Exhibit 10.2
NOTE AND WARRANT PURCHASE, GUARANTY AND SECURITY AGREEMENT
------------------------------------
EASY GARDENER, INC.
$5,993,151 Principal Amount
16% Series A Senior Subordinated Notes
Due November 19, 2007
$856,164 Principal Amount
14% Series B Senior Subordinated Notes
Due November 19, 2007
------------------------------------
U.S. HOME & GARDEN INC.
Warrants for
Common Stock
$.001 par value
Options for
9.4% Cumulative Trust Preferred Securities
issued by U.S. Home & Garden Trust I
and owned by U.S. Home & Garden Inc.
------------------------------------
as of November 15, 2001
To the Purchasers (the "Purchasers")
named in Exhibit A hereto
Dear Sirs:
The undersigned, Easy Gardener, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the Purchasers for cash (i) $5,993,151
principal amount of its 16% Series A Senior Subordinated Notes due November 19,
2007 (the "Series A Notes"), and (ii) $856,164 principal amount of its 14%
Series B Senior Subordinated Notes due November 19, 2007 (the "Series B Notes";
and, together with the Series A Notes, the "Notes").
The undersigned, U.S. Home & Garden, Inc., a Delaware corporation which
owns all of the outstanding capital stock of the Company ("USHG"), proposes to
issue and sell to the Purchasers for cash (i) warrants (as amended from time to
time, the "Common
Warrants") to purchase shares of Common Stock representing in the aggregate not
less than three and three quarters percent (3.75%) of USHG's Fully-Diluted
Common Stock (as defined in the Common Warrant Agreement referred to below), and
(ii) options (as amended from time to time, the "Preferred Warrants") to
purchase from USHG such number of 9.4% Cumulative Trust Preferred Securities
("Preferred Securities") issued by USHG's subsidiary U.S. Home & Garden Trust I
(the "Trust") as represents in the aggregate not less than three and three
quarters percent (3.75%) of the Trust's Fully-Diluted Preferred Securities (as
defined in the Preferred Warrant Agreement referred to below). The Purchasers
understand that the Preferred Securities are issued by the Trust, but that the
Preferred Warrants herein granted by USHG represent the right to purchase from
USHG (and not from the Trust) Preferred Securities issued by the Trust which are
owned by USHG because USHG purchased such Preferred Securities from certain
holders thereof. The Common Warrants and the Preferred Warrants are herein
collectively referred to as the "Warrants".
The Notes will be issued pursuant to and subject to the terms and
conditions of this Agreement; and the Warrants will be issued pursuant to and
subject to the terms and conditions of this Agreement and the applicable Warrant
Agreement (as defined below).
Upon and after issuance, the Notes and the Warrants, and the respective
holders thereof, shall each be entitled to the continuing agreements and rights
set forth herein, but the Notes and Warrants shall otherwise in all respects be
separable and may be transferred, sold, modified or otherwise held or dealt in
as independent instruments in accordance with the terms thereof.
PREAMBLE
WHEREAS, the Corporations (as defined below) have requested that the
Purchasers purchase the Notes and Warrants in order to provide funds to
refinance the BOA Indebtedness (as defined below) and to pay certain expenses
associated with the Transactions (as defined below); and
WHEREAS, the Purchasers are willing to purchase the Notes and Warrants on
the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in connection with the issuance of the Notes and Warrants,
each of the Company and USHG agrees with each Purchaser, and each Purchaser
severally agrees with the Company and USHG as follows:
SECTION 1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the following
meanings. Any term not defined in this Section 1 shall have the meaning assigned
to it elsewhere herein, or which is specifically incorporated herein by
reference.
"Affiliate" of any Person shall mean any other Person (a) that directly or
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common
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control with such first Person, it being understood that this shall include any
officer or director of a Person which is a corporation, any manager or director
of a limited liability company, and any general partner of a partnership, and
any officer, director or owner of ten percent (10%) or more of any entity which
so serves as such manager or general partner, (b) that directly or beneficially
owns ten percent (10%) or more of any class of the voting stock of such first
Person, or (c) ten percent (10%) or more of whose voting stock (or in the case
of a Person which is not a corporation, ten percent (10%) or more of whose
equity interest) is owned directly or beneficially by such first Person.
"Agent" shall have the meaning given thereto in Exhibit C hereto.
"Agreement" shall mean this Note and Warrant Purchase, Guaranty and
Security Agreement, together with all Exhibits and Schedules hereto, as from
time to time amended, modified or supplemented.
"BOA" shall mean Bank of America.
"BOA Indebtedness" shall mean USHG's Indebtedness to BOA outstanding prior
to the Closing, which is to be paid in full with the proceeds of the issuance
and sale of the Notes and Warrants pursuant hereto, as well as the proceeds of
the Senior Debt to be incurred on the Closing Date pursuant to the Senior Debt
Documents referred to herein.
"Business Day" shall mean a day other than a Saturday, Sunday or other day
on which commercial banks in New York, New York, are required by law to close.
"Capital Expenditures" shall mean expenditures made (including, without
limitation, any capitalized consulting and payroll expenditures) or liabilities
incurred for the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more than one
year, including the total principal portion of Capitalized Lease Obligations.
"Capital Lease" shall mean any lease of any Property (whether real,
personal or mixed) of any Person as lessee which, in conformity with GAAP, is,
or is required to be, accounted for as a capital lease on the balance sheet of
such Person.
"Capital Stock" shall mean any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership or equity interests in a Person other than a
corporation (including partnership interests and limited liability company
interests), and any and all warrants, options, conversion rights or other rights
to obtain any of the foregoing.
"Capitalized Lease Obligation" shall mean any Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
"Change of Control" shall mean any event or series of events which results
in (i) the acquisition of ownership, directly or indirectly, beneficially or of
record, by any Person or
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group (within the meaning of the Securities Exchange Act of 1934, as amended,
and the rules of the Securities and Exchange Commission thereunder as in effect
on the date hereof) of shares representing fifty percent (50%) or more of the
aggregate ordinary voting power represented by the issued and outstanding equity
interests of USHG (other than those owned by Xxxxxx Xxxxxx or Xxxxxxx Xxxxxx, or
by their immediate family members, or by entities 50% or more owned by Xxxxxx
Xxxxxx or Xxxxxxx Xxxxxx), (ii) USHG ceasing to own all of the outstanding
Capital Stock of the Company, (iii) USHG ceasing to own directly or indirectly
all of the issued and outstanding Capital Stock of Xxxxxxxxx Consumer Products
Group, Inc. and Xxxxxxxxx Consumer Products, Inc., or (iv) any event
constituting a "change of control" or similar event which, together with other
events or circumstances, gives Xxxxxx Xxxxxx the right to a severance or similar
payment under the terms of any employment or other arrangement from time to time
in effect between Xxxxxx Xxxxxx and any of the Corporations.
"Closing" shall mean the closing of the issuance and sale of the Notes and
Warrants to the Purchasers pursuant hereto.
"Closing Date" shall mean November 20, 2001, the date of the Closing of the
issuance and sale of the Notes and Warrants to the Purchasers pursuant hereto.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Common Stock" shall mean USHG's Common Stock, $.001 par value.
"Common Warrant Agreement" shall mean the Common Warrant Agreement dated as
of the date hereof among USHG and the Purchasers, as the same may be amended,
modified or supplemented from time to time, relating to the terms of the Common
Warrants.
"Common Warrant Shares" shall mean the shares of Common Stock issuable or
issued upon exercise of the Common Warrants, and shall also include any
securities issued in replacement thereof, as a dividend or distribution thereon,
or any stock, equity interest, securities or assets issued in the case of any
reorganization, reclassification, consolidation, merger or sale of assets of the
character referred to in Section 9(b) of the Common Warrant Agreement.
"Common Warrants" shall mean each warrant issued pursuant to the Common
Warrant Agreement.
"consolidated" or "consolidating" shall, when used with reference to any
financial information pertaining to (or when used as a part of any defined term
or statement pertaining to the financial condition of) USHG and its
subsidiaries, mean the accounts of USHG and its subsidiaries determined on a
consolidated or consolidating basis, as the case may be, all determined as to
principles of consolidation and, except as otherwise specifically required by
the definition of such term or by such statements, as to such accounts, in
accordance with GAAP and consistent with the financial statements for the fiscal
year ended June 30, 2001.
"Consolidated Excess Cash" shall mean, for any period, the sum of (a) the
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Corporations' cash balances available for immediate use by the Company, plus (b)
unused but available credit under the revolving line of credit described in the
Senior Loan Agreement, minus (i) any accrued or incurred but unpaid costs
related to the Transactions, minus (ii) any trade payables or other liabilities
60 days or more past due, and minus (iii) any other cash or cash equivalents the
use of which by such Corporations is restricted by contract, lien, agreement,
escrow arrangements or similar restrictions and minus (iv) all issued and
outstanding checks.
"Corporation" shall mean each of USHG and its Subsidiaries (including the
Company); and "Corporations" shall be a collective reference to USHG and its
Subsidiaries (including the Company).
"Costs and Expenses" shall having the meaning set forth in Section 15.5.
"Default" shall mean any one of the events specified in Section 9 which is
or would become, with the lapse of time specified therein or the giving of any
required notice, or both, an Event of Default.
"Distribution", in respect of any Corporation, shall mean and include: (i)
the payment of any dividends or other distributions on Capital Stock of the
Corporation (except distributions made in additional shares of such stock) and
(ii) the redemption or acquisition of securities of the Corporation (or any
warrant or option for the purchase of any such securities).
"Dollars" and "$" shall mean dollars in lawful currency of the United
States of America.
"EBITDA" shall mean for any period of determination, Net Income for such
period, plus, to the extent deducted in determining Net Income, depreciation,
amortization, interest expense and income taxes for such period, all as
determined in accordance with GAAP.
"Environmental Law" shall mean any federal, state or local statute, law,
rule, regulation, ordinance, code, policy or rule of common law now or hereafter
in effect and in each case as amended, and any judicial or administrative
interpretation thereof, including any judicial or administrative order, consent
decree or judgment, relating to the environment, health, safety or Hazardous
Materials, including without limitation, the Rivers and Harbors Act of 1899, 33
U.S.C.ss.401, et seq., the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended by the Superfund Amendment and
Reauthorization Act of 1986, as amended ("CERCLA") 42 U.S.C.ss.9601 et seq.; the
Hazardous Materials Transportation Act, as amended, 49 U.S.C. ss.1801 et seq.;
the Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act, as amended, 42 U.S.C.ss.6901 et seq.; the Federal Water Pollution
Control Act, as amended, 33 U.S.C.ss.1251 et seq.; the Toxic Substances Control
Act, 15 U.S.C.ss.2601 et seq.; the Clean Air Act, 42 U.S.C.ss.7401 et seq.; the
Clean Water Act, 33 U.S.C.ss.1251, et seq., the Safe Drinking Water Act, 42
U.S.C.ss.3808 et seq.; and their counterparts under state and any local law.
"Environmental Notice" shall mean any summons, citation, directive,
information request, notice of potential responsibility, notice of violation or
deficiency, order,
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claim, complaint, investigation, proceeding, judgment, letters or other
communication, written or oral, actual or threatened, from the United States
Environmental Protection Agency or other Governmental Authority, concerning any
intentional or unintentional act or omission which involves Management of
Hazardous Substances on or off the Property of any Corporation, or concerning
any alleged violation of or responsibility under Environmental Laws, in each
case which reasonably could be expected to result in a material liability to any
of the Corporations or the imposition of a Lien on any Property of any of the
Corporations.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with any Corporation would be treated as a single
employer under the provisions of Title I or Title IV of ERISA.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" shall mean any one or more of the events specified in
Section 9, provided that any requirement set forth in such Section 9 for the
giving of notice or the lapse of time, or both, has been satisfied.
"Financial Statements" shall have the meaning set forth in Section 4.7(a).
"Fully-Diluted Common Stock" shall have the meaning given thereto in the
Common Warrant Agreement.
"Fully-Diluted Preferred Securities" shall have the meaning given thereto
in the Preferred Warrant Agreement.
"Funded Debt" shall mean as of any date of determination, the sum, without
duplication, of (a) all Indebtedness of USHG or any Subsidiary for borrowed
money or for the deferred purchase price of property or services as of such date
(other than trade liabilities incurred in the ordinary course of business and
not yet payable in accordance with their terms) or which is evidenced by a note,
bond, debenture or similar instrument, (b) all obligations of USHG or any
Subsidiary under Capital Leases as of such date, (c) all obligations of USHG or
any Subsidiary in respect of letters of credit, acceptances or similar
obligations issued or created for the account of USHG or any Subsidiary as of
such date, (d) all liabilities secured by any lien on any property owned by USHG
or any Subsidiary as of such date even though USHG or the applicable Subsidiary
has not assumed or otherwise become liable for the payment thereof, and (e) all
contingent obligations (including, without limitation, obligations as a
guarantor or surety) of USHG or any Subsidiary, in each case determined in
accordance with GAAP.
"GAAP" shall mean generally accepted accounting principles, in all cases
consistently applied in conformity with the accounting methods and practices
used in connection with the preparation of USHG's audited Financial Statements
for the twelve months ended June 30, 2001.
"Xxxxx Consulting Agreement" shall have the meaning given thereto in
Section 5.17.
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"Governmental Authority" shall mean any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guaranty" shall mean any guaranty of the obligations of the Company
executed by a Guarantor in favor of the Agent for the ratable benefit of the
Purchasers, whether pursuant to Section 3.4 and Exhibit D hereof or otherwise.
"Guarantors" shall be a collective reference to USHG and its Subsidiaries
(other than the Company), each of which shall agree to and be bound by the terms
and provisions of Section 3.4 and Exhibit D hereof.
"Hazardous Materials" means (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain
dielectric fluid containing levels of polychlorinated biphenyls, and radon gas;
(b) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," "contaminants" or "pollutants," or words of similar import,
under any applicable Environmental Law; and (c) any other chemical, material or
substance exposure to which is prohibited, limited or regulated by any
Governmental Authority.
"Indebtedness" shall mean, as of any applicable date of determination, all
items of indebtedness, obligation or liability of USHG and its consolidated
Subsidiaries, whether matured or unmatured, liquidated or unliquidated, direct
or indirect, absolute or contingent (including, without limitation, obligations
and liabilities as a guarantor or surety and obligations with respect to letters
of credit), joint or several, that should be classified as liabilities in
accordance with GAAP.
"Investors" shall have the meaning given thereto in section 12.2.
"Junior Subordinated Debentures" shall mean the 9.40% Junior Subordinated
Deferrable Interest Debentures issued by USHG pursuant to the Junior
Subordinated Indenture.
"Junior Subordinated Indenture" shall mean the Junior Subordinated
Indenture dated as of April 17, 1998 between USHG and Wilmington Trust Company,
as trustee, pursuant to which the Junior Subordinated Debentures were issued.
"Lien" shall mean any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property, whether such
interest is based on common law, statute or contract. The term "Lien" shall also
include reservations, exceptions, encroachments, agreements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting Property. For the purpose of this Agreement, a Person
shall be deemed to be the owner of any Property which it has acquired or holds
subject to a conditional sale agreement or other arrangement pursuant to which
title to the Property has been retained by or vested in some other Person for
security purposes.
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"Manage" or "Management" shall mean to generate, handle, manufacture,
process, treat, store, use, re-use, refine, recycle, reclaim, blend or burn for
energy recovery, incinerate, accumulate speculatively, transport, transfer,
dispose of, release, threaten to release or abandon Hazardous Materials.
"Material Adverse Effect" shall mean the effect of any event or condition
which, alone or when taken together with other events or conditions previously
occurring, or existing concurrently therewith (a) has or is reasonably expected
to have a material adverse effect upon the business, operations, performance,
Property, assets, prospects or condition (financial or otherwise) of the
Corporations taken as a whole, whether immediately or over the term of the
Notes, (b) has or may be reasonably expected to have a material adverse effect
upon the validity or enforceability of any of the Purchaser Documents, (c)
impairs in any material manner the ability of the Corporations taken as a whole
to perform their respective obligations under the Transaction Documents to which
each is a party, or (d) impairs in any material manner the ability of the
Purchasers to enforce a covenant or agreement or collect the obligations of any
of the Corporations under any of the Purchaser Documents.
"Material Corporations" shall mean, collectively, USHG, the Company and
Xxxxxxxxx Consumer Products, Inc.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA.
"Net Income" shall mean the net income (or loss) of USHG and its
Subsidiaries for any period (in each case after excluding extraordinary income
for such period) determined in accordance with GAAP on a consolidated basis.
"Obligations" shall have the meaning given thereto in Exhibit C hereto.
"Notes" shall have the meaning given thereto in the first paragraph of this
Agreement. The Series A Notes shall be in the form of Exhibit B-1 hereto; and
the Series B Notes shall be in the form of Exhibit B-2 hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Pension Plan" shall mean any Plan which is subject to the provisions of
Title IV of ERISA.
"Permitted Lien" shall mean a Lien permitted by Section 7.1.
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, limited liability company,
association, corporation, institution, entity, party, or government (whether
national, federal, state, county, city, municipal or otherwise, including
without limitation any instrumentality, division, agency, body or department
thereof).
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"Plan" shall mean any employee benefit plan within the meaning of Section
3(3) of ERISA and which is maintained (in whole or in part) for employees of any
Corporation or any ERISA Affiliate.
"Preferred Securities" shall have the meaning given thereto in the second
paragraph of this Agreement.
"Preferred Warrant Agreement" shall mean the Option Agreement dated as of
the date hereof among USHG and the Purchasers, as the same may be amended,
modified or supplemented from time to time, relating to the terms of the
Preferred Warrants.
"Preferred Warrant Securities" shall mean Preferred Securities of the Trust
purchasable or purchased from USHG upon exercise of the Preferred Warrants, and
shall also include any securities issued in replacement thereof, as a dividend
or distribution thereon.
"Projections" shall have the meaning given thereto in Section 4.7(b).
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Purchase Money Indebtedness" shall mean and include (i) Indebtedness
(other than the Senior Debt) for the payment of all or any part of the purchase
price of any fixed assets, (ii) any Indebtedness (other than the Senior Debt)
incurred at the time of or within ten (10) days prior to or after the
acquisition of any fixed assets for the purpose of financing all or any part of
the purchase price thereof, and (iii) any renewals, extensions or refinancings
thereof, but not any increases in the principal amounts thereof outstanding at
the time; provided, however, that in each such case the principal amount of such
Indebtedness is not in excess of the purchase price of the fixed assets acquired
(plus soft costs related to the acquisition of such fixed assets), and is
secured solely, if at all, by a Purchase Money Lien.
"Purchase Money Lien" shall mean a Lien upon fixed assets which secures
Purchase Money Indebtedness, but only if such Lien shall at all times be
confined solely to the fixed assets the purchase price of which was financed
through the incurrence of the Purchase Money Indebtedness secured by such Lien.
"Purchaser Documents" shall mean, collectively, this Agreement, the Notes,
the Warrant Agreements, the Warrants, the Security Documents, the Guaranties,
the Stockholders Agreement, the Xxxxx Consulting Agreement, the noncompetition
and nonsolicitation agreements referred to in Section 5.16 and any other
agreement, document or certificate relating to any thereof, including amendments
thereto, and any other document entered into between the Purchasers and any of
the Corporations.
"Purchaser Transactions" shall mean all transactions contemplated by the
Purchaser Documents.
"Purchaser" shall mean any holder from time to time of any of the Notes,
Warrants or Warrant Securities.
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"Refinancing Documents" shall mean any and all documents relating to the
pay-off of the BOA Indebtedness and the release of all liens securing such
Indebtedness.
"Release" shall mean any actual or threatened spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping
or disposing of Hazardous Materials into the environment, as "environment" is
defined in CERCLA.
"Reportable Event" shall mean a Reportable Event as defined in Section
4043(b) of ERISA as to which the PBGC has not by regulation waived the
requirement that it be notified within 30 days of the occurrence of such an
event.
"Required EBITDA" shall mean, for purposes of Sections 7.18(b) and 7.18(c)
hereof, the amount set forth below opposite the month in which such
determination is made, in each case for the applicable Determination Period, for
which purpose "Determination Period" shall mean the period of 12 consecutive
months ended on the last day of the second month ended prior to the date of
determination (by way of illustration, for a determination made during the month
of March 2002, the Determination Period will be the 12-month period ended on
January 31, 2002):
Month of Determination Required EBITDA
---------------------- ---------------
December 2001 $5,396,000
January 2002 $5,944,000
February 2002 $6,438,000
March 2002 $6,402,000
April 2002 $7,265,000
May 2002 $8,884,000
June 2002 $9,383,000
July 2002 $9,537,000
August 2002 $10,507,000
September 2002 $10,540,000
October 2002 $10,511,000
November 2002 $10,477,000
December 2002 $10,440,000
January 2003 $10,398,000
February 2003 $10,442,000
March 2003 $10,470,000
April 2003 $10,683,000
May 2003 $10,937,000
June 2003 $11,188,000
July 2003 $11,380,000
August 2003 $11,511,000
September 2003 $11,547,000
October 2003 $11,515,000
November 2003 $11,479,000
December 2003 $11,438,000
January 2004 $11,392,000
February 2004 $11,440,000
March 2004 $11,471,000
April 2004 $11,703,000
May 2004 $11,978,000
June 2004 $12,252,000
July 2004 $12,460,000
August 2004 $12,603,000
September 2004 $12,642,000
October 2004 $12,608,000
November 2004 $12,568,000
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"Respond" or "Response" shall mean any action taken pursuant to
Environmental Laws to correct, remove, remediate, clean up, prevent, mitigate,
monitor, evaluate, investigate or assess the Release of a Hazardous Material.
"Rights" shall mean all warrants, options, conversion rights or other
rights exercisable or exchangeable for or convertible into Capital Stock.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Security Agreement" shall mean any security interest granted from time to
time by a Corporation in favor of the Agent for the ratable benefit of the
Purchasers to secure the payment and performance of the Obligations, whether
pursuant to Section 3.3 and Exhibit C hereof or otherwise.
"Security Documents" shall mean the Security Agreement and all stock pledge
and other documents securing the Obligations.
"Senior Debt" shall mean the "Senior Obligations" as defined in the Senior
Subordination Agreement.
"Senior Debt Documents" shall mean (i) the Senior Loan Agreement, the
promissory notes delivered thereunder and the other documents delivered pursuant
thereto or in connection therewith, or (ii) any replacement senior debt
documents relating to any refinancing permitted pursuant to Section 7.15.
"Senior Lender" shall mean each of (i) PNC Bank, National Association and
any other "Lenders" as defined in the Senior Loan Agreement, and/or (ii) any
replacement senior lender(s) in any refinancing permitted pursuant to Section
7.15.
"Senior Loan Agreement" shall mean the Revolving Credit, Term Loan,
Guaranty and Security Agreement dated as of the date hereof among the Company,
as borrower, the other Corporations, as Guarantors, and the Senior Lender, as
the same may be amended from time to time in accordance with the provisions
hereof, or any replacement senior loan agreement in any refinancing permitted
pursuant to Section 7.15.
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"Senior Subordination Agreement" shall mean the Subordination Agreement
dated as of the date hereof among the Purchasers, the Company, and the Senior
Lender, or any such agreement with a Senior Lender in any refinancing permitted
pursuant to Section 7.15.
"Stockholders Agreement" shall mean the Stockholders Agreement dated as of
the date hereof, among USHG, Xxxxxx Xxxxxx, Xxxxxxx Xxxxxxx, Xxxxxxx Xxxxxx and
the Purchasers, as the same may be amended, modified or supplemented from time
to time.
"Subsidiary" shall mean, with respect to any Person: either (i)(a) any
corporation of which more than fifty percent (50%) of the outstanding Capital
Stock having ordinary voting power to elect a majority of the board of directors
of such corporation (irrespective of whether at the time stock of any other
class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time directly or
indirectly owned by such Person or (b) any corporation the Capital Stock of
which having more than fifty percent (50%) of the aggregate fair market value of
all of such corporation's outstanding Capital Stock is at the time directly or
indirectly owned by such Person; or (ii) any partnership, limited liability
company or joint venture or other entity of which more than fifty percent (50%)
of the outstanding equity interests are at the time directly or indirectly owned
by such Person. For purposes of this Agreement, references to "Subsidiary" or
"Subsidiaries" of USHG shall specifically include (i) each of the Company, Ampro
Industries, Inc., Golden West Agri-Products, Inc., Weed Wizard, Inc., Xxxxxxxxx
Consumer Products Group, Inc. and Xxxxxxxxx Consumer Products, Inc., and (ii)
any other direct or indirect Subsidiary of USHG created after the Closing Date
in accordance with Section 7.5 hereof. Unless specifically herein provided to
the contrary, references herein to Subsidiaries of USHG shall be deemed not to
include the Trust or Egarden Inc.
"Transaction Documents" shall mean, collectively, the Purchaser Documents,
the Senior Debt Documents, the Refinancing Documents and all other agreements,
instruments and documents executed and/or delivered in connection therewith, as
each of the same has been or may hereafter be amended, modified or supplemented
from time to time with the consent of the Purchasers.
"Transactions" shall mean all transactions contemplated by the Transaction
Documents.
"Warrant Agreements" shall be a collective reference to the Common Warrant
Agreement and the Preferred Warrant Agreement.
"Warrant Securities" shall be a collective reference to the Common Warrant
Shares and/or the Preferred Warrant Securities.
(b) As used herein, in the other Purchaser Documents, and in any
certificate, report or other document made or delivered pursuant hereto or
thereto, unless otherwise defined herein accounting terms shall have the
respective meanings given to them under GAAP.
(c) The words "hereof," "herein," "hereunder" and "hereto" 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,
Schedule and Exhibit references contained
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in this Agreement are references to sections, Schedules and Exhibits in or to
this Agreement, unless otherwise specified.
(d) The meanings given to the terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(e) References herein to the Purchasers' "approval," "discretion" or
"judgment" shall mean the Purchasers' sole and absolute discretion or judgment,
exercisable without reference to any external standard, or approval by the
Purchasers in such sole and absolute discretion or judgment.
SECTION 2. PURCHASE AND SALE OF NOTES AND WARRANTS.
2.1 Notes. The Company agrees to sell to each Purchaser, and each Purchaser
severally agrees to purchase from the Company, on the Closing Date, Notes of the
Series and in the principal amount set forth opposite such Purchaser's name on
Exhibit A hereto. Each Note shall (i) be dated the Closing Date, (ii) be
substantially in the form of Exhibit B-1 hereto (in the case of the Series A
Notes) or Exhibit B-2 hereto (in the case of the Series B Notes), with the
blanks appropriately filled in conformity herewith, (iii) bear interest as
provided in Sections 3.1(c) and (d), and (iv) mature on November 19, 2007. The
Series A Notes shall be issued at a price equal to 90% of the principal amount
thereof, and the Series B Notes shall be issued at par.
2.2 Common Warrants. USHG agrees to sell to each Purchaser, on the Closing
Date, Common Warrants to purchase the percentage of USHG's Fully-Diluted Common
Stock set forth opposite such Purchaser's name on Exhibit A hereto. The Common
Warrants issued pursuant hereto shall be exercisable for an aggregate of not
less than three and three quarters percent (3.75%) of USHG's Fully-Diluted
Common Stock. The Common Warrants shall be issued pursuant to this Agreement and
the Common Warrant Agreement. Each Common Warrant shall be substantially in the
form of Exhibit A to the Common Warrant Agreement, with the blanks appropriately
filled in conformity herewith, and shall be dated the Closing Date.
2.3 Preferred Warrants. USHG agrees to sell to each Purchaser, on the
Closing Date, Preferred Warrants to purchase the percentage of the Trust's
Fully-Diluted Preferred Securities set forth opposite such Purchaser's name on
Exhibit A hereto. The Preferred Warrants issued pursuant hereto shall be
exercisable for an aggregate of not less than three and three quarters percent
(3.75%) of the Trust's Fully-Diluted Preferred Securities. The Preferred
Warrants shall be issued pursuant to this Agreement and the Preferred Warrant
Agreement. Each Preferred Warrant shall be substantially in the form of Exhibit
A to the Preferred Warrant Agreement, with the blanks appropriately filled in
conformity herewith, and shall be dated the Closing Date.
2.4 Payment of Purchase Price. The purchase price for the Notes and
Warrants shall be payable on the Closing Date in cash by wire transfer of
immediately available funds pursuant to the Company's written instructions.
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2.5 Tax Reporting. The Company and USHG, on the one hand, and the
Purchasers, on the other hand, having adverse interests and as a result of
arms-length bargaining, agree that (i) the Warrants are not being issued as
compensation; and (ii) for the purposes and within the meaning of Section
1273(c)(2) of the Code the issue price of the Notes is $6,250,000 and the issue
price of the Warrants is $75. The Company, USHG and the Purchasers acknowledge
that this allocation is based on the relative fair market values of the Notes
and Warrants. The Company, USHG and the Purchasers recognize that this Agreement
determines the original issue discount on the Notes to be taken into account by
the Company and the Purchasers for federal income tax purposes, and they agree
to adhere to this Agreement for such purposes. For federal, state and local tax
purposes, the Company, USHG and the Purchasers agree to take reporting and other
positions with respect to the Notes and Warrants which are consistent with the
purchase price of the Notes and Warrants set forth herein.
2.6 Fees and Expenses. On the Closing Date, the Company agrees to pay (i)
$93,152 to Xxxxx Associates, LLC or its designee, representing the balance due
in respect of a fee of $136,968 payable to the Purchasers or their designee
pursuant to the Commitment Letter referred to in Section 15.5 hereof, (ii) Costs
and Expenses of the Purchasers, as set forth in Section 15.5, (iii) the finder's
fee payable to Larkspur Capital Corporation, as set forth in the Commitment
Letter referred to in Section 15.5 hereof, and (iv) any stand-by fee payable
pursuant to Section 3 of the "Other Provisions" Section of the Summary Term
Sheet attached to the Commitment Letter referred to in Section 15.5 hereof.
2.7 Manner of Payment. All payments and prepayments of principal of,
premium, if any, and interest on the Notes, and any other fees or payments due
hereunder, shall be made without setoff or counterclaim to the applicable
Purchasers by wire transfer or other transfer or delivery of funds, in
accordance with each Purchaser's instructions from time to time, so that such
funds are received by and available to the Purchasers on or before the due date
of each such payment. Any principal, premium, interest or other amount payable
hereunder that becomes due on a day that is not a Business Day shall be payable
on the next succeeding Business Day (together with interest accrued thereon
during such additional days).
SECTION 3. TERMS OF THE NOTES; USE OF PROCEEDS; REGISTRATION RIGHTS.
3.1 Terms of the Notes.
(a) Optional Prepayments. (i) Series A Notes. The Company shall have the
right at any time and from time to time, upon at least five (5) Business Days'
prior written notice to the holders of the Series A Notes, to prepay the Series
A Notes in whole or in part, in an amount specified in such notice, by payment
of the principal amount of the Series A Notes (or portion thereof) to be
prepaid, together with accrued interest thereon to the date of such prepayment,
plus (i) any amounts payable pursuant to Section 3.1(h), and (ii) a premium
equal to the applicable percentage of the principal amount to be prepaid,
determined as follows:
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If Prepaid During 12 Month Period Ending On: Applicable Percentage
-------------------------------------------- ---------------------
the first anniversary of the Closing Date 4.5%
the second anniversary of the Closing Date 3.6%
the third anniversary of the Closing Date 2.7%
the fourth anniversary of the Closing Date 1.8%
the fifth anniversary of the Closing Date 0.9%
Thereafter 0%
(ii) Series B Notes. The Company shall have the right at any time and from
time to time, upon at least five (5) Business Days' prior written notice to the
holders of the Series B Notes, to prepay the Series B Notes in whole or in part,
in an amount specified in such notice, by payment of the principal amount of the
Series B Notes (or portion thereof) to be prepaid, together with accrued
interest thereon to the date of such prepayment, plus (i) any amounts payable
pursuant to Section 3.1(h), and (ii) a premium equal to the applicable
percentage of the principal amount to be prepaid, determined as follows:
If Prepaid During 12 Month Period Ending On: Applicable Percentage
-------------------------------------------- ---------------------
the first anniversary of the Closing Date 5%
the second anniversary of the Closing Date 4%
the third anniversary of the Closing Date 3%
the fourth anniversary of the Closing Date 2%
the fifth anniversary of the Closing Date 1%
Thereafter 0%
(iii) Series A and Series B Notes. Any optional partial prepayment of the
Notes shall be in the aggregate principal amount of not less than $500,000, or
any greater amount which is a multiple of $100,000.
(b) Mandatory Prepayments.
(i) If there shall occur a Change of Control (other than one to which
subsection (ii) applies), then, upon request of a majority in interest of
the Purchasers, the Company shall prepay the Notes in full upon the
occurrence of such Change of Control, together with accrued interest
thereon to the date of such prepayment and the applicable premium set forth
above in Section 3.1(a).
(ii) If there shall occur a merger, consolidation of a Material
Corporation, or a sale of 25% or more of the assets of a Material
Corporation, or other transaction which effectively accomplishes such a
sale, then, upon request of a majority in interest of the Purchasers, the
Company shall prepay the Notes in full on the closing date of such
transaction, together with accrued interest thereon to the date of such
prepayment and the applicable premium set forth above in Section 3.1(a).
15
(c) Interest. (i) Subject to Section 3.1(d) below, interest on the Series A
Notes shall accrue monthly at the rate of 16% per annum, and interest on the
Series B Notes shall accrue monthly at the rate of 14% per annum. The Company
shall pay accrued interest monthly on the first day of each month or, if any
such date shall not be a Business Day, on the next succeeding Business Day to
occur after such date (each date upon which interest shall be so payable, an
"Interest Payment Date"), beginning on December 1, 2001. Interest on the Notes
shall accrue monthly from the date of issuance thereof until repayment of the
principal thereof and payment of all accrued interest thereon in full. Interest
shall be computed on the basis of a 360-day year of twelve 30-day months.
(d) Default Rate of Interest. If any principal of or interest on the Notes
is not paid when due or there exists any other Default or Event of Default, the
Notes shall bear interest thereafter at the rate of, at a rate of 4% per annum
in excess of the rate otherwise applicable, accruing monthly, until the date on
which such overdue principal or interest is paid in full or the date on which
such other Default or Event of Default is cured, as applicable.
(e) Maximum Legal Rate of Interest. Nothing in this Agreement or in the
Notes shall require the Company to pay interest at a rate in excess of the
maximum rate permitted by applicable law and the interest rate otherwise
applicable to the Notes (including any default rate of interest) shall be
reduced, if necessary, to conform to such maximum rate.
(f) Application of Payments. All cash payments received in respect of the
Notes, regardless of how designated, shall be applied (to the extent thereof) as
follows: (i) first, to all costs and expenses of the Purchasers that are payable
by any of the Corporations under the Purchaser Documents, (ii) second, to
accrued and unpaid interest on the Series B Notes, (iii) third, to accrued and
unpaid interest on the Series A Notes, (iv) fourth, to the prepayment or payment
of the Series B Notes, with amounts being applied, first, to any premium payable
in connection with any such prepayment, and, next, to the principal of such
Notes, and (v) fifth, to the prepayment or payment of the Series A Notes, with
amounts being applied, first, to any premium payable in connection with any such
prepayment, and, next, to the principal of such Notes. Unless otherwise agreed
among the holders of the Notes, and evidenced in writing to the Company prior to
the payment date, all payments applied pursuant to this Section 3.1(f) in
respect of a Series of Notes shall be applied among the Notes of such Series pro
rata based on the principal amount of the Notes of such Series outstanding and
held by each holder thereof.
(g) Agreements Between Note Holders and Subordination Agreements. The
Company agrees to acknowledge and abide by the terms and conditions of any
allocation, participation, sharing or subordination agreements now or hereafter
entered into between and among the holders of the Notes, or between the holders
of the Notes and any other creditor of the Company, and shall join in any such
agreements at the request of the holders of the Notes, provided that such
agreements do not impair in any material respect any of the rights of the
Company under the Transaction Documents then in effect.
(h) Indemnity for Interrupted Funding. If the Company shall voluntarily
prepay the Notes pursuant to Section 3.1(a), the Company shall reimburse each
Purchaser for out-of-pocket expenses incurred by each Purchaser as a result of
such prepayment (including, without
16
limitation, reasonable legal and accounting expenses, if any). Such expenses
(which the Purchasers shall endeavor to minimize) shall be specified in a
written notice or certificate delivered to the Company by the Purchasers and
shall in any event not exceed $10,000 in the aggregate for all the Purchasers on
account of each event of prepayment.
3.2 Use of Proceeds. The Company and USHG will use the proceeds of the sale
of the Notes and Warrants solely in accordance with the statement of sources and
uses provided to the Purchasers pursuant to Section 5.12 hereof.
3.3 Grant of Security Interest. To secure the prompt payment and
performance to the Agent and each Purchaser of the Obligations, each Corporation
assigns, pledges and grants to the Agent for the ratable benefit of each
Purchaser a continuing security interest in and to all of its Collateral (as
defined in Exhibit C), whether now owned or existing or hereafter acquired or
arising and wheresoever located, all in accordance with the terms and provisions
of Exhibit C hereto, the terms of which are hereby incorporated by reference as
if set forth in full in this Section 3.3.
3.4 Guaranty. Each Guarantor guaranties the payment and performance of the
Liabilities, all in accordance with the terms and provisions of Exhibit D
hereto, the terms of which are hereby incorporated by reference as if set forth
in full in this Section 3.4.
3.5 Registration Rights. The Purchasers and USHG shall have the rights and
obligations set forth in Exhibit E-1 and Exhibit E-2 hereto with respect to
registrations of USHG's and the Trust's securities under the Securities Act.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
In order to induce the Purchasers to enter into this Agreement and to
purchase the Notes and Warrants, each of the Company and USHG hereby represents
and warrants to the Purchasers that the representations and warranties set forth
below are true and correct as of the date hereof and shall be true and correct
on the Closing Date after giving effect to the Transactions, including the
issuance and sale of the Notes and Warrants, and that, to the best knowledge of
the Company and USHG, there is no event which is scheduled to occur, or
reasonably foreseeable and likely to occur, which will render any representation
or warranty below to be untrue at any time after the Closing Date.
17
4.1 Corporate Existence; Capitalization.
(a) Each of the Corporations (i) is duly incorporated and in good standing
under the laws of its jurisdiction of incorporation, and (ii) is duly qualified
and in good standing as a foreign corporation under the laws of all states where
the nature and extent of the business to be transacted by it or assets to be
owned by it makes such qualification necessary, except those states in which the
failure to qualify or be in good standing is not reasonably likely to have a
Material Adverse Effect. The state of incorporation of each Corporation, and all
states in which each Corporation is qualified to do business as a foreign
corporation, are listed on Schedule 4.1(a).
(b) The number of authorized shares of Capital Stock of USHG consists of
75,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock, $.001
par value. On the Closing Date, immediately after giving effect to the
Transactions, 17,543,379 shares of Common Stock will be issued and outstanding
and another 6,595,242 shares of Common Stock will be issuable upon exercise of
all Rights outstanding on the Closing Date (excluding the Common Warrants). In
addition, there are 208,388 shares of Common Stock whose issuance to Xxxxxx
Xxxxxx has been deferred pursuant to the USHG Non-Qualified Deferred
Compensation Plan for Select Employees. No shares of Preferred Stock are now
outstanding or will be outstanding on the Closing Date. All shares of Common
Stock issued and outstanding on the Closing Date after giving effect to the
Transactions will have been duly authorized and validly issued by USHG and will
be fully paid, non-assessable and free of preemptive rights. Except as set forth
on Schedule 4.1(b), on the Closing Date after giving effect to the Transactions,
there will be no outstanding Rights exercisable or exchangeable for or
convertible into Capital Stock of USHG, or agreements or other rights binding
upon USHG to issue or sell Capital Stock of USHG, whether on exercise, exchange
or conversion of Rights or otherwise. To the best of the Company's and USHG's
knowledge after due inquiry, Schedule 4.1(b) correctly sets forth the names of
all record and beneficial owners of 5% or more of the outstanding shares of
Common Stock and the number of shares owned by each. Schedule 4.1(b) also sets
forth (i) the number of shares of Common Stock issuable upon exercise, exchange
or conversion of Rights exercisable or exchangeable for or convertible into
Capital Stock of USHG, (iii) the exercise or conversion price of each such
owner's Rights, and (iii) the expiration date, if any, of each such Rights.
Schedule 4.1(b) hereto also describes any obligations of USHG to purchase or
redeem any of its Capital Stock (including Rights). The names of all record and
beneficial owners of Rights exercisable or exchangeable for or convertible into
Capital Stock of USHG are set forth in a letter delivered by the Company and
USHG to the Purchasers on the Closing Date.
(c) All of the outstanding Capital Stock of each of USHG's Subsidiaries is
owned of record and beneficially by USHG or by another Subsidiary of USHG.
(d) USHG has authorized and reserved and kept available, free from
pre-emptive rights and free of all Liens, restrictions, rights and claims of
others, for the purpose of enabling it to satisfy any obligation to issue shares
of Common Stock upon any exercise of the Common Warrants, the number of shares
of Common Stock issuable upon exercise of all outstanding Common Warrants. Upon
any issuance of Common Warrant Shares to a holder of Common Warrants upon
exercise thereof, such Common Warrant Shares shall be free of all pre-emptive
18
rights, Liens, restrictions, rights and claims of others (except for Liens, if
any, created by the holders thereof).
(e) USHG has kept available, free of all Liens, restrictions, rights and
claims of others, for the purpose of enabling it to satisfy its obligation to
sell Preferred Securities upon any exercise of the Preferred Warrants, the
number of Preferred Securities purchasable upon exercise of all outstanding
Preferred Warrants. Upon any sale of Preferred Securities to a holder of
Preferred Warrants upon exercise thereof, such Preferred Securities shall be
free of all Liens, restrictions, rights and claims of others (except for Liens,
if any, created by the holders thereof).
(f) There are no agreements or other instruments of any kind to which USHG
(or, to the best of the Company's and USHG's knowledge after due inquiry, any
other Person) is, or immediately after the Closing will be, a party which relate
to the voting of the Common Stock or the control of USHG.
4.2 Authority. The Company has all corporate power and authority necessary
to issue and sell the Notes, USHG has all corporate power and authority
necessary to issue and sell the Warrants, and each of the Corporations has all
corporate power and authority necessary to execute, deliver and perform the
Transaction Documents to which it is a party. Each of the Company and USHG has
taken all corporate action required to authorize the issuance and sale of the
Notes or the Warrants, as applicable, and each of the Corporations has taken all
corporate action required to authorize the execution, delivery and performance
of the Transaction Documents to which it is a party.
4.3 Due Execution and Delivery; Binding Effect. Each of the Corporations
has duly executed and delivered each of the Transaction Documents to which it is
a party. Each of the Transaction Documents is a legal, valid and binding
obligation of each Corporation party thereto, enforceable against such
Corporation in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, fraudulent transfer or similar laws affecting creditors' rights
generally and subject to general principles of equity, regardless of whether
considered in a proceeding at law or in equity.
4.4 Consents; Governmental Approvals. No consent or approval of any Person,
and no consent, license, approval or authorization of, or registration, filing
or declaration with, any Governmental Authority is required to be obtained or
made by or on behalf of any Corporation in connection with the issuance or sale
of the Notes or the Warrants or the execution, delivery or performance of the
Transaction Documents or the completion of the transactions contemplated
thereby, except for the consents, approvals, licenses, authorizations,
registrations, filings or declarations listed on Schedule 4.4 hereto, each of
which shall have been obtained or made prior to the Closing.
4.5 Absence of Conflicts. The issuance and sale of the Notes by the Company
and the Warrants by USHG, and the execution and delivery by each Corporation of
the Transaction Documents to which it is a party and performance of its
obligations thereunder do
19
not and will not (a) conflict with or violate any provision of its certificate
or articles of incorporation, as amended, or by-laws, as amended, (b) conflict
with or result in a violation, breach or default by it under (i) any provision
of any existing statute, law, rule or regulation binding on it or any order,
judgment, award, decree, license or authorization of any court or Governmental
Authority binding on it, or (ii) any mortgage, indenture, lease or other
contract, agreement, instrument or undertaking to which it is a party or will be
a party immediately after the Closing, or by which or to which it or any of its
Property or assets is now or immediately after the Closing will be bound or
subject, except in the case of the foregoing clauses (i) and (ii), conflicts
which would not result in a Material Adverse Effect, or (c) result in the
creation or imposition of any Lien, except for Permitted Liens.
4.6 No Default. No Default or Event of Default has occurred and is
continuing or will have occurred and be continuing at the time of or immediately
after the Closing
4.7 Financial Data. (a) USHG and the Company have furnished to the
Purchasers (i) audited consolidated and consolidating financial statements of
USHG and its consolidated Subsidiaries for the fiscal years ended June 30, 1999
through June 30, 2001, certified by USHG's independent certified public
accountants, and (ii) unaudited interim financial statements of USHG and its
consolidated Subsidiaries for the period beginning July 1, 2001 and ending on
October 31, 2001 (collectively referred to as the "Financial Statements"). All
of the Financial Statements have been prepared in accordance with GAAP, and
fairly present the financial condition of USHG and its consolidated Subsidiaries
at the dates thereof and the results of operations for the periods indicated.
Since June 30, 2001, there has been no event or condition which would constitute
a Material Adverse Effect.
(b) The Company and USHG have furnished to the Purchasers the following,
copies of which are attached hereto as Schedule 4.7(b) (collectively, the
"Projections"): (i) consolidated and consolidating projected financial
statements for USHG and its consolidated Subsidiaries for the fiscal year ending
on June 30, 2002, presented on a monthly basis, (ii) consolidated projected
financial statements for USHG and its consolidated Subsidiaries for the
following four fiscal years, presented on an annual basis, including projected
balance sheets, projected funds flow statements and projected profit and loss
statements, and (iii) a calculation of Consolidated Excess Cash for each month
during the first twelve months after Closing, including a description of the
elements thereof. The Projections have been prepared to reasonably reflect the
application of GAAP to such periods, as determined in good faith by USHG and the
Company and their financial personnel in light of the past business of USHG and
its consolidated Subsidiaries, and represent the good faith belief of each of
the Company and USHG as to the anticipated course of the business of USHG and
its consolidated Subsidiaries; and neither the Company nor USHG is aware of any
adverse development which has occurred since the date of the preparation of the
Projections that would materially affect the Projections. Neither the Company
nor USHG has any knowledge or reason to believe that the future financial
results of USHG and its consolidated Subsidiaries will not be at least as
favorable as reflected in the Projections; however, the Projections are not a
guaranty of future performance.
(c) The Company and USHG have furnished to the Purchasers a consolidated
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and consolidating pro forma balance sheet (the "Pro Forma Balance Sheet")
reflecting the financial condition of USHG and its consolidated Subsidiaries as
at the Closing Date or a recent date prior to the Closing Date, on the
assumption that the closing of the Transactions (including the issuance and sale
of the Notes and Warrants) occurred on such date. Such balance sheet, a copy of
which is attached hereto as Schedule 4.7(c), was prepared in good faith and in
accordance with GAAP, and fairly presents, on a pro forma basis, the financial
position of USHG and its consolidated Subsidiaries as at the date thereof,
assuming that the Transactions (including the issuance and sale of the Notes and
Warrants) had then been completed. Except as disclosed on Schedule 4.7(c),
immediately after the Closing and after giving effect to the Transactions, none
of the Corporations will have any Indebtedness or other material liabilities,
contingent or otherwise, which are not reflected in the Pro Forma Balance Sheet
or the Financial Statements. In addition:
(i) As of the Closing Date, all notes payable to each Corporation and
accounts receivable of each Corporation are properly reflected on its books
and records and are valid receivables subject to no setoffs or
counterclaims other than in the ordinary course of business consistent with
prior fiscal years, and such notes due and accounts receivable are not due
from any related party or Affiliate of any kind (other than Xxxxxx Xxxxxx'x
promissory note (the "Kassel Note") in favor of the Company described in
Schedule 4.25(d) hereto);
(ii) the accounts receivable reflected on the balance sheets included
in the Financial Statements and on the Pro Forma Balance Sheet, or
thereafter acquired by any Corporation through the Closing Date, have been
collected, or are collectible, at the aggregate gross recorded amounts
thereof less the allowances for doubtful accounts reflected therein (it
being acknowledged, that discounts, rebates and other adjustments offered
to customers in the ordinary course of business and consistent with past
practice ("Sales Allowances") may on occasion be offset against accounts
receivable by customers, however all such Sales Allowances are properly
accrued for in the Financial Statements and the Pro Forma Balance Sheet)
and such accounts receivable are not due from any related party or
Affiliate of any kind (other than the Kassel Note); none of the
Corporations has employed any invoice dating procedures or other special
credit or delivery terms with any customer; and each of the Corporations
has administered its accounts receivable in the ordinary course in
accordance with past practice;
(iii) the inventories reflected on the balance sheets included in the
Financial Statements and on the Pro Forma Balance Sheet, or thereafter
acquired by any Corporation through the Closing Date, are in all material
respects of a quality and quantity usable or saleable in the normal course
of the business of such Corporation at values at least equal to the values
at which such items are carried on such Corporation's books subject to any
reserves disclosed in such balance sheet, and have not been acquired from
any related party or Affiliate of any kind. The values at which such
inventories are carried on the Financial Statements reflect the normal
inventory valuation policy of such Corporation, stating inventories at the
lower of cost (on a first-in-first-out basis) or market; and, to the best
knowledge of the Company and USHG, such inventories are saleable at gross
margins consistent with historical results;
21
(iv) none of the Corporations has delayed or postponed the payment of
accounts payable and other liabilities except as set forth on Schedule
4.7(c)(iv) hereto, and in any event any such delay or postponement does not
now create, and is not reasonably likely to create, any penalty, cost,
reversal of pricing discounts, loss of beneficial supply or similar rights,
or any default with any other party which is not already reflected or
contemplated in the Financial Statements, the Pro Forma Balance Sheet and
the Projections, other than reasonable and customary late payment charges
or which are otherwise set forth on Schedule 4.7 (c)(iv) hereto; and
(v) each Corporation's working capital is at a level consistent with
such Corporation's customary practices except as set forth on Schedule
4.7(c)(iv) hereto, and there are no material past due liabilities or
obligations of such Corporation, other than those referred to in clause
(iv) above.
