital 28,955,695 26,630,714
Accumulated deficit (20,716,603) (1,487,695)
Notes receivable from related party (975,319) (1,279,089)
------------ -----------
Total stockholders' equity 7,401,739 23,998,400
------------ -----------
Total Liabilities and Stockholders' Equity $ 72,149,449 $94,178,521
============ ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
September 30,
-----------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net revenues $ 151,948,553 $ 149,540,785 $ 102,035,472
Cost of sales 126,565,112 120,865,827 82,055,637
------------- ------------- -------------
Gross profit 25,383,441 28,674,958 19,979,835
Selling, general and administrative expenses 18,799,917 22,009,991 13,228,134
------------- ------------- -------------
Operating income 6,583,524 6,664,967 6,751,701
------------- ------------- -------------
Other income (expenses):
Loss on related party receivable (14,838,456) - -
Loss on investment in computer operations (3,613,815) - -
Gain on sale of assets - 827,852 -
Interest expense (7,179,973) (6,389,926) (3,791,059)
Interest income and other 380,655 751,385 592,055
------------- ------------- -------------
Total other income (expenses) (25,251,589) (4,810,689) (3,199,004)
------------- ------------- -------------
Income (loss) before income taxes
and warrant accretion (18,668,065) 1,854,278 3,552,697
Income tax (benefit) expense (653,683) 1,593,542 76,227
------------- ------------- -------------
(18,014,382) 260,736 3,476,470
Accretion of warrants to purchase
common stock of subsidiary 810,776 502,948 190,871
------------- ------------- -------------
Net income (loss) (18,825,158) (242,212) 3,285,599
Dividends on preferred stock 403,750 150,000 -
------------- ------------- -------------
Net income (loss) attributable to
common stockholders $ (19,228,908) $ (392,212) $ 3,285,599
============= ============= =============
Per share data:
Weighted average common and common
equivalent shares 13,632,357 13,722,552 12,745,701
============= ============= =============
Net income (loss) per common share $ (1.41) $ (.03) $ .26
============= ============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1997 (continued)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Shares Amount Shares Amount
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Balance, September 30, 1994 477,000 $ 4,770 5,880,616 $ 58,806
----------- ----------- ------------- ------------
Exercise of Series C
preferred stock options
by Pyrenees 100,000 1,000
Conversions of preferred
shares to common shares (577,000) (5,770) 6,618,500 66,185
Issuance of Micro
escrow shares 120,000 1,200
Issuance of shares for
interest on convertible
subordinated debentures 2,850 29
Payments on Pyrenees notes
Stock issuance costs
Net income for 1995
----------- ----------- ------------- ------------
Balance,
September 30, 1995 - - 12,621,966 126,220
----------- ----------- ------------- ------------
<CAPTION>
Retained
Earnings
Paid-in (Accumulated Notes
Capital Deficit) Receivable Total
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Balance, September 30, 1994 $ 20,924,331 $ (4,381,082) $ (2,250,000) $ 14,356,825
------------- ------------- -------------- -------------
Exercise of Series C
preferred stock options
by Pyrenees 999,000 (1,000,000)
Conversions of preferred
shares to common shares (60,415)
Issuance of Micro
escrow shares 366,600 367,800
Issuance of shares for
interest on convertible
subordinated debentures 9,091 9,120
Payments on Pyrenees notes 3,250,000 3,250,000
Stock issuance costs (132,001) (132,001)
Net income for 1995 3,285,599 3,285,599
------------- ------------- -------------- -------------
Balance, September 30, 1995 22,106,606 (1,095,483) - 21,137,343
------------- ------------- -------------- -------------
</TABLE>
F-6
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1997 (continued)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Shares Amount Shares Amount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Exercise of Series D
preferred stock options
by Pyrenees 200,000 2,000
Conversion of preferred shares
to common shares (200,000) (2,000) 500,000 5,000
Private placement of
Series A-3 preferred stock 250,000 2,500
Exercise of common
stock options 75,000 750
Payments on Pyrenees note
Stock issuance costs
Dividends on preferred stock
Net loss for 1996
---------- ---------- ---------- ----------
Balance,
September 30, 1996 250,000 2,500 13,196,966 131,970
---------- ---------- ---------- ----------
Exercise of common stock options 110,000 1,100
Preferred shares tendered
for exercise of options (125,000) (1,250) 357,143 3,571
Stock issuance costs
Payments on Pyrenees note
Stock option granted for services
Private placement of Series F
preferred stock 7,500 75
Issuance of warrant
Dividends on preferred stock
Net loss for 1997
---------- ---------- ---------- ----------
Balance,
September 30,1997 132,500 $ 1,325 13,664,109 $ 136,641
========== ========== ========== ==========
<CAPTION>
Retained
Earnings
Paid-in (Accumulated Notes
Capital Deficit) Receivable Total
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
Exercise of Series D
preferred stock options
by Pyrenees 1,998,000 (2,000,000)
Conversion of preferred shares
to common shares (3,000)
Private placement of
Series A-3 preferred stock 2,497,500 2,500,000
Exercise of common
stock options 49,250 50,000
Payments on Pyrenees note 720,911 720,911
Stock issuance costs (17,642) (17,642)
Dividends on preferred stock (150,000) (150,000)
Net loss for 1996 (242,212) (242,212)
------------ -------------- -------------- ------------
Balance,
September 30, 1996 26,630,714 (1,487,695) (1,279,089) 23,998,400
------------ -------------- -------------- ------------
Exercise of common stock options 55,500 56,600
Preferred shares tendered
for exercise of options 197,679 200,000
Stock issuance costs (35,000) (35,000)
Payments on Pyrenees note 303,770 303,770
Stock option granted for services 973,000 973,000
Private placement of Series F
preferred stock 983,802 983,877
Issuance of warrant 150,000 150,000
Dividends on preferred stock (403,750) (403,750)
Net loss for 1997 (18,825,158) (18,825,158)
------------ -------------- -------------- ------------
Balance,
September 30,1997 $ 28,955,695 $ (20,716,603) $ (975,319) $ 7,401,739
============ ============== ============== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
September 30,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flow provided by (used in) operating activities:
Net income (loss) $(18,825,158) $ (242,212) $ 3,285,599
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 3,968,100 3,417,137 1,935,559
Equity in the loss of
non-consolidated subsidiaries -- 22,437 --
Provision for doubtful accounts 57,088 58,094 (73,446)
Loss on related party receivable 14,838,456 3,340,000 --
Loss on disposition of computer segment 3,613,815 -- --
Deferred income tax 233,339 134,268 (449,651)
Issuance of common stock for accrued
interest payable on convertible
subordinated debentures -- -- 9,120
Imputed interest on TTI acquisition note -- -- 66,225
Accretion of warrants to purchase common
stock of subsidiary 810,776 502,948 190,871
Recognition of deferred rent reductions -- (80,413) (82,944)
Changes in, net of effects of
acquisitions and dispositions:
Accounts and sales contracts receivable 625,847 (3,461,283) (4,857,876)
Inventories 5,025,759 (3,618,788) (5,677,039)
Prepaid expenses and other 845,100 575,814 (1,099,427)
Accounts payable (806,048) 1,414,236 1,959,902
Accrued expenses and other (3,873,212) 712,401 2,486,034
------------ ------------ ------------
Net cash provided by (used in)
operating activities $ 6,513,862 $ 2,774,639 $ (2,307,073)
------------ ------------ ------------
</TABLE>
F-8
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
September 30,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows provided by (used in) investing activities:
Acquisition of net assets of Overhill Farms $ -- $ -- $(31,292,910)
Capital expenditures, net (758,054) (2,656,209) (975,883)
Decrease in notes and other receivables 1,070,691 242,967 202,247
Advances to related parties (5,062,365) (9,560,696) --
Cash from the sale of subsidiaries -- 475,000 --
Change in operating assets and liabilities
due to sale of subsidiaries -- 1,687,124 --
------------ ------------ ------------
Net cash used in investing activities (4,749,728) (9,811,814) (32,066,546)
------------ ------------ ------------
Cash flows provided by (used in) financing activities:
Net borrowings (principal payments) on
notes payable (2,685,537) (1,293,837) 9,177,364
Net borrowings (principal payments) on
other notes payable and long-term debt 799,196 1,886,644 23,707,169
Proceeds from the issuance of
12% subordinated debentures -- 1,500,000 --
Proceeds from private placements of
preferred stock 733,877 2,500,000 --
Advances from (payments to)
related parties -- (1,153,000) 1,153,000
Exercise of common stock options 56,600 50,000 --
Principal collections on Pyrenees
notes receivable 303,770 720,911 3,250,000
Issuance of warrants to purchase
common stock of subsidiary -- -- 495,405
Dividends on preferred stock (153,750) (150,000) --
Common stock issuance costs (35,000) (17,642) (132,001)
Loan acquisition costs and other -- -- (1,039,089)
------------ ------------ ------------
Net cash provided by (used in)
financing activities (980,844) 4,043,076 36,611,848
------------ ------------ ------------
Net increase (decrease) in cash 783,290 (2,994,099) 2,238,229
Cash at beginning of year 280,969 3,275,068 1,036,839
------------ ------------ ------------
Cash at end of year $ 1,064,259 $ 280,969 $ 3,275,068
============ ============ ============
</TABLE>
F-9
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
For the Years Ended
September 30,
--------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Supplemental schedule of cash flow information:
Cash paid during the year for:
Interest $ 5,510,229 $ 4,354,072 $ 2,249,778
Income taxes $ 1,001,461 $ 75,000 $ 377,442
</TABLE>
Supplemental schedule of noncash investing and financing activities:
In October 1996, an unrelated third party exercised an option to purchase
357,143 shares of common stock. As consideration, the Company received 125,000
shares of Series A-3 Preferred Stock having a redemption value of $1,250,000.
In November 1996, a former executive of the Company exercised options on 35,000
of common stock at $.01 per share. Such options were granted in consideration
for a consulting contract and were valued at $200,000.
In January 1997, an unrelated third party was granted an option on 200,000
shares of common stock, exercisable at $.01 per share, in exchange for a two
year consulting agreement and were valued at $973,000.
In August 1997, in connection with the sale of Series F 6% Preferred Stock to an
unrelated third party, the Company issued warrants to purchase 500,000 shares of
the Company's common stock, exercisable at $1.50 per share. The Company valued
the warrants at $150,000 (See Note 10). Also in connection with the transaction,
the Company recorded a dividend of $250,000 representing the value assigned to
the preferred stock's discount feature (See Note 11).
The accompanying notes are an integral part
of these consolidated financial statements.
F-10
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. COMPANY AND ORGANIZATIONAL MATTERS
Nature of Business
Polyphase Corporation (the "Company" or "Polyphase") is a diversified holding
company that, through its subsidiaries, operates primarily in three industry
segments: the food segment, which produces high quality entrees, plated
meals, soups, sauces and poultry, meat and fish specialties (the "Food
Group"); the forestry segment, which distributes, leases and provides
financing for industrial and commercial timber and logging equipment (the
"Forestry Group"); and the transformer segment, which manufactures and
markets electronic transformers, inductors and filters (the "Transformer
Group").
Corporate History and Organization
The Company was incorporated in New Jersey in 1963 under the name Kappa
Networks, Inc. Through a merger with a wholly-owned subsidiary in June 1991,
the Company reincorporated in Pennsylvania and formally changed its name to
Polyphase Corporation. A subsequent merger with a wholly-owned subsidiary in
June 1994 effected a change in the state of incorporation from Pennsylvania
to Nevada, together with certain changes to the Company's charter and bylaws.
These changes resulted in the authorization of 100,000,000 shares of $.01 par
value common stock and 50,000,000 shares of $.01 par value preferred stock
with rights and preferences as designated by the Board of Directors.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All material intercompany accounts and
transactions are eliminated. Certain prior year amounts have been
reclassified to conform to the 1997 presentation.
Fiscal Year
The Company and its subsidiaries' fiscal year, except for the Food Group,
ends on September 30. The Food Group utilizes a 52 - 53 week accounting
period which ends on the Sunday closest to September 30.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations
of credit risk consist primarily of receivables and demand deposits. Demand
deposits sometimes exceed the amount of insurance provided by the Federal
Deposit Insurance Corporation. The Company performs ongoing credit
evaluations of its customers' financial condition and generally requires no
collateral from its customers except as discussed below.
F-11
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company's Forestry Group subsidiary, Texas Timberjack, Inc, ("TTI"), is a
retailer of timber and logging equipment. TTI grants credit to customers,
substantially all of whom are located in East Texas or the western portion of
Louisiana, and which rely on the logging industry for their ability to repay
debt to TTI. Collateral is generally the equipment sold for amounts due under
installment sales contracts.
Financial Instruments
The fair value of financial instruments is determined by reference to market
data and by other valuation techniques as appropriate. Unless otherwise
disclosed, the fair value of financial instruments approximates their recorded
values.
Inventories
Inventories of raw materials, work-in-process and finished goods for
manufacturing and assembly operations and food processing are stated at the
lower of cost or market as determined by the first-in, first-out (FIFO)
method. Inventories of major units purchased in the forestry segment are
valued at the lower of cost or market or, in the case of repossessed and used
units, net realizable value, based upon the specific identification method.
Concentration of Sources of Labor
The Food Group's total hourly and salaried work force consists of
approximately 721 employees. Approximately 77% of the Company's work force is
covered by collective bargaining agreements expiring in fiscal years 1998 and
1999. The Company considers its union relations to be good.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed primarily
using the straight-line method for financial reporting purposes over the
estimated useful lives of the assets. Useful lives generally range from five
to thirty years. Leasehold improvements are amortized over the lesser of the
term of the lease or the estimated useful life of the assets.
Repairs and maintenance costs are expensed, while additions and betterments
are capitalized. The cost and related accumulated depreciation of assets sold
or retired are eliminated from the accounts and any gains or losses are
reflected in earnings.
Excess of Cost Over Fair Value of Net Assets Acquired
The excess of cost over the fair value of net assets acquired (goodwill) at
the date of acquisition is amortized on a straight line basis over periods
generally ranging from 15-20 years. The Company determines the period to be
benefited by using qualitative measuring factors such as competition, demand
and obsolescence, as well as legal, regulatory and contractual provisions. In
addition, the Company evaluates the existence of goodwill impairment on the
basis of whether the goodwill is fully recoverable from projected,
undiscounted cash flows of the related business
F-12
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
unit.
Stock Options
The Company has elected to continue to follow Accounting Principles Board
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees" and
related Interpretations in accounting for its employee stock options. The
Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock Based
Compensation", which provides for either recognition or disclosure of a
hypothetical charge for the fair value of stock options granted. The Company
did not recognize any charge in its Statements of Operations for the fiscal
year ending September 30, 1997, but has provided the required disclosures in
Note 11.
Revenue Recognition
The Company generally recognizes revenue when products are shipped or services
are performed and provides for estimated returns and allowances at the time of
sale.
A significant amount of business in the Company's forestry segment relates to
the sale of equipment through sales/finance contracts. Revenue is recognized
on these accounts using the installment method (See Note 5). Under the
installment method, the Company records at the point of sale both a sale and a
cost of sale for the total cost of the unit. Gross profit is initially
recorded in a deferred profit account to be recognized as proceeds are
received. These deferred profits are recorded as sales revenue as funds are
received, based on the relative percentage of transaction profit to the sales
price. Interest on the contract is recognized on a cash basis due to frequent
late payments and periodic repossessions.
Key sales and income information for the forestry segment for fiscal 1997,
1996 and 1995 are:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Equipment sales total $ 43,460,398 $ 28,210,292 $ 35,837,259
Equipment sales financed 3,608,210 3,005,776 10,121,004
Income earned on installment basis 1,613,172 2,046,730 2,777,209
Interest income earned on installment notes 1,457,125 1,634,621 1,562,486
</TABLE>
Income Taxes
Deferred income taxes recorded using the liability method reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes.
Income (Loss) Per Share
Primary income (loss) per share is computed on the basis of the weighted
average number of common and common equivalent shares outstanding during each
year. Common equivalent
F-13
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
shares assume the exercise of all preferred stock, dilutive stock options and
warrants using the treasury stock method. See Note 11 for descriptions of
common stock equivalents.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128 (SFAS 128), "Earnings Per Share," which is
required to be adopted by the Company in the first quarter of fiscal year
1998. At that time, the Company will be required to change the method
currently used to compute income (loss) per share and restate all prior
periods presented. Under the new requirements for calculating basic income
(loss) per share, the dilutive effect of stock options will be excluded. Pro-
forma basic and diluted income (loss) per share, had the Company used the
method required by SFAS 128 for the years ended September 30, 1997, 1996 and
1995 would have been as follows:
<TABLE>
<CAPTION>
Year Ended September 30, Basic Diluted
------------------------ ------- --------
<S> <C> <C>
1997 $(1.41) $(1.41)
1996 (.03) (.03)
1995 .27 .26
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from these estimates.
3. LIQUIDITY
As described in Note 1, the Company operates primarily in three industry
segments: the Food Group, the Forestry Group and the Transformer Group. The
majority of the Company's net sales, operating profit and identifiable assets
are in the Food and Forestry Groups. The Company's corporate entity has no
significant operations and has historically been partially dependent upon
cash flows from its Food and Forestry Groups to meet its ongoing liquidity
requirements. As a result of various restrictions in debt agreements that
exist at the Food and Forestry Group levels (See Notes 9 and 10), the Company
is generally restricted from receiving management fees, dividends, loans or
certain other advances in excess of $830,000 per year from those
subsidiaries.
As of September 30, 1997, the Company had not complied with certain covenants
involving most of its loan agreements, including covenants that restrict
transactions with affiliates.
On December 5, 1997, the Company's subsidiary, Overhill, obtained a $24.1
million, three-year term loan from The Long Horizons Fund, LP ("Long
Horizons"). The note requires interest-only payments monthly at prime plus 4%
(12.5% as of December 5, 1997) through April 1999, and thereafter provides
for principal amortization of $250,000 per month, plus interest, until a
final payment of approximately $19,850,000 is due on December 5, 2000. In
addition, under the terms of the agreement, the Company granted stock
warrants that entitle Long Horizons to immediately
F-14
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
acquire at $.01 per share, 30% of the common stock of Overhill, of which 25%
(5/6 of the total shares under warrant) can be repurchased by the Company for
$2,000,000 during the two-year period following the date of the agreement.
There are no assurances that the Company will be able to repurchase the
aforementioned shares.
In December 1997, in connection with the Long Horizons refinancing, Overhill
was allowed per the terms of the new note agreement to effect a one-time cash
advance to Polyphase of approximately $5.5 million. These proceeds were
subsequently used by Polyphase to reduce corporate borrowings plus accrued
interest by $4.6 million and provide cash flow for working capital and other
needs of $900,000. The remaining proceeds of the $24.1 million Long Horizons
note were used by Overhill to refinance existing principal plus accrued
interest, repurchase existing warrants to purchase 22.5% of Overhill's common
stock for $2 million and pay certain costs related to the financing. In
addition, the refinancing enabled the Company and Overhill to cure all
previous defaults under all of their loan agreements. The Company is not
currently in default under any of its existing loan agreements.
As of September 30, 1997, the Company has a note payable outstanding to Mr.
Harold Estes, former owner of Texas Timberjack, Inc. (TTI), in the amount of
$14.0 million due April 6, 1998 (See Note 9). Mr. Estes has no recourse to
any of the assets or capital stock of the Company or any of its other
subsidiaries other than its ownership interest in TTI, except that Mr. Estes
holds as secondary collateral 2,000,000 shares of the Company's common stock
owned by the Pyrenees Group, a private investment firm owned in part by Paul
A. Tanner, Chairman and Chief Executive Officer of Polyphase.
In the event of default on the above note, the Company may be required to
transfer some or all of its ownership interest in TTI to Mr. Estes and the
Company would likely incur a noncash loss represented by the difference
between its net asset position in TTI (approximately $23 million at September
30, 1997) and the note balance due Mr. Estes (approximately $14 million at
September 30, 1997). Further, as of September 30, 1997, Polyphase is indebted
to TTI for approximately $6.4 million on a non-interest bearing intercompany
advance from TTI offset by an intercompany receivable due to Polyphase from
TTI of approximately $4.4 million. These amounts may be required to be
settled in the event of default on the Estes note. Also, in the event of
default on this note, if the primary collateral, the Company's ownership
interest in TTI, is not sufficient to satisfy the balance owed to Mr. Estes,
it is possible that some or all of the Polyphase shares owned and pledged by
Pyrenees would be retained by Mr. Estes.
The Company anticipates it will be required to refinance the aforementioned
note payable to Mr. Estes upon maturity and is presently in negotiations to
accomplish this objective. However, there is no certainty that the Company
will be able to refinance this note on acceptable terms, or at all, before
April 6, 1998.
As discussed more fully in Note 14, the Company has guaranteed, in certain
circumstances, a loan from Lehman Brothers Holdings, Inc. ("Lehman") to a
Nevada partnership formed by an entity headed by Mr. Tanner, and Lehman, to
purchase a parcel of land in Las Vegas, Nevada for the development of a multi-
purpose sports facility and adjacent convention center. The
F-15
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
aforementioned Nevada partnership is currently in default on its loan from
Lehman and foreclosure proceedings by Lehman have been initiated. The
Company, based on the advice of legal counsel, does not believe that it will
incur any significant liability as a result of this guarantee. As a result,
the Company believes the existence of such guarantee will not have a material
adverse effect on the Company's financial condition or results of operations.
Furthermore, Polyphase may be required to retain legal representation on
various matters, including but not limited to those matters described in
Notes 13 and 14, affecting the Company. The fees to be incurred could be
substantial in relation to the Company's cash position.
In addition, Polyphase is indebted to Overhill for approximately $11.0
million, including the $5.5 million intercompany advance in December 1997, on
a non-interest bearing intercompany advance from Overhill. The Company
intends to satisfy this intercompany obligation through dividends or
intercompany charges for Federal income taxes, management and transaction
fees, subject to obtaining the necessary approvals from the Company's
lenders. However, no assurance can be given that Polyphase will be able to
repay or otherwise reduce its obligation to Overhill.
The Company has currently undertaken several initiatives at its corporate
office in order to reduce its corporate operating cash flow requirements. In
December 1997, the Company sold its Dallas Parkway Properties, Incorporated
subsidiary, whose principal asset was the Company's corporate headquarters
building, with the buyer assuming the related debt of approximately $2.8
million. The Company expects to relocate its corporate offices during the
second quarter of fiscal 1998 and expects to reduce its cash flow
requirements as a result of lower expected future lease payments. In
addition, the Company has eliminated certain corporate level positions to
further reduce future corporate cash requirements.
4. ACQUISITION
Effective May 5, 1995, the Company acquired the assets and operations of IBM
Foods, Inc., a food processing company located in Culver City, California,
which operated using the name Overhill Farms. The purchase, which was
accomplished through Overhill Farms, Inc. a newly-formed subsidiary of the
Company ("Overhill"), provided for cash payment to the seller of $31.3
million, subject to certain adjustments, plus the assumption of certain
liabilities of the acquired business. The transaction was financed by
Overhill in part using (1) a $12 million revolving line of credit, of which
$9.7 million was initially drawn, (2) term loans totalling $6 million,
payable monthly over 4 and 5-year periods and (3) the sale of $13 million of
senior subordinated notes and warrants, due in 2002 and 2003. The acquisition
has been accounted for by the purchase method of accounting. The operating
results of Overhill are included in the Company's results of operations from
the date of acquisition. Goodwill attributable to the acquisition totaled
$10.3 million and is being amortized on a straight-line basis over a 20-year
period.
Proforma Financial Information
The following unaudited proforma summary represents the results of operations
as if the acquisition of Overhill had occurred at October 1, 1994. This
summary does not purport to be
F-16
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
indicative of what would have occurred had the acquisition been made as of
that date or of results that may occur in the future. This method of
combining the companies is for the presentation of unaudited proforma summary
results of operations. For the year ended September 30, 1995 the proforma
consolidated net sales and net income per share would have been $164,138,000
and $.33 per share, respectively.
5. SALES CONTRACTS RECEIVABLE
The Company's Forestry Group provides financing to customers on certain
equipment sales using installment sales contracts. The following is a summary
of the components of the Company's net investment in these contracts as of
September 30, 1997 and 1996 and the related deferred income based on the
installment method of income recognition.
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Contracts outstanding $ 11,749,849 $ 12,401,689
Less deferred income (3,834,107) (4,324,627)
------------ ------------
7,915,742 8,077,422
Less allowance for doubtful accounts (117,598) (118,545)
------------ ------------
Net investment in sales contracts
receivable $ 7,798,144 $ 7,958,877
============ ============
</TABLE>
The following is a summary of the maturities of the sales contracts receivable
and related deferred income:
<TABLE>
<CAPTION>
Contracts Deferred
Due September 30, Outstanding Income Net
- ----------------- ------------- ------------ ------------
<S> <C> <C> <C>
1998 $ 8,702,806 $ (2,839,922) $ 5,862,884
1999 2,455,600 (801,328) 1,654,272
2000 557,654 (182,120) 375,534
2001 33,789 (10,737) 23,052
------------ ------------ ------------
$ 11,749,849 $ (3,834,107) $ 7,915,742
============ ============ ============
</TABLE>
6. NOTES RECEIVABLE
The Forestry Segment periodically makes advances to certain unrelated
individuals and corporations. These notes have interest rates that range from
12% to 18%, are due within one year and are secured by a variety of
marketable collateral. Interest is accrued on notes receivable as long as the
Company believes the notes are collectible. The accrued interest is added to
the note and is shown as part of that balance in the accompanying statements.
Allowances are established periodically if, at the date of valuation,
management feels it is probable that a loss exists in the portfolio. The
allowance is established based upon payment history, evaluation of the
portfolio and the related expected credit risk.
F-17
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company had $939,621 and $972,422 of short term notes receivable as of
September 30, 1997 and 1996, respectively, from unrelated corporations and
individuals, net of allowances of $277,092 and $248,259, respectively. The
loans are secured primarily by land, timber and equipment. At September 30,
1997, approximately $434,332 of such notes receivable were no longer accruing
interest. All notes receivable are due in less than one year.
In connection with the sale of the computer subsidiaries to an unrelated
third party in July 1996, (See Note 16) the Company received, as
consideration, notes receivable totalling $1,037,890. During fiscal 1997,
these notes and certain other Company assets were exchanged with the same
unrelated third party for $200,000 cash and preferred stock convertible into
a 3% equity interest in DataTell Solutions, Inc. (See Note 16).
7. INVENTORIES
<TABLE>
<CAPTION>
Inventories are summarized as follows: September 30
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Finished goods 19,241,149 22,490,026
Work-in-process 691,284 694,683
Raw material 3,269,587 4,898,070
Inventory reserve (200,000) (55,000)
----------- -----------
Total $23,002,020 $28,027,779
=========== ===========
</TABLE>
8. OTHER INTANGIBLE ASSETS
Other intangible assets are summarized as follows:
<TABLE>
<CAPTION>
September 30,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Non-compete agreements (a) $ 700,000 $ 700,000
Deferred financing costs (b) 878,216 1,039,089
Consulting contract (c) 200,000 -
Other 421,733 258,560
----------- -----------
2,199,949 1,997,649
Less accumulated amortization (1,002,810) (595,410)
----------- -----------
$ 1,197,139 $ 1,402,239
=========== ===========
</TABLE>
(a) The Company entered into noncompete agreements with the seller and an
officer of Texas Timberjack, Inc. with such amounts being amortized over the 7
year life of each agreement.
(b) The Company incurred certain legal, brokerage and other costs associated
with the financing of the acquisition of Overhill Farms. These costs are being
amortized over a period of 5 years.
F-18
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(c) The Company granted a former executive options on 35,000 shares of common
stock at $.01 per share. The options were granted in consideration of a two
year consulting contract and were valued at $200,000 based on the fair market
value at the date of grant. The contract is being amortized over the two year
period.
In January 1997, an unrelated third party was granted an option to purchase
200,000 shares of the Company's common stock, exercisable at $.01 per share,
in exchange for a two-year consulting agreement. The transaction was valued
at $973,000. As of September 30, 1997, the unrelated third party is no longer
performing services for the Company. Accordingly, the Company has recognized
the entire amount associated with the consulting contract as an expense in
the current fiscal year.
9. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
September 30,
--------------------------
1997 1996
----------- -------------
<S> <C> <C>
Note payable to Ford Motor Credit Corporation (a) $ 536,885 $ 99,036
Note payable to Associates First Capital Corporation (b) 550,845 -
Note payable to Finova Capital Corporation (c) 7,875,369 9,417,183
Other notes payable 50,000 -
----------- -------------
$ 9,013,099 $ 9,516,219
=========== =============
</TABLE>
(a) TTI has a floor plan note with Ford Motor Credit Corporation. The floor
plan note accrues no interest provided the equipment financed under the note
is sold within a predetermined period, typically nine to twelve months from
the time TTI takes delivery of the equipment.
(b) TTI has a floor plan agreement with Associates First Capital Corporation
to finance equipment. The agreement accrues interest on an individual unit
basis with an average interest rate of prime plus 1/2% (approximately 9% at
September 30, 1997), and the equipment can be financed up to one year.
(c) In connection with the acquisition of Overhill Farms, Inc. (See Note 4),
the Company's Overhill subsidiary obtained an $18,000,000 credit facility
with Finova Capital Corporation which consists of Term Loan A (See Note 10)
in the original amount of $2,000,000, Term Loan B (See Note 10) in the
original amount of $4,000,000 and a $12,000,000 revolving line of credit.
Borrowings under the revolving line of credit are limited to the lesser of
$12,000,000 or an amount determined by a defined borrowing base which is
based on eligible receivables and inventory. Borrowings under the line of
credit facility bear interest at the Citibank base rate plus 1.5% (11.0% at
September 30, 1997). This amount is classified as a current liability in the
consolidated balance sheets due to a requirement for Overhill to maintain a
blocked account in favor of the lender for collections on all accounts
receivable, which are immediately applied to
F-19
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
reduce borrowings under the line of credit. Overhill's revolving line of
credit requires the payment of an unused line fee of .25% per annum and an
annual facility fee of .50% per annum. The agreement with Finova relating to
this facility contains various covenants including without limitation,
Overhill's pledge to restrict capital expenditures to certain agreed upon
levels, maintain specified current and debt to net worth ratios and specified
levels of net worth. Additionally, the terms of the credit facility prohibit
loans, advances or dividends from Overhill to the Company and limit management
fees the Company may collect from Overhill to $250,000 per annum. Furthermore,
the capital stock and substantially all the assets of Overhill as of September
30, 1997 were pledged as collateral and the Company has guaranteed all
obligations under the credit facility. In December 1997 the credit facility
was extended for three years in connection with the Long Horizons refinancing
(See Note 10 ).
Note Payable and Accrued Interest to Related Party
In connection with the acquisition of TTI on June 24, 1994, the Company
recorded a note to the seller (Mr. Harold Estes) in the amount of $9,737,719
with interest at 8% due October 31, 1994 and collateralized by all the capital
stock of TTI. As of various maturity dates, the seller has entered into
subsequent agreements with the Company to modify and extend the term of the
note. As of September 30, 1997, the note had a principal balance plus accrued
interest of $13,998,916 bearing interest at 16% per annum with a maturity date
of December 1, 1997. On December 2, 1997 the note was further modified and
extended to April 6, 1998 at an interest rate of 16%. In connection with the
December 2, 1997 extension, the Company agreed to pay the seller $150,000 in
addition to outstanding principal and accrued interest under the loan at
maturity. The note holder has no recourse to any of the assets or capital
stock of the Company or any of its other subsidiaries other than its ownership
interest in TTI except that Mr. Estes holds, as secondary collateral,
2,000,000 shares of the Company's Common Stock owned by the Pyrenees Group.
(See Notes 3 and 11).
Weighted Average Interest Rate
The weighted average interest rate on short term borrowings for the year ended
September 30, 1997 was 9.6%.
Restricted Net Assets of Subsidiaries
Due to subsidiary debt covenant and other restrictions, the Company's ability
to obtain funds from its subsidiaries is limited (See Note 3). In addition,
the Company's ownership of Texas Timberjack is pledged as collateral against
the note payable to related party which is scheduled to mature in April 1998,
and there is no assurance that said note can be refinanced or otherwise paid
(See Notes 3 and 9). Additionally, the Company has no operating revenues and
may be highly dependent on its subsidiaries for its liquidity needs, and there
is no assurance that, based upon the above, such liquidity will be available.
F-20
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
10. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30,
------------------------------
1997 1996
----------- --------------
<S> <C> <C>
Term loan payable to bank bearing interest at 8.5%,
due in monthly installments of $12,465 through May
1999, collateralized by real estate. $ - $ 845,544
Note payable, due August 1, 1999, $2,800,000
face amount, less $150,000 allocated to
warrants, interest only at 14% due in monthly
installments, collateralized by real estate. 2,650,000 -
Senior convertible debentures due July 1, 1999,
bearing interest at 12%, with interest payable
semi-annually in January and July (the "1999 Bonds"). 4,000,000 4,000,000
Senior convertible debentures due December 1, 1997,
bearing interest at 12%, with interest payable semi-
annually in June and December (the "1997 Bonds"). 1,500,000 1,500,000
Revolving credit agreement of TTI with Comerica Bank-
Texas, bearing interest at prime plus 1/2% (9% at
September 30, 1997), collateralized by notes, trade
accounts receivable and inventory, due March 1, 1998. 5,600,000 8,900,000
Term Loan A payable to financial institution, with
interest at prime rate plus 2.5%, (11% at
September 30, 1997), due in monthly installments
of $33,333 plus accrued interest through
May 1, 2000 (See Note 9). 1,066,676 1,466,672
Term Loan B payable to financial institution, with
interest at prime rate plus 2.5% (11% at
September 30, 1997), due in monthly
installments of $83,333 plus accrued interest
through May 1, 1999 (See Note 9). 915,604 1,915,600
</TABLE>
F-21
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C> <C>
Senior subordinated notes payable of Overhill due to
a financial institution, bearing interest at 13%
payable quarterly, net of discount of $0 and $404,100 at
September 30, 1997 and 1996, respectively. 13,000,000 12,595,900
Other 260,000 350,000
------------ -------------
28,992,280 31,573,716
Less current maturities (5,720,000) (31,573,716)
------------ -------------
Total long-term debt $ 23,272,280 $ -
============ =============
</TABLE>
Scheduled maturities after giving consideration to the refinancing discussed
below are as follows:
<TABLE>
<CAPTION>
Outstanding Application of
Indebtedness Long Horizons For the Years Ending September 30,
September 30, 1997 Proceeds (a) 1998 1999 2000 2001
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Note Payable due 8/1/99 $ 2,650,000 $ - $ - $ 2,650,000 $ - $ -
The 1999 Bonds 4,000,000 (2,800,000) - 1,200,000 - -
The 1997 Bonds 1,500,000 (1,500,000) - - - -
The Comerica Revolver 5,600,000 - 5,600,000 - - -
Term Loan A 1,066,676 (1,066,676) - - - -
Term Loan B 915,604 (915,604) - - - -
Subordinated Debentures 13,000,000 (13,000,000) - - - -
Long Horizons - - - 1,250,000 3,000,000 19,850,000
Other 260,000 - 120,000 140,000 - -
----------------------------------------------------------------------------------------------
$28,992,280 $(19,282,280) $ 5,720,000 $ 5,240,000 $3,000,000 $19,850,000
</TABLE>
(a) Existing debt as of September 30, 1997 that was refinanced through the new
$24.1 million credit facility is discussed further below. Of the total
$24.1 million of borrowing under the facility, approximately $19.3 million
was used to refinance existing debt as described in the above table and
$4.8 million represents new debt. In addition, the Note Payable due 8/1/99
totalling $2.7 million was assumed in December 1997 in connection with the
sale of the corporate office building (see further discussion below).
In December 1997, Overhill refinanced a certain portion of the existing debt.
The new financing amounted to a total facility of $24.1 million which is
structured as a three-year term loan maturing in December 2000. The note
requires interest-only payments at prime plus 4% ( 12.5% as of December 5,
1997) through April 1999 and thereafter provides for principal amortization of
$250,000 per month, plus interest, until a final payment of approximately
$19,850,000 is due on December 5, 2000. The agreement also requires Overhill
to pay on a quarterly basis, service fees
F-22
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
totalling $140,000, $300,000 and $440,000 for the first, second and third
years of the loan respectively. Under the terms of the new financing
agreement, the lender was granted warrants to purchase 30% of Overhill's
common stock, exercisable immediately at a nominal value, 25% of which can be
repurchased by the Company over the next two years for $2,000,000.
Additionally, the lender received fees totalling approximately $1.7 million in
connection with this financing, which are partially refundable on a pro rata
basis upon early repayment of the loan through a refinancing, sale or initial
public offering of Overhill. As a result of this transaction Overhill repaid
in full the $13.0 million subordinated debentures and repurchased for
approximately $2.0 million the warrants previously held by Rice to purchase up
to 22.5% of Overhill's common stock. These payments to Rice resulted in the
Company and Rice reaching a settlement of their litigation. The Company also
used a portion of the proceeds to repay Term Loans A and B, the $1,500,000
senior convertible debenture and $2,800,000 of principal of the $4,000,000
senior convertible debentures described below. The refinancing also enabled
the Company and Overhill to cure all previous defaults under various loan
agreements and provided the Company with approximately $900,000 in working
capital. The early extinguishment of this indebtedness will result in an
extraordinary charge to operations of approximately $600,000 (before income
taxes) during the quarter ended December 31, 1997. Overhill's credit
facilities generally restrict loans, advances, dividends or transfers from
Overhill to the Company to $250,000 per year.
The $4,000,000 senior convertible debentures issued in July 1994 (the 1999
Bonds) are convertible at the option of the holder into shares of common stock
equal to the principal amount of each bond (or in $1,000 increments) divided
by a $5.65 conversion price subject to adjustment in certain circumstances.
The senior convertible debentures prohibit the Company from paying or making
within any 12-month period dividends or distributions on its Common Stock
having a value in excess of 50% of the consolidated net income of the Company,
unless each holder of the senior convertible debentures receives an amount
equal to its pro rata portion of the dividend or distribution (on an as-
converted into common stock basis). Effective December 1, 1995, the Company
entered into additional agreements with the holders of the 12% senior
convertible debentures, whereby the Company sold an additional $1,500,000 of
debentures on generally the same terms and conditions as those previously
issued. The 1997 Bonds bear interest at 12%, payable semiannually in June and
December, are convertible into common stock at the rate of $5.00 per share and
become due and payable on December 1, 1997. In December 1997, the Company
paid in full all amounts due for principal and interest under the 1997 bonds.
Additionally, a partial payment of $2.8 million principal, plus accrued
interest, was made on the 1999 Bonds. As part of this partial payment, the
conversion price of the remaining $1.2 million principal amount of 1999 Bonds
was reduced to $3.00 per share (from $5.65 per share), subject to further
adjustment as provided by the Indenture and the holders were granted warrants
to purchase 400,000 shares of the Company's common stock, exercisable over a
five-year period, with certain registration rights. The warrants are
exercisable for 200,000 shares at $.01 per share and 200,000 shares at $1.125
per share, the market price of the Company's Common Stock on the date of
grant.
F-23
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
TTI's revolving line of credit with Comerica Bank-Texas is due March 1, 1998.
The terms of the revolving line of credit require TTI to restrict capital
expenditures to certain agreed upon levels, maintain specified debt to net
worth and fixed charge coverage ratios, limit the amount of its contingent
liabilities and maintain agreed upon levels of working capital and tangible
net worth. Furthermore, the terms of the revolving line of credit prohibit
loans or advances from TTI to the Company and limit dividends from TTI to the
Company to $580,000 per year (See Note 3). The Company has guaranteed all
obligations under TTI's revolving line of credit. Availability under the line
of credit at September 30, 1997, after giving effect to base limitations
amounted to approximately $6,700,000. TTI is currently in negotiations with
Comerica to extend the line of credit upon expiration.
During January 1997, in connection with an advance made to Stadium Partners,
the Company borrowed $2.5 million on a 16% six month note, collateralized by a
second lien on the Company's corporate headquarters building. When the
Company was unable to make the principal payment when due, the lender elected
to post the real estate for foreclosure. Prior to the foreclosure proceeding,
the Company entered into two transactions described below which enabled it to
repay this loan as well as the unpaid balance of the first mortgage payable to
Comerica Bank-Texas in the amount of $773,000.
In August 1997, the Company issued a $2.8 million note payable bearing
interest at 14% with a maturity date of August 1999. The proceeds were used
to repay debt outstanding on the Company's corporate headquarters building
which secures the new note payable. At the same time, an entity related to
this note holder purchased $750,000 of Series F Preferred Stock and received
warrants convertible into 500,000 shares of the Company's common stock at
$1.50 a share, which approximated market at the date of issuance (See Note
11). The Company has valued the warrants at $150,000 with such amount being
reflected as a debt discount. In addition, the Company recorded a non-cash
dividend of $250,000 representing the value assigned to the preferred stock's
discount feature (See Note 11). In December 1997, the Company sold the
entity, whose principal asset was the corporate office building, in exchange
for nominal consideration plus the assumption of this note payable (See Notes
11 and 16).
F-24
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
11. STOCKHOLDERS' EQUITY
Preferred Stock
The Company has 50,000,000 authorized shares of $.01 par value preferred
stock, with the rights and preferences as designated by the Board of
Directors, as follows:
<TABLE>
<CAPTION>
Authorized Conversion
Series Shares Price
---------- ---------- ----------
<S> <C> <C>
A 375,000 $ .50
B 300,000 1.00
C 300,000 2.00
D 600,000 4.00
E 1,425,000 10.00
F 10,000 Variable
A-2 750,000 5.00
A-3 750,000 5.00
A-5 750,000 5.00
</TABLE>
All shares of preferred stock designated above generally have a redemption
value of $10 per share, have a liquidation preference of $10 per share and are
callable by the Company at 105% of the redemption value.
Holders of the Series A-2 preferred shares are entitled to two votes per share
on all matters on which the holders of common stock have one vote per share.
No other series of preferred stock has voting rights.
During November 1995, the Company, in a transaction with an unrelated
corporation, sold 250,000 shares of Series A-3 preferred stock for $2,500,000
cash. The designations of the Series A-3 stock are similar to those of other
series of preferred stock, except that Series A-3 preferred stock has voting
rights, is entitled to cumulative annual dividends of 12% and is convertible
into common stock as provided in the preferred stock designations, subject to
adjustment in certain circumstances. Subsequent to September 30, 1997, the
conversion rate has been adjusted to current market as of the date of
conversion. Also, during fiscal 1996, the Company entered into an agreement
with an associate of the corporation to provide consulting services to the
Company over a 36-month period. The consideration for such services was the
grant of options to purchase 357,143 shares of common stock at $3.50 per share
(the fair market value at the date of grant) plus hourly fees and expenses.
In October 1996, the associate of the aforementioned corporation exercised the
stock option to purchase 357,143 shares of common stock. Consideration for
the transaction was the tender of 125,000 shares of Series A-3 preferred
stock, having a redemption value of $1,250,000, which had been assigned by the
corporation to its associate.
During August 1997, the Company sold 7,500 shares of newly designated Series F
6% Preferred Stock for $750,000 less expenses. The designations for Series F
preferred stock provide for a
F-25
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
redemption value of $100 per share, cumulative annual dividends of 6%, payable
quarterly and are convertible at 75% of the average five day closing price of
the Company's common stock prior to conversion. Holders of the Series F
preferred stock have no voting rights. In connection with the transaction, the
Company recorded a non-cash dividend of $250,000 representing the value
assigned to the preferred stock's discount feature.
Stock Options
During July 1993 and March 1994, the Board of Directors granted to certain
officers and directors options to purchase 650,000 shares at option prices of
$.75 (600,000 shares) and $5.25 (50,000 shares) per share, respectively, which
were equal to the fair value at the date of grant. The options are exercisable
in whole or in part and expire five years from the date of grant.
Under the terms of the 1994 Employee Stock Option Plan adopted by the Board of
Directors in March 1994, the Company has reserved a total of 1,000,000 shares
of its common stock for issuance to eligible employees of, and consultants to,
the Company. The Plan provides for the grant of both incentive stock options
(at exercise prices no less than fair value at the date of grant) and
nonqualified stock options (at exercise prices as determined by the
Compensation Committee of the Board of Directors), that such options may be
exercisable as determined by such Committee and that the Plan will expire ten
years following its adoption.
In January 1997, an unrelated third party was granted an option to purchase
200,000 shares of the Company's common stock, exercisable at $.01 per share,
in exchange for a two-year consulting agreement. The transaction was valued
at $973,000. As of September 30, 1997, the unrelated third party is no longer
performing services for the Company. Accordingly, the Company has recognized
the entire amount associated with the consulting contract as an expense in the
current fiscal year.
In November 1996, a former executive of the Company was granted and exercised
options on 35,000 of common stock at $.01 per share. Such options were
granted in consideration for a consulting contract and were valued at
$200,000, with this amount being amortized over the life of the consulting
contract.
During July 1996, the Board of Directors granted to certain officers,
directors and employees options to purchase 510,000 shares at $2.00 per share
which was equal to the fair value at the date of the grant. The options are
exercisable in whole or in part and expire ten years from the date of grant.
F-26
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary in changes in common stock options during the three years ended
September 30, 1997, is as follows:
<TABLE>
<CAPTION>
Number of Exercise Weighted Avg.
Shares Price Exercise Price
---------- ---------- --------------
<S> <C> <C> <C>
Outstanding, September 30, 1994 493,000 $ .50-5.25 $1.04
Granted - - -
Exercised - - -
Cancelled - - -
---------
Outstanding, September 30, 1995 493,000 $ .50-5.25 $1.04
Granted 867,143 $2.00-3.50 $2.61
Exercised (75,000) $ .50-.75 $0.67
Cancelled - - -
---------
Outstanding, September 30, 1996 1,285,143 $ .75-5.25 $2.01
Granted 235,000 $ .01 $0.01
Exercised (467,143) $ .01-3.50 $2.80
Cancelled (30,000) $ 2.00 $2.00
---------
Outstanding, September 30, 1997 1,023,000 $ .01-5.25 $2.01
=========
Exercisable, September 30, 1997 1,023,000 $ .01-5.25 $1.41
Exercisable, September 30, 1996 1,285,143 $ .75-5.25 $1.78
</TABLE>
Summarized information about stock options outstanding and exercisable at
September 30, 1997, is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------ ------------------------------------
Outstanding Weighted Average Exercisable
Exercise at Remaining Weighted Average at Weighted Average
Prices September 30, 1997 Contractual Life Exercise Price September 30, 1997 Exercise Price
- ---------- ------------------ ---------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
$0.01 200,000 9.25 Yrs $0.01 200,000 $0.01
$0.75 293,000 0.75 Yrs $0.75 293,000 $0.75
$2.00 480,000 8.75 Yrs $2.00 480,000 $2.00
$5.25 50,000 1.50 Yrs $5.25 50,000 $5.25
</TABLE>
Proforma information regarding net income (loss) is required by SFAS No. 123,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method specified by SFAS No. 123. The fair value
of options granted during the year ended September 30, 1997 was estimated at
the date of grant using the Black-Scholes method with the following weighted
average risk assumptions: risk free interest rate of 5.21% ; no dividends
expected to be declared; volatility factor of .994; and a weighted average
expected life of six
F-27
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
months. The fair value of options granted during the year ended September 30,
1996 was estimated at the date of grant using the Black-Scholes method with
the following weighted average risk assumptions: risk free interest rate of
6.59%; no dividends expected to be declared; volatility factor of .994; and a
weighted average expected life of five years. The effect of applying the fair
value method under SFAS No. 123 to the Company's 1996 and 1997 stock-based
awards would result in net loss during the year ended September 30, 1996 of
$763,942 ($0.06 per share) and a net loss during the year ended September 30,
1997 that is not materially different from amounts reported.
Stock Options-Others
The Pyrenees Option
In October 1992, the Company's Board of Directors authorized the issuance to
the Pyrenees Group, or its assignees, options to purchase up to 1,000,000
shares of convertible preferred stock for $10 per share. The options were
issued subject to approval by the Company's shareholders and were approved and
ratified at the Company's Annual Meeting held May 31, 1994. Pyrenees, a
private investment firm controlled by Paul A. Tanner, Chairman and Chief
Executive Officer, was granted these options as consideration for the sale to
the Company of its collected due diligence materials for acquisitions Pyrenees
was contemplating, which were to be used by the Company in its own acquisition
program. The options, covering Series A, B, C, D and E Preferred Stock, are
summarized as follows:
<TABLE>
<CAPTION>
Preferred Conversion Common
Series Shares Price Shares
--------- -------- ---------- ---------
<S> <C> <C> <C>
A 125,000 $ .50 2,500,000
B 100,000 1.00 1,000,000
C 100,000 2.00 500,000
D 200,000 4.00 500,000
E 475,000 10.00 475,000
--------- ---------
1,000,000 4,975,000
========= =========
</TABLE>
During fiscal 1994 and 1995 Pyrenees exercised and converted Series A, B, and
C Preferred Stock into common stock. In November, 1995, Pyrenees exercised
the Series D option through the issuance of a 7% recourse note in the amount
of $2,000,000, collateralized by the shares issued. During fiscal 1996 the
shares were converted to 500,000 shares of common stock. During the years
ended September 30, 1996 and 1997, principal payments of approximately
$721,000 and $304,000, respectively were made on the note. The Series E
option expired unexercised. See Note 15.
Warrants
The warrant to purchase common stock of subsidiary, issued in connection with
the $13 million subordinated debt described in Note 10, provides that the
warrant holders may purchase shares of the Company's Overhill subsidiary
(representing 22.5 % of its common stock) at any time over a ten year period
which ends May 5, 2005 for a nominal exercise price of $100. The warrant
F-28
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
holders also have the option to "put" the warrants to the Company any time
after the warrant's fifth anniversary at a "put" price based upon the higher
of fair market, book or appraised value of the subsidiary. The "put option"
is exercisable anytime after May 5, 2000 or immediately, if the subsidiary
experiences a change in control or merges with another unaffiliated company.
Additionally the Company has the option of "calling" the outstanding warrants
for cash anytime after May 5, 2001. The "call" price is determined using the
same formula as provided for determining the warrant's "put" price. As
discussed further in Note 10, as of December 5, 1997, the warrants were
repurchased from Rice for approximately $2,000,000.
In order to account for the obligation associated with the warrant's "put"
feature, the Company estimated the fair value of the warrants to be $900,000
at the date of issuance. This amount was discounted at 12% for a five-year
period which resulted in a $495,405 liability and related debt discount on the
senior subordinated note being recorded for the warrant's "put" feature at the
date of issuance. In order to account for changes in the estimated warrant
liability, the Company periodically estimated the fair value of the Overhill
common stock and accreted the warrant liability accordingly through a charge
to earnings. As of September 30, 1997, the warrant was accreted to a value of
$2 million, representing the purchase price paid by the Company on December 5,
1997.
In connection with the issuance of the Series F Preferred Stock, (See Note 11)
and the $2.8 million note payable (See Note 10), in August 1997, the Company
issued warrants to purchase 500,000 shares of common stock with an exercise
price of $1.50 per share. The Company has valued the warrants at $150,000
with such amount being reflected as a debt discount.
In connection with obtaining the $24.1 million note (see Notes 3, 9 and 10) a
warrant was issued to Long Horizons Fund, LP that provides the for purchase up
to 30% of the common stock of Overhill at any time during the three year
agreement. The Company has the option to repurchase a portion this warrant
representing 25% of the Overhill shares during the two year period following
the date of the agreement for $2,000,000.
12. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
For the Years Ended
September 30,
1997 1996 1995
------------- ------------ -----------
<S> <C> <C> <C>
Current:
Federal $ (1,126,891) $ 1,193,807 $ 111,589
State 239,869 265,467 414,289
Deferred:
Federal 168,278 115,233 (396,409)
State 65,061 19,035 (53,242)
------------- ------------ -----------
Total income taxes $ (653,683) $ 1,593,542 $ 76,227
============= ============ ===========
</TABLE>
F-29
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The effective tax rate on earnings (loss) before income tax charges (benefits)
was different than the federal statutory tax rate. The following summary
reconciles the federal statutory tax rate with the actual effective rate:
<TABLE>
<CAPTION>
For the Years Ended
September 30,
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Effective statutory tax expense (benefit) rate (34.0%) 34.0% 34.0%
Increase (decrease) in effective tax rate
resulting from:
State taxes, net of federal tax benefit (3.8) 9.2 7.7
Officer life insurance premiums,
amortization of goodwill, accretion
of stock warrants 2.9 12.5 6.7
Utilization of net operating losses - (4.3) (31.9)
Change in valuation allowance 26.6 - (14.2)
Sale of subsidiaries 5.7 27.9 -
Other (0.7) 6.6 (0.2)
------ ------ ------
Effective tax expense (benefit) rate (3.3%) 85.9% 2.1%
====== ====== ======
</TABLE>
The components of deferred tax balances as of September 30, 1997 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 1,915,501 $ 1,348,559
Inventory 112,890 132,732
Accrued expenses 175,000 167,036
Capital loss carryforwards 596,243 -
Net operating loss carryforwards 3,267,780 -
AMT and other credit carryforwards 257,111 -
Investment in subsidiary (unconsolidated) - 45,206
Other 5,215 14,748
Stock options 381,628 -
-------------- --------------
Total deferred tax assets 6,711,368 1,708,281
Valuation allowance (5,233,603) -
-------------- --------------
Net deferred tax assets 1,477,765 1,708,281
============== ==============
</TABLE>
F-30
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
Deferred tax liabilities:
Stock option exercises - (17,572)
Prepaid expenses (212,515) (235,624)
Intangibles (985,284) (788,775)
Depreciation (279,966) (422,591)
Other - (11,335)
----------- -----------
Total deferred tax liabilities (1,477,765) (1,475,897)
----------- -----------
Net deferred tax assets $ - $ 232,384
=========== ===========
</TABLE>
The Company has net operating losses available for carryforward of $8,169,451,
due to expire in 2012 and capital losses available for carryforward of
$1,490,607. Additionally, the Company has alternative minimum tax credit
carryforwards of $177,278 which have no expiration and general business
credits of $79,833 which expire in 2012. Deferred tax assets for fiscal year
1996 are included in prepaid expenses and other assets in the accompanying
consolidated balance sheets.
13. COMMITMENTS AND CONTINGENCIES
Commitments
Future minimum lease payments for all operating leases at September 30, 1997
are as follows:
<TABLE>
<CAPTION>
For the Years Ending
September 30,
----------------------
<S> <C>
1998 $ 1,535,983
1999 709,364
2000 182,135
2001 57,975
2002 5,600
------------
$ 2,491,057
============
</TABLE>
Certain of the leases provide for renewal options for periods from 1998 to
2005 at substantially the same terms as the current leases.
Rent expense, including monthly equipment rentals, was approximately
$1,847,000, $1,510,000, and $893,000 for the years ended September 30, 1997,
1996, and 1995, respectively.
The Company's subsidiary, TTI relies on two suppliers for the majority of its
new units and parts. As of September 30, 1997, TTI had commitments to purchase
inventory amounting to $4,671,000.
F-31
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
TTI guarantees on behalf of various customers certain lines of credit with
banks and financial institutions. The portion of the credit lines guaranteed
ranges from zero to 100% on a customer-by-customer basis. At September 30,
1997, TTI's guarantees totaled $8,568,121. TTI receives a fee, in the form of
interest participation on certain of the notes upon which it is contingently
liable. This fee is recognized as interest income and is usually held by the
institution to meet reserve requirements. Funds held in escrow by the lenders
of $717,358 at September 30, 1997 are included in the consolidated balance
sheet as restricted cash and are fully offset by a reserve for credit
guarantees.
TTI has an interest in two partnerships. The total investment in these
partnerships at September 30, 1997 of $328,782 is included in other assets.
TTI guarantees the debt of these partnerships. The amount guaranteed at
September 30, 1997 of $403,422 is collateralized by accounts receivable,
inventory, equipment, buildings and real estate.
Contingencies
In January 1997, a suit was filed in District Court of Dallas County against
the Company by Rice Partners II, L.P., subordinated debt holders of the
Overhill Farms subsidiary. The suit claims, among other things, that the
Company breached covenants of the subordinated debt agreement and refused to
cure the defaults within a reasonable period of time. Subsequent to year end,
in connection with the refinancing of corporate debt, the Company and Rice
Partners settled all litigation related to the suit. (See Notes 3, 9 and 10)
During 1997, five substantially identical complaints were filed in the United
States District Court for the District of Nevada against the Company and
certain of its officers and directors. The suits seek class action status and
assert liability based on alleged misrepresentations that resulted in the
market price of the stock being artificially inflated. The Company intends to
vigorously defend these actions. Subsequent to September 30, 1997, one of
these lawsuits was dismissed.
The Company and its subsidiaries are involved in certain legal actions and
claims arising in the ordinary course of business. Management believes (based
on advice of legal counsel) that such litigation and claims will be resolved
without material effect on the Company's financial position or results of
operations.
See Note 14 for a description of a guarantee of related party indebtedness.
14. RELATED PARTY TRANSACTIONS
During fiscal 1994, the Company made aggregate non-interest bearing cash
advances to Mr. Tanner in the amount of approximately $282,000. At September
30, 1994, Mr. Tanner had repaid $150,000 of such advances. During fiscal
1995, following the repayment of the unpaid 1994 advances, additional advances
amounting to approximately $63,000 were made to Mr. Tanner which were unpaid
at September 30, 1995. During fiscal 1996, additional amounts were advanced
to or on behalf of Mr. Tanner which aggregated approximately $1.5 million.
On
F-32
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 8, 1995, the aforementioned advances and an unpaid promissory note
receivable from Mr. Tanner were refinanced through the issuance to the Company
of a 12% unsecured demand note from Mr. Tanner in the principal amount of
$2,000,872.
Also during the above described period, the Company made disbursements to the
Pyrenees Group, a corporation controlled by Mr. Tanner, of approximately $2.67
million, of which $1,153,000 represented repayment of existing advances from
Pyrenees, with the balance representing an advance to Pyrenees of
approximately $1.5 million.
During January 1996, the Company reached an agreement to manage a project to
develop and build a multi-purpose sports facility in Las Vegas, Nevada. The
project was being developed by PLY Stadium Partners, Inc. ("Stadium
Partners"), a private investment firm headed by Mr. Tanner. As part of the
agreement, the Company was also entitled to participate in the facility's
management, sales of suites and seat options, concessions and events and was
to be compensated for such services. The Company agreed to provide to Stadium
Partners up to $4 million of debt that (1) is convertible into a 14% economic
interest in the project and (2) was guaranteed by Mr. Tanner and Pyrenees. As
part of this agreement, the aforementioned accounts receivable from Mr. Tanner
and Pyrenees (approximately $3.5 million), together with subsequent amounts
advanced, charged or accrued to or on behalf of Stadium Partners were
considered as components of the $4 million of convertible debt, bearing
interest at 12% and guaranteed by Mr. Tanner and Pyrenees. Through September
30, 1996, the Company advanced an additional $9,271,054.
During the twelve months ended September 30, 1996, the Company accrued
management and service revenues of $2,550,000 and interest income of $790,000
related to the Company's activities with Stadium Partners, the collectibility
of which was dependent upon the success of the project and/or the guarantees
referred to above. As a result of the terms of the financing arrangements with
Lehman described below, Stadium Partners was precluded from making any
distributions until permanent project financing was secured or stadium suite
sales were made that were sufficient to repay the financing from Lehman. As a
consequence of Stadium Partners' inability to effect such sales or obtain such
financing by March 15, 1997, in order to make its payment to the Company on
such date, the Company established a reserve of $3.34 million as of September
30, 1996, which represents the income accrued in 1996.
On November 15, 1996, Stadium Partners, through a newly-formed partnership,
purchased 62 acres in Las Vegas for the development of the stadium and
adjacent convention facility. Financing was provided by Lehman Brothers
Holdings, Inc. ("Lehman") through a partnership, Nevada Stadium Partners
Limited Partnership ("Nevada Partnership") with Lehman receiving an equity
interest in the project.
The Company has guaranteed the repayment of the loan from Lehman to the Nevada
partnership in the above mentioned transaction, in certain circumstances or
upon the occurrence of certain events. Such guarantee is effective upon the
occurrence of certain conditions, including without limitation if Nevada
Partnership files for bankruptcy or insolvency, if representations by the
Partnership prove to be fraudulent regarding the financial condition of the
Partnership, the land
F-33
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
securing the loan is further encumbered or ownership is transferred without
the consent of Lehman. Management believes, based upon the advice of legal
counsel, the Company has no significant liability as a result of the
aforementioned guarantees.
The loan agreement with Lehman required certain prepayments by Nevada
Partnership, the first of which, in the amount of $5.0 million became due in
January 1997. This was paid primarily with funds advanced by the Company, of
which $2.4 million was obtained from an existing credit line and $2.5 million
was obtained from a six month term note, collateralized by the Company's
corporate office building. In connection with the loan transaction, the
Company entered into a consulting agreement with a principal of the lender,
whereby the Company granted such party an option to purchase 200,000 shares of
the Company's common stock at $.01 per share; this option was assigned a value
of $973,000 which was charged to expense during fiscal 1997.
The second prepayment requirement of $20.0 million became due in May 1997;
this payment was not made. As a result of the failure to make this payment,
another agreement was entered into among the borrower, Lehman and the Company
as of July 1, 1997. This agreement generally provided forbearance by Lehman
until September 30, 1997, to allow additional time to raise the funds to make
the principal payment.
The terms of the forbearance agreement were not met by the September deadline,
and the note matured unpaid in November 1997. Stadium Partners and Mr. Tanner
continue to pursue various alternatives with respect to the repayment of
amounts due Lehman, including among other things, the sale or refinancing of
the property. There is no assurance that these efforts will be successful or
that the Company can expect to collect any amounts due from Stadium Partners
or the guarantors.
As a result of the above, the Company has recorded a charge to earnings for
the year ended September 30, 1997, in the amount of $14.8 million,
representing all amounts remaining unpaid by Stadium Partners, net of the
reserve established in 1996. Amounts which may subsequently be recovered, if
any, will be recognized as income when collection is assured.
At September 30, 1997, the Company also had an outstanding balance due from
Mr. Tanner amounting to $173,526, resulting from advances made to or on Mr.
Tanner's behalf during fiscal 1997.
Other Transactions
Other assets include an insurance premium receivable from Mr. Harold Estes
representing insurance premiums paid by TTI on his behalf. As of September
30, 1997, the insurance premium receivable was $552,006.
In connection with the purchase of TTI, the Company acquired a note receivable
from an officer. The note is secured by marketable securities, is payable
within one year and bears interest at 3.96%. As of September 30, 1997 the
balance outstanding was $340,071.
F-34
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
See Note 11 for discussion of options granted to the Pyrenees Group, a related
party.
See Note 9 for discussion of notes payable to Mr. Estes.
15. PROFIT SHARING PLAN
In 1986, prior to its acquisition by the Company, TTI adopted a profit sharing
plan. In order to participate in the plan, an employee must be at least 21
years of age, have been employed by TTI at least one year and be a full time
employee. Vesting begins in the third year of employment and increases each
year until full vesting is achieved in the seventh year. The plan is
administered by an independent third party. Trustees for the plan are the
president and controller of TTI. The maximum contribution is the lesser of
15% of eligible salaries or net income plus retained earnings. Profit sharing
expense for the years ended September 30, 1997 and 1996 was $298,000 and
$264,000, respectively.
16. SALE OF SUBSIDIARIES
In July 1996, the Company completed a transaction with an unrelated third
party to sell a controlling interest in the Company's computer subsidiaries.
The transaction was accomplished through the sale of 51% of a newly formed
subsidiary, PC Networx America, Inc. (PCNA), whose sole assets consisted of
the capital stock of Network America, Inc., PC Repair of Florida, Inc.,
Computer Systems Concepts and Register Mate, Inc. The consideration for this
sale amounted to $1,736,457 (subject to adjustments) consisting of $475,000 of
cash, $86,457 of notes receivable and $1,175,000 of preferred stock. At that
time it was the intention of the Company to publicly distribute to its
shareholders a dividend of 30% of the PCNA stock. In a related transaction
with the same party, the Company sold 100% of the stock of Micro
Configurations, Inc. (MCC) for a note receivable in the amount of $951,433
secured by the stock and assets of MCC. Subsequent to this transaction, PCNA's
name was changed to DataTell Solutions, Inc. ("DataTell").
During fiscal 1997, the purchaser and controlling shareholder of DataTell
elected to discontinue that company's efforts to effect a public registration
of DataTell's stock, thus precluding the Company from making a distribution of
the stock to its shareholders. Additionally, certain purchase price
adjustments resulted in the elimination of the note for $86,457. The
purchaser also elected not to further pursue the operation of MCC, and, since
the Company has been unsuccessful in its attempts to recover MCC's assets, the
amount due under the $951,433 note has been determined not to be realizable.
The balance of these notes, totalling $1,037,890, was charged to operations
during fiscal 1997.
The Company, during the latter part of fiscal 1997, having made the decision
to further reduce its involvement in computer-related businesses, entered into
a new agreement with the controlling shareholder of DataTell to dispose of its
remaining direct ownership of DataTell. In connection therewith, the Company
agreed to exchange its 49% interest in DataTell, together with the $1,175,000
of preferred stock referred to above, for cash of $200,000 and a new series of
the
F-35
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
purchaser's preferred stock which carries certain rights to be exchanged for
DataTell stock. This transaction resulted in a loss of $2,575,925 and has been
charged to operations during fiscal 1997.
The Company, during February 1995, entered into a transaction whereby it
exchanged 100% of the common stock of Taylor-Built Industries, Inc., a wholly
owned subsidiary, for 200,000 shares of restricted common stock of Optimax,
Inc., a publicly held company; such shares were sold in a private transaction
in February 1996. No significant gain or loss was recognized on these
transactions.
Subsequent to September 30, 1997, the Company sold Dallas Parkway Properties
Incorporated, its subsidiary which owns the Company's corporate headquarters
building, in exchange for stock in a privately held company; this transaction
resulted in a gain which will be reported in the first quarter of fiscal 1998.
17. SALE OF ASSETS
During the year ended September 30, 1996, TTI completed the sale of a parcel
of land in Lufkin, Texas which resulted in a gain of $875,000.
18. INFORMATION BY INDUSTRY SEGMENT
The Company's industry segments are outlined below.
Food
The food segment produces high quality entrees, plated meals, soups, sauces
and poultry, meat and fish specialties primarily for customers in the airline,
restaurant and weight loss industries.
Forestry
The forestry segment sells, finances, and repairs timber and logging equipment
in East Texas and Western Louisiana. Customers range from small logging
operations to large integrated paper mills.
Transformer Manufacturing
The transformer manufacturing segment manufactures and sells custom designed
transformer and communication filters. Customers are primarily defense
contractors or defense contractor suppliers in the Mid-Atlantic and
Northeastern regions of the United States.
F-36
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
September 30, 1997
------------------------------------------------------------
Transformer
Food Forestry Manufacturing Total
------------ ------------ -------------- -------------
<S> <C> <C> <C> <C>
Net Sales:
Sales to unaffiliated customers $ 96,176,505 $ 52,201,622 $ 3,570,426 $151,948,553
============ ============ ============ ============
Operating profit before income taxes:
Operating profit $ 4,953,194 $ 4,496,570 $ (67,224) $ 9,382,540
============ ============ ============
General corporate expenses (2,799,016)
Non-recurring charge related
to loss on related party receivable (14,838,456)
Interest expense (7,179,973)
Interest income and other 380,655
Loss on investment in computer operations (3,613,815)
------------
Loss before income taxes and warrant accretion $(18,668,065)
============
Identifiable assets:
Segment assets $ 35,565,596 $ 42,442,019 $ 2,807,683 $ 80,815,298
============ ============ ============
Corporate assets (8,665,849)
------------
Total assets $ 72,149,449
============
Capital expenditures:
Segment $ 507,825 $ 222,562 $ 27,667 $ 758,054
============ ============ ============
Corporate --
------------
Total capital expenditures $ 758,054
============
Depreciation and amortization:
Segment $ 2,045,568 $ 691,630 $ 67,137 $ 2,804,335
============ ============ ============
Corporate 1,163,765
------------
Total depreciation and amortization $ 3,968,100
============
</TABLE>
The Company's Food segment had sales to Jenny Craig, Inc. in fiscal 1997 which
comprised approximately 20% of consolidated sales. No other customer accounted
for more than 10% of the Company's sales in fiscal 1997.
F-37
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
September 30, 1996
------------------------------------------------------------------------------------------
Computer
Transformer Sales and Corporate
Food Forestry Manufacturing Service and Other Totals
------------ ------------ ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales:
Sales to unaffiliated customers $ 98,771,224 $ 34,247,283 $ 3,549,126 $ 10,398,177 $ 2,574,975 $ 149,540,785
============ ============ ============ ============== ============ =============
Operating profit (loss) and income
before income taxes:
Operating profit (loss) $ 6,260,382 $ 3,039,922 $ 76,726 $ (1,530,277) $ (1,181,786) $ 6,664,967
Interest and other income 751,385
Interest expense (6,389,926)
Gain on sale of assets 827,852
Income before income taxes and -------------
warrant accretion $ 1,854,278
=============
Identifiable assets:
Segment assets $ 38,746,696 $ 41,073,186 $ 3,305,280 $ -- $ 11,053,359 $ 94,178,521
============ ============ ============ ============== ============ =============
Capital expenditures:
Segment $ 392,668 $ 2,159,674 $ 87,875 $ -- $ 15,992 $ 2,656,209
============ ============ ============ ============== ============ =============
Depreciation and amortization:
Segment $ 2,024,902 $ 611,070 $ 82,402 $ 229,659 $ 469,104 $ 3,417,137
============ ============ ============ ============== ============ =============
</TABLE>
The Company's Food segment had sales to Jenny Craig, Inc. in fiscal 1996 which
comprised approximately 26% of consolidated sales. No other customer accounted
for more than 10% of the Company's sales in fiscal 1996.
Computer Sales and Service
The computer sales and service segment assembled and sold personal computers and
provided systems setup and hardware maintenance services. Customers serviced
ranged from individuals to large corporations. Subsidiaries included in the
segment were Network America, Inc., in Tulsa, Oklahoma; Letronix and Computer
System Concepts in Queens, New York; PC Repair in Sarasota, Florida and Micro
Configurations Inc., in Brooklyn, New York. Effective July 1, 1996, the Company
sold 51% of its interests in the computer operations. Effective July 1, 1997,
the Company sold its remaining interests in the computer operations. (See Note
16)
Corporate and Other
The Corporate segment provided management and advisory services to Stadium
Partners, a privately owned development corporation engaged in the development
of a multi purpose sports facility in Las Vegas, Nevada. (See Note 14).
F-38
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
September 30, 1995
-------------------------------------------------------------------------
Computer
Transformer Sales and
Food Forestry Manufacturing Service Totals
------------ ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales:
Sales to unaffiliated customers $ 40,395,326 $ 42,778,102 $ 3,602,678 $ 15,259,366 $102,035,472
============ ============ ============ ============ ============
Operating profit and earnings
before income taxes extraordinary items and
cumulative effect of accounting changes:
Operating profit $ 2,707,773 $ 4,691,322 $ 302,512 $ 548,601 $ 8,250,208
General corporate expenses (1,498,507)
Interest and other income 592,055
Interest expense (3,791,059)
------------
Income before income taxes and warrant $ 3,552,697
accretion ============
Identifiable assets:
Segment assets $ 38,991,764 $ 34,423,387 $ 2,988,017 $ 7,149,085 $ 83,552,253
============ ============ ============ ============
Corporate assets 4,606,610
------------
Total assets 88,158,863
============
Capital expenditures:
Segment $ 133,118 $ 590,052 $ 68,729 $ 157,408 $ 949,307
============ ============ ============ ============
Corporate 26,576
------------
Total capital expenditures $ 975,883
============
Depreciation and amortization:
Segment $ 857,813 $ 559,872 $ 69,321 $ 322,767 $ 1,809,773
============ ============ ============ ============
Corporate 125,786
------------
Total depreciation and amortization $ 1,935,559
============
</TABLE>
The Company's Food segment had sales to Jenny Craig, Inc. in fiscal 1995 which
comprised approximately 15% of consolidated sales. No other customer accounted
for more than 10% of the Company's sales in fiscal 1995.
F-39
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
19. QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
For the Year Ended September 30, 1997
-----------------------------------------------------------
December 31 March 31 June 30 September 30
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues $ 36,165,789 $ 38,409,223 $ 38,478,729 $ 38,894,812
Gross profit 6,108,874 5,786,039 6,964,065 6,524,463
Operating income 1,485,204 1,974,853 2,224,511 898,956
Net income (loss) $ (67,237) $ (132,001) $ 277,111 $ (18,903,031)
============= ============= ============= =============
Net income (loss) per common share $ (.01) $ (.01) $ .02 $ (1.41)
============= ============= ============= =============
</TABLE>
The Company's results for the quarter ending September 30, 1997 reflect a charge
to earnings in the amount of approximately $14.8 million, (before income
taxes), representing all amounts remaining unpaid by Stadium Partners, net of
the reserve established in fiscal 1996 (See Note 14), and a charge to earnings
in the amount of approximately $3.6 million (before income taxes), representing
the combined loss on disposal of the computer operations (See Note 16).
<TABLE>
<CAPTION>
For the Year Ended September 30, 1996
-----------------------------------------------------------
December 31 March 31 June 30 September 30
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues $ 37,497,289 $ 37,749,771 $ 36,477,962 $ 37,815,763
Gross profit 7,578,229 8,705,251 6,415,347 5,976,131
Operating income 2,955,640 2,945,518 926,614 (162,805)
Net income $ 797,296 $ 1,018,001 $ (41,243) $ (2,016,266)
============= ============= ============= =============
Net income (loss) per common share $ .06 $ .07 $ (.01) $ (.15)
============= ============= ============= =============
</TABLE>
The Company's results for the quarter ending June 30, 1996 have been adjusted to
reflect changes in inventory valuation. The inventory adjustments were
identified in the Computer Group and revised in the third quarter, the last
quarter the Company controlled the Computer Group. The Company recorded a
reserve of $3.34 million in the quarter ending September 30, 1996 related to the
Company's activities with Stadium Partners (See Note 14).
<TABLE>
<CAPTION>
For the Year Ended September 30, 1995
-----------------------------------------------------------
December 31 March 31 June 30 September 30
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues $ 12,611,165 $ 13,831,411 $ 33,633,241 $ 41,959,655
Gross profit 3,064,609 3,034,572 6,285,021 7,595,633
Operating income 877,489 1,005,637 2,151,530 2,717,045
Net income $ 574,354 $ 604,974 $ 917,461 $ 1,188,810
============= ============= ============= =============
Net income per common share $ .05 $ .05 $ .07 $ .09
============= ============= ============= =============
</TABLE>
F-40
<PAGE>
POLYPHASE CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Summary Balance Sheets
<TABLE>
<CAPTION>
September 30,
--------------------------
1997 1996
--------------------------
<S> <C> <C>
Cash $ 8,341 $ 38,391
Prepaid expenses and other 223,378 2,755,841
----------- -----------
Total current assets 231,719 2,794,232
Property and equipment 1,758,267 1,758,267
Less-Accumulated depreciation (223,563) (162,763)
----------- -----------
1,534,704 1,595,504
Non current receivables:
Related parties, net of allowance for
doubtful accounts of $0 and $3,340,000 182,526 9,931,054
Other - 1,037,890
Other assets (primarily investments
in subsidiaries) 28,707,603 28,179,575
----------- -----------
Total assets $30,656,552 $43,538,255
=========== ===========
Accounts payable $ 494,980 $ 346,105
Accrued expenses 610,917 -
Note payable and accrued
interest, related party 13,998,916 -
Current maturities of long term debt 1,500,000 6,345,544
----------- -----------
Total current liabilities 16,604,813 6,691,649
Note payable and accrued
interest, related party - 12,546,000
Long term debt, net 6,650,000 -
Deferred income taxes - 302,206
----------- -----------
Total liabilities 23,254,813 19,539,855
----------- -----------
Stockholders' equity:
Preferred stock 1,325 2,500
Common stock 136,641 131,970
Additional paid in capital 28,955,695 26,630,714
Retained earnings (deficit) (20,716,603) (1,487,695)
Note receivable (975,319) (1,279,089)
----------- -----------
Total stockholders' equity 7,401,739 23,998,400
----------- -----------
$30,656,552 $43,538,255
=========== ===========
</TABLE>
See note to condensed financial information of registrant.
F-41
<PAGE>
POLYPHASE CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Summary Statements of Income
<TABLE>
<CAPTION>
For the Years Ended
September 30,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net revenues $ - $ -
Cost of sales - -
------------ ------------
Gross Profit - -
Selling general and administrative expenses 2,799,016 4,369,130
------------ ------------
Operating income (loss) (2,799,016) (4,369,130)
Other income (expense)
Loss on unconsolidated subsidiaries - (855,565)
Loss on investment in computer operations (3,613,815) -
Loss on related party receivable (14,838,456) -
Interest expense (2,480,808) (2,276,195)
Interest income and other 156,825 71,129
------------ ------------
Total other income (20,776,254) (3,060,631)
Loss before income taxes (23,575,270) (7,429,761)
Income taxes (benefit) (2,746,436) (985,908)
------------ ------------
(20,828,834) (6,443,853)
Equity in net income of subsidiaries 2,003,676 6,201,641
------------ ------------
Net income (loss) (18,825,158) (242,212)
Dividends on preferred stock (403,750) 150,000
------------ ------------
Net income (loss) attributable
to common shareholders $(19,228,908) $ (392,212)
============ ============
</TABLE>
See note to condensed financial information of registrant.
F-42
<PAGE>
POLYPHASE CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Summary Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended
September 30,
1997 1996
------------ -----------
<S> <C> <C>
Cash flow provided by operating activities:
Net income (loss) $(18,825,158) $ (242,212)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 1,163,765 59,946
Provision for doubtful accounts - -
Deferred income tax (1,370,366) 147,698
Loss on related party receivable 14,838,456 3,340,000
Loss on disposition of computer segment 3,613,815 -
Increase (decrease) in, net of effects of acquisitions:
Prepaid expenses and other 2,497,299 34,916
Accounts payable and other 148,875 (512,371)
Accrued expenses and other 610,917 (343,878)
------------ -----------
Net cash used in operating activities 2,677,603 2,484,099
------------ -----------
Cash flows used in investing activities:
Notes receivable - (1,037,890)
Notes receivable from related parties (5,089,928) (12,901,704)
Capital expenditures - (15,992)
Other assets (1,930,594) 6,696,697
------------ -----------
Net cash used in investing activities (7,020,522) (7,258,889)
------------ -----------
Cash flows provided by financing activities:
Net borrowings (payments) on notes payable 3,407,372 1,360,719
Advances from (payments to) related party - (1,153,000)
Proceeds from private placement
of preferred stock 733,877 2,500,000
Proceeds from the issuance of
12% subordinated debentures - 1,500,000
Exercise of common stock options 56,600 50,000
Dividends on preferred stock (153,750) (150,000)
Principal collections on Pyrenees note 303,770 720,911
Common stock issuance costs (35,000) (17,642)
------------ -----------
Net cash provided by financing activities 4,312,869 4,810,988
------------ -----------
Net increase (decrease) in cash (30,050) 36,198
Cash - beginning of year 38,391 2,193
------------ -----------
Cash - end of year $ 8,341 $ 38,391
============ ===========
</TABLE>
See note to condensed financial information of registrant.
F-43
<PAGE>
POLYPHASE CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Note A - Basis of Presentation
In the parent company only financial statements, the Company's investment in
subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries since the date of acquisition. The Company's share of net income
of its unconsolidated subsidiaries is included in consolidated income using the
equity method. The parent company only financial statements should be read in
conjunction with the Company's consolidated financial statements.
Due to subsidiary debt covenant and other restrictions, the Company's ability to
obtain funds from its subsidiaries is limited (See Note 3). In addition, the
parent company's ownership of Texas Timberjack is pledged as collateral against
the note payable to related which is scheduled to mature in April 1998, and
there is no assurance that said note can be refinanced or otherwise paid (See
Notes 3 and 9). Additionally, the parent company has no operating revenues and
may be highly dependent on its subsidiaries for its liquidity needs, and there
is no assurance that, based upon the above, such liquidity will be available.
F-44
<PAGE>
POLYPHASE CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
For the Three Years in the Period Ended September 30, 1997
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- --------------------------------------------------------------------------------------------------------
Balance at Charged to Balance at
beginning costs and end of
Classification of period expenses Deductions Other period
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended September 30, 1997 $ 519,104 $ 374,233 $ (317,145) $ - $ 576,192
===========================================================
Year ended September 30, 1996 $ 506,805 $ 146,666 $ (134,367) $ - $ 519,104
===========================================================
Year ended September 30, 1995 $ 580,251 $ 73,446 $ (146,892) $ - $ 506,805
===========================================================
</TABLE>
F-45
<PAGE>
Exhibit 10.53
COVERTIBLE PROMISSORY NOTE
1. MAKER'S PROMISE TO PAY
----------------------
FOR VALUE RECEIVED in installments as herein provided, PLY Stadium
Partners, Inc., a Nevada corporation ("Maker"), promises to pay to Polyphase
Corporation, a Nevada corporation or order ("Lender"), at 16885 Dallas Parkway,
Suite 400, Dallas, Texas 75248, or at such other place as the holder hereof may
designate in writing in accordance with that certain Master Loan Agreement dated
January 1, 1996 between the Maker and Lender (the "Loan Agreement"), the
principal sum of Four Million Dollars ($4,000,000), together with accrued
interest on the aggregate unpaid principal amount outstanding from time to time
hereunder at the rate set forth in Section 4 hereof and all other fees payable
hereunder including, without limitation, attorneys' fees and expenses (whether
litigation is required) in the manner and upon the terms and conditions set
forth below. As used herein, the term "Lender" shall mean Lender and any
subsequent holder of this Note, whichever is applicable from time to time.
2. MATURITY DATE
-------------
The unpaid principal balance hereof together with all unpaid interest
accrued thereon and any other sums payable hereunder, shall be due and payable
on December 31, 2000.
3. PREPAYMENT
----------
This Note may be prepaid in full or in part at any time without premium or
penalty.
4. INTEREST RATE
-------------
The outstanding principal amount of this Note shall bear simple interest
from the date hereof until paid at the annual rate of twelve percent (12%)
except as otherwise provided in this Section 4 and Section 8 hereof (the
"Interest Rate"). Throughout the term of this Note, interest shall be calculated
on a 365-day year, but shall be computed for the actual number of days in the
period for which interest is charged.
In the event any payment hereunder is not made when due, then the amount of
the interest accrued for the period immediately proceeding the date on which
payment is due shall be added to principal and shall bear interest as principal
hereunder.
In the event any sum hereunder has not been paid on or before the Maturity
Date, then interest shall be compounded daily thereafter until payment in full
of all sums due hereunder.
5. SECURITY
--------
This Note evidences the obligation of Maker to Lender which is secured by
the collateral described in the Loan Agreement (the "Collateral") and the
guarantees of Paul Tanner and the Pyrenees group.
6. CONVERSION
----------
The outstanding principal balance of this Note is convertible into
fourteen percent (14%) of each class of the shares of stock of PLY Stadium
Partners, Inc. currently issued and outstanding or which may become issued and
outstanding.
Maker will not amend the Articles of Incorporation or participate in any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, for
1
<PAGE>
the purpose of avoiding or seeking to avoid the observance or performance of any
of the terms to be observed or performed hereunder by Maker, but will at all
times in good faith assist in carrying out all provisions of this Section and in
the taking of all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of Lender against dilution or other
impairment.
7. REMEDIES
--------
Upon the occurrence of any Event of Default and without demand or notice,
Lender shall have the option to declare the entire balance of principal hereof
together with all accrued interest thereon immediately due and payable and to
exercise all rights and remedies available by law, contract, equity or
otherwise. Upon the occurrence of an Event of Default, the entire balance of
principal together with all accrued interest thereon shall bear interest at a
default rate equal to the Interest Rate. No delay or omission on the part of
Lender hereof in exercising any power or right unfired this Note or under any
agreement, document, provision of law or otherwise shall operate as a waiver of
such power or right or preclude other or further exercise thereof or the
exercise of any other power or right. Enforcement by Lender of any security or
the payment hereof shall not constitute an election by Lender of remedies so as
to preclude the exercise of any other remedy available to Lender. Acceptance of
payment after its due date shall not waive the right of Lender to require prompt
payment when due of all other payments or to declare a default for failure to so
pay. The application of this default rate shall not be interpreted or deemed to
extend any due date or otherwise limit any of Lender's remedies or rights
hereunder or otherwise existing.
8. INTEREST RATE LIMITATION
------------------------
In the event that, for any reason, it shall be determined that the usury
law of the State of Texas is applicable to this Note, Lender and Maker stipulate
and agree that none of the terms and provisions contained herein shall ever be
construed to create a contract for the use, forbearance or detention of money
requiring payment of interest at a rate in excess of the maximum interest rate
permitted to be charged by the laws of the State of Texas. In such event, if
Lender shall collect monies which are deemed to constitute interest which would
otherwise increase the effective interest rate of this Note to a rate in excess
of the maximum rate permitted to be charged by the laws of the State of Texas,
all such sums deemed to constitute interest in excess of such maximum rate
shall, at the option of Lender, be credited to the payment of the sums due
hereunder or returned to Maker.
9. WAIVER
------
Maker, for itself and its legal representatives, successors and assigns,
hereby waives diligence, presentment of payment, protest demand, exhibition of
this Note, notice of protest, notice of dishonor, notice of nonpayment, notice
of demand, notice of maturity and any and all exemption rights from the
indebtedness of this Note and expressly agrees that, without in any way
affecting the liability of Maker hereunder, Lender may extend any maturity date
or the time for payment of any installment due hereunder, accept additional
security, release any party liable hereunder. And release any security now or
hereafter securing this Note. Maker further waives, to the full extent permitted
by law, the right to plead any and all statutes of limitations as a defense to
any demand on this Note, or on any deed of trust, security agreement, lease
assignment, guaranty or other agreement now or hereafter securing this Note.
10. NOTICES
-------
Any notice or other communications required or permitted hereunder shall be
in writing and shall be delivered personally, telegraphed, sent by facsimile
transmission when followed by the mailing of such notice within one (1) business
day of such transmission by First Class United States mail, or sent by
certified, registered or express mail, postage prepaid. Any such notice shall be
deemed given when so delivered personally, telegraphed or sent by facsimile
transmission, or if mailed, two days after the date of deposit in the United
States mail, as follows:
2
<PAGE>
(a) if to Maker: PLY Stadium Partners, Inc.
2300 W. Sahara, Suite 130
Las Vegas, Nevada 89102
(b) if to Lender to: Polyphase Corporation
16885 Dallas Parkway, Suite 400
Dallas, Texas 75248
Any party may be giving notice in accordance with this Section 11 to the
other party designate under address or individual for receipt of notices
hereunder.
11. ATTORNEY'S FEES
---------------
In the event of any controversy, claim or dispute arising from or relating
to this Note, the prevailing party shall be entitled to recover from the losing
party all costs of enforcement and collection, including, without limitation,
reasonable attorneys' fees incurred by the prevailing party in connection
therewith, whether such enforcement and collection includes the filing of a
lawsuit; provided, however, that if the losing party is entitled to and does
appeal any judgment resulting from a lawsuit or other action filed with respect
thereto, then the prevailing party shall be determined upon the issuance of a
final, non-appealable order with respect to such lawsuit or other action.
12. SEVERABILITY
------------
Every provision of this Note is intended to be severable. In the event any
term or provision hereof is declared by a court of competent jurisdiction to be
illegal or invalid for any reason whatsoever, such illegality or invalidity
shall not effect the balance of terms and provisions hereof, which terms and
provisions shall remain binding and enforceable.
13. TIME IS OF THE ESSENCE
----------------------
Time is of the essence with respect to each obligation of Maker hereunder.
14. NUMBER AND GENDER
-----------------
Wherever the context so requires, the singular number shall include the
plural; the plural shall include the singular; and the neuter, masculine and
feminine genders shall each respectively include the others.
15. HEADINGS
--------
Headings at the beginning of each numbered Section of this Note are
intended solely for convenience and are not to be deemed or construed to be part
of this Note.
16. CHOICE OF LAW
-------------
This Note shall be governed by and construed in accordance with the laws of
the State of Texas.
Date: ___________ __, 199_ PLY STADIUM PARTNERS, INC.
By:
------------------------------
Paul Tanner, President
3
<PAGE>
Exhibit 10.54
MASTER LOAN AGREEMENT
THIS MASTER LOAN AGREEMENT (this "Agreement") is made and entered into as
of the 1st day of January, 1996, by and between POLYPHASE CORPORATION, a Nevada
Corporation ("Polyphase" or "Lender"), and PLY STADIUM PARTNERS, INC., a Nevada
corporation ("Borrower").
RECITALS
Borrower has arranged with Polyphase for secured loans as described in Paragraph
1 hereof ("Loans"). Polyphase is willing to make such Loans to Borrower, upon
terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, Polyphase and Borrower hereby agree as follows:
1. THE LOANS
---------
1.1 Upon the terms and subject to the conditions hereinafter set forth,
the Lender shall make loans to the Borrower at its discretion, in
such principal amounts as the Lender shall deem necessary and
appropriate to the Las Vegas Stadium Project, in Las Vegas, Nevada.
The Loans shall be disbursed to the Borrower from and after the date
hereof at such times and in such amounts as may be designated and
approved. Provided, however, the Lender may terminate this commitment
if the Lender is unable to make further advances or if the Lender
believes further advances would be against its better business
judgment. Included in such loans will be all sums accrued but unpaid
pursuant to that certain Management Agreement by and between PLY and
Polyphase of even date herewith.
1.2 Up to Four Million Dollars ($4,000,000)of the amounts advanced
pursuant to this Agreement will be evidenced by a Convertible
Promissory Note bearing interest at a rate of twelve percent (12%)
per annum. The note is Convertible into a fourteen percent (14%)
interest in PLY Stadium Partners, Inc.
1.3 Additional amounts advanced pursuant to this Agreement will also bear
interest at a rate of twelve percent (12%) per annum and unless
evidenced by separate promissory notes will be governed by the terms
and provisions of this Agreement. All amounts advanced pursuant to
this Agreement shall be due and payable on the one hundred twentieth
(120th) day after closing of the Real Estate Land Purchase from one
Union Pacific Railroad.
1.4 Included in Paragraphs 1.2 or 1.3 are the amounts of $2,000,872
advanced to Paul Tanner and $1,514,500 advanced to The Pyrenees Group
prior to the date of this Agreement.
1.5 Paul Tanner and Pyrenees Group, Inc. will execute a Guarantee and
Security Agreement of even date herewith.
2. PROMISSORY NOTE AND SECURITY
----------------------------
2.1 Creation of Security Interest. Borrower hereby creates and grants to
-----------------------------
Lender and/or its assignees a security interest in the Collateral (as
herein defined) to secure the payments of the indebtedness evidenced
by, and the performance and discharge of each and every covenant,
condition and agreement contained in this Agreement and each Note,
and any and all modifications, extensions or renewals thereof.
1
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF BORROWER
------------------------------------------
Borrower hereby represents and warrants to Lender the following with
respect to, and as of the date of, each Loan:
3.1 Organization, Etc. Borrower is a corporation duly organized, validly
-----------------
existing and in good standing under the laws of the State of Nevada
and has the authority to borrow as provided herein and to execute,
deliver and perform the terms and conditions of this Agreement and
all other instruments, documents and agreements contemplated hereby.
3.2 Authorization of Borrowing. The Loans hereunder and the execution,
--------------------------
delivery and performance by Borrower of this Agreement and all other
instruments, documents and agreements contemplated hereby, have been
duly authorized by all necessary parties and the Board of Directors
of Borrower, create legal, valid or binding obligations of Borrower
and do not and will not: (I) violate any indenture, agreement or
other instrument to which Borrower is a party or by which it or any
of its property is bound or be in conflict with, result in a breach
of or constitute a default under any such indenture, agreement or
other instrument; or (ii) result in the creation or imposition of any
lien, charge or encumbrance of any nature in favor of any person
other than Lender upon any of the Collateral or other assets of
Borrower.
3.3 Taxes. Borrower has filed or caused to be filed all federal, state
-----
and local tax returns which are required to be filed and has paid or
caused to be paid prior to delivering such returns, all taxes as
shown thereon or on any assessments received by them to the extent
that such taxes have become due.
3.4 Litigation. There are no material actions, suits or proceedings
----------
pending or to the knowledge of Borrower, threatened against or
affecting Borrower, at law or in equity or before or buy any federal
state, municipal or governmental department which involve any of the
transactions herein contemplated or the possibility of any judgment
or liability which may result in any material adverse change in the
business, operations, prospects, properties or assets or in the
condition, financial or otherwise, of Borrower.
3.5 Regulation U. No part of the proceeds of the Loans will be used to
------------
purchase or carry margin stock (within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System) or to extend
credit to others for the purpose of purchasing or carrying any such
margin stock.
3.6 Purpose of Borrowing. All Loans by the Borrower from Lender shall
--------------------
be for the business purpose of Borrower and none of the Loans shall
be for consumer use.
3.7 Authorized to Do Business. Borrower is, or shall be prior to the
-------------------------
funding of any Loan, authorized to do business in all states where it
is necessary for it to be so authorized.
3.8 Default. Borrower is not in default in the payment of the principal
-------
of or interest on an indebtedness for borrowed money, nor is it in
default under any instrument or agreement under and subject to which
any indebtedness for borrowed money has been issued or obligation
created and no event has occurred under the provisions of any such
instrument or agreement which, with or without the lapse of time or
the giving of notice or both, constitutes or would constitute an
event of default thereunder.
4. CONDITIONS OF LENDING
---------------------
The obligation of Lender to lend hereunder is subject to the following
conditions precedent:
2
<PAGE>
4.1 Representations and Warranties. On the date of each Loan, the
------------------------------
representations and warranties set forth in Section 4 hereof shall be
true and correct on and as of such date with the same effect as
though such representations and warranties had been made on and as of
such date.
4.2 No Default. At the time of each Loan, Borrower shall be in
----------
compliance with all terms and provisions set forth herein and no
Event of Default hereof nor any event which upon notice or lapse of
time or both would constitute such an Event of Default shall have
occurred and be continuing at the time of the Loan
5. BORROWER'S COVENANTS
--------------------
Borrower covenants and agrees that from the date hereof until termination
of this Agreement and full payment of each Loan, unless Lender shall otherwise
consent in writing, it will:
5.1 Do or cause to be done all things necessary to preserve and keep in
full force and effect Borrower's corporate existence and shall comply
with all Loans applicable to it;
5.2 Notify Lender prior to changing its corporate name or identity;
5.3 Promptly upon request by Lender, execute and deliver any documents,
deliver to Lender any instruments, give any notices, execute and file
any financing statements or other documents, all in form satisfactory
to Lender and take any other actions which are necessary or, in the
judgment of Lender, desirable to perfect or continue the perfection
for the purposes of this Agreement and will pay all costs incurred in
connection therewith;
5.4 Promptly notify Lender in writing of any event or change of law,
regulation, business practice or business condition which may
adversely affect the financial or business prospects of Borrower;
5.5 Allow Lender and grant Lender the right at any time to make any
payments and do any other acts Lender shall deem reasonably necessary
to protect its interest, including without limitation, the right to
pay, purchase contest or compromise any encumbrance, charge or lien
which in the judgment of Lender appears to be prior to or superior
and the right to pay all expenses incurred in connection therewith,
including attorneys' fees. Borrower hereby agrees it shall be bound
by any such payment made or act taken by Lender hereunder and shall
reimburse Lender for all payments made and expenses incurred, which
amounts shall be secured under this Agreement. Lender shall have no
obligation to make any of the foregoing payments or perform any of
the foregoing acts;
5.6 Pay and discharge or cause to be paid and discharged, all taxes,
assessments and governmental charges or levies imposed upon any of
the Collateral;
5.7 Notify Lender in writing immediately upon the occurrence of any event
which constitutes an Event of Default as set forth in Section 7.1
hereof or any event which would constitute such an Event of Default,
upon the giving of notice or lapse of time or both;
5.8 Not take any action or engage in any course of conduct or make any
representation or permit or authorize any affiliate to so act, which
would suggest or create the inference that the relationship between
Borrower and Lender in connection with the Loans is other than that
of debtor and creditor.
3
<PAGE>
6. DEFAULT
6.1 Events of Default. The following events shall be events of default
("Event(s) of Default"):
(a) Any representation or warranty made herein is proven to be false or
misleading in any material respect if such representation or warranty
continues to be false or misleading for a period of 20 days following
the sending of written notice;
(b) With respect to Sections 4.1, 4.3 and 4.4 hereof, any representations
or warranty made therein becomes false or misleading in any material
respect after the making of the last Loan if such representation or
warranty continues to be false or misleading for a period of 20 days
following the sending of written notice;
(c) Any report, certificate, appraisal or other instrument furnished in
connection with this Agreement or the borrowing hereunder is proven
to be false or misleading in any material respect if such information
continues to be false or misleading for a period of 20 days following
sending a written notice;
(d) Borrower defaults in the payment of any installment of principal or
interest on a Loan as and when due and payable and such default
continues for a period of 10 days; Borrower will not be sent any
written notice that a payment has not been timely made;
(e) Borrower defaults in the due observance or performance of any
material covenant, condition or agreement on the part of Borrower to
be observed or performed pursuant to the terms of this Agreement,
including, but not limited to, Section 6.13 hereof, the Notes or
other instrument, document or agreement delivered pursuant hereto and
such default shall continue unremedied for 10 days;
(f) A petition is filed against Borrower, under the federal bankruptcy
laws, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency or other similar law or a
receiver, liquidator, assignee, custodian trustee or similar official
is appointed ordering the winding up or liquidation of Borrower's
affairs and such petition, decree or order or appointment is unstayed
and in effect for a period of 15 consecutive days;
(g) Borrower commences a voluntary action under the federal bankruptcy
laws, as now or hereafter constituted, or any other applicable or
state bankruptcy, insolvency or similar law or consents to the
appointment or taking possession by receiver, liquidator, assignee,
trustee or custodian of Borrower, or makes an assignment for the
benefit of creditors or fails generally to pay its respective debts
as such debt become due (provided that any failure of Borrower to
generally pay its debts unless there is an Event of Default under
Section 7.1(d) hereof) or takes any action in regard to any of the
foregoing.
6.2 Rights in the Event of Default. Upon the occurrence of any Event of
------------------------------
Default, Lender may without notice to Borrower, in its discretion,
declare the outstanding principal amount of each Loan and all accrued
interest thereon, to be immediately due and payable in full and all
other amounts due thereunder without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived.
Lender shall also have all such rights and remedies as may be
available in accordance with the terms of each Loan and all
applicable laws and regulations regarding such security. The
occurrence of an Event of Default or the failure of any condition
precedent in Section 5 hereof, Lender may at any time hereafter and
while such failure of condition or Event of Default remains uncured,
refuse to issue further disbursements under this Agreement until such
failure of conditions or Event of Default are cured to the
satisfaction of Lender.
4
<PAGE>
6.3 No Election to Cure. The exercise of any right or remedy of Lender
-------------------
shall not constitute a waiver of any other right or remedy or
prejudice Lender in the exercise of any other right or remedy. The
exercise of any right or remedy by Lender shall not constitute a cur
of any Event of Default unless all sums then due and payable to
Lender with respect to the Loans are repaid and Borrower has cured
all other Event of Default.
6.4 Repayment of Funds Advanced. If Lender expends Lender's own funds in
---------------------------
exercising any of the rights or remedies of Lender under any of the
Loan Documents or Borrower shall become indebted to Lender under any
provisions of any of the Loan Documents, the amount of such funds or
indebtedness shall, be added to the outstanding principal balance of
the applicable Notes from the date such funds were expended or such
indebtedness was incurred. Until repaid, such amounts shall have the
security afforded disbursements under the Notes.
6.5 Rights Cumulative. All rights and remedies of Lender provided in
-----------------
the Loan Documents, granted by law or otherwise, are cumulative and
Lender may exercise any or all such rights and remedies at any time.
6.6 No Waiver. No waiver of any breach of, Event of Default under,
---------
failure of or default of, any covenant or condition under the terms
of the Loan Documents shall be implied from any failure of Lender to
take or any delay by Lender in taking action with respect to any such
breach, Event of Default, failure or default or from any previous
waiver of a similar or unrelated breach, Event of Default, failure or
default. A waiver of any term of any of the Loan Documents must be
made in writing and shall be limited to the express written terms of
such waiver
7. MISCELLANEOUS
7.1 Survival of Covenants, etc. All covenants, agreements,
---------------------------
representations and warranties made herein shall survive the making
of the Loans and the execution and delivery to Lender of the Loan
Documents and shall continue in full force and effect during the term
of this Agreement and for so long as any sums remain unpaid under the
terms of the notes.
7.2 Successors and Assigns. Whenever in this Agreement a party is
----------------------
referred to, such reference shall be deemed to include the successors
and assigns of such parties. All covenants], promises and agreements
by or on behalf of Borrower which are contained in this Agreement
shall bind and inure to the benefit of the successors and assigns of
Borrower.
7.3 Applicable Law; Jurisdiction. This Agreement, the Notes and any
----------------------------
other document, instrument or agreement contemplated hereunder shall
be governed by and construed in accordance with the laws of the State
of Nevada. Any controversy or claim arising out of or relating to
this Agreement, the Notes and any other document, instrument or
agreement contemplate hereunder or its interpretation, shall be
settled by arbitration. If the parties are unable to agree on one
arbitrator to hear and decide upon such claims, the claim or
controversy shall be settled by the American Arbitration Association
on the application of either party. The arbitration proceeding shall
be conducted in accordance with the then prevailing rules of the
American Arbitration Association or any successor thereto. The
parties consent to entry of a judgment on any arbitration award which
judgment may be entered in any court of competent jurisdiction. The
arbitrator's award shall be final and binding upon each party. Unless
otherwise determined by the arbitrators, the fees and expenses for
such arbitration shall be shared by the parties. The arbitration
proceeding shall
5
<PAGE>
take place in Las Vegas, Nevada. In connection with any arbitration
proceeding, the provisions of the laws of Civil Procedure for the
State of Nevada with respect to depositions and discovery (including
any successor provisions thereto)are hereby incorporated by this
reference and made a part of this Agreement.
7.4 Modification of Agreement. This Agreement, together with the Notes
-------------------------
and other agreements referred to herein, shall constitute the entire
agreement between Lender and Borrower and no modification, amendment
or waiver of any provision hereof and thereof shall in any event be
effective unless the same shall be in writing signed by Lender and
then such waiver or consent shall be effective only in the specific
instance and for the purpose of which given. No notice or demand on
Borrower to any other or further notice or demand in the same,
similar or other circumstances.
7.5 Severability. If any provision of the Loan Document shall for any
------------
reason be determined by a court of competent jurisdiction and
sustained on appeal, if any, to be unenforceable by Lender in any
respect, such unenforceability shall not affect any other provisions
thereof and the Loan Documents shall be construed as if such
unenforceable provision had not been contained therein; provided,
however, that if provision of the Loan Documents shall be
unenforceable by reason of a final judgment of a court of competent
jurisdiction based upon such court's ruling, and sustained on appeal,
if any, that such provision is unenforceable because of the
unenforceable degree of magnitude or the obligation imposed thereby,
such unenforceable obligation shall be reduced in magnitude or degree
by the minimum amount necessary in order to provide the maximum
degree or magnitude of right which are enforceable by Lender, and the
Loan Documents shall be automatically and retroactively amended
accordingly to contain such maximum or magnitude of such obligations
which is enforceable by Lender, rather than the more burdensome but
unenforceable original obligation. As used herein, "unenforceable" is
used in the broadest and most comprehensive sense and includes the
concepts of void and voidable.
