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LOAN AND WARRANT AGREEMENT

Warrant Agreement

LOAN AND WARRANT AGREEMENT | Document Parties: Omicron Master Trust | One US Bank | Zoltek Companies, Inc You are currently viewing:
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Omicron Master Trust | One US Bank | Zoltek Companies, Inc

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Title: LOAN AND WARRANT AGREEMENT
Governing Law: New York     Date: 2/9/2005
Law Firm: Proskauer Rose;Thompson Coburn    

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Exhibit 4.1

Execution Version

LOAN AND WARRANT AGREEMENT

This Loan and Warrant Agreement is entered into and dated as of

February 9, 2005 (as amended, supplemented or otherwise modified from time

to time, together with the Disclosure Schedule, this "AGREEMENT"), among

Zoltek Companies, Inc., a Missouri corporation (the "BORROWER"), the Lenders

identified on the signature pages hereto (each, a "LENDER" and collectively,

the "LENDERS"), and Omicron Master Trust, a Bermuda business trust ("OMT"),

as administrative agent for the Lenders (in such capacity, the

"ADMINISTRATIVE AGENT").

WHEREAS, subject to the terms and conditions set forth in this

Agreement, the Borrower desires to borrow certain sums from each of the

Lenders and, in consideration thereof issue certain notes and warrants to

each of the Lenders, and each Lender, severally and not jointly, desires to

make a loan to the Borrower and accept such notes and warrants from the

Borrower, all pursuant to the terms set forth herein.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained

in this Agreement, and for other good and valuable consideration the receipt

and adequacy of which are hereby acknowledged, the Borrower and the Lenders

agree as follows:

ARTICLE I.

DEFINITIONS

1.1. Definitions. In addition to the terms defined elsewhere in

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this Agreement, when used herein the following terms shall have the meanings

set forth in this Section 1.1:

"ACTION" means any action, suit, inquiry, notice of

violation, proceeding (including any partial proceeding such as a

deposition) or investigation pending or threatened in writing

against or affecting the Borrower, any Subsidiary or any property

of the Borrower or any Subsidiary before or by any court,

arbitrator, governmental or administrative agency, regulatory

authority (federal, state, county, local or foreign), stock market,

stock exchange or trading facility.

"AFFILIATE" means, with respect to any Person, any other

Person that, directly or indirectly through one or more

intermediaries, controls or is controlled by or is under common

control with such Person, as such terms are used in and construed

under Rule 144.

"BORROWER COUNSEL" means Thompson Coburn LLP.

"BUSINESS DAY" means any day except Saturday, Sunday and

any day that is a federal legal holiday or a day on which banking

institutions in the State of New York are authorized or required by

law or other governmental action to close.

"CAPITAL LEASE OBLIGATIONS" of any Person shall mean the

obligations of such Person to pay rent or other amounts under any

lease of (or other arrangement conveying

 

 

the right to use) real or personal property, or a combination

thereof, which obligations are required to be classified and accounted

for as capital leases on a balance sheet of such Person under GAAP

and, for the purposes of this Agreement, the amount of such

obligations at any time shall be the capitalized amount thereof at

such time determined in accordance with GAAP.

"CASH EQUIVALENTS" means:

(a) investments in Debt obligations maturing within one year

from the date of acquisition thereof to the extent the principal thereof and

interest thereon is backed by the full faith and credit of the United States

of America;

(b) investments in commercial paper maturing within 180 days

or less from the date of acquisition thereof and having, at such date of

acquisition, the highest credit rating obtainable from Standard & Poor's

Ratings Services, a division of The McGraw Hill Companies, or any successor

thereto, or from Moody's Investors Service, Inc. or any successor thereto;

(c) investments in certificates of deposit, banker's

acceptances and time deposits maturing within 180 days from the date of

acquisition thereof issued or guaranteed by or placed with, and money market

deposit accounts issued or offered by, any domestic office of any commercial

bank organized under the laws of the United States of America or any State

thereof that has a combined capital and surplus and undivided profits of not

less than $500,000,000, in each case denominated in dollars; and

(d) money market mutual funds, at least 90% of the

investments of which are in cash or investments contemplated by clauses (a),

(b) and (c) of this definition.

"CLOSING" means the closing of the loan and the purchase

and sale of Securities pursuant to Section 2.1.

"CLOSING DATE" means the Business Day immediately

following the date on which all the conditions set forth in

Sections 6.1 and 6.2 hereof are satisfied or waived by the

appropriate party.

"COMMISSION" means the U.S. Securities and Exchange

Commission.

"COMMON STOCK" means the common stock of the Borrower,

$0.01 par value per share, and any securities into which such

common stock may hereafter be reclassified.

"COMMON STOCK EQUIVALENTS" means any securities of the

Borrower or any Subsidiary which entitle the holder thereof to

acquire Common Stock at any time, including without limitation, any

Debt, preferred stock, rights, options, warrants or other

instrument that is at any time convertible into or exchangeable

for, or otherwise entitles the holder thereof to receive, Common

Stock or other securities that entitle the holder to receive,

directly or indirectly, Common Stock.