(d) The Company and USHG have furnished to the Purchasers a correct and
complete calculation of Consolidated Excess Cash as of the Closing Date,
including a description of the elements thereof, a copy of which is attached
hereto as Schedule 4.7(d).
4.8 Title to Property and Assets; Condition. Except as set forth on
Schedule 4.8, each Corporation has, and on the Closing Date will have, good
title to all Property owned by it, including all Property reflected in the Pro
Forma Balance Sheet, except as disposed of after the date thereof in the
ordinary course of business, and no such Property is subject to any Lien other
than Permitted Liens described on Schedule 4.8 hereto. Except for Permitted
Liens, there are not now and there will not be after the Closing any
encumbrances on the use, ownership or sale of such Property, and all such
Property is, and after the Closing will be, sufficient and maintained in
appropriate condition to conduct business and operations in a manner consistent
with such Corporation's past practice and with achieving the Projections.
4.9 Solvency. Immediately after giving effect to the Transactions, the
Corporations, taken as a whole, will be "solvent," that is, the Corporations,
taken as a whole, will be able to pay their debts as they become due and will
have capital sufficient to carry on their businesses, and will own Property
having a value both at fair valuation and at present fair saleable value greater
than the amount required to pay their Indebtedness as it becomes due. None of
the Corporations has incurred obligations or made any transfer with actual
intent to hinder, delay or defraud present or future creditors (or as a result
of the Transactions will incur any such obligation or make any such transfer).
4.10 Taxes. Except as set forth on Schedule 4.10, each of USHG and (to the
extent required) its Subsidiaries has timely filed or caused to be timely filed
with the appropriate taxing authority all federal and state income tax returns
and all other material tax returns, domestic and foreign (the "Returns")
required to be filed by it or with respect to the income, properties or
operations of USHG and/or any of its Subsidiaries. Except as set forth on
Schedule 4.10, the Returns accurately reflect in all material respects all
liability for taxes of USHG and its Subsidiaries taken as a whole for the
periods covered thereby. Except as set forth on Schedule 4.10, each of USHG and
its Subsidiaries has paid all taxes and assessments
22
payable by it which have become due (including, without limitation, all
estimated tax payments and all employment taxes). As of the Closing Date and
except as set forth on Schedule 4.10, there is no action, suit, proceeding,
investigation, audit or claim now pending or threatened by any authority
regarding any taxes relating to USHG or any of its Subsidiaries, which, either
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect or to result in a material liability to USHG or any of
its Subsidiaries. As of the Closing Date and except as set forth on Schedule
4.10, neither USHG nor any of its Subsidiaries has entered into an agreement or
waiver or been requested to enter into an agreement or waiver extending any
statute of limitations relating to the payment or collection of taxes of USHG or
any of its Subsidiaries, nor will any of them incur any tax liability in
connection with the Transactions (it being understood that the representation
contained in this sentence does not cover any future tax liabilities of USHG or
any of its Subsidiaries arising as a result of the operation of their businesses
in the ordinary course of business). Each of the Company and USHG believes that
the amount of the net operating loss carryovers to be reflected in the
consolidated federal income tax return of USHG and its consolidated Subsidiaries
for the tax year ended December 31, 2001 will be at least $6,000,000, all which
will be fully utilizable against any consolidated net taxable income of the
Corporations.
4.11 Margin Securities. None of the Corporations owns any margin securities
(other than treasury stock and Preferred Securities), and no portion of the
proceeds of the sale of the Notes and Warrants will be used for the purpose of
purchasing or carrying any margin securities or for the purpose of reducing or
retiring any Indebtedness which was originally incurred to purchase any margin
securities or for any other purpose not permitted by Regulation U of the Board
of Governors of the Federal Reserve System.
4.12 Subsidiaries; Joint Ventures. On the Closing Date after giving effect
to the Transactions, none of the Corporations will (a) have any Subsidiaries
other than as set forth on Schedule 4.12, or (b) be engaged in any joint venture
or partnership with, or have any equity investment in, any other Person (other
than USHG's, the Company's and Xxxxxxxxx Consumer Products Group, Inc.'s equity
investments in their respective direct Subsidiaries, as set forth on Schedule
4.12).
4.13 Litigation and Proceedings. Except as disclosed on Schedule 4.13, no
judgments involving amounts in excess of $50,000 in the aggregate or injunctions
are outstanding against any of the Corporations, nor is there now pending or
threatened, any litigation, contested claim, or proceeding by or against any of
the Corporations (a) requesting injunctive relief by or against such
Corporation, (b) involving an amount in controversy in excess of $50,000 which
is not covered by insurance, or (c) questioning the validity or the
enforceability of, or otherwise seeking to restrain the performance of, any of
the Transaction Documents or any actions taken or to be taken thereunder.
4.14 Defaults; Adverse Changes. None of the Corporations is, or immediately
after the Closing will be, in default under or in violation of (a) its
Certificate or Articles of Incorporation, as amended, or by-laws, as amended,
(b) any agreement or instrument to which such Corporation is a party or will be
a party immediately after the Closing, (c) any statute, rule, writ, injunction,
judgment, decree, order or regulation of any Governmental Authority
23
having jurisdiction over it, (d) any license, permit, certification or approval
requirement of any customer, supplier or other Person (other than a Governmental
Authority), or (e) any license, permit, certification or approval requirement of
any Governmental Authority, except in the case of the foregoing clauses (b)
through (e), defaults or violations which could not reasonably be expected to
result in a Material Adverse Effect. To the best of the Company's and USHG's
knowledge, no Material Adverse Effect could reasonably be expected to occur as a
result of any pending legislative or regulatory change or any revocation of any
license or right to do business or any casualty, labor trouble, condemnation,
requisition, embargo or otherwise.
4.15 Insurance. Attached hereto as Schedule 4.15 is a list and description
of all insurance policies (including expiration dates) owned or maintained by
each Corporation. Each Corporation maintains insurance in amounts and on terms
reasonably adequate in relation to the nature of such Corporation's business and
assets (and covering such risks as are customarily insured against by Persons of
established reputation engaged in the same or a similar business and similarly
situated), under policies believed by each of the Company and USHG to be valid
and enforceable and issued by the insurers set forth on Schedule 4.15. None of
the Corporations is in default of any obligation under any such policy. To the
extent any insurance policy has a cash surrender, rebate or similar value, there
is no restriction, Lien or other encumbrance affecting the Corporation's receipt
or claim of such value (other than Liens in favor of the Senior Lender), and no
obligation or agreement to pay, directly or indirectly, such value to any other
party. Each insurance company issuing a policy listed on Schedule 4.15 has an
A.M. Best rating of not less than A.
4.16 Patents, Trademarks, Licenses, etc. Attached hereto as Schedule 4.16
is a list of all patents, patent applications, registered and unregistered
trademarks, service marks, trade names, brands and material copyrights
(collectively, "Intellectual Property") owned or licensed by each Corporation.
Except as disclosed on Schedule 4.16 and except for Permitted Liens, the
applicable Corporation owns the entire unencumbered right, title and interest in
and to all such properties, no rights or licenses to or from others have been
granted with respect to such properties, and each Corporation owns or possesses
the right to use all the patents, patent applications, trademarks, service
marks, trade names, brands, copyrights and licenses, both domestic and foreign,
and rights with respect to the foregoing, necessary for the conduct of its
business as now conducted, without any known conflict with the rights of others
which, if determined adversely to such Corporation, would result in a Material
Adverse Effect. Except as disclosed on Schedule 4.16, no stockholder, officer,
director or any other Affiliate of any of the Corporations (other than another
Corporation) owns or possesses any rights in any patents, patent applications,
registered or unregistered trademarks, service marks, trade names, brands,
copyrights, or domestic or foreign licenses which are used by such Corporation
in its business.
4.17 Environmental Matters. Except as disclosed on Schedule 4.17:
(a) none of the Corporations has Managed Hazardous Materials on or off
its property other than in compliance in all material respects with
Environmental Laws;
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(b) each of the Corporations has complied in all respects with all
applicable Environmental Laws (other than any noncompliance which,
individually or in the aggregate, would not result in a Material Adverse
Effect);
(c) none of the Corporations has any material contingent liability
with respect to the Management of any Hazardous Material; and
(d) none of the Corporations has received any Environmental Notice,
and neither the Company nor USHG is aware of any occurrence or state of
facts which would reasonably be expected to result in any such
Environmental Notice.
4.18 Investment Bankers' or Finders' Fees. None of the Corporations is in
any way obligated to any Person in respect of any finder's or broker's fee or
similar commission in connection with the closing of the issuance and sale of
the Notes and Warrants or any other part of the Transactions, except for the
Corporations' obligation to pay or reimburse the Purchasers for a finder's fee
payable to Larkspur Capital Corporation, as set forth in the Commitment Letter
referred to in Section 15.5 hereof. Each of the Company and USHG agrees to
indemnify the Purchasers and hold the Purchasers harmless from any claims for
any such fees or commissions from any Persons.
4.19 Investment Company Act. None of the Corporations is an "investment
company" or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended. None of the
Corporations is subject to regulation under any federal or state statute or
regulation which limits its ability to incur Indebtedness.
4.20 Disclosure. Except as corrected in writing prior to the Closing Date,
neither this Agreement nor any of the other Purchaser Documents nor any other
written statement provided by or on behalf of any of the Corporations to the
Purchasers in connection with the issuance and sale of the Notes and Warrants,
nor contained in USHG's publicly available filings with the SEC, contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading in
light of the circumstances under which such statements were made, it being
understood that, except as set forth in Section 4.7(b) hereof and this Section
4.20, no representation or warranty is made with respect to the Projections or
other prospective financial information. To the best of the Company's and USHG's
knowledge after due inquiry, there is no fact or circumstance which could
reasonably be expected to result in a Material Adverse Effect which has not been
disclosed to the Purchasers in the written agreements and other documents
described in this Section 4.20.
4.21 Pension Plans. Except as disclosed on Schedule 4.21, none of the
Corporations has any Plan on the date hereof or will have any as of the Closing
Date. Each of the Corporations is in compliance in all material respects with
requirements of ERISA and the regulations promulgated thereunder with respect to
each Plan. No fact or situation that could reasonably be expected to result in a
Material Adverse Effect exists in connection with any
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Plan. None of the Corporations has any withdrawal liability in connection with a
Multiemployer Plan.
4.22 Compensation and Benefits. The Company and USHG have delivered to the
Purchasers copies of all employment, management, consulting, retirement benefit
and compensation contracts and commitments now in effect with any employee,
officer, director or shareholder (or any Affiliate thereof) of any of the
Corporations, or with any other Person, and each of such agreements or plans is
set forth on Schedule 4.22.
4.23 Labor Relations. None of the Corporations is engaged in any unfair
labor practice that could reasonably be expected, either individually or in the
aggregate, to have a Material Adverse Effect. There is (a) no unfair labor
practice complaint pending against any of the Corporations or threatened against
any of them, before the National Labor Relations Board, and no grievance or
arbitration proceeding arising out of or under any collective bargaining
agreement is so pending against any of the Corporations or threatened against
any of them, (b) no strike, labor dispute, slowdown or stoppage pending against
any of the Corporations, (c) no union representation question exists with
respect to the employees of any of the Corporations, except (with respect to any
matter specified in clause (a), (b) or (c) above, either individually or in the
aggregate) such as could not reasonably be expected to have a Material Adverse
Effect, and (d) no notice, claim, formal or informal investigation or proceeding
or other matter existing or threatened under the Occupational Health and Safety
Act, or similar state statutes or regulations, regarding any matter of safety,
working conditions, worker eligibility or similar matter, and Schedule 4.23
describes any of such matters which have occurred or been threatened since July
1, 1998, whether or not such matter was thereafter resolved or settled. To the
best of the Company's and USHG's knowledge after due inquiry, no senior
executive of any of the Corporations has any intention of terminating his or her
employment. No such senior executive has any claim for severance, change of
control payments or similar compensation as a result of the consummation of the
Transactions, except as may be set forth in Schedule 4.23 hereof.
4.24 Trade and Consumer Relations and Practices. There exists no actual or
threatened, termination, cancellation or limitation of, or any adverse
modification or change in, the business relationships of any of the Corporations
or their respective businesses with any customer or any group of customers whose
purchases are individually or in the aggregate material to the business of the
Corporations taken as a whole, or with any material supplier, and there exists
no present condition or state of facts or circumstances regarding the foregoing
that would have a Material Adverse Effect or prevent any of the Corporations
from conducting its business after the consummation of the Transactions, in
substantially the same manner in which such business has heretofore been
conducted or in a manner sufficient to achieve the Projections. There is no
notice, claim, formal or informal investigation or similar proceeding or other
matter existing or threatened by the Federal Trade Commission, or any other
federal or state agency or authority regarding any of the Corporations' sales
practices, advertisements or conduct of any kind regarding consumers or
customers, or which regards competition or relationship with competitors or any
other matter, and no such matters which have occurred or been threatened since
July 1, 1998.
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4.25 Other Agreements. Except for the Transaction Documents or as set forth
on Schedule 4.25 attached hereto, none of Corporations is a party to or
otherwise bound or affected by any written or (to the best of the Company's and
USHG's knowledge) oral:
(a) employment, severance or similar agreement or other material
agreement (other than Rights disclosed on Schedule 4.1(b) hereto) with (i)
any present or former director, officer or other Affiliate, (ii) any
present shareholder, or (iii) any former shareholder who held 5% or more of
any Corporation's Capital Stock;
(b) agreement, contract or commitment for the purchase of, or payment
for, supplies or products, or for the performance of services by a third
party, involving in any one case $100,000 or more, other than purchase
orders issued to vendors in the ordinary course of business involving
$500,000 or less;
(c) agreement, contract or commitment to sell or supply products or to
perform services, involving in any one case $100,000 or more, other than
purchase orders received from customers in the ordinary course of business
involving $1,000,000 or less, and other than ordinary course customer
rebate agreements of the nature described in Section 4.7(c)(ii) hereof;
(d) note, debenture, bond, conditional sale agreement, equipment trust
agreement, letter of credit agreement, loan agreement or other agreement or
contract, commitment or arrangement for the borrowing or lending of money
in an amount in excess of $250,000 (including without limitation loans to
or from officers, directors, any stockholder or any member of any of their
immediate families, but excluding the extension of trade credit in the
ordinary course of business consistent with past practices and travel
allowances made in the ordinary course of business), agreement, contract,
commitment or arrangement for a line of credit or guarantee, pledge or
undertaking in any manner whatsoever of the indebtedness of any other
Person;
(e) agreement, contract or commitment for any capital expenditure in
excess of $100,000; or
(f) agreement, contract or commitment limiting or restraining it from
engaging or competing in any lines of business with any Person, nor is any
director, officer or employee of any of the Corporations subject to any
such agreement except where such limitation runs to the benefit of one of
the Corporations.
Each of the Corporations and, to the best knowledge of the Company and USHG
(after due inquiry), each other party thereto have in all material respects
performed all the obligations required to be performed by them to date under,
have received no notice of default under and are not in default under any lease,
agreement or contract now in effect to which any of Corporations is a party or
by which any of Corporations or its respective property may be
27
bound, except where the same would not have a Material Adverse Effect. None of
Corporations has any present expectation or intention of not fully performing
all its obligations under each such lease, contract or other agreement, and
neither the Company nor USHG has any knowledge of any breach or anticipated
breach by any other party to any contract or commitment to which any of the
Corporations is a party, except where the same would not have a Material Adverse
Effect.
SECTION 5. CONDITIONS PRECEDENT.
The obligation of each Purchaser to purchase Notes and Warrants shall be
subject to the satisfaction, and continuing existence, of each of the following
conditions precedent on or prior to the Closing Date:
5.1 Consolidated Excess Cash. The Company and its Subsidiaries shall have,
on a consolidated basis, no less than $1,000,000 of Consolidated Excess Cash on
the Closing Date after giving effect to the Transactions, as set forth in the
calculation thereof provided pursuant to Section 4.7(d); and the Projections
delivered pursuant to Section 4.7(b) (i) shall project no less than $1,000,000
of Consolidated Excess Cash for each month during the first twelve months after
Closing (other than for the months of March and April 2002), and (ii) shall
project no less than $500,000 of Consolidated Excess Cash for the months of
March and April 2002.
5.2 Purchaser Documents. The Company shall have issued the Notes, and USHG
shall have issued the Warrants; and each Purchaser shall have received the
original of its Note and of the certificates evidencing its Common Warrants and
Preferred Warrants, as well as an original counterpart of this Agreement and of
each of the other Purchaser Documents, duly executed by each party thereto.
5.3 Legal Opinions. The Purchasers shall have received the executed legal
opinion of Blank Rome Xxxxxx Xxxxxxxxxx LLP, counsel to the Corporations, dated
the Closing Date, in form and substance reasonably satisfactory to the
Purchasers and their counsel and covering such matters incident to the
Transactions as the Purchasers may reasonably require, including without
limitation the matters referred to in Sections 4.1-4.5, 4.11, 4.13, 4.14 and
4.19 hereof.
5.4 Other Documents. The Purchasers shall have received all closing
certificates, corporate documents, evidence of authorization, forms and
information required by the U.S. Small Business Administration, and other
agreements, instruments and documents in respect of any aspect or consequence of
the Transactions as the Purchasers may reasonably request, including without
limitation all documents listed on the List of Closing Documents provided by the
Purchasers to the Company and USHG on or prior to the Closing Date, all of which
shall be in form and substance reasonably satisfactory to the Purchasers.
5.5 Representations and Warranties; No Default or Event of Default. The
representations and warranties made by each of the Corporations in the Purchaser
Documents to which it is a party shall be true and correct as of the Closing
Date, with the same force and
28
effect as though made again on such date at the time of, and giving effect to,
the Transactions. On the Closing Date, after giving effect to the Transactions,
no Default or Event of Default shall have occurred and be continuing.
5.6 Purchaser Transactions; Other Transactions.
(a) All consents necessary to the consummation of the Purchaser
Transactions shall have been obtained, and all conditions precedent to the
consummation of the Purchaser Transactions shall have been or shall be satisfied
or waived prior to or concurrently with the issuance and sale of the Notes and
Warrants. All Purchaser Transactions shall have been or shall be consummated
pursuant to the terms of the applicable Purchaser Documents prior to or
concurrently with the issuance and sale of the Notes and Warrants, and in
compliance with all applicable laws.
(b) True, correct and complete execution copies of all Transaction
Documents shall have been delivered to the Purchasers and their counsel, who
shall be satisfied with the form and substance thereof. The Purchasers shall be
satisfied with (i) the terms of the subordination of the Notes, (ii) the liens
and rights granted to the Senior Lender pursuant to the Senior Debt Documents
and the Senior Subordination Agreement, and (iii) the Purchasers' rights to
enforce and exercise Liens granted to the Purchasers.
5.7 Fees; Transaction Expenses. Xxxxx Associates, LLC or its designee shall
have received the fee referred to in Section 2.6 and shall have been reimbursed
the Costs and Expenses incurred in connection with the Transaction. The
Corporations shall have paid or reimbursed the Purchasers or their designee for
the finder's fee payable to Larkspur Capital Corporation, as set forth in the
Commitment Letter referred to in Section 15.5 hereof. The Corporations shall
also have paid any stand-by fee payable pursuant to Section 3 of the "Other
Provisions" Section of the Summary Term Sheet attached to the Commitment Letter
referred to in Section 15.5 hereof.
5.8 Legal Structure and Capitalization. The Purchasers shall be satisfied
with the legal structure and capitalization of the Corporations and the Trust,
and all documentation relating thereto; and evidence of the equity ownership of
each Corporation and the Trust shall have been delivered to the Purchasers and
shall be satisfactory in form and substance to them.
5.9 Additional Matters. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the Purchaser
Transactions shall be satisfactory in form and substance to the Purchasers, in
their discretion; the Purchasers and their counsel shall be satisfied that each
of the Corporations is in compliance with all matters described in Section 4 and
Section 5 of this Agreement, and the Purchasers shall have received information,
documentation and certifications regarding any matter or question that may
affect, or be related to, such compliance, satisfactory to the Purchasers in
their discretion.
5.10 Due Diligence; No Adverse Change or Events. The Purchasers shall have
completed their due diligence investigations of the Corporations and the results
thereof shall be satisfactory to the Purchasers in their discretion; and there
shall not exist in the Purchasers'
29
judgment (i) any event or condition that has had or would have a Material
Adverse Effect or a material adverse effect upon the ability of the Corporations
to meet, or upon the likelihood of their meeting, the Projections, or (ii) any
law or regulation which, in the opinion of the Purchasers' counsel, prevents or
prohibits any Purchaser from funding its purchase of the Notes and Warrants or
maintaining its investment therein, or which would adversely affect the economic
benefits expected to be realized by the Purchasers in the Transactions.
5.11 Minimum EBITDA. The Company shall have minimum EBITDA for the
twelve-month period ending on the date of the latest Financial Statements of not
less than $11,300,000 (as adjusted for adjustments and add-backs reasonably
acceptable to the Purchasers). The chief financial officer of USHG shall provide
a certificate to the Purchasers at Closing, certifying (a) as to the Company's
EBITDA for the twelve-month period ending on the date of the latest Financial
Statements, (b) that such EBITDA was determined in accordance with GAAP, and (c)
that such officer has no reason to believe the Company's EBITDA for the
twelve-month period ending on the last day of the month during which the Closing
occurs will be less than the minimum described in the first sentence of this
Section.
5.12 Compliance With Sources and Uses. The Company and USHG shall have
provided the Purchasers with a statement of the sources and uses of funds in
connection with the closing of the Transactions, which sources and uses shall
conform to that set forth on Schedule 5.12 hereto. Any variance from the sources
and uses set forth in Schedule 5.12 shall be approved by the Purchasers, in
their discretion, and the Company and USHG shall provide documentation
satisfactory to the Purchasers that the items listed on such statement are true
and accurate in all respects. Any non-compliance with or variance from the
statement of sources and uses shall be described on an attachment to Schedule
5.12. Without limitation of the foregoing, the BOA Indebtedness shall be repaid
in full at the Closing with the proceeds of the Senior Debt and the Notes, the
liens securing the BOA Indebtedness shall be released at the Closing, and BOA
shall have authorized the filing of UCC-3 termination statements in respect of
such liens.
5.13 Closing Certificates. On or prior to the Closing Date, the Purchasers
shall have received:
(a) a solvency certificate from the chief financial officer of USHG
certifying on behalf of the Corporations that: (i) the fair saleable value
of the assets of the Corporations taken as a whole exceeds and will,
immediately following the closing of the Transactions, exceed the amount
that will be required to be paid on or in respect of the then existing
Indebtedness of the Corporations taken as a whole, as such Indebtedness
matures; (ii) the Corporations taken as a whole do not and will not have,
immediately following the closing of the Transactions, unreasonably small
capital to carry out their respective businesses as now conducted or as
proposed to be conducted; and (iii) the Corporations taken as a whole do
not intend to incur Indebtedness beyond their ability to pay such
Indebtedness as it matures;
(b) certificates of insurance complying with the requirements of
Section 6.5 for the business and properties of the Corporations, in form
and substance reasonably satisfactory to the Purchasers; and
30
(c) a certificate of the chief executive officer of USHG certifying on
behalf of the Corporations that (i) all of the representations and
warranties of the Corporations set forth in the Transaction Documents are
true, complete and accurate in all respects as of the Closing Date, and
(ii) as of the Closing Date, the Corporations have complied with and
performed all of the covenants and agreements, and satisfied all of the
conditions, to be complied with, performed or satisfied by the Corporations
pursuant to the Transaction Documents on or prior to the Closing Date.
5.14 Stockholders Agreement. On or prior to the Closing Date, USHG and its
principal stockholders (Xxxxxx Xxxxxx, Xxxxxxx Xxxxxxx and Xxxxxxx Xxxxxx) shall
have entered into a Stockholders Agreement which effectively provide the rights
and privileges to the Purchasers set forth on Exhibit F attached hereto.
5.15 Junior Subordinated Debentures. The Purchasers shall be satisfied with
the terms of the subordination of the Junior Subordinated Debentures to the
Notes; and USHG shall have given the Purchasers a power of attorney to exercise
(under the circumstances set forth in Section 7.18 (b)) USHG's rights to defer
the payment of interest on the Junior Subordinated Debentures pursuant to
Section 3.11 of the Junior Subordinated Indenture and Section I.D of the
Officers' Certificate and Company Order dated April 17, 1998 specifying certain
terms of the Junior Subordinated Debentures.
5.16 Noncompetition and Nonsolicitation Agreements. Each of Xxxxxx Xxxxxx,
Xxxxxxx Xxxxxx and Xxxxxxx Xxxx shall have entered into (or be subject to)
noncompetition and nonsolicitation agreements with the Corporations in form and
substance satisfactory to the Purchasers.
5.17 Xxxxx Consulting Agreement. The Company and USHG shall have entered
into a Consulting Agreement in form and substance satisfactory to the Purchasers
with Xxxxx Associates, LLC or its designee (the "Xxxxx Consulting Agreement"),
providing, among other things, for the payment to Xxxxx Associates, LLC or its
designee of a monitoring fee of $54,500 per year for so long as any Notes,
Warrants or Warrant Securities are owned by the Purchasers.
5.18 Waco Lease Renewal. The Company shall have received a written
commitment by the landlord to renew the lease of the Company's premises in Waco,
Texas, on terms satisfactory to the Purchasers.
SECTION 6. AFFIRMATIVE COVENANTS.
Each of the Company and USHG hereby agrees that, so long as this Agreement
is in effect but subject to the provisions of Section 13 hereof:
6.1 Financial and Other Information. Each of the Company and USHG will
keep, and will cause its Subsidiaries to keep, proper books of record and
account in which full
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and true entries will be made of all dealings or transactions relating to their
business and affairs, and each of the Company and USHG shall cause to be
furnished to each Purchaser:
(a) as soon as practicable and in any event within thirty (30) days
after the end of each month (including the last month of the fiscal year)
(i) unaudited consolidated and consolidating statements of income, retained
earnings and cash flows of USHG and its consolidated Subsidiaries for such
month and the fiscal year-to-date period, and unaudited consolidated and
consolidating balance sheets of USHG and its consolidated Subsidiaries as
of the end of such month, prepared in accordance with GAAP consistent with
past practice, subject to changes resulting from normal fiscal year-end
adjustment, and (ii) in comparative form, figures for the actual results
for the corresponding month and fiscal year-to-date periods in the
immediately preceding fiscal year and amounts projected for such month
pursuant to Section 6.1(d), together with a written report providing
explanations of any material variances;
(b) as soon as filed with the SEC and in any event within fifty (50)
days after the end of each fiscal quarter including the fourth quarter, (i)
unaudited consolidated and consolidating statements of income, retained
earnings and cash flows of USHG and its consolidated Subsidiaries for such
quarter and for the period from the beginning of the then current fiscal
year to the end of such quarter, and unaudited consolidated and
consolidating balance sheets of USHG and its consolidated Subsidiaries as
of the end of such quarter, all of which statements and balance sheets
shall be in reasonable detail, prepared in accordance with GAAP consistent
with past practice, and certified as accurate by the chief financial
officer of USHG, subject to changes resulting from normal fiscal year-end
adjustment, and (ii) in comparative form, figures for the actual results
for the corresponding periods in the immediately preceding fiscal year and
amounts projected for such periods pursuant to Section 6.1(d), together
with a written report providing explanations of any material variances;
(c) as soon as filed with the SEC and in any event within one hundred
five (105) days after the end of each fiscal year, (i) consolidated and
consolidating statements of income, retained earnings and cash flows of
USHG and its consolidated Subsidiaries for such fiscal year, and
consolidated balance sheets of USHG and its consolidated Subsidiaries as of
the end of such fiscal year, setting forth in each case, in comparative
form, corresponding figures for the period covered by the preceding annual
audit and as of the end of the preceding fiscal year, all of which
statements and balance sheets shall be in reasonable detail and reasonably
satisfactory in scope to the Purchasers and prepared by BDO Xxxxxxx, LLP or
another respected firm of independent certified public accountants selected
by USHG and reasonably satisfactory to the Purchasers, whose opinion shall
be unqualified and shall be prepared in accordance with GAAP and generally
accepted auditing standards, provided, that each Purchaser hereby agrees
that such Purchaser will consider satisfactory any Big 5 accounting firm
retained by USHG, and (ii) any accountants' comment letter on USHG's and
its consolidated Subsidiaries' internal financial or accounting systems or
controls which shall be issued, as well as copies of all other reports
submitted by USHG's accountants; provided, that USHG shall request such a
comment letter to be prepared in connection with each audit;
32
(d) as soon as practicable and in any event before the end of each
fiscal year, an operating budget and projected financial statements for
each month of the next succeeding fiscal year (including a statement of
underlying assumptions), in the same format as the financial statements
provided pursuant to Sections 6.1(a), (b) and (c);
(e) (i) as soon as practicable, and in any event at the same time as
any notice is given to the Senior Lender (but in no event later than three
(3) Business Days after any officer of the Company or USHG obtains
knowledge of the occurrence of an event or the existence of a circumstance
giving rise to a such a default, Default or Event of Default), notice of
any default under the Senior Debt and all Defaults and Events of Default
hereunder, and (ii) any other notice, certificate or other document or
information given to or received from the Senior Lender not later than five
(5) Business Days after the date thereof;
(f) with reasonable promptness, such other business or financial data
as the Purchasers may reasonably request, including without limitation all
forms and information requested or required by the U.S. Small Business
Administration as a result of any Purchaser being a small business
investment company;
(g) if USHG or the Company shall otherwise prepare or have available
financial statements and other information for USHG and its Subsidiaries on
a consolidated and/or consolidating basis, or shall provide its Board of
Directors with any financial information not otherwise provided for herein,
it shall also furnish the same to the Purchasers in addition to the
financial statements and other information for USHG and its Subsidiaries
required to be furnished pursuant to the foregoing provisions of this
Section 6.1;
(h) together with each delivery of financial statements required by
Section 6.1(c), a certificate of the accountants who performed the audit in
connection with such statements (i) stating that they have reviewed Section
7.19 and Exhibit F hereof (Financial Covenants) and that, in making the
audit necessary to the issuance of a report on such financial statements,
they have obtained no knowledge of any Default or Event of Default or, if
such accountants have obtained knowledge of a Default or Event of Default,
specifying the nature and period of existence thereof, and (ii) setting
forth the calculations necessary to establish whether or not USHG and its
Subsidiaries were in compliance with the covenants as provided in Section
7.19 and Exhibit F as of the date of such statements. Each of the Company
and USHG authorizes the Purchasers to discuss the financial condition of
the Corporations with USHG's independent certified public accountant and
agrees that such discussion or communication shall be without liability to
either the Purchasers or USHG's independent certified public accountants.
USHG shall deliver a letter addressed to such accountants authorizing them
to comply with the provisions of this Section 6.1(h); in any event, such
accountants are irrevocably authorized to rely upon a copy of this
Agreement as authority for such discussions and communications; and
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(i) together with each delivery of financial statements required by
Sections 6.1(a) and (b), (i) a certificate of the Company's president or
chief financial officer (A) stating that, based on an examination
sufficient to enable an informed statement, no Default or Event of Default
exists or, if such is not the case, specifying such Default or Event of
Default and its nature, when it occurred, whether it is continuing and the
steps being taken by the Company with respect to such Default or Event of
Default, and (B) setting forth the calculations necessary to establish
whether or not the Company was in compliance with the covenants provided
for in Section 7.19 and Exhibit F as of the date of such statements, (ii) a
detailed report that provides a discussion of the operations and financial
condition of USHG and its Subsidiaries for the period covered by such
financial statements and a summary and discussion of other matters
significant to the business, (iii) copies of USHG's internally prepared
consolidated sales projections for each of the next 12 months, which
projections shall be updated monthly, (iv) monthly point of sale data for
the Corporations' ten largest customers, and (v) monthly sales and margins
of the Corporations by customer and product line. Such certificate, report,
sales projections, point of sale data and monthly sales and margin
information shall be in form reasonably satisfactory to the Purchasers.
Each Purchaser shall keep confidential all information concerning the
Corporations furnished by the Company or USHG pursuant to this Section 6.1, as
well as all other information concerning the Corporations acquired by the
Purchasers by virtue of their status as Purchasers under the Purchaser Documents
or as a result of their (or their representatives') attendance as non-voting
observers at meetings of the Board of Directors of any of the Corporations
(including information acquired as a result of any inspection conducted in
accordance with Section 6.2 below); provided, that a Purchaser may communicate
such information to such Purchaser's officers, employees, attorneys,
accountants, consultants and owners, subject to the same confidentiality
provisions applicable to such Purchaser. A Purchaser may also disclose such
information to any Governmental Authority having jurisdiction over such
Purchaser, to the extent required by such Governmental Authority, provided that
(except in the case of disclosures to the U.S. Small Business Administration by
a Purchaser which is a Small Business Investment Company) such Purchaser shall
use reasonable efforts to notify the Company or USHG prior to such disclosure so
that the Company or USHG will have a reasonable amount of time to contest such
disclosure if it wishes to do so. A Purchaser may also disclose such information
to any other Person in connection with such Purchaser's sale of any
participations in, or assignments of, the Notes, Warrants or Warrant Securities,
provided that such Person shall execute a confidentiality agreement requiring
the recipient to maintain the confidentiality of the information to the same
extent as required hereunder for the Purchaser. Following any Default or Event
of Default or as may be reasonably necessary to effect the exercise of rights
hereunder, a Purchaser may disclose information to others in connection with the
exercise of such Purchaser's rights hereunder or under any of the other
Purchaser Documents and as may be required by applicable law.
6.2 Inspection. Any Purchaser or its designee shall have the right from
time to time, at the Corporations' expense, to call (after three (3) Business
Days' prior written notice) at the place or places of business of any of the
Corporations during ordinary business hours (a) to inspect, audit and check any
of its books, records, journals, orders and receipts, as well as
34
any correspondence and other data relating to its business or to any
transactions among the parties to the Transaction Documents, and (b) to discuss
its affairs, finances and business with any of its officers or directors;
provided that such inspections, audits, checks or discussions are not materially
disruptive to the normal operation of the businesses of the Corporations, and
provided, further, that, the Corporations shall not be required to pay for more
than one such inspection per fiscal year in the absence of an Event of Default.
6.3 Conduct of Business. Each of the Company and USHG shall, and shall
cause each Subsidiary to, (a) maintain its corporate existence, (b) maintain in
full force and effect all bonds, franchises, qualifications, patents and
trademarks, and all governmental licenses, permits and authorizations, in each
case which are material to the conduct of its business, (c) maintain in full
force and effect all leases, contracts and other rights, and all
non-governmental licenses, permits and authorizations, in each case the loss of
which would have a Material Adverse Effect, (d) pay when due all amounts payable
under, and comply with all covenants and agreements under, all leases, contracts
and agreements to which such Corporation is a party, if a default with respect
to such obligation would or could reasonably be expected to have a Material
Adverse Effect, (e) continue in the businesses in which it is currently engaged,
and limit its operations to the businesses in which it is currently engaged and
businesses substantially similar and meaningfully related to such businesses,
(f) comply with all applicable laws, orders, regulations and ordinances of all
Governmental Authorities, except for such laws, orders, regulations and
ordinances the violation of which would not be reasonably likely to have a
Material Adverse Effect, and (g) maintain its Property in good working order.
6.4 Taxes. Each of the Company and USHG shall pay, and cause its
Subsidiaries to pay, all of their respective (i) license fees, bonding premiums
and related taxes and charges, (ii) real and personal property taxes,
assessments and charges, (iii) franchise, income, unemployment, use, excise, old
age benefit, withholding, sales and other taxes and (iv) other governmental
charges assessed against any of them, or payable by any of them, in each case at
such times and in such manner as to prevent any penalty from accruing or any
Lien from attaching to any of their property; provided, that the applicable
Corporation shall have the right to contest in good faith, by an appropriate
proceeding promptly initiated and diligently conducted, the validity, amount or
imposition of any such tax, assessment or charge, and upon such good faith
contest to delay or refuse payment thereof, if it establishes adequate reserves
to cover such contested taxes, assessments or charges.
6.5 Property, Liability and Business Interruption Insurance; Key-Man
Insurance. Each of the Company and USHG shall, and shall cause each of its
Subsidiaries to, maintain insurance to such extent and covering such risks as
shall be required by law or by any agreement to which any of such Corporations
is a party, and, in any event, keep and maintain their properties and businesses
insured against such risks as are ordinarily insured against (and in such
amounts, and subject to such deductibles as are ordinarily obtained) by prudent
Persons engaged in similar businesses similarly situated with financially sound
insurers reasonably acceptable to the Purchasers. Each of the Company and USHG
shall maintain, and cause each of its Subsidiaries to maintain, at the
Corporations' expense, such public liability insurance, third party property
damage insurance and business interruption insurance, in such amounts and
35
with such deductibles, as is reasonably acceptable to the Purchasers and as is
customary for similar businesses similarly situated. All such policies of
insurance shall be in form and substance similar to policies maintained by
prudently managed companies similarly situated and shall be issued by insurers
having A.M. Best ratings no less than A. Upon request, each of the Company and
USHG shall deliver to each Purchaser a certified copy of each such policy of
insurance and evidence of payment of all premiums therefor. Upon request of the
Purchasers, the Company shall obtain, and maintain in full force and effect for
the benefit of the Company for so long as any of the Notes are outstanding,
key-man insurance in the amount of $2,000,000 on the life of Xxxxxxx Xxxxxx,
provided he is reasonably insurable.
6.6 Pension Plans. Each of the Company and USHG shall (i) deliver to the
Purchasers promptly, and in any event within 30 days, any written notice, letter
or communication received by any Corporation from the PBGC, the U.S. Internal
Revenue Service or any other Governmental Authority with respect to any Plan, if
such notice could result in any material liability to any Corporation, (ii)
provide the Purchasers with copies of any annual report filed by any Corporation
with the PBGC in connection with any Plan, promptly after the filing thereof,
and (iii) notify the Purchasers prior to terminating any Plan if such
termination could result in any material liability to any Corporation.
6.7 Notice of Suits, Adverse Changes in Business and Defaults. Each of the
Company and USHG shall, as soon as possible, give the Purchasers written notice
of the occurrence of any of the events listed below, and, in any case, shall
give the Purchasers written notice of the occurrence of any of such events
within the earlier of (i) five (5) Business Days after senior management obtains
knowledge thereof, and (ii) fifteen (15) Business Days after the occurrence
thereof:
(a) any proceeding(s) being instituted or threatened to be instituted
by or against any Corporation in any federal, state, local or foreign court
or before any Governmental Authority in which the amount in controversy
exceeds $250,000 (unless the same is covered by insurance and arises in the
ordinary course of business) or in which injunctive relief is requested,
and any litigation, proceeding, investigation or claim that relates in any
material way to (i) any of the Transaction Documents, or (ii) the
Certificate or Articles of Incorporation, as amended, or By-laws, as
amended, of any Corporation;
(b) any change in the business, assets or condition, financial or
otherwise, of any Corporation which can reasonably be expected to have a
Material Adverse Effect;
(c) the occurrence of any "Default" or "Event of Default" as defined
in any of the Senior Debt Documents;
(d) the occurrence of any material default under any other material
lease, contract or other agreement to which any Corporation is a party; and
(e) the occurrence of any Default or Event of Default.
36
6.8 Environmental Laws. (a) Each of the Company and USHG shall promptly
notify and furnish the Purchasers with a copy of any and all Environmental
Notices which are received by any Corporation on or after the date hereof. Each
of the Company and USHG shall, and shall cause its Subsidiaries to, take prompt
and appropriate action in response to any and all such Environmental Notices,
and shall promptly furnish the Purchasers with a description of the applicable
Corporation's Response thereto. Each of the Company and USHG shall promptly
notify the Purchasers of any event or state of facts which would reasonably be
expected to result in an Environmental Notice.
(b) Each of the Company and USHG shall, and cause each of its Subsidiaries
to, (i) comply in all material respects with all Environmental Laws, (ii)
obtain, comply in all material respects with and maintain any and all material
licenses, approvals, registrations or permits required by Environmental Laws,
(iii) conduct and complete all investigations, studies, sampling and testing,
and all remedial, removal and other actions required under Environmental Laws,
and (iv) promptly comply with all lawful orders and directives of all
Governmental Authorities respecting Environmental Laws (and provide copies of
all such orders and directives to the Purchasers), except, in each case, to the
extent that the same are being contested in good faith by appropriate
proceedings and the pendency of such proceedings could not be reasonably
expected to have a Material Adverse Effect.
(c) Each of the Company and USHG shall defend, indemnify and hold harmless
each of the Purchasers and their respective employees, agents, officers and
directors, from and against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature known or
unknown, contingent or otherwise (including without limitation attorneys' and
consultants' fees, investigation and laboratory fees, court costs and litigation
expenses), arising out of, or in any way relating to (i) any Environmental Laws
applicable to any of the Corporations, any of their operations, or any real
property owned or operated by any of them, (ii) any orders, requirements or
demands of any Governmental Authority or any private party related to any
Environmental Laws or to Hazardous Materials, or (iii) the actual or alleged
presence of Hazardous Materials on any property previously, now or hereafter
owned, leased or otherwise held by any of the Corporations. The indemnity set
forth in this paragraph (c) shall survive any termination of this Agreement.
6.9 Notices Relating to Transactions. Each of the Company and USHG shall
promptly provide the Purchasers with copies of all amendments, consent letters,
waivers or modifications to, and any material notices or reports provided by any
Person to any Corporation pursuant to the terms of or in connection with, any of
the Transactions or any of the Transaction Documents, or any Corporation's
certificate or articles of incorporation, as amended or bylaws, as amended, or
by any Corporation to any such Person. Without limiting the foregoing, each of
the Company and USHG agrees to notify the Purchasers of the effective date and
amount of any prepayment pursuant to the Senior Loan Agreement or permanent
reduction of any commitment to lend on a revolving basis.
6.10 Board Observation Rights. Each of USHG and the Company (i) shall cause
one representative of the Purchasers to be permitted to attend and observe all
meetings of the Boards of Directors of each of USHG and its Subsidiaries and all
committees thereof, (ii)
37
shall cause the Purchasers to be given notice of all such meetings, at the same
time as furnished to the directors of the applicable Corporation, (iii) shall
cause the reasonable out-of-pocket costs and expenses of the Purchasers'
representative to be paid, (iv) shall cause such representative to be
compensated at the same level as the most highly compensated non-employee member
of each of USHG's and its Subsidiaries' Boards of Directors for his service as
such (regardless of whether the compensation of such non-employee member for his
services as a director is paid in the form of a directors' fee or consultant's
fee or other type of fee or compensation), (v) shall indemnify the Purchasers'
representative to the same extent as members of such Boards of Directors (to the
extent permitted by law), (vi) shall cause to be provided to the Purchasers'
representative all notices, documents and information furnished to the directors
of the applicable Corporation whether at or in anticipation of a meeting, an
action by written consent or otherwise, at the same time furnished to such
directors, (vii) shall cause the Purchasers' representative to be notified of,
and permitted to participate by telephone in, emergency meetings of such Boards
of Directors and all committees thereof, (viii) shall cause the Purchasers'
representative to be provided with copies of the minutes of all such meetings at
the time such minutes are furnished to the directors of the applicable
Corporation, (ix) shall cause regularly-scheduled meetings of the Boards of
Directors of each Corporation to be held no less frequently than three times a
year at regular intervals, provided that only one such meeting need be in person
and the other two may be by telephone conference call, (x) upon the request of
the Purchasers, shall obtain and maintain in force directors' and officers'
liability insurance in an amount reasonably acceptable to the Purchasers, (xi)
shall cause the creation and maintenance on USHG's Board of an audit committee
composed solely of outside directors, the responsibility of which shall be to
fulfill all functions recommended by the Auditing Standards Board of the AICPA
as well as monitoring and reviewing all major accounting policies and auditor
relationships of such Corporation, and (xii) shall cause the creation and
maintenance on USHG's Board of a compensation committee composed solely of
outside directors, the responsibility of which shall be to monitor and review
compensation plans, stock option plans, other Plans, annual performance
objectives for senior executives, and the achievement of these performance
objectives.
6.11 Notice of Amendment of Senior Loan Agreement. The Company (a) shall
not enter into any amendment of the Senior Loan Agreement without providing the
Purchasers with advance written notice of the proposed terms of such amendment
not less than five (5) Business Days prior to the making of such amendment, and
(b) without the prior written consent of a majority in interest of the
Purchasers, shall not enter into any amendment of the Senior Loan Agreement, or
in any other manner modify or supplement or alter by agreement or waiver, the
Senior Loan Agreement, the purpose of which is (i) a voluntary permanent
reduction of any revolving credit facility provided under the Senior Loan
Agreement or (ii) violative of Section 7.15 hereof.
6.12 Option to Provide Mezzanine Financing (a) Prior to offering any
subordinated debt or other mezzanine financing (with or without warrants or any
other "equity kicker") of any Corporation after the Closing Date (a "Mezzanine
Financing"), the Company and USHG will first give, or cause the issuer
Corporation to give, to the Purchasers the right, for the same price and upon
the same terms (and subject to the same due diligence, time table and other
conditions) as are to be made available to other proposed offeree(s), to provide
all or
38
part (at the Purchasers' option) of such Mezzanine Financing proposed to be
offered by such Corporation. The Purchasers shall have a period of thirty (30)
days after receiving written notice of any such proposed Mezzanine Financing to
indicate whether they intend to provide (subject to final due diligence,
documentation and customary conditions) all or part of the Mezzanine Financing
to be raised (and any such notice shall be given not less than sixty (60) nor
more than ninety (90) days prior to the closing of any such Mezzanine Financing,
and shall be accompanied by such information as may be reasonably necessary to
evaluate the terms of the proposed Mezzanine Financing, including without
limitation any information furnished or to be furnished to other proposed
offeree(s)); provided, that the Purchasers shall exercise reasonable efforts to
promptly evaluate the terms of the proposed offering. The Company and USHG will
offer, or cause the issuer Corporation to offer, such rights to the Purchasers
pro rata based on the principal amount of Notes held by each, provided that if a
Purchaser does not exercise such rights in full, the Company and USHG will
offer, or cause the issuer Corporation to offer, such rights pro rata to the
Purchasers who exercise their rights under this Section 6.12(a). In the event
the Purchasers do not exercise in full their right to provide such Mezzanine
Financing, the issuer Corporation may offer any remaining portion of such
Mezzanine Financing to other Persons on terms which (in the reasonable opinion
of the Purchasers) are no more advantageous to such other Persons in any
material respect than the terms of the offer to the Purchasers (herein referred
to as "Comparable Terms"), provided that the closing of the offering to such
other Persons is consummated within ninety (90) days after the Purchasers have
declined to provide all or part of such Mezzanine Financing. In the event that
the offering to such other Persons is not on Comparable Terms, or in the event
that the offering to such other Persons is not consummated within such ninety
(90)-day period, then the Company and USHG will again offer, or cause the issuer
Corporation to again offer, the proposed Mezzanine Financing to the Purchasers
in compliance with all of the provisions of this Section 6.12(a).