7.6 Indemnity. Borrower indemnifies Lender against and holds Lender
---------
harmless form, any and all losses, damages (whether general, punitive
or otherwise), liabilities, claims, causes of action (whether legal,
equitable or administrative), judgments, court costs and legal or
other expenses (including attorneys' fees) which Lender may suffer or
incur as a direct or indirect consequence of: (i) Borrower's failure
to perform any of Borrower's obligations as and when required by this
Agreement or any of the Loan Documents, including, without
limitation, any failure, at any time, of any representation or
warranty of Borrower to be true and correct and any failure b
Borrower to satisfy any condition; (ii) any claim or cause of action
of any kind by any person or entity to the effect that Lender is in
any way responsible or liable for any act or omission by Borrower,
whether on account of any theory or derivative liability or
otherwise; (iii) any act or omission by Borrower or other person or
entity, except Lender, or (iv) any claim or cause of action of any
kind by any person or entity which would have the effect of denying
Lender the full benefit or protection of any provisions of this
Agreement or the Loan Documents. Lender's rights of indemnity shall
not be directly or indirectly limited, prejudiced, impaired or
eliminated in any way by any finding or allegation that Lender's
conduct is active, passive or subject to any other classification or
that Lender is directly or indirectly responsible under any theory of
any kind, character or nature for any act or omission by Borrower or
any other person or entity, except Lender. Notwithstanding the
foregoing, Borrower shall be obligated to indemnify Lender with
respect to any intentional tort or act of gross negligence which
Lender is personally determined by the judgment of a court of
competent jurisdiction(sustained on appeal, if any) to have
committed. Borrower shall pay any indebtedness arising under such
indemnity to Lender immediately upon demand by Lender together with
interest thereon from the date such indebtedness arises until paid at
the greatest effective rate of interest specified in the Note and
which is applicable on
6
<PAGE>
or after the maturity or acceleration of the Note and/or this
Agreement. Borrower's duty to indemnify Lender shall survive the
release and cancellation of the Note and/or this Agreement.
7.7 Further Assurances. Borrower shall, upon the request of Lender, at
------------------
Borrower's reasonable expense, execute, acknowledge and deliver such
further instruments (including, without limitation, a declaration of
no offset) and perform such other acts as may be necessary, desirable
or proper (as determined by Lender) to carry out the purposes of the
Loan Documents or to perfect and preserve the lien or charge of the
Loan Documents.
7.8 Form of Document. The form and substance of all documents,
----------------
instruments, papers and forms of evidence to be delivered to Lender
under the terms of any of the Loan Documents shall be subject to the
approval of Lender under the terms of any of the Loan Documents,
shall be amended, modified, superseded or terminated in any respect
whatsoever without Lender's prior written approval.
7.9 No Third Parties Benefited. This Agreement is entered into for the
--------------------------
sole protection and benefit of Lender and Borrower and their
permitted successors and assigns and no other person or persons shall
have any right of action under this Agreement.
7.10 Authority to File Notices. Borrower irrevocably appoints, designates
-------------------------
and authorizes Lender in Lender's name and Borrower as Borrower's
attorney-in-fact, which agency is coupled with an interest, to
execute and/or record any notices, instruments or documents that
Lender deems appropriate to protect the interest of Lender.
7.11 Actions. Lender shall have the right to commence, appear in or
-------
defend any action or proceeding purporting to affect the Collateral
or the Loan Documents, or the rights, duties or liabilities of
Borrower or Lender under any of the Loan Documents. In exercising
such right Lender may incur and pay costs and expenses including,
without limitation, attorneys' fees and court costs. Borrower agrees
to pay to Lender upon demand all such expenses incurred or paid by
Lender together with interest, at the rate of 10% per annum, from the
date such expenses were incurred or paid by Lender. Until repaid,
such amounts shall have the security afforded disbursements under the
Note.
7.12 Attorneys' Fees. In the event of any controversy, claim or dispute
---------------
arising from or relating to this Agreement or any of the Loan
Documents, the prevailing party shall be entitled to recover from the
losing party all costs of enforcement or collection, including,
without limitation, reasonable attorneys' fees incurred by the
prevailing party in connection therewith, whether such enforcement
and collection includes the filing of a lawsuit; provided, however,
that if the losing party is entitled to and does appeal any judgment
resulting from a lawsuit or other action filed with respect thereto,
then the prevailing party shall be determined upon the issuance of a
final, non-appealable order with respect to such lawsuit or other
action.
7.13 Time. Time is of the essence of each term of the Loan Documents.
----
7.14 Integration. The Loan Documents and all exhibits and attachments
-----------
thereto constitute the entire Agreement between Lender and Borrower
hereunder and represent a complete integration thereof. Lender an
Borrower agree that all prior or contemporaneous oral agreements and
all prior written agreements between and among themselves and their
agents and representatives relative to the subject matter and terms
of the Loans are merged in or superseded by the Loan Documents. No
other agreement, statement or promise made by any
7
<PAGE>
party to any employee, officer or agent of any party that is not in
writing and signed by all parties shall be binding.
7.15 Term. The term of this Agreement shall commence as of the date
----
hereof and shall continue in full force and effect until payment in
full of the principal and interest on each of the Notes or any
renewals thereof.
7.16 Notices. All notices or communications hereunder shall be in writing
-------
and shall be sent to Polyphase Corporation at: 16885 Dallas Parkway,
Dallas, Texas 75248, Attention: President; and to Borrower at: 2300
W. Sahara, Suite #130, Box 17, Las Vegas, Nevada 89192, Attention:
Vice President/ General Manager. All such notices and communications
shall be given personally, by messenger or federal express, by
facsimile or by U.S. first-class mail, return receipt requested,
registered or certified, with postage prepaid. Notices shall be
deemed given upon the earliest of receipt, confirmed facsimile, pick-
up by messenger or federal express or three (3) days after deposit in
the mail.
POLYPHASE CORPORATION PLY STADIUM PARTNERS, INC.
------------------------- --------------------------------
Paul Tanner, President Paul Tanner, President
8
<PAGE>
Exhibit 10.55
GUARANTY
THIS GUARANTY (this "Guaranty") is entered into as of January 1, 1996 by
Paul A. Tanner, an individual resident of Dallas, Texas ("Guarantor"), in favor
of and for the benefit of Polyphase Corporation, a Nevada corporation
("Polyphase").
RECITALS:
- ---------
A. Polyphase has executed and delivered to PLY Stadium Partners, Inc.
a Master Loan Agreement authorizing advances of principal amounts
as may be requested by Polyphase. Up to Four Million Dollars
($4,000,000) of the principal advances will be evidenced by a
Convertible promissory Note. Additional principal advances may be
evidenced by other Promissory Note(s) and if not then by other
documentation of each advance subject to the terms and conditions
of the master Loan Agreement.
B. Guarantor is willing, irrevocably and unconditionally, to guaranty
such obligations of the Company subject to the terms and provisions
hereof.
AGREEMENT:
----------
NOW, THEREFORE, based upon the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Guarantor hereby agrees as follows:
SECTION 1. The Guaranty.
------------
1.1 Guaranty of the Guaranteed Obligations. Guarantor hereby irrevocably
and unconditionally guaranties, as primary obligor and not merely as
surety, the due and punctual payment in full of al Guaranteed
Obligations when the same shall become due, whether at stated
maturity, by required prepayment, acceleration, demand or otherwise
(including amounts that would become due but for the operation of
the automatic stay under Section 362(a) of the Bankruptcy Code, 11
U.S.C. 362(a)). The term "Guaranteed Obligations" used herein in its
----------------------
most comprehensive sense and includes any and all liabilities and/or
obligations ("obligations") of the Company now or hereafter made,
incurred or created, whether absolute or contingent, liquidated or
unliquidated, whether due or not due, and however arising under or
in connection with the Note.
1.2 Liability of Guarantor Absolute. Guarantor agrees that its
-------------------------------
obligations hereunder are irrevocable, absolute, independent and
unconditional and shall not be affected by any circumstance which
constitutes a legal or equitable discharge of a guarantor or surety
other than payment in full of the Guaranteed Obligations. In
furtherance of the foregoing and without limiting the generality
thereof, Guarantor agrees as follows:
(a) This Guaranty is a guaranty of payment when due and not of
collectibilty.
(b) Polyphase may enforce this Guaranty upon the occurrence of any event
of default under the Note (an "Event of Default") notwithstanding
the existence of any dispute between Polyphase and the Company with
respect to the existence of such Event of Default.
(c) The obligations of Guarantor hereunder are independent of the
obligations of the Company under the Note and the obligations of any
other guarantor of the obligations of the Company thereunder, and a
separate action or actions may be brought and prosecuted against
Guarantor whether or not any action is brought against the Company
or any of such other guarantors and whether or not the Company is
joined in any such action or actions.
1
<PAGE>
(d) Guarantor's payment of a portion, but not all, of the Guaranteed
Obligations shall in no way limit, affect, modify or abridge
Guarantor's liability for a portion of the Guaranteed Obligations,
which has not been paid. Without limiting the generality of the
foregoing, if Polyphase is awarded a judgment in any suit brought
to enforce Guarantor's covenant to pay a portion of Guaranteed
Obligations, such judgment shall not be deemed to release Guarantor
from its covenant to pay the portion of the Guaranteed Obligations
that is not the subject of such suit.
(e) Subject to the terms of the Master Loan Agreement or Promissory
Note, Polyphase, upon such terms as it deems appropriate, without
notice or demand and without affecting the validity or
enforceability of this Guaranty or giving rise to any reduction,
limitation, impairment, discharge or termination of Guarantor's
liability hereunder, from time to time may (I) renew, extend,
accelerate, increase the rate of interest on, or otherwise change
the time, place manner or terms of payment of the Guaranteed
Obligations; (ii) settle, compromise, release or discharge, or
accept or refuse any offer of performance with respect to, or
substitutions for, the Guaranteed Obligations or any agreement
relating thereto and/or subordinate the payment of the same to the
payment of any other obligations; (iii) request and accept other
guaranties of the Guaranteed Obligations and take and hold security
for the payment of this Guaranty or the Guaranteed Obligations;
(iv) release, surrender, exchange, substitute, compromise, settle,
rescind, waive, alter, subordinate or modify, with or without
consideration, any security for payment of the Guaranteed
Obligations, any other guaranties of the Guaranteed Obligations, or
any other obligation of any person with respect to the Guaranteed
Obligations; (v) enforce and apply any security now or hereafter
held by or for the benefit of Polyphase in respect of this Guaranty
or the Guaranteed Obligations and direct the order or manner of
sale thereof, or exercise any other right or remedy that Polyphase
may have against any such security, as Polyphase in its discretion
may determine consistent with the master Loan Agreement or Note and
any applicable security agreement, including foreclosure on any
such security pursuant to one or more judicial or nonjudicial
sales, whether or not every aspect of any such sale is commercially
reasonable, and even though such action operates to impair or
extinguish any right of reimbursement or subrogation or other right
or remedy of Guarantor against the Company or any security for the
Guaranteed Obligations; and (vi) exercise any other rights under
the master Loan Agreement or Note.
(f) This Guaranty and the obligations of Guarantor hereunder shall be
valid and enforceable and shall not be subject to any reduction,
limitation, impairment, discharge or termination for any reason
(other than payment in full of the Guaranteed Obligations),
including without limitation the occurrence of any of the
following, whether or not Guarantor shall have had notice or
knowledge of any of them: (i) any failure or omission to assert or
enforce or agreement or election not to assert or enforce, or the
stay or enjoining, by order of court, by operation of law or
otherwise, of the exercise or enforcement of, any claim or demand
or any right, power or remedy (whether arising under the Master
Loan Document or Note, at law, in equity or otherwise) with respect
to the Guaranteed Obligations or any agreement relating thereto, or
with respect to any other guaranty of or security for the payment
of the Guaranteed Obligations; (ii) any rescission, waiver,
amendment or modification of, or any consent to departure from ,
any of the terms or provisions (including without limitation
provisions relating to events of default) of the master Loan
Agreement or Note or any agreement or instrument executed pursuant
thereto, or of any other guaranty or security for the Guaranteed
Obligations; (iii) the Guaranteed Obligations, or any agreement
relating thereto, at any time being found to be illegal, invalid or
unenforceable in any respect; (iv) the application of payments
received from any source (other than payments received from the
proceeds on any security for the Guaranteed Obligations, except to
the extent such security also serves as collateral for indebtedness
other than the Guaranteed Obligations and such payments are applied
to such other indebtedness) to the payment of indebtedness other
than the Guaranteed Obligations, even though Polyphonies might have
elected to apply such
2
<PAGE>
payment to any other part or all of the Guaranteed Obligations; (v)
Polyphase's consent to the change, reorganization or termination of
the corporate structure or existence of the Company and to any
corresponding restructuring of the Guaranteed Obligations; (vi) any
failure to perfect or continue perfection of a security interest in
any collateral which secures any of the Guaranteed Obligations;
(vii) any defenses, set-offs or counterclaims which the Company may
allege or assert against Polyphase in respect of the Guaranteed
Obligations, including but not limited to failure of consideration,
breach of warranty, statute of frauds, statute of limitations,
accord and satisfaction or usury; and (viii) any other act or thing
or omission, or delay to do any other act or thing, which may or
might in any manner or to any extent vary the risk of Guarantor as
an obligor in respect of the Guaranteed Obligations.
1.3 Waivers by Guarantor. Guarantor hereby waives, for the benefit of Polyphase:
--------------------
(a) any right to require Polyphase, as a condition of payment or
performance by Guarantor, to (I) proceed against the Company, any
other guarantor of the Guaranteed Obligations or any other person
or entity, (ii) proceed against or exhaust any security held from
the Company, any other guarantor of the Guaranteed Obligations or
any other person or entity, (iii) proceed against or have resort to
any balance of any deposit account or credit on the books of
Polyphase in favor of the Company or any other person or entity, or
(iv) pursue any other remedy in the power of Polyphase whatsoever;
(b) any defense arising by reason of the incapacity, lack of authority
or any disability or other defense of the Company including,
without limitation, any defense based on or arising out of the lack
of validity or the unenforceability of the Guaranteed Obligations
or any agreement or instrument relating thereto or by reason of the
cessation of the liability of the Company from any cause other than
payment in full of the Guaranteed Obligations;
(c) any defense based upon any statute or rule of law which provides
that the obligation of a surety must be neither larger in amount
nor in other respects more burdensome than that of the principal;
(d) any defense based upon Polyphase's errors or omissions in the
administration of the Guaranteed Obligations, except behavior which
amounts to gross negligence or willful misconduct as determined by
a court of competent jurisdiction;
(e) (i) any principals or provisions of law, statutory or otherwise,
which are or might be in conflict with the terms of this Guaranty
and any legal or equitable discharge of Guarantor's obligations
hereunder, (ii) the benefit of any statute of limitations affecting
Guarantor's liability hereunder or the enforcement hereof, (iii)
any rights to set-offs, recoupments or counterclaims, and (iv)
promptness, diligence and any requirement that Polyphase protect,
secure, perfect or insure any security interest or lien or any
property subject thereto;
(f) notices, demands, presentments, protests, notices of protest,
notices of dishonor and notices of any action or inaction,
including acceptance of the Guaranty, notices of default under the
Master Loan Agreement or Note or any agreement or instrument
related thereto, notices of any renewal, extension or modification
of the Guaranteed Obligations or any agreement related thereto,
notices of any extension of credit to the Company and notices of
any of the matters referred to in Section 1.2 and any right to
------------
consent to any thereof; and
(g) any defenses or benefits that may be derived from or afforded by
law which limit the liability of or exonerate guarantors or
sureties, or which may conflict with the terms of this Guaranty.
1.4 Payment by Guarantor; Application of Payments. Guarantor hereby agrees,
---------------------------------------------
in furtherance of the foregoing and not in limitation of any other right
which Polyphase or any other person or entity may
3
<PAGE>
have at law or in equity against Guarantor by virtue hereof, that upon the
failure of the Company to pay any of the Guaranteed Obligations when and as
the same shall become due, whether at stated maturity, by required
prepayment, declaration, acceleration, demand or otherwise (including
amounts that would become due but for the operation of the automatic stay
under Section 362(a) of the Bankruptcy Code, 11 U.S.C. 362(a)), Guarantor
will forthwith pay, or cause to be paid, in cash to Polyphase an amount
equal to the sum of the unpaid principal amount of all Guaranteed
Obligations then due as aforesaid, accrued and unpaid interest on such
Guaranteed Obligations (including, without limitation, interest which, but
for the filing of a petition in bankruptcy with respect to the Company,
would have accrued on such Guaranteed Obligations, whether or not a claim is
allowed against the Company for such interest in any such bankruptcy
proceeding) and all other Guaranteed Obligations then owed to Polyphase as
aforesaid. All such payments shall be applied promptly from time to time by
Polyphase:
First, to the payment of the costs and expenses of any collection or
-----
other realization under this Guaranty or the Security Agreement executed by
Guarantor in connection herewith (the "Security Agreement"), including
reasonable compensation to Polyphase and its agents and counsel, and all
expenses, liabilities and advances made or incurred by Polyphase in
connection therewith;
Second, to the payment of all other Guaranteed Obligations; and
------
Third, after payment in full of all Guaranteed Obligations, to the
-----
payment to Guarantor, or its successors and assigns, or to whomever may be
lawfully entitled to receive the same or as a court of competent
jurisdiction may direct, of any surplus then remaining from such payments.
1.5 Subrogation. Until the Guaranteed Obligations shall have been paid in
-----------
full, Guarantor shall withhold exercise of (a) any right of subrogation,
(b) any right of contribution Guarantor may have against any other
guarantor of the Guaranteed Obligations, (c) any right to enforce any
remedy which Polyphase now has or may hereafter have against the Company
or (d) any benefit of, and any right to participate in any security now
or hereafter held by Polyphase. Guarantor further agrees that, to the
extent the withholding of the exercise of its rights of subrogation and
contribution as set forth herein is found by a court of competent
jurisdiction to be void or voidable for any reason, any rights of
subrogation Guarantor may have against any other guarantor, shall be
junior and subordinate to any rights Polyphase may have against the
Company, to all right, title and interest Polyphase may have in any such
collateral or security, and to any right Polyphase may have against such
other guarantor. Polyphase may use, sell or dispose of any item of
collateral or security as it sees fit without regard to any subrogation
rights Guarantor may have, and upon any such disposition or sale any
rights of subrogation Guarantor may have shall terminate. If any amount
shall be paid to Guarantor on account of such subrogation rights at any
time when all Guaranteed Obligations shall not have been paid in full,
such amount shall be held in trust for Polyphase and shall forthwith be
paid over to Polyphase to be credited and applied against the Guaranteed
Obligations, whether matured or unmatured, in accordance with the terms
of the Master Loan Agreement or Note or any applicable security
agreement.
1.6 Subordination of Other Obligations of Borrower. Any indebtedness of the
----------------------------------------------
Company now or hereafter held by Guarantor is hereby subordinated in
right of payment to the Guaranteed Obligations, provided prior to an
Event of Default, Guarantor may receive ordinary course or regularly
scheduled payments of such indebtedness. Any such indebtedness of the
Company to Guarantor collected or received by Guarantor after an Event
of Default has occurred and is continuing shall be held in trust for
Polyphase and shall forthwith be paid over to Polyphase to be credited
and applied against the Guaranteed Obligations but without affecting,
impairing or limiting in any manner the liability of Guarantor under any
other provision of this Guaranty.
4
<PAGE>
1.7 Expense. Guarantor agrees to pay, or cause to be paid, and to save
-------
Polyphase harmless against liability for, any and all reasonable costs
and expenses (including reasonable fees and disbursements of counsel)
incurred or expended by Polyphase in connection with the enforcement or
preservation of any rights under this Guaranty.
1.8 Continuing Guaranty. This Guaranty is a continuing guaranty and shall
-------------------
remain in effect until all of the Guaranteed Obligations shall have been
paid in full.
1.9 Financial Condition of the Company. Loans and other financial
----------------------------------
accommodations may be granted to the Company or continued from time to
time without notice to or authorization from Guarantor regardless of the
financial or other condition of the Company at the time of any such
grant or continuation. Polyphase shall have no obligation to disclose or
discuss with Guarantor its assessment, or Guarantor's assessment, of the
financial condition of the Company. Guarantor has adequate means to
obtain information from the Company on an continuing basis concerning
the financial condition of the Company and its ability to perform its
obligations, and Guarantor assumes the responsibility for being and
keeping informed of the financial condition of the Company and of all
circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations. Guarantor hereby waives and relinquishes any duty on the
part of Polyphase to disclose any matter, fact or thing relating to the
business, operations or conditions of the Company now known or hereafter
known by Polyphase.
1.10 Rights Cumulative. The rights, powers and remedies given to Polyphase
-----------------
by thus Guaranty are cumulative and shall be in addition to and
independent of all rights, powers and remedies given to Polyphase by
virtue of any statute or rule of law or in the Master Loan Agreement or
Note or any agreement between Guarantor and Polyphase or between the
Company and Polyphase. Any forbearance or failure to exercise, and any
delay by Polyphase in exercising, any right, power or remedy hereunder
shall not impair any such right, power or remedy or be construed to be a
waiver thereof, nor shall it preclude the further exercise of any such
right, power or remedy.
1.11 Bankruptcy; Post-Petition Interest; Reinstatement of Guaranty.
-------------------------------------------------------------
(a) So long as any Guaranteed Obligations remain outstanding, Guarantor
shall not, without the prior written consent of Polyphase in accordance
with the terms of the Master Loan Agreement or Note, commence or join
with any other person or entity in commencing any bankruptcy,
reorganization or insolvency proceedings of or against the Company. The
obligations of Guarantor under this Guaranty shall not be reduced,
limited, impaired, discharged, deferred, suspended or terminated by any
proceeding, voluntary or involuntary, involving the bankruptcy,
insolvency, receivership, reorganization, liquidation or arrangement of
the Company or by any defense which the Company may have by reason of
the order, decree or decision of any court or administrative body
resulting from any such proceeding.
(b) Guarantor acknowledges and agrees that any interest on any portion of
the Guaranteed Obligations which accrues after the commencement of any
proceeding referred to in clause (a) above (or, if interest on any
portion of the Guaranteed Obligations ceases to accrue by operation of
law by reason of the commencement of said proceeding, such interest as
would have accrued on such portion of the Guaranteed Obligations if said
proceedings had not been commenced) shall be included in the Guaranteed
Obligations because it is the intention of Guarantor and Polyphase that
the Guaranteed Obligations which are guaranteed by Guarantor pursuant to
this Guaranty should be determined without regard to any rule of law or
order which may relieve the Company of any portion of such Guaranteed
Obligations.
5
<PAGE>
Guarantor will permit any trustee in bankruptcy, receiver, debtor in
possession, assignee for the benefit of creditors or similar person to
pay Polyphase, or allow the claim of Polyphase in respect of, any such
interest accruing after the date on which such proceeding is commenced.
(c) In the event that all or any portion of the Guaranteed Obligations are
paid by the Company, the obligations of Guarantor hereunder shall
continue and remain in full force and effect or be reinstated, as the
case may be, in the event that all or any part of such payment(s) are
rescinded or recovered directly or indirectly from Polyphase as a
preference, fraudulent transfer or otherwise, and any such payments
which are so rescinded or recovered shall constitute Guaranteed
Obligations for all purposes under this Guaranty.
1.12 Notice of Events. As soon as Guarantor obtains knowledge thereof,
----------------
Guarantor shall give Polyphasec written notice of any condition or event
which has resulted or might reasonably be expected to result in (a) a
material adverse change in the financial condition of Guarantor or the
Company, or (b) a breach of or noncompliance with any term, condition or
covenant contained herein or in the Master Loan Agreement or Note, or in
any document delivered pursuant hereto or thereto, or (c) a material
breach of, or noncompliance with, any material term, condition or
covenant of any material contract to which Guarantor or the Company is a
party or by which Guarantor or the Company or Guarantor's or the
Company's property may be bound.
1.13 Set Off. In addition to any other rights Polyphase may have under law
or in equity, if any amount shall at any time be due and owing by
Guarantor to Polyphase under this Guaranty, Polyphase is authorized at
any time or from time to time, without notice (any such notice being
hereby expressly waived), to set off and to appropriate and to apply any
and all deposit (general or special, including but not limited to
indebtedness evidenced by certificates of deposit, whether matured or
unmatured) and any other indebtedness of Polyphase owing to Guarantor
and any other property of Guarantor held by Polyphase to or for the
credit or for the account of Guarantor against and on account of the
Guaranteed Obligations and liabilities of Guarantor to Polyphase under
this Guaranty.
SECTION 2. Representations and Warranties.
------------------------------
In order to induce Polyphase to accept this Guaranty, Guarantor hereby
represents and warrants to Polyphase that the following statements are true and
correct:
2.1 Power; Authorization; Enforceable Obligations. Guarantor has the power,
---------------------------------------------
authority and legal right to execute, deliver and perform this Guaranty
and the Security Agreement.
2.2. No Legal Bar to this Guaranty. The execution, delivery and performance
-----------------------------
of this Guaranty and the Security Agreement, and the documents or
instruments required in connection therewith, and the use of the
proceeds of the borrowings under the Master Loan Agreement or Note, will
not violate any provision of any existing law or regulation binding on
Guarantor, or any order, judgment, award or decree of any court
arbitrator or governmental authority binding on Guarantor, or any
mortgage, indenture, lease contract or other agreement, instrument or
undertaking to which Guarantor is a party or by which Guarantor or any
of its assets may be bound, and will not result in, or require, the
creation or imposition of any lien on any of its property, assets or
revenues pursuant to the provisions of any such mortgage, indenture,
lease, contract or other agreement, instrument or undertaking.
6
<PAGE>
SECTION 3. Covenants.
---------
Guarantor covenants and agrees that, unless and until all of the Guaranteed
Obligations shall have been paid in full:
3.1 Compliance with Laws, Etc. Guarantor shall comply in all material
-------------------------
respects with all applicable laws, rules, regulations and orders, such
compliance to include, without limitation, paying when due all taxes,
assessments and governmental charges imposed upon it or upon any of its
properties or assets or in respect of any of its franchises, businesses,
income or property before any penalty or interest accrues thereon;
provided that Guarantor shall in any event pay such taxes, assessments
-------- ----
and governmental charges no later than five (5) days prior to the date
of any proposed sale under any judgment, writ or warrant of attachment
entered or filed against Guarantor as a result of the failure to make
such payment.
SECTION 4. Miscellaneous.
-------------
4.1 Survival of Warranties. All agreements, representations and warranties
----------------------
made herein shall survive the execution and delivery of this Guaranty
and the execution and delivery of the Note.
4.2 Notices. Any communications between Polyphase and Guarantor and any
-------
notices or requests provided herein to be given may be given by mailing
the same, postage prepaid, or by facsimile transmission to each such
party at its address set forth on the signature pages hereof or to such
other addresses as each such party may in writing hereafter indicate.
Any notice, request or demand to or upon Polyphase or Guarantor shall
not be effective until received.
4.3 Severability. In case any provision in or obligation under this
------------
Guaranty shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
4.4 Amendments and Waivers. No amendment, modification, termination, or
----------------------
waiver of any provision of this Guaranty, or consent to any departure by
Guarantor therefrom, shall in any event be effective without the written
concurrence of Polyphase, except as otherwise specifically provided
herein; provided, however, that no amendment. Waiver or consent shall,
-------- -------
unless in writing and signed by Polyphase , (a) limit the liability of
Guarantor hereunder, or (b) postpone any day fixed for payment
hereunder, except as otherwise specifically provided herein. Any waiver
or consent shall be effective only in the specific instance and for the
specific purpose for which it was given.
4.5 Headings. Section and subsection headings in this Guaranty are included
--------
herein for convenience of reference only and shall not constitute a part
of this Guaranty for any other purpose or be given any substantive
effect.
4.6 Applicable Law. THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF
--------------
GUARANTOR AND PLY HEREUNDER AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED
TO BE MADE UNDER, SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE.
7
<PAGE>
4.7 Successors and Assigns. This Guaranty is a continuing guaranty and
----------------------
shall be binding upon Guarantor and its successors and assigns. This
Guaranty shall inure to the benefit of Polyphase and its successors and
assigns . Guarantor shall not assign this Guaranty or any of the rights
or obligations of Guarantor hereunder without the prior written consent
of Polyphase. The terms and provisions of this Guaranty shall inure to
the benefit of any assignee or transferee of the Master Loan Agreement
or Note, and in the event of such transfer or assignment the rights and
privileges herein conferred upon Polyphase shall automatically extend to
and be vested in such transferee or assignee, all subject to the terms
and conditions hereof.
4.8 Consent to Jurisdiction and Service of Process. ALL JUDICIAL PROCEEDINGS
----------------------------------------------
BROUGHT AGAINST GUARANTOR ARISING OUT OF OR RELATING TO THIS GUARANTY OR
THE SECURITY AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION LOCATED WITHIN THE COUNTY OF DALLAS, STATE OF
TEXAS AND BY EXECUTION AND DELIVERY OF THIS GUARANTY AND THE SECURITY
AGREEMENT GUARANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION
OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS
AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS GUARANTY OR THE PLEDGE AGREEMENT.
4.9 Waiver of Trial by Jury. GUARANTOR, AND BY ITS ACCEPTANCE OF THE
-----------------------
BENEFITS HEREOF, POLYPHASE HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF THIS GUARANTY OR THE SECURITY AGREEMENT. The scope of this waiver
is intended to be all-encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of this
transaction, including without limitation contract claims, tort claims,
breach of duty claims and all other common law and statutory claims.
Guarantor, and, by its acceptance of the benefits hereof, Polyphase (a)
acknowledges that this waiver is a material inducement for Guarantor and
Polyphase to enter into a business relationship, that Guarantor and
Polyphase have already relied on this waiver in entering into this
Guaranty and the Security Agreement or accepting the benefits thereof,
as the case may be, and that each will continue to rely on this waiver
in their related future dealings and (b) further warrants and represents
that each has reviewed this waiver with its legal counsel, and that each
knowingly and voluntarily waives its jury trial rights following
consultation with its legal counsel. THIS WAIVER IS IRREVOCABLE, AND
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY AND THE SECURITY
AGREEMENT. In the event of litigation, this Guaranty may be filed as a
written consent to a trial by the court.
4.10 ENTIRE AGREEMENT. THIS AGREEMENT AND THE SECURITY AGREEMENT (AND THE
OTHER DOCUMENTS AND INSTRUMENTS EXECUTED IN CONNECTION HEREWITH AND
THEREWITH) EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO
AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS
AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT
MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF
THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES HERETO. No course of dealing, course of performance or trade
usage, and no parol evidence of any nature, shall be used to supplement
8
<PAGE>
or modify any terms of this Guaranty. There are no conditions to the
full effectiveness of this Guaranty.
4.11 Further Assurances. At any time or from time to time, upon the request
of Polyphase, Guarantor shall execute and deliver such further documents
and do such other acts and things and Polyphase may reasonably request
in order to effect fully the purposes of this Guaranty.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date
first above written.
------------------------------
Paul A. Tanner
Address:
16885 Dallas Parkway, Suite 400
Dallas, Texas 75248
Fax No.: 214-732-6430
ACCEPTED AT DALLAS, TEXAS:
POLYPHASE CORPORATION
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Address:
16885 Dallas Parkway, Suite 400
Dallas, Texas 75248
Fax No.: 214-732-6430
9
<PAGE>
Exhibit 10.56
THIS GUARANTY (this "Guaranty") is entered into as of January 1, 1996 by
Pyrenees Group, Inc., a Nevada Corporation ("Guarantor"), in favor of and for
the benefit of Polyphase Corporation, a Nevada corporation ("Polyphase").
RECITALS:
- ---------
A. Polyphase has executed and delivered to PLY Stadium Partners, Inc. a
Master Loan Agreement authorizing advances of principal amounts as may
be requested by Polyphase. Up to Four Million Dollars ($4,000,000) of
the principal advances will be evidenced by a Convertible promissory
Note. Additional principal advances may be evidenced by other
Promissory Note(s) and if not then by other documentation of each
advance subject to the terms and conditions of the master Loan
Agreement.
B. Guarantor is willing, irrevocably and unconditionally, to guaranty
such obligations of the Company subject to the terms and provisions
hereof.
AGREEMENT:
----------
NOW, THEREFORE, based upon the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Guarantor hereby agrees as follows:
SECTION 1. The Guaranty.
------------
1.1 Guaranty of the Guaranteed Obligations. Guarantor hereby irrevocably
and unconditionally guaranties, as primary obligor and not merely as
surety, the due and punctual payment in full of al Guaranteed
Obligations when the same shall become due, whether at stated
maturity, by required prepayment, acceleration, demand or otherwise
(including amounts that would become due but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C.
362(a)). The term "Guaranteed Obligations" used herein in its most
----------------------
comprehensive sense and includes any and all liabilities and/or
obligations ("obligations") of the Company now or hereafter made,
incurred or created, whether absolute or contingent, liquidated or
unliquidated, whether due or not due, and however arising under or in
connection with the Note.
1.2 Liability of Guarantor Absolute. Guarantor agrees that its
-------------------------------
obligations hereunder are irrevocable, absolute, independent and
unconditional and shall not be affected by any circumstance which
constitutes a legal or equitable discharge of a guarantor or surety
other than payment in full of the Guaranteed Obligations. In
furtherance of the foregoing and without limiting the generality
thereof, Guarantor agrees as follows:
(a) This Guaranty is a guaranty of payment when due and not of
collectibility.
(b) Polyphase may enforce this Guaranty upon the occurrence of any event
of default under the Note (an "Event of Default") notwithstanding the
existence of any dispute between Polyphase and the Company with
respect to the existence of such Event of Default.
(c) The obligations of Guarantor hereunder are independent of the
obligations of the Company under the Note and the obligations of any
other guarantor of the obligations of the Company thereunder, and a
separate action or actions may be brought and prosecuted against
Guarantor whether or not any action is brought against the Company or
any of such other guarantors and whether or not the Company is joined
in any such action or actions.
<PAGE>
(d) Guarantor's payment of a portion, but not all, of the Guaranteed
Obligations shall in no way limit, affect, modify or abridge
Guarantor's liability for a portion of the Guaranteed Obligations,
which has not been paid. Without limiting the generality of the
foregoing, if Polyphase is awarded a judgment in any suit brought to
enforce Guarantor's covenant to pay a portion of Guaranteed
Obligations, such judgment shall not be deemed to release Guarantor
from its covenant to pay the portion of the Guaranteed Obligations
that is not the subject of such suit.
(e) Subject to the terms of the Master Loan Agreement or Promissory Note,
Polyphase, upon such terms as it deems appropriate, without notice or
demand and without affecting the validity or enforceability of this
Guaranty or giving rise to any reduction, limitation, impairment,
discharge or termination of Guarantor's liability hereunder, from
time to time may (I) renew, extend, accelerate, increase the rate of
interest on, or otherwise change the time, place manner or terms of
payment of the Guaranteed Obligations; (ii) settle, compromise,
release or discharge, or accept or refuse any offer of performance
with respect to, or substitutions for, the Guaranteed Obligations or
any agreement relating thereto and/or subordinate the payment of the
same to the payment of any other obligations; (iii) request and
accept other guaranties of the Guaranteed Obligations and take and
hold security for the payment of this Guaranty or the Guaranteed
Obligations; (iv) release, surrender, exchange, substitute,
compromise, settle, rescind, waive, alter, subordinate or modify,
with or without consideration, any security for payment of the
Guaranteed Obligations, any other guaranties of the Guaranteed
Obligations, or any other obligation of any person with respect to
the Guaranteed Obligations; (v) enforce and apply any security now or
hereafter held by or for the benefit of Polyphase in respect of this
Guaranty or the Guaranteed Obligations and direct the order or manner
of sale thereof, or exercise any other right or remedy that Polyphase
may have against any such security, as Polyphase in its discretion
may determine consistent with the master Loan Agreement or Note and
any applicable security agreement, including foreclosure on any such
security pursuant to one or more judicial or nonjudicial sales,
whether or not every aspect of any such sale is commercially
reasonable, and even though such action operates to impair or
extinguish any right of reimbursement or subrogation or other right
or remedy of Guarantor against the Company or any security for the
Guaranteed Obligations; and (vi) exercise any other rights under the
master Loan Agreement or Note.
(f) This Guaranty and the obligations of Guarantor hereunder shall be
valid and enforceable and shall not be subject to any reduction,
limitation, impairment, discharge or termination for any reason
(other than payment in full of the Guaranteed Obligations), including
without limitation the occurrence of any of the following, whether or
not Guarantor shall have had notice or knowledge of any of them: (i)
any failure or omission to assert or enforce or agreement or election
not to assert or enforce, or the stay or enjoining, by order of
court, by operation of law or otherwise, of the exercise or
enforcement of, any claim or demand or any right, power or remedy
(whether arising under the Master Loan Document or Note, at law, in
equity or otherwise) with respect to the Guaranteed Obligations or
any agreement relating thereto, or with respect to any other guaranty
of or security for the payment of the Guaranteed Obligations; (ii)
any rescission, waiver, amendment or modification of, or any consent
to departure from , any of the terms or provisions (including without
limitation provisions relating to events of default) of the master
Loan Agreement or Note or any agreement or instrument executed
pursuant thereto, or of any other guaranty or security for the
Guaranteed Obligations; (iii) the Guaranteed Obligations, or any
agreement relating thereto, at any time being found to be illegal,
invalid or unenforceable in any respect; (iv) the application of
payments received from any source (other than payments received from
the proceeds on any security for the Guaranteed Obligations, except
to the extent such security also serves as collateral for
indebtedness other than the Guaranteed Obligations and such payments
are applied to such other indebtedness) to the payment of
indebtedness other than the Guaranteed Obligations, even though
Polyphonies might have elected to apply such
<PAGE>
payment to any other part or all of the Guaranteed Obligations; (v)
Polyphase's consent to the change, reorganization or termination of
the corporate structure or existence of the Company and to any
corresponding restructuring of the Guaranteed Obligations; (vi) any
failure to perfect or continue perfection of a security interest in
any collateral which secures any of the Guaranteed Obligations; (vii)
any defenses, set-offs or counterclaims which the Company may allege
or assert against Polyphase in respect of the Guaranteed Obligations,
including but not limited to failure of consideration, breach of
warranty, statute of frauds, statute of limitations, accord and
satisfaction or usury; and (viii) any other act or thing or omission,
or delay to do any other act or thing, which may or might in any
manner or to any extent vary the risk of Guarantor as an obligor in
respect of the Guaranteed Obligations.
1.3 Waivers by Guarantor. Guarantor hereby waives, for the benefit of
--------------------
Polyphase:
(a) any right to require Polyphase, as a condition of payment or
performance by Guarantor, to (I) proceed against the Company, any
other guarantor of the Guaranteed Obligations or any other person or
entity, (ii) proceed against or exhaust any security held from the
Company, any other guarantor of the Guaranteed Obligations or any
other person or entity, (iii) proceed against or have resort to any
balance of any deposit account or credit on the books of Polyphase in
favor of the Company or any other person or entity, or (iv) pursue
any other remedy in the power of Polyphase whatsoever;
(b) any defense arising by reason of the incapacity, lack of authority or
any disability or other defense of the Company including, without
limitation, any defense based on or arising out of the lack of
validity or the unenforceability of the Guaranteed Obligations or any
agreement or instrument relating thereto or by reason of the
cessation of the liability of the Company from any cause other than
payment in full of the Guaranteed Obligations;
(c) any defense based upon any statute or rule of law which provides that
the obligation of a surety must be neither larger in amount nor in
other respects more burdensome than that of the principal;
(d) any defense based upon Polyphase's errors or omissions in the
administration of the Guaranteed Obligations, except behavior which
amounts to gross negligence or willful misconduct as determined by a
court of competent jurisdiction;
(e) (i) any principals or provisions of law, statutory or otherwise,
which are or might be in conflict with the terms of this Guaranty and
any legal or equitable discharge of Guarantor's obligations
hereunder, (ii) the benefit of any statute of limitations affecting
Guarantor's liability hereunder or the enforcement hereof, (iii) any
rights to set-offs, recoupments or counterclaims, and (iv)
promptness, diligence and any requirement that Polyphase protect,
secure, perfect or insure any security interest or lien or any
property subject thereto;
(f) notices, demands, presentments, protests, notices of protest, notices
of dishonor and notices of any action or inaction, including
acceptance of the Guaranty, notices of default under the Master Loan
Agreement or Note or any agreement or instrument related thereto,
notices of any renewal, extension or modification of the Guaranteed
Obligations or any agreement related thereto, notices of any
extension of credit to the Company and notices of any of the matters
referred to in Section 1.2 and any right to consent to any thereof;
-----------
and
(g) any defenses or benefits that may be derived from or afforded by law
which limit the liability of or exonerate guarantors or sureties, or
which may conflict with the terms of this Guaranty.
1.4 Payment by Guarantor; Application of Payments. Guarantor hereby agrees,
---------------------------------------------
in furtherance of the foregoing and not in limitation of any other right which
Polyphase or any other person or entity may
<PAGE>
have at law or in equity against Guarantor by virtue hereof, that upon the
failure of the Company to pay any of the Guaranteed Obligations when and as the
same shall become due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. 362(a)), Guarantor will forthwith pay, or cause
to be paid, in cash to Polyphase an amount equal to the sum of the unpaid
principal amount of all Guaranteed Obligations then due as aforesaid, accrued
and unpaid interest on such Guaranteed Obligations (including, without
limitation, interest which, but for the filing of a petition in bankruptcy with
respect to the Company, would have accrued on such Guaranteed Obligations,
whether or not a claim is allowed against the Company for such interest in any
such bankruptcy proceeding) and all other Guaranteed Obligations then owed to
Polyphase as aforesaid. All such payments shall be applied promptly from time to
time by Polyphase:
First, to the payment of the costs and expenses of any collection or
-----
other realization under this Guaranty or the Security Agreement executed by
Guarantor in connection herewith (the "Security Agreement"), including
reasonable compensation to Polyphase and its agents and counsel, and all
expenses, liabilities and advances made or incurred by Polyphase in
connection therewith;
Second, to the payment of all other Guaranteed Obligations; and
------
Third, after payment in full of all Guaranteed Obligations, to the
-----
payment to Guarantor, or its successors and assigns, or to whomever may be
lawfully entitled to receive the same or as a court of competent
jurisdiction may direct, of any surplus then remaining from such payments.
1.5 Subrogation. Until the Guaranteed Obligations shall have been paid in
-----------
full, Guarantor shall withhold exercise of (a) any right of subrogation,
(b) any right of contribution Guarantor may have against any other
guarantor of the Guaranteed Obligations, (c) any right to enforce any
remedy which Polyphase now has or may hereafter have against the Company
or (d) any benefit of, and any right to participate in any security now or
hereafter held by Polyphase. Guarantor further agrees that, to the extent
the withholding of the exercise of its rights of subrogation and
contribution as set forth herein is found by a court of competent
jurisdiction to be void or voidable for any reason, any rights of
subrogation Guarantor may have against any other guarantor, shall be
junior and subordinate to any rights Polyphase may have against the
Company, to all right, title and interest Polyphase may have in any such
collateral or security, and to any right Polyphase may have against such
other guarantor. Polyphase may use, sell or dispose of any item of
collateral or security as it sees fit without regard to any subrogation
rights Guarantor may have, and upon any such disposition or sale any
rights of subrogation Guarantor may have shall terminate. If any amount
shall be paid to Guarantor on account of such subrogation rights at any
time when all Guaranteed Obligations shall not have been paid in full,
such amount shall be held in trust for Polyphase and shall forthwith be
paid over to Polyphase to be credited and applied against the Guaranteed
Obligations, whether matured or unmatured, in accordance with the terms of
the Master Loan Agreement or Note or any applicable security agreement.
1.6 Subordination of Other Obligations of Borrower. Any indebtedness of the
----------------------------------------------
Company now or hereafter held by Guarantor is hereby subordinated in right
of payment to the Guaranteed Obligations, provided prior to an Event of
Default, Guarantor may receive ordinary course or regularly scheduled
payments of such indebtedness. Any such indebtedness of the Company to
Guarantor collected or received by Guarantor after an Event of Default has
occurred and is continuing shall be held in trust for Polyphase and shall
forthwith be paid over to Polyphase to be credited and applied against the
Guaranteed Obligations but without affecting, impairing or limiting in any
manner the liability of Guarantor under any other provision of this
Guaranty.
<PAGE>
1.7 Expense. Guarantor agrees to pay, or cause to be paid, and to save
-------
Polyphase harmless against liability for, any and all reasonable costs and
expenses (including reasonable fees and disbursements of counsel) incurred
or expended by Polyphase in connection with the enforcement or
preservation of any rights under this Guaranty.
1.8 Continuing Guaranty. This Guaranty is a continuing guaranty and shall
-------------------
remain in effect until all of the Guaranteed Obligations shall have been
paid in full.
1.9 Financial Condition of the Company. Loans and other financial
----------------------------------
accommodations may be granted to the Company or continued from time to
time without notice to or authorization from Guarantor regardless of the
financial or other condition of the Company at the time of any such grant
or continuation. Polyphase shall have no obligation to disclose or discuss
with Guarantor its assessment, or Guarantor's assessment, of the financial
condition of the Company. Guarantor has adequate means to obtain
information from the Company on an continuing basis concerning the
financial condition of the Company and its ability to perform its
obligations, and Guarantor assumes the responsibility for being and
keeping informed of the financial condition of the Company and of all
circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations. Guarantor hereby waives and relinquishes any duty on the part
of Polyphase to disclose any matter, fact or thing relating to the
business, operations or conditions of the Company now known or hereafter
known by Polyphase.
1.10 Rights Cumulative. The rights, powers and remedies given to Polyphase by
-----------------
thus Guaranty are cumulative and shall be in addition to and independent
of all rights, powers and remedies given to Polyphase by virtue of any
statute or rule of law or in the Master Loan Agreement or Note or any
agreement between Guarantor and Polyphase or between the Company and
Polyphase. Any forbearance or failure to exercise, and any delay by
Polyphase in exercising, any right, power or remedy hereunder shall not
impair any such right, power or remedy or be construed to be a waiver
thereof, nor shall it preclude the further exercise of any such right,
power or remedy.
1.11 Bankruptcy; Post-Petition Interest; Reinstatement of Guaranty.
-------------------------------------------------------------
(a) So long as any Guaranteed Obligations remain outstanding, Guarantor shall
not, without the prior written consent of Polyphase in accordance with the
terms of the Master Loan Agreement or Note, commence or join with any
other person or entity in commencing any bankruptcy, reorganization or
insolvency proceedings of or against the Company. The obligations of
Guarantor under this Guaranty shall not be reduced, limited, impaired,
discharged, deferred, suspended or terminated by any proceeding, voluntary
or involuntary, involving the bankruptcy, insolvency, receivership,
reorganization, liquidation or arrangement of the Company or by any
defense which the Company may have by reason of the order, decree or
decision of any court or administrative body resulting from any such
proceeding.
(b) Guarantor acknowledges and agrees that any interest on any portion of the
Guaranteed Obligations which accrues after the commencement of any
proceeding referred to in clause (a) above (or, if interest on any portion
of the Guaranteed Obligations ceases to accrue by operation of law by
reason of the commencement of said proceeding, such interest as would have
accrued on such portion of the Guaranteed Obligations if said proceedings
had not been commenced) shall be included in the Guaranteed Obligations
because it is the intention of Guarantor and Polyphase that the Guaranteed
Obligations which are guaranteed by Guarantor pursuant to this Guaranty
should be determined without regard to any rule of law or order which may
relieve the Company of any portion of such Guaranteed Obligations.
<PAGE>
Guarantor will permit any trustee in bankruptcy, receiver, debtor in
possession, assignee for the benefit of creditors or similar person to
pay Polyphase, or allow the claim of Polyphase in respect of, any such
interest accruing after the date on which such proceeding is commenced.
(c) In the event that all or any portion of the Guaranteed Obligations are
paid by the Company, the obligations of Guarantor hereunder shall
continue and remain in full force and effect or be reinstated, as the
case may be, in the event that all or any part of such payment(s) are
rescinded or recovered directly or indirectly from Polyphase as a
preference, fraudulent transfer or otherwise, and any such payments
which are so rescinded or recovered shall constitute Guaranteed
Obligations for all purposes under this Guaranty.
1.12 Notice of Events. As soon as Guarantor obtains knowledge thereof,
----------------
Guarantor shall give Polyphase written notice of any condition or event
which has resulted or might reasonably be expected to result in (a) a
material adverse change in the financial condition of Guarantor or the
Company, or (b) a breach of or noncompliance with any term, condition
or covenant contained herein or in the Master Loan Agreement or Note,
or in any document delivered pursuant hereto or thereto, or (c) a
material breach of, or noncompliance with, any material term, condition
or covenant of any material contract to which Guarantor or the Company
is a party or by which Guarantor or the Company or Guarantor's or the
Company's property may be bound.
1.13 Set Off. In addition to any other rights Polyphase may have under law
or in equity, if any amount shall at any time be due and owing by
Guarantor to Polyphase under this Guaranty, Polyphase is authorized at
any time or from time to time, without notice (any such notice being
hereby expressly waived), to set off and to appropriate and to apply
any and all deposit (general or special, including but not limited to
indebtedness evidenced by certificates of deposit, whether matured or
unmatured) and any other indebtedness of Polyphase owing to Guarantor
and any other property of Guarantor held by Polyphase to or for the
credit or for the account of Guarantor against and on account of the
Guaranteed Obligations and liabilities of Guarantor to Polyphase under
this Guaranty.
SECTION 2. Representations and Warranties.
------------------------------
In order to induce Polyphase to accept this Guaranty, Guarantor hereby
represents and warrants to Polyphase that the following statements are true and
correct:
2.1 Power; Authorization; Enforceable Obligations. Guarantor has the
---------------------------------------------
power, authority and legal right to execute, deliver and perform this
Guaranty and the Security Agreement .
2.2 No Legal Bar to this Guaranty. The execution, delivery and performance
-----------------------------
of this Guaranty and the Security Agreement, and the documents or
instruments required in connection therewith, and the use of the
proceeds of the borrowings under the Master Loan Agreement or Note,
will not violate any provision of any existing law or regulation
binding on Guarantor, or any order, judgment, award or decree of any
court arbitrator or governmental authority binding on Guarantor, or any
mortgage, indenture, lease contract or other agreement, instrument or
undertaking to which Guarantor is a party or by which Guarantor or any
of its assets may be bound, and will not result in, or require, the
creation or imposition of any lien on any of its property, assets or
revenues pursuant to the provisions of any such mortgage, indenture,
lease, contract or other agreement, instrument or undertaking.
<PAGE>
SECTION 3. Covenants.
---------
Guarantor covenants and agrees that, unless and until all of the Guaranteed
Obligations shall have been paid in full:
3.1 Compliance with Laws, Etc. Guarantor shall comply in all material
-------------------------
respects with all applicable laws, rules, regulations and orders, such
compliance to include, without limitation, paying when due all taxes,
assessments and governmental charges imposed upon it or upon any of
its properties or assets or in respect of any of its franchises,
businesses, income or property before any penalty or interest accrues
thereon; provided that Guarantor shall in any event pay such taxes,
-------- ----
assessments and governmental charges no later than five (5) days prior
to the date of any proposed sale under any judgment, writ or warrant
of attachment entered or filed against Guarantor as a result of the
failure to make such payment.
SECTION 4. Miscellaneous.
-------------
4.1 Survival of Warranties. All agreements, representations and
----------------------
warranties made herein shall survive the execution and delivery of
this Guaranty and the execution and delivery of the Note.
4.2 Notices. Any communications between Polyphase and Guarantor and any
-------
notices or requests provided herein to be given may be given by
mailing the same, postage prepaid, or by facsimile transmission to
each such party at its address set forth on the signature pages hereof
or to such other addresses as each such party may in writing hereafter
indicate. Any notice, request or demand to or upon Polyphase or
Guarantor shall not be effective until received.
4.3 Severability. In case any provision in or obligation under this
------------
Guaranty shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the
remaining provisions or obligations, or of such provision or
obligation in any other jurisdiction, shall not in any way be affected
or impaired thereby.
4.4 Amendments and Waivers. No amendment, modification, termination, or
----------------------
waiver of any provision of this Guaranty, or consent to any departure
by Guarantor therefrom, shall in any event be effective without the
written concurrence of Polyphase, except as otherwise specifically
provided herein; provided, however, that no amendment. Waiver or
-------- -------
consent shall, unless in writing and signed by Polyphase , (a) limit
the liability of Guarantor hereunder, or (b) postpone any day fixed
for payment hereunder, except as otherwise specifically provided
herein. Any waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given.
4.5 Headings. Section and subsection headings in this Guaranty are
--------
included herein for convenience of reference only and shall not
constitute a part of this Guaranty for any other purpose or be given
any substantive effect.
4.6 Applicable Law. THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF
--------------
GUARANTOR AND PLY HEREUNDER AND ALL OTHER ASPECTS HEREOF SHALL BE
DEEMED TO BE MADE UNDER, SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE.
<PAGE>
4.7 Successors and Assigns. This Guaranty is a continuing guaranty and
----------------------
shall be binding upon Guarantor and its successors and assigns. This
Guaranty shall inure to the benefit of Polyphase and its successors
and assigns . Guarantor shall not assign this Guaranty or any of the
rights or obligations of Guarantor hereunder without the prior written
consent of Polyphase. The terms and provisions of this Guaranty shall
inure to the benefit of any assignee or transferee of the Master Loan
Agreement or Note, and in the event of such transfer or assignment the
rights and privileges herein conferred upon Polyphase shall
automatically extend to and be vested in such transferee or assignee,
all subject to the terms and conditions hereof.
4.8 Consent to Jurisdiction and Service of Process. ALL JUDICIAL
----------------------------------------------
PROCEEDINGS BROUGHT AGAINST GUARANTOR ARISING OUT OF OR RELATING TO
THIS GUARANTY OR THE SECURITY AGREEMENT MAY BE BROUGHT IN ANY STATE
OR FEDERAL COURT OF COMPETENT JURISDICTION LOCATED WITHIN THE COUNTY
OF DALLAS, STATE OF TEXAS AND BY EXECUTION AND DELIVERY OF THIS
GUARANTY AND THE SECURITY AGREEMENT GUARANTOR ACCEPTS FOR ITSELF AND
IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY
DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY
ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS GUARANTY OR THE
PLEDGE AGREEMENT.
4.9 Waiver of Trial by Jury. GUARANTOR, AND BY ITS ACCEPTANCE OF THE
-----------------------
BENEFITS HEREOF, POLYPHASE HEREBY AGREES TO WAIVE ITS RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS GUARANTY OR THE SECURITY AGREEMENT. The scope of
this waiver is intended to be all-encompassing of any and all disputes
that may be filed in any court and that relate to the subject matter
of this transaction, including without limitation contract claims,
tort claims, breach of duty claims and all other common law and
statutory claims. Guarantor, and, by its acceptance of the benefits
hereof, Polyphase (a) acknowledges that this waiver is a material
inducement for Guarantor and Polyphase to enter into a business
relationship, that Guarantor and Polyphase have already relied on this
waiver in entering into this Guaranty and the Security Agreement or
accepting the benefits thereof, as the case may be, and that each will
continue to rely on this waiver in their related future dealings and
(b) further warrants and represents that each has reviewed this waiver
with its legal counsel, and that each knowingly and voluntarily waives
its jury trial rights following consultation with its legal counsel.
THIS WAIVER IS IRREVOCABLE, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
GUARANTY AND THE SECURITY AGREEMENT. In the event of litigation, this
Guaranty may be filed as a written consent to a trial by the court.
4.10ENTIRE AGREEMENT. THIS AGREEMENT AND THE SECURITY AGREEMENT (AND THE
OTHER DOCUMENTS AND INSTRUMENTS EXECUTED IN CONNECTION HEREWITH AND
THEREWITH) EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO
AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING
TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES HERETO. No course of dealing, course of
performance or trade usage, and no parol evidence of any nature, shall
be used to supplement
<PAGE>
or modify any terms of this Guaranty. There are no conditions to the
full effectiveness of this Guaranty.
4.11Further Assurances. At any time or from time to time, upon the request
of Polyphase, Guarantor shall execute and deliver such further
documents and do such other acts and things and Polyphase may
reasonably request in order to effect fully the purposes of this
Guaranty.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date
first above written.
---------------------------------
Paul A. Tanner
Address:
16885 Dallas Parkway, Suite 400
Dallas, Texas 75248
Fax No.: 214-732-6430
ACCEPTED AT DALLAS, TEXAS:
POLYPHASE CORPORATION
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Address:
16885 Dallas Parkway, Suite 400
Dallas, Texas 75248
Fax No.: 214-732-6430
<PAGE>
Exhibit 10.57
MANAGEMENT AGREEMENT
--------------------
This Agreement, dated this 1st day of January, 1996 ("Agreement") by and
between PLY Stadium Partners, Inc. ("PLY"), a Nevada Corporation and Polyphase
Corporation ("Polyphase"), a Nevada Corporation.
RECITALS
WHEREAS, PLY is engaged in the construction and development of an all
purpose stadium facility in Las Vegas, Nevada, hereinafter referred to as the
"Project".
WHEREAS, PLY desires to retain the services of Polyphase to manage the
construction and the operation of the Project.
THEREFORE, in consideration of the Premises and other good and valuable
consideration, the parties hereby agree as follows:
I.
TERM AND TERMINATION
--------------------
1.01 This Agreement is effective beginning the first (1st) day of January,
1996, and will continue in effect for a period of ten (10) years thereafter.
1.02 In the event Paul Tanner ceases to be Chief Executive Officer of
Polyphase then PLY, at its option, may terminate this Agreement upon ninety
(90) days written notice thereof.
II.
SERVICES TO BE RENDERED
-----------------------
2.01 Construction Phase. Polyphase will cause the Project to be
------------------
constructed, in accordance with the plans and instructions provided by PLY. The
responsibilities of Polyphase include but are not limited to the following:
a) Acquisition of construction and permanent financing;
b) Retain the services of a qualified architectural firm;
c) Retain the services of a qualified construction firm;
d) Arrange for the acquisition of appropriate land space for the
construction and operation of the facility, including adequate parking;
e) Obtain the necessary permitting required by state, city and county
governments;
f) Contract for all water, gas, electricity, garbage, telephone,
television cable and other utilities necessary for the construction of
the Project;
<PAGE>
g) Comply with all building codes, zoning and licensing requirements and
other requirements of federal, state or local authorities having
jurisdiction over the Project;
h) Obtain and maintain insurance on the Project and all furniture,
fixtures, and equipment during the construction and operation phases,
including but not limited to fire, boiler, elevator, plate glass,
worker's compensation, property and liability and other usual insurance
for comparable facilities;
i) Hire and maintain a sales staff and an administrative support staff
including accountants, lawyers, secretaries and other employees or
independent contractors necessary for the construction and development
of the Project;
j) To perform such other services as PLY may deem necessary to complete
the Project.
2.02 Operation Phase. Prior to and upon completion of the Project,
---------------
Polyphase will manage the operation of the facility including but not limited to
the following:
a) Employees. Polyphase will hire, promote and discharge the employees
---------
necessary to efficiently operate the Project and to supervise the
employee's performance. Employees hired by Polyphase to manage the
Project will be PLY's employees. Employee compensation is an expense of
the Project. Polyphase will obtain worker's compensation insurance for
the employees as an expense of the Project. Polyphase will comply with
all applicable federal, state and local laws regarding the hiring,
compensation and working conditions of employees.
b) Maintenance.
-----------
1. Conduct regular inspections of the Project and all facilities
for:
(i) Compliance with health and safety standards and
building codes.
(ii) Cleanliness.
(iii) Good order.
2. Hire and maintain a staff to clean rooms, lobbies, hallways,
stairways, and other facilities in the Project on a regular
basis.
3. Contract for all water, gas, electricity, garbage, telephone,
television cable and other utilities necessary for operating the
Project.
4. Contract for the repair of all equipment and fixtures on the
Project, including but not limited to specified elevators,
furnace, air conditioner, lights, wiring, plumbing, radios,
televisions and kitchen equipment.
5. Contract for such services.
6. Comply with all building codes, zoning and licensing
requirements and other requirements of federal, state and local
authorities having jurisdiction over the Project. Polyphase will
notify PLY promptly of all written orders, notices and other
communications received by the Manager from any such authority
regarding these requirements.
<PAGE>
c) Sales and Concessions.
---------------------
1. Advertise and promote for sale executive suites, club seats and
tickets for special events.
2. Arrange for all concession rights.
3. Contract and organize special events and conventions.
4. Obtain sponsorships and contract third party advertising within
the facility.
5. Advertise and promote special events, conventions and other
facility uses.
d) Financial and Legal Services. Polyphase may consult with an attorney or
----------------------------
accountant if needed to comply with this Agreement. Polyphase will
refer matters relating to the Project that require legal or accounting
services to qualified professionals. Polyphase will select the
attorneys and accountants retained to provide the services. The costs
of legal and accounting services obtained by Polyphase in its capacity
as PLY's agent are an expense of the Project.
III
RECORDKEEPING AND REPORTING REQUIREMENTS
----------------------------------------
3.01 Books and Records. Polyphase will maintain accurate, complete
-----------------
and separate books and records according to generally accepted accounting
standards and procedures. The records will show income and expenditures
relating to operation of the Project and will be maintained so that individual
items and aggregate amounts of accounts payable and accounts receivable,
available cash and other assets and liabilities relating to the Project may be
readily determined at any time.
3.02 Monthly Reports. For each month, Polyphase will furnish to PLY
---------------
a detailed statement of all receipts and disbursements. Each monthly statement
will be furnished on or before the 15th day of each month covering the previous
month activity. The statements must include summaries showing the income and
expenses for the quarter and the fiscal year to date and for the same time
periods of the preceding fiscal year. These statements must also be supported
by canceled checks, vouchers, invoices and similar documentation covering all
items of income and expense. But Polyphase is not required to provide copies of
these documents as part of the monthly statements.
3.03 Annual Reports. For each fiscal year ending during the term of
--------------
this Agreement, Polyphase will arrange for a certified public accountant to
prepare an annual financial report based on his or her examination of the books
and records maintained by Polyphase. The accountant and Polyphase will certify
the report, which will be submitted to PLY within 90 days after the end of the
fiscal year. Compensation for the accountant's services is an expense of the
Project.
3.04 Preparing Payroll-Tax Returns. Polyphase will prepare and file
-----------------------------
all required payroll-tax returns and other documents, including but not limited
to those required under the Federal Insurance Contributions Act and the Federal
Unemployment Tax Act and any similar federal, state and local legislation and
all withholding-tax returns required for employees of PLY and Polyphase whose
work relates to the Project. Taxes paid in connection with these returns are an
expense of the Project. In addition, Polyphase will complete and process the
following forms on PLY's behalf: business-tax forms, Worker's Compensation
forms, health and welfare forms connected with labor-union employees and
workers, personal-property declarations and all other forms and reports
necessary for operating the Project.
<PAGE>
3.05 Information Requested by Owner. Polyphase will furnish any
------------------------------
information relating to the financial, physical and operational condition of the
Project, including but not limited to occupancy reports, that PLY may request
from time to time.
3.06 Owner's Inspection of Books and Records. At any reasonable time,
---------------------------------------
PLY may inspect the books and records kept by Polyphase relating to the Project,
including but not limited to all checks, bills, invoices statements, vouchers,
cash receipts, correspondence and all other records dealing with management of
the Project. PLY may exercise these rights in person or through PLY's attorney
or accountant or other representative.
3.07 Audit. At any reasonable time, PLY may have an audit made of all
-----
account books and records relating to management of the Project.
IV
INDEMNITY AND CONTRIBUTION
--------------------------
4.01 Contract Liability. PLY will indemnify Polyphase for all
------------------
contract liability for obligations incurred by Polyphase that Polyphase believed
in good faith were authorized by PLY. Polyphase will indemnify PLY for all
contract liability for obligations incurred by Polyphase that Polyphase did not
believe in good faith were authorized by PLY.
4.02 Tort and Statutory Liability. PLY will indemnify Polyphase for
----------------------------
all tort or statutory liability related to the Project that is not caused by
Polyphase's grossly negligent, reckless or intentional act or omission that
arises from an act or omission that Polyphase believed in good faith was
authorized by PLY. PLY will indemnify Polyphase for liability arising from
Polyphase's negligence related to the Project if Polyphase believed in good
faith that PLY authorized Polyphase's act or omission. Polyphase will indemnify
PLY for all tort or statutory liabilty related to the Project that is caused by
Polyphase's grossly negligent, reckless or intentional act or omission or that
arises from an act or omission that Polyphase did not believe in good faith was
authorized by PLY.
4.03 Legal Representation and Fees. If one party indemnifies the
-----------------------------
other under any provision of this Agreement, the indemnitor will defend and hold
the other harmless and the indemnitor will pay the indemnitee's reasonable
attorney's fees and costs.
4.04 Allocation of Liability When Both Parties are Responsible. The
---------------------------------------------------------
allocation of tort and statutory liability caused by the act or omission of both
parties will be determined as provided by law.
V
COMPENSATION
------------
As compensation for its services, Polyphase shall be entitled to receive
the following fees:
a) The sum of Two Hundred Fifty Thousand Dollars ($250,000) payable by the
fifteenth (15th) day of each month beginning in the month this
Agreement becomes effective;
b) A commission equal to seven percent (7%) of all revenues;
<PAGE>
c) A fee equal to 2% of any debt or equity financing arranged by
Polyphase;
d) Reimbursement of all reasonable expenses.
VI
GENERAL PROVISIONS
------------------
6.01 Mailing and Notice Requirements. All written notices, consents,
-------------------------------
reports and other written
communications provided for in this Agreement will be delivered in person or by
registered or certified mail, postage prepaid and return receipt requested. A
notice or other written communication is considered received on personal
delivery, deposit with the telegraph company or expiration of forty-eight (48)
hours after deposit in the United States mail. All written communications
should be addressed to PLY as follows: 16885 Dallas Parkway, Suite 200, Dallas,
Texas 75248, and to Polyphase as follows: 16885 Dallas Parkway, Suite 200,
Dallas, Texas 75248. Either party may notify the other of a change of address
by using the procedures of this paragraph.
6.02 Parties Bound. This Agreement will bind and inure to the benefit
-------------
of the parties to this Agreement and their respective heirs, executors,
administrators, legal representatives, successors and assigns except as this
Agreement states otherwise.
6.03 Time of Essence. Time is of the essence in this Agreement.
---------------
6.04 Nonwaiver. No delay or failure to exercise a right under this
---------
Agreement nor a partial or single exercise of right under this Agreement will
waive that right or any other under this Agreement.
6.05 Modifying Agreement. No modification of this Agreement is valid
-------------------
unless in writing and signed by both parties.
6.06 Texas Law To Apply. This Agreement will be construed under Texas
------------------
law.
6.07 Counterparts; One Agreement. This Agreement and all other copies
---------------------------
of it are considered one agreement. This Agreement may be executed concurrently
in one or more counterparts, each of which will be considered an original, but
all of which together constitute one instrument.
6.08 Prior Arrangements Superseded. This Agreement constitutes the
-----------------------------
parties' sole agreement and supersedes any prior understandings or written or
oral agreements between them relating to this subject matter.
6.09 Legal Construction. If a court of competent jurisdiction holds
------------------
any one or more of the provisions of this Agreement to be invalid, illegal or
unenforceable in any respect, the invalidity, illegality or unenforceability
will not affect any other provision of this Agreement, which will be construed
as if it had never contained the invalid, illegal or unenforceable provision.
6.10 Headings. The headings in this Agreement are for convenience and
--------
will not enlarge or diminish the effect of the provisions of this Agreement.
6.11 Specific Performance. The parties declare that it is impossible
--------------------
to measure in money the
<PAGE>
damages that will accrue to a party because of a failure to perform any
obligation under this Agreement. If a party institutes any proceeding to enforce
this Agreement, specific performance may be sought and obtained for any breach
of it. But the heirs, executors, administrators, legal representatives,
successors or assigns of either party or PLY or Polyphase will not be entitled
to receive specific performance.
6.12 Attorney's Fees. If any action at law or in equity, including an
---------------
action for declaratory relief, is brought to enforce or interpret this
Agreement, the prevailing party is entitled to recover reasonable attorney's
fees and costs from the other in addition to any other relief that may be
rewarded. The court may award attorney's fees and costs in the trial of the
action or in a separate action brought to litigate the issue of attorney's fees
and costs.
Polyphase Corporation PLY Stadium Partners, Inc.
- -------------------------------- --------------------------------
Paul Tanner, President Paul Tanner, President
<PAGE>
Exhibit 10.58
SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement") dated as of January
1, 1996, is made by Paul A. Tanner ("Pledgor"), having his principal residence
at (and whose mailing address is ) 16885 Dallas Parkway, Dallas, Texas 75248
(the "Address") in favor of Polyphase Corporation, a Nevada corporation, having
its principal place of business at (and the address where information concerning
the security interest herein granted may be obtained is) 16885 Dallas Parkway,
Suite 400, Dallas Texas 75248 ("Secured Party").
WHEREAS, Pledgor has executed and delivered to Secured Party a Guaranty,
dated as of even date herewith (as the same may be modified, amended or
restated, the "Guaranty"); and
WHEREAS, Secured Party has made and is willing to make the loans evidenced
by the Guaranty on the condition, among others, that Pledgor shall have executed
and delivered to Secured Party this Agreement.
NOW, THEREFORE. In consideration of the promises and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, Pledgor and Secured Party hereby agree as follows:
1. Incorporation of Note. The Guaranty, and the terms and provisions
---------------------
thereof are hereby incorporated herein in their entirety. Unless
otherwise defined herein, the terms defined in the Guaranty and used
herein shall have the respective meanings set forth in the Note and
the master Loan Agreement.
2. Certain Definitions. As used herein, the following terms have the
meanings indicated:
"Accounts Receivable" shall mean any "account", as such term is defined in
-------------------
the UCC, now owned or hereafter acquired by Pledgor and, in any event, shall
include, without limitation, all accounts, accounts receivable, other
receivables, contract rights, chattel paper, instruments, documents, notes,
purchase orders, receipts and other forms of obligations now owned or hereafter
received or acquired by or belonging or owing to Pledgor (including, without
limitation, under any trade names, styles or divisions thereof) whether arising
out of goods sold or services rendered by Pledgor or from any other transaction,
and all of Pledgor's rights to any goods represented by any of the foregoing,
and all rights to the payment of money, including but not limited to tax refunds
and insurance proceeds.
"Chattel Paper" shall mean any "chattel paper", as such term is defined in
-------------
the UCC, now owned or hereafter acquired by Pledgor.
"Collateral" shall have the meaning assigned to such term in Section 3 of
---------- ---------
this Security Agreement.
"Contracts" shall mean all contracts, licenses, undertakings or other
---------
agreements in or under which Pledgor may now or hereafter have any right, title
or interest, including, without limitation, (i) with respect to Account
Receivable, any agreement relating to the terms of payment or the terms of
performance thereof, and (ii) all lease agreements relating to Real Property or
personal property, rental contracts, rent-to-own contracts, rent-to-rent
contracts, lease-purchase agreements and any and all related agreements.
"Documents" shall mean any "documents", as such term is defined in the UCC,
---------
now owned or hereafter acquired by Pledgor, including, but not limited to all
files, records, books, ledger card, computer programs, tapes, disks and related
electronic data processing software.
<PAGE>
"Equipment" shall mean any "equipment", as such term is defined is defined
---------
in the UCC, now owned or hereafter acquired by the Pledgor and, in any event,
shall include, without limitation, all machinery, equipment, furnishings,
fixtures, vehicles, trucks, automobiles, tools, dies, computers and office
equipment now owned or hereafter acquired by Pledgor and any and all additions,
substitutions and replacements of any of the foregoing, wherever located,
together with all attachments, components, parts, equipment and accessories
installed thereon or affixed thereto.
"Event of Default" shall have the meaning specified in the Guaranty.
----------------
"Intangible Assets" shall mean any "general intangibles". As such term is
-----------------
defined in the UCC, now owned or hereafter acquired by Pledgor and, in any
event, shall include without limitation, all right, title and interest which
Pledgor may now or hereafter have in or under all licenses, customer lists,
trade names, assumed names, rights in intellectual property, permits, service
marks, service mark applications, patents, patent applications, trademarks,
trademark applications, telephone numbers and listings of Pledgor, copyrights,
trade secrets, proprietary or confidential information, inventions (whether
patented, patentable or not), technical information, procedures, designs,
knowledge, know-how, software, databases, data, skill, expertise, experience,
processes, models, drawings, materials, books, records, tax refunds, prepaid
expenses, rights under capitalized leases, lease agreements relating to Real
property or personal property, rental contracts, lease-purchase agreements and
related agreements, goodwill and rights of indemnification now owned or
hereafter acquired by Pledgor.
"Instruments" shall mean any "instrument", as such term is defined in the
-----------
UCC, now owned or hereafter acquired by Pledgor.
"Proceeds" shall mean "proceeds", as such term is defined in the UCC and,
--------
in any event, shall include, without limitation, (i) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to Pledgor from time to time
with respect to any of the Collateral, (ii) any and all payments made or due and
payable to Pledgor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental body, authority, bureau or agency (or any person
acting under color of governmental authority), (iii) any and all other amounts
from time to time paid or payable under or in connection with any of the
Collateral, and (iv) any cash, deposits, securities, instruments, documents,
policies and certificates of insurance.
"Real Property" shall mean all right, title and interest now or hereafter
-------------
held by Pledgor (whether in fee, under leasehold or otherwise) to or in any real
property.
"Secured Obligations" shall mean all of Pledgor's liabilities, obligations
-------------------
and indebtedness to Secured Party of any and every kind and nature, whether
arising under the Note, the Guaranty, this Security Agreement, or any of the
other documents (including any amendments, restatements, extensions, renewals or
other modifications of any of the foregoing) executed in connection herewith or
therewith by Pledgor (the "transaction Documents") or otherwise, now or
hereafter owing, arising, due or payable from Pledgor or the Company to Secured
Party and howsoever evidenced, created, incurred, acquired or owing, whether
primary, secondary, direct, contingent, fixed or otherwise, including
obligations or performance.
"Transaction Documents" shall have the meaning set forth in the definition
---------------------
of "Secured Obligations."
"UCC" shall mean the Uniform Commercial Code as the same may, from time to
---
time, be in effect in the State of Texas; provided, however, in the event that,
-------- -------
by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Secured Party's security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of Texas, the term "UCC" shall mean the Uniform Commercial Code
as in effect in such other jurisdiction for purposes of the provisions hereof
relating thereto.
<PAGE>
3. Grant of Security Interest. As collateral security for the prompt and
--------------------------
complete payment and performance when due (whether at stated maturity, by
acceleration or otherwise) of all the Secured Obligations and to induce
Secured Party to make the loans to PLY Stadium Partners, Inc. (the
"Company") contemplated by the Master Loan Agreement or Note, Pledgor
hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to
Secured Party and hereby grants to Secured Party a continuing security
interest in all of Pledgor's right, title and interests in and to all of
the following property and interest in property of Pledgor, whether now
owned or existing, hereafter acquired or arising, or in which Pledgor now
or hereafter has any rights, wheresoever located: All right, title,
interest and ownership in and to Polyphase Corporation, Pyrenees Group,
Inc. and PLY Stadium Partners, Inc., and to the extent not otherwise
included, all Proceeds of each of the foregoing and all accessions to,
substitutions, additions, products, proceeds and replacements for, and
rents, profits, and products of each of the foregoing (all of the foregoing
being hereinafter collectively referred to as "Collateral"). The
assignments and security interests granted herein are made as security only
and shall not subject Secured Party to, or transfer or in any way affect or
modify, any obligation of Pledgor with respect to any of the Collateral or
any transaction involving or giving rise thereto.
4. Rights of Secured Party; Limitations on Secured Party's Obligations. It is
-------------------------------------------------------------------
expressly agreed by Pledgor that, anything herein to the contrary
notwithstanding, Pledgor shall remain liable under each of his Contracts,
each Transaction Document and other Collateral to observe and perform all
the conditions and obligations to be observed and performed by him
thereunder. Secured Party shall not have any obligation or liability under
any Contract, any Transaction Document or other Collateral by reason of or
arising out of this Security Agreement or the granting to Secured Party of
a security interest therein or the receipt by Secured Party of any payment
relating thereto, nor shall Secured Party be required or obligated in any
manner to perform or fulfill any of the obligations of Pledgor under or
pursuant thereto, or to make any inquiry as to the nature of the
sufficiency of any payment received by him or the sufficiency of any
performance by any party thereunder, or to present or file any claim, or to
take any action to collect or enforce any performance or the payment of any
amounts which may have been assigned to it or to which it may be entitled
at any time or times.
5. Representations and Warranties. Pledgor represents and warrants to Secured
------------------------------
Party, as of the date hereof and continuously, all of which representations
and warranties shall survive indefinitely, that:
(a) Pledgor is solvent; and possesses all requisite power and
authority to execute, deliver and comply with the terms of this
Agreement, the Guaranty and all other Transaction Documents to
which Pledgor is party.
(b) The Transaction Documents to which Pledgor is a party, when
executed and delivered by all parties thereto, will constitute the
valid, legal and binding obligations of Pledgor, enforceable
against Pledgor in accordance with their terms.
(c) Pledgor is the sole owner of each item of the Collateral in which
it purports to grant a security interest hereunder, having good
and marketable title thereto, free and clear of any and all liens
and encumbrances. No material amounts payable under or in
connection with any of its Accounts Receivable, Contracts or any
Transaction Document are evidenced by Instruments which have not
been delivered to Secured Party.
(d) No effective security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all
or any part of the Collateral is on
<PAGE>
file or of record in any public office, except such as may have
been filed by Pledgor in favor of Secured Party.
(e) Upon the filing of UCC financing statements at the Texas Secretary
of State and in Dallas County, Texas and upon Secured Party
obtaining possession of all instruments, Chattel Paper and pledged
shares of the Pledgor, this Security Agreement will be effective
to create a valid and continuing lien on and perfected security
interest in the Collateral prior to all other liens and security
interests. All action necessary or desirable to protect and
perfect such security interest in each item of the Collateral has
been duly taken.
(f) Pledgor is not in default under the Transaction Documents to which
Pledgor is a party.
(g) Pledgor's principal residence and location where its records
concerning the Collateral are kept is the Address. All offices and
places of business of Pledgor and all locations of Collateral are
as described on Schedule 5(g) hereof (collectively the "Collateral
-------------
Locations"), which Schedule sets forth (i) the complete address
for each such Collateral Location, (ii) identifies whether each
such Collateral Location is used by Pledgor as an office,
warehouse or otherwise, and (iii) provides a description of the
lease pertaining to such Collateral Location, including the term,
rental payment obligations and full name and address of landlord.
Pledgor owns no Real Property.
(h) Secured Party will have a valid and perfected first priority lien
and security interest in all Collateral.
6. Certain Covenants. Until the Secured Obligations are paid and performed in
-----------------
full, Pledgor covenants and agrees with Secured Party as follows:
(a) Financing Statements and Further Documentation. Pledgor will join
----------------------------------------------
with Secured Party in the execution and filing of such financing
statement or statements in form and content satisfactory to
Secured Party. Pledgor will pay all costs of filing any financing,
continuation or termination statements with respect to the
security interest created by this Agreement, together with costs
and expenses of any lien search required by Secured Party, from
time to time so long as this Agreement is in effect. At any time
and from time to time, upon the written request of Secured Party,
and at the sole expense of Pledgor, Pledgor will promptly and duly
execute and deliver any and all such further instruments and
documents and take such further action as Secured Party may
reasonably deem desirable to obtain the full benefits of this
Security Agreement and of the rights and powers herein granted.
(b) Certain Collateral. Immediately upon Pledgor's receipt of all
certificates or instruments representing pledged shares or any
other Collateral which is or becomes evidenced by any agreement,
instrument and/or document including, without limitation,
promissory notes, trade acceptances, documents of title and
warehouse receipts, Pledgor shall deliver the original thereof to
Secured Party, together with appropriate endorsements, duly
executed instruments of transfer or assignment or other specific
evidence (in form and substance acceptable to Secured Party) of
assignment thereof to Secured Party. After the occurrence and
during the continuation of an Event of Default, the Secured Party
shall have the right at any time to exchange certificates or
instruments representing or evidencing any Collateral in its
possession for certificates or instruments of smaller or larger
denominations.
<PAGE>
(c) Indemnification. In any suit, proceeding or action brought by
---------------
Secured Party relating to any of the Collateral for any sum owing
thereunder, or to enforce any provision of any of the Collateral,
Pledgor will save, indemnify and keep Secured Party harmless from
and against all expense, loss or damage suffered by reason of any
defense, setoff, counterclaim, recoupment or reduction of
liability whatsoever of the obligor thereunder, arising out of a
breach by Pledgor of any obligation thereunder or arising out of
any other agreement, indebtedness or liability at any time owing
to, or in favor of, such obligor or its successors from Pledgor,
and all such obligations of Pledgor shall be and remain
enforceable against and only against Pledgor and shall not be
enforceable against Secured Party.
(d) Compliance with Laws, etc. Pledgor will comply, in all material
-------------------------
respects, with all laws, acts, rules, regulations, orders, decrees
and directions of any governmental authority applicable to the
Collateral or any part thereof.
(e) Limitation of Liens on Collateral. Pledgor will not create, permit
---------------------------------
or suffer to exist, and will defend the Collateral against and
take such other action as is necessary to remove, any lien,
security interest or encumbrance on the Collateral except for the
security interest of Secured Party hereunder, and will defend the
right, title and interest of Secured Party in and to any of the
Pledgor's rights under the Collateral against the claims and
demands of all entities and persons whomsoever.
(f) Maintenance of Insurance. Pledgor will maintain, with financially
------------------------
sound and reputable companies, insurance policies insuring its
tangible property against loss and business interruption by fire,
explosion, theft and such other casualties as are usually insured
against by companies in the same or similar businesses, and
insuring Pledgor and Secured Party against liability for personal
injury and property damage relating to the Collateral, such
policies to be in such amounts and against at least such risks as
are usually insured against, in the same general area by companies
in the same or a similar business, and notify Secured Party
promptly of any occurrence causing a material loss or decline in
value of the Collateral and the estimated or actual amount of such
loss or decline. Pledgor shall deliver to Secured Party the
original (or a certified copy thereof) of each policy of insurance
and evidence of payment of all premiums therefore. Such policies
of insurance shall contain an endorsement, in form and substance
acceptable to Secured party, naming Secured Party as an additional
insured with losses payable to Pledgor and Secured Party under a
standard non-contributory "secured party" clause. Pledgor hereby
directs all insurers under such policies of insurance to pay all
proceeds payable thereunder directly to Secured Party, as its
interest may appear. All such insurance shall contain a clause
which provides that Secured Party's interest under the policy will
not be invalidated by any act or omission of, or any breach of
warranty by, the insured, or by any change in the title, ownership
or possession of the insured property, or by the use of the
property for purposes more hazardous than is permitted in the
policy, and provide that no cancellation, reduction in amount or
change in coverage thereof shall be effective until at least
thirty (30) days after the receipt by Secured Party of written
notice thereof.
(g) Limitations on Disposition. Pledgor will not sell, lease, transfer
--------------------------
or otherwise dispose of any material portion of the Collateral, or
attempt or contract to do so, without the prior consent of secured
Party.
(h) Right of Inspection. During regular business hours (unless an
-------------------
Event of Default has occurred and is continuing, in which case at
all times), Secured Party shall have full and free access to all
books and records of Pledgor, and Secured Party and its
<PAGE>
representatives may examine the same and take extracts therefrom
for the purpose of protecting and verifying its interests in the
Collateral hereunder. Secured Party and its representatives shall
also have the right to enter into and upon any premises where any
Collateral is located during such times for the purposes of
inspecting the same or otherwise protecting interest therein.
(i) Maintenance of Equipment. Pledgor will keep and maintain the
------------------------
Equipment in good operating condition on a basis with past
practices, and Pledgor will provide all maintenance and service
and all repairs necessary for such purpose.
(j) Continuous Perfection. Pledgor will not change his name or
---------------------
identity in any manner which might make any financing or
continuation statement filed in connection herewith seriously
misleading within the meaning of Section 9-402 of the UCC (or any
other then applicable provision of the UCC) unless Pledgor shall
have given Secured Party at least twenty (20) days' prior written
notice thereof and shall have taken all action necessary or
requested by Secured Party to amend each financing statement or
continuation statement so that it is not seriously misleading.
(k) Location of Collateral. Pledgor will not maintain any office or
other place of business of any kind at any location other then the
Collateral Location described on Schedule 5(e) hereof, unless
-------------
Pledgor shall have given Secured Party at least twenty (20) days'
prior written notice thereof and shall have taken all actions
necessary or requested by Secured Party to perfect its security
interest in the Collateral at such location.
7. Secured Party's Appointment as Attorney-in-Fact.
-----------------------------------------------
(a) Pledgor hereby irrevocably constitutes and appoints Secured Party
and any officers, designees or agents thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Pledgor
and in the name of Pledgor or in its own name, from time to time
in Secured Party's sole discretion, for the purposes of carrying
out the terms of this Security Agreement, without notice to
Pledgor, to take any and all appropriate action and to execute and
deliver any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Security
Agreement, including, without limitation, to ask, demand, collect,
receive, settle, compromise, adjust and give discharges, releases,
acquittances and receipts for any and all moneys due and to become
due under any Collateral, to enter on the premises of Pledgor to
take possession of and endorse and collect any checks, drafts,
notes, acceptances or other instruments for the payment of moneys
due under any Collateral, or any other Collateral, to pay or
discharge taxes, liens, security interests or other encumbrances
levied or placed on or threatened against the Collateral, to
effect any repairs or any insurance called for by the terms of
this Security Agreement and to pay all or any part of the premiums
therefor and the costs thereof, to receive, open and dispose of
mail addressed to either Pledgor, to sell, assign, transfer, make
any arrangements in respect of, or otherwise deal with or exercise
rights in respect of any Collateral as though Secured Party were
the absolute owner thereof, to adjust and settle claims under any
insurance policy, to execute financing statements or amendments
thereto or any other document or writing deemed necessary by
Secured Party to evidence or perfect its security interest in any
Collateral and to effect an assignment of Pledgor's telephone
numbers and listings.
(b) Secured Party agrees that, except upon or after the occurrence of
any Event of Default, it will not exercise the power of attorney
or any rights granted to secured
<PAGE>
party pursuant to this Section 7, except with respect to the power
---------
to execute financing statements or amendments thereto or any
document or writing deemed necessary by Secured Part to evidence
or perfect its security interest in the Collateral. Pledgor hereby
ratifies, to the extent permitted by law, all that said attorneys
shall lawfully do or cause to be done by virtue hereof. The power
of attorney granted herein is a power coupled with an interest and
shall be irrevocable until the Secured Obligations are
indefeasibly paid in full. The powers conferred on Secured Party
hereunder are solely to protect Secured Party's interests in the
Collateral and shall not impose any duty upon it to exercise any
such powers and Secured Party shall be accountable only for
amounts that it actually receives as a result of the exercise of
such powers.
8. Performance by Secured Party of Pledgor's Obligation. If Pledgor fails to
----------------------------------------------------
perform or comply with any of its agreements contained herein and Secured
Party, as provided for by the terms of this Security Agreement, shall itself
perform or comply, or otherwise cause performance or compliance, with such
agreement, the reasonable expenses of Secured Party incurred in connection
with such performance or compliance, together with interest thereon at the
rate of 10% per annum, shall be payable by Pledgor to Secured Party on
demand and shall constitute Secured Obligations hereunder.
9. Remedies, Rights Upon Default. Upon the occurrence of any Event of Default,
-----------------------------
Secured Party may exercise in addition to all other rights and remedies
granted to it in this Security Agreement and in any other instrument or
agreement securing, evidencing or relating to the Secured Obligations, all
rights and remedies of a secured party under the UCC, including but not
limited to the right to accelerate all of the Secured Obligations, to take
immediate possession of the Collateral without notice or demand, to enter
upon any premises where the Collateral is located and remove the same or
remain on such premises in possession of the Collateral, to sell, lease or
dispose of the Collateral, to setoff or apply any Collateral held by Secured
Party, or the like. To the maximum extent permitted by applicable law,
Pledgor waives all claims, damages and demands against Secured Party arising
out of the repossession, retention or sale of the Collateral. Pledgor agrees
that Secured Party need not give more than ten (1) days' notice of the time
after which a private or public sale may take place and that such notice is
reasonable notification of such matters. The requirement of reasonable
notice to Pledgor of the time and place of any public sale or private sale
of the Collateral shall be met if such notice is mailed, postage prepaid, to
Pledgor at the address set forth in the Note. Pledgor shall remain liable
for any deficiency if the proceeds of any sale or disposition of the
Collateral are insufficient to pay all amounts to which Secured Party is
entitled, Pledgor also being liable for all costs of Secured Party,
including, without limitation, reasonable attorneys' fees, incurred in
connection with the enforcement of any of its rights and remedies hereunder.
Pledgor hereby waives presentment, demand, protest or any notice, including,
without limitation, notice of intent to accelerate and notice of
acceleration (to the maximum extent permitted by applicable law) of any kind
in connection with this Security Agreement or any Collateral. Pledgor shall,
upon demand, make the Collateral available to Secured Party at a place and
time designated by Secured Party.
10. Application of Proceeds. The proceeds of any sale, disposition or other
-----------------------
realization upon all or any part of the Collateral shall be applied and
distributed by Secured Party in the following order of priorities:
first, to Secured party in an amount sufficient to pay in fill the
-----
reasonable expenses of Secured party in connection with such sale,
disposition or other realization, including all expenses, liabilities and
advances incurred or made by Secured Party in connection therewith,
including, without limitation, reasonable attorneys' fees;
<PAGE>
second, to Secured party in an amount sufficient to discharge all of
------
the Secured Obligations; and
finally, upon payment in full of all the Secured Obligations, to pay to
-------
Pledgor, or its representatives or as a court of competent jurisdiction
may direct, any surplus then remaining from such proceeds.
11. Indemnification. Pledgor hereby assumes all liability for the collateral,
---------------
and for any use, possession and management of Collateral, including
without limitation, any taxes arising as a result of, or in connection
with, the transactions contemplated herein and agrees to assume liability
for, and to indemnify and hold Secured Party harmless from and against any
and all claims, causes of action, or liability, howsoever arising from or
incident to such use, possession or management. Pledgor further agrees to
exonerate Secured Party from any liability for any loss, depreciation or
other damage to the Collateral by virtue of any action or inaction by
Secured Party.
12. Reinstatement. This Agreement shall remain in full force and effect and
-------------
continue to be effective should any petition be filed by or against
Pledgor for liquidation should Pledgor become insolvent or make an
assignment for the benefit of creditors or should a receiver or trustee
for all or any significant part of Pledgor's assets, and shall continue to
be effective or be reinstated, as the case may be, if at any time payment
and performance of the Secured Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee of the Secured
Obligations, whether as a "voidable preference", "fraudulent conveyance",
or otherwise, all as though such payment, or any part thereof, is
rescinded reduced, restored or returned, the Secured Obligations shall be
reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.
13. Miscellaneous.
-------------
(a) Waivers. Pledgor hereby waives (I) any right to require Secured
-------
Party to proceed against any person or entity, to exhaust its
rights in the Collateral, or to pursue any other right which
Secured Party may have; (ii) with respect to the Secured
Obligations, except as expressly required by the Note, presentment
and demand for payment, notice of protest and non-payment, notice
of the intention to demand or accelerate, notice of acceleration
and notice of dishonor, and diligence in collection, review or
sale of Collateral, grace, notice and protest; and (iii) all
rights of redemption and of marshaling in respect of any and all
of the Collateral.
(b) Severability. Any provision of this Security Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
uneforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
(c) No Waiver; Cumulative Remedies. Secured Party shall not by any
------------------------------
act, delay omission or otherwise be deemed to have waived any of
its rights or remedies hereunder, and no waiver shall be valid
unless in writing, signed by Secured Party and then only to the
extent therein set forth. A waiver by Secured party of any right
or remedy hereunder on any one occasion shall not be construed as
a bar to any right or remedy which Secured Party would otherwise
have had on any future occasion. No failure to exercise nor any
delay in exercising on the part of Secured Party, any right, power
or privilege hereunder, shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or
privilege hereunder
<PAGE>
preclude any other or future exercise thereof or the exercise of
any other right, power or privilege. The rights and remedies
hereunder provided are cumulative and may be exercised singly or
concurrently, and are not exclusive of any rights and remedies
provided by law.
(d) Notices. All notices, demands, requests, consents and other
-------
communications hereunder shall be delivered pursuant to the terms
and at the addresses set forth in the notice provisions of the
Guaranty.
(e) Amendments; Assignments. This Agreement may be amended only by a
writing executed jointly by Pledgor and Secured Party. This
agreement is for the benefit of and binding upon the parties
hereto and their respective successors and assigns. Secured Party
may assign all or a part of its interest in this Security
Agreement and its rights hereunder to any party.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts which shall, collectively and separately, constitute
one agreement.
(g) Section Titles and Headings. All section titles and headings
---------------------------
contained in this Agreement are and shall be without substantive
meaning or content of any kind whatsoever and are not a part of
the agreement between the parties hereto.
(h) GOVERNING LAW; VENUE. THIS AGREEMENT SHALL BE DEEMED A CONTRACT
--------------------
AND INSTRUMENT MADE UNDER THE LAWS OF THE STATE OF TEXAS AND
ACCEPTED BY PLEDGOR IN SAID STATE, THE LOCATION OF SECURED PARTY'S
PRINCIPAL PLACE OF BUSINESS, AND ANY AND ALL CLAIMS, DEMANDS OR
ACTIONS IN ANY WAY RELATING THERETO OR INVOLVING ANY DISPUTE
BETWEEN ANY OF THE PARTIES HERETO, WHETHER ARISING IN CONTRACT OR
TORT, AT LAW, IN EQUITY OR STATUTORILY, SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH AND/OR GOVERNED BY THE LAWS OF THE
STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA.
PLEDGOR HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NON-EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE OF TEXAS
AND AGREES BAND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON
IT IN ANY LEGAL PROCEEDING RELATING TO THE TRANSACTION DOCUMENTS,
THE RELATIONSHIPS CREATED THEREBY OR THE SECURED OBLIGATIONS BY
ANY MEANS ALLOWED UNDER TEXAS OR FEDERAL LAW. VENUE FOR ANY LEGAL
PROCEEDING MAY BE DALLAS COUNTY, TEXAS; PROVIDED, THAT SECURED
PARTY MAY CHOOSE ANY VENUE IN ANY STATE WHICH IT DEEMS APPROPRIATE
IN THE EXERCISE OF ITS SOLE DISCRETION.
(i) WAIVER OF JURY TRIAL. PLEDGOR AND SECURED PARTY HEREBY KNOWINGLY,
--------------------
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH, THIS NOTE, THE SECURITY AGREEMENT,
THE WARRANT PURCHASE AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF PAYEE OR MAKER IN CONNECTION
HEREWITH, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE. MAKER AND PAYEE
<PAGE>
HEREBY CONSENT AND AGREE THAT ANY SUCH CLAIM, DEMAND ACTION, CAUSE
OF ACTION, SUIT OR PROCEEDING SHALL BE DECIDED BY A COURT TRIAL,
WITHOUT A JURY, AND THAT ANY PARTY MAY FILE AN ORIGINAL
COUNTERPART OR COPY OF THIS SECURITY AGREEMENT WITH ANY COURT AS
WRITTEN EVIDENCE OF THE OTHER PARTIES' CONSENT TO SUCH.
(j) Severability. If any provision of this Security Agreement or any
------------
payments pursuant to the terms hereof shall be invalid or
unenforceable to any extent, the remainder of this Security
Agreement and any other payments hereunder shall not be affected
thereby and shall be enforceable to the greatest extent permitted
by law.
(k) LEGAL COUNSEL. PLEDGOR AND SECURED PARTY ACKNOWLEDGE THAT EACH HAS
-------------
HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL
IN CONNECTION WITH ALL MATTERS CONCERNING THIS AGREEMENT,
INCLUDING, BUT NOT LIMITED TO, THE NEGOTIATION, ACCEPTANCE AND
EXECUTION OF THIS AGREEMENT; THAT EACH HAD THE OPPORTUNITY TO RELY
UPON THE ADVICE OF ITS INDEPENDENT LEGAL COUNSEL IN AGREEING TO
THE TERMS AND CONDITIONS HEREIN AND IN EXECUTING THIS SECURITY
AGREEMENT; THAT EACH HAS READ, REVIEWED AND UNDERSTOOD THE
TRANSACTION DOCUMENTS AND THAT THE OBLIGATIONS THEREUNDER
REPRESENT VALID AND BINDING OBLIGATIONS OF PLEDGOR; AND THAT EACH
HAS FREELY AND VOLUNTARILY ENTERED INTO THIS SECURITY AGREEMENT AS
THE PRODUCT OF ARM'S LENGTH NEGOTIATIONS.
(l) ENTIRE AGREEMENT. THIS AGREEMENT, TOGETHER WITH THE OTHER
----------------
TRANSACTION DOCUMENTS, EMBODIES THE FINAL, ENTIRE AGREEMENT AMONG
THE PARTIES HERETO AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN
OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND NOT TO BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENT OR DISCUSSIONS OF THE PARTIES HERETO.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day and year first above written.
PLEDGOR:
--------------------------------------
Paul A. Tanner
ACCEPTED BY SECURED PARTY
AT DALLAS, TEXAS:
POLYPHASE CORPORATION
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE>
Exhibit 10.59
SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement") dated as of
January 1, 1996, is made by Pyrenees Group, Inc., a Nevada Corporation
("Pledgor"), having its principal place of business at 16885 Dallas Parkway,
Suite 400, Dallas, Texas 75248 (the "Address") in favor of Polyphase
Corporation, a Nevada corporation, having its principal place of business at
(and the address where information concerning the security interest herein
granted may be obtained is) 16885 Dallas Parkway, Suite 400, Dallas Texas 75248
("Secured Party").
WHEREAS, Pledgor has executed and delivered to Secured Party a Guaranty,
dated as of even date herewith (as the same may be modified, amended or
restated, the "Guaranty"); and
WHEREAS, Secured Party has made and is willing to make the loans evidenced
by the Guaranty on the condition, among others, that Pledgor shall have executed
and delivered to Secured Party this Agreement.
NOW, THEREFORE. In consideration of the promises and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, Pledgor and Secured Party hereby agree as follows:
1. Incorporation of Note. The Guaranty, and the terms and provisions
---------------------
thereof are hereby incorporated herein in their entirety. Unless
otherwise defined herein, the terms defined in the Guaranty and used
herein shall have the respective meanings set forth in the Note and
the master Loan Agreement.
2. Certain Definitions. As used herein, the following terms have the
-------------------
meanings indicated:
"Accounts Receivable" shall mean any "account", as such term is defined in
-------------------
the UCC, now owned or hereafter acquired by Pledgor and, in any event, shall
include, without limitation, all accounts, accounts receivable, other
receivables, contract rights, chattel paper, instruments, documents, notes,
purchase orders, receipts and other forms of obligations now owned or hereafter
received or acquired by or belonging or owing to Pledgor (including, without
limitation, under any trade names, styles or divisions thereof) whether arising
out of goods sold or services rendered by Pledgor or from any other transaction,
and all of Pledgor's rights to any goods represented by any of the foregoing,
and all rights to the payment of money, including but not limited to tax refunds
and insurance proceeds.
"Chattel Paper" shall mean any "chattel paper", as such term is defined in
-------------
the UCC, now owned or hereafter acquired by Pledgor.
"Collateral" shall have the meaning assigned to such term in Section 3 of
---------- ---------
this Security Agreement.
"Contracts" shall mean all contracts, licenses, undertakings or other
---------
agreements in or under which Pledgor may now or hereafter have any right, title
or interest, including, without limitation, (i) with respect to Account
Receivable, any agreement relating to the terms of payment or the terms of
performance thereof, and (ii) all lease agreements relating to Real Property or
personal property, rental contracts, rent-to-own contracts, rent-to-rent
contracts, lease-purchase agreements and any and all related agreements.
"Documents" shall mean any "documents", as such term is defined in the UCC,
---------
now owned or hereafter acquired by Pledgor, including, but not limited to all
files, records, books, ledger card, computer programs, tapes, disks and related
electronic data processing software.
<PAGE>
"Equipment" shall mean any "equipment", as such term is defined is defined
---------
in the UCC, now owned or hereafter acquired by the Pledgor and, in any event,
shall include, without limitation, all machinery, equipment, furnishings,
fixtures, vehicles, trucks, automobiles, tools, dies, computers and office
equipment now owned or hereafter acquired by Pledgor and any and all additions,
substitutions and replacements of any of the foregoing, wherever located,
together with all attachments, components, parts, equipment and accessories
installed thereon or affixed thereto.
"Event of Default" shall have the meaning specified in the Guaranty.
----------------
"Intangible Assets" shall mean any "general intangibles". As such term is
-----------------
defined in the UCC, now owned or hereafter acquired by Pledgor and, in any
event, shall include without limitation, all right, title and interest which
Pledgor may now or hereafter have in or under all licenses, customer lists,
trade names, assumed names, rights in intellectual property, permits, service
marks, service mark applications, patents, patent applications, trademarks,
trademark applications, telephone numbers and listings of Pledgor, copyrights,
trade secrets, proprietary or confidential information, inventions (whether
patented, patentable or not), technical information, procedures, designs,
knowledge, know-how, software, databases, data, skill, expertise, experience,
processes, models, drawings, materials, books, records, tax refunds, prepaid
expenses, rights under capitalized leases, lease agreements relating to Real
property or personal property, rental contracts, lease-purchase agreements and
related agreements, goodwill and rights of indemnification now owned or
hereafter acquired by Pledgor.
"Instruments" shall mean any "instrument", as such term is defined in the
-----------
UCC, now owned or hereafter acquired by Pledgor.
"Proceeds" shall mean "proceeds", as such term is defined in the UCC and,
--------
in any event, shall include, without limitation, (i) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to Pledgor from time to time
with respect to any of the Collateral, (ii) any and all payments made or due and
payable to Pledgor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental body, authority, bureau or agency (or any person
acting under color of governmental authority), (iii) any and all other amounts
from time to time paid or payable under or in connection with any of the
Collateral, and (iv) any cash, deposits, securities, instruments, documents,
policies and certificates of insurance.
"Real Property" shall mean all right, title and interest now or hereafter
-------------
held by Pledgor (whether in fee, under leasehold or otherwise) to or in any real
property.
"Secured Obligations" shall mean all of Pledgor's liabilities, obligations
-------------------
and indebtedness to Secured Party of any and every kind and nature, whether
arising under the Note, the Guaranty, this Security Agreement, or any of the
other documents (including any amendments, restatements, extensions, renewals or
other modifications of any of the foregoing) executed in connection herewith or
therewith by Pledgor (the "transaction Documents") or otherwise, now or
hereafter owing, arising, due or payable from Pledgor or the Company to Secured
Party and howsoever evidenced, created, incurred, acquired or owing, whether
primary, secondary, direct, contingent, fixed or otherwise, including
obligations or performance.
"Transaction Documents" shall have the meaning set forth in the definition
---------------------
of "Secured Obligations."
"UCC" shall mean the Uniform Commercial Code as the same may, from time to
---
time, be in effect in the State of Texas; provided, however, in the event that,
-------- -------
by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Secured Party's security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of Texas, the term "UCC" shall mean the Uniform Commercial Code
as in effect in such other jurisdiction for purposes of the provisions hereof
relating thereto.
<PAGE>
3. Grant of Security Interest. As collateral security for the prompt and
--------------------------
complete payment and performance when due (whether at stated maturity,
by acceleration or otherwise) of all the Secured Obligations and to
induce Secured Party to make the loans to PLY Stadium Partners, Inc.
(the "Company") contemplated by the Master Loan Agreement or Note,
Pledgor hereby assigns, conveys, mortgages, pledges, hypothecates and
transfers to Secured Party and hereby grants to Secured Party a
continuing security interest in all of Pledgor's right, title and
interests in and to all of the following property and interest in
property of Pledgor, whether now owned or existing, hereafter acquired
or arising, or in which Pledgor now or hereafter has any rights,
wheresoever located: All right, title, interest and ownership in and
to Polyphase Corporation, Pyrenees Group, Inc. and PLY Stadium
Partners, Inc., and to the extent not otherwise included, all Proceeds
of each of the foregoing and all accessions to, substitutions,
additions, products, proceeds and replacements for, and rents,
profits, and products of each of the foregoing (all of the foregoing
being hereinafter collectively referred to as "Collateral"). The
assignments and security interests granted herein are made as security
only and shall not subject Secured Party to, or transfer or in any way
affect or modify, any obligation of Pledgor with respect to any of the
Collateral or any transaction involving or giving rise thereto.