"CONTINGENT OBLIGATION" with respect to any Person, any

obligation of such Person arising from any guaranty, indemnity or

other assurance of payment or

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performance of any Debt, lease, dividend or other obligation ("primary

obligations") of any other Person (the "primary obligor") in any

manner, whether directly or indirectly, including (i) the direct

or indirect guaranty, endorsement (other than for collection or

deposit in the ordinary course of business), co-making, discounting

with recourse or sale with recourse by such Person of the obligation

of a primary obligor, (ii) the obligation to make take or pay or

similar payments, if required, regardless of nonperformance by any

other party or parties to an agreement, (iii) any obligation of such

Person, whether or not contingent, (A) to purchase any such primary

obligation or any property constituting direct or indirect security

therefor, (B) to advance or supply funds (1) for the purchase or

payment of any such primary obligations or (2) to maintain working

capital or equity capital of the primary obligor or otherwise to

maintain the net worth or solvency of the primary obligor, (C) to

purchase property, securities or services primarily for the purpose

of assuring the owner of any such primary obligation of the ability

of the primary obligor to make payment of such primary obligation

or (D) otherwise to assure or hold harmless the holder of such

primary obligation against loss in respect thereof; provided,

however, that the term "Contingent Obligation" shall not include

(i) any product warranties extended in the ordinary course of

business, (ii) indemnities made to officers and directors of any

such Person whether pursuant to the governing organizational

documents of such Person or otherwise and (iii) any environmental

indemnities. The amount of any Contingent Obligation shall be

deemed to be an amount equal to the stated or determinable amount

of the primary obligation with respect to which such Contingent

Obligation is made (or, if less, the maximum amount of such primary

obligation for which such Person may be liable pursuant to the

terms of the instrument evidencing such Contingent Obligation) or,

if not stated or determinable, the maximum reasonably anticipated

liability with respect thereto (assuming such Person is required to

perform thereunder), as determined by such Person in good faith.

"DEBT" as applied to a Person means, without duplication:

(i) all items which in accordance with GAAP would be included in

determining total liabilities as shown on the liability side of a

balance sheet of such Person as of the date as of which Debt is to

be determined, including Capital Lease Obligations; (ii) all

Contingent Obligations of such Person; (iii) all reimbursement

obligations in connection with letters of credit or letter of

credit guaranties issued for the account of such Person; and (iv)

in the case of a Borrower (without duplication), the Notes. The

Debt of a Person shall include any recourse Debt of any partnership

or joint venture in which such Person is a general partner or joint

venturer.

"DISCLOSURE SCHEDULE" means the Disclosure Schedule

attached to this Agreement.

"DOLLARS" means U.S. dollars.

"EFFECTIVE DATE" means the date that a Registration

Statement is first declared effective by the Commission.

"ELIGIBLE MARKET" means any of the New York Stock

Exchange, the American Stock Exchange, the Nasdaq National Market

or the Nasdaq SmallCap Market.

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"EQUITY INTEREST" means (i) shares of corporate stock,

partnership interests, membership interests and any other interest

that confers on a Person the right to receive a share of the

profits and losses of, or a distribution of the assets of, the

issuing Person and (ii) all warrants, options or other rights to

acquire any Equity Interest set forth in clause (i) of this defined

term.

"EXCHANGE ACT" means the U.S. Securities Exchange Act of

1934, as amended.

"EVENT OF DEFAULT" has the meaning assigned to such term

in the Notes.

"GAAP" means U.S. generally accepted accounting principles

as in effect from time to time applied on a consistent basis during

the periods involved.

"LENDER PERCENTAGE" means, with respect to any Lender as

of any date, the percentage equal to a fraction the numerator of

which shall be the outstanding principal balance of such Lender's

Notes and the denominator of which shall be the aggregate

outstanding principal balance of all Notes.

"LIEN" means (a) any lien, charge, claim, security

interest, encumbrance, right of first refusal or other restriction,

wherever created or charged, (b) with respect to any property, the

interest of a vendor or a lessor under any conditional sale

agreement, capital lease or title retention agreement relating to

such property, and (c) in the case of securities, any purchase

option, call or similar right of a third party with respect to such

securities.

"LOAN" has the meaning set forth in Section 2.1.

"LOAN AMOUNT" means, with respect to each Lender, the loan

amount indicated below such Lender's name on its signature page of

this Agreement.

"MORTGAGE CONDITIONS ARE SATISFIED" means Borrower's

Subsidiary, Zoltek Properties, Inc. ("ZPI") has granted to the

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Lenders: (i) a first priority lien on ZPI's interest in the real

estate owned by ZPI and commonly referred to as 3101 McKelvey Road,

St. Louis, Missouri, (ii) a first priority lien on ZPI's interest

in the leasehold estated owned by ZPI with respect to the real

estate commonly referred to as 11 Missouri Research Park, St.

Charles, Missouri and (iii) a second priority lien on ZPI's

interest in the real estate owned by ZPI and commonly referred to

as 1221 Fulwiler Road, Abilene, Texas, in all such cases subject to

all matters of record.

"NOTES" means, collectively, each of the senior

convertible promissory notes, due on the date that is 42 months

after the Closing Date, each issuable by the Borrower to one of the

Lenders pursuant to the terms hereof, in the form of Exhibit A

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hereto.