(b) During the thirty (30) day period referred to in the second sentence of
Section 6.12(a) above, the Company and USHG will allow, and will cause the other
Corporations to allow, the Purchasers and their respective representatives all
reasonably requested access to the Corporations' assets, records, personnel and
relevant third parties for the purpose of completing all due diligence
investigations deemed reasonably necessary or advisable by the Purchasers in
connection with determining whether to exercise their right to provide any
Mezzanine Financing referred to in Section 6.12(a).
6.13 Use of Proceeds. The Company and USHG shall use the proceeds of the
sale of the Notes and Warrants solely as described in the statement of sources
and uses referred to in Section 5.12.
6.14 New Subsidiary Security Agreements and Guaranties. To the extent the
creation or existence of any additional Subsidiary (other than one in existence
on the Closing Date) is permitted pursuant to Section 7.5 or consented to by the
Purchasers, each of the Company and USHG shall cause each such Subsidiary to
execute a security agreement and a Guaranty in substantially the same forms as
the Security Agreement and Guaranty executed and delivered on the Closing Date
by each Subsidiary which existed on the Closing Date.
39
6.15 Reservation of Warrant Securities. (a) USHG will at all times have
authorized, and reserve and keep available, free from pre-emptive rights and
free of all Liens, restrictions, rights and claims of others, for the purpose of
enabling it to satisfy any obligation to issue shares of Common Stock upon any
exercise of the Common Warrants, the number of shares of Common Stock issuable
upon exercise of all outstanding Common Warrants. Upon any issuance of Common
Warrant Shares to a holder of Common Warrants upon exercise thereof, such Common
Warrant Shares shall be free of all pre-emptive rights, Liens, restrictions,
rights and claims of others (except for Liens, if any, created by the holders
thereof).
(b) USHG will at all times keep available, free of all Liens, restrictions,
rights and claims of others, for the purpose of enabling it to satisfy its
obligation to sell Preferred Securities upon any exercise of the Preferred
Warrants, the number of Preferred Securities purchasable upon exercise of all
outstanding Preferred Warrants. Upon any sale of Preferred Securities to a
holder of Preferred Warrants upon exercise thereof, such Preferred Securities
shall be free of all Liens, restrictions, rights and claims of others (except
for Liens, if any, created by the holders thereof).
SECTION 7. NEGATIVE COVENANTS.
Each of the Company and USHG hereby agrees that, so long as this Agreement
is in effect but subject to the provisions of Section 13 hereof:
7.1 Liens or Encumbrances. Neither the Company nor USHG will create or
suffer to exist, or permit any Subsidiary to create or suffer to exist, any Lien
upon any of its Property, income or profits, whether now owned or hereafter
acquired, and will not enter into or suffer to exist, or permit any Subsidiary
to enter into or suffer to exist, any agreement that would be inconsistent with
the Purchasers' exercise of exclusive rights to Liens on the Corporations'
Property excepting the rights of the Senior Lender and the following:
(i) Liens at any time granted in favor the Purchasers (including
pursuant to the Security Documents), and Liens at any time granted to the
Senior Lender (including, without limitation, pursuant to the Senior Debt
Documents as in effect on the Closing Date); and, so long as the Senior
Loan Agreement is in effect, the Liens referred in clauses (b), (d), (e),
(f) and (h) of the definition of "Permitted Encumbrances" as defined in the
Senior Loan Agreement as in effect on the Closing Date;
(ii) Liens not exceeding $50,000 in the aggregate outstanding at any
one time consisting of (A) Liens for taxes (excluding any Lien imposed
pursuant to any of the provisions of ERISA) not yet due or that are being
actively and diligently contested in good faith and (B) statutory Liens
arising in the ordinary course of such Corporation's business by operation
of law or regulation, but only if payment in respect of any such Lien is
not at the time required or such Liens are being actively and diligently
contested;
40
(iii) Purchase Money Liens securing Purchase Money Indebtedness
permitted pursuant to Section 7.2(v) below;
(iv) Liens securing Indebtedness of one of the Company's Subsidiaries
to the Company or another such Subsidiary;
(v) reservations, exceptions, easements, rights-of-way and other
similar encumbrances affecting the real Property of the Corporations that
do not interfere with the ordinary conduct of the business of the
Corporations;
(vi) such other Liens existing on the Closing Date which are set forth
on Schedule 4.8; and
(vii) such other Liens as the Purchasers may hereafter approve in
writing.
7.2 Indebtedness. Neither the Company nor USHG will incur, create, assume,
become or be liable in any manner with respect to any Indebtedness, or permit
any Subsidiary to do so, except:
(i) the Indebtedness evidenced by the Notes and other obligations of
the Corporations under this Agreement and the other Purchaser Documents,
(ii) Senior Debt provided by the original Senior Lender (subject,
however, to the limitations set forth in the definition of "Senior
Obligations" contained in the Senior Subordination Agreement), or any
renewal or refinancing thereof permitted pursuant to Section 7.15 (in the
event of any such permitted refinancing, all references herein to "Senior
Debt", "Senior Debt Documents", "Senior Lender" and "Senior Loan Agreement"
shall be appropriately adjusted to apply to the refinancing,
(iii) Indebtedness of any of the Corporations (including any renewal
or refinancing of any such Indebtedness) which is subordinated to the Notes
on terms acceptable to the Purchasers,
(iv) other Indebtedness of the Corporations which is to continue after
the Closing Date and is identified on Schedule 7.2 hereto and is included
in the Statement of Sources and Uses attached as Schedule 5.12 hereto,
(v) Indebtedness of the Corporations secured by Purchase Money Liens
and Indebtedness of the Corporations under Capital Leases not to exceed
$1,000,000 in the aggregate,
(vi) trade payables and accrued expenses of the Corporations incurred
in accordance with customary practices and in the ordinary course of
business; and
(vii) extensions of credit made by any Corporation to a wholly-owned
Subsidiary of the Company.
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7.3 Consolidations, Mergers or Acquisitions. Neither the Company nor USHG
will, or will permit any Subsidiary or Egarden Inc. to, recapitalize or
consolidate with, merge with, acquire the Capital Stock of, or otherwise acquire
all or any substantial part of the assets or Properties of any other Person
except that (i) a wholly-owned Subsidiary of USHG may merge into a wholly-owned
Subsidiary of the Company, (ii) a wholly-owned Subsidiary of the Company may
merge into another wholly-owned Subsidiary of the Company, and (iii) a
Subsidiary of the Company may merge into the Company.
7.4 Investments or Loans. Neither the Company nor USHG will, or will permit
any Subsidiary to, acquire any Property in exchange for cash or other Property,
whether in the form of an acquisition of securities or other Indebtedness or
obligations, or the purchase or acquisition by any of the Corporations of any
other Property, or a loan, advance, capital contribution or subscription, except
acquisitions of the following:
(i) investments in one or more Subsidiaries of the Company or USHG to
the extent existing on the Closing Date;
(ii) fixed assets to be used in the business of the Corporations so
long as the acquisition costs thereunder constitute Capital Expenditures
permitted hereunder;
(iii) goods held for sale or lease or to be used in the manufacture of
goods or the rendition of services by any of the Corporations in the
ordinary course of business;
(iv) Cash Equivalents;
(v) loans to employees made after the Closing Date not in excess of an
aggregate of $100,000 at any one time outstanding;
(vi) loans to employees outstanding on the Closing Date, provided that
(A) the principal amount of such loans is not increased and any repayment
of all or part of such loans is not re-lent, (B) no such loans or portions
thereof may be reduced or forgiven (other than by repayment thereof to the
applicable lending Corporation), and (C) the terms of such loans may be
amended (including any extension of the maturity thereof) only by USHG's
Board of Directors (without participation of Xxxxxx Xxxxxx, except in the
case of Board action by unanimous written consent without a meeting) at any
time when no Default or Event of Default exists under Section 9.1(a) hereof
and no "Default" or "Event of Default" exists under Section 10.1 of the
Senior Loan Agreement, provided that any such loans shall in any event
become due and payable 180 days prior to the date on which the Notes become
due and payable in full; and
(vii) accounts receivable arising from transactions in the ordinary
course of business; contingent liabilities represented by endorsements of
negotiable instruments for collection or deposit in the ordinary course of
business; advances, deposits, down payments and prepayments on account of
firm purchase orders made in the ordinary course of business.
42
As used above, "Cash Equivalents" shall mean (1) marketable direct obligations
issued or unconditionally guaranteed by the United States Government and backed
by the full faith and credit of the United States Government having maturities
of not more than twelve (12) months from the date of acquisition; (2) domestic
certificates of deposit and time deposits having maturities of not more than
twelve (12) months from the date of acquisition, banker's acceptances having
maturities of not more than twelve (12) months from the date of acquisition and
overnight bank deposits, in each case issued by any commercial bank organized
under the laws of the United States, any state thereof or the District of
Columbia, which at the time of acquisition are rated A-1 or better by Standard &
Poor's Corporation or P-1 or better by Xxxxx'x Investors Service, Inc., or any
successor thereto, and not subject to offset rights in favor of such bank
arising from any banking relationship with such bank; (3) repurchase obligations
with a term of not more than thirty (30) days for underlying securities of the
types described in clauses (1) and (2) entered into with any financial
institution meeting the qualifications specified in clause (2); and (4)
commercial paper having at the time of investment therein or a contractual
commitment to invest therein a rating of A-1 or better by Standard & Poor's
Corporation or P-1 or better by Xxxxx'x Investors Service, Inc., or any
successor thereto, and having a maturity within nine (9) months after the date
of acquisition thereof.
7.5 Subsidiaries. Neither the Company nor USHG will create or have (or
permit any Subsidiary to create or have) any Subsidiaries other than the
Subsidiaries in existence on the Closing Date and other Subsidiaries which are
wholly-owned by the Company or by another wholly-owned Subsidiary of the
Company. In addition, (i) each of the Company and USHG shall cause each
Subsidiary to comply with all the covenants and provisions of this Agreement
(including, without limitation, the covenants set forth in Section 6.14 hereof),
and (ii) the financial covenants contained herein shall apply to USHG and its
Subsidiaries on a consolidated basis.
7.6 Disposal of Property. (a) Neither the Company nor USHG will sell,
lease, transfer or otherwise dispose of any of its Properties, assets (including
Capital Stock) or rights, or permit any Subsidiary or Egarden Inc. to do so,
except (i) sales of inventory in the ordinary course of business, (ii) sales or
other dispositions in the ordinary course of business of equipment which is
obsolete, uneconomical or no longer useful in its business or which is being
replaced with other equipment of substantially equal or greater utility, (iii)
dispositions of obsolete inventory, and (iv) other sales or dispositions of
Property in an arm's length transaction to a third party which is not an
Affiliate of any of the Corporations where (v) at least 75% of the consideration
received by the applicable Corporation is in cash, (w) the consideration
received is not less than the fair market value of the Property sold or disposed
of, (x) the cash portion of the proceeds of the sale or disposition are applied
to payment of Indebtedness for money borrowed, (y) the aggregate fair market
value of the Property so sold or disposed of, together with all other Property
sold or disposed of in any 12-month period, shall not exceed 5% of the
Corporations' tangible assets as at the beginning of such 12-month period, and
(z) in the case of any such sale or disposition of Property by Egarden Inc.,
USHG and the Company shall exercise commercially reasonable efforts to obtain
the release of the Corporations from any further liability or contingent
liability in respect of the obligations of Egarden Inc. (including without
limitation in respect of the equipment leases listed in Item 1 of
43
Schedule 7.2.), provided that (in the event USHG and the Company are unable to
obtain such release in spite of such commercially reasonable efforts) the
Corporations shall be permitted to pay up to $90,000 per annum in order to
prevent a default under any Egarden Inc. obligations for which the Corporations
remain contingently liable.
(b) Notwithstanding anything to the contrary contained in Section 7.6(a),
any Corporation which is not a Material Corporation may sell, lease, transfer or
otherwise dispose of any of its Properties, assets (other than Capital Stock) or
rights, and any Corporation may sell its interest in the Capital Stock of a
Subsidiary which is not a Material Corporation, in each case in an arm's length
transaction to a third party which is not an Affiliate of any of the
Corporations for consideration which is not less than the fair market value of
the Property sold or disposed of.
(c) Nothing contained in this Section 7.6 is intended to impair the
Purchasers' rights under Section 3.1(b)(ii) hereof.
7.7 Limitation on Certain Restrictions on Subsidiaries. Neither the Company
nor USHG will, nor will it permit any of its Subsidiaries or Egarden Inc. to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any such Subsidiary
to (a) pay dividends or make any other distributions on its Capital Stock or any
other interest or participation in its profits owned by any of the Corporations,
or pay any Indebtedness owed to any of the Corporations, (b) make loans or
advances to any of the Corporations or (c) transfer any of its properties or
assets to any of the Corporations, except for such encumbrances or restrictions
existing under or by reason of (i) applicable law, (ii) this Agreement and the
other Purchaser Documents, (iii) the Senior Debt Documents, (iv) customary
provisions restricting subletting or assignment of any lease governing any
leasehold interest of any of the Corporations, (v) customary provisions
restricting assignment of any licensing agreement (in which any of the
Corporations is the licensee) or other contract entered into by any of the
Corporations in the ordinary course of business, (vi) restrictions on the
transfer of any asset pending the close of the sale of such asset, and (vii)
restrictions on the transfer of any asset subject to a Lien permitted by Section
7.1 hereof.
7.8 Tax Consequences of Certain Transactions. Neither the Company nor USHG
shall cause or permit any merger or consolidation of, or any recapitalization or
issuance of Capital Stock by, or any similar transaction involving, any of its
Subsidiaries or Egarden Inc., unless, in the reasonable opinion of counsel for
the Company and USHG, such transaction would not result in material adverse tax
consequences to any of the Corporations or to the Purchasers.
7.9 Dividends, Stock Redemptions, Etc. (a) While any Note is outstanding,
neither the Company nor USHG will (i) declare or pay, or set apart any funds for
the payment of, any dividends in any fiscal year on any shares of its Capital
Stock, or (ii) apply any of its funds, Property or assets to, or set apart any
funds, Property or assets for, the purchase, redemption or retirement of, or
make any Distribution, by reduction of capital or otherwise, in respect of any
of its shares of Capital Stock, whether now or hereafter outstanding; provided,
44
however, that the Company may make Distributions to USHG to permit the payment
by USHG of (i) professional fees, taxes and other ordinary course of business
operating expenses (including salaries and other employee compensation) incurred
by USHG solely in its capacity as parent corporation of the Company, provided
that the aggregate amounts of such Distributions to USHG in any fiscal year
shall not exceed the aggregate amount of the applicable expenses for such fiscal
year (as set forth in USHG's budget for such fiscal year as approved by the
Purchasers) by more than ten percent (10%), and (ii) interest on the Junior
Subordinated Debentures under the conditions specified in Section 7.18(b)
hereof.
(b) While any Common Warrants or Common Warrant Shares are held by
Purchasers, USHG will not (i) declare or pay, or set apart any funds for the
payment of, any dividends in any fiscal year on any shares of its Common Stock,
or (ii) apply any of its funds, Property or assets to, or set apart any funds,
Property or assets for, the purchase, redemption or retirement of, or make any
Distribution, by reduction of capital or otherwise, in respect of any of its
shares of Common Stock or Rights therefor, whether now or hereafter outstanding;
unless, in the case of clauses (i) and (ii) above, USHG offers each Purchaser
holding Common Warrants and/or Common Warrant Shares the option to receive the
Applicable Portion of such dividend, purchase, redemption, retirement or
Distribution. For this purpose, the "Applicable Portion" shall mean the higher
of the following: (A) in the same proportion that the number of Common Warrant
Shares (or Common Warrants therefor) owned by a Purchaser bears to the number of
shares of Common Stock (or Rights therefor) that USHG proposes to pay a dividend
on or to purchase, redeem, retire or make a Distribution in respect of, and (B)
in the same proportion that the number of Common Warrant Shares (or Common
Warrants therefor) owned by a Purchaser bears to the number of shares of Common
Stock (or Rights therefor) owned by all Affiliates of USHG that USHG proposes to
pay a dividend on or to purchase, redeem, retire or make a Distribution in
respect of.
(c) While any Preferred Warrants or Preferred Warrant Securities are held
by Purchasers, neither USHG nor the Company will, or permit the Trust or any
Subsidiary to, apply any of its funds, Property or assets to, or set apart any
funds, Property or assets for, the purchase, redemption or retirement of, or
make any Distribution, by reduction of capital or otherwise, in respect of any
of the Preferred Securities or Rights therefor, whether now or hereafter
outstanding; unless, in each case, each Purchaser holding Preferred Warrants
and/or Preferred Warrant Securities is offered the option to receive the
Applicable Portion of such purchase, redemption, retirement or Distribution. For
this purpose, the "Applicable Portion" shall mean the higher of the following:
(A) in the same proportion that the number of Preferred Warrant Securities (or
Preferred Warrants therefor) owned by a Purchaser bears to the number of
Preferred Securities (or Rights therefor) that the Trust or any Corporation
proposes to purchase, redeem, retire or make a Distribution in respect of, and
(B) in the same proportion that the number of Preferred Warrant Securities (or
Preferred Warrants therefor) owned by a Purchaser bears to the number of
Preferred Securities (or Rights therefor) owned by all Affiliates of USHG that
the Trust or any Corporation proposes to purchase, redeem, retire or make a
Distribution in respect of.
7.10 Issuance of Additional Capital Stock by Subsidiaries. None of the
Subsidiaries of the Company will issue any additional Capital Stock or equity
interests of any
45
kind or character, other than to the Company or another Subsidiary of the
Company; and none of the direct Subsidiaries of USHG or Egarden Inc. will issue
any additional Capital Stock or equity interests of any kind or character, other
than to USHG. For the avoidance of doubt, USHG may issue additional Capital
Stock at any time.
7.11 Operating Leases. Neither the Company nor USHG will, nor will it
permit any Subsidiary to, enter into any leases other than Capital Leases which
would cause the annual payment obligations of the Corporations under all leases
to exceed $500,000 in the aggregate.
7.12 Fiscal Year End. Neither the Company nor USHG will, nor will it permit
any Subsidiary to, change its fiscal year end from June 30 of each year.
7.13 Transactions with Affiliates. Neither the Company nor USHG will, nor
will it permit any Subsidiary to, transfer any cash or Property to any officer,
director, employee or Affiliate, enter into any contract or transaction with any
such Person, or modify any outstanding contract or transaction with any such
Person, including without limitation the purchase, lease, sale or exchange of
Property or the rendering of any service to any such Person, except (a)
transactions in the ordinary course of business disclosed in advance in writing
to the Purchasers, on an arm's length basis on terms no less favorable than
terms which would have been obtainable from a Person other than an Affiliate,
(b) employment contracts and compensation arrangements set forth on Schedule
4.22 and any modification, extension, renewal or replacement thereof which is
approved by the Compensation Committee of USHG's Board of Directors, and (c)
loans to employees to the extent permitted under Section 7.4 hereof.
7.14 ERISA. Neither the Company nor USHG will, nor will it permit any
Subsidiary or ERISA Affiliate to:
(i) engage in any transaction in connection with which such
Corporation or ERISA Affiliate could be subject to either a material civil
penalty assessed pursuant to the provisions of Section 502 of ERISA or a
material tax imposed under the provisions of Section 4975 of the Code;
(ii) terminate any Pension Plan in a "distress termination" under
Section 4041 of ERISA;
(iii) fail to make payment when due of all material amounts which,
under the provisions of any Plan, such Corporation or ERISA Affiliate is
required to pay as contributions thereto, or, with respect to any Pension
Plan, permit to exist any material "accumulated funding deficiency" (within
the meaning of Section 302 of ERISA and Section 412 of the Code), whether
or not waived, with respect thereto; or
(iv) adopt an amendment to any Pension Plan requiring the provision of
security under Section 307 of ERISA or Section 401(a)(29) of the Code.
7.15 Certain Amendments of Senior Debt Documents and Other Transaction
Documents; Refinancing of Senior Debt. Neither the Company nor USHG will amend,
modify
46
or alter, or permit to be amended, modified or altered, (a) any of the Senior
Debt Documents or the Indebtedness thereunder (in a refinancing thereof or
otherwise), if the effect would be (i) to increase the interest rate on any
Senior Debt (other than through the application of the default rate of interest
as set forth in the Senior Debt Documents), (ii) to extend the final maturity
date of the Senior Debt to a date later than April 15, 2007, (iii) to cause the
amount of the Senior Debt to exceed the limitations set forth in the definition
of "Senior Obligations" contained in the Senior Subordination Agreement as in
effect on the Closing Date or in Section 8.1 of the Senior Subordination
Agreement as in effect on the Closing Date, or (iv) adding any financial tests
or ratios which are more restrictive than those included in the Senior Debt
Documents on the Closing Date, or (b) any of the other Transaction Documents in
any way which would adversely affect the Purchasers. Neither the Company nor
USHG will, nor will it permit any of its Subsidiaries to, enter into any
refinancing of the Senior Debt Documents which would change the terms of the
Senior Debt in any respect which would not be permitted in the case of an
amendment, modification or alteration pursuant to the foregoing provisions of
this Section 7.15.
7.16 Other Amendments. Neither the Company nor USHG will, nor will it
permit any of its Subsidiaries to amend, modify or change its certificate or
articles of incorporation or other charter documents (including, without
limitation, by the filing or modification of any certificate of designation),
certificate of formation, limited liability company agreement or by-laws (or the
equivalent organizational documents), as applicable, or amend or modify any
agreement entered into by it with respect to its Capital Stock or other equity
interests (including any stockholders' agreement), or enter into any new
agreement with respect to its Capital Stock or other equity interests, unless
such amendment, modification, change or other action contemplated by this
Section could not reasonably be expected to be adverse to the interests of the
Purchasers in any material respect.
7.17 Accounting Methods. Neither the Company nor USHG will, nor will it
suffer or permit any Subsidiary to, make any significant change in accounting
treatment or reporting practices, except (a) as required by GAAP, (b) a change
in the depreciation method employed thereby to straight line depreciation or (c)
a change in a Subsidiary's accounting treatment or reporting practices to
conform the accounting practices or reporting practices of newly acquired
Subsidiaries to the methods used by USHG and the Company.
7.18 Payments on Subordinated Debt. (a) Except as provided in Section
7.18(b) below, neither the Company nor USHG will (i) make, nor permit any
Subsidiary to make, any principal payment of or interest payment on, or purchase
or acquire, or prepay, any Indebtedness which is subordinate to the Notes (or
any Guaranty thereof) except in accordance with the provisions of the
subordination thereof, or (ii) permit any notes or agreements evidencing
Indebtedness which is subordinate to the Notes (or any Guaranty thereof), or any
subordination agreement executed in connection therewith, to be modified or
amended or any agreement or consent to be given thereunder whereby (x) any
provisions thereof relating to the subordination thereof to the Notes (or any
Guaranty thereof) are waived, modified or discharged, or (y) there is any
acceleration of the maturities therein provided.
47
(b) Notwithstanding anything to the contrary contained in Section 7.18(a)
above but subject to Section 7.18(c) below, the Company may make Distributions
to USHG to permit USHG to make scheduled payments of interest on the Junior
Subordinated Debentures so long as (i) there shall not be in effect any notice
from the Agent to the Company stating that the Company is prohibited from making
such payment, which notice the Agent shall be entitled to give if any Default or
Event of Default shall have occurred and be continuing, provided that, solely in
the case of an Event of Default resulting from the Company's and USHG's failure
to deliver the financial information required pursuant to Section 6.1 hereof,
such Event of Default shall be continuing for a period thirty (30) days or more,
(ii) the Corporations have achieved the Required EBITDA and (iii) after giving
effect to the interest payment on the Junior Subordinated Debentures (or any
Distribution by any Corporation to USHG to permit the same), the Corporations
would have Consolidated Excess Cash of $500,000 in the months of March and
April, and $1,000,000 in all other months. To the extent that the Company is
permitted to make a distribution to USHG pursuant to the preceding sentence,
USHG shall be permitted to make the corresponding interest payment. In
furtherance of the foregoing restrictions on payments in respect of the Junior
Subordinated Debentures, USHG hereby appoints the Agent as its attorney, with
full power to execute and deliver, in the name and stead of USHG, notices
invoking deferral of interest payments ("Interest Deferral Notices") in respect
of the Junior Subordinated Debentures as contemplated by the Junior Subordinated
Indenture, for such periods as the Agent may determine (including any extensions
thereof in accordance with the Junior Subordinated Indenture), provided that the
Agent shall not exercise such power until the first to occur of (A) an Event of
Default under Section 9.1(a) hereof, (B) an acceleration of the maturity of the
Notes, and (C) the sixth (6th) Business Day prior to the date on which an "Event
of Default" would exist under the Junior Subordinated Indenture if such deferral
were not invoked. Without limiting the Agent's right pursuant to the preceding
sentence, the Agent agrees to provide USHG with a copy of any notice sent by the
Agent invoking a deferral pursuant to the Indenture. USHG further covenants (w)
that it will give Interest Deferral Notices prior to the time that the Agent
would have the right to do so under the terms of the preceding sentence, (y)
that it will deliver to the Agent, immediately upon USHG's receipt thereof, a
copy of any notice received by USHG pursuant to Section 13.4 of the Junior
Subordinated Indenture instituting a payment block with respect to the Junior
Subordinated Debentures, and (z) that it will give the Agent prompt notice of
its anticipated inability to make a payment on the Junior Subordinated
Debentures when due, or of its failure to make any such payment on the due date
thereof.
(c) If payments of interest on the Junior Subordinated Debentures have been
deferred pursuant to Section 3.11 of the Junior Subordinated Indenture and
Section I.D of the Officers' Certificate and Company Order dated April 17, 1998
specifying certain terms of the Junior Subordinated Debentures, then payments of
such interest may be resumed only if (i) the Corporations have achieved the
Required EBITDA, (ii) after giving effect to the payment of all current interest
and all accrued and unpaid interest on the Junior Subordinated Debentures (or
any Distribution by any Corporation to USHG to permit the same), the
Corporations would have Consolidated Excess Cash of $500,000 in the months of
March and April, and $1,000,000 in all other months, and (iii) after resumption
of such interest payments, USHG would have the right to immediately defer such
interest payments again pursuant to Section 3.11 of the Junior
48
Subordinated Indenture and Section I.D of the Officers' Certificate and Company
Order dated April 17, 1998 specifying certain terms of the Junior Subordinated
Debentures.
7.19 Financial Covenants. Each of the Company and USHG will observe, and
will cause its Subsidiaries to observe, the covenants set forth on Exhibit F
hereto. Each of the Company and USHG will give notice to the Purchasers promptly
upon any change in the financial covenants set forth in the Senior Loan
Agreement from those set forth therein on the Closing Date, and acknowledges
that upon any receipt of such notice, the Purchasers, in their discretion, may
amend Exhibit F to conform the covenants set forth therein to such change.
SECTION 8. SUBORDINATION
The Purchasers covenant and agree that the indebtedness evidenced by the
Notes and the liens granted pursuant to the Security Documents shall be
subordinate and junior in right of payment to the Senior Debt and the liens
securing the Senior Debt, in the manner and to the extent set forth in the
Senior Subordination Agreement. Neither the Company nor USHG will make (or give
any notice in respect of), nor will it permit any of its Subsidiaries to make
(or give any notice in respect of), any voluntary, optional or mandatory payment
or prepayment on or redemption or acquisition for value of (including, in each
case, without limitation, by way of depositing with any Person money or
securities before due for the purposes of paying when due), any Senior Debt or
make any other payment in respect thereof (whether for principal, interest or
other amounts) except as otherwise expressly permitted by the Senior Loan
Agreement and the Senior Subordination Agreement.
SECTION 9. EVENTS OF DEFAULT.
9.1 Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" hereunder:
(a) all or any portion of the principal of the Notes, or premium (if
any) or interest on the Notes, or any other amounts payable under the
Purchaser Documents, is not paid when due, and such failure continues for
more than five (5) calendar days; or
(b) a breach by the Company or USHG of any of the covenants,
conditions, promises or agreements contained in Section 7 hereof or in
Section 6.1, 6.5, 6.7, 6.9-6.12 or 6.14 hereof or in Section 2.3 of Exhibit
C hereto; or
(c) a breach by any of the Corporations of any of the covenants,
conditions, promises or agreements contained in any Purchaser Document
(other than those specified in Sections 9.1(a) or (b) above), provided,
that if such breach is by its nature susceptible of cure, the Corporations
shall have a period of thirty (30) days from the occurrence of such breach
within which to cure the same before such breach becomes an Event of
Default; or
(d) any warranty or representation heretofore, now or hereafter made
by any of the Corporations in or pursuant to any of the Purchaser Documents
or the Senior Debt
49
Documents shall prove to be, or to have been, untrue or incorrect in any
material respect on the date as of which made; or any material schedule,
certificate, statement, report, financial data, notice or other information
furnished at any time by or on behalf of any of the Corporations to the
Purchasers under or pursuant to the Purchaser Documents is untrue or
incorrect in any material respect on the date as of which made; or
(e) a judgment or order requiring payment in excess of insurance
coverage by more than $250,000 shall be rendered against any of the
Corporations and such judgment or order shall remain unsatisfied or
undischarged or unbonded and in effect for thirty (30) consecutive days
without a stay of enforcement or execution; or
(f) a notice of Lien, levy or assessment (other than a Permitted Lien)
is filed or recorded with respect to any material portion of the assets of
any of the Corporations by any party, or action is taken or commenced by
any Governmental Authority on account of any taxes or debts owing at any
time or times hereafter which results in a Lien (other than a Permitted
Lien) upon any material portion of the assets of any of the Corporations;
or
(g) any material portion of the assets of any of the Corporations is
attached, seized, subjected to a writ or distress warrant, or is levied
upon, or comes within the possession of any receiver, trustee, custodian or
assignee for the benefit of creditors; or
(h) a proceeding under 11 U.S.C. ss.ss.101 et seq., as amended, and
any similar or successor Federal statute, and the rules and regulations
thereunder (collectively, the "Bankruptcy Code"), seeking an order for
relief or under any other bankruptcy, reorganization, arrangement of debt,
insolvency, readjustment of debt or receivership law or statute is filed
against any of the Corporations and such proceeding is not dismissed within
sixty (60) days of the date of its filing, or a proceeding under the
Bankruptcy Code seeking an order for relief or under any bankruptcy,
reorganization, arrangement of debt, insolvency, readjustment of debt or
receivership law or statute is filed by any of the Corporations, or any of
the Corporations makes an assignment for the benefit of creditors, or any
of the Corporations takes any corporate action to authorize any of the
foregoing; or
(i) any of the Corporations voluntarily or involuntarily dissolves or
is dissolved, or its existence terminates or is terminated without the
consent of the Purchasers (other than pursuant to a Subsidiary merger
permitted hereunder); or
(j) any of the Corporations becomes insolvent or fails generally to
pay its debts as they become due; or
(k) any of the Corporations fails to pay any principal of or interest
on any Indebtedness having an outstanding principal amount of $250,000 or
more ("Material Indebtedness") (including without limitation any such
Indebtedness assumed or guaranteed) for a period longer than the grace
period, if any, provided for such payment (unless and then only so long as
waived by the holder thereof); or any default under any
50
instrument or agreement evidencing, creating, securing or otherwise
relating to Material Indebtedness (including without limitation any
guaranty or assumption agreement relating to such Material Indebtedness) or
other event occurs and continues beyond any applicable grace period, and
the effect of such default or other event is to cause, or to permit the
holder or holders of such Material Indebtedness (or their representative)
to cause, such Material Indebtedness (or the obligations under any such
guaranty or assumption agreement) to become due and payable prior to the
stated maturity thereof; or
(l) a Change of Control shall occur; or Xxxxxxx Xxxxxx shall cease for
any reason to hold the office of chief operating officer of the Company and
USHG unless as a result of his death or disability and he is succeeded by a
Person acceptable to the Purchasers within 90 days after such occurrence;
(m) a Reportable Event shall occur which a majority in interest of the
Purchasers, in their discretion, shall determine in good faith constitutes
grounds for the termination by the PBGC of any Plan or for the appointment
by the appropriate United States district court of a trustee for any Plan,
or if any Plan shall be terminated resulting in a liability in excess of
$250,000 to the Corporations or any such trustee shall be requested or
appointed, or if any of the Corporations is in "default" (as defined in
Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer
Plan resulting from such Corporation's complete or partial withdrawal from
such Plan; or
(n) any Guaranty shall cease to be in full force and effect (other
than as a result of a Subsidiary merger permitted hereunder), or any
Guarantor shall so assert; or any Subsidiary shall fail to execute and
deliver a Guaranty upon request of the Purchasers; or
(o) the Purchasers' security interest under the Security Documents or
rights under the other Purchaser Documents shall be impaired for any
reason; or the Corporations' ability to fulfill their obligations and
comply with their covenants under any of the Purchaser Documents shall be
impaired in any material respect; or any action or proceeding is commenced
by any of the Corporations, or on their behalf, that would result, in the
Purchasers' judgment, in such impairment; or any Subsidiary shall fail to
execute and deliver a Security Agreement (or join in the Security
Agreement) upon request of the Purchasers; or
(p) there shall occur any material damage to, or loss, theft or
destruction of, any material assets of any of the Corporations, or any
strike, lockout, labor dispute, embargo, condemnation, act of God or public
enemy, or other casualty, which in any such case causes, for more than ten
(10) consecutive days, the cessation or substantial curtailment of revenue
producing activities at any facility of any of the Corporations if such
event or circumstance is not covered by business interruption insurance and
would have a Material Adverse Effect; or
51
(q) any of the Corporations shall be convicted of (i) a state or
federal misdemeanor where such conviction would have a Material Adverse
Effect or (ii) a state or federal felony; or
(r) if, prior to the maturity of the "Term Loan" (as defined in the
Senior Loan Agreement), the Senior Lender shall not continue to make
available to the Corporations a committed revolving line of credit upon
terms comparable to those applicable to the line of credit described in the
Senior Loan Agreement as in effect on the Closing Date; or
(s) the occurrence of any "Default" or "Event of Default" as defined
in the Senior Loan Agreement, if the effect thereof is to cause any
Indebtedness outstanding thereunder to become due and payable prior to the
stated maturity thereof.
If an Event of Default under paragraph (h) or (i) of this Section 9 shall occur,
the Notes and all other amounts owing under this Agreement shall automatically
become due and payable. Upon the occurrence of any other Event of Default, and
at any time thereafter, if such Event of Default shall then be continuing,
subject to the provisions of Section 10, the holders of a majority in
outstanding principal amount of the Notes may, by written notice to the Company,
declare due and payable the principal of, premium, if any, and interest on, the
Notes and all other amounts owing under this Agreement, whereupon the same shall
be immediately due and payable. In the event that the Notes become or are
declared due and payable prior to their stated maturity, the same shall become
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived.
9.2 Consultants. Upon the occurrence of a Default or Event of Default, the
Company shall retain, at the Purchasers' request and the Company's expense,
consultants and accountants to evaluate the Corporations' financial condition,
business, operations and prospects. Such Persons shall, in all cases, be
acceptable to the Purchasers. Each of the Company and USHG shall cooperate fully
with such evaluation and in connection therewith shall make available such
senior executives and other members of management and all information, books and
records requested by such Persons. Each of the Company and USHG shall cause such
Persons to share all results, reports and other data generated as a result of
such evaluation with the Purchasers.
9.3 Other Costs and Expenses. Each of the Company and USHG shall be
obligated to pay, upon demand, all costs and expenses paid or incurred by the
Purchasers (a) in enforcing their rights and remedies under this Agreement or
any of the other Purchaser Documents, or (b) in connection with the prosecution
or defense of any claim in any way arising out of, related to or connected with
this Agreement or any of the other Purchaser Documents, all of which costs and
expenses shall include the reasonable fees and disbursements of counsel and of
experts and other consultants retained by the Purchasers. The foregoing shall
not be construed to limit any other provision of this Agreement or the other
Purchaser Documents regarding costs and expenses to be paid by the Corporations.
52
SECTION 10. CONSENTS.
Any provision in this Agreement to the contrary notwithstanding, with the
written consents of Purchasers holding more than fifty percent (50%) of the
aggregate principal amount then outstanding of the Notes, or after the Notes
have been paid in full, more than fifty percent (50%) of the Warrants and
Warrant Securities taken together (counting the Common Warrants as one Common
Warrant Share for each Common Warrant Share issuable upon exercise of the Common
Warrants; and counting the Preferred Warrants as one Preferred Security for each
Preferred Security of the Trust purchasable from USHG upon exercise of the
Preferred Warrants) then held by all Purchasers, the Company may be relieved
from the effect of any Event of Default or the Company or USHG may be relieved
from compliance with any covenant, agreement or undertaking contained herein or
in any instrument executed and delivered as herein provided, except the terms of
the Warrants, the provisions of Section 3.5 and Exhibit E-1 and Exhibit E-2
hereto (Registration Rights) and the provisions for the payment or prepayment of
the Notes.
SECTION 11. SECURITIES LAW MATTERS.
11.1 Securities Act. Each Purchaser acknowledges (a) that the Notes and
Warrants being acquired by such Purchaser are not being registered under the
Securities Act on the ground that the issuance thereof is exempt from
registration under Section 4(2) of the Securities Act as not involving any
public offering, and (b) that the Company's and USHG's reliance on such
exemption is predicated in part on the representation hereby made to the Company
and USHG by such Purchaser that it is an "accredited investor" within the
meaning of Regulation D promulgated under the Securities Act, and (except as
provided in Section 12) is acquiring its Notes and Warrants for investment for
its own account, with no present intention of dividing its participation with
others or reselling or otherwise distributing the same, subject, nevertheless,
to any requirement of law that the disposition of its property shall at all
times be within its control. Except as provided in Xxxxxxx 00, xxxx of the
Purchasers is aware of any particular occasion, event or circumstance upon the
occurrence or happening of which it intends to dispose of its Notes and
Warrants.
11.2 Resales.
(a) None of the Purchasers or Investors (as defined in Section 12.2) will
sell or transfer all or any part of its Notes, Warrants or Warrant Securities
except:
(i) pursuant to Rule 144 under the Securities Act;
(ii) pursuant to any other exemption from, or otherwise in a
transaction not subject to, the registration requirements of the Securities
Act (as confirmed in an opinion delivered by the transferor's counsel , to
the effect that the proposed transfer may be effected without registration
under the Securities Act);
(iii) in a transfer by a Purchaser to any Affiliate or wholly-owned
Subsidiary of the Purchaser; or by a Purchaser to Investors as contemplated
by Section 12.2; or
53
(iv) pursuant to an effective registration statement under the
Securities Act.
(b) The restrictions set forth in Section 11.2(a) shall terminate and cease
to be effective with respect to any Notes, Warrants or Warrant Securities
registered under the Securities Act or transferred pursuant to Rule 144, or if
the Company or USHG, as applicable, receives an opinion of counsel reasonably
satisfactory to it to the effect that the securities represented thereby need no
longer be subject to such restrictions in order to ensure compliance with the
Securities Act. Whenever such restrictions shall so terminate the holder or
transferee of such Notes, Warrants or Warrant Securities shall be entitled to
receive from the Company or USHG, as applicable, without expense (other than
transfer taxes, if any), certificates for such Notes, Warrants or Warrant
Securities not bearing the first legend set forth in Section 11.3, at which time
the Company or USHG, as applicable, will terminate or remove any transfer
restrictions relating thereto. In addition, the Company or USHG, as applicable,
will issue (or cause to be issued) certificates for the Notes, Warrants or
Warrant Securities without all or part of the second legend set forth in Section
11.3 whenever this Agreement, the Warrant Agreement and the Stockholders
Agreement cease to restrict the transfer of the securities evidenced by such
certificate.
11.3 Legends. Each Warrant and each certificate for Warrant Securities
issued to the Purchasers or to a subsequent transferee or holder shall bear
legends in substantially the following form:
[THIS WARRANT AND THE UNDERLYING SHARES] [THE SHARES] REPRESENTED
BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO
AN EXEMPTION FROM, OR OTHERWISE IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF SUCH ACT.
IN ADDITION, THIS WARRANT AND THE UNDERLYING SHARES MAY BE
TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN
THE NOTE AND WARRANT PURCHASE, GUARANTY AND SECURITY AGREEMENT,
THE WARRANT AGREEMENT AND THE STOCKHOLDERS AGREEMENT, EACH DATED
AS OF NOVEMBER 15, 2001, BETWEEN U.S. HOME & GARDEN INC. AND THE
INITIAL HOLDERS OF THE WARRANTS NAMED THEREIN, COMPLETE AND
CORRECT COPIES OF WHICH ARE AVAILABLE FOR INSPECTION AT THE
PRINCIPAL OFFICE OF U.S. HOME & GARDEN INC. AND WILL BE FURNISHED
TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
SECTION 12. TRANSFERS.
12.1 Transfers. Subject only to compliance with the requirements of Section
11.2 and the Stockholders Agreement (if applicable), each Purchaser shall be
entitled to assign and transfer all or any part of its Notes, Warrants and
Warrant Securities, or any interest or
54
participation therein, and its related rights under this Agreement and, if
applicable, the Warrant Agreement and the Stockholders Agreement. Upon the
assignment or transfer by such Purchaser of all or any part of its Notes,
Warrants or Warrant Securities or its interest therein (except in public
offering registered under the Securities Act, or a sale pursuant to Rule 144
thereunder), the term "Purchaser" as used herein shall thereafter include, to
the extent of the interest so assigned or transferred, the assignee or
transferee of such interest. Notwithstanding the foregoing, there shall be no
more than ten (10) Purchasers at any one time hereunder.
12.2 Participations. A Purchaser may wish to grant participations in its
Notes, Warrants or Warrant Securities and related rights under the Purchaser
Documents to other accredited investors ("Investors") pursuant to a
participation agreement; provided, however, that at the time any such
participation is granted, the Purchaser granting such participation will so
inform the Company or USHG, as applicable, and furnish it the representation of
each participating Investor (in form and substance reasonably acceptable to the
Company or USHG, as applicable) that such Investor is acquiring his, her or its
participation with no present intention of reselling or distributing the same;
and provided, further, that such participation agreement shall provide that the
Purchaser granting the participation shall retain the sole right to take or
refrain from taking any action under the Purchaser Documents, except that such
participation agreement may provide that such Purchaser shall not, without the
consent of the participant, agree to any amendment or waiver that would have the
effect of (i) extending the maturity date of the Notes or (ii) reducing any
amount payable under the Notes, to the extent that the participant would be
affected thereby. If at any time a Purchaser wishes to assign and transfer of
record into the name of an Investor his, her or its participation and related
rights and obligations arising under the Purchaser Documents, the Company and/or
USHG, as applicable, and the other Purchasers will execute and deliver such
agreements and instruments as the transferring Purchaser may reasonably request
(including without limitation new Notes and certificates for Warrants and
Warrant Securities in such amounts as the transferring Purchaser may request) to
effect the assignment and transfer to such Investor (in his, her or its own
name) of such participation, or such part thereof as may be so assigned and
transferred.
12.3 Issuance of New Notes. The Company will at any time, at its expense,
at the request of a holder of a Note of a Series, and upon surrender of such
Note for such purpose, issue a new Note or Notes of the same Series in exchange
therefor, payable to the order of the holder or (subject to Section 11.2) such
Person or Persons as may be designated by such holder, dated the last date to
which interest has been paid on the surrendered Note, or, if such exchange shall
take place prior to the due date of the first interest payment, the Closing
Date, in such denominations as may be requested, in an aggregate principal
amount equal to the unpaid principal amount of the Note so surrendered and
substantially in the form of such surrendered Note with appropriate revisions.
Upon such exchange the term "Note" as used herein shall include such new Note or
Notes.
SECTION 13. EFFECTIVENESS OF AGREEMENT.
The covenants and all terms contained in this Agreement shall continue in
full force and effect for the benefit of each Purchaser holding a Note for so
long as such Note is outstanding or there are any unpaid or unsatisfied
obligations in respect of such Note owing
55
under any of the Purchaser Documents, and such covenants and terms shall
continue thereafter for the benefit of each Purchaser holding Warrants or
Warrant Securities, except that the following provisions shall terminate and be
of no further force and effect on and after the Notes have been paid in full and
all obligations in respect of the Notes owing under any of the Purchaser
Documents have been paid and satisfied in full: Sections 3.1 through 3.4,
6.3(e), 6.4 through 6.6, 6.8(a) and (b), 6.10, 6.11, 6.13, 6.14, 7.1 through
7.7, 7.9(a), 7.11, 7.12, 7.15 through 7.19, 9.1 and 9.2. All other provisions of
this Agreement shall survive such payment and satisfaction, provided, however,
that after such payment and satisfaction (i) the inspections referred to in
Section 6.2 shall be at the Purchasers' expense and shall be limited to no more
than two in any fiscal year, and (ii) the provisions of Section 6.12 shall
continue in full force and effect until the third anniversary of such payment
and satisfaction. In connection with the Purchasers' continuing right to receive
financial information pursuant to Section 6.1 and certain other information
pursuant to Section 6.7, the Purchasers agree to continue to abide by the
confidentiality provisions contained in the last paragraph of Section 6.1. No
termination of any covenant, representation, warranty or other provision of this
Agreement or any other Purchaser Document, whether after the repayment of the
Notes and all amounts owing under the Purchaser Documents in respect thereof or
otherwise, shall in any way suspend, eliminate or nullify the right of any
Purchaser holding Warrants or Warrant Securities to pursue rights and remedies
arising out of a breach or default which occurred prior to the date of
termination, whether known or unknown as of such date.
SECTION 14. JUDICIAL PROCEEDINGS.
(a) Each of the Company and USHG irrevocably submits to the non-exclusive
jurisdiction of any state or federal court sitting in the City of New York over
any suit, action or proceeding arising out of or relating to this Agreement or
any of the other Purchaser Documents. To the fullest extent it may effectively
do so under applicable law, each of the Company and USHG irrevocably waives and
agrees not to assert, by way of motion, as a defense or otherwise, any claim
that it is not subject to the jurisdiction of any such court, any objection that
it may now or hereafter have to the laying of the venue of any such suit, action
or proceeding brought in any such court and any claim that any such suit, action
or proceeding brought in any such court has been brought in an inconvenient
forum.
(b) Each of the Company and USHG agrees, to the fullest extent it may
effectively do so under applicable law, that a judgment in any suit, action or
proceeding of the nature referred to in paragraph (a) above brought in any such
court shall, subject to such rights of appeal on issues other than jurisdiction
as may be available, be conclusive and binding upon it and may be enforced in
the courts of the United States of America or the State of New York (or any
other courts to the jurisdiction of which it is or may be subject) by a suit
upon such judgment.
(c) Each of the Company and USHG consents to service of process in any
suit, action or proceeding of the nature referred to in paragraph (a) above by
mailing a copy thereof by registered or certified mail, postage prepaid, return
receipt requested, to its address specified in or designated pursuant to Section
15.1. Such service (i) shall be deemed in every respect effective service of
process upon the Company or USHG, as the case may be, in any such suit,
56
action or proceeding and (ii) shall, to the fullest extent permitted by law, be
taken and held to be valid personal service upon and personal delivery to the
Company or USHG, as the case may be.
(d) Nothing in this Section 14 shall affect the right of any of the
Purchasers to serve process in any manner permitted by law, or limit any right
that any of the Purchasers may have to bring proceedings against any of the
Corporations in the courts of any jurisdiction or to enforce in any lawful
manner a judgment obtained in one (1) jurisdiction in any other jurisdiction.
(e) Upon breach or default by any Corporation with respect to any
obligation hereunder or under any of the other Purchaser Documents, the
Purchasers (or their agents) shall be entitled to protect and enforce their
rights at law, or in equity or by other appropriate proceedings for specific
performance of such obligation, or for an injunction against such breach or
default, or in aid of the exercise of any power or remedy granted hereby or
thereby or by law.
SECTION 15. MISCELLANEOUS.