4. Rights of Secured Party; Limitations on Secured Party's Obligations.
-------------------------------------------------------------------
It is expressly agreed by Pledgor that, anything herein to the
contrary notwithstanding, Pledgor shall remain liable under each of
his Contracts, each Transaction Document and other Collateral to
observe and perform all the conditions and obligations to be observed
and performed by him thereunder. Secured Party shall not have any
obligation or liability under any Contract, any Transaction Document
or other Collateral by reason of or arising out of this Security
Agreement or the granting to Secured Party of a security interest
therein or the receipt by Secured Party of any payment relating
thereto, nor shall Secured Party be required or obligated in any
manner to perform or fulfill any of the obligations of Pledgor under
or pursuant thereto, or to make any inquiry as to the nature of the
sufficiency of any payment received by him or the sufficiency of any
performance by any party thereunder, or to present or file any claim,
or to take any action to collect or enforce any performance or the
payment of any amounts which may have been assigned to it or to which
it may be entitled at any time or times.
5. Representations and Warranties. Pledgor represents and warrants to
------------------------------
Secured Party, as of the date hereof and continuously, all of which
representations and warranties shall survive indefinitely, that:
(a) Pledgor is solvent; and possesses all requisite power and
authority to execute, deliver and comply with the terms of
this Agreement, the Guaranty and all other Transaction
Documents to which Pledgor is party.
(b) The Transaction Documents to which Pledgor is a party, when
executed and delivered by all parties thereto, will
constitute the valid, legal and binding obligations of
Pledgor, enforceable against Pledgor in accordance with
their terms.
(c) Pledgor is the sole owner of each item of the Collateral in
which it purports to grant a security interest hereunder,
having good and marketable title thereto, free and clear of
any and all liens and encumbrances. No material amounts
payable under or in connection with any of its Accounts
Receivable, Contracts or any Transaction Document are
evidenced by Instruments which have not been delivered to
Secured Party.
(d) No effective security agreement, financing statement,
equivalent security or lien instrument or continuation
statement covering all or any part of the Collateral is on
<PAGE>
file or of record in any public office, except such as may
have been filed by Pledgor in favor of Secured Party.
(e) Upon the filing of UCC financing statements at the Texas
Secretary of State and in Dallas County, Texas and upon
Secured Party obtaining possession of all instruments,
Chattel Paper and pledged shares of the Pledgor, this
Security Agreement will be effective to create a valid and
continuing lien on and perfected security interest in the
Collateral prior to all other liens and security interests.
All action necessary or desirable to protect and perfect
such security interest in each item of the Collateral has
been duly taken.
(f) Pledgor is not in default under the Transaction Documents
to which Pledgor is a party.
(g) Pledgor's principal residence and location where its
records concerning the Collateral are kept is the Address.
All offices and places of business of Pledgor and all
locations of Collateral are as described on Schedule 5(g)
-------------
hereof (collectively the "Collateral Locations"), which
Schedule sets forth (i) the complete address for each such
Collateral Location, (ii) identifies whether each such
Collateral Location is used by Pledgor as an office,
warehouse or otherwise, and (iii) provides a description of
the lease pertaining to such Collateral Location, including
the term, rental payment obligations and full name and
address of landlord. Pledgor owns no Real Property.
(h) Secured Party will have a valid and perfected first
priority lien and security interest in all Collateral.
6. Certain Covenants. Until the Secured Obligations are paid and
-----------------
performed in full, Pledgor covenants and agrees with Secured Party as
follows:
(a) Financing Statements and Further Documentation. Pledgor
----------------------------------------------
will join with Secured Party in the execution and filing of
such financing statement or statements in form and content
satisfactory to Secured Party. Pledgor will pay all costs
of filing any financing, continuation or termination
statements with respect to the security interest created by
this Agreement, together with costs and expenses of any
lien search required by Secured Party, from time to time so
long as this Agreement is in effect. At any time and from
time to time, upon the written request of Secured Party,
and at the sole expense of Pledgor, Pledgor will promptly
and duly execute and deliver any and all such further
instruments and documents and take such further action as
Secured Party may reasonably deem desirable to obtain the
full benefits of this Security Agreement and of the rights
and powers herein granted.
(b) Certain Collateral. Immediately upon Pledgor's receipt of
------------------
all certificates or instruments representing pledged shares
or any other Collateral which is or becomes evidenced by
any agreement, instrument and/or document including,
without limitation, promissory notes, trade acceptances,
documents of title and warehouse receipts, Pledgor shall
deliver the original thereof to Secured Party, together
with appropriate endorsements, duly executed instruments of
transfer or assignment or other specific evidence (in form
and substance acceptable to Secured Party) of assignment
thereof to Secured Party. After the occurence and during
the continuation of an Event of Default, the Secured Party
shall have the right at any time to exchange certificates
or instruments representing or evidencing any Collateral in
its possession for certificates or instruments of smaller
or larger denominations.
<PAGE>
(c) Indemnification. In any suit, proceeding or action brought
---------------
by Secured Party relating to any of the Collateral for any
sum owing thereunder, or to enforce any provision of any of
the Collateral, Pledgor will save, indemnify and keep
Secured Party harmless from and against all expense, loss
or damage suffered by reason of any defense, setoff,
counterclaim, recoupment or reduction of liability
whatsoever of the obligor thereunder, arising out of a
breach by Pledgor of any obligation thereunder or arising
out of any other agreement, indebtedness or liability at
any time owing to, or in favor of, such obligor or its
successors from Pledgor, and all such obligations of
Pledgor shall be and remain enforceable against and only
against Pledgor and shall not be enforceable against
Secured Party.
(d) Compliance with Laws, etc. Pledgor will comply, in all
-------------------------
material respects, with all laws, acts, rules, regulations,
orders, decrees and directions of any governmental
authority applicable to the Collateral or any part thereof.
(e) Limitation of Liens on Collateral. Pledgor will not create,
---------------------------------
permit or suffer to exist, and will defend the Collateral
against and take such other action as is necessary to
remove, any lien, security interest or encumbrance on the
Collateral except for the security interest of Secured
Party hereunder, and will defend the right, title and
interest of Secured Party in and to any of the Pledgor's
rights under the Collateral against the claims and demands
of all entities and persons whomsoever.
(f) Maintenance of Insurance. Pledgor will maintain, with
------------------------
financially sound and reputable companies, insurance
policies insuring its tangible property against loss and
business interruption by fire, explosion, theft and such
other casualties as are usually insured against by
companies in the same or similar businesses, and insuring
Pledgor and Secured Party against liability for personal
injury and property damage relating to the Collateral, such
policies to be in such amounts and against at least such
risks as are usually insured against, in the same general
area by companies in the same or a similar business, and
notify Secured Party promptly of any occurrence causing a
material loss or decline in value of the Collateral and the
estimated or actual amount of such loss or decline. Pledgor
shall deliver to Secured Party the original (or a certified
copy thereof) of each policy of insurance and evidence of
payment of all premiums therefore. Such policies of
insurance shall contain an endorsement, in form and
substance acceptable to Secured party, naming Secured Party
as an additional insured with losses payable to Pledgor and
Secured Party under a standard non-contributory "secured
party" clause. Pledgor hereby directs all insurers under
such policies of insurance to pay all proceeds payable
thereunder directly to Secured Party, as its interest may
appear. All such insurance shall contain a clause which
provides that Secured Party's interest under the policy
will not be invalidated by any act or omission of, or any
breach of warranty by, the insured, or by any change in the
title, ownership or possession of the insured property, or
by the use of the property for purposes more hazardous than
is permitted in the policy, and provide that no
cancellation, reduction in amount or change in coverage
thereof shall be effective until at least thirty (30) days
after the receipt by Secured Party of written notice
thereof.
(g) Limitations on Disposition. Pledgor will not sell, lease,
--------------------------
transfer or otherwise dispose of any material portion of
the Collateral, or attempt or contract to do so, without
the prior consent of secured Party.
(h) Right of Inspection. During regular business hours (unless
-------------------
an Event of Default has occurred and is continuing, in
which case at all times), Secured Party shall have full and
free access to all books and records of Pledgor, and
Secured Party and its
<PAGE>
representatives may examine the same and take extracts
therefrom for the purpose of protecting and verifying its
interests in the Collateral hereunder. Secured Party and
its representatives shall also have the right to enter into
and upon any premises where any Collateral is located
during such times for the purposes of inspecting the same
or otherwise protecting interest therein.
(i) Maintenance of Equipment. Pledgor will keep and maintain
------------------------
the Equipment in good operating condition on a basis with
past practices, and Pledgor will provide all maintenance
and service and all repairs necessary for such purpose.
(j) Continuous Perfection. Pledgor will not change his name or
---------------------
identity in any manner which might make any financing or
continuation statement filed in connection herewith
seriously misleading within the meaning of Section 9-402 of
the UCC (or any other then applicable provision of the UCC)
unless Pledgor shall have given Secured Party at least
twenty (20) days' prior written notice thereof and shall
have taken all action necessary or requested by Secured
Party to amend each financing statement or continuation
statement so that it is not seriously misleading.
(k) Location of Collateral. Pledgor will not maintain any
----------------------
office or other place of business of any kind at any
location other then the Collateral Location described on
Schedule 5(e) hereof, unless Pledgor shall have given
-------------
Secured Party at least twenty (20) days' prior written
notice thereof and shall have taken all actions necessary
or requested by Secured Party to perfect its security
interest in the Collateral at such location.
7. Secured Party's Appointment as Attorney-in-Fact.
-----------------------------------------------
(a) Pledgor hereby irrevocably constitutes and appoints Secured
Party and any officers, designees or agents thereof, with
full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority
in the place and stead of Pledgor and in the name of
Pledgor or in its own name, from time to time in Secured
Party's sole discretion, for the purposes of carrying out
the terms of this Security Agreement, without notice to
Pledgor, to take any and all appropriate action and to
execute and deliver any and all documents and instruments
which may be necessary or desirable to accomplish the
purposes of this Security Agreement, including, without
limitation, to ask, demand, collect, receive, settle,
compromise, adjust and give discharges, releases,
acquittances and receipts for any and all moneys due and to
become due under any Collateral, to enter on the premises
of Pledgor to take possession of and endorse and collect
any checks, drafts, notes, acceptances or other instruments
for the payment of moneys due under any Collateral, or any
other Collateral, to pay or discharge taxes, liens,
security interests or other encumbrances levied or placed
on or threatened against the Collateral, to effect any
repairs or any insurance called for by the terms of this
Security Agreement and to pay all or any part of the
premiums therefor and the costs thereof, to receive, open
and dispose of mail addressed to either Pledgor, to sell,
assign, transfer, make any arrangements in respect of, or
otherwise deal with or exercise rights in respect of any
Collateral as though Secured Party were the absolute owner
thereof, to adjust and settle claims under any insurance
policy, to execute financing statements or amendments
thereto or any other document or writing deemed necessary
by Secured Party to evidence or perfect its security
interest in any Collateral and to effect an assignment of
Pledgor's telephone numbers and listings.
(b) Secured Party agrees that, except upon or after the
occurrence of any Event of Default, it will not exercise
the power of attorney or any rights granted to secured
<PAGE>
party pursuant to this Section 7, except with respect to
---------
the power to execute financing statements or amendments
thereto or any document or writing deemed necessary by
Secured Part to evidence or perfect its security interest
in the Collateral. Pledgor hereby ratifies, to the extent
permitted by law, all that said attorneys shall lawfully do
or cause to be done by virtue hereof. The power of attorney
granted herein is a power coupled with an interest and
shall be irrevocable until the Secured Obligations are
indefeasibly paid in full. The powers conferred on Secured
Party hereunder are solely to protect Secured Party's
interests in the Collateral and shall not impose any duty
upon it to exercise any such powers and Secured Party shall
be accountable only for amounts that it actually receives
as a result of the exercise of such powers.
8. Performance by Secured Party of Pledgor's Obligation. If Pledgor fails
----------------------------------------------------
to perform or comply with any of its agreements contained herein and
Secured Party, as provided for by the terms of this Security
Agreement, shall itself perform or comply, or otherwise cause
performance or compliance, with such agreement, the reasonable
expenses of Secured Party incurred in connection with such performance
or compliance, together with interest thereon at the rate of 10% per
annum, shall be payable by Pledgor to Secured Party on demand and
shall constitute Secured Obligations hereunder.
9. Remedies, Rights Upon Default. Upon the occurrence of any Event of
-----------------------------
Default, Secured Party may exercise in addition to all other rights
and remedies granted to it in this Security Agreement and in any other
instrument or agreement securing, evidencing or relating to the
Secured Obligations, all rights and remedies of a secured party under
the UCC, including but not limited to the right to accelerate all of
the Secured Obligations, to take immediate possession of the
Collateral without notice or demand, to enter upon any premises where
the Collateral is located and remove the same or remain on such
premises in possession of the Collateral, to sell, lease or dispose of
the Collateral, to setoff or apply any Collateral held by Secured
Party, or the like. To the maximum extent permitted by applicable law,
Pledgor waives all claims, damages and demands against Secured Party
arising out of the repossession, retention or sale of the Collateral.
Pledgor agrees that Secured Party need not give more than ten (1)
days' notice of the time after which a private or public sale may take
place and that such notice is reasonable notification of such matters.
The requirement of reasonable notice to Pledgor of the time and place
of any public sale or private sale of the Collateral shall be met if
such notice is mailed, postage prepaid, to Pledgor at the address set
forth in the Note. Pledgor shall remain liable for any deficiency if
the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which Secured Party is entitled,
Pledgor also being liable for all costs of Secured Party, including,
without limitation, reasonable attorneys' fees, incurred in connection
with the enforcement of any of its rights and remedies hereunder.
Pledgor hereby waives presentment, demand, protest or any notice,
including, without limitation, notice of intent to accelerate and
notice of acceleration (to the maximum extent permitted by applicable
law) of any kind in connection with this Security Agreement or any
Collateral. Pledgor shall, upon demand, make the Collateral available
to Secured Party at a place and time designated by Secured Party.
10. Application of Proceeds. The proceeds of any sale, disposition or
-----------------------
other realization upon all or any part of the Collateral shall be
applied and distributed by Secured Party in the following order of
priorities:
first, to Secured party in an amount sufficient to pay in fill
-----
the reasonable expenses of Secured party in connection with such sale,
disposition or other realization, including all expenses, liabilities
and advances incurred or made by Secured Party in connection
therewith, including, without limitation, reasonable attorneys' fees;
<PAGE>
second, to Secured party in an amount sufficient to discharge
------
all of the Secured Obligations; and
finally, upon payment in full of all the Secured Obligations, to
-------
pay to Pledgor, or its representatives or as a court of competent
jurisdiction may direct, any surplus then remaining from such
proceeds.
11. Indemnification. Pledgor hereby assumes all liability for the
---------------
collateral, and for any use, possession and management of Collateral,
including without limitation, any taxes arising as a result of, or in
connection with, the transactions contemplated herein and agrees to
assume liability for, and to indemnify and hold Secured Party harmless
from and against any and all claims, causes of action, or liability,
howsoever arising from or incident to such use, possession or
management. Pledgor further agrees to exonerate Secured Party from any
liability for any loss, depreciation or other damage to the Collateral
by virtue of any action or inaction by Secured Party.
12. Reinstatement. This Agreement shall remain in full force and effect
-------------
and continue to be effective should any petition be filed by or
against Pledgor for liquidation should Pledgor become insolvent or
make an assignment for the benefit of creditors or should a receiver
or trustee for all or any significant part of Pledgor's assets, and
shall continue to be effective or be reinstated, as the case may be,
if at any time payment and performance of the Secured Obligations, or
any part thereof, is, pursuant to applicable law, rescinded or reduced
in amount, or must otherwise be restored or returned by any obligee of
the Secured Obligations, whether as a "voidable preference",
"fraudulent conveyance", or otherwise, all as though such payment, or
any part thereof, is rescinded reduced, restored or returned, the
Secured Obligations shall be reinstated and deemed reduced only by
such amount paid and not so rescinded, reduced, restored or returned.
13. Miscellaneous.
-------------
(a) Waivers. Pledgor hereby waives (I) any right to require
-------
Secured Party to proceed against any person or entity, to
exhaust its rights in the Collateral, or to pursue any
other right which Secured Party may have; (ii) with respect
to the Secured Obligations, except as expressly required by
the Note, presentment and demand for payment, notice of
protest and non-payment, notice of the intention to demand
or accelerate, notice of acceleration and notice of
dishonor, and diligence in collection, review or sale of
Collateral, grace, notice and protest; and (iii) all rights
of redemption and of marshaling in respect of any and all
of the Collateral.
(b) Severability. Any provision of this Security Agreement
------------
which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in
any other jurisdiction.
(c) No Waiver; Cumulative Remedies. Secured Party shall not by
---------
any act, delay omission or otherwise be deemed to have
waived any of its rights or remedies hereunder, and no
waiver shall be valid unless in writing, signed by Secured
Party and then only to the extent therein set forth. A
waiver by Secured party of any right or remedy hereunder on
any one occasion shall not be construed as a bar to any
right or remedy which Secured Party would otherwise have
had on any future occasion. No failure to exercise nor any
delay in exercising on the part of Secured Party, any
right, power or privilege hereunder, shall operate as a
waiver thereof, nor shall any single or partial exercise of
any right, power or privilege hereunder
<PAGE>
preclude any other or future exercise thereof or the
exercise of any other right, power or privilege. The rights
and remedies hereunder provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of
any rights and remedies provided by law.
(d) Notices. All notices, demands, requests, consents and other
-------
communications hereunder shall be delivered pursuant to the
terms and at the addresses set forth in the notice
provisions of the Guaranty.
(e) Amendments; Assignments. This Agreement may be amended only
-----------------------
by a writing executed jointly by Pledgor and Secured Party.
This agreement is for the benefit of and binding upon the
parties hereto and their respective successors and assigns.
Secured Party may assign all or a part of its interest in
this Security Agreement and its rights hereunder to any
party.
(f) Counterparts. This Agreement may be executed in any number
------------
of counterparts which shall, collectively and separately,
constitute one agreement.
(g) Section Titles and Headings. All section titles and
---------------------------
headings contained in this Agreement are and shall be
without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the
parties hereto.
(h) GOVERNING LAW; VENUE. THIS AGREEMENT SHALL BE DEEMED A
--------------------
CONTRACT AND INSTRUMENT MADE UNDER THE LAWS OF THE STATE OF
TEXAS AND ACCEPTED BY PLEDGOR IN SAID STATE, THE LOCATION
OF SECURED PARTY'S PRINCIPAL PLACE OF BUSINESS, AND ANY AND
ALL CLAIMS, DEMANDS OR ACTIONS IN ANY WAY RELATING THERETO
OR INVOLVING ANY DISPUTE BETWEEN ANY OF THE PARTIES HERETO,
WHETHER ARISING IN CONTRACT OR TORT, AT LAW, IN EQUITY OR
STATUTORILY, SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH AND/OR GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND
THE LAWS OF THE UNITED STATES OF AMERICA. PLEDGOR HEREBY
IRREVOCABLY SUBMITS ITSELF TO THE NON-EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE
OF TEXAS AND AGREES BAND CONSENTS THAT SERVICE OF PROCESS
MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THE
TRANSACTION DOCUMENTS, THE RELATIONSHIPS CREATED THEREBY OR
THE SECURED OBLIGATIONS BY ANY MEANS ALLOWED UNDER TEXAS OR
FEDERAL LAW. VENUE FOR ANY LEGAL PROCEEDING MAY BE DALLAS
COUNTY, TEXAS; PROVIDED, THAT SECURED PARTY MAY CHOOSE ANY
VENUE IN ANY STATE WHICH IT DEEMS APPROPRIATE IN THE
EXERCISE OF ITS SOLE DISCRETION.
(i) WAIVER OF JURY TRIAL. PLEDGOR AND SECURED PARTY HEREBY
--------------------
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO
A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON,
OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS NOTE,
THE SECURITY AGREEMENT, THE WARRANT PURCHASE AGREEMENT, THE
OTHER TRANSACTION DOCUMENTS OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN)
OR ACTIONS OF PAYEE OR MAKER IN CONNECTION HEREWITH,
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE. MAKER AND PAYEE
<PAGE>
HEREBY CONSENT AND AGREE THAT ANY SUCH CLAIM, DEMAND
ACTION, CAUSE OF ACTION, SUIT OR PROCEEDING SHALL BE
DECIDED BY A COURT TRIAL, WITHOUT A JURY, AND THAT ANY
PARTY MAY FILE AN ORIGINAL COUNTERPART OR COPY OF THIS
SECURITY AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF
THE OTHER PARTIES' CONSENT TO SUCH.
(j) Severability. If any provision of this Security Agreement
------------
or any payments pursuant to the terms hereof shall be
invalid or unenforceable to any extent, the remainder of
this Security Agreement and any other payments hereunder
shall not be affected thereby and shall be enforceable to
the greatest extent permitted by law.
(k) LEGAL COUNSEL. PLEDGOR AND SECURED PARTY ACKNOWLEDGE THAT
-------------
EACH HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY
INDEPENDENT LEGAL COUNSEL IN CONNECTION WITH ALL MATTERS
CONCERNING THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO,
THE NEGOTIATION, ACCEPTANCE AND EXECUTION OF THIS
AGREEMENT; THAT EACH HAD THE OPPORTUNITY TO RELY UPON THE
ADVICE OF ITS INDEPENDENT LEGAL COUNSEL IN AGREEING TO THE
TERMS AND CONDITIONS HEREIN AND IN EXECUTING THIS SECURITY
AGREEMENT; THAT EACH HAS READ, REVIEWED AND UNDERSTOOD THE
TRANSACTION DOCUMENTS AND THAT THE OBLIGATIONS THEREUNDER
REPRESENT VALID AND BINDING OBLIGATIONS OF PLEDGOR; AND
THAT EACH HAS FREELY AND VOLUNTARILY ENTERED INTO THIS
SECURITY AGREEMENT AS THE PRODUCT OF ARM'S LENGTH
NEGOTIATIONS.
(l) ENTIRE AGREEMENT. THIS AGREEMENT, TOGETHER WITH THE OTHER
----------------
TRANSACTION DOCUMENTS, EMBODIES THE FINAL, ENTIRE AGREEMENT
AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL PRIOR
COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF AND NOT TO BE CONTRADICTED OR VARIED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENT OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day and year first above written.
PLEDGOR:
---------------------------------------
Paul A. Tanner, President
ACCEPTED BY SECURED PARTY
AT DALLAS, TEXAS:
POLYPHASE CORPORATION
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE>
Exhibit 10.60
NONINCENTIVE STOCK OPTION AGREEMENT FOR THE
1994 EMPLOYEE STOCK OPTION PLAN FOR
POLYPHASE CORPORATION
A Nonincentive Stock Option (the "Option") for a total of 200,000 shares of
Common Stock, par value $0.01 per share, of Polyphase Corporation (the
"Company") is hereby granted to
DAVID R. WEINREB
(the "Optionee") at the price determined as provided in, and in all respects
subject to the terms, definitions and provisions of, the 1994 Employee Option
Plan for Polyphase Corporation (the "Plan"), which is incorporated herein by
reference.
1. Option Price. The option price is $0.01 for each share.
------------
2. Exercise of Option. This Option shall be exercisable in accordance with
------------------
the provisions of the Plan as follows:
(i) Schedule of Rights to Exercise. This option shall be
------------------------------
exercisable, in whole or in part, on February 15, 1997.
(ii) Method of Exercise. This Option shall be exercisable by a
------------------
written notice which shall:
a. state the election to exercise the Option and the number of
shares in respect of which it is being exercised;
b. be signed by the person or persons entitled to exercise the
Option, and if the Option is being exercised by any person or
persons other than the Optionee, be accompanied by proof,
satisfactory to the Company, of the right of such person or
persons to exercise the Option; and
(iii) Payment. Payment of the purchase price of any shares with
-------
respect to which this Option is being exercised shall be by
cash, certified or bank cashier's check, money order, personal
check, with shares of Common Stock of the Company or by a
combination of the above delivered to the Company and their
exercise shall not be effective until such payment is made. If
the exercise price is paid in whole or in part with shares of
Common Stock of the Company, the value of the shares
surrendered shall be the Fair Market Value on the date received
by the Company. The certificate or certificates for shares of
Common Stock as to which the Option shall be exercised shall be
registered in the name of the person or persons exercising the
Option.
<PAGE>
(iv) Withholding. The Optionee shall make satisfactory arrangements
-----------
for the withholding of any amounts necessary for withholding in
accordance with applicable federal or state income tax laws.
(v) Restrictions on Exercise.
------------------------
(a) This Option may not be exercised if the issuance of the
shares upon such exercise would constitute a violation of
any applicable federal or state securities or other law or
valid regulation. As a condition to the exercise of this
Option, the Company may require the person exercising this
Option to make any arrangements and undertakings that may
be required by any applicable law or regulation.
(b) Shares issued upon exercise of this Option without
registration of such shares under the Securities Act of
1933, as amended (the "Act"), shall be restricted
securities subject to the terms of Rule 144 under the Act.
The certificates representing any such shares shall bear
an appropriate legend restricting transfer and the
transfer agent of the Company shall be given stop transfer
instructions with respect to such shares.
(vi) Surrender of Option. Upon exercise of this Option in part, if
-------------------
requested by the Company, the Optionee shall deliver this
Option and any other written agreements executed by the Company
and the Optionee with respect to this Option to the Company who
shall endorse or cause to be endorsed thereon a notation of
such exercise and return all agreements to the Optionee.
3. Non-transferability of Option. This Option may not be transferred by the
-----------------------------
Optionee otherwise than by will or the laws of descent and distribution
and so long as an Optionee lives, only such Optionee or his guardian or
legal representative shall have the right to exercise this Option. The
terms of this option shall be binding upon the executors, administrators,
heirs, successors and assigns of the Optionee.
4. Term of Option. This Option may not be exercised after the expiration of
--------------
ten (10) years from the Date of Grant of this Option and is subject to
earlier termination as provided in the Plan. This Option may be exercised
during such term only in accordance with the Plan and the terms of this
Option.
2
<PAGE>
5. Law Governing. THIS OPTION IS INTENDED TO BE PERFORMED IN THE STATE OF
-------------
TEXAS AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF SUCH STATE.
Date of Grant:
--------------------
POLYPHASE CORPORATION
By:
--------------------------
Executive Vice President
ATTEST:
Secretary
Optionee acknowledges receipt of a copy of the Plan and represents that he is
familiar with the terms and provisions thereof, and hereby accepts this Option
subject to all the terms and provisions of the Plan. Optionee hereby agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Committee (as defined in the Plan) upon any questions arising under the Plan.
Optionee
Dated:
-------------------
3
<PAGE>
Exhibit 10.61
AMENDED
RENEWAL
PROMISSORY NOTE
(this "Note")
$14,341,256.00 Date: December 2, 1997
FOR VALUE RECEIVED, the undersigned, Polyphase Corporation (the
"Borrower"), promises to pay to the order of Harold Estes ("Lender"), at Lufkin,
Texas, the principal sum of Fourteen Million Three Hundred Forty One Thousand
Two Hundred Fifty Six and 00/100 Dollars ($14,341,256.00), upon the following
terms:
1. Interest. The unpaid principal balance hereof shall be due and
--------
payable on the Maturity Date (as hereafter defined), with interest thereon at
the rate of sixteen percent (16%) per annum. Notwithstanding anything to the
contrary contained herein, past due principal and interest shall bear interest
at the rate of interest equal to the lesser of (a) eighteen percent (18%) per
annum or (b) the Maximum Lawful Rate. Interest shall be calculated at a daily
rate equal to 1/365th of the applicable annual percentage rate. The "Maximum
Lawful Rate" shall mean the maximum rate of interest from time to time permitted
under federal or state laws now or hereafter applicable to this Note, after
taking into account, to the extent required by applicable law, any and all
relevant changes and calculations.
2. Payment of Principal and interest. The entire unpaid principal
---------------------------------
amount of this Note shall be due and payable on April 6, 1998 (the "Maturity
Date").
If any installment of principal on this Note shall become due on a
Saturday, Sunday or other day on which national banks are not open for business,
such payment shall be due on the next succeeding business day. Each payment
hereunder (including any prepayment) received by Lender shall be applied first
to the payment of accrued interest due hereunder, if any, and then to the
reduction of the unpaid principal balance hereof. After the occurrence and
during the continuation of any event of default (as hereinafter defined), any
payment hereunder received by Lender may be applied in any manner as Lender
determines, in his sole discretion.
3. Prepayment. The Borrower may, at its option upon five business days
----------
notice, prepay the outstanding amount of this Note, in whole or in part, with
accrued interest but without any premium or other prepayment fee.
4. Security. The indebtedness evidenced hereby is secured by: (i) that
--------
certain Pledge Agreement dated June 24, 1994, as amended, between Borrower, as
pledgor, and Lender, as secured party (the "Pledge Agreement"), whereby Borrower
grants to Lender a first and prior lien and security interest in and upon the
Pledge Stock (as defined in the Pledge Agreement) and (ii) that certain Security
Agreement, as amended, dated June 24, 1994 between Texas Timberjack, Inc., a
Texas corporation, as debtor (the "Company"), and Lender, as secured party (the
"Security Agreement"), whereby the Company grants to Lender a lien and security
interest in and upon all of the Assets (as defined in the Security Agreement) of
the Company.
5. Events of Default: Remedies. Each of the following shall
---------------------------
constitute an event of default hereunder:
a. Borrower's failure to make any payment hereunder when due;
b. Borrower's default under the terms and conditions of the Pledge
Agreement;
c. The Company's default under the terms and conditions of the Security
Agreement;
<PAGE>
d. A decree or order by a court of competent jurisdiction shall have
been entered either: (i) adjudging Borrower or the Company a bankrupt or
insolvent, or (ii) approving a petition seeking reorganization or
arrangement of the Borrower under state or federal law, or (iii) appointing
for the Borrower or the Company a receiver, liquidator or trustee or
assignee in bankruptcy or insolvency or any receiver of all or any
substantial portion of its property, and such decree or order shall
continue in force for a period of more than thirty days; or
e. The Borrower or the Company shall institute any proceeding to be
adjudicated a voluntary bankrupt, or shall consent to the filing of a
bankruptcy or reorganization petition against it, or shall consent to the
appointment of a receiver, liquidator, or trustee or assignee in bankruptcy
or insolvency or any receiver of all or any substantial portion of its
property, or Borrower makes a general assignment for the benefit of
creditors or admits in writing its inability to pay its debts as they
become due.
Upon the occurrence of any event of default, this Note, without notice or demand
by Lender, shall become immediately due and payable. Upon the occurrence of an
event of default Lender will be entitled to any and all remedies described in
the Pledge Agreement and/or the Security Agreement, which remedies are
incorporated herein for all purposes, and all other remedies available at law or
in equity.
6. Cumulative Rights. No delay on the part of the holder of this Note
-----------------
in the exercise of any power or right under this Note or any other agreement,
instrument or document executed pursuant hereto or in connection herewith shall
operate as a waiver thereof, nor shall a single or partial exercise of any other
power or right. Enforcement by the holder of this Note of any security for the
payment hereof shall not constitute any election by it of remedies so as to
preclude the exercise of any other remedy available to it.
7. Waiver. Borrower and each surety, endorser, guarantor and other
------
party ever liable for payment of any part hereof jointly and severally waive
presentment and demand for payment, protest, notice of intention to accelerate,
notice of acceleration and notice of protest and nonpayment, and agree that
their liability on this Note shall not be affected by, and hereby consent to any
renewal or extension in the time of payment hereof, any indulgences or any
release or change on any security for the payment of this Note.
8. Usury. Regardless of any provisions contained in this Note or in any
-----
other documents and instruments referred to herein, Lender shall never be deemed
to have contracted for or be entitled to receive, collect, or apply as interest
on this Note any amount in excess of the Maximum Lawful Rate, and in the event
Lender ever receives, collects or applies as interest any such excess, such
amount which would be excessive interest shall be applied to the reduction of
the unpaid, principal balance of this Note, and, if the principal balance of
this note is paid in full, any remaining excess shall forthwith be paid to
Borrower. In determining whether or not the interest paid or payable under any
specific contingency exceeds the Maximum Lawful Rate, Borrower and Lender shall,
to the maximum extent permitted under applicable law, (i) characterize any non-
principal payment as an expense, fee or premium, rather than as interest; and
(ii) exclude voluntary prepayments and the effect thereof; and (iii) amortize,
prorate, allocate, and spread, in equal parts, the total amount of interest
throughout the entire contemplated term of this Note so that the interest rate
is uniform throughout the term of this Note; provided that if this Note is paid
and performed in full prior to the end of the full contemplated term thereof,
and if the interest received during the actual period of existence thereof
exceeds the Maximum Lawful Rate, the holder of this Note shall refund to
Borrower the amount of such excess or credit the amount of such excess against
the principal amount due thereunder, and in such event, no holder of this Note
shall be subject to any penalties provided by any laws for contracting for,
charging for, or
2
<PAGE>
receiving interest in excess of the Maximum Lawful Rate.
If at any time and from time to time Lender is prevented from collecting
the rate of interest and the fees specified in this Note, by applicable law or
governmental regulation, it shall be entitled to recoup the amount it would have
otherwise been able to collect when such recoupment will not violate such
applicable law or governmental regulation. Such recoupment shall be accomplished
by the Borrower paying interest at the Maximum Lawful Rate until such time as
Lender shall have fully recouped the interest it would have otherwise been able
to collect from Borrower in the absence of such applicable law or governmental
regulation. During any such period of recoupment, interest collected by Lender
shall first be credited to payment of current interest due at the rate specified
in this Note, then any remaining interest collected shall be applied to
recoupment. When Lender shall have recouped all such interest, the interest rate
payable by Borrower shall revert to the rate specified in this Note. In no
event, however, shall the interest rate charged hereunder ever exceed the
maximum rate of interest permitted by applicable law.
9. Governing Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA. THIS NOTE IS PERFORMABLE IN ANGELINA COUNTY, TEXAS,
AND BORROWER WAIVES THE RIGHT TO BE SUED HEREON ELSEWHERE. COURTS WITHIN THE
STATE OF TEXAS SHALL HAVE JURISDICTION OVER ANY AND ALL DISPUTES BETWEEN LENDER
AND BORROWER, WHETHER AT LAW OR IN EQUITY, INCLUDING, BUT NOT LIMITED TO, ANY
AND ALL DISPUTES ARISING OUT OF OR RELATING TO THIS NOTE OR ANY OTHER AGREEMENT,
INSTRUMENT OR DOCUMENT EXECUTED IN CONNECTION HEREWITH; AND VENUE IN ANY SUCH
DISPUTE SHALL BE IN LUFKIN, TEXAS.
10. Attorney's Fees. If this Note is not paid at maturity whether by
---------------
acceleration or otherwise or is placed in the hands of an attorney for
collection, or suit is filed hereon, or proceedings are had in probate,
bankruptcy, receivership, reorganization, arrangement or other legal proceedings
for collection thereof, Borrower agrees to pay Lender its collection costs,
including a reasonable amount as attorney's fees, but in no event to exceed the
maximum amount permitted by law.
11. Severability. If any portion of this Note is declared invalid, for
------------
any reason, such declaration shall not affect the validity of any remaining
portion, which remaining portion shall remain in force and effect as if this
Note had been executed with the invalid portion thereof eliminated.
12. Headings. The headings used herein are for convenience only, have no
--------
substantive content, may not thoroughly describe the contents of the paragraphs
which they head and shall not be used in construing this Note.
13. Business Purpose. The indebtedness represented by this Note (and any
----------------
predecessor indebtedness extended and renewed hereby) was and is for business
purposes only and not for any personal, family or household purposes.
14. Modification, Extension and Renewal. This Note is given to correct a
-----------------------------------
clerical error in that one certain promissory note of even date herewith in the
principal amount of Fourteen Million Three Hundred Eighty Seven Thousand Six
Hundred and Seven and No/100 Dollars ($14,387,607.00) which was given as a
modification, extension and renewal of that one certain renewed and extended
promissory note dated December 31, 1996 in the principal amount
of $12,842,916.00 (the "Fourth Renewal Note"). The Fourth Renewal Note was given
as a modification, extension and renewal of that one certain promissory note
dated March 1, 1996 in the principal amount
3
<PAGE>
of Eleven Million, Eight Hundred Thousand Dollars ($11,800,000.00) given by
Borrower to Lender (the "Third Amended Note"). The Third Amended Note was given
as a modification, extension and renewal of that one certain promissory note
dated October 31, 1995 in the original amount of Eleven Million, Two Hundred
Thousand Dollars ($11,200,000.00) given by Borrower to Lender (the "Second
Amended Note"). The Second Amended Note was a modification, extension and
renewal of that one certain renewed and extended promissory note dated October
31, 1994 in the original amount of Ten Million and 00/100 Dollars
($10,000,000.00) given by Borrower to Lender (the "First Amended Note"). The
First Amended Note was a modification, extension and renewal of that one certain
promissory note dated June 24, 1994 in the original amount of Ten Million and
00/100 Dollars ($10,000,000.00) given by Borrower to Lender (the "Original
Note"). Borrower acknowledges that the Original Note and all of the
aforementioned renewal notes have matured, and that Borrower has no claims or
rights of offsets against Lender. The collateral given under the Pledge
Agreement and the Security Agreement is not being released or modified.
15. Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by facsimile
transmission, telexed or mailed by registered or certified mail (return receipt
requested), postage prepaid, to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
Borrower:
Polyphase Corporation
16885 Dallas Parkway, Suite 400
Dallas, Texas 75248
Fax No. (972) 732-6430
Attn: Paul A. Tanner
Lender:
Harold Estes
3409 S. Medford
Lufkin, Texas 75091
Fax No. (409) 639-3673
16. Releases. In consideration of Lender's renewing the indebtedness
--------
represented by this Note, and certain other good and valuable consideration,
Borrower agrees to pay Lender a renewal fee of $150,000 on the Maturity Date and
hereby expressly acknowledges and agrees that it has no setoffs, counterclaims,
adjustments, recoupments, defenses, claims or actions of any character, whether
contingent, non-contingent, liquidated, fixed, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured, known or unknown, against
Lender. To the extent Borrower may possess any such setoffs, counterclaims,
adjustments, recoupments, claims, actions, grounds or causes, it hereby waives,
and hereby releases Lender from any and all of such setoffs, counterclaims,
adjustments, recoupments, claims, actions, grounds and causes, such waiver and
release being with full knowledge and understanding of the circumstances and
effects of such waiver and release and after having consulted counsel with
respect thereto.
4
<PAGE>
IN WITNESS WHEREOF, Borrower has duly executed this note as of the day and
year above first written.
BORROWER:
--------
POLYPHASE CORPORATION
By:
---------------------
William E. Shatley
Senior Vice President
5
<PAGE>
Exhibit 10.62
AMENDED PLEDGE AGREEMENT
This Amended Pledge Agreement (the "Agreement") is made and entered into
effective as of December 2, 1997 (the "Effective Date"), between Polyphase
Corporation ("Pledgor"), and Harold Estes ("Secured Party").
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the terms of that one certain Stock Purchase Agreement
dated November 22, 1993, as amended by amendments one through four thereto (the
Stock Purchase Agreement, as amended is referred to herein as the "Stock
Purchase Agreement") Pledgor has become the owner of 100,000 shares (the
"Stock") of the issued and outstanding common stock, no par value of Texas
Timberjack, Inc., a Texas corporation (the "Company"), which represents one
hundred percent (100%) of the outstanding shares of the Company; and
WHEREAS, pursuant to the terms of the Stock Purchase Agreement the Pledgor
executed that certain Ten Million and 00/100 Dollar ($10,000,000.00) promissory
note (the "Original Note") made payable to the order of the Secured Party; and
WHEREAS, the Original Note has been modified, renewed and extended pursuant to
the terms of a Renewal Promissory Note dated October 31, 1995 in the principal
amount of Eleven Million Two Hundred Thousand and 00/100 Dollars
($11,200,000.00) (the "Renewal Note"); and
WHEREAS the $11,200,000.00 Renewal Note has been modified, renewed and
extended pursuant to the terms of the renewal promissory note dated March 1,
1996, in the principal amount of Eleven Million Eight Hundred Fifty Five
Thousand and 00/100 dollars ($11,855,000.00) (the $11.8 Million Renewal Note);
and
WHEREAS, the $11.8 Million Renewal Note has been modified, renewed and
extended pursuant to the terms of the renewal promissory note dated December 31,
1996, in the principal amount of Twelve Million Eight Hundred Forty-Two Thousand
Nine Hundred Sixteen and 00/100 dollars ($12,842,916.00) (the "$12,842,916.00
Renewal Note"); and
WHEREAS, the $12,842,916.00 Renewal Note has been modified, renewed and
extended pursuant to the terms of a renewal promissory note dated December 2,
1997 in the principal amount of Fourteen Million Three Hundred Eighty Seven
Thousand Six Hundred Seven Dollars and 00/100 ($14,387,607.00) (the "$14 Million
Note"); and
WHEREAS, there was a clerical error in the $14 Million Note and the principal
amount of such note should be Fourteen Million Three Hundred Forty One Thousand
Two Hundred Fifty Six and No/100 ($14,341,256.00) (the $14.3 Million Note); and
WHEREAS, the Pledgor's obligations to the Secured Party have been secured
pursuant to the terms of a Pledge Agreement dated as June 24, 1994 between
Pledgor and Secured Party, as amended, (the "Pledge Agreement"); and
WHEREAS, it is the parties intention that the Pledge Agreement shall continue
to secure the obligations of Pledgor to the Secured Party, including payment of
the $14.3 Million Note and this not is given to correct the clerical error in
the $14 Million Note;
1
<PAGE>
NOW, THEREFORE, in consideration of the foregoing, the covenants and agreement
contained herein, and for Ten Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. The Pledge Agreement, as amended, shall continue to secure (i) the
full and punctual payment and performance of all indebtedness, liabilities and
obligations now owed or hereafter owing by Pledgor to Secured Party (the
"Secured Obligations") including those under the $14.3 Million Note, (ii) full
and punctual performance of all the obligations of Pledgor to the Secured
Party under the terms of the Stock Purchase Agreement and (iii) the payment to
Secured Party of a fee of $150,000.00 on April 6, 1997 pursuant to the letter
agreement dated December 4, 1997 between Pledgor and Secured Party.
2. Except as otherwise provided herein, all terms, covenants and
conditions contained in the Pledge Agreement, as amended, continue in full
force and effect without modification or alteration.
Executed as of the 2nd day of December, 1997.
----------------------------
Harold Estes
POLYPHASE CORPORATION
By
--------------------------
William E. Shatley
Senior Vice President
2
<PAGE>
Exhibit 10.63
AMENDED SECURITY AGREEMENT
This Amended Security Agreement is dated as of December 2, 1997 between Texas
Timberjack, Inc., a Texas corporation ("Pledgor"), and Harold Estes ("Secured
Party") and amends that certain Security Agreement between the parties dated as
of June 24, 1994.
WHEREAS, Secured Party has sold to Polyphase Corporation ("Polyphase") all of
the issued and outstanding capital stock of Pledgor and Polyphase gave its Ten
Million and 00/100 Dollar ($10,000,000.00) promissory note (the "Note") as
partial consideration for the purchase of such stock; and
WHEREAS, the Note, as amended, has been modified, renewed and extended and is
now evidenced by Polyphase's Fourteen Million Three Hundred Eighty Seven
Thousand Six Hundred Seven and 28/100 Dollar ($14,387,607.00) promissory note
(the "Renewal Note"); and
WHEREAS, the Renewal Note contained a clerical error and should reflect a
principal amount of Fourteen Million Three Hundred Forty One Thousand Two
Hundred Fifty Six and No/100 ($14,341,256.00) (the $14.3 Million Note) and this
note is given to correct the clerical error in the Renewal Note; and
WHEREAS, as a subsidiary of Polyphase, which is a public company, Pledgor has
been able and expects in the future to be able to obtain larger lines of credit
at more attractive interest rates than previously available to it and to receive
other direct benefits as a result of becoming a subsidiary of Polyphase; and
WHEREAS, as an inducement to Secured Party to extend such credit to Polyphase,
Pledgor has agreed to grant Secured Party a security interest in the property
described in the Security Agreement and Pledgor acknowledges it will receive a
direct benefit therefrom;
NOW, THEREFORE, for and in consideration of the premises and mutual
undertaking of the parties, and Ten Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. The Security Agreement, as amended, continues to remain in full force and
effect and secure all of the indebtedness, obligations and liabilities of
Polyphase to Secured Party including, but not limited to, those under the
Note and $14.3 Million Note, whether now existing or hereafter arising or
arising under this Security Agreement or otherwise and all renewals and
extensions thereof, and all interest accruing thereon, fees charged in
connection therewith, expenses reimbursable as provided therein, and
attorney's fees incurred in the enforcement or collection thereof,
regardless of whether such indebtedness, obligations and liabilities are
direct, indirect, fixed, contingent, joint, several or joint and several,
and whether now existing or hereafter arising and however acquired.
2. Except as expressly provided herein, all other terms, covenants and
conditions of the Security Agreement remain in full force and effect
without modification or alteration.
<PAGE>
Executed as of the 2nd day of December 1997.
SECURED PARTY:
------------------------------
Harold Estes
PLEDGOR:
TEXAS TIMBERJACK, INC.
By
---------------------------
Title
------------------------
<PAGE>
EXHIBIT 10.64
TERM LOAN AGREEMENT
Dated as of December 4, 1997
by and among
OVERHILL FARMS, INC., as Borrower,
POLYPHASE CORPORATION, as Guarantor,
and
THE LONG HORIZONS FUND, L.P., as Lender
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I DEFINITIONS; CERTAIN TERMS............................................................................1
SECTION 1.01. Definitions..................................................................................1
SECTION 1.02. Construction................................................................................14
SECTION 1.03. Accounting and Other Terms..................................................................14
SECTION 1.04. Time References.............................................................................14
ARTICLE II THE LOANS...........................................................................................15
SECTION 2.01. Term Loan...................................................................................15
SECTION 2.02. Making the Term Loan........................................................................15
SECTION 2.03. Term Note; Repayment of Term Loan...........................................................15
SECTION 2.04. Interest....................................................................................15
(a) Term Loan...........................................................................................15
(b) Default Interest....................................................................................16
(c) Interest Payment....................................................................................16
(d) General.............................................................................................16
SECTION 2.05. Prepayment of the Term Loan.................................................................16
(a) Optional Prepayment.................................................................................16
(b) Interest and Fees...................................................................................16
(c) Prepayment Discount.................................................................................16
(d) Cumulative Prepayments..............................................................................16
(e) Asset Dispositions..................................................................................16
(f) PLY Obligations.....................................................................................17
SECTION 2.06. Fees........................................................................................17
(a) Closing Fee.........................................................................................17
(b) Loan Servicing Fee..................................................................................17
(c) Financing Fee.......................................................................................17
ARTICLE III PAYMENTS AND OTHER COMPENSATION....................................................................19
SECTION 3.01. Payments and Computations...................................................................19
SECTION 3.02. Periodic Statements.........................................................................19
ARTICLE IV CONDITIONS TO LOANS.................................................................................19
SECTION 4.01. Conditions Precedent to Effectiveness.......................................................19
(a) Payment of Fees, Etc................................................................................20
</TABLE>
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<TABLE>
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<S> <C>
(b) Representations and Warranties; No Event of Default.................................................20
(c) Legality............................................................................................20
(d) Delivery of Documents...............................................................................20
(e) Material Adverse Change.............................................................................23
(f) Liquidity...........................................................................................23
(g) Compliance with Laws................................................................................23
(h) Management Reference Checks.........................................................................23
(i) Due Diligence.......................................................................................23
(j) Litigation; Consents and Approvals..................................................................23
ARTICLE V REPRESENTATIONS AND WARRANTIES.......................................................................24
SECTION 5.01. Representations and Warranties..............................................................24
(a) Organization, Good Standing, Etc....................................................................24
(b) Authorization, Etc..................................................................................24
(c) Governmental Approvals..............................................................................24
(d) Enforceability of Loan Documents....................................................................24
(e) Capitalization......................................................................................25
(f) Subsidiaries........................................................................................25
(g) Litigation..........................................................................................25
(h) Financial Condition.................................................................................25
(i) Compliance with Law, Etc............................................................................26
(j) ERISA...............................................................................................26
(k) Taxes, Etc..........................................................................................26
(l) Regulation U........................................................................................26
(m) Nature of Business..................................................................................27
(n) Adverse Agreements, Etc.............................................................................27
(o) Permits, Etc........................................................................................27
(p) Title to Properties.................................................................................27
(q) Full Disclosure.....................................................................................27
(r) Operating Lease Obligations.........................................................................27
(s) Environmental Matters...............................................................................27
(t) Insurance...........................................................................................28
(u) Use of Proceeds.....................................................................................28
(v) Location of Bank Accounts...........................................................................28
(w) Real Property.......................................................................................28
(x) Intellectual Property...............................................................................29
(y) Material Contracts..................................................................................29
(z) Holding Company and Investment Company Acts.........................................................29
(aa) Labor Relations....................................................................................29
(bb) Business Relationships.............................................................................30
ARTICLE VI COVENANTS OF BORROWER AND GUARANTOR.................................................................32
SECTION 6.01 Affirmative Covenants........................................................................32
(a) Reporting Requirements..............................................................................32
</TABLE>
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<PAGE>
<TABLE>
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<S> <C>
(b) Additional Subsidiaries of the Borrower and Guaranties, Etc.........................................36
(c) Compliance with Laws, Etc...........................................................................36
(d) Preservation of Existence, Etc......................................................................37
(e) Keeping of Records and Books of Account.............................................................37
(f) Inspection Rights...................................................................................37
(g) Maintenance of Properties, Etc......................................................................37
(h) Maintenance of Insurance............................................................................37
(i) Environmental.......................................................................................38
(j) Licenses............................................................................................38
(k) Further Assurances..................................................................................38
(l) Change in Collateral; Collateral Records............................................................38
(m) Landlord/Warehouse Waivers..........................................................................39
(n) Subordination.......................................................................................39
(o) Additional Covenants................................................................................39
SECTION 6.02. Negative Covenants...........................................................................40
(a) Liens, Etc..........................................................................................40
(b) Indebtedness........................................................................................40
(c) Guaranties, Etc.....................................................................................40
(d) Merger, Consolidation, Sale of Assets, Etc..........................................................41
(e) Change in Nature of Business........................................................................41
(f) Loans, Advances, Investments, Etc...................................................................41
(g) Lease Obligations...................................................................................42
(h) Capital Expenditures................................................................................42
(i) Dividends, Prepayments, Etc.........................................................................42
(j) Federal Reserve Regulations.........................................................................43
(k) Transactions with Affiliates........................................................................43
(l) Environmental.......................................................................................43
(m) Modification of Certain Documents...................................................................43
(n) Adverse Transactions................................................................................44
(o) Repurchase..........................................................................................44
(p) Name................................................................................................44
(r) Compensation........................................................................................44
(s) Compliance with Finova Loan Agreement...............................................................44
(s) Financial Covenants.................................................................................44
ARTICLE VII GUARANTY...........................................................................................47
SECTION 7.01. Guaranty....................................................................................47
SECTION 7.02. Obligations Unconditional...................................................................48
SECTION 7.03. Waivers.....................................................................................48
SECTION 7.04. Subrogation.................................................................................49
SECTION 7.05. No Waiver; Remedies.........................................................................49
SECTION 7.06. Stay of Acceleration........................................................................49
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VIII EVENTS OF DEFAULT.................................................................................49
SECTION 8.01. Events of Default...........................................................................49
ARTICLE IX ISSUANCE OF EQUITY INTERESTS TO LENDER..............................................................52
SECTION 9.01 52
(a) Authorization and Issuance of Warrants..............................................................52
(b) Redemption of Warrants..............................................................................52
SECTION 9.02. Securities Act Matters......................................................................53
SECTION 9.03 Certain Taxes................................................................................53
SECTION 9.04 Cancellation and Issuance....................................................................54
ARTICLE X MISCELLANEOUS........................................................................................54
SECTION 10.01. Notices, Etc...............................................................................54
SECTION 10.02. Amendments, Etc............................................................................63
SECTION 10.03. No Waiver; Remedies, Etc...................................................................66
SECTION 10.04. Expenses; Taxes; Attorneys' Fees...........................................................69
SECTION 10.05. Right of Set-off...........................................................................70
SECTION 10.06. Severability...............................................................................70
SECTION 10.07. Assignments and Participations.............................................................70
SECTION 10.08. Counterparts...............................................................................71
SECTION 10.09. GOVERNING LAW..............................................................................71
SECTION 10.10. CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE......................................71
SECTION 10.11. WAIVER OF JURY TRIAL, ETC..................................................................72
SECTION 10.12. Consent by the Lender......................................................................73
SECTION 10.13. No Party Deemed Drafter....................................................................73
SECTION 10.14. Reinstatement; Certain Payments............................................................73
SECTION 10.15. Indemnification............................................................................73
SECTION 10.16. Records....................................................................................74
SECTION 10.17. Binding Effect.............................................................................74
SECTION 10.18. Joint and Several..........................................................................74
SECTION 10.19. Release of Lien............................................................................74
SECTION 10.20. Confidentiality............................................................................74
</TABLE>
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<PAGE>
Schedules and Exhibits
----------------------
Schedule 5.01(f) Subsidiaries
Schedule 5.01(g) Litigation
Schedule 5.01(h)(ii) Financial Statements
Schedule 5.01(j) ERISA
Schedule 5.01(r) Operating Leases
Schedule 5.01(s) Environmental Matters
Schedule 5.01(t) Insurance
Schedule 5.01(v) Bank Accounts
Schedule 5.01(w) Real Property
Schedule 5.01(x) Intellectual Property
Schedule 5.01(y) Material Contracts
Schedule 6.01(l) Collateral
Schedule 6.01(m) Post-Closing Landlord Waivers
Schedule 6.02(a) Existing Liens
Schedule 6.02(b) Existing Indebtedness
Schedule 6.02(c)(ii) Existing Guarantees
Schedule 6.02(p) Names
Exhibit A Form of Term Note
Exhibit B Form of Security Agreement
Exhibit C Form of Pledge and Security Agreement
Exhibit D Form of Warrant
Exhibit E Opinion of Counsel
Exhibit F Form of Intercreditor Agreement
-i-
<PAGE>
EXECUTION COPY
TERM LOAN AGREEMENT
Term Loan Agreement, dated as of December 4, 1997, by and among
Overhill Farms, Inc., a Nevada corporation (the "Borrower"), Polyphase
Corporation, a Nevada corporation (the "Guarantor"), and The Long Horizons Fund,
L.P., as lender (the "Lender").
RECITALS
The Borrower has requested that the Lender extend credit to the
Borrower in the principal amount of $22,500,000 in the form of a single-draw
term loan made to the Borrower on the Effective Date (as hereinafter defined).
The proceeds of the term loan shall be used (i) to refinance all of the existing
indebtedness of the Borrower to Rice Partners II, L.P., including any prepayment
penalties, and to purchase certain warrants and warrant shares from Rice
Partners II, L.P., in an aggregate amount not to exceed $15,000,000, (ii) to
prepay term loan obligations of up to $1,700,000 owing by the Borrower to Finova
Capital Corporation (provided such amount cannot be reborrowed), (iii) to pay
certain closing fees and expenses relating to the transactions herein
contemplated, (iv) to make a one-time intercompany advance by the Borrower to
the Guarantor of up to $5,500,000 to refinance or repay existing indebtedness of
the Guarantor, and (v) for general working capital purposes of the Borrower.
The Lender is willing to extend such credit to the Borrower subject to the terms
and conditions hereinafter set forth. Accordingly, the Borrower, the Guarantor
and the Lender hereby agree as follows:
ARTICLE I
DEFINITIONS; CERTAIN TERMS
SECTION 1.01. Definitions. As used in this Agreement, the following
-----------
terms shall have the respective meanings indicated below, such meanings to be
applicable equally to both the singular and plural forms of such terms:
"Action" has the meaning specified therefor in Section 10.12.
------
"Affiliate" means, as to any Person, any other Person that directly or
---------
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, such Person. For purposes of this definition,
"control" of a Person means the power, directly or indirectly, either to (i)
vote 10% or more of the Capital Stock having ordinary voting power for the
election of directors of such Person or (ii) direct or cause the direction of
the management and policies of such Person whether by contract or otherwise.
Notwithstanding anything herein to the contrary, in no event shall the Lender be
considered an "Affiliate" of any Loan Party.
"Agreement" means this Term Loan Agreement, as amended or otherwise
---------
modified from time to time.
<PAGE>
"Authorized Officer" means James Rudis in his capacity as President of
------------------
the Borrower and the Guarantor, as the case may be.
"Board" means the Board of Governors of the Federal Reserve System of
-----
the United States.
"Borrower" has the meaning specified therefor in the preamble hereto.
--------
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in New York City are authorized or required to
close.
"Capital Expenditures" means, for any period, the sum of all
--------------------
expenditures incurred by the Borrower or any of its Subsidiaries during such
period that in accordance with GAAP are or should be included in "property,
plant equipment" or similar fixed asset account on its balance sheet, whether or
not such expenditures are paid in cash or financed and including all leases
which under GAAP have been or should have been capitalized in such period.
"Capital Stock" means any and all shares, interests, participations,
-------------
warrants, options or other equivalents (however designated) of capital stock of
a corporation or any and all equivalent ownership interests in a Person (other
than a corporation).
"Capitalized Lease" means any lease or agreement for real or personal
-----------------
property which is required under GAAP to be capitalized on the balance sheet of
the lessee.
"Capitalized Lease Obligations" means obligations for the payment of
-----------------------------
rent for any real or personal property under leases or agreements to lease that,
in accordance with GAAP, have been or should be capitalized on the books of the
lessee and, for purposes hereof, the amount of any such obligation shall be the
capitalized amount thereof determined in accordance with such principles.
"Cash Flow Ratio" means, for any period, the ratio of (i)
---------------
Consolidated EBITDA of the Borrower and its Subsidiaries for such period, to
(ii) cash Consolidated Net Interest Expense of the Borrower and its Subsidiaries
for such period.
"Change of Control" means an event or series of events by which:
-----------------
(a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), becomes the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of 35% or more of the combined
voting power of the Borrower's Capital Stock ordinarily having the right to vote
at an election of directors; or
(b) during any period of twelve (12) consecutive calendar months,
individuals: (i) who were directors of the Borrower on the first day of such
period, or (ii) whose election or nomination for election to the board of
directors of the Borrower was recommended or approved
-2-
<PAGE>
by at least a majority of the directors then still in office who were directors
of the Borrower on the first day of such period, or whose election or nomination
for election was so approved, shall cease to constitute a majority of the board
of directors of the Borrower; or
(c) the Borrower consolidates with or merges into another corporation
or conveys, transfers or leases all or substantially all of its property to any
Person, or any corporation consolidates with or merges into the Borrower, in
either event pursuant to a transaction in which the outstanding Capital Stock of
the Borrower is reclassified or changed into or exchanged for cash, securities
or other property; or
(d) James Rudis shall cease to be President and Chief Executive
Officer of the Borrower significantly involved in the operations and management
of the business of the Borrower.
"Closing Fee" has the meaning specified therefor in Section 2.06(a).
-----------
"Code" means the Internal Revenue Code of 1986, as amended, and any
----
successor statute of similar import, and regulations thereunder, in each case as
in effect from time to time.
"Collateral" means all of the property (tangible and intangible)
----------
purported to be subject to the Lien purported to be created by any mortgage,
deed of trust, security agreement, pledge agreement, assignment or other
security document heretofore or hereafter executed by any Person as security for
all or any part of the Obligations.
"Commitment" means commitment of the Lender to make the Term Loan to
----------
the Borrower in the principal amount of $22,500,000 on the Effective Date in
accordance with the terms and subject to the conditions herein set forth.
"Commitment Fee" has the meaning specified therefor in
--------------
Section 2.06(c).
"Common Stock" shall mean the common stock, par value $.01, of the
------------
Borrower.
"Consolidated Current Assets" means all assets that, as of the date of
---------------------------
determination thereof and in accordance with GAAP, should be classified as
current assets on a consolidated balance sheet of the Borrower and its
Subsidiaries.
"Consolidated Current Liabilities" means all Indebtedness and other
--------------------------------
liabilities that, as of the date of determination thereof and in accordance with
GAAP should be classified as current liabilities on a consolidated balance sheet
of the Borrower and its Subsidiaries, including, without limitation, all
Indebtedness (including, without limitation, the Obligations) payable on demand
or within one year after such date (whether by final maturity, required
prepayment or otherwise) without any option on the part of the obligor to extend
or renew beyond such year.
"Consolidated EBITDA" means for any Person and its Subsidiaries, the
-------------------
Net Income (Loss) of such Person and its Subsidiaries for such period, plus the
----
sum, without duplication and only to the extent deducted in determining such Net
Income (Loss), for such period of (i) Consolidated Net Interest Expense, (ii)
income tax expense, (iii) depreciation
-3-
<PAGE>
expense, (iv) amortization expense, (v) extraordinary or unusual non-cash losses
(provided such extraordinary or unusual losses do not at any time result in a
cash outlay by such Person), and (vi) bonuses paid to senior management of the
Borrower, minus all extraordinary or unusual non-cash gains, each determined on
-----
a consolidated basis and in accordance with GAAP for such Person and its
Subsidiaries.
"Consolidated Net Interest Expense" means, without duplication, for
---------------------------------
any Person and its Subsidiaries for any period, gross interest expense of such
Person and its Subsidiaries for such period (calculated without regard to any
limitation on the payment thereof) determined in conformity with GAAP
(including, without limitations, interest expense paid to Affiliates of such
Person), less (i) the sum of (A) interest income for such period and (B) gains
----
for such period on Hedging Agreements (to the extent not included in interest
income above and to the extent not deducted in the calculation of such gross
interest expense), plus (ii) the sum of (A) losses for such period on Hedging
----
Agreements (to the extent not included in such gross interest expense), (B) the
upfront costs or fees for such period associated with Hedging Agreements (to the
extent not included in gross interest expense), and (C) the Closing Fee, Loan
Servicing Fee and Commitment Fee (to the extent not included in such gross
interest expense and to the extent paid during such period), each determined on
a consolidated basis and in accordance with GAAP for such Person and its
Subsidiaries.
"Consolidated Tangible Net Worth" means, for any Person and its
-------------------------------
Subsidiaries at any time, (a) the sum of the following accounts (or their
equivalents) set forth on a consolidated balance sheet of the Borrower and its
Subsidiaries prepared in accordance with GAAP: the par or stated value of all
outstanding capital stock, capital surplus and retained earnings, less (b) all
----
intangibles included on the asset side of such balance sheet, including, without
limitation, goodwill (including any amounts, however designated on such balance
sheet, representing the excess of the purchase price paid for assets or stock
acquired over the value assigned thereto on the books of the Borrower and its
Subsidiaries), patents, trademarks, trade names, copyrights and similar
intangibles.
"Default" means an event which, with the giving of notice or the lapse
-------
of time or both, would constitute an Event of Default.
"Disposition" means any transaction, or series of related
-----------
transactions, pursuant to which any Loan Party sells, assigns, transfers or
otherwise disposes of any Property (whether nor owned or hereafter acquired) to
any other Person, in each case whether or not the consideration therefor to be
received by the Loan Party consists of cash, securities or the swap or exchange
of assets owned by the acquiring Person, excluding any sales of Inventory in the
ordinary course of business on ordinary business terms or sales or other
dispositions of Permitted Investments.
"Dollar," "Dollars" and the symbol "$" means lawful money of the
------ ------- -
United States of America.
"Effective Date" means the date on which all of the conditions
--------------
precedent set forth in Section 4.01 hereof are satisfied or waived and the Term
Loan is made
-4-
<PAGE>
"Employee Plan" means an employee benefit plan (other than a
-------------
Multiemployer Plan) covered by Title IV of ERISA and maintained (or was
maintained at any time during the six (6) calendar years preceding the date of
any borrowing hereunder) for employees of the Borrower or any of its ERISA
Affiliates.
"Environmental Actions" means any complaint, summons, citation,
---------------------
notice, directive, order, claim, litigation, investigation, judicial or
administrative proceeding, judgment, letter or other communication from any
Governmental Authority involving violations of Environmental Laws or Releases of
Hazardous Materials (i) from any assets, properties or businesses of any Loan
Party or any of its Subsidiaries or any predecessor in interest; (ii) from
adjoining properties or businesses onto any Loan Party's real property; or (iii)
onto any facilities which received Hazardous Materials generated by any Loan
Party or any of its Subsidiaries or any predecessor in interest.
"Environmental Law" means the Comprehensive Environmental Response,
-----------------
Compensation and Liability Act (42 U.S.C. (S) 9601, et seq.), the Hazardous
-- ---
Materials Transportation Act (49 U.S.C. (S) 1801, et seq.), the Resource
-- ---
Conservation and Recovery Act (42 U.S.C. (S) 6901, et seq.), the Federal Clean
-- ---
Water Act (33 U.S.C. (S) 1251 et seq.), the Clean Air Act (42 U.S.C. (S) 7401 et
-- --- --
seq.), the Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.) and the
- --- -- ---
Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.), as such laws may
-- ---
be amended or otherwise modified from time to time, and any other present or
future federal, state, local or foreign statute, ordinance, rule, regulation,
order, judgment, decree, permit, license or other binding determination of any
Governmental Authority imposing liability or establishing standards of conduct
for protection of the environment.
"Environmental Liabilities and Costs" means all liabilities, monetary
-----------------------------------
obligations, Remedial Actions, losses, damages, punitive damages, consequential
damages, treble damages, costs and expenses (including all reasonable fees,
disbursements and expenses of counsel, experts and consultants and costs of
investigations and feasibility studies), fines, penalties, sanctions and
interest incurred as a result of any claim or demand by any Governmental
Authority or any third party, and which relate to any environmental condition or
a Release of Hazardous Materials from or onto (i) any property presently or
formerly owned by any Loan Party or any of its Subsidiaries or (ii) any facility
which received Hazardous Materials generated by the Borrower or any of its
Subsidiaries.
"Environmental Lien" means any Lien in favor of any Governmental
------------------
Authority for Environmental Liabilities and Costs.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, and any successor statute of similar import, and regulations
thereunder, in each case as in effect from time to time. References to sections
of ERISA shall be construed also to refer to any successor sections.
"ERISA Affiliate" means, with respect to any Person, any trade or
---------------
business (whether or not incorporated) which is a member
-5-
<PAGE>
of a group of which such Person is a member and which would be deemed to be a
"controlled group" within the meaning of Sections 414(b), (c), (m) and (o) of
the Code.
"Event of Default" means any of the events set forth in Section 8.01.
----------------
"Existing Credit Agreement" means the Note Purchase Agreement dated as
-------------------------
of May 5, 1995, between the Borrower and the Existing Lender, as amended to
date.
"Existing Lender" means Rice Partners II, L.P., as lender under the
---------------
Existing Credit Agreement.
"Facilities" means the properties leased by the Borrower and located
----------
at (i) 431 South Isis Avenue, Inglewood, California, (ii) 524 South Isis Avenue,
Inglewood, California, (iii) 644 South Isis Avenue, Inglewood, California, (iv)
3055 E. 44th Street, Vernon, California, (v) 2716 East Vernon Avenue, Vernon,
California, (vi) 2233 Jesse Street, Los Angeles, California and (vii) 5730
Uplander Way, Culver City, California, including, without limitation in each
case, the land on which such facility is located, all buildings and other
improvements thereon, all fixtures, equipment, inventory and other tangible
personal property located at or used in connection with such facility and all
accounts receivable and other intangible personal property relating to the
operations of such facility, all whether now or hereafter existing.
"Final Maturity Date" means December 4, 2000, or such earlier date on
-------------------
which the Term Loan shall become due and payable, in whole or in part, in
accordance with the terms of this Agreement.
"Financial Statements" means the consolidated balance sheet of the
--------------------
Borrower and of the Guarantor and their Subsidiaries for the Fiscal Year ended
September 28, 1997 and the related consolidated statement of operations,
shareholders' equity and cash flows for the Fiscal Year then ended.
"Finova" means Finova Capital Corporation.
------
"Finova Loan Agreement" means the Loan and Security Agreement dated as
---------------------
of May 5, 1995, as amended to date, between the Borrower and Finova.
"Fiscal Year" means the fiscal year of the Borrower ending on the
-----------
Sunday nearest to September 30 of each year.
"Fixed Charge Coverage Ratio" means, for any period, the ratio of (i)
---------------------------
Consolidated EBITDA of the Borrower and its Subsidiaries for such period, to
(ii) the sum of (A) all principal of Indebtedness of the Borrower and its
Subsidiaries scheduled to be paid or paid during such period, plus (B)
----
Consolidated Net Interest Expense of the Borrower and its Subsidiaries for such
period, plus (C) income taxes paid or payable by the Borrower and its
----
Subsidiaries during such period, plus (D) cash dividends or distributions paid
----
by the Borrower or any of its Subsidiaries (other than dividends or
distributions paid to the Borrower) during such period, plus (E) Capital
----
Expenditures made by the Borrower and its Subsidiaries during such
-6-
<PAGE>
period, plus (F) all amounts paid or payable by the Borrower or any of its
----
Subsidiaries on Capitalized Lease Obligations having a scheduled due date during
such period.
"GAAP" means generally accepted accounting principles in effect from
----
time to time in the United States, on the date hereof and consistent with those
used in the preparation of the Financial Statements, applied on a consistent
basis.
"Governmental Authority" means any government, any Federal, state,
----------------------
city, town, municipality, county, local or other political subdivision thereof
or thereto and any department, commission, board, bureau, instrumentality,
agency or other entity exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to government.
"Guaranteed Obligations" means all Obligations, including, without
----------------------
limitation, all amounts now or hereafter owing by the Borrower in respect of the
Loan Documents.
"Guaranty" means the Guaranty made by the Guarantor in favor of the
--------
Lender set forth in Article IX hereof, guaranteeing the Obligations, together
with any other guaranty delivered to the Lender pursuant to Section 6.01(b)
hereof, each in form and substance satisfactory to the Lender, as amended or
otherwise modified from time to time.
"Guarantor" means Polyphase Corporation, and each other Person which
---------
guarantees, pursuant to Section 6.01(b) hereof or otherwise, all or any part of
the Obligations.
"Hazardous Materials" means (a) any element, compound or chemical that
-------------------
is defined, listed or otherwise classified as a contaminant, pollutant, toxic
pollutant, toxic or hazardous substances, extremely hazardous substance or
chemical, hazardous waste, special waste, or solid waste under Environmental
Laws; (b) petroleum and its refined products; (c) polychlorinated biphenyls; (d)
any substance exhibiting a hazardous waste characteristic, including but not
limited to, corrosivity, ignitability, toxicity or reactivity as well as any
radioactive or explosive materials; and (e) any raw materials, building
components, including but not limited to friable asbestos-containing materials
and manufactured products containing hazardous substances.
"Hedging Agreement" means any interest rate, foreign currency,
-----------------
commodity or equity swap, collar, cap, floor or forward rate agreement, or other
agreement or arrangement designed to protect against fluctuations in interest
rates or currency, commodity or equity values (including, without limitation,
any option with respect to any of the foregoing and any combination of the
foregoing agreements or arrangements), and any confirmation executed in
connection with any such agreement or arrangement, all as amended or otherwise
modified from time to time.
"Indebtedness" means, without duplication, as to any Person (i)
------------
indebtedness for borrowed money; (ii) indebtedness for the deferred purchase
price of property or services; (iii) indebtedness evidenced by bonds,
debentures, notes or other similar instruments (other than performance, surety
and appeal or other similar bonds arising in the ordinary course of business);
(iv) obligations and liabilities secured by a Lien upon property owned by such
Person, whether or not owing by such Person and even though such Person has not
assumed or become liable for the
-7-
<PAGE>
payment thereof; (v) all obligations and liabilities of such Person under direct
or indirect guarantees in respect of, and contingent or other obligations of
such Person to purchase or otherwise acquire or to otherwise assure a creditor
against loss in respect of, indebtedness or other obligations of any other
Person for borrowed money or for the deferred purchase price of property or
services or Capitalized Lease Obligations of any other Person; (vi) obligations
or liabilities created or arising under any conditional sales contract or other
title retention agreement with respect to property used and/or acquired by such
Person, even though the rights and remedies of the lessor, seller and/or lender
thereunder are limited to repossession of such property; (vii) Capitalized Lease
Obligations; (viii) all liabilities in respect of letters of credit, acceptances
and similar obligations created for the account of such Person; (ix) liabilities
incurred under Title IV of ERISA with respect to any plan (other than a
Multiemployer Plan) covered by Title IV of ERISA and maintained for employees of
such Person or any of its ERISA Affiliates; (x) withdrawal liability incurred
under ERISA by such Person or any of its ERISA Affiliates to any Multiemployer
Plan; and (xi) net liabilities of such Person under Hedging Agreements, as
calculated on a basis satisfactory to the Lender and in accordance with accepted
practice.
"Indemnified Matters" has the meaning specified therefor in Section
-------------------
10.15.
"Indemnitees" has the meaning specified therefor in Section 10.15.
-----------
"Intercreditor Agreement" means the Intercreditor Agreement by and
-----------------------
between the Lender and Finova in the form of Exhibit F hereto.
"Inventory" means all goods and merchandise of the Borrower including,
---------
without limitation, all raw materials, work-in-process, piece goods, trim and
finished goods, whether now owned or hereafter acquired, and all such other
property the sale or other disposition of which would give rise to an account
receivable.
"Lease" means any lease of real property to which the Borrower or the
-----
Guarantor is a party as lessor or lessee.
"Lender" has the meaning specified therefor in the preamble hereto.
------
"Lender Account" means an account in the name of the Lender at a bank
--------------
designated by the Lender from time to time as the account into which the
Borrower shall make all payments to the Lender under this Agreement and the
other Loan Documents.
"Lien" means any mortgage, deed of trust, pledge, lien, security
----
interest, charge or other encumbrance or security arrangement of any nature
whatsoever, including, without limitation, any conditional sale or title
retention arrangement, and any assignment, deposit arrangement or lease intended
as, or having the effect of, security.
"Loan Account" means an account maintained hereunder by the Lender on
------------
its books of account at the Lender's office in the name of the Borrower for the
account of the Borrower, in which the Borrower will be charged with the Term
Loan made to, and all other Obligations incurred by, the Borrower.
-8-
<PAGE>
"Loan Documents" means this Agreement, the Term Note, the Guaranty,
--------------
the Security Agreement, the Pledge Agreement, the Warrants, the Voting Rights
Agreement, the Registration Rights Agreement, the Intercreditor Agreement and
all other instruments, agreements and other documents executed and delivered
pursuant hereto or thereto or otherwise evidencing or securing the Term Loan.
"Loan Parties" means the Borrower and the Guarantor.
------------
"Loan Servicing Fee" has the meaning specified therefor in Section
------------------
2.06(b).
"Material Adverse Effect" means a material adverse effect on any of
-----------------------
(a) the operations, business, assets, properties, condition (financial or
otherwise) or prospects of any Loan Party, (b) the ability of any Loan Party to
perform any of the obligations of such Loan Party under this Agreement or any of
the other Loan Documents, (c) the legality, validity or enforceability of this
Agreement or any of the other Loan Documents, (d) the rights and remedies of
Lender under this Agreement or any of the other Loan Documents, or (e) the
creation, perfection or priority of a Lien on any of the Collateral, securing
the payment of any of the Obligations.
"Material Contract" means, with respect to any Person, each contract
-----------------
or agreement to which such Person is a party involving aggregate consideration
payable to or by such Person of $50,000 or more (other than purchase orders in
the ordinary course of the business of such Person and other than contracts that
by their terms may be terminated by any party thereto in the ordinary course of
its business upon less than 60 days' notice) or otherwise material to the
business, operations, condition (financial or otherwise), performance or
properties of such Person.
"Multiemployer Plan" means a "multiemployer plan" as defined in
------------------
Section 4001(a)(3) of ERISA for which the Borrower or any ERISA Affiliate has
contributed to, or has been obligated to contribute to, at any time during the
preceding six (6) years.
"Net Income (Loss)" means, for any period, the net income (loss) of a
-----------------
Person and its Subsidiaries after income taxes for such period, all computed and
consolidated in accordance with GAAP applied on a basis consistent with the
corresponding prior period, but excluding from the determination of Net Income
(without duplication) (a) any extraordinary or non-recurring gains or losses or
gains or losses from Dispositions, (b) restructuring charges and (c) effects of
discontinued operations.
"Net Proceeds" means, for any Disposition, the amount of cash and
------------
other payments received (directly or indirectly) by the Borrower or any
Affiliate thereof, net of the sum of (i) the principal amount of any
Indebtedness secured by any Lien permitted by Section 6.02(a) on such asset
(other than Indebtedness assumed by the purchaser of such asset) which is
required to be, and is, repaid in connection with the Disposition thereof (other
than Indebtedness under this Agreement), (ii) reasonable expenses related
thereto reasonably incurred by such Person in connection therewith, (iii)
transfer taxes paid by such Person in connection therewith and (iv) net income
taxes to be paid in connection with such Disposition (after taking into account
any tax credits or deductions and any tax sharing arrangements).
-9-
<PAGE>
"Obligations" means (i) the obligations of the Borrower to pay, as and
-----------
when due and payable (by scheduled maturity, required prepayment, acceleration,
demand or otherwise), all amounts from time to time owing by it in respect of
any Loan Document, whether for principal, interest (including, without
limitation, all interest that accrues after the commencement of any case,
proceeding or other action relating to bankruptcy, insolvency or reorganization
of a the Borrower), fees, indemnification payments, expense reimbursements or
otherwise, and (ii) the obligations of the Borrower to perform or observe all of
its obligations from time to time existing under any Loan Document.
"Operating Account" means an operating account maintained by Borrower
-----------------
with City National Bank, 606 S. Olive Street, Los Angeles, CA 90014, account
number 016-344974.
"Operating Lease Obligations" means all obligations for the payment of
---------------------------
rent for any real or personal property under leases or agreements to lease,
other than Capitalized Lease Obligations.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
----
thereto.
"Permitted Indebtedness" means:
----------------------
(a) any Indebtedness owing to the Lender;
(b) any other Indebtedness listed on Schedule 6.02(b) hereto and any
extension of maturity, refinancing or modification of the terms thereof,
provided, however, that (i) such extension, refinancing or modification is
- -------- -------
pursuant to terms that are not less favorable to the Borrower than the terms of
the Indebtedness being extended, refinanced or modified and (ii) after giving
effect to the extension, refinancing or modification, such Indebtedness is not
greater than the amount of Indebtedness outstanding immediately prior to such
extension, refinancing or modification;
(c) Indebtedness permitted by clause (d) of the definition of
"Permitted Lien";
(d) Indebtedness represented by trade accounts payable to suppliers
and customers incurred on commercially reasonable terms and in the ordinary
course of business;
(e) Indebtedness owing to Finova pursuant to the Finova Loan Agreement
as in effect on the date hereof or as amended with the express prior written
consent of the Lender in its sole discretion; and
(f) such other Indebtedness as the Lender may consent to in writing
from time to time (in its sole and absolute discretion).
"Permitted Investments" means (i) marketable direct obligations issued
---------------------
or unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within six months from the date of acquisition thereof; (ii)
commercial paper, maturing not more than 270 days after
-10-
<PAGE>
the date of issue, issued by commercial banking institutions and money market or
demand deposit accounts maintained at commercial banking institutions, each of
which is a member of the Federal Reserve System and has a combined capital and
surplus and undivided profits of not less than $500,000,000; and (iv) repurchase
agreements having maturities of not more than 90 days from the date of
acquisition which are entered into with major money center banks included in the
commercial banking institutions described in clause (iii) above and which are
secured by readily marketable direct obligations of the Government of the United
States of America or any agency thereof.
"Permitted Liens" means:
---------------
(a) Liens securing the Indebtedness owing to the Lender;
(b) Liens for taxes and other statutory Liens, landlord's Liens and
similar Liens arising out of operation of law (provided they are subordinate to
the Lender's Liens on Collateral) so long as the obligations secured thereby are
not past due or are being contested in good faith and by appropriate proceedings
promptly initiated and diligently conducted, if a reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made therefor;
(c) Liens described on Schedule 6.02(a) hereto (if any), but not the
extension of coverage thereof to other property or the extension of maturity,
refinancing or other modification of the terms thereof or the increase of the
Indebtedness secured thereby;
(d) (i) purchase money Liens on equipment acquired or held by the
Borrower in the ordinary course of its business to secure the purchase price of
such equipment or Indebtedness incurred solely for the purpose of financing the
acquisition of such equipment or (ii) Liens existing on such equipment at the
time of its acquisition; provided, however, that in the case of Liens referred
-------- -------
to in this clause (d), (A) no such Lien shall extend to or cover any other
property of the Borrower or any of its Subsidiaries, (B) the principal amount of
the Indebtedness secured by any such Lien shall not exceed the lesser of the
fair market value or the cost of the property so held or acquired and (C) the
aggregate principal amount of Indebtedness secured by any or all such Liens
shall not exceed $300,000 for any one Fiscal year or $900,000 in the aggregate
at any one time outstanding.
(e) Liens granted to Finova securing the obligations of the Borrower
under the Finova Loan Agreement granted prior to the date hereof; and
(f) such other Liens as the Lender may consent to in writing from time
to time (in its sole and absolute discretion).
"Person" means an individual, corporation, limited liability company,
------
partnership, association, joint-stock company, trust, unincorporated
organization, joint venture or Governmental Authority.
-11-
<PAGE>
"Pledge Agreement" means the Pledge and Security Agreement, dated as
----------------
of the date hereof, made by the Guarantor in favor of the Lender, substantially
in the form of Exhibit C hereto, as the same may be amended or otherwise
modified from time to time.
"PLY Obligations" shall have the meaning assigned to such term in
---------------
Section 2.05(f).
"Post-Default Rate" means a rate of interest per annum equal to the
-----------------
rate of interest otherwise in effect from time to time pursuant to the terms of
this Agreement plus 2%, or if a rate of interest is not otherwise in effect, the
Reference Rate plus 8%.
"Property" means any right or interest in or to property of any kind
--------
whatsoever, whether real, personal or mixed and whether tangible or intangible.
"Reference Bank" means Citibank, N.A., its successors or any other
--------------
commercial bank designated by the Lender to the Borrower from time to time.
"Reference Rate" means the rate of interest publicly announced by the
--------------
Reference Bank in New York, New York from time to time as its prime rate or base
rate. The prime rate or base rate is determined from time to time by the
Reference Bank as a means of pricing some loans to its borrowers and neither is
tied to any external rate of interest or index, nor necessarily reflects the
lowest rate of interest actually charged by the Reference Bank to any particular
class or category of customers. Each change in the Reference Rate shall be
effective immediately.
"Registered Loan" has the meaning specified therefor in Section
---------------
2.03(c).
"Registered Note" has the meaning specified therefor in Section
---------------
2.03(c).
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement, in form and substance satisfactory to the Lender, by and between the
Borrower and the Lender, with respect to the demand and piggy-back registration
rights of the Lender in respect of shares of Warrant Stock that the Lender may
acquire and the tag-along provisions applicable thereto, as amended or otherwise
modified from time to time.
"Regulation G", "Regulation T", "Regulation U" and "Regulation X"
------------ ------------ ------------ ------------
mean, respectively, Regulations G, T, U and X of the Board or any successor, as
the same may be amended or supplemented from time to time.
"Release" means any spilling, leaking, pumping, pouring, emitting,
-------
emptying, discharging, injecting, escaping, leaching, seeping, migrating,
dumping or disposing of any Hazardous Material (including the abandonment or
discarding of barrels, containers and other closed receptacles containing any
Hazardous Material) into the indoor or outdoor environment, including ambient
air, soil, surface or ground water.
"Remedial Action" means all actions taken to (i) clean up, remove,
---------------
remediate, contain, treat, monitor, assess, evaluate or in any other way address
Hazardous Materials in the indoor or outdoor environment; (ii) prevent or
minimize a Release or threatened Release of Hazardous Materials so they do not
migrate or endanger or threaten to endanger public health or
-12-
<PAGE>
welfare or the indoor or outdoor environment; (iii) perform pre-remedial studies
and investigations and post-remedial operation and maintenance activities; or
(iv) any other actions authorized by 42 U.S.C. 9601.
"Reportable Event" means an event described in Section 4043 of ERISA
----------------
(other than an event not subject to the provision for 30-day notice to the PBGC
under the regulations promulgated under such Section).
"SEC" shall mean the Securities and Exchange Commission or any other
---
similar or successor agency of the Federal government administering the
Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar Federal statute, and the rules and regulations of the SEC
thereunder, all as the same shall be in effect at the time.
"Security Agreement" means the Security Agreement made by the Borrower
------------------
in favor of the Lender, substantially in the form of Exhibit B hereto, with
respect to, among other things, all personal property (tangible and intangible)
and any leases of real property, as the same may be amended or otherwise
modified from time to time.
"Subsidiary" means, as to any Person, any corporation, limited or
----------
general partnership, limited liability company, trust, association or other
business entity of which more than 50% of the outstanding Capital Stock having
(in the absence of contingencies) ordinary voting power to elect directors (or
Persons performing similar functions) of such entity is, at the time of
determination, owned directly, or indirectly through one or more intermediaries,
by such Person.
"Term Loan" means the loan made by the Lender to the Borrower on the
---------
Effective Date pursuant to Section 2.01(a)(ii) hereof.
"Term Note" means the promissory note of the Borrower, substantially
---------
in the form of Exhibit A hereto, made payable to the order of the Lender,
evidencing the Indebtedness resulting from the making by the Lender to the
Borrower of the Term Loan on the Effective Date and, if applicable, the
financing of the Closing Fee by the Lender in accordance with Section 2.06(a)
hereof, and delivered to the Lender pursuant to Article IV hereof, as such
promissory note may be amended, supplemented, restated, modified or extended
from time to time, and any promissory note or notes issued in exchange or
replacement therefor. The term "Term Note" shall include any Registered Note
evidencing the Term Loan and delivered pursuant to Section 2.03(c).
"Termination Event" means (i) a Reportable Event with respect to any
-----------------
Employee Plan, (ii) any event that causes the Borrower or any of its ERISA
Affiliates to incur liability under Section 409, 502(i), 502(l), 515, 4062,
4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 4971 or 4975 of the
Code, (iii) the filing of a notice of intent to terminate an Employee Plan or
the treatment of an Employee Plan amendment as a termination under Section 4041
of ERISA, (iv) the institution of proceedings by the PBGC to terminate an
Employee Plan, or (v)
-13-
<PAGE>
any other event or condition which might constitute grounds under Section 4042
of ERISA for the termination of, or the appointment of a trustee to administer,
any Employee Plan.
"Voting Rights Agreement" means an agreement by and among the
-----------------------
Guarantor, the Borrower and the Lender, pursuant to which the Borrower and the
Guarantor agree, among other things, to take all actions necessary to nominate
and elect directors of the board of directors of the Borrower so that the Lender
may designate the number of directors that corresponds to the percentage
represented by the number of shares of Common Stock issuable upon the exercise
of Warrants held by the Lender to the sum of such Warrants plus all issued and
outstanding shares of Capital Stock of the Borrower.
"Warrants" shall have the meaning assigned to such term in Section
--------
9.01 hereof.
"Warrant Stock" means the common shares described in the Warrants.
-------------
SECTION 1.02. Construction. Unless the context of this Agreement
------------
otherwise clearly requires, references to the plural include the singular, the
singular the plural and the part the whole and "or" has the inclusive meaning
represented by the phrase "and/or." References in this Agreement to
"determination" by the Lender include good faith estimates by the Lender (in the
case of quantitative determinations) and good faith beliefs by the Lender (in
the case of qualitative determinations). The words "hereof", "herein",
"hereunder" and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. The section and
other headings contained in this Agreement and the Table of Contents preceding
this Agreement are for reference purposes only and shall not control or affect
the construction of this Agreement or the interpretation thereof in any respect.
Section, subsection, schedule and exhibit references are to this Agreement
unless otherwise specified.
SECTION 1.03. Accounting and Other Terms. Unless otherwise expressly
--------------------------
provided herein, each accounting term used herein shall have the meaning given
it under GAAP applied on a basis consistent with those used in preparing the
Financial Statements. All terms used in this Agreement which are defined in
Article 9 of the Uniform Commercial Code in effect in the State of New York on
the date hereof and which are not otherwise defined herein shall have the same
meanings herein as set forth therein.
SECTION 1.04. Time References. Unless otherwise indicated herein,
---------------
all references to time of day refer to Eastern standard time or Eastern daylight
saving time, as in effect in New York City on such day. For purposes of the
computation of a period of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding", provided, however, that with respect to a computation
-------- -------
of fees or interest payable to the Lender, such period shall in any event
consist of at least one full day.
-14-
<PAGE>
ARTICLE II
THE LOANS
SECTION 2.01. Term Loan. The Lender agrees, on the terms and
---------
conditions hereinafter set forth, to make a single loan (the "Term Loan") to the
---------
Borrower on the Effective Date, in the principal amount of the Commitment,
subject to the option of the Borrower to finance (i) the Closing Fee in
accordance with Section 2.06(a) and (ii) the Commitment Fee in accordance with
Section 2.06(c). Any principal amount of the Term Loan which is repaid or
prepaid by the Borrower may not be reborrowed.
SECTION 2.02. Making the Term Loan. The Lender will make the
--------------------
proceeds of the Term Loan available to the Borrower on the Effective Date (which
must be a Business Day) by causing an amount, in immediately available funds, to
be deposited in an account designated by the Borrower to the Lender at a
commercial bank reasonably satisfactory to the Lender.
SECTION 2.03. Term Note; Repayment of Term Loan. (a) The Term Loan
---------------------------------
shall be evidenced by a single Term Note, duly executed on behalf of the
Borrower, dated the Effective Date, and delivered to and made payable to the
order of the Lender in the principal amount equal to the Commitment plus, if the
Borrower elects to finance the Closing Fee and/or the Commitment Fee in
accordance with Sections 2.06(a) and 2.06(c), respectively, the amount of the
Closing Fee and/or the Commitment Fee, as the case may be.
(b) The Term Loan shall be repayable in monthly principal
installments in an amount equal to $250,000 commencing on the first day of the
eighteenth month following the Effective Date; provided, however, that the last
-------- -------
such installment shall be in the amount necessary to repay in full the remaining
principal amount of the Term Loan. The outstanding principal amount of, all
interest on, and all other fees and charges due with respect to, the Term Loan
shall be due and payable on the Final Maturity Date.
(c) The Borrower agrees to record the Term Loan on the Register
referred to in Section 10.07(c). The Term Loan recorded on the Register (the
"Registered Loan") may not be evidenced by promissory notes other than the Term
- ----------------
Note, which is a Registered Note (as defined below). Upon the registration of
the Term Loan, any promissory note (other than a Registered Note) evidencing the
same shall be null and void and shall be returned to the Borrower. The Borrower
agrees, at the request of the Lender, to execute and deliver to Lender a
promissory note in registered form to evidence such Registered Loan (i.e.
containing the registered note language set forth in Exhibit A hereto) and
registered as provided in Section 10.07(c) (a "Registered Note"), dated the date
---------------
hereof, payable to the Lender and otherwise duly completed. Once recorded on
the Register, the Term Loan evidenced by such Note may not be removed from the
Register so long as it remains outstanding, and a Registered Note may not be
exchanged for a promissory note that is not a Registered Note.
SECTION 2.04. Interest.
--------
(a) Term Loan. The Term Loan shall bear interest on the principal
---------
amount thereof from time to time outstanding, from the date of the Term Loan
until such
-15-
<PAGE>
principal amount becomes due, at a rate per annum equal to the greater of (i)
the Reference Rate plus 4%, or (ii) 12.5%.
(b) Default Interest. To the extent permitted by law, upon the
----------------
occurrence and during the continuance of an Event of Default, the principal of,
and all accrued and unpaid interest on, the Term Loan, and all fees, indemnities
and any other Obligations of the Borrower under this Agreement, the Term Note
and other Loan Documents shall bear interest, from the date such Event of
Default occurred until such Event of Default is cured or waived, at a rate per
annum equal at all times to the Post-Default Rate.
(c) Interest Payment. Interest on the Term Loan shall be payable
----------------
monthly, in arrears, on the first day of each month, commencing on the first day
of the month following the month in which the Term Loan is made, and at maturity
(whether upon demand, by acceleration or otherwise). Interest at the Post-
Default Rate shall be payable on demand. The Borrower hereby authorizes the
Lender to, and the Lender may, from time to time, charge the Loan Account
pursuant to Section 3.01 hereof with the amount of any interest payment due
hereunder.
(d) General. All interest shall be computed on the basis of a year of
-------
360 days for the actual number of days, including the first day but excluding
the last day, elapsed.
SECTION 2.05. Prepayment of the Term Loan.
---------------------------
(a) Optional Prepayment. The Borrower may, upon at least one Business
-------------------
Day's prior written notice to the Lender, prepay without penalty the principal
of the Term Loan, in whole or in part, in an amount equal to $250,000 or an
integral multiple thereof.
(b) Interest and Fees. Any prepayment made pursuant to this Section
-----------------
2.05 shall be accompanied by accrued interest on the principal amount being
prepaid to the date of prepayment, and if such prepayment would reduce the
amount of the outstanding Term Loan to zero such prepayment shall be accompanied
by the payment of the fees accrued to such date pursuant to Section 2.06.
(c) Prepayment Discount. In the event the Term Loan and all of the
-------------------
other Obligations are indefeasibly paid in full and in cash (i) prior to the
first anniversary of the Effective Date, then the principal amount of the Term
Loan outstanding on the date of such prepayment shall be reduced by an amount
equal to $1,000,0000 or, if less, such outstanding principal amount and (ii)
prior to the second anniversary of the Effective Date, then the principal amount
of the Term Loan outstanding on the date of such prepayment shall be reduced by
an amount equal to $500,000 or, if less, such outstanding principal amount.
(d) Cumulative Prepayments. Except as otherwise expressly provided in
----------------------
this Section 2.05, payments with respect to any paragraph of this Section 2.05
are in addition to payments made or required to be made under any other
paragraph of this Section 2.05.
(e) Asset Dispositions. The Borrower shall pay to the Lender
------------------
immediately after the completion by or on behalf of the Borrower of any asset
Disposition
-16-
<PAGE>
pursuant to Section 6.02(d)(ii) hereof in excess of $10,000 for any one asset
Disposition or, in an aggregate amount in excess of $50,000 for all asset
Dispositions, an amount equal to one hundred percent (100%) of the Net Proceeds
received by or on behalf of the Borrower in connection with such asset
Disposition. Each such payment shall be applied against the remaining
installments of principal due on the Term Loan in the inverse order of maturity.
(f) PLY Obligations. The Guarantor shall pay to the Lender all of the
---------------
proceeds (including, without limitation, principal, interest, fees and other
amounts) in excess of all amounts due and owing on the promissory note dated
December 31, 1996 made by the Guarantor in favor of Harold Estes as in effect on
the date hereof (as the maturity of the same may be extended on the same terms
as in effect on the date hereof) collected by or on behalf of the Guarantor
under the Master Loan Agreement dated January 1, 1996 between PLY Stadium
Partners, as borrower, and the Guarantor, as lender (the "PLY Obligators").
--------------
SECTION 2.06. Fees.
----
(a) Closing Fee. On the Effective Date, the Borrower shall pay to the
-----------
Lender a non-refundable closing fee (the "Closing Fee") of $1,175,000. The
-----------
Borrower may elect, by irrevocable written notice delivered to and received by
the Lender prior to the Effective Date, to increase the principal amount of the
Term Note by the amount of the Closing Fee in lieu of paying the Closing Fee to
the Lender in cash on the Effective Date.
(b) Loan Servicing Fee. From and after the Effective Date and until
------------------
the Final Maturity Date, the Borrower shall pay to the Lender a loan servicing
fee (the "Loan Servicing Fee") each calendar quarter, payable quarterly in
------------------
arrears on the first day of January, April, July and October of each year,
commencing January 1, 1998, and on the date the Loans shall be paid in full (i)
equal to $35,000 for each quarter for the first year after the Effective Date,
such that the aggregate Loan Servicing Fee for such year is $140,000 (it being
understood that the Loan Servicing Fee payable on January 1, 1998, shall be pro
rated to cover the period of time from the Effective Date through December 31,
1997), (ii) equal to $75,000 for each quarter for the year commencing after the
first anniversary of the Effective Date, such that the aggregate Loan Servicing
Fee for such year is $300,000 and (iii) equal to $110,000 for each quarter for
the year commencing after the second anniversary of the Effective Date, such
that the aggregate Loan Servicing Fee for such year is $440,000.
(c) Commitment Fee. On or prior to the Effective Date, the Borrower
--------------
shall pay to the Lender a non-refundable commitment fee (the "Commitment Fee")
--------------
of $500,000. The Borrower may elect by irrevocable written notice delivered to
and received by the Lender prior to the Effective Date, to increase the
principal amount of the Term Note by the amount of the Commitment Fee in lieu of
paying the Commitment Fee to the Lender in cash on the Effective Date.
SECTION 2.07. Securitization. The Borrower hereby acknowledges that
--------------
the Lender, its successors or assigns, and any of their Affiliates may
securitize the Term Loan through the issuance of certificates, trust units or
similar instruments ("Certificates"), which will be rated by rating agencies
(the "Securitization"). Subject to the limitations in clauses (A) and (B)
below,
-17-
<PAGE>
the Borrower agrees that it shall cooperate with the Lender and any of its
Affiliates in the Securitization including, but not limited to, by (a) amending
this Agreement and the other Loan Documents, and executing such additional
documents, as reasonably requested by the Lender, provided that (A) any such
amendment (or additional documentation) does not impose material additional
costs on Borrower and (B) any such amendment (or additional documentation) does
not materially adversely affect the rights, or materially increase the
obligations of the Borrower under the Loan Documents or change or affect in a
manner adverse to Borrower the financial terms of the Loan; (b) providing such
information as may be reasonably requested in connection with the preparation of
a private placement memorandum or a registration statement required to privately
place or publicly distribute the Certificates in a manner which does not
conflict with federal or state securities laws; (c) providing in connection with
each of (i) a preliminary and final private placement memorandum or (ii) a
preliminary and final prospectus, as applicable, an indemnification certificate
(x) certifying that the Borrower has examined such memorandum or prospectus, as
applicable, including, without limitation, the sections entitled "Special
Considerations", and such other sections requested by the Lender or its
Affiliates, and such sections do not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made, in the light of the circumstances under which they were made, not
misleading, (y) indemnifying the Lender and any of its Affiliates for any
losses, claims, damages or liabilities (the "Liabilities") to which the Lender
or such Affiliate may become subject insofar as the Liabilities arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in such sections or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated in
such sections or necessary in order to make the statements in such sections, in
light of the circumstances under which they were made, not misleading and such
indemnity shall survive any transfer by the Lender or its successors or assigns
of the Term Loan and (z) agreeing to reimburse the Lender, its successors and
assigns, Affiliates for any legal or other expenses reasonably incurred by the
Lender or any of their respective Affiliates in connection with defending the
Liabilities; (d) causing to be rendered such customary opinion letters as shall
be requested by the Lender in connection with the Securitization, including,
without limitation, a substantive nonconsolidation opinion letter; (e) making
such other representations, warranties and covenants with respect to the
Borrower (and its Affiliates), as may be requested by the Lender, but which do
not materially adversely affect the rights, or materially increase the
obligations, of Borrower under the Loan Documents; (f) providing such
information regarding the Borrower as may be requested by the Lender or
potential investors in Certificates or otherwise required in connection with the
Securitization; and (g) amending Borrower's certificate of incorporation or
making such other changes to the structure of the Borrower required by the
rating agencies and (h) obtaining a comfort letter from a nationally recognized
accounting firm in connection with financial information presented in a private
placement memorandum or prospectus; however nothing herein contained shall
require Borrower to take any action in violation of any covenant of the Finova
Loan Agreement.
-18-
<PAGE>
ARTICLE III
PAYMENTS AND OTHER COMPENSATION
SECTION 3.01. Payments and Computations. The Borrower will make each
-------------------------
payment under this Agreement, the Term Note and the other Loan Documents not
later than 11:00 a.m. (New York City time) on the day when due, in lawful money
of the United States of America and in immediately available funds, to the
Lender at the Lender Account. All payments received by the Lender after 11:00
a.m. (New York City time) on any Business Day will be credited to the Loan
Account on the next succeeding Business Day. All payments shall be made by the
Borrower without defense, set-off or counterclaim to the Lender. The Borrower
hereby authorizes the Lender to, and the Lender may, from time to time charge
the Loan Account with all Obligations and any other amount due and payable under
any Loan Document to which the Borrower is a party, whether or not any Event of
Default or Default shall have occurred or be continuing or whether any of the
conditions precedent in Section 4.02 have been satisfied. Any amount charged to
the Loan Account shall be deemed an Obligation. The Borrower confirms that any
charges which the Lender may so make to the Loan Account as herein provided will
be made as an accommodation to the Borrower and solely at the Lender's
discretion. Whenever any payment to be made under any such Loan Document shall
be stated to be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day and such extension of time shall in
such case be included in the computation of interest or fees, as the case may
be, provided that, if any such payment is made by a charge to the Loan Account,
such charge may be made by the Lender on any day, whether or not a Business Day.
All computations of interest and fees shall be made by the Lender on the basis
of a year of 360 days for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such interest or fee
is payable. Each determination by the Lender of an interest rate or fees
hereunder shall be conclusive and binding for all purposes in the absence of
manifest error.
SECTION 3.02. Periodic Statements. The Lender shall provide the
-------------------
Borrower after the end of each calendar month a summary statement (in the form
from time to time used by the Lender) of (i) the opening and closing daily
balances in the Loan Account during such month, (ii) the amounts and dates of
all payments on account of the Term Loan made during such month, (iii) the
amount of interest accrued on the Term Loan during such month, and (iv) the
amount and nature of any charges to the Loan Account made during such month on
account of interest, fees and expenses and other Obligations. All entries on
any such statement shall, 30 days after the same is sent, be presumed to be
correct and shall constitute prima facie evidence of the information contained
----- -----
in such statement. It is hereby understood and agreed that failure of the
Lender to provide the Borrower with any such summary statement shall not
adversely affect any of the Borrower's obligations hereunder or give rise to any
offset, counterclaim or defense.
ARTICLE IV
CONDITIONS TO LOANS
SECTION 4.01. Conditions Precedent to Effectiveness. The obligation
-------------------------------------
of the Lender to make the Term Loan is subject to the fulfillment, in a manner
satisfactory to the Lender, of each of the following conditions precedent:
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(a) Payment of Fees, Etc. The Borrower shall have paid on or before
---------------------
the date of this Agreement all fees, costs, expenses and taxes then payable
pursuant to Sections 2.06 and 10.04.
(b) Representations and Warranties; No Event of Default. The
---------------------------------------------------
representations and warranties contained in Section 5.01 of this Agreement and
in each other Loan Document and certificate or other writing delivered to the
Lender pursuant hereto on or prior to the Effective Date shall be correct on and
as of the Effective Date as though made on and as of such date; and no Default
or Event of Default shall have occurred and be continuing on the Effective Date
or would result from this Agreement becoming effective in accordance with its
terms.
(c) Legality. The making of the Term Loan shall not contravene any
--------
law, rule or regulation applicable to the Lender, the Borrower or the Guarantor.