"OPCO" means Zoltek Vegyipari Reszvenytarsasag, a

corporation formed under the laws of the Republic of Hungary, whose

registered office is at H-2537 Nyergesujfalu, Varga Jozsef ter 1.,

registered by the Court of Komarom-Esztergom county acting as Court

of Registration under registration No. 11-10-001447.

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"PERMITTED LIENS" means: (a) liens for taxes, assessments

or governmental charges not delinquent or being contested in good

faith and by appropriate proceedings and for which adequate

reserves in accordance with GAAP are maintained on the books of the

Borrower or the applicable Subsidiary; (b) liens arising out of

deposits in connection with workers' compensation, unemployment

insurance, old age pensions or other social security or retirement

benefits legislation; (c) deposits or pledges to secure bids,

tenders, contracts (other than contracts for the payment of money),

leases, statutory obligations, surety and appeal bonds, and other

obligations of like nature arising in the ordinary course of

business of the Borrower or a Subsidiary; (d) liens imposed by law,

such as mechanics', workers', materialmens', carriers' or other

like liens arising in the ordinary course of business of the

Borrower or a Subsidiary which secure the payment of obligations

which are not past due or which are being diligently contested in

good faith by appropriate proceedings and for which adequate

reserves in accordance with GAAP are maintained on the books of the

Borrower or the applicable Subsidiary; (e) liens existing on the

Closing Date and disclosed in Section 1.1 of the Disclosure

Schedule, and any extensions, renewals or replacements thereof,

provided that no additional property shall be encumbered by such

liens and the unpaid principal amount of the Debt secured thereby

shall not be increased on or after the date of any such extension,

renewal or replacement; (f) purchase money security interests or

liens for the purchase of fixed assets to be used in the business

of the Borrower or a Subsidiary, securing solely the fixed assets

so purchased and the proceeds thereof; (g) capitalized leases which

do not violate any provision of this Agreement; (h) liens of

commercial depository institutions, arising in the ordinary course

of business, constituting a statutory or common law right of setoff

against amounts on deposit with such institution; (i) liens in

favor of the Administrative Agent and the Lenders pursuant to the

Transaction Documents; and (j) rights of way, zoning restrictions,

easements and similar encumbrances affecting the Borrowers' real

property which do not materially interfere with the use of such

property.

"PERSON" means an individual or corporation, partnership,

trust, incorporated or unincorporated association, joint venture,

limited liability company, joint stock company, government (or an

agency or subdivision thereof) or other entity of any kind.

"PROCEEDING" means an action, claim, suit, investigation

or proceeding (including, without limitation, an investigation or

partial proceeding, such as a deposition), whether commenced or

threatened.

"REGISTRATION STATEMENT" means one or more registration

statements meeting the requirements of the Registration Rights

Agreement and covering the resale of Underlying Shares by the

Lenders who shall be named "selling shareholders" thereunder.

"REGISTRATION RIGHTS AGREEMENT" means the Registration

Rights Agreement, dated as of the date of this Agreement, among the

Borrower and the Lenders, in the form of Exhibit B hereto.

---------

"RELATED PARTIES" means, with respect to any specified

Person, such Person's Affiliates and the respective directors,

officers, employees, agents and advisors of such Person and such

Person's Affiliates.

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"REQUIRED LENDERS" means collectively one or more Lenders

that made one or more Loans in an initial principal amount

representing greater than 50% of the aggregate initial principal

amount of all Loans.

"REQUIRED MINIMUM" means, as of any date, the maximum

aggregate number of shares of Common Stock then issued or

potentially issuable in the future pursuant to the Transaction

Documents that the Borrower is obligated to issue, whether

contingently or otherwise, including, without limitation, any

Underlying Shares issuable upon exercise or conversion (as

applicable) in full of all Warrants and Notes and assuming that any

previously unconverted Notes are held until the maturity date

thereof, and all interest on the Notes is paid with shares of

Common Stock.

"RESTRICTED PAYMENT" means, as to any Person, (a) any

dividend or other distribution by such Person (whether in cash,

securities or other property) with respect to any Equity Interests

of such Person, (b) any payment (whether in cash, securities or

other property), including any sinking fund or similar deposit, on

account of the purchase, redemption, retirement, acquisition,

cancellation or termination of any such Equity Interest, (c) the

acquisition for value by such Person of any Equity Interests issued

by such Person or any other Person that controls such Person and

(d) any payment by such Person to its officers or directors other

than (i) in compliance with existing Borrower stock option plans,

(ii) salaries in the ordinary course of business, and (iii)

payments required by the terms of the 2003 Debentures (as defined

in the Notes), the 2004 Debentures (as defined in the Notes), the

2004 Notes (as defined in the Notes) and the Notes, in each case to

the extent held by such officers and directors.

"RULE 144" means Rule 144 promulgated by the Commission

pursuant to the Securities Act, as such Rule may be amended from

time to time, or any similar rule or regulation hereafter adopted

by the Commission having substantially the same effect as such

Rule.

"SECURITIES" means the Notes, the Warrants and the

Underlying Shares issuable under the Notes and the Warrants.