15.1 Notices. All notices, requests, demands or other communications to or
upon the respective parties hereto shall be in writing and shall be deemed to
have been given or made, and all financial statements, information and the like
required to be delivered hereunder shall be deemed to have been delivered,
either (a) three (3) Business Days after deposited in the United States
certified mail, return receipt requested, with postage prepaid, or (b) one (1)
Business Day after delivery to a nationally recognized courier, designated for
overnight delivery with all fees prepaid, in either case addressed to the
Company or USHG at 000 Xxxxxxxxxx Xxxxxx, Xxx Xxxxxxxxx, XX 00000, Attn: Xxxxxx
Xxxxxx, Chief Executive Officer (Telecopier No.: (000) 000-0000), and to the
Purchasers at their respective addresses set forth on Exhibit A hereto, or to
such other address as any of them shall specify in writing to the others. The
Company shall maintain a register of the holders of the Notes, and USHG shall
maintain registers of the holders of the Warrants and Warrant Securities, each
of which registers shall contain the last address specified as provided in the
preceding sentence. Upon reasonable request of any Purchaser, the Company or
USHG will deliver to such Purchaser, at the Company's or USHG's expense,
additional copies of all financial statements, information and the like required
to be provided to the Purchasers hereunder, subject to the confidentiality
provisions of Section 6.1.
15.2 Cumulative Remedies, Etc. No failure or delay on the part of any of
the Purchasers in exercising any right, power or privilege hereunder, and no
course of dealing between any Corporation and the Purchasers, or any of them,
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege hereunder preclude the simultaneous or later
exercise of any other right, power or privilege. The rights and remedies herein
expressly provided are cumulative and not exclusive of any rights or remedies
which the Purchasers, or any of them, would otherwise have. No notice to or
demand on any Corporation in any case shall entitle such Corporation to any
other or further notice or demand in similar or
57
other circumstances or constitute a waiver of the rights of the Purchasers, or
any of them, to take any other or further action in any circumstances without
notice or demand.
15.3 No Oral Changes; Assignment; Survival of Representations. This
Agreement may not be changed or terminated orally. This Agreement shall be
binding upon the Company, USHG and the Purchasers and their successors and
assigns. Neither the Company nor USHG shall make any assignment of its rights
under this Agreement or subject this Agreement or its rights hereunder to any
Lien; and any such Lien shall be absolutely void and unenforceable as against
the Purchasers. All agreements, representations and warranties made herein or in
writing otherwise in connection herewith shall survive the issuance of the Notes
and Warrants.
15.4 Several Obligations. The Purchasers shall not be jointly obligated
hereunder; their obligations are several. The sales of the Notes and Warrants to
the Purchasers shall be deemed separate sales to each Purchaser. Notwithstanding
any provision of this Agreement, the Company and USHG shall not be obligated to
sell less than all of the Notes and Warrants, and no Purchaser shall be
obligated to purchase any of the Notes and Warrants unless all of the Notes and
Warrants are sold.
15.5 Costs and Expenses The Corporations shall pay within five (5) days
after receipt of written request therefor all reasonable fees, costs and
expenses of the Purchasers incurred in connection with, or otherwise payable by
the Corporations with respect to: (a) the preparation, negotiation, execution,
delivery, administration, default, collection, waiver or amendment of any terms
of this Agreement and the other Purchaser Documents (including, without
limitation, any environmental and other "due diligence" investigations); (b) the
preparation, negotiation, execution and delivery of the letter of intent dated
as of September 20, 2001 and the commitment letter dated as of October 11, 2001,
as amended as of October 30, 2001, between Xxxxx Associates Incorporated and
USHG (including, without limitation, the commitment fee described in the term
sheet attached thereto); (c) the Purchasers' exercise, preservation or
enforcement of any of their rights, remedies or options hereunder (including,
without limitation, pursuant to Sections 9.2 and 9.3 hereof); (d) the granting,
perfecting and protecting of liens upon and security interests in any collateral
now or hereafter securing the Corporations' obligations under this Agreement and
the other Purchaser Documents; and (e) the prosecution or defense of any claim
in any way arising out of, related to or connected with this Agreement or any of
the other Purchaser Documents; including in each case, without limitation, (i)
fees and expenses of outside legal counsel or the allocated costs of in-house
legal counsel for the Agent and the Purchasers, provided that the fees of
separate counsel to individual Purchasers (i.e., of counsel in addition to
counsel for the Agent and the Purchasers) may not be so charged to the
Corporations with respect to matters not involving an amendment, waiver or
similar matter or enforcement matters following an Event of Default, (ii)
accounting, consulting, brokerage or other similar professional fees or
expenses, (iii) any fees and expenses associated with travel or other costs
relating to any appraisals or examinations conducted in connection with the
Corporations' obligations under this Agreement and the other Purchaser Documents
or any collateral therefor (including, without limitation, the collateral
described in the Security Agreement), (iv) all filing fees and other taxes and
fees payable or determined to be payable in connection therewith, including,
without limitation, documentary, stamp and
58
similar taxes and assessments and all recording and filing fees charged by any
Governmental Authority; and (v) all other costs and expenses incurred by the
Purchasers as are payable by the Corporations pursuant to Sections 9.2, 9.3 and
15.8 hereof or pursuant to any other provision of this Agreement or any of the
other Purchaser Documents. All of the foregoing fees, costs and expenses are
referred to herein collectively as the "Costs and Expenses". The Costs and
Expenses shall bear interest at the default rate described in Section 3.1(d)
hereof from the due date thereof until the same are paid. The Company, USHG and
(by executing this Agreement where indicated below) the other Corporations
hereby acknowledge that their obligations under this Section 15.5 (I) are joint
and several, (II) are secured by any and all collateral now or hereafter
securing the Corporations' obligations under the Purchaser Documents (including,
without limitation, the Guaranties and the collateral described in the Security
Documents), (III) shall survive any termination of this Agreement and (IV) are
absolute and unconditional regardless of whether or not the Transactions are
consummated.
15.6 Loss or Destruction of Note. Upon receipt by the Company of notice of
the loss, theft, destruction or mutilation of any Note, and (in the case of
loss, theft or destruction) of indemnity satisfactory to the Company (the
Purchasers' undertaking shall be satisfactory indemnity in the case of loss,
theft or destruction of any Note owned by the Purchaser), and upon reimbursement
to the Company of all reasonable expenses incidental thereto, and upon surrender
or cancellation of such Note, if mutilated, the Company shall make and deliver a
new Note of like tenor in lieu of the lost, stolen, destroyed or mutilated Note.
15.7 Allocation of Payments among Purchasers. (a) The Purchasers of each
Series of Notes agree among themselves that, with respect to all sums received
by such Purchasers applicable to the payment of principal of, premium (if any)
or interest on the Notes of such Series, equitable adjustment will be made among
such Purchasers so that, in effect, all such sums shall be shared ratably by all
of such Purchasers holding Notes of such Series, whether received by voluntary
payment, by realization upon security, by the exercise of the right of setoff,
by counter-claim or cross-action or by the enforcement of any or all of the
Notes of such Series. If any Purchaser receives any payment on its Notes of a
Series in excess of its pro rata portion of amounts relating to all Notes of
such Series, then such Purchaser receiving such excess payment shall purchase
for cash from the other Purchasers holding Notes of such Series shares in their
Notes of such Series in such amounts as shall result in a ratable participation
by all of the Purchasers holding Notes of such Series in the aggregate unpaid
amount of Notes of such Series then outstanding. In addition to the provisions
set forth in this Section 15.7, two or more of the Purchasers may enter into
agreements among themselves for the allocation of proceeds, and if requested,
the Company hereby agrees to abide by such agreements.
(b) The provisions of Section 15.7(a) above relate to the allocation of
payments received among the holders of Notes of the same Series, and such
provisions shall not detract from the provisions of Section 3.1(f) hereof, which
primarily relate to the allocation of amounts between the Series A Notes, on the
one hand, and the Series B Notes, on the other hand.
15.8 Indemnification Generally. Each of the Company and USHG agrees to
indemnify and hold harmless each Purchaser, its Subsidiaries, and any subsequent
holder of the
59
Notes or the Warrants, and their respective directors, officers, employees,
stockholders, partners and Affiliates, to the maximum extent permitted by law,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, reasonable costs, reasonable expenses and
disbursements of any kind or nature whatsoever with respect to the Transactions
or the Transaction Documents, any operations or activities of any of the
Corporations, the execution, delivery, enforcement, performance and
administration of the Purchaser Documents and the use of the proceeds of the
issuance and sale of the Notes and Warrants, or any other matter, claim or event
related to, or arising out of the Transactions, the Transaction Documents or the
matters contemplated therein (all the foregoing, collectively, the "indemnified
liabilities"); provided, that neither the Company nor USHG shall have any
obligation hereunder to any indemnified party with respect to indemnified
liabilities arising from the gross negligence or willful misconduct of such
indemnified party. The obligations of the Company and USHG under this Section
15.8 shall survive and continue to be in full force and effect notwithstanding
the termination of this Agreement.
15.9 Governing Law. This Agreement, the other Purchaser Documents and the
other agreements and instruments executed as provided herein and therein, and
the rights and obligations of the parties hereunder and thereunder, shall be
construed and interpreted in accordance with and governed by the internal laws
of the State of New York.
15.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
15.11 Captions; Gender. The descriptive headings of the Sections of this
Agreement are inserted for convenience only and shall not affect the meaning,
construction or interpretation of any of the provisions hereof. The use of the
neuter form of a pronoun shall be deemed, where appropriate, to include the
masculine and feminine forms of such pronoun.
15.12 Survival; Right to Indemnification. All representations, warranties,
covenants, and obligations in this Agreement, the certificates delivered
pursuant to Section 5 hereof, and any other certificate or document delivered
pursuant to this Agreement will survive the Closing. The right to
indemnification, payment of damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty,
covenant, or obligation. The waiver of any condition based on the accuracy of
any representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment or
damages, or other remedy based on such representations, warranties, covenants,
and obligations.
15.13 Purchasers May Perform. If any of the Corporations fails to perform
any agreement contained herein or in the other Purchaser Documents, the
Purchasers may, but shall not be obligated to, perform or cause the performance
of such agreement, and the costs and
60
expenses incurred by the Purchasers in connection therewith shall constitute
Costs and Expenses hereunder.
15.14. Integration. This Agreement (including all Exhibits and Schedules
attached hereto and all certificates and other documents executed and delivered
in connection herewith or pursuant hereto) constitutes the entire understanding
and agreement of the parties hereto with respect to the subject matter hereof,
and supersedes all prior agreements and understandings, written and oral, among
the parties with respect to the subject matter hereof, including, without
limitation, the letter of intent and commitment letter referred to in Section
15.5; provided, however, that the following provisions of such commitment letter
shall survive in the event the Closing is not consummated: "Expenses",
"Non-Funding Fee", "Confidentiality of Commitment and No-Shop Undertaking",
"Applicable Law; Jurisdiction" and "Jury Trial Waiver; Indemnification".
15.15 Severability. An term of provision of this Agreement or of any of the
other Purchaser Documents which is invalid or unenforceable in any jurisdiction
shall, as to that jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without rendering invalid or unenforceable the remaining
terms and conditions of this Agreement or of any of the other Purchaser
Documents or affecting the validity or unenforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement or of any of the other Purchaser Documents is so broad as to be
unenforceable, the provision that be interpreted to be only so broad as is
enforceable.
15.16 Waiver of Jury Trial and Damages . EACH OF THE COMPANY AND USHG AND
THE PURCHASERS MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY JURISDICTION, COURT AND PROCEEDING WITH
RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE OTHER
PURCHASER DOCUMENTS, THE OTHER TRANSACTION DOCUMENTS, OR ANY INSTRUMENT OR
DOCUMENT DELIVERED PURSUANT HERETO OR THERETO OR ANY COURSE OF CONDUCT, COURSE
OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY,
INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS,
STATEMENTS OR ACTIONS OF CREDITOR RELATING TO THE ADMINISTRATION OR ENFORCEMENT
OF THIS AGREEMENT, THE OTHER PURCHASER DOCUMENTS OR THE OTHER TRANSACTION
DOCUMENTS, AND AGREE THAT NEITHER PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION
WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.
EXCEPT AS PROHIBITED BY LAW, EACH OF THE COMPANY AND USHG WAIVES ANY RIGHT WHICH
IT MAY HAVE TO CLAIM OR RECOVER IN ANY PROCEEDING REFERRED TO IN THE PRECEDING
SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL OR OTHER TYPE OF
DAMAGES OTHER THAN ACTUAL DAMAGES. EACH OF THE COMPANY AND USHG HEREBY CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE PURCHASERS HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT THE PURCHASERS WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING
61
WAIVERS. EACH OF THE COMPANY AND USHG ACKNOWLEDGES THAT THE FOREGOING WAIVERS
CONSTITUTE A MATERIAL INDUCEMENT FOR THE PURCHASERS TO ENTER INTO THIS AGREEMENT
AND PURCHASE THE NOTES. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH OF THE
COMPANY AND USHG CONFIRMS THAT THE FOREGOING WAIVERS ARE INFORMED AND FREELY
MADE.
[Remainder of page intentionally left blank; signature page follows]
62
If you are in agreement with the foregoing Note and Warrant Purchase,
Guaranty and Security Agreement, please sign in the space provided below.
--------------------------------------------------------------------------------
Company: USHG:
EASY GARDENER, INC. U.S. HOME & GARDEN INC.
By: ________________________ By: ________________________
Name/Title: Name/Title:
--------------------------------------------------------------------------------
The undersigned Corporations hereby agree to the provisions of Section 3.3 and
Exhibit C (Grant of Security Interest; Appointment of Collateral Agent), Section
3.4 and Exhibit D (Guaranty), and Section 15.5 (Costs and Expenses).
--------------------------------------------------------------------------------
GOLDEN WEST AGRI-PRODUCTS, INC. XXXXXXXXX CONSUMER PRODUCTS GROUP, INC.
By: ________________________ By: ________________________
Name/Title: Name/Title:
--------------------------------------------------------------------------------
AMPRO INDUSTRIES, INC. XXXXXXXXX CONSUMER PRODUCTS, INC.
By: ________________________ By: ________________________
Name/Title: Name/Title:
--------------------------------------------------------------------------------
WEED WIZARD ACQUISTION CORP.
By: ________________________
Name/Title:
--------------------------------------------------------------------------------
63
The foregoing is hereby accepted and agreed to as of the date first above
written:
--------------------------------------------------------------------------------
Purchasers: Purchasers (cont'd):
----------- --------------------
LEG PARTNERS DEBENTURE SBIC, L.P.
By: Xxxxx Debenture GP, LLC, LEG CO-INVESTORS, LLC
its general partner
By: ___________________________
By: ________________________________ Xxxxxxx X. Xxxxxxx,
Xxxxxxx X. Xxxxxxx, Vice President Authorized Signatory
--------------------------------------------------------------------------------
LEG PARTNERS III, L.P. LEG CO-INVESTORS II, LLC
By: Xxxxx XX III, LLC, its general partner
By: ________________________________ By: ___________________________
Xxxxxxx X. Xxxxxxx, Vice President Xxxxxxx X. Xxxxxxx, Manager
--------------------------------------------------------------------------------
LEG PARTNERS III SBIC, L.P. 555 MADISON INVESTORS, LLC
By: Xxxxx XX-XX, LLC, its general partner
By: ________________________________ By: ___________________________
Xxxxxxx X. Xxxxxxx, Vice President Xxxxxxx X. Xxxxxxx, Manager
--------------------------------------------------------------------------------
EXHIBIT A
TO NOTE AND WARRANT PURCHASE,
GUARANTY AND SECURITY AGREEMENT
U.S. HOME & GARDEN, INC.
EASY GARDENER, INC.
NOTE AND WARRANT PURCHASE, GUARANTY AND SECURITY AGREEMENT
List of Purchasers
Common Preferred Total Purchase
Purchasers Series A Notes Series B Notes Warrants Options Price
---------- -------------- -------------- -------- ------- -----
LEG Partners Debenture SBIC, L.P. $5,555,556 N/A N/A N/A $5,000,000
LEG Partners III, L.P. $215,129 N/A N/A N/A $193,616
LEG Partners III SBIC, L.P. N/A $824,384 3.6108% 3.6108% $824,456
LEG Co-Investors, LLC $54,658 $7,808 0.0342% 0.0342% $57,001
LEG Co-Investors II, LLC $143,836 $20,548 N/A N/A $150,000
555 Madison Investors, LLC $23,973 $3,425 0.1050% 0.1050% $25,002
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxx
Telecopier No.:000-000-0000
TOTALS: $5,993,151 $856,164 3.7500% 3.7500% $6,250,075
EXHIBIT B-1
TO NOTE AND WARRANT PURCHASE,
GUARANTY AND SECURITY AGREEMENT
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED OR
THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF REGISTRATION THEREUNDER OR AN EXEMPTION THEREFROM AS PROVIDED IN THE
PURCHASE AGREEMENT REFERRED TO HEREIN.
THIS NOTE IS SUBORDINATED TO CERTAIN SENIOR INDEBTEDNESS OF THE COMPANY. THE
HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF COVENANTS AND AGREES THAT AMOUNTS
OWING WITH RESPECT TO THIS NOTE SHALL BE SUBORDINATED IN ACCORDANCE WITH THE
PROVISIONS OF THE SUBORDINATION AGREEMENT DATED AS OF NOVEMBER 15, 2001 AMONG
PNC BANK, NATIONAL ASSOCIATION, THE CORPORATIONS AND THE INITIAL HOLDER OF THIS
NOTE, AND THE HOLDER ACCEPTS AND AGREES TO BE BOUND BY SUCH PROVISIONS.
EASY GARDENER, INC.
16% Series A Senior Subordinated Note
$__________ November __, 2001
FOR VALUE RECEIVED, the undersigned, EASY GARDENER, INC., a Delaware
corporation (the "Company"), hereby unconditionally promises to pay to the order
of __________________________ (together with any successors and/or assigns, the
"Purchaser"), in lawful money of the United States of America and in immediately
available funds, the principal amount of ___________________ DOLLARS
($__________) on November 19, 2007.
The undersigned further agrees to pay interest in like money at such office
on the unpaid principal amount hereof at the rates per annum and on the dates
specified in Sections 3.1(c) and (d) of the Purchase Agreement (as hereinafter
defined) until paid in full.
All payments hereunder shall be made for the account of the Purchaser at
its office located at 000 Xxxxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, XX 00000, or to
such other address as the Purchaser may designate in accordance with the terms
of the Purchase Agreement.
If any principal of or interest on this Note is not paid when due or there
exists an Event of Default under the Purchase Agreement, this Note shall bear
interest thereafter, at a rate of 4% per annum in excess of the rate otherwise
applicable, accrued monthly, until the Interest Payment Date next following
either, as applicable, the date on which such overdue
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principal or interest is paid in full, or the date on which such other Default
or Event of Default is cured.
This Note is one of the 16% Series A Senior Subordinated Notes, identical
in all respects except as to principal amount and payee, issued by the Company
pursuant to and subject to the terms of a certain Note and Warrant Purchase,
Guaranty and Security Agreement dated as of November 15, 2001 (the "Purchase
Agreement") among the Company, U.S. Home and Garden Inc. and the original
Purchasers listed on Exhibit A thereto. Capitalized terms used but not otherwise
defined herein shall have the meanings set forth in the Purchase Agreement.
Reference is made to the Purchase Agreement for a description of the
agreements of the parties, the circumstances under which the maturity of this
Note may be accelerated, and the obligations of the Company to pay the costs of
enforcement of this Note (including reasonable fees and expenses of counsel)
incurred by the holder of this Note. In the event that this Note becomes or is
declared due and payable prior to its stated maturity, this Note shall become
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived.
The Company has the right under certain circumstances to prepay this Note
in whole or in part, and is obligated to make certain mandatory prepayments on
this Note, in each case as provided in the Purchase Agreement. This Note is
secured by, and entitled to the benefits of, the Security Documents referred to
in the Purchase Agreement.
This Note is to be construed and interpreted in accordance with and
governed by the internal laws of the State of New York.
EASY GARDENER, INC.
By: ____________________________
Name:
Title:
2
EXHIBIT B-2
TO NOTE AND WARRANT PURCHASE,
GUARANTY AND SECURITY AGREEMENT
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED OR
THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF REGISTRATION THEREUNDER OR AN EXEMPTION THEREFROM AS PROVIDED IN THE
PURCHASE AGREEMENT REFERRED TO HEREIN.
THIS NOTE IS SUBORDINATED TO CERTAIN SENIOR INDEBTEDNESS OF THE COMPANY. THE
HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF COVENANTS AND AGREES THAT AMOUNTS
OWING WITH RESPECT TO THIS NOTE SHALL BE SUBORDINATED IN ACCORDANCE WITH THE
PROVISIONS OF THE SUBORDINATION AGREEMENT DATED AS OF NOVEMBER 15, 2001 AMONG
PNC BANK, NATIONAL ASSOCIATION, THE CORPORATIONS AND THE INITIAL HOLDER OF THIS
NOTE, AND THE HOLDER ACCEPTS AND AGREES TO BE BOUND BY SUCH PROVISIONS.
EASY GARDENER, INC.
14% Series B Senior Subordinated Note
$_____________ November __, 2001
FOR VALUE RECEIVED, the undersigned, EASY GARDENER, INC., a Delaware
corporation (the "Company"), hereby unconditionally promises to pay to the order
of __________________________ (together with any successors and/or assigns, the
"Purchaser"), in lawful money of the United States of America and in immediately
available funds, the principal amount of ___________________ DOLLARS
($__________) on November 19, 2007.
The undersigned further agrees to pay interest in like money at such office
on the unpaid principal amount hereof at the rates per annum and on the dates
specified in Sections 3.1(c) and (d) of the Purchase Agreement (as hereinafter
defined) until paid in full.
All payments hereunder shall be made for the account of the Purchaser at
its office located at 000 Xxxxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, XX 00000, or to
such other address as the Purchaser may designate in accordance with the terms
of the Purchase Agreement.
If any principal of or interest on this Note is not paid when due or there
exists an Event of Default under the Purchase Agreement, this Note shall bear
interest thereafter, at the rate of, at a rate of 4% per annum in excess of the
rate otherwise applicable, accrued monthly, until the Interest Payment Date next
following either, as applicable, the date on which such
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overdue principal or interest is paid in full, or the date on which such other
Default or Event of Default is cured.
This Note is one of the 14% Series B Senior Subordinated Notes, identical
in all respects except as to principal amount and payee, issued by the Company
pursuant to and subject to the terms of a certain Note and Warrant Purchase,
Guaranty and Security Agreement dated as of November 15, 2001 (the "Purchase
Agreement") among the Company, U.S. Home and Garden Inc. and the original
Purchasers listed on Exhibit A thereto. Capitalized terms used but not otherwise
defined herein shall have the meanings set forth in the Purchase Agreement.
Reference is made to the Purchase Agreement for a description of the
agreements of the parties, the circumstances under which the maturity of this
Note may be accelerated, and the obligations of the Company to pay the costs of
enforcement of this Note (including reasonable fees and expenses of counsel)
incurred by the holder of this Note. In the event that this Note becomes or is
declared due and payable prior to its stated maturity, this Note shall become
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived.
The Company has the right under certain circumstances to prepay this Note
in whole or in part, and is obligated to make certain mandatory prepayments on
this Note, in each case as provided in the Purchase Agreement. This Note is
secured by, and entitled to the benefits of, the Security Documents referred to
in the Purchase Agreement.
This Note is to be construed and interpreted in accordance with and
governed by the internal laws of the State of New York.
EASY GARDENER, INC.
By: ____________________________
Name:
Title:
2
EXHIBIT C
TO NOTE AND WARRANT PURCHASE,
GUARANTY AND SECURITY AGREEMENT
THE SECURITY INTEREST GRANTED HEREBY IS SUBORDINATED TO THE LIENS GRANTED BY THE
CORPORATIONS TO THE SENIOR LENDER PURSUANT TO THE SENIOR LOAN AGREEMENT. THE
PURCHASERS COVENANT AND AGREE THAT THE LIENS GRANTED HEREBY SHALL BE
SUBORDINATED IN ACCORDANCE WITH THE PROVISIONS OF THE SUBORDINATION AGREEMENT
DATED AS OF NOVEMBER 15, 2001 AMONG PNC BANK, NATIONAL ASSOCIATION, THE
CORPORATIONS AND THE PURCHASERS.
Grant of Security Interest; Appointment of Collateral Agent
This Exhibit C is part of the Note and Warrant Purchase, Guaranty and
Security Agreement dated as of November 15, 2001 among U.S. Home & Garden, Inc.
("USHG"), Easy Gardener, Inc. (the "Company"), USHG's other Subsidiaries and the
Purchasers named therein (the "Purchase Agreement").
SECTION 1. DEFINITIONS.
1.1 Uniform Commercial Code Terms. All terms used herein and defined in the
Uniform Commercial Code as adopted in the State of New York from time to time
shall have the meaning given therein unless otherwise defined herein. To the
extent the definition of any category or type of collateral is expanded by any
amendment, modification or revision to the Uniform Commercial Code, such
expanded definition will apply automatically as of the date of such amendment,
modification or revision.
1.2 Capitalized Terms. Capitalized terms used in this Exhibit C and not
otherwise defined herein shall have the meanings given to such terms in the
Purchase Agreement. The following terms used in this Exhibit C shall have the
meanings indicated below:
"Agent" shall mean Xxxxx Associates Incorporated, as the collateral agent
for the Purchasers appointed pursuant to Section 3 of this Exhibit C, and shall
include its successors and assigns.
"Collateral", with respect to any Person, shall mean and include:
(a) all Receivables (including, in the case of the Company, all
Intercompany Notes);
(b) all Equipment;
(c) all General Intangibles;
(d) all Inventory;
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(e) all Subsidiary Stock; and
(f) all of such Person's right, title and interest in and to (i) its
respective goods and other property including, but not limited to, all
merchandise returned or rejected by Customers, relating to or securing any
of the Receivables; (ii) all of such Person's rights as a consignor, a
consignee, an unpaid vendor, mechanic, artisan, or other lienor, including
stoppage in transit, setoff, detinue, replevin, reclamation and repurchase;
(iii) all additional amounts due to such Person from any Customer relating
to the Receivables; (iv) other property, including warranty claims,
relating to Equipment; (v) all of such Person's contract rights, rights of
payment which have been earned under a contract right, instruments
(including promissory notes), documents, chattel paper (including
electronic chattel paper), warehouse receipts, deposit accounts, letters of
credit and money; (vi) all commercial tort claims (whether now existing or
hereafter arising); (vii) if and when obtained by such Person, all real and
personal property of third parties in which such Person has been granted a
lien or security interest as security for the payment or enforcement of
Receivables; and (viii) any other goods, personal property or real property
now owned or hereafter acquired in which such Person has expressly granted
a security interest or may in the future grant a security interest to the
Agent and the Purchasers hereunder, or in any amendment or supplement
hereto or thereto, or under any other agreement between the Agent or the
Purchasers (on the one hand) and such Person, on the other hand;
(g) all of such Person's ledger sheets, ledger cards, files,
correspondence, records, books of account, business papers, computers,
computer software (owned by such Person or in which it has an interest),
computer programs, tapes, disks and documents relating to the items
referred to in any of the foregoing clauses (a), (b), (c), (d), (e) or (f);
and
(h) all proceeds and products of the items referred to in any of the
foregoing clauses (a), (b), (c), (d), (e), (f) or (g) in whatever form,
including, but not limited to: cash, deposit accounts (whether or not
comprised solely of proceeds), certificates of deposit, insurance proceeds
(including hazard, flood and credit insurance), negotiable instruments and
other instruments for the payment of money, chattel paper, security
agreements, documents, eminent domain proceeds, condemnation proceeds and
tort claim proceeds.
"Customer" of any Person shall mean and include the account debtor with
respect to any Receivable and/or the prospective purchaser of goods, services or
both with respect to any contract or contract right, and/or any party who enters
into or proposes to enter into any contract or other arrangement with such
Person, pursuant to which such Person is to deliver any personal property or
perform any services.
"Equipment" of any Person shall mean and include all of such Person's goods
(other than Inventory) whether now owned or hereafter acquired and wherever
located including, without limitation, all equipment, machinery, apparatus,
motor vehicles, fittings, furniture, furnishings, fixtures, parts, accessories
and all replacements and substitutions therefor or accessions thereto.
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"General Intangibles" of any Person shall mean and include all of such
Person's general intangibles, whether now owned or hereafter acquired including,
without limitation, all payment intangibles, all choses in action, causes of
action, corporate or other business records, inventions, designs, patents,
patent applications, equipment formulations, manufacturing procedures, quality
control procedures, trademarks, trademark applications, service marks, trade
secrets, goodwill, copyrights, design rights, software, computer information,
source codes, codes, records and dates, registrations, licenses, franchises,
customer lists, tax refunds, tax refund claims, computer programs, all claims
under guaranties, security interests or other security held by or granted to
such Person to secure payment of any of the Receivables by a Customer (other
than to the extent covered by Receivables) all rights of indemnification and all
other intangible property of every kind and nature (other than Receivables).
"Intercompany Notes" shall have the meaning given thereto in the Senior
Loan Agreement.
"Inventory" of any Person shall mean and include all of such Person's now
owned or hereafter acquired goods, merchandise and other personal property,
wherever located, to be furnished under any consignment arrangement, contract of
service or held for sale or lease, all raw materials, work in process, finished
goods and materials and supplies of any kind, nature or description which are or
might be used or consumed in such Person's business or used in selling or
furnishing such goods, merchandise and other personal property, and all
documents of title or other documents representing them.
"Obligations" shall mean and include any and all loans, advances, debts,
liabilities, obligations, covenants and duties owing by the Company or any
Guarantor to the Purchasers or the Agent or to any other direct or indirect
subsidiary or affiliate of the Agent or any Purchaser of any kind or nature,
present or future (including, without limitation, any interest accruing thereon
after maturity, or after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding relating to
the Company or any Guarantor, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding), whether or not evidenced
by any note, guaranty or other instrument, whether arising under any agreement,
instrument or document (including, without limitation, this Agreement and the
other Purchaser Documents), whether or not for the payment of money, whether
arising by reason of an extension of credit, loan or guarantee, or in any other
manner, whether direct or indirect (including those acquired by assignment or
participation), absolute or contingent, joint or several, due or to become due,
now existing or hereafter arising, contractual or tortious, liquidated or
unliquidated, regardless of how such indebtedness or liabilities arise or by
what agreement or instrument they may be evidenced or whether evidenced by any
agreement or instrument, including, but not limited to, any and all of the
Company's Indebtedness and/or liabilities under the Purchase Agreement, the
other Purchaser Documents or under any other agreement between the Agent or the
Purchasers (on the one hand) and the Company or any Guarantor (on the other
hand) and any amendments, extensions, renewals or increases, and all costs and
expenses of the Agent and any Purchaser incurred in the documentation,
negotiation, modification, enforcement, collection or otherwise in connection
with any of the foregoing, including but not limited to reasonable attorneys'
fees and expenses and all obligations of the Company and the Guarantors to the
Agent or the Purchasers to perform acts or refrain from taking any action.
3
"Receivables" of any Person shall mean and include all of such Person's
accounts, contract rights, instruments (including those evidencing indebtedness
owed to such Person by its Affiliates), documents, chattel paper (including
electronic chattel paper), general intangibles relating to accounts, drafts and
acceptances, credit card receivables and all other forms of obligations owing to
such Person arising out of or in connection with the sale or lease of Inventory
or the rendition of services, all supporting obligations, guarantees and other
security therefor, whether secured or unsecured, now existing or hereafter
created, and whether or not specifically sold or assigned to the Agent and the
Purchasers hereunder.
"Subsidiary Stock" shall mean, with respect to any Person, all of the
issued and outstanding shares of capital stock of such Person's Subsidiaries.
SECTION 2. COLLATERAL; GENERAL TERMS
2.1 Security Interest in the Collateral. To secure the prompt payment and
performance to the Agent and each Purchaser of the Obligations, each Corporation
hereby assigns, pledges and grants to the Agent for the ratable benefit of each
Purchaser a continuing security interest in and to all of its Collateral,
whether now owned or existing or hereafter acquired or arising and wheresoever
located. Each Corporation shall xxxx its books and records as may be necessary
or appropriate to evidence, protect and perfect the Agent's and the Purchasers'
security interest and shall cause its financial statements to reflect such
security interest. Each Corporation shall promptly provide the Agent with
written notice of all commercial tort claims, such notice to contain the case
title together with the applicable court and a brief description of the
claim(s). Upon delivery of each such notice, such Corporation shall be deemed to
hereby grant to the Agent and the Purchasers a security interest and lien in and
to such commercial tort claims and all proceeds thereof.
2.2 Perfection of Security Interest. Each Corporation shall take all action
that may be necessary or desirable, or that the Agent may request, so as at all
times to maintain the validity, perfection, enforceability and priority of the
Agent's and the Purchasers' security interest in the Collateral (subject only to
the prior security interest in favor of the Senior Lender) or to enable the
Agent to protect, exercise or enforce its or the Purchasers' rights hereunder
and in the Collateral, including, but not limited to, (i) immediately
discharging all Liens other than Permitted Liens, (ii) obtaining landlords' or
mortgagees' lien waivers, (iii) subject to the Senior Lender's prior rights
under Section 4.2(iii) of the Senior Loan Agreement, delivering to the Agent,
endorsed or accompanied by such instruments of assignment as the Agent may
specify, and stamping or marking, in such manner as the Agent may specify, any
and all chattel paper, instruments, letters of credits and advices thereof and
documents evidencing or forming a part of the Collateral, (iv) subject to the
Senior Lender's prior rights under Section 4.2(iv) of the Senior Loan Agreement,
entering into warehousing, lockbox and other custodial arrangements satisfactory
to the Agent (provided that any such arrangements other than lockboxes shall be
reasonable), and (v) executing and delivering financing statements, control
agreements, instruments of pledge, mortgages, notices and assignments, in each
case in form and substance satisfactory to the Agent, relating to the creation,
validity, perfection, maintenance or continuation of the Agent's and the
Purchasers' security interest
4
under the Uniform Commercial Code or other applicable law. The Agent is hereby
authorized to file financing statements signed by the Agent instead of the
Corporations in accordance with the Uniform Commercial Code as adopted in the
State of New York from time to time. By signing the Purchase Agreement, each
Corporation hereby authorizes the Agent to file against such Corporation one or
more financing continuation or amendment statements pursuant to the Uniform
Commercial Code in form and substance satisfactory to the Agent (which
statements may have a description of collateral which is broader than that set
forth herein). All charges, expenses and fees the Agent or the Purchasers may
incur in doing any of the foregoing, and any local taxes relating thereto, shall
be added to the Obligations, or, at the Agent's option, shall be paid to the
Agent for the ratable benefit of the Purchasers immediately upon demand.
2.3 Disposition of Collateral. The Corporations will safeguard and protect
all Collateral for the Agent's and the Purchasers' general account and make no
disposition thereof whether by sale, lease or otherwise except as permitted by
Section 7.6 of the Purchase Agreement.
2.4 Preservation of Collateral. At any time when a Default or Event of
Default has occurred and is continuing, in addition to the rights and remedies
set forth in the Purchase Agreement (but subject to the Senior Subordination
Agreement), the Agent: (a) may at any time take such steps as the Agent deems
necessary to protect the Agent's and the Purchasers' interest in and to preserve
the Collateral, including the hiring of such security guards or the placing of
other security protection measures as the Agent may deem appropriate; (b) may
employ and maintain at any of the Corporations' premises a custodian who shall
have full authority to do all acts necessary to protect the Agent's and the
Purchasers' interests in the Collateral; (c) may lease warehouse facilities to
which the Agent may move all or part of the Collateral; (d) may use the
Corporations' owned or leased lifts, hoists, trucks and other facilities or
equipment for handling or removing the Collateral; and (e) shall have, and is
hereby granted, a right of ingress and egress to the places where the Collateral
is located, and may proceed over and through any of the Corporations' owned or
leased property, except as otherwise disclosed on Schedule C-2.4. Subject to the
Senior Lender's prior rights under the penultimate sentence of Section 4.4 of
the Senior Loan Agreement, the Corporations shall cooperate fully with all of
the Agent's efforts to preserve the Collateral and will take such actions to
preserve the Collateral as the Agent may direct. All of the Agent's and the
Purchasers' expenses of preserving the Collateral, including any expenses
relating to the bonding of a custodian, shall be charged to the Company and
added to the Obligations.
2.5 Ownership of Collateral. With respect to the Collateral, at the time
the Collateral becomes subject to the Agent's and the Purchasers' security
interest: (a) the applicable Corporation shall be the sole owner of and fully
authorized and able to sell, transfer, pledge and/or grant a security interest
(subject only to Purchase Money Liens) in each and every item of its respective
Collateral to the Agent for the ratable benefit of the Purchasers, subject only
to the prior security interest in favor of the Senior Lender granted pursuant to
the Senior Loan Agreement; and, except for Permitted Liens, the Collateral shall
be free and clear of all Liens and encumbrances whatsoever; (b) each document
and agreement executed by the Corporations (or any of them) or delivered to the
Agent or any Purchaser in connection with this Agreement shall be true and
correct in all respects; (c) all signatures and endorsements of any Corporation
that appear on such documents and agreements shall be genuine and such
5
Corporation shall have full capacity to execute same; and (d) each Corporation's
Equipment and Inventory shall be located as set forth on Schedule C-2.5 and
shall not be removed from such location(s) without the prior written consent of
the Agent except with respect to the sale of Inventory in the ordinary course of
business and Equipment to the extent permitted in Section 2.3 hereof or Section
7.6 of the Purchase Agreement.
2.6 Defense of the Agent's and the Purchasers' Interests. Until (a) payment
and performance in full of all of the Obligations and (b) termination of this
Agreement, the Agent's and the Purchasers' interests in the Collateral shall
continue in full force and effect. During such period no Corporation shall,
without the Agent's prior written consent, pledge, sell (except as permitted by
Section 7.6 of the Purchase Agreement), assign, transfer, create or suffer to
exist a Lien upon or encumber or allow or suffer to be encumbered in any way
except for Permitted Liens, any part of the Collateral. The Corporations shall
defend the Agent's and the Purchasers' interests in the Collateral against any
and all Persons whatsoever (other than with respect to Permitted Liens). At any
time following demand by the Agent for payment of all Obligations, the Agent
shall have the right (subject to the Senior Subordination Agreement) to take
possession of the indicia of the Collateral and the Collateral in whatever
physical form contained, including without limitation: labels, stationery,
documents, instruments and advertising materials. If the Agent exercises this
right to take possession of the Collateral, the Corporations shall, upon demand,
assemble it in the best manner possible and make it available to the Agent at a
place reasonably convenient to the Agent. In addition, with respect to all
Collateral, the Agent (on behalf of the Purchasers) shall be entitled to all of
the rights and remedies set forth herein and further provided by the Uniform
Commercial Code or other applicable law. Subject to the Senior Subordination
Agreement, at any time the Corporations shall, if reasonably requested by the
Agent, and if an Event of Default shall have occurred and be continuing, the
Agent may, at its option, instruct all suppliers, carriers, forwarders,
warehousers or others receiving or holding cash, checks, Inventory, documents or
instruments in which the Agent holds a security interest for the benefit of the
Purchasers to deliver the same to the Agent and/or subject to the Agent's order
and if they shall come into any Corporation's possession, they, and each of
them, shall be held by such Corporation in trust as the Agent's trustee, and
such Corporation will immediately deliver them to the Agent in their original
form together with any necessary endorsement.
2.7 Books and Records. Each Corporation shall (a) keep proper books of
record and account in which full, true and correct entries will be made of all
dealings or transactions of or in relation to its business and affairs; (b) set
up on its books accruals with respect to all taxes, assessments, charges, levies
and claims; and (c) on a reasonably current basis set up on its books, from its
earnings, allowances against doubtful Receivables, advances and investments and
all other proper accruals (including without limitation by reason of
enumeration, accruals for premiums, if any, due on required payments and
accruals for depreciation, obsolescence, or amortization of properties), which
should be set aside from such earnings in connection with its business. All
determinations pursuant to this subsection shall be made in accordance with, or
as required by, GAAP consistently applied in the opinion of such independent
public accountant as shall then be regularly engaged by the Corporations.
2.8 Financial Disclosure. Each Corporation hereby irrevocably authorizes
and directs all accountants and auditors employed by such Corporation at any
time when any
6
Obligations are outstanding to exhibit and deliver to the Agent and each
Purchaser copies of any of such Corporation's financial statements, trial
balances or other accounting records of any sort in the accountant's or
auditor's possession, and to disclose to the Agent and each Purchaser any
information such accountants may have concerning such Corporation's financial
status and business operations. Each Corporation hereby authorizes all federal,
state and municipal authorities to furnish to the Agent and each Purchaser
copies of reports or examinations relating to such Corporation, whether made by
such Corporation or otherwise; however, the Agent and each Purchaser will
attempt to obtain such information or materials directly from the Corporations
prior to obtaining such information or materials from such accountants or such
authorities.
2.9 Compliance with Laws. The Collateral at all times shall be maintained
in accordance with the requirements of all insurance carriers which provide
insurance with respect to the Collateral so that such insurance shall remain in
full force and effect.
2.10 - 2.13 [Reserved].
2.14 Payment of Leasehold Obligations. Each Corporation shall at all times
pay, when and as due (subject to any applicable grace or cure periods), its
rental obligations under all leases under which it is a tenant, and shall
otherwise comply, in all material respects, with all other terms of such leases
and keep them in full force and effect and, at the Agent's request will provide
evidence of having done so; provided, that no Corporation shall be in default of
its obligations under this Section 4.14 if such Corporation reserves amounts
necessary to satisfy its obligations under any such lease in connection with any
good faith dispute with the landlord of the premises subject to such lease and
during the pendency of such dispute the Collateral, the Agent's and the
Purchasers' Lien therein and such Corporation's occupancy of the leased premises
remain unimpaired.
2.15 Receivables.
(a) Nature of Receivables. Each of the Receivables shall be a bona fide and
valid account representing a bona fide indebtedness incurred by the Customer
therein named, for a fixed sum as set forth in the invoice relating thereto
(provided immaterial or unintentional invoice errors shall not be deemed to be a
breach hereof) with respect to an absolute sale or lease and delivery of goods
upon stated terms of the applicable Corporation, or work, labor or services
theretofore rendered by such Corporation as of the date each Receivable is
created. Same shall be due and owing in accordance with such Corporation's
standard terms of sale without dispute, setoff or counterclaim except as may be
stated on the accounts receivable schedules delivered by the Company to the
Agent.
(b) Solvency of Customers. Each Customer, to the best of the Corporations'
knowledge, as of the date each Receivable is created, is and will be solvent and
able to pay all Receivables on which the Customer is obligated in full when due
or with respect to such Customers of the Corporations who are not solvent, the
applicable Corporation has set up on its books and in its financial records bad
debt reserves adequate to cover such Receivables.
7
(c) Location of Corporations. The Company's chief executive office is
located at 0000 Xxxxxxxx Xxxxxx, Xxxx, Xxxxx 00000-0000. The Company maintains
its records pertaining to the Receivables primarily at its chief executive
office and all other records pertaining to the Receivables are maintained at one
or more of the locations described on Schedule C-2.15(c). Until written notice
is given to the Agent by any Corporation of any other office at which any
Corporation keeps its records pertaining to Receivables, all such records shall
be kept at such executive office and the locations described on Schedule
C-2.15(c).
(d) [Reserved].
(e) Notification of Assignment of Receivables. At any time following the
occurrence and during the continuation of a Default or Event of Default) (but
subject to the Senior Subordination Agreement), the Agent shall have the right
to send notice of the assignment of, and the Agent's and the Purchasers'
security interest in, the Receivables to any and all Customers or any third
party holding or otherwise concerned with any of the Collateral. Thereafter (but
subject to the Senior Subordination Agreement), the Agent shall have the sole
right to collect the Receivables, take possession of the Collateral, or both.
The Agent's and the Purchasers' actual collection expenses, including, but not
limited to, stationery and postage, telephone and telegraph, secretarial and
clerical expenses and the salaries of any collection personnel used for
collection, may be charged to the Company and added to the Obligations.
(f) Power of the Agent to Act on the Corporations' Behalf. Subject to the
Senior Subordination Agreement, the Agent shall have the right to receive,
endorse, assign and/or deliver in the name of the Agent or any Corporation any
and all checks, drafts and other instruments for the payment of money relating
to the Receivables, and each Corporation waives notice of presentment, protest
and non-payment of any instrument so endorsed. Each Corporation hereby
constitutes the Agent or the Agent's designee as such Corporation's attorney
with power to do the following (to the extent not prohibited by the Senior
Subordination Agreement): (i) to endorse such Corporation's name upon any notes,
acceptances, checks, drafts, money orders or other evidences of payment or
Collateral; (ii) to sign such Corporation's name on any invoice or xxxx of
lading relating to any of the Receivables, drafts against Customers, assignments
and verifications of Receivables; (iii) to send verifications of Receivables to
any Customer; (iv) to sign such Corporation's name on all financing statements
or any other documents or instruments deemed necessary or appropriate by the
Agent to preserve, protect, or perfect the Agent's and the Purchasers' interest
in the Collateral and to file same; (v) to demand payment of the Receivables;
(vi) to enforce payment of the Receivables by legal proceedings or otherwise;
(vii) to exercise all of such Corporation's rights and remedies with respect to
the collection of the Receivables and any other Collateral; (viii) to settle,
adjust, compromise, extend or renew the Receivables; (ix) to settle, adjust or
compromise any legal proceedings brought to collect Receivables; (x) to prepare,
file and sign such Corporation's name on a proof of claim in bankruptcy or
similar document against any Customer; (xi) to prepare, file and sign such
Corporation's name on any notice of Lien, assignment or satisfaction of Lien or
similar document in connection with the Receivables; and (xii) to do all other
acts and things necessary to carry out this Agreement; provided that (A) the
Agent shall only take the actions referred to in clauses (ii), (v), (vi), (vii),
8
(viii), (ix) and (xii) following the occurrence and during the continuance of an
Event of Default, and (B) unless an Event of Default is continuing, Agent shall
only take the actions referred to in clauses (x) and (xi) if the applicable
Corporation has not done so promptly following the Agent's request. 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 nor for any
error of judgment or mistake of fact or of law, unless done maliciously or with
gross (not mere) negligence; this power being coupled with an interest is
irrevocable while any of the Obligations remain unpaid. The Agent shall have the
right at any time following the occurrence of an Event of Default (but subject
to the Senior Subordination Agreement), to change the address for delivery of
mail addressed to any Corporation to such address as the Agent may designate and
to receive, open and dispose of all mail addressed to such Corporation.
(g) No Liability. Neither the Agent nor any Purchaser shall, under any
circumstances or in any event whatsoever, have any liability for any error or
omission or delay of any kind occurring in the settlement, collection or payment
of any of the Receivables or any instrument received in payment thereof, or for
any damage resulting therefrom. Following the occurrence of and during the
continuance of an Event of Default or Default, the Agent may, without notice or
consent from any Corporation, xxx upon or otherwise collect, extend the time of
payment of, compromise or settle for cash, credit or upon any terms any of the
Receivables or any other securities, instruments or insurance applicable thereto
and/or release any obligor thereof. The Agent is authorized and empowered to
accept, following the occurrence and during the continuance of an Event of
Default (but subject to the Senior Subordination Agreement) the return of the
goods represented by any of the Receivables, without notice to or consent by any
Corporation, all without discharging or in any way affecting any Corporation's
liability hereunder or under the other Purchaser Documents.
(h) [Reserved].
(i) Adjustments. No Corporation will, without the Agent's consent,
compromise or adjust any material amount of the Receivables (or extend the time
for payment thereof) or accept any material returns of merchandise or grant any
additional discounts, allowances or credits thereon except for those
compromises, extensions, adjustments, returns, discounts, credits and allowances
as have been heretofore customary in the business of such Corporation.
2.16 Inventory. To the extent Inventory held for sale or lease has been
produced by a Corporation, it has been and will be produced by such Corporation
in accordance with the Federal Fair Labor Standards Act of 1938, as amended, and
all rules, regulations and orders thereunder.
2.17 Maintenance of Equipment. The Equipment shall be maintained in good
operating condition and repair (reasonable wear and tear excepted) and all
necessary replacements of and repairs thereto shall be made so that the value
and operating efficiency of the Equipment shall be maintained and preserved. No
Corporation shall use or operate the Equipment in violation of any law, statute,
ordinance, code, rule or regulation. The Corporations shall have the right to
sell Equipment to the extent set forth in Section 2.3 hereof.
9
2.18 Exculpation of Liability. Nothing herein contained shall be construed
to constitute the Agent or any Purchaser as any Corporation's agent for any
purpose whatsoever, nor shall the Agent or any Purchaser be responsible or
liable for any shortage, discrepancy, damage, loss or destruction of any part of
the Collateral wherever the same may be located and regardless of the cause
thereof. Neither the Agent nor any Purchaser, whether by anything herein or in
any assignment or otherwise, assumes any of the Corporations' obligations under
any contract or agreement assigned to the Agent or such Purchaser, and neither
the Agent nor any Purchaser shall be responsible in any way for the performance
by such Corporation of any of the terms and conditions thereof.