(d) Delivery of Documents. The Lender shall have received on or
---------------------
before the Effective Date the following, each in form and substance satisfactory
to the Lender and, unless indicated otherwise, dated the Effective Date:
(i) the Term Note payable to the order of the Lender, duly
executed by the Borrower;
(ii) the Security Agreement, duly executed by the Borrower;
(iii) the Intercreditor Agreement, duly executed by Finova and
consented to by the Borrower and the Guarantor, which agreement shall include
the consent of Finova to the execution, delivery and performance by the Borrower
of this Agreement and the other Loan documents and the prepayment of the
obligations, and reduction of the commitment, under the Existing Credit
Agreement to the Existing Lender, notwithstanding provisions of the Finova Loan
Agreement and the documents executed and delivered in connection therewith which
do not permit the foregoing;
(iv) a Pledge Agreement, duly executed by the Guarantor, together
with (A) the original stock certificates representing all of the Capital Stock
of the Borrower, (B) undated stock powers executed in blank with signature
guaranteed, (C) such opinion of counsel and such approving certificate of the
issuer of such shares as the Lender may reasonably request in respect of
complying with any legend on any such certificate or any other matter relating
to such shares, and (D) all promissory notes evidencing Indebtedness owing to
the Borrower (including, without limitation, the promissory note in the
principal amount of $5,500,000 made by the Guarantor to the order of the
Borrower) or the Guarantor (excluding the PLY Obligations, subject to Section
2.05(f)), duly endorsed in blank, including an estoppel certificate from the
maker of each such promissory note;
(v) appropriate financing statements on Form UCC-1, duly
executed by the Borrower and the Guarantor and duly filed in such office or
offices as may be
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<PAGE>
necessary or, in the opinion of the Lender, desirable to perfect the security
interests purported to be created by the Security Agreement and the other Loan
Documents, as applicable;
(vi) certified copies of request for copies of information on
Form UCC-11, listing all effective financing statements which name as debtor the
Borrower and which are filed in the offices referred to in paragraph (v) above,
together with copies of such financing statements, none of which, except as
otherwise agreed in writing by the Lender, shall cover any of the Collateral
(except to the extent they cover Permitted Liens) and results of searches for
any tax Lien and judgment Lien filed against the Borrower or its property, which
results, except as otherwise agreed to in writing by the Lender, shall not show
any such Liens (other than Permitted Liens);
(vii) evidence of the insurance coverage required by the terms
of the Security Agreement and Section 6.01(h) hereof, and such other insurance
coverage (including, without limitation, insurance coverage against larceny,
embezzlement or other criminal misappropriation) with respect to the business
and operations of the Borrower and its Subsidiaries as the Lender may reasonably
request, in each case, where reasonably requested by the Lender, with
indorsements (A) naming the Lender an additional insured or loss payee
thereunder as specified by the Lender and (B) providing that such policy may be
terminated or cancelled (by the insurer or the insured thereunder) only upon 30
days' prior written notice to the Lender, together with evidence of the payment
of all premiums due in respect thereof for such period as the Lender may
reasonably request;
(viii) a certified copy of the lease between the landlord and
the Borrower, with respect to each Facility, and the certificate of occupancy
with respect to each Facility;
(ix) a copy of the resolutions of the Borrower and the
Guarantor, certified as of the Effective Date by an authorized officer thereof,
authorizing (A) the borrowings hereunder by the Borrower and the transactions
contemplated by the Loan Documents to which such Person is or will be a party,
and (B) the execution, delivery and performance by each such Person of each Loan
Document and the execution and delivery of the other documents to be delivered
by each such Person in connection herewith, including, without limitation, the
Warrants;
(x) a certificate of an authorized officer of the Borrower
and the Guarantor, certifying the names and true signatures of the
representatives of such Person authorized to sign each Loan Document to which
such Person is or will be a party and the other documents to be executed and
delivered by such Person in connection herewith and provide notices under the
Loan Documents, together with evidence of the incumbency of such authorized
officers;
(xi) a certificate of the appropriate official(s) of the state
of organization and each state of foreign qualification of the Borrower and the
Guarantor certifying as to the subsistence in good standing of, and the payment
of taxes by, such Person in such states,
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<PAGE>
together with confirmation by telephone or telegram (where available) on the
Effective Date from such official(s) as to such matters;
(xii) a true and complete copy of the charter of each of the
Borrower and the Guarantor, certified as of a date not more than 30 days prior
to the Effective Date by an appropriate official of the state of organization of
each such Person;
(xiii) a copy of the by-laws of each the Borrower and the
Guarantor, together with all amendments thereto, certified as of the Effective
Date by an authorized officer of each such Person;
(xiv) an opinion of each of Kazlow & Kazlow, New York counsel,
Tyre, Kamins, Katz & Granof, California counsel, and Jenkens & Gilchrist, Texas
and Nevada counsel, as counsel to the Borrower and the Guarantor, as to such
matters as the Lender may reasonably request, including, but not limited to, the
Warrants;
(xv) a certificate of an Authorized Officer of the Borrower,
certifying as to the matters set forth in subsection (b) of this Section 4.01
(xvi) a copy of the Financial Statements, certified by an
Authorized Officer of the Borrower and the Guarantor, as the case may be;
(xvii) a certificate of the chief financial officer of the
Borrower, setting forth in reasonable detail the calculations required to
establish compliance with each of the financial covenants contained in Section
6.02(o) hereof;
(xviii) a landlord waiver, in form and substance satisfactory to
the Lender and which may include a provision contained in the relevant Lease,
executed by each landlord with respect to each of the Leases set forth on
Schedule 5.01(w);
(xix) a termination and release agreement with respect to the
Existing Credit Agreement and all related documents, duly executed by the
Borrower, the Guarantor and the Existing Lender, together with UCC-3 termination
statements for all UCC-1 financing statements filed by the Existing Lender and
which cover any portion of the Collateral;
(xx) the Voting Rights Agreement, duly executed by the
Borrower and the Guarantor;
(xxi) the Warrants required to be delivered on or prior to the
Effective Date pursuant to Section 9.01 hereof, duly executed by the Borrower;
(xxii) the Registration Rights Agreement, duly executed by
the Borrower;
(xxiii) a waiver, in form and substance satisfactory to the
Lender, from each warehouse that has possession of any Collateral;
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<PAGE>
(xxiv) evidence satisfactory in form and substance to the Lender
in its sole discretion that no default or event of default exists under any
document, agreement or instrument with respect to any Indebtedness for borrowed
money (including, without limitation, Indebtedness owed by the Borrower or the
Guarantor to Finova) of the Borrower or the Guarantor which will not be repaid
with proceeds of the Term Loan on the Effective Date;
(xxv) evidence satisfactory in form and substance to the Lender
in its sole discretion that each of the Guarantor, the Borrower and their
Subsidiaries has been released in full from any liabilities or obligations to
the Existing Lender and its affiliates in connection with any suits or other
actions commenced by or on behalf of the Existing Lender or its affiliates and
all of such suits and other actions have been terminated and settled in full;
(xxvi) copies of the Material Contracts as in effect on the
Effective Date, certified as true and correct copies thereof by an Authorized
Officer of the Borrower, together with a certificate of an Authorized Officer of
the Borrower stating that such agreements remain in full force and effect and
that the Borrower and its Subsidiaries have not breached or defaulted in any of
their obligations under such Agreements; and
(xxvii) such other agreements, instruments, approvals, opinions
and other documents, each in form and substance satisfactory to the Lender, as
the Lender may reasonably request.
(e) Material Adverse Change. The Lender shall have determined, in
-----------------------
its sole judgment, that no material adverse change (except as expressly
disclosed in writing to the Lender by the Borrower or the Guarantor) shall have
occurred in the business, operations, condition (financial or otherwise),
properties or prospects of the Borrower, the Guarantor or any Subsidiary since
September 30, 1996.
(f) Liquidity. The Lender shall have received evidence satisfactory
---------
to it that the Borrower shall have the right, as of the Effective Date, to draw
not less than an additional $1,500,000 under the revolving credit facility made
available by Finova pursuant to the Finova Loan Agreement, after giving effect
to the consummation of the transaction herein contemplated and the payment of
all transaction costs contemplated by this Agreement.
(g) Compliance with Laws. The Loans shall fully comply with all
--------------------
applicable requirements of law, including Regulation G, T, U and X of the Board.
(h) Management Reference Checks. The Lender shall have received
---------------------------
satisfactory reference checks for key management of the Borrower and the
Guarantor.
(i) Due Diligence. The Lender shall have completed its due diligence
-------------
with respect to the Borrower, the Guarantor and their Subsidiaries and the
results thereof shall be acceptable to the Lender, in its sole and absolute
discretion.
(j) Litigation; Consents and Approvals. (A) Except as previously
----------------------------------
disclosed to the Lender in writing prior to the date hereof, there shall exist
no claim, action, suit, investigation, litigation or proceeding (including,
without limitation, shareholder or derivative
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<PAGE>
litigation) pending or threatened in any court or before any arbitrator or
governmental authority which relates to this Agreement or the other Loan
Documents or the transactions herein and therein contemplated or which, in the
opinion of the Lender, has any reasonable likelihood of having a Material
Adverse Effect.
(B) All necessary governmental, shareholder and third party approvals
and/or consents from any Governmental Authority or other Person in connection
with this Agreement and the other Loan Documents and the transactions herein or
therein contemplated, including the issuance of the Warrants, shall have been
obtained and remain in full force and effect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01. Representations and Warranties. The Borrower and the
------------------------------
Guarantor represent and warrant to the Lender as follows:
(a) Organization, Good Standing, Etc. Such Loan Party (i) is a
---------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the state of its organization, (ii) has all requisite power and authority to
conduct its business as now conducted and as presently contemplated and, in the
case of the Borrower, to make the borrowings hereunder and to execute and
deliver each of the Loan Documents to which it is a party and consummate the
transactions contemplated hereby and thereby, and (iii) is duly qualified to do
business and is in good standing in each jurisdiction in which the character of
the properties owned or leased by it or in which the transaction of its business
makes such qualification necessary.
(b) Authorization, Etc. The execution, delivery and performance by
-------------------
such Loan Party of each Loan Document to which it is a party, (i) have been duly
authorized by all necessary action, (ii) do not and will not contravene such
Loan Party's charter or by-laws or any applicable law or any contractual
restriction binding on or otherwise affecting it or any of its properties, (iii)
do not and will not result in or require the creation of any Lien (other than
pursuant to any Loan Document) upon or with respect to any of its properties,
and (iv) do not and will not result in any suspension, revocation, impairment,
forfeiture or nonrenewal of any permit, license, authorization or approval
applicable to its operations or any of its properties.
(c) Governmental Approvals. No authorization or approval or other
----------------------
action by, and no notice to or filing with, any Governmental Authority or other
regulatory body is required in connection with the due execution, delivery and
performance by any Loan Party of any Loan Document to which it is or will be a
party.
(d) Enforceability of Loan Documents. This Agreement is, and each
--------------------------------
other Loan Document to which such Loan Party is or will be a party, when
delivered hereunder, will be, a legal, valid and binding obligation of such Loan
Party, enforceable against such Loan Party in accordance with its terms, except
as such enforceability may be limited by or subject to
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<PAGE>
any bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally.
(e) Capitalization. On the Effective Date, after giving effect to
--------------
the transactions contemplated hereunder to occur on the Effective Date, (i) the
authorized capital stock of the Borrower will consist of an aggregate of 775
shares of Common Stock and (ii) except for any Warrants executed and delivered
pursuant to Section 4.01(d) hereof, there are no outstanding equity rights with
respect to the Borrower, nor are there any outstanding obligations of any Loan
Party to repurchase, redeem, or otherwise acquire any shares of capital stock of
any Loan Party, nor are there any outstanding obligations of the Borrower to
make payments to any Person, such as "phantom stock" payments, where the amount
thereof is calculated with reference to the fair market value or equity value of
the Borrower or any of its Subsidiaries.
(f) Subsidiaries. Schedule 5.01(f) hereto is a complete and correct
------------
description of the name, jurisdiction of incorporation and ownership of the
outstanding Capital Stock of the Guarantor and each Subsidiary of the Guarantor
in existence on the date hereof. Except as permitted in Section 6.02(a) hereof
and except as described on Schedule 5.01(f), all such Capital Stock owned by the
Guarantor or one or more of its Subsidiaries, as indicated in such Schedule, are
owned free and clear of all Liens.
(g) Litigation. Except as set forth in Schedule 5.01(g) hereto,
----------
there is no pending or, to the knowledge of the Borrower or the Guarantor,
threatened action, suit or proceeding affecting the Borrower, the Guarantor or
any of their subsidiaries before any court or other Governmental Authority or
any arbitrator that, if adversely determined, may have a Material Adverse
Effect. In particular, the litigation, reference Katherin Stutte in Los Angeles
County, San Fenando Branch Court, file date August 24, 1994, file number PC
13070 has been dismissed with prejudice.
(h) Financial Condition.
-------------------
(i) The Financial Statements, copies of which have been
delivered to the Lender, fairly present the financial condition of the Guarantor
and its Subsidiaries as at the respective dates thereof and the results of
operations of the Guarantor and its Subsidiaries for the fiscal periods ended on
such respective dates, all in accordance with GAAP, and since September 29, 1996
there has been no event, condition or development that may have a Material
Adverse Effect.
(ii) The Borrower has heretofore furnished to the Lender, a copy
of which is attached hereto as Schedule 5.01(h)(ii), projected monthly balance
sheets, income statements and statements of cash flow of the Borrower and its
Subsidiaries for the period from October 1, 1997 through September 30, 2000. The
financial projections relating to the Borrower delivered to the Lender are based
upon good faith estimates and assumptions believed by management of the Borrower
to be reasonable at the time made, and the Borrower is not aware of any fact or
information that would lead it to believe that such projections are incorrect or
misleading in any material respect; however, such projections are not intended
to be a guarantee of future results.
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<PAGE>
(i) Compliance with Law, Etc. No Loan Party is in violation of its
-------------------------
charter or by-laws, any law or any material term of any agreement or instrument
binding on or otherwise affecting it or any of its properties in any respect
that could reasonably be expected to have a Material Adverse Effect. No Default
or Event of Default has occurred and is continuing
(j) ERISA. Except as set forth on Schedule 5.01(j) hereto, (i) each
-----
Employee Plan is in substantial compliance with ERISA and the Code, (ii) no
Termination Event has occurred nor is reasonably expected to occur with respect
to any Employee Plan, (iii) the most recent annual report (Form 5500 Series)
with respect to each Employee Plan, including any required Schedule B (Actuarial
Information) thereto, copies of which have been filed with the Internal Revenue
Service and delivered to the Lender, is complete and correct and fairly presents
the funding status of such Employee Plan, and since the date of such report
there has been no material adverse change in such funding status, (iv) no
Employee Plan had an accumulated or waived funding deficiency or permitted
decreases which would create a deficiency in its funding standard account or has
applied for an extension of any amortization period within the meaning of
Section 412 of the Code at any time during the previous 60 months, and (v) no
Lien imposed under the Code or ERISA exists or is likely to arise on account of
any Employee Plan within the meaning of Section 412 of the Code at any time
during the previous 60 months. Except as set forth on Schedule 5.01(j) hereto,
none of the Borrower, the Guarantor or any of their ERISA Affiliates have
incurred any withdrawal liability under ERISA with respect to any Multiemployer
Plan, or are aware of any facts indicating that the Borrower, the Guarantor or
any of their ERISA Affiliates may in the future incur any such withdrawal
liability. Except as required by Section 4980B of the Code, none of the
Borrower, the Guarantor or any of their ERISA Affiliates maintains an employee
welfare benefit plan (as defined in Section 3(1) of ERISA) which provides health
or welfare benefits (through the purchase of insurance or otherwise) for any
retired or former employee of the Borrower, the Guarantor or any of their ERISA
Affiliates or coverage after a participant's termination of employment. None of
the Borrower, the Guarantor or any of their ERISA Affiliates has incurred any
liability or obligation under the Worker Adjustment and Retraining Notification
Act ("WARN") or similar state law, which remains unpaid or unsatisfied.
----
(k) Taxes, Etc. All Federal, state and local tax returns and other
-----------
reports required by applicable law to be filed by each Loan Party have been
filed, or extensions have been obtained, and all taxes, assessments and other
governmental charges imposed upon any Loan Party or any property of any Loan
Party and which have become due and payable on or prior to the date hereof have
been paid, except to the extent contested in good faith by proper proceedings
which stay the imposition of any penalty, fine or Lien resulting from the non-
payment thereof and with respect to which adequate reserves have been set aside
for the payment thereof.
(l) Regulation U. Neither the Borrower nor the Guarantor is or will
------------
be engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation G, T, U or X), and no
proceeds of the Term Loan will be used to purchase or carry any margin stock or
to extend credit to others for the purpose of purchasing or carrying any margin
stock.
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<PAGE>
(m) Nature of Business. The Borrower is not engaged in any business
------------------
other than the manufacture, distribution and sale of frozen food products and
activities necessary to accomplish the foregoing.
(n) Adverse Agreements, Etc. No Loan Party is a party to any
------------------------
agreement or instrument, or subject to any partnership agreement, charter or
other corporate restriction or any judgment, order, regulation, ruling or other
requirement of a court or other Governmental Authority or regulatory body, which
has a Material Adverse Effect, or, to the best knowledge of such Loan Party, in
the future is reasonably likely to have a Material Adverse Effect.
(o) Permits, Etc. Each Loan Party has all permits, licenses,
-------------
authorizations and approvals required for it lawfully to own and operate it
business, except where the failure to have any such nongaming permits, licenses,
authorizations or approvals could not reasonably be expected to have a Material
Adverse Effect.
(p) Title to Properties. Each Loan Party has good and marketable
-------------------
title to all of its properties and assets, free and clear of all Liens and other
types of preferential arrangements except such as are permitted by Section
6.02(a) hereof.
(q) Full Disclosure. No Loan Document or schedule or exhibit
---------------
thereto, and no certificate, report, statement or other document or information
furnished to the Lender in connection with this Agreement or any other Loan
Document, contains any material misstatement of fact or omits to state a
material fact or any fact necessary to make the statements contained herein or
therein not misleading. There is no fact known to any Loan Party (other than
public information as to matters of a general economic nature) that could
reasonably be expected to have a Material Adverse Effect that has not been
disclosed to the Lender in writing by a Loan Party prior to the Effective Date.
(r) Operating Lease Obligations. On the Effective Date, no Loan
---------------------------
Party has any obligations as lessee for the payment of rent for any real or
personal property other than the Operating Lease Obligations set forth in
Schedule 5.01(r) hereto.
(s) Environmental Matters. Except as set forth in Schedule 5.01(s)
---------------------
hereto (i) the operations of each Loan Party and its Subsidiaries comply with
all Environmental Laws, except for any noncompliance that could not reasonably
be expected to have a Material Adverse Effect; (ii) there has been no Release at
any of the properties owned or operated by any Loan Party or any of its
Subsidiaries or a predecessor in interest, or at any disposal or treatment
facility which received Hazardous Materials generated by any Loan Party or any
of its Subsidiaries or any predecessor in interest which may have a Material
Adverse Effect; (iii) no Environmental Action has been asserted against any Loan
Party or any of its Subsidiaries or any predecessor in interest nor does any
Loan Party have knowledge or notice of any threatened or pending Environmental
Action against such Loan Party or any of its Subsidiaries or any predecessor in
interest which may have a Material Adverse Effect; and (iv) no Environmental
Actions have been asserted against any facilities that may have received
Hazardous Materials
-27-
<PAGE>
generated by any Loan Party or any of its Subsidiaries or any predecessor in
interest which may have a Material Adverse Effect.
(t) Insurance. Each Loan Party keeps its properties adequately
---------
insured and maintains (i) insurance to such extent and against such risks,
including fire, as is customary with companies in the same or similar
businesses, (ii) workmen's compensation insurance in the amount required by
applicable law, (iii) public liability insurance, which shall include product
liability insurance, in the amount customary with companies in the same or
similar business against claims for personal injury or death on properties
owned, occupied or controlled by it, and (iv) such other insurance as may be
required by law or as may be reasonably required in writing by the Lender
(including, without limitation, against larceny, embezzlement or other criminal
misappropriation). Schedule 5.01(t) hereto sets forth a list of all insurance
maintained by the Loan Parties on the Effective Date.
(u) Use of Proceeds. The proceeds of the Loans are to be used to (i)
---------------
refinance all of the existing Indebtedness of the Borrower to the Existing
Lender, including any prepayment penalties and other charges, and to purchase
certain warrants and warrant shares from the Existing Lender, which shall not
exceed $15,000,000, (ii) prepay term loan obligations of the Borrower of up to
$1,700,000 owing to Finova (provided such amount cannot be reborrowed), (iii)
pay certain closing fees and expenses relating to the execution, delivery and
performance of this Agreement and the consummation of the transactions herein
contemplated, (iv) make a one-time intercompany advance to the Guarantor from
the Borrower on the Effective Date in an amount not to exceed $5,500,000 for
refinancing or repaying existing Indebtedness of the Guarantor and (v) satisfy
the Borrower's general working capital needs.
(v) Location of Bank Accounts. Schedule 5.01(v) hereto sets forth a
-------------------------
complete and accurate list as of the Effective Date of all deposit, checking and
other bank accounts, all securities and other accounts with any broker dealer
and all other similar accounts maintained by the Borrower and the Guarantor,
together with a description thereof (i.e., the bank or broker dealer at which
----
such deposit or other account is maintained and the account number and the
purpose thereof).
(w) Real Property. (i) Schedule 5.01(w) sets forth a complete and
-------------
accurate list as of the Effective Date of the location, by state and street
address, of all real property owned or leased by the Borrower and the Guarantor.
(ii) As of the Effective Date, the Borrower and the Guarantor
have valid leasehold interests in the leases described in Schedule 5.01(w) (the
"Leases"). Schedule 5.01(w) sets forth with respect to each Lease, the
-------
commencement date, termination date, renewal options (if any) and annual base
rents. Each such Lease is valid and enforceable in accordance with its terms in
all material respects and is in full force and effect. No consent or approval
of any landlord or other third party in connection with the Leases is necessary
for the Borrower or the Guarantor to enter into and execute the Loan Documents,
except as set forth on Schedule 5.01(w). To the knowledge of the Borrower and
the Guarantor, no other party to any Lease is in default of its obligations
thereunder, and the Borrower and the Guarantor (or any other party to any such
Lease) have not at any time delivered or received any notice of default
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<PAGE>
which remains uncured under any such Lease and, as of the Effective Date, no
event has occurred which, with the giving of notice or the passage of time, or
both, would constitute a default under any such Lease, except for defaults the
consequence of which in the aggregate would have no Material Adverse Effect.
(x) Intellectual Property. Except as set forth on Schedule 5.01(x),
---------------------
the Loan Parties own or license or otherwise have the right to use all material
licenses, permits, patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, copyright applications,
franchises, authorizations and other intellectual property rights that are
necessary for the operations of its businesses, without infringement upon or
conflict with the rights of any other Person with respect thereto, except for
such infringements and conflicts which, individually or in the aggregate, could
not have a Material Adverse Effect. Set forth in Schedule 5.01(x) is a complete
and accurate list as of the Effective Date of all such material licenses,
permits, patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, copyright applications, franchises,
authorizations and other intellectual property rights of the Loan Parties. No
slogan or other advertising device, product, process, method, substance, part or
other material now employed, or now contemplated to be employed, by the Loan
Parties infringes upon or conflicts with any rights owned by any other Person,
and no claim or litigation regarding any of the foregoing is pending or
threatened, except for such infringements and conflicts which could not have,
individually or in the aggregate, a Material Adverse Effect. To the knowledge of
the Loan Parties, no patent, invention, device, application, principle or any
statute, law, rule, regulation, standard or code is pending or proposed, which,
individually or in the aggregate, could have a Material Adverse Effect.
(y) Material Contracts. Set forth in Schedule 5.01(y) is a complete
------------------
and accurate list as of the Effective Date of all Material Contracts of the
Borrower showing the parties and subject matter thereof and amendments and
modifications thereto. Each such Material Contract (i) is in full force and
effect and is binding upon and enforceable against the Borrower, and, to the
best of such Borrower's knowledge, all other parties thereto in accordance with
its terms, (ii) has not been otherwise amended or modified, and (iii) is not in
default due to the action of the Borrower or, to the Borrower's knowledge, any
other party thereto. The Borrower agrees to use its best efforts to cause
American Airlines, Inc. to consent within 30 days of the Closing Date that
Purchase Order number 95242 dated November 11, 1996 to the assignment of the
collateral American Airlines Contract to the Lender pursuant to the Loan
Documents.
(z) Holding Company and Investment Company Acts. Neither the
-------------------------------------------
Borrower nor the Guarantor is (i) a "holding company" or a "subsidiary company"
of a "holding company" or an "affiliate" of a "holding company", as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended, or
(ii) an "investment company" or an "affiliated person" or "promoter" of, or
"principal underwriter" of or for, an "investment company", as such terms are
defined in the Investment Company Act of 1940, as amended.
(aa) Labor Relations. The Guarantor and its Subsidiaries
---------------
are in full compliance with the Fair Labor Standards Act. Neither the Guarantor
nor any Subsidiary of the Guarantor is engaged in any unfair labor practice
which has had or could have a Material Adverse Effect. There are:
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(i) no unfair labor practice complaints pending or, to
the Borrower's or the Guarantor's knowledge after diligent
inquiry, threatened against the Guarantor or any Subsidiary of
the Guarantor before the National Labor Relations Board and no
grievance or arbitration proceedings arising out of or under
collective bargaining agreements are so pending or, to the
Borrower's or the Guarantor's knowledge after diligent inquiry,
threatened;
(ii) no strikes, work stoppages or controversies pending
or, to the Borrower's or the Guarantor's knowledge after diligent
inquiry, threatened between the Guarantor or any Subsidiary of
the Guarantor and any of their respective employees (other than
employee grievances arising in the ordinary course of business);
(iii) no union representation questions existing with
respect to the employees of Guarantor or any subsidiary of the
Guarantor; and
(iv) no union organizing activities taking place which, in
the case of clauses (i), (ii) and (iii) are, in the aggregate,
material to the financial condition, results of operations or
business or the Guarantor or any of its Subsidiaries.
(bb) Business Relationships. There exists no actual or
----------------------
threatened termination, cancellation or limitation of, or any modification or
change in, the business relationship between the Borrower or the Guarantor on
one hand, and any customer or any group of customers whose purchases
individually or in the aggregate are material to the business of Borrower or the
Guarantor on the other hand (including, without limitation, Jenny Craig, Inc.
and American Airlines), or with any material supplier, and there exists no
present condition or state of facts or circumstances which would materially and
adversely affect the Borrower or the Guarantor or prevent the Borrower or the
Guarantor from conducting such business after the consummation of the
transactions contemplated by this Agreement in substantially the same manner in
which it has been heretofore been conducted.
(cc) No Bankruptcy Filing. The Borrower is not contemplating
--------------------
either the filing of a petition by it under any state or federal bankruptcy or
insolvency laws or the liquidation of all or a major portion of the Borrower's
assets or property, and the Borrower has no knowledge of any Person
contemplating the filing of any such petition against it.
(dd) Solvency. Giving effect to the transactions
--------
contemplated hereby, the fair saleable value of the Borrower's assets exceeds
and will, immediately following the making of the Term Loan, exceed the
Borrower's total liabilities, including without limitation subordinated,
unliquidated, disputed and contingent liabilities. The fair saleable value of
the Borrower's assets is and will, immediately following the making of the Term
Loan, be greater than the Borrower's probable liabilities, including the maximum
amount of its contingent liabilities on its debts as such debts become absolute
and matured. The Borrower's assets do not and, immediately following the making
of the Term Loan will not, constitute unreasonably small capital
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to carry out its business as conducted or as proposed to be conducted. The
Borrower does not intend to, and does not believe that it will, incur debts and
liabilities (including without limitation contingent liabilities and other
commitments) beyond its ability to pay such debts as they mature (taking into
account the timing and amounts of cash to be received by the Borrower and the
amounts to be payable on or in respect of obligations of the Borrower).
(ee) Corporate Separateness.
----------------------
(i) All customary formalities regarding the corporate
existence of the Borrower have been at all times since its
formation and will continue to be observed.
(ii) The Borrower has at all times since its formation
accurately maintained, and will continue to accurately maintain,
its financial statements, accounting records and other corporate
documents separate from those of the Guarantor and its other
Subsidiaries and any other Person. The Borrower has not at any
time since its formation commingled, and will not commingle, its
assets with those of the Guarantor and its other Subsidiaries,
any Affiliates of the foregoing Persons, or any other Person.
The Borrower has at all times since its formation accurately
maintained, and will continue to accurately maintain its own bank
accounts and separate books of account.
(iii) The Borrower has at all times since its formation
paid, and will continue to pay, its own liabilities form its own
separate assets.
(iv) The Borrower has at all times since its formation
identified itself, and will continue to identify itself, in all
dealings with the public, under the Borrower's own name and as a
separate and distinct entity. The Borrower has not at any time
since its formation identified itself, and will not identify
itself, as being a division or a part of any other entity (except
as a Subsidiary of the Guarantor).
(v) The Borrower has been at all times since its formation
and will continue to be adequately capitalized in light of the
nature of its business.
(vi) The Borrower has not at any time since its formation
assumed or guaranteed, and will not assume or guarantee, the
liabilities of the Guarantor (or any predecessor corporation), or
any other Persons, except as permitted by or pursuant to this
Agreement. The Borrower has not at any time since its formation
acquired, and will not acquire, obligations or securities of the
Guarantor (or any predecessor corporation), or any Affiliates of
the Guarantor except as permitted hereunder. The Borrower will
not make loans to the Guarantor (or any predecessor
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corporation), or any Affiliates of the Guarantor, except as
permitted hereunder.
(vii) The Borrower will not enter into or be a party to any
transaction with the Guarantor or any Affiliates of the Guarantor
except in the ordinary course of business of the Borrower on
terms which are no less favorable to the Borrower than would be
obtained in a comparable arm's length transaction with an
unrelated third party.
ARTICLE VI
COVENANTS OF BORROWER AND GUARANTOR
SECTION 6.01 Affirmative Covenants. So long as any principal of or
---------------------
interest on the Term Loan or any other Obligations (whether or not due) shall
remain unpaid, the Borrower will, unless the Lender shall otherwise consent in
writing:
(a) Reporting Requirements. Furnish to the Lender:
----------------------
(i) as soon as available and in any event within 60 days
after the end of each fiscal quarter, consolidated balance sheets, consolidated
statements of operations and retained earnings and consolidated statements of
cash flow of the Borrower and its Subsidiaries as at the end of such quarter,
and for the period commencing at the end of the immediately preceding Fiscal
Year and ending with the end of such quarter, setting forth in each case in
comparative form the figures for the corresponding date or period of the
immediately preceding fiscal year, all in reasonable detail and certified by an
Authorized Officer as fairly presenting, in all material respects, the financial
position of the Borrower and its Subsidiaries as of the end of such quarter and
the results of operations and changes in financial position of the Borrower and
its Subsidiaries for such quarter, in accordance with GAAP applied in a manner
consistent with that of the most recent audited financial statements of the
Borrower furnished to the Lender, subject to normal year-end adjustments, and
except that such statements omit footnotes that would be contained in audited
year-end financial statements;
(ii) as soon as available and in any event within 120 days
after the end of each Fiscal Year of the Borrower, consolidated balance sheets,
consolidated statements of operations and retained earnings, consolidated
reconciliation of surplus statement and consolidated statements of cash flow of
the Borrower and its Subsidiaries as at the end of such Fiscal Year, setting
forth in comparative form the corresponding figures for the immediately
preceding Fiscal Year, all in reasonable detail and prepared in accordance with
GAAP, and accompanied by a report and an opinion, prepared in accordance with
generally accepted auditing standards, of independent certified public
accountants of recognized standing selected by the Borrower and satisfactory to
the Lender (which shall provide that such consolidated financial statements
presently fairly, in all material respects, the financial position for the
periods indicated in conformity with GAAP applied on a basis consistent with
prior years, and which opinion shall not be qualified or limited because of a
restricted or limited examination by such accountant of any material portion of
the records of the Borrower or any of its Subsidiaries or otherwise
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qualified in any respect other than any such qualification as to the re-
characterization of the one-time intercompany advance made on the Effective Date
by the Borrower to the Guarantor in an amount not to exceed $5,500,000 and any
intercompany advances made prior to the Closing Date as a dividend as opposed to
an intercompany loan), together with a written statement of such accountants (1)
to the effect that, in making the examination necessary for their certification
of such financial statements, they have not obtained any knowledge of the
existence of an Event of Default or a Default and (2) if such accountants shall
have obtained any knowledge of the existence of an Event of Default or such
Default, describing the nature thereof;
(iii) as soon as available and in any event within 120 days
after the end of each Fiscal Year of the Guarantor, consolidated balance sheets,
consolidated statements of operations and retained earnings, consolidated
reconciliation of surplus statement and consolidated statements of cash flow of
the Guarantor and its Subsidiaries as at the end of such Fiscal Year, setting
forth in comparative form the corresponding figures for the immediately
preceding Fiscal Year, all in reasonable detail and prepared in accordance with
GAAP, and accompanied by a report and an opinion, prepared in accordance with
generally accepted auditing standards, of independent certified public
accountants of recognized standing selected by the Guarantor and satisfactory to
the Lender (which shall provide that such consolidated financial statements
presently fairly, in all material respects, the financial position for the
periods indicated in conformity with GAAP applied on a basis consistent with
prior years, and which opinion shall not be qualified or limited because of a
restricted or limited examination by such accountant of any material portion of
the records of the Guarantor or any of its Subsidiaries or otherwise qualified
in any respect other than any such qualification as to the re-characterization
of the one-time intercompany advance made on the Effective Date by the Borrower
to the Guarantor in an amount not to exceed $5,500,000 and any intercompany
advances made prior to the Closing Date as a dividend as opposed to an
intercompany loan), together with a written statement of such accountants (1) to
the effect that, in making the examination necessary for their certification of
such financial statements, they have not obtained any knowledge of the existence
of an Event of Default or a Default and (2) if such accountants shall have
obtained any knowledge of the existence of an Event of Default or such Default,
describing the nature thereof;
(iv) as soon as available and in any event within 45 days
of the end of each fiscal month of the Borrower (commencing with February 1998),
internally prepared consolidated balance sheets, consolidated statements of
operations and retained earnings and consolidated statements of cash flow for
such fiscal month of the Borrower and its Subsidiaries for such fiscal month and
for the period from the beginning of such Fiscal Year to the end of such fiscal
month, all in reasonable detail and certified by an Authorized Officer as fairly
presenting, in all material respects, the financial position of the Borrower and
its Subsidiaries as of the end of such fiscal month and the results of
operations and changes in financial position of the Borrower and its
Subsidiaries for such fiscal month, in accordance with GAAP applied in a manner
consistent with that of the most recent audited financial statements furnished
to the Lender, subject to normal year-end adjustments, and except that such
statements omit footnotes that would be contained in audited year-end financial
statements;
(v) simultaneously with the delivery of the financial
statements of the Borrower and the Guarantor required by clauses (i), (ii),
(iii) and (iv) of this Section
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6.01(a), a certificate of an Authorized Officer, stating (A) that such
Authorized Officer has reviewed the provisions of this Agreement and the other
Loan Documents and has made or caused to be made under his supervision a review
of the condition and operations of the Borrower or the Guarantor, as the case
may be, and its Subsidiaries during the period covered by such financial
statements with a view to determining whether the Borrower or the Guarantor and
its Subsidiaries were in compliance with all of the provisions of such Loan
Documents at the times such compliance is required by the Loan Documents, and
that such review has not disclosed, and such Authorized Officer has no knowledge
of, the existence during such period of an Event of Default or Default or, if an
Event of Default or such Default existed, describing the nature and period of
existence thereof and the action which the Borrower or the Guarantor and its
Subsidiaries propose to take or took with respect thereto and (B) a schedule
showing the calculations specified in Section 6.02(o) of this Agreement;
(vi) as soon as available and in any event no later than
Wednesday of each week, a statement describing in reasonable detail (A) all cash
and other payments received by the Borrower and its Subsidiaries during the
preceding week and the balance in the Operating Account and (B) the Borrower's
orders by and sales to all of its customers, separately describing orders by and
sales to Jenny Craig, Inc. and American Airlines;
(vii) on or before July 1st of each year, (A) financial
projections, prepared on a monthly basis and otherwise in form and substance
satisfactory to the Lender, for the succeeding Fiscal Year for the Borrower and
its Subsidiaries and (B) on or before January 1st of each year, updated
financial projections, prepared on a quarterly basis and otherwise in form and
substance satisfactory to the Lender, for the remaining quarters in such Fiscal
Year, which projections are to be accompanied by a certificate by the chief
financial officer of the Borrower stating that such projections are based upon
good faith estimates and assumptions believed by management of the Borrower to
be reasonable at the time made, it being understood that such projections are
not intended to be a guarantee of future results;
(viii) promptly after submission to any Government Authority,
all documents and information furnished to such Government Authority in
connection with any investigation of a Loan Party;
(ix) as soon as possible and in any event within five
Business Days after the occurrence of an Event of Default or Default or the
occurrence of an event or development that may have a Material Adverse Effect,
the written statement of an Authorized Officer setting forth the details of such
Event of Default, Default or Material Adverse Effect and the action which the
appropriate Loan Party and its Subsidiaries propose to take with respect
thereto;
(x) (A) as soon as possible and in any event (x) within 30
days after the Borrower or any of its ERISA Affiliates knows or has reason to
know that any Termination Event described in clause (i) of the definition of
Termination Event with respect to any Employee Plan has occurred, (y) within 10
Business Days after the Borrower or any of its
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<PAGE>
ERISA Affiliates knows or has reason to know that any other Termination Event
with respect to any Employee Plan has occurred, or (z) within 10 Business Days
after the Borrower or any of its ERISA Affiliates knows or has reason to know
that an accumulated funding deficiency has been incurred or an application has
been made to the Secretary of the Treasury for a waiver or modification of the
minimum funding standard (including installment payments) or an extension of any
amortization period under Section 412 of the Code with respect to an Employee
Plan, a statement of an Authorized Officer of the Borrower, setting forth the
details of such occurrence and the action, if any, which the Borrower or such
ERISA Affiliate proposes to take with respect thereto, (B) promptly and in any
event within two Business Days after receipt thereof by the Borrower or any of
its ERISA Affiliates from the Pension Benefit Guaranty Corporation, copies of
each notice received by the Borrower or any of its ERISA Affiliates of the
Pension Benefit Guaranty Corporation's intention to terminate any Plan or to
have a trustee appointed to administer any Plan, (C) promptly and in any event
within 30 days after the filing thereof with the Internal Revenue Service,
copies of each Schedule B (Actuarial Information) to the annual report (Form
5500 Series) with respect to each Employee Plan and Multiemployer Plan, (D)
promptly and in any event within 10 Business Days after the Borrower or any of
its ERISA Affiliates knows or has reason to know that a required installment
within the meaning of Section 412 of the Code has not been made when due with
respect to an Employee Plan, (E) promptly and in any event within five Business
Days after receipt thereof by the Borrower or any of its ERISA Affiliates from a
sponsor of a Multiemployer Plan or from the Pension Benefit Guaranty
Corporation, a copy of each notice received by the Borrower or any of its ERISA
Affiliates concerning the imposition or amount of withdrawal liability under
Section 4202 of ERISA or indicating that such Multiemployer Plan may enter
reorganization status under Section 4241 of ERISA, and (F) promptly and in any
event within 10 days after the Borrower or any of its ERISA Affiliates send
notice of a plant closing or mass layoff (as defined in WARN) to employees,
copies of each such notice sent by the Borrower or any such ERISA Affiliate;
(xi) promptly after the commencement thereof but in any
event not later than five Business Days after service of process with respect
thereto on, or the obtaining of knowledge thereof by, the Borrower or the
Guarantor, notice of each action, suit or proceeding before any court or other
Governmental Authority or other regulatory body or any arbitrator which, if
adversely determined, may have a Material Adverse Effect;
(xii) as soon as possible and in any event within 10
Business Days after execution, receipt or delivery thereof, copies of any
material notices that the Borrower or Guarantor executes or receives from or
sends to any Governmental Authority in connection with any of its governmental
licenses;
(xiii) promptly but in any event not later than five Business
Days after obtaining knowledge thereof, notice to the Lender of any change, or
proposed change, in law, or the interpretation thereof that could reasonably be
expected to cause any portion of the Borrower's or the Guarantor's business to
be in violation of any law or otherwise impose any additional, material
restriction on such business; and
(xiv) promptly upon request, such other information
concerning the condition, business, prospects, assets or operations, financial
or otherwise, of the Borrower or Guarantor or any of their Subsidiaries as the
Lender may from time to time may reasonably request.
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<PAGE>
(b) Additional Subsidiaries of the Borrower and Guaranties, Etc.
------------------------------------------------------------
Cause:
(i) each Subsidiary of the Borrower not in existence on
the Effective Date to execute and deliver to the Lender promptly and in any
event within one Business Day after the formation, acquisition or change in
status thereof (A) a joinder agreement or Guaranty, each, in form and substance
satisfactory to the Lender, pursuant to which such Person guaranties the
Obligations, (B) a Security Agreement, substantially in the form of Exhibit B
hereto, (C) if such Subsidiary has any Subsidiaries, a joinder agreement to the
Pledge Agreement or a Pledge Agreement, in form and substance satisfactory to
the Lender, with Annex I thereto appropriately completed, together with (x)
certificates evidencing all of the Capital Stock of any Person owned by such
Subsidiary, (y) undated stock powers executed in blank with signature
guaranteed, and (z) such opinion of counsel and such approving certificate of
the issuer of such shares as the Lender may reasonably request in respect of
complying with any legend on any such certificate or any other matter relating
to such shares, which shall be pledged to the Lender as collateral security for
the Obligations and delivered to the Lender, (D) such mortgages and deeds of
trust, in form and substance satisfactory to the Lender, creating on such real
property of such Subsidiary a perfected, first priority security interest in
such real property, a title insurance policy (in form and substance, and issued
by a title insurance company, satisfactory to the Lender), covering such real
property, a current ALTA survey thereof and a surveyor's certificate, each in
form and substance satisfactory to the Lender, as the Lender may require, and
(E) such other agreements, instruments, approvals, legal opinions or other
documents reasonably requested by the Lender in order to effect the intent that
such Subsidiary shall become bound by all of the terms, covenants and agreements
contained in the Loan Documents and that all Property of such Subsidiary shall
become Collateral for the Obligations; and
(ii) the owner of the Capital Stock of any such Subsidiary
to execute and deliver promptly and in any event within one Business Day after
the formation, acquisition or change in status of such Subsidiary, an amendment
to Annex I to the Pledge Agreement, appropriately completed (or, if necessary in
the opinion of the Lender, a new pledge agreement covering such Capital Stock,
in form and substance satisfactory to the Lender), together with (w)
certificates evidencing all of the Capital Stock of such Subsidiary, (x) undated
stock powers executed in blank with signature guaranteed, (y) such opinion of
counsel and such approving certificate of the issuer of such shares as the
Lender may reasonably request in respect of complying with any legend on any
such certificate or any other matter relating to such shares, and (z) such other
agreements, instruments, approvals, legal opinions or other documents reasonably
requested by the Lender, which stock certificates shall be pledged to the Lender
as collateral security for the Obligations; upon satisfaction of the conditions
set forth in this Section 6.01(b)(i) and (ii), such Subsidiary shall become a
Guarantor hereunder and the other Loan Documents to the same extent as if such
Subsidiary had been a party hereto and thereto on the Effective Date.
(c) Compliance with Laws, Etc. Comply, and cause each of its
--------------------------
Subsidiaries to comply, in all material respects with all applicable laws,
rules, regulations and orders (including, without limitation, all Environmental
Laws), such compliance to include, without limitation, (i) paying before the
same become delinquent all taxes, assessments and
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<PAGE>
governmental charges or levies imposed upon it or upon its income or profits or
upon any of its properties, and (ii) paying all lawful claims which if unpaid
might become a Lien or charge upon any of its properties, except to the extent
contested in good faith by proper proceedings which stay the imposition of any
penalty, fine or Lien resulting from the non-payment thereof and with respect to
which adequate reserves have been set aside for the payment thereof.
(d) Preservation of Existence, Etc. Maintain and preserve, and cause
-------------------------------
each of its Subsidiaries to maintain and preserve, its existence, rights and
privileges, and become or remain duly qualified and in good standing in each
jurisdiction in which the character of the properties owned or leased by it or
in which the transaction of its business makes such qualification necessary.
(e) Keeping of Records and Books of Account. Keep adequate records
---------------------------------------
and books of account, with complete entries made in accordance with GAAP.
(f) Inspection Rights. Permit, and cause each of its Subsidiaries to
-----------------
permit, the Lender or any agents or representatives thereof at any time and from
time to time upon reasonable notice during normal business hours to examine and
make copies of and abstracts from its records and books of account, to visit and
inspect its properties, to verify materials, leases, notes, accounts receivable,
deposit accounts and other assets of the Borrower, the Guarantor and each
Subsidiary of the Borrower, to conduct audits, physical counts, valuations or
examinations and to discuss their affairs, finances and accounts with any of the
directors, officers, managerial employees, independent accountants or other
representatives thereof. The Loan Parties jointly and severally agree to pay
the reasonable cost of such audit or examination.
(g) Maintenance of Properties, Etc. Maintain and preserve, and cause
-------------------------------
each of its Subsidiaries to maintain and preserve, all of their properties which
are necessary or useful in the proper conduct of their business in good working
order and condition, ordinary wear and tear excepted, and comply, and cause each
of its Subsidiaries to comply, at all times with the provisions of all leases to
which each of them is a party as lessee or under which each of them occupies
property, so as to prevent any loss or forfeiture thereof or thereunder.
(h) Maintenance of Insurance. Maintain, and cause each of its
------------------------
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations (including, without limitation, comprehensive general
liability, hazard, rent and business interruption insurance) with respect to
their properties (including all real properties leased or owned by them) and
business, in such amounts and covering such risks as is required by any
Governmental Authority or other regulatory body having jurisdiction with respect
thereto or as is carried generally in accordance with sound business practice by
companies in similar businesses similarly situated and in any event in amount,
adequacy and scope reasonably satisfactory to the Lender. All policies covering
the Collateral are to be made payable to the Lender, as its interests may
appear, in case of loss, under a standard non-contributory "lender" or "secured
party" clause and are to contain such other provisions as the Lender may require
to fully protect the Lender's interest in the Collateral and to any payments to
be made under such policies. All certificates of insurance are to be delivered
to the Lender and the policies are to be premium prepaid, with the loss payable
and additional insured endorsement in the Lender's favor, and shall
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<PAGE>
provide for not less than 30 days' prior written notice to the Lender of the
exercise of any right of cancellation. If the Borrower or any Subsidiary fails
to maintain such insurance, the Lender may arrange for such insurance, but at
the Borrower's expense and without any responsibility on the Lender's part for
obtaining the insurance, the solvency of the insurance companies, the adequacy
of the coverage, or the collection of claims. Upon the occurrence of an Event of
Default, the Lender shall have the sole right, in the name of the Lender and the
Borrower and its Subsidiaries, to file claims under any insurance policies, to
receive, receipt and give acquittance for any payments that may be payable
thereunder, and to execute any and all endorsements, receipts, releases,
assignments, reassignments or other documents that may be necessary to effect
the collection, compromise or settlement of any claims under any such insurance
policies (subject to the rights of any party to the Intercreditor Agreement, to
the extent set forth therein).
(i) Environmental. Keep any Property either owned or operated by it
-------------
or any of its Subsidiaries free of any Environmental Liens; (ii) comply, and
cause its Subsidiaries to comply, in all material respects with Environmental
Laws and provide to the Lender documentation of such compliance which the Lender
reasonably requests; (iii) immediately notify the Lender of any Release of a
Hazardous Material in excess of any reportable quantity from or onto property
owned or operated by the Borrower or any of its Subsidiaries and take any
Remedial Actions required to abate said Release; and (iv) promptly provide the
Lender with written notice within ten (10) days of the receipt of any of the
following: (A) notice that an Environmental Lien has been filed against any of
the real or personal property of the Borrower or any Guarantor; (B) commencement
of any Environmental Action or notice that an Environmental Action will be filed
against the Borrower or any Guarantor; and (C) notice of a violation, citation
or other administrative order which may have a Material Adverse Effect.
(j) Licenses. Obtain, maintain and preserve, and cause each of its
--------
Subsidiaries to obtain, maintain and preserve, all permits, licenses,
authorizations, approvals, entitlements and accreditations which are necessary
or useful in the proper conduct of its business, except to the extent that the
failure to do so could not reasonably be expected to have a Material Adverse
Effect.
(k) Further Assurances. Take such action and execute, acknowledge and
------------------
deliver, and cause each of its Subsidiaries to take such action and execute,
acknowledge and deliver, at its sole cost and expense, such agreements,
instruments or other documents as the Lender may reasonably require from time to
time in order (i) to carry out more effectively the purposes of this Agreement
and the other Loan Documents, (ii) to subject to valid and perfected first
priority Liens in favor of the Lender any of the Collateral or any other
Property whatsoever of the Borrower or any Collateral of the Guarantor, subject
only to Permitted Liens, (iii) to perfect and maintain the validity,
effectiveness and priority of any of the Loan Documents and the Liens intended
to be created thereby, and (iv) to better assure, convey, grant, assign,
transfer and confirm unto the Lender the rights now or hereafter intended to be
granted to the Lender under this Agreement or any other Loan Document.
(l) Change in Collateral; Collateral Records. Give the Lender not
----------------------------------------
less than 30 days' prior written notice of any change in the location of any
Collateral, other than to locations listed in Schedule 6.01(l) and with respect
to which the Lender has filed financing
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<PAGE>
statements and otherwise fully perfected its Liens thereon. The Borrower shall
also advise the Lender promptly, in sufficient detail, of any material adverse
change relating to the type, quantity or quality of the Collateral or the Lien
granted thereon. The Borrower and the Guarantor agree to execute and deliver to
the Lender for the benefit of the Lender from time to time, solely for the
Lender's convenience in maintaining a record of Collateral, such written
statements and schedules as the Lender may reasonably require, designating,
identifying or describing the Collateral. A Loan Party's failure, however, to
promptly give the Lender such statements or schedules shall not affect, diminish
or modify or otherwise limit the Lender's security interest in the Collateral.
(m) Landlord/Warehouse Waivers. Obtain (i) with respect to the real
--------------------------
property listed on Schedule 6.01(m), within 30 days after the Effective Date,
landlord's waiver from the landlord of such real property, in form and substance
satisfactory to the Lender, (ii) at the time the Borrower enters into a lease
for real property not occupied on the Effective Date, a landlord's waiver from
the landlord of such real property (which waiver may be contained in such
lease), in form and substance reasonably satisfactory to the Lender and (iii) a
waiver from each warehouse that will have possession of any inventory of the
Borrower or its Subsidiaries, in form and substance satisfactory to the Lender
prior to such warehouse obtaining possession thereof.
(n) Subordination. Cause all Indebtedness and other obligations now or
-------------
hereafter owed by the Borrower to the Guarantor or an Affiliate to be
subordinated in right of payment and lien priority, if any, to the Indebtedness
owing to the Lender in accordance with subordination agreements in form and
substance satisfactory to the Lender.
(o) Additional Covenants. (i) No later than December 31, 1997,
--------------------
deliver to the Lender the consolidated balance sheets, consolidated statements
of operations and retained earnings, consolidated reconciliation of surplus
statement and consolidated statements of cash flow of the Borrower and its
Subsidiaries as at the end of the Fiscal Year ending September 28, 1997, setting
forth in comparative form the corresponding figures for the immediately
preceding Fiscal Year, all in reasonable detail and prepared in accordance with
GAAP, and accompanied by a report and an opinion, prepared in accordance with
generally accepted auditing standards, of independent certified public
accountants of recognized standing selected by the Borrower and satisfactory to
the Lender (which shall provide that such consolidated financial statements
presently fairly, in all material respects, the financial position for the
periods indicated in conformity with GAAP applied on a basis consistent with
prior years, and which opinion shall not be qualified or limited because of a
restricted or limited examination by such accountant of any material portion of
the records of the Borrower or any of its Subsidiaries or otherwise qualified in
any respect other than any such qualification as to the re-characterization of
the one-time intercompany advance made on the Effective Date by the Borrower to
the Guarantor in an amount not to exceed $5,500,000 and any intercompany
advances made prior to the Closing Date as a dividend as opposed to an
intercompany loan).
(ii) Within 30 days of the Effective Date, amend the
certificate of incorporation and by-laws of the Borrower, in form and substance
satisfactory to the Lender, to provide for one independent director and at least
one director selected by the Lender to be included on the board of directors of
the Borrower at all times, and each of such directors shall be
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<PAGE>
required to approve and vote in favor of any of the events described in Section
8.01(f) or any similar events.
(iii) Within 60 days of the Effective Date, deliver to the
Lender a detailed, written plan, of consolidation of the Borrower's Facilities,
including an implementation time line, satisfactory in form and substance to the
Lender.
(iv) Within 150 days of the Effective Date, install and
integrate, on a fully operational basis, a perpetual inventory system compatible
with the Borrower's business.
(v) Within 180 days of the Effective Date, employ, upon
commercially reasonable terms, a chief executive or chief operating officer to
assume the responsibilities typically assumed by a chief executive or chief
operating officer at a similarly situated company.
(vi) Notwithstanding anything to the contrary in the Finova
Loan Agreement, including, without limitation, Article 7 thereof, and any
documents, agreements or instruments executed and delivered in connection
therewith, the Borrower shall not and shall not and shall not permit any other
Person to, directly or indirectly, deliver or make any payment of any of the LHF
Collateral (as defined in the Intercreditor Agreement) or any Proceeds thereof
to any Person other than the Lender or as directed by the Lender. In the event
any such LHF Collateral is so delivered or paid, the Borrower shall use its best
efforts to retrieve such LHF Collateral and deliver it to the Lender or as
directed by the Lender.
(vii) The Borrower shall maintain availability and be able
to obtain at all times revolving loans from Finova under the Finova Loan
Agreement in an amount at least equal to $1,500,000.
SECTION 6.02. Negative Covenants. So long as any principal of or
------------------
interest on the Term Loan or any other Obligations (whether or not due) shall
remain unpaid, the Borrower shall not, unless the Lender shall otherwise consent
in writing:
(a) Liens, Etc. Create or suffer to exist, or permit any of its
-----------
Subsidiaries to create or suffer to exist, any Lien upon or with respect to any
of its Properties, whether now owned or hereafter acquired, or assign or
otherwise transfer, or permit any of its Subsidiaries to assign or otherwise
transfer, any right to receive income, other than Permitted Liens.
(b) Indebtedness. Create, incur or suffer to exist, or permit
------------
any of its Subsidiaries to create, incur or suffer to exist, any Indebtedness,
other than Permitted Indebtedness.
(c) Guaranties, Etc. Assume, guarantee, endorse or otherwise
---------------
become directly or contingently liable (including, without limitation, liable by
way of agreement, contingent or otherwise, to purchase, to provide funds for
payment, to supply funds to or
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<PAGE>
otherwise invest in the debtor or otherwise to assure the creditor against
loss), in connection with any Indebtedness of any other Person, other than:
(i) guaranties by endorsement of negotiable instruments
for deposit or collection in the ordinary course of business;
(ii) guaranties existing on the date hereof, as set
forth in Schedule 6.02(c)(ii) hereto, but not any renewal or other modification
thereof; and
(iii) guarantees of Indebtedness of the Borrower and its
Subsidiaries, to the extent such Indebtedness is not otherwise prohibited by
this Agreement.
(d) Merger, Consolidation, Sale of Assets, Etc.
-------------------------------------------
(i) Merge or consolidate with any Person, or permit any
of its Subsidiaries to merge or consolidate with any Person; provided, however,
-------- -------
that any Subsidiary of the Borrower may be merged with or into the Borrower (so
long as the Borrower shall be the continuing or surviving corporation) or with
or into any wholly owned Subsidiary of the Borrower (so long as the wholly owned
Subsidiary shall be the continuing or surviving corporation), provided further
-------- -------
that (A) no other provision of this Agreement would be violated thereby, (B) the
Borrower gives the Lender at least 20 days' prior written notice of such merger
or consolidation, and (C) no Default or Event of Default shall have occurred and
be continuing either before or after giving effect to such transaction.
(ii) Sell, assign, lease or otherwise transfer or
dispose of, or permit any of its Subsidiaries to sell, assign, lease or
otherwise transfer or dispose of, whether in one transaction or in a series of
related transactions, any of its Property, rights or other assets whether now
owned or hereafter acquired by any Person, provided that, subject in each case
--------
to Section 2.05(e), (A) the Borrower and any of its Subsidiaries may sell
Inventory in the ordinary course of business for fair market value, (B) the
Borrower and any of its Subsidiaries may sell or otherwise dispose of obsolete
or worn-out equipment in the ordinary course of business for fair market value
and (C) the Borrower and any of its Subsidiaries may sell or otherwise dispose
of assets, other than Inventory and equipment, for fair market value.
(e) Change in Nature of Business. Make, or permit any of its
----------------------------
Subsidiaries to make, any change in the nature of its business as carried on at
the date hereof.
(f) Loans, Advances, Investments, Etc. Make, or permit any
---------------------------------
of its Subsidiaries to make, any loan or advance to any Person or purchase or
otherwise acquire, or permit any of its Subsidiaries to purchase or otherwise
acquire, any Capital Stock, Property, assets or obligations of, or any interest
in, any Person, other than (i) Permitted Investments, (ii) a one-time
intercompany advance by the Borrower to the Guarantor on the Effective Date in
an amount not to exceed $5,500,000 and (iii) loans, advances, dividends or other
transfers from or by the Borrower to the Guarantor in an aggregate amount not to
exceed $350,000 per annum; provided, however, that no such loan, advance,
-------- -------
dividend or other transfer shall be made at any
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<PAGE>
time when the Borrower is able to draw not less than $1,500,000 under the
revolving credit facility made available by Finova pursuant to the Finova Loan
Agreement.
(g) Lease Obligations. Create, incur or suffer to exist, or
-----------------
permit any of its Subsidiaries to create, incur or suffer to exist, any
obligations as lessee (i) for the payment of rent for any real or personal
property in connection with any sale and leaseback transaction, or (ii) for the
payment of rent for any real or personal property under leases or agreements to
lease other than (A) Capitalized Lease Obligations which would not cause the
aggregate amount of all obligations under Capitalized Leases entered into after
the Effective Date owing by the Borrower and its Subsidiaries in any Fiscal Year
to exceed the amounts set forth in subsection (h) of this Section 6.02, and (B)
Operating Lease Obligations which would not cause the aggregate amount of all
Operating Lease Obligations owing by the Borrower and its Subsidiaries in any
Fiscal Year to exceed $450,000.
(h) Capital Expenditures. Make or be committed to make, or
--------------------
permit any of its Subsidiaries to make or be committed to make, any Capital
Expenditure (by purchase or Capitalized Lease) which would cause the aggregate
amount of all such Capital Expenditures to exceed $300,000 in any twelve-month
period.
(i) Dividends, Prepayments, Etc. Declare or pay any
---------------------------
dividends, purchase or otherwise acquire for value any of its Capital Stock now
or hereafter outstanding, return any capital to its stockholders as such, or
make any other payment or distribution of assets to its stockholders as such, or
permit any of its Subsidiaries to do any of the foregoing or make any payment or
prepayment of principal of, premium, if any, or interest on, or redeem, defease
or otherwise retire, any Indebtedness before its scheduled due date, provided
that:
(i) Subsidiaries of the Borrower may declare and pay
cash and stock dividends, return capital and make distributions of assets to the
Borrower;
(ii) the Borrower may redeem and purchase the Warrants
as contemplated by Section 9.01(b) hereto and the Warrant;
(iii) the Borrower may prepay with the proceeds of the
Term Loan the obligations by it to the Existing Lender under the Existing Credit
Agreement and related documents or repurchase warranties and warrant stock from
the Existing Lender, in an aggregate amount not to exceed $15,000,000;
(iv) the Borrower may make a one-time intercompany
advance to the Guarantor in an amount not to exceed $5,500,000;
(v) the Borrower may make dividends or other payments
permitted under clause (iii) of Section 6.02(f);
(vi) the Borrower may pay to Finova on the Effective
Date an amount equal to $1,700,000 to prepay outstanding term loans owing by the
Borrower to Finova under the Finova Loan Agreement which amounts cannot be
reborrowed; and
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<PAGE>
(vii) the Borrower may prepay the Obligations to the
Lender as herein provided.
(j) Federal Reserve Regulations. Permit any Term Loan or the
---------------------------
proceeds of any Term Loan under this Agreement to be used for any purpose which
violates or is inconsistent with Section 5.01(a) or with any of the provisions
of Regulations G, T, U or X of the Board or own, 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 hereinafter be in effect.
(k) Transactions with Affiliates. Enter into or be a party
----------------------------
to, or, permit any Subsidiary to enter into or be a party to any transaction
with any of its Affiliates, except in the ordinary course of business in a
manner and to an extent consistent with past practice and necessary or desirable
for the prudent operation of its business for fair consideration and on terms no
less favorable to the Borrower as are available from unaffiliated third parties.
(l) Environmental. Permit the use, handling, generation,
-------------
storage, treatment, release or disposal of Hazardous Materials at any property
owned or leased by the Borrower or Guarantor except in compliance with
Environmental Laws and so long as such use, handling, generation, storage,
treatment, release or disposal of Hazardous Materials does not result in a
Material Adverse Effect.
(m) Modification of Certain Documents.
---------------------------------
(i) Except as contemplated by Section 6.01(o)(ii),
amend or otherwise modify, or permit any of its Subsidiaries to amend or
otherwise modify, its certificate of incorporation or by-laws, or consent to, or
permit any of its Subsidiaries to amend or otherwise modify, any such amendment
or modification.
(ii) Amend, modify, waive, revise or otherwise alter or
terminate, or permit any of its Subsidiaries to amend, modify, waive, revise or
otherwise alter or terminate, any term or condition of any Material Contract in
any manner that could reasonably be expected to adversely affect the value of
any Collateral or otherwise could reasonably be expected to have a Material
Adverse Effect.
(iii) Amend, modify, revise or otherwise alter any term
or condition of the Finova Loan Agreement or any documents, agreements and
instruments executed and delivered in connection therewith or related thereto in
any manner that increases the Borrower's obligations thereunder (including,
without limitation, in any manner that increases the principal amount the
Borrower can borrow thereunder), in any manner makes any financial covenant
under the Finoval Loan Agreement more restrictive than it is on the Effective
Date, provides Finova with additional collateral, is in violation of, or
inconsistent with, the terms of the Intercreditor Agreement or that may, to any
degree, adversely affect the Lender (including, without limitation, the Lender's
interest in any Collateral).
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<PAGE>
(n) Adverse Transactions. Enter into any transaction which
--------------------
materially and adversely affects the Collateral or the Borrower's ability to
repay the Obligations in full as and when due.
(o) 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.
(p) Name. Except as set forth on Schedule 6.02(p), use any
----
corporate or fictitious name other than its corporate name as set forth in its
charter on the date hereof.
(q) 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 the three most highly compensated of Borrower's executives,
officers, directors or employees in an amount in excess of $1,200,000.
(r) Compliance with Finova Loan Agreement. Violate or fail
-------------------------------------
to comply with any of the terms of the Finova Loan Agreement (as the same may be
amended from time to time, subject to Section 6.02(m)) and each of the Loan
Documents (as defined in the Finova Loan Agreement) which may result in an event
of default thereunder.
(s) Financial Covenants.
-------------------
(i) Current Ratio. Permit the ratio of (A)
-------------
Consolidated Current Assets of the Borrower and (B) Consolidated Current
Liabilities of the Borrower at any time (1) during Fiscal Year 1998 to be less
than 1.1 to 1.0, (2) during Fiscal Year 1999 to be less than 1.2 to 1.0 and (3)
during Fiscal Year 2000 and thereafter to be less than 0.58 to 1.0. If long term
debt is not reclassified as a current asset, the covenant for Fiscal Year 2000
and thereafter shall be 1.3 to 1.0.
(ii) Minimum Working Capital. Permit the amount by
-----------------------
which (A) Consolidated Current Assets of the Borrower exceeds (B) Consolidated
Current Liabilities of the Borrower at any time (1) during Fiscal Year 1998 to
be less than $3,200,000, (2) during Fiscal Year 1999 to be less than $5,200,000
and (3) during Fiscal Year 2000 and thereafter to be less than ($13,000,000). If
long term debt is not reclassified as a current asset, the covenant for Fiscal
Year 2000 and thereafter shall be $5,400,000.
(iii) Tangible Net Worth. Permit Consolidated Tangible
------------------
Net Worth of the Borrower at any time (1) during Fiscal Year 1998 to be less
than ($20,000,000), (2) during Fiscal Year 1999 to be less than ($16,400,000)
and (3) during Fiscal year 2000 to be less than ($12,000,000)
(iv) Cash Flow Ratio. Permit the Cash Flow Ratio for
---------------
each period of four (4) consecutive fiscal quarters of the Borrower (unless
otherwise indicated) for which the last quarter ends on a date set forth below
to be less than the amount set forth opposite such date:
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<PAGE>
<TABLE>
<CAPTION>
Fiscal Quarter End Cash Flow Ratio
------------------ ---------------
<S> <C>
(one quarter ended)
December 1997 1.44:1
(two quarters ended)
March 1998 1.65:1
(three quarters ended)
June 1998 1.70:1
September 1998 1.68:1
December 1998 1.80:1
March 1999 1.83:1
June 1999 1.87:1
September 1999 1.91:1
December 1999 2.08:1
March 2000 2.16:1
June 2000 2.23:1
September 2000 2.32:1
and each fiscal quarter thereafter
</TABLE>
(v) Fixed Charge Coverage Ratio. Permit the Fixed
---------------------------
Charge Coverage Ratio for each period of four (4) consecutive fiscal quarters
(unless otherwise indicated) of the Borrower for which the last quarter ends on
a date set forth below to be less than the amount set forth opposite such date:
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<PAGE>
<TABLE>
<CAPTION>
Fiscal Quarter End Fixed Charge Coverage Ratio
------------------ ---------------------------
<S> <C>
(one quarter ended)
December 1997 1.41:1
(two quarters ended)
March 1998 1.33:1
(three quarters ended)
June 1998 1.29:1
September 1998 1.25:1
December 1998 1.28:1
March 1999 1.28:1
June 1999 1.17:1
September 1999 1.08:1
December 1999 1.05:1
March 2000 .97:1
June 2000 .98:1
September 2000 .99:1
and each fiscal quarter thereafter
</TABLE>
(vi) Consolidated EBITDA. Permit Consolidated EBITDA of
-------------------
the Borrower at the end of each fiscal quarter of the Borrower to be less than
the amount set forth opposite such date:
<TABLE>
<CAPTION>
Fiscal Quarter End Consolidated EBITDA
------------------ -------------------
<S> <C>
December 1997 $1,661,000
March 1998 $2,191,000
June 1998 $2,153,000
September 1998 $1,867,000
December 1998 $1,853,000
March 1999 $2,444,000
June 1999 $2,401,000
September 1999 $2,083,000
December 1999 $2,061,000
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Fiscal Quarter End Consolidated EBITDA
------------------ -------------------
<S> <C>
March 2000 $2,718,000
June 2000 $2,670,000
September 2000 $2,316,000
and each fiscal quarter thereafter
</TABLE>
(vii) Net Income. Permit Net Income of the Borrower at
----------
the end of each fiscal quarter to be less than the amount set forth opposite
such date:
<TABLE>
<CAPTION>
Fiscal Quarter End Net Income (Loss)
------------------ -----------------
<S> <C>
December 1997 $(180,000)
March 1998 $ 475,000
June 1998 $ 455,000
September 1998 $ 309,000
December 1998 $ 227,000
March 1999 $ 547,000
June 1999 $ 538,000
September 1999 $ 380,000
December 1999 $ 312,000
March 2000 $ 658,000
June 2000 $ 645,000
September 2000 $ 488,000
and each fiscal quarter thereafter
</TABLE>
ARTICLE VII
GUARANTY
SECTION 7.01. Guaranty. The Guarantor hereby, jointly and severally
--------
(i) irrevocably, absolutely and unconditionally guarantees the prompt payment,
as and when due and payable (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise), of (A) all of the Guaranteed Obligations,
including, without limitation, all amounts now or hereafter owing in respect of
the Loan Documents, whether for principal, interest (including, without
limitation, all interest that accrues after the commencement of any case,
proceeding or other action relating to bankruptcy, insolvency or reorganization
of the Borrower whether or not the payment of such interest is unenforceable or
not allowable due to the existence
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<PAGE>
of such case, proceeding or other action), fees, expenses, indemnities or
otherwise, and (B) all indebtedness, obligations and other liabilities, direct
or indirect, absolute or contingent, now existing or hereafter arising of the
Borrower to the Lender and (ii) agree to pay any and all expenses (including
reasonable counsel fees and expenses) incurred by the Lender in enforcing its
rights under this Article VII.
SECTION 7.02. Obligations Unconditional.
-------------------------
(a) The Guarantor hereby guarantees that the Guaranteed
Obligations will be paid strictly in accordance with the terms of the Loan
Documents, regardless of any law, regulation or order now or hereafter in effect
in any jurisdiction affecting any of such terms or the rights of the Lender with
respect thereto. The Guarantor agrees that its guarantee constitutes a guaranty
of payment when due and not of collection, and waives any right to require that
any resort be made by the Lender to any security held for payment of the
Guaranteed Obligations or to any balance of any deposit account or credit on the
books of the Lender in favor of the Borrower or for any other reason. The
liability of the Guarantor hereunder shall be absolute and unconditional, joint
and several, irrespective of: (i) any lack of validity or enforceability of any
Loan Document or any agreement or instrument relating thereto; (ii) any change
in the time, manner or place of payment of, or in any other term in respect of,
all or any of the Guaranteed Obligations (including, without limitation, any
extension for longer than the original period), or any other amendment or waiver
of or consent to any departure from any provision of any Loan Document
(including the creation or existence of any Guaranteed Obligations in excess of
the amount permitted by any lending formula contained in the Loan Documents or
the amount evidenced by the Loan Documents); (iii) any exchange or release of,
or non-perfection of any lien on or security interest in, any Collateral, or any
release or amendment or waiver of or consent to any departure from any other
guaranty, for all or any of the Guaranteed Obligations; (iv) the existence of
any claim, set-off, defense, or other right that the Borrower or the Guarantor
may have against any Person, including, without limitation, the Lender, or (v)
any other circumstance which might otherwise constitute a defense available to,
or a discharge of, the Borrower or the Guarantor in respect hereof.
(b) This Guaranty (i) is a continuing guaranty and shall
remain in full force and effect until such date on which all of the Guaranteed
Obligations and all other expenses to be paid by the Guarantor pursuant hereto
shall have been indefeasibly satisfied in full, (ii) shall continue to be
effective or shall be reinstated, as the case may be, if at any time any payment
of any of the Guaranteed Obligations is rescinded or must otherwise be returned
by the Lender upon the insolvency, bankruptcy or reorganization of the Borrower,
the Guarantor or otherwise, all as though such payment had not been made, and
(iii) shall be binding upon the Guarantor and its successors and assigns.
SECTION 7.03. Waivers. The Guarantor hereby waives (i) promptness
-------
and diligence, (ii) notice of acceptance and notice of the incurrence of any
Guaranteed Obligation or any other Loan Party under any Loan Document, (iii)
notice of any action taken by the Lender or the Borrower under any Loan Document
or any other agreement or instrument relating thereto, (iv) all other notices,
demands and protests, and all other formalities of every kind in connection with
the enforcement of the Guaranteed Obligations or of the obligations of the
Borrower or the
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<PAGE>
Guarantor hereunder, the omission of or delay in which, but for the provisions
of this Section 7.03, might constitute grounds for relieving the Borrower or the
Guarantor of its obligations hereunder, (v) any right to compel or direct the
Lender to seek payment or recovery of any amounts owed under this Article VII
from any one particular fund or source, (vi) any requirement that the Lender
protect, secure, perfect or insure any security interest or lien or any property
subject thereto or exhaust any right or take any action against any Person or
any Collateral, and (vii) any other defenses available to the Guarantor. The
Guarantor agrees that the Lender shall have no obligation to marshall any assets
in favor of the Guarantor or against or in payment of any or all of the
Obligations.
SECTION 7.04. Subrogation. The Guarantor hereby irrevocably waives
-----------
and agrees that it will not exercise any and all rights which it has or may have
at any time or from time to time (whether arising directly or indirectly by
operation of law or contract) to assert any claim against the Borrower on
account of any payments made under this Agreement, including, without
limitation, any and all existing and future rights of subrogation,
reimbursement, exoneration, contribution and/or indemnity. If any amount shall
be paid to the Guarantor on account of such rights at any time when all of such
Guaranteed Obligations and all other Guaranteed Obligations shall not have been
paid in full, such amount shall be held in trust for the benefit of the Lender,
shall be segregated from the other funds of such Guarantor and shall forthwith
be paid over to the Lender to be applied in whole or in part by the Lender
against the Guaranteed Obligations, whether matured or unmatured, in accordance
with the terms of this Agreement.
SECTION 7.05. No Waiver; Remedies. No failure on the part of the
-------------------
Lender to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedy provided by law.
SECTION 7.06. Stay of Acceleration. If acceleration of the time for
--------------------
payment of any amount payable by the Borrower in respect of the Guaranteed
Obligations is stayed upon the insolvency, bankruptcy or reorganization of the
Borrower, all such amounts otherwise subject to acceleration under the terms of
this Agreement shall nonetheless be payable by the Guarantor hereunder forthwith
on demand by the Lender.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default. If any of the following Events of
-----------------
Default shall occur and be continuing:
(a) The Borrower fails to pay any principal of the Term Loan
when due (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise); or the Borrower fails to pay, within 3 Business Days after
the date when due, any interest on the Term Loan, or any fee, indemnity or other
amount payable under this Agreement or any other Loan Document when due;
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<PAGE>
(b) Any representation or warranty made by any Loan Party or
any officer of such Loan Party under or in connection with any Loan Document or
under or in connection with any report, certificate or other document delivered
to the Lender pursuant to any Loan Document shall have been incorrect in any
material respect when made;
(c) The Borrower fails to perform or observe any covenant
contained in Article VI hereof or the Guarantor shall fail to perform or observe
any covenant contained in Article VII hereof;
(d) Any Loan Party fails to perform or observe any other
term, covenant or agreement contained in any Loan Document to be performed or
observed by such Loan Party and, except as set forth in subsections (a), (b) and
(c) of this Section 8.01, such failure, if capable of being remedied, shall
remain unremedied for 15 days after written notice thereof shall have been given
by the Lender to such Loan Party;
(e) Any Loan Party fails to pay any principal or interest on
any of its Indebtedness (excluding Indebtedness evidenced by the Term Note) in
excess of $50,000, or any interest or premium thereon, when due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise) and
such failure shall continue after the applicable grace period, if any, specified
in the agreement or instrument relating to such Indebtedness, or any other
default under any agreement or instrument relating to any such Indebtedness, or
any other event, shall occur and shall continue after the applicable grace
period, if any, specified in such agreement or instrument, if the effect of such
default or event is to accelerate, or to permit the acceleration of, the
maturity of such Indebtedness; or any such Indebtedness shall be declared to be
due and payable, or required to be prepaid (other than by a regularly scheduled
required prepayment), redeemed, purchased or defeased, or an offer to prepay,
redeem, purchase or defease such Indebtedness shall be required to be made, in
each case prior to the stated maturity thereof;
(f) Any Loan Party (i) shall institute any proceeding or
voluntary case seeking to adjudicate it a bankrupt or insolvent, or seeking
dissolution, liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for such Loan Party or for any substantial
part of its property, (ii) shall be generally not paying its debts as such debts
become due, or shall admit in writing its inability to pay its debts generally,
(iii) shall make a general assignment for the benefit of creditors, or (iv)
shall take any action to authorize or effect any of the actions set forth above
in this subsection (f);
(g) Any proceeding shall be instituted against any Loan Party
seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution,
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar official for such
Loan Party or for any substantial part of its property, and either such
proceeding shall remain undismissed or unstayed for a period of 45 days or any
of the actions sought in such proceeding (including, without limitation, the
entry of an order for relief against it or the appointment of a
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<PAGE>
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property) shall occur;
(h) Any provision of any Loan Document shall at any time for any
reason be declared to be null and void, or the validity or enforceability
thereof shall be contested by any party thereto, or a proceeding shall be
commenced by any Loan Party or its Subsidiaries or any Governmental Authority or
other regulatory body having jurisdiction over any Loan Party, seeking to
establish the invalidity or unenforceability thereof, or any Loan Party shall
deny in writing that such Loan Party has any liability or obligation purported
to be created under any Loan Document;
(i) The Security Agreement, any Pledge Agreement or any other
security document, after delivery thereof pursuant hereto, shall for any reason
fail or cease to create a valid and perfected and, except to the extent
permitted by the terms hereof or thereof, first priority Lien in favor of the
Lender on or security interest in any Collateral purported to be covered
thereby;
(j) One or more judgments or orders (other than a judgment or award
described in subsections (f) or (g) of this Section 8.01) for the payment of
money exceeding any applicable insurance or bond coverage by more than $50,000
in the aggregate shall be rendered against any Loan Party and either (i)
enforcement proceedings shall have been commenced by any creditor upon any such
judgment or order, or (ii) there shall be any period of 30 consecutive days
during which a stay of enforcement of any such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect;
(k) Any Loan Party or any of their ERISA Affiliates shall have made a
complete or partial withdrawal from a Multiemployer Plan, and, as a result of
such complete or partial withdrawal, such Loan Party or such ERISA Affiliate
incurs a withdrawal liability in an annual amount exceeding $50,000; or a
Multiemployer Plan enters reorganization status under Section 4241 of ERISA,
and, as a result thereof, such Loan Party's or such ERISA Affiliate's annual
contribution requirement with respect to such Multiemployer Plan increases in an
annual amount exceeding $50,000;
(l) Any Termination Event with respect to any Employee Plan shall
have occurred, and, 30 days after notice thereof shall have been given to the
Borrower by the Lender, (i) such Termination Event (if correctable) shall not
have been corrected, and (ii) the then current value of such Employee Plan's
vested benefits exceeds the then current value of assets allocable to such
benefits in such Employee Plan by more than $50,000 (or, in the case of a
Termination Event involving liability under Section 409, 502(i), 502(l), 515,
4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 4971 or 4975 of
the Code, the liability is in excess of such amount);
(m) A Change of Control shall have occurred;
(n) An event occurs or condition exists that the Lender reasonably
determines is likely to have a Material Adverse Effect;
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(o) Any introduction of, or proposed change in, any law, or any
proposed change in the interpretation of any law, which may cause any material
portion of the Borrower's or the Guarantor's business to be in violation of any
law or which may otherwise impose additional, material restrictions on such
business that the Lender deems material; or
(p) The occurrence of any of the events which constitute an Event of
Default (as defined in the Finova Loan Agreement) under the Finova Loan
Agreement;
then, and in any such event, the Lender may, by written notice to the Borrower,
(i) declare the Term Loan, all interest thereon, all fees and all other amounts
payable under this Agreement to be forthwith due and payable, whereupon the Term
Loan, all such interest and fees and all such other amounts shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by each Loan Party,
and (ii) exercise any and all of its other rights under applicable law,
hereunder and under the other Loan Documents, provided, however, that upon the
-------- -------
occurrence of any Event of Default described in subsection (f) or (g) of this
Section 8.01, without any notice to the Borrower or any act by the Lender, the
Term Loan, all such interest and all such amounts shall become and be forthwith
due and payable, without presentment, demand, protest or further notice of any
kind, all of which are expressly waived by each Loan Party.
ARTICLE IX
ISSUANCE OF EQUITY INTERESTS TO LENDER
SECTION 9.01. (a) Authorization and Issuance of Warrants. The
--------------------------------------
Borrower has authorized (i) the issuance of warrants to purchase 30% of the
issued and outstanding shares of Common Stock, which Warrants shall be
substantially in the form of Exhibit D hereto (such certificates, together with
the rights to purchase Common Stock provided thereby and all warrant
certificates covering such stock issued upon transfer, division or combination
of, or in substitution for, any thereof, being herein called the "Warrants") for
issuance to the Lender pursuant to this Agreement, and (ii) the issuance of such
number of shares of Common Stock as shall be necessary to permit the Borrower to
comply with its obligations to issue Common Stock pursuant to the Warrants,
which shall initially be an amount equal to 30% of the issued and outstanding
shares of Common Stock as of such date on a fully diluted basis. It is
understood and agreed that the Warrants contain provisions affecting the number
of shares of Common Stock that may be acquired, which provisions are set forth
in the Warrants. Such Warrants will have an exercise price equal to an amount
not greater than $.01 per share and will cease to be exercisable on a date that
is the fifth anniversary of the Effective Date.
(b) Redemption of Warrants. The Borrower shall have the option (the
----------------------
"Redemption Option"), at any time during the Redemption Period (as hereafter
defined), to redeem and purchase, in whole but not in part, Warrants issued to
the Lender which entitle the Lender to purchase 25% of the issued and
outstanding shares of Common Stock. The Redemption Option may be exercised by
the Borrower upon delivery to the Lender at least five (5) Business Days' prior
irrevocable written notice stating its intention to exercise the
Redemption Option (the "Redemption Notice"). Such notice shall specify a
Business Day within 30 days of
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the date of delivery of such notice as the date of redemption (the "Exercise
Date"). On the Exercise Date the Lender, or any such other holder, shall deliver
to the Borrower the Warrants to be redeemed by the Borrower, in exchange for
payment in cash of an exercise price in the amount of $2,000,000 (the "Exercise
Price"). Notwithstanding the foregoing, the Borrower shall not be entitled to
exercise the Redemption Option, without the prior written consent of the Lender,
if (a) at the time of the delivery of the Redemption Notice or on the Exercise
Date, a Default or an Event of Default has occurred and is continuing or (b) any
of portion of the Exercise Price shall be paid with proceeds of a draw under the
revolving credit facility provided by Finova under the Finova Loan Agreement or,
to the extent not permitted hereunder, any other Person, unless, on the Exercise
Date, all of the Obligations have been indefeasibly paid in full in cash or,
unless otherwise agreed to in writing by the Lender in its sole discretion. For
purposes of this Section 9.01(b), the term "Redemption Period" shall mean the
period commencing with the Effective Date and ending on the second anniversary
of the Effective Date.
SECTION 9.02. Securities Act Matters. (a) The Lender warrants to the
----------------------
Borrower that:
(i) The Lender is acquiring the Warrants hereunder for its
own account, without a view to the distribution thereof, all without prejudice,
however, to the right of the Lender at any time, in accordance with this
Agreement, lawfully to sell or otherwise to dispose of all or any part of the
Warrants or Warrant Stock held by it.
(ii) The Lender is an "accredited investor" within the
meaning of Regulation D under the Securities Act.
(b) The Borrower represents and warrants to the Lender that:
(i) Assuming the truth and accuracy of the Lender's
representations and warranties contained in the preceding paragraph, the
issuance of the Warrants to the Lender hereunder and the issuance of shares of
Common Stock to the Lender pursuant to the Warrants are exempt from the
registration and prospectus delivery requirements of the Securities Act.
(ii) All stock and securities of the Borrower heretofore
issued and sold by the Borrower were, and all securities of the Borrower issued
and sold by the Borrower on and after the date hereof are or will be issued and
sold in accordance with, or are or will be exempt from, the registration and
prospectus delivery requirements of the Securities Act.
(iii) the Borrower agrees that neither it nor any Person
acting on its behalf has offered or will offer the Warrants or Warrant Stock or
any part thereof or any similar securities for issue or sale to, or has
solicited or will solicit any offer to acquire any of the same from, any Person
so as to bring the issuance and sale of the Warrants or Warrant Stock hereunder
within the provisions of the registration and prospectus delivery requirements
of the Securities Act.
SECTION 9.03 Certain Taxes. The Borrower shall pay all taxes (other
-------------
than Federal, state or local income taxes) which may be payable in connection
with the execution and
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delivery of this Agreement or the issuance of the Warrants or Warrant Stock
hereunder or in connection with any modification of this Agreement or the
Warrants and shall hold the Lender harmless without limitation as to time
against any and all liabilities with respect to all such taxes. The obligations
of the Borrower under this Section 9.03 shall survive any redemption, repurchase
or acquisition of Warrants or Warrant Stock by the Borrower, any termination of
this Agreement, and any cancellation or termination of the Warrants. The parties
hereto agree that, for income tax purposes, the purchase price to be attributed
to the Warrants issued to the Lender hereunder on the date hereof is $750,000.
SECTION 9.04 Cancellation and Issuance. If the Lender assigns or
-------------------------
otherwise transfers all or any of the Term Loan (including by selling
participations therein) to any Person, the Lender may request (upon 10 days'
prior notice to the Borrower) that (a) a number of Warrants held by the Lender
be canceled on the date of such assignment and transfer and (b) a like number of
Warrants be issued by the Borrower to the Person to whom such Loans are being
assigned or otherwise transferred. Upon the date specified in such request:
(i) the Borrower shall issue, and the Lender shall surrender
(or cause to be surrendered) for cancellation, such number of Warrants as
aforesaid, provided that such issuance shall not violate the Securities Act or
any applicable state securities laws;
(ii) the Borrower will deliver to each Person that receives a
certificate for Warrants a favorable legal opinion from counsel to the Borrower
acceptable to such Person, covering the matters set forth in the opinion of
counsel to the Borrower and the Guarantor attached as Exhibit E hereto (to the
extent relating to the Warrants);
(iii) each Person that receives a certificate for Warrants
will deliver a certificate to the Borrower affirming the representations and
warranties contained in Section 9.02(a) hereof as of such date; and
(iv) the Borrower will deliver a certificate to each Person
that receives a certificate for Warrants affirming the representations and
warranties contained in Section 9.02(b) hereof as of such date.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Notices, Etc. All notices and other communications
-------------
provided for hereunder shall be in writing and shall be mailed, telecopied or
delivered, if to the Borrower or the Guarantor, at the following address:
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<PAGE>
(a) Overhill Farms, Inc.
5730 Uplander Way
Suite 201
Culver City, California 90230-6617
Attention: Mr. James Rudis
Telephone: (310) 641-3680
Telecopier: (310) 641-0461
(b) Polyphase Corporation
16885 Dallas Parkway, 4th Floor
Dallas, TX 75248
Attention: Mr. Paul Tanner
Telephone: (972) 732-0010
Telecopier: (972) 732-6430
with a copy to:
Mr. Albert Greco
16885 Dallas Parkway
Suite 313
Dallas, TX 75248
Telephone: (972) 818-7333
Telecopier: (972) 818-7343
if to the Lender, to it at the following address:
The Long Horizons Fund, L.P.
450 Park Avenue
28th Floor
New York, New York 10022
Attention: Mr. Kevin P. Genda
Telephone: (212) 891-2117
Telecopier: (212) 758-5305
with a copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attention: Mark Neporent
Telephone: (212) 756-2000
Telecopier: (212) 593-5955
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section 10.01. All such notices and other communications shall be
effective, (i) if mailed, when received or five days after
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deposited in the mails, whichever occurs first, (ii) if telecopied, when
transmitted and confirmation received, or (iii) if delivered, upon delivery.
SECTION 10.02. Amendments, Etc. No amendment or waiver of any
----------------
provision of this Agreement or the other Loan Documents, and no consent to any
departure by the Borrower or the Guarantor therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Borrower or the
Guarantor and the Lender, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION 10.03. No Waiver; Remedies, Etc. No failure on the part of
-------------------------
the Lender to exercise, and no delay in exercising, any right hereunder or under
any other Loan Document shall operate as a waiver thereof; nor shall any single
or partial exercise of any right under any Loan Document preclude any other or
further exercise thereof or the exercise of any other right. The rights and
remedies of the Lender provided herein and in the other Loan Documents are
cumulative and are in addition to, and not exclusive of, any rights or remedies
provided by law. The rights of the Lender under any Loan Document against any
party thereto are not conditional or contingent on any attempt by the Lender to
exercise any of their rights under any other Loan Document against such party or
against any other Person.
SECTION 10.04. Expenses; Taxes; Attorneys' Fees. The Borrower agrees
--------------------------------
to pay or cause to be paid, on demand, and to save the Lender harmless against
liability for the payment of, all reasonable out-of-pocket expenses, costs and
expenses, regardless of whether the transactions contemplated hereby are
consummated, including but not limited to reasonable fees, costs, client charges
and expenses of counsel for the Lender (including the Lender's in-house
counsel), accounting, due diligence, periodic field audits, physical counts,
valuations, investigations, monitoring of assets, miscellaneous disbursements,
examination, travel, lodging and meals, incurred by the Lender from time to time
arising from or relating to: (a) the negotiation, preparation, execution,
delivery, performance, administration and termination of this Agreement and the
other Loan Documents (including, without limitation, the preparation of any
additional Loan Documents, pursuant to Section 6.01(b)), (b) any requested
amendment, waiver or consent to this Agreement or any other Loan Document,
whether or not any such document becomes effective or are given, (c) the
preservation and protection of any of the Lender's rights under this Agreement
or the other Loan Documents, (d) the defense of any claim or action asserted or
brought against the Lender by any Person that arises from or relates to this
Agreement, any other Loan Document, the Lender's claims against any Loan Party,
or any and all matters in connection therewith, (e) the commencement or defense
of, or intervention in, any court proceeding arising from or related to this
Agreement or any other Loan Document, (f) the filing of any petition, complaint,
answer, motion or other pleading by the Lender, or the taking of any action in
respect of the Collateral or other security, in connection with this Agreement
or any other Loan Document, (g) the protection, collection, lease, sale, taking
possession of or liquidation of, any Collateral or other security in connection
with this Agreement or any other Loan Document, (h) any attempt to enforce any
Lien or security interest in any Collateral or other security in connection with
this Agreement or any other Loan Document, (i) any attempt to collect from the
Borrower, (j) the receipt by the Lender of any advice from its professionals
with respect to any of the foregoing, (k) all liabilities and costs arising from
or in connection with the past, present or future operations of any Loan Party
involving any damage to real or personal
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property or natural resources or harm or injury alleged to have resulted from
any Release of Hazardous Materials on, upon or into such property, (l) any
Environmental Liabilities and Costs incurred in connection with the
investigation, removal, cleanup and/or remediation of any Hazardous Materials
present or arising out of the operations of any Property of any Loan Party, or
(m) any Environmental Liabilities and Costs incurred in connection with any
Environmental Lien. Without limitation of the foregoing or any other provision
of any Loan Document: (x) the Borrower agrees to pay all stamp, document,
transfer, recording or filing taxes or fees and similar impositions now or
hereafter determined by the Lender to be payable in connection with this
Agreement or any other Loan Document, and the Borrower agrees to save the Lender
harmless from and against any and all present or future claims, liabilities or
losses with respect to or resulting from any omission to pay or delay in paying
any such taxes, fees or impositions, (y) the Borrower agrees to pay all broker
fees that may become due in connection with the transactions contemplated by
this Agreement, including, without limitation, the fees of Durham Capital
Corporation, other than any fees for brokers retained by the Lender, unless
otherwise expressly agreed, and (z) if the Borrower fails to perform any
covenant or agreement contained herein or in any other Loan Document, the Lender
may itself perform or cause performance of such covenant or agreement, and the
expenses of the Lender incurred in connection therewith shall be reimbursed on
demand by the Borrower.
SECTION 10.05. Right of Set-off. Upon the occurrence and during the
----------------
continuance of any Event of Default, the Lender may, and is hereby authorized
to, at any time and from time to time, without notice to any Loan Party (any
such notice being expressly waived by each Loan Party) and to the fullest extent
permitted by law, set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness at
any time owing by the Lender to or for the credit or the account of such Loan
Party against any and all obligations of either now or hereafter existing under
any Loan Document, irrespective of whether or not the Lender shall have made any
demand hereunder or thereunder and although such obligations may be contingent
or unmatured. The Lender agrees to notify the Borrower promptly after any such
set-off and application made by the Lender provided that the failure to give
such notice shall not affect the validity of such set-off and application.
SECTION 10.06. Severability. Any provision of this Agreement, or of
------------
any other Loan Document to which any Loan Party is a party, which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or thereof or affecting the validity
or enforceability of such provision in any other jurisdiction.
SECTION 10.07. Assignments and Participations.
------------------------------
(a) This Agreement and the Term Note shall be binding upon and
inure to the benefit of the Loan Parties and the Lender and their respective
successors and assigns; provided, however, that no Loan Party may assign or
--------
transfer any of its rights hereunder, or under the Term Note, without the prior
written consent of the Lender. The Lender may assign to one or more banks or
other entities (including, without limitation, in connection with a
Securitization) all or any part of, or may grant participations to one or more
banks or other entities in or to all or any part of the Term Loan, or the Term
Note, and, to the extent of any such assignment or
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participation (unless otherwise stated therein), the assignee of such assignment
shall have the same rights and benefits hereunder and under the Term Note as it
would have if it were the Lender hereunder. The Lender may, in connection with
any such assignment or participation or as may be required by law or any
Governmental Authority or other regulatory body, disclose any public and non-
public information relating to the Borrower and the Guarantor furnished by or on
behalf of the Borrower or the Guarantor or any of their Affiliates to the
Lender.
(b) The Lender may at any time sell, assign or participate its
rights and obligations under this Agreement (including, without limitation, all
or a portion of the Term Loan made by it, and the Term Note held by it) without
the consent of any Loan Party. The Borrower and the Guarantor shall execute and
deliver such Term Note and any amendment or other modification restatement of
this Agreement or any Loan Document as may be requested by the Lender to reflect
any such sale or assignment.
(c) (i) The Borrower shall maintain, or cause to be
maintained, a register (the "Register") on which it enters the name of the
--------
Lender as the registered owner of the Loan held by the Lender. A Registered Loan
(and the Registered Note, if any, evidencing the same) may be assigned or sold
in whole or in part only by registration of such assignment or sale on the
Register (and each Registered Note shall expressly so provide). Any assignment
or sale of all or part of such Registered Loan (and the Registered Note, if any,
evidencing the same) may be effected only by registration of such assignment or
sale on the Register, together with the surrender of the Registered Note, if
any, evidencing the same duly endorsed by (or accompanied by a written
instrument of assignment or sale duly executed by) the holder of such Registered
Note, whereupon, at the request of the designated assignee(s) or transferee(s),
one or more new Registered Notes in the same aggregate principal amount shall be
issued to the designated assignee(s) or transferee(s). Prior to the registration
of assignment or sale of any Registered Loan (and the Registered Note, if any
evidencing the same), the Borrower shall treat the Person in whose name such
Loan (and the Registered Note, if any, evidencing the same) is registered as the
owner thereof for the purpose of receiving all payments thereon and for all
other purposes, notwithstanding notice to the contrary.
(ii) In the event that the Lender sells participations in
the Registered Loan, the Lender shall maintain a register on which it enters the
name of all participants in the Registered Loans held by it (the "Participant
-----------
Register"). A Registered Loan (and the Registered Note, if any, evidencing the
- --------
same) may be participated in whole or in part only by registration of such
participation on the Participant Register (and each Registered Note shall
expressly so provide). Any participation of such Registered Loan (and the
Registered Note, if any, evidencing the same) may be effected only by the
registration of such participation on the Participant Register.
(iii) Any foreign Person who purchases or is assigned or
participates in any portion of such Registered Loan shall provide the Borrower
(in the case of a purchase or assignment) or the Lender (in the case of a
participation) with a completed Internal Revenue Service Form W-8 (Certificate
of Foreign Status) or a substantially similar form for such purchaser,
participant or any other affiliate who is a holder of beneficial interests in
the Registered Loan.
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SECTION 10.08. Counterparts. This Agreement may be executed in any
------------
number of counterparts and by different parties hereto in separate counterparts,
each of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement.
SECTION 10.09. GOVERNING LAW. THIS AGREEMENT, THE NOTES AND THE
-------------
OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN
THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
SECTION 10.10. CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE.
-----------------------------------------------------
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF
NEW YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWER AND
THE GUARANTOR HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY
AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH OF THE
BORROWER AND THE GUARANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS AND IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS FOR NOTICES AS SET FORTH IN
SECTION 10.01, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH
MAILING. EACH OF THE BORROWER AND THE GUARANTOR HEREBY IRREVOCABLY APPOINTS THE
SECRETARY OF STATE OF THE STATE OF NEW YORK AS ITS AGENT FOR SERVICE OF PROCESS
IN RESPECT OF ANY SUCH ACTION OR PROCEEDING. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF THE LENDER TO SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER OR
THE GUARANTOR IN ANY OTHER JURISDICTION. EACH OF THE BORROWER AND THE GUARANTOR
HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE JURISDICTION OR LAYING
OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND
ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
TO THE EXTENT THAT ANY OF THE BORROWER OR THE GUARANTOR HAVE OR HEREAFTER MAY
ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS
(WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN
AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, EACH OF
THE BORROWER AND THE GUARANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
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SECTION 10.11. WAIVER OF JURY TRIAL, ETC. EACH OF THE BORROWER, THE
--------------------------
GUARANTOR AND THE LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT,
THE TERM NOTE OR OTHER LOAN DOCUMENTS, OR UNDER ANY AMENDMENT, WAIVER, CONSENT,
INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE
DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP
EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION,
PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
EACH OF THE BORROWER AND THE GUARANTOR CERTIFIES THAT NO OFFICER,
REPRESENTATIVE, AGENT OR ATTORNEY OF THE LENDER HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT THE LENDER WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR
COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS. EACH OF THE BORROWER AND
THE GUARANTOR HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT
FOR THE LENDER ENTERING INTO THIS AGREEMENT.
SECTION 10.12. Consent by the Lender. Except as otherwise expressly
---------------------
set forth herein to the contrary, if the consent, approval, satisfaction,
determination, judgment, acceptance or similar action (an "Action") of the
------
Lender shall be permitted or required pursuant to any provision hereof or any
provision of any other agreement to which any of the Borrower or the Guarantor
is a party and to which the Lender has succeeded thereto, such Action shall be
required to be in writing and may be withheld or denied by the Lender with or
without any reason, and without being subject to question or challenge on the
grounds that such Action was not taken in good faith.
SECTION 10.13. No Party Deemed Drafter. The Borrower, the Guarantor
-----------------------
and the Lender agree that no party hereto shall be deemed to be the drafter of
this Agreement.
SECTION 10.14. Reinstatement; Certain Payments. If claim is ever
-------------------------------
made upon the Lender for repayment or recovery of any amount or amounts received
by the Lender in payment or on account of any of the Obligations, the Lender
shall give prompt notice of such claim to the Borrower, and if the Lender repays
all or part of such amount by reason of (i) any judgment, decree or order of any
court or administrative body having jurisdiction over the Lender or any of its
property, or (ii) any good faith settlement or compromise of any such claim
effected by the Lender with any such claimant, then and in such event the
Borrower agrees that (A) any such judgment, decree, order, settlement or
compromise shall be binding upon it notwithstanding the cancellation of the Term
Note or other instrument evidencing the Obligations or the other Loan Documents
or the termination of this Agreement or the other Loan Documents, and (B) it
shall be and remain liable to the Lender hereunder for the amount so repaid or
recovered to the same extent as if such amount had never originally been
received by the Lender.
SECTION 10.15. Indemnification. In addition to the Borrower's other
---------------
Obligations under this Agreement, the Borrower agrees to defend, protect,
indemnify and hold harmless the Lender and all of the respective officers,
directors, employees, attorneys, consultants
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and agents of the Lender (collectively called the "Indemnitees") from and
-----------
against any and all losses, damages, liabilities, obligations, penalties, fees,
reasonable costs and expenses (including, without limitation, reasonable
attorneys' fees, costs and expenses) incurred by such Indemnitees, whether prior
to or from and after the Effective Date, whether direct, indirect or
consequential, as a result of or arising from or relating to or in connection
with any of the following: (i) the negotiation, preparation, execution or
performance or enforcement of this Agreement, any other Loan Document or of any
other document executed in connection with the transactions contemplated by this
Agreement, (ii) the Lender's furnishing of funds to the Borrower under this
Agreement, including, without limitation, the management of any such
Obligations, (iii) any matter relating to the financing transactions
contemplated by this Agreement or by any document executed in connection with
the transactions contemplated by this Agreement, or (iv) any claim, litigation,
investigation or proceeding relating to any of the foregoing, whether or not any
Indemnitee is a party thereto (collectively, the "Indemnified Matters");
-------------------
provided, however, that the Borrower shall not have any obligation to any
- -------- -------
Indemnitee under this Section 10.15 for any Indemnified Matter caused solely by
the gross negligence or willful misconduct of such Indemnitee, as determined by
a final judgment of a court of competent jurisdiction. Such indemnification for
all of the foregoing losses, damages, fees, costs and expenses of the
Indemnitees are chargeable against the Loan Account. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in this Section 10.15
may be unenforceable because it is violative of any law or public policy, the
Borrower shall contribute the maximum portion which it is permitted to pay and
satisfy under applicable law, to the payment and satisfaction of all Indemnified
Matters incurred by the Indemnitees. This indemnity shall survive the repayment
of the Obligations and the discharge of the Liens granted under the Loan
Documents.
SECTION 10.16. Records. The unpaid principal of and interest on the
-------
Term Note, the interest rate or rates applicable to such unpaid principal and
interest, the duration of such applicability, and the accrued and unpaid Closing
Fee, and Loan Servicing Fee and Commitment Fee, shall at all times be
ascertained from the records of the Lender, which shall be conclusive and
binding absent manifest error.
SECTION 10.17. Binding Effect. This Agreement shall become effective
--------------
when it shall have been executed by the Borrower and the Guarantor and the
Lender, and thereafter shall be binding upon and inure to the benefit of the
Borrower and the Guarantor and the Lender, and their respective successors and
assigns, except that the Borrower and the Guarantor, shall not have the right to
assign their rights hereunder or any interest herein without the prior written
consent of the Lender, and any assignment by the Lender shall be governed by
Section 10.07 hereof.
SECTION 10.18. Joint and Several. The obligations of the Loan
-----------------
Parties hereunder are joint and several. The Lender may, in its sole and
absolute discretion, enforce the provisions hereof against either of the Loan
Parties and shall not be required to proceed against both Loan Parties jointly
or seek payment from the Loan Parties ratably. In addition, the Lender may, in
its sole and absolute discretion, select the Collateral of either of the Loan
Parties for sale or application to the Obligations, without regard to the
ownership of such Collateral, and shall not be required to make such selection
ratably from the Collateral owned by each of the Loan Parties.
-61-
<PAGE>
The release or discharge of any Loan Party by the Lender shall not release or
discharge the other Loan Party from the obligations of such Person hereunder.
SECTION 10.19. Release of Lien. The Lender will, upon the Borrower's
---------------
request and at the Borrower's expense, release its lien on, and security
interest in, any equipment originally financed by the Lender that the Borrower
proposes to sell in accordance with Section 6.02(d)(ii) hereof, provided that
--------
(i) the Lender shall have received payment in full of all principal of, and
interest on, any Indebtedness due and owing to the Lender in connection with
such equipment, (ii) the Borrower shall have certified to the Lender that upon
such release the Borrower will sell such equipment, and (iii) no Event of
Default or Default shall have occurred and be continuing. The Lender will
execute and deliver to the Borrower such documents as the Borrower shall
reasonably request to evidence such termination, all without any representation,
warranty or recourse whatsoever and at the Borrower's cost and expense.
SECTION 10.20. Confidentiality. The Lender agrees (on behalf of
---------------
itself and each of its affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential, in
accordance with its customary procedures for handling confidential information
of this nature and in accordance with safe and sound banking practices, any non-
public information supplied to it by any Loan Party pursuant to this Agreement
which is identified by such Person as being confidential at the time the same is
delivered to such Person (and which at the time is not, and does not thereafter
become, publicly available or available to such Person from another source not
known to be subject to a confidentiality obligation to such Person not to
disclose such information), provided that nothing herein shall limit the
--------
disclosure of any such information (i) to the extent required by statute, rule,
regulation or judicial process, (ii) to counsel for the Lender, (iii) to
examiners, auditors or accountants, (iv) in connection with any litigation to
which the Lender is a party or (v) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or participant (or
prospective assignee or participant) first agrees, in writing, to be bound by
confidentiality provisions similar in substance to this Section. The Lender
agrees that, upon receipt of a request or identification of the requirement for
disclosure pursuant to clause (iv) hereof, it will make reasonable efforts to
keep the Borrower informed of such request or identification; provided that the
--------
Borrower acknowledges that the Lender may make disclosure as required or
requested by any governmental agency or representative thereof and that the
Lender may be subject to review by regulatory agencies and may be required to
provide to, or otherwise make available for review by, the representatives of
such agencies any such non-public information.
[Rest of Page Intentionally Left Blank]
-62-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
BORROWER:
--------
OVERHILL FARMS, INC.
By:
---------------------------------
Name:
Title:
GUARANTOR:
----------
POLYPHASE CORPORATION
By:
---------------------------------
Name:
Title:
LENDER:
-------
THE LONG HORIZONS FUND, L.P.
By:
---------------------------------
Name:
Title:
-63-
<PAGE>
Exhibit 10.65
EXECUTION COPY
SECURITY AGREEMENT
------------------
SECURITY AGREEMENT dated as of December ___, 1997, made by Overhill
Farms, Inc., a Nevada corporation (the "Grantor"), in favor of The Long Horizons
Fund, L.P. (the "Lender").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Grantor and the Lender are parties to a Term Loan
Agreement, dated as of the date hereof (such agreement, as amended, restated,
supplemented or otherwise modified from time to time, being hereafter referred
to as the "Term Loan Agreement");
WHEREAS, pursuant to the Term Loan Agreement, the Lender has agreed to
make a term loan (the "Loan") to the Grantor for the purposes therein stated;
and
WHEREAS, it is a condition precedent to the making of the Loan
pursuant to the Term Loan Agreement that the Grantor shall have executed and
delivered to the Lender a security agreement, providing for the grant to the
Lender of a security interest in all personal property and fixtures of the
Grantor.