"SECURITIES ACT" means the Securities Act of 1933, as

amended.

"SHAREHOLDER AGREEMENT" has the meaning set forth in

Section 2.2(a)(iv).

"STRATEGIC TRANSACTION" means a transaction or

relationship in which (1) the Borrower issues shares of Common

Stock to a Person which the Board of Directors of the Borrower

determines in good faith is, itself or through its Subsidiaries, an

operating company in a business synergistic with the business of

the Borrower and (2) the Borrower expects to receive benefits in

addition to the investment of funds, but shall not include a

transaction in which the Borrower issues securities primarily for

the purpose of raising capital or to an entity whose primary

business is investing in securities.

"SUBSIDIARY" means, with respect to any Person (the

"PARENT") at any date, any corporation, limited liability company,

partnership, association or other entity the accounts of which

would be consolidated with those of the parent in the parent's

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consolidated financial statements if such financial statements were

prepared in accordance with GAAP as of such date, as well as any

other corporation, limited liability company, partnership,

association or other entity of which securities or other ownership

interests representing 50% or more of the equity or 50% or more of

the ordinary voting power is or, in the case of a partnership, 50%

or more of the general partnership interests are, as of such date,

owned, controlled or held by the parent or one or more subsidiaries

of the parent. Unless otherwise expressly provided, "Subsidiary"

shall mean a Subsidiary of the Borrower.

"TRADING DAY" means (i) a day on which the Common Stock is

traded on a Trading Market (other than the OTC Bulletin Board), or

(ii) if the Common Stock is not traded on a Trading Market (other

than the OTC Bulletin Board), a day on which the Common Stock is

traded in the over the counter market, as reported by the OTC

Bulletin Board, or (iii) if the Common Stock is not traded on any

Trading Market and not quoted on the OTC Bulletin Board, a day on

which the Common Stock is quoted in the over the counter market as

reported by the National Quotation Bureau Incorporated (or any

similar organization or agency succeeding to its functions of

reporting prices); provided, that in the event that the Common

Stock is not listed or quoted as set forth in (i), (ii) and (iii)

hereof, then Trading Day shall mean a Business Day.

"TRADING MARKET" means Nasdaq National Market or any

Eligible Market on which the Common Stock is then listed or quoted.

"TRANSACTION DOCUMENTS" means this Agreement, the Notes,

the Warrants, the Registration Rights Agreement and any other

documents or agreements executed or delivered in connection with

the transactions contemplated hereunder.

"UNDERLYING SHARES" means the shares of Common Stock

issuable upon conversion of the Notes, as payment of interest

thereunder, and upon exercise of the Warrants, and in satisfaction

of any other obligation of the Borrower to issue shares of Common

Stock pursuant to the Transaction Documents.

"WARRANTS" means the Common Stock purchase warrants in the

form of Exhibit C, issuable pursuant to Section 2.2(a)(ii).

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ARTICLE II.

LOAN; PURCHASE AND SALE

2.1. Closing. Subject to the terms and conditions set forth in this

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Agreement, at the Closing each Lender shall severally make a loan to the

Borrower in a principal amount equal to the Loan Amount with respect to such

Lender (with respect to each Lender, a "LOAN") and, in consideration

thereof, Borrower shall execute and deliver to such Lender a Note evidencing

such Loan and a Warrant. The Closing shall take place at the offices of

Proskauer Rose LLP, 1585 Broadway, New York, NY 10036 on the date this

Agreement is executed and delivered by the parties or at such other location

or time as the parties may agree.

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2.2. Closing Deliveries.

------------------

(a) At the Closing, the Borrower shall deliver or cause to be

delivered to each Lender the following, appropriately dated (the "BORROWER

DELIVERABLES"):

(i) a Note, in the aggregate principal amount of the Loan

Amount indicated below such Lender's name on its signature page of

this Agreement under the heading "Loan Amount", registered in the name

of such Lender;

(ii) a Warrant, duly executed by the Borrower and

registered in the name of such Lender, pursuant to which such Lender

shall have the right to acquire the number of shares of Common Stock

indicated below such Lender's name on its signature page of this

Agreement under the heading "Warrant Shares";

(iii) the Registration Rights Agreement, duly executed by

the Borrower;

(iv) a letter agreement, duly executed by Zsolt Rumy,

Chief Executive Officer of the Borrower, in his individual capacity,

and accepted and agreed to by the Borrower (as amended, supplemented

or otherwise modified from time to time, the "SHAREHOLDER AGREEMENT");

(v) evidence of proper applications made to, and approvals

received from, each Trading Market with respect to the trading of

Underlying Securities thereon;

(vi) the legal opinion of Borrower Counsel, in agreed form,

addressed to the Administrative Agent and such Lender; and

(vii) any other document reasonably requested by the

Administrative Agent or such Lender.