2.19 [Reserved].
2.20 Financing Statements. As of the Closing Date, except as respects the
financing statements filed by the Agent and the Senior Lenders (or their agent)
and the financing statements described on Schedule 4.8, no financing statement
covering any of the Collateral or any proceeds thereof is on file in any public
office. Following the Closing Date, except as respects the financing statements
filed by the Agent and the Senior Lenders (or their agent), the financing
statements described on Schedule 4.8 and Permitted Liens, no financing statement
covering any of the Collateral or any proceeds thereof is on file in any public
office.
2.21 Release of Liens. Upon payment and satisfaction in full of the Notes
and of all obligations in respect of the Notes owing under any of the Purchaser
Documents, the Agent shall release its security interest in the Collateral.
SECTION 3. APPOINTMENT OF COLLATERAL AGENT.
3.1 Appointment. Each Purchaser hereby irrevocably designates and appoints
Xxxxx Associates Incorporated as the agent (the "Agent") of such Purchaser with
respect to all matters relating to the Collateral and the grant to the Agent for
the ratable benefit of the Purchasers of a security interest in the Collateral
pursuant to this Exhibit C, and each Purchaser irrevocably authorizes the Agent
to take such action on its behalf under the provisions of this Exhibit C and the
other Purchaser Documents as the Agent deems appropriate and to exercise all
powers of the Purchasers under this Exhibit C and the other Purchaser Documents,
together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Exhibit C or the
other Purchaser Documents, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Purchaser, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Exhibit C or the other Purchaser Documents or otherwise exist against the Agent.
3.2 Delegation of Powers. The Agent may exercise any of its powers under
this Exhibit C or the other Purchaser Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such powers. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys in-fact selected by it with
reasonable care.
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3.3 Exculpatory Provisions. Neither the Agent nor any of its officers,
directors, partners, employees, agents, attorneys-in-fact or affiliates shall be
(i) liable for any action lawfully taken or omitted to be taken by it or such
person under or in connection with this Exhibit C or the other Purchaser
Documents (except for its or such person's own gross negligence or willful
misconduct) or (ii) responsible in any manner to any of the Purchasers for any
recitals, statements, representations or warranties made by any Corporation or
any officer thereof contained in this Exhibit C or the other Purchaser Documents
or in any certificate, report, statement or other document referred to or
provided for in, or received by the Agent under or in connection with, this
Exhibit C or the other Purchaser Documents or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Exhibit C or
the other Purchaser Documents or for any failure of any Corporation to perform
its obligations hereunder or thereunder. The Agent shall not be under any
obligation to any Purchaser to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Exhibit C or the other Purchaser Documents, or to inspect the properties, books
or records of any Corporation.
3.4 Reliance by Agent. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper person
or persons and upon advice and statements of legal counsel (including without
limitation counsel to the Corporations), independent accountants and other
experts selected by the Agent. The Agent may deem and treat the payee of any
Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Exhibit C or the other Purchaser Documents unless it shall
first receive such advice or concurrence of a majority in interest of the
holders of the Notes (the "Required Holders") as it deems appropriate or it
shall first be indemnified to its satisfaction by the holders of such Notes
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Exhibit C or
the other Purchaser Documents in accordance with a request of the Required
Holders, and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Purchasers and all future holders of the
Notes.
3.5 Notice of Default. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any default (a "Default") or event of default
("Event of Default") under the Purchase Agreement unless the Agent has received
notice from a Purchaser or any Corporation referring to the Purchase Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default". In the event that the Agent receives such a notice, the
Agent shall give notice thereof to the Purchasers. The Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Required Holders; provided that unless and until the Agent shall
have received such directions, the Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable in the best interests of
the Required Holders.
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3.6 Non-Reliance on Agent and Other Purchasers. Each Purchaser expressly
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates has made any representations
or warranties to it and that no act by the Agent hereinafter taken, including
any review of the affairs of the Corporations, shall be deemed to constitute any
representation or warranty by the Agent to any Purchaser. Each Purchaser
represents to the Agent that it has, independently and without reliance upon the
Agent or any other Purchaser, and based on such documents and information as it
has deemed appropriate, made its own appraisal of and investigation into the
business, operations, property, financial and other condition and
creditworthiness of the Corporations and made its own decision to purchase the
Notes and Warrants and enter into this Agreement and the other Purchaser
Documents. Each Purchaser also represents that it will, independently and
without reliance upon the Agent or any other Purchaser, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking or not taking
action under this Exhibit C or the other Purchaser Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Corporations. The Agent shall not have any duty or responsibility to provide any
Purchaser with any credit or other information concerning the business,
operations, property, condition (financial or otherwise), prospects or
creditworthiness of the Corporations which may come into the possession of the
Agent or any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates.
3.7 Indemnification. The Purchasers agree to indemnify the Agent in its
capacity as such (to the extent not reimbursed by the Corporations and without
limiting the obligation of the Corporations to do so), ratably according to the
respective outstanding amounts of their Notes, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including without limitation at any time following the payment of any of the
Notes or the termination of the Purchaser Documents) be imposed on, incurred by
or asserted against the Agent in any way relating to or arising out of this
Exhibit C, the other Purchaser Documents or any documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
or any action taken or omitted by the Agent under or in connection with any of
the foregoing; provided that no Purchaser shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
Agent's gross negligence or willful misconduct. The agreements in this
subsection shall survive the payment of the Notes and all other amounts payable
under the Purchaser Documents in respect of the Notes.
3.8 Agent in Its Individual Capacity. The Agent and its affiliates may make
loans to, purchase notes of, make and acquire investments in, and generally
engage in any kind of business with any Corporation as though the Agent were not
the Agent under this Exhibit C or the other Purchaser Documents. With respect to
any securities issued to it, the Agent shall have the same rights and powers
under this Exhibit C or the other Purchaser Documents as any Purchaser and may
exercise the same as though it were not the Agent, and the terms "Purchaser" and
"Purchasers" shall include the Agent in its individual capacity.
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3.9 Successor Agent. The Agent may resign as Agent upon 10 days' notice to
the Purchasers. If the Agent shall resign, then the Required Holders shall
appoint from among the Purchasers (or an Affiliate thereof) a successor agent
for the Purchasers, whereupon such successor agent shall succeed to the rights,
powers and duties of the Agent, and the term "Agent" shall mean such successor
agent effective upon its appointment, and the former Agent's rights, powers and
duties as Agent shall be terminated, without any other or further act or deed on
the part of such former Agent or any of the Purchasers or any of the parties to
the Purchaser Documents. After any retiring Agent's resignation as Agent, the
provisions of this Section 3 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Exhibit C and the
other Purchaser Documents.
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EXHIBIT D
TO NOTE AND WARRANT PURCHASE,
GUARANTY AND SECURITY AGREEMENT
THIS GUARANTY IS SUBORDINATED TO THE GUARANTY CONTAINED IN ARTICLE XIV OF THE
SENIOR LOAN AGREEMENT. THE PURCHASERS COVENANT AND AGREE THAT THIS GUARANTY
SHALL BE SUBORDINATED IN ACCORDANCE WITH THE PROVISIONS OF THE SUBORDINATION
AGREEMENT DATED AS OF NOVEMBER 15, 2001 AMONG PNC BANK, NATIONAL ASSOCIATION,
THE COMPANY, THE GUARANTORS AND THE PURCHASERS.
Guaranty
This Exhibit D is part of the Note and Warrant Purchase, Guaranty and
Security Agreement dated as of November 15, 2001 among U.S. Home & Garden, Inc.
("USHG"), Easy Gardener, Inc. (the "Company"), USHG's other Subsidiaries and the
Purchasers named therein (the "Purchase Agreement").
SECTION 1. DEFINITIONS.
Capitalized terms used in this Exhibit D and not otherwise defined herein
shall have the meanings given to such terms in the Purchase Agreement. The
following terms used in this Exhibit D shall have the meanings indicated below:
"Agent" shall mean Xxxxx Associates Incorporated, as the collateral agent
for the Purchasers appointed pursuant to Section 3 of Exhibit C to the Purchase
Agreement, and shall include its successors and assigns.
"Guaranty" shall mean any guaranty of the obligations of the Company
executed by a Guarantor in favor of the Agent or the Purchasers, whether
pursuant to this Exhibit D or otherwise.
"Obligations" shall have the meaning given thereto in Exhibit C to the
Purchase Agreement.
SECTION 2. GUARANTY.
2.1 Guaranty. Each Guarantor hereby unconditionally guaranties the full and
prompt payment and performance when due, whether by acceleration or otherwise,
and at all times thereafter, of any and all present and future Obligations of
any type or nature of the Company or any other Person (including, without
limitation, any other Guarantor) to the Agent and the Purchasers arising under
or related to this Agreement or any other Purchaser Document and/or any one or
more of them, whether due or to become due, matured or unmatured,
1
liquidated or unliquidated, or contingent or noncontingent, including
obligations of performance as well as obligations of payment, including interest
on any of the foregoing whether accruing before or after any bankruptcy or
insolvency case or proceeding involving any Guarantor, the Company or any other
Person and, if interest on any portion of such obligations ceases to accrue by
operation of law by reason of the commencement of such case or proceeding,
including such interest as would have accrued on any such portion of such
obligations if such case or proceeding had not commenced, and further agrees to
pay all expenses (including reasonable attorneys' fees and legal expenses) paid
or incurred by the Agent or any Purchaser in endeavoring to collect any of the
foregoing, or any part thereof, and in enforcing the obligations of such
Guarantor (collectively, the "Liabilities").
Each Guarantor agrees that, in the event of the dissolution, bankruptcy or
insolvency of the Company, or the inability or failure of the Company to pay its
debts as they become due, or an assignment by the Company for the benefit of
creditors, or the commencement of any case or proceeding in respect of the
Company under any bankruptcy, insolvency or similar laws, and if such event
shall occur at a time when any of the Liabilities may not then be due and
payable, such Guarantor will pay to the Agent, for the benefit of the Agent and
the Purchasers, forthwith the full amount which would be payable hereunder by
such Guarantor if all Liabilities were then due and payable.
This Guaranty shall in all respects be a continuing, absolute and
unconditional guaranty of payment and performance (and not of collection), and
shall remain in full force and effect (notwithstanding, without limitation, the
dissolution of any Guarantor).
2.2 Guarantors' Obligations Unconditional. The covenants and agreements of
each Guarantor set forth in this Guaranty shall be primary obligations of such
Guarantor, and such obligations shall be continuing, absolute and unconditional,
shall not be subject to any counterclaim, setoff, deduction, diminution,
abatement, recoupment, suspension, deferment, reduction or defense (other than
full and strict compliance by such Guarantor with its obligations hereunder),
whether based upon any claim that the Company or any other Person may have
against the Agent, any Purchaser or any other Person or otherwise, and shall
remain in full force and effect without regard to, and shall not be released,
discharged or in any way affected by, any circumstance or condition whatsoever
(whether or not any Guarantor or the Company shall have any knowledge or notice
thereof) including, without limitation:
A. any amendment, modification, addition, deletion, supplement or renewal
to or of or other change in the Liabilities or this Agreement or the
other Purchaser Documents or any related instrument or agreement, or
any other instrument or agreement applicable thereto or any of the
parties to such agreements, or to any collateral, or any furnishing or
acceptance of additional security for, guaranty of or right of offset
with respect to, any of the Liabilities; or the failure of any
security or the failure of the Agent or any Purchaser to perfect or
insure any interest in any Collateral;
B. any failure, omission or delay on the part of any Corporation, the
Agent or any Purchaser to conform or comply with any term of any
instrument or agreement referred to in clause (A) above;
2
C. any waiver, consent, extension, indulgence, compromise, release or
other action or inaction under or in respect of any instrument,
agreement, guaranty, right of offset or security referred to in clause
(A) above or any obligation or liability of any Corporation, the Agent
or any Purchaser, or any exercise or non-exercise by the Agent or any
Purchaser of any right, remedy, power or privilege under or in respect
of any such instrument, agreement, guaranty, right of offset or
security or any such obligation or liability;
D. any bankruptcy, insolvency, reorganization, arrangement, readjustment,
composition, liquidation or similar proceeding with respect to any
Corporation, the Agent, any Purchaser or any other Person or any of
their respective properties or creditors, or any action taken by any
trustee or receiver or by any court in any such proceeding;
E. any limitation on the liability or obligations of any Person under the
Purchaser Documents or any other related instrument or agreement, the
Liabilities, any collateral security for the Liabilities or any other
guaranty of the Liabilities or any discharge, termination,
cancellation, frustration, irregularity, invalidity or
unenforceability, in whole or in part, of any of the foregoing, or any
other agreement, instrument, guaranty or security referred to in
clause (A) above or any term of any thereof;
F. any merger or consolidation of the Company or any Guarantor into or
with any other Person or any sale, lease or transfer of any of the
assets of the Company or any Guarantor to any other Person;
G. any change in the ownership of any of the equity interests of the
Company or any Guarantor or any corporate change in the Company or any
Guarantor; or
H. any other occurrence or circumstance whatsoever, whether similar or
dissimilar to the foregoing and any other circumstance that might
otherwise constitute a legal or equitable defense or discharge of the
liabilities of a guarantor or surety or that might otherwise limit
recourse against a Guarantor.
The obligations of each Guarantor set forth herein constitute the full
recourse obligations of such Guarantor, enforceable against it to the full
extent of all its assets and properties.
Each Guarantor waives any and all notice of the creation, renewal,
extension or accrual of any of the Liabilities and notice of or proof of
reliance by the Agent and the Purchasers upon this Guaranty or acceptance of
this Guaranty, and the Liabilities, and any of them, shall conclusively be
deemed to have been created, contracted or incurred in reliance upon this
Guaranty. Each Guarantor unconditionally waives, to the extent permitted by law:
(a) acceptance of this Guaranty and proof of reliance by the Agent and the
Purchasers hereon; (b) notice of any of the matters referred to in the foregoing
clauses A through H hereof, or any right to consent or assent to any thereof;
(c) all notices that may be required by statute, rule of law or otherwise, now
or hereafter in effect, to preserve intact any rights against such
3
Guarantor, including without limitation, any demand, presentment, protest, proof
or notice of nonpayment under this Agreement or any other Purchaser Document or
any related instrument or agreement, and notice of default or any failure on the
part of any Corporation to perform and comply with any covenant, agreement, term
or condition of this Agreement, any other Purchaser Document or any related
instrument or agreement; (d) any right to the enforcement, assertion or exercise
against any Corporation of any right, power, privilege or remedy conferred in
this Agreement, any other Purchaser Document or any related instrument or
agreement or otherwise; (e) any requirement of diligence on the part of any
Person; (f) any requirement of the Agent or any Purchaser to take any action
whatsoever, to exhaust any remedies or to mitigate the damages resulting from a
default under this Agreement, any other Purchaser Document or any related
instrument or agreement; (g) any notice of any sale, transfer or other
disposition by any Person of any right under, title to or interest in this
Agreement, any other Purchaser Document or any related instrument or agreement
relating thereto or any collateral for the Liabilities; and (h) any other
circumstance whatsoever that might otherwise constitute a legal or equitable
discharge, release or defense of a guarantor or surety, or that might otherwise
limit recourse against a Guarantor (including, without limitation, any and all
benefits under California Civil Code Sections 2809, 2810, 2819, 2822, 2825,
2845, 2846, 2847, 2848, 2849, 2850, 2899 and 3433).
Without limiting the foregoing, each Guarantor hereby absolutely,
unconditionally and irrevocably waives and agrees not to assert or take
advantage of any defense based upon an election of remedies by the Agent or any
Purchaser, including an election to proceed by non-judicial rather than judicial
foreclosure, which destroys or impairs any right of subrogation of such
Guarantor or the right of such Guarantor to proceed against any Person for
reimbursement or both.
Each Guarantor agrees that this Guaranty shall be automatically reinstated
if and to the extent that for any reason any payment by or on behalf of the
Company or any other Guarantor is rescinded or must be otherwise restored by the
Agent or any Purchaser, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise.
Each Guarantor further agrees that, without limiting the generality of this
Guaranty, if an Event of Default shall have occurred and be continuing and the
Agent or any Purchaser is prevented by applicable law from exercising its
remedies under the Purchaser Documents, the Agent and the Purchasers shall be
entitled to receive hereunder from each Guarantor (but subject to the Senior
Subordination Agreement), upon demand therefor, the sums which would have
otherwise been due from the Company had such remedies been exercised.
2.3 Subordination.
A. Subordination to Senior Obligations. (a) Each Guarantor hereby covenants
and agrees that, as provided herein, all indebtedness, intercompany charges and
other sums owing and claims of any nature whatsoever owed to such Guarantor by
any other Corporation ("Intercompany Obligations"), the payment of the principal
of and interest thereon and any lien or security interest therefor are hereby
expressly made subordinate and subject in right of payment to the prior payment
in full of: (i) all obligations now or hereafter incurred by any of the
Corporations under any of the Purchaser Documents, (ii) interest thereon
(including,
4
without limitation, any such interest accruing subsequent to the filing by or
against any of the Corporations of any proceeding brought under Chapter 11 of 11
U.S.C. ss.101 et seq., as from time to time hereafter amended and any successor
or similar statute ("Bankruptcy Code"), whether or not such interest is allowed
as a claim pursuant to the provisions of such Chapter), and (iii) all fees,
expenses, indemnities and other amounts now or hereafter payable pursuant to or
in connection with the Purchase Agreement and all other Purchaser Documents
(collectively the "Senior Obligations"), and any lien on any property or asset
securing the Senior Obligations.
(b) No payment or prepayment of any Intercompany Obligations (whether of
principal, interest or otherwise) shall be made by any Corporation at any time
prior to the indefeasible payment in full, in cash, of the Senior Obligations,
provided that the Corporations may make payments (not prepayments) of
Intercompany Obligations in the ordinary course of business to the extent that
at the time of, and immediately after giving effect to, any such payment, no
Default or Event of Default exists.
B. Payment Over of Proceeds Upon Bankruptcy. In the event of (i) any
insolvency or bankruptcy case or proceeding, or any receivership, liquidation,
reorganization or other similar case or proceeding in connection therewith,
relative to any Corporation or to its creditors as such, or to its properties or
assets, or (ii) any liquidation, dissolution or other winding-up of any
Corporation, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors
or any other marshaling of assets or liabilities of any Corporation, then and in
any such event the holders of Senior Obligations shall be entitled to receive
payment in full of all amounts due on or in respect of Senior Obligations, in
cash or in any other manner acceptable to the holders of Senior Obligations,
before any Corporation is entitled to receive any payment or distribution of any
kind or character on account of principal of or interest on any Intercompany
Obligations of such Corporation, and to that end the holders of Senior
Obligations shall be entitled to receive, for application to the payment
thereof, any payment or distribution of assets of such Corporation of any kind
or character including, without limitation, securities that are subordinated in
right of payment to all Senior Obligations to substantially the same extent as,
or to a greater extent than, as provided in this Guaranty, that may be payable
or deliverable in respect of this Guaranty in any such case, proceeding,
dissolution, liquidation or other winding-up or event referred to in clauses (i)
through (iii) above.
C. Payments to be Held in Trust. In the event that a Guarantor shall
receive any payment or distribution of assets of any Corporation of any kind or
character in respect of the Intercompany Obligations in contravention of the
foregoing Subsection A or B, then and in such event such payment or distribution
shall be received and held by such Corporation in trust for the Agent and the
Purchasers, and (subject to the Senior Subordination Agreement) shall be paid
over or delivered forthwith to the Agent, the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee, agent or other Person making payment
or distribution of assets of the Corporation in trust for the holders of the
Senior Obligations, and for application to the payment of, all Senior
Obligations remaining unpaid, to the extent necessary to pay all Senior
Obligations in full, in cash or in any other manner acceptable to the Agent,
after giving effect to any concurrent payment or distribution to or for the
Senior Obligations.
5
D. Waiver. Each Guarantor hereby waives presentment, demand for payment,
notice of protest and all other demands and notices in connection with the
delivery, acceptance, performance or enforcement hereof.
E. Legend. Each Guarantor hereby covenants to cause any instrument from
time to time evidencing any Intercompany Obligations to have fixed upon it a
legend which reads substantially as follows:
"This instrument is subject to Section 2.3 of Exhibit D to the
Note and Warrant Purchase, Guaranty and Security Agreement dated
as of November 15, 2001 among U.S. Home & Garden, Inc. ("USHG"),
Easy Gardener, Inc., USHG's other Subsidiaries and the Purchasers
named therein, which, among other things, contains provisions
subordinating the maker's obligations to the holders of Senior
Obligations (as defined in Section 2.3 of Exhibit D to said
Agreement), to which provisions the holder of this instrument, by
acceptance hereof, agrees."
F. No Disposition. No Guarantor will sell, assign, pledge, encumber or
otherwise dispose of any of the Intercompany Obligations owed to it, provided
that such Guarantor may forgive Intercompany Obligations or contribute
Intercompany Obligations to a Corporation.
2.4 Waiver of Subrogation. Each Guarantor hereby irrevocably waives, solely
for the benefit of Agent and the Lenders, until the indefeasible repayment in
full of the Obligations, any claim or other rights which it may now or hereafter
acquire that arise from the existence, payment, performance or enforcement of
such Guarantor's obligations under this Guaranty or any guaranty in favor of the
Senior Lender, including any right of subrogation, reimbursement, exoneration,
or indemnification, any right to participate in any claim or remedy of the Agent
and the Purchasers (or the Senior Lender) against any of the Corporations or any
of their assets which the Agent or any Purchaser (or the Senior Lender) now have
or hereafter acquires, whether or not such claim, remedy or right arises in
equity, or under contract, statute or common law, including the right to take or
receive from any Corporation, directly or indirectly, in cash or other property
or by set-off or in any manner, payment or security on account of such claim or
other rights. If any amount shall be paid to a Guarantor in violation of the
preceding sentence and the Liabilities shall not have been indefeasibly paid in
full in cash, such amount shall be deemed to have been paid to such Guarantor
for the benefit of, and held in trust for, the Agent and the Purchasers, and
shall forthwith be paid to the Agent to be credited and applied pursuant to the
terms of this Agreement. Each Guarantor acknowledges that it will receive
substantial direct and indirect benefits from the issuance and sale of the Notes
and Warrants and that the waiver set forth in this paragraph is knowingly made
in contemplation of such benefits.
2.5 Fraudulent Transfer Limitation. If, in any action to enforce this
Guaranty or any proceeding to allow or adjudicate a claim under this Guaranty, a
court of competent jurisdiction determines that enforcement of this Guaranty
against any Guarantor for the full amount of the Guaranteed Obligations is not
lawful under, or would be subject to avoidance under, Section 548 of the
Bankruptcy Code or any applicable provision of comparable state law, the
liability
6
of such Guarantor under this Guaranty shall be limited to the maximum amount
lawful and not subject to avoidance under such law.
2.6 Contribution Among Guarantors. The Guarantors desire to allocate among
themselves, in a fair and equitable manner, their rights of contribution from
each other when any payment is made by one of the Guarantors under this
Guaranty. Accordingly, if any payment is made by a Guarantor under this Guaranty
(a "Funding Guarantor") that exceeds its Fair Share, the Funding Guarantor shall
be entitled to a contribution from each other Guarantor in the amount of such
other Guarantor's Fair Share Shortfall, so that all such contributions shall
cause each Guarantor's Aggregate Payments to equal its Fair Share. For these
purposes:
(a) "Fair Share" means, with respect to a Guarantor as of any date of
determination, an amount equal to (i) the ratio of (x) the Adjusted Maximum
Amount of such Guarantor to (y) the aggregate Adjusted Maximum Amounts of all
Guarantors, multiplied by (ii) the aggregate amount paid on or before such date
by all Funding Guarantors under this Guaranty.
(b) "Fair Share Shortfall" means, with respect to a Guarantor as of any
date of determination, the excess, if any, of the Fair Share of such Guarantor
over the Aggregate Payments of such Guarantor.
(c) "Adjusted Maximum Amount" means, with respect to a Guarantor as of any
date of determination, the maximum aggregate amount of the liability of such
Guarantor under this Guaranty, limited to the extent required under Section 2.5
(except that, for purposes solely of this calculation, any assets or liabilities
arising by virtue of any rights to or obligations of contribution under this
Section 2.6 shall not be counted as assets or liabilities of such Guarantor).
(d) "Aggregate Payments" means, with respect to a Guarantor as of any date
of determination, the aggregate net amount of all payments made on or before
such date by such Guarantor under this Guaranty (including, without limitation,
under this Section 2.6).
The amounts payable as contributions hereunder shall be determined by the
Funding Guarantor as of the date on which the related payment or distribution is
made by the Funding Guarantor, and such determination shall be binding on the
other Guarantors absent manifest error. The allocation and right of contribution
among the Guarantors set forth in this Section 2.6 shall not be construed to
limit in any way the liability of any Guarantor under this Guaranty.
2.7 Future Guarantors. Any other Person who may hereafter become a
Subsidiary of any Corporation may and shall become a Guarantor under this
Agreement and become bound by the terms and conditions hereof by executing and
delivering an instrument of joinder.
2.8 Joint and Several Obligation. This Guaranty and all liabilities of each
Guarantor hereunder shall be the joint and several obligation of each Guarantor
and may be freely enforced against each Guarantor, for the full amount of the
Liabilities (subject to Section 2.5), without regard to whether enforcement is
sought or available against any other Guarantor.
7
2.9 No Waiver. No delay in the exercise of any right or remedy shall
operate as a waiver thereof, and no single or partial exercise of any right or
remedy shall preclude other or further exercise thereof or the exercise of any
other right or remedy; nor shall any modification or waiver of any of the
provisions of this Guaranty be binding upon the Agent and the Purchasers except
as expressly set forth in a writing duly signed and delivered on their behalf.
2.10 Representations and Warranties. Each Guarantor hereby expressly
reaffirms each representation and warranty made in this Agreement with respect
to such Guarantor and its property.
8
EXHIBIT E-1
TO NOTE AND WARRANT PURCHASE,
GUARANTY AND SECURITY AGREEMENT
Registration Rights
(Common Stock)
This Exhibit E-1 is part of the Note and Warrant Purchase, Guaranty and
Security Agreement dated as of November 15, 2001 among U.S. Home & Garden, Inc.
("USHG"), Easy Gardener, Inc. (the "Company"), USHG's other Subsidiaries and the
Purchasers named therein (the "Purchase Agreement").
SECTION 1. Definitions. Capitalized terms used in this Exhibit E-1 and not
otherwise defined herein shall have the meanings given to such terms in the
Purchase Agreement. The following terms used in this Exhibit E-1 shall have the
meanings indicated below:
"Holders" shall mean any holders from time to time of Registrable
Securities who are Purchasers under the Purchase Agreement.
"Registrable Securities" shall mean (i) the Common Warrants and Common
Warrant Shares and (ii) Common Stock and any other Capital Stock, equity
interest or other securities issuable or issued by way of stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or other transaction of the
character referred to in Section 9(b) of the Common Warrant Agreement; provided,
however, that USHG shall have no obligation to register any Common Warrants, and
each holder of Common Warrants who desires to include in a registration any
shares of Common Stock issuable upon exercise of such Common Warrants will (if
requested to do so by USHG) exercise all or part of its Common Warrants prior to
the effectiveness of such registration as required to permit the inclusion
therein of such underlying shares.
SECTION 2. Registration.
(a) Incidental Registration Rights. In the case of any proposed
registration of Common Stock or other securities of USHG under the Securities
Act, whether or not for sale for its own account, on any form which can include
Registrable Securities (other than Form S-4), USHG will give at least 30 days'
prior written notice of the filing thereof to all Holders.
(1) USHG's notice shall afford the Holders an opportunity to elect
within 15 days after receipt thereof to include in such filing all or any
part of their Registrable Securities; provided, that, in the case of an
underwritten public offering, the managing underwriter administering such
offering may reduce the number of Registrable Securities to be included in
such offering if, in the reasonable opinion of such managing underwriter,
the inclusion in such offering of all Registrable Securities requested to
be registered would materially and adversely affect the marketing of the
entire offering (the number of Registrable
Securities to be included in such offering being herein referred to as the
"Permissible Securities"). If the aggregate number of Registrable
Securities which the Holders thereof desire to include in such filing
exceeds the number of Permissible Securities, then each such Holder shall
be entitled to include that number of Registrable Securities which bears
the same ratio to the number of Permissible Securities as the number of
Registrable Securities such Holder desires to include bears to the number
of Registrable Securities all such Holders desire to include.
(2) USHG agrees that any Holder entitled to include Registrable
Securities in any such registration may assign or transfer such right to
include such Registrable Securities to any other Holder or Holders.
(3) USHG shall be obligated under this Section 2(a) to afford the
Holders the right to participate in each and every such registration taking
place until all Registrable Securities have been included in registrations
and sold or sold pursuant to Rule 144.
(b) Short Form Registrations. In addition to the registration rights
provided in Section 2(a) above, the holders of a majority of the Registrable
Securities shall be entitled to request by written notice to USHG from time to
time that USHG register the offering and sale of all or a portion of the
Registrable Securities on Form S-3 (or any successor or similar short form
registration), provided that USHG is eligible for such registration. Upon
receipt of such written notice, if USHG is then eligible to use Form S-3 (or any
successor or similar short form registration), USHG will thereupon notify all
other Purchasers of such request. Upon the written request of any such other
Purchasers after receipt from USHG of such notification, USHG will use its best
efforts to cause such of the Registrable Securities as may be requested by any
Purchasers (including the Purchaser giving the initial notice of intent to
register hereunder) to be registered under the Securities Act in accordance with
the terms of this Section 2. USHG will use its best efforts to qualify for use
of a registration statement on Form S-3 (or any successor or similar short form
registration) as early as practicable. USHG shall not be required to file more
than one registration statement pursuant to this Section 2(b) in any 12 month
period or more than two registration statements pursuant to this Section 2(b) in
all.
(c) Expenses of Registration. The costs and expenses of all registrations
and qualifications under the Securities Act and applicable state securities laws
and of all other actions, which USHG is required to take or effect pursuant to
this Section 2 (including without limitation all registration and filing fees,
printing expenses and reasonable fees and disbursements of counsel) shall be
paid by USHG, except that the Holders shall bear their pro rata share of any
underwriting discount or commission, or other similar selling expenses;
provided, that USHG shall not be required to pay the fees and expenses of more
than one counsel for the selling Holders.
(d) Opinion of Counsel as Alternative. The registration rights granted to
the Holders under this Section 2 shall be subject to the condition that any
registration of Registrable Securities proposed to be effected need not be
effected if USHG shall deliver to the Holders requesting such registration an
opinion, satisfactory to such Holders and their counsel, of Blank Rome Xxxxxxx &
XxXxxxxx LLP or other counsel satisfactory to such Holders to the effect that
the proposed sale or disposition for which registration was requested does not
require registration under the Securities Act, but such opinion shall not rely
on the availability
2
of sales utilizing the provisions of Rule 144 if doing so would impose on the
Holder any volume restrictions, or any pre-sale notification or similar
restriction on the free sale of the Registrable Securities. USHG hereby
indemnifies the Holders, and each of them, against and holds them harmless from
all damages, losses, liabilities (including liability for rescission), costs and
expenses which they may incur under the Securities Act or otherwise by reason of
their proceeding in accordance with such opinion of counsel.
(e) USHG's Registration Obligations. If and whenever USHG is obligated by
the provisions of this Section 2 to effect the registration of any Registrable
Securities under the Securities Act, as expeditiously as reasonably possible
USHG will, or will use its best efforts to, as the case may be, to:
(1) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities.
(2) 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 to keep such registration statement effective until the
earlier of the sale of all Registrable Securities covered thereby and the
expiration of a period of nine months after the date such registration
statement became effective (except that any registration statement on Form
S-3 or similar short-form shall be maintained for not less than two years),
and comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by such registration
statement.
(3) Furnish to each selling Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as such
Holder may reasonably request.
(4) Register or qualify the Registrable Securities covered by such
registration statement under such other securities or blue sky laws of such
jurisdictions (subject to the approval of any managing underwriter
involved) as the selling Holders shall request, and do any and all other
acts and things which may be reasonably necessary or advisable to enable
such Holders to consummate the disposition in such jurisdictions of such
Registrable Securities; provided, however, that USHG shall not be
obligated, by reason thereof, to qualify as a foreign corporation or
subject itself to taxation as doing business in any such jurisdiction.
(5) Notify the selling Holders and their counsel promptly after USHG
shall receive notice that any registration statement, supplement or
amendment has become effective, or that any registration statement is
required to be amended or supplemented, or that any stop order has been
issued.
(f) Indemnification. USHG agrees to indemnify and hold harmless each
Holder, its officers or directors, affiliates and each Person, if any, who
controls such Holder within the meaning of the Securities Act, from and against
any losses, claims, damages, liabilities and expenses (under such Act, at common
law or otherwise) caused by any untrue statement or alleged untrue
3
statement of a material fact or omission to state a material fact required to be
stated or necessary to make the statements therein not misleading in any
registration statement or preliminary or final prospectus or filing for state
registration or qualification, or any amendment or supplement thereto, except
insofar as such losses, claims, damages, liabilities or expenses are caused by
any such untrue statement contained in or omission from information furnished in
writing to USHG by such Holder expressly for use therein.
(g) Agreement as to Underwriters. If the offering pursuant to any
registration statement provided for under this Section 2 is made, at the
election of USHG, through underwriters, USHG agrees to enter into an
underwriting agreement in customary form with such underwriters and to indemnify
such underwriters, their officers and directors, if any, and each Person who
controls such underwriters within the meaning of the Securities Act, to the same
extent as provided in Section 2(f) with respect to the indemnification of a
Holder.
(h) No Special Audit. USHG shall not be required to conduct any special
audit (or any audit not in the ordinary course of its business) in connection
with any registration hereunder.
4
EXHIBIT E-2
TO NOTE AND WARRANT PURCHASE,
GUARANTY AND SECURITY AGREEMENT
Registration Rights
(Preferred Securities)
This Exhibit E-2 is part of the Note and Warrant Purchase, Guaranty and
Security Agreement dated as of November 15, 2001 among U.S. Home & Garden, Inc.
("USHG"), Easy Gardener, Inc. (the "Company"), USHG's other Subsidiaries and the
Purchasers named therein (the "Purchase Agreement").
SECTION 1. Definitions. Capitalized terms used in this Exhibit E-2 and not
otherwise defined herein shall have the meanings given to such terms in the
Purchase Agreement. The following terms used in this Exhibit E-2 shall have the
meanings indicated below:
"Holders" shall mean any holders from time to time of Registrable
Securities who are Purchasers under the Purchase Agreement.
"Registrable Securities" shall mean (i) the Preferred Warrants and
Preferred Warrant Securities and (ii) Preferred Securities and any other
securities issuable or issued by way of securities dividend or securities split
or in connection with a combination of securities, recapitalization, merger,
consolidation or other reorganization or other transaction of the character
referred to in Section 9(b) of the Preferred Warrant Agreement; provided,
however, that USHG shall have no obligation to cause the Trust to register any
Preferred Warrants, and each holder of Preferred Warrants who desires to include
in a registration any Preferred Securities issuable upon exercise of such
Preferred Warrants will (if requested to do so by USHG or the Trust) exercise
all or part of its Preferred Warrants prior to the effectiveness of such
registration as required to permit the inclusion therein of such underlying
securities.
SECTION 2. Registration.
(a) Incidental Registration Rights. In the case of any proposed
registration of Preferred Securities or other securities of the Trust under the
Securities Act, whether or not for sale for its own account, on any form which
can include Registrable Securities (other than Form S-4), USHG will (or will
cause the Trust to) give at least 30 days' prior written notice of the filing
thereof to all Holders.
(1) such notice shall afford the Holders an opportunity to elect
within 15 days after receipt thereof to include in such filing all or any
part of their Registrable Securities; provided, that, in the case of an
underwritten public offering, the managing underwriter administering such
offering may reduce the number of Registrable Securities to be included in
such offering if, in the reasonable opinion of such managing underwriter,
the inclusion in such offering of all Registrable Securities requested to
be registered would materially and adversely affect the marketing of the
entire offering (the number of Registrable Securities to be included in
such offering being herein
referred to as the "Permissible Securities"). If the aggregate number of
Registrable Securities which the Holders thereof desire to include in such
filing exceeds the number of Permissible Securities, then each such Holder
shall be entitled to include that number of Registrable Securities which
bears the same ratio to the number of Permissible Securities as the number
of Registrable Securities such Holder desires to include bears to the
number of Registrable Securities all such Holders desire to include.
(2) USHG agrees that any Holder entitled to include Registrable
Securities in any such registration may assign or transfer such right to
include such Registrable Securities to any other Holder or Holders.
(3) USHG shall be obligated under this Section 2(a) to cause the Trust
to afford the Holders the right to participate in each and every such
registration taking place until all Registrable Securities have been
included in registrations and sold or sold pursuant to Rule 144.
(b) Short Form Registrations. In addition to the registration rights
provided in Section 2(a) above, the holders of a majority of the Registrable
Securities shall be entitled to request by written notice to USHG from time to
time that USHG cause the registration by the Trust of the offering and sale of
all or a portion of the Registrable Securities on Form S-3 (or any successor or
similar short form registration), provided that the Trust is eligible for such
registration. Upon receipt of such written notice, if the Trust is then eligible
to use Form S-3 (or any successor or similar short form registration), USHG will
thereupon notify all other Purchasers of such request. Upon the written request
of any such other Purchasers after receipt from USHG of such notification, USHG
will use its best efforts to cause such of the Registrable Securities as may be
requested by any Purchasers (including the Purchaser giving the initial notice
of intent to register hereunder) to be registered under the Securities Act in
accordance with the terms of this Section 2. USHG will use its best efforts to
cause the Trust to qualify for use of a registration statement on Form S-3 (or
any successor or similar short form registration) as early as practicable. The
Trust shall not be required to file more than one registration statement
pursuant to this Section 2(b) in any 12 month period or more than two
registration statements pursuant to this Section 2(b) in all.
(c) Expenses of Registration. The costs and expenses of all registrations
and qualifications under the Securities Act and applicable state securities laws
and of all other actions, which USHG is required to take or effect (or cause the
Trust to take or effect) pursuant to this Section 2 (including without
limitation all registration and filing fees, printing expenses and reasonable
fees and disbursements of counsel) shall be paid by USHG, except that the
Holders shall bear their pro rata share of any underwriting discount or
commission, or other similar selling expenses; provided, that USHG shall not be
required to pay the fees and expenses of more than one counsel for the selling
Holders.
(d) Opinion of Counsel as Alternative. The registration rights granted to
the Holders under this Section 2 shall be subject to the condition that any
registration of Registrable Securities proposed to be effected need not be
effected if USHG shall deliver (or cause the Trust to deliver) to the Holders
requesting such registration an opinion, satisfactory to such Holders and their
counsel, of Blank Rome Xxxxxxx & XxXxxxxx LLP or other counsel satisfactory to
2
such Holders to the effect that the proposed sale or disposition for which
registration was requested does not require registration under the Securities
Act, but such opinion shall not rely on the availability of sales utilizing the
provisions of Rule 144 if doing so would impose on the Holder any volume
restrictions, or any pre-sale notification or similar restriction on the free
sale of the Registrable Securities. USHG hereby indemnifies the Holders, and
each of them, against and holds them harmless from all damages, losses,
liabilities (including liability for rescission), costs and expenses which they
may incur under the Securities Act or otherwise by reason of their proceeding in
accordance with such opinion of counsel.
(e) Registration Obligations. If and whenever USHG is obligated by the
provisions of this Section 2 to cause the registration of any Registrable
Securities under the Securities Act, as expeditiously as reasonably possible
USHG will, or will use its best efforts to, as the case may be, cause the Trust
to:
(1) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities.
(2) 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 to keep such registration statement effective until the
earlier of the sale of all Registrable Securities covered thereby and the
expiration of a period of nine months after the date such registration
statement became effective (except that any registration statement on Form
S-3 or similar short-form shall be maintained for not less than two years),
and comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by such registration
statement.
(3) Furnish to each selling Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as such
Holder may reasonably request.
(4) Register or qualify the Registrable Securities covered by such
registration statement under such other securities or blue sky laws of such
jurisdictions (subject to the approval of any managing underwriter
involved) as the selling Holders shall request, and do any and all other
acts and things which may be reasonably necessary or advisable to enable
such Holders to consummate the disposition in such jurisdictions of such
Registrable Securities; provided, however, that the Trust shall not be
obligated, by reason thereof, to qualify as a foreign corporation or
subject itself to taxation as doing business in any such jurisdiction.
(5) Notify the selling Holders and their counsel promptly after USHG
or the Trust shall receive notice that any registration statement,
supplement or amendment has become effective, or that any registration
statement is required to be amended or supplemented, or that any stop order
has been issued.
3
(f) Indemnification. USHG agrees to indemnify and hold harmless each
Holder, its officers or directors, affiliates and each Person, if any, who
controls such Holder within the meaning of the Securities Act, from and against
any losses, claims, damages, liabilities and expenses (under such Act, at common
law or otherwise) caused by any untrue statement or alleged untrue statement of
a material fact or omission to state a material fact required to be stated or
necessary to make the statements therein not misleading in any registration
statement or preliminary or final prospectus or filing for state registration or
qualification, or any amendment or supplement thereto, except insofar as such
losses, claims, damages, liabilities or expenses are caused by any such untrue
statement contained in or omission from information furnished in writing to USHG
or the Trust by such Holder expressly for use therein.
(g) Agreement as to Underwriters. If the offering pursuant to any
registration statement provided for under this Section 2 is made, at the
election of USHG, through underwriters, USHG agrees to cause the Trust to enter
into an underwriting agreement in customary form with such underwriters and to
indemnify such underwriters, their officers and directors, if any, and each
Person who controls such underwriters within the meaning of the Securities Act,
to the same extent as provided in Section 2(f) with respect to the
indemnification of a Holder.
(h) No Special Audit. USHG shall not be required to conduct any special
audit (or any audit not in the ordinary course of its business) in connection
with any registration hereunder.
4
EXHIBIT F TO
NOTE AND WARRANT PURCHASE,
GUARANTY AND SECURITY AGREEMENT
Financial Covenants
This Exhibit F is part of the Note and Warrant Purchase, Guaranty and
Security Agreement dated as of November 15, 2001 among U.S. Home & Garden, Inc.
("USHG"), Easy Gardener, Inc. (the "Company"), USHG's other Subsidiaries and the
Purchasers named therein (the "Purchase Agreement").
1. Definitions. Capitalized terms used in this Exhibit F and not otherwise
defined herein shall have the meanings given to such terms in the Purchase
Agreement. In addition, certain terms used in this Exhibit F have the meanings
given thereto in Section 3 below.
2. Financial Covenants. Each of USHG and the Company will observe, and will
cause its consolidated subsidiaries to observe, the financial covenants set
forth in this Exhibit F, which are hereby incorporated by reference into Section
7.19 of the Purchase Agreement as if set forth in full therein. All of the
financial covenants set forth herein or in the Purchase Agreement and related
definitions shall be applied to USHG and its consolidated subsidiaries, and for
purposes of all financial covenants the terms "Corporations" and "Subsidiaries"
shall be deemed to include USHG and all its consolidated subsidiaries
(regardless of whether or not a particular subsidiary qualifies as a
"Subsidiary" or a "Corporation" for other purposes of the Purchase Agreement).
2.1 Ratio of Consolidated Senior Funded Debt to Consolidated EBITDA.
USHG and the Company shall not permit the Corporations' ratio of
Consolidated Senior Funded Debt to Consolidated EBITDA for the most recent
four quarter period for which Financial Statements have been delivered
pursuant to Sections 6.1(b) and 6.1(c) of the Purchase Agreement to be
greater than:
Quarter Ended Maximum Ratio
------------- -------------
December 2001 2.75
March 2002 4.00
June 2002 2.50
September 2002 2.10
December 2002 2.10
March 2003 3.50
June 2003 2.25
September 2003 2.10
December 2003 2.10
March 2004 3.25
June 2004 2.00
September 2004 2.10
December 2004 2.10
March 2005 3.25
June 2005 2.00
September 2005 2.10
December 2005 2.10
March 2006 3.25
June 2006 2.00
September 2006 2.10
December 2006 2.10
March 2007 3.25
June 2007 2.00
September 2007 2.10
2.2. Ratio of Consolidated Total Funded Debt to Consolidated EBITDA.
USHG and the Company shall not permit the Corporations' ratio of
Consolidated Total Funded Debt to Consolidated EBITDA for the most recent
four quarter period for which Financial Statements have been delivered
pursuant to Sections 6.1(b) and 6.1(c) of the Purchase Agreement to be
greater than:
Quarter Ended Maximum Ratio
------------- -------------
December 2001 13.50
March 2002 11.25
June 2002 9.00
September 2002 8.00
December 2002 8.25
March 2003 9.75
June 2003 7.50
September 2003 7.00
December 2003 7.25
March 2004 8.50
June 2004 7.00
September 2004 6.50
December 2004 6.75
March 2005 8.50
June 2005 7.00
September 2005 6.50
December 2005 6.75
March 2006 8.50
June 2006 7.00
September 2006 6.50
December 2006 6.75
March 2007 8.50
June 2007 7.00
September 2007 6.50
2.3. Ratio of Consolidated Operating Cash Flow to Consolidated Senior
Debt Service. USHG and the Company shall not permit, for any period of four
consecutive fiscal quarters, commencing with the period ending December 31,
2001, the Corporations' ratio of (a) Consolidated Operating Cash Flow to
(b) Consolidated Senior Debt Service, to be less than:
2
Quarter Ended Maximum Ratio
------------- -------------
December 2001 2.25
March 2002 3.00
June 2002 3.00
September 2002 3.00
December 2002 3.00
March 2003 3.25
June 2003 3.25
September 2003 3.25
December 2003 3.25
March 2004 3.50
June 2004 3.50
September 2004 3.50
December 2004 3.50
March 2005 4.00
June 2005 4.00
September 2005 4.00
December 2005 4.00
March 2006 4.00
June 2006 4.00
September 2006 4.00
December 2006 4.00
March 2007 4.00
June 2007 4.00
September 2007 4.00
2.4. Ratio of Consolidated Operating Cash Flow to Consolidated Total
Debt Service. USHG and the Company shall not permit, for any period of four
consecutive fiscal quarters, commencing with the period ending December 31,
2001, the Corporations' ratio of (a) Consolidated Operating Cash Flow to
(b) Consolidated Total Debt Service, to be less than:
Quarter Ended Maximum Ratio
------------- -------------
December 2001 0.60
March 2002 0.85
June 2002 0.95
September 2002 1.05
December 2002 1.05
March 2003 1.15
June 2003 1.15
September 2003 and
each fiscal quarter
thereafter 1.20
2.5. Minimum Consolidated EBITDA. USHG and the Company shall not
permit the Corporations' Consolidated EBITDA to be less than the amount set
forth below opposite the month in which such determination is made, in each
case for the
3
applicable Determination Period, for which purpose "Determination Period"
shall mean the period of 12 consecutive months ended on the last day of the
second month ended prior to the date of determination (by way of
illustration, for a determination made during the month of March 2002, the
Determination Period will be the 12-month period ended on January 31,
2002):
Minimum Consolidated
Month of Determination EBITDA
---------------------- --------------------
December 2001 $4,925,000
January 2002 $5,425,000
February 2002 $5,875,000
March 2002 $5,825,000
April 2002 $6,625,000
May 2002 $8,100,000
June 2002 $8,550,000
July 2002 $8,700,000
August 2002 $9,575,000
September 2002 $9,600,000
October 2002 $9,550,000
November 2002 $9,525,000
December 2002 $9,475,000
January 2003 $9,525,000
February 2003 $9,550,000
March 2003 $9,750,000
April 2003 $9,975,000
May 2003 $10,200,000
June 2003 $10,375,000
July 2003 $10,500,000
August 2003 $10,525,000
September 2003 $10,500,000
October 2003 $10,475,000
November 2003 $10,425,000
December 2003 $10,375,000
January 2004 $10,425,000
February 2004 $10,450,000
March 2004 $10,675,000
April 2004 $10,925,000
May 2004 $11,175,000
June 2004 $11,350,000
July 2004 $11,500,000
August 2004 $11,525,000
September 2004 $11,500,000
Thereafter $11,450,000
2.6. Consolidated Capital Expenditures. USHG and the Company will not
permit the Corporations to make or incur any Capital Expenditures if, after
giving effect
4
thereto, the aggregate of all Capital Expenditures made by the Corporations
would exceed $1,500,000 in any fiscal year.