NOW, THEREFORE, in consideration of the premises and the agreements
herein, the sufficiency of which is hereby acknowledged, and in order to induce
the Lender to make and maintain the Loan to the Grantor pursuant to the Term
Loan Agreement, the Grantor hereby agrees with the Lender as follows:
SECTION 1. Definitions. Reference is hereby made to the Term Loan
-----------
Agreement for a statement of the terms thereof. All terms used in this
Agreement which are defined in the Term Loan Agreement or in Article 9 of the
Uniform Commercial Code (the "Code") currently in effect in the State of New
York, and which are not otherwise defined herein, shall have the same meanings
herein as set forth therein.
SECTION 2. Grant of Security Interest. As collateral security for
--------------------------
all of the Obligations (as defined in Section 3 hereof), the Grantor hereby
pledges and assigns to the Lender, and grants to the Lender a continuing
security interest in, all personal property and fixtures of the Grantor,
wherever located and whether now or hereafter existing and whether now owned or
hereafter acquired, of every kind and description, tangible or intangible (the
"Collateral"), including, without limitation, all of the Grantor's right, title
and interest in and to the following:
(a) all equipment of any kind (including, without limitation, all
furniture, fixtures and machinery), wherever located and whether now or
hereafter existing and whether now owned or hereafter acquired, together with
all substitutes, replacements, accessions and
<PAGE>
additions thereto, and all tools, parts, accessories and attachments used in
connection therewith (hereinafter collectively referred to as the "Equipment");
(b) all inventory of any kind, wherever located and whether now or
hereafter existing and whether now owned or hereafter acquired (including,
without limitation, all types of goods, property and other assets, raw, in
process and finished, and all other inventory, merchandise, goods and other
tangible personal property that are held for sale or lease by the Grantor), all
materials used or consumed in the business of the Grantor, goods returned to or
repossessed by the Grantor, and goods in which the Grantor has an interest in
mass or in joint or other interest or right of any kind (including consigned
goods or goods being processed), all accessions thereto and products thereof and
all packing and shipping materials (hereinafter collectively referred to as the
"Inventory");
(c) (i) all accounts, contract rights, chattel paper, instruments,
documents, general intangibles and other obligations of any kind, in each case,
whether now or hereafter existing and whether now owned or hereafter acquired,
arising out of or in connection with the sale, lease or operation of any goods
or the rendering of services or otherwise, including, without limitation, (A)
all rights relating to the performance by or for the Grantor of management,
advisory, consulting or other similar services, (B) all rights relating to the
sale or other transfer of property to, or the construction, renovation or other
improvement of property by or for, the Grantor or any of its Affiliates, (C) all
rights relating to any partnership in which the Grantor has any interest as a
general or limited partner or otherwise, including all moneys due from time to
time in respect thereof, and (D) all rights relating to any lease to which the
Grantor is a party as lessee or lessor, including all moneys due from time to
time in respect thereof; and (ii) all rights now or hereafter existing in and to
all credit insurance, guaranties, letters of credit, security agreements, leases
and other contracts now or hereafter existing and securing or otherwise relating
to any such accounts, contract rights, chattel paper, instruments, general
intangibles or obligations (including, without limitation, the contracts
described in Schedule I hereto) (any and all such accounts, contract rights,
chattel paper, instruments, general intangibles and obligations being
hereinafter referred to collectively as the "Receivables", and any and all such
credit, insurance, guaranties, letters of credit, security agreements, leases
and other contracts being hereinafter referred to collectively as the "Related
Contracts");
(d) (i) all trademarks, service marks, trade names, business names,
trade styles, designs, logos and other source or business identifiers and all
general intangibles of like nature, now or hereafter owned, adopted, acquired or
used by the Grantor (including, without limitation, all trademarks, service
marks, trade names, business names, trade styles, designs, logos and other
source or business identifiers described in Schedules II or V hereto), all
applications, registrations and recordings thereof (including, without
limitation, applications, registrations and recordings in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any state thereof or any other country or any political subdivision
thereof), and all reissues, extensions or renewals thereof, together with all
goodwill of the business symbolized by such marks and all customer lists,
formulae and other records of the Grantor relating to the distribution of
products and services in connection with which any of such marks are used and
all income, royalties, damages and payments now or hereafter due and/or payable
under and with respect thereto, including, without limitation, payments under
all licenses entered into in
2
<PAGE>
connection therewith and damages and payments for past and future infringements
or dilutions thereof and the right to sue for past, present and future
infringements and dilutions thereof (hereinafter referred to collectively as the
"Trademarks"), and (ii) all licenses, contracts or other agreements, whether
written or oral, naming the Grantor as licensor or licensee and providing for
the grant of any right to use any Trademark, including, without limitation, all
trademark licenses described in Schedule II hereto, together with any goodwill
connected with and symbolized by any such trademark licenses or agreements and
the right to prepare for sale and sell any and all Inventory now or hereafter
owned by the Grantor and now or hereafter covered by such licenses (hereinafter
referred to collectively as the "Trademark Licenses");
(e) (i) all letters patent, design patents and utility patents, and
all copyrights, inventions, trade secrets, proprietary information and
technology, know-how, formulae and other general intangibles of like nature, now
existing or hereafter acquired (including, without limitation, all letters
patent, design patents and utility patents described in Schedule III hereto),
all applications, registrations and recordings thereof (including, without
limitation, applications, registrations and recordings in the United States
Patent and Trademark Office or in any similar office or agency of the United
States or any other country or any political subdivision thereof), and all
reissues, divisions, continuations, continuations in part and extensions or
renewals thereof (hereinafter referred to collectively as the "Patents"), and
(ii) all licenses, contracts or other agreements, whether written or oral,
naming the Grantor as licensee or licensor (or providing that the Grantor has
been transferred the right to use such licenses) and providing for the grant of
any right to manufacture, use or sell any invention covered by any patent
(including, without limitation, all patent licenses set forth in Schedule III
hereto) (hereinafter referred to collectively as the "Patent Licenses" and
together with the Trademark Licenses, the "Licenses");
(f) (i) all moneys, securities and other property, and the proceeds
thereof, now or hereafter held or received by, or in transit to, the Lender from
or for the Grantor, whether for safekeeping, pledge, custody, transmission,
collection or otherwise, and all of the Grantor's claims against the Lender at
any time existing; (ii) all rights relating to the sale or other transfer of
property to, or the construction, renovation or other improvement of property by
or for, the Grantor; (iii) all rights, interests, choses in action, causes of
actions, claims and all other general intangibles of every kind and nature, in
each instance whether now owned or hereafter acquired by the Grantor, including,
without limitation, all corporate and other business records, all loans,
royalties, and all other forms of obligations receivable whatsoever (other than
Receivables); (iv) all computer programs, software, printouts and other computer
materials, customer lists, credit files, correspondence and advertising
materials; (v) all customer and supplier contracts, sale orders, rights under
license and franchise agreements, and other contracts and contract rights; (vi)
all interests in partnerships and joint ventures, including all moneys due from
time to time in respect thereof; (vii) all federal, state and local tax refunds
and federal, state and local tax refund claims; (viii) all right, title and
interest under leases, subleases, licenses and concessions and other agreements
relating to personal property, including all moneys due from time to time in
respect thereof; (ix) all payments due or made to the Grantor in connection with
any requisition, confiscation, condemnation, seizure or forfeiture of any
property by any Person or Governmental Authority; (x) the Depositary Account (as
defined in the Finova Loan Agreement) and all other deposit accounts (general or
special) with any bank or other financial institution, all amounts
3
<PAGE>
which may now or hereafter be on deposit in any such accounts and all
certificates and instruments, if any, from time to time representing or
evidencing any such account, all investments of cash now or hereafter held in
any such account and all certificates and instruments, if any, from time to time
representing or evidencing such investments, and all interest, dividends, cash,
instruments, and other property from time to time received, receivable, or
otherwise distributed in respect of or in exchange for any of the foregoing;
(xi) all credits with and other claims against third parties (including carriers
and shippers) (other than Receivables); (xii) all rights to indemnification;
(xiii) all reversionary interests in pension and profit sharing plans and
reversionary, beneficial and residual interests in trusts; (xiv) all letters of
credit, guaranties, liens, security interests and other security held by or
granted to the Grantor; (xv) all instruments, files, records, ledger sheets and
documents covering or relating to any of the Collateral; and (xvi) all general
intangibles, whether or not similar to the foregoing in each instance, however
and wherever arising;
(g) the books and records of the Grantor relating to any of the
foregoing Collateral, including, without limitation, all customer contracts,
sale orders, minute books, ledgers, records, computer programs, software,
printouts and other computer materials, customer lists, credit files,
correspondence and advertising materials, in each case indicating, summarizing
or evidencing any of the Collateral;
(h) all permits, licenses, authorizations and approvals (the
"Permits"), provided that such security interest does not include at any time
--------
any such Permit to the extent (but only to the extent) that at such time the
Grantor is prohibited from granting a security interest therein, but such
security interest does include, to the maximum extent permitted by law, all
rights incident or appurtenant to such Permits and the right to receive all
Proceeds derived from or in connection with the sale, assignment or transfer of
any such Permit;
(i) all motor vehicles, tractors and other like property, whether or
not the title thereto is governed by a certificate of title or ownership
(hereinafter collectively referred to as the "Motor Vehicles"); and
--------------
(j) all cash and non-cash proceeds of any and all of the foregoing
Collateral (including, without limitation, (i) damages and payments for past or
future infringements of the Trademarks or the Patents and (ii) the right to sue
for past, present and future infringements of the Trademarks or the Patents)
and, to the extent not otherwise included, all payments under insurance (whether
or not the Lender is the loss payee thereof), and any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise with respect to
any of the foregoing Collateral (collectively, "Proceeds");
in each case howsoever the Grantor's interests therein may arise or appear
(whether by ownership, security interest, claim or otherwise).
SECTION 3. Security for Obligations. The security interest created
------------------------
hereby in the Collateral constitutes continuing collateral security for all of
the following obligations, whether now existing or hereafter incurred (the
"Obligations"):
4
<PAGE>
(a) the prompt payment by the Grantor and the Guarantor, as and when
due and payable, of all amounts from time to time owing by the Grantor or the
Guarantor to the Lender in respect of the Term Loan Agreement (including,
without limitation, Article VII thereof) and all other Loan Documents,
including, without limitation, principal of and interest on the Loan (including,
without limitation, all interest that accrues after the commencement of any
case, proceeding or other action relating to bankruptcy, insolvency or
reorganization of the Grantor or the Guarantor whether or not the payment of
such interest is unenforceable or is not allowable due to the existence of such
case, proceeding or other action), all fees, commissions, expense
reimbursements, indemnifications and all other amounts due or to become due
under the Term Loan Agreement and all other Loan Documents; and
b) the due performance and observance by the Grantor and the
Guarantor of all of their other obligations from time to time existing in
respect of the Term Loan Agreement and all other Loan Documents.
SECTION 4. Representations and Warranties. The Grantor hereby
------------------------------
represents and warrants as follows:
(a) There is no pending or threatened action, suit, proceeding or
claim before any court or other Governmental Authority or any arbitrator, or any
order, judgment or award by any court or other Governmental Authority or
arbitrator, that may adversely affect the grant by the Grantor, or the
perfection or priority, of the security interest purported to be created hereby
in the Collateral, or the exercise by the Lender of any of its rights or
remedies hereunder.
(b) All taxes, assessments and other governmental charges imposed
upon the Grantor or any property of the Grantor (including, without limitation,
all federal income and social security taxes on employees' wages) and which have
become due and payable on or prior to the date hereof have been paid, except to
the extent contested in good faith by proper proceedings which stay the
imposition of any penalty, fine or Lien resulting from the non-payment thereof
and with respect to which adequate reserves in accordance with GAAP have been
established for the payment thereof.
(c) All Equipment and Inventory of the Grantor now existing is, and
all Equipment and Inventory of the Grantor hereafter existing will be, located
at the addresses specified therefor in Schedule IV hereto. The chief place of
business and chief executive office of the Grantor, the place where the Grantor
keeps its records concerning Receivables and Proceeds and all originals of all
chattel paper and other documents which constitute Receivables are located at
the addresses specified therefor in Schedule IV hereto. None of the Receivables
or Proceeds is evidenced by a promissory note or other instrument. Set forth in
Schedule V hereto is a complete and correct list of each trade name used by the
Grantor and the name of, and each trade name used by, each Person from which the
Grantor has acquired any substantial part of the Collateral.
(d) The Grantor has delivered to the Lender complete and correct
copies of each Related Contract described in Schedule I hereto, each Trademark
License described in Schedule II hereto, and each Patent License described in
Schedule III hereto, including all schedules and exhibits thereto. Each such
Related Contract and License sets forth the entire
5
<PAGE>
agreement and understanding of the parties thereto relating to the subject
matter thereof, and there are no other agreements, arrangements or
understandings, written or oral, relating to the matters covered thereby or the
rights of the Grantor or any of its Affiliates in respect thereof. Each Related
Contract now existing is, and each other Related Contract will be, the legal,
valid and binding obligation of the parties thereto, enforceable against such
parties in accordance with its terms. No default thereunder by any such party
has occurred, nor does any defense, offset, deduction or counterclaim exist
thereunder in favor of any such party.
(e) The Grantor owns and controls, or otherwise possesses adequate
rights to use, all of its Trademarks and Patents, which are the only trademarks
and patents necessary to conduct its business in substantially the same manner
as conducted as of the date hereof. Schedule II hereto sets forth a true and
complete list of all Trademarks and Trademark Licenses owned or used by the
Grantor as of the date hereof. Schedule III hereto sets forth a true and
complete list of all Patents and Patent Licenses owned or used by the Grantor as
of the date hereof. All of such Patents and Trademarks are subsisting and in
full force and effect, have not been adjudged invalid or unenforceable, are
valid and enforceable and have not been abandoned in whole or in part. Except
as set forth in Schedule II or III hereto, none of such Patents or Trademarks is
the subject of any licensing or franchising agreement. The Grantor has no
knowledge of any conflict with the rights of others to any Trademark or Patent
and, to the best knowledge of the Grantor, the Grantor is not now infringing or
in conflict with any such rights of others in any material respect, and, to the
best knowledge of the Grantor, no other Person is now infringing or in conflict
in any material respect with any such properties, assets and rights owned or
used by the Grantor.
(f) The Grantor is and will be at all times the sole and exclusive
owner of the Collateral free and clear of any Lien with full authority to sell,
transfer and grant a security interest in, each item of Collateral, except for
(i) the security interest created by this Agreement and (ii) Liens permitted
pursuant to the Term Loan Agreement. No effective financing statement or other
instrument similar in effect covering all or any part of the Collateral is on
file in any recording or filing office except (A) such as may have been filed in
favor of the Lender relating to this Agreement and (B) such as may have been
filed with respect to the Liens permitted pursuant to the Term Loan Agreement.
(g) No authorization or approval or other action by, and no notice to
or filing with, any Governmental Authority, or any other Person, is required for
(i) the grant by the Grantor, or the perfection, of the security interest
purported to be created hereby in the Collateral or (ii) the exercise by the
Lender of any of its rights and remedies hereunder, except (A) with respect to
the perfection of the security interest created hereby in United States
Trademarks and Patents, for the recording of the Assignment for Security
(Trademarks) and Assignment for Security (Patents) referred to in Section 5(h)
hereof in the United States Patent and Trademark Office and the filing under the
Uniform Commercial Code as in effect in the applicable jurisdiction of the
financing statements described in Schedule VI hereto, all of which financing
statements have been duly filed and are in full force and effect, (B) with
respect to the perfection of the security interest created hereby in foreign
Trademarks and Patents, for registrations and filings in jurisdictions located
outside of the United States and covering rights in such jurisdictions relating
to Patents, Trademarks, Patent Licenses and Trademark Licenses, or (C) with
respect to the
6
<PAGE>
perfection of the security interest created hereby in Motor Vehicles, for the
submission of an appropriate application, together with the certificate of
title, with respect to each Motor Vehicle, to the appropriate state agency.
(h) This Agreement creates valid Liens on, and security interests in,
the Collateral, in favor of the Lender as security for the Obligations, subject
only to the Liens permitted pursuant to the Term Loan Agreement. The Lender's
having possession of all instruments and cash constituting Collateral from time
to time, the recording of the Assignment for Security (Patents) and the
Assignment for Security (Trademarks) executed pursuant hereto in the United
States Patent and Trademark Office, the filing of the financing statements
described in Schedule VI hereto and, with respect to Patents and Trademarks
hereafter existing and not covered by such Assignment for Security (Patents) or
such Assignment for Security (Trademarks), the recording in the United States
Patent and Trademark Office of appropriate instruments of assignment, result in
the perfection of such security interests. Such security interests are, or in
the case of Collateral in which the Grantor obtains rights after the date
hereof, will be, perfected, first priority security interests, subject only to
the security interests and other encumbrances permitted pursuant to the terms of
the Term Loan Agreement and the recording of such instruments of assignment.
Such recordings and filings and all other action necessary or desirable to
perfect and protect such security interest have been duly taken, except for the
Lender's having possession of instruments and cash constituting Collateral after
the date hereof and the other filings and recordations described in Section 4(g)
hereof.
(i) The exercise by the Lender of any of its rights and remedies
hereunder will not contravene law or any contractual restriction binding on or
otherwise affecting the Grantor or any of its properties and will not result in
or require the creation of any lien, security interest or other charge or
encumbrance upon or with respect to any of its properties.
SECTION 5. Covenants as to the Collateral. So long as any of the
------------------------------
Obligations shall remain outstanding, unless the Lender shall otherwise consent
in writing:
(a) Further Assurances. The Grantor will at its expense, at any time
------------------
and from time to time, promptly execute and deliver all further instruments and
documents and take all further action that may be necessary or desirable or that
the Lender may request in order (i) to perfect and protect the security interest
purported to be created hereby; (ii) to enable the Lender to exercise and
enforce its rights and remedies hereunder in respect of the Collateral; or (iii)
otherwise to effect the purposes of this Agreement, including, without
limitation: (A) marking conspicuously each chattel paper included in the
Receivables and each License and Related Contract and, at the request of the
Lender, each of its records pertaining to the Collateral with a legend, in form
and substance satisfactory to the Lender, indicating that such chattel paper,
License, Related Contract or Collateral is subject to the security interest
created hereby, (B) if any Receivable shall be evidenced by a promissory note or
other instrument or chattel paper, delivering and pledging to the Lender
hereunder such note, instrument or chattel paper duly endorsed and accompanied
by executed instruments of transfer or assignment, all in form and substance
satisfactory to the Lender, (C) executing and filing such financing or
continuation statements, or amendments thereto, as may be necessary or desirable
or that the Lender may request in order to perfect and preserve the security
interest purported to be created hereby, (D)
7
<PAGE>
furnishing to the Lender from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Lender may reasonably request, all in reasonable
detail, and (E) upon the acquisition after the date hereof by the Grantor of any
Equipment covered by a certificate of title or ownership, cause the Lender to be
listed as the lienholder on such certificate of title and within 120 days of the
acquisition thereof deliver evidence of the same to the Lender.
(b) Location of Equipment and Inventory. (i) The Grantor will keep
-----------------------------------
the Equipment and Inventory (other than Equipment and Inventory sold in the
ordinary course of business in accordance with Section 5(g)) at the locations
specified therefor in Section 4(c), or, upon not less than 30 days' prior
written notice to the Lender accompanied by a new Schedule IV indicating each
new location of the Equipment and Inventory, at such other locations in the
continental United States as the Grantor may elect, provided that (A) all action
has been taken to grant the Lender a perfected, first priority security interest
in such Equipment and Inventory subject only to the Permitted Liens and (B) the
Lender's rights in such Equipment and Inventory, including, without limitation,
the existence, perfection and priority of the security interest created hereby
in such Equipment and Inventory are not adversely affected.
(ii) The Grantor shall maintain accurate Equipment records and
shall take such physical Equipment counts as may be required for such purpose or
as the Lender may reasonably request.
(iii) If any Inventory or Equipment is in the possession or
control of the Grantor's agents or any other third party (including bailees and
warehousemen), the Grantor will, upon request of the Lender from time to time,
notify such agents or third parties of the Lender's security interest therein
and instruct them to hold all such Inventory or Equipment for the Lender's,
Finova's, and the Grantor's account and subject to Finova's and the Lender's
instructions.
(iv) If any Inventory or Equipment is stored with any third
party, the Grantor shall cause all documents, instruments and certificates as
the Lender may from time to time reasonably require related to such Inventory
and Equipment to be delivered to the Lender, and the Grantor shall take or cause
to be taken all such other actions as the Lender may from time to time require
in connection with its security interest in such Inventory or Equipment.
(c) Condition of Equipment. The Grantor will cause the Equipment to
----------------------
be maintained and preserved in good working order in accordance with any
manufacturer's manual, ordinary wear and tear excepted, and will forthwith, or
in the case of any loss or damage to any Equipment as quickly as practicable
after the occurrence thereof, make or cause to be made all repairs, replacements
and other improvements in connection therewith which are necessary or desirable
or which the Lender may request to such end. The Grantor will promptly furnish
to the Lender a statement describing in reasonable detail any loss or damage in
excess of $50,000 to any Equipment.
(d) Taxes, Etc. The Grantor will pay promptly when due all property
----------
and other taxes, assessments and governmental charges or levies imposed upon,
and all claims (including
8
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claims for labor, materials and supplies) against, the Equipment and Inventory,
except to the extent the validity thereof is being contested in good faith by
proper proceedings which stay the imposition of any penalty, fine or Lien
resulting from the non-payment thereof and with respect to which adequate
reserves in accordance with GAAP have been set aside for the payment thereof.
(e) Insurance. (i) The Grantor will, at its own expense, maintain or
---------
cause to be maintained with responsible and reputable insurance companies or
associations insurance (including, without limitation, comprehensive general
liability and hazard insurance) with respect to the Equipment and Inventory, in
such amounts, covering such risks, in such form and with such insurers as shall
be satisfactory to the Lender from time to time. Each policy for liability
insurance shall provide for all losses to be paid on behalf of the Lender,
Finova (for such time as any obligations under the Finova Loan Agreement are
outstanding) and the Grantor, as their respective interests may appear, and each
policy for property damage insurance shall provide for all losses (except for
losses of less than $50,000 per occurrence) to be adjusted with, and paid
directly to, the Lender. Each such policy shall in addition (A) name the
Grantor, Finova (for such time as any obligations under the Finova Loan
Agreement are outstanding) and the Lender as insured parties thereunder (without
any representation or warranty by or obligation upon the Lender) as their
interests may appear, (B) in the case of each policy for property damage
insurance, name the Lender and Finova (for such time as any obligations under
the Finova Loan Agreement are outstanding) as loss payees thereunder, as their
respective interests may appear, (C) contain the agreement by the insurer that
any loss thereunder shall be payable to the Lender (with respect to Equipment)
on its own account and, for such time as any obligations under the Finova Loan
Agreement are outstanding, Finova (with respect to Inventory) for its own
account (in each case subject to the terms of the Intercreditor Agreement),
notwithstanding any action, inaction or breach of representation or warranty by
the Grantor, (D) provide that there shall be no recourse against the Lender for
payment of premiums or other amounts with respect thereto, and (E) provide that
at least 30 days' prior written notice of cancellation, lapse, expiration or
other adverse change shall be given to the Lender by the insurer. The Grantor
will, if so requested by the Lender, deliver to the Lender original or duplicate
policies of such insurance and, as often as the Lender may reasonably request, a
report of a reputable insurance broker with respect to such insurance. The
Grantor will also, at the request of the Lender, execute and deliver instruments
of assignment of such insurance policies and cause the respective insurers to
acknowledge notice of such assignment.
(ii) Reimbursement under any liability insurance maintained by
the Grantor pursuant to this Section 5(e) may be paid directly to the Person who
shall have incurred liability covered by such insurance. In the case of any loss
involving damage to Equipment or Inventory as to which paragraph (iii) of this
Section 5(e) is not applicable, the Grantor will make or cause to be made the
necessary repairs to or replacements of such Equipment or Inventory, and any
proceeds of insurance maintained by the Grantor pursuant to this Section 5(e)
shall, if received by the Lender, be paid by the Lender to the Grantor as
reimbursement for the costs of such repairs or replacements.
(iii) Upon the occurrence and during the continuance of an
Event of Default or upon the actual or constructive total loss (in excess of
$50,000 per occurrence) of any Equipment or Inventory, all insurance payments in
respect of such Equipment or Inventory shall
9
<PAGE>
be paid to the Lender and applied as specified in Section 7(b) or, in the case
of Inventory, paid to Finova (for such time as any obligations under the Finova
Loan Agreement are outstanding) pursuant to the terms of the Intercreditor
Agreement.
(f) Provisions Concerning the Receivables, the Related Contracts and
----------------------------------------------------------------
the Licenses.
- ------------
(i) The Grantor will (A) give the Lender at least 30 days'
prior written notice of any change in the Grantor's name, or identity or at
least 15 days' prior written notice of any change in the Grantor's
organizational structure, (B) keep its chief place of business and chief
executive office and all originals of all chattel paper which constitute its
Receivables at the location(s) specified therefor in Schedule IV hereto, and (C)
keep adequate records concerning the Receivables and Proceeds and such chattel
paper and permit representatives of the Lender at any time to inspect and make
abstracts from such records and chattel paper in accordance with Section 6.01(f)
of the Term Loan Agreement.
(ii) The Grantor will duly perform and observe all of its
obligations under each Related Contract to which it is a party and, except as
otherwise provided in this subsection (f), continue to collect, at its own
expense, all amounts due or to become due under the Receivables. In connection
with such collections, the Grantor may (and, at the Lender's direction, will)
take such action as the Grantor or the Lender may deem necessary or advisable to
enforce collection or performance of the Receivables; provided, however, that
-------- -------
the Lender shall have the right at any time, upon the occurrence and during the
continuance of a Default or Event of Default to notify the account debtors or
obligors under any such Receivables of the assignment of such Receivables to the
Lender and to direct such account debtors or obligors to make payment of all
amounts due or to become due to the Grantor thereunder directly to the Lender or
its designated agent and, upon such notification and at the expense of the
Grantor and to the extent permitted by law, to enforce collection of any such
Receivables and to adjust, settle or compromise the amount or payment thereof,
in the same manner and to the same extent as the Grantor might have done. After
receipt by the Grantor of a notice from the Lender that the Lender has notified
or intends to notify the account debtor or obligor under any Receivables as
referred to in the proviso to the immediately preceding sentence, then (A) all
amounts and proceeds (including instruments) received by the Grantor in respect
of any Receivables or Proceeds shall be received in trust for the benefit of the
Lender hereunder, shall be segregated from other funds of the Grantor and shall
be forthwith paid over to the Lender in the same form as so received (with any
necessary endorsement) to be applied to the Obligations, and (B) the Grantor
will not adjust, settle or compromise the amount or payment of any Receivable or
release in whole or in part any account debtor or obligor thereof or allow any
credit or discount thereon. In addition, upon the occurrence and during the
continuance of a Default or an Event of Default, the Lender may (in its sole and
absolute discretion) (x) notify the United States Postal Service authorities to
change the address for delivery of mail addressed to the Grantor at such address
as the Lender may designate, and (y) direct any or all of the banks and
financial institutions with which the Grantor either maintains a lockbox,
concentration or deposit account or deposits the proceeds of any Receivable or
any Proceeds to send immediately to the Lender by wire transfer (to such account
as the Lender shall specify, or in such other manner as the Lender shall direct)
all or a portion of such securities, cash, investments and other items held by
such institution. Any
10
<PAGE>
such securities, cash, investments and other items so received by the Lender
shall (in the sole and absolute discretion of the Lender) be held as additional
collateral for the Obligations or distributed in accordance with Section 7
hereof.
(iii) Upon the occurrence and during the continuance of any breach or
default under any Related Contract or any License referred to in Schedule I, II,
or III hereto by any party thereto other than the Grantor, the Grantor (A) will,
promptly after obtaining knowledge of such breach or default, give the Lender
written notice of the nature and duration of such breach or default, specifying
what action, if any, it has taken and proposes to take with respect thereto, (B)
will not, without the prior written consent of the Lender, declare or waive any
such breach or default or affirmatively consent to the cure thereof or exercise
any of its remedies in respect thereof, and (C) will, upon written instructions
from the Lender and at the Grantor's expense, take such action as the Lender may
deem necessary or advisable in respect thereof.
(iv) The Grantor will, at its expense, promptly deliver to the
Lender a copy of each notice or other communication received by it by which any
other party to any Related Contract or any License referred to in Schedule I,
II, or III hereto purports to exercise any of its rights or affect any of its
obligations thereunder, together with a copy of any reply by the Grantor
thereto.
(v) The Grantor will exercise promptly and diligently each and
every right which it may have under each License (other than any right of
termination), will duly perform and observe in all material respects all of its
obligations under each such License, and will take all action necessary to
maintain (or cause to be maintained) the Licenses in full force and effect. The
Grantor will not, without the prior written consent of the Lender, cancel,
terminate, amend or otherwise modify in any respect, or waive any provision of,
any Related Contract or any License referred to in Schedule I, II, or III
hereto.
(vi) If any Receivable includes a charge for any tax payable to any
Governmental Authority, the Lender is hereby authorized (but in no event
obligated) in its discretion to pay the amount thereof to the proper taxing
authority for the account of the Grantor and to charge the Grantor therefor. The
Grantor shall notify the Lender if any Receivable includes any taxes due to any
Governmental Authority and, in the absence of such notice, the Lender shall have
the right to retain any Proceeds that the Lender receives and shall not be
liable for any taxes that may be due from the Grantor.
(g) Transfers and Other Liens.
-------------------------
(i) The Grantor will not sell, assign (by operation of law or
otherwise), lease, exchange or otherwise transfer or dispose of any of the
Collateral except as otherwise expressly provided in Section 6.02(d) of the Term
Loan Agreement.
(ii) The Grantor will not create or suffer to exist any Lien upon or
with respect to any Collateral except for the Liens permitted pursuant to the
terms of the Term Loan Agreement.
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<PAGE>
(h) Trademarks and Patents.
----------------------
(i) The Grantor has duly executed and delivered (or, in the case of
after-acquired Patents and Trademarks, will duly execute and deliver) the
Assignment for Security (Trademarks) and the Assignment of Security (Patents) in
the forms attached hereto as Exhibits A and B respectively. The Grantor (either
itself or through licensees) will, and will cause each licensee thereof to, take
all action necessary to maintain all of its Trademarks and Patents in full force
and effect, including, without limitation, using the proper statutory notices,
markings and using such Trademarks on each applicable trademark class of goods
in order to so maintain such Trademarks in full force free from any claim of
abandonment for non-use, and employing all of its Trademarks and Patents with
appropriate notice of registration, and the Grantor will not (and will not
permit any licensee thereof to) do any act or knowingly omit to do any act
whereby any Trademark may become invalidated; provided, however, that so long as
-------- -------
no Default or Event of Default has occurred and is continuing, the Grantor shall
not have any obligation to use or to maintain any Trademark or Patent (A) that
relates solely to any product that has been, or is in the process of being,
sold, discontinued, abandoned or terminated, (B) that is being replaced with a
trademark or patent substantially similar to the Trademark or Patent that may be
abandoned or otherwise become invalid, so long as such replacement Trademark or
Patent is subject to the Lien created by this Agreement or (C) that is
substantially the same as another Trademark or Patent that is in full force, so
long as such other Trademark or Patent is subject to the Lien created by this
Agreement. The Grantor will cause to be taken all necessary steps in any
proceeding before the United States Patent and Trademark Office to maintain each
registration of its Trademarks and the Patents (other than those Trademarks or
Patents described in the proviso to the immediately preceding sentence),
including, without limitation, filing of renewals, affidavits of use, affidavits
of incontestability and opposition, interference and cancellation proceedings
and payment of taxes. If any Trademark or Patent of the Grantor is infringed,
misappropriated or diluted in any material respect by a third party, the Grantor
shall (x) upon learning of such infringement, misappropriation or dilution,
promptly notify the Lender and (y) to the extent that the Grantor shall deem
appropriate under the circumstances, promptly sue for infringement,
misappropriation or dilution, seek injunctive relief where appropriate and
recover any and all damages for such infringement, misappropriation or dilution,
or take such other actions as the Grantor shall deem appropriate under the
circumstances to protect such Trademark or Patent. The Grantor shall furnish to
the Lender from time to time (but, unless an Event of Default or Default has
occurred and is continuing, no more frequently than quarterly) statements and
schedules further identifying and describing the Patents and the Trademarks and
such other reports in connection with the Patents and the Trademarks as the
Lender may reasonably request, all in reasonable detail, and promptly upon
request of the Lender, following receipt by the Lender of any such statements,
schedules or reports, the Grantor shall modify this Agreement by amending
Schedules II or III hereto, as the case may be, to include any Patent or
Trademark which becomes part of the Collateral under this Agreement.
Notwithstanding anything herein to the contrary, the Grantor may not abandon or
otherwise permit a Trademark or Patent to become invalid without the prior
written consent of the Lender, and if any Trademark or Patent is infringed,
misappropriated or diluted in any material respect by a third party, the Grantor
will take such action as the Lender shall deem appropriate under the
circumstances to protect such Trademark or Patent.
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<PAGE>
(ii) In no event shall the Grantor, either itself or through any
agent, employee, licensee or designee, file an application for the registration
of any trademark or the issuance of any patent with the United States Patent and
Trademark Office, unless it gives the Lender prior written notice thereof. Upon
request of the Lender, the Grantor shall execute and deliver any and all
assignments, agreements, instruments, documents and papers as the Lender may
reasonably request to evidence the Lender's security interest hereunder in such
trademark or patent and the general intangibles of the Grantor relating thereto
or represented thereby, and the Grantor hereby constitutes the Lender its
attorney-in-fact to execute and file all such writings for the foregoing
purposes, all acts of such attorney being hereby ratified and confirmed, and
such power (being coupled with an interest) shall be irrevocable until the
indefeasible repayment of all of the Obligations in full in cash and the
termination of each of the Loan Documents.
(iii) If the Grantor shall at any time own, use or possess the right
to use any registered copyright, the Grantor shall promptly notify the Lender
thereof and shall execute such documents (including any assignment for security
of copyrights to be filed with the United States Copyright Office) and do such
acts as shall be necessary or, in the judgment of the Lender, desirable to
subject such copyrights to the Lien of this Agreement.
(i) Motor Vehicles.
--------------
(i) The Grantor shall deliver to the Lender originals of the
certificates of title or ownership for all Motor Vehicles owned by it with the
Lender listed as lienholder.
(ii) Upon the acquisition after the date hereof by the Grantor of
any Motor Vehicle, the Grantor shall deliver to the Lender originals of the
certificates of title or ownership for such Motor Vehicle, together with the
manufacturer's statement of origin, with the Lender listed as lienholder;
provided, however, if the Motor Vehicle to be acquired is subject to a purchase
money security interest, the Lender shall be listed as a junior lienholder to
the Person holding such purchase money security interest.
(iii) The Grantor hereby appoints the Lender as its attorney-in-fact,
effective the date hereof and terminating upon the termination of this
Agreement, for the purpose of (i) executing on behalf of the Grantor title or
ownership applications for filing with appropriate state agencies to enable
Motor Vehicles now owned or hereafter acquired by the Grantor to be retitled and
the Lender listed as lienholder thereof, (ii) filing such applications with such
state agencies and (iii) executing such other documents and instruments on
behalf of, and taking such other action in the name of, the Grantor as the
Lender may deem necessary or advisable to accomplish the purposes hereof
(including, without limitation, for the purpose of creating in favor of the
Lender a perfected lien on the Motor Vehicles and exercising the rights and
remedies of the Lender hereunder). This appointment as attorney-in-fact is
irrevocable and coupled with an interest.
(iv) Any certificates of title or ownership delivered pursuant to
the terms hereof shall be accompanied by odometer statements for each Motor
Vehicle covered thereby.
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<PAGE>
(v) So long as no Default or Event of Default shall have occurred
and be continuing, upon the request of the Grantor, the Lender shall execute and
deliver to the Grantor such instruments as the Grantor shall reasonably request
to remove the notation of the Lender as lienholder on any certificate of title
for any Motor Vehicle; provided that any such instruments shall be delivered,
and the release effective, only upon receipt by the Lender of a certificate from
the Grantor, stating that the Motor Vehicle the Lien on which is to be released
is to be sold or has suffered a casualty loss (with title thereto passing to the
casualty insurance company therefor in settlement of the claim for such loss)
and any proceeds of such sale or casualty loss in excess of $10,000 being paid
to the Lender hereunder to be applied to the Obligations then outstanding.
(j) Inspection and Reporting. The Grantor shall permit representatives of
------------------------
the Lender, at any time in accordance with Section 6.01(f) of the Term Loan
Agreement, to inspect and make abstracts from its books and records pertaining
to the Collateral, and permit representatives of the Lender to be present at the
Grantor's places of business to receive copies of all communications and
remittances relating to the Collateral, and to forward copies of any notices or
communications received or made by the Grantor with respect to the Collateral,
all in such manner as the Lender may reasonably require.
SECTION 6. Additional Provisions Concerning the Collateral.
-----------------------------------------------
(a) The Grantor hereby authorizes the Lender to file, without the
signature of the Grantor where permitted by law, one or more financing or
continuation statements, and amendments thereto, relating to the Collateral.
(b) The Grantor hereby irrevocably appoints the Lender or its designee on
behalf of the Lender the Grantor's attorney-in-fact and proxy, with full
authority in the place and stead of the Grantor and in the name of the Grantor
or otherwise, from time to time in the Lender's discretion, to take any action
and to execute any instrument which the Lender may deem necessary or advisable
to accomplish the purposes of this Agreement (subject to the rights of the
Grantor under Section 5(f)) including, without limitation, (i) to obtain and
adjust insurance required to be paid to the Lender pursuant to Section 5(e),
(ii) to ask, demand, collect, sue for, recover, compound, receive and give
acquittance and receipts for moneys due and to become due under or in respect of
any Collateral, (iii) to receive, endorse, assign and collect any drafts or
other instruments, documents and chattel paper in connection with clause (i) or
(ii) above, and (iv) to file any claims or take any action or institute any
proceedings which the Lender may deem necessary or desirable for the collection
of any Collateral or otherwise to enforce the rights of the Lender with respect
to any Collateral. All acts of said attorney or designee are hereby ratified and
approved, and said attorney or designee shall not be liable for any acts of
omission or commission (other than acts or omissions constituting gross
negligence or willful misconduct as determined by a final judgment or a court of
competent jurisdiction), nor for any error of judgment or mistake of fact or
law. This power is coupled with an interest and is irrevocable until all of the
Obligations are indefeasibly paid in full in cash.
(c) For the purpose of enabling the Lender to exercise rights and
remedies under this Agreement at such time as the Lender shall be lawfully
entitled to exercise such rights
14
<PAGE>
and remedies, and for no other purpose, the Grantor hereby grants to the Lender,
to the extent assignable, an irrevocable, non-exclusive license (exercisable
without payment of royalty or other compensation to the Grantor) to use, assign,
license or sublicense any of the Patents or Trademarks now owned or hereafter
acquired by the Grantor, wherever the same may be located, including in such
license reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer programs used for the compilation or
printout thereof. Notwithstanding anything contained herein to the contrary, but
subject to the provisions of the Term Loan Agreement and Section 5(h) of this
Agreement, so long as no Default or Event of Default shall have occurred and be
continuing, the Grantor may exploit, use, enjoy, protect, license, sublicense,
assign, sell, dispose of or take other actions with respect to the Patents or
Trademarks in the ordinary course of the business of the Grantor. In furtherance
of the foregoing, unless a Default or an Event of Default shall have occurred
and be continuing the Lender shall from time to time, upon the request of the
Grantor, execute and deliver any instruments, certificates or other documents,
in the form so requested, which the Grantor shall have certified are appropriate
(in its judgment) to allow it to take any action permitted above (including
relinquishment of the license provided pursuant to this clause (c) as to any
Patents or Trademarks). Further, upon the indefeasible payment in full in cash
of all of the Obligations, the Lender (subject to Section 11(e) and the rights
of Finova therein as governed by the Intercreditor Agreement) shall transfer to
the Grantor all of the Lender's right, title and interest in and to the Patents
and Trademarks, and the Licenses, all without recourse, representation and
warranty. The exercise of rights and remedies hereunder by the Lender shall not
terminate the rights of the holders of any licenses or sublicenses theretofore
granted by the Grantor or granted by the Grantor in accordance with the second
sentence of this clause (c). The Grantor hereby releases the Lender from any
claims, causes of action and demands at any time arising out of or with respect
to any actions taken or omitted to be taken by the Lender under the powers of
attorney granted herein other than actions taken or omitted to be taken through
the Lender's gross negligence or willful misconduct, as determined by a final
determination of a court of competent jurisdiction.
(d) If the Grantor fails to perform any agreement contained herein, the
Lender may itself perform, or cause performance of, such agreement or
obligation, in the name of the Grantor or the Lender, and the expenses of the
Lender incurred in connection therewith shall be payable by the Grantor pursuant
to Section 8.
(e) The powers conferred on the Lender hereunder are solely to protect its
interest in the Collateral and shall not impose any duty upon it to exercise any
such powers. Except for the safe custody of any Collateral in its possession and
the accounting for moneys actually received by it hereunder, the Lender shall
have no duty as to any Collateral or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining to any
Collateral.
(f) Anything herein to the contrary notwithstanding (i) the Grantor shall
remain liable under the Related Contracts and Licenses to which it is a party
and otherwise with respect to any of the Collateral to the extent set forth
therein to perform all of its obligations thereunder to the same extent as if
this Agreement had not been executed, (ii) the exercise by the Lender of any of
its rights hereunder shall not release the Grantor from any of its obligations
15
<PAGE>
under the Related Contracts and Licenses or otherwise in respect of the
Collateral, and (iii) the Lender shall not have any obligation or liability by
reason of this Agreement under the Related Contracts and Licenses or with
respect to any of the other Collateral, nor shall the Lender be obligated to
perform any of the obligations or duties of the Grantor thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.
SECTION 7. Remedies Upon Default. If any Event of Default shall have
---------------------
occurred and be continuing:
(a) The Lender may exercise in respect of the Collateral, or any part
thereof, in addition to other rights and remedies provided for herein, in the
Term Loan Agreement or in the Loan Documents or otherwise available to it, all
of the rights and remedies of a secured party in default under the Code (whether
or not the Code applies to the affected Collateral), and also may (i) take
absolute control of the Collateral, including without limitation transfer into
the Lender's name or into the name of its nominee or nominees (to the extent the
Lender has not theretofore done so) and thereafter receive, for the benefit of
the Lender, all payments made thereon, give all consents, waivers and
ratifications in respect thereof and otherwise act with respect thereto as
though it were the outright owner thereof, (ii) require the Grantor to, and the
Grantor hereby agrees that it will at its expense and upon request of the Lender
forthwith, assemble all or part of the Collateral as directed by the Lender and
make it available to the Lender at a place or places to be designated by the
Lender which is reasonably convenient to both parties, and the Lender may enter
into and occupy any premises owned or leased by the Grantor where the Collateral
or any part thereof is located or assembled for a reasonable period in order to
effectuate the Lender's rights and remedies hereunder or under law, without
obligation to the Grantor in respect of such occupation, and (iii) without
notice, except as specified below, sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any of the Lender's offices or
elsewhere, for cash, on credit or for future delivery, and at such price or
prices and upon such other terms as the Lender may deem commercially reasonable.
The Grantor agrees that, to the extent notice of sale shall be required by law,
at least 10 days' notice to the Grantor of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. The Lender shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Lender may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. The Grantor hereby waives any
claims against the Lender arising by reason of the fact that the price at which
the Collateral may have been sold at a private sale was less than the price
which might have been obtained at a public sale or was less than the aggregate
amount of the Obligations, even if the Lender accepts the first offer received
and does not offer the Collateral to more than one offeree and waives all rights
which the Grantor may have to require that all or any part of the Collateral be
marshalled upon any sale (public or private) thereof. In addition to the
foregoing, (i) upon written notice from the Lender, the Grantor shall cease any
use of the Trademarks or any mark similar thereto for any purpose described in
such notice; (ii) the Lender may, at any time and from time to time, upon 10
days' prior notice to the Grantor, license, whether general, special or
otherwise, and whether on an exclusive or non-exclusive basis, any of the
Trademarks and Patents of the Grantor, throughout the world for such term or
terms, on such conditions, and in such manner, as the Lender shall in its sole
discretion determine; and (iii) the Lender may, at any time, pursuant to the
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<PAGE>
authority granted in Section 6 (such authority being effective upon the
occurrence of a Default or an Event of Default), execute and deliver on behalf
of the Grantor, one or more instruments of assignment of the Trademarks and
Patents (or any application or registration thereof), in form suitable for
filing, recording or registration in any country.
(b) Any cash held by the Lender as Collateral and all proceeds received by
the Lender in respect of any sale or collection from, or other realization upon,
all or any part the Collateral, after payment from such proceeds of the Lender's
out-of-pocket costs and expenses in connection with such sale, including,
without limitation reasonable attorneys' fees and expenses, may, in the
discretion of the Lender, be held by the Lender as collateral for, and/or then
or at any time thereafter applied in whole or in part by the Lender against, all
or any part of the Obligations in such manner as the Lender may elect in its
sole discretion.
(c) In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the Lender are legally
entitled, the Grantor shall be liable for the deficiency, together with interest
thereon at the Post-Default Rate or such other rate as shall be fixed by
applicable law, together with the costs of collection and the reasonable fees,
costs, expenses and other client charges of any attorneys employed by the Lender
to collect such deficiency.
(d) The Lender may at any time and from time to time employ and maintain
in the premises of the Grantor one or more custodians selected by the Lender who
shall have full authority to do all acts necessary or desirable to protect the
Lender's interests hereunder. The Grantor hereby agrees to cooperate with any
such custodian and to do whatever the Lender may reasonably request to preserve
the Collateral. All costs and expenses incurred by the Lender, by reason of the
employment of the custodian, shall be payable by the Grantor pursuant to Section
8.
SECTION 8. Indemnity and Expenses.
----------------------
(a) The Grantor agrees to indemnify and hold the Lender harmless from and
against any and all claims, damages, losses, liabilities, obligations,
penalties, costs or expenses (including, without limitation, reasonable legal
fees, costs, expenses and other client charges) to the extent that they arise
out of or otherwise result from this Agreement (including, without limitation,
enforcement of this Agreement), except claims, losses or liabilities resulting
solely and directly from the Lender's gross negligence or willful misconduct as
determined by a final determination of a court of competent jurisdiction.
(b) Without limiting the generality of the foregoing, the Grantor will
upon demand pay to the Lender (i) the amount of any and all costs and expenses,
including the reasonable fees, costs, expenses and other client charges of
counsel for the Lender and of any experts and agents (including, without
limitation, any Person which may act as agent of the Lender), which the Lender
may incur in connection with (A) the preparation, negotiation, execution,
delivery, recordation, administration, amendment, waiver or other modification
or termination of this Agreement, or (B) the custody, preservation, use or
operation of the Collateral and (ii) the amount of any and all costs and
expenses, including the reasonable fees, costs, expenses and other client
charges of counsel for the Lender and of any experts and agents
17
<PAGE>
(including, without limitation, any Person which may act as agent of the
Lender), which the Lender may incur in connection with (A) the sale of,
collection from, or other realization upon, any Collateral, (B) the exercise or
enforcement of any of the rights of the Lender hereunder, or (C) the failure by
the Grantor to perform or observe any of the provisions hereof.
SECTION 9. Notices, Etc. All notices and other communications provided
------------
for hereunder shall be in writing and shall be mailed, telecopied or delivered,
if to the Grantor, to it at the address specified in the Term Loan Agreement;
and if to the Lender, to it at its address specified in the Term Loan Agreement;
or as to any such Person at such other address as shall be designated by such
Person in a written notice to such other person complying as to delivery with
the terms of this Section 9. All such notices and other communications shall be
effective (i) if mailed, when received or five days after deposited in the mail,
whichever occurs earlier (ii) if telecopied, when transmitted and confirmation
received, or (iii) if delivered, upon delivery.
SECTION 10. Security Interest Absolute. All rights of the Lender, all
--------------------------
security interests and all obligations of the Grantor hereunder shall be
absolute and unconditional irrespective of: (i) any lack of validity or
enforceability of the Term Loan Agreement or any other agreement or instrument
relating thereto, (ii) any change in the time, manner or place of payment of, or
in any other term in respect of, all or any of the Obligations, or any other
amendment or waiver of or consent to any departure from the Term Loan Agreement
or any other agreement or instrument relating thereto, (iii) any exchange or
release of, or non-perfection of any Lien on any Collateral, or any release or
amendment or waiver of or consent to departure from any guaranty, for all or any
of the Obligations, or (iv) any other circumstance which might otherwise
constitute a defense available to, or a discharge of, the Grantor in respect of
the Obligations.
SECTION 11. Miscellaneous.
-------------
(a) No amendment of any provision of this Agreement shall be effective
unless it is in writing and signed by the Grantor and the Lender, and no waiver
of any provision of this Agreement, and no consent to any departure by the
Grantor therefrom, shall be effective unless it is in writing and signed by the
Lender, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
(b) No failure on the part of the Lender to exercise, and no delay in
exercising, any right hereunder or under any other Loan Document shall operate
as a waiver thereof; nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right. The rights and remedies of the Lender provided herein and in the other
Loan Documents are cumulative and are in addition to, and not exclusive of, any
rights or remedies provided by law. The rights of the Lender under any Loan
Document against any party thereto are not conditional or contingent on any
attempt by the Lender to exercise any of its rights under any other Loan
Document against such party or against any other Person.
(c) Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
portions hereof or thereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
18
<PAGE>
(d) This Agreement shall create a continuing security interest in the
Collateral and shall (i) remain in full force and effect until the Obligations
have been indefeasibly paid in full in cash; and (ii) be binding on the Grantor
and its successors and assigns, except that the Grantor may not assign or
transfer any of its rights hereunder without the prior written consent of the
Lender, and shall inure, together with all rights and remedies of the Lender
hereunder, to the benefit of the Lender and its permitted successors,
transferees and assigns. Without limiting the generality of clause (ii) of the
immediately preceding sentence, without notice to the Grantor, the Lender may
assign or otherwise transfer its rights under this Agreement and any other Loan
Document, to any other Person pursuant to the terms of the Term Loan Agreement
and such other Person shall thereupon become vested with all of the benefits in
respect thereof granted to the Lender herein or otherwise. Upon any such
assignment or transfer, all references in this Agreement to the Lender shall
mean the assignee of the Lender. None of the rights or obligations of the
Grantor hereunder may be assigned or otherwise transferred without the prior
written consent of the Lender, and any such assignment or transfer shall be null
and void.
(e) Upon the indefeasible satisfaction in full of the Obligations in cash,
and subject to the interests of Finova as governed by the Intercreditor
Agreement (i) this Agreement and the security interests created hereby shall
terminate and all rights to the Collateral shall revert to the Grantor and (ii)
the Lender will, upon the Grantor's request and at the Grantor's expense, (A)
return to the Grantor such of the Collateral as shall not have been sold or
otherwise disposed of or applied pursuant to the terms hereof and (B) execute
and deliver to the Grantor such documents as the Grantor shall reasonably
request to evidence such termination, all without any representation, warranty
or recourse whatsoever.
(f) This Agreement shall be governed by and construed in accordance with
the law of the State of New York, except to the extent that the validity and
perfection or the perfection and the effect of perfection or non-perfection of
the security interest created hereby, or remedies hereunder, in respect of any
particular Collateral are governed by the law of a jurisdiction other than the
State of New York.
(g) The security interests and priorities contained hereunder are to be
read and understood to be consistent with the Intercreditor Agreement between
the Lender and Finova dated as of December ___ , 1997. Such Intercreditor
Agreement shall govern the security interests in the "Collateral" (as defined in
the Intercreditor Agreement) created for the benefit of the Lender and Finova.
(h) This Agreement supersedes all prior understandings and agreements,
whether written or oral, among the parties hereto relating to the transactions
provided for herein.
(i) All representations and warranties of the Grantor contained herein or
made in connection herewith shall survive the making of and shall not be waived
by the execution and delivery of this Agreement, the Term Loan Agreement or any
other Loan Document, any investigation by the Lender or the making of the Loan.
All covenants and agreements of the Grantor contained herein shall continue in
full force and effect from and after the date hereof until the indefeasible
payment in full in cash of the Obligations.
19
<PAGE>
(j) Section headings in this Agreement are included herein for the
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
(k) This Agreement may be executed in any number of counterparts and by
the different parties hereto on separate counterparts each of which, when so
executed, shall be deemed an original, but all such counterparts shall
constitute but one and the same instrument.
(l) BY ITS EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE GRANTOR
AND THE LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS
IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT, THE TERM LOAN
AGREEMENT, THE TERM NOTE OR ANY OTHER LOAN DOCUMENT, ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE LENDER OR THE GRANTOR
IN CONNECTION HEREWITH OR THEREWITH. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
THE LENDER TO ENTER INTO THIS AGREEMENT.
20
<PAGE>
IN WITNESS WHEREOF, the Grantor has caused this Agreement to be
executed and delivered by its respective officers thereunto duly authorized as
of the date first above written.
OVERHILL FARMS, INC.
By:
----------------------------------
Name:
Title:
21
<PAGE>
Schedule I
RELATED CONTRACTS
<PAGE>
Schedule II
TRADEMARKS
AND
TRADEMARK LICENSES
<PAGE>
Schedule III
PATENTS AND PATENT LICENSES
<PAGE>
Schedule IV
ADDRESS OF GRANTOR
Chief Place of Business,
Chief Executive Office
A. and Location of Records
-----------------------
B. Locations of
Equipment and Inventory
-----------------------
<PAGE>
Schedule V
TRADENAMES
<PAGE>
Schedule VI
UCC-1 FINANCING STATEMENTS
UCC-1 Financing Statements are being filed in the following jurisdictions
against the Grantor:
. Secretary of State of California
. Los Angeles County, California
. Los Angeles County, California (fixture filing)
. Secretary of State of Nevada
<PAGE>
EXHIBIT A
ASSIGNMENT FOR SECURITY
-----------------------
(TRADEMARKS)
----------
WHEREAS, Overhill Farms, Inc. (the "Assignor") has adopted, used and
is using the trademarks and service marks listed on the annexed Schedule 1A,
which trademarks and service marks are registered or applied for in the United
States Patent and Trademark Office (the "Trademarks");
WHEREAS, the Assignor has entered into a Security Agreement dated as
of December __, 1997 (the "Security Agreement") in favor of The Long Horizons
Fund, L.P. (the "Assignee");
WHEREAS, pursuant to the Security Agreement, the Assignor has assigned
to the Assignee and granted to the Assignee a security interest in all right,
title and interest of the Assignor in, to and under the Trademarks together with
the good-will of the business symbolized by the Trademarks and the applications
and restrictions thereof, and all proceeds thereof, including, without
limitation, any and all causes of action which may exist by reason of
infringement thereof (the "Collateral"), to secure the payment, performance and
observance of the Obligations (as defined in the Security Agreement);
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, the Assignor does hereby convey, sell, assign, transfer
and set over unto the Assignee and grant to the Assignee a security interest in
the Collateral to secure the prompt payment, performance and observance of the
Obligations.
The Assignor does hereby further acknowledge and affirm that the
rights and remedies of the Assignee with respect to the Collateral are more
fully set forth in the Security Agreement, the terms and provisions of which are
hereby incorporated herein by reference as if fully set forth herein.
IN WITNESS WHEREOF, the Assignor has caused this Assignment to be duly
executed by its officer thereunto duly authorized as of December __, 1997.
OVERHILL FARMS, INC.
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE>
STATE OF ___________
ss.:
COUNTY OF __________
On this ____ day of _______________, 1997, before me personally came
________________, to me known to be the person who executed the foregoing
instrument, and who, being duly sworn by me, did depose and say that he is the
________________ of Overhill Farms, Inc., a Nevada corporation, and that he
executed the foregoing instrument in the firm name of Overhill Farms, Inc., and
that he had authority to sign the same, and he acknowledged to me that he
executed the same as the act and deed of said firm for the uses and purposes
therein mentioned.
-------------------------------
<PAGE>
SCHEDULE 1A TO ASSIGNMENT FOR SECURITY
(TRADEMARKS AND TRADEMARK APPLICATIONS)
-------------------------------------
<PAGE>
EXHIBIT B
ASSIGNMENT FOR SECURITY
-----------------------
(PATENTS)
-------
WHEREAS, Overhill Farms, Inc. (the "Assignor") holds all right, title
and interest in the letter patents, design patents and utility patents listed on
the annexed Schedule 1A, which patents are issued or applied for in the United
States Patent and Trademark Office (the "Patents");
WHEREAS, the Assignor, has entered into a Security Agreement dated as
of December __, 1997 (the "Security Agreement") in favor of The Long Horizons
Fund, L.P. (the "Assignee");
WHEREAS, pursuant to the Security Agreement, the Assignor has assigned
to the Assignee and granted to the Assignee a security interest in all right,
title and interest of the Assignor in, to and under the Patents and the
applications and registrations thereof, and all proceeds thereof, including,
without limitation, any and all causes of action which may exist by reason of
infringement thereof (the "Collateral"), to secure the payment, performance and
observance of the Obligations (as defined in the Security Agreement);
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, the Assignor does hereby convey, sell, assign, transfer
and set over unto the Assignee and grants to the Assignee a security interest in
the Collateral to secure the prompt payment, performance and observance of the
Obligations.
The Assignor does hereby further acknowledge and affirm that the
rights and remedies of the Assignee with respect to the Collateral are more
fully set forth in the Security Agreement, the terms and provisions of which are
hereby incorporated herein by reference as if fully set forth herein.
IN WITNESS WHEREOF, the Assignor has caused this Assignment to be duly
executed by its officer thereunto duly authorized as of December __, 1997.
OVERHILL FARMS, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE>
STATE OF ____________
ss.:
COUNTY OF ____________
On this ____ day of December, 1997, before me personally came
________________, to me known to be the person who executed the foregoing
instrument, and who, being duly sworn by me, did depose and say that he is the
________________ of Overhill Farms, Inc., a Nevada corporation, and that he
executed the foregoing instrument in the firm name of Overhill Farms, Inc., and
that he had authority to sign the same, and he acknowledged to me that he
executed the same as the act and deed of said firm for the uses and purposes
therein mentioned.
-----------------------------
<PAGE>
SCHEDULE 1A TO ASSIGNMENT FOR SECURITY
(PATENTS AND PATENT APPLICATIONS)
-------------------------------
<PAGE>
Exhibit 10.66
ASSIGNMENT FOR SECURITY
-----------------------
(TRADEMARKS)
----------
WHEREAS, Overhill Farms, Inc. (the "Assignor") has adopted, used and
is using the trademarks and service marks listed on the annexed Schedule 1A,
which trademarks and service marks are registered or applied for in the United
States Patent and Trademark Office (the "Trademarks");
WHEREAS, the Assignor has entered into a Security Agreement dated as
of December __, 1997 (the "Security Agreement") in favor of The Long Horizons
Fund, L.P. (the "Assignee");
WHEREAS, pursuant to the Security Agreement, the Assignor has assigned
to the Assignee and granted to the Assignee a security interest in all right,
title and interest of the Assignor in, to and under the Trademarks together with
the good-will of the business symbolized by the Trademarks and the applications
and restrictions thereof, and all proceeds thereof, including, without
limitation, any and all causes of action which may exist by reason of
infringement thereof (the "Collateral"), to secure the payment, performance and
observance of the Obligations (as defined in the Security Agreement);
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, the Assignor does hereby convey, sell, assign, transfer
and set over unto the Assignee and grant to the Assignee a security interest in
the Collateral to secure the prompt payment, performance and observance of the
Obligations.
The Assignor does hereby further acknowledge and affirm that the
rights and remedies of the Assignee with respect to the Collateral are more
fully set forth in the Security Agreement, the terms and provisions of which are
hereby incorporated herein by reference as if fully set forth herein.
IN WITNESS WHEREOF, the Assignor has caused this Assignment to be duly
executed by its officer thereunto duly authorized as of December __, 1997.
OVERHILL FARMS, INC.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
<PAGE>
STATE OF ___________
ss.:
COUNTY OF __________
On this ____ day of _______________, 1997, before me personally came
________________, to me known to be the person who executed the foregoing
instrument, and who, being duly sworn by me, did depose and say that he is the
________________ of Overhill Farms, Inc., a Nevada corporation, and that he
executed the foregoing instrument in the firm name of Overhill Farms, Inc., and
that he had authority to sign the same, and he acknowledged to me that he
executed the same as the act and deed of said firm for the uses and purposes
therein mentioned.
-------------------------------------------
<PAGE>
SCHEDULE 1A TO ASSIGNMENT FOR SECURITY
(TRADEMARKS AND TRADEMARK APPLICATIONS)
-------------------------------------
<PAGE>
EXHIBIT 10.67
EXHIBIT C
---------
FORM OF PLEDGE AND SECURITY AGREEMENT
-------------------------------------
PLEDGE AND SECURITY AGREEMENT dated as of December __, 1997, made by
Polyphase Corporation, a Nevada Corporation (the "Pledgor"), in favor of The
Long Horizons Fund, L.P. (the "Lender") in order to induce the Lender to enter
into a Term Loan Agreement with Overhill Farms, Inc. (the "Borrower").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrower, the Pledgor, as guarantor, and the Lender are
parties to a Term Loan Agreement, dated as of the date hereof, (such agreement,
as amended, restated, supplemented or otherwise modified from time to time,
being hereafter referred to as the "Term Loan Agreement");
WHEREAS, pursuant to the Term Loan Agreement, the Lender has agreed to make
a term loan (the "Loan") to the Borrower the proceeds of which are to be used
for the purposes therein stated;
WHEREAS, it is a condition precedent to the effectiveness of the Term Loan
Agreement and the Lender's making and maintaining the Loan to the Borrower, that
the Pledgor shall have executed and delivered to the Lender a pledge and
security agreement providing for the pledge to the Lender, and a grant to the
Lender a security interest in, all outstanding shares of capital stock from time
to time owned by the Pledgor of shares in the Borrower; and
WHEREAS, the Pledgor has determined that the execution, delivery, and
performance of this Agreement is in the best interest of the Pledgor.
NOW, THEREFORE, in consideration of the promises and the agreements herein,
the sufficiency of which is hereby acknowledged, and in order to induce the
Lender to make the Loan pursuant to the Term Loan Agreement, the Pledgor hereby
agrees with the Lender as follows:
SECTION 1. Definitions. Reference is hereby made to the Term Loan
-----------
Agreement for a statement of the terms thereof. All terms used in this Agreement
which are defined in the Term Loan Agreement or in Article 8 or Article 9 of the
Uniform Commercial Code (the "Code") currently in effect in the State of New
York and which are not otherwise defined herein shall have the same meanings
herein as set forth therein.
SECTION 2. Pledge and Grant of Security Interest. As collateral security
-------------------------------------
for all of the Obligations (as defined in Section 3 hereof), the Pledgor hereby
pledges and assigns to the Lender, and grants to the Lender a continuing
security interest in, the following (the "Pledged Collateral"):
<PAGE>
(a) the indebtedness described in Schedule I hereto and all
indebtedness from time to time required to be pledged to the Lender pursuant to
the terms of this Agreement or the Term Loan Agreement (the "Pledged Debt"), the
promissory notes and other instruments evidencing the Pledged Debt and all
interest, cash, instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the Pledged Debt;
(b) the shares of stock described in Schedule II hereto (the
"Pledged Shares") issued by the corporations described in such Schedule II (such
corporations, together with any successor corporations, being hereafter referred
to collectively as the "Issuers" and individually as an "Issuer"), the
certificates representing the Pledged Shares, all options and other rights,
contractual or otherwise, in respect thereof (including, without limitation, any
registration rights) and all dividends, cash, instruments and other property
(including but not limited to, any stock dividend and any distribution in
connection with a stock split) from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Pledged
Shares;
(c) all additional shares of stock, from time to time acquired by
the Pledgor, of any Issuer, the certificates representing such additional
shares, all options and other rights, contractual or otherwise, in respect
thereof and all dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of or in exchange
for any or all of such additional shares; and
(e) all proceeds of any and all of the foregoing;
in each case, howsoever its interest therein may arise or appear (whether by
ownership, security interest, claim or otherwise).
SECTION 3. Security for Obligations. The security interest created hereby
------------------------
in the Pledged Collateral constitutes continuing collateral security for all of
the following obligations, whether now existing or hereafter incurred (the
"Obligations"):
(a) the prompt payment by the Borrower and the Pledgor, as and when
due and payable, of all amounts from time to time owing by the Borrower or the
Pledgor to the Lender in respect of the Term Loan Agreement (including, without
limitation, Article VII thereof) and all other Loan Documents, including,
without limitation, principal of and interest on the Term Loan (including,
without limitation, all interest that accrues after the commencement of any
case, proceeding or other action relating to bankruptcy, insolvency or
reorganization of the Borrower or the Guarantor whether or not the payment of
such interest is unenforceable or is not allowable due to the existence of such
case, proceeding or other action), all fees, commissions, expense
reimbursements, indemnifications and all other amounts due or to become due
under the Term Loan Agreement and any other Loan Document; and
(b) the due performance and observance by each of the Borrower and
the Pledgor of all of their other obligations from time to time existing in
respect of the Term Loan Agreement and all other Loan Documents.
2
<PAGE>
SECTION 4. Delivery of the Pledged Collateral.
----------------------------------
(a) All promissory notes currently evidencing the Pledged Debt and
all certificates currently representing the Pledged Shares shall be delivered to
the Lender on or prior to the execution and delivery of this Agreement. All
other promissory notes, certificates and instruments constituting Pledged
Collateral from time to time or required to be pledged to the Lender pursuant to
the terms of this Agreement and the Term Loan Agreement, (the "Additional
Collateral") shall be promptly delivered to the Lender, but in no event later
than five (5) Business Days of receipt thereof by or on behalf of the Pledgor.
All such promissory notes, certificates and instruments shall be held by or on
behalf of the Lender pursuant hereto and shall be delivered in suitable form for
transfer by delivery or shall be accompanied by duly executed instruments of
transfer or assignment or undated stock powers (with signature medallion
guaranteed) executed in blank, all in form and substance reasonably satisfactory
to the Lender. Within five (5) Business Days of the receipt by the Pledgor of
the Additional Collateral, a Pledge Amendment, duly executed by the Pledgor, in
substantially the form of Annex I hereto (a "Pledge Amendment") shall be
delivered to the Lender, in respect of the Additional Collateral which are to be
pledged pursuant to this Agreement and the Term Loan Agreement, which Pledge
Amendment shall from and after delivery thereof constitute part of Schedules I
and II hereto. The Pledgor hereby authorizes the Lender to attach each Pledge
Amendment to this Agreement and agrees that all promissory notes, certificates
or instruments listed on any Pledge Amendment delivered to the Lender shall for
all purposes hereunder constitute Pledged Collateral and the Pledgor shall be
deemed upon delivery thereof to have made the representations and warranties set
forth in Section 5 with respect to such Additional Collateral.
(b) If the Pledgor shall receive, by virtue of its being or having
been an owner of any Pledged Collateral, any (i) stock certificate (including,
without limitation, any certificate representing a stock dividend or
distribution in connection with any increase or reduction of capital,
reclassification, merger, consolidation, sale of assets, combination of shares,
stock split, spin-off or split-off), promissory note or other instrument, (ii)
option or right, whether as an addition to, substitution for, or in exchange
for, any Pledged Collateral, or otherwise, (iii) dividends payable in cash
(except such dividends permitted to be retained by the Pledgor pursuant to
Section 7 hereof) or in securities or other property or (iv) dividends or other
distributions in connection with a partial or total liquidation or dissolution
or in connection with a reduction of capital, capital surplus or paid-in
surplus, the Pledgor shall receive such stock certificate, promissory note,
instrument, option, right, payment or distribution in trust for the benefit of
the Lender, shall segregate it from the Pledgor's other property and shall
deliver it forthwith to the Lender in the exact form received, with any
necessary endorsement and/or appropriate stock powers duly executed in blank, to
be held by the Lender as Pledged Collateral and as further collateral security
for the Obligations.
SECTION 5. Representations and Warranties. The Pledgor hereby represents
------------------------------
and warrants as follows:
(a) The Pledged Shares have been duly authorized and validly
issued, are fully paid and nonassessable and, except as noted in Schedule II
hereto, constitute 100% of the issued shares of capital stock of the Issuer
which is owned by the Pledgor as of the date hereof. All other
3
<PAGE>
shares of stock constituting Pledged Collateral will be duly authorized and
validly issued, fully paid and nonassessable.
(b) The promissory notes currently evidencing the Pledged Debt have
been, and all other promissory notes from time to time evidencing Pledged Debt,
when executed and delivered, will have been, duly authorized, executed and
delivered by the respective makers thereof, and all such promissory notes are or
will be, as the case may be, legal, valid and binding obligations of such
makers, enforceable against such makers in accordance with their respective
terms.
(c) The Pledgor is and will be at all times the legal and
beneficial owner of its Pledged Collateral free and clear of any Lien except for
the Lien created by this Agreement and the Liens permitted pursuant to the Term
Loan Agreement.
(d) The exercise by the Lender of any of its rights and remedies in
accordance with the terms of this Agreement will not contravene law or any
material contractual restriction binding on or affecting the Pledgor or any of
its properties and will not result in or require the creation of any Lien upon
or with respect to any of its properties other than pursuant to this Agreement
and the other Loan Documents.
(e) No authorization or approval or other action by, and no notice
to or filing with, any Governmental Authority or other regulatory body is
required to be obtained or made by the Pledgor for (i) the due execution,
delivery and performance by the Pledgor of this Agreement, (ii) the grant by the
Pledgor, or the perfection, of the security interest purported to be created
hereby in the Pledged Collateral or (iii) the exercise by the Lender of any of
its rights and remedies hereunder, except as may be required in connection with
any sale of any Pledged Collateral by laws affecting the offering and sale of
securities generally.
(f) This Agreement creates a valid security interest in favor of
the Lender in the Pledged Collateral, as security for the Obligations. The
Lender's having possession of the promissory notes evidencing the Pledged Debt,
the certificates representing the Pledged Shares and all other certificates,
instruments and cash constituting Pledged Collateral from time to time results
in the perfection of such security interest. Such security interest is, or in
the case of Pledged Collateral in which the Pledgor obtains rights after the
date hereof, will be, a perfected, first priority security interest, subject
only to the Liens permitted by the Term Loan Agreement. All action necessary or
desirable to perfect and protect such security interest has been duly taken,
except for the Lender's having possession of certificates, instruments and cash
constituting Pledged Collateral after the date hereof.
SECTION 6. Covenants as to the Pledged Collateral. So long as any
--------------------------------------
Obligations shall remain outstanding, the Pledgor will, unless the Lender shall
otherwise consent in writing:
(a) keep adequate records concerning the Pledged Collateral and
permit the Lender or any agents or representatives thereof at any time or from
time to time to examine and make copies of and abstracts from such records;
4
<PAGE>
(b) at the Pledgor's expense, promptly deliver to the Lender a copy
of each material notice or other communication received by it in respect of the
Pledged Collateral;
(c) at the Pledgor's expense, defend the Lender's right, title and
security interest in and to the Pledged Collateral against the claims of any
Person;
(d) at the Pledgor's expense, at any time and from time to time,
promptly execute and deliver all further instruments and documents and take all
further action that may be necessary or that the Lender may reasonably request
in order to (i) perfect and protect the security interest purported to be
created hereby, (ii) enable the Lender to exercise and enforce its rights and
remedies hereunder in respect of the Pledged Collateral or (iii) otherwise
effect the purposes of this Agreement, including, without limitation, delivering
to the Lender, after the occurrence and during the continuation of an Event of
Default, irrevocable proxies in respect of the Pledged Collateral;
(e) not sell, assign (by operation of law or otherwise), exchange
or otherwise dispose of any Pledged Collateral or any interest therein except as
permitted by the Term Loan Agreement;
(f) not create or suffer to exist any Lien upon or with respect to
any Pledged Collateral except for the Lien created hereby or pursuant to any
other Loan Document or otherwise permitted pursuant to the Term Loan Agreement;
(g) not make or consent to any amendment or other modification or
waiver with respect to any Pledged Collateral or enter into any agreement or
permit to exist any restriction with respect to any Pledged Collateral other
than pursuant hereto or to the other Loan Documents without providing notice to
the Lender;
(h) not permit the issuance of (i) any additional shares of any
class of capital stock of any Issuer, (ii) any securities convertible
voluntarily by the holder thereof or automatically upon the occurrence or non-
occurrence of any event or condition into, or exchangeable for, any such shares
of capital stock or (iii) any warrants (other than those permitted under the
Term Loan Agreement), options, contracts or other commitments entitling any
Person to purchase or otherwise acquire any such shares of capital stock; and
(i) not take or fail to take any action which would in any manner
impair the value or enforceability of the Lender's security interest in any
Pledged Collateral.
SECTION 7. Voting Rights, Dividends, Etc. in Respect of the Pledged
--------------------------------------------------------
Collateral.
- ----------
(a) So long as no Default or Event of Default shall have occurred
and be continuing:
(i) the Pledgor may exercise any and all voting and other
consensual rights pertaining to any Pledged Collateral for any purpose not
inconsistent with the terms of this Agreement or the other Loan Documents;
provided, however, that (A) the Pledgor will not
- -------- -------
5
<PAGE>
exercise or refrain from exercising any such right, as the case may be, if the
Lender gives it notice that, in the Lender's reasonable judgment, such action
would have a material adverse effect on the value of any Pledged Collateral and
(B) the Pledgor will give the Lender at least five Business Days' notice of the
manner in which it intends to exercise, or the reasons for refraining from
exercising, any such right;
(ii) the Pledgor may receive and retain any and all dividends
or interest paid in respect of the Pledged Collateral to the extent permitted by
the Term Loan Agreement; provided, however, that any and all (A) dividends and
-------- -------
interest paid or payable other than in cash in respect of, and instruments and
other property received, receivable or otherwise distributed in respect of or in
exchange for, any Pledged Collateral, (B) dividends and other distributions paid
or payable in cash in respect of any Pledged Collateral in connection with a
partial or total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in surplus, and (C) cash paid, payable or
otherwise distributed in redemption of, or in exchange for, any Pledged
Collateral, together with any dividend or interest payment which at the time of
such payment was not permitted by the Term Loan Agreement, shall be, and shall
forthwith be delivered to the Lender to hold as, Pledged Collateral and shall,
if received by the Pledgor, be received in trust for the benefit of the Lender,
shall be segregated from the other property or funds of the Pledgor, and shall
be forthwith delivered to the Lender in the exact form received with any
necessary endorsement and/or appropriate stock powers duly executed in blank, to
be held by the Lender as Pledged Collateral and as further collateral security
for the Obligations; and
(iii) the Lender will execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other instruments as
the Pledgor may reasonably request for the purpose of enabling the Pledgor to
exercise the voting and other rights which it is entitled to exercise pursuant
to paragraph (i) of this Section 7(a) and to receive the dividends and/or
interest which it is authorized to receive and retain pursuant to paragraph (ii)
of this Section 7(a).
(b) Upon the occurrence and during the continuance of a Default or
an Event of Default:
(i) all rights of the Pledgor to exercise the voting and
other consensual rights which it would otherwise be entitled to exercise
pursuant to paragraph (i) of subsection (a) of this Section 7, and to receive
the dividends and interest payments which it would otherwise be authorized to
receive and retain pursuant to paragraph (ii) of subsection (a) of this Section
7, shall cease, and all such rights shall thereupon become vested in the Lender
which shall thereupon have the sole right to exercise such voting and other
consensual rights and to receive and hold as Pledged Collateral such dividends
and interest payments;
(ii) the Lender is authorized to notify each debtor with
respect to the Pledged Debt to make payment directly to the Lender and may
collect any and all moneys due or to become due to the Pledgor in respect of the
Pledged Debt and the Pledgor hereby authorizes each such debtor to make such
payment directly to the Lender without any duty of inquiry;
(iii) without limiting the generality of the foregoing, the
Lender may at its option exercise any and all rights of conversion, exchange,
subscription or any other rights,
6
<PAGE>
privileges or options pertaining to any of the Pledged Collateral as if it were
the absolute owner thereof, including, without limitation, the right to
exchange, in its discretion, any and all of the Pledged Collateral upon the
merger, consolidation, reorganization, recapitalization or other adjustment of
any Issuer, or upon the exercise by any Issuer of any right, privilege or option
pertaining to any Pledged Collateral, and, in connection therewith, to deposit
and deliver any and all of the Pledged Collateral with any committee,
depository, transfer agent, registrar or other designated agent upon such terms
and conditions as it may determine; and
(iv) all dividends and interest payments which are received by
the Pledgor contrary to the provisions of paragraph (i) of this Section 7(b)
shall be received in trust for the benefit of the Lender, shall be segregated
from other funds of the Pledgor, and shall be forthwith paid over to the Lender
as Pledged Collateral in the exact form received with any necessary endorsement
and/or appropriate stock powers duly executed in blank, to be held by the Lender
as Pledged Collateral and as further collateral security for the Obligations.
SECTION 8. Additional Provisions Concerning the Pledged Collateral.
-------------------------------------------------------
(a) The Pledgor hereby authorizes the Lender to file, without the
signature of the Pledgor where permitted by law, one or more financing or
continuation statements, and amendments thereto, relating to the Pledged
Collateral.
(b) The Pledgor hereby irrevocably appoints the Lender the Pledgor'
s attorney-in-fact and proxy, with full authority in the place and stead of the
Pledgor and in the name of the Pledgor or otherwise, from time to time in the
Lender's discretion exercised reasonably, to take any action and to execute any
instrument which the Lender may deem necessary or advisable to accomplish the
purposes of this Agreement (subject to the rights of the Pledgor under Section
7(a) hereof), including, without limitation, to receive, endorse and collect all
instruments made payable to the Pledgor representing any dividend, interest
payment or other distribution in respect of any Pledged Collateral and to give
full discharge for the same.
(c) If the Pledgor fails to perform any agreement or obligation
contained herein, the Lender itself may perform, or cause performance of, such
agreement or obligation, and the expenses of the Lender incurred in connection
therewith shall be payable by the Pledgor pursuant to Section 10 hereof.
(d) Other than the exercise of reasonable care to assure the safe
custody of the Pledged Collateral while held hereunder, the Lender shall have no
duty or liability to preserve rights pertaining thereto and shall be relieved of
all responsibility for the Pledged Collateral upon surrendering it or tendering
surrender of it to the Pledgor. The Lender shall be deemed to have exercised
reasonable care in the custody and preservation of the Pledged Collateral in its
possession if the Pledged Collateral is accorded treatment substantially equal
to that which the Lender accords its own property, it being understood that the
Lender shall not have responsibility for (i) ascertaining or taking action with
respect to calls, conversions, exchanges, maturities, tenders or other matters
relating to any Pledged Collateral, whether or not the Lender has or is deemed
to have knowledge of such matters, or (ii) taking any necessary steps to
preserve rights against any parties with respect to any Pledged Collateral.
7
<PAGE>
(e) The Lender may at any time in its discretion (i) without notice
to the Pledgor, transfer or register in the name of the Lender or any of its
nominees any or all of the Pledged Collateral, subject only to the revocable
rights of the Pledgor under Section 7(a) hereof, and (ii) exchange certificates
or instruments constituting Pledged Collateral for certificates or instruments
of smaller or larger denominations.
SECTION 9. Remedies Upon Default. If any Event of Default shall have
---------------------
occurred and be continuing:
(a) The Lender may exercise in respect of the Pledged Collateral,
in addition to other rights and remedies provided for herein or otherwise
available to it, all of the rights and remedies of a secured party on default
under the Code then in effect in the State of New York; and without limiting the
generality of the foregoing and without notice except as specified below, sell
the Pledged Collateral or any part thereof in one or more parcels at public or
private sale, at any exchange or broker's board or elsewhere, at such price or
prices and on such other terms as the Lender may deem commercially reasonable.
The Pledgor agrees that, to the extent notice of sale shall be required by law,
at least 10 days' notice to the Pledgor of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. The Lender shall not be obligated to make any sale of
Pledged Collateral regardless of notice of sale having been given. The Lender
may adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned.
(b) In the event that the Lender determines to exercise its right
to sell all or any part of the Pledged Collateral pursuant to subsection (a) of
this Section 9, the Pledgor will, and will cause the Borrower, at the Pledgor's
expense and upon request by the Lender: (i) execute and deliver, and cause each
issuer of such Pledged Collateral and the directors and officers thereof to
execute and deliver, all such instruments and documents, and do or cause to be
done all such other acts and things, as may be necessary or, in the opinion of
the Lender, advisable to register such Pledged Collateral under the provisions
of the Securities Act of 1933, as amended (the "Securities Act"), and to cause
the registration statement relating thereto to become effective and to remain
effective for such period as prospectuses are required by law to be furnished,
and to make all amendments and supplements thereto and to the related prospectus
which, in the opinion of the Lender, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto, (ii)
cause each issuer of such Pledged Collateral to qualify such Pledged Collateral
under the state securities or "Blue Sky" laws of each jurisdiction, and to
obtain all necessary governmental approvals for the sale of the Pledged
Collateral, as requested by the Lender, (iii) cause each Issuer to make
available to its securityholders, as soon as practicable, an earnings statement
which will satisfy the provisions of Section 11(a) of the Securities Act, and
(iv) do or cause to be done all such other acts and things as may be necessary
to make such sale of such Pledged Collateral valid and binding and in compliance
with applicable law. Each Pledgor acknowledges the impossibility of ascertaining
the amount of damages which would be suffered by the Lender by reason of the
8
<PAGE>
failure by any Pledgor to perform any of the covenants contained in this Section
9(b) and, consequently, agrees that, if any Pledgor fails to perform any of such
covenants, it shall pay, as liquidated damages and not as a penalty, an amount
equal to the value of the Pledged Collateral on the date the Lender demands
compliance with this Section 9(b); provided, however, that the payment of such
amount shall not release the Pledgor from any of its obligations under any of
the other Loan Documents.
(c) The Pledgor recognizes that the Lender may deem it
impracticable to effect a public sale of all or any part of the Pledged Shares
or any other securities constituting Pledged Collateral and that the Lender may,
therefore, determine to make one or more private sales of any such securities to
a restricted group of purchasers who will be obligated to agree, among other
things, to acquire such securities for their own account, for investment and not
with a view to the distribution or resale thereof. The Pledgor acknowledges that
any such private sale may be at prices and on terms less favorable to the seller
than the prices and other terms which might have been obtained at a public sale
and, notwithstanding the foregoing, agrees that such private sales shall be
deemed to have been made in a commercially reasonable manner and that the Lender
shall have no obligation to delay sale of any such securities for the period of
time necessary to permit the issuer of such securities to register such
securities for public sale under the Securities Act. The Pledgor further
acknowledges and agrees that any offer to sell such securities which has been
(i) publicly advertised on a bona fide basis in a newspaper or other publication
of general circulation in the financial community of New York, New York (to the
extent that such an offer may be so advertised without prior registration under
the Securities Act) or (ii) made privately in the manner described above to not
less than fifteen bona fide offerees shall be deemed to involve a "public sale"
---- ----
for the purposes of Section 9-504(3) of the Code (or any successor or similar,
applicable statutory provision) as then in effect in the State of New York,
notwithstanding that such sale may not constitute a "public offering" under the
Securities Act, and that the Lender may, in such event, bid for the purchase of
such securities.
(d) Any cash held by the Lender as Pledged Collateral and all cash
proceeds received by the Lender in respect of any sale of, collection from, or
other realization upon, all or any part of the Pledged Collateral may, in the
discretion of the Lender, be held by the Lender as collateral for, and/or then
or at any time thereafter applied (after payment of any amounts payable to the
Lender pursuant to Section 10 hereof) in whole or in part by the Lender against,
all or any part of the Obligations in such order as the Lender shall elect
consistent with the provisions of the Term Loan Agreement. Any surplus of such
cash or cash proceeds held by the Lender and remaining after payment in full of
all of the Obligations shall be paid over to the Pledgor or to such person as
may be lawfully entitled to receive such surplus.
(e) In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the Lender is legally
entitled, the Pledgor shall be liable for the deficiency, together with interest
thereon at the highest rate specified in the Term Loan Agreement for interest on
overdue principal thereof or such other rate as shall be fixed by applicable
law, together with the costs of collection and the reasonable fees of any
attorneys employed by the Lender to collect such deficiency.
SECTION 10. Indemnity and Expenses.
----------------------
9
<PAGE>
(a) The Pledgor agrees to indemnify the Lender from and against any
and all claims, losses and liabilities growing out of or resulting from this
Agreement (including, without limitation, enforcement of this Agreement), except
claims, losses or liabilities resulting solely and directly from the Lender's
gross negligence or willful misconduct as determined by a final judgment of a
court of competent jurisdiction.
(b) The Pledgor will upon demand pay to the Lender the amount of
any and all costs and expenses, including the reasonable fees and disbursements
of the Lender's counsel and of any experts and agents, which the Lender may
incur in connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection from, or
other realization upon, any Pledged Collateral, (iii) the exercise or
enforcement of any of the rights of the Lender hereunder, or (iv) the failure by
the Pledgor to perform or observe any of the provisions hereof.
SECTION 11. Notices, Etc. All notices and other communications provided for
------------
hereunder shall be in writing and shall be mailed, telecopied or delivered, if
to the Pledgor, to it at its address specified in the Term Loan Agreement; and
if to the Lender, to it at its address specified in the Term Loan Agreement or
as to either such Person at such other address as shall be designated by such
Person in a written notice to such other Person complying as to delivery with
the terms of this Section 11. All such notices and other communications shall be
effective (i) if mailed, when received or five days after deposited in the
mails, whichever occurs earlier, (ii) if telecopied, when transmitted and
confirmation received, or (iii) if delivered, upon delivery.
SECTION 12. Security Interest Absolute. All rights of the Lender, all
--------------------------
security interests and all obligations of the Pledgor hereunder shall be
absolute and unconditional irrespective of: (i) any lack of validity or
enforceability of the Term Loan Agreement, any other Loan Document or any other
agreement or instrument relating thereto, (ii) any change in the time, manner or
place of payment of, or in any other term in respect of, all or any of the
Obligations, or any other amendment or waiver of or consent to any departure
from the Term Loan Agreement, any other Loan Document or any other agreement or
instrument relating thereto, (iii) any exchange or release of, or non-perfection
of any Lien on or security interest in, any collateral, or any release or
amendment or waiver of or consent to departure from any guaranty, for all or any
of the Obligations, or (iv) any other circumstance which might otherwise
constitute a defense available to, or a discharge of, the Pledgor in respect of
the Obligations. All authorizations and agencies contained herein with respect
to any of the Pledged Collateral are irrevocable and powers coupled with an
interest.
SECTION 13. Waiver of Jury Trial. EACH OF THE PLEDGOR AND THE LENDER (BY
--------------------
ACCEPTING THIS AGREEMENT) WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT OR ARISING FROM ANY OTHER LOAN DOCUMENT AND AGREES THAT ANY
SUCH ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.
SECTION 14. Miscellaneous.
-------------
10
<PAGE>
(a) No amendment of any provision of this Agreement shall be
effective unless it is in writing and signed by the Pledgor and the Lender, and
no waiver of any provision of this Agreement, and no consent to any departure by
the Pledgor therefrom, shall be effective unless it is in writing and signed by
the Lender, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
(b) No failure on the part of the Lender to exercise, and no delay
in exercising, any right hereunder or under any other document shall operate as
a waiver thereof; nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right. The rights and remedies of the Lender provided herein and in the other
Loan Documents are cumulative and are in addition to, and not exclusive of, any
rights or remedies provided by law. The rights of the Lender under any document
against any party thereto are not conditional or contingent on any attempt by
the Lender to exercise any of its rights under any other document against such
party or against any other person.
(c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provision in any other jurisdiction.
(d) This Agreement shall create a continuing security interest in
the Pledged Collateral and shall (i) remain in full force and effect until the
indefeasible payment in full in cash of the Obligations and (ii) be binding on
each of the Lender and the Pledgor and their respective successors and assigns,
except that the Pledgor may not assign or transfer any of its rights hereunder
without the prior written consent of the Lender and any such assignments without
the Lender's prior written consent shall be null and void, and shall inure,
together with all rights and remedies of the Lender hereunder, to the benefit of
the Pledgor and the Lender and their respective successors, transferees and
assigns. Without limiting the generality of clause (ii) of the immediately
preceding sentence, the Lender may assign or otherwise transfer its rights and
obligations under this Agreement to any other Person pursuant to the terms of
the Term Loan Agreement, and such other Person shall thereupon become vested
with all of the benefits in respect thereof granted to the Lender herein or
otherwise. Upon any such assignment or transfer, all references in this
Agreement to the Lender shall mean the assignee of the Lender. None of the
rights or obligations of the Pledgor hereunder may be assigned or otherwise
transferred without the prior written consent of the Lender and any such
assignment without the Lender's prior written consent shall be null and void.
(e) Upon the indefeasible satisfaction in full in cash of the
Obligations, and subject to the interests of Finova as governed by the
Intercreditor Agreement, (i) this Agreement and the security interest created
hereby shall terminate and all rights to the Pledged Collateral shall revert to
the Pledgor, and (ii) the Lender will, upon the Pledgor's request and at the
Pledgor's expense, (A) return to the Pledgor such of the Pledged Collateral as
shall not have been sold or otherwise disposed of or applied pursuant to the
terms hereof and (B) execute and deliver to the Pledgor, without recourse,
representation or warranty, such documents as the Pledgor shall reasonably
request to evidence such termination.
11
<PAGE>
(f) This Agreement shall be governed by and construed in accordance
with the law of the State of New York, except to the extent that the validity
and perfection or the perfection and the effect of perfection or non-perfection
of the security interest created hereby, or remedies hereunder, in respect of
any particular Pledged Collateral are governed by the law of a jurisdiction
other than the State of New York.
(g) The security interests and priorities contained hereunder are
to be read and understood to be consistent with the Intercreditor Agreement
between the Lender and Finova dated as of the date hereof. Such Intercreditor
Agreement shall govern the security interests in the "Collateral" (as defined in
the Intercreditor Agreement) created for the benefit of the Lender and Finova.
(h) This Agreement supersedes all prior understandings and
agreements, whether written or oral, among the parties hereto relating to the
transactions provided for herein.
(i) All representations and warranties of the Pledgor contained
herein or made in connection herewith shall survive the making of and shall not
be waived by the execution and delivery of this Agreement, the Term Loan
Agreement or any other Loan Document, any investigation by the Lender or the
making of the Term Loan. All covenants and agreements of the Pledgor contained
herein shall continue in full force and effect from and after the date hereof
until the indefeasible payment in full in cash of the Obligations.
(j) Section headings in this Agreement are included herein for the
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
(k) This Agreement may be executed in any number of counterparts
and by the different parties hereto on separate counterparts each of which, when
so executed, shall be deemed an original, but all such counterparts shall
constitute but one and the same instrument.
12
<PAGE>
IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be
executed and delivered by its officer thereunto duly authorized, as of the date
first above written.
POLYPHASE CORPORATION
By:
-------------------------------
Name:
Title:
13
<PAGE>
EXHIBIT C
SCHEDULE I TO PLEDGED AND SECURITY AGREEMENT
Pledged Debt
------------
<TABLE>
<CAPTION>
Principal Amount
Pledgor Name of Payee Description Outstanding
- ------- ------------- ----------- -----------
<S> <C> <C> <C>
Overhill Farms, Inc. Polyphase unsecured, $5,500,000
Corporation intercompany
promisory note
</TABLE>
<PAGE>
EXHIBIT C
---------
SCHEDULE II TO PLEDGE AND SECURITY AGREEMENT
Pledged Shares
--------------
<TABLE>
<CAPTION>
Number Certificate
Pledgor Name of Issuer of Shares Class Number(s)
- ------- -------------- --------- ----- ---------
<S> <C> <C> <C> <C>
Polyphase Corporation Overhill Farms, Inc. 775 Common Stock 3
</TABLE>
<PAGE>
EXHIBIT C
---------
ANNEX I
TO
PLEDGE AND SECURITY AGREEMENT
PLEDGE AMENDMENT
----------------
This Pledge Amendment, dated _______________, is delivered pursuant to
Section 4 of the Pledge Agreement referred to below. The undersigned hereby
agrees that this Pledge Amendment may be attached to the Pledge Agreement, dated
as of December __, 1997, as it may heretofore have been or hereafter may be
amended or otherwise modified or supplemented from time to time and that the
promissory notes or shares listed on this Pledged Amendment shall be and become
part of the Pledged Collateral referred to in said Pledge Agreement and shall
secure all of the Obligations referred to in said Pledge Agreement.
Pledged Debt
------------
Principal Amount
Pledgor Name of Payee Description Outstanding as of
- --------------------- ----------- -----------------
Pledged Shares
--------------
Number Certificate
Pledgor Name of Issuer of Shares Class Number(s)
- -------------------- --------- ----- ---------
[PLEDGOR]
By:
--------------------------
Name:
Title:
<PAGE>
Exhibit 10.68
REGISTRATION RIGHTS AGREEMENT
by and between
OVERHILL FARMS, INC.
and
THE LONG HORIZONS FUNDS L.P.
Dated as of December __, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. DEFINITIONS............................................................. 1
2. REGISTRATION UNDER THE SECURITIES ACT................................... 5
2.1 Demand Registration................................................ 5
2.2 Incidental Registration............................................ 9
2.3 Shelf Registration.................................................10
2.4 Expenses...........................................................11
2.5 Underwritten Offerings.............................................11
2.6 Conversions; Exercises.............................................12
3. HOLDBACK ARRANGEMENTS...................................................12
3.1 Restrictions on Sale by Holders of Registrable Securities..........12
3.2 Restrictions on Sale by the Company and Others.....................12
4. REGISTRATION PROCEDURES.................................................13
4.1 Obligations of the Company.........................................13
4.2 Seller Information.................................................13
4.3 Notice to Discontinue..............................................17
5. INDEMNIFICATION; CONTRIBUTION...........................................18
5.1 Indemnification by the Company.....................................18
5.2 Indemnification by Holders.........................................18
5.3 Conduct of Indemnification Proceedings.............................19
5.4 Contribution.......................................................20
5.5 Other Indemnification..............................................20
5.6 Indemnification Payments...........................................21
6. GENERAL.................................................................21
6.1 Adjustments Affecting Registrable Securities.......................21
6.2 Registration Rights to Others......................................21
6.3 Availability of Information; Rule 144; Rule 144A; Other Exemptions.21
6.4 Amendments and Waivers.............................................22
6.5 Notices............................................................22
6.6 Successors and Assigns.............................................23
6.7 Counterparts.......................................................24
6.8 Descriptive Headings, Etc..........................................24
6.9 Severability.......................................................24
6.10 GOVERNING LAW.....................................................24
6.11 Remedies; Specific Performance....................................24
6.12 Entire Agreement..................................................25
6.13 Nominees for Beneficial Owners....................................25
6.14 Consent to Jurisdiction; Waiver of Jury...........................25
6.15 Further Assurances................................................26
6.16 No Inconsistent Agreements........................................26
6.17 Construction......................................................26
<PAGE>
REGISTRATION RIGHTS AGREEMENT (this or the "Agreement"), dated
as of December __, 1997, by and between Overhill Farms, Inc., a Nevada
corporation (the "Company"), and The Long Horizons Fund L.P., a _______________
limited partnership (the "Initial Holder").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, simultaneously herewith, the Company, Polyphase
Corporation and the Initial Holder are entering into a Term Loan Agreement,
dated the date hereof (as amended or otherwise modified from time to time, the
"Term Loan Agreement"), pursuant to which the Initial Holder is making a term
loan to the Company subject to the terms of the Term Loan Agreement;
WHEREAS, pursuant to the terms of the Term Loan Agreement, the
Initial Holder is receiving warrants to purchase Common Shares as set forth in
the Common Stock Purchase Warrant, dated the date hereof, from the Company to
the Initial Holder; and
WHEREAS, in order to induce the Initial Holder to enter into
the Term Loan Agreement, the Company has agreed to provide certain registration
rights on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements contained herein, and for other good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have
-----------
the following meanings:
"Affiliate" shall mean (i) with respect to any Person, any
other Person directly or indirectly controlling or controlled by or under direct
or indirect common control with such Person, and (ii) with respect to any
individual, shall also mean the spouse, sibling, child, step-child, grandchild,
niece, nephew or parent of such Person, or the spouse thereof.
"Common Shares" shall mean shares of common stock, par value
$0.01 per share, of the Company.
"Company" shall have the meaning set forth in the preamble.
"Demand Registration" shall mean a registration required to be
effected by the Company pursuant to Section 2.1.
"Demand Registration Statement" shall mean a registration
statement of the Company which covers the Registrable Securities requested to be
included therein pursuant to the provisions of Section 2.1 and all amendments
and supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference (or deemed to be
incorporated by reference) therein.
<PAGE>
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time, and the rules and regulations thereunder, or any
similar or successor statute.
"Holders" shall mean the Initial Holder for so long as it owns
any Registrable Securities and such of its respective heirs, successors and
permitted assigns (including any permitted transferees of Registrable
Securities) who acquire or are otherwise the transferee of Registrable
Securities, directly or indirectly, from such Initial Holder (or any subsequent
Holder), for so long as such heirs, successors and permitted assigns own any
Registrable Securities. For purposes of this Agreement, a Person will be deemed
to be a Holder whenever such Person holds an option to purchase, or a security
convertible into or exercisable or exchangeable for, Registrable Securities,
whether or not such purchase, conversion, exercise or exchange has actually been
effected and disregarding any legal restrictions upon the exercise of such
rights. Registrable Securities issuable upon exercise of an option or upon
conversion, exchange or exercise of another security shall be deemed outstanding
for the purposes of this Agreement.
"Holders' Counsel" shall mean one firm of counsel (per
registration) to the Holders of Registrable Securities participating in such
registration, which counsel shall be selected (i) in the case of a Demand
Registration, by the Initiating Holders holding a majority of the Registrable
Securities for which registration was requested in the Request, and (ii) in all
other cases, by the Majority Holders of the Registration.
"Incidental Registration" shall mean a registration required
to be effected by the Company pursuant to Section 2.2.
"Incidental Registration Statement" shall mean a registration
statement of the Company which covers the Registrable Securities requested to be
included therein pursuant to the provisions of Section 2.2 and all amendments
and supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference (or deemed to be
incorporated by reference) therein.
"Initial Holder" shall mean the Person specified as such in
the preamble.
"Initial Public Offering" shall mean the first public offering
of any class of securities of the Company pursuant to a registration statement
filed with and declared effective by the SEC.
"Initiating Holders" shall mean, with respect to a particular
registration, the Holders who initiated the Request for such registration.
"Inspectors" shall have the meaning set forth in Section
4.1(g).
"Majority Holders" shall mean one or more Holders of
Registrable Securities who would hold a majority of the Registrable Securities
then outstanding.
-2-
<PAGE>
"Majority Holders of the Registration" shall mean, with
respect to a particular registration, one or more Holders of Registrable
Securities who would hold a majority of the Registrable Securities to be
included in such registration.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"Person" shall mean any individual, firm, partnership,
corporation, trust, joint venture, association, joint stock company, limited
liability company, unincorporated organization or any other entity or
organization, including a government or agency or political subdivision thereof,
and shall include any successor (by merger or otherwise) of such entity.
"Prospectus" shall mean the prospectus included in a
Registration Statement (including, without limitation, any preliminary
prospectus and any prospectus that includes any information previously omitted
from a prospectus filed as part of an effective registration statement in
reliance upon Rule 430A promulgated under the Securities Act), and any such
Prospectus as amended or supplemented by any prospectus supplement, and all
other amendments and supplements to such Prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
(or deemed to be incorporated by reference) therein.
"Registrable Securities" shall mean (i) any Warrant Shares
issued or issuable upon exercise of the Warrants issued to the Initial Holder
pursuant to the Term Loan Agreement, (ii) any Common Shares otherwise or
hereafter purchased or acquired by the Holders or their Affiliates and (iii) any
other securities of the Company (or any successor or assign of the Company,
whether by merger, consolidation, sale of assets or otherwise) which may be
issued or issuable with respect to, in exchange for, or in substitution of,
Registrable Securities referenced in clauses (i) and (ii) above by reason of any
dividend or stock split, combination of shares, merger, consolidation,
recapitalization, reclassification, reorganization, sale of assets or similar
transaction. As to any particular Registrable Securities, such securities shall
cease to be Registrable Securities when (A) a registration statement with
respect to the sale of such securities shall have been declared effective under
the Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (B) such securities are sold pursuant to Rule
144 (or any similar provisions then in force) under the Securities Act (C) such
securities have been otherwise transferred, a new certificate or other evidence
of ownership for them not bearing the legend restricting further transfer shall
have been delivered by the Company and subsequent public distribution of them
shall not require registration under the Securities Act, or (D) such securities
shall have ceased to be outstanding.
"Registration Expenses" shall mean any and all expenses
incident to performance of or compliance with this Agreement by the Company and
its subsidiaries, including, without limitation (i) all SEC, stock exchange,
NASD and other registration, listing and filing fees, (ii) all fees and expenses
incurred in connection with compliance with state securities or blue sky laws
and compliance with the rules of any stock exchange (including fees and
disbursements of counsel in connection with such compliance and the preparation
of a blue sky memorandum and legal investment survey), (iii) all expenses of any
Persons in preparing or assisting in preparing, word processing, printing,
distributing, mailing and delivering any Registration Statement, any
-3-
<PAGE>
Prospectus, any underwriting agreements, transmittal letters, securities sales
agreements, securities certificates and other documents relating to the
performance of or compliance with this Agreement, (iv) the fees and
disbursements of counsel for the Company, (v) the fees and disbursements of
Holders' Counsel, (vi) the fees and disbursements of all independent public
accountants (including the expenses of any audit and/or "cold comfort" letters)
and the fees and expenses of other Persons, including experts, retained by the
Company, (vii) the expenses incurred in connection with making road show
presentations and holding meetings with potential investors to facilitate the
distribution and sale of Registrable Securities which are customarily borne by
the issuer, (viii) any fees and disbursements of underwriters customarily paid
by issuers or sellers of securities, (ix) premiums and other costs of policies
of insurance against liabilities arising out of the public offering of the
Registrable Securities being registered, and (x) all internal expenses of the
Company (including all salaries and expenses of officers and employees
performing legal or accounting duties); provided, however, Registration Expenses
-------- -------
shall not include discounts and commissions payable to underwriters, selling
brokers, dealer managers or other similar Persons engaged in the distribution of
any of the Registrable Securities; and provided further, that in any case where
Registration Expenses are not to be borne by the Company, such expenses shall
not include salaries of Company personnel or general overhead expenses of the
Company, auditing fees, premiums or other expenses relating to liability
insurance required by underwriters of the Company or other expenses for the
preparation of financial statements or other data normally prepared by the
Company in the ordinary course of its business or which the Company would have
incurred in any event; and provided, further, that in the event the Company
-------- -------
shall, in accordance with Section 2.2 or Section 2.6 hereof, not register any
securities with respect to which it had given written notice of its intention to
register to Holders, notwithstanding anything to the contrary in the foregoing,
all of the costs incurred by the Holders in connection with such registration
shall be deemed to be Registration Expenses.
"Registration Statement" shall mean any registration statement
of the Company which covers any Registrable Securities and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference (or deemed to be
incorporated by reference) therein.
"Request" shall have the meaning set forth in Section 2.1(a).
"SEC" shall mean the Securities and Exchange Commission, or
any successor agency having jurisdiction to enforce the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended from time to time, and the rules and regulations thereunder, or any
similar or successor statute.
"Shelf Registration" shall have the meaning set forth in
Section 2.1(a).
"Term Loan Agreement" shall have the meaning set forth in the
preamble.
"Underwriters" shall mean the underwriters, if any, of the
offering being registered under the Securities Act.
-4-
<PAGE>
"Underwritten Offering" shall mean a sale of securities of the Company
to an Underwriter or Underwriters for reoffering to the public.
"Warrant Shares" shall mean the shares of common stock or other equity
securities issued or issuable upon the exercise of the Warrants.
"Warrants" shall mean the warrants issued to the Initial Holder
pursuant to the Term Loan Agreement, together with any additional warrants
issued in accordance with the terms thereof or such warrants.
"Withdrawn Demand Registration" shall have the meaning set forth in
Section 2.1(A).
"Withdrawn Request" shall have the meaning set forth in Section
2.1(A).