(b) At the Closing, each Lender shall deliver or cause to be

delivered to the Borrower the following:

(i) the Loan Amount indicated below such Lender's name on

the signature page of this Agreement, in United States dollars and in

immediately available funds, by wire transfer to an account designated

in writing by the Borrower for such purpose; and

(ii) the Registration Rights Agreement, duly executed by

such Lender.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

3.1. Representations and Warranties of the Borrower. Subject to the

----------------------------------------------

qualifications and disclosures set forth beside the specific reference to

this Agreement in the Disclosure Schedule (the parties hereto agreeing that

a reference in the Disclosure Schedule to a particular Section shall only

apply to the representation in such Section), the Borrower hereby makes the

following representations and warranties to the Administrative Agent and

each Lender:

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(a) Subsidiaries. The Borrower does not directly or indirectly

------------

control or own any Equity Interest in any Subsidiary, other than as listed

in Section 3.1(a) of the Disclosure Schedule. Except as disclosed in Section

3.1(a) of the Disclosure Schedule, the Borrower owns, directly or

indirectly, all of the Equity Interests of each Subsidiary free and clear of

any Lien, and all the issued and outstanding Equity Interests of each

Subsidiary are validly issued and are fully paid, non-assessable and free of

preemptive and similar rights.

(b) Organization and Qualification. Each of the Borrower and

------------------------------

each Subsidiary is an entity duly incorporated or otherwise organized, validly

existing and in good standing under the laws of the jurisdiction of its

incorporation or organization (as applicable), with the requisite power and

authority to own and use its properties and assets and to carry on its

business as currently conducted. Neither the Borrower nor any Subsidiary is

in violation of any of the provisions of its respective certificate or

articles of incorporation, bylaws or other organizational or charter

documents. Each of the Borrower and each Subsidiary is duly qualified to

conduct business and is in good standing as a foreign corporation or other

entity in each jurisdiction in which the nature of the business conducted or

property owned by it makes such qualification necessary, except where the

failure to be so qualified or in good standing, as the case may be, could

not, individually or in the aggregate, have or reasonably be expected to

result in (i) an adverse effect on the legality, validity or enforceability

of any Transaction Document, (ii) a material and adverse effect on the

results of operations, assets, prospects, business or condition (financial

or otherwise) of the Borrower and the Subsidiaries, taken as a whole, or

(iii) an adverse impairment to the Borrower's ability to perform on a timely

basis its obligations under any Transaction Document (any of (i), (ii) or

(iii), a "MATERIAL ADVERSE EFFECT").

(c) Authorization; Enforcement. The Borrower and each

--------------------------

Subsidiary party to a Transaction Document has the requisite power and

authority to enter into and to consummate the transactions contemplated by

each of the Transaction Documents and otherwise to carry out its obligations

thereunder. The execution and delivery by the Borrower and each Subsidiary

party to a Transaction Document of each of the Transaction Documents to

which it is a party and the consummation by it of the transactions

contemplated thereunder have been duly authorized by all necessary action on

the part of the Borrower or such Subsidiary, as the case may be, and no

further consent or action is required by the Borrower, such Subsidiary, or

their respective Boards of Directors, members, partners, managers or

shareholders, as applicable. Each of the Transaction Documents to which the

Borrower or any Subsidiary is a party has been (or upon delivery will be)

duly executed by the Borrower or such Subsidiary, as the case may be, and,

when delivered in accordance with the terms hereof, will constitute the

valid and binding obligation of the Borrower and such Subsidiary, to the

extent a party thereto, enforceable against the Borrower or such Subsidiary,

as the case may be, in accordance with its terms except as such

enforceability may be limited by applicable bankruptcy, insolvency,

reorganization, moratorium, liquidation or similar laws relating to, or

affecting generally the enforcement of, creditors' rights and remedies or by

equitable principles of general application.

(d) No Conflicts. The execution, delivery and performance

------------

of the Transaction Documents by the Borrower and each Subsidiary party to a

Transaction Document and the consummation by the Borrower and such

Subsidiaries of the transactions contemplated thereby do not and will not

(i) conflict with or violate any provision of the Borrower's or any

Subsidiary's certificate or articles of incorporation, bylaws or other

organizational or charter

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documents, or (ii) conflict with, or constitute a default (or an event that

with notice or lapse of time or both would become a default) under, or give

to others any rights of termination, amendment, acceleration or cancellation

(with or without notice, lapse of time or both) of, any agreement, contract,

credit facility, Debt or other instrument (evidencing Debt of the Borrower

or a Subsidiary or otherwise) or other understanding to which the Borrower

or any Subsidiary is a party or by which any property or asset of the

Borrower or any Subsidiary is bound or affected, or (iii) result in a

violation of any law, rule, regulation, order, judgment, injunction, decree

or other restriction of any court or governmental authority to which the

Borrower or any Subsidiary is subject (including federal and state

securities laws and regulations) and the rules and regulations of any

self-regulatory organization to which the Borrower or its securities are

subject, or by which any property or asset of the Borrower or a Subsidiary

is bound or affected; except in the case of each of clauses (ii) and (iii),

such as could not, individually or in the aggregate, have or reasonably be

expected to result in a Material Adverse Effect. Payments of cash on account

of principal of or interest under the Notes, upon any Event of Default under

the Notes, as a result of liquidated damages under any Transaction Document

or upon a Buy-In under and as such term is defined in a Warrant will not

require the consent of, any payment to, or the springing of any Lien in

favor of any lender to or creditor of the Borrower or any Subsidiary (under

a credit facility, loan agreement or otherwise) and will not result in a

default under any such credit facilities, loans or other agreements.