3. Definitions Applicable to Financial Covenants. The following terms used
in this Exhibit have the meanings indicated below:
"Capital Assets" shall mean fixed assets of the Corporations, both
tangible (such as land, buildings, fixtures, machinery and equipment) and
intangible (such as patents, copyrights, trademarks, franchises and
goodwill); provided, however, that Capital Assets shall not include any
item customarily charged directly as an expense or depreciated over a
useful life of twelve (12) months or less in accordance with GAAP.
"Consolidated EBITDA" shall mean for any period of determination
EBITDA of the Corporations for such period.
"Consolidated Operating Cash Flow" shall mean (a) consolidated EBITDA
of the Corporations less (b) the sum of (i) unfinanced Capital Expenditures
of the Corporations plus (ii) net cash payments for taxes of the
Corporations for the applicable period.
"Consolidated Senior Funded Debt" shall mean Consolidated Total Funded
Debt less the amount of Indebtedness of the Corporations in respect of the
Junior Subordinated Debentures, including accrued but unpaid interest
thereon.
"Consolidated Senior Debt Service" shall mean for any period the sum
of (a) interest expense of the Corporations for such period, excluding
interest expense in respect of the Junior Subordinated Debentures, plus (b)
principal payments on Indebtedness of the Corporations required to be made
during such period, excluding payments to reduce the principal of the
Revolving Advances (as such term is defined in the Senior Loan Agreement).
"Consolidated Total Funded Debt" shall mean all Funded Debt of the
Corporations.
"Consolidated Total Debt Service" shall mean for any period the sum of
(a) interest expense of the Corporations for such period, plus (b)
principal payments on Indebtedness of the Corporations required to be made
during such period, excluding payments to reduce the principal of the
Revolving Advances (as such term is defined in the Senior Loan Agreement).
5
SCHEDULE 5.12 TO
NOTE AND WARRANT PURCHASE, GUARANTY AND SECURITY AGREEMENT
Statement of Sources and Uses
(000 omitted)
Uses Sources
---- -------
PNC Fee 330 Available cash $2,225
PNC expenses 100 Funded senior debt 5,296
Available unfunded senior debt 2,949 Available unfunded senior debt 2,949
Refinance existing debt 14,888 Funded senior bank term loan 2,000
BOA interest and fee 40 Senior subordinated debt (net of expenses) 5,837
------- -------
TOTAL $18,307 TOTAL $18,307
================================================================================
NOTE AND WARRANT PURCHASE, GUARANTY AND SECURITY AGREEMENT
------------------------------------
EASY GARDENER, INC.
$5,993,151 Principal Amount
16% Series A Senior Subordinated Notes
Due November 19, 2007
$856,164 Principal Amount
14% Series B Senior Subordinated Notes
Due November 19, 2007
------------------------------------
U.S. HOME & GARDEN INC.
Warrants for
Common Stock
$.001 par value
Options for
9.4% Cumulative Trust Preferred Securities
issued by U.S. Home & Garden Trust I
and owned by U.S. Home & Garden Inc.
------------------------------------
================================================================================
as of November 15, 2001
U.S. HOME & GARDEN INC.
EASY GARDENER, INC.
Note and Warrant Purchase, Guaranty and Security Agreement
TABLE OF CONTENTS
SECTION 1. DEFINITIONS 2
SECTION 2. PURCHASE AND SALE OF NOTES AND WARRANTS 13
2.1 Notes 13
2.2 Common Warrants 13
2.3 Preferred Warrants 13
2.4 Payment of Purchase Price 13
2.5 Tax Reporting 14
2.6 Fees and Expenses 14
2.7 Manner of Payment 14
SECTION 3. TERMS OF THE NOTES; USE OF PROCEEDS; REGISTRATION RIGHTS 14
3.1 Terms of the Notes 14
(a) Optional Prepayments 14
(b) Mandatory Prepayments 15
(c) Interest 16
(d) Default Rate of Interest 16
(e) Maximum Legal Rate of Interest 16
(f) Application of Payments 16
(g) Agreements Between Note Holders and Subordination
Agreements 16
(h) Indemnity for Interrupted Funding 16
3.2 Use of Proceeds 17
3.3 Grant of Security Interest 17
3.4 Guaranty 17
3.5 Registration Rights 17
SECTION 4. REPRESENTATIONS AND WARRANTIES 17
4.1 Corporate Existence; Capitalization 18
4.2 Authority 19
4.3 Due Execution and Delivery; Binding Effect 19
4.4 Consents; Governmental Approvals 19
4.5 Absence of Conflicts 19
4.6 No Default 20
4.7 Financial Data 20
4.8 Title to Property and Assets; Condition 22
4.9 Solvency 22
4.10 Taxes 22
4.11 Margin Securities 23
4.12 Subsidiaries; Joint Ventures 23
4.13 Litigation and Proceedings 23
4.14 Defaults; Adverse Changes 23
4.15 Insurance 24
4.16 Patents, Trademarks, Licenses, etc. 24
i
4.17 Environmental Matters 24
4.18 Investment Bankers' or Finders' Fees 25
4.19 Investment Company Act 25
4.20 Disclosure 25
4.21 Pension Plans 25
4.22 Compensation and Benefits 26
4.23 Labor Relations 26
4.24 Trade and Consumer Relations and Practices 26
4.25 Other Agreements 27
SECTION 5. CONDITIONS PRECEDENT 28
5.1 Consolidated Excess Cash 28
5.2 Purchaser Documents 28
5.3 Legal Opinions 28
5.4 Other Documents 28
5.5 Representations and Warranties; No Default or Event of Default 28
5.6 Purchaser Transactions; Other Transactions 29
5.7 Fees; Transaction Expenses 29
5.8 Legal Structure and Capitalization 29
5.9 Additional Matters 29
5.10 Due Diligence; No Adverse Change or Events 29
5.11 Minimum EBITDA 30
5.12 Compliance With Sources and Uses 30
5.13 Closing Certificates 30
5.14 Stockholders Agreement 31
5.15 Junior Subordinated Debentures 31
5.16 Noncompetion and Nonsolicitation Agreements 31
5.17 Xxxxx Consulting Agreement 31
5.18 Waco Lease Renewal 31
SECTION 6. AFFIRMATIVE COVENANTS 31
6.1 Financial and Other Information 31
6.2 Inspection 34
6.3 Conduct of Business 35
6.4 Taxes 35
6.5 Property, Liability and Business Interruption Insurance;
Key-Man Insurance 35
6.6 Pension Plans 36
6.7 Notice of Suits, Adverse Changes in Business and Defaults 36
6.8 Environmental Laws 37
6.9 Notices Relating to Transactions 37
6.10 Board Observation Rights 37
6.11 Notice of Amendment of Senior Loan Agreement 38
6.12 Option to Provide Mezzanine Financing 38
6.13 Use of Proceeds 39
6.14 New Subsidiary Security Agreements and Guaranties 39
6.15 Reservation of Warrant Securities 40
SECTION 7. NEGATIVE COVENANTS 40
7.1 Liens or Encumbrances 40
ii
7.2 Indebtedness 41
7.3 Consolidations, Mergers or Acquisitions 42
7.4 Investments or Loans 42
7.5 Subsidiaries 43
7.6 Disposal of Property 43
7.7 Limitation on Certain Restrictions on Subsidiaries 44
7.8 Tax Consequences of Certain Transactions 44
7.9 Dividends, Stock Redemptions, Etc 44
7.10 Issuance of Additional Capital Stock by Subsidiaries 45
7.11 Operating Leases 46
7.12 Fiscal Year End 46
7.13 Transactions with Affiliates 46
7.14 ERISA 46
7.15 Amendment and Modification of Senior Debt Documents and
Other Transaction Documents; Refinancing of Senior Debt 46
7.16 Other Amendments 47
7.17 Accounting Methods 47
7.18 Payments on Subordinated Debt 47
7.19 Financial Covenants 49
SECTION 8. SUBORDINATION 49
SECTION 9. EVENTS OF DEFAULT 49
9.1 Events of Default 49
9.2 Consultants 52
9.3 Other Costs and Expenses 52
SECTION 10. CONSENTS 53
SECTION 11. SECURITIES LAW MATTERS 53
11.1 Securities Act 53
11.2 Resales 53
11.3 Legends 54
SECTION 12. TRANSFERS 54
12.1 Transfers 54
12.2 Participations 55
12.3 Issuance of New Notes 55
SECTION 13. EFFECTIVENESS OF AGREEMENT 55
SECTION 14. JUDICIAL PROCEEDINGS 56
SECTION 15. MISCELLANEOUS 57
15.1 Notices 57
15.2 Cumulative Remedies, Etc. 57
15.3 No Oral Changes; Assignment; Survival of Representations 58
15.4 Several Obligations 58
15.5 Costs and Expenses 58
15.6 Loss or Destruction of Note 59
15.7 Allocation of Payments among Purchasers 59
15.8 Indemnification Generally 59
15.9 Governing Law 60
15.10 Counterparts 60
iii
15.11 Captions; Gender 60
15.12 Survival; Right to Indemnification 60
15.13 Purchasers May Perform 60
15.14 Integration 61
15.15 Severability 61
15.16 Waiver of Jury Trial and Damages 61
LIST OF EXHIBITS
EXHIBIT A -- List of Purchasers
EXHIBIT B-1 -- Form of Series A Note
EXHIBIT B-2 -- Form of Series B Note
EXHIBIT C -- Grant of Security Interest; Appointment of Collateral Agent
EXHIBIT D -- Guaranty
EXHIBIT E-1 -- Registration Rights (Common Stock)
EXHIBIT E-2 -- Registration Rights (Preferred Securities)
EXHIBIT F -- Financial Covenants
LIST OF SCHEDULES
Schedule
4.1(a) -- States of Incorporation and Qualification of the Corporations
4.1(b) -- Table of Stock, Warrant and Option Holders
4.4 -- Consents; Governmental Approvals
4.7(b) -- Projections
4.7(c) -- Pro Forma Balance Sheet
4.7(c)(iv) -- Accounts Payable Reserves
4.7(d) -- Calculation of Availability
4.8 -- Permitted Liens
4.10 -- Taxes
4.12 -- Subsidiaries
4.13 -- Litigation and Proceedings
4.15 -- Insurance
4.16 -- Intellectual Property
4.17 -- Environmental Matters
4.21 -- Pension Plans
4.22 -- Compensation and Benefits
4.25 -- Material Agreements
5.12 -- Statement of Sources and Uses and Exceptions Thereto
7.2 -- Indebtedness
C-2.4 -- Access to Collateral (Exceptions)
C-2.5 -- Locations of Equipment and Inventory
C-2.15(c) -- Executive Offices; Location of Records Relating to Receivables
iv
U.S. HOME & GARDEN INC.
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of November 15, 2001 between U.S. Home & Garden
Inc., a Delaware corporation (the "Issuer"), and the holders from time to time
of the Warrants referred to herein (the "Holders").
WHEREAS, the Holders, the Issuer, the Issuer's wholly-owned subsidiary Easy
Gardener, Inc. (the "Company") and the Issuer's other Subsidiaries are parties
to a Note and Warrant Purchase, Guaranty and Security Agreement dated as of the
date hereof (as the same may be amended, supplemented or otherwise modified from
time to time, the "Purchase Agreement") providing, among other things, for the
purchase by the Holders (which are also "Purchasers" party to such Agreement) of
any or all of (i) $5,993,151 principal amount of the Company's 16% Series A
Senior Subordinated Notes due November 19, 2007 (the "Series A Notes"), (ii)
$856,164 principal amount of the Company's 14% Series B Senior Subordinated
Notes due November 19, 2007 (the "Series B Notes"; and, together with the Series
A Notes, the "Notes"), and (iii) the Common Warrants and Preferred Warrants
described therein; and
WHEREAS, the Issuer has agreed to issue the Warrants on the terms set forth
in this Agreement and the Purchase Agreement (the "Common Warrants" referred to
in the Purchase Agreement being the Warrants referred to herein);
NOW, THEREFORE, in consideration of the premises the Issuer and the Holders
agree as follows:
SECTION 1. Definitions. Capitalized terms used herein which are defined in
the Purchase Agreement and are not otherwise defined herein shall have the
respective meanings given thereto in the Purchase Agreement; and the following
terms used herein shall have the meanings indicated below, unless the context
otherwise requires:
"Aggregate Warrant Percentage" shall have the meaning given thereto in
Section 2(a).
"Agreement" or "Warrant Agreement" shall mean this Warrant Agreement,
together with all Exhibits hereto, as may be amended, modified or supplemented
from time to time with the consent of the Holders in accordance with Section 15,
and shall include all provisions incorporated herein by reference from the
Purchase Agreement, which incorporated provisions shall continue in full force
and effect for the benefit of the Holders as originally in effect unless
modified with the consent of the Holders in accordance with Section 15.
"Closing Date" shall mean the date of the closing of the issuance and sale
of the Warrants to the Holders pursuant to the Purchase Agreement and this
Agreement.
"Commission" shall have the meaning given thereto in Section 11(b).
"Common Stock" shall mean the Issuer's Common Stock, $.001 par value.
"Convertible Securities" shall mean (a) any stock, notes or other
securities convertible into or exchangeable, directly or indirectly, for shares
of Common Stock (whether or not such right to convert or exchange is immediately
exercisable or is "in the money"), (b) any other security, note or agreement
which provides the holder thereof with a payment, repayment amount, appreciation
right or liquidation preference (i) calculated by reference to, or arising from,
the value of the Issuer upon a sale, merger, recapitalization or similar event,
or (ii) based upon the value, whether market or appraisal, of the Common Stock,
and (c) any agreement to issue shares of Common Stock or issue or enter into
such other stock, notes, securities or agreements described in the foregoing
clauses (a) or (b).
"Exchange Act" shall have the meaning given thereto in Section 11(b).
"Exercise Price" shall have the meaning given thereto in Section 3.
"Expiration Date" shall mean the first to occur of:
(i) the first date on or after the payment and satisfaction in full of the
Notes (including all accrued and unpaid interest, premium, if any, and
principal) and of all obligations of the Corporations under the
Purchase Agreement in respect of the Notes, including the payment of
all Costs and Expenses (the "Note Payment Date"), when all of the
following conditions shall have been satisfied:
(A) the Issuer shall have duly executed and delivered to the Holders
a Warrant Agreement in the form of Exhibit C hereto (a "Share
Warrant Agreement") providing for the issuance upon exercise of
all Warrants to be issued pursuant thereto ("Share Warrants") of
that number of Warrant Shares as would have been issuable in the
aggregate to all Holders hereunder if all Warrants outstanding
hereunder on the Note Payment Date had been exercised in full on
such date; and
(B) delivery to each Holder hereunder of a Share Warrant certificate
in the form of Exhibit A to the Share Warrant Agreement for such
Holder's applicable share of the aggregate number of Share
Warrants issuable pursuant to the Share Warrant Agreement as
provided in clause (A) above; and
(ii) May 19, 2009 or, if such day is not a Business Day, the next
succeeding Business Day.
"Fully-Diluted Common Stock" shall have the meaning given thereto in
Section 2(b).
2
"Market Price" of Common Stock shall mean the average of the daily market
prices of Common Stock over a period of 20 consecutive business days prior to
the day as of which "Market Price" is being determined. The market price for
each such business day shall be the average of the closing sales prices on such
day of the Common Stock on the principal domestic stock exchange on which the
Common Stock is then listed, or if there shall have been no sales on any such
exchange on such day, the average of the highest bid and lowest asked prices on
such exchange at the end of such day, or, if the Common Stock shall not be so
listed, the closing sales price in the NASDAQ System on such day, or if there
shall have been no sales in the NASDAQ System on such day, the average of the
highest bid and lowest asked prices on the NASDAQ System on such day, or if the
Common Stock shall not be quoted in the NASDAQ System, the average of the high
and low bid and asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any similar
successor organization. If the Common Stock is listed on any domestic exchange
the term "business days" as used in this paragraph shall mean business days on
which such exchange is open for trading.
If at any time the Common Stock is not listed on any domestic exchange or
quoted in the NASDAQ System or the domestic over-the-counter market, the "Market
Price" shall be the fair market value of a share of Common Stock as determined
in good faith by the Board of Directors of the Issuer (giving due regard to any
recent sales or valuations of Common Stock) or, if the holders of a majority of
the Warrants shall, in the exercise of their sole discretion, object to such
determination, as determined by appraisal pursuant to the following paragraph of
this definition; provided, that if any valuation or appraisal has been made of
the Issuer or its Common Stock for any reason within six months prior to any
date as of which the Market Price is to be determined hereunder, then the
Holders shall be entitled, at their option, to rely on such appraisal and such
valuation or appraisal shall be binding on the Issuer unless any event shall
have occurred since the date of such valuation or appraisal which, in the
reasonable opinion of the Holders of a majority of the Warrants, manifestly
affects the continued validity of such appraisal.
If the Holders of a majority of the Warrants shall object to the
determination of Market Price made by the Issuer's Board of Directors pursuant
to the preceding paragraph, then Market Price shall be determined as of the end
of the most recent complete fiscal quarter of the Issuer ended prior to the date
of determination (taking into account actual performance subsequent thereto and
projections for future periods), and shall be determined by appraisal as
follows: Within fifteen (15) days after receipt by the Issuer of notice that an
appraisal is desired, the Issuer and the Holders of a majority of the Warrants
shall jointly appoint an appraiser for the purpose of determining Market Price.
Such appraiser shall be an investment banking or advisory firm with experience
in valuing companies of a comparable size, and in a comparable industry, as the
Issuer, which investment banking or advisory firm shall be either a firm of
recognized national standing or a regional firm of good national reputation. If
there shall be a dispute as to the selection of such appraiser, then the
appraiser shall be appointed by the American Arbitration Association upon
application by the Issuer or the Holders of a majority of the Warrants. The
Issuer and the Holders of a majority of the Warrants shall be afforded
reasonable opportunities to discuss the appraisal with such appraiser. The
determination of Market Price by such appraiser shall be final and binding upon
the Issuer and the Holders of Warrants. The fees and expenses of
3
the appraiser and, if any, of the American Arbitration Association, shall be
borne by the Issuer unless the determination of Market Price by such appraiser
is the same as the determination of Market Price made by the Board of Directors
(or less favorable to the Holders), in which case the fees and expenses of such
appraiser shall be borne equally by the Issuer and the Holders of Warrants.
"Options" shall mean any warrants (including the Warrants), options
(including options granted pursuant to any stock option plan), agreements or
other rights to subscribe for or to purchase, directly or indirectly, shares of
Common Stock (whether or not such warrants, options or other rights are
immediately exercisable or are "in the money"). Options shall include any
warrants, options or other agreements or rights to subscribe for or to purchase,
directly or indirectly, Convertible Securities or other Options (whether or not
such warrants, options or other rights are immediately exercisable or are "in
the money") and agreements or plans under which the Issuer may issue Common
Stock, Options or Convertible Securities in exchange for services of any kind,
whether to be rendered by an employee, consultant, individual, entity or third
party of any kind.
"Securities Act" shall have the meaning given thereto in Section 11(b).
"Warrant" shall mean a Warrant certificate, in the form of Exhibit A
hereto, and shall also mean the right upon exercise thereof to acquire one
Warrant Share.
"Warrant Office" shall mean the office or agency of the Issuer at which the
Warrant Register shall be maintained and where the Warrants may be presented for
exercise, exchange, substitution and transfer, which office or agency will be
the office of the Issuer at 000 Xxxxxxxxxx Xxxxxx, Xxx Xxxxxxxxx, XX 00000. The
Warrant Office may be changed by the Issuer pursuant to notice in writing to the
registered Holders of the Warrants.
"Warrant Register" shall mean the register, in the form of Exhibit B
hereto, maintained by the Issuer at the Warrant Office.
"Warrant Shares" shall mean the shares of Common Stock issuable or issued
upon exercise of the Warrants, and any other Common Stock, Convertible
Securities, capital stock, equity interest, or other securities issuable or
issued in respect of Warrants or Warrant Shares by way of stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or other transaction of the
character referred to in Section 9(b).
SECTION 2. Issuance of Warrants.
(a) The Issuer will issue to the Holders on the Closing Date, in exchange
for payment of the purchase price for the "Common Warrants" specified in Section
2.2 of the Purchase Agreement, Warrants to purchase that number of shares of
Common Stock representing in the aggregate three and three quarters percent
(3.75%) of the Issuer's Fully-Diluted Common Stock (as defined below) at the
time of exercise (the "Aggregate Warrant Percentage"). The
4
Warrants purchased by each Holder are set forth on Exhibit B attached hereto.
The Warrants shall be exercisable at any time after the Closing Date until 5:00
P.M. (local time at the Warrant Office) on the Expiration Date.
(b) The Issuer's "Fully-Diluted Common Stock" at any time of determination
shall mean the sum of (A) the number of shares of Common Stock issued and
outstanding at such time, plus (B) the number of shares of Common Stock issuable
upon exercise of all outstanding Options (including the Warrants) and conversion
or exchange of all Convertible Securities issued and outstanding at such time
(provided that if any such shares qualify as both Options and Convertible
Securities, they shall be counted only once), plus (C) the number of shares of
Common Stock which the Issuer is otherwise obligated or potentially obligated to
issue under any agreement, understanding or arrangement or otherwise. Where any
Convertible Security does not indicate a specific or fixed number of shares of
Common Stock to be issued thereunder or in connection therewith, the number of
shares of Common Stock issuable thereunder or in connection therewith for
purposes of calculating Fully-Diluted Common Stock shall equal the greater of
(I) the maximum number of shares of Common Stock described as issuable
thereunder or in connection therewith or (II) such number of shares of Common
Stock as would represent any profit sharing, liquidation preference amount,
appreciation right, share or percentage of the Issuer's value as if such
Convertible Security was converted (at the then-applicable Market Price if no
conversion price is otherwise provided in such Convertible Security) into shares
of Common Stock. Fully-Diluted Common Stock shall not include any shares owned
or held by or for the account of the Issuer or any Subsidiary.
SECTION 3. Exercise Price. At any time of determination, the price (the
"Exercise Price") at which a Holder may purchase each Warrant Share issuable
upon exercise of such Holder's Warrants shall be determined as follows:
(A) as to that number of Warrant Shares as shall represent up to such
Holder's Adjusted Warrant Percentage of the Issuer's shares of Common
Stock outstanding at such time of determination, the Exercise Price
shall be equal to $0.40; and
(B) as to that number of Warrant Shares as shall represent up to such
Holder's Adjusted Warrant Percentage of the Issuer's shares of Common
Stock issuable upon exercise, exchange or conversion of all Options
and Convertible Securities outstanding at such time of determination,
the Exercise Price shall be equal to the lower of (x) the weighted
average exercise, exchange or conversion price of all such Options and
Convertible Securities on the Closing Date (which the Issuer hereby
represents is $2.3983) and (y) the weighted average exercise, exchange
or conversion price of all such Options and Convertible Securities on
the date of exercise; provided, however, that (1) if the exercise
price of any Options which are outstanding on the Closing Date
("Repriced Options") is reduced to an amount which is less than the
then applicable Warrant Exercise Price determined in accordance with
the foregoing provisions of this clause (B), then the Exercise Price
for the Warrant Shares referred to in this clause (B) shall be reduced
to such lower exercise price applicable to such Repriced Options, and
(2) if Options or Convertible Securities are issued after the Closing
Date
5
("New Rights") having an exercise or conversion price which is less
than the then applicable Warrant Exercise Price determined in
accordance with the foregoing provisions of this clause (B), then the
Exercise Price for the Applicable Portion of the Warrant Shares
referred to in this clause (B) shall be reduced to such lower exercise
or conversion price applicable to such New Rights.
The Issuer hereby represents that 6,595,242 shares of its Common Stock are
issuable upon exercise, exchange or conversion of all Options and Convertible
Securities outstanding on the Closing Date, and that the weighted average
exercise, exchange or conversion price thereof as of the Closing Date is
$2.3983.
For purposes of this Section 3, a Holder's "Adjusted Warrant Percentage"
shall mean, as of any time of determination, the percentage of the Issuer's
Fully-Diluted Common Stock issuable at such time pursuant to such Holder's
Warrants. A Holder's Adjusted Warrant Percentage shall initially be the Warrant
Percentage indicated for such Holder on Exhibit B hereto and shall be reduced
upon each exercise of less than all of such Holder's Warrants by the portion of
such Holder's Warrants exercised at such time. For example, if one third of a
Holder's Warrants are exercised at the same time and there have been no prior
exercises by such Holder, then such Holder's Adjusted Warrant Percentage would
be two-thirds of such Holder's initial Warrant Percentage.
For purposes of clause (B) of this Section 3, the "Applicable Portion" of
each issuance of New Rights shall be the quotient of (x) the number of shares of
Common Stock issuable upon exercise or conversion of all New Rights issued in
such issuance divided by (y) the number of shares of Common Stock issuable upon
exercise or conversion of all Options (other than the Warrants) and Convertible
Securities outstanding at the time of such issuance.
SECTION 4. Exercise of Warrants.
(a) The rights represented by any Warrant issued pursuant hereto may be
exercised by the Holder thereof, in whole or in part, by delivering to the
Warrant Office:
(i) the Warrant, together with a properly completed Election to
Purchase in the form attached thereto;
(ii) at the Holder's option, either (A) a check or bank draft in the
amount of the aggregate Exercise Price for the shares of Common Stock to be
purchased, (B) any promissory notes or debt securities of the Issuer or the
Company (including Notes) that may have been issued to the Holder thereof,
so that amounts outstanding thereunder may be offset against the aggregate
Exercise Price for the shares of Common Stock to be purchased, or (C)
Common Stock, preferred stock, Warrants or other securities of the Issuer
having a Market Price equal to the aggregate Exercise Price for the shares
of Common Stock to be purchased. For purposes of this Section 4: (I) the
Market Price per share of Common Stock at any time shall be determined in
accordance with the definition of Market Price, (II) the Market Price per
Warrant at any time shall be the Market Price
6
per share of Common Stock minus the Exercise Price then in effect, and
(III) the Market Price of other securities shall be as reasonably
determined by the Issuer's Board of Directors in accordance with the
principles set forth in the definition of Market Price; and
(iii) any representations or documents or information from the Holder
of the Warrants that the Issuer may reasonably require in order to comply
with the requirements of the Securities Act with respect of such issuance
and in order to comply with the provisions of Section 8 of this Agreement.
Upon such exercise the Issuer shall issue and deliver to or to the order of the
registered Holder(s) of such Warrant, and in such name or names as such
registered Holder(s) may designate, one or more stock certificate(s) for the
Warrant Shares to be issued upon such exercise of such Warrant. Any person(s) so
designated to be named therein shall be deemed to have become the Holder(s) of
record of such Warrant Shares as of the date of delivery to the Issuer at the
Warrant Office of the Warrant and the Exercise Price therefor as provided in
clauses (i) and (ii) above.
(b) If a Warrant is exercised in part at any time, a new Warrant or
Warrants shall be issued for the unexercised portion of such Warrant. Each new
Warrant so issued shall bear any legend required by Section 11.3 of the Purchase
Agreement, if the Warrant presented in connection with a partial exercise
thereof bore such legend. All Warrants surrendered upon exercise shall be
canceled.
(c) The Issuer will pay all taxes (other than any applicable income or
similar taxes payable by the Holders) attributable to the initial issuance of
Warrant Shares upon the exercise of the Warrants; provided, that the Issuer
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issue of any Warrant or any certificate for Warrant
Shares in a name other than that of the registered Holder of the Warrant
surrendered for exercise.
SECTION 5. Registration, Transfer and Exchange of Certificates.
(a) The Issuer shall maintain at the Warrant Office a Warrant Register for
registration of the Warrants and transfers thereof. The Issuer may deem and
treat the registered Holder(s) of the Warrants as the absolute owner(s) thereof
for the purpose of any exercise thereof or any distribution to the Holder(s)
thereof, and for all other purposes.
(b) The Issuer shall register the transfer of any outstanding Warrant in
the Warrant Register upon surrender to the Issuer at the Warrant Office of such
Warrant, accompanied (if so required by it) by one or more duly executed
instruments of transfer in form satisfactory to the Issuer. Upon any such
registration of transfer, one or more new Warrant(s) evidencing such transferred
Warrant shall be issued to the transferee(s) and the surrendered Warrant shall
be canceled. If less than all of a surrendered Warrant is to be transferred, new
Warrant(s) shall be issued to the surrendering Holder evidencing the remaining
balance of the surrendered Warrant.
7
(c) Each Warrant may, at the option of the Holder(s) thereof, be
surrendered to the Issuer at the Warrant Office to be exchanged for one or more
new Warrants of like tenor and exercisable in the aggregate for a like number of
Warrant Shares. Warrants surrendered for exchange shall be canceled.
(d) No charge shall be made for any such transfer or exchange except for
any tax or other governmental charge imposed in connection therewith. Except as
provided in Section 11 or 12 of the Purchase Agreement, each Warrant issued upon
transfer or exchange shall bear any legend required by Section 11.3 of the
Purchase Agreement if the Warrant presented for transfer or exchange bore such
legend.
SECTION 6. Mutilated or Missing Warrant. If any Warrant is mutilated, lost,
stolen or destroyed, the Issuer shall issue, in exchange and substitution for
and upon cancellation of the mutilated Warrant, or in lieu of and substitution
for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and
representing rights to acquire an equivalent share in the Issuer, but only upon
receipt of evidence satisfactory to the Issuer of such loss, theft or
destruction of such Warrant and, if requested, indemnity satisfactory to it. No
service charge shall be made for any such substitution, but all reasonable
charges associated with any stamp, tax or other governmental duty that may be
imposed in relation thereto shall be borne by the Holder of such Warrant. Each
Warrant issued in any such substitution shall bear any legend required by
Section 11.3 of the Purchase Agreement if the Warrant for which such
substitution was made bore such legend.
SECTION 7. Reservation and Issuance of Warrant Shares.
(a) The Issuer will at all times have authorized, and reserve and keep
available, free from pre-emptive rights, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon the exercise of the
Warrants, the aggregate number of Warrant Shares issuable upon exercise of all
outstanding Warrants.
(b) The Issuer covenants that all Warrant Shares will, upon issuance in
accordance with the terms of this Agreement, be fully paid and nonassessable and
free from all taxes with respect to the issuance thereof and from all liens,
charges and security interests created by the Issuer.
SECTION 8. Obtaining of Governmental Approvals and Stock Exchange Listings.
The Issuer will, at its own expense, (a) obtain and keep effective any and all
permits, consents and approvals of governmental agencies and authorities which
may from time to time be required of the Issuer in order to issue Warrant Shares
upon exercise of the Warrants, and otherwise to perform its obligations
hereunder, and (b) take all action which may be necessary so that the Warrant
Shares, immediately upon their issuance upon the exercise of Warrants, will be
listed on the principal securities exchange, if any, on which shares of the
Common Stock of the Issuer are then listed.
8
SECTION 9. Additional Anti-Dilution Provisions.
(a) Payments to Holders in Connection with Certain Dividends. In the event
that the Issuer declares a stock split, stock dividend, or dividend of any kind,
whether in cash, securities or other property, upon the Common Stock (including
any dividend payable in Common Stock, Options or Convertible Securities), then,
at the option of each Holder of Warrants:
(i) lawful and adequate provisions shall be made whereby the Issuer
shall maintain in reserve and available such dividend property, and such
Holder shall thereafter have the right to purchase and/or receive, as the
case may be, upon exercise of its Warrants (on the terms and conditions
specified in this Agreement, and in addition to the Warrant Shares
purchasable by such Holder immediately prior to the declaration of such
dividend), such shares of stock, securities or property as are
distributable with respect to outstanding shares of Common Stock equal to
the number of Warrant Shares purchasable by such Holder immediately prior
to such declaration, to the end that the provisions hereof (including
without limitation provisions for adjustments of the number of shares
receivable upon exercise) shall thereafter be applicable, as nearly as may
be, in relation to such shares of stock, securities or property; or
(ii) the Exercise Price of such Holder's Warrants shall be reduced by
the per share amount of such dividend.
(b) Reorganizations and Asset Sales. If any capital reorganization or
reclassification of the Capital Stock of the Issuer, or any consolidation or
merger of the Issuer with another corporation, or the sale of all or
substantially all of its assets to another corporation shall be effected in such
a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then the
following provisions shall also apply:
(i) as a condition of such reorganization, reclassification,
consolidation, merger or sale (except as otherwise provided below in this
Section 9(b), lawful and adequate provisions shall be made whereby each
Holder shall thereafter have the right to purchase and receive upon the
terms and conditions specified in this Agreement and in lieu of the Warrant
Shares immediately theretofore receivable upon the exercise of his or its
Warrant, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares
of such Common Stock equal to the number of Warrant Shares immediately
theretofore so receivable had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case
appropriate provision shall be made with respect to the rights and
interests of such Holder to the end that the provisions hereof (including
without limitation provisions for adjustments of the number of shares
receivable upon exercise of a Warrant) shall thereafter be applicable, as
nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise of a Warrant;
9
(ii) the Issuer shall not effect any such consolidation, merger or
sale unless prior to or simultaneously with the consummation thereof the
successor corporation (if other than the Issuer) resulting from such
consolidation or merger or the corporation purchasing such assets shall
assume by written instrument executed and mailed or delivered to each
Holder at the last address of such Holder appearing on the books of the
Issuer, the obligation to deliver to such Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
Holder may be entitled to receive. Upon written request by the Holder of
any Warrant such successor corporation will issue a new Warrant revised to
reflect the modifications in this Agreement effected pursuant to this
Section 9(b); and
(iii) if a purchase, tender or exchange offer is made to and accepted
by the holders of more than 50% of the outstanding shares of Common Stock
of the Issuer, the Issuer shall not effect any consolidation, merger or
sale with the person, firm or corporation having made such offer or with
any affiliate of such person, firm or corporation, unless prior to the
consummation of such consolidation, merger or sale each Holder of a Warrant
shall have been given a reasonable opportunity to then elect to receive
upon the exercise of his or its Warrant either the stock, securities or
assets then issuable with respect to the Common Stock of the Issuer or the
stock, securities or assets, or the equivalent, issued to previous holders
of the Common Stock in accordance with such offer.
(c) Notice of Adjustment. Within three (3) Business Days after any Holder
shall request the same, but in any event within thirty (30) after the end of
each fiscal quarter including the fourth quarter (and without the need for any
request therefor), the Issuer shall deliver to each Holder a certificate signed
by its President, Vice President, Treasurer or Secretary setting forth the
adjusted number of Warrant Shares issuable upon exercise of the Warrants or
specifying the other shares of stock, securities or assets receivable as a
result of any change in the rights of the Holders occurring by reason of events
specified in this Agreement, or setting forth the adjusted Exercise Price, as
the case may be, and showing in reasonable detail the facts and calculations
upon which such adjustments or other changes are based, including a statement of
the consideration received or to be received by the Issuer for, and the amount
of, any Common Stock, Options and Convertible Securities issued since the last
such certificate delivered pursuant hereto (or since the Closing Date in the
case of the first such certificate).
(d) Disputes. In the event that there is any dispute as to the computation
of the number of Warrant Shares required to be issued upon exercise of Warrants
or as to the computation of the Exercise Price (in which the Holders of a
majority of the Warrant Shares issuable upon exercise of all outstanding
Warrants shall join), the Holders will retain an independent and nationally
recognized accounting firm to conduct, at the Issuer's expense, an audit of the
computations pursuant to the terms hereof involved in such dispute, including
the financial statements or other information upon which such computations were
based. The determination of such nationally recognized accounting firm shall, in
the absence of manifest error, be binding upon the Holders and the Issuer. If
there shall be a dispute as to the selection of such nationally recognized
accounting firm, such firm shall be appointed by the American Institute of
Certified Public Accountants if willing, otherwise the American Arbitration
10
Association, upon application by the Issuer or the Holders of a majority of the
Warrant Shares issuable upon exercise of all outstanding Warrants, with notice
to the others. The fees and expenses of such accounting firm and, if any, the
American Institute of Certified Public Accountants or the American Arbitration
Association (as applicable), shall be borne by the Issuer unless the computation
by such accounting firm of such number of Warrant Shares or Exercise Price is
the same as the computations thereof made by the Issuer (or less favorable to
the Holders), in which case the fees and expenses of such accounting firm shall
be borne equally by the Issuer and the Holders of Warrants.
(e) Securities other than Common Stock. If at any time, as a result of an
adjustment made pursuant to this Section 9, the Holder of any Warrant thereafter
exercised shall become entitled to receive any securities of the Issuer other
than shares of Common Stock, thereafter the number of such other securities so
receivable upon exercise of any 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 Warrant Shares contained in this Section 9, and
the provisions of this Agreement with respect to the Warrant Shares shall apply
on like terms to such other securities.
SECTION 10. Notices to Warrant Holders. In case at any time the Issuer
proposes:
(a) to declare a cash dividend upon Common Stock;
(b) to declare or pay, or set apart any funds for the payment of, any
dividends on any shares of its Common Stock or make any other Distribution
(as defined in the Purchase Agreement) to the holders of its Common Stock;
(c) to apply any of its funds, property or assets to, or set apart any
funds, property or assets for, the purchase, redemption or retirement of,
or make any Distribution, by reduction of capital or otherwise, in respect
of any of its shares of Common Stock or in respect of any Options or
Convertible Securities exercisable or exchangeable for or convertible into
shares of Common Stock, whether now or hereafter outstanding;
(d) to issue any shares of capital stock, Options or Convertible
Securities (except pursuant to the exercise of Warrants or Options or the
conversion or exchange of Convertible Securities in accordance with their
terms);
(e) to offer for subscription pro rata to the holders of any of its
capital stock or Convertible Securities any additional shares of stock of
any class or other rights;
(f) to effect any capital reorganization, or reclassification of the
Capital Stock of the Issuer, or consolidation or merger of the Issuer with
another Person, or sale or other disposition of greater than 25% of the net
value of its assets; or
(g) to effect a voluntary or involuntary dissolution, liquidation or
winding up of the Issuer,
11
then, in any one or more of said cases, the Issuer shall give the Holder of any
Warrant (i) at least 10 Business Days' (but not more than 90 days') prior
written notice of the date on which the books of the Issuer shall close or a
record shall be taken for such dividend, redemption, Distribution or
subscription rights or for determining rights to vote in respect of any such
issuance, reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, and (ii) in the case of any such
issuance, reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, at least 10 Business Days' (but not more
than 90 days') prior written notice of the date when the same shall take place
(provided, however, that, (1) in the case of clause (d) above, an issuance of
securities which has been approved by the Issuer's Board of Directors pursuant
to a stock option plan or stock incentive plan of the Issuer shall not require
any prior written notice to the Holders, provided that the Issuer includes
information as to such issuance in the next succeeding officer's certificate
delivered to the Holders pursuant to Section 9(c) hereof, and (2) in the case of
any other issuance referred to in clause (d) above, no more than 5 Business
Day's prior written notice of such issuance need be given to the Holders). Such
notice in accordance with the foregoing clause (i) shall also specify, in the
case of any such dividend, redemption, Distribution or subscription rights, the
date on which the holders of Common Stock shall be entitled thereto, and such
notice in accordance with the foregoing clause (ii) shall also specify the date
on which the holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, as the case may be. The failure to give the notice required by this
Section 10 or any defect therein shall not affect the legality or validity of
any Distribution, right, warrant, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up, or the vote upon any action.
SECTION 11. Securities Law Matters; Transfers; Rule 144 and Rule 144A
Covenants.
(a) The provisions of Section 11 (Securities Law Matters) and 12
(Transfers) of the Purchase Agreement are hereby incorporated by reference
herein as if set forth in full herein.
(b) With a view to making available certain rules and regulations of the
Securities and Exchange Commission (the "Commission") which may permit the sale
of Warrants and Warrant Shares without registration, the Issuer agrees that at
any time when its securities are registered under that Securities and Exchange
Act of 1934 (the "Exchange Act") that it will:
(i) make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"), or any successor provision thereto;
(ii) so long as Rule 144A is available to the Holders, make and keep
available the information specified in Rule 144A(d)(4) under the Securities
Act or any successor provision thereto;
12
(iii) file with the Commission in a timely manner all reports and
other documents required of the Issuer under the Exchange Act; and
(iv) furnish to each Holder upon request a written statement by the
Issuer as to its compliance with the information or reporting requirements
of Rule 144 and Rule 144A or any successor provision thereto, and of the
Securities Act and the Exchange Act, and a copy of the most recent annual
or quarterly report of the Issuer filed with the Commission.
SECTION 12. Registration Rights. The provisions of Section 3.5 and Exhibit
E-1 of the Purchase Agreement (Registration Rights) are hereby incorporated by
reference herein as if set forth in full herein.
SECTION 13. Covenants of Issuer. So long as any Holder shall hold a Warrant
or any Warrant Shares, the Issuer shall abide by all of the covenants and
agreements set forth in the Purchase Agreement, provided, however, that upon
full and complete payment of the Notes and all other amounts due under the
Purchase Agreement in respect of the Notes, the following sections of the
Purchase Agreement shall be terminated and have no further force or effect after
such repayment: Sections 3.1 through 3.4, 6.3(e), 6.4 through 6.6, 6.8(a) and
(b), 6.10, 6.11, 6.13, 6.14, 7.1 through 7.7, 7.9(a), 7.11, 7.12, 7.15 through
7.19, 9.1 and 9.2. All other provisions of the Purchase Agreement shall survive
such repayment, provided, however, that after such repayment (i) the inspections
referred to in Section 6.2 of the Purchase Agreement shall be at the Holders'
expense and shall be limited to no more than two in any fiscal year, and (ii)
the provisions of Section 6.12 of the Purchase Agreement shall continue in full
force and effect until the third anniversary of such repayment. In connection
with the Holders' continuing right to receive financial information pursuant to
Section 6.1 of the Purchase Agreement and certain other information pursuant to
Section 6.7 of the Purchase Agreement, the Holders agree to continue to abide by
the confidentiality provisions contained in the last paragraph of Section 6.1 of
the Purchase Agreement. No termination of any covenant, representation,
warranty, or other provision of the Purchase Agreement or any other Purchaser
Document, whether after the repayment of the Notes or otherwise, shall in any
way suspend, eliminate or nullify the right of any holder of Warrants to pursue
rights and remedies arising out of a breach or default which occurred prior to
the date of termination, whether known or unknown as of such date. So long as
any Holder shall hold a Warrant or any Warrant Shares, the Issuer shall not,
without the prior written consent of the Holders of a majority of the Warrant
Shares issued or issuable upon exercise of all outstanding Warrants, enter into
any agreement with any holder or prospective holder of any securities of the
Issuer which would allow such holder or prospective holder to include such
securities in any registration referred to in Section 12 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of its
securities will not reduce the number of Warrant Shares which are included.
SECTION 14. Effectiveness of Certain Provisions of the Purchase Agreement.
Any Holder (whether or not such Holder also holds Notes) shall be deemed a
"Purchaser" under, and as that term is defined in, the Purchase Agreement.
13
SECTION 15. Amendments and Waivers. Any provision of this Agreement may be
amended, supplemented, waived, discharged or terminated by a written instrument
signed by the Issuer and the Holders of a majority of the Warrant Shares issued
or issuable upon exercise of all outstanding Warrants; provided, that the
Exercise Price may not be increased, the percentage of the Issuer's
Fully-Diluted Common Stock issuable upon exercise of the Warrants may not be
reduced, the Expiration Date may not be changed to an earlier date and this
Section may not be amended except with the consent of each Holder which would be
affected thereby.
SECTION 16. Provisions of Other Agreements. Whenever the Purchase Agreement
or any provision thereof is referred to herein or in any instrument furnished
hereunder as expressing or constituting a covenant, term, condition or
limitation of this Agreement or of such instrument or as expressing or
constituting a representation herein or therein (a) any such provision shall be
regarded as though incorporated herein or therein at length, (b) except as
otherwise provided herein or in such instrument the terms used in such agreement
or the provision thereof referred to shall have the meanings set forth in such
agreement, and (c) any covenant or other provision incorporated herein by
reference from such agreement shall continue in effect for the benefit of the
Holders so long as this Agreement shall remain in effect. Except as otherwise
specifically provided herein, and except for amendments or modifications to
which the Holders consent in writing in accordance with Section 15, no
modification of or amendment to, or waiver or termination of, any provision of
any of said agreement and no payment of the indebtedness outstanding thereunder
or satisfaction or cancellation thereof, or termination of said agreement, shall
modify, amend, waive, terminate or otherwise affect any provision thereof as
referred to in this Agreement or in any instrument furnished hereunder, which
provision, for the purpose of this Agreement and such instrument, shall remain
unmodified and in full force and effect.
SECTION 17. Specific Performance. The Holders of the Warrants and/or
Warrant Shares shall have the right to specific performance by the Issuer of the
provisions of this Agreement. The Issuer hereby irrevocably waives, to the
extent that it may do so under applicable law, any defense based on the adequacy
of a remedy at law which may be asserted as a bar to the remedy of specific
performance in any action brought against the Issuer for specific performance of
this Agreement by the Holders.
SECTION 18. Notices. All notices, requests, demands or other communications
to or upon the respective parties hereto shall be in writing and shall be deemed
to have been given or made, and all financial statements, information and the
like required to be delivered hereunder shall be deemed to have been delivered,
either (a) three (3) Business Days after deposited in the United States
certified mail, return receipt requested, with postage prepaid, or (b) one (1)
Business Day after delivery to a nationally recognized courier, designated for
overnight delivery with all fees prepaid, in either case addressed to the Issuer
at the Warrant Office, Attn: Chief Executive Officer, and to the Holders at
their respective addresses set forth on the Warrant Register, or to such other
address as any of them shall specify in writing to the others. The Issuer shall
cause the Warrant Register to contain current addresses for each of the Holders.
14
SECTION 19. Binding Effect; Assignability. This Agreement shall be binding
upon and inure to the benefit of the Issuer, its successors and assigns, the
Holders and the registered Holders from time to time of the Warrants and the
Warrant Shares.
SECTION 20. Termination. This Agreement shall terminate and be of no
further force and effect at the close of business on the Expiration Date or the
date on which none of the Warrants or Warrant Shares shall be outstanding,
except that the provisions of Sections 15 (Amendments and Waivers), 17 (Specific
Performance), 18 (Notices), 19 (Binding Effect; Assignability), 20 (Termination)
and 22 (Governing Law) shall continue in full force and effect after such
termination.
SECTION 21. Counterparts. This Agreement may be executed in one or more
separate counterparts and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
SECTION 22. Governing Law. This Agreement and each Warrant shall be
governed by and construed in accordance with the laws of the State of New York.
[Remainder of page intentionally left blank; signature page follows]
15
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
of U.S. Home & Garden Inc. to be duly executed and delivered by their proper and
duly authorized officers, as of the date and year first above written.
Issuer:
U.S. HOME & GARDEN INC.
By: _____________________________________
Name/Title:
Holders:
LEG PARTNERS III SBIC, L.P.
by Xxxxx XX-XX, LLC, its general partner
By: _____________________________________
Xxxxxxx X. Xxxxxxx, Vice President
LEG CO-INVESTORS, LLC
By: _____________________________________
Xxxxxxx X. Xxxxxxx, Authorized Signatory
555 MADISON INVESTORS, LLC
By: _____________________________________
Xxxxxxx X. Xxxxxxx, Manager
16
EXHIBIT A
TO WARRANT AGREEMENT
[FORM OF WARRANT]
THIS WARRANT AND THE UNDERLYING SHARES REPRESENTED BY THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR TRANSFERRED
EXCEPT PURSUANT TO AN EXEMPTION FROM, OR OTHERWISE IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF SUCH ACT. IN ADDITION, THIS WARRANT AND THE
UNDERLYING SHARES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS
SPECIFIED IN THE WARRANT AGREEMENT DATED AS OF NOVEMBER 15, 2001 BETWEEN THE
ISSUER AND THE INITIAL HOLDERS OF THE WARRANTS THEREIN NAMED, A COPY OF WHICH IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE ISSUER AND WILL BE
FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
WARRANT
to Purchase Common Stock of
U.S. HOME & GARDEN INC.
No. W- ____________, 20__
This Warrant certifies that , or registered assigns, is the registered
holder of a warrant (the "Warrant") to purchase from U.S. HOME & GARDEN INC., a
Delaware corporation (the "Issuer"), up to that number of shares of the Issuer's
Common Stock, $.001 par value ("Common Stock"), as shall represent _____% of the
Issuer's "Fully-Diluted Common Stock" (as defined in the Warrant Agreement
referred to below) at the time of exercise of this Warrant. The number of shares
(the "Warrant Shares") issuable upon exercise of this Warrant shall be
calculated in accordance with the Warrant Agreement. This Warrant may be
exercised at any time prior to 5:00 P.M., local time of the Warrant Office, on
the Expiration Date (as defined in the Warrant Agreement), by surrender of this
Warrant, execution and delivery of an Election to Purchase in the form attached
hereto and payment of the Exercise Price at the office of the Issuer at 000
Xxxxxxxxxx Xxxxxx, Xxx Xxxxxxxxx XX 00000, or such other address as the Issuer
may specify in writing to the registered holder of this Warrant (the "Warrant
Office").