2. REGISTRATION UNDER THE SECURITIES ACT.
-------------------------------------
2.1 Demand Registration.
-------------------
(a) Right to Demand Registration. Subject to Section 2.1(c), at any
----------------------------
time or from time to time the Majority Holders shall have the right to request
in writing that the Company register all or a part of such Holders' Registrable
Securities (a "Request") (which Request shall specify the amount of Registrable
Securities intended to be disposed of by such Holders, and the intended method
of disposition thereof) by filing with the SEC a Demand Registration Statement.
As promptly as practicable, but no later than 10 days after receipt of a
Request, the Company shall give written notice of such requested registration to
all Holders of Registrable Securities. Subject to Section 2.1(b), the Company
shall include in a Demand Registration (i) the Registrable Securities intended
to be disposed of by the Initiating Holders and (ii) the Registrable Securities
intended to be disposed of by any other Holder which shall have made a written
request (which request shall specify the amount of Registrable Securities to be
registered and the intended method of disposition thereof) to the Company for
inclusion thereof in such registration within 20 days after the receipt of such
written notice from the Company. The Company shall, as expeditiously as
possible following a Request, use its best efforts to cause to be filed with the
SEC a Demand Registration Statement providing for the registration under the
Securities Act of the Registrable Securities which the Company has been so
requested to register by all such Holders, to the extent necessary to permit the
disposition of such Registrable Securities so to be registered in accordance
with the intended methods of disposition thereof specified in such Request or
further requests (including, without limitation, by means of a shelf
registration pursuant to Rule 415 under the Securities Act (a "Shelf
Registration") if so requested and if the Company is then eligible to use such a
registration). The Company shall use its best efforts to have such Demand
Registration Statement declared effective by the SEC as soon as practicable
thereafter and to keep such Demand Registration Statement continuously effective
for the period specified in Section 4.1(b).
A Request may be withdrawn prior to the filing of the Demand
Registration Statement by the Majority Holders of the Registration (a "Withdrawn
Request") and a Demand
-5-
<PAGE>
Registration Statement may be withdrawn prior to the effectiveness thereof by
the Majority Holders of the Registration (a "Withdrawn Demand Registration"),
and such withdrawals shall be treated as a Demand Registration which shall have
been effected pursuant to this Section 2.1, unless the Holders of Registrable
Securities to be included in such Registration Statement reimburse the Company
for its reasonable out-of-pocket Registration Expenses relating to the
preparation and filing of such Demand Registration Statement (to the extent
actually incurred), in which case such withdrawal shall not be treated as a
Demand Registration affected pursuant to this Section 2.1 (and shall not be
counted toward the number of Demand Registrations); provided; however, that if a
-------- -------
Withdrawn Request or Withdrawn Registration Statement is made (A) because of a
material adverse change in the business, financial condition or prospects of the
Company, or (B) because the sole or lead managing Underwriter advises that the
amount of Registrable Securities to be sold in such offering be reduced pursuant
to Section 2.1(b) by more than 25% of the Registrable Securities to be included
in such Registration Statement, then such withdrawal shall not be treated as a
Demand Registration effected pursuant to this Section 2.1 (and shall not be
counted toward the number of Demand Registrations), and the Company shall pay
all Registration Expenses in connection therewith. Any Holder requesting
inclusion in a Demand Registration may, at any time prior to the effective date
of the Demand Registration Statement (and for any reason) revoke such request by
delivering written notice to the Company revoking such requested inclusion.
The registration rights granted pursuant to the provisions of this
Section 2.1 shall be in addition to the registration rights granted pursuant to
the other provisions of Section 2 hereof.
(b) Priority in Demand Registrations. If a Demand Registration
--------------------------------
involves an Underwritten Offering, and the sole or lead managing Underwriter, as
the case may be, of such Underwritten Offering shall advise the Company in
writing (with a copy to each Holder requesting registration) on or before the
date five days prior to the date then scheduled for such offering that, in its
opinion, the amount of Registrable Securities requested to be included in such
Demand Registration exceeds the number which can be sold in such offering within
a price range acceptable to the Majority Holders of the Registration (such
writing to state the basis of such opinion and the approximate number of
Registrable Securities which may be included in such offering), the Company
shall include in such Demand Registration, to the extent of the number which the
Company is so advised may be included in such offering, the Registrable
Securities requested to be included in the Demand Registration by the Holders
allocated pro rata in proportion to the number of Registrable Securities
--- ----
requested to be included in such Demand Registration by each of them. In the
event the Company shall not, by virtue of this Section 2.1(b), include in any
Demand Registration all of the Registrable Securities of any Holder requesting
to be included in such Demand Registration, such Holder may, upon written notice
to the Company given within five days of the time such Holder first is notified
in writing of such matter, reduce the amount of Registrable Securities it
desires to have included in such Demand Registration, whereupon only the
Registrable Securities, if any, it desires to have included will be so included
and the Holders not so reducing shall be entitled to a corresponding increase in
the amount of Registrable Securities to be included in such Demand Registration.
-6-
<PAGE>
(c) Limitations on Registrations. The rights of Holders of
----------------------------
Registrable Securities to request Demand Registrations pursuant to Section
2.1(a) are subject to the following limitations: (i) in no event shall the
Company be required to effect a Demand Registration until after the earlier of
(A) nine months after an Initial Public Offering, and (B) the fifth anniversary
of this Agreement and (ii) that in no event shall the Company be required to pay
Registration Expenses of more than three (3) Demand Registrations; provided,
--------
however, that such number shall be increased to the extent the Company (x) does
- -------
not include in what would otherwise be the final registration for which the
Company is required to pay Registration Expenses the number of Registrable
Securities requested to be registered by the Holders by reason of Section 2.1(b)
or (y) terminates a Shelf Registration pursuant to Section 2.3 prior to the time
that all Registrable Securities covered by such Shelf Registration have been
sold; and provided, further, that the Registration Expenses in connection with
-------- -------
each other Demand Registration shall be allocated pro rata among all Persons on
whose behalf securities of the Company are included in such registration, on the
basis of the respective amounts of the securities then being registered on their
behalf.
(d) Underwriting; Selection of Underwriters. Notwithstanding anything
---------------------------------------
to the contrary contained in Section 2.1(a), if the Initiating Holders holding a
majority of the Registrable Securities for which registration was requested in
the Request so elect, the offering of such Registrable Securities pursuant to
such Demand Registration shall be in the form of a firm commitment Underwritten
Offering; and such Initiating Holders may require that all Persons (including
other Holders) participating in such registration sell their Registrable
Securities to the Underwriters at the same price and on the same terms of
underwriting applicable to the Initiating Holders. If any Demand Registration
involves an Underwritten Offering, the sole or managing Underwriters and any
additional investment bankers and managers to be used in connection with such
registration shall be selected by the Initiating Holders holding a majority of
the Registrable Securities for which registration was requested in the Request,
subject to the approval of the Company (such approval not to be unreasonably
withheld).
(e) Registration of Other Securities. Whenever the Company shall
--------------------------------
effect a Demand Registration, no securities other than the Registrable
Securities shall be covered by such registration unless the Majority Holders of
the Registration shall have consented in writing to the inclusion of such other
securities.
(f) Effective Registration Statement; Suspension. A Demand
--------------------------------------------
Registration Statement shall not be deemed to have become effective (and the
related registration will not be deemed to have been effected) (i) unless it has
been declared effective by the SEC and remains effective in compliance with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such Demand Registration Statement for the
time period specified in Section 4.1(b), (ii) if the offering of any Registrable
Securities pursuant to such Demand Registration Statement is interfered with by
any stop order, injunction or other order or requirement of the SEC or any other
governmental agency or court; or (iii) if, in the case of an Underwritten
Offering, the conditions to closing specified in an underwriting agreement to
which the Company is a party are not satisfied other than by the sole reason of
any breach or failure by the Holders of Registrable Securities or are not
otherwise waived.
-7-
<PAGE>
(g) Other Registrations. During the period (i) beginning on the date
-------------------
of a Request and (ii) ending on the date that is 90 days after the date that a
Demand Registration Statement filed pursuant to such Request has been declared
effective by the SEC or, if the Holders shall withdraw such Request or such
Demand Registration Statement, on the date of such Withdrawn Request or such
Withdrawn Registration Statement, the Company shall not, without the consent of
the Majority Holders of the Registration, file a registration statement
pertaining to any other securities of the Company.
(h) Registration Statement Form. Registrations under this Section 2.1
---------------------------
shall be on such appropriate registration form of the SEC (i) as shall be
selected by the Initiating Holders holding a majority of the Registrable
Securities for which registration was requested in the Request, and (ii) which
shall be available for the sale of Registrable Securities in accordance with the
intended method or methods of disposition specified in the requests for
registration. The Company agrees to include in any such Registration Statement
all information which any selling Holder, upon advice of counsel, shall
reasonably request.
-8-
<PAGE>
2.2 Incidental Registration.
-----------------------
(a) Right to Include Registrable Securities. If the Company at any
---------------------------------------
time or from time to time proposes to register any of its securities under the
Securities Act (other than in a registration on Form S-4 or S-8 or any successor
form to such forms and other than pursuant to Section 2.1 or 2.3) whether or not
pursuant to registration rights granted to other holders of its securities and
whether or not for sale for its own account, the Company shall deliver prompt
written notice (which notice shall be given at least 30 days prior to such
proposed registration) to all Holders of Registrable Securities of its intention
to undertake such registration, describing in reasonable detail the proposed
registration and distribution (including the anticipated range of the proposed
offering price, the class and number of securities proposed to be registered and
the distribution arrangements) and of such Holders' right to participate in such
registration under this Section 2.2 as hereinafter provided. Subject to the
other provisions of this paragraph (a) and Section 2.2(b), upon the written
request of any Holder made within 20 days after the receipt of such written
notice (which request shall specify the amount of Registrable Securities to be
registered and the intended method of disposition thereof), the Company shall
effect the registration under the Securities Act of all Registrable Securities
requested by Holders to be so registered (an "Incidental Registration"), to the
extent required to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of the Registrable Securities so to be registered,
by inclusion of such Registrable Securities in the Registration Statement which
covers the securities which the Company proposes to register and shall cause
such Registration Statement to become and remain effective with respect to such
Registrable Securities in accordance with the registration procedures set forth
in Section 4. If an Incidental Registration involves an Underwritten Offering,
immediately upon notification to the Company from the Underwriter of the price
at which such securities are to be sold, the Company shall so advise each
participating Holder. The Holders requesting inclusion in an Incidental
Registration may, at any time prior to the effective date of the Incidental
Registration Statement (and for any reason), revoke such request by delivering
written notice to the Company revoking such requested inclusion.
If at any time after giving written notice of its intention to
register any securities and prior to the effective date of the Incidental
Registration Statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each Holder of Registrable Securities and, thereupon, (A) in
the case of a determination not to register, the Company shall be relieved of
its obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration Expenses
incurred in connection therewith), without prejudice, however, to the rights of
Holders to cause such registration to be effected as a registration under
Section 2.1, and (B) in the case of a determination to delay such registration,
the Company shall be permitted to delay the registration of such Registrable
Securities for the same period as the delay in registering such other
securities; provided, however, that if such delay shall extend beyond 120 days
-------- -------
from the date the Company received a request to include Registrable Securities
in such Incidental Registration, then the Company shall again give all Holders
the opportunity to participate therein and shall follow the notification
procedures set forth in the preceding paragraph. There is no
-9-
<PAGE>
limitation on the number of such Incidental Registrations pursuant to this
Section 2.2 which the Company is obligated to effect.
The registration rights granted pursuant to the provisions of this
Section 2.2 shall be in addition to the registration rights granted pursuant to
the other provisions of Section 2 hereof.
(b) Priority in Incidental Registration. If an Incidental
-----------------------------------
Registration involves an Underwritten Offering (on a firm commitment basis), and
the sole or the lead managing Underwriter, as the case may be, of such
Underwritten Offering shall advise the Company in writing (with a copy to each
Holder requesting registration) on or before the date five days prior to the
date then scheduled for such offering that, in its opinion, the amount of
securities (including Registrable Securities) requested to be included in such
registration exceeds the amount which can be sold in such offering without
materially interfering with the successful marketing of the securities being
offered (such writing to state the basis of such opinion and the approximate
number of such securities which may be included in such offering without such
effect), the Company shall include in such registration, to the extent of the
number which the Company is so advised may be included in such offering without
such effect, (i) in the case of a registration initiated by the Company, (A)
first, the securities that the Company proposes to register for its own account
(but solely to the extent that the proceeds thereof shall not be used to
purchase shares of common stock of the Company or other securities of the
Company), (B) second, the Registrable Securities requested to be included in
such registration by the Holders, allocated pro rata in proportion to the number
--- ----
of Registrable Securities requested to be included in such registration by each
of them, and (C) third, other securities of the Company to be registered on
behalf of any other Person, and (ii) in the case of a registration initiated by
a Person other than the Company, (A) first, the Registrable Securities requested
to be included in such registration by any Persons initiating such registration,
allocated pro rata in preparation to the number of securities requested to be
--- ----
included in such registration by each of them, (B) second, the securities that
the Company proposes to register for its own account, and (C) third, other
securities of the Company to be registered on behalf of any other Person;
provided, however, that in the event the Company will not, by virtue of this
- -------- -------
Section 2.2(b), include in any such registration all of the Registrable
Securities of any Holder requested to be included in such registration, such
Holder may, upon written notice to the Company given within three days of the
time such Holder first is notified of such matter, reduce the amount of
Registrable Securities it desires to have included in such registration,
whereupon only the Registrable Securities, if any, it desires to have included
will be so included and the Holders not so reducing shall be entitled to a
corresponding increase in the amount of Registrable Securities to be included in
such registration.
(c) Selection of Underwriters. If any Incidental Registration
involves an Underwritten Offering, the sole or managing Underwriter(s) and any
additional investment bankers and managers to be used in connection with such
registration shall be subject to the approval of the Majority Holders of the
Registration (such approval not to be unreasonably withheld).
2.3 Shelf Registration. If a request made pursuant to Section 2.1 is
------------------
for a Shelf Registration, the Company shall use its best efforts to keep the
Shelf Registration continuously
-10-
<PAGE>
effective through the date on which all of the Registrable Securities covered by
such Shelf Registration may be sold pursuant to Rule 144(k) under the Securities
Act (or any successor provision having similar effect); provided, however, that
-------- -------
prior to the termination of such Shelf Registration, the Company shall first
furnish to each Holder of Registrable Securities participating in such Shelf
Registration (i) an opinion, in form and substance satisfactory to the Majority
Holders of the Registration, of counsel for the Company satisfactory to the
Majority Holders of the Registration stating that such Registrable Securities
are freely salable pursuant to Rule 144(k) under the Securities Act (or any
successor provision having similar effect) or (ii) a "No-Action Letter" from the
staff of the SEC stating that the SEC would not recommend enforcement action if
the Registrable Securities included in such Shelf Registration were sold in a
public sale other than pursuant to an effective registration statement.
2.4 Expenses. The Company shall pay all Registration Expenses in
--------
connection with any Demand Registration, Incidental Registration or Shelf
Registration, whether or not such registration shall become effective and
whether or not all Registrable Securities originally requested to be included in
such registration are withdrawn or otherwise ultimately not included in such
registration, except as otherwise provided with respect to a Withdrawn Request
and a Withdrawn Demand Registration in Section 2.1(a). Each Holder shall pay
all discounts and commissions payable to underwriters, selling brokers, managers
or other similar Persons engaged in the distribution of such Holder's
Registrable Securities pursuant to any registration pursuant to this Section 2.
2.5 Underwritten Offerings.
----------------------
(a) Demand Underwritten Offerings. If requested by the sole or lead
-----------------------------
managing Underwriter for any Underwritten Offering effected pursuant to a Demand
Registration, the Company shall enter into a customary underwriting agreement
with the Underwriters for such offering, such agreement to be reasonably
satisfactory in substance and form to each Holder of Registrable Securities
participating in such offering and to contain such representations and
warranties by the Company and such other terms as are generally prevailing in
agreements of that type, including, without limitation, indemnification and
contribution to the effect and to the extent provided in Section 5.
(b) Holders of Registrable Securities to be Parties to Underwriting
---------------------------------------------------------------
Agreement. The Holders of Registrable Securities to be distributed by
- ---------
Underwriters in an Underwritten Offering contemplated by Section 2 shall be
parties to the underwriting agreement between the Company and such Underwriters
and may, at such Holders' option, require that any or all of the representations
and warranties by, and the other agreements on the part of, the Company to and
for the benefit of such Underwriters shall also be made to and for the benefit
of such Holders of Registrable Securities and that any or all of the conditions
precedent to the obligations of such Underwriters under such underwriting
agreement be conditions precedent to the obligations of such Holders of
Registrable Securities; provided, however, that the Company shall not be
-------- -------
required to make any representations or warranties with respect to written
information specifically provided by a selling Holder for inclusion in the
Registration Statement. No Holder shall be required to make any representations
or warranties to, or agreements with, the Company or the
-11-
<PAGE>
Underwriters other than representations, warranties or agreements regarding such
Holder, such Holder's Registrable Securities and such Holder's intended method
of disposition.
(c) Participation in Underwritten Registration. Notwithstanding
------------------------------------------
anything herein to the contrary, no Person may participate in any underwritten
registration hereunder unless such Person (i) agrees to sell its securities on
the same terms and conditions provided in any underwritten arrangements approved
by the Persons entitled hereunder to approve such arrangement and (ii)
accurately completes and executes in a timely manner all questionnaires, powers
of attorney, indemnities, custody agreements, underwriting agreements and other
documents reasonably required under the terms of such underwriting arrangements.
2.6 Conversions; Exercises. Notwithstanding anything to the contrary
----------------------
herein, in order for any Registrable Securities that are issuable upon the
exercise of conversion rights, options or warrants to be included in any
registration pursuant to Section 2 hereof, the exercise of such conversion
rights, options or warrants must be effected no later than immediately prior to
the closing of any sales under the Registration Statement pursuant to which such
Registrable Securities are to be sold.
3. HOLDBACK ARRANGEMENTS.
---------------------
3.1 Restrictions on Sale by Holders of Registrable Securities. Each
---------------------------------------------------------
Holder of Registrable Securities agrees, by acquisition of such Registrable
Securities, if timely requested in writing by the sole or lead managing
Underwriter in an Underwritten Offering of any Registrable Securities, not to
make any short sale of, loan, grant any option for the purchase of or effect any
public sale or distribution, including a sale pursuant to Rule 144 (or any
successor provision having similar effect) under the Securities Act of any
Registrable Securities or any other equity security of the Company (or any
security convertible into or exchangeable or exercisable for any equity security
of the Company) (except as part of such underwritten registration), during the
nine business days (as such term is used in Rule 10b-6 under the Exchange Act)
prior to, and during the time period reasonably requested by the sole or lead
managing Underwriter not to exceed 90 days, beginning on the effective date of
the applicable Registration Statement.
3.2 Restrictions on Sale by the Company and Others. The Company agrees
----------------------------------------------
that (i) if timely requested in writing by the sole or lead managing Underwriter
in an Underwritten Offering of any Registrable Securities, not to make any short
sale of, loan, grant any option for the purchase of or effect any public sale or
distribution of any of the Company's equity securities (or any security
convertible into or exchangeable or exercisable for any of the Company's equity
securities) during the nine business days (as such term is used in Rule 10b-6
under the Exchange Act) prior to, and during the time period reasonably
requested by the sole or lead managing Underwriter not to exceed 90 days,
beginning on the effective date of the applicable Registration Statement (except
as part of such underwritten registration or pursuant to registrations on Forms
S-4 or S-8 or any successor form to such forms), and (ii) it will cause each
holder of equity securities (or any security convertible into or exchangeable or
exercisable for any of its equity securities) of the Company purchased from the
Company at any time after the date of this Agreement (other than in a registered
public offering) to so agree.
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<PAGE>
4. REGISTRATION PROCEDURES.
-----------------------
4.1 Obligations of the Company. Whenever the Company is required to
--------------------------
effect the registration of Registrable Securities under the Securities Act
pursuant to Section 2 of this Agreement, the Company shall, as expeditiously as
possible:
(a) prepare and file with the SEC (promptly, and in any event within
60 days after receipt of a request to register Registrable Securities) the
requisite Registration Statement to effect such registration, which Registration
Statement shall comply as to form in all material respects with the requirements
of the applicable form and include all financial statements required by the SEC
to be filed therewith, and the Company shall use its best efforts to cause such
Registration Statement to become effective (provided, that the Company may
--------
discontinue any registration of its securities that are not Registrable
Securities, and, under the circumstances specified in Section 2.2, its
securities that are Registrable Securities); provided, however, that before
-------- -------
filing a Registration Statement or Prospectus or any amendments or supplements
thereto, or comparable statements under securities or blue sky laws of any
jurisdiction, the Company shall (i) provide Holders' Counsel and any other
Inspector with an adequate and appropriate opportunity to participate in the
preparation of such Registration Statement and each Prospectus included therein
(and each amendment or supplement thereto or comparable statement) to be filed
with the SEC, which documents shall be subject to the review and comment of
Holders' Counsel, and (ii) not file any such Registration Statement or
Prospectus (or amendment or supplement thereto or comparable statement) with the
SEC to which Holder's Counsel, any selling Holder or any other Inspector shall
have reasonably objected on the grounds that such filing does not comply in all
material respects with the requirements of the Securities Act or of the rules or
regulations thereunder;
(b) prepare and file with the SEC such amendments and supplements to
such Registration Statement and the Prospectus used in connection therewith as
may be necessary (i) to keep such Registration Statement effective, and (ii) to
comply with the provisions of the Securities Act with respect to the disposition
of all Registrable Securities covered by such Registration Statement, in each
case until such time as all of such Registrable Securities have been disposed of
in accordance with the intended methods of disposition by the seller(s) thereof
set forth in such Registration Statement; provided, that except with respect to
--------
any Shelf Registration, such period need not extend beyond nine months after the
effective date of the Registration Statement; and provided further, that with
-------- -------
respect to any Shelf Registration, such period need not extend beyond the time
period provided in Section 2.3, and which periods, in any event, shall terminate
when all Registrable Securities covered by such Registration Statement have been
sold (but not before the expiration of the 90 day period referred to in Section
4(3) of the Securities Act and Rule 174 thereunder, if applicable);
(c) furnish, without charge, to each selling Holder of such
Registrable Securities and each Underwriter, if any, of the securities covered
by such Registration Statement, such number of copies of such Registration
Statement, each amendment and supplement thereto (in each case including all
exhibits), and the Prospectus included in such Registration Statement (including
each preliminary Prospectus) in conformity with the requirements of the
Securities Act, and other documents, as such selling Holder and Underwriter may
reasonably request in order to
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<PAGE>
facilitate the public sale or other disposition of the Registrable Securities
owned by such selling Holder (the Company hereby consenting to the use in
accordance with applicable law of each such Registration Statement (or amendment
or post-effective amendment thereto) and each such Prospectus (or preliminary
prospectus or supplement thereto) by each such selling Holder of Registrable
Securities and the Underwriters, if any, in connection with the offering and
sale of the Registrable Securities covered by such Registration Statement or
Prospectus);
(d) prior to any public offering of Registrable Securities, use its
best efforts to register or qualify all Registrable Securities and other
securities covered by such Registration Statement under such other securities or
blue sky laws of such jurisdictions as any selling Holder of Registrable
Securities covered by such Registration Statement or the sole or lead managing
Underwriter, if any, may reasonably request to enable such selling Holder to
consummate the disposition in such jurisdictions of the Registrable Securities
owned by such selling Holder and to continue such registration or qualification
in effect in each such jurisdiction for as long as such Registration Statement
remains in effect (including through new filings or amendments or renewals), and
do any and all other acts and things which may be necessary or advisable to
enable any such selling Holder to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such selling Holder;
provided, however, that the Company shall not be required to (i) qualify
- -------- -------
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 5.1(d), (ii) subject itself to taxation
in any such jurisdiction, or (iii) consent to general service of process in any
such jurisdiction;
(e) use its best efforts to obtain all other approvals, consents,
exemptions or authorizations from such governmental agencies or authorities as
may be necessary to enable the selling Holders of such Registrable Securities to
consummate the disposition of such Registrable Securities;
(f) promptly notify Holders' Counsel, each Holder of Registrable
Securities covered by such Registration Statement and the sole or lead managing
Underwriter, if any: (i) when the Registration Statement, any pre-effective
amendment, the Prospectus or any prospectus supplement related thereto or post-
effective amendment to the Registration Statement has been filed and, with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC or any state
securities or blue sky authority for amendments or supplements to the
Registration Statement or the Prospectus related thereto or for additional
information, (iii) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation or threat of any
proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any
Registrable Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation of any proceeding for such purpose, (v) of the
existence of any fact of which the Company becomes aware or the happening of any
event which results in (A) the Registration Statement containing an untrue
statement of a material fact or omitting to state a material fact required to be
stated therein or necessary to make any statements therein not misleading, or
(B) the Prospectus included in such Registration Statement containing
an untrue statement of a material fact or omitting to state a material fact
required to be stated therein or necessary to make any statements therein, in
the light of the circumstances under which they were made, not misleading, (vi)
if at any time the representations and warranties
-14-
<PAGE>
contemplated by Section 2.5(b) cease to be true and correct in all material
respects, and (vii) of the Company's reasonable determination that a post-
effective amendment to a Registration Statement would be appropriate or that
there exists circumstances not yet disclosed to the public which make further
sales under such Registration Statement inadvisable pending such disclosure and
post-effective amendment; and, if the notification relates to an event described
in any of the clauses (ii) through (vii) of this Section 4.1(f), the Company
shall promptly prepare a supplement or post-effective amendment to such
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that (1) such
Registration Statement shall not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and (2) as thereafter delivered to
the purchasers of the Registrable Securities being sold thereunder, such
Prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein in the light of the circumstances under which they were made
not misleading (and shall furnish to each such Holder and each Underwriter, if
any, a reasonable number of copies of such Prospectus so supplemented or
amended); and if the notification relates to an event described in clause (iii)
of this Section 4.1(f), the Company shall take all reasonable action required to
prevent the entry of such stop order or to remove it if entered;
(g) make available for inspection by any selling Holder of Registrable
Securities, any sole or lead managing Underwriter participating in any
disposition pursuant to such Registration Statement, Holders' Counsel and any
attorney, accountant or other agent retained by any such seller or any
Underwriter (each, an "Inspector" and, collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and properties of the
Company and any subsidiaries thereof as may be in existence at such time
(collectively, the "Records") as shall be necessary, in the opinion of such
Holders' and such Underwriters' respective counsel, to enable them to exercise
their due diligence responsibility and to conduct a reasonable investigation
within the meaning of the Securities Act, and cause the Company's and any
subsidiaries' officers, directors and employees, and the independent public
accountants of the Company, to supply all information reasonably requested by
any such Inspectors in connection with such Registration Statement;
(h) obtain an opinion from the Company's counsel and a "cold comfort"
letter from the Company's independent public accountants who have certified the
Company's financial statements included or incorporated by reference in such
Registration Statement, in each case dated the effective date of such
Registration Statement (and if such registration involves an Underwritten
Offering, dated the date of the closing under the underwriting agreement), in
customary form and covering such matters as are customarily covered by such
opinions and "cold comfort" letters delivered to underwriters in underwritten
public offerings, which opinion and letter shall be reasonably satisfactory to
the sole or lead managing Underwriter, if any, and to the Majority Holders of
the Registration, and furnish to each Holder participating in the offering and
to each Underwriter, if any, a copy of such opinion and letter addressed to such
Holder (in the case of the opinion) and Underwriter (in the case of the opinion
and the "cold comfort" letter);
-15-
<PAGE>
(i) provide a CUSIP number for all Registrable Securities and provide
and cause to be maintained a transfer agent and registrar for all such
Registrable Securities covered by such Registration Statement not later than the
effectiveness of such Registration Statement;
(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC and any other governmental agency or authority having
jurisdiction over the offering, and make available to its security holders, as
soon as reasonably practicable but no later than 90 days after the end of any
12-month period, an earnings statement (i) commencing at the end of any month in
which Registrable Securities are sold to Underwriters in an Underwritten
Offering and (ii) commencing with the first day of the Company's calendar month
next succeeding each sale of Registrable Securities after the effective date of
a Registration Statement, which statement shall cover such 12-month periods, in
a manner which satisfies the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder;
(k) if so requested by the Majority Holders of the Registration, use
its best efforts to cause all such Registrable Securities to be listed (i) on
each national securities exchange on which the Company's securities are then
listed or (ii) if securities of the Company are not at the time listed on any
national securities exchange (or if the listing of Registrable Securities is not
permitted under the rules of each national securities exchange on which the
Company's securities are then listed), on a national securities exchange
designated by the Majority Holders of the Registration;
(l) keep each selling Holder of Registrable Securities advised in
writing as to the initiation and progress of any registration under Section 2
hereunder;
(m) enter into and perform customary agreements (including, if
applicable, an underwriting agreement in customary form) and provide officers'
certificates and other customary closing documents;
(n) cooperate with each selling Holder of Registrable Securities and
each Underwriter participating in the disposition of such Registrable Securities
and their respective counsel in connection with any filings required to be made
with the NASD and make reasonably available its employees and personnel and
otherwise provide reasonable assistance to the Underwriters (taking into account
the needs of the Company's businesses and the requirements of the marketing
process) in the marketing of Registrable Securities in any Underwritten
Offering;
(o) furnish to each Holder participating in the offering and the sole
or lead managing Underwriter, if any, without charge, at least one manually-
signed copy of the Registration Statement and any post-effective amendments
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those deemed to be
incorporated by reference);
(p) cooperate with the selling Holders of Registrable Securities and
the sole or lead managing Underwriter, if any, to facilitate the timely
preparation and delivery of certificates not bearing any restrictive legends
representing the Registrable Securities to be sold, and cause
such Registrable Securities to be issued in such denominations and registered in
such names in
-16-
<PAGE>
accordance with the underwriting agreement prior to any sale of Registrable
Securities to the Underwriters or, if not an Underwritten Offering, in
accordance with the instructions of the selling Holders of Registrable
Securities at least three business days prior to any sale of Registrable
Securities;
(q) if requested by the sole or lead managing Underwriter or any
selling Holder of Registrable Securities, immediately incorporate in a
prospectus supplement or post-effective amendment such information concerning
such Holder of Registrable Securities, the Underwriters or the intended method
of distribution as the sole or lead managing Underwriter or the selling Holder
of Registrable Securities reasonably requests to be included therein and as is
appropriate in the reasonable judgment of the Company, including, without
limitation, information with respect to the number of shares of the Registrable
Securities being sold to the Underwriters, the purchase price being paid
therefor by such Underwriters and with respect to any other terms of the
Underwritten Offering of the Registrable Securities to be sold in such offering;
make all required filings of such Prospectus supplement or post-effective
amendment as soon as notified of the matters to be incorporated in such
Prospectus supplement or post-effective amendment; and supplement or make
amendments to any Registration Statement if requested by the sole or lead
managing Underwriter of such Registrable Securities; and
(r) use its best efforts to take all other steps necessary to expedite
or facilitate the registration and disposition of the Registrable Securities
contemplated hereby.
4.2 Seller Information. The Company may require each selling Holder of
------------------
Registrable Securities as to which any registration is being effected to furnish
to the Company such information regarding such Holder, such Holder's Registrable
Securities and such Holder's intended method of disposition as the Company may
from time to time reasonably request in writing; provided that such information
--------
shall be used only in connection with such registration.
If any Registration Statement or comparable statement under "blue sky"
laws refers to any Holder by name or otherwise as the Holder of any securities
of the Company, then such Holder shall have the right to require (i) the
insertion therein of language, in form and substance satisfactory to such Holder
and the Company, to the effect that the holding by such Holder of such
securities is not to be construed as a recommendation by such Holder of the
investment quality of the Company's securities covered thereby and that such
holding does not imply that such Holder will assist in meeting any future
financial requirements of the Company, and (ii) in the event that such reference
to such Holder by name or otherwise is not in the judgment of the Company, as
advised by counsel, required by the Securities Act or any similar federal
statute or any state "blue sky" or securities law then in force, the deletion of
the reference to such Holder.
4.3 Notice to Discontinue. Each Holder of Registrable Securities agrees
---------------------
by acquisition of such Registrable Securities that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
4.1(f)(ii) through (vii), such Holder shall forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 4.1(f) and, if so
directed by the Company, such
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<PAGE>
Holder shall deliver to the Company (at the Company's expense) all copies, other
than permanent file copies, then in such Holder's possession of the Prospectus
covering such Registrable Securities which is current at the time of receipt of
such notice. If the Company shall give any such notice, the Company shall extend
the period during which such Registration Statement shall be maintained
effective pursuant to this Agreement (including, without limitation, the period
referred to in Section 4.1(b)) by the number of days during the period from and
including the date of the giving of such notice pursuant to Section 4.1(f) to
and including the date when the Holder shall have received the copies of the
supplemented or amended prospectus contemplated by and meeting the requirements
of Section 4.1(f).
5. INDEMNIFICATION; CONTRIBUTION.
-----------------------------
5.1 Indemnification by the Company. The Company agrees to indemnify and
------------------------------
hold harmless, to the fullest extent permitted by law, each Holder of
Registrable Securities, its officers, directors, partners, members,
shareholders, employees, Affiliates and agents (collectively, "Agents") and each
Person who controls such Holder (within the meaning of the Securities Act) and
its Agents with respect to each registration which has been effected pursuant to
this Agreement, against any and all losses, claims, damages or liabilities,
joint or several, actions or proceedings (whether commenced or threatened) in
respect thereof, and expenses (as incurred or suffered and including, but not
limited to, any and all expenses incurred in investigating, preparing or
defending any litigation or proceeding, whether commenced or threatened, and the
reasonable fees, disbursements and other charges of legal counsel) in respect
thereof (collectively, "Claims"), insofar as such Claims arise out of or are
based upon any untrue or alleged untrue statement of a material fact contained
in any Registration Statement or Prospectus (including any preliminary, final or
summary prospectus and any amendment or supplement thereto) related to any such
registration or any omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of the Securities Act or any rule or
regulation thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration, or
any qualification or compliance incident thereto; provided, however, that the
-------- -------
Company will not be liable in any such case to the extent that any such Claims
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact or omission or alleged omission of a material fact so made in
reliance upon and in conformity with written information furnished to the
Company in an instrument duly executed by such Holder specifically stating that
it was expressly for use therein. The Company shall also indemnify any
Underwriters of the Registrable Securities, their Agents and each Person who
controls any such Underwriter (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of the Holders
of Registrable Securities. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of any Person who may be
entitled to indemnification pursuant to this Section 5 and shall survive the
transfer of securities by such Holder or Underwriter.
5.2 Indemnification by Holders. Each Holder, if Registrable Securities
--------------------------
held by it are included in the securities as to which a registration is being
effected, agrees to, severally and not jointly, indemnify and hold harmless, to
the fullest extent permitted by law, the Company, its
directors and officers, each other Person who participates as an Underwriter in
the offering or sale
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<PAGE>
of such securities and its Agents and each Person who controls the Company or
any such Underwriter (within the meaning of the Securities Act) and its Agents
against any and all Claims, insofar as such Claims arise out of or are based
upon any untrue or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus (including any preliminary, final or
summary prospectus and any amendment or supplement thereto) related to such
registration, or any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company in an instrument duly executed by such Holder specifically stating that
it was expressly for use therein; provided, however, that the aggregate amount
-------- -------
which any such Holder shall be required to pay pursuant to this Section 5.2
shall in no event be greater than the amount of the net proceeds received by
such Holder upon the sale of the Registrable Securities pursuant to the
Registration Statement giving rise to such Claims less all amounts previously
paid by such Holder with respect to any such Claims. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf of
such indemnified party and shall survive the transfer of such securities by such
Holder or Underwriter.
5.3 Conduct of Indemnification Proceedings. Promptly after receipt by an
--------------------------------------
indemnified party of notice of any Claim or the commencement of any action or
proceeding involving a Claim under this Section 5, such indemnified party shall,
if a claim in respect thereof is to be made against the indemnifying party
pursuant to Section 5, (i) notify the indemnifying party in writing of the Claim
or the commencement of such action or proceeding; provided, that the failure of
--------
any indemnified party to provide such notice shall not relieve the indemnifying
party of its obligations under this Section 5, except to the extent the
indemnifying party is materially and actually prejudiced thereby and shall not
relieve the indemnifying party from any liability which it may have to any
indemnified party otherwise than under this Section 5, and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided, however, that any indemnified
-------- -------
party shall have the right to employ separate counsel and to participate in the
defense of such claim, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (A) the indemnifying party has agreed
in writing to pay such fees and expenses, (B) the indemnifying party shall have
failed to assume the defense of such claim and employ counsel reasonably
satisfactory to such indemnified party within 10 days after receiving notice
from such indemnified party that the indemnified party believes it has failed to
do so, (C) in the reasonable judgment of any such indemnified party, based upon
advice of counsel, a conflict of interest may exist between such indemnified
party and the indemnifying party with respect to such claims (in which case, if
the indemnified party notifies the indemnifying party in writing that it elects
to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such claim
on behalf of such indemnified party) or (D) such indemnified party is a
defendant in an action or proceeding which is also brought against the
indemnifying party and reasonably shall have concluded that there may be one or
more legal defenses available to such indemnified party which are not available
to the indemnifying party. No indemnifying party shall be liable for any
settlement of any such claim or action effected without its written consent,
which consent shall not be unreasonably withheld. In addition, without the
consent of the indemnified party (which
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<PAGE>
consent shall not be unreasonably withheld), no indemnifying party shall be
permitted to consent to entry of any judgment with respect to, or to effect the
settlement or compromise of any pending or threatened action or claim in respect
of which indemnification or contribution may be sought hereunder (whether or not
the indemnified party is an actual or potential party to such action or claim),
unless such settlement, compromise or judgment (1) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim, (2) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party, and
(3) does not provide for any action on the part of any party other than the
payment of money damages which is to be paid in full by the indemnifying party.
5.4 Contribution. If the indemnification provided for in Section 5.1 or
------------
5.2 from the indemnifying party for any reason is unavailable to (other than by
reason of exceptions provided therein), or is insufficient to hold harmless, an
indemnified party hereunder in respect of any Claim, then the indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such Claim in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party, on the one hand, and the indemnified party, on the other
hand, in connection with the actions which resulted in such Claim, as well as
any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. If, however, the foregoing allocation is not permitted by applicable
law, then each indemnifying party shall contribute to the amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not
only such relative faults but also the relative benefits of the indemnifying
party and the indemnified party as well as any other relevant equitable
considerations.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5.4 were determined by pro rata allocation
--- ----
or by any other method of allocation which does not take into account the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by a party as a result of any Claim referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth in Section 5.3, any legal or other fees, costs or expenses
reasonably incurred by such party in connection with any investigation or
proceeding. Notwithstanding anything in this Section 5.4 to the contrary, no
indemnifying party (other than the Company) shall be required pursuant to this
Section 5.4 to contribute any amount in excess of the net proceeds received by
such indemnifying party from the sale of the Registrable Securities pursuant to
the Registration Statement giving rise to such Claims, less all amounts
previously paid by such indemnifying party with respect to such Claims. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
5.5 Other Indemnification. Indemnification similar to that specified in
---------------------
the preceding Sections 5.1 and 5.2 (with appropriate modifications) shall be
given by the Company and each selling Holder of Registrable Securities with
respect to any required registration or other
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<PAGE>
qualification of securities under any Federal or state law or regulation of any
governmental authority, other than the Securities Act. The indemnity agreements
contained herein shall be in addition to any other rights to indemnification or
contribution which any indemnified party may have pursuant to law or contract.
5.6 Indemnification Payments. The indemnification and contribution
------------------------
required by this Section 5 shall be made by periodic payments of the amount
thereof during the course of any investigation or defense, as and when bills are
received or any expense, loss, damage or liability is incurred.
6. GENERAL.
-------
6.1 ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company agrees that
--------------------------------------------
it shall not effect or permit to occur any combination or subdivision of shares
which would adversely affect the ability of the Holder of any Registrable
Securities to include such Registrable Securities in any registration
contemplated by this Agreement or the marketability of such Registrable
Securities in any such registration.
6.2 Registration Rights to Others. Except for warrants for shares of
-----------------------------
common stock of the Company granted to Rice Partners II, L.P., all of which are
being repurchased on the date hereof, the Company has not previously entered
into an agreement with respect to its securities granting any registration
rights to any Person. If the Company shall at any time hereafter provide to
any holder of any securities of the Company rights with respect to the
registration of such securities under the Securities Act, (i) such rights shall
not be in conflict with or adversely affect any of the rights provided in this
Agreement to the Holders and (ii) if such rights are provided on terms or
conditions more favorable to such holder than the terms and conditions provided
in this Agreement, the Company shall provide (by way of amendment to this
Agreement or otherwise) such more favorable terms or conditions to the Holders.
6.3 Availability of Information; Rule 144; Rule 144A; Other Exemptions.
------------------------------------------------------------------
So long as the Company shall not have filed a registration statement pursuant to
Section 12 of the Exchange Act or a registration statement pursuant to the
requirements of the Securities Act, the Company shall, at any time and from time
to time, upon the request of any Holder of Registrable Securities and upon the
request of any Person designated by such Holder as a prospective purchaser of
any Registrable Securities, furnish in writing to such Holder or such
prospective purchaser, as the case may be, a statement as of a date not earlier
than 12 months prior to the date of such request of the nature of the business
of the Company and the products and services it offers and copies of the
Company's most recent balance sheet and profit and loss and retained earnings
statements, together with similar financial statements for such part of the two
preceding fiscal years as the Company shall have been in operation, all such
financial statements to be audited to the extent audited statements are
reasonable available, provided that, in any event the most recent financial
--------
statements so furnished shall include a balance sheet as of a date less than 16
months prior to the date of such request, statements of profit and loss and
retained earnings for the 12 months preceding the date of such balance sheet,
and, if such balance sheet is not as of a date less than 6 months prior to
-21-
<PAGE>
the date of such request, additional statements of profit and loss and retained
earnings for the period from the date of such balance sheet to a date less than
6 months prior to the date of such request. If the Company shall have filed a
registration statement pursuant to the requirements of Section 12 of the
Exchange Act or a registration statement pursuant to the requirements of the
Securities Act, the Company covenants that it shall timely file any reports
required to be filed by it under the Securities Act or the Exchange Act
(including, but not limited to, the reports under Sections 13 and 15(d) of the
Exchange Act referred to in subparagraph (c) of Rule 144 under the Securities
Act), and that it shall take such further action as any Holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such Holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (i) Rule
144 and Rule 144A under the Securities Act, as such rules may be amended from
time to time, or (ii) any other rule or regulation now existing or hereafter
adopted by the SEC. Upon the request of any Holder of Registrable Securities,
the Company shall deliver to such Holder a written statement as to whether it
has complied with such requirements.
6.4 Amendments and Waivers. The provisions of this Agreement may not be
----------------------
amended, modified, supplemented or terminated, and waivers or consents to
departures from the provisions hereof may not be given, without the written
consent of the Company and the Holders of not less than 50% of the Registrable
Securities then outstanding; provided, however, that no such amendment,
-------- -------
modification, supplement waiver, or consent to departure shall reduce the
aforesaid percentage of Registrable Securities without the written consent of
all of the Holders of Registrable Securities; and provided further, that nothing
-------- -------
herein shall prohibit any amendment, modification, supplement, termination,
waiver or consent to departure the effect of which is limited only to those
Holders who have agreed to such amendment, modification, supplement,
termination, waiver or consent to departure.
6.5 Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand delivery, telecopier, any
courier guaranteeing overnight delivery or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to the applicable
party at the address set forth below or such other address as may hereafter be
designated in writing by such party to the other parties in accordance with the
provisions of this Section:
(i) If to the Company, to:
Overhill Farms, Inc.
5730 Uplander Way, Suite 201
Culver City, CA 90230
Telephone: (310) 641-3680
Telecopier: (310) 641-3914
-22-
<PAGE>
with a copy to:
Law Offices of Albert B. Greco
16885 Dallas Parkway, Suite 313
Dallas, Texas 75248
Attention: Al Greco
Telephone: (972) 818-7333
Telecopier (972) 818-7343
(ii) If to the Initial Holder, to:
The Long Horizons Fund L.P.
450 Park Avenue
New York, New York 10022
Attention: Mr. Kevin Genda
Telephone: (212) 891-2117
Telecopier: (212) 758-5305
with a copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attention: Mark A. Neporent, Esq.
Telephone: (212) 756-2000
Telecopier: (212) 593-5955
(iii) If to any subsequent Holder, to the address
of such Person set forth in the records of the
Company.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; when receipt is
acknowledged, if telecopied; on the next business day, if timely delivered to a
courier guaranteeing overnight delivery; and five days after being deposited in
the mail, if sent first class or certified mail, return receipt requested,
postage prepaid.
6.6 Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the parties hereto and their respective heirs, successors
and permitted assigns (including any permitted transferee of Registrable
Securities). Any Holder may assign to any permitted transferee of its
Registrable Securities (other than a transferee that acquires such Registrable
Securities in a registered public offering or pursuant to a sale under Rule 144
of the Securities Act (or any successor rule)), its rights and obligations under
this Agreement; provided, however, if any permitted transferee shall take and
-------- -------
hold Registrable Securities, such transferee shall promptly notify the Company
and by taking and holding such Registrable Securities such permitted transferee
shall automatically be entitled to receive the benefits of and be conclusively
-23-
<PAGE>
deemed to have agreed to be bound by and to perform all of the terms and
provisions of this Agreement as if it were a party hereto (and shall, for all
purposes, be deemed a Holder under this Agreement). If the Company shall so
request, any heir, successor or permitted assign (including any permitted
transferee) shall agree in writing to acquire and hold the Registrable
Securities subject to all of the terms hereof. For purposes of this Agreement,
"successor" for any entity other than a natural person shall mean a successor to
such entity as a result of such entity's merger, consolidation, liquidation,
dissolution, sale of substantially all of its assets, or similar transaction.
Except as provided above or otherwise permitted by this Agreement, neither this
Agreement nor any right, remedy, obligation or liability arising hereunder or by
reason hereof shall be assignable by any Holder or by the Company without the
consent of the other parties hereto.
6.7 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which, when so executed and delivered, shall be deemed to
be an original, but all of which counterparts, taken together, shall constitute
one and the same instrument.
6.8 Descriptive Headings, Etc. The headings in this Agreement are for
--------------------------
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Agreement
otherwise requires: (1) words of any gender shall be deemed to include each
other gender; (2) words using the singular or plural number shall also include
the plural or singular number, respectively; (3) the words "hereof", "herein"
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and Section and paragraph references are to the Sections and
paragraphs of this Agreement unless otherwise specified; (4) the word
"including" and words of similar import when used in this Agreement shall mean
"including, without limitation," unless otherwise specified; (5) "or" is not
exclusive; and (6) provisions apply to successive events and transactions.
6.9 Severability. In the event that any one or more of the provisions,
------------
paragraphs, words, clauses, phrases or sentences contained herein, or the
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision, paragraph, word, clause, phrase or
sentence in every other respect and of the other remaining provisions,
paragraphs, words, clauses, phrases or sentences hereof shall not be in any way
impaired, it being intended that all rights, powers and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.
6.10 Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of New York (without giving effect to the
conflict of laws principles thereof).
6.11 Remedies; Specific Performance. The parties hereto acknowledge that
------------------------------
money damages would not be an adequate remedy at law if any party fails to
perform in any material respect any of its obligations hereunder, and
accordingly agree that each party, in addition to any other remedy to which it
may be entitled at law or in equity, shall be entitled to seek to compel
specific performance of the obligations of any other party under this Agreement,
without the posting of any bond, in accordance with the terms and conditions of
this Agreement in any court
-24-
<PAGE>
of the United States or any State thereof having jurisdiction, and if any action
should be brought in equity to enforce any of the provisions of this Agreement,
none of the parties hereto shall raise the defense that there is an adequate
remedy at law. Except as otherwise provided by law, a delay or omission by a
party hereto in exercising any right or remedy accruing upon any such breach
shall not impair the right or remedy or constitute a waiver of or acquiescence
in any such breach. No remedy shall be exclusive of any other remedy. All
available remedies shall be cumulative.
6.12 Entire Agreement. This Agreement, the Term Loan Agreement, the
----------------
Warrant and the Voting Rights Agreement (as defined in the Term Loan Agreement)
is intended by the parties as a final expression of their agreement and intended
to be a complete and exclusive statement of the agreement and understanding of
the parties hereto in respect of the subject matter contained herein. There are
no restrictions, promises or undertakings, other than those set forth or
referred to herein or therein. This Agreement, together with the foregoing
agreements, supersedes all prior agreements and understandings between the
Company and the other parties to this Agreement with respect to such subject
matter.
6.13 Nominees for Beneficial Owners. In the event that any Registrable
------------------------------
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the holder of such Registrable Securities for purposes of
any request or other action by any holder or holders of Registrable Securities
pursuant to this Agreement or any determination of any number or percentage of
shares of Registrable Securities held by any holder or holders of Registrable
Securities contemplated by this Agreement. If the beneficial owner of any
Registrable Securities so elects, the Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Securities.
6.14 Consent to Jurisdiction; Waiver of Jury. The Company hereby
---------------------------------------
irrevocably and unconditionally agrees that any legal action, suit or proceeding
arising out of or relating to this Agreement or any agreements or transactions
contemplated hereby may be brought in any federal court of the Southern District
of New York or any state court located in New York County, State of New York,
and hereby irrevocably and unconditionally expressly submits to the personal
jurisdiction and venue of such courts for the purposes thereof and hereby
irrevocably and unconditionally waives any claim (by way of motion, as a defense
or otherwise) of improper venue, that it is not subject personally to the
jurisdiction of such court, that such courts are an inconvenient forum or that
this Agreement or the subject matter may not be enforced in or by such court.
The Company hereby irrevocably and unconditionally consents to the service of
process of any of the aforementioned courts in any such action, suit or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth or provided for in Section 6.5 of this
Agreement, such service to become effective 10 days after such mailing. Nothing
herein contained shall be deemed to affect the right of the Initial Holder to
serve process in any manner permitted by law or commence legal proceedings or
otherwise proceed against any other party in any other jurisdiction to enforce
judgments obtained in any action, suit or proceeding brought pursuant to this
Section. THE COMPANY HEREBY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION, SUIT
OR PROCEEDING, WHETHER AT LAW OR EQUITY, BROUGHT IN CONNECTION WITH THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
-25-
<PAGE>
6.15 Further Assurances. Each party hereto shall do and perform or cause
------------------
to be done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments and documents as
any other party hereto reasonably may request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
6.16 No Inconsistent Agreements. The Company will not hereafter enter
--------------------------
into any agreement which is inconsistent with the rights granted to the Holders
in this Agreement.
6.17 Construction. The Company and the Initial Holder acknowledge that
------------
each of them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this Agreement with its legal counsel and that
this Agreement shall be construed as if jointly drafted by the Company and the
Holders.
[The Remiander Of This Page Has Been Intentionally Left Blank]
-26-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
OVERHILL FARMS, INC.
By
----------------------------
Name:
Title
THE LONG HORIZONS FUND, L.P.
By
----------------------------
Name:
Title
-27-
<PAGE>
Exhibit 10.69
EXHIBIT D
---------
FORM OF WARRANT
---------------
- --------------------------------------------------------------------------------
Overhill Farms, Inc.
Common Stock Purchase Warrant
Dated as of December __, 1997
- --------------------------------------------------------------------------------
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT AND IN THE REGISTRATION
RIGHTS AGREEMENT, DATED THE DATE HEREOF, BY AND BETWEEN OVERHILL FARMS, INC.,
AND THE HOLDERS SPECIFIED THEREIN.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Exercise of Warrant................................................................................ 1
1.1. Manner of Exercise........................................................................ 1
1.2. When Exercise Effective................................................................... 1
1.3. Delivery of Stock Certificates, etc....................................................... 2
1.4. Company to Reaffirm Obligations........................................................... 2
1.5. Payment by Application of Note............................................................ 2
1.6. Payment by Application of Shares Otherwise Issuable....................................... 3
1.7. Tax Basis................................................................................. 3
2. Adjustment of Common Stock Issuable Upon Exercise.................................................. 3
2.1. General; Warrant Quantity................................................................. 3
2.2. Adjustment of Warrant Quantity............................................................ 3
2.2.1 Issuance of Additional Shares of Common Stock.................................... 3
2.2.2 Extraordinary Dividends and Distributions........................................ 4
2.3. Treatment of Option and Convertible Securities............................................ 4
2.4. Treatment of Stock Dividends, Stock Splits, etc........................................... 6
2.5. Computation of Consideration.............................................................. 6
2.6. Adjustments for Combinations, etc......................................................... 7
2.7 Dilution in Case of Other Securities...................................................... 7
2.8 Minimum Adjustment of Warrant Quantity.................................................... 8
2.9. Abandoned Dividend or Distribution........................................................ 8
3. Consolidation, Merger, etc......................................................................... 8
3.1. Adjustments for Consolidation, Merger, Sale of Assets, Reorganization, etc................ 8
3.2. Assumption of Obligations................................................................. 9
4. Other Dilutive Events.............................................................................. 9
5. No Dilution or Impairment.......................................................................... 9
6. Accountants' Report as to Adjustments.............................................................. 10
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
7. Financial and Business Information................................................................. 10
7.1 Quarterly Information..................................................................... 10
7.2 Annual Information........................................................................ 11
7.3. Filings................................................................................... 11
7.4. Notices of Corporate Action............................................................... 12
8. Registration of Common Stock....................................................................... 12
9. Restrictions on Transfer........................................................................... 13
9.1. Restrictive Legends....................................................................... 13
9.2. Transfers to Comply With the Securities Act............................................... 14
9.3. Termination of Restrictions............................................................... 14
10. Reservation of Stock, etc.......................................................................... 14
11. Registration and Transfer of Warrants, etc......................................................... 15
11.1. Warrant Register; Ownership of Warrants................................................... 15
11.2. Transfer of Warrants...................................................................... 15
11.3. Replacement of Warrants................................................................... 15
11.4. Adjustments To Warrant Quantity........................................................... 15
11.5 Fractional Shares......................................................................... 15
12. Definitions........................................................................................ 15
13. Remedies; Specific Performance..................................................................... 18
14. No Rights or Liabilities as Shareholder............................................................ 18
15. Notices............................................................................................ 19
16. Amendments......................................................................................... 19
17. Descriptive Headings, Etc.......................................................................... 19
18. GOVERNING LAW...................................................................................... 19
19. Judicial Proceedings; Waiver of Jury............................................................... 19
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
20. Registration Rights Agreement...................................................................... 20
21. Redemption......................................................................................... 20
</TABLE>
iii
<PAGE>
EXHIBIT D
OVERHILL FARMS, INC.
Common Stock Purchase Warrant
Void After December ___, 2002
No. W-1 New York, New York
December __, 1997
OVERHILL FARMS, INC. (the "Company"), a Nevada corporation, for value
received, hereby certifies that THE LONG HORIZONS FUND, L.P., a __________
limited partnership, or registered assigns (the "Holder"), is entitled to
purchase from the Company Two Hundred and Thirty Two and One Half (232.5) shares
of Common Stock of the Company (the "Warrant Quantity") duly authorized, validly
issued, fully paid and nonassessable shares of common stock, par value $0.01 per
share, of the Company (the "Common Stock") at the purchase price per share of
$0.01, at any time or from time to time prior to 5:30 PM, New York City time, on
December __, 2002 (the "Expiration Date"), all subject to the terms, conditions
and adjustments set forth below in this Warrant.
This Warrant is the Warrant (the "Warrant", such term to include any
such warrants issued in substitution therefor) originally issued in connection
with the Term Loan Agreement, dated as of the date hereof, by and among the
Company, Polyphase Corporation, as guarantor, and the Holder (as amended or
otherwise modified from time to time, the "Term Loan Agreement"). The Warrant
originally so issued evidences the right to purchase a number of shares of
Common Stock equal to the Warrant Quantity, subject to adjustment as provided
herein. Certain capitalized terms used in this Warrant are defined in Section
12; references to an "Exhibit" are, unless otherwise specified, to one of the
Exhibits attached to this Warrant and references to a "Section" are, unless
otherwise specified, to one of the Sections of this Warrant.
1. Exercise of Warrant.
-------------------
1.1. Manner of Exercise. This Warrant may be exercised by the
------------------
Holder, in whole or in part, during normal business hours on any Business Day,
by surrender of this Warrant to the Company at its principal office, accompanied
by the Form of Subscription in substantially the form attached as Exhibit A to
this Warrant (or a reasonable facsimile thereof) duly executed by the Holder and
accompanied by payment, in cash, by certified or official bank check payable to
the order of the Company, or in the manner provided in Section 1.5 or Section
1.6 (or by any combination of such methods), in the amount obtained by
multiplying (a) the number of shares of Common Stock (adjusted as provided in
-
Sections 2 through 4) designated in such Form of Subscription by (b) $0.01, and
-
such Holder shall thereupon be entitled to receive such number of duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock
(or Other Securities).
1.2. When Exercise Effective. Each exercise of this Warrant shall be
-----------------------
deemed to have been effected immediately prior to the close of business on the
Business Day on which this
<PAGE>
Warrant shall have been surrendered to the Company as provided in Section 1.1.
At such time the Person or Persons in whose name or names any certificate or
certificates for shares of Common Stock (or Other Securities) shall be issuable
upon such exercise, as provided in Section 1.3, shall be deemed to have become
the Holder or holders of record thereof.
1.3. Delivery of Stock Certificates, etc. As soon as practicable
-----------------------------------
after each exercise of this Warrant, in whole or in part, and in any event
within three Business Days thereafter, the Company at its expense (including the
payment by it of any applicable transfer taxes) will cause to be issued in the
name of and delivered to the Holder hereof or, subject to Section 9, as such
Holder (upon payment by such Holder of any applicable transfer taxes) may
direct,
(a) a certificate or certificates for the number of duly
authorized, validly issued, fully paid and nonassessable shares, including,
if the Company so elects, fractional shares, of Common Stock (or Other
Securities) to which such Holder shall be entitled upon such exercise plus,
at the discretion of the Company, in lieu of any fractional share to which
such Holder would otherwise be entitled, cash in an amount equal to the
same fraction of the Current Market Price per share on the Business Day
next preceding the date of such exercise, and
(b) in case such exercise is in part only, a new Warrant or
Warrants of like tenor, calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock equal (without giving
effect to any adjustment thereof) to the number of such shares called for
on the face of this Warrant minus the number of such shares designated by
the Holder upon such exercise as provided in Section 1.1.
1.4. Company to Reaffirm Obligations. The Company will, at the time
-------------------------------
of each exercise of this Warrant, upon the request of the Holder, acknowledge in
writing its continuing obligation to afford to such Holder all rights
(including, without limitation, any rights to registration of the shares of
Common Stock or Other Securities issued upon such exercise) to which such Holder
shall continue to be entitled after such exercise in accordance with the terms
of this Warrant, provided that if the Holder shall fail to make any such
--------
request, such failure shall not affect the continuing obligation of the Company
to afford such rights to such Holder.
1.5. Payment by Application of Note. Upon any exercise of this
------------------------------
Warrant, the Holder may, at its option, instruct the Company, by written notice
accompanying the surrender of this Warrant at the time of such exercise, to
apply to the payment required by Section 1.1 all or any part of the unpaid
principal amount of the Note at the time held by such Holder, in which case the
Company will accept the principal amount specified in such notice in
satisfaction of a like amount of such payment. In case less than the entire
unpaid principal amount of the Note shall be so specified, the principal amount
so specified shall be credited, as of the date of such exercise, against the
required prepayments of principal then remaining unpaid on such Note in the
inverse order of their maturity dates. Upon any partial application of the
Note, the Holder shall surrender the Note and the Company, at its expense, shall
forthwith issue and deliver to or upon the order of the Holder a new Note or
Notes in principal amount equal to the unpaid principal amount of such
surrendered Note which has not been applied against such payment, such new Note
or Notes to be dated and to bear interest from the date to which interest has
been paid on such surrendered
2
<PAGE>
Note. Within two Business Days after receipt of any such notice, the Company
will pay to the Holder of the Note giving such notice, in the manner provided in
the Note and in the Term Loan Agreement, all unpaid interest on the principal
amount so specified in such notice, accrued to the date of the exercise of this
Warrant.
1.6. Payment by Application of Shares Otherwise Issuable. Upon any
---------------------------------------------------
exercise of this Warrant, the Holder may, at its option, instruct the Company,
by written notice accompanying the surrender of this Warrant at the time of such
exercise, to apply to the payment required by Section 1.1 such number of the
shares of Common Stock otherwise issuable to such Holder upon such exercise as
shall be specified in such notice, in which case an amount equal to the excess
of the aggregate Current Market Price of such specified number of shares on the
date of exercise over the portion of the payment required by Section 1.1
attributable to such shares shall be deemed to have been paid to the Company and
the number of shares issuable upon such exercise shall be reduced by such
specified number.
1.7. Tax Basis. The Company and the Holder shall mutually agree as
---------
to the tax basis of this Warrant for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), and the treatment of this Warrant under the Code
by each of the Company and the Holder shall be consistent with such agreement.
2. Adjustment of Common Stock Issuable Upon Exercise.
-------------------------------------------------
2.1. General; Warrant Quantity. This Warrant initially evidences
-------------------------
the right to purchase a number of shares of Common Stock equal to the Warrant
Quantity, subject to adjustment as provided in this Section 2. The "Warrant
Price" shall be fixed at $0.01 per share of Common Stock received upon exercise
of this Warrant.
2.2. Adjustment of Warrant Quantity.
------------------------------
2.2.1 Issuance of Additional Shares of Common Stock. In case the
---------------------------------------------
Company at any time or from time to time after the date hereof shall issue or
sell Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Section 2.3 or 2.4) without consideration
or for a consideration per share less than the Current Market Price in effect
immediately prior to such issue or sale, then, and in each such case, subject to
Section 2.8, the Warrant Quantity shall be increased, concurrently with such
issue or sale, to an amount determined by multiplying the Warrant Quantity by a
fraction
(a) the numerator of which shall be the number of shares of
Common Stock outstanding immediately after such issue or sale, provided
--------
that, for the purposes of this Section 2.2.1, (x) immediately after any
-
Additional Shares of Common Stock are deemed to have been issued pursuant
to Section 2.3 or 2.4, such Additional Shares shall be deemed to be
outstanding, and (y) treasury shares shall not be deemed to be outstanding,
-
and
(b) the denominator of which shall be (i) the number of shares
-
of Common Stock outstanding immediately prior to such issue or sale plus
(ii) the number of shares of Common Stock which the aggregate consideration
--
received by the Company for
3
<PAGE>
the total number of such Additional Shares of Common Stock so issued or
sold would purchase at such Current Market Price.
2.2.2 Extraordinary Dividends and Distributions. In case the Company
-----------------------------------------
at any time or from time to time after the date hereof shall declare, order, pay
or make a dividend or other distribution (including, without limitation, any
distribution of other or additional stock or other securities or property or
Options by way of dividend or spin-off, reclassification, recapitalization or
similar corporate rearrangement) on the Common Stock other than (a) a dividend
-
payable in Additional Shares of Common Stock or (b) a regularly scheduled cash
-
dividend payable out of consolidated earnings or earned surplus, determined in
accordance with generally accepted accounting principles, then, in each such
case, subject to Section 2.8, the Warrant Quantity in effect immediately prior
to the close of business on the record date fixed for the determination of
holders of any class of securities entitled to receive such dividend or
distribution shall be increased, effective as of the close of business on such
record date, to an amount determined by multiplying such Warrant Quantity by a
fraction
(x) the numerator of which shall be the Current Market Price in
effect on such record date or, if the Common Stock trades on an ex-dividend
basis, on the date prior to the commencement of ex-dividend trading, and
(y) the denominator of which shall be such Current Market
Price, less the amount of such dividend or distribution (as determined in
good faith by the Board of Directors of the Company) applicable to one
share of Common Stock,
provided that, in the event that the amount of such dividend as so determined is
- --------
equal to or greater than 10% of such Current Market Price or in the event that
such fraction is greater than 10/9, in lieu of the foregoing adjustment,
adequate provision shall be made so that the Holder of this Warrant shall
receive a pro rata share of such dividend based upon the maximum number of
shares of Common Stock at the time issuable to such Holder.
2.3. Treatment of Options and Convertible Securities. In case the
-----------------------------------------------
Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to receive, any Options or
Convertible Securities (whether or not the rights thereof are immediately
exercisable) then, and in each such case, the maximum number of Additional
Shares of Common Stock (as set forth in the instrument relating thereto, without
regard to any provisions contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue, sale, grant or assumption or, in case such
a record date shall have been fixed, as of the close of business on such record
date (or, if the Common Stock trades on an ex-dividend basis, on the date prior
to the commencement of ex-dividend trading), provided that such Additional
--------
Shares of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 2.5) of such shares
would be less than the Current Market Price in effect on the date of and
immediately prior to such issue, sale, grant or assumption or immediately prior
to the close of business on such record date (or, if the Common Stock trades on
an ex-dividend basis, on the date prior to the commencement of ex-
dividend trading), as the case
4
<PAGE>
may be, and provided, further, that in any such case in which Additional Shares
-------- -------
of Common Stock are deemed to be issued
(a) whether or not the Additional Shares of Common Stock
underlying such Options or Convertible Securities are deemed to be issued,
no further adjustment of the Warrant Quantity shall be made upon the
subsequent issue or sale of Convertible Securities or shares of Common
Stock upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, except in the case of any such Options or
Convertible Securities which contain provisions requiring an adjustment,
subsequent to the date of the issue or sale thereof, of the number of
Additional Shares of Common Stock issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities by
reason of (x) a change of control of the Company, (y) the acquisition by
- -
any Person or group of Persons of any specified number or percentage of the
Voting Securities of the Company or (z) any similar event or occurrence,
-
each such case to be deemed hereunder to involve a separate issuance of
Additional Shares of Common Stock, Options or Convertible Securities, as
the case may be;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock issuable, upon the exercise, conversion
or exchange thereof (by change of rate or otherwise), the Warrant Quantity
computed upon the original issue, sale, grant or assumption thereof (or
upon the occurrence of the record date, or date prior to the commencement
of ex-dividend trading, as the case may be, with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options, or the rights of conversion or
exchange under such Convertible Securities, which are outstanding at such
time;
(c) upon the expiration (or purchase by the Company and
cancellation or retirement) of any such Options which shall not have been
exercised or the expiration of any rights of conversion or exchange under
any such Convertible Securities which (or purchase by the Company and
cancellation or retirement of any such Convertible Securities the rights of
conversion or exchange under which) shall not have been exercised, the
Warrant Quantity computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be, with
respect thereto), and any subsequent adjustments based thereon, shall, upon
such expiration (or such cancellation or retirement, as the case may be),
be recomputed as if:
(i) in the case of Options for Common Stock or Convertible
Securities, the only Additional Share of Common Sock issued or
sold were the Additional Shares of Common Stock, if any, actually
issued or sold upon the exercise of such Options or the
conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually
received by the Company for the issue, sale, grant or assumption
of all such Options, whether or not exercised, plus the
consideration actually received by the
5
<PAGE>
Company upon such exercise, or for the issue or sale of all such
Convertible Securities which were actually converted or exchanged,
plus the additional consideration, if any, actually received by the
Company upon such conversion or exchange, and
(ii) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued or sold upon the
exercise of such Options were issued at the time of the issue or sale,
grant or assumption of such Options, and the consideration received by
the Company for the Additional Shares of Common Stock deemed to have
then been issued was the consideration actually received by the
Company for the issue, sale, grant or assumption of all such Options,
whether or not exercised, plus the consideration deemed to have been
received by the Company (pursuant to Section 2.5) upon the issue or
sale of such Convertible Securities with respect to which such Options
were actually exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above
shall have the effect of decreasing the Warrant Quantity by an amount in
excess of the amount of the adjustment thereof originally made in respect
of the issue, sale, grant or assumption of such Options or Convertible
Securities; and
(e) in the case of any such Options which expire by their terms
not more than 30 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Warrant Quantity shall be made until the
expiration or exercise of all such Options, whereupon such adjustment shall
be made in the manner provided in subdivision (c) above.
2.4. Treatment of Stock Dividends, Stock Splits, etc. In case the
------------------------------------------------
Company at any time or from time to time after the date hereof shall declare or
pay any dividend on the Common Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
-
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
-
on the day immediately prior to the day upon which such corporate action becomes
effective.
2.5. Computation of Consideration. For the purposes of this Section
----------------------------
2,
(a) the consideration for the issue or sale of any Additional
Shares of Common Stock shall, irrespective of the accounting treatment of
such consideration,
(i) insofar as it consists of cash, be computed at the net
amount of cash received by the Company, without deducting any expenses
paid or incurred by the Company or any commissions or compensations
paid or concessions or discounts allowed to underwriters, dealers or
others performing similar services in connection with such issue or
sale,
6
<PAGE>
(ii) insofar as it consists of property (including
securities) other than cash, be computed at the fair value thereof at
the time of such issue or sale, as determined in good faith by the
Board of Directors of the Company, and
(iii) in case Additional Shares of Common Stock are issued
or sold together with other stock or securities or other assets of the
Company for a consideration which covers both, be the portion of such
consideration so received, computed as provided in clauses (i) and
(ii) above, allocable to such Additional Shares of Common Stock, all
as determined in good faith by the Board of Directors of the Company;
(b) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 2.3, relating to Options and Convertible Securities,
shall be deemed to have been issued for a consideration per share
determined by dividing
(i) the total amount, if any, received and receivable by
the Company as consideration for the issue, sale, grant or assumption
of the Options or Convertible Securities in question, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration to
protect against dilution) payable to the Company upon the exercise in
full of such Options or the conversion or exchange of such Convertible
Securities or, in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the conversion
or exchange of such Convertible Securities, in each case computing
such consideration as provided in the foregoing subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number
to protect against dilution) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities;
and
(c) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 2.4, relating to stock dividends, stock splits, etc.,
shall be deemed to have been issued for no consideration.
2.6. Adjustments for Combinations, etc. In case the outstanding
----------------------------------
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Warrant Quantity
in effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately decreased.
2.7. Dilution in Case of Other Securities. In case any Other
------------------------------------
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person
7
<PAGE>
referred to in Section 3) or to subscription, purchase or other acquisition
pursuant to any Options issued or granted by the Company (or any such other
issuer or Person) for a consideration such as to dilute, on a basis consistent
with the standards established in the other provisions of this Section 2, the
purchase rights granted by this Warrant, then, and in each such case, the
computations, adjustments and readjustments provided for in this Section 2 with
respect to the Warrant Quantity shall be made as nearly as possible in the
manner so provided and applied to determine the amount of Other Securities from
time to time receivable upon the exercise of the Warrant, so as to protect the
Holder against the effect of such dilution.
2.8. Minimum Adjustment of Warrant Quantity. If the amount of any
--------------------------------------
adjustment of the Warrant Quantity required pursuant to this Section 2 would be
less than one tenth (1/10) of one percent (1%) of the Warrant Quantity in effect
at the time such adjustment is otherwise so required to be made, such amount
shall be carried forward and adjustment with respect thereto made at the time of
and together with any subsequent adjustment which, together with such amount and
any other amount or amounts so carried forward, shall aggregate at least one
tenth (1/10) of one percent (1%) of such Warrant Quantity. All calculations
under this Warrant shall be made to the nearest one-hundredth of a share.
2.9. Abandoned Dividend or Distribution. If the Company shall take a
----------------------------------
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution (which results in an adjustment to the
Warrant Quantity under the terms of this Warrant) and shall, thereafter, and
before such dividend or distribution is paid or delivered to shareholders
entitled thereto, legally abandon its plan to pay or deliver such dividend or
distribution, then any adjustment made to the Warrant Quantity by reason of the
taking of such record shall be reversed, and any subsequent adjustments, based
thereon, shall be recomputed.
3. Consolidation, Merger, etc.
--------------------------
3.1. Adjustments for Consolidation, Merger, Sale of Assets,
------------------------------------------------------
Reorganization, etc. In case the Company after the date hereof (a) shall
- -------------------
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) shall permit
any other Person to consolidate with or merge into the Company and the Company
shall be the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Stock or Other Securities shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of its
properties or assets to any other Person, or (d) shall effect a capital
reorganization or reclassification of the Common Stock or Other Securities
(other than a capital reorganization or reclassification resulting in the issue
of Additional Shares of Common Stock for which adjustment in the Warrant
Quantity is provided in Section 2.2.1 or 2.2.2), then, and in the case of each
such transaction, proper provision shall be made so that, upon the basis and the
terms and in the manner provided in this Warrant, the Holder, upon the exercise
hereof at any time after the consummation of such transaction, shall be entitled
to receive (at the aggregate Warrant Price in effect at the time of such
consummation for all Common Stock or Other
Securities issuable upon such exercise immediately prior to such consummation),
in lieu of the Common Stock or Other Securities issuable upon such exercise
prior to such consummation, the highest amount of securities, cash or other
property to which such Holder would actually have been entitled as a shareholder
upon such consummation if such Holder had exercised the rights represented by
this
8
<PAGE>
Warrant immediately prior thereto, subject to adjustments (subsequent to such
consummation) as nearly equivalent as possible to the adjustments provided for
--------
in Sections 2 through 4, provided that if a purchase, tender or exchange offer
shall have been made to and accepted by the holders of more than 50% of the
outstanding shares of Common Stock, and if the Holder so designates in a notice
given to the Company on or before the date immediately preceding the date of the
consummation of such transaction, the Holder shall be entitled to receive the
highest amount of securities, cash or other property to which such Holder would
actually have been entitled as a shareholder if the Holder had exercised this
Warrant prior to the expiration of such purchase, tender or exchange offer and
accepted such offer, subject to adjustments (from and after the consummation of
such purchase, tender or exchange offer) as nearly equivalent as possible to the
adjustments provided for in Sections 2 through 4.
3.2. Assumption of Obligations. Notwithstanding anything contained
-------------------------
in the Warrant or in the Term Loan Agreement to the contrary, the Company will
not effect any of the transactions described in clauses (a) through (d) of
Section 3.1 unless, prior to the consummation thereof, each Person (other than
the Company) which may be required to deliver any stock, securities, cash or
property upon the exercise of this Warrant as provided herein shall assume, by
written instrument delivered to, and reasonably satisfactory to, the Holder, (a)
-
the obligations of the Company under this Warrant (and if the Company shall
survive the consummation of such transaction, such assumption shall be in
addition to, and shall not release the Company from, any continuing obligations
of the Company under this Warrant), (b) the obligations of the Company under the
-
Registration Rights Agreement, and (c) the obligation to deliver to such Holder
-
such shares of stock, securities, cash or property as, in accordance with the
foregoing provisions of this Section 3, such Holder may be entitled to receive,
and such Person shall have similarly delivered to such Holder an opinion of
counsel for such Person, which counsel shall be reasonably satisfactory to such
Holder, stating that this Warrant shall thereafter continue in full force and
effect and the terms hereof (including, without limitation, all of the
provisions of this Section 3) shall be applicable to the stock, securities, cash
or property which such Person may be required to deliver upon any exercise of
this Warrant or the exercise of any rights pursuant hereto. Nothing in this
Section 3 shall be deemed to authorize the Company to enter into any transaction
not otherwise permitted by the Term Loan Agreement.
4. Other Dilutive Events. In case any event shall occur as to
---------------------
which the provisions of Section 2 or Section 3 are not strictly applicable but
the failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of such Sections, then, in each such case, the Company shall appoint
a firm of independent certified public accountants of recognized national
standing (which may be the regular auditors of the Company), which shall give
their opinion upon the adjustment, if any, on a basis consistent with the
essential intent and principles established in Sections 2 and 3, necessary to
preserve, without dilution, the purchase rights represented by this Warrant.
Upon receipt of such opinion, the Company will promptly mail a copy thereof to
the Holder and shall make the adjustments described therein.
5. No Dilution or Impairment. The Company will not, by amendment
-------------------------
of its certificate of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good
9
<PAGE>
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder against dilution or other impairment. Without limiting the generality of
the foregoing, the Company (a) shall not permit the par value of any shares of
-
stock receivable upon the exercise of this Warrant to exceed the amount payable
therefor upon such exercise, (b) will 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 stock, free from all taxes, liens, security
interests, encumbrances, preemptive rights and charges on the exercise of the
Warrants from time to time outstanding, (c) will not take any action which
-
results in any adjustment of the Warrant Quantity if the total number of shares
of Common Stock (or Other Securities) issuable after the action upon the
exercise of all of the Warrants would exceed the total number of shares of
Common Stock (or Other Securities) then authorized by the Company's certificate
of incorporation and available for the purpose of issue upon such exercise, and
(d) will not issue any capital stock of any class which is preferred as to
-
dividends or as to the distribution of assets upon voluntary or involuntary
dissolution, liquidation or winding-up, unless the rights of the holders thereof
shall be limited to a fixed sum or percentage of par value or a sum determined
by reference to a formula based on a published index of interest rates, an
interest rate publicly announced by a financial institution or a similar
indicator of interest rates in respect of participation in dividends and to a
fixed sum or percentage of par value in any such distribution of assets.
6. Accountants' Report as to Adjustments. In each case of any
-------------------------------------
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable upon the exercise of this Warrant, the Company at its expense will
promptly compute such adjustment or readjustment in accordance with the terms of
this Warrant and cause independent certified public accountants of recognized
national standing (which may be the regular auditors of the Company) selected by
the Company to verify such computation (other than any computation of the fair
value of property as determined in good faith by the Board of Directors of the
Company) and prepare a report setting forth such adjustment or readjustment and
showing in reasonable detail the method of calculation thereof and the facts
upon which such adjustment or readjustment is based, including a statement of
(a) the consideration received or to be received by the Company for any
-
Additional Shares of Common Stock issued or sold or deemed to have been issued,
(b) the number of shares of Common Stock outstanding or deemed to be
-
outstanding, and (c) the Warrant Quantity in effect immediately prior to such
-
issue or sale and as adjusted and readjusted (if required by Section 2) on
account thereof. The Company will forthwith mail a copy of each such report to
each Holder of a Warrant and will, upon the written request at any time of any
Holder of a Warrant, furnish to such Holder a like report setting forth the
Warrant Quantity at the time in effect and showing in reasonable detail how it
was calculated. The Company will also keep copies of all such reports at its
principal office and will cause the same to be available for inspection at such
office during normal business hours by any Holder of a Warrant or any
prospective purchaser of a Warrant designated by the Holder thereof.
7. Financial and Business Information
----------------------------------
7.1 Quarterly Information. Except during any period when the
---------------------
Company either (i) is subject to the reporting requirements of Section 15(d) of
the Exchange Act or (ii) has securities registered under Section 12(b) or 12(g)
of the Exchange Act (such status being referred
10
<PAGE>
to as being a "Public Company"), the Company will deliver to the Holder, as soon
as practicable after the end of each quarterly fiscal period in each fiscal year
of the Company, and in any event within 60 days thereafter, a copy of the
unaudited consolidated balance sheet as at the close of such quarter, and the
related unaudited consolidated statements of income, shareholders' equity and
cash flow of the Company and its subsidiaries for that portion of the fiscal
year ending as of the close of such quarter. Such financial statements shall be
prepared by the Company in accordance with generally accepted accounting
principles, applied on a consistent basis ("GAAP") (subject to normal year end
adjustments and the inclusion of footnotes) and accompanied by the certification
of the Company's chief executive officer or chief financial officer that, to the
best of his knowledge, such financial statements are complete and correct in all
material respects and fairly present in accordance with GAAP (subject to normal
year end adjustments and the inclusions of footnotes) the consolidated financial
position, the consolidated statements of income, shareholder equity and cash
flow of the Company and its subsidiaries as at the end of such quarter and for
such year-to-date period, as the case may be.
7.2. Annual Information. Except during any period when the Company is
------------------
a Public Company, the Company will deliver to the Holder as soon as practicable
after the end of each fiscal year of the Company, and in any event within 120
days thereafter, one copy of:
(i) an audited consolidated balance sheet of the Company
and its subsidiaries as at the end of such year, and
(ii) audited consolidated statements of income,
shareholders' equity and cash flow of the Company and its subsidiaries
for such year;
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all prepared in accordance with GAAP, and
which audited financial statements shall be accompanied by (i) a certification
of the chief executive officer or chief financial officer of the Company that,
to the best of his knowledge, all such financial statements are complete and
correct in all material respects and present fairly in accordance with GAAP the
consolidated financial position of the Company and its subsidiaries as at the
end of such fiscal year and for the period then ended, (ii) an opinion thereon
of the independent certified public accountants regularly retained by the
Company, or any other firm of independent certified public accountants of
recognized national standing selected by the Company, and (iii) a report of such
independent certified public accountants confirming any adjustment made pursuant
to Section 2 during such year.
7.3. Filings. During any period when the Company is a Public
-------
Company, the Company will file on or before the required date all required
regular or periodic reports (pursuant to the Exchange Act) with the Commission
and will deliver to the Holder promptly upon their becoming available one copy
of each report, notice or proxy statement sent by the Company to its
stockholders generally, and of each regular or periodic report (pursuant to the
Exchange Act) and any registration statement, prospectus or written
communication (other than transmittal letters) (pursuant to the Securities Act),
filed by the Company with (i) the Commission or (ii) any securities exchange on
which shares of Common Stock are listed.
11
<PAGE>
7.4. Notices of Corporate Action. In the event of
---------------------------
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend (other than a regular periodic
dividend payable in cash out of earned surplus in an amount not exceeding
the amount of the immediately preceding cash dividend for such period) or
other distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger involving the Company and any other Person, any
transaction or series of transactions in which more than 50% of the Voting
Securities of the Company are transferred to another Person or any
transfer, sale or other disposition of all or substantially all the assets
of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to the Holder a notice specifying (i) the date or expected
-
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right, and (ii) the date or expected date on which any such
--
reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, sale, disposition, liquidation or winding-up.
Such notice shall be mailed at least 45 days prior to the date therein
specified.
8. Registration of Common Stock. If any shares of Common Stock
----------------------------
required to be reserved for purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any federal or
state law (other than the Securities Act) before such shares may be issued upon
exercise, the Company will, at its expense and as expeditiously as possible, use
its best efforts to cause such shares to be duly registered or approved, as the
case may be. At any such time as Common Stock is listed on any national
securities exchange, the Company will, at its expense, obtain promptly and
maintain the approval for listing on each such exchange, upon official notice of
issuance, the shares of Common Stock issuable upon exercise of the then
outstanding Warrants and maintain the listing of such shares after their
issuance; and the Company will also list on such national securities exchange,
will register under the Exchange Act and will maintain such listing of, any
Other Securities that at any time are issuable upon exercise of the Warrants, if
and at the time that any securities of the same class shall be listed on such
national securities exchange by the Company.
12
<PAGE>
9. Restrictions on Transfer.
------------------------
9.1. Restrictive Legends. Except as otherwise permitted by this
-------------------
Section 9, each Warrant (including each Warrant issued upon the transfer of any
Warrant) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN THIS WARRANT AND IN THE REGISTRATION RIGHTS
AGREEMENT, DATED THE DATE HEREOF, BY AND BETWEEN OVERHILL FARMS, INC., AND
THE HOLDERS SPECIFIED THEREIN."
Except as otherwise permitted by this Section 9, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Stock (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO
THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. SUCH SECURITIES
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE
WITH THE CONDITIONS SPECIFIED IN CERTAIN COMMON STOCK PURCHASE WARRANTS
ISSUED BY OVERHILL FARMS, INC., PURSUANT TO THE COMMON STOCK PURCHASE
WARRANT, DATED DECEMBER __, 1997, AND PURSUANT TO THE REGISTRATION RIGHTS
AGREEMENT DATED THE DATE THEREOF, BY AND BETWEEN OVERHILL FARMS, INC. AND
THE HOLDERS SPECIFIED THEREIN. A COMPLETE AND CORRECT COPY OF
THE FORM OF SUCH WARRANT AND REGISTRATION RIGHTS AGREEMENT IS AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF OVERHILL FARMS, INC., OR AT THE
OFFICE OR AGENCY
13
<PAGE>
MAINTAINED BY OVERHILL FARMS, INC., AS PROVIDED IN SUCH WARRANTS AND SUCH
REGISTRATION RIGHTS AGREEMENT AND WILL BE FURNISHED TO THE HOLDER OF SUCH
SECURITIES UPON WRITTEN REQUEST AND WITHOUT CHARGE."
9.2. Transfer to Comply With the Securities Act. Restricted
------------------------------------------
Securities may not be sold, assigned, pledged, hypothecated, encumbered or in
any manner transferred or disposed of, in whole or in part, except in compliance
with the provisions of the Securities Act and state securities or Blue Sky laws
and the terms and conditions hereof.
9.3. Termination of Restrictions. The restrictions imposed by this
---------------------------
Section 9 on the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities (a) when a registration
statement with respect to the sale of such securities shall have been declared
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (b) when such securities are
sold pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, or (c) when, in the opinion of both counsel for the Holder and
counsel for the Company, such restrictions are no longer required or necessary
in order to protect the Company against a violation of the Securities Act upon
any sale or other disposition of such securities without registration
thereunder. Whenever such restrictions shall cease and terminate as to any
Restricted Securities, the Holder shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing the applicable legends
required by Section 9.1.
10. Reservation of Stock, etc. The Company shall at all times
--------------------------
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrants, the number of shares of Common Stock (or Other Securities) from
time to time issuable upon exercise of all Warrants at the time outstanding.
All shares of Common Stock (or Other Securities) issuable upon exercise of any
Warrants shall be duly authorized and, when issued upon such exercise, shall be
validly issued and, in the case of shares, fully paid and nonassessable with no
liability on the part of the holders thereof, and, in the case of all
securities, shall be free from all taxes, liens, security interests,
encumbrances, preemptive rights and charges. The transfer agent for the Common
Stock, which may be the Company ("Transfer Agent"), and every subsequent
Transfer Agent for any shares of the Company's capital stock issuable upon the
exercise of any of the purchase rights represented by this Warrant, are hereby
irrevocably authorized and directed at all times until the Expiration Date to
reserve such number of authorized and unissued shares as shall be requisite for
such purpose. The Company shall keep copies of this Warrant on file with the
Transfer Agent for the Common Stock and with every subsequent Transfer Agent for
any shares of the Company's capital stock issuable upon the exercise of the
rights of purchase represented by this Warrant. The Company shall supply such
Transfer Agent with duly executed stock certificates for such purpose. All
Warrant certificates surrendered upon the exercise of the rights thereby
evidenced shall be canceled, and such canceled Warrants shall constitute
sufficient evidence of the number of shares of stock which have been issued upon
the exercise of such Warrants. Subsequent to the Expiration Date, no shares of
stock need be reserved in respect of any unexercised Warrant.
14
<PAGE>
11. Registration and Transfer of Warrants, etc.
-------------------------------------------
11.1. Warrant Register; Ownership of Warrants. Each Warrant issued
---------------------------------------
by the Company shall be numbered and shall be registered in a warrant register
(the "Warrant Register") as it is issued and transferred, which Warrant Register
shall be maintained by the Company at its principal office or, at the Company's
election and expense, by a Warrant Agent or the Company's transfer agent. The
Company shall be entitled to treat the registered Holder of any Warrant on the
Warrant Register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Warrant
on the part of any other Person, and shall not be affected by any notice to the
contrary, except that, if and when any Warrant is properly assigned in blank,
the Company may (but shall not be obligated to) treat the bearer thereof as the
owner of such Warrant for all purposes. Subject to Section 9, a Warrant, if
properly assigned, may be exercised by a new holder without a new Warrant first
having been issued.
11.2. Transfer of Warrants. Subject to compliance with Section 9, if
--------------------
applicable, this Warrant and all rights hereunder are transferable in whole or
in part, without charge to the Holder hereof, upon surrender of this Warrant
with a properly executed Form of Assignment attached hereto as Exhibit B at the
principal office of the Company. Upon any partial transfer, the Company shall at
its expense issue and deliver to the Holder a new Warrant of like tenor, in the
name of the Holder, which shall be exercisable for such number of shares of
Common Stock with respect to which rights under this Warrant were not so
transferred.
11.3. Replacement of Warrants. On receipt by the Company of evidence
-----------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender of such Warrant to the Company at its principal office
and cancellation thereof, the Company at its expense shall execute and deliver,
in lieu thereof, a new Warrant of like tenor.
11.4. Adjustments To Warrant Quantity. Notwithstanding any
-------------------------------
adjustment in the Warrant Quantity or in the number or kind of shares of Common
Stock purchasable upon exercise of this Warrant, any Warrant theretofore or
thereafter issued may continue to express the same number and kind of shares of
Common Stock as are stated in this Warrant, as initially issued.
11.5. Fractional Shares. Notwithstanding any adjustment pursuant to
-----------------
Section 2 in the number of shares of Common Stock covered by this Warrant or any
other provision of this Warrant, the Company may, but shall not be required to,
issue fractions of shares upon exercise of this Warrant or to distribute
certificates which evidence fractional shares. In lieu of fractional shares, the
Company shall make payment to the Holder, at the time of exercise of this
Warrant as herein provided, in an amount in cash equal to such fraction
multiplied by the Current Market Price of a share of Common Stock on the date of
Warrant exercise.
12. Definitions. As used herein, unless the context otherwise
-----------
requires, the following terms have the following respective meanings:
15
<PAGE>
Additional Shares of Common Stock: All shares (including treasury
---------------------------------
shares) of Common Stock issued or sold (or, pursuant to Section 2.3 or 2.4,
deemed to be issued) by the Company after the date hereof, whether or not
subsequently reacquired or retired by the Company, other than
(a) shares issued upon the exercise of the Warrant,
(b) such additional number of shares as may become issuable upon
the exercise of the Warrant by reason of adjustments required pursuant to
anti-dilution provisions applicable to the Warrant as in effect on the date
hereof,
(c) shares, warrants, options and other securities issued at any
time to the Holder or any Affiliate thereof.
Affiliate: Any person that directly or indirectly, through one or
---------
more intermediaries, controls, is controlled by, or is under common control
with, the applicable person. For purposes of this definition "control" has the
meaning specified in Rule 12b-2 under the Exchange Act.
Business Day: Any day other than a Saturday or a Sunday or a day on
------------
which commercial banking institutions in the City of New York are authorized by
law to be closed. Any reference to "days" (unless Business Days are specified)
shall mean calendar days.
Code: As defined in Section 1.7.
----
Commission: The Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
Common Stock: As defined in the introduction to this Warrant, such
------------
term to include any stock into which such Common Stock shall have been changed
or any stock resulting from any reclassification of such Common Stock, and all
other stock of any class or classes (however designated) of the Company the
holders of which have the right, without limitation as to amount, either to all
or to a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any shares entitled to
preference.
Company: As defined in the introduction to this Warrant, such term
-------
to include any corporation which shall succeed to or assume the obligations of
the Company hereunder in compliance with Section 3.
Convertible Securities: Any evidences of indebtedness, shares of
----------------------
stock (other than Common Stock) or other securities directly or indirectly
convertible into or exchangeable for Additional Shares of Common Stock.
Current Market Price: On any date specified herein, the average
--------------------
daily Market Price during the period of the most recent 20 days, ending on such
date, on which the national securities exchanges were open for trading, except
that if no Common Stock is then listed or admitted to trading on any national
securities exchange or quoted in the over-the-counter market, the Current Market
Price shall be the Market Price on such date.
16
<PAGE>
Exchange Act: The Securities Exchange Act of 1934, or any similar
------------
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
Expiration Date: As defined in the introduction to this Warrant.
---------------
Holder: As defined in the introduction to this Warrant.
------
Market Price: On any date specified herein, the amount per share of
------------
the Common Stock, equal to (a) the last reported sale price of such Common
Stock, regular way, on such date or, in case no such sale takes place on such
date, the average of the closing bid and asked prices thereof regular way on
such date, in either case as officially reported on the principal national
securities exchange on which such Common Stock is then listed or admitted for
trading, or (b) if such Common Stock is not then listed or admitted for trading
on any national securities exchange but is designated as a national market
system security by the NASD, the last reported trading price of the Common Stock
on such date, or (c) if there shall have been no trading on such date or if the
Common Stock is not so designated, the average of the closing bid and asked
prices of the Common Stock on such date as shown by the NASD automated quotation
system, or (d) if such Common Stock is not then listed or admitted for trading
on any national exchange or quoted in the over-the-counter market, the higher of
(x) the book value thereof as determined by any firm of independent public
accountants of recognized standing selected by the Board of Directors of the
Company as of the last day of any month ending within 60 days preceding the date
as of which the determination is to be made and (y) the fair value thereof (as
of a date which is within 20 days of the date as of which the determination is
to be made) determined in good faith by the Board of Directors of the Company.
NASD: The National Association of Securities Dealers, Inc.
----
Note: The Term Note (as defined in the Term Loan Agreement),
----
including any notes issued in substitution for or replacement of the Term Note.
Options: Rights, options or warrants to subscribe for, purchase or
-------
otherwise acquire either Additional Shares of Common Stock or Convertible
Securities.
Other Securities: Any stock (other than Common Stock) and other
----------------
securities of the Company or any other Person (corporate or otherwise) which the
holders of the Warrants at any time shall be entitled to receive, or shall have
received, upon the exercise of the Warrants, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Section 3 or otherwise.
Person: An individual, firm, partnership, corporation, professional
-------
corporation, trust, joint venture, association, joint stock company, limited
liability company, unincorporated organization or any other entity or
organization, including a government or agency or political subdivision thereof,
and shall include any successor (by merger or otherwise) of such entity.
Registration Rights Agreement: The Registration Rights Agreement,
-----------------------------
dated the date hereof, by and between the Company and the holders specified
therein.
17
<PAGE>
Restricted Securities: (a) any Warrants bearing the applicable
--------------------- -
legend set forth in Section 9.1, (b) any shares of Common Stock (or Other
-
Securities) issued or issuable upon the exercise of Warrants which are evidenced
by a certificate or certificates bearing the applicable legend set forth in such
Section, and (c) any shares of Common Stock (or Other Securities) issued
-
subsequent to the exercise of any of the Warrants as a dividend or other
distribution with respect to, or resulting from a subdivision of the outstanding
shares of Common Stock (or other Securities) into a greater number of shares by
reclassification, stock splits or otherwise, or in exchange for or in
replacement of the Common Stock (or Other Securities) issued upon such exercise,
which are evidenced by a certificate or certificates bearing the applicable
legend set forth in such Section.
Securities Act: The Securities Act of 1933, or any similar federal
--------------
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
Term Loan: The Term Loan as defined in the Term Loan Agreement.
---------
Term Loan Agreement: As defined in the introduction to this Warrant.
-------------------
Voting Securities: Stock of any class or classes (or equivalent
-----------------
interests), if the holders of the stock of such class or classes (or equivalent
interests) are ordinarily, in the absence of contingencies, entitled to vote for
the election of the directors (or persons performing similar functions) of such
business entity, even though the right so to vote has been suspended by the
happening of such a contingency.
Warrant: As defined in the introduction to this Warrant.
-------
Warrant Price: As defined in Section 2.1.
-------------
Warrant Quantity: As defined in the introduction to this Warrant.
----------------
13. Remedies; Specific Performance. The Company stipulates that
------------------------------
there would be no adequate remedy at law to the Holder of this Warrant in the
event of any default or threatened default by the Company in the performance of
or compliance with any of the terms of this Warrant and accordingly, the Company
agrees that, in addition to any other remedy to which the Holder may be entitled
at law or in equity, the Holder shall be entitled to seek to compel specific
performance of the obligations of the Company under this Warrant, without the
posting of any bond, in accordance with the terms and conditions of this Warrant
in any court of the United States or any State thereof having jurisdiction, and
if any action should be brought in equity to enforce any of the provisions of
this Warrant, the Company shall not raise the defense that there is an adequate
remedy at law. Except as otherwise provided by law, a delay or omission by the
Holder hereto in exercising any right or remedy accruing upon any such breach
shall not impair the right or remedy or constitute a waiver of or acquiescence
in any such breach. No remedy shall be exclusive of any other remedy. All
available remedies shall be cumulative.
14. No Rights or Liabilities as Shareholder. Nothing contained in
---------------------------------------
this Warrant shall be construed as conferring upon the Holder hereof any rights
as a shareholder of the Company or as imposing any obligation on the Holder to
purchase any securities or as imposing
18
<PAGE>
any liabilities on the Holder as a shareholder of the Company, whether such
obligation or liabilities are asserted by the Company or by creditors of the
Company.
15. Notices. All notices and other communications (and deliveries)
-------
provided for or permitted hereunder shall be made in writing by hand delivery,
telecopier, any courier guaranteeing overnight delivery or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed (a) if to the Company, to the attention of its President at its
principal office located at 5730 Uplander Way, Suite 201, Culver City,
California 90230 or such other address as may hereafter be designated in writing
by the Company to the Holder in accordance with the provisions of this Section,
or (b) if to the Holder, at its address as it appears in the Warrant Register.
All such notices and communications (and deliveries) shall be deemed
to have been duly given: at the time delivered by hand, if personally delivered;
when receipt is acknowledged, if telecopied; on the next Business Day, if timely
delivered to a courier guaranteeing overnight delivery; and five days after
being deposited in the mail, if sent first class or certified mail, return
receipt requested, postage prepaid; provided, that the exercise of any Warrant
--------
shall be effective in the manner provided in Section 1.
16. Amendments. This Warrant and any term hereof may not be
----------
amended, modified, supplemented or terminated, and waivers or consents to
departures from the provisions hereof may not be given, except by written
instrument duly executed by the party against which enforcement of such
amendment, modification, supplement, termination or consent to departure is
sought.
17. Descriptive Headings, Etc. The headings in this Warrant are for
-------------------------
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Warrant otherwise
requires: (1) words of any gender shall be deemed to include each other gender;
(2) words using the singular or plural number shall also include the plural or
singular number, respectively; (3) the words "hereof", "herein" and "hereunder"
and words of similar import when used in this Warrant shall refer to this
Warrant as a whole and not to any particular provision of this Warrant, and
Section and paragraph references are to the Sections and paragraphs of this
Warrant unless otherwise specified; (4) the word "including" and words of
similar import when used in this Warrant shall mean "including, without
limitation," unless otherwise specified; (5) "or" is not exclusive; and (6)
provisions apply to successive events and transactions.
18. GOVERNING LAW. This Warrant shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York (without giving
effect to the conflict of laws principles thereof).
19. Judicial Proceedings; Waiver of Jury. Any legal action, suit
or proceeding brought against the Company with respect to this Warrant may be
brought in any federal court of the Southern District of New York or any state
court located in New York County, State of New York, and by execution and
delivery of this Warrant, the Company hereby irrevocably and unconditionally
waives any claim (by way of motion, as a defense or otherwise) of improper
venue, that it is not subject personally to the jurisdiction of such court, that
such courts are an
19
<PAGE>
inconvenient forum or that this Warrant or the subject matter may not be
enforced in or by such court. The Company irrevocably submits to the exclusive
jurisdiction of the aforementioned courts in such action, suit or proceeding.
The Company hereby irrevocably and unconditionally consents to the service of
process of any of the aforementioned courts in any such action, suit or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, at its address set forth or provided for in Section 15 (with
copies of such process also being sent to the Company's counsel referred to in
such section), such service to become effective 10 days after such mailing.
Nothing herein contained shall be deemed to affect the right of any party to
serve process in any manner permitted by law or commence legal proceedings or
otherwise proceed against any other party in any other jurisdiction to enforce
judgments obtained in any action, suit or proceeding brought pursuant to this
Section. THE COMPANY HEREBY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION, SUIT
OR PROCEEDING, WHETHER AT LAW OR EQUITY, BROUGHT BY IT OR THE HOLDER IN
CONNECTION WITH THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
20. Registration Rights Agreement. The shares of Common Stock (and
-----------------------------
Other Securities) issuable upon exercise of this Warrant (or upon conversion of
any shares of Common Stock issued upon such exercise) shall constitute
Registrable Securities (as such term is defined in the Registration Rights
Agreement). Each holder of this Warrant shall be entitled to all of the benefits
afforded to a holder of any such Registrable Securities under the Registration
Rights Agreement and such holder, by its acceptance of this Warrant, agrees to
be bound by and to comply with the terms and conditions of the Registration
Rights Agreement applicable to such holder as a holder of such Registrable
Securities.
21. Redemption. The Company shall be entitled to redeem and
----------
purchase Warrants in accordance with the terms and subject to the conditions set
forth in Section 9.01(b) of the Term Loan Agreement.
OVERHILL FARMS, INC.
By:
-----------------------------------
Name:
Title:
20
<PAGE>
Exhibit 10.70
EXECUTION COPY
VOTING RIGHTS AGREEMENT
VOTING AGREEMENT, dated as of December __, 1997 (this "Agreement"),
---------
by and among POLYPHASE CORPORATION (the "Stockholder"), THE LONG HORIZONS FUND,
-----------
L.P., a New York limited partnership (the "Purchaser") and OVERHILL FARMS, INC.,
---------
a Nevada corporation (the "Company").
-------
WHEREAS, the Purchaser, the Company and the Stockholder, the corporate
parent of the Company, have entered into a Term Loan Agreement, dated as of the
date hereof (as the same may be amended or modified from time to time, the "Term
----
Loan Agreement"), which provides, among other things, that the Purchaser will
- --------------
provide the Company with a term loan (the "Loan") in the principal amount of
----
$24,175,000;
WHEREAS, in connection with the Term Loan Agreement, the Company has
issued a Common Stock Purchase Warrant, dated as of the date hereof, to the
Purchaser, granting the Purchaser the option to purchase up to 30% of the common
stock, par value $0.01 per share, of the Company (the "Company Common Stock") on
--------------------
a fully-diluted basis as of the date hereof;
WHEREAS, as of the date hereof, the Stockholder owns all of the issued
and outstanding shares of Company Common Stock; and
WHEREAS, it is a condition precedent to the making of the Loan by the
Purchaser pursuant to the Term Loan Agreement that the Stockholder agrees, and
in order to induce Purchaser to enter into the Term Loan Agreement and make the
Loan the Stockholder does hereby agree, to enter into this Agreement pursuant to
which the Stockholder agrees (i) to cause designees and nominees of the
Purchaser to constitute approximately 30% of the directors of the Board of
Directors of the Company (the "Board"), and (ii) to grant to the Purchaser
-----
certain tag-along rights.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
PROXY OF THE STOCKHOLDER
------------------------
SECTION 1.01. Voting Agreement. The Stockholder hereby agrees that
----------------
during the time this Agreement is in effect, at any meeting of the shareholders
of the Company, however called, and in any action by consent of the shareholders
of the Company, the Stockholder shall vote all shares of Company Common Stock
and other securities of the Company owned by the Stockholder (the "Shares") in
------
order that designees and nominees of the Purchaser shall constitute
approximately 30% of the directors of the Board.
SECTION 1.02. Irrevocable Proxy. The Stockholder hereby irrevocably
-----------------
appoints the Purchaser as its attorney and proxy, with full power of
substitution, to vote and otherwise act
<PAGE>
(by written consent or otherwise) with respect to the Shares which the
Stockholder is entitled to vote at any meeting of stockholders of the Company
(whether annual or special and whether or not an adjourned or postponed meeting)
or consent in lieu of any such meeting or otherwise, on the matters and in the
manner specified in Section 1.01 hereof. THIS PROXY AND POWER OF ATTORNEY IS
IRREVOCABLE AND COUPLED WITH AN INTEREST. The Stockholder hereby revokes all
other proxies and powers of attorney with respect to the Shares which they may
have heretofore appointed or granted, and no subsequent proxy or power of
attorney shall be given or written consent executed (and if given or executed,
shall not be effective) by the Stockholder with respect to the matters specified
in Section 1.01 hereof. All authority herein conferred or agreed to be
conferred shall survive the death or incapacity of the Stockholder and any
obligation of the Stockholder under this Agreement shall be binding upon the
heirs, representatives, successors and assigns of the Stockholder.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
-------------------------------------------------
The Stockholder and the Company hereby represent and warrant to the
Purchaser as follows:
SECTION 2.01. Authority Relative to This Agreement. Each of the
------------------------------------
Stockholder and the Company has all necessary power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by each of the Stockholder and the Company and constitutes a legal,
valid and binding obligation of each of the Stockholder and the Company,
enforceable against the Stockholder and the Company in accordance with its
terms.
SECTION 2.02. No Conflict. (a) The execution and delivery of this
-----------
Agreement by the Stockholder and the Company do not, and the performance of this
Agreement by the Stockholder and the Company does not and shall not, (i)
conflict with or violate any federal, state or local law, statute, ordinance,
rule, regulation, order, judgment or decree applicable to the Stockholder or the
Company or by which the Shares owned by the Stockholder are bound or affected or
(ii) result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or encumbrance on any of the Shares owned by the
Stockholder pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Stockholder or the Company is a party or by which the Stockholder
or the Shares owned by the Stockholder are bound or affected.