(e) Filings, Consents and Approvals. Neither the Borrower

-------------------------------

nor any Subsidiary is required to obtain any consent, waiver, authorization

or order of, give any notice to, or make any filing or registration with,

any court or other federal, state, local or other governmental authority or

other Person in connection with the execution, delivery and performance by

it of any Transaction Document to which it is a party, other than (i) the

filing with the Commission of one or more Registration Statements in

accordance with the requirements of the Registration Rights Agreement, (ii)

the application(s) to the Trading Market on which the Common Stock is listed

for trading for the listing of the Underlying Shares for trading thereon in

the time and manner required thereby which have been made and obtained prior

to the Closing Date, and (iii) the requirements, disclosed in Section 3.1(e)

of the Disclosure Schedule, if any.

(f) Issuance of the Securities. Each of the Securities

--------------------------

have been duly authorized and, when issued and paid for in accordance with

the Transaction Documents or otherwise, have been or, when issued, will be

duly and validly issued, fully paid and nonassessable, free and clear of all

Liens. The Borrower has reserved from its duly authorized capital stock a

number of shares of Common Stock issuable upon conversion of the Notes (as

may be issued on account of interest thereunder) and exercise of the

Warrants, which number of reserved shares is not less than the Required

Minimum calculated as of the date hereof.

(g) Capitalization. The number of shares and type of all

--------------

authorized, issued and outstanding capital stock of the Borrower, and all

shares of Common Stock reserved for issuance under the Borrower's various

option and incentive plans and all warrants, debentures and Common Stock

Equivalents (on a pro forma basis immediately after giving effect to the

transactions contemplated by the Transaction Documents), is set forth in

Section 3.1(g) of the Disclosure Schedule. Except as set forth in Section

3.1(g) of the Disclosure Schedule, no securities of the Borrower are

entitled to preemptive or similar rights, and no Person has any

10

 

 

right of first refusal, preemptive right, right of participation, or any

similar right to participate in the transactions contemplated by the

Transaction Documents. Except as a result of the purchase and sale of the

Securities and except as set forth in Section 3.1(g) of the Disclosure

Schedule, there are no outstanding options, warrants, scrip rights to

subscribe to, calls or commitments of any character whatsoever relating to,

or securities, rights or obligations convertible into or exchangeable for,

or giving any Person any right to subscribe for or acquire, any shares of

Common Stock, or any contract, commitment, understanding or arrangement by

which the Borrower is or may become bound to issue additional shares of

Common Stock or Common Stock Equivalents. The issue and sale of the

Securities will not, immediately or with the passage of time, obligate the

Borrower to issue shares of Common Stock or other securities to any Person

(other than the Lenders) and will not result in a right of any holder of

Borrower securities to adjust the exercise, conversion, exchange or reset

price under such securities.

(h) SEC Reports; Financial Statements. The Borrower has

---------------------------------

filed all reports required to be filed by it under the Exchange Act,

including pursuant to Section 13(a) or 15(d) thereof, for the twelve months

preceding the date hereof (or such shorter period as the Borrower was

required by law to file such material) (the foregoing materials being

collectively referred to herein as the "SEC REPORTS" and, together with this

Agreement and Section 3.1(h) of the Disclosure Schedule to this Agreement,

the "DISCLOSURE MATERIALS") on a timely basis or has timely filed a valid

extension of such time of filing and has filed any such SEC Reports prior to

the expiration of any such extension. As of their respective dates, the SEC

Reports complied in all material respects with the requirements of the

Securities Act and the Exchange Act and the rules and regulations of the

Commission promulgated thereunder, and none of the SEC Reports, when filed,

contained any untrue statement of a material fact or omitted to state a

material fact required to be stated therein or necessary in order to make

the statements therein, in light of the circumstances under which they were

made, not misleading. The financial statements of the Borrower included in

the SEC Reports comply in all material respects with applicable accounting

requirements and the rules and regulations of the Commission with respect

thereto as in effect at the time of filing. Such financial statements have

been prepared in accordance GAAP, except as may be otherwise specified in

such financial statements or the notes thereto, and fairly present in all

material respects the financial position of the Borrower and its

consolidated Subsidiaries as of and for the dates thereof and the results of

operations and cash flows for the periods then ended, subject, in the case

of unaudited statements, to normal, immaterial, year-end audit adjustments

and the absence of footnotes. All material agreements to which the Borrower

or any Subsidiary is a party or to which the property or assets of the

Borrower or any Subsidiary are subject are included as part of or

specifically identified in the SEC Reports.

(i) Press Releases. The press releases disseminated by the

--------------

Borrower during the two (2) years preceding the date of this Agreement taken

as a whole do not contain any untrue statement of a material fact or omit to

state a material fact required to be stated therein or necessary in order to

make the statements therein, in light of the circumstances under which they

were made, not misleading.