The aggregate Exercise Price for the shares of Common Stock being purchased
may be paid by delivery of either (i) a certified check or bank draft or (ii)
certain stock, notes or securities of the Issuer or the Company, all as provided
in Section 4(a) of the Warrant Agreement.
A - 1
The Issuer may deem and treat the registered holder(s) of this Warrant as
the absolute owner(s) hereof (notwithstanding any notation of ownership or other
writing hereon made by anyone), for the purpose of any exercise hereof and of
any distribution to the holder(s) hereof, and for all other purposes, and the
Issuer shall not be affected by any notice to the contrary.
This Warrant is one of the Warrants referred to in the Warrant Agreement
dated as of November 15, 2001 between the Issuer and the initial Holders named
therein (the "Warrant Agreement"). The Warrant Agreement is hereby incorporated
by reference in and made a part of this Warrant and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities of the Issuer and the Holder. Unless otherwise defined herein, all
capitalized terms used in this Warrant have the meanings assigned to them in or
pursuant to the Warrant Agreement.
IN WITNESS WHEREOF, the Issuer has caused this Warrant to be signed by its
duly authorized officers and has caused its corporate seal to be affixed
hereunto.
U.S. HOME & GARDEN INC.
By: _____________________________
Name:
Title:
(CORPORATE SEAL)
ATTEST:
_____________________________
, Secretary
A - 2
ANNEX I
TO WARRANT
[Form of]
ELECTION TO PURCHASE
[To be executed upon exercise of Warrant]
The undersigned hereby elects to exercise the right, represented by the
attached Warrant of U.S. Home & Garden Inc., a Delaware corporation (the
"Issuer"), to purchase _____ shares of Common Stock of the Issuer ("Warrant
Shares"), and further elects to pay the aggregate Exercise Price therefor by
delivery of [a check or bank draft] [stock, notes or securities of the Issuer or
the Company], as provided in Section 4(a) of the Warrant Agreement referred to
in the attached 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
purchasable under the attached Warrant, the undersigned requests that a new
Warrant representing the remaining balance of the Warrant Shares be registered
in the name of _________________ whose address is and that such Warrant be
delivered to __________________ whose address is .
Signature:_________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
Date:_______________, 20___
EXHIBIT B
TO WARRANT AGREEMENT
U.S. HOME & GARDEN INC.
Warrant Register
Warrant Warrant
Certificate No. Name and Address of Holder Percentage
--------------- -------------------------- ----------
W-1 LEG Partners III SBIC, L.P. 3.6108%
W-2 LEG Co-Investors, LLC 0.0342%
W-3 555 Madison Investors, LLC 0.1050%
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxx
Telecopier No.:000-000-0000
TOTAL: 3.7500%
======
B - 1
EXHIBIT C
TO WARRANT AGREEMENT
[Form of Share Warrant Agreement]
U.S. HOME & GARDEN INC.
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of ___________, 20__ (1) between U.S. Home &
Garden Inc., a Delaware corporation (the "Issuer"), and the holders from time to
time of the Warrants referred to herein (the "Holders").
WHEREAS, the Issuer and the Holders are parties to a Warrant Agreement
dated as November 15, 2001 (the "Percentage Warrant Agreement") which provides
for the execution and delivery of this Warrant Agreement on the "Expiration
Date" as defined in the Percentage Warrant Agreement (the "Percentage Warrant
Agreement Expiration Date");
WHEREAS, the Percentage Warrant Agreement was executed and delivered in
connection with the Note and Warrant Purchase, Guaranty and Security Agreement
dated as of November 15, 2001 (as the same may be amended, supplemented or
otherwise modified from time to time, the "Purchase Agreement") among the
Holders, the Issuer, the Issuer's wholly-owned subsidiary Easy Gardener, Inc.
(the "Company") and the Issuer's other Subsidiaries;
WHEREAS, the Purchase Agreement provided, among other things, for the
issuance and sale to the Holders (which are also "Purchasers" party to such
Agreement) of any or all of (i) $5,993,151 principal amount of the Company's 16%
Series A Senior Subordinated Notes due November 19, 2007 (the "Series A Notes"),
(ii) $856,164 principal amount of the Company's 14% Series B Senior Subordinated
Notes due November 19, 2007 (the "Series B Notes"; and, together with the Series
A Notes, the "Notes"), and (iii) the Common Warrants and Preferred Warrants
described therein;
WHEREAS, the "Common Warrants" referred to in the Purchase Agreement were
initially the "Warrants" referred to in the Percentage Warrant Agreement (such
Warrants, the "Percentage Warrants"), but upon execution and delivery of this
Agreement on or after the Percentage Warrant Agreement Expiration Date, the
"Common Warrants" referred to in the Purchase Agreement shall be the Warrants
referred to herein; and
WHEREAS, this Agreement shall only become effective on the Percentage
Warrant Agreement Expiration Date;
----------
(1) Insert the Percentage Warrant Agreement Expiration Date. References in this
Agreement to "the date hereof" refer to the date of the execution and delivery
of this Warrant Agreement, which shall be the Percentage Warrant Agreement
Expiration Date. References in the footnotes below to the "Adjusted Warrant
Percentage" shall have the meaning given thereto in the Percentage Warrant
Agreement.
C - 1
NOW, THEREFORE, in consideration of the premises the Issuer and the Holders
agree as follows:
SECTION 1. Definitions. Capitalized terms used herein which are defined in
the Purchase Agreement and are not otherwise defined herein shall have the
respective meanings given thereto in the Purchase Agreement; and the following
terms used herein shall have the meanings indicated below, unless the context
otherwise requires:
"Agreement" or "Warrant Agreement" shall mean this Warrant Agreement,
together with all Exhibits hereto, as may be amended, modified or supplemented
from time to time with the consent of the Holders in accordance with Section 15,
and shall include all provisions incorporated herein by reference from the
Purchase Agreement, which incorporated provisions shall continue in full force
and effect for the benefit of the Holders as originally in effect unless
modified with the consent of the Holders in accordance with Section 15.
"Commission" shall have the meaning given thereto in Section 11(b).
"Common Stock" shall mean the Issuer's Common Stock, $.001 par value.
"Convertible Securities" shall mean (a) any stock, notes or other
securities convertible into or exchangeable, directly or indirectly, for shares
of Common Stock (whether or not such right to convert or exchange is immediately
exercisable or is "in the money"), (b) any other security, note or agreement
which provides the holder thereof with a payment, repayment amount, appreciation
right or liquidation preference (i) calculated by reference to, or arising from,
the value of the Issuer upon a sale, merger, recapitalization or similar event,
or (ii) based upon the value, whether market or appraisal, of the Common Stock,
and (c) any agreement to issue shares of Common Stock or issue or enter into
such other stock, notes, securities or agreements described in the foregoing
clauses (a) or (b).
"Exchange Act" shall have the meaning given thereto in Section 11(b).
"Exercise Price" shall have the meaning given thereto in Section 3.
"Expiration Date" shall mean May 19, 2009 or, if such day is not a Business
Day, the next succeeding Business Day.
"Market Price" of Common Stock shall mean the average of the daily market
prices of Common Stock over a period of 20 consecutive business days prior to
the day as of which "Market Price" is being determined. The market price for
each such business day shall be the average of the closing sales prices on such
day of the Common Stock on the principal domestic stock exchange on which the
Common Stock is then listed, or if there shall have been no sales on any such
exchange on such day, the average of the highest bid and lowest asked prices on
such exchange at the end of such day, or, if the Common Stock shall not be so
listed, the average of the closing sales prices in the NASDAQ System on such
day, or if there shall have been no sales in the NASDAQ System on such day, the
average of the highest bid and
C - 2
lowest asked prices on the NASDAQ System on such day, or if the Common Stock
shall not be quoted in the NASDAQ System, the average of the high and low bid
and asked prices on such day in the domestic over-the-counter market as reported
by the National Quotation Bureau, Incorporated, or any similar successor
organization. If the Common Stock is listed on any domestic exchange the term
"business days" as used in this paragraph shall mean business days on which such
exchange is open for trading.
If at any time the Common Stock is not listed on any domestic exchange or
quoted in the NASDAQ System or the domestic over-the-counter market, the "Market
Price" shall be the fair market value of a share of Common Stock as determined
in good faith by the Board of Directors of the Issuer (giving due regard to any
recent sales or valuations of Common Stock) or, if the holders of a majority of
the Warrants shall, in the exercise of their sole discretion, object to such
determination, as determined by appraisal pursuant to the following paragraph of
this definition; provided, that if any valuation or appraisal has been made of
the Issuer or its Common Stock for any reason within six months prior to any
date as of which the Market Price is to be determined hereunder, then the
Holders shall be entitled, at their option, to rely on such appraisal and such
valuation or appraisal shall be binding on the Issuer unless any event shall
have occurred since the date of such valuation or appraisal which, in the
reasonable opinion of the Holders of a majority of the Warrants, manifestly
affects the continued validity of such appraisal.
If the Holders of a majority of the Warrants shall object to the
determination of Market Price made by the Issuer's Board of Directors pursuant
to the preceding paragraph, then Market Price shall be determined as of the end
of the most recent complete fiscal quarter of the Issuer ended prior to the date
of determination (taking into account actual performance subsequent thereto and
projections for future periods), and shall be determined by appraisal as
follows: Within fifteen (15) days after receipt by the Issuer of notice that an
appraisal is desired, the Issuer and the Holders of a majority of the Warrants
shall jointly appoint an appraiser for the purpose of determining Market Price.
Such appraiser shall be an investment banking or advisory firm with experience
in valuing companies of a comparable size, and in a comparable industry, as the
Issuer, which investment banking or advisory firm shall be either a firm of
recognized national standing or a regional firm of good national reputation. If
there shall be a dispute as to the selection of such appraiser, then the
appraiser shall be appointed by the American Arbitration Association upon
application by the Issuer or the Holders of a majority of the Warrants. The
Issuer and the Holders of a majority of the Warrants shall be afforded
reasonable opportunities to discuss the appraisal with such appraiser. The
determination of Market Price by such appraiser shall be final and binding upon
the Issuer and the Holders of Warrants. The fees and expenses of the appraiser
and, if any, of the American Arbitration Association, shall be borne by the
Issuer unless the determination of Market Price by such appraiser is the same as
the determination of Market Price made by the Board of Directors (or less
favorable to the Holders), in which case the fees and expenses of such appraiser
shall be borne equally by the Issuer and the Holders of Warrants.
"Options" shall mean any warrants (including the Warrants), options
(including options granted pursuant to any stock option plan), agreements or
other rights to subscribe for or to purchase, directly or indirectly, shares of
Common Stock (whether or not such warrants,
C - 3
options or other rights are immediately exercisable or are "in the money").
Options shall include any warrants, options or other agreements or rights to
subscribe for or to purchase, directly or indirectly, Convertible Securities or
other Options (whether or not such warrants, options or other rights are
immediately exercisable or are "in the money") and agreements or plans under
which the Issuer may issue Common Stock, Options or Convertible Securities in
exchange for services of any kind, whether to be rendered by an employee,
consultant, individual, entity or third party of any kind.
"Securities Act" shall have the meaning given thereto in Section 11(b).
"Warrant" shall mean a Warrant certificate, in the form of Exhibit A
hereto, and shall also mean the right upon exercise thereof to acquire one
Warrant Share.
"Warrant Office" shall mean the office or agency of the Issuer at which the
Warrant Register shall be maintained and where the Warrants may be presented for
exercise, exchange, substitution and transfer, which office or agency will be
the office of the Issuer at 000 Xxxxxxxxxx Xxxxxx, Xxx Xxxxxxxxx, XX 00000. The
Warrant Office may be changed by the Issuer pursuant to notice in writing to the
registered Holders of the Warrants.
"Warrant Register" shall mean the register, in the form of Exhibit B
hereto, maintained by the Issuer at the Warrant Office.
"Warrant Shares" shall mean the shares of Common Stock issuable or issued
upon exercise of the Warrants, and any other Common Stock, Convertible
Securities, capital stock, equity interest, or other securities issuable or
issued in respect of Warrants or Warrant Shares by way of stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or other transaction of the
character referred to in Section 9(f).
SECTION 2A. Representations and Warranties. The Issuer hereby represents
and warrants as follows:
(a) the Issuer's Capital Stock consists of ___________ shares of
Common Stock and __________ shares of Preferred Stock, $.001 par value, all
of which shares have been duly authorized;
(b) of such authorized shares of Common Stock, ________ shares of
Common Stock have been duly issued and are fully paid and nonassessable and
outstanding;
(c) the Warrant Shares issuable to the Holders upon exercise of the
Warrants would, if issued on the date hereof, represent X.XX%(2) of the sum
of (i) ________ shares, being the number of shares of Common Stock
outstanding on the date hereof, plus (ii)
----------
(2) Insert the aggregate percentage of fully-diluted Common Stock represented by
the Percentage Warrants outstanding on the Percentage Warrant Expiration Date.
C - 4
_______ shares, being the number of shares issuable upon exercise of all
Options (other than the Warrants) and conversion of all Convertible
Securities which will be outstanding immediately after issuance of the
Warrants, plus (iii) XXXXX shares, being the number of Warrant Shares;
(d) other than the Warrants and any Options or Convertible Securities
taken into account in determining the number of shares referred to in
Section 2A(c)(ii) above, there are no outstanding Options or Convertible
Securities or obligations to issue any Options or Convertible Securities;
and
(e) Schedule 2A(e) hereto correctly sets forth the outstanding Capital
Stock of the Issuer, including Common Stock issuable upon exercise of
Options or conversion or exchange of Convertible Securities.
SECTION 2B. Issuance of Warrants. The Issuer will issue to the Holders on
the Percentage Warrant Agreement Expiration Date, simultaneously with expiration
of the Percentage Warrant Agreement, Warrants to purchase XXXXX shares of Common
Stock, subject to adjustment as provided in Section 9. The Warrants shall be
exercisable at any time after the Closing Date until 5:00 P.M. (local time at
the Warrant Office) on the Expiration Date.
SECTION 3. Exercise Price. The price (the "Exercise Price") at which a
Holder may purchase each Warrant Share issuable upon exercise of such Holder's
Warrants shall be determined as follows, provided that such Exercise Price shall
be subject to adjustment as provided in Section 9(e):
(A) as to an aggregate of ________ (3) Warrant Shares (being the Warrant
Shares referred to in Section 3(A) of the Percentage Warrant
Agreement), the Exercise Price shall be equal to _________ (4); and
(B) as to an aggregate of ________ (5) Warrant Shares (being the Warrant
Shares referred to in Section 3(B) of the Percentage Warrant
Agreement), the Exercise Price(s) shall be as follows:(6)
----------
(3) Insert that number of Warrant Shares that equals the product of (i) the sum
of the Adjusted Warrant Percentages of all Holders, times (ii) the number of
shares of Common Stock outstanding on the Percentage Warrant Agreement
Expiration Date.
(4) Insert the exercise price which was applicable pursuant to Section 3(A) of
the Percentage Warrant Agreement on the Percentage Warrant Agreement Expiration
Date.
(5) Insert that number of Warrant Shares that equals the product of (i) the sum
of the Adjusted Warrant Percentages of all Holders, times (ii) the number of
shares of Common Stock issuable upon exercise, exchange or conversion of all
Options and Convertible Securities outstanding on the Percentage Warrant
Agreement Expiration Date. The sum of the number of Warrant Shares referred to
in this clause (B) and the number of Warrant Shares referred to in clause (A)
above shall be XXXXX Warrant Shares, being the number of Warrant Shares referred
to in Section 2A(c)(iii) above.
(6) Insert the exercise price(s) which were applicable pursuant to Section 3(B)
of the Percentage Warrant Agreement on the Percentage Warrant Agreement
Expiration Date.
C - 5
Number of Warrant Shares Exercise Price
------------------------ --------------
________________ ___________
________________ ___________
SECTION 4. Exercise of Warrants.
(a) The rights represented by any Warrant issued pursuant hereto may be
exercised by the Holder thereof, in whole or in part, by delivering to the
Warrant Office:
(i) the Warrant, together with a properly completed Election to
Purchase in the form attached thereto;
(ii) at the Holder's option, either (A) a check or bank draft in the
amount of the aggregate Exercise Price for the shares of Common Stock to be
purchased, (B) any promissory notes or debt securities of the Issuer or the
Company that may have been issued to the Holder thereof, so that amounts
outstanding thereunder may be offset against the aggregate Exercise Price
for the shares of Common Stock to be purchased, or (C) Common Stock,
preferred stock, Warrants or other securities of the Issuer having a Market
Price equal to the aggregate Exercise Price for the shares of Common Stock
to be purchased. For purposes of this Section 4: (I) the Market Price per
share of Common Stock at any time shall be determined in accordance with
the definition of Market Price, (II) the Market Price per Warrant at any
time shall be the Market Price per share of Common Stock minus the Exercise
Price then in effect, and (III) the Market Price of other securities shall
be as reasonably determined by the Issuer's Board of Directors in
accordance with the principles set forth in the definition of Market Price;
and
(iii) any representations or documents or information from the Holder
of the Warrants that the Issuer may reasonably require in order comply with
the requirements of the Securities Act with respect of such issuance and in
order to comply with the provisions of Section 7(c) of this Agreement.
Upon such exercise the Issuer shall issue and deliver to or to the order of the
registered Holder(s) of such Warrant, and in such name or names as such
registered Holder(s) may designate, one or more stock certificate(s) for the
Warrant Shares to be issued upon such exercise of such Warrant. Any person(s) so
designated to be named therein shall be deemed to have become the Holder(s) of
record of such Warrant Shares as of the date of delivery to the Issuer at the
Warrant Office of the Warrant and the Exercise Price therefor as provided in
clauses (i) and (ii) above.
(b) If a Warrant is exercised in part at any time, a new Warrant or
Warrants shall be issued for the unexercised portion of such Warrant. Each new
Warrant so issued shall bear any legend required by Section 11.3 of the Purchase
Agreement, if the Warrant presented in connection with a partial exercise
thereof bore such legend. All Warrants surrendered upon exercise shall be
canceled.
C - 6
(c) The Issuer will pay all taxes (other than any applicable income or
similar taxes payable by the Holders) attributable to the initial issuance of
Warrant Shares upon the exercise of the Warrants; provided, that the Issuer
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issue of any Warrant or any certificate for Warrant
Shares in a name other than that of the registered Holder of the Warrant
surrendered for exercise.
SECTION 5. Registration, Transfer and Exchange of Certificates.
(a) The Issuer shall maintain at the Warrant Office a Warrant Register for
registration of the Warrants and transfers thereof. The Issuer may deem and
treat the registered Holder(s) of the Warrants as the absolute owner(s) thereof
for the purpose of any exercise thereof or any distribution to the Holder(s)
thereof, and for all other purposes.
(b) The Issuer shall register the transfer of any outstanding Warrant in
the Warrant Register upon surrender to the Issuer at the Warrant Office of such
Warrant, accompanied (if so required by it) by one or more duly executed
instruments of transfer in form satisfactory to the Issuer. Upon any such
registration of transfer, one or more new Warrant(s) evidencing such transferred
Warrant shall be issued to the transferee(s) and the surrendered Warrant shall
be canceled. If less than all of a surrendered Warrant is to be transferred, new
Warrant(s) shall be issued to the surrendering Holder evidencing the remaining
balance of the surrendered Warrant.
(c) Each Warrant may, at the option of the Holder(s) thereof, be
surrendered to the Issuer at the Warrant Office to be exchanged for one or more
new Warrants of like tenor and exercisable in the aggregate for a like number of
Warrant Shares. Warrants surrendered for exchange shall be canceled.
(d) No charge shall be made for any such transfer or exchange except for
any tax or other governmental charge imposed in connection therewith. Except as
provided in Section 11 or 12 of the Purchase Agreement, each Warrant issued upon
transfer or exchange shall bear any legend required by Section 11.3 of the
Purchase Agreement if the Warrant presented for transfer or exchange bore such
legend.
SECTION 6. Mutilated or Missing Warrant. If any Warrant is mutilated, lost,
stolen or destroyed, the Issuer shall issue, in exchange and substitution for
and upon cancellation of the mutilated Warrant, or in lieu of and substitution
for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and
representing rights to acquire an equivalent share in the Issuer, but only upon
receipt of evidence satisfactory to the Issuer of such loss, theft or
destruction of such Warrant and, if requested, indemnity satisfactory to it. No
service charge shall be made for any such substitution, but all reasonable
charges associated with any stamp, tax or other governmental duty that may be
imposed in relation thereto shall be borne by the Holder of such Warrant. Each
Warrant issued in any such substitution shall bear any legend required by
Section 11.3 of the Purchase Agreement if the Warrant for which such
substitution was made bore such legend.
C - 7
SECTION 7. Reservation and Issuance of Warrant Shares; Governmental
Approvals and Stock Exchange Listings.
(a) The Issuer will at all times have authorized, and reserve and keep
available, free from pre-emptive rights, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon the exercise of the
Warrants, the aggregate Warrant Shares issuable upon exercise of all outstanding
Warrants.
(b) The Issuer covenants that all Warrant Shares will, upon issuance in
accordance with the terms of this Agreement, be fully paid and nonassessable and
free from all taxes with respect to the issuance thereof and from all liens,
charges and security interests created by the Issuer.
(c) The Issuer will, at its own expense, (i) obtain and keep effective any
and all permits, consents and approvals of governmental agencies and authorities
which may from time to time be required of the Issuer in order to issue Warrant
Shares upon exercise of the Warrants, and otherwise to perform its obligations
hereunder, and (ii) take all action which may be necessary so that the Warrant
Shares, immediately upon their issuance upon the exercise of Warrants, will be
listed on the principal securities exchange, if any, on which shares of the
Common Stock of the Issuer are then listed.
SECTION 8. Dividends and Distributions. In the event that the Issuer
declares a stock split, stock dividend, or dividend of any kind, whether in
cash, securities or other property, upon the Common Stock (including any
dividend payable in Common Stock, Options or Convertible Securities), then, at
the option of each Holder of Warrants:
(i) lawful and adequate provisions shall be made whereby the Issuer
shall maintain in reserve and available such dividend property, and such
Holder shall thereafter have the right to purchase and/or receive, as the
case may be, upon exercise of its Warrants (on the terms and conditions
specified in this Agreement, and in addition to the Warrant Shares
purchasable by such Holder immediately prior to the declaration of such
dividend), such shares of stock, securities or property as are
distributable with respect to outstanding shares of Common Stock equal to
the number of Warrant Shares purchasable by such Holder immediately prior
to such declaration, to the end that the provisions hereof (including
without limitation provisions for adjustments of the number of shares
receivable upon exercise) shall thereafter be applicable, as nearly as may
be, in relation to such shares of stock, securities or property; or
(ii) the Exercise Price of such Holder's Warrants shall be reduced by
the per share amount of such dividend.
SECTION 9. Adjustment of Number of Warrant Shares Purchasable and Exercise
Price. Prior to the Expiration Date, the number of Warrant Shares purchasable
upon the exercise of each Warrant is subject to adjustment from time to time
upon the occurrence of any of the events
C - 8
enumerated in this Section 9, and the Exercise Price is subject to adjustment as
provided in Section 9(e).
(a) In the event that the Issuer shall at any time after the date of this
Agreement (i) declare a dividend on the Common Stock in shares or other
securities of the Issuer (other than debt securities covered by Section 8), (ii)
split or subdivide the outstanding Common Stock, (iii) combine the outstanding
Common Stock into a smaller number of shares, or (iv) issue by reclassification
of its Common Stock any shares or other securities of the Issuer (other than
debt securities covered by Section 8, and other than as a result of a change
from par to no par value stock or from no par to par value stock), then, in each
such event, the number of Warrant Shares purchasable upon exercise of each
Warrant immediately prior thereto shall be adjusted so that the holder shall be
entitled to receive the kind and number of such shares or other securities of
the Issuer which the holder would have owned or have been entitled to receive
after the happening of any of the events described above, had such Warrant been
exercised immediately prior to the happening of such event (or any record date
with respect thereto). Such adjustment shall be made whenever any of the events
listed above shall occur. An adjustment made pursuant to this Section 9(a) shall
become effective immediately after the effective date of the event retroactive
to the record date, if any, for the event.
(b) (i) In the event that the Issuer shall at any time after the date of
this Agreement issue any shares of Common Stock
(excluding shares of Common Stock issued upon the conversion or exchange of
Convertible Securities or upon exercise of Options, in each case to the
extent provided in the first proviso to Section 9(b)(ii) below, and
excluding shares of Common Stock issued upon exercise of the Warrants, and
excluding any shares of Common Stock issued under the circumstances
contemplated in Section 9(a) above)
without consideration or at a price per share less than the Market Price per
share of Common Stock in effect immediately prior to the time of the issuance of
such Common Stock (and prior to the time of the public announcement of such
issuance) (the "Pre-Event Market Price"), then in each such event (an
"Adjustment Event"), the number of Warrant Shares purchasable upon exercise of
each Warrant immediately prior thereto (the "Initial Number") shall be adjusted
so that the holder of any Warrant exercised shall be entitled to receive the
number of shares of Common Stock determined by multiplying the Initial Number by
a fraction, of which the numerator shall be the number of shares of Common Stock
outstanding immediately prior to such Adjustment Event plus the number of
additional shares of Common Stock issued for purchase in such Adjustment Event
and of which the denominator shall be the number of shares of Common Stock
outstanding immediately prior to such Adjustment Event plus the number of shares
of Common Stock which the aggregate issuance price of the total number of shares
of Common Stock issued in such Adjustment Event would purchase at the Pre-Event
Market Price per share of Common Stock; provided, however, that no such
adjustment shall be made for the issuance of shares of Common Stock under the
circumstances contemplated in Section 9(f) hereof.
C - 9
(ii) In the event that at any time after the date of this Agreement, the
Issuer shall in any manner issue or sell any Convertible Securities or grant any
Options, and the minimum price per share for which shares of Common Stock are
issuable pursuant to such Options or upon conversion or exchange of such
Convertible Securities
(determined by dividing (A) the total amount, if any, received or
receivable by the Issuer as consideration for the granting of such Options,
or issuance or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration payable to the Issuer upon the
exercise of such Options, plus, in the case of such Convertible Securities,
the minimum aggregate amount of additional consideration, if any, payable
upon the conversion or exchange thereof, by (B) the total maximum number of
shares of Common Stock issuable pursuant to such Options or upon the
conversion or exchange of the total maximum amount of such Convertible
Securities)
shall be less than the Market Price per share of Common Stock in effect
immediately prior to the time of the granting of such Options or issuance or
sale of such Options or Convertible Securities (and prior to the time of the
public announcement of such grant, issuance or sale), then the total maximum
number of shares of Common Stock issuable pursuant to such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issued or issuable upon the exercise of such Options shall (as of the
date of the granting of such Options or issuance or sale of such Convertible
Securities) be deemed to be outstanding and to have been issued or sold for
purposes of Section 9(b)(i) hereof for the minimum price per share as so
determined; provided, that, except as provided in the following proviso, no
further adjustment of the number of Warrant Shares issuable upon exercise of the
Warrants shall be made upon the actual issue of shares of Common Stock so deemed
to have been issued, and further provided, that, upon the expiration or
termination of any unexercised Options or conversion or exchange privileges for
which any adjustment was made pursuant to Section 9(b)(i) and this Section
9(b)(ii) (or if the purchase price provided for in any Option referred to in
this Section 9(b)(ii), the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in this Section
9(b)(ii), or the rate at which any Convertible Securities referred to in this
Section 9(b)(ii) are convertible into or exchangeable for Common Stock shall
change at any time), then the number of Warrant Shares issuable upon exercise of
the Warrants shall be readjusted, and shall thereafter be such number as would
have prevailed had the number of Warrant Shares issuable upon exercise of the
Warrants been originally adjusted (or had the original adjustment not been
required, as the case may be) on the basis of (A) the shares of Common Stock, if
any, actually issued or sold upon the exercise of such Options or conversion or
exchange privileges (or the revised number of shares subject to such exercise)
and (B) the consideration actually received (or receivable, in the case of such
revised number of shares subject to such exercise) by the Issuer upon such
exercise plus the consideration, if any, actually received by the Issuer for the
issuance, sale or grant of all of such Options or Convertible Securities whether
or not exercised; provided, however, that no such readjustment shall have the
effect of decreasing the number of Warrant Shares issuable upon exercise of the
Warrants by an amount in excess of the amount of the adjustment initially made
for the issuance, sale or grant of such Options or Convertible Securities.
C - 10
(iii) In case any subscription price may be paid in a consideration part or
all of which shall be in a form other than cash, or in the case of the issuance
of securities by the Issuer in connection with an acquisition, merger or other
business combination, the value of the consideration received for such
securities shall be as determined in good faith by the Board of Directors of the
Issuer or, if the holders of a majority of the Warrants shall, in the exercise
of their sole discretion, object to such determination, the value of such
consideration shall be as determined by appraisal by an independent investment
banking firm mutually selected by the Issuer and the holders of a majority of
the Warrants. If there shall be a dispute as to the selection of such firm, then
such firm shall be appointed by the American Arbitration Association upon
application by the Issuer or the Holders of a majority of the Warrants. The fees
and expenses of such firm and, if any, of the American Arbitration Association,
shall be borne by the Issuer unless the determination of the value of such
consideration made by such appraiser is equal to or less than the determination
of the value of such consideration made by the Board of Directors, in which case
the fees and expenses of such firm shall be borne equally by the Issuer and the
Holders of Warrants. Shares of Common Stock owned by or held for the account of
the Issuer or any majority-owned Subsidiary shall not be deemed outstanding for
the purpose of any computation pursuant to this Section 9(b).
(c) No adjustment in the number of Warrant Shares shall be required unless
such adjustment would require an increase or decrease of at least 1% in the
aggregate number of Warrant Shares purchasable upon exercise of all Warrants
provided that any adjustments which by reason of this Section 9(c) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment; provided, however, that notwithstanding the foregoing,
all such adjustments shall be made no later than three years from the date of
the first event that would have required an adjustment but for this Section
9(c). All calculations under this Section 9 shall be made to the nearest cent or
to the nearest hundredth of a share, as the case may be.
(d) If at any time, as a result of an adjustment made pursuant to this
Section 9, the Holder of any Warrant thereafter exercised shall become entitled
to receive any securities of the Issuer other than shares of Common Stock,
thereafter the number of such other securities so receivable upon exercise of
any 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
Warrant Shares contained in this Section 9, and the provisions of this Agreement
with respect to the Warrant Shares shall apply on like terms to such other
securities.
(e) Whenever the number of Warrant Shares purchasable upon the exercise of
each Warrant is adjusted, the Exercise Price per Warrant Share payable upon
exercise of each Warrant shall be adjusted by multiplying such Exercise Price
immediately prior to such adjustment by a fraction, the numerator of which shall
be the number of Warrant Shares purchasable upon the exercise of each Warrant
immediately prior to such adjustment, and the denominator of which shall be the
number of Warrant Shares purchasable immediately after such adjustment.
(f) In the event of any capital reorganization of the Issuer, or of any
reclassification of the Common Stock (other than a reclassification referred to
in Section 9(a)(iv) above), or in case of the consolidation of the Issuer with
or the merger of the Issuer with or into
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any other corporation or of the sale of the properties and assets of the Issuer
as, or substantially as, an entirety to any other corporation, each Warrant
shall, after such capital reorganization, reclassification of Common Stock,
consolidation, merger or sale, and in lieu of being exercisable for Warrant
Shares, be exercisable, upon the terms and conditions specified in this Warrant
Agreement, for the number of shares of stock or other securities or assets to
which a holder of the number of Warrant Shares purchasable (at the time of such
capital reorganization, reclassification of Common Stock, consolidation, merger
or sale) upon exercise of such Warrant would have been entitled upon such
capital reorganization, reclassification of Common Stock, consolidation, merger
or sale; and in any such case, if necessary, the provisions set forth in this
Section 9 with respect to the rights thereafter of the holders of the Warrants
shall be appropriately adjusted so as to be applicable, as nearly as they may
reasonably be, to any shares of stock or other securities or assets thereafter
deliverable on the exercise of the Warrants. The Issuer shall not effect any
such consolidation, merger or sale, unless prior to or simultaneously with the
consummation thereof, the successor corporation (if other than the Issuer)
resulting from such consolidation or merger or the corporation purchasing such
assets or the appropriate corporation or entity shall assume, by written
instrument, the obligation to deliver to the holder of each Warrant the shares
of stock, securities or assets to which, in accordance with the foregoing
provisions, such holder may be entitled and all other obligations of the Issuer
under this Warrant Agreement. The provisions of this Section 9(f) shall apply to
successive reorganizations, reclassifications, consolidations, mergers and
sales.
(g) Irrespective of any adjustments in the Exercise Price or the number or
kind of shares purchasable upon exercise of the Warrants, any Warrant
certificate theretofore or thereafter issued may continue to express the same
Exercise Price per share and number and kind of shares as are stated on the
Warrant certificates initially issuable pursuant to this Agreement.
(h) If any question shall at any time arise with respect to the adjusted
Exercise Price of the Warrants or the number of Warrant Shares issuable upon
exercise of the Warrants, such question shall be determined by an investment
banking or advisory firm of the type described in, and selected in the manner
provided in, the last paragraph of the definition of "Market Price". The Issuer
and the Holders of a majority of the Warrants shall be afforded reasonable
opportunities to discuss matters relating to such adjustment with such firm. The
determination of such firm shall be final and binding upon the Issuer and the
Holders of Warrants. The fees and expenses of such firm (and any incurred in the
selection of such firm) shall be borne by the Issuer unless the computation by
such firm of such adjusted Exercise Price or number of Warrant Shares is the
same as the computations thereof made by the Issuer (or less favorable to the
Holders), in which case the fees and expenses of such firm shall be borne
equally by the Issuer and the Holders of Warrants.
SECTION 10. Notices to Warrant Holders. (a) Upon any adjustment of the
Exercise Price or number of Warrant Shares issuable upon exercise pursuant to
Section 9, the Issuer shall promptly, but in any event within 10 Business Days
thereafter, cause to be given to each of the registered holders of the Warrants,
at its address appearing on the Warrant Register by first-class mail, postage
prepaid, a certificate signed by its chief financial officer setting forth the
Exercise Price as so adjusted and/or the number of shares of Common Stock
issuable upon the exercise of each Warrant as so adjusted and describing in
reasonable detail the facts accounting for such
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adjustment and the method of calculation used. Where appropriate, such
certificate may be given in advance and included as a part of the notice
required to be mailed under the other provisions of this Section 10.
(b) In case at any time the Issuer proposes:
(i) to declare a cash dividend upon Common Stock;
(ii) to declare or pay, or set apart any funds for the payment of, any
dividends on any shares of its Common Stock or make any other Distribution
(as defined in the Purchase Agreement) to the holders of its Common Stock;
(iii) to apply any of its funds, property or assets to, or set apart
any funds, property or assets for, the purchase, redemption or retirement
of, or make any Distribution, by reduction of capital or otherwise, in
respect of any of its shares of Common Stock or in respect of any Options
or Convertible Securities exercisable or exchangeable for or convertible
into shares of Common Stock, whether now or hereafter outstanding;
(iv) to issue any shares of capital stock, Options or Convertible
Securities (except pursuant to the exercise of Warrants or Options or the
conversion or exchange of Convertible Securities in accordance with their
terms);
(v) to offer for subscription pro rata to the holders of any of its
capital stock or Convertible Securities any additional shares of stock of
any class or other rights;
(vi) to effect any capital reorganization, or reclassification of the
Capital Stock of the Issuer, or consolidation or merger of the Issuer with
another Person, or sale or other disposition of greater than 25% of the net
value of its assets; or
(vii) to effect a voluntary or involuntary dissolution, liquidation or
winding up of the Issuer,
then, in any one or more of said cases, the Issuer shall give the Holder of any
Warrant (x) at least 10 Business Days' (but not more than 90 days') prior
written notice of the date on which the books of the Issuer shall close or a
record shall be taken for such dividend, redemption, Distribution or
subscription rights or for determining rights to vote in respect of any such
issuance, reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, and (y) in the case of any such
issuance, reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, at least 10 Business Days' (but not more
than 90 days') prior written notice of the date when the same shall take place
(provided, however, that, (1) in the case of clause (iv) above, an issuance of
securities which has been approved by the Issuer's Board of Directors pursuant
to a stock option plan or stock incentive plan of the Issuer shall not require
any prior written notice to the Holders, provided that the Issuer includes
information as to such issuance in the next succeeding certificate of its chief
financial officer delivered to the Holders pursuant to Section 10(a) above, and
(2) in the case of
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any other issuance referred to in clause (iv) above, no more than 5 Business
Day's prior written notice of such issuance need be given to the Holders). Such
notice in accordance with the foregoing clause (x) shall also specify, in the
case of any such dividend, redemption, Distribution or subscription rights, the
date on which the holders of Common Stock shall be entitled thereto, and such
notice in accordance with the foregoing clause (y) shall also specify the date
on which the holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, as the case may be. The failure to give the notice required by this
Section 10 or any defect therein shall not affect the legality or validity of
any Distribution, right, warrant, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up, or the vote upon any action.
SECTION 11. Securities Law Matters; Transfers; Rule 144 and Rule 144A
Covenants.
(a) The provisions of Section 11 (Securities Law Matters) and 12
(Transfers) of the Purchase Agreement are hereby incorporated by reference
herein as if set forth in full herein.
(b) With a view to making available certain rules and regulations of the
Securities and Exchange Commission (the "Commission") which may permit the sale
of Warrants and Warrant Shares without registration, the Issuer agrees that at
any time when its securities are registered under that Securities and Exchange
Act of 1934 (the "Exchange Act") that it will:
(i) make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"), or any successor provision thereto;
(ii) so long as Rule 144A is available to the Holders, make and keep
available the information specified in Rule 144A(d)(4) under the Securities
Act or any successor provision thereto;
(iii) file with the Commission in a timely manner all reports and
other documents required of the Issuer under the Exchange Act; and
(iv) furnish to each Holder upon request a written statement by the
Issuer as to its compliance with the information or reporting requirements
of Rule 144 and Rule 144A or any successor provision thereto, and of the
Securities Act and the Exchange Act, and a copy of the most recent annual
or quarterly report of the Issuer filed with the Commission.
SECTION 12. Registration Rights. The provisions of Section 3.5 and Exhibit
E-1 of the Purchase Agreement (Registration Rights) are hereby incorporated by
reference herein as if set forth in full herein.
SECTION 13. Covenants of Issuer. So long as any Holder shall hold a Warrant
or any Warrant Shares, the Issuer shall abide by all of the covenants and
agreements set forth in the
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Purchase Agreement, other than those set forth in the following Sections of the
Purchase Agreement: Sections 3.1 through 3.4, 6.3(e), 6.4 through 6.6, 6.8(a)
and (b), 6.10, 6.11, 6.13, 6.14, 7.1 through 7.7, 7.9(a), 7.11, 7.12, 7.15
through 7.19, 9.1 and 9.2; provided, however, that (i) the inspections referred
to in Section 6.2 of the Purchase Agreement shall be at the Holders' expense and
shall be limited to no more than two in any fiscal year, and (ii) the provisions
of Section 6.12 of the Purchase Agreement shall continue in full force and
effect until the third anniversary of such repayment. In connection with the
Holders' continuing right to receive financial information pursuant to Section
6.1 of the Purchase Agreement and certain other information pursuant to Section
6.7 of the Purchase Agreement, the Holders agree to continue to abide by the
confidentiality provisions contained in the last paragraph of Section 6.1 of the
Purchase Agreement. Notwithstanding the foregoing, the Holders shall have the
right to pursue rights and remedies arising out of a breach or default of the
Sections listed above which occurred prior to the payment in full of the Notes
and all other amount due under the Purchase Agreement in respect of the Notes,
whether known or unknown as of such date. So long as any Holder shall hold a
Warrant or any Warrant Shares, the Issuer shall not, without the prior written
consent of the Holders of a majority of the Warrant Shares issued or issuable
upon exercise of all outstanding Warrants, enter into any agreement with any
holder or prospective holder of any securities of the Issuer which would allow
such holder or prospective holder to include such securities in any registration
referred to in Section 12 hereof, unless under the terms of such agreement, such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of its securities will not
reduce the number of Warrant Shares which are included.
SECTION 14. Effectiveness of Certain Provisions of the Purchase Agreement.
Any Holder shall be deemed a "Purchaser" under, and as that term is defined in,
the Purchase Agreement.
SECTION 15. Amendments and Waivers. Any provision of this Agreement may be
amended, supplemented, waived, discharged or terminated by a written instrument
signed by the Issuer and the Holders of a majority of the Warrant Shares issued
or issuable upon exercise of all outstanding Warrants; provided, that the
Exercise Price may not be increased, the number of shares of Common Stock
issuable upon exercise of the Warrants may not be reduced, the Expiration Date
may not be changed to an earlier date and this Section may not be amended except
with the consent of each Holder which would be affected thereby.
SECTION 16. Provisions of Other Agreements. Whenever the Purchase Agreement
or any provision thereof is referred to herein or in any instrument furnished
hereunder as expressing or constituting a covenant, term, condition or
limitation of this Agreement or of such instrument or as expressing or
constituting a representation herein or therein (a) any such provision shall be
regarded as though incorporated herein or therein at length, (b) except as
otherwise provided herein or in such instrument the terms used in such agreement
or the provision thereof referred to shall have the meanings set forth in such
agreement, and (c) any covenant or other provision incorporated herein by
reference from such agreement shall continue in effect for the benefit of the
Holders so long as this Agreement shall remain in effect. Except as otherwise
specifically provided herein, and except for amendments or modifications to
which the Holders consent in
C - 15
writing in accordance with Section 15, no modification of or amendment to, or
waiver or termination of, any provision of any of said agreement and no payment
of the indebtedness outstanding thereunder or satisfaction or cancellation
thereof, or termination of said agreement, shall modify, amend, waive, terminate
or otherwise affect any provision thereof as referred to in this Agreement or in
any instrument furnished hereunder, which provision, for the purpose of this
Agreement and such instrument, shall remain unmodified and in full force and
effect.
SECTION 17. Specific Performance. The Holders of the Warrants and/or
Warrant Shares shall have the right to specific performance by the Issuer of the
provisions of this Agreement. The Issuer hereby irrevocably waives, to the
extent that it may do so under applicable law, any defense based on the adequacy
of a remedy at law which may be asserted as a bar to the remedy of specific
performance in any action brought against the Issuer for specific performance of
this Agreement by the Holders.
SECTION 18. Notices. All notices, requests, demands or other communications
to or upon the respective parties hereto shall be in writing and shall be deemed
to have been given or made, and all financial statements, information and the
like required to be delivered hereunder shall be deemed to have been delivered,
either (a) three (3) Business Days after deposited in the United States
certified mail, return receipt requested, with postage prepaid, or (b) one (1)
Business Day after delivery to a nationally recognized courier, designated for
overnight delivery with all fees prepaid, in either case addressed to the Issuer
at the Warrant Office, Attn: Chief Executive Officer, and to the Holders at
their respective addresses set forth on the Warrant Register, or to such other
address as any of them shall specify in writing to the others. The Issuer shall
cause the Warrant Register to contain current addresses for each of the Holders.
SECTION 19. Binding Effect; Assignability. This Agreement shall be binding
upon and inure to the benefit of the Issuer, its successors and assigns, the
Holders and the registered Holders from time to time of the Warrants and the
Warrant Shares.
SECTION 20. Termination. This Agreement shall terminate and be of no
further force and effect at the close of business on the Expiration Date or the
date on which none of the Warrants shall be outstanding, except that the
provisions of Sections 15 (Amendments and Waivers), 17 (Specific Performance),
18 (Notices), 19 (Binding Effect; Assignability), 20 (Termination) and 22
(Governing Law) shall continue in full force and effect after such termination.
SECTION 21. Counterparts. This Agreement may be executed in one or more
separate counterparts and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
SECTION 22. Governing Law. This Agreement and each Warrant shall be
governed by and construed in accordance with the laws of the State of New York.
[Remainder of page intentionally left blank; signature page follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
of U.S. Home & Garden Inc. to be duly executed and delivered by their proper and
duly authorized officers, as of the date and year first above written.
Issuer:
U.S. HOME & GARDEN INC.
By: _____________________________________
Name/Title:
Holders:
LEG PARTNERS III SBIC, L.P.
by Xxxxx XX-XX, LLC, its general partner
By: _____________________________________
Xxxxxxx X. Xxxxxxx, Vice President
LEG CO-INVESTORS, LLC
By: _____________________________________
Xxxxxxx X. Xxxxxxx, Authorized Signatory
555 MADISON INVESTORS, LLC
By: _____________________________________
Xxxxxxx X. Xxxxxxx, Manager
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================================================================================
U.S. HOME & GARDEN INC.
and
THE HOLDERS NAMED HEREIN
WARRANT AGREEMENT
================================================================================
as of November 15, 2001
U.S. HOME & GARDEN INC.
WARRANT AGREEMENT
Table of Contents
SECTION 1. Definitions 1
SECTION 2. Issuance of Warrants 4
SECTION 3. Exercise Price 5
SECTION 4. Exercise of Warrants 6
SECTION 5. Registration, Transfer and Exchange of Certificates 7
SECTION 6. Mutilated or Missing Warrant 8
SECTION 7. Reservation and Issuance of Warrant Shares 8
SECTION 8. Obtaining of Governmental Approvals and Stock Exchange Listings 8
SECTION 9. Additional Anti-Dilution Provisions 9
(a) Payments to Holders in Connection with Certain Dividends 9
(b) Reorganizations and Asset Sales 9
(c) Notice of Adjustment 10
(d) Disputes 10
(e) Securities other than Common Stock 11
SECTION 10. Notices to Warrant Holders 11
SECTION 11. Securities Law Matters; Transfers; Rule 144 and Rule 144A Covenants. 12
SECTION 12. Registration Rights 13
SECTION 13. Covenants of Company 13
SECTION 14. Effectiveness of Certain Provisions of the Purchase Agreement 13
SECTION 15. Amendments and Waivers 14
SECTION 16. Provisions of Other Agreements 14
SECTION 17. Specific Performance 14
SECTION 18. Notices 14
SECTION 19. Binding Effect; Assignability 15
SECTION 20. Termination 15
SECTION 21. Counterparts 15
SECTION 22. Governing Law 15
Exhibit A - Form of Warrant
Exhibit B - Warrant Register
Exhibit C - Form of Share Warrant
i
U.S. HOME & GARDEN INC.
OPTION AGREEMENT
(Option to purchase 9.4% Cumulative Trust Preferred Securities
of U.S. Home & Garden Trust I owned by U.S. Home & Garden Inc.)
OPTION AGREEMENT dated as of November 15, 2001 between U.S. Home & Garden
Inc., a Delaware corporation ("USHG"), and the holders from time to time of the
Options or Option Securities referred to herein (the "Holders").
WHEREAS, the Holders, USHG, USHG's wholly-owned subsidiary Easy Gardener,
Inc. (the "Company") and USHG's other Subsidiaries are parties to a Note and
Warrant Purchase, Guaranty and Security Agreement dated as of the date hereof
(as the same may be amended, supplemented or otherwise modified from time to
time, the "Purchase Agreement") providing, among other things, for the purchase
by the Holders (which are also "Purchasers" party to such Agreement) of any or
all of (i) $5,993,151 principal amount of the Company's 16% Series A Senior
Subordinated Notes due November 19, 2007 (the "Series A Notes"), (ii) $856,164
principal amount of the Company's 14% Series B Senior Subordinated Notes due
November 19, 2007 (the "Series B Notes"; and, together with the Series A Notes,
the "Notes"), and (iii) the Common Warrants and Preferred Warrants described
therein;
WHEREAS, the "Preferred Warrants" referred to in the Purchase Agreement are
the Options referred to herein;
WHEREAS, the Options referred to herein grant the Holders the right to
purchase from USHG such number of 9.4% Cumulative Trust Preferred Securities,
liquidation amount $25 per Preferred Security ("Preferred Securities"),
originally issued by USHG's subsidiary U.S. Home & Garden Trust I (the "Trust")
as represents in the aggregate not less than three and three quarters percent
(3.75%) of the Fully-Diluted Preferred Securities (as defined herein); and
WHEREAS, the Holders understand that the Preferred Securities were issued
by the Trust, but that the Options herein granted by USHG represent the right to
purchase from USHG (and not from the Trust) Preferred Securities originally
issued by the Trust which are owned by USHG because USHG purchased such
Preferred Securities from certain holders thereof;
NOW, THEREFORE, in consideration of the premises USHG and the Holders agree
as follows:
SECTION 1. Definitions. Capitalized terms used herein which are defined in
the Purchase Agreement and are not otherwise defined herein shall have the
respective meanings given thereto in the Purchase Agreement; and the following
terms used herein shall have the meanings indicated below, unless the context
otherwise requires:
"Agreement" or "Option Agreement" shall mean this Option Agreement,
together with all Exhibits hereto, as may be amended, modified or supplemented
from time to time with
the consent of the Holders in accordance with Section 15, and shall include all
provisions incorporated herein by reference from the Purchase Agreement or any
other agreement, which incorporated provisions shall continue in full force and
effect for the benefit of the Holders as originally in effect unless modified
with the consent of the Holders in accordance with Section 15.