(b) The execution and delivery of this Agreement by the Stockholder
and the Company do not, and the performance of this Agreement by the Stockholder
and the Company do not and shall not, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
entity except for applicable requirements, if any, of the Securities Exchange
Act of 1934, as amended.
SECTION 2.03. Title to the Shares. As of the date hereof, the
-------------------
Stockholder is the record and beneficial owner of the number of shares of
Company Common Stock set forth
2
<PAGE>
opposite the Stockholder's name on Appendix A hereto, which Shares represent on
the date hereof the percentage of the outstanding Company Common Stock set forth
on such Appendix. Such Shares are all the securities of the Company owned,
either of record or beneficially, by the Stockholder. Such Shares are owned
free and clear of all security interests, liens, claims, pledges, options,
rights of first refusal, agreements, limitations on the Stockholder's voting
rights, charges and other encumbrances of any nature whatsoever, except for the
liens granted to (i) the Purchaser pursuant to the Pledge and Security
Agreement, dated as of the date hereof, by the Stockholder in favor of the
Purchaser (the "Purchaser Pledge Agreement") and (ii) Finova Capital Corporation
--------------------------
pursuant to the Pledge Agreement dated as of May 5, 1995, made by the
Stockholder in favor of Finova Capital Corporation (the "Finova Pledge
-------------
Agreement", collectively with the Purchaser Pledge Agreement, the "Pledge
- --------- ------
Agreements"). The Stockholder has not appointed or granted any proxy, which
- ----------
appointment or grant is still effective, with respect to the Shares owned by the
Stockholder except as expressly granted in the Pledge Agreements, in each case
subject to the Intercreditor Agreement dated as of the date hereof between the
Purchaser and Finova Capital Corporation.
ARTICLE III
COVENANTS OF THE STOCKHOLDER
----------------------------
SECTION 3.01. No Disposition or Encumbrance of Shares. Except as
---------------------------------------
otherwise provided in this Agreement, the Stockholder hereby covenants and
agrees that it shall not offer or agree to sell, transfer, tender, assign,
hypothecate or otherwise dispose of, grant a proxy or power of attorney with
respect to, or create or permit to exist any security interest, lien, claim,
pledge, option, right of first refusal, agreement, limitation on its voting
rights, charge or other encumbrance of any nature whatsoever with respect to the
Shares or, directly or indirectly, initiate, solicit or encourage any person to
take actions which could reasonably be expected to lead to the occurrence of any
of the foregoing. Each Stockholder further agrees that a legend to the
foregoing effect shall be placed on each certificate representing the Shares and
a corresponding entry shall be made on the records of the Company and any
transfer agent for the Shares.
ARTICLE IV
TAG-ALONG RIGHTS
----------------
4.01 General Restrictions. In the event the Stockholder wishes to
--------------------
transfer shares of Company Common Stock, either directly or indirectly, to any
person (such person being hereinafter referred to as a "Third Party"), other
-----------
than the Stockholder or the Purchaser, who has agreed in writing to be bound by
the terms of this Agreement, it must first comply with all of the provisions of
this Article 4.
4.02 Tag-Along Right. (a) Tag Along. If the Stockholder shall
--------------- ---------
desire to sell, assign, transfer or otherwise dispose of all or any of its
shares of Company Common Stock, the Purchaser shall have the right to require
the Third Party to purchase from the Purchaser that number of shares of Company
Common Stock (and, if necessary, the Stockholder shall reduce the number of its
shares of Company Common Stock to be sold by a corresponding amount), which is
equal to the product of (i) the total number of shares of Company Common Stock
to be
3
<PAGE>
purchased or repurchased by the Third Party and (ii) a fraction, the numerator
of which is (A) the total number of shares of Company Common Stock owned by the
Purchaser and the denominator of which is (B) the sum of (x) the number of
shares of Company Common Stock owned by the Purchaser and (y) the number of
shares of Company Common Stock owned by the Stockholder immediately before the
transaction.
(b) Terms of Sale. All shares of Company Common Stock purchased from
-------------
the Purchaser pursuant to Section 4.02(a) shall be purchased at the same price
and on the same terms and conditions as the proposed transfer by the Stockholder
(except that the only representation and warranty that the Purchaser shall be
required to make in connection with any transfer is a warranty with respect to
its own ownership of the shares of Company Common Stock to be sold by it and its
ability to convey title thereto free and clear of liens, encumbrances or adverse
claims).
(c) Notice Requirements. If the Stockholder proposes to transfer any
-------------------
Company Common Stock pursuant to Section 4.02(a), it shall notify, or cause to
be notified, the Purchaser in writing of each such proposed transfer not less
than ten (10) business days nor more than thirty (30) business days prior to the
time of such proposed transfer (the "Transferor Tag-Along Notice"). The
Transferor Tag-Along Notice shall set forth: (i) the name and address of the
Third Party, (ii) the number of shares of Company Common Stock proposed to be
transferred, (iii) the proposed amount and form of consideration and terms and
conditions of payment offered by the Third Party (the "Third Party Terms") and
(iv) that the Third Party has been informed of the tag-along right provided for
in this Article 4 and has agreed to purchase shares of Company Common Stock in
accordance with the terms hereof.
(d) Exercise of Tag-Along Right. The tag-along right provided for in
---------------------------
this Article 4 may be exercised by the Purchaser by delivery of a written notice
to the Company, the Stockholder and the Third Party (the "Acceptance Notice")
within ten (10) business days following receipt of the Transferor Tag-Along
Notice (the "Tag-Along Period"). The Acceptance Notice shall state the maximum
number of shares of Company Common Stock that the Purchaser wishes to include in
such transfer to the Third Party.
(e) Effect of Exercise of Tag-Along Right. Upon the giving of the
-------------------------------------
Acceptance Notice, the Purchaser shall be obligated to sell to the Third Party
the number of shares of Company Common Stock set forth in the Acceptance Notice
on the Third Party Terms (or, if the Purchaser is not entitled to sell such
number of shares under the terms of this Article 4, the Purchaser shall be
obligated to sell the maximum number of shares the Purchaser is permitted to
sell hereunder); provided, however, that neither the Stockholder nor the
--------- -------
Purchaser shall consummate the sale of any shares of Company Common Stock owned
by it unless the Third Party purchases all of the shares contained in the
Transferor Tag-Along Notice which the Purchaser is entitled to sell under the
terms of this Article 4. If the Third Party does not purchase the shares of
Company Common Stock from the Purchaser as required pursuant to this Article 4,
then any transfer by the Stockholder and the Purchaser to such Third Party shall
be null and void and of no effect whatsoever.
4.03 Right to Transfer to Third Party. After expiration of the Tag-
--------------------------------
Along Period, if the provisions of this Article 4 have been complied with in all
respect and no Acceptance Notice has been given, the Stockholder shall have the
right for ninety (90) days to transfer such shares of Company Common Stock to
the Third Party on the Third Party Terms
4
<PAGE>
without further notice, but after such ninety (90) days, no such transfer may be
made without again giving notice to the Purchaser of the proposed transfer and
complying with all of the requirements of this Article 4. Notwithstanding
anything herein to the contrary, nothing in this Agreement shall permit the
Stockholder to transfer any shares of Company Common Stock to any Person to the
extent prohibited by the Purchaser Pledge Agreement or any other Loan Document
(as defined in the Term Loan Agreement).
ARTICLE V
DIRECTOR ACTIONS
----------------
5.01 Director Approval Required For Certain Action. The Company
---------------------------------------------
hereby agrees that none of the following actions may be taken by the Company
without the consent of the director(s) nominated or designated by the Purchaser:
(a) the acquisition or disposition of any assets or business
of the Company with a book value or cost in excess of $50,000;
(b) the merger or consolidation of the Company with or into
any corporation or other entity;
(c) the issuance or redemption (other than scheduled
redemptions) of shares of capital stock of the Company or any debt
securities of the Company, other than (A) pursuant to commercial
borrowing facilities and (B) pursuant to any stock option or stock
bonus plan or agreement adopted or approved by the Stockholder
pursuant to Section 5.01(f) below;
(d) an initial public offering of shares of Company Common
Stock pursuant to a registration statement filed with, and declared
effective by, the Securities and Exchange Commission ("SEC), other
than a registration on Form S-4 or S-8 (or its equivalent);
(e) adoption of the annual budget of the Company, and the
taking of any action which would constitute a material deviation, on a
line by line basis, from such budget;
(f) adoption of any stock option or stock bonus plan or
agreement, provided, however, that in no event shall the total number
-------- -------
of shares of Company Common Stock issuable pursuant to all such plans
or agreements exceed 10% of the capital stock of the Company on a
fully diluted basis;
(g) appointment, removal or replacement of a President,
Chief Operating Officer and Chief Financial Officer (which consent
will not be unreasonably withheld);
(h) the Stockholder entering into an affiliated transaction
with the Company;
5
<PAGE>
(i) the acceptance of additional capital contributions by
the Stockholder or the issuance of additional Company Common Stock,
any preferred stock or any debt in the Company to persons not a party
to this Agreement on the date hereof;
(j) the adopting, altering or amending of the by-laws of the
Company;
(k) the amending or altering of the Company's Certificate of
Incorporation;
(l) the borrowing of money over the amount permitted by the
Term Loan Agreement;
(m) the entering into a new line of business other than the
Company's current line of business;
(n) the selection of an independent accounting firm to
provide general accounting services other than Ernst & Young;
(o) the determination on behalf of the Company that any cash
dividend payments shall be made to the Stockholder out of net income
in respect of either Company Common Stock or any preferred stock of
the Company; and
(p) the taking of any other action that could reasonably be
expected to materially impair the rights or obligations of the
Purchaser hereunder.
ARTICLE VI
MISCELLANEOUS
-------------
SECTION 6.01. Further Assurances. The Stockholder and the Purchaser
------------------
will execute and deliver all such further documents and instruments and take all
such further action as may be necessary in order to consummate the transactions
contemplated hereby.
SECTION 6.02. Specific Performance. The parties hereto agree that
--------------------
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity. The Purchaser shall be entitled to its reasonable
attorneys' fees in any action brought to enforce this Agreement in which it is
the prevailing party.
SECTION 6.03. Entire Agreement. This Agreement constitutes the
----------------
entire agreement between the Purchaser, the Company and the Stockholder with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, both written and oral, between the Purchaser, the Company and
the Stockholder with respect to the subject matter hereof.
6
<PAGE>
SECTION 6.04. Amendment. This Agreement may not be amended except by
---------
an instrument in writing signed by the parties hereto.
SECTION 6.05. Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of this Agreement is not affected in any manner materially adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
terms of this Agreement remain as originally contemplated to the fullest extent
possible.
SECTION 6.06. Governing Law. This Agreement shall be governed by,
-------------
and construed in accordance with, the laws of the State of New York applicable
to contracts executed in and to be performed in that State. All actions and
proceedings arising out of or relating to this Agreement shall be heard and
determined in any New York state or federal court.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
POLYPHASE CORPORATION
By:________________________________
Name:
Title:
Agreed and Accepted:
THE LONG HORIZONS FUND, L.P.
By:____________________________
Name:
Title:
FOR PURPOSES OF BEING BOUND BY
THE PROVISIONS OF ARTICLE V HEREOF:
Agreed and Accepted:
OVERHILL FARMS, INC.
By:____________________________
Name:
Title:
8
<PAGE>
APPENDIX A
----------
<TABLE>
<CAPTION>
Approximate Percentage of
Outstanding Company
Shares Shares
------ ------------------------------
<S> <C> <C>
Polyphase Corporation 775 100%
</TABLE>
9
<PAGE>
Exhibit 10.71
SUPPLEMENTAL INDENTURE
TO
INDENTURE
DATED AS OF
JULY 5, 1994
AMONG
POLYPHASE CORPORATION
and
IBJ SCHRODER BANK & TRUST COMPANY
Trustee
------------------------
Dated as of December 5, 1997
<PAGE>
SUPPLEMENTAL INDENTURE
----------------------
This Supplemental Indenture (herein so called) dated as of December 5,
1997, is made and entered into by and between POLYPHASE CORPORATION, a Nevada
corporation (the "Company"), and IBJ SCHRODER BANK & TRUST COMPANY, as Trustee
(the "Trustee").
WHEREAS, the Company and the Trustee have heretofore executed and delivered
an Indenture dated as of July 5, 1994 (the "Indenture"), providing for the
issuance by the Company of $4,000,000 principal amount of its 12% Senior
Convertible Debentures Due July 1, 1999 (the "Bonds");
WHEREAS, the Company desires that the Holders of the Bonds waive certain
provisions of the Indenture and the Bonds and, in connection therewith and in
consideration therefor, the Company and the Holders desire to amend certain
other provisions of the Indenture and the Bonds as set forth in this
Supplemental Indenture;
WHEREAS, Article 9 of the Indenture provides, among other things, that the
Company and the Trustee may amend or supplement the Indenture in certain
respects with the written consent of the Holders of the outstanding Bonds;
WHEREAS, the Company has requested that the Holders of the Bonds consent to
and approve the waivers of and amendments to the Indenture described herein;
WHEREAS, the Company has received and delivered to the Trustee the consent
of the Holders of 100% in principal amount of the Bonds outstanding on the date
hereof to such waivers and amendments; and
WHEREAS, all conditions and requirements necessary to make this
Supplemental Indenture a valid, binding and legal instrument in accordance with
its terms have been performed and fulfilled and the execution and delivery
hereof have been in all respects duly authorized;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the Company and the Trustee mutually covenant and agree for
the equal and proportionate benefit of the respective Holders from time to time
of the Bonds as follows:
Section 1. Definitions. Terms defined in the Indenture and not otherwise
--------- -----------
defined herein are used herein with their meanings so defined.
Section 2. Waivers. From and after the effective time of this
--------- -------
Supplemental Indenture, the Company, the Holders and every subsequent holder of
the Bonds shall be bound by the following waivers of the Indenture and the
Bonds:
Such persons expressly waive (A) all Events of Default existing
under the Indenture as of the date hereof, and (B) Section 203 of the
Indenture and Paragraph 4 on the reverse side of the Bonds to the
extent, and only to the extent, that the Change of Control existing on
the date hereof continues to exist (and this waiver does not extend to
any other Change of Control or any additional Change of Control
hereafter existing), and any such other Change of Control or
additional Change of Control will entitle each Holder to exercise its
rights, remedies, powers or privileges under the Indenture and the
Bonds including, without limitation.
<PAGE>
Section 203 of the Indenture and such Paragraph 4.
Section 3. Amendments. From and after the effective time of this
--------- ----------
Supplemental Indenture, the Holders and every subsequent holder of the Bonds
shall be bound by the following amendments to the Indenture and the Bonds:
1. Section 203 of the Indenture and Paragraph 4 of the reverse
side of each Bond are hereby amended by changing the period at the end of
the definition of "Change of Control" to a semi-colon, by inserting
thereafter the word "or" and by adding thereafter additional events that
will constitute a Change of Control as follows:
"(e) any event described in the first two lines of Section 801
of the Indenture occurs, whether or not clauses (1) through (4)
thereof are fulfilled; or
(f) the Company enters into a leveraged buyout or other
substantial debt or equity restructuring, recapitalization or
refinancing; or
(g) Jim Rudis ceases to act in substantially the same
capacity at the Company as Mr. Rudis served on December 1, 1997."
2. Section 501 of the Indenture is hereby amended by changing the
period at the end of the definition of "Event of Default" to a semi-colon,
by deleting the word "and" at the end of clause (11) thereof and by adding
at the end thereof additional events that will constitute an "Event of
Default" as follows:
"(13) The Company fails to pay concurrently with the execution and
delivery of the Supplemental Indenture dated December 5, 1997,
supplementing this Indenture, the full principal amount of the Company's
$1,500,000 12% Convertible Subordinated Debentures Due December 1, 1997,
together with all interest accrued thereon at the contract rate in
accordance with the terms thereof;
(14) the Company fails to pay the Holders concurrently with the
execution and delivery of the Supplemental Indenture referred to in (13)
above, $3,005,333.33 as contemplated by Section 9 of such Supplemental
Indenture; or
(15) The Company fails to issue and deliver to the Holders no later
than January 5, 1998, warrants (a) to purchase 200,000 shares of its
registered common stock at an exercise price of $.01 per share and to
purchase an additional 200,000 shares of the Company's registered common
stock at the market price of such stock on December 3, 1997 (the "Market
Warrants"), (b) expiring five years from the date of issuance, (c) entitled
to usual and customary anti-dilution provisions substantially comparable to
those contained in Article Thirteen of the Indenture as determined by the
Holders, (d) with Holders having the right to receive registered shares but
if registered shares are not available for any reason, the Holders having
demand and piggyback registration rights with respect to all common shares
issued on conversion of the warrants substantially comparable to those
contained in the Registration Rights Agreement between the Holders of the
Company dated as of December 1, 1995, (e) such warrants to be transferrable
to accredited investors, and (f) such warrants to have such other terms and
conditions as the Holders may require in the exercise of their sole
2
<PAGE>
discretion.
3. Section 1201 of the Indenture is hereby amended by adding
thereto at the end thereof the following:
"Upon delivery to the Holders of the warrants contemplated by
clause (15) of the definition of Event of Default, the Holders will
grant to the Company an option to repurchase the remaining Bonds held
by them at par plus interest accrued thereon through the date of
repurchase, such repurchase to occur no later than September 5, 1998.
Provided that the Company exercises its option to repurchase the
remaining Bonds as noted above and completes such repurchase, it will
have an option to repurchase, concurrently with the exercise of its
Bond repurchase right, 100,000 of the Market Warrants at $.01 per
share from the Holders. Until such option expires, the Holders shall
be obligated to retain 100,000 of the Market Warrants.
4. Section 1301 of the Indenture is hereby amended by changing the
Conversion Price $5.65 appearing therein to be $3.00, subject to adjustment
as provided in Section 1303 (and such $3.00 figure, as so adjusted, is
hereafter referred to in the Indenture as the "Conversion Price").
Section 4. Notation. Bonds authenticated and delivered after the
--------- --------
effective date of this Supplemental Indenture for transfer or exchange, and all
Bonds presented or delivered to the Trustee on and after such date for the
purpose of being stamped, shall be stamped (unless textually revised as
hereinafter provided) by the Trustee with a notation substantially in the form
as follows:
The Indentured dated as of July 5, 1994, referred to in these Bonds
has been amended by a Supplemental Indenture dated as of December 3,
1997, pursuant to which certain provisions of the Indenture have been
amended and/or waived as set forth in such Supplemental Indenture.
Copies of the Supplemental Indenture are on file with, and available
upon request from, the Trustee and the Company.
Section 5. Ratification. Except as hereby expressly amended or waived,
---------- ------------
the Indenture and the Bonds issued thereunder are in all respects ratified and
confirmed and all the terms, conditions and provisions thereof shall remain in
full force and effect. This Supplemental Indenture shall form a part of the
Indenture for all purposes and every holder of Bonds heretofore or hereafter
authenticated and delivered under the Indenture shall be bound hereby.
Section 6. Counterparts. This Supplemental Indenture may be executed in
---------- ------------
any number of counterparts, each of which shall be deemed to be an original for
all purposes, but such counterparts shall together be deemed to constitute but
one and the same instrument.
Section 7. Choice of Law. The internal laws of the State of New York
---------- -------------
shall govern this Supplemental Indenture and the Bonds.
Section 8. Acceptance by Trustee. The Trustee, for itself and its
---------- ---------------------
successor or successors, accepts the trusts of the Indenture as amended by this
Supplemental Indenture,
3
<PAGE>
and agrees to perform the same, but only upon the terms and conditions set forth
in the Indenture, including the terms and provisions defining and limiting the
liabilities and responsibilities of the Trustee which terms and provisions shall
in like manner define and limit its liabilities and responsibilities in the
performance of the trusts created by the Indenture as modified by this
Supplemental Indenture.
Section 9. Effectiveness. Notwithstanding anything to the contrary set
---------- -------------
forth in this Supplemental Indenture, the waivers and amendments effected hereby
shall not be effective or become operative prior to the receipt by the Holders
of $3,005,333.33 in payment of $2,800,000 principal amount of the Bonds to be
canceled by the Trustee on the date hereof and interest on all of the Bonds
accruing through December 5, 1997 at the contract rate or if as of the date
hereof there exists an Event of Default under the Indenture (other than any
Event of Default to be waived under Section 3 above) or an event that would
constitute an Event of Default if the amendments to be made under Section 4
above were effective.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of December 5, 1997.
POLYPHASE CORPORATION
By:
------------------------------------
Name:
------------------------------
Title:
----------------------------
IBJ SCHRODER BANK & TRUST COMPANY, as Trustee
By:
------------------------------------
Name:
------------------------------
Title:
----------------------------
4
<PAGE>
Exhibit 10.72
CAUSE NO. 97-00107
------------------
RICE PARTNERS II, L.P., (S) IN THE DISTRICT COURT
Plaintiff, (S)
(S)
vs. (S) OF DALLAS COUNTY, TEXAS
(S)
POLYPHASE CORPORATION, (S)
Defendant, (S)
(S) 101ST JUDICIAL DISTRICT
COMPROMISE SETTLEMENT AGREEMENT
-------------------------------
WITH MUTUAL RELEASE
-------------------
THIS COMPROMISE SETTLEMENT AGREEMENT WITH MUTUAL RELEASE (hereinafter
"Agreement") is entered into by and between POLYPHASE CORPORATION (hereinafter
referred to as POLYPHASE), OVERHILL FARMS, INC. (hereinafter referred to as
"OVERHILL"), PLY STADIUM PARTNERS, INC. (hereinafter referred to as "PLY"), PAUL
TANNER, Individually (hereinafter referred to as "TANNER"), and RICE PARTNERS
II, L.P. (hereinafter referred to as "RICE"), effective as of this 26th day of
November 1997.
WHEREAS, Plaintiff Rice filed the above-captioned lawsuit against Defendant
POLYPHASE on or about January 6, 1997, and has asserted various claims against
POLYPHASE; and
WHEREAS, Plaintiff RICE filed an amended petition on or about the 21st day
of July 1997, naming and adding TANNER as a party to the above styled and
numbered lawsuit; and
WHEREAS, Plaintiff RICE filed an amended petition on or about the 21st day
of July 1997, naming and adding PLY STADIUM PARTNERS, INC. (hereinafter referred
to as "PLY"), as a party to the above styled and numbered lawsuit; and
WHEREAS, OVERHILL, although not a party to the above styled and numbered
lawsuit, has an interest in the subject of such litigation; and
Compromise and Settlement Agreement with Mutual Release - Page 1
<PAGE>
WHEREAS, it is the desire of Plaintiff RICE, Defendants POLYPHASE, PLY and
TANNER to settle this lawsuit, to terminate the litigation, to buy peace and to
avoid and preclude future litigation between any or all of them; and
WHEREAS, it is understood by Plaintiff RICE, Defendants POLYPHASE, PLY and
TANNER that this settlement agreement and release is only for the purpose of the
settlement and compromise of disputed claims and that the execution of this
agreement is not to be construed or considered as an admission of liability or
fault on the part of any party to this agreement. It is further understood and
agreed that Defendants POLYPHASE, PLY and TANNER deny liability on any and all
claims which have been asserted or which could be asserted by Plaintiff RICE
against said Defendants in this litigation and that the parties are entering
into this agreement merely to settle and terminate the litigation as between
them and to avoid and preclude future litigation; and
WHEREAS, Plaintiff RICE, Defendants POLYPHASE, PLY and TANNER declare and
represent to one another that they are executing this agreement wholly of their
own volition, judgment, belief and knowledge, after discussion with their
respective attorneys and with having full opportunity to review this agreement
and receive advice from their respective attorneys and that this agreement is
made without reliance upon any statement or representation of any other party or
any other person and further declare and represent that no promise, inducement
or agreement not herein expressed has been made to them and that this agreement
reflects the entire agreement and understanding between Plaintiff RICE, and
Defendants POLYPHASE, PLY and TANNER and that the terms of this agreement are
contractual and not merely recitals.
NOW, THEREFORE, for and in consideration of this compromise and settlement
of the litigation and the mutual promises, agreements and releases herein
contained, the receipt and sufficiency of such consideration is hereby
acknowledged and confessed it is hereby stipulated and agreed by and between
Plaintiff RICE and Defendants POLYPHASE, PLY and TANNER as follows:
Compromise and Settlement Agreement with Mutual Release - Page 2
- -------------------------------------------------------
<PAGE>
1. Upon the payment of the sums listed in paragraph 2 following
immediately hereinbelow, Plaintiff RICE will move the 101st Judicial District
Court of Dallas County, Texas to dismiss the claims made by Plaintiff RICE
against Defendants POLYPHASE, PLY and TANNER in this litigation with prejudice
to the refiling of the same. Defendant POLYPHASE will move the 101st Judicial
District Court of Dallas County, Texas to dismiss the claims made by Defendant
POLYPHASE against Plaintiff RICE in this litigation with prejudice to the
refiling of the same. Plaintiff RICE and Defendants POLYPHASE, PLY and TANNER
agree, and the order of dismissal shall recite, that each party to the
litigation shall pay its own costs, expenses and attorney's fees or any other
obligation resulting from the prosecution by Plaintiff RICE of the litigation or
the defense by Defendants POLYPHASE, PLY and TANNER of the litigation.
2. For and in further consideration of the mutual premises herein
contained, OVERHILL agrees to pay to RICE, in full and final settlement of all
amounts due and owing to RICE, pursuant to that certain Note Purchase Agreement
dated May 5, 1995, the following amounts:
Principal Balance: $13,000,000.00
All Accrued Interest through December 5, 1997 357,500.03
Reimbursable Expenses 5,447.62
Additionally, OVERHILL, in full and final consideration for the outstanding
warrant issued to RICE in connection with the above-stated Note Purchase
Agreement, agrees to pay to RICE the amount of $1,948,000 in cash.
As further consideration of the mutual premises herein contained, POLYPHASE
agrees to pay to Rice and/or its counsel, Hughes and Luce, the sum of $100,000.
3. Additionally, and as further consideration of the mutual premises
herein contained POLYPHASE agrees to pay to Rice Partners, the sum of $2,000,000
if POLYPHASE sells its subsidiary, OVERHILL on or before the expiration of 180
days from the date of payment of the
Compromise and Settlement Agreement with Mutual Release - Page 3
- -------------------------------------------------------
<PAGE>
amount specified in paragraph 2 hereinabove ("Payment Date"). If POLYPHASE sells
OVERHILL subsequent to 180 days from the Payment Date, but on or before 365 days
from the Payment Date, POLYPHASE will pay Rice Partners the sum of $750,000. If
POLYPHASE sells OVERHILL subsequent to 180 days from the Payment Date, but on or
before 365 days from the Payment Date that results to either of S V Capital
Management, Inc., ConAgra, Inc. or Foster Farms, POLYPHASE will pay Rice
Partners the sum of $2,000,000 in lieu of the $750,000 amount stated
hereinabove.
4. Save and except solely for the obligations created by this Settlement
Agreement, Plaintiff RICE, for and on behalf of itself, its heirs, executors,
administrators, representatives, agents, servants, employees, officers,
directors, shareholders, attorneys, partners, parent corporation, subsidiaries,
venturers, successors and assigns, those in privity, or anyone claiming by,
through and under them, respectively, do hereby release, acquit and forever
discharge Defendant POLYPHASE, Defendant PLY, Defendant TANNER and OVERHILL,
their heirs, executors, administrators, representatives, agents, servants,
employees, officers, directors, shareholders, parent corporation, subsidiaries,
partners, attorneys, successors and assigns, those in privity, or anyone
claiming by, through and under them, from any and all claims and causes of
action of any kind or character, known or unknown, which Plaintiff RICE now has,
has had or may have in the future against Defendant POLYPHASE, Defendant PLY,
Defendant TANNER and/or OVERHILL, including, but not limited to, all claims and
causes of action that have been brought in this litigation or which could have
been brought by Plaintiff RICE against POLYPHASE, PLY, TANNER and/or OVERHILL in
this litigation, and any claims or causes of action stemming from any and all
communications, representations, promises, agreements, contracts, dealings,
transactions or other acts or omissions of every kind and character whatever in
any way connected with or arising out of the loan agreement and/or
lender/borrower relationship entered into by and between Plaintiff RICE,
Defendant POLYPHASE, Defendant PLY, Defendant TANNER and/or OVERHILL, including
claims of costs, expenses and attorney's fees.
Compromise and Settlement Agreement with Mutual Release - Page 4
- -------------------------------------------------------
<PAGE>
5. Save and except solely for the obligations created by this Agreement,
Defendants POLYPHASE, PLY, TANNER, and/or OVERHILL for and on behalf of
themselves, their heirs, executors, administrators, representatives, agents,
servants, employees, officers, directors, shareholders, attorneys, partners,
parent corporation, subsidiaries, venturers, successors and assigns, those in
privity, or anyone claiming by, through and under them, respectively, do hereby
release, acquit and forever discharge Plaintiff RICE, its heirs, executors,
administrators, representatives, agents, servants, employees, officers,
directors, shareholders, attorneys, partners, parent corporation, subsidiaries,
venturers, successors and assigns, those in privity, or anyone claiming by,
through and under them, from any and all claims and causes of action of any kind
or character, known or unknown, which Defendants POLYPHASE, PLY, TANNER and/or
OVERHILL now have, have had or may have in the future against Plaintiff RICE,
including, but not limited to, all claims and causes of action that have been
brought in this litigation or which could have been brought by Defendants
POLYPHASE, PLY, TANNER and/or OVERHILL in this litigation, any and all claims
and causes of action stemming from any and all communications, representations,
promises, agreements, contracts, dealings, transactions or other acts or
omissions of every kind and character whatever in any way connected with or
arising out of the loan agreement and/or lender/borrower relationship entered
into by and between Plaintiff RICE, Defendant POLYPHASE, Defendant PLY,
Defendant TANNER and/or OVERHILL, including claims of costs, expenses and
attorney's fees.
6. The general releases given in this Agreement by Plaintiff RICE to
Defendant POLYPHASE, Defendant PLY, Defendant TANNER and OVERHILL and by
Defendant POLYPHASE, Defendant PLY, Defendant TANNER and OVERHILL to Plaintiff
RICE, are intended by the parties to cover all claims of all types, whether
arising under common law or under the statutes and regulations of any state or
of the United States or any foreign country. This is to be construed as the
broadest possible type general release, releasing, without limitation,
antitrust, breach
Compromise and Settlement Agreement with Mutual Release - Page 5
- -------------------------------------------------------
<PAGE>
of contract, commission, compensation, deceit, fraud, negligence,
misrepresentation, slander, tort, trespass, harassment, and claims pursuant to
any Texas statute and all amendments and supplements thereto or any and all
other claims.
7. This Agreement constitutes the entire understanding and agreement of
the parties hereto, and supersedes prior understanding and agreements, if any,
among such parties with respect to the subject matter hereof. There are no
representations, agreements, arrangements or understandings, oral or written,
concerning the subject matter hereof between and among the parties hereto which
are not fully expressed or incorporated by reference herein. The parties hereto
have had an opportunity to consult with their respective attorneys concerning
the meaning and the import of this Agreement and each has read this Agreement,
as signified by their signatures below, and are executing the same for the
purposes and consideration herein expressed.
8. This Agreement may not be modified or amended except in writing, signed
by the party or parties to be bound thereby or signed by their respective
attorneys.
9. Each part of this Agreement is intended to be several. If any term,
covenant, condition or provision hereof is illegal or invalid or unenforceable
for any reason whatsoever, such illegality, invalidity or unenforceability shall
not affect the legality, validity or enforceability of the remaining parts of
this Agreement and all such remaining parts hereto shall be legal, valid and
enforceable and have full force and effect as if the illegal, invalid,
unenforceable part has not been included.
10. This Agreement and the terms, covenants, conditions, provisions,
obligations, undertakings, rights and benefits hereof, shall be binding upon,
and shall inure to the benefit of, the undersigned parties and their respective
heirs, executors, administrators, representatives, officers, directors,
shareholders, successors, agents, servants, employees, attorneys, and assigns.
11. This Agreement is made and entered into and is to be performed in
Dallas County, Texas. It shall be interpreted, construed and enforced and its
construction and performance shall be
Compromise and Settlement Agreement with Mutual Release - Page 6
- -------------------------------------------------------
<PAGE>
governed by the laws of the State of Texas. The parties hereto agree that venue
of any suit or any cause of action in connection with this Agreement shall lie
in Dallas County, Texas.
12. This Agreement may be executed in several counterparts by one or more
of the undersigned and all such counterparts so executed shall together be
deemed and constitute one final Agreement, as if one document had been signed by
all parties hereto; and each such counterpart shall be deemed an original,
binding the parties subscribed hereto and multiple signature pages affixed to a
single copy of this Agreement shall be deemed to be a fully executed original
Agreement.
13. Each party acknowledges that they have had the opportunity to be
represented by separate independent counsel in the negotiation of this
Agreement, that any such respective attorneys were of their own choosing, that
they have read this Agreement and that they understand its meaning and legal
consequences to them. The parties warrant and represent that they have
consulted with their attorney of choice concerning the execution of this
Agreement and the settlement of these claims, the meaning and the import of this
Agreement, and each has read this Agreement, as signified by their signatures
below, and are executing the same of their own free will for the purposes and
consideration herein expressed. The parties warrant and represent that they have
had sufficient time to consider whether to enter into this Agreement and that
they are relying solely on their own judgment and the advice of their own
counsel in deciding to execute this Agreement. The parties warrant and represent
that they have read this Agreement in its entirety and have consulted with their
attorney concerning the execution of this Agreement.
14. Each party waives the presumption that this Agreement is presumed to
be in favor of the party which did not prepare it, in case of a dispute as to
interpretation.
15. Each party represents and warrants that they have the authority to
enter into this Agreement either on their own behalf or in an official capacity
on behalf of a corporate party.
Compromise and Settlement Agreement with Mutual Release - Page 7
- -------------------------------------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement on
the date set opposite their respective signatures below, but effective as of the
____ day of ________________ 1997.
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
Date:
- ---------------------------------- ------------------
By: James P.Wilson
Its: Managing Director
POLYPHASE CORPORATION
Date:
- ---------------------------------- ------------------
By: James Rudis
Its: President
PLY STADIUM PARTNERS, INC.
Date:
- ---------------------------------- ------------------
By: Paul Tanner
Its: President
Compromise and Settlement Agreement with Mutual Release - Page 8
- -------------------------------------------------------
<PAGE>
Date:
- ---------------------------------- ------------------
Paul Tanner, Individually
OVERHILL FARMS, INC.
- ----------------------------------
By: James Rudis
Its: President
Compromise and Settlement Agreement with Mutual Release - Page 9
- -------------------------------------------------------
<PAGE>
STATE OF ____________ (S)
(S)
COUNTY OF ___________ (S)
On this _____ day of __________________ 1997, before me the undersigned
notary public personally appeared JAMES P. WILSON, General Partner of RICE
MEZZANINE CORPORATION, General Partner of RMC FUND MANAGEMENT, L.P., General
Partner of RICE CAPITAL GROUP IV, L.P. and Managing Director of RICE PARTNERS
II, L.P., a Delaware Limited Partnership, known to me or proven to me to be the
person whose name is subscribed to the forgoing instrument and he acknowledged
to me that he executed the same for the purposes and consideration therein
expressed.
SUBSCRIBED AND SWORN to before me on the date first written above.
-------------------------------------------------
Notary Public in and for the State of
-----------
************************************
STATE OF ____________ (S)
(S)
COUNTY OF ___________ (S)
On this ______ day of __________________ 1997, before me the undersigned
notary public personally appeared JAMES RUDIS, President of POLYPHASE
CORPORATION, a Nevada Corporation, known to me or proven to me to be the person
whose name is subscribed to the forgoing instrument and he acknowledged to me
that he executed the same for the purposes and consideration therein expressed.
SUBSCRIBED AND SWORN to before me on the date first written above.
-------------------------------------------------
Notary Public in and for the State of
-----------
Compromise and Settlement Agreement with Mutual Release - Page 10
- -------------------------------------------------------
<PAGE>
STATE OF ____________ (S)
(S)
COUNTY OF ___________ (S)
On this ______ day of ____________________ 1997, before me the undersigned
notary public personally appeared PAUL TANNER, President of PLY STADIUM
PARTNERS, INC., a Nevada Corporation, known to me or proven to me to be the
person whose name is subscribed to the forgoing instrument and he acknowledged
to me that he executed the same for the purposes and consideration therein
expressed.
SUBSCRIBED AND SWORN to before me on the date first written above.
-------------------------------------------------
Notary Public in and for the State of
-----------
************************************
STATE OF ____________ (S)
(S)
COUNTY OF ___________ (S)
On this ______ day of ____________________ 1997, before me the undersigned
notary public personally appeared PAUL TANNER, known to me or proven to me to be
the person whose name is subscribed to the forgoing instrument and he
acknowledged to me that he executed the same for the purposes and consideration
therein expressed.
SUBSCRIBED AND SWORN to before me on the date first written above.
-------------------------------------------------
Notary Public in and for the State of
-----------
Compromise and Settlement Agreement with Mutual Release - Page 11
- -------------------------------------------------------
<PAGE>
STATE OF ____________ (S)
(S)
COUNTY OF ___________ (S)
On this ______ day of ____________________ 1997, before me the undersigned
notary public personally appeared JAMES RUDIS, President of OVERHILL FARMS,
INC., known to me or proven to me to be the person whose name is subscribed to
the forgoing instrument and he acknowledged to me that he executed the same for
the purposes and consideration therein expressed.
SUBSCRIBED AND SWORN to before me on the date first written above.
-------------------------------------------------
Notary Public in and for the State of
-----------
Compromise and Settlement Agreement with Mutual Release - Page 12
- -------------------------------------------------------
<PAGE>
Exhibit 10.73
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is entered into as of July 1,
1997, by Letronix Acquisition Corp., a Nevada corporation ("Buyer"), and
Polyphase Corporation, a Nevada corporation ("Seller").
RECITALS
--------
Seller desires to sell, and Buyer desires to purchase, 1,960,000 shares
(the "Shares") of capital stock of DSI f/k/a PC Networx America, Inc. f/k/a CSC
Micro, Nevada Charter No. 23188-95, a Nevada corporation (the "Company"), being
all of the outstanding shares of the Common Stock, par value $.001 per share, of
the Company (the "Common Stock"), owned by Seller for the consideration and on
the terms set forth in this Agreement.
AGREEMENT
---------
The parties, intending to be legally bound, agree as follows:
1. Sale and Transfer of Shares; Closing.
------------------------------------
1.1 Shares. Subject to the terms and conditions of this Agreement, at the
------
Closing, Seller will sell and transfer the Shares to Buyer, and Buyer will
purchase the Shares from Seller.
1.2 Purchase Price. The purchase price (the "Purchase Price") for the
--------------
Shares will be equal to the book value of the outstanding shares of Common Stock
of the Company as of September 30, 1996, which is $2,304,000 less the cash
heretofore paid by LAC to Poly pursuant to the Stock Purchase Agreement dated
July 1, 1996. The Purchase Price shall be paid as follows:
(a) $100,000 within ten (10) days of the date of the execution of
this Agreement;
(b) $100,000 paid on or before one hundred eighty (180) days from the
execution hereof; and
(c) the issuance by LAC of 1,629,000 shares of Series B Preferred
Stock. having the designations, preferences and relative,
participating, optional and other rights as set forth on the
Designation of Class B Preferred Stock attached hereto as Annex A and
as the replacement for the One Million One Hundred Seventy Five
Thousand (1,175,000) shares of the Buyer's Class A Preferred Stock
that was issued to Seller in partial consideration of the Stock
Purchase Agreement entered into between the Parties on July 1, 1996;
1.3 Closing. The purchase and sale (the "Closing") provided for in this
------
Agreement will take place at the offices of Seller at 16885 Dallas Parkway, 4th
Floor, Dallas, Texas, at 10:00 a.m. (local time) on July 10, 1997 or at such
other time and place as the parties may agree (the "Closing Date"). Failure to
consummate the purchase and sale provided for in this Agreement on the date and
time and at the place determined pursuant to this Section 1.3 will not result in
the termination of this Agreement and will not relieve any party of any
obligation under this Agreement.
1.4 Closing Obligations. At the Closing:
-------------------
<PAGE>
(a) Seller will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed (or
accompanied by duly executed stock powers) (which Buyer will
return to Seller as collateral as hereinafter described);
(ii) a certificate executed by Seller to the effect that, except
as otherwise stated in such certificate, each of Seller's
representations and warranties in this Agreement was accurate in
all material respects as of the date of this Agreement and is
accurate in all material respects as of the Closing Date as if
made on the Closing Date (giving full effect to any supplements
to the Disclosure Schedule (as hereinafter defined) that were
delivered by Seller to Buyer at or prior to the Closing Date);
and
(iii) One Million One Hundred Seventy Five Thousand (1,175,000)
shares of the Buyer's Class A Preferred Stock that was issued to
Seller in partial consideration of the Stock Purchase Agreement
entered into between the Parties on July 1, 1996.
(b) Buyer will deliver to Seller the Purchase Price at Closing, as
follows:
(i) within ten (10) days of the Closing Date, cash in the amount
of One Hundred Thousand Dollars ($100,000) by bank cashier's or
certified check or attorney's trust account check, payable to the
order of Seller, or, at Seller's election, by wire transfer to
accounts specified by Seller;
(ii) 1,629,000 shares of Buyer's Class B Preferred stock, par
value $1.00 per share (the "Preferred Stock"), having the
designations, preferences and relative, participating, optional
and other rights as set forth on the Designation of Class B
Preferred Stock attached hereto as Annex A;
(iii) One Hundred Thousand Dollars ($100,000), on or before the
expiration of one hundred eighty (180) days from the date hereof,
by bank cashier's or certified check or attorney's trust account
check, payable to the order of Seller, or, at Seller's election,
by wire transfer to accounts specified by Seller; and
(iv) a certificate executed by Buyer to the effect that, except
as otherwise stated in such certificate, each of Buyer's
representations and warranties in this Agreement was accurate in
all material respects as of the date of this Agreement and is
accurate in all material respects as of the Closing Date as if
made on the Closing Date.
2. Representations and Warranties of Seller.
----------------------------------------
Seller represents and warrants to Buyer as follows:
2.1 Organization and Good Standing. Seller is a corporation duly
------------------------------
organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to
conduct its business as it is now being conducted, to own or use the properties
and assets that it purports to own or use. Seller is duly qualified to do
business as a foreign corporation and is in good
<PAGE>
standing under the laws of each state or other jurisdiction in which either
the ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification.
2.2 Authority; No Conflict.
----------------------
(a) This Agreement constitutes the legal, valid, and binding
obligation of Seller, enforceable against Seller in accordance with
its terms. Seller has the absolute and unrestricted right, power,
authority, and capacity to execute, deliver and perform this
Agreement.
(b) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the transactions contemplated by
this Agreement will, directly or indirectly (with or without notice or
lapse of time):
(i) contravene, conflict with, or result in a violation of any
provision of the certificate of incorporation or bylaws of the
Seller;
(ii) contravene, conflict with, or result in a violation of, or
give any governmental body or other person the right to challenge
any of the transactions contemplated by this Agreement or to
exercise any remedy or obtain any relief under, any federal,
state or local order, law, ordinance or regulation or any
injunction, judgment, order or decree of any court,
administrative agency or other governmental body to which any
Seller, or any of the assets owned or used by any Seller, may be
subject;
(iii) contravene, conflict with, or result in a violation or
breach of any provision of, or give any person the right to
declare a default or exercise any remedy under, or to accelerate
the maturity or performance of, or to cancel, terminate, or
modify, any contracts applicable to the Seller that would have a
material adverse effect on the Seller; or
(iv) result in the imposition or creation of any charge, claim,
lien, option, pledge, security interest or restriction of any
kind upon or with respect to any of the assets owned or used by
any Seller.
2.3 Ownership; Capitalization.
--------------------------
(a) Seller is or will be on the Closing Date the record and beneficial
owner and holder of all the Shares, free and clear of any charge,
claim, lien, option, pledge, security interest or restriction of any
kind.
(b) All of the outstanding equity securities of Seller have been duly
authorized and validly issued and are fully paid and nonassessable.
2.4 Brokers or Finders. Seller and its agents have incurred no obligation
------------------
or liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement.
3. Representations and Warranties of Buyer.
---------------------------------------
<PAGE>
Buyer represents and warrants to Seller as follows:
3.1 Organization and Good Standing. Buyer is a corporation duly
------------------------------
organized, validly existing, and in good standing under the laws of the State of
Nevada.
3.2 Authority; No Conflict.
----------------------
(a) This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its
terms. Buyer has the absolute and unrestricted right, power, and
authority to execute, deliver and perform its obligations under this
Agreement.
(b) Neither the execution and delivery of this Agreement by Buyer nor
the consummation or performance of any of the transactions
contemplated by this Agreement by Buyer will give any person the right
to prevent, delay, or otherwise interfere with any of the transactions
contemplated by this Agreement pursuant to:
(i) any provision of Buyer's certificate of incorporation or
bylaws;
(ii) any resolution adopted by the board of directors or the
stockholders of Buyer;
(iii) any federal, state or local order, law, ordinance or
regulation or injunction, judgment, order or decree of any court,
administrative agency or other governmental body to which Buyer
may be subject; or
(iv) any agreement, contract, obligation, promise or undertaking
to which Buyer is a party or by which Buyer may be bound.
(c) Buyer is not and will not be required to obtain any consent from
any person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the
transactions contemplated by this Agreement.
3.3 Investment in Shares.
--------------------
(a) Buyer is acquiring the Shares for its own account and not with a
view to their distribution within the meaning of Section 2(11) of the
Securities Act.
(b) Buyer has received all information it believes necessary to make
an informed decision about its acquisition of the Shares.
(c) Each of the equity owners of Buyer is an "accredited investor" as
such term is defined in Rule 501(a) under the Securities Act.
(d) Buyer understands that the Shares are not registered under federal
or state securities laws and may not be offered, sold, transferred or
otherwise disposed of except pursuant to a registration statement or
an exemption from registration under those laws.
<PAGE>
(e) Buyer acknowledges that the certificates representing the Shares
may bear a legend substantially as follows:
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE LAW, OR
(2) AN OPINION OF COUNSEL (SATISFACTORY TO THE COMPANY) THAT
REGISTRATION IS NOT REQUIRED.
3.4 Certain Proceedings. There is no pending proceeding against Buyer
-------------------
that challenges, or may have the effect of preventing, delaying, making illegal,
or otherwise interfering with, any of the transactions contemplated by this
Agreement. To Buyer's knowledge, no such proceeding has been threatened.
3.5 Brokers or Finders. Buyer and its officers and agents have incurred
------------------
no obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with this
Agreement and will indemnify and hold Seller harmless from any such payment
alleged to be due by or through Buyer as a result of the action of Buyer or its
officers or agents.
4. Conditions Precedent to Buyer's Obligation to Close.
---------------------------------------------------
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
4.1 Accuracy of Representations. All of Seller's representations and
---------------------------
warranties in this Agreement must have been accurate in all material respects as
of the date of this Agreement, and must be accurate in all material respects as
of the Closing Date as if made on the Closing Date.
4.2 Seller's Performance.
--------------------
(a) All of the covenants and obligations that Seller is required to
perform or to comply with pursuant to this Agreement at or prior to
the Closing, must have been duly performed and complied with in all
material respects;
(b) Each document required to be delivered pursuant to Section 1.4(a),
must have been delivered.
4.3 Additional Documents. In addition to the documents delivered pursuant
--------------------
to Section 1.4, Seller shall deliver to Buyer such other documents as Buyer may
reasonably request for the purpose of (i) evidencing the accuracy of any of
Seller's representations and warranties, (ii) evidencing the performance by
Seller of, or the compliance by Seller with, any covenant or obligation required
to be performed or complied with by Seller, or (iii) evidencing the satisfaction
of any condition referred to in this Section 4.
<PAGE>
4.4 No Proceedings. Since the date of this Agreement, there must not have
--------------
been with respect to Buyer (i) any effective injunction, writ, or temporary
restraining order of any nature issued by a court or governmental agency of
competent jurisdiction directing that the proposed acquisition not be
consummated or (ii) any action, suit, or proceeding pending or threatened by or
before any court or governmental body in which it is or may be sought to
prohibit, substantially delay, or rescind the proposed acquisition, or to limit
in any way Buyer's right to acquire the Shares.
5. Conditions Precedent to Seller's Obligation to Close.
-----------------------------------------------------
Seller's obligation to sell the Shares and to take the other actions
required to be taken by Seller at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Seller, in whole or in part):
5.1 Accuracy of Representations. All of Buyer's representations and
---------------------------
warranties in this Agreement must have been accurate in all material respects as
of the date of this Agreement and must be accurate in all material respects as
of the Closing Date as if made on the Closing Date.
5.2 Buyer's Performance.
-------------------
(a) All of the covenants and obligations that Buyer is required to
perform or to comply with pursuant to this Agreement at or prior to
the Closing must have been performed and complied with in all material
respects.
(b) Buyer must have delivered each of the documents required to be
delivered by Buyer pursuant to Section 1.4(b) and must have paid the
Purchase Price required to be made by Buyer pursuant to Section
1.4(b).
5.3 Additional Documents. In addition to the documents to be delivered to
--------------------
Seller, pursuant to Section 1.4, Buyer shall deliver all such documents as
Seller may reasonably request for the purpose of (i) evidencing the accuracy of
any representation or warranty of Buyer, (ii) evidencing the performance by
Buyer of, or the compliance by Buyer with, any covenant or obligation required
to be performed or complied with by Buyer, or (iii) evidencing the satisfaction
of any condition referred to in this Section 5.
5.5 No Proceedings. Since the date of this Agreement, there must not have
--------------
been with respect to Seller (i) any effective injunction, writ, or temporary
restraining order of any nature issued by a court or governmental agency of
competent jurisdiction directing that the proposed acquisition not be
consummated or (ii) any action, suit, or proceeding pending or threatened by or
before any court or governmental body in which it is or may be sought to
prohibit, substantially delay, or rescind the proposed acquisition, or to limit
in any way Seller's right to sell the Shares.
<PAGE>
6. General Provisions.
------------------
6.1 Expenses. Except as otherwise expressly provided in this Agreement,
--------
each party to this Agreement will bear its respective expenses incurred in
connection with the preparation, execution, and performance of this Agreement
and the transactions contemplated by this Agreement, including all fees and
expenses of agents, representatives, counsel, and accountants.
6.2 Notices. All notices, consents, waivers, and other communications
-------
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
Seller:
Polyphase Corporation
16885 Dallas Parkway
4th Floor
Dallas, Texas 75248
Facsimile No.: (214) 732-6430
Attention: Jim Rudis
with a copy to:
Jenkens & Gilchrist,
A Professional Corporation
1445 Ross Ave.
Suite 3200
Dallas, Texas 75202
Facsimile No.: (214) 855-4300
Attention: Ronald J. Frappier
Buyer:
Letronix Acquisition Corporation
2620 South Maryland Parkway, Suite 202
Las Vegas, Nevada 89109
Facsimile No.: (214) 980-0790
Attention: President
with a copy to:
Albert B. Greco, Jr., Esq.
16885 Dallas Parkway
Suite 313
Dallas, Texas 75248
Facsimile No.: (972) 818-7343
6.3 Jurisdiction; Service of Process. Any action or proceeding seeking to
--------------------------------
enforce any provision of, or based on any right arising out of, this Agreement
may be brought against any of the parties
<PAGE>
in the courts of the State of Texas, County of Dallas, and each of the parties
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on any party anywhere in the world.
6.4 Further Assurances. The parties agree (a) to furnish upon request to
------------------
each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
6.5 Waiver. The rights and remedies of the parties to this Agreement are
------
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
6.6 Entire Agreement and Modification. This Agreement supersedes all
---------------------------------
prior agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by the party to be charged with the amendment.
6.7 Assignments, Successors, and No Third-party Rights. No party may
--------------------------------------------------
assign any of its rights under this Agreement without the prior consent of the
other parties, except that Buyer may assign any of its rights under this
Agreement to any subsidiary of Buyer. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the parties. Nothing
expressed or referred to in this Agreement will be construed to give any person
other than the parties to this Agreement any legal or equitable right, remedy,
or claim under or with respect to this Agreement or any provision of this
Agreement. This Agreement and all of its provisions and conditions are for the
sole and exclusive benefit of the parties to this Agreement and their successors
and assigns.
6.8 Severability. If any provision of this Agreement is held invalid or
------------
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
<PAGE>
6.9 Section Headings, Construction. The headings of Sections in this
------------------------------
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
6.10 Time of Essence. With regard to all dates and time periods set forth
---------------
or referred to in this Agreement, time is of the essence.
6.11 Governing Law. This Agreement will be governed by the laws of the
-------------
State of Texas without regard to conflicts of laws principles.
6.12 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
Seller:
POLYPHASE CORPORATION
---------------------------------------------
By: JIM RUDIS
Its: President
Buyer:
LETRONIX ACQUISITION CORPORATION
----------------------------------------------
By: ALBERT B. GRECO, JR.
Its: President
<PAGE>
EXHIBIT 10.74
CERTIFICATE OF DESIGNATION OF PREFERENCES
OF SERIES B PREFERRED STOCK OF
LETRONIX ACQUISITION CORP.,
A NEVADA CORPORATION
The undersigned, Albert B. Greco, Jr. does hereby certify:
1. He is the duly elected and acting President and Secretary of Letronix
Acquisition Corp., a Nevada corporation (the "Corporation").
2. That, pursuant to authority conferred upon the Board of Directors by
the Articles of Incorporation as amended of the corporation, and pursuant to the
provisions of Nevada law, said Board of Directors, by a written consent in lieu
of a meeting, dated July 2, 1997, in accordance with the provisions of Nevada
law, adopted the following recitals and resolutions providing for the
designation, preferences, and relative, participating, optional or other rights,
and the qualifications, limitations and restrictions of 1,629,000 shares of
Series B Preferred Stock as follows:
WHEREAS, the Articles of Incorporation of the corporation provides for a
class of authorized shares known as preferred stock, comprising 5,000,000 shares
of issuable stock from time to time in one or more series; and
WHEREAS, the Board of Directors of the corporation is authorized to fix or
alter the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption and the liquidation preferences of the authorized
preferred shares, and the number of shares constituting any series of such
shares and the designation thereof, or any of them;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby
provide that 1,629,000 of the authorized but unissued preferred shares shall now
be designated as "Series B Preferred Stock" with a redemption Value of One
Dollar ($1) per share ("Redemption Value"), and does hereby fix the rights,
preferences, restrictions and other matters relating to said Series B Preferred
Stock as follows:
Section 1. Designation; Number of Shares. 1,629,000 shares shall be
designated as "Series B Preferred Stock."
Page 1
<PAGE>
Section 2. Dividend Rights of Preferred Stock. The holders of the Series
B Preferred Stock shall be entitled to receive dividends at the annual rate of
(i) three percent (3%) for the years (i.e., the twelve calendar months) ending
July 30, 1998, and 1999, and (ii) eight percent (8%) for the years thereafter,
which shall be non-cumulative and subordinate to any declaration or payment of
any dividend or other distribution on any class or series of preferred stock or
the common stock of the corporation. The dividends payable hereunder shall be
payable in cash annually on the 30th day of June with respect to the preceding
year ("Dividend Payment Dates"); provided, however, no such dividend shall be
earned or payable except out of funds legally available therefor. All dividends
as aforesaid shall be payable to the holders of Series B Preferred Stock of
record on the Dividend Payment Date in question.
"Distribution" in this Section 2 means the transfer of cash or property
without consideration, whether by way of dividend or otherwise (except a
dividend in shares of the corporation) or the purchase or redemption of shares
of the corporation for cash or property. The time of any distribution by way of
dividend shall be the date of declaration thereof and the time of any
distribution by purchase or redemption of shares shall be the day on which cash
or property is transferred by the corporation, whether or not pursuant to a
contract of an earlier date; provided that where a negotiable debt security is
issued in exchange for shares, the time of the distribution is the date when the
corporation acquires the shares in such exchange.
Section 3. Liquidation Rights of Series B Preferred Stock. In the event
of any voluntary or involuntary liquidation, dissolution or winding up of the
corporation, the holders of the Series B Preferred Stock shall be entitled to
receive out of the assets of the corporation legally available therefor and
before any distribution or payment to the holders of any shares of common stock
or other class or series of preferred stock, liquidation distributions in the
amount of $1.00 per share plus an equal amount to all accrued but unpaid
dividends thereon up to and including the date fixed for distribution or payment
("Liquidation Amount").
Section 4. Voting Rights of Series B Preferred Stock. The Series B
Preferred Stock shall not convey any voting rights, and the holders thereof
shall not be entitled to notice of nor the right to appear or participate in any
meeting of the shareholders of the common stock of the Company, except as
required or permitted under Nevada law.
Section 5. No Conversion.
The holders of the shares of Series B Preferred Stock shall have no
right to convert their shares of Series B Preferred Stock to common stock.
Page 2
<PAGE>
Section 6. Exchangeability The holders of the shares of Series B
Preferred Stock shall have the right to exchange their shares of Series B
Preferred Stock to common stock of DataTell Solutions, Inc. (DSI) that are owned
by the Company as follows:
The Series B Preferred Stock is exchangeable into shares of common stock of
DSI at any time subsequent to its issuance at the option of the holder. The
exchange rate per share at which the Series B Preferred Stock can be exchanged
for common stock of DSI shall be nine (9) shares of Series B Preferred Stock per
share of DSI stock. The holders of the shares of Series B Preferred Stock shall
have the right to exchange any portion or all of the outstanding shares of
Series B Preferred Stock into shares of common stock of DSI. Provided, however,
that the Company shall not be required to transfer any of the Shares exchanged
hereunder until it has received an opinion of counsel satisfactory to the
Company as to the permissibility of transfer under applicable securities laws.
The certificates representing Shares issued pursuant to this exchange right may
bear an appropriate legend.
Fractional Shares The Company shall not be required to issue fractional
-----------------
shares upon exchange of any shares of Series B Preferred Stock. If, for any
reason the Holder of the shares of Series B Preferred Stock would be entitled,
upon the exchange of such stock, to receive a fractional interest in a Share,
such Holder shall only be entitled to receive from the Company the next lowest
whole number of shares at the exchange rate outlined hereinabove.
Section 5. Call and Redemption. All (but not less than all) of the
outstanding shares of Series B Preferred Stock may be called at any time by the
Corporation within ten (10) years after issuance and shall be surrendered by the
holders of such shares upon at least thirty (30) days prior notice to such
holders and upon the payment, on the appropriate date prescribed in such notice,
of one hundred percent (100%) of Redemption Value plus an amount equal to all
unpaid dividends thereon (up to and including the date fixed for redemption).
The holders of Series B Preferred Stock shall be entitled to look solely to the
assets of the corporation for redemption proceeds.
Section 6. Notices. Any notices required to be given to the holders of
shares of Series B Preferred Stock shall be deemed given if deposited in the
United States mail, postage prepaid, and addressed to each holder of record at
his address appearing on the books of the corporation.
IN WITNESS WHEREOF, said LETRONIX ACQUISITION CORP., has caused this
certificate to be signed by ALBERT B. GRECO, JR., its President and attested by
ALBERT B. GRECO, JR., its Secretary, this 2nd day of July 1997.
Page 3
<PAGE>
LETRONIX ACQUISITION CORP.
-------------------------------------
By: ALBERT B. GRECO JR.
Title: President
ATTEST:
- ----------------------------------
By: ALBERT B. GRECO, JR.
Title: Secretary
Page 4
<PAGE>
THE STATE OF TEXAS(S)
(S)
COUNTY OF DALLAS (S)
On this 2nd day of July 1997, before me, the undersigned, a notary public
in and for the State of Texas, personally appeared ALBERT B. GRECO, JR., known
to me or proven to me to be the person described in and who executed the
foregoing instrument, and who acknowledged to me that he executed the same
freely and voluntarily and for the uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first written above.
--------------------------------------------
Notary Public in and for the State of Texas
Page 5
<PAGE>
Exhibit 10.75
LOAN AGREEMENT
Dated as of
August 29, 1997
between
DALLAS PARKWAY PROPERTIES, INCORPORATED
"BORROWER"
and
NATIONAL OPERATING, L.P.
"LENDER"
<PAGE>
LOAN AGREEMENT
--------------
THIS LOAN AGREEMENT, dated as of August 29, 1997, is made and entered into
between DALLAS PARKWAY PROPERTIES INCORPORATED, a Texas corporation (the
"Borrower") and NATIONAL OPERATING, L.P., a Delaware limited partnership (the
"Lender").
WITNESSETH:
WHEREAS, the Borrower has applied to Lender for a certain loan (the "Loan")
in the principal amount of TWO MILLION EIGHT HUNDRED THOUSAND and N0/100 DOLLARS
($2,800,000) to be evidenced by Borrower's Secured Promissory Note payable to
the order of the Lender and dated as of even date herewith (the "Note"). Lender
is willing to make the Loan to the Borrower upon the terms and conditions herein
set forth and upon Borrower's granting in favor of Lender a continuing and
continuous deed of trust, Lien, assignment, pledge of and security interest in
certain of its real and personal property, all as more particularly described
and defined in the Security Instruments as collateral and security for all
indebtedness incurred pursuant to the Loan.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, receipt of which is
acknowledged by the parties hereto, the parties agree, as follows:
ARTICLE I
---------
CERTAIN DEFINITIONS
-------------------
When used herein, the following terms shall have the following meanings:
1.1 "Applicable Rate" shall mean the Note Rate, as defined in that
----------------
certain Secured Promissory Note executed by Borrower in favor of Lender of even
date herewith.
1.2 "Business Day" shall mean a day other than a Saturday, Sunday or a
--------------
day upon which lenders in the State of Texas are closed to business generally.
1.3 "CERCLA" shall mean the Comprehensive Environmental Response,
--------
Compensation and Liability Act of 1980, as amended, together with all
regulations and rulings promulgated with respect thereto.
1.4 "Closing Date" shall mean August 29, 1997.
--------------
1.5 "Collateral" shall have the meaning assigned to that term in Article
------------
III of this Agreement.
1.6 "Deed of Trust" shall mean the Deed of Trust described in Section 3.1
---------------
<PAGE>
hereof.
1.7 "Default Rate" shall mean the lesser of (i) eighteen percent (18%) per
--------------
annum, or (ii) the Highest Lawful Rate allowed by applicable state or federal
law.
1.8 "Dollar". "Dollars" and the symbol "$" shall mean lawful money of
---------------------------------------
the United States of America.
1.9 "Environmental Laws" shall mean Laws, including without limitation
--------------------
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, groundwater, land surface and subsurface strata),
including without limitation CERCLA, SARA, RCRA, HSWA, OPA, HMTA, TSCA and other
Laws relating to (i) Polluting Substances or (ii) the manufacture, processing,
distribution, use, treatment, handling, storage, disposal or transportation of
Polluting Substances.
1.10 "ERISA" shall mean the Federal Employee Retirement Income Security
-------
Act of 1974, as amended, together with all regulations and rulings promulgated
with respect thereto.
1.11 "Event of Default" shall mean any of the events specified in Section
-----------------
8.1 of this Agreement, and "Default" shall mean any event, which together with
---------
any lapse of time or giving of any notice, or both, would constitute an Event of
Default.
1.12 "Exit Fee" shall mean the amount of two percent (2%) of the original
----------
balance of the Note payable in accordance with the terms of this Agreement and
the Note.
1.13 "GAAP" means all applicable generally accepted accounting principals
------
of the Accounting Principals Board of the American Institute of Certified Public
Accountants and the Financial Accounting Standards Board which are applicable
during the term of this Agreement.
1.14 "Guarantor" means any person or entity, including, but not limited to
-----------
Polyphase Corporation who is guaranteeing payment of the Indebtedness.
1.15 "Highest Lawful Rate" means the maximum rate or amount of interest
---------------------
which Lender is allowed to contract for charge, take, reserve or receive under
Applicable Law.
1.16 "HMTA" shall mean the Hazardous Materials Transportation Act, as
------
amended, together with all regulations and rulings promulgated with respect
thereto.
1.17 "HSWA" shall mean the Hazardous and Solid Waste Amendments of 1984,
------
<PAGE>
as amended, together with all regulations and rulings promulgated with respect
thereto.
1.18 "Indebtedness" shall mean and include any and all: (i) indebtedness,
--------------
obligations and liabilities of the Borrower to the Lender incurred or which may
be incurred or purportedly incurred hereafter pursuant to the terms of this
Agreement or any of the other Loan Papers, and any extensions, renewals,
substitutions, amendments and increases in amount thereof, including such
amounts as may be evidenced by the Note and all lawful interest, service fees,
commitment fees, Origination Fee, Exit Fee and other charges, and all reasonable
costs and expenses incurred in connection with the preparation, filing and
recording of the Loan Papers, including attorneys fees; (ii) all reasonable
costs and expenses, including attorneys' fees, paid or incurred by the Lender in
enforcing or attempting to enforce collection of any Indebtedness and in
enforcing or realizing upon or attempting to enforce or realize upon any
collateral or security for any Indebtedness and in protecting and preserving the
Lender's interest in the Indebtedness or any collateral or security for any
Indebtedness in any bankruptcy or reorganization proceeding, including interest
on all sums so expended by the Lender accruing from the date upon which such
expenditures are made until paid, at an annual rate equal to the Default Rate or
the rate provided in any of the applicable Loan Papers; (iii) sums expended by
the Lender in curing any Event of Default or default of the Borrower under the
terms of this Agreement, the other Loan Papers or any other security agreement
or other writing evidencing or securing the payment of the Note together with
interest on all sums so expended by the Lender accruing from the date upon which
such expenditures are made until paid, at an annual rate equal to the Default
Rate or the rate provided in any of the applicable Loan Papers; and (iv) all
"Indebtedness" or "Secured Indebtedness" as said terms are defined in each of
the Loan Papers.
1.19 "Laws" shall mean all statutes, laws, ordinances, regulations,
------
orders, writs, injunctions, or decrees of the United States, any state or
commonwealth, any municipality, any foreign country, any territory or
possession, or any Tribunal.
1.20 "Lien" shall mean any mortgage, pledge, security interest,
------
encumbrance, Lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement, any
lease in the nature thereof, and the filing of or agreement to give any
financing statement or other similar form of public notice under the Laws of any
jurisdiction).
1.20 "Lien Notice" shall mean notice received or obtained by the Lender or
-------------
knowledge obtained by the Lender of any Lien being claimed (whether valid or
not) by any Person, other than the Lender or a trustee on behalf of the Lender,
with respect to the Mortgaged Property.
1.22 "Loan" shall mean that certain loan of $2,800,000 from Lender to
----
Borrower described in this Agreement.
1.23 "Loan Papers" shall mean this Agreement, the Note, the Security
-------------
LOAN AGREEMENT -- PAGE 4
- --------------
<PAGE>
Instruments, Borrower's Affidavit, Notice of Final Agreement, all of even date
herewith executed by Borrower in connection with the Loan, and all other
documents instruments and certificates executed and delivered to the Lender by
the Borrower pursuant to the terms of this Agreement.
1.24 "Maturity Date" shall mean August 1, 1999, or such date as the Loan
---------------
matures by acceleration or otherwise in accordance with the terms and provisions
of this Agreement.
1.25 "Note Rate" shall mean fourteen percent (14%) per annum.
-----------
1.26 "Notes" shall mean the Secured Promissory Note described in Section
-------
2.2 of this Agreement, together with each and every extension, renewal,
modification, replacement, substitution, rearrangement and change in form
thereof which may be from time to time and for any term or terms effected.
1.27 "Official Body" shall mean any government or political Subdivision or
---------------
any agency, authority, bureau, central Lender, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitrator, in
each case whether foreign or domestic.
1.28 "Origination Fee" shall mean the sum of one and one half percent
-----------------
(1.5%) of the original principal balance of the Note, payable as provided
herein.
1.29 "Person" shall mean and include an individual, a partnership, a joint
--------
venture, a corporation, a trust, an unincorporated organization, and a
government or any department, agency or political subdivision thereof
1.30 "Polluting Substances" shall mean 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 CERCLA/SARA, RCRA/HSWA and in the
HMTA; provided, in the event either CERCLA/SARA, RCRA/HSWA or HMTA 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 Laws of any State or other Tribunal establish a
meaning for "hazardous substance, "hazardous" specified in CERCLA/SARA,
RCRA/HSWA, or HMTA, such broader meaning shall apply.
1.31 "Property" shall mean the property conveyed pursuant to the Deed of
----------
Trust.
1.32 "SARA" shall mean the Superfund Amendments and Reauthorization Act
------
of 1987, as amended, together with all regulations and rulings promulgated with
respect thereto, "Security Instruments" shall mean the Deed of Trust of even
date herewith,
<PAGE>
executed by Borrower in favor of Lender and all other financing statements,
mortgages, deeds of trust, assignments, security agreements, documents or
writings of any and all amendments and supplements thereto, granting, conveying,
assigning, transferring or in any manner providing the Lender with a security
interest or mortgage Lien in any property as security for the repayment of all
or any part of the Indebtedness.
1.33 "Security Instruments" shall mean the Deed of Trust and all other
----------------------
financing statements, mortgages, deeds of trust, assignments, security
agreements, documents or writings of any and all amendments and supplements
thereto, granting, conveying, assigning, transferring or in any manner providing
the Lender with a security interest or mortgage Lien in any property as security
for the repayment of all or any part of the Indebtedness.
1.34 "Taxes" shall mean all taxes, assessments, fees, or other charges or
-------
levies from time to time or at any time imposed by any Laws or by any Tribunal.
1.35 "Tribunal" shall mean any municipal, state, commonwealth, Federal,
----------
foreign, territorial or other sovereign, governmental entity, governmental
department, court, commission, board, bureau, agency or instrumentality.
1.36 "TSCA" shall mean the Toxic Substances Control Act, as amended,
------
together with all regulations and rulings promulgated with respect thereto.
ARTICLE II
----------
2.1 Loan. The Lender agrees, upon the terms and subject to the
----
conditions hereinafter set forth, to make the Loan to the Borrower from the
Closing Date until the Maturity Date, or until such later date as the Lender
shall have extended the Loan in writing unless its Loan shall be sooner
terminated pursuant to the provisions of this Agreement or any of the Loan
Papers.
2.2 Origination Fee. On or before the Closing Date, Borrower shall pay
---------------
the Origination Fee to Lender.
2.3 Note. On the Closing Date the Borrower shall execute and deliver to
----
the order of the Lender the Note in the principal amount of $2,800,000
(referred to as the "Note"). The Note shall be dated as of the Closing Date,
and shall bear interest payable monthly on the 1st day of every month commencing
September 1, 1997, on unpaid balances of principal from time to time
outstanding. After maturity (whether by acceleration or otherwise) the Note
shall bear interest at the Default Rate, payable on demand. Interest shall be
calculated on the basis of a year of 360 days, but assessed for the actual
number of days elapsed in each accrual period.
2.4 Prepayment of the Note. Borrower may pay the principal sum of this
----------------------
Note in full or in part at any time by paying the principal sum, all interest
accrued on the
<PAGE>
principal sum to the date of payment and the Exit Fee allocable to such
principal sum.
2.5 Interest. The outstanding principal balance of the Note, from time to
--------
time, remaining unpaid shall bear interest which shall be computed on the number
of days actually elapsed, but computed as though each year consisted of 360 days
from the date of the Note until maturity at an annual rate equal to the Note
Rate.
2.6 Principal and Interest. The principal and interest of the Note will
----------------------
be payable as follows:
(a) commencing on September 1, 1997, and continuing on the same day of
each successive month thereafter through and including July 1, 1999,
interest on the total outstanding principal balance shall be payable as it
accrues; and
(b) all remaining unpaid principal and all accrued but unpaid interest
shall be due and payable in full on the Maturity Date.
2.7 Exit Fee. Borrower also agrees to pay the Exit Fee on the Maturity
--------
Date; provided, however, if Borrower prepays any portion of the principal amount
due under the Note, the Exit Fee allocable to such prepaid amount shall be due
at the time of prepayment.
ARTICLE III
-----------
SECURITY
--------
3.1 Collateral. The repayment of the Indebtedness shall be secured by a
----------
first and prior mortgage Lien, deed of trust and security interest, subject to
matters in existence and which have been disclosed in writing to Lender as of
the date hereof, in and to all of the portions of the property owned or
hereafter acquired by the Borrower, which has been granted to the Lender,
pursuant to the terms of the Deed of Trust, dated as of even date herewith and,
only insofar as Borrower's legal and equitable ownership interests in such
mortgaged property are concerned, together with all proceeds and products of the
items or types of collateral described in this Article III, including without
limitation, insurance proceeds and all cash, money, deposits and accounts of
Borrower at any time in the possession or control of the Lender (the collateral
described herein and in the Security Instruments being collectively referred to
as the "Collateral").
ARTICLE IV
----------
CONDITIONS TO LOAN
------------------
4.1 Conditions Precedent. The obligation of the Lender to make the Loan
--------------------
is subject to the satisfaction of all of the following conditions on or prior to
the Closing Date
<PAGE>
(in addition to the other terms and conditions set forth herein):
(a) No Default. On the Closing Date, there shall exist no Event of
----------
Default or an event which would be an Event of Default if the applicable cure
period has expired.
(b) Representations and Warranties. The representations, warranties
------------------------------
and covenants set forth in Article VI shall be true and correct on and as
of the Closing Date, with the same effect as though made on and as of the
Closing Date.
(c) Loan Papers/Security Instruments. The Borrower and Guarantor
--------------------------------
(where applicable) shall have delivered to the Lender this Loan Agreement,
the Secured Promissory Note, Deed of Trust, Guaranty, Borrower's Affidavit
and, Notice of Final Agreement, each appropriately executed by the
appropriate parties and, where applicable, in form and acknowledged to the
satisfaction of the Lender and dated as of the Closing Date, together with
such financing statements, and other documents as shall be necessary and
appropriate to perfect the Lender's mortgage Liens, pledge and security
interests in the Collateral covered by said Security Instruments.
(d) Title to Mortgaged Properties. Borrower shall have provided the
-----------------------------
Lender with evidence satisfactory to the Lender and its legal counsel that
Borrower has valid title to the mortgaged property(ies) and Collateral and
a Lender's policy of title insurance acceptable to Lender.
(e) Survey. Lender shall have received a survey of the Property
------
described in the Deed of Trust satisfactory to Lender and certified to
Lender.
(f) Resolutions/Certificates. The Lender shall have received (i)
------------------------
copies of the Articles of Incorporation and all amendments thereto and the
by-laws and all amendments thereto of Borrower and Guarantor, as the case
may be, accompanied by a certificate issued by the secretary or an
assistant secretary of Borrower and Guarantor, to the effect that each such
copy is correct and complete; (ii) certificates of incumbency and
signatures of all officers of Borrower and Guarantor who are authorized to
execute Loan Papers on behalf of the Borrower, executed by its secretary;
and (iii) copies of resolutions approving the Loan Papers and authorizing
the transactions contemplated herein and therein, duly adopted by the board
of directors of Borrower, executed by the secretary or an assistant
secretary of Borrower and Guarantor, to the effect that such copies are
true and correct copies of resolutions duly adopted at a meeting or by
unanimous consent of the board of directors of Borrower and Guarantor and
that such resolutions constitute all the resolutions adopted with respect
to such transactions, have not been amended, modified, or revoked in any
respect, and are in full force and effect as of the date of such
certificate.
<PAGE>
(g) Good Standing/Insurance. The Lender shall have received (i)
-----------------------
certificates dated as of a recent date from the Secretary of State or other
appropriate governmental authority evidencing the existence or
qualification and good standing of Borrower and Guarantor in all
jurisdictions covered by the mortgaged properties where such qualification
is required and where failure to be qualified or in good standing could
reasonably be expected to have-a material adverse effect, and (ii)
certificates evidencing the insurance maintained by the Borrower and
Guarantor in compliance with applicable provisions of this Agreement.
(h) Opinion of Borrower's and Guarantor's Counsel. The Lender shall
---------------------------------------------
have received from Borrower's and Guarantor's counsel, a favorable closing
opinion addressed to the Lender, satisfactory in form and substance to the
Lender and its counsel.
(i) Origination Fee. The Lender shall have received the Origination
---------------
Fee.
(j) Lender shall have received a rent roll for the Property certified
by the Borrower.
ARTICLE V
---------
COVENANTS
---------
The Borrower covenants and agrees with the Lender that from the date hereof
and so long as this Agreement is in effect (by extension, amendment or
otherwise) and until payment in full of all Indebtedness and the performance of
all other obligations of the Borrower under this Agreement, unless the Lender
shall otherwise consent in writing:
5.1 Payment of Taxes and Claims. The Borrower will pay and discharge or
---------------------------
cause to be paid and discharged all Taxes imposed upon the income or profits of
the Borrower or upon the property, real, personal or mixed, or upon any part
thereof, belonging to Borrower before the same shall be in default, and all
lawful claims for labor, rentals, materials and supplies which, if unpaid, might
become a Lien upon its property or any part thereof, provided however, that the
----------------
Borrower shall not be required to pay and discharge or cause to be paid or
discharged any such Tax, assessment or claim so long as the validity thereof
shall be contested in good faith by appropriate proceedings, and adequate book
reserves shall be established with respect thereto, and the Borrower shall pay
such Tax, charge or claim before any property subject thereto shall become
subject to execution.
5.2 Maintenance of Corporate Existence. The Borrower will do or cause to
----------------------------------
be done all things necessary to preserve and keep in full force and effect its
corporate
<PAGE>
existence, rights and franchises and will continue to conduct and operate
Borrower's business substantially as being conducted and operated presently.
5.3 Preservation of Property. Borrower will at all times maintain,
------------------------
preserve and protect all of Borrower's properties which are used or useful in
the conduct of Borrower's business whether owned in fee or otherwise, or leased,
in good repair and operating condition; from time to time make, or cause to be
made, all needful and proper repairs, renewals, replacements, betterments and
improvements thereto so that the business carried on in correction therewith may
be properly and advantageously conducted at all times; and comply with all
material leases to which it is a party or under which it occupies property so as
to prevent any material loss or forfeiture thereunder.
5.4 Insurance. Borrower will keep adequately insured by financially sound
---------
and reputable insurers Borrower's equipment, motor vehicles, and all other
property of a character usually insured by businesses engaged in the same or
similar businesses, including the Collateral. If required by the Security
Instruments, any insurance policies covering the Collateral shall be endorsed to
provide for payment of losses to the Lender as its interest may appear, to
provide that such policies may not be canceled, reduced or affected in any
manner for any reason without thirty (30) days prior notice to the Lender, and
to provide for any other matters which the Lender may reasonably require; and
such insurance shall be against fire, casualty and any other hazards normally
insured against and shall be in the amount of the full value (less a reasonable
deductible) of the property insured. Borrower shall at all times maintain
adequate insurance by financially sound and reputable insurers, including
without limitation, the following coverages: (i) insurance against damage to
persons and property including comprehensive general liability, worker's
compensation and automobile liability.
5.5 Compliance with Applicable Laws. Borrower will comply with the
-------------------------------
requirements of all Applicable Laws and orders of any Tribunal and obtain any
licenses, permits, franchises or other governmental authorizations necessary to
the ownership of Borrower's properties or to the conduct of Borrower's business.
5.6 Environmental Covenants. Borrower will immediately notify the Lender
-----------------------
of and provide the Lender with copies of any notifications of discharges or
releases or threatened releases or discharges of a Polluting Substance on, upon,
into or from the Collateral which are given or required to be given by or on
behalf of the Borrower to any federal, state or local Tribunal, and such copies
of notifications shall be delivered to the Lender at the same time as they are
delivered to the Tribunal. Borrower further agrees promptly to undertake and
diligently pursue to completion any appropriate and legally required or
authorized remedial containment and cleanup action in the event of any release
or discharge or threatened release or discharge of a Polluting Substance on,
upon, into or from the Collateral. At all times while owning and operating the
Collateral, the Borrower will maintain and retain complete and accurate records
of all releases, discharges or other disposal Of Polluting Substances on, onto,
into or from the
<PAGE>
Collateral, including, without limitation, records of the quantity and type of
any Polluting Substances disposed of on or off the Collateral.
5.7 Environmental Indemnities. Borrower hereby agrees to indemnify,
-------------------------
defend and hold harmless the Lender and each of its officers, directors,
employees, members, agents, consultants, attorneys, contractors and each of its
affiliates, successors or assigns, or transferees from and against, and
reimburse said Persons in full with respect to, any and all loss, liability,
damage, fines, penalties, costs and expenses, of every kind and character,
including reasonable attorneys' fees and court costs, known or unknown, fixed or
contingent, occasioned by or associated with any claims, demands, causes of
action, suits and/or enforcement actions, including any administrative or
judicial proceedings, and any remedial, removal or response actions ever
asserted, threatened, instituted or requested by any Persons, including any
Tribunal, arising out of or related to: (a) the breach of any representation or
warranty of Borrower contained in Section 6.5 set forth herein; (b) the failure
of Borrower to perform any of its covenants contained in Section 5.5 or 5.6
hereunder; (c) the ownership, construction, occupancy, operation, use of the
Collateral prior to the earlier of the date on which (i) the Indebtedness and
obligations secured hereby have been paid and performed in full and the Security
Instruments have been released, or (ii) the Collateral has been sold by Lender
following Lender's ownership of the Collateral by way of foreclosure of the
Liens granted pursuant hereto, deed in lieu of such foreclosure or otherwise
(the "Release Date").
The indemnities contained in this Section 5.7 apply, without limitation, to
any violation on or before the Release Date of any Environmental Law and any
liability or obligation relating to the environmental conditions on, under or
about the property constituting any part of the Collateral on or prior to the
Release Date (including, without limitation: (a) the presence on, upon or in the
Collateral or release, discharge or threatened release on, upon or from the
Collateral of any Polluting Substances generated, used, stored, treated,
disposed of or otherwise released prior to the Release Date, and (b) any and all
damage to real or personal property and/or harm or injury including wrongful
death, to persons alleged to have resulted from such release of any Polluting
Substances regardless of whether the act, omission, event or circumstances
constituted a violation of any Environmental Law at the time of its existence or
occurrence). The term "release" shall have the meaning specified in CERCLA/SARA
and the terms "stored," "treated" and "disposed" shall have the meanings
specified in RCRA/HSWA; provided, however, any broader meanings of such terms
provided by applicable laws of the State of Texas shall apply.
The provisions of this Section 5.7 shall be in addition to any other
obligations and liabilities Borrower may have to the Lender at common law and
shall survive the Release Date and shall continue thereafter in full force and
effect.
The Lender agrees that in the event that such claim, suit or enforcement
action is asserted or threatened in writing or instituted against it or any of
its officers, employers, agents or contractors or any such remedial, removal or
response action is requested of it
<PAGE>
or any of its officers, employees, agents or contractors for which the Lender
may desire indemnity or defense hereunder, the Lender shall give written
notification thereof to the Borrower.
Notwithstanding anything to the contrary stated herein, the indemnities
created by this Section 5.7 shall only apply to losses, liabilities, damages,
fines, penalties, costs and expenses actually incurred by the Lender as a result
of claims, demands, actions, suits or proceedings brought by Persons who are not
the beneficiaries of any such indemnity. The Lender shall act as the exclusive
agent for all indemnified Persons under this Section 5. 7. With respect to any
claims or demands made by such indemnified Persons, the Lender shall notify the
Borrower within thirty (30) days after the Lender's receipt of a writing
advising the Lender of such claim or demand. Such notice shall identify (i)
when such claim or demand was first made, (ii) the identity of the Person making
it, (iii) the indemnified Person, and (iv) the substance of such claim or
demand. Failure by the Lender to so notify the Borrower within said thirty (30)
day period shall reduce the amount of the Borrower's obligations and liabilities
under this Section 5.7 by an amount equal to any damages or losses suffered by
the Borrower resulting from any prejudice caused the Borrower by such delay in
notification from the Lender. Upon receipt of such notice, the Borrower shall
have the exclusive right and obligation to contest, defend, negotiate or settle
any such claim or demand through counsel of its own selection (but reasonably
satisfactory to the Lender) and solely at Borrower's own cost, risk and expense;
provided, that the Lender, at its own cost and expense shall have the right to
participate in any such contest, defense, negotiations or settlement. The
settlement of any claim or demand hereunder by the Borrower may be made only
upon the prior approval of the Lender of the terms of the settlement.
5.8 Business and Financial Information. Promptly furnish to Lender from
----------------------------------
time to time such information regarding the business and affairs and financial
condition of Borrower as the Lender may reasonably request, and will furnish
Lender:
5.8.1 Quarterly Financial Statements. Within forty-five (45) days
------------------------------
after the close of each quarter of each fiscal year of Borrower and
Guarantor, two (2) copies of the balance sheet of Borrower and Guarantor as
at the close of such period, and two (2) copies of the statement of income
of Borrower and Guarantor setting forth the figures for such fiscal quarter
period as well as year to date figures, all prepared in a manner accurately
presenting the financial condition of Borrower and Guarantor and certified
as complete and correct by an authorized officer of Borrower and Guarantor;
5.8.2 Annual Financial Statements. Within forty-five (45) days after
---------------------------
the close of each fiscal year of Borrower: (i) two (2) copies of the
balance sheets of Borrower and Guarantor as of the end of such fiscal year
and two (2) copies of the statement of income of Borrower and Guarantor for
such fiscal year, setting forth in each case in comparative form the
figures for the previous fiscal year, all prepared on the basis of GAAP,
consistently applied, and in such detail as Lender
<PAGE>
may reasonably request, and certified as complete and correct by an
authorized officer;
5.8.3 Insurance. Upon the request of Lender, Borrower will furnish
---------
Lender copies of its insurance policies;
5.8.4 Notice of Default. Immediately upon becoming aware of the
-----------------
existence of any condition or event which constitutes, or with notice or
lapse of time (or both) would constitute an Event of Default under this
Agreement, a written notice specifying the nature and period of existence
thereof and what action is being taken or is proposed to be taken with
respect thereto;
5.8.5 Notice of Claimed Default. Immediately upon becoming aware
-------------------------
that any Person has given notice or taken any other action with respect to
a claimed material default under any indenture, mortgage, deed of trust,
promissory note, loan agreement, note agreement or any other agreement or
undertaking to which Borrower or Guarantor is a party other than those
disclosed on Exhibit B, a notice specifying the notice given or action
taken by such Person and the nature of the claimed material default and
what action Borrower or Guarantor is taking or proposes to take with
respect thereto;
5.8.6 Litigation. Immediately upon becoming aware of any action,
----------
suit or proceeding pending or threatened against or affecting Borrower or
Guarantor in any court or before any arbitrator or governmental authority
which if adversely determined could materially or adversely affect its
property, business, operation or condition, financial or otherwise other
than those disclosed on Exhibit A, a notice specifying the nature thereof
and what action is being taken or is proposed to be taken with respect
thereto;
5.8.7 Tenants. Upon request of Lender, a list of Borrower's
-------
Tenants and the terms of any leases in effect on the real property securing
the Indebtedness;
5.8.8 Adverse Change. Immediately upon becoming aware of any adverse
--------------
change in the condition, financial or otherwise, of Borrower since the date
of Closing.; and
5.8.9 Other. Such other statement or statements, list of property
-----
and accounts, budgets, forecasts or reports with respect to Borrower as
Lender may request, including, but not limited to Borrower's Form 10-K for
the 1996 fiscal year of Borrower filed with the United States Securities
and Exchange Commission.
5.9 Certificate. Every ninety (90) days that the Loan is outstanding,
-----------
there shall be furnished to Lender a certificate signed by an authorized officer
stating: (i) that
<PAGE>
a review of the activities of Borrower has been made with a view to determining
whether Borrower has fulfilled all of Borrower's obligations under this
Agreement, the Note and all other Loan Papers; and (ii) that Borrower has
fulfilled all of Borrower's obligations under this Agreement, the Note and all
other Loan Papers and Security Instruments and that all representations and
warranties made and therein continue to be true and correct (or specifying the
nature of any change), or if an Event of Default shall be in existence,
specifying any default in the nature and status thereof.
5.10 Inspection. Borrower will keep complete and accurate books and
----------
records with respect to the Collateral and its other properties, business and
operations and will permit employees and representatives of the Lender, upon
reasonable notice, to audit, inspect and examine the same and to make copies
thereof and extracts therefrom during normal business hours. All such records
shall be at all times kept and maintained at the principal offices of Borrower
in Dallas, Texas. Upon any default or Event of Default of the Borrower, it will
surrender all of such records relating to the Collateral to the Lender upon
receipt of any request therefor from the Lender.
5.11 Maintenance of Employee Benefit Plans. The Borrower will maintain
-------------------------------------
each employee benefit plan and/or pension plan as to which Borrower may have any
liability or responsibility in compliance with ERISA and all other Laws
applicable thereto.
5.12 Limitation on Liens. Borrower will not create or suffer to exist any
-------------------
Lien upon any of its property or assets except (i) Liens in favor of the Lender
securing the Indebtedness; (ii) Liens arising in the ordinary course of business
for sums not due or sums being contested in good faith and by appropriate
proceedings and not involving any deposits, advances, borrowed money or the
deferred purchase price of property or services; and (iii) Liens permitted to
exist under the terms of any of the Security Instruments.
5.13 Disposition/Negative Pledge re Encumbrance of Collateral. Borrower
--------------------------------------------------------
will not sell or encumber any of the Collateral without first obtaining the
Lender's written consent thereto and Borrower will not sell, transfer, scrap or
otherwise dispose of or mortgage, pledge, grant a security interest in or
otherwise encumber any of the Collateral.
5.14 Other Agreements. Borrower will not enter into or permit to exist
----------------
any agreement (i) which would cause an Event of Default or a default hereunder;
or (ii) which contains any provision which would be violated or breached by the
performance of Borrower's obligations hereunder or under any of the other Loan
Papers.
5.15 Name and Other Changes. Borrower shall not change its name, fiscal
----------------------
year and/or accounting method except as required by GAAP.
5.16 Leases. During the term of the Loan or any renewal or extension
------
thereof, Borrower will not lease any of the real property which serves as
security for the
<PAGE>
Indebtedness other than on a month to month basis without the prior written
consent of Lender.
ARTICLE VI
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce the Lender to enter into this Agreement and to make the
Loans to the Borrower under the provisions hereof, and in consideration thereof,
the Borrower and Guarantor represent, warrant and covenant as follows:
6.1 Litigation. Except as set forth on Exhibit A attached hereto, there
---------- ---------
is no action, suit, investigation or proceeding threatened or pending before any
Tribunal against or affecting Borrower or Guarantor or any properties or rights
of Borrower or Guarantor, which, if adversely determined, would result in a
liability of greater than $25,000 or would otherwise result in any adverse
change in the business or condition, financial or otherwise, of Borrower or
Guarantor. Borrower or Guarantor is not in default with respect to any
judgment, order, writ, injunction, decree, rule or regulation of any Tribunal.
6.2 Conflicting Agreements and Other Matters. Except as set forth on
----------------------------------------
Exhibit B attached hereto, neither Borrower nor Guarantor is in default in the
performance of any material obligation, covenant, or condition in any agreement
to which they are a party or by which they are bound. Borrower or Guarantor is
not a party to any contract or agreement which materially and adversely affects
its business, property or assets, or financial condition. Borrower or Guarantor
is not a party to or otherwise subject to any contract or agreement which
restricts or otherwise affects the right or ability of the Borrower or Guarantor
to execute the Loan Papers or the performance of any of their respective terms.
Neither the execution nor delivery of any of the Loan Papers, nor fulfillment of
nor compliance with their respective terms and provisions will conflict with, or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, or result in any violation of, or result in the creation of any
Lien (except those created by the Loan Papers) upon any of the properties or
assets of the Borrower or Guarantor pursuant to, or require any consent,
approval or other action by or any notice to or filing with any Tribunal (other
than routine filings after the Closing Date with the Securities and Exchange
Commission, any securities exchange and/or state blue sky authorities) pursuant
to any award of any arbitrator, or any agreement, instrument or Law to which the
Borrower or Guarantor is subject.
6.3 Financial Statements. The financial statements of Borrower and
--------------------
Guarantor furnished to the Lender show all material liabilities, direct and
contingent, and fairly present the financial condition of the Borrower and
Guarantor as at date thereof and the results of its operations for the periods
then ended, and since such date there has been no material adverse change in the
business, financial condition or operations of the Borrower or Guarantor.
<PAGE>
6.4 Title to Properties; Authority. Borrower has full power, authority
------------------------------
and legal right to own and operate the properties which it now owns and
operates, and to carry on the lines of business in which it is now engaged, and
has indefeasible title to the Property subject to no Lien of any kind except
Liens permitted by this Agreement. Borrower has full power, authority and legal
right to execute and deliver and to perform and observe the provisions of this
Agreement and the other Loan Papers.
6.5 Environmental Representations.
-----------------------------
(a) Borrower is not subject to any liability or obligation relating to (i)
the environmental conditions on, under or about the Collateral, including,
without limitation, the soil and ground water conditions at the location of any
of the Property, or (ii) the use, management, handling, transport, treatment,
generation, storage, disposal, release or discharge of any Polluting Substance;
(b) Borrower has not obtained and is not required to obtain or make
application for any permits, licenses or similar authorizations to construct,
occupy, operate or use any buildings, improvements, facilities, fixtures and
equipment forming a part of the Collateral by reason of any Environmental Laws;
(c) Borrower has taken all reasonable steps necessary to determine and has
determined that no Polluting Substances have been disposed of or otherwise
released on, onto, into, or from the Collateral (the term "release" shall have
the meanings specified in CERCLA/SARA, and the term "disposal" or "disposed"
shall have the meanings specified in RCRA/HSWA; provided, in the event either
CERCLA/SARA or RCRA/HSWA 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 laws of any
State or Tribunal establish a meaning for "release," "disposal" or "disposed"
which is broader than that specified in CERCLA/SARA, RCRA/HSWA or other
Environmental Laws, such broader meaning shall apply); and
(d) To the best of Borrower's knowledge, there are no PCB's or asbestos-
containing materials, whether in the nature of thermal insulation products Such
as pipe boiler or breech coverings, wraps or blankets or sprayed-on or troweled-
on products in, on or upon the Collateral.
6.6 Purposes. Borrower 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 Regulation U of the
Board of Governors of the Federal Reserve System)and no part of the proceeds of
any borrowing hereunder will be used to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying any margin
stock. If requested by the Lender, the Borrower will furnish to the Lender a
statement in conformity with the requirements of Federal
<PAGE>
Reserve Form U-1, referred to in Regulation U, to the foregoing effect. Neither
the Borrower nor any agent acting on its behalf has taken or will take any
action which might cause this Agreement or the Note to violate any regulation of
the Board of Governors of the Federal Reserve System (including Regulations G,
T, U and X) or to violate any Securities Laws, state or federal, in each case as
in effect now or as the same may hereafter be in effect.
6.7 Compliance with Applicable Laws. In all reasonable and in all
-------------------------------
material respects, the Borrower is in compliance with all Laws, ordinances,
rules, regulations and other legal requirements applicable to it and the
businesses conducted thereby, the violation of which could or would have a
material adverse effect on its business condition, financial or otherwise.
6.8 Possession of Franchises, Licenses. Borrower possesses all
----------------------------------
franchises, certificates, licenses, permits, registrations, approvals and other
authorizations from governmental political subdivisions or regulatory
authorities, free from burdensome restrictions, that are necessary in any
material respect for the ownership, maintenance and operation of its properties
and assets, and Borrower is not in violation of any thereof in any material
respect.
6.9 Leases. To the best of Borrower's knowledge, Borrower enjoys peaceful
------
and undisturbed possession of all leases to which it is a party.
6.10 Taxes. Borrower and Guarantor has filed all federal, state and other
-----
income tax returns which are required to be filed and have paid all Taxes, as
shown on said returns, and all Taxes due or payable without returns and all
assessments received to the extent that such Taxes or assessments have become
due. All Tax liabilities of the Borrower are adequately provided for on the
books of the Borrower, including any interest or penalties. No income tax
liability of a material nature has been asserted by taxing authorities for Taxes
in excess of those already paid.
6.11 Disclosure. Neither this Agreement nor any other Loan Paper or
----------
writing furnished to the Lender by or on behalf of the Borrower and Guarantor in
connection herewith contains any untrue statement of a material fact nor do such
Loan Papers and writings, taken as a whole, omit to state a material fact
necessary in order to make the statements contained herein and therein not
misleading. There is no fact known to Borrower and not reflected in the
financial statements provided to the Lender which adversely affects its assets
or in the future may materially adversely affect the business, property, or
assets, or financial condition of Borrower which has not been set forth in this
Agreement, in the Loan Papers or in other documents furnished to the Lender by
or on behalf of the Borrower prior to the date hereof in connection with the
transactions contemplated hereby.
6.12 ERISA. Since the effective date of Title IV of ERISA, no Reportable
-----
Event has occurred with respect to any Plan. For the purposes of this section
the term
<PAGE>
"Reportable Event" shall mean an event described in Section 4043(b) of ERISA.
For the purposes hereof the term "Plan" shall mean any plan subject to Title IV
of ERISA and maintained for employees of Borrower, or of any member of a
controlled group of corporations, as the term "controlled group of corporations"
is defined in Section 1563 of the Internal Revenue Code of 1986, as amended (the
"Code"), of which Borrower is a part. Each Plan established or maintained by
Borrower is in material compliance with the applicable provisions of ERISA, and
the Borrower has filed all reports required by ERISA and the Code to be filed
with respect to each Plan. Borrower has met all requirements with respect to
funding Plans imposed by ERISA or the Code. Since the effective date of Title IV
of ERISA, there have not been any nor are there now existing any events or
conditions that would permit any Plan to be terminated under circumstances which
would cause the Lien provided under Section 4068 of ERISA to attach to the
assets of Borrower. The value of each Plan's benefits guaranteed under Title IV
of ERISA on the date hereof does not exceed the value of such Plan's assets
allocable to such benefits on the date hereof.
6.13 Ownership of Collateral. The Borrower hereby represents, warrants
-----------------------
and covenants that as of the date of this Agreement the Borrower owns legal and
equitable title to the Collateral, subject to existing Liens which have been
disclosed in writing to Lender as of the date of this Loan Agreement.
6.14 Dividends. Outside of the ordinary course of its business, neither
---------
the Borrower nor Guarantor will not declare, pay or become obligated to declare
or pay any cash or Polyphase stock dividend on any class of its capital stock
now or hereafter outstanding, make any distribution of cash or property to
holders of any shares of such stock, or redeem, retire, purchase or otherwise
acquire, directly or indirectly, any shares of any class of its capital stock
now or hereafter outstanding.
ARTICLE VII
-----------
EVENTS OF DEFAULT
------------------
7.1 Events of Default. If any one or more of the following events
-----------------
(herein called "Events of Default") shall occur and be continuing for any reason
whatsoever (and whether such occurrence shall be voluntary or involuntary or
come about or be effected by operation of Law or otherwise):
(a) The Borrower shall fail to make any scheduled monthly payment on the
Note on the due date thereof, or fail to pay the Note after the same shall
become due and payable (whether by extension, renewal, acceleration, maturity or
otherwise); provided, however, prior to declaring a Default under this Section
7.1(a), Lender shall give Borrower five (5) days prior written notice of
payment default, unless one (1) such payment default notice has been given by
the Lender hereunder to Borrower during the term of the Note, in which event no
prior notice to Lender's election to declare a Default is necessary; or
<PAGE>
(b) Any representation or warranty of the Borrower made herein or in any
writing furnished in connection with or pursuant to any of the Loan Papers shall
have been false or misleading in any material respect on the date when made; or
(c) Borrower shall fail to duly observe, perform or comply with any
covenant, agreement or term contained in this Agreement or any of the Loan
Papers; or
(d) Borrower shall default in the payment of principal or of interest on
any other obligation for money borrowed or received as an advance (or any
obligation under any conditional sale or other title retention agreement, or any
obligation issued or assumed as full or partial payment for property whether or
not secured by purchase money Lien, or any obligation under notes payable or
drafts accepted representing extensions of credit) beyond any grace period
provided with respect thereto, or shall default in the performance of any other
agreement, term or condition contained in any agreement under which such
obligation is created (or if any other default under any such agreement shall
occur and be continuing beyond any period of grace provided with respect
thereto) if the effect of such default is to cause, or to permit the holder or
holders of such obligation (or a trustee on behalf of such holder or holders) to
cause such obligation to become due prior to its date of maturity; or
(e) Any of the following: (i) Borrower shall be unable to pay its
respective debts as they mature, or Borrower shall make an assignment for the
benefit of creditors or admit in writing its inability to pay its debts
generally as they become due or fail generally to pay its debts as they mature;
or (ii) an order, judgment or decree is entered adjudicating Borrower insolvent
or an order for relief under the United States bankruptcy Code is entered with
respect to Borrower; or (iii) Borrower shall petition or apply to any Tribunal
for the appointment of a trustee, receiver, custodian or liquidator of Borrower
or of any substantial part of the assets of Borrower or shall commence any
proceedings relating to Borrower under any bankruptcy, reorganization,
compromise, arrangement, insolvency, readjustment of debts, dissolution, or
liquidation Law of any jurisdiction, whether now or hereafter in effect; or (iv)
any such petition or application shall be filed, or any such proceedings shall
be commenced, against Borrower and Borrower by any act shall indicate its
approval thereof, consent thereto or acquiescence therein, or an order, judgment
or decree shall be entered appointing any such trustee, receiver, custodian or
liquidator, or approving the petition in any such proceedings, and such order,
judgment or decree shall remain unstayed and in effect for more than fifteen
(15) days; or (vi) Borrower shall fail to make timely payment or deposit of any
amount of tax required to be withheld by Borrower and paid to or deposited to or
to the credit of the United States of America pursuant to the provisions of the
Internal Revenue Code of 1986, as amended, in respect of any and all wages and
salaries paid to employees of Borrower; or
(f) Any final judgment on the merits for the payment of money in an
amount in excess of $25,000 shall be outstanding against Borrower, and such
judgment shall remain unstayed and in effect and unpaid for more than fifteen
(15) days; or
<PAGE>
(g) Any Reportable Event described in Section 6.12 hereof which the Lender
determines might constitute grounds for the termination of a Plan therein
described or for the appointment by the appropriate United States District Court
of a trustee to administer any such Plan shall have occurred and be continuing
fifteen (15) days after written notice to such effect shall have been given to
Borrower by the Lender, or any such Plan shall be terminated, or a trustee shall
be appointed by an appropriate United States District Court to administer any
such Plan or the Pension Benefit Guaranty Corporation shall institute
proceedings to terminate any such Plan or to appoint a trustee to administer any
such Plan; or
(h) Any default or event of default under any of the other Loan Papers,
including (without limitation) the Security Instruments; or
(i) Any representation or warranty of Borrower contained in this Agreement
or any of the Loan Papers is or becomes untrue.
7.2 Remedies. Upon the occurrence of any Event of Default referred to in
--------
Sections 7.1(a), or 7.1(b) hereof, the Indebtedness shall immediately and
automatically be due and payable without notice of any kind. Upon the
occurrence of any other Event of Default, the Lender will not as a result of
such Event of Default accelerate the Indebtedness or exercise its rights
pursuant to the terms of the Loan Papers, unless such Event of Default is not
cured to the satisfaction of Lender within twenty (20) days after Lender
provides Borrower with written notice that such Event of Default exists.
Thereafter, without prejudice to any right or remedy of the Lender under this
Agreement or the Loan Papers or Applicable Law or any other instrument or
document delivered in connection herewith, the Lender may declare the Loan
terminated and declare the Note and the other Indebtedness, or any part thereof,
to be forthwith due and payable, whereupon the Note and the other Indebtedness,
or such portion as is designated by the Lender shall forthwith become due and
payable, without presentment, demand, notice or protest of any kind, all of
which are hereby expressly waived by the Borrower. No delay or omission on the
part of the Lender in exercising any power or right hereunder or under the Note,
the Loan Papers or under Applicable Law shall impair such right or power or be
construed to be a waiver of any default or any acquiescence therein, nor shall
any single or partial exercise by the Lender of any such power or right preclude
other or further exercise thereof or the exercise of any other such power or
right by the Lender. In the event that all or part of the Indebtedness becomes
or is declared to be forthwith due and payable as herein provided, the Lender
shall have the right to set off the amount of all the Indebtedness of the
Borrower owing to the Lender against, and shall have a Lien upon and security
interest in, all property of the Borrower in the Lender's possession at or
subsequent to such default, regardless of the capacity in which the Lender
possesses such property, including but not limited to any balance or share of
any deposit, demand, collection or agency account. At any time after the
occurrence of any Event of Default, the Lender may, at its option, cause an
audit of any and/or all of the books, records and documents of the Borrower to
be made by auditors
<PAGE>
satisfactory to the Lender at the expense of the Borrower. The Lender also shall
have, and may exercise, each and every right and remedy granted to it for
default under the terms of the other Loan Papers.