(j) Material Changes. Since the date of the latest audited

----------------

financial statements included within the SEC Reports, except as specifically

disclosed in the SEC Reports, (i) there has been no event, occurrence or

development that has had or that could reasonably be expected

11

 

 

to result in a Material Adverse Effect, (ii) the Borrower has not incurred

any liabilities (contingent or otherwise) other than (A) trade payables and

accrued expenses incurred in the ordinary course of business consistent with

past practice and (B) liabilities not required to be reflected in the

Borrower's financial statements pursuant to GAAP or not required to be

disclosed in filings made with the Commission, (iii) the Borrower has not

altered its method of accounting or the identity of its auditors, (iv) the

Borrower has not declared or made any dividend or distribution of cash or

other property to its shareholders or purchased, redeemed or made any

agreements to purchase or redeem any shares of its capital stock, and (v)

the Borrower has not issued any equity securities to any officer, director

or Affiliate, except pursuant to existing Borrower stock incentive plans.

Except as noted in the Borrower's SEC Reports, the Borrower does not have

pending before the Commission any request for confidential treatment of

information.

(k) Litigation. Except as set forth in Section 3.1(k) of

----------

the Disclosure Schedule, there is no Action which (i) adversely affects or

challenges the legality, validity or enforceability of any of the

Transaction Documents or the Securities or (ii) except as otherwise set

forth in the SEC Reports, would reasonably be expected, individually or in

the aggregate, to result in a Material Adverse Effect. Neither the Borrower

nor any Subsidiary, nor any director or officer thereof, is or has been the

subject of any Action involving a claim of violation of or liability under

federal or state securities laws or a claim of breach of fiduciary duty.

There has not been, and to the knowledge of the Borrower, there is not

pending or contemplated, any investigation by the Commission involving the

Borrower or any current or former director or officer of the Borrower. The

Commission has not issued any stop order or other order suspending the

effectiveness of any registration statement filed by the Borrower or any

Subsidiary under the Exchange Act or the Securities Act.

(l) Labor Relations. No material labor dispute exists or,

---------------

to the knowledge of the Borrower, is imminent with respect to any of the

employees of the Borrower or any Subsidiary.

(m) Compliance. Except as set forth in Section 3.1(m) of

----------

the Disclosure Schedule, neither the Borrower nor any Subsidiary (i) is in

default under or in violation of (and no event has occurred that has not

been waived that, with notice or lapse of time or both, would result in a

default by the Borrower or any Subsidiary under), nor has the Borrower or

any Subsidiary received notice of a claim that it is in default under or

that it is in violation of, any indenture, loan or credit agreement or any

other agreement or instrument to which it is a party or by which it or any

of its properties is bound (other than defaults or violations that have been

cured or waived), (ii) is in violation of any order of any court, arbitrator

or governmental body, or (iii) is or has been in violation of any statute,

rule or regulation of any governmental authority, including without

limitation all foreign, federal, state and local laws relating to taxes,

environmental protection, occupational health and safety, product quality

and safety and employment and labor matters, except in each case as could

not, individually or in the aggregate, have or could not reasonably be

expected to result in a Material Adverse Effect. The Borrower is in

compliance with the applicable requirements of the Sarbanes-Oxley Act of

2002, as amended, and the rules and regulations thereunder promulgated by

the Commission, except where such noncompliance could not have or reasonably

be expected to result in a Material Adverse Effect. The Borrower is not, to

the best of its knowledge (after due inquiry), in default in any material

12

 

 

respect with the terms, conditions or covenants set forth in (i) the

Securities Purchase Agreement, or the debentures or warrants issued pursuant

thereto, among the Borrower and the lenders therein, dated as of December

19, 2003, (ii) the Securities Purchase Agreement, or the debentures or

warrants issued pursuant thereto, among the Borrower and the lenders

therein, dated as of March 11, 2004 or (iii) the Loan and Warrant Agreement,

or the notes and warrants issued pursuant thereto, among the Borrower and

the lenders therein dated as of October 14, 2004.

(n) Regulatory Permits. The Borrower and the Subsidiaries

------------------

possess all certificates, authorizations and permits issued by the

appropriate federal, state, local or foreign regulatory authorities

necessary to conduct their respective businesses as described in the SEC

Reports, except where the failure to possess such permits could not,

individually or in the aggregate, have or reasonably be expected to result

in a Material Adverse Effect ("MATERIAL PERMITS"), and neither the Borrower

nor any Subsidiary has received any notice of proceedings relating to the

revocation or modification of any Material Permit.

(o) Title to Assets. The Borrower and the Subsidiaries

---------------

have good and marketable title in fee simple to all real property owned by

them that is material to the business of the Borrower and the Subsidiaries

and good and marketable title in all personal property owned by them that is

material to the business of the Borrower and the Subsidiaries, in each case

free and clear of all Liens, except for Permitted Liens, which are set forth

in Section 3.1(k) of the Disclosure Schedule, and except for such Liens as

do not materially affect the value of such property and do not materially

interfere with the use made and proposed to be made of such property by the

Borrower and the Subsidiaries. Any real property and facilities held under

lease by the Borrower and the Subsidiaries that are material to the business

of the Borrower and the Subsidiaries are held by them under valid,

subsisting and enforceable leases of which the Borrower and the Subsidiaries

are in compliance.