ARTICLE VIII
------------
MISCELLANEOUS
-------------
8. Notices. Unless otherwise provided herein, all notices, requests,
-------
consents and demands shall be in writing and shall be either hand-delivered (by
courier or otherwise), forwarded by facsimile or mailed by certified mail,
postage prepaid, to the respective addresses specified below, or, as to any
party, to such other address as may be designated by it in written notice to the
other parties:
If to the Borrower, to:
Dallas Parkway Properties, Incorporated
16885 Dallas Parkway, 4th Floor
Dallas, Texas 75248
Attention: Don McMillen
Facsimile Number (972) 732-6430
If to the Lender, to:
National Operating, L.P.
10670 N. Central Expressway, Suite 600
Dallas, Texas 75231
Attention: Robert Waldman
Facsimile Number (214)750-0779
All notices, requests, consents and demands hereunder will be effective when
hand-delivered by the Lender to the applicable notice address of the Borrower or
when mailed by certified mail, postage prepaid, addressed as aforesaid by either
party hereto.
8.2 Place of Payment. All sums payable hereunder shall be paid in
----------------
immediately available funds to the Lender, at the offices of its agent at 10670
N. Central Expressway, Suite 600, Dallas, Texas 75231, or at such other place as
the Lender shall notify the Borrower in writing. If any interest, principal or
other payment falls due on a date other than a Business Day, then (unless
otherwise provided herein) such due date shall be extended to the next
succeeding Business Day, and such extension of time will in such case be
included in computing interest, if any, in connection with such payment.
8.3 Survival of Agreements. All covenants, agreements, representations
----------------------
and warranties made herein shall survive the execution and the delivery of Loan
Papers. All
<PAGE>
statements contained in any certificate or other instrument delivered by the
Borrower hereunder shall be deemed to constitute representations and warranties
by the Borrower.
8.4 Parties in Interest. All covenants, agreements and obligations
-------------------
contained in this Agreement shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto, except that the
Borrower may not assign its rights or obligations hereunder without the prior
written consent of the Lender.
8.5 Governing Law. This Agreement and the Note shall be deemed to have
-------------
been made or incurred under the laws of the State of Texas and shall be
construed and enforced in accordance with and governed by the laws of Texas,
except to the extent that federal laws may apply.
8.6 VENUE: SERVICE OF PROCESS. BORROWER, FOR ITSELF, ITS SUCCESSORS AND
-------------------------
ASSIGNS, HEREBY (A) IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE
STATE AND FEDERAL COURTS OF THE STATE OF TEXAS AND AGREES AND CONSENTS THAT
SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING ARISING OUT OF OR
IN CONNECTION WITH THE LOAN PAPERS AND THE INDEBTEDNESS BY SERVICE OF PROCESS AS
PROVIDED BY TEXAS LAW, (B) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE
OF ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH THE LOAN PAPERS AND THE
INDEBTEDNESS BROUGHT IN DISTRICT COURTS OF DALLAS COUNTY, TEXAS, OR IN THE
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, DALLAS
DIVISION, (C) IRREVOCABLY WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, (D) IRREVOCABLY CONSENTS
TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH
LITIGATION BY THE MAILING OF COPIES THEREOF BY CERTIFIED MAIL, RETURN- RECEIPT
REQUESTED, POSTAGE PRE, PAID, TO SUCH BORROWER AT ITS ADDRESS SET FORTH HEREIN,
AND (E) IRREVOCABLY AGREES THAT ANY LEGAL PROCEEDING AGAINST LENDER ARISING OUT
OF OR IN CONNECTION WITH THE LOAN PAPERS OR THE INDEBTEDNESS SHALL BE BROUGHT IN
THE DISTRICT COURTS OF DALLAS COUNTY, TEXAS, OR IN THE UNITED STATES DISTRICT
COURT FOR THE NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION, NOTHING HEREIN SHALL
AFFECT THE RIGHT OF LENDER TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST BORROWER IN ANY JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED
BY APPLICABLE LAW.
8.7 Maximum Interest Rate. Any provision herein, or in any document
---------------------
securing this Loan Agreement, or in any other document executed or delivered in
connection herewith, or in any other agreement or commitment, whether
written or oral, express or implied, to the contrary notwithstanding, neither
Lender nor any holder of this Loan Agreement shall ever be entitled to receive
or collect, nor may amounts
<PAGE>
received hereunder be credited, in such a manner that Lender or any holder
hereof would be paid, as interest, a sum greater than the maximum amount
permitted by applicable law to be charged to the person, partnership, firm or
corporation primarily obligated to pay the Indebtedness at the time in question
(hereinafter called the "Maximum Rate"). If any construction of this Loan
Agreement or any document securing the Indebtedness, or any and all other
papers, agreements or commitments, shall indicate a different right given to
Lender or any holder thereof to ask for, demand or receive any larger sum as
interest, such is a mistake in calculation or wording which this clause shall
override and control, it being the intention of the parties that this Loan
Agreement, and all other instruments securing the payment of the Indebtedness or
executed or delivered in connection herewith, shall in all things comply with
applicable law and that proper adjustments shall automatically be made
accordingly. If Lender or any holder hereof ever receives, collects or applies
as interest any sum in excess of the Maximum Rate, such excess amount shall be
applied to the reduction of the unpaid principal balance of the Indebtedness,
and if the Indebtedness is paid in full, any remaining excess shall be paid to
Borrower. In determining whether the interest paid or payable, under any
specific contingency or other consideration, exceeds the Maximum Rate, Borrower
and Lender or any holder of this Indebtedness shall, to the maximum extent
permitted under applicable law, characterize any nonprincipal payment as an
expense or fee rather than as interest, exclude voluntary prepayments and the
effects thereof, and "allocate and spread" the total amount of interest
throughout the entire term of the Indebtedness so that the interest rate is
uniform throughout the entire term of this Indebtedness; provided, that if the
Indebtedness is paid and performed in full prior to the end of the full
contemplated term hereof, and if the interest received for the actual period of
existence thereof exceeds the interest permitted at the Maximum Rate, Lender or
any holder hereof shall refund to Borrower the amount of such excess including
other consideration, or credit the amount of such excess or other consideration
against the ,aggregate unpaid principal balance of all advances made by Lender
or any holder hereof under this Loan Agreement at the time in question.
8.8 No Waiver; Cumulative Remedies. No failure to exercise, and no delay
------------------------------
in exercising, on the part of the Lender, any right, power or privilege
hereunder or under any other Loan Paper or applicable Law shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege of the Lender. The rights and remedies herein provided are cumulative
and not exclusive of any other rights or remedies provided by ally other
instrument or by law. No amendment, modification or waiver of any provision of
this Agreement or any other Loan Paper shall be effective unless the same shall
be in writing and signed by the Lender. No notice to or demand on the Borrower
in any case shall entitle the Borrower to any other or further notice or demand
in similar or other circumstances.
8.9 Costs. The Borrower agrees to pay to the Lender on demand all costs,
-----
fees and expenses incurred or accrued by the Lender in connection with the
preparation, execution, closing, delivery, filing, recording and administration
of this Agreement, the Note, the Security Instruments and the other Loan Papers,
or any amendment, waiver,
<PAGE>
consent, modification, renewal or extension thereto or thereof, or any
enforcement thereof In any action to enforce or construe the provisions of this
Agreement or any of the Loan Papers, the prevailing party shall be entitled to
recover its reasonable attorneys' fees and all costs and expenses related
thereto.
8.10 Entirety and Amendments. THIS AGREEMENT REPRESENTS THE FINAL
-----------------------
AGREEMENT BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES. This Agreement embodies the entire agreement between the Borrower and
Lender and supersedes all prior proposals, agreements and understandings
relating to the subject matter hereof. Borrower certifies that it is relying on
no representation, warranty, covenant or agreement except for those set forth
herein and the other Loan Papers of even date herewith. This Agreement may be
amended, or the provisions hereof waived, only by an instrument in writing
executed jointly by an authorized officer of Borrower and Lender, and
supplemented only by documents delivered or to be delivered in accordance with
the express terms hereof.
8.11 Headings. The article and section headings of this Agreement are for
--------
convenience of reference only and shall not constitute a part of the text hereof
nor alter or otherwise affect the meaning hereof.
8.12 Severability. The unenforceability or invalidity as determined by a
------------
Tribunal of competent jurisdiction, of any provision or provisions of this
Agreement shall not render unenforceable or invalid any other provision or
provisions hereof.
8.13 Exceptions to Covenants. The Borrower shall not be deemed to be
-----------------------
permitted to take any action or fail to take any action which is permitted as an
exception to any of the covenants contained herein or which is within the
permissible limits of any of the covenants contained herein if Such action or
omission would result in the breach of any other covenant contained herein.
8.14 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument.
8.15 Waivers. No course of dealing nor any failure or delay by Lender or
-------
its officers, directors, employees, agents, representatives, or attorneys with
respect to exercising any Right of Lender hereunder shall operate as a waiver
thereof.
8.16 Incorporation of Exhibits/Schedules. The Exhibits annexed to this
-----------------------------------
Agreement are incorporated herein and shall be considered a part of this
Agreement for all purposes.
8.17 Further Cooperation. After the Closing Date, Borrower shall execute
-------------------
and deliver or cause to be executed and delivered, from time to time, such
further instruments and shall take such other actions as Lender may reasonably
request to
<PAGE>
perfect and or continue Lender's security interests in the Collateral and to
accomplish fully the terms and intent of this Agreement.
8.18 WAIVER OF JURY. BORROWER FULLY, VOLUNTARILY AND EXPRESSLY WAIVES ANY
--------------
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHTS UNDER THIS AGREEMENT, THE NOTE, THE DEED OF TRUST, OTHER SECURITY
INSTRUMENTS OR LOAN PAPERS OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT DELIVERED (OR WHICH MAY IN THE FUTURE BE DELIVERED) IN CONNECTION
HEREWITH OR ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH
THIS AGREEMENT. BORROWER AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY. BORROWER ACKNOWLEDGES THAT THIS
WAIVER IS CONSPICUOUS.
8.19 DTPA WAIVER. TO THE EXTENT APPLICABLE TO THE TRANSACTION
-----------
CONTEMPLATED IN THIS AGREEMENT OR IN THE LOAN PAPERS OR ANY PORTION THEREOF,
BORROWER WAIVES TO THE MAXIMUM EXTENT PERMITTED BY LAW THE PROVISIONS OF THE
TEXAS DECEPTIVE TRADE PRACTICES ACT, CHAPTER XVII, SUBCHAPTER B, SECTION 17.41
THROUGH 17.63 INCLUSIVE, TEXAS BUSINESS AND COMMERCE CODE. IN CONNECTION WITH
SUCH WAIVER, BORROWER HEREBY REPRESENTS AND WARRANTS TO LENDER THAT (A) BORROWER
HAS ASSETS OF FIVE MILLION AND NO/100 DOLLARS ($5,000,000) OR MORE ACCORDING TO
ITS MOST RECENT FINANCIAL STATEMENT, (B) HAS KNOWLEDGE AND EXPERIENCE IN
FINANCIAL AND BUSINESS MATTERS THAT ENABLE IT TO EVALUATE THE MERITS AND RISKS
OF THE TRANSACTION CONTEMPLATED HEREBY, (C) IS NOT IN A SIGNIFICANTLY DISPARATE
BARGAINING POSITION WITH LENDER, AND (D) IS NOT A "CONSUMER" PURSUANT TO THE
TERMS OF THE TEXAS DECEPTIVE TRADE PRACTICES ACT. BORROWER ACKNOWLEDGES THAT
THIS WAIVER IS CONSPICUOUS.
8.20 Brokerage Commission. Borrower will pay a brokerage commission to
--------------------
Stockbridge Corporation pursuant to separate agreement. Borrower indemnifies
and holds Lender harmless for any other claim for commission or fee in
connection with this transaction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in Dallas, Texas, effective as of the day and year
first above written.
BORROWER:
- --------
DALLAS PARKWAY PROPERTIES, INCORPORATED,
a Texas corporation
<PAGE>
By:
----------------------------------
Name: Don E. McMillen
Its: President
<PAGE>
LENDER:
- ------
NATIONAL OPERATING, L.P.,
a Delaware limited partnership
By: Syntek Asset Management, L.P.,
a Delaware Limited Partnership,
General Partner
By: Syntek Asset Management, Inc.
a Texas Corporation,
General Partner
By:
--------------------------------
Randall M. Paulson
President
<PAGE>
EXHIBIT A
---------
LITIGATION
----------
<PAGE>
EXHIBIT "B"
-----------
LIST OF DEFAULTS UNDER AGREEMENTS
<PAGE>
Exhibit 10.76
Void after 5:00 pm. local Dallas, Texas Time,
on October 31, 2002
Warrant to Purchase 500,000 Shares of Common Stock
THIS WARRANT AND THE SHARES OF COMMON STOCK UNDERLYING THIS WARRANT
(collectively, the "Securities") HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (the "Act") AND THE WARRANTS MAY NOT
BE EXERCISED IN THE UNITED STATES BY A "U.S. PERSON" (as defined in Section (j)
hereof) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR AN EXEMPTION FROM
SUCH REGISTRATION UNDER THE ACT IS APPLICABLE OR AS OTHERWISE PROVIDED IN
REGULATION S PROMULGATED UNDER SUCH ACT. IN ADDITION, FROM THE DATE HEREOF
UNTIL NOVEMBER 1, 1997 (THE "RESTRICTIVE PERIOD"), NO OFFERS OR SALES OR
TRANSFERS (INCLUDING INTERESTS THEREIN) MAY BE MADE OF ANY OF THE SECURITIES IN
THE UNITED STATES OR TO A U.S. PERSON OR FOR THE ACCOUNT AND BENEFIT OF A U.S.
PERSON, EXCEPT AS PERMITTED BY REGULATION S, UNLESS THE SECURITIES ARE
REGISTERED UNDER THE ACT OR EXEMPTION FROM SUCH REGISTRATION UNDER THE ACT IS
APPLICABLE.
--------------------------------------------
WARRANT TO PURCHASE COMMON STOCK
OF
POLYPHASE CORPORATION
a Nevada corporation
This is to certify that, FOR VALUE RECEIVED, Black Sea Investments, Ltd. or
assigns ("Holder"), is entitled to purchase, subject to the provisions of this
Warrant, from Polyphase Corporation, a Nevada corporation (herein called the
"Company" or the "Issuer"), Five Hundred Thousand (500,000) fully paid, validly
issued and non-assessable Shares of Common Stock, par value $0.01 per share, of
the Company ("Common Stock") at any time from and after the Restrictive Period
through and including September 30, 2002 ("Exercise Period"). The Warrant
Exercise Price shall be $1.50 for each share of Common Stock of the Company.
The number of shares of Common Stock to be received upon the exercise of this
Warrant and the price to be paid for each share of Common Stock may be adjusted
from time to time as hereinafter set forth. The shares of Common Stock
deliverable
1
<PAGE>
upon such exercise, and as adjusted from time to time, are hereinafter sometimes
referred to as "Warrant Shares" and the exercise price of a share of Common
Stock in effect at any time and as adjusted from time to time is hereinafter
sometimes referred to as the "Exercise Price."
(a) Exercise of Warrant. This Warrant may be exercised in whole or in part
-------------------
at any time during the Exercise Period, and during the Exercise Period the
Holder shall have the right to exercise this Warrant into the kind and amount of
shares of Common Stock and other securities and property (including cash)
receivable by a holder of the number of shares of Common Stock into which this
Warrant might have been exercisable immediately prior thereto. This Warrant,
subject to the provisions hereof, may be exercised by presentation and surrender
hereof to the Company at its principal office, or at the office of its stock
transfer agent, if any, with the Purchase Form annexed hereto duly executed and
accompanied by payment of the Exercise Price for the number of Warrant Shares
specified in such form. As soon as practicable after each such exercise of the
Warrant, but not later than three (3) business days from the date of such
exercise, the Company shall issue and deliver to the Holder a certificate or
certificates for the Warrant Shares issuable upon such exercise, registered in
the name of the Holder or its designee. The Common Stock, and any Warrant(s)
issued in exchange for this Warrant, shall be issued without any restrictive
legends and shall be freely transferable on the books and records of the Issuer
and its Transfer Agent. If this Warrant should be exercised in part only, the
Company shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder thereof to purchase
the balance of the Warrant Shares purchasable thereunder. Upon receipt by the
Company of this Warrant at its office, or by the stock transfer agent of the
Company at its office, in proper form for exercise and accompanied by payment of
the Exercise Price, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then by physically delivered
to the Holder.
In lieu of exercising this Warrant in the manner provided above, the Holder
may elect to receive Shares of Common Stock equal to the value of the Warrant
held by it (or the portion thereof being canceled) by surrender of the Warrant
at the offices of the Company, together with notice of net exercise in which
event the Company shall issue to such Holder a number of Warrant Shares computed
using the following formula:
2
<PAGE>
X = Y (A-B)
-------
A
Where
X = The number of Warrant Shares to be issued to the
Holder.
Y = The number of Warrant Shares purchasable under the Warrant being
exercised (at the date of such calculation).
A = The "current market value" of one share of the Company's Common
Stock (at the date of such calculation and as determined under
section (c) below).
B = The Exercise Price (as adjusted to the date of such calculation).
In the event any dispute shall arise between the exercising Holder and the
Company regarding the "current market value" of the Common Stock, such current
market value shall be determined by a "Qualified Appraiser" reasonably
acceptable to the exercising Holder (the cost of the engagement of such
Qualified Appraiser to be borne by the Company). For the purposes of the
foregoing, a "Qualified Appraiser" means an investment banking firm of
recognized national standing.
Notwithstanding the above, except as otherwise provided in Regulation S
adopted under the United States Securities Act of 1933 (the "Act"),
(1) This Warrant may not be exercised by a "U.S. person" (as defined
in Section (j)(2) hereof);
(2) This Warrant may not be exercised within the United States and the
shares of Common Stock issued upon exercise of this Warrant may not be delivered
upon such exercise within the United States; and
(3) The person exercising this Warrant must either (i) certify to the
Company in writing that he is not a "U.S. person" (as defined in Section (j)(2)
hereof) and is not exercising this Warrant on behalf of a U.S. person (as
defined in Section (j)(2) hereof) or (ii) deliver an opinion of counsel that
this Warrant and the underlying Common Stock have been registered under the Act
or are exempt from registration under the Act.
(b) Reservation of Shares. The Company shall at all times
---------------------
3
<PAGE>
reserve for issuance and/or delivery upon exercise of this Warrant such number
of shares of its Common Stock as shall be required for issuance and delivery
upon exercise of the Warrant.
(c) Fractional Shares. No fractional shares or script representing
-----------------
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the "current market value" of a share, determined as follows:
(1) If the Common Stock is listed on a National Securities Exchange or
admitted to unlisted trading privileges on such exchange or listed for trading
on the NASDAQ system, the current market value shall be the last reported sale
price of the common stock on such exchange or system on the last business day
prior to the date of exercise of this Warrant or if no such sale is made on such
day, the average closing bid and asked prices for such day on such exchange or
system; or
(2) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the current market value shall be the mean of the last
reported bid and asked prices reported by the National Quotation Bureau, Inc. on
the last business day prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount not less than book value thereof as at the end
of the most recent fiscal year of the Company ending prior to the date of the
exercise of the Warrant and shall be determined by a "Qualified Appraiser"
reasonably acceptable to the exercising Holder (the cost of the engagement of
such Qualified Appraiser to be borne by the Company.)
(d) Exchange, Transfer, Assignment or Loss of Warrant. This Warrant is
-------------------------------------------------
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other warrants of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Upon surrender of this Warrant to the Company at
its principal office or at the office of its stock transfer agent, if any, with
the Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be canceled. The term "Warrant" as used herein
includes any Warrants into which this
4
<PAGE>
Warrant may be divided or exchanged. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
--------------------
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) Anti-Dilution Provisions. The Exercise Price in effect at any time
------------------------
and the number and kind of securities purchasable upon the exercise of the
Warrants shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(1) In case the Company shall (i) declare a stock dividend or make a
distribution on its outstanding shares of common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding share
of Common Stock into a smaller number of shares, the Exercise Price in effect at
the time of the record date for such dividend or distribution or of the
effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such action. Such adjustment shall be made successively whenever any
event listed above shall occur.
(2) Whenever the Exercise Price payable upon exercise of each Warrant
is adjusted pursuant to Subsection (1) above, the number of shares purchasable
upon exercise of this Warrant shall simultaneously be adjusted by multiplying
the number of shares initially issuable upon exercise of this Warrant by the
Exercise Price in effect on the date hereof and dividing the product so obtained
by the Exercise Price, as adjusted.
5
<PAGE>
(3) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of shares issuable upon exercise of each Warrant to be
mailed to the Holders, at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be mailed to its transfer
agent, if any. The Company may retain a firm of independent certified public
accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
Section (f), and a certificate signed by such firm shall be conclusive evidence
of the correctness of such adjustment.
(4) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (1) above, the Holder of this Warrant thereafter shall
become entitled to receive any shares of the Company, other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of this
Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Subsection (1) above.
(5) Irrespective of any adjustments in the Exercise Price or the
number or kind of shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
(g) Officer's Certificate. Whenever the Exercise Price shall be adjusted
---------------------
as required by the provisions of Section (f), the Company shall forthwith file
in the custody of its Secretary or an Assistant Secretary at its principal
office and with its stock transfer agent, if any, an officer's certificate
showing the adjusted Exercise Price determined as herein provided, setting forth
in reasonable detail the facts requiring such adjustment, including a statement
of the number of additional shares of Common Stock, if any, and such other facts
as shall be necessary to show the reason for and the manner computing such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the holder or any holder of a Warrant
executed and delivered pursuant to Section (a) and the Company shall forthwith
after each such adjustment, mail a copy by certified mail of such certificate to
the Holder or any such holder.
(h) Notices to Warrant Holders. So long as this Warrant shall be
--------------------------
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the
6
<PAGE>
Company shall offer to all the holders of Common Stock for subscription or
purchase by them any share of any class or any other rights or (iii) if the
capital reorganization of the Company, reclassification of the capital stock of
the Company, consolidation or merger of the Company with or into another
corporation, sale of all or substantially all of the property and assets of the
Company to another corporation or voluntary or involuntary dissolution,
liquidation or winding up of the Company shall be effected, then in any such
case, the Company shall cause to be mailed by certified mail to the holder, at
least ten days prior to the date specified in (x) or (y) below, as the case may
be, a notice containing a brief description of the proposed action and stating
the date on which (x) a record is to be taken for the purpose of such dividend,
distribution or rights, or (y) such reclassification, reorganization,
consolidation, merger, sale, dissolution, liquidation or winding up is to take
place and date, if any is to be fixed, as of which the holders of the Common
Stock or other securities shall receive cash or other property deliverable upon
such reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up. Notwithstanding the above, the failure
to give such notice shall not affect the validity of any transaction for which
the notice was required to be given.
(i) Reclassification, Reorganization or Merger. In case of any
------------------------------------------
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation, other than a merger with a subsidiary,
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant, or in case of any sale to another corporation of the property of the
Company as an entirety, the Company shall, as a condition precedent to such
transaction, cause effective provisions to be made so that the Holder shall have
the right thereafter by exercising this Warrant at any time prior to the
expiration of the Warrant, to purchase the kind and amount of shares of stock
and other securities and property receivable upon such reclassification, capital
reorganization and other change, consolidation, merger or sale by a holder of
the number of shares of Common Stock which might have been purchased upon
exercise of this Warrant immediately prior to such reclassification, change
consolidation, merger or sale. Any such provision shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The foregoing provisions of this
Section (i) shall similarly apply to successive reclassification, capital
reorganizations and changes of shares of Common Stock and to successive
consolidations,
7
<PAGE>
mergers or sales. In the event that in connection with any such capital
reorganization any shares of Common Stock shall be issued in exchange,
conversion, substitution or payment, in whole or in part, for a security of the
Company other than Common Stock, any such issue shall be treated as an issue of
Common Stock covered by the provisions of Subsection (1) of Section (f) hereof.
(j) The Restrictive Period.
----------------------
(1) The Holder of this Warrant agrees that during the Restrictive
Period (as defined on the cover page hereof), upon any offer, sale or transfer
of the Securities (or any interest therein), that the Holder, or any successor,
or any Professional (as defined in Section (j) (3) hereof) (except for sales of
any securities registered under the Act or otherwise exempt from such
registration), (A) will not sell to a U.S. person or on account of or for the
benefit of a U.S. person or any one believed to be a U.S. person, (B) will not
engage in any efforts to sell the Securities in the United States, (C) will, at
the time the buy order or transfer is originated, believe, after reasonable
investigation, that the buyer or transferee is outside the United States, and
(D) will send to a "professional" acting as agent or principal, a confirmation
or other notice stating that the professional is subject to the same
restrictions on transfer to U.S. persons or for the account of U.S. persons
during the Restrictive Period as provided for herein. The Company will not honor
or register, and will not be obligated to honor or register, any transfer or
exercise in violation of any of the provisions herein.
(2) For purposes hereof, a "U.S. person" shall have the meaning set
forth in Rule 902(o) of Regulation S under the Act, which includes, without
limitation, generally any natural person, resident of the United States, any
partnership or corporation organized or incorporated under the laws of the
United States; any estate of which any executor or administrator is a U.S.
person; any trust of which any trustee is a U.S. person; any agency or branch of
a foreign entity located in the United States; any nondiscretionary account or
similar account, (other than estate or trust) held by a dealer or other
fiduciary for the benefit or account of the U.S. person; any discretionary
account or similar account (other than an estate or trust) held by a dealer or
other fiduciary organized, incorporated or, (if an individual) resident of the
United States; and any partnership or corporation if organized or incorporated
under the laws of any foreign jurisdiction and formed by a U.S. person
principally for the purpose of investing in securities not registered under the
Act, unless it is organized and incorporated and owned by "accredited
investors," as defined under Rule 501(a) under the Act, who are natural persons,
estates or trust.
8
<PAGE>
(3) A "Professional" is a "distributor" as defined in Rule 902(c) of
Regulation S under the Act (generally any underwriter, or other person, who
participates, pursuant to a contractual arrangement, in the distribution of the
Securities); a dealer as defined in Section 2(12) of the U.S. Securities Act of
1933 (encompassing those who engage in the business of trading or dealing in
securities as agent, broker or principal); or a person receiving a selling
concession, fee or other enumeration in respect of the securities sold.
(k) Non-U.S. Person. The Holder represents to the Company that the
----------------
Holder is not a "U.S. person" (as defined above) and the Holder is not acquiring
the Securities for a U.S. person and the Holder is physically located outside
the United States.
(l) Taxes. The Company shall pay all transfer taxes arising from the
-----
issuance to Holder of this Warrant and the issuance to Holder of Warrant Shares
upon the exercise of this Warrant.
(m) Notices. All notices relating to this Warrant shall be in writing
-------
and delivered against receipt or sent by registered mail. All notices to the
Company shall be addressed to its principal office in Dallas County, Texas. All
notices to the Holder of this Warrant shall be to the last known address of the
Holder as shown on records of the Company. Each notice under this Warrant shall
be deemed to have been effectively given when delivered against receipt to the
proper address.
(n) Modification. The terms and provisions of this Warrant cannot be
------------
changed or modified in any way except by an instrument in writing and signed by
the parties.
(o) Benefits of Warrant. This Warrant shall inure to the benefit of
--------------------
and be binding upon each and any successor of the Company and the successors of
the Holder.
(p) Applicable Law. This Warrant shall be governed by and construed
--------------
in accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by the Undersigned, each being duly authorized, as of the date below.
ATTEST: POLYPHASE CORPORATION
a Nevada corporation
By:
----------------------------------
9
<PAGE>
Secretary Paul A Tanner, Chairman and
Chief Executive Officer
Dated: September ___, 1997
ADDRESS OF HOLDER: HOLDER:
c/o Finbar F. Dempsey BLACK SEA INVESTMENTS, LTD.,
Cockburn House a Turks and Caicos Islands Corporation
Cockburn Town, Grand Turk
By:
----------------------------------------
(Fax) Name:
----- -----------------------------------
Title:
----------------------------------
10
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase _______ Warrant Shares and herewith [_]
tenders payment for such Warrant Shares to the order of the Company in the
amount of $________ in accordance with the terms hereof, or [_] elects to
receive Warrant Shares equal to the value of this Warrant and gives notice of
net exercise pursuant to Section (a) of the Warrant. The undersigned requests
that a certificate for such Warrant Shares be registered in the name of
_________ whose address is ______________ and that such certificate be delivered
to __________________ whose address is ______________________. If said number of
Warrant Shares is less than all of the Warrant Shares purchased hereunder, the
undersigned requests that a new Warrant be registered in the name of
__________________ whose address is ________________________ and that such
Warrant is to be delivered to _______________________ whose address is
______________________.
Signature:
----------------------------------
(Signature must conform in all respects to name as specified on the
face of the Warrant)
Date:
---------------------
11
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ASSIGNMENT FORM
FOR VALUE RECEIVED, hereby sells, assigns
--------------------------------
and transfers unto
Name
- --------------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address
- --------------------------------------------------------------------------------
the right to purchase Common Stock represented by this Warrant to the extent of
______________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ______________________ Attorney, to transfer
the same on the books of the Company with full power of substitution in the
premises.
Date Signature
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EXHIBIT 10.77
33772.00002:091997:SCM:2
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT is executed in reliance
upon the transaction "safe harbor" afforded by Regulation S ("Regulation S") as
promulgated by the Securities and Exchange Commission ("SEC"), under the
Securities Act of 1933, as amended (the "Act").
Polyphase Corporation, a Nevada corporation (the "Company"), has offered
for sale outside the United States (as that term is defined in Regulation S),
and the undersigned purchaser (the "Purchaser") hereby tenders this subscription
and applies for the purchase of Seven Thousand Five Hundred (7,500) shares of
Series F 6% Convertible Preferred Stock (the "Convertible Preferred Stock") of
the Company which has the relative rights and privileges set forth in that
certain Certificate of Designations, Preferences and Relative Participating or
Optional or other Special Rights and Qualifications, Limitations or Restrictions
(herein called the "Certificate of Designations") in the form annexed hereto as
Exhibit "1", (together with the shares of the Company's Common Stock issuable
- ------------
upon conversion of the Convertible Preferred Stock [the "Shares"]) and a Warrant
to Purchase 500,000 shares of Common Stock of the Company at an exercise price
of $1.50 per share exercisable over a five-year period in the form annexed
hereto as Exhibit "2" (the "Warrant") at a purchase price per Share of $1.50
-----------
(the "Offering"). Together with this Subscription Agreement, the Purchaser is
delivering to the Escrow Agent by wire transfer the full amount of the purchase
price for the Shares and the Warrant for which it is subscribing pursuant hereto
($750,000) against delivery of certificate(s) representing the Convertible
Preferred Stock and the Warrant (the shares of Convertible Preferred Stock and
the Warrant are sometimes collectively referred to herein as the "Securities").
Time is of the essence in connection with this Subscription Agreement.
The parties to this Offshore Securities Subscription Agreement (the
"Agreement") hereby agree as follows:
1. Representations and Warranties of Purchaser. In order to induce the
Company to accept this subscription, the Purchaser hereby represents and
warrants to, and covenants with, the Company as follows:
A. Offshore Transaction.
(i) The Purchaser is not a "U.S. person" as that term is defined
under Regulation S.
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(ii) At the time the buy order for the Securities was originated,
Purchaser was outside the United States and is outside the United States as
of the date of the execution and delivery of this Agreement.
(iii) Purchaser is purchasing the Securities for its own account
and not on behalf of any U.S. person or any other person, and the
transaction has not been prearranged with a purchaser in the United States
(see Appendix A attached hereto for definitions of "U.S. person" and
"United States" under Regulation S) and Purchaser is acquiring the
Securities for investment purposes and not with a view towards distribution
and has no present arrangement or intention to sell the Securities or the
Common Stock issuable upon conversion of the Convertible Preferred Stock or
upon exercise of the Warrant.
(iv) The Purchaser represents and warrants and hereby agrees that
all offers and sales of the Securities prior to the expiration of a period
commencing on the date hereof and ending 40 days thereafter (the
"Restricted Period") shall only be made in compliance with the safe harbor
provisions contained in Regulation S, with which Purchaser is familiar, or
pursuant to the registration of such securities under the Act or pursuant
to an exemption from registration under the Act, and the Purchaser shall
not take a short position directly or indirectly with respect to the
Company's common stock during the Restricted Period, and that all offers
and sales after the expiration of the Restricted Period in the United
States or to a U.S. person shall be made only pursuant to such a
registration or to such exemption from registration.
(v) The Purchaser acknowledges and agrees that the Convertible
Preferred Stock and/or the Warrant have not been registered under the Act
and may not be offered or sold in the United States or to U.S. persons
unless the Securities or the Shares are registered under the Act or an
exemption from the registration requirements of the Act is available.
(vi) The Purchaser is not an officer, director of "affiliate" (as
that term is defined in Rule 405 under the Act) of the Company.
B. Information Available; Purchaser Status.
(i) The purchaser has received and carefully reviewed the
Company's most recent Annual Report on Form 10-K, its subsequent Quarterly
Reports on Form 10-Q, and its Current Reports on Form 8-K (collectively,
the "SEC Reports"), and a
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copy of the Certificate of Designations for the Convertible Preferred Stock
in the form attached hereto as Exhibit "1".
-----------
(ii) The Purchaser has had a reasonable opportunity to ask
questions of and receive answers from the Company concerning the Company
and the Offering, and all such questions, if any, have been answered to the
full satisfaction of the Purchaser.
(iii) The Purchaser is an "accredited investor" (as defined in
Rule 501 under the Act) and has such knowledge and expertise in financial
and business matters that the Purchaser is capable of evaluating the merits
and risks involved in an investment in the Securities and acknowledges that
an investment in the Securities entails a number of very significant risks
and funds should only be invested by persons able to withstand the total
loss of their investment.
(iv) Except as set forth in this Agreement, no representations or
warranties have been made to the Purchaser by the Company or any agent,
employee or affiliate of the Company and in entering into this transaction
the Purchaser is not relying upon any information, other than that
contained in this Agreement, the SEC Reports and the results of independent
investigation by the Purchaser.
(v) The Purchaser understands that the Securities are being
offered and sold to the Purchaser in reliance on specific exemptions from
the registration requirements of the United States Federal and State
securities laws and that the Company is relying upon the truth and accuracy
of the representations, warranties, agreements, acknowledgments and
understandings of the Purchaser set forth herein in order to determine the
applicability of such exemptions and the suitability of the Purchaser to
acquire the Securities, and the Purchaser acknowledges that it is
Purchaser's responsibility to satisfy itself as to the full observance by
this Offering and the sale of the Securities to Purchaser of the laws of
any jurisdiction outside the United States and Purchaser has done so.
(vi) The Purchaser has full power and authority to execute and
deliver this Agreement and to perform its obligations hereunder; and this
Agreement is a legally binding obligation of the Purchaser enforceable
against the Purchaser in accordance with its terms.
(vii) Purchaser understands that in the view of the SEC the
statutory basis for the exemption claimed for the
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<PAGE>
transaction would not be present if the Offering, although in technical
compliance with Regulation S, is part of a plan or scheme to evade the
registration provisions of the Act and Purchaser confirms that its purchase
of the Securities is not part of any such plan or scheme. Purchaser is
acquiring the Securities for investment purposes and has no present
intention to sell the Securities or the Shares issuable upon conversion or
exercise thereof in the United States or to a U.S. person or for the
account or benefit of a U.S. person.
2. Representations of the Company. The Company represents and warrants:
A. The Company is a "Reporting issuer" (as defined by Rule 902(l) of
Regulation S). The Company is in full compliance, to the extent
applicable, with all reporting obligations under either Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
B. Offshore Transaction.
(i) The Company has not offered the Convertible Preferred Stock
or the Warrant to any person in the United States or to any "U.S. person"
(as that term is defined in Regulation S.)
(ii) At the time the buy order was received, the Company and/or
its agents reasonably believed that the purchasers in the Offering were
outside of the United States and were not U.S. persons.
(iii) The Company reasonably believes that the purchase of the
Convertible Preferred Stock and the Warrant pursuant to the Offering has
not been prearranged with a purchaser in the United States.
C. In connection with the Offering, neither the Company nor any of its
agents has engaged in any "directed selling efforts" (as that term is defined in
Rule 902(b)(1) of Regulation S) nor has the Company or any of its agents
conducted any general solicitation relating to the Offering to persons residing
within the United States or to U.S. persons.
D. The execution, delivery and performance of this Agreement by the
Company and the performance of its obligations hereunder do not and will not
constitute a breach or violation of any of the terms and provisions of, or
constitute a default under or conflict with or violate any provision of (i) the
Company's Articles of
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Incorporation, as amended, or Bylaws, as amended, (ii) any indenture, mortgage,
deed of trust, agreement or other instrument to which the Company is a party or
by which it or any of its property is bound, (iii) any applicable statute of
regulation, (iv) or any judgment, decree or order of any court or governmental
body having jurisdiction over the Company or any of the Company's property.
E. The Company is a corporation duly organized, validly existing and in
good standing under the law of its jurisdiction of incorporation and is duly
qualified as a foreign corporation in all jurisdictions where the failure to be
so qualified would have a materially adverse effect on its business, taken as a
whole.
F. The execution, delivery and performance of this Agreement and the
consummation of the issuance of the Convertible Preferred Stock and the Warrant
and the transactions contemplated by this Agreement are within the Company's
corporate powers and have been duly authorized by all necessary corporate and
stockholder action on behalf of the Company.
G. There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending or, to the
knowledge of the Company, threatened, against or affecting the Company, or any
of its properties, which might result in any material adverse change in the
condition (financial or otherwise) or in the earnings, business affairs or
business prospects of the Company, or which might materially and adversely
affect the properties or assets thereof.
H. Except as set forth on Schedule H annexed hereto, the Company is not
in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture, mortgage, deed of
trust or other material instrument or agreement to which it is a party or by
which it or its property may be bound; and neither the execution, nor the
delivery by the Company, nor the performance by the Company of its obligations
under, this Agreement or, the Convertible Preferred Stock or the Warrant will
conflict with or result in the breach or violation of any of the terms or
provisions of, or constitute a default or result in the creation or imposition
of any lien or charge on any assets or properties of the Company under, any
material indenture, mortgage, deed of trust or other material agreement or
instrument to which the Company is a party or by which it is bound or any
statute or the Articles of Incorporation, as amended, or Bylaws, as amended, of
the Company, or any decree, judgment, order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or its
properties.
5
<PAGE>
I. None of the Company's filings with the SEC contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statement therein in light of the
circumstances under which they were made, not misleading. The Company has timely
filed all requisite forms, reports and exhibits thereto with the SEC.
J. There has been no material adverse change in the financial condition,
earnings, business affairs or business prospects of the Company since the date
of the Company's most recent Quarterly Report on Form 10-Q, if applicable, filed
with the SEC.
K. As of the date hereof, the conduct of the business of the Company
complies in all material respects with all statutes, laws, regulations,
ordinances, rules, judgments, orders or decrees applicable thereto. The Company
has not received notice of any alleged violation of any statute, law,
regulation, ordinance, rule, judgment, order or decree from any governmental
authority which would materially adversely affect the business of the Company.
L. There is no fact known to the Company (other than general economic
conditions known to the public generally) that has not been disclosed in writing
to the Purchaser that (i) could reasonably be expected to have a material
adverse effect on the condition (financial or otherwise) or in the earnings,
business affairs, business prospects, properties or assets of the Company or
(ii) could reasonably be excepted to materially and adversely affect the ability
of the Company to perform its obligations pursuant to this Agreement and the
Convertible Preferred Stock and the Warrant.
M. The Company will not engage in any similar offering of its securities
pursuant to Regulation S for a period of 180 days from the date of the Closing
of this transaction unless the Purchaser has been previously offered such
Securities in writing on the same terms and has refused to take up the offer
within ten (10) days.
N. There is no action pending for de-listing of the Company's Common
Stock from the American Stock Exchange, Inc. nor is the Company aware of any
threatened action relating thereto.
3. Acceptance of Subscription. The Purchaser understands that this
subscription is not binding upon the Company until the Company accepts it, which
acceptance is at the sole discretion of the Company and is to be evidenced by
the Company's execution of this Agreement where indicated. This Agreement shall
be null and void if the Company does not accept it as aforesaid. Upon
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<PAGE>
acceptance by the Company and receipt of the total purchase price, the Company
will issue one or more certificates for the full number of shares of Convertible
Preferred Stock and the Warrant subscribed for.
4. Covenants of the Company. For so long as any Convertible Preferred
Stock or the Warrant held by the Purchaser remain outstanding, the Company
covenants and agrees with the Purchaser that the Company will:
(i) reserve from its authorized but unissued shares of Common
Stock a sufficient number of shares of Common Stock to permit the
conversion in full of the outstanding Convertible Preferred Stock and
exercise in full of the Warrant.
(ii) maintain the listing of its Common Stock on the American
Stock Exchange, Inc.
(iii) not issue stock transfer instructions to its transfer agent
with respect to and will not place a restrictive legend on the certificates
representing shares of Common Stock issued upon (x) conversion of the
Convertible Preferred Stock or (y) exercise of the Warrant.
5. Conversion. For the purposes of conversion, the Convertible Preferred
Stock shall be valued at its Liquidation Preference of $100 per share ("Value")
and, if converted, the Convertible Preferred Stock shall be converted into such
number of Common Shares of the Company, $0.01 par value (the "Conversion
Shares"), as is obtained by dividing the aggregate value of the shares of
Convertible Preferred Stock being so converted by the "Conversion Price." For
purposes of this Part 5, this "Conversion Price" means seventy-five percent
(75%) of the average daily closing bid price of Common Shares as reported on the
American Stock Exchange, Inc. at 4:00 p.m. EST for the period of five (5)
consecutive trading days immediately preceding the date of the conversion of the
Convertible Preferred Stock in respect of which such Conversion Price is
determined./1/ Any holder of Convertible Preferred Stock (an "Eligible Holder")
may at any time commencing 41 days after the issuance of any Convertible
Preferred Stock convert any whole number of shares of Convertible Preferred
Stock in accordance with this Part 5.
A. The conversion right provided by the above paragraph may be
exercised only by an Eligible Holder of Convertible Preferred Stock, in whole or
in part, by the surrender of the share
- -----------------------------
/1/ The number of Conversion Shares so determined shall be rounded
upward to the nearest whole number of shares.
7
<PAGE>
certificate or share certificates representing the Convertible Preferred Stock
to be converted at the principal office of the Company (or at such other place
as the Company may designate in a written notice sent to the holder by first-
class mail, postage prepaid, at its address shown on the books of the Company)
against delivery of that number of whole Common Shares as shall be computed by
dividing (1) the aggregate value of the Convertible Preferred Stock so
surrendered, if any, by (2) the Conversion Price. Each Convertible Preferred
Stock Share certificate surrendered for conversion shall be endorsed by its
holder. In the event of any exercise of the conversion right of the Convertible
Preferred Stock Shares granted herein (i) share certificates representing the
Common Shares purchased by virtue of such exercise shall be delivered to such
holder within five (5) days of notice of conversion free of restrictive legend
or stop transfer orders, and (ii) unless the Convertible Preferred Stock Shares
have been fully converted, a new share certificate representing the Convertible
Preferred Stock Shares not so converted, if any, shall also be delivered to such
holder within five (5) days of notice of conversion, or carried on the Company's
ledger, at holder's option. Any Eligible Holder may exercise its right to
convert the Convertible Preferred Stock Shares by telecopying an executed and
completed Notice of Conversion to the Company, and within 72 hours thereafter,
delivering the original Notice of Conversion and the certificate representing
the Convertible Preferred Stock Shares to the Company by express courier. Each
date on which a telecopied Notice of Conversion is received by the Company in
accordance with the provisions hereof shall be deemed a Conversion Date. Unless
another form of transfer is requested by the Holder, the Company will transmit
the Common Shares certificates issuable upon conversion of any Convertible
Preferred Stock Shares (together with the certificates representing the
Convertible Preferred Stock Shares not so converted) to the Eligible Holder via
express courier within three business days after the Conversion Date if the
Company has received the original Notice of Conversion and Convertible Preferred
Stock Shares certificate being so converted by such date.
B. All Common Shares which may be issued upon conversion of
Convertible Preferred Stock Shares will, upon issuance, be duly issued, fully
paid and nonaccessible and free from all taxes, liens, and charges with respect
to the issue thereof. At all times that any Convertible Preferred Stock Shares
are outstanding, the Company shall have authorized, and shall have reserved for
the purpose of issuances upon such conversion, a sufficient number of Common
Shares to provide for the conversion into Common Shares of all Convertible
Preferred Stock Shares then outstanding at the then effective Conversion Price.
Without limiting the generality of the foregoing, if, at any time, the
Conversion Price is decreased, the number of Common Shares
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authorized and reserved for issuance upon the conversion of the Convertible
Preferred Stock Shares shall be proportionately increased.
6. Registration. If upon conversion of Convertible Preferred Stock or the
exercise of the Warrant effected by the Purchaser pursuant to the terms of this
Agreement and the terms of the Convertible Preferred Stock and/or the Warrant
the Company fails to issue certificates for shares of Common Stock issuable upon
such conversion or exercise (the "Underlying Shares") to the Purchaser bearing
no restrictive legend for any reason other than (i) the Company's reasonable
good faith belief that the representations and warranties made by the Purchaser
in this Agreement or the Notice of Conversion were untrue when made, or (ii) the
inability of the Company to lawfully issue such Common Stock due to a change in
SEC regulations, then the Company shall be required, at the request of the
Purchaser and at the Company's expense, to effect the registration of the
Underlying Shares issuable upon conversion of the Convertible Preferred Stock
and/or the exercise of the Warrant under the Act and relevant Blue Sky laws as
promptly as is practicable. The Company and the Purchaser shall cooperate in
good faith in connection with the furnishing of information required for such
registration and the taking of such other actions as may be legally or
commercially necessary in order to effect such registration. In such case, the
Company shall file a registration statement within 45 days of Purchaser's demand
therefor and shall use its best efforts to cause such registration statement to
become effective as soon as practicable thereafter. Such best efforts shall
include, but not be limited to, promptly responding to all comments received
from the staff of the SEC with respect to such registration statement and
promptly preparing and filing amendments to such registration statement which
are responsive to the comments received from the staff of the SEC. Once declared
effective by the SEC the Company shall cause such registration statement to
remain effective until the earlier of (i) the sale by the Purchaser of all
Underlying Shares registered or (ii) 180 days after the effective date of such
registration statement. In the event the Company fails to issue Common Stock to
the Purchaser in accordance with paragraph 6, the current twenty-five percent
(25%) discount provided in the Conversion Price shall increase by two percent
(2%) and such discount shall continue to increase by two percent (2%) for each
thirty (30) day period thereafter until the Registration Statement is declared
effective by the SEC, or until the discount reached is fifty-one percent (51%),
and additional shares of Common Stock shall be issued to the Purchaser in
accordance with such additional discounts.
7. Indemnification.
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A. The Purchaser agrees to indemnify the Company and hold it
harmless from and against any and all losses, damages, liabilities, costs
and expenses which it may sustain or incur in connection with the breach by
the Purchaser of any representation, warranty or covenant made by it
herein.
B. The Company agrees to indemnify the Purchaser and hold it
harmless from and against any and all leases, damages, liabilities, costs
and expenses which it may sustain or incur in connection with the breach by
the Company of any representation, warranty or covenant made by it herein.
8. Assignment. Neither this Agreement nor any of the rights of the
Purchaser hereunder may be transferred or assigned by the Purchaser.
9. Modification; Applicable Law; Successors. This Agreement (i) may only
be modified by a written instrument executed by the Purchaser and the Company;
(ii) sets forth the entire agreement of the Purchaser and the Company with
respect to the subject matter hereof; (iii) shall be governed by the laws of
Texas applicable to contracts made and to be wholly performed therein; and (iv)
shall inure to the benefit of, and be binding upon the Company and the Purchaser
and their respective heirs, legal representatives, successors and permitted
assigns.
10. Gender. Unless the context otherwise requires, all personal pronouns
used in this Agreement, whether in the masculine, feminine or neuter gender,
shall include all other genders.
11. Notices. All notices or other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally or
by facsimile or telecopy transmission confirmed by machine (followed within 24
hours by mail confirmation) or mailed by certified or registered mail, return
receipt requested, postage prepaid, as follows: if to Purchaser, to the address
set forth on the signature page of this Agreement and if to the Company, to
Polyphase Corporation, 16885 Dallas Parkway, Suite 400, Dallas, Texas 75248, or
to such other address as the Company or the Purchaser shall have designated to
the other by like notice.
12. Restricted Period; Legend. The transaction restriction in connection
with this offshore offer and sale restrict Purchaser from offering and selling
the Securities to U.S. persons or for the account or benefit of a U.S. person
for the Restricted Period. Rule 903(c)(2) governs the Restricted Period.
Purchaser under-stands that the Company will instruct its transfer agent to
place a stop transfer order (which shall be effective to prohibit
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transfers to U.S. persons or for the account or benefit of U.S. persons solely
during the Restricted Period) with respect to the certificates representing the
Convertible Preferred Stock and that such certificates will bear the following
legend:
"The shares represented by this certificate have been issued pursuant to
Regulation S promulgated under the Securities Act of 1933, as amended (the
'Act'), and have not been registered under the Act. These shares may not
be offered or sold within the United States or to, or for the account of a
'U.S. person' (as that term is defined in Regulation S) until after the
40th day following completion of the offering. After such date, this
legend shall have no further effect."
Following the expiration of the Restricted Period, the Company will, at the
request of the Purchaser, cause its transfer agent to issue certificates
representing the Convertible Preferred Stock or the common stock issued upon
conversion (or exercise of the Warrant) as may be applicable without any
restrictive legend or stop transfer instructions.
13. Costs and Expenses. Contemporaneously with the execution of this
Agreement, the Company shall pay to Purchaser a due diligence fee of $11,250 to
reimburse Purchaser for its costs and expenses of its due diligence
investigation and analysis of the Company and the transaction contemplated by
this Agreement. The Company shall pay on demand all out-of-pocket expenses
incurred by Purchaser, including reasonable fees and disbursements of counsel
for the Purchaser. The Company shall also bear its own cost, expenses and fees
incurred or assumed by the Company in the preparation or execution of this
Agreement and in complying with the terms and conditions hereof including the
execution, delivery and/or filing of any and all documents or instruments
referred to herein.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of September ___, 1997.
BLACK SEA INVESTMENTS, LTD.,
a Turks and Caicos Islands corporation
By:
----------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
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Exact name(s) in which ownership of securities is to be registered:
Black Sea Investments, Ltd.
Principal place of business: c/o Finbar F. Dempsey
Cockburn House
Cockburn Town, Grand Turk
Federal Tax ID Number: None
Original Number of Shares of Series G 6% Convertible Preferred Stock Purchased:
7,500 shares for the amount of $750,000
AGREED AND ACCEPTED this ____ day of September, 1997
POLYPHASE CORPORATION
By:
-----------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
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APPENDIX "A"
Pursuant to Rules 902(o) and (p) of Regulation S, the terms "U.S Person"
and "United States" are defined as follows:
(o) U.S. person.
(1) "U.S. person means:
(i) Any natural person resident in the United States;
(ii) Any partnership or corporation organized or incorporated under
the laws of the United States;
(iii) Any estate of which any executor or administrator is a U.S.
person;
(iv) Any trust of which any trustee is a U.S. person;
(v) Any agency or branch of a foreign entity located in the United
States;
(vi) Any non-discretionary account or similar account (other than an
estate or trust) held by a dealer or other fiduciary for the benefit or
account of a U.S. person;
(vii) Any non-discretionary account or similar account (other than an
estate or trust) held by a dealer or other fiduciary organized,
incorporated or (if an individual) resident in the United States; and
(viii) Any partnership or corporation if: (A) organized or
incorporated under the laws of any foreign jurisdiction; and (B) formed by
a U.S. person principally for the purpose of investing in securities not
registered under the Securities Act of 1933, unless it is organized or
incorporated and owned, by accredited investors (as defined in Rule 501(a))
who are not natural persons, estates or trusts.
(2) Notwithstanding paragraph (o)(1) of this rule, any discretionary
account or similar account (other than an estate or trust) held for the benefit
or account of a non-U.S. person by a dealer or other professional fiduciary
organized, incorporated, or (if an individual) resident in the United States
shall not be deemed a "U.S. person."
(3) Notwithstanding paragraph (o)(1) of this rule, any estate of which any
professional fiduciary acting as executor or
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administrator is a U.S. person shall not be deemed a U.S. person if:
(i) An executor or administrator of the estate who is
not a U.S. person has sole or shared investment discretion with respect to
the corpus of the estate; and
(ii) The estate is governed by foreign law.
(4) Notwithstanding paragraph (o)(1) of this rule, any trust of which any
professional fiduciary acting as trustee is a U.S. person shall not be deemed a
U.S. person if a trustee who is not a U.S. person has sole or shared investment
discretion with respect to the trust assets, and no beneficiary of the trust
(and no settlor if the trust is revocable) is a U.S. person.
(5) Notwithstanding paragraph (o)(1) of this rule, an employee benefit
plan established and administered in accordance with the law of a country other
than the United States and customary practices and documentation of such country
shall not be deemed a U.S. person.
(6) Notwithstanding paragraph (o)(1) of this rule, any agency or branch of
a U.S. person located outside the United States shall not be deemed a "U.S.
person" if:
(i) The agency or branch operates for valid business reasons; and
(ii) The agency or branch is engaged in the business of insurance or
banking and is subject to substantive insurance or banking regulation,
respectively, in the jurisdiction where located.
(7) The International Monetary Fund, the International Bank for
Reconstruction and Development, the Inter-American Development Bank, the Asian
Development Bank, the African Development Bank, the United Nations, and their
agencies, affiliates and pension plans, any other similar international
organizations, their agencies, affiliates and pension plans shall not be deemed
"U.S. persons."
(p) United States. "United States" means the United States of America, its
territories and possessions, any State of the United States, and the District of
Columbia.
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SCHEDULE H
Description of defaults in performance or observance of material obligations,
agreements, covenants or conditions under Section 2H.
Secured Promissory Note in the amount of $2,500,000 dated January 17, 1997,
issued by Polyphase Corporation in favor of S & W Enterprises, L.L.C.
12% Senior Convertible Debentures in principal amounts totalling $4,000,000 and
$1,500,000, dated July 5, 1994 and December 1, 1995, respectively, issued
by Polyphase Corporation in favor of Merrill Lynch Convertible Fund, Inc.
and Merrill Lynch World Income Fund, Inc.
Deed of Trust Note in the original principal amount of $1,000,000, dated May 25,
1994, issued by Polyphase Corporation in favor of Comerica Bank-Texas.
Note Purchase Agreement, Warrant Purchase Agreement and Senior Subordinated Note
in the Principal amount of $13,000,000, dated May 5, 1995 between Overhill
Farms, Inc. and Rice Partners II, L.P.
Loan and Security Agreement, Secured Promissory Note in the principal amount of
$2,000,000, Secured Promissory Note in the principal amount of $4,000,00,
dated May 5, 1995 between Overhill Farms, Inc. and Finova Capital
Corporation.
Intecreditor and Subordination Agreement, dated May 5, 1995, among Finova
Capital Corporation, Rice Partners II, L.P. and Overhill Farms, Inc.
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Exhibit 10.78
STOCK EXCHANGE AGREEMENT
BY AND BETWEEN
TOLLWAY PROPERTIES, INC.
AND
POLYPHASE CORPORATION
Dated as of _______________
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STOCK EXCHANGE AGREEMENT
THIS STOCK EXCHANGE AGREEMENT, effective as of November 1, 1997, (the
"Agreement"), is entered into by and between Polyphase Corporation, a
Pennsylvania corporation, ("Polyphase") (the "Shareholder") and Tollway
Properties, Inc., a Nevada Corporation ("Tollway").
RECITALS:
A. The Shareholder owns one hundred percent (100%) of the common stock,
par value $.01 per share (the "Common Stock"), of Dallas Parkway
Properties, Incorporated (the "Company").
B. All of the issued and outstanding shares of the common stock of the
Company owned by the Shareholder are referred to collectively as the
"Shares."
C. Subject to the terms and conditions contained in this Agreement,
Tollway desires to acquire from the Shareholder and the Shareholder
desires to sell to Tollway, all of the Shares.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
SALE AND TRANSFER
1.1 The Sale. Upon the terms and subject to the conditions set forth in
this Agreement, the Shareholder agrees to sell, assign, transfer and deliver to
Tollway, and Tollway agrees to purchase and accept from the Shareholder, free
and clear of all liens, liabilities, claims, encumbrances, mortgages and
security interests, all of the Shares in exchange for the consideration
hereinafter expressed.
ARTICLE II
CONSIDERATION
2.1. Consideration. The consideration payable to the Shareholder for the
Shares shall be the issuance by Tollway of two (2) shares of its Voting Common
Stock (the "Tollway Shares") having the rights, privileges and limitations as
set forth in Exhibit A and incorporated herein by
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reference (the "Purchase Price" or "Consideration"). Upon the terms and
conditions set forth in this Agreement, on the Closing Date (as defined below),
Tollway agrees to issue to Shareholder the Tollway Shares.
ARTICLE III
THE CLOSING
3.1. Time and Place of Closing. Subject to satisfaction or, to the extent
permissible by law, waiver (by the party for whose benefit the closing condition
is imposed) on the Closing Date of the closing conditions described in Article
VII, and the provisions of Article IX hereof, the closing of the transactions
contemplated by this Agreement (the "Closing") will take place at the offices of
Polyphase, or at such other place as the parties shall mutually agree, at 10:00
a.m., local time, on _________________, or at such other time and date as shall
otherwise be mutually agreed upon by the Shareholder and Tollway (the "Closing
Date").
3.2. Deliveries by the Shareholder. At the Closing, the Shareholder will
deliver to Tollway the following:
(a) Stock certificates evidencing all of the Shares, duly endorsed in
blank or accompanied by stock powers duly executed in blank and in
proper form for transfer.
(b) All other documents, certificates, instruments and writings expressly
required hereunder to be delivered by the Shareholder at or prior to
the Closing.
3.3. Deliveries by Tollway. At the Closing, Tollway will deliver to the
Shareholder the following:
(a) Stock certificates in the name of Shareholder evidencing the Tollway
Shares.
(b) The certificates and other documents contemplated by Section 7.2
hereof.
(c) All other documents, certificates, instruments and writings expressly
required hereunder to be delivered by Tollway at or prior to the
Closing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDER
The Shareholder represents and warrants to Tollway as follows:
4.1. Organization; Qualification. The Company is duly formed under the
laws of the State
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of Texas, with requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. Except as
disclosed in Schedule 4.1 hereto, the Company is registered or qualified to do
business as a foreign corporation in those jurisdictions in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such registration or qualifications necessary, except in those
jurisdictions where the failure to be so registered or qualified would not have
a material adverse effect on the business, operations or financial condition of
the Company, taken as a whole (for purposes of this Agreement, such material
adverse effect on the business, operations or financial condition of the
Company, taken as a whole, is referred to as a "Material Adverse Effect"). The
jurisdiction in which the Company is formed and where the Company is qualified
to do business are set forth in Schedule 4.1. The Company has no subsidiaries.
4.2 Ownership of Shares. As of the date hereof, the Shareholder is the
owner of the Shares, has good and marketable title thereto and the absolute
right to sell, assign and transfer the same to Tollway free and clear of all
security interests, liens, pledges, encumbrances, adverse claims and demands of
every kind or character. Upon transfer of the Shares to Tollway as contemplated
hereunder, Tollway will receive the entire legal and beneficial interest in the
Shares, free and clear of all security interests, liens, pledges, encumbrances,
adverse claims and demands of every kind or character and subject to no legal or
equitable restrictions of any kind, except restrictions or requirements
generally imposed by applicable securities law.
4.3. Authority Relative to this Agreement. The Shareholder has full power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Shareholder and constitutes a legal, valid and
binding agreement of the Shareholder enforceable against the Shareholder in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally and the application of general principles of equity (the
foregoing exceptions collectively referred to herein as the "Enforcement
Exceptions").
4.4. Capital Stock. The entire authorized capital stock of the Company
consists of 1,000 shares of common stock, par value $.01 per share, of which
1,000 shares are validity issued and outstanding and are fully paid and
nonassessable and all of which are owned by the Shareholder.
With respect to the Company, other than as set forth on Schedule 4.4
attached hereto, there are no (i) other outstanding equity securities of any
kind or character, (ii) outstanding subscriptions, options, warrants, calls,
preemptive rights, or other agreements or commitments obligating the Company, to
issue any additional shares of capital stock of any class, (iii) options or
rights with respect to any of the foregoing, or (iv) outstanding securities
convertible or exchangeable into any shares of stock of any class of any of the
foregoing. There are no articles or certificates (including options, warrants,
or convertible securities) that relate to the voting of, restrict the Company to
register the sale of any securities under applicable securities laws, or creates
rights in any person with
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respect to, any of the Shares or any shares of capital stock or other securities
of the Company.
4.5 Consent and Approvals; No Violation.
(a) Except as set forth in Schedule 4.5 hereto, there is no requirement
applicable to the Shareholder to make any filing with, or to obtain any permit,
authorization, consent or approval of, any governmental or regulatory authority
or other third party as a condition to the lawful consummation by the
Shareholder of the sale of the Shares pursuant to this Agreement, other than
such filings, permits, authorizations, consents or approvals that, if not
obtained, would not in the aggregate have a Material Adverse Effect.
(b) The execution, delivery and performance of this Agreement by the
Shareholder will not (assuming receipt of any consents set forth in Schedule 4.5
hereto) (i) result in a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, agreement, franchise, concession, license, permit
or lease to which the Shareholder is a party or by which any of his respective
assets may be bound, except for such defaults (or rights of termination,
cancellation or acceleration) as to which requisite waivers or consents have
been obtained an, except as disclosed in Schedule 4.5, or (ii) violate any
order, writ, injunction or decree applicable to the Shareholder, or any of their
respective assets, excluding from the foregoing clause (ii) such defaults,
rights and violations that, singly or in the aggregate, would not have a
Material Adverse Effect.
(c) The consents listed in Schedule 4.5 hereto shall constitute material
consents (the "Material Consents").
4.6. Absence of Certain Changes or Events. Except as set forth in
Schedule 4.7 hereto, since October 31, 1997, the Company has not:
(a) mortgaged or pledged any of its material assets, tangible or
intangible, or subjected them to any lien, charge or any other encumbrance,
except liens for current property taxes not yet due and payable;
(b) sold, assigned or transferred any of its material tangible assets,
except in the ordinary course of business and, unless such assets were obsolete
or unnecessary, where the proceeds of such sale, assignment or transfer were
used to acquire assets of like use and value, or canceled any debts or claims;
(c) waived any substantial rights, not in the ordinary course of business;
(d) made any changes in employee compensation except in the ordinary
course of business; or
(e) guaranteed the indebtedness or obligations of any other party.
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4.7. Certain and Arrangements.
(a) All contracts, agreements, options, leases (whether of realty or
personalty) or commitments of the Company that are directly and principally
related to the conduct of the business and operations of the Company existing as
of the date hereof (collectively, the "Contracts") are either (i) listed in
Schedule 4.7(a) hereto, or (ii) Contracts that were entered into in the ordinary
course of business and do not involve monetary obligations in the aggregate in
excess of $5,000 per annum. Prior to the date hereof, the Company has provided
or made available to Tollway true, correct and complete copies of the Contracts.
(b) The Contracts listed in Schedule 4.7(a) hereto shall constitute the
Company's material Contracts (the "Material Contracts").
(c) Except as set forth in Schedule 4.7 (b) hereto, such Contracts are in
full force and effect and there is not, under any of the Contracts designated in
Schedule 4.7 (a) hereto, any existing default, event of default or other event
that, with or without notice or lapse of time or both, would constitute a
default of event of default on the part of the Company or any other party
thereto and which would have a Material adverse Effect, taking into account also
the consummation of the transactions contemplated by this Agreement.
4.8. Litigation. Except as set forth in Schedule 4.8 hereto, as of the
date hereof, to the Shareholder's knowledge, there is no legal proceeding or
arbitration, nor any order, decree or judgment pending, nor any administrative
or other proceeding or governmental investigation threatened, against the
Company that will have a Material Adverse Effect.
4.9. Employee Benefit Plans; ERISA.
(a) Schedule 4.9 hereto lists all material employee pension and welfare
plans or arrangements, within the meaning of Sections 3(1) and 3(2) of the
Employment Retirement Income Security Act of 1974, as amended ("ERISA"),
including, without limitation, pension or profit sharing or thrift plans,
company contributions to medical benefit, death benefit and disability programs,
and vacation and sick leave policies that cover employees of the Company. The
Company does not pay for accrued sick leave time in cash and has no monetary
liability for accrued sick leave time.
(b) All employee benefit plans of the Company are, and have been,
maintained and administered in compliance with applicable requirements of the
Internal Revenue Code of 1986, as amended (the "Code") and ERISA, except for
such noncompliance as would not have a Material Adverse Effect.
4.10 Taxes. The Company has filed, or caused to be filed, all federal,
state and local tax returns that are required to be filed in connection with the
Company. Prior to the date hereof, Tollway has been provided with true, correct
and complete copies of such tax returns covering the
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last two tax years, and all documentation relating to any tax dispute or
contested tax valuation. Except as set forth in Schedule 4.10 hereto, (a) the
Company has paid, or made provisions for the payment of (i) all taxes payable by
the Company shown due on such returns for the periods covered thereby, except
such accrued and unpaid taxes for which appropriate accruals are reflected in
the Financial Statements, and (ii) all deficiencies payable by the Company
assessed as a result of any examination of tax returns of the Company by
federal, state or local tax authorities, (b) the Company has paid all sales and
use taxes payable in connection with the purchase of equipment owned by the
Company and used in connection with the operation of the Company, and (c) the
Company has not granted any extension of the limitations period applicable to
any claim for taxes or assessments.
4.11. Title to and Condition of Personal Property. Except with respect to
property that is leased or as set forth in Schedule 4.11 hereto, the Company
owns and has good and indefeasible title to the material tangible personal
property and assets that are used directly and principally in the conduct of the
business and operations of the Company, free and clear of all liens, mortgages,
pledges and encumbrances, except for liens for taxes not yet due and payable.
Such property and assets are sufficient for the conduct of the business and
operations of the Company as currently conducted. None of the shareholders,
directors, officers or employees of the Company is a lessor under any personal
property lease used in the conduct of the business and operations of the
Company.
4.12. Personnel Data; Labor Relations. Schedule 4.12 hereto lists the
names and current compensation of all persons employed by the Company directly
and principally in connection with the operations of the Company. On the
Closing Date, the Shareholder will provide to Tollway copies of all available
personnel information with respect to such persons. Except as set forth in
Schedule 4.12 hereto, in the operation of the Company, the Company has complied
with all applicable laws and regulations relating to the employment of labor,
including those related to wages, hours, collective bargaining, discrimination,
and the payment of Social Security or similar taxes, except for such
noncompliance as would not have a Material Adverse Effect. As of the date of
this Agreement, there are no unfair labor practice claims or charges pending
involving the Company relating to the business and operations of the Company.
As of the date of this Agreement, the Company is not a party to any collective
bargaining agreement.
4.13. Insurance. Schedule 4.14 hereto lists all of the material insurance
policies currently in force respecting the Company's assets, properties,
business or employees. All insurance policies listed on Schedule 4.13 are in
full force and effect, and no notice has been received of the cancellation, or
threatened or proposed cancellation, of any such policy.
4.14. Licenses and Copyrights. Except as set forth in Schedule 4.14
hereto, the operations of the Company are not infringing upon or otherwise
acting adversely to any copyright, trademark, trademark right, service mark,
service name, trade name, patent, patent rights, license, trade secret or
franchise owned by any person or persons, and as of the date hereof, there is no
such claim or action pending or threatened with respect thereto. The Company
has all necessary copyrights, trademarks, trade names, service marks, service
names or patents necessary to conduct the business and operations of the
business of the Company, except for those the absence of which would not have
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a Material Adverse Effect. A list of such copyrights, trademarks, trade names,
service marks, service names and patents is set forth in Schedule 4.14 hereto.
4.15. Compliance with Laws. Except as set forth in Schedule 4.15 hereto,
to the best of Shareholder's knowledge, the operations of the Company are in
compliance with all applicable laws, regulations and other requirements of all
federal, state and local governmental authorities having jurisdiction over the
Company (including without limitation, all applicable environmental laws, rules
or regulations), except for such noncompliance as would not have a Material
Adverse Effect.
4.16. Disclosures. Neither this Agreement nor any exhibit hereto, nor any
report, certificate or instrument furnished to Tollway pursuant hereto, contains
or will contain any material misstatement of fact, or omits or will omit to
state a material fact necessary to make the statements contained herein or
therein not materially misleading which is not known to Tollway.
4.17. The Tollway Shares.
(a) The Shareholder is acquiring the Tollway Shares for its own account for
investment and not with a view to, or for sale or other disposition in
connection with, any distribution thereof. The Shareholder is not offering or
selling and will not offer or sell, in connection with any distribution of the
Tollway Shares, and the Shareholder does not have a participation in any such
underwriting of such an undertaking except in compliance with applicable federal
and state securities laws.
(b) The Shareholder agrees and acknowledges that it or its representatives
have been furnished with substantially the same kind of information regarding
the Tollway and its business, assets, results of operations, and financial
condition as would be furnished in connection with a public sale of the Tollway
Shares. The Shareholder further represents that it has had an opportunity to
ask questions of and receive answers from Tollway regarding Tollway and its
business, assets, results of operation, and financial condition and the terms
and conditions of the issuance of the Tollway Shares.
(c) The Shareholder agrees and acknowledges that it is able to bear the
economic risk of its investment in the Tollway Shares, and has such knowledge
and experience in financial and business matters so as to be capable of
evaluating the merits and risks of an investment in the Tollway Shares.
(d) The Shareholder understands that the Tollway Shares will not have been
registered pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), or any applicable state securities laws, that the Tollway Shares will be
characterized as "restricted securities" under federal securities laws, and that
under such laws and applicable regulations the Tollway Shares cannot be sold or
otherwise disposed of without registration under the Securities Act or an
exemption therefrom. In this connection, the Shareholder represents that he is
familiar with Rule 144 promulgated under the Securities Act, as currently in
effect, and understands the resale limitations
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imposed thereby and by the Securities Act. Stop transfer instructions may be
issued to the transfer agent for securities of Tollway (or a notation may be
made in the appropriate records of the Polyphase) in connection with the Tollway
Shares.
(e) Legend. It is agreed and understood by the Shareholder that the
------
certificates representing the Tollway Shares shall each conspicuously set forth
on the fact or back thereof a legend in substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO
THE SECURITIES UNDER SAID ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
OR ANY OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
4.18. Environmental Matters.
(a) There is no action, suit, proceeding, investigation or inquiry before
any court, administrative agency or other governmental authority pending or, to
the best of Shareholder's knowledge, threatened against the Company relating in
any way to any Environmental Law. The Company (A) has received no requests for
information by any governmental body or regulatory authority with respect to the
condition, use or operation of any of its properties or assets and (B) has
received no notice from any governmental or regulatory authority or other person
or entity with respect to any violation of or liability under any Environmental
Law.
(b) To the best of Shareholder's knowledge, no lien or encumbrance arising
under any Environmental Law has attached to any of the properties or assets of
the Company.
(c) For purposes of this Agreement, the term "Environmental Laws" means the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, the Resource Conservation and Recovery Act of 1976, as amended, the
Occupational Safety and Health Act, as amended, the Clean Air Act, as amended,
the Clean Water Act, as amended, the Toxic Substances Control Act, and all
amendments thereto, any "Superfund" or "Superlien" law, the Hazardous Materials
Transportation Act, as amended, and any other Federal, state, or local statute,
rule, regulation, ordinance, interpretation, order judgment, or decree, as now
or at any time hereafter amended or in effect and applicable to the Company or
any of its assets, regulating, relating to or imposing liabilities or standards
of conduct concerning the manufacture, processing, distribution, use treatment,
handling, storage, disposal, or transportation of Hazardous Substances, or air
emissions, water discharges, noise emissions, or otherwise concerning the
protection of the outdoor or indoor environment, or health or safety of Persons
or property.
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(d) For purposes of this Agreement, the term "Hazardous Substances" means
any substance, product, waste, pollutant, material, chemical, contaminant,
constituent or other material that is or becomes listed, regulated or addressed
under any Environmental Law, including without limitation, asbestos, petroleum
and polychlorinated biphenyls.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TOLLWAY
Tollway represents and warrants to the Shareholder as follows:
5.1. Organization. Tollway is a corporation duly formed under the laws of
the State of Nevada and has the requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted.
5.2. Authority Relative to this Agreement. Tollway has the corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validity authorized by Tollway and no other proceedings on the part of Tollway
are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validity executed and
delivered by Tollway, enforceable against Tollway in accordance with its terms,
except as such enforcement may be limited by the Enforcement Exceptions.
5.3. Consents and Approvals; No Violation.
(a) There is no requirement applicable to Tollway to make any filing with,
or to obtain any permit, authorization, consent or approval of, any governmental
or regulatory authority or other third party as a condition to the lawful
consummation by Tollway of the purchase of the Shares pursuant to this
Agreement.
(b) Neither the execution and delivery of this Agreement by Tollway nor the
purchase by Tollway of the Shares pursuant to this Agreement will (i) conflict
with or result in any breach of any provision of the articles of incorporation
or bylaws of Tollway, (ii) result in a default (or give rise to any right of
termination, cancellation or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, agreement, lease or other instrument or
obligation to which Tollway or any of its subsidiaries is a party or by which
any of their respective assets may be bound, except for such defaults (or rights
of termination, cancellation or acceleration) as to which requisite waivers or
consents have been obtained, or (iii) violate any order, writ, injunction or
decree applicable to Tollway, or any of its assets, excluding from the foregoing
clause (ii) such defaults, rights and violations which, in the aggregate, would
not have a material adverse effect on the business, operations or financial
condition of Tollway.
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5.4. Litigation. There are no legal, administrative, arbitration or other
proceedings or governmental investigations pending or, to Tollway's knowledge,
threatened against Tollway or any of its affiliates that would give any third
party the right to enjoin, rescind or condition the transactions contemplated
hereunder.
5.5. Tollway Shares. The Tollway Shares to be issued by Tollway at the
Closing have been duly authorized for issuance and, when issued and delivered by
Tollway in accordance with the provisions of this Agreement, will be validity
issued, fully paid and non-assessable. The issuance of the Tollway Shares under
this Agreement is not subject to any preemptive or similar rights.
5.6. Investment Intent. Tollway is acquiring the Shares for its own
account for investment and not with a view to, or for sale or other disposition
in connection with, any distribution. Tollway is not offering or selling, and
will not offer or sell, in connection with any distribution of the Shares, and
Tollway does not have a participation in any such underwriting or such an
undertaking except in compliance with applicable federal and state securities
laws.
5.7. Disclosure of Information. Tollway acknowledges that it or its
representatives have been furnished with substantially the same kind of
information regarding the Company and its business, assets, results of
operations, and financial condition as would be furnished in connection with a
public sale of the Shares. Tollway further represents that it has had an
opportunity to ask questions of and receive answers from the Company regarding
the Company and its businesses, assets, results of operation, and financial
condition and the terms and conditions of the issuance of the Shares.
5.8. Investment Experience. Tollway agrees and acknowledges that it is
able to bear the economic risk of its investment in the Shares, and has such
knowledge and experience in financial and business matters so as to be capable
of evaluating the merits and risks of an investment in the Shares.
5.9. Restricted Securities. Tollway understands that the Shares will not
have been registered pursuant to the Securities Act or any applicable state
securities laws, that the Shares will be characterized as "restricted
securities" under federal securities laws, and that under such laws and
applicable regulations the Shares cannot be sold or otherwise disposed of
without registration under the Securities Act or an exemption therefrom. In this
connection, Tollway represents that it is familiar with Rule 144 promulgated
under the Securities Act, as currently in effect, and understands to resale
limitations imposed thereby and by the Securities Act.
5.10. Legend. It is agreed and understood by Tollway that the
certificates representing the Shares shall each conspicuously set forth on the
fact or back thereof a legend in substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN
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THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT OF PURSUANT TO AN EXEMPTION FROM REGISTRATION OR AN OPINION
OF COUNSEL SATISFACTORY TO POLYPHASE CORPORATION THAT SUCH REGISTRATION IS
NOT REQUIRED.
ARTICLE VI
COVENANTS OF THE PARTIES
6.1. Conduct of Business of the Company. Except as contemplated by this
Agreement, during the period from the date of this Agreement to the Closing
Date, the Shareholder will cause the Company to conduct the business and
operations of the Company according to the ordinary and usual course of business
consistent with past practices. Without limiting the generality of the
foregoing, except as otherwise expressly provided in this Agreement, or as may
be agreed to by the parties hereto, prior to the Closing Date, without the prior
written consent of Tollway, the Company:
(a) will not with respect to the Company enter into any contract or
commitment that would bind Tollway after the Closing Date except for (i) any
contract or commitment entered into in the ordinary course of business or as
contemplated herein which contract or commitment shall in no event involve a
monetary obligation in excess of $20,000 per annum individually;
(b) will not with respect to the Company sell, assign, transfer or
otherwise dispose of any assets of the Company, except for sales, assignments,
transfers or other dispositions not exceeding $5,000 in the aggregate;
(c) will not with respect to the Company create or assume any mortgage,
pledge, lien or other encumbrance with respect to their material assets or
properties, whether now owned or hereafter acquired;
(d) will not with respect to the Company change the compensation
payable, or to become payable, to the employees of the Company, except as
disclosed in Schedule 6.1(d) hereto;
(e) except as described in Schedule 6.1(e) hereto, will not with respect
to the Company change in any material respect their billing, collection and
marketing practices;
6.2. Access to Information.
(a) Between the date of this Agreement and the Closing Date, the
Shareholder will cause the Company to (i) give Tollway and its authorized
representatives reasonable access during normal business hours on reasonable
advance notice to all books, records, offices and other facilities and
properties with respect to the Company, (ii) permit Tollway to make such
inspections thereof as
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Tollway may reasonably request, and (iii) cause its officers or other
appropriate officials to furnish Tollway with reasonable financial and operating
data and other information regarding the Company including Financial Statements
relating to the Company as prepared in the ordinary course of business
reasonably promptly after the same become available, and the Shareholder will
cause the Company to furnish Tollway with such other reasonable financial and
operating data regarding the Company, as Tollway may from time to time
reasonably request.
(b) Not later than ten (10) days prior to the Closing Date, the
Shareholder shall provide Tollway with amended Schedules setting forth any items
arising or occurring between the date hereof and the date of delivery of the
amended Schedules that would have been disclosed on the Schedules if in
existence on the date hereof. Any investigation made by Tollway shall be
conducted in such a manner as not to interfere unreasonably with the operation
of the Company.
6.3. Confidentiality.
(a) Tollway (i) will hold and will use its best efforts to cause its
officers, directors, employees, lenders, accountants, representatives, agents,
consultants and advisors to hold in strict confidence all information (other
than such information as may be publicly available) furnished to Tollway in
connection with the transactions contemplated by this Agreement as well as all
information concerning the Company contained in any analyses, compilations,
studies or other documents prepared by or on behalf of Tollway (collectively,
the "Information"), and (ii) will not, without the prior written consent of the
Company or pursuant to Section 10.13 hereof, release or disclose any Information
to any other person, except to Tollway's shareholders, officers, directors,
employees, prospective lenders and prospective investors, accountants,
representatives, agents, consultants and advisors who need to know the
Information in connection with the consummation of the transactions contemplated
by this Agreement, who are informed by Tollway of the confidential nature of the
Information and who agree to be bound by the terms and conditions of this
Section 6.3.
(b) In the event that Tollway or any person to whom Tollway transmits
the Information pursuant to this Agreement becomes legally compelled to disclose
any of the Information, Tollway will provide the Shareholder with prompt notice
so that the Shareholder may seek a protective order or other appropriate remedy.
In the event that such protective order or other remedy is not obtained, Tollway
will furnish only that portion of the Information which Tollway is legally
required to disclose.
(c) If the transactions contemplated by this Agreement are not
consummated, Tollway shall promptly deliver to the Shareholder upon the
Shareholder's request the Information, including all copies, reproductions,
summaries, analyses or extracts thereof or based thereon in the possession of
Tollway or any person to whom Tollway had transmitted the Information.
13
<PAGE>
6.4. Consents and Affirmations.
(a) The Shareholder shall obtain prior to the Closing Date all consents
and approvals required for the consummation by the Shareholder of the
transactions contemplated by this Agreement as set forth in Schedule 4.5 hereto.
(b) Tollway agrees to cooperate fully with the Shareholder in obtaining
any necessary consents. Tollway agrees that it will accept and honor any
reasonable conditions or changes imposed or requested by contracting parities
from whom consents are required, in any such governing documentation, provided
that such conditions or changes do not have a Material Adverse Effect, as
reasonably determined by Tollway.
(c) Tollway and the Shareholder shall not take any intentional action or
steps that would prejudice or jeopardize the obtaining of any necessary consent
to the transactions contemplated by this Agreement.
6.5. Consummation of Agreement. The Shareholder and Tollway shall
cooperate fully with each other and their respective counsel and accountants in
connection with any steps required to be taken as part of their respective
obligations under this Agreement and will each use their respective reasonable
efforts to perform or fulfill all conditions and obligations to be performed or
fulfilled by them under this Agreement so that the transactions contemplated
hereby shall be consummated.
6.6. No Liens, Etc. On the Closing Date, the Shares shall be free and
clear of all liens, liabilities, claims, encumbrances, mortgages and security
interests.
6.7. No Solicitation, Etc. The Shareholder shall not directly or
indirectly solicit or participate or engage in or initiate any negotiations or
discussions, or enter into (or authorize) any agreement or agreements in
principle, or announce any intention to do any of the foregoing, with respect to
any offer or proposal to acquire all or a substantial part of the Shares or the
assets of the Company, whether by merger, purchase or otherwise.
ARTICLE VII
CLOSING CONDITIONS
7.1. Conditions to Each Party's Obligations to Effect the Transactions
Contemplated Hereby. The respective obligations of each party to effect the
transactions contemplated hereby shall be subject to the fulfillment at or prior
to the Closing Date (subject to Article IX hereof) of the condition that neither
the Shareholder nor Tollway shall be subject on the Closing Date to any order,
decree or injunction of a court of competent jurisdiction that enjoins or
prohibits the consummation of the transactions contemplated by this Agreement.
14
<PAGE>
7.2. Conditions to the Obligation of the Shareholder to Effect the
Transactions Contemplated Hereby. The obligation of the Shareholder to effect
the transactions contemplated hereby shall be further subject to the fulfillment
at or prior to the Closing Date (subject to Article IX hereof) of the following
conditions, any one or more of which may be waived in writing by the
Shareholder:
(a) Tollway shall have performed and complied with all agreements,
covenants and undertakings contained in this Agreement required to be performed
and complied with by Tollway at or prior to the Closing Date. All
representations and warranties of Tollway set forth in this Agreement shall be
true and correct as of the Closing Date as though made at and as of such Closing
Date.
The Shareholder shall have received a certificate to that effect signed on
behalf of Tollway by its President or Vice President or other authorized person,
which certificate shall be given by such officer after due inquiry but without
personal liability.
(b) All documents required to have been delivered by Tollway to the
Shareholder at or prior to the Closing, pursuant to Section 3.3 shall have been
delivered.
7.3. Conditions to the Obligations of Tollway to Effect the Transactions
Contemplated Hereby. The obligations of Tollway to effect the transactions
contemplated hereby shall be further subject to the fulfillment at or prior to
the Closing Date (subject to Article IX hereof) of the following conditions, any
one or more of which may be waived in writing by Tollway:
(a) The Shareholder shall have performed and complied with all
agreements, covenants and undertakings contained in this Agreement required to
be performed and complied with by the Shareholder at or prior to the Closing
Date. All representations and warranties of the Shareholder set forth in this
Agreement shall be true and correct as of the Closing Date as though made at and
as of such Closing Date. Tollway shall receive a certificate to that effect
signed by the Shareholder.
(b) All documents required to have been delivered by the Shareholder to
Tollway at or prior to the Closing, pursuant to Section 3.2, shall have been
delivered.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
8.1. Survival of Representation. Other than as provided in Section 8.2,
the representations, warranties, covenants and agreements made by any party in
this Agreement or in documents and instruments delivered pursuant here to shall
not survive the Closing, and all Claims made by virtue of such representations,
warranties and agreements shall be made under, and subject to the limitation set
forth in Section 8.2.
15
<PAGE>
8.2. The Shareholder's Agreement to Indemnify.
(a) Indemnification. Subject to the limitations, conditions and provisions
set forth herein, the Shareholder agrees to indemnify, defend and hold harmless
Tollway (including Tollway's shareholders, officers, employees, agents and
affiliates) (collectively, "Tollway's Indemnities") from and against any and all
demands, claims, actions, losses, damages, liabilities, costs and expenses,
including, without limitation, reasonable attorneys' fees, asserted against or
incurred by Tollway's indemnities resulting from (i) a breach of any covenant,
agreement, representation or warranty of the Shareholder to Tollway contained in
this Agreement or any other document or instrument delivered pursuant hereto and
(ii) liabilities to parties not affiliated with Tollway relating to the
operations of the Company prior to the Closing Date that have not been disclosed
to Tollway in this Agreement or the Schedule hereto (collectively, "Tollway's
Damages").
(b) Limitation of Liability. The Shareholder's obligation to indemnify
against any Polyphase's Damages shall be subject to all of the following
limitations:
(i) Tollway's Indemnities shall be entitled to indemnify with
respect to claims based on Section 8.2(a) only for those Tollway's Damages
as to which Tollway shall give the Shareholder written notice thereof. Any
written notice delivered by Tollway to the Shareholder pursuant to this
subparagraph (i) shall set forth with specificity the basis of the claim
for Tollway's Damages and a reasonable estimate of the amount thereof.
(ii) All Tollway's Damages shall be computed net of any insurance
coverage received by Tollway with respect thereto that would otherwise be
sustained.
(c) Conditions of Indemnification. The obligations and liabilities of the
Shareholder under Section 8.2(a) hereof with respect to claims for Tollway's
Damages ("Tollway's Claims") shall be subject to the following terms and
conditions:
(i) Tollway will give the Shareholder notice of any Tollway's Claim
within thirty (30) days after receiving notice, or becoming aware, thereof.
(ii) After the Shareholder receives notice of a Tollway's Claim that
relates to an assertion of liability by a third party other than Tollway or
related to Tollway, the Shareholder shall have the right to defend any such
claim and to control negotiations toward resolution of such claim, and, if
litigation ensues, to defend the same with counsel chosen by the
Shareholder, at the Shareholder's expense, and Tollway shall extend its
full cooperation in connection with such defense. In the event that within
ten (10) days after notice of any such Tollway's claim, Tollway will (upon
further notice to the Shareholder) have the right (but not the obligation)
to undertake the defense, compromise or settlement of such Tollway's Claim
for the account of Tollway, subject to the right of the Shareholder to
assume the defense of such Tollway's Claim at any time prior to final
settlement, compromise or determination thereof.
16
<PAGE>
ARTICLE IX
TERMINATION AND ABANDONMENT
9.1. Termination. This Agreement may be terminated:
(a) at any time by mutual consent in writing of the Shareholder and
Tollway;
(b) by either party is such party is not in default hereunder and the
Closing hereunder has not taken place on or before _________________;
(c) by the Shareholder if all the conditions in Sections 7.1 and Section
7.2 have not been satisfied or waived by the date scheduled for the Closing
pursuant to Section 3.1; and
(d) by Tollway if all the conditions set forth in Sections 7.1 and 7.3 have
not been satisfied or waived by the date scheduled for the Closing pursuant to
Section 3.1.
9.2. Procedure and Effect of Termination.
(a) In the event of the termination of this Agreement and abandonment of
the transactions contemplated hereby any or all of the parties pursuant to
Section 9.1, prompt written notice thereof shall be given to the other party and
this Agreement shall terminate and the transactions contemplated hereby shall be
abandoned without further action by any of the parties hereto. If this Agreement
is terminated as provided herein:
(i) None of the parties hereto nor any of their partners,
directors, officers, shareholders, employers, agents, or affiliates shall
have any liability or further obligation to the other party or any of its
partners, directors, officers, shareholders, employers, agents, or
affiliates pursuant to this Agreement with respect to which termination has
occurred, except as otherwise provided with respect to the parties hereto
in Sections 6.3(c), 9.2(b), 10.1 and 10.2 hereof, and
(ii) All filings, applications and other submissions relating to the
transactions contemplated hereby as to which termination has occurred
shall, to the extent practicable, be withdrawn from the agency or other
person to which made.
(b) Notwithstanding anything to the contrary contained in this Agreement,
if the Shareholder or Tollway is in breach of their respective obligations under
this Agreement to close the transactions contemplated hereby, then and in that
event, as appropriate, the non-breaching party shall have the right to seek all
remedies available to it as provided hereunder or at law or equity, including
the remedy of specific performance.
17
<PAGE>
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1. Commissions. The Shareholder, on the one hand, and Tollway, on the
other hand, each represent and warrant to the other that, no broker, finder or
other person is entitled to any brokerage fees, commissions or finder's fees in
connection with the transactions contemplated hereby by reason of any action
taken by the party making such representation.
10.2. Expenses. Regardless of whether the transactions contemplated
hereby are consummated, except as otherwise provided herein, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby will be paid by the party incurring such costs and expenses.
10.3. Further Assurances. Subject to the terms and conditions of this
Agreement, each of the parties hereto will use all reasonable efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the sale contemplated by this Agreement. From
time to time after the Closing Date, without further consideration, the
Shareholder will, at his expense, execute and deliver, or cause to be executed
and delivered, such documents to Tollway as Tollway may reasonably request in
order to more effectively vest in Tollway good title to the Shares and to
evidence the representations and warranties of the Shareholder. From time to
time after the Closing Date, without further consideration, Tollway will, at
Tollway's expense, execute and deliver such documents to the Shareholder as it
may reasonably request in order more effectively to consummate the sale of the
Shares pursuant to this Agreement.
10.4. Amendment and Modification. This Agreement may be amended, modified
or supplemented only by written agreement of the Shareholder and Tollway.
10.5. Waiver of Compliance; Consents. Except as otherwise provided in
this Agreement, any failure of any of the parties to comply with any obligation,
representation, warranty, covenant, agreement or condition herein may be waived
by the party entitled to the benefits thereof only by a written instrument
signed by the party granting such waiver, but such waiver or failure to insist
upon strict compliance with such obligation, representation, warranty, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. Whenever this Agreement requires
or permits consent by or on behalf of any party hereto, such consent shall be
given in writing in a manner consistent with the requirements for a waiver of
compliance as set forth in this Section 10.5.
10.6. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered personally or by facsimile
transmission, or mailed by registered or certified mail (return receipt
requested), postage prepaid, to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice, provided
that notices of a change of address shall be effective only upon receipt
thereof):
18
<PAGE>
(a) If to Tollway Properties, Inc., to:
Copy to:
(b) If to Polyphase:
Polyphase Corporation
16885 Dallas Parkway
Suite 400
Dallas, Texas 75248
Attention: Mr. Paul Tanner
Facsimile: (214) 490-6808
Copy to:
Jenkens & Gilchrist, a Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
Attention: Ronald J. Frappier, Esq.
Facsimile: (214) 855-4300
10.7. Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interest or obligations hereunder shall be assigned by any party
hereto without the prior written consent of the other party, nor is this
Agreement intended to confer upon any other person except the parties hereto any
rights or remedies hereunder.
19
<PAGE>
10.8. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE CHOICE
OF LAW PRINCIPLES THEREOF.
10.9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.10. Interpretation. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement.
10.11. Entire Agreement. This Agreement, including the Exhibits and
Schedules hereto and the documents delivered pursuant to this Agreement, embody
the entire agreement and understanding of the parties hereto in respect of the
transactions contemplated by this Agreement. The Exhibits and Schedules hereto
are an integral part of this Agreement and are incorporated by reference herein.
This Agreement supersedes all information previously furnished to Polyphase and
all prior agreements and understandings between the parties with respect to the
transactions contemplated by this Agreement.
10.12. Severability. If any provision of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provision to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
10.13. Press Releases. No press releases or other public announcements
concerning this Agreement or the transactions contemplated hereby shall be made
by any party hereto without the prior written consent of the other party unless
the first such party is legally compelled to do so, and then only after prior
written notice to and consultation with such other party.
20
<PAGE>
IN WITNESS WHEREOF, the Shareholder and Tollway have caused this Stock
Exchange Agreement to be signed by their respective duly authorized officers as
of the date first written above.
POLYPHASE:
POLYPHASE CORPORATION
By:
--------------------------
Name:
-------------------------
Title:
------------------------
TOLLWAY PROPERTIES, INC.:
By:
--------------------------
Name:
-------------------------
Title:
------------------------
21
<PAGE>
SCHEDULE 4.1
Organization and Qualification of Dallas Parkway Properties, Incorporated
------------------------------------------------------------------------
Dallas Parkway Properties, Incorporated is a Texas Corporation qualified to
do business in the State of Texas.
22
<PAGE>
SCHEDULE 4.4
Capital Stock Schedule
------------------------------------------------------------------------
Common Stock
Name Number of Shares Ownership Percentage
- ---- ---------------- --------------------
Polyphase Corporation 1,000 shares 100%
23
<PAGE>
SCHEDULE 4.5
Consents and Approvals
------------------------------------------------------------------------
None.
24
<PAGE>
SCHEDULE 4.6
Absence of Certain Changes or Events
------------------------------------------------------------------------
None
25
<PAGE>
SCHEDULE 4.7
Certain Arrangements
------------------------------------------------------------------------
Tenant Location
------ --------
A.
--
Consolidated Telecom, Inc. 201
Polyphase Corporation 400
Schrader & Kline 410
Albert B. Greco, Jr. 301
Attorney at Law
Modern Xerographics 200
B. None.
--
26
<PAGE>
SCHEDULE 4.8
Litigation
--------------------------------------------------------------------------
None.
27
<PAGE>
SCHEDULE 4.9
Employee Benefit Plans; ERISA
--------------------------------------------------------------------------
None.
28
<PAGE>
SCHEDULE 4.10
Taxes
--------------------------------------------------------------------------
None.
29
<PAGE>
SCHEDULE 4.11
Title to and Condition of Personal Property
-------------------------------------------------------------------------
None.
30
<PAGE>
SCHEDULE 4.12
Personnel Data; Labor Relations
--------------------------------------------------------------------------
None.
31
<PAGE>
SCHEDULE 4.13
Insurance
--------------------------------------------------------------------------
Trinity Universal Commercial Property Coverage
Trinity Universal General Liability Coverage
32
<PAGE>
SCHEDULE 4.14
License and Copyrights
--------------------------------------------------------------------------
None.
33
<PAGE>
SCHEDULE 4.15
Compliance with Laws
--------------------------------------------------------------------------
None.
34
<PAGE>
SCHEDULE 4.18
Environmental Matters
--------------------------------------------------------------------------
None.
35
<PAGE>
Exhibit 10.79
RELEASE AND SETTLEMENT AGREEMENT
THIS AGREEMENT made and entered into by and between Dallas Parkway
Properties, Incorporated ("DPPI") and Polyphase Corporation ("Polyphase").
RECITALS
--------
WHEREAS on or about the 29th day of August, 1997, DPPI loaned Polyphase
approximately $1.1 Million Dollars ($1,100,000.00) from the proceeds of a loan
obtained by DPPI and which Polyphase guaranteed to the lender. (See Guarantee
Agreement, a copy of which is attached hereto and made a part hereof as Exhibit
A):
WHEREAS Polyphase in a transaction of even date herewith exchanged its
stock in DPPI for shares of stock of Tollway Properties, Inc. DPPI and
Polyphase have agreed that by this agreement any amounts due and owing by
Polyphase to DPPI shall be settled pursuant to the terms and conditions of this
agreement and that Polyphase shall be forever released from any further
obligations which may be due and owing to Dallas Parkway Properties.
Therefore, in consideration the premises and other good and valuable
consideration the parties hereby agree as follows:
I.
In exchange for its Guarantee Agreement as described in Exhibit A and for
the payments made by Polyphase for the preservation of the assets of DPPI
beginning on the 29th day of August, 1997, DPPI agrees to accept such
consideration as full and final settlement for that certain loan made to
Polyphase on or about the 29th day of August, 1997, in the amount of
approximately $1.1 Million Dollars ($1,100,000.00).
II.
Except for the obligations and rights especially set forth and reserved by
this agreement, DPPI does hereby release, quit and forever discharge Polyphase
and its respective agents, servants and employees, successors, heirs, legal
representatives and its, officers, directors, shareholders and all persons
natural or corporate, in privity with them, from any and all claims, causes of
action (including without limitation all claims for injunctive or declaratory
relief), or controversies of any kind whatsoever, whether known or unknown,
whether accrued or to accrue, including but not limited to, claims at common
law, pursuant to the laws of the United States and any state thereof, or
pursuant to any laws or statutes arising out of, or in connection with, that
certain loan to Polyphase herein above described.
1
<PAGE>
III.
This document contains the entire Agreement between the parties and
supersedes any and all prior agreements, arrangements or understandings with
regard to the subject matter hereof. Amendments to this Agreement may only be
made in writing and shall be signed by all the parties hereto.
IV.
The parties agree that as a part of the consideration for this Agreement
and before executing this instrument each party hereto has been fully informed
of the terms, contents conditions and effects of this document; that in
executing this document and negotiating the terms thereof, each has had the
benefit of the advice of attorneys of its own choosing; and that no promise or
representation of any kind has been made to any party by another party hereto,
or anyone acting for them, except as is expressly stated in this instrument.
The parties represent that they have relied completely and solely on their own
judgement and the advice of their own attorneys in executing this instrument.
V.
The parties agree that the consideration described in this document, and
the agreement and covenants set forth herein are given by the parties in
compromise and settlement of a disputed claim in order that each party may buy
its peace. Such consideration, agreement and covenants are in no way to be
construed as an admission of liability on the part of any party hereto. Each
party specifically denies any such liability or responsibility and specifically
denies all such allegations made against such party.
VI.
The parties agree that the statements, representations, agreements and
covenants contained herein are to be contractual in nature and not mere
recitations of fact. The agreement and covenants herein shall be binding upon
the parties, their heirs, successors, assigns, administrators, executors and
legal representatives forever.
VII.
Whenever herein the singular number is used, the same shall include the
plural where appropriate, the words of any gender shall include each other
gender where appropriate.
2
<PAGE>
VIII.
All parties agree that they shall bear their own costs and attorney fees in
relation to this Agreement.
IX.
The parties agree that if it is determined by any court that any party has
failed to perform its obligations herein, then the prevailing party or parties
shall be entitled to recover reasonable attorneys fees, court costs, and other
reasonable expenses incurred in the enforcement of the rights and obligations
set forth in this agreement.
X.
That parties agree that upon the request of any of the parties, they will
execute and deliver such further documents as may reasonably be required to
effect any of the terms contained in this Agreement.
XI.
It is understood and agreed that this Agreement may be executed in any
number of identical counterparts, each of which shall be deemed an original for
all purposes.
XII.
Each party executing this document on behalf of an entity warrants that he
is fully authorized to do so and agrees that he will fully indemnify any and all
damages incurred by the other parties if he is not so authorized.
Each party further warrants and represents that each said party will not
discuss any of such matters with any person other than his or her attorney after
the date hereof, except as provided herein.
AGREED and ACCEPTED this 1st day of November, 1997.
POLYPHASE CORPORATION DALLAS PARKWAY PROPERTIES, INC.
- -------------------------- -------------------------
Chairman President
3
<PAGE>
EXHIBIT 10.80
GENERAL RELEASE
Dallas Parkway Properties, Inc. ("DDPI") and National Operating, L.P.
("NOLP") hereby agree to execute this General Release in favor of Polyphase
Corporation ("Polyphase") in connection with that certain Stock Exchange
Agreement by and between Tollway Properties, Inc. and Polyphase Corporation of
even date herewith.
Therefore, in consideration of the execution of this Agreement and other
good and valuable consideration the parties hereby agree as follows:
1. (a) DPPI and NOLP hereby irrevocably and unconditionally release and
forever discharge Polyphase from its guarantee agreement executed on the 29th
day of August, 1997, a copy of which is attached hereto and made a part hereof.
(b) It is understood and agreed by the parties that this release
extends to all claims arising out of the Guarantee Agreement of every nature and
kind whatsoever, known and unknown, suspected or unsuspected, fixed or
contingent, from the beginning of time until the end of time.
2. Each of the parties warrants that such party has been represented and
advised by counsel or has had full opportunity to be represented and advised by
counsel with respect to this Agreement and all matters covered by it.
3. The parties to this Agreement agree that they shall each pay their own
attorney fees, costs and expenses incurred in connection with this matter. In
the event that any party is required to bring any actions against any other
party to enforce the terms of this Agreement, the prevailing party in such
action shall be entitled to recover from the other party all attorneys fees,
costs and expenses.
4. The parties agree not to divulge or discuss or cause their counsel or
anyone in privity with them to divulge or discuss, either directly or
indirectly, the amount or terms of this Agreement and the facts or circumstances
underlying this agreement, except insofar as may be required by law, regulation
or regulatory review.
5. This Agreement may be executed by the parties in several counter parts,
and any such counterparts shall be deemed an original.
6. This Agreement shall be binding upon and inure to the benefit of the
parties hereto released and their respective employees, agents, servants,
insurers, attorneys, predecessors, heirs, executors, trustees, administrators,
assigns, successors, spouses, partners, parents, subsidiaries, affiliates,
officers, directors, shareholders and joint venturers.
1
<PAGE>
7. This Agreement and the terms hereof shall be governed in all respects
including without limitation, interpretation, constitution and performance by
the laws of the State of Texas.
THE PARTIES ACKNOWLEDGE THAT THEY HAVE READ THIS GENERAL RELEASE; THAT
THEY UNDERSTAND THE CONTENTS AND EFFECT OF THIS AGREEMENT AND RELEASE AND THAT
THEY EXECUTE THIS AGREEMENT AND RELEASE AND MAKE THE COMPROMISES PROVIDED FOR
HEREIN VOLUNTARILY AND OF THEIR OWN FREE WILL.
Polyphase Corporation Dallas Parkway Properties, Incorporated
- ----------------------------- -----------------------
Chairman President
National Operating L.P.
-----------------------
General Partner
2
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Overhill Farms, Inc. 100%
Polyphase Instrument Co. 100%
Texas Timberjack, Inc. 100%
Dallas Parkway Properties, Incorporated 100%
Phasenet, Inc. 100%
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 33-85334) of Polyphase Corporation and in the related Prospectus and in
the Registration Statements (Form S-8 No. 333-03333, No. 33-82008 and No. 33-
72458) pertaining to the 1994 Stock Option Plan and various stock option
agreements of our report dated February 5, 1998, with respect to the
consolidated financial statements and schedules of Polyphase Corporation
included in this Annual Report (Form 10-K) for the year ended September 30,
1997.
ERNST & YOUNG LLP
February 5, 1998
Dallas, Texas
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,064,259
<SECURITIES> 0
<RECEIVABLES> 18,286,897
<ALLOWANCES> 576,192
<INVENTORY> 23,002,020
<CURRENT-ASSETS> 43,960,820
<PP&E> 14,378,658
<DEPRECIATION> 5,954,554
<TOTAL-ASSETS> 72,149,449
<CURRENT-LIABILITIES> 38,758,072
<BONDS> 0
0
1,325
<COMMON> 136,641
<OTHER-SE> 7,263,773
<TOTAL-LIABILITY-AND-EQUITY> 72,149,449
<SALES> 151,948,553
<TOTAL-REVENUES> 151,948,553
<CGS> 126,565,112
<TOTAL-COSTS> 126,565,112
<OTHER-EXPENSES> 18,799,917
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,179,973
<INCOME-PRETAX> (18,668,065)
<INCOME-TAX> (653,683)
<INCOME-CONTINUING> (19,228,908)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,228,908)
<EPS-PRIMARY> (1.41)
<EPS-DILUTED> (1.39)
</TABLE>