(p) Patents and Trademarks. The Borrower and the

----------------------

Subsidiaries own, or have rights to use, all patents, patent applications,

trademarks, trademark applications, service marks, trade names, copyrights,

licenses and other similar rights that are necessary or material for use in

connection with their respective businesses as described in the SEC Reports

and which the failure to so have could not, individually or in the

aggregate, have or reasonably be expected to result in a Material Adverse

Effect (collectively, the "INTELLECTUAL PROPERTY RIGHTS"). Neither the

Borrower nor any Subsidiary has received a written notice that any

Intellectual Property Right violates or infringes upon the rights of any

Person. Except as set forth in the SEC Reports, to the knowledge of the

Borrower, all such Intellectual Property Rights are enforceable and there is

no existing infringement by another Person of any of the Intellectual

Property Rights.

(q) Insurance. The Borrower and the Subsidiaries are

---------

insured by insurers of recognized financial responsibility against such

losses and risks and in such amounts as are prudent and customary in the

businesses in which the Borrower and the Subsidiaries are engaged. Neither

the Borrower nor any Subsidiary has any reason to believe that it will not

be able to renew its existing insurance coverage as and when such coverage

expires or to obtain similar coverage from similar insurers as may be

necessary to continue its business without a significant increase in cost.

13

 

 

(r) Transactions With Affiliates and Employees. Except as

------------------------------------------

set forth in the SEC Reports, none of the officers or directors of the

Borrower or any Subsidiary and, to the knowledge of the Borrower, none of

the employees of the Borrower or any Subsidiary is presently a party to any

transaction with the Borrower or any Subsidiary (other than for services as

employees, officers and directors), including any contract, agreement or

other arrangement providing for the furnishing of services to or by,

providing for rental of real or personal property to or from, or otherwise

requiring payments to or from any officer, director or such employee or, to

the knowledge of the Borrower, any entity in which any officer, director, or

any such employee has a substantial interest or is an officer, director,

trustee or partner.

(s) Internal Accounting Controls. The Borrower and the

----------------------------

Subsidiaries maintain a system of internal accounting controls sufficient to

provide reasonable assurance that (i) transactions are executed in

accordance with management's general or specific authorizations, (ii)

transactions are recorded as necessary to permit preparation of financial

statements in conformity with generally accepted accounting principles and

to maintain asset accountability, (iii) access to assets is permitted only

in accordance with management's general or specific authorization, and (iv)

the recorded accountability for assets is compared with the existing assets

at reasonable intervals and appropriate action is taken with respect to any

differences. The Borrower has established disclosure controls and procedures

(as defined in Exchange Act Rules 13a-14 and 15d-14) for the Borrower and

designed such disclosure controls and procedures to ensure that material

information relating to the Borrower, including its Subsidiaries, is made

known to the certifying officers by others within those entities,

particularly during the period in which the Borrower's Form 10-K or 10-Q, as

the case may be, is being prepared. The Borrower's certifying officers have

evaluated the effectiveness of the Borrower's controls and procedures in

accordance with Item 307 of Regulation S-K under the Exchange Act for the

Borrower's most recently ended fiscal quarter or fiscal year-end (such date,

the "EVALUATION DATE"). The Borrower presented in its most recently filed

Form 10-K or Form 10-Q the conclusions of the certifying officers about the

effectiveness of the disclosure controls and procedures based on their

evaluations as of the Evaluation Date. Since the Evaluation Date, there have

been no significant changes in the Borrower's internal controls (as such

term is defined in Item 308(c) of Regulation S-K under the Exchange Act) or,

to the Borrower's knowledge, in other factors that could significantly

affect the Borrower's internal controls.

(t) Solvency. Based on the financial condition of the

--------

Borrower as of the Closing Date (and assuming that the Closing shall have

occurred), (i) the Borrower's fair saleable value of its assets exceeds the

amount that will be required to be paid on or in respect of the Borrower's

existing Debts and other liabilities (including known contingent

liabilities) as they mature; (ii) the Borrower's assets do not constitute

unreasonably small capital to carry on its business for the current fiscal

year as now conducted and as proposed to be conducted including its capital

needs taking into account the particular capital requirements of the

business conducted by the Borrower, and projected capital requirements and

capital availability thereof; and (iii) the current cash flow of the

Borrower, together with the proceeds the Borrower would receive, were it to

liquidate all of its assets, after taking into account all anticipated uses

of the cash, would be sufficient to pay all amounts on or in respect of its

Debt when such amounts are required to be paid. The Borrower does not intend

to incur Debts beyond its ability to pay such Debts as they mature (taking

into account the timing and amounts of cash to be payable on or in respect

of its Debt).

14

 

 

(u) Certain Fees. Except as set forth in Section 3.1(u) of

------------

the Disclosure Schedule, no brokerage or finder's fees or commissions are or

will be payable by the Borrower to any broker, financial advisor or

consultant, finder, placement agent, investment banker, bank or other Person

with respect to the transactions contemplated by this Agreement. Neither the

Administrative Agent nor any Lender shall have any obligation with respect

to any fees or with respect to any claims (other than such fees or

commissions owed by such Person pursuant to written agreements executed by

such Person which fees or commissions shall be the sole responsibility of

such Person) made by or on behalf of other Persons for fees of a type

contemplated in this Section that may be


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