"Commission" shall have the meaning given thereto in Section 11(b).
"Convertible Securities" shall mean (a) any stock, notes or other
securities of USHG or the Trust convertible into or exchangeable, directly or
indirectly, for Preferred Securities (whether or not such right to convert or
exchange is immediately exercisable or is "in the money"), (b) any other
security, note or agreement of USHG or the Trust which provides the holder
thereof with a payment, repayment amount, appreciation right or liquidation
preference (i) calculated by reference to, or arising from, the value of the
Trust upon a sale, merger, recapitalization or similar event, or (ii) based upon
the value, whether market or appraisal, of the Preferred Securities, and (c) any
agreement of USHG or the Trust to issue or sell Preferred Securities or to
issue, sell or enter into such other stock, notes, securities or agreements
described in the foregoing clauses (a) or (b).
"Exchange Act" shall have the meaning given thereto in Section 11(b).
"Exercise Price" shall have the meaning given thereto in Section 3.
"Expiration Date" shall mean May 19, 2009 or, if such day is not a Business
Day, the next succeeding Business Day.
"Fully-Diluted Preferred Securities" shall have the meaning given thereto
in Section 2(b).
"Market Price" of a Preferred Security shall mean the average of the daily
market prices of a Preferred Security over a period of 20 consecutive business
days prior to the day as of which "Market Price" is being determined. The market
price for each such business day shall be the average of the closing sales
prices on such day of a Preferred Security on the principal domestic stock
exchange on which Preferred Securities are then listed, or if there shall have
been no sales on any such exchange on such day, the average of the highest bid
and lowest asked prices on such exchange at the end of such day, or, if the
Preferred Securities shall not be so listed, the closing sales price in the
NASDAQ System on such day, or if there shall have been no sales in the NASDAQ
System on such day, the average of the highest bid and lowest asked prices on
the NASDAQ System on such day, or if the Preferred Securities shall not be
quoted in the NASDAQ System, the average of the high and low bid and asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization.
If the Preferred Securities are listed on any domestic exchange the term
"business days" as used in this paragraph shall mean business days on which such
exchange is open for trading.
2
If at any time the Preferred Securities are not listed on any domestic
exchange or quoted in the NASDAQ System or the domestic over-the-counter market,
the "Market Price" shall be the fair market value of a Preferred Security as
determined in good faith by the Board of Directors of USHG (giving due regard to
any recent sales or valuations of Preferred Securities) or, if the holders of a
majority of the Options shall, in the exercise of their sole discretion, object
to such determination, as determined by appraisal pursuant to the following
paragraph of this definition; provided, that if any valuation or appraisal has
been made of the Trust or its Preferred Securities for any reason within six
months prior to any date as of which the Market Price is to be determined
hereunder, then the Holders shall be entitled, at their option, to rely on such
appraisal and such valuation or appraisal shall be binding on USHG unless any
event shall have occurred since the date of such valuation or appraisal which,
in the reasonable opinion of the Holders of a majority of the Options,
manifestly affects the continued validity of such appraisal.
If the Holders of a majority of the Options shall object to the
determination of Market Price made by USHG's Board of Directors pursuant to the
preceding paragraph, then Market Price shall be determined as of the end of the
most recent complete fiscal quarter of the Trust ended prior to the date of
determination (taking into account actual performance subsequent thereto and
projections for future periods), and shall be determined by appraisal as
follows: Within fifteen (15) days after receipt by USHG of notice that an
appraisal is desired, USHG and the Holders of a majority of the Options shall
jointly appoint an appraiser for the purpose of determining Market Price. Such
appraiser shall be an investment banking or advisory firm with experience in
valuing trusts or other special purpose entities such as the Trust, which
investment banking or advisory firm shall be either a firm of recognized
national standing or a regional firm of good national reputation. If there shall
be a dispute as to the selection of such appraiser, then the appraiser shall be
appointed by the American Arbitration Association upon application by USHG or
the Holders of a majority of the Options. USHG and the Holders of a majority of
the Options shall be afforded reasonable opportunities to discuss the appraisal
with such appraiser. The determination of Market Price by such appraiser shall
be final and binding upon USHG and the Holders of Options. The fees and expenses
of the appraiser and, if any, of the American Arbitration Association, shall be
borne by USHG unless the determination of Market Price by such appraiser is the
same as the determination of Market Price made by the Board of Directors (or
less favorable to the Holders), in which case the fees and expenses of such
appraiser shall be borne equally by USHG and the Holders of Options.
"Option" shall mean an Option certificate, in the form of Exhibit A hereto,
and shall also mean the right upon exercise thereof to acquire one Option
Security.
"Option Office" shall mean the office or agency of USHG at which the Option
Register shall be maintained and where the Options may be presented for
exercise, exchange, substitution and transfer, which office or agency will be
the office of USHG at 000 Xxxxxxxxxx Xxxxxx, Xxx Xxxxxxxxx, XX 00000. The Option
Office may be changed by USHG pursuant to notice in writing to the registered
Holders of the Options.
"Option Percentage" shall have the meaning given thereto in Section 2(a).
3
"Option Register" shall mean the register, in the form of Exhibit B hereto,
maintained by USHG at the Option Office.
"Option Securities" shall mean the Preferred Securities purchasable or
purchased upon exercise of the Options, and any other Preferred Securities,
Rights, Convertible Securities, capital stock, equity interest, or other
securities issuable or issued in respect of Options or Option Securities by way
of securities dividend or securities split or in connection with a combination
of securities, recapitalization, merger, consolidation or other reorganization
or other transaction of the character referred to in Section 9(b).
"Preferred Security" shall mean an undivided beneficial interest in the
assets of the Trust designated as "9.4% Cumulative Trust Preferred Securities",
having a Liquidation Amount of $25 per security and having the rights provided
therefor in the Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided in the Trust Agreement.
"Rights" shall mean any warrants, options (including the Options),
agreements or other rights to subscribe for or to purchase, directly or
indirectly, from USHG or the Trust, Preferred Securities (whether or not such
warrants, options or other rights are immediately exercisable or are "in the
money"). Rights shall include any warrants, options or other agreements or
rights to subscribe for or to purchase, directly or indirectly, from USHG or the
Trust, Convertible Securities or other Rights (whether or not such warrants,
options or other rights are immediately exercisable or are "in the money") and
agreements or plans under which USHG or the Trust may issue or sell securities
in exchange for services of any kind, whether to be rendered by an employee,
consultant, individual, entity or third party of any kind.
"Securities Act" shall have the meaning given thereto in Section 11(b).
"Trust Agreement" shall mean the Trust's Amended and Restated Trust
Agreement dated as of April ___, 1998 among USHG, as Depositor, Wilmington Trust
Company, as Property Trustee, Wilmington Trust Company, as Delaware Trustee, and
the Administrative Trustee named therein, pursuant to which, among other things,
the Preferred Securities were issued.
SECTION 2. Grant of Options.
(a) USHG will grant to the Holders on the Closing Date, in exchange for
payment of the purchase price for the "Preferred Warrants" specified in Section
2.3 of the Purchase Agreement, Options to purchase that number of Preferred
Securities representing in the aggregate three and three quarters percent
(3.75%) of the Fully-Diluted Preferred Securities (as defined below) at the time
of exercise (the "Option Percentage"). The Options purchased by each Holder and
the corresponding portion of the Option Percentage represented thereby is set
forth on Exhibit B attached hereto. The Options shall be exercisable at any time
after the Closing Date until 5:00 P.M. (local time at the Option Office) on the
Expiration Date.
4
(b) "Fully-Diluted Preferred Securities" at any time of determination shall
mean the sum of (A) the number of Preferred Securities issued by the Trust and
outstanding at such time, plus (B) the number of Preferred Securities subject to
issuance or sale upon exercise of all outstanding Rights (including the Options)
and conversion or exchange of all Convertible Securities issued and outstanding
at such time (provided that if any such securities qualify as both Options and
Convertible Securities, they shall be counted only once), plus (C) the number of
Preferred Securities which USHG or the Trust is otherwise obligated or
potentially obligated to issue or sell under any agreement, understanding or
arrangement or otherwise. Where any Convertible Security does not indicate a
specific or fixed number of Preferred Securities to be issued or sold thereunder
or in connection therewith, the number of Preferred Securities issuable
thereunder or in connection therewith for purposes of calculating Fully-Diluted
Preferred Securities shall equal the greater of (I) the maximum number of
Preferred Securities described as issuable thereunder or in connection therewith
or (II) such number of Preferred Securities as would represent any profit
sharing, liquidation preference amount, appreciation right, share or percentage
of the Trust's value as if such Convertible Security was converted (at the
then-applicable Market Price if no conversion price is otherwise provided in
such Convertible Security) into Preferred Securities. Fully-Diluted Preferred
Securities shall not include any securities owned or held by or for the account
of the Trust.
SECTION 3. Exercise Price. At any time of determination, the price (the
"Exercise Price") at which a Holder may purchase each Option Security issuable
upon exercise of such Holder's Options shall be $12.10.
SECTION 4. Exercise of Options.
(a) The rights represented by any Option granted pursuant hereto may be
exercised by the Holder thereof, in whole or in part, by delivering to the
Option Office:
(i) the Option, together with a properly completed Election to
Purchase in the form attached thereto;
(ii) at the Holder's option, either (A) a check or bank draft in the
amount of the aggregate Exercise Price for the Preferred Securities to be
purchased, (B) any promissory notes or debt securities of USHG or the
Company (including Notes) that may have been issued to the Holder thereof,
so that amounts outstanding thereunder may be offset against the aggregate
Exercise Price for the Preferred Securities to be purchased, or (C)
Preferred Securities, Options, Convertible Securities, capital stock or
other securities of USHG or the Trust having a Market Price equal to the
aggregate Exercise Price for the Preferred Securities to be purchased. For
purposes of this Section 4: (I) the Market Price per Preferred Security at
any time shall be determined in accordance with the definition of Market
Price, (II) the Market Price per Option at any time shall be the Market
Price per Preferred Security minus the Exercise Price then in effect, and
(III) the Market Price of other securities shall be as reasonably
determined by USHG's Board of Directors in accordance with the principles
set forth in the definition of Market Price; and
5
(iii) any representations or documents or information from the Holder
of the Options that USHG may reasonably require in order to comply with the
requirements of the Securities Act with respect of such issuance and in
order to comply with the provisions of Section 8 of this Agreement.
Upon such exercise USHG shall transfer, assign and deliver (or shall cause the
Trust to issue and deliver) to or to the order of the registered Holder(s) of
such Option, and in such name or names as such registered Holder(s) may
designate, one or more certificate(s) for the Option Securities to be sold upon
such exercise of such Option. Any person(s) so designated to be named therein
shall be deemed to have become the Holder(s) of record of such Option Securities
as of the date of delivery to USHG at the Option Office of the Option and the
Exercise Price therefor as provided in clauses (i) and (ii) above.
(b) If an Option is exercised in part at any time, a new Option or Options
shall be issued for the unexercised portion of such Option. Each new Option so
issued shall bear any legend required by Section 11.3 of the Purchase Agreement,
if the Option presented in connection with a partial exercise thereof bore such
legend. All Options surrendered upon exercise shall be canceled.
(c) USHG will pay all taxes (other than any applicable income or similar
taxes payable by the Holders) attributable to the sale of Option Securities upon
the exercise of the Options; provided, that USHG shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issue of
any Option or any certificate for Option Securities in a name other than that of
the registered Holder of the Option surrendered for exercise.
SECTION 5. Registration, Transfer and Exchange of Certificates.
(a) USHG shall maintain at the Option Office an Option Register for
registration of the Options and transfers thereof. USHG may deem and treat the
registered Holder(s) of the Options as the absolute owner(s) thereof for the
purpose of any exercise thereof or any distribution to the Holder(s) thereof,
and for all other purposes.
(b) USHG shall register the transfer of any outstanding Option in the
Option Register upon surrender to USHG at the Option Office of such Option,
accompanied (if so required by it) by one or more duly executed instruments of
transfer in form satisfactory to USHG. Upon any such registration of transfer,
one or more new Option(s) evidencing such transferred Option shall be issued to
the transferee(s) and the surrendered Option shall be canceled. If less than all
of a surrendered Option is to be transferred, new Option(s) shall be issued to
the surrendering Holder evidencing the remaining balance of the surrendered
Option.
(c) Each Option may, at the option of the Holder(s) thereof, be surrendered
to USHG at the Option Office to be exchanged for one or more new Options of like
tenor and exercisable in the aggregate for a like number of Option Securities.
Options surrendered for exchange shall be canceled.
6
(d) No charge shall be made for any such transfer or exchange except for
any tax or other governmental charge imposed in connection therewith. Except as
provided in Section 11 or 12 of the Purchase Agreement, each Option issued upon
transfer or exchange shall bear any legend required by Section 11.3 of the
Purchase Agreement if the Option presented for transfer or exchange bore such
legend.
SECTION 6. Mutilated or Missing Option. If any Option is mutilated, lost,
stolen or destroyed, USHG shall issue, in exchange and substitution for and upon
cancellation of the mutilated Option, or in lieu of and substitution for the
Option lost, stolen or destroyed, a new Option of like tenor and representing
rights to acquire an equivalent number of Preferred Securities, but only upon
receipt of evidence satisfactory to USHG of such loss, theft or destruction of
such Option and, if requested, indemnity satisfactory to it. No service charge
shall be made for any such substitution, but all reasonable charges associated
with any stamp, tax or other governmental duty that may be imposed in relation
thereto shall be borne by the Holder of such Option. Each Option issued in any
such substitution shall bear any legend required by Section 11.3 of the Purchase
Agreement if the Option for which such substitution was made bore such legend.
SECTION 7. Reservation and Sale of Option Securities.
(a) USHG will at all times keep available, free of all Liens, restrictions,
rights and claims of others, for the purpose of enabling it to satisfy its
obligation to sell Preferred Securities upon any exercise of the Options, the
number of Preferred Securities purchasable upon exercise of all outstanding
Options. Upon any sale of Preferred Securities to a holder of Options upon
exercise thereof, such Preferred Securities shall be free of all Liens,
restrictions, rights and claims of others.
(b) USHG covenants that all Option Securities will, upon sale to a Holder
upon exercise of an Option, be fully paid and nonassessable and free from all
taxes with respect to the sale thereof (other than any applicable income or
similar taxes payable by the Holders) and from all Liens, restrictions, rights
and claims of others (except for Liens, if any, created by the Holder thereof).
SECTION 8. Obtaining of Governmental Approvals and Stock Exchange Listings.
USHG will, or will cause the Trust to, at its or the Trust's expense, (a) obtain
and keep effective any and all permits, consents and approvals of governmental
agencies and authorities which may from time to time be required in order to
sell Option Securities upon exercise of the Options, and otherwise to perform
its obligations hereunder, and (b) take all action which may be necessary so
that the Option Securities, immediately upon their sale upon the exercise of
Options, will be listed on each securities exchange, if any, on which Preferred
Securities are then listed.
7
SECTION 9. Additional Anti-Dilution Provisions.
(a) Payments to Holders in Connection with Certain Dividends. In the event
that the Trust declares a securities split, securities dividend, or dividend of
any kind, whether in cash, securities or other property, upon the Preferred
Securities (including any dividend payable in Preferred Securities, Rights or
Convertible Securities), then at the option of each Holder:
(i) lawful and adequate provisions shall be made whereby USHG shall
maintain in reserve and available such dividend property, and such Holder
shall thereafter have the right to purchase and/or receive, as the case may
be, upon exercise of its Options (on the terms and conditions specified in
this Agreement, and in addition to the Option Securities purchasable by
such Holder immediately prior to the declaration of such dividend), such
securities or property as are distributable with respect to outstanding
Preferred Securities equal to the number of Option Securities purchasable
by such Holder immediately prior to such declaration, to the end that the
provisions hereof (including without limitation provisions for adjustments
of the number of securities receivable upon exercise) shall thereafter be
applicable, as nearly as may be, in relation to such securities or
property; or
(ii) the Exercise Price of such Holder's Options shall be reduced by
the per security amount of such dividend.
(b) Reorganizations and Asset Sales. If any capital reorganization or
reclassification of the securities of the Trust, or any consolidation or merger
of the Trust with another entity, or the sale of all or substantially all of its
assets to another person or entity shall be effected in such a way that holders
of Preferred Securities shall be entitled to receive securities or assets with
respect to or in exchange for Preferred Securities, then the following
provisions shall also apply:
(i) as a condition of such reorganization, reclassification,
consolidation, merger or sale (except as otherwise provided below in this
Section 9(b)), lawful and adequate provisions shall be made whereby each
Holder shall thereafter have the right to purchase and receive upon the
terms and conditions specified in this Agreement and in lieu of the Option
Securities immediately theretofore receivable upon the exercise of his or
its Option, such securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding Preferred Securities
equal to the number of Option Securities immediately theretofore so
receivable had such reorganization, reclassification, consolidation, merger
or sale not taken place, and in any such case appropriate provision shall
be made with respect to the rights and interests of such Holder to the end
that the provisions hereof (including without limitation provisions for
adjustments of the number of securities receivable upon exercise of an
Option) shall thereafter be applicable, as nearly as may be, in relation to
any securities or assets thereafter deliverable upon the exercise of an
Option;
(ii) USHG shall not permit the Trust to effect any such consolidation,
merger or sale unless prior to or simultaneously with the consummation
thereof the successor entity
8
(if other than USHG) resulting from such consolidation or merger or the
person or entity purchasing such assets shall assume by written instrument
executed and mailed or delivered to each Holder at the last address of such
Holder appearing on the books of USHG, the obligation to deliver to such
Holder such securities or assets as, in accordance with the foregoing
provisions, such Holder may be entitled to receive, and all other
liabilities and obligations of USHG hereunder. Upon written request by the
Holder of any Option USHG or such successor person or entity will issue or
grant a new Option revised to reflect the modifications in this Agreement
effected pursuant to this Section 9(b); and
(iii) if a purchase, tender or exchange offer is made to and accepted
by the holders of more than 50% of the outstanding Preferred Securities of
the Trust, USHG shall not permit the Trust to effect any consolidation,
merger or sale with the person or entity having made such offer or with any
affiliate of such person or entity, unless prior to the consummation of
such consolidation, merger or sale each Holder of an Option shall have been
given a reasonable opportunity to then elect to receive upon the exercise
of his or its Option either the securities or assets then issuable with
respect to the Preferred Securities or the securities or assets, or the
equivalent, issued to previous holders of Preferred Securities in
accordance with such offer.
(c) Notice of Adjustment. Whenever the number of Option Securities issuable
upon the exercise of the Options shall be adjusted as herein provided, or the
rights of Holders shall change by reason of other events specified herein, USHG
shall compute the adjusted number of Option Securities in accordance with the
provisions hereof and shall prepare a certificate signed by its President, Vice
President, Treasurer or Secretary setting forth the adjusted number of Option
Securities purchasable upon exercise of the Options or specifying the other
securities or assets receivable as a result of such change in rights, and
showing in reasonable detail the facts and calculations upon which such
adjustments or other changes are based, including a statement of the
consideration received or to be received by USHG or the Trust for, and the
amount of, any Preferred Securities, Rights and Convertible Securities issued
since the last such adjustment or change (or since the date hereof in the case
of the first adjustment or change). USHG shall cause to be mailed to each Holder
of an Option copies of such officer's certificate together with a notice stating
that the number of Option Securities purchasable upon exercise of the Options
has been adjusted and setting forth the adjusted number of Option Securities
purchasable upon exercise of such Holder's Option.
(d) Disputes. In the event that there is any dispute as to the computation
of the number of Option Securities required to be sold upon exercise of Options
(in which the Holders of a majority of the Option Securities issuable upon
exercise of all outstanding Options shall join), the Holders will retain an
independent and nationally recognized accounting firm to conduct, at USHG's
expense, an audit of the computations pursuant to the terms hereof involved in
such dispute, including the financial statements or other information upon which
such computations were based. The determination of such nationally recognized
accounting firm shall, in the absence of manifest error, be binding upon the
Holders and USHG. If there shall be a dispute as to the selection of such
nationally recognized accounting firm, such firm shall be
9
appointed by the American Institute of Certified Public Accountants if willing,
otherwise the American Arbitration Association, upon application by USHG or the
Holders of a majority of the Option Securities issuable upon exercise of all
outstanding Options, with notice to the others. The expenses of such accounting
firm and, if any, the American Institute of Certified Public Accountants or the
American Arbitration Association (as applicable), shall be borne by USHG unless
the computation by such accounting firm of such number of Option Securities is
the same as the computations thereof made by USHG (or less favorable to the
Holders), in which case the fees and expenses of such accounting firm shall be
borne equally by USHG and the Holders of Options.
(e) Securities other than Preferred Securities. If at any time, as a result
of an adjustment made pursuant to this Section 9, the Holder of any Option
thereafter exercised shall become entitled to receive any securities other than
Preferred Securities, thereafter the number of such other securities so
receivable upon exercise of any Option 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 Option Securities contained in this Section 9,
and the provisions of this Agreement with respect to the Option Securities shall
apply on like terms to such other securities.
SECTION 10. Notices to Option Holders. In case at any time the Trust
proposes:
(a) to declare a cash dividend upon Preferred Securities;
(b) to declare or pay, or set apart any funds for the payment of, any
dividends on any Preferred Securities or make any other Distribution (as
defined in the Purchase Agreement) to the holders of its Preferred
Securities;
(c) to apply any of its funds, property or assets to, or set apart any
funds, property or assets for, the purchase, redemption or retirement of,
or make any Distribution, by reduction of capital or otherwise, in respect
of any of its Preferred Securities or in respect of any Rights or
Convertible Securities exercisable or exchangeable for or convertible into
Preferred Securities, whether now or hereafter outstanding;
(d) to issue or sell any Preferred Securities, Rights or Convertible
Securities (except pursuant to the exercise of Options or Rights or the
conversion or exchange of Convertible Securities in accordance with their
terms);
(e) to offer for subscription pro rata to the holders of Preferred
Securities or Convertible Securities any additional securities of any class
or other rights;
(f) to effect any capital reorganization, or reclassification of the
securities of the Trust, or consolidation or merger of the Trust with
another Person, or sale or other disposition of greater than 25% of the net
value of its assets; or
(g) to effect a voluntary or involuntary dissolution, liquidation or
winding up of the Trust,
10
then, in any one or more of said cases, USHG shall give (or cause the Trust to
give) the Holder of any Option (i) at least 10 Business Days' (but not more than
90 days') prior written notice of the date on which the books of the Trust shall
close or a record shall be taken for such dividend, redemption, Distribution or
subscription rights or for determining rights to vote in respect of any such
issuance, reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, and (ii) in the case of any such
issuance, reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, at 10 Business Days' (but not more than
90 days') prior written notice of the date when the same shall take place
(provided that no more than 5 Business Day's prior written notice need be given
of an issuance referred to in clause (d) above). Such notice in accordance with
the foregoing clause (i) shall also specify, in the case of any such dividend,
redemption, Distribution or subscription rights, the date on which the holders
of Preferred Securities shall be entitled thereto, and such notice in accordance
with the foregoing clause (ii) shall also specify the date on which the holders
of Preferred Securities shall be entitled to exchange their Preferred Securities
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, as the case may be. The failure to give the notice required by this
Section 10 or any defect therein shall not affect the legality or validity of
any Distribution, right, Option, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up, or the vote upon any action.
SECTION 11. Securities Law Matters; Transfers; Rule 144 and Rule 144A
Covenants.
(a) The provisions of Section 11 (Securities Law Matters) and 12
(Transfers) of the Purchase Agreement are hereby incorporated by reference
herein as if set forth in full herein.
(b) With a view to making available certain rules and regulations of the
Securities and Exchange Commission (the "Commission") which may permit the sale
of Options and Option Securities without registration, USHG agrees that at any
time when securities of the Trust are registered under that Securities and
Exchange Act of 1934 (the "Exchange Act") that USHG will cause the Trust to:
(i) make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"), or any successor provision thereto;
(ii) so long as Rule 144A is available to the Holders, make and keep
available the information specified in Rule 144A(d)(4) under the Securities
Act or any successor provision thereto;
(iii) file with the Commission in a timely manner all reports and
other documents required of the Trust under the Exchange Act; and
(iv) furnish to each Holder upon request a written statement by the
Trust as to its compliance with the information or reporting requirements
of Rule 144 and Rule 144A or
11
any successor provision thereto, and of the Securities Act and the Exchange
Act, and a copy of the most recent annual or quarterly report of the Trust
filed with the Commission.
SECTION 12. Registration Rights. The provisions of Section 3.5 and Exhibit
E-2 of the Purchase Agreement (Registration Rights) are hereby incorporated by
reference herein as if set forth in full herein.
SECTION 13. Covenants of USHG. So long as any Holder shall hold an Option
or any Option Securities, USHG shall abide by all of the covenants and
agreements set forth in the Purchase Agreement, provided, however, that upon
full and complete payment of the Notes and all other amounts due under the
Purchase Agreement in respect of the Notes, the following sections of the
Purchase Agreement shall be terminated and have no further force or effect after
such repayment: Sections 3.1 through 3.4, 6.3(e), 6.4 through 6.6, 6.8(a) and
(b), 6.10, 6.11, 6.13, 6.14, 7.1 through 7.7, 7.9(a), 7.11, 7.12, 7.15 through
7.19, 9.1 and 9.2. All other provisions of the Purchase Agreement shall survive
such repayment, provided, however, that after such repayment (i) the inspections
referred to in Section 6.2 of the Purchase Agreement shall be at the Holders'
expense and shall be limited to no more than two in any fiscal year, and (ii)
the provisions of Section 6.12 of the Purchase Agreement shall continue in full
force and effect until the third anniversary of such repayment. In connection
with the Holders' continuing right to receive financial information pursuant to
Section 6.1 of the Purchase Agreement and certain other information pursuant to
Section 6.7 of the Purchase Agreement, the Holders agree to continue to abide by
the confidentiality provisions contained in the last paragraph of Section 6.1 of
the Purchase Agreement. No termination of any covenant, representation,
warranty, or other provision of the Purchase Agreement or any other Purchaser
Document, whether after the repayment of the Notes or otherwise, shall in any
way suspend, eliminate or nullify the right of any holder of Options to pursue
rights and remedies arising out of a breach or default which occurred prior to
the date of termination, whether known or unknown as of such date. So long as
any Holder shall hold an Option or any Option Securities, USHG shall not,
without the prior written consent of the Holders of a majority of the Option
Securities purchased or purchasable upon exercise of all outstanding Options,
enter into (or permit the Trust to enter into) any agreement with any holder or
prospective holder of any securities of the Trust which would allow such holder
or prospective holder to include such securities in any registration referred to
in Section 12 hereof, unless under the terms of such agreement, such holder or
prospective holder may include such securities in any such registration only to
the extent that the inclusion of its securities will not reduce the number of
Option Securities which are included.
SECTION 14. Effectiveness of Certain Provisions of the Purchase Agreement.
Any Holder (whether or not such Holder also holds Notes) shall be deemed a
"Purchaser" under, and as that term is defined in, the Purchase Agreement.
SECTION 15. Amendments and Waivers. Any provision of this Agreement may be
amended, supplemented, waived, discharged or terminated by a written instrument
signed by USHG and the Holders of a majority of the Option Securities purchased
or purchasable upon exercise of all outstanding Options; provided, that the
Exercise Price may not be increased, the percentage of the Fully-Diluted
Preferred Securities issuable upon exercise of the Options may
12
not be reduced, the Expiration Date may not be changed to an earlier date and
this Section may not be amended except with the consent of each Holder which
would be affected thereby.
SECTION 16. Provisions of Other Agreements. Whenever the Purchase Agreement
or any provision thereof is referred to herein or in any instrument furnished
hereunder as expressing or constituting a covenant, term, condition or
limitation of this Agreement or of such instrument or as expressing or
constituting a representation herein or therein (a) any such provision shall be
regarded as though incorporated herein or therein at length, (b) except as
otherwise provided herein or in such instrument the terms used in such agreement
or the provision thereof referred to shall have the meanings set forth in such
agreement, and (c) any covenant or other provision incorporated herein by
reference from such agreement shall continue in effect for the benefit of the
Holders so long as this Agreement shall remain in effect. Except as otherwise
specifically provided herein, and except for amendments or modifications to
which the Holders consent in writing in accordance with Section 15, no
modification of or amendment to, or waiver or termination of, any provision of
any of said agreement and no payment of the indebtedness outstanding thereunder
or satisfaction or cancellation thereof, or termination of said agreement, shall
modify, amend, waive, terminate or otherwise affect any provision thereof as
referred to in this Agreement or in any instrument furnished hereunder, which
provision, for the purpose of this Agreement and such instrument, shall remain
unmodified and in full force and effect.
SECTION 17. Specific Performance. The Holders of the Options and/or Option
Securities shall have the right to specific performance by USHG of the
provisions of this Agreement. USHG hereby irrevocably waives, to the extent that
it may do so under applicable law, any defense based on the adequacy of a remedy
at law which may be asserted as a bar to the remedy of specific performance in
any action brought against USHG for specific performance of this Agreement by
the Holders.
SECTION 18. Notices. All notices, requests, demands or other communications
to or upon the respective parties hereto shall be in writing and shall be deemed
to have been given or made, and all financial statements, information and the
like required to be delivered hereunder shall be deemed to have been delivered,
either (a) three (3) Business Days after deposited in the United States
certified mail, return receipt requested, with postage prepaid, or (b) one (1)
Business Day after delivery to a nationally recognized courier, designated for
overnight delivery with all fees prepaid, in either case addressed to USHG at
the Option Office, Attn: Chief Executive Officer, and to the Holders at their
respective addresses set forth on the Option Register, or to such other address
as any of them shall specify in writing to the others. USHG shall cause the
Option Register to contain current addresses for each of the Holders.
SECTION 19. Binding Effect; Assignability. This Agreement shall be binding
upon and inure to the benefit of USHG, its successors and assigns, the Holders
and the registered Holders from time to time of the Options and the Option
Securities.
SECTION 20. Termination. This Agreement shall terminate and be of no
further force and effect at the close of business on the Expiration Date or the
date on which none of the Options or Option Securities shall be outstanding,
except that the provisions of Sections 15
13
(Amendments and Waivers), 17 (Specific Performance), 18 (Notices), 19 (Binding
Effect; Assignability), 20 (Termination) and 22 (Governing Law) shall continue
in full force and effect after such termination.
SECTION 21. Counterparts. This Agreement may be executed in one or more
separate counterparts and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
SECTION 22. Governing Law. This Agreement and each Option shall be governed
by and construed in accordance with the laws of the State of New York.
[Remainder of page intentionally left blank; signature page follows]
14
IN WITNESS WHEREOF, the parties hereto have caused this Option Agreement of
U.S. Home & Garden Inc. to be duly executed and delivered by their proper and
duly authorized officers, as of the date and year first above written.
USHG:
U.S. HOME & GARDEN INC.
By: _____________________________________
Name/Title:
Holders:
LEG PARTNERS III SBIC, L.P.
by Xxxxx XX-XX, LLC, its general partner
By: _____________________________________
Xxxxxxx X. Xxxxxxx, Vice President
LEG CO-INVESTORS, LLC
By: _____________________________________
Xxxxxxx X. Xxxxxxx, Authorized Signatory
555 MADISON INVESTORS, LLC
By: _____________________________________
Xxxxxxx X. Xxxxxxx, Manager
15
EXHIBIT A
TO OPTION AGREEMENT
[FORM OF OPTION]
THIS OPTION AND THE UNDERLYING SECURITIES REPRESENTED BY THIS OPTION HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT PURSUANT TO AN EXEMPTION FROM, OR OTHERWISE IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF SUCH ACT. IN ADDITION, THIS
OPTION AND THE UNDERLYING SECURITIES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH
THE CONDITIONS SPECIFIED IN THE OPTION AGREEMENT DATED NOVEMBER 15, 2001 BETWEEN
U.S. HOME & GARDEN INC. ("USHG") AND THE INITIAL HOLDERS OF THE OPTIONS THEREIN
NAMED, A COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF
USHG AND WILL BE FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT
CHARGE.
OPTION
to purchase 9.4% Cumulative Trust Preferred Securities
of U.S. Home & Garden Trust I
owned by U.S. Home & Garden Inc.
No. O- __________, 20__
This Option certifies that , or registered assigns, is the registered
holder of an Option (the "Option") to purchase from U.S. HOME & GARDEN INC., a
Delaware corporation ("USHG"), up to that number of 9.4% Cumulative Trust
Preferred Securities, liquidation amount $25 per Preferred Security ("Preferred
Securities"), originally issued by USHG's subsidiary U.S. Home & Garden Trust I
(the "Trust"), as shall represent ___% of the "Fully-Diluted Preferred
Securities" (as defined in the Option Agreement referred to below) at the time
of exercise of this Option. The number of Preferred Securities (the "Option
Securities") issuable upon exercise of this Option shall be calculated in
accordance with the Option Agreement. This Option may be exercised at any time
prior to 5:00 P.M., local time of the Option Office, on May 19, 2009 or, if such
day is not a Business Day, the next succeeding Business Day (the "Expiration
Date"), by surrender of this Option, execution and delivery of an Election to
Purchase in the form attached hereto and payment of the Exercise Price at the
office of USHG at 000 Xxxxxxxxxx Xxxxxx, Xxx Xxxxxxxxx XX 00000, or such other
address as USHG may specify in writing to the registered holder of this Option
(the "Option Office").
The aggregate Exercise Price for the Preferred Securities being purchased
may be paid by delivery of either (i) a certified check or bank draft or (ii)
certain stock, notes or
A - 1
securities of USHG, the Company or the Trust, all as provided in Section 4(a) of
the Option Agreement.
USHG may deem and treat the registered holder(s) of this Option as the
absolute owner(s) hereof (notwithstanding any notation of ownership or other
writing hereon made by anyone), for the purpose of any exercise hereof and of
any distribution to the holder(s) hereof, and for all other purposes, and USHG
shall not be affected by any notice to the contrary.
This Option is one of the Options referred to in the Option Agreement dated
as of November 15, 2001 between USHG and the initial Holders named therein (the
"Option Agreement"). The Option Agreement is hereby incorporated by reference in
and made a part of this Option and is hereby referred to for a description of
the rights, limitation of rights, obligations, duties and immunities of USHG and
the Holder. Unless otherwise defined herein, all capitalized terms used in this
Option have the meanings assigned to them in or pursuant to the Option
Agreement.
IN WITNESS WHEREOF, USHG has caused this Option to be signed by its duly
authorized officers and has caused its corporate seal to be affixed hereunto.
U.S. HOME & GARDEN INC.
By: ____________________________
Name:
Title:
(CORPORATE SEAL)
ATTEST:
____________________________
, Secretary
A - 2
ANNEX I
TO OPTION
[Form of]
ELECTION TO PURCHASE
[To be executed upon exercise of Option to purchase 9.4% Cumulative Trust
Preferred Securities of U.S. Home & Garden Trust I owned by
U.S. Home & Garden Inc.]
The undersigned hereby elects to exercise the right, represented by the
attached Option of U.S. Home & Garden Inc., a Delaware corporation ("USHG"), to
purchase from USHG _______ 9.4% Cumulative Trust Preferred Securities,
liquidation amount $25 per Preferred Security ("Preferred Securities"),
originally issued by USHG's subsidiary U.S. Home & Garden Trust I ("Option
Securities"), and further elects to pay the aggregate Exercise Price therefor by
delivery of [a check or bank draft] [stock, notes or securities of USHG, the
Company or the Trust], as provided in Section 4(a) of the Option Agreement
referred to in the attached Option.
The undersigned requests that a certificate for such Option Securities be
registered in the name of _______________ whose address is ______________ and
that such certificate be delivered to _______________ whose address is
_______________.
If said number of Option Securities is less than all of the Option
Securities purchasable under the attached Option, the undersigned requests that
a new Option representing the remaining balance of the Option Securities be
registered in the name of _________________ whose address is and that such
Option be delivered to __________________ whose address is .
Signature:_________________________________
(Signature must conform in all respects to name
of holder as specified on the face of the Option)
Date:_______________, 20___
EXHIBIT B
TO OPTION AGREEMENT
U.S. HOME & GARDEN INC.
Option Register
Option Option
Certificate No. Name and Address of Holder Percentage
--------------- -------------------------- ----------
O-1 LEG Partners III SBIC, L.P. 3.6108%
O-2 LEG Co-Investors, LLC 0.0342%
X-0 000 Xxxxxxx Xxxxxxxxx, LLC 0.1050%
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxx
Telecopier No.:000-000-0000
TOTAL: 3.7500%
======
B - 1
================================================================================
U.S. HOME & GARDEN INC.
and
THE HOLDERS NAMED HEREIN
OPTION AGREEMENT
================================================================================
November 15, 2001
U.S. HOME & GARDEN INC.
OPTION AGREEMENT
Table of Contents
SECTION 1. Definitions 1
SECTION 2. Grant of Options 4
SECTION 3. Exercise Price 5
SECTION 4. Exercise of Options 5
SECTION 5. Registration, Transfer and Exchange of Certificates 6
SECTION 6. Mutilated or Missing Option 7
SECTION 7. Reservation and Sale of Option Securities 7
SECTION 8. Obtaining of Governmental Approvals and Stock Exchange Listings 7
SECTION 9. Additional Anti-Dilution Provisions 8
(a) Payments to Holders in Connection with Certain Dividends 8
(b) Reorganizations and Asset Sales 8
(c) Notice of Adjustment 9
(d) Disputes 9
(e) Securities other than Common Stock 10
SECTION 10. Notices to Option Holders 10
SECTION 11. Securities Law Matters; Transfers; Rule 144 and Rule 144A Covenants. 11
SECTION 12. Registration Rights 12
SECTION 13. Covenants of USHG 12
SECTION 14. Effectiveness of Certain Provisions of the Purchase Agreement 12
SECTION 15. Amendments and Waivers 12
SECTION 16. Provisions of Other Agreements 13
SECTION 17. Specific Performance 13
SECTION 18. Notices 13
SECTION 19. Binding Effect; Assignability 13
SECTION 20. Termination 14
SECTION 21. Counterparts 14
SECTION 22. Governing Law 14
Exhibit A - Form of Option
Exhibit B - Option Register
i
U. S. HOME & GARDEN INC.
Stockholders Agreement
STOCKHOLDERS AGREEMENT dated as of November 15, 2001 among U. S. HOME &
GARDEN INC., a Delaware corporation ("USHG"), and USHG's stock, option, warrant
and/or convertible security holders who become parties hereto from time to time
(the "Holders").
WHEREAS, each of the Holders is the record and beneficial owner of the
Securities (as defined in Section 1) indicated opposite such Holder's name on
Schedule 1 hereto, as such Schedule may be amended or supplemented from time to
time; and
WHEREAS, the Holders desire to provide herein for certain matters relating
to the transfers of Securities by the Management Holders (as hereinafter
defined);
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. Definitions. As used in this Agreement the following terms shall have
the following meanings (capitalized terms used in this Agreement and not
otherwise defined herein shall have the meaning assigned to such terms in the
Purchase Agreement referred to below):
"Agreement" or "this Agreement" means this Agreement and all Exhibits and
Schedules hereto.
"Common Equivalent" means (i) each share of Common Stock and (ii) the right
upon exercise of an Option (including the Warrants) or conversion of a
Convertible Security to obtain one share of Common Stock.
"Common Stock" means USHG's Common Stock, $.001 par value.
"Convertible Securities" shall mean (a) any stock, notes or other
securities convertible into or exchangeable, directly or indirectly, for shares
of Common Stock (whether or not such right to convert or exchange is immediately
exercisable or is "in the money"), (b) any other security, note or agreement
which provides the holder thereof with a payment, repayment amount, appreciation
right or liquidation preference (i) calculated by reference to, or arising from,
the value of USHG upon a sale, merger, recapitalization or similar event, or
(ii) based upon the value, whether market or appraisal, of the Common Stock, and
(c) any agreement to issue shares of Common Stock or issue or enter into such
other stock, notes, securities or agreements described in the foregoing clauses
(a) or (b).
"Excluded Transfer" shall mean any transfer of Securities by a Management
Holder (a) to any Family Member of such Management Holder or to the executor or
administrator of such Management Holder, or to a trust or partnership primarily
for the benefit of
such Management Holder or his Family Members, provided that the transferee
becomes a party to this Agreement as a Management Holder bound by all the
obligations hereunder applicable to a Management Holder, (b) made as a bona fide
gift to a bona fide charitable organization, or (c) in a bona fide public market
sale or sale pursuant to Rule 144.
"Family Member" of a Management Holder means (i) any parent, spouse or
sibling of such Management Holder, or (ii) a lineal descendant (including
legally adopted descendants), or the spouse of any such descendant, of such
Management Holder or of any of his siblings.
"Family Transferee" of a Management Holder shall mean a transferee of a
Management Holder referred to in clause (a) of the definition of "Excluded
Transfer".
"Holder" means each Holder listed on Schedule 1 hereto and any Person who
hereafter becomes a Holder pursuant to the terms of this Agreement.
"Investors" means the holders from time to time of Warrants and/or Warrant
Shares.
"Management Holder" means any of Xxxxxx Xxxxxx, Xxxxxxx Xxxxxxx and Xxxxxxx
Xxxxxx, and any other Person who from time to time becomes a party hereto as a
Management Holder.
"Options" shall mean any warrants (including the Warrants), options
(including options granted pursuant to any stock option plan), agreements or
other rights to subscribe for or to purchase, directly or indirectly, shares of
Common Stock (whether or not such warrants, options or other rights are
immediately exercisable or are "in the money"). Options shall include any
warrants, options or other agreements or rights to subscribe for or to purchase,
directly or indirectly, Convertible Securities or other Options (whether or not
such warrants, options or other rights are immediately exercisable or are "in
the money") and agreements or plans under which the Issuer may issue Common
Stock, Options or Convertible Securities in exchange for services of any kind,
whether to be rendered by an employee, consultant, individual, entity or third
party of any kind.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or any agency or instrumentality
thereof.
"Purchase Agreement" means the Note and Warrant Purchase, Guaranty and
Security Agreement dated as of the date hereof among USHG and its Subsidiaries,
as such Purchase Agreement may be amended, supplemented or otherwise modified
from time to time.
"Rule 144" shall mean Rule 144, as amended, of the Securities and Exchange
Commission under the Securities Act.
"Securities" means shares of Stock, Options or Convertible Securities.
2
"Securities Act" means the Securities Act of 1933, as amended.
"Stock" means any shares of capital stock of USHG, whether preferred stock
or common stock (and including the Common Stock).
"transfer" means any sale, assignment, transfer, gift, encumbrance or other
disposition of Securities.
"Warrants" means the Warrants issued from time to time pursuant to (i) the
Warrant Agreement dated as of the date hereof among USHG and the Holders, as the
same may be amended, modified or supplemented from time to time (the "Percentage
Warrant Agreement"), and (ii) the Warrant Agreement, as amended, modified or
supplemented from time to time, among USHG and the Holders to be executed and
delivered on the "Expiration Date" as defined in the Percentage Warrant
Agreement.
"Warrant Shares" means shares of Common Stock or other securities issued or
issuable upon exercise of the Warrants.
2. Restrictions on Certain Transfers by Management Holders.
(a) During the term of this Agreement, none of the Securities now owned or
hereafter acquired by any Management Holder may be transferred (other than in
the case of a transfer referred to in clause (b) or (c) of the definition of
"Excluded Transfer" or a transfer to a Person who is a Holder prior to such
transfer or a transfer in which the Investors are offered the right to
participate in accordance with Section 3 below) unless the proposed recipient of
such Securities shall become a party to this Agreement as a "Management Holder"
and shall deliver to USHG a written agreement to the effect that the Securities
to be received in such proposed transfer are subject to this Agreement.
(b) No Securities owned by any Management Holder or his Family Transferees
may be transferred except in an Excluded Transfer or in accordance with Section
3 hereof.
3. Tag-Along Right.
(a) In the event that any one or more of the Management Holders (a "Selling
Holder") proposes to transfer Securities (other than in an Excluded Transfer),
then the Selling Holder(s) shall deliver to each of the Investors a written
notice (the "Sale Notice") to such effect, containing a description of the
proposed transaction and the terms thereof. Upon delivery of the Sale Notice,
each of the Investors shall have the right to require the Selling Holder(s) to
arrange for the sale to the proposed transferee(s) of a percentage of such
Investor's Securities equal to the highest percentage of any Selling Holder's
holdings of Securities that any Selling Holder desires to transfer to the
transferee(s), on terms and conditions at least as favorable to such Investor as
the terms and conditions set out in the Sale Notice.
(b) If the transferee(s) will not purchase all of the Securities which the
Selling Holders and each Investor desire to transfer pursuant to this Section 3,
then the number of Securities to be transferred which each Holder shall be
permitted to transfer to such transferee(s)
3
shall be the same proportion of the aggregate number of Securities as the number
of Securities held by such Holder bear to all Securities held by the Selling
Holders and all Investors desiring to participate in the transfer to the
transferee(s).
(c) Notwithstanding anything to the contrary contained in Section 3(a) or
(b), in the event that the Securities to be transferred include shares of Common
Stock, Investors holding Warrants shall be entitled to participate in the sale
of such Common Stock based on the number of Warrant Shares issuable upon
exercise of all their Warrants, and shall exercise such number of Warrants prior
to the proposed transfer as may be necessary to deliver the requisite number of
shares of Common Stock to the proposed transferee, unless the proposed
transferee desires to purchase such number of Warrants rather than the
underlying shares of Common Stock. Any such purchase of Warrants shall be on the
same terms and conditions set forth in the Sale Notice with respect to Common
Stock, except that the price payable by the transferee(s) for Warrants shall be
net of the exercise price then effective under such Warrants.
(d) Each Investor may exercise its right under this Section 3 by written
notice to the Selling Holder(s) who gave the Sale Notice given within ten (10)
days after the date on which such Investor receives the Sale Notice.
4. Restrictive Legends. To the extent any of the Securities held by a
Management Holder are evidenced by certificate(s), such certificate(s) shall
contain a restrictive legend substantially as follows:
"THE SALE, ASSIGNMENT, TRANSFER, PLEDGE, ENCUMBRANCE, OR OTHER
DISPOSITION OF THE SHARES EVIDENCED BY THIS CERTIFICATE, OR ANY INTEREST IN
SUCH SHARES, ARE RESTRICTED BY THE TERMS OF A STOCKHOLDERS AGREEMENT DATED
AS OF NOVEMBER 15, 2001, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE
OF THE CORPORATION. NO SUCH SALE, ASSIGNMENT, TRANSFER, PLEDGE, ENCUMBRANCE
OR OTHER DISPOSITION SHALL BE EFFECTIVE UNLESS AND UNTIL THE TERMS AND
CONDITIONS OF SUCH STOCKHOLDERS AGREEMENT SHALL HAVE BEEN COMPLIED WITH IN
FULL."
5. Representations and Warranties of the Holders. Each Holder hereby
represents and warrants as follows:
(a) This Agreement has been duly executed and delivered by such Holder and
constitutes the valid and binding obligation of such Holder enforceable in
accordance with its terms.
(b) Neither the execution nor the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, nor compliance with the
terms and provisions hereof, will conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any
applicable law, or any order, writ, injunction or decree of any court,
administrator or arbitrator, or any agreement or instrument which is applicable
to such Holder, under which such Holder is obligated or by which any of such
Holder's property is bound.
4
6. General Provisions.
6.1 Notices. All notices, requests and other communications to any party
hereunder shall be in writing (including telecopy or similar writing) and shall
be given to USHG at 000 Xxxxxxxxxx Xxxxxx, Xxx Xxxxxxxxx, XX 00000, Attn: Xxxxxx
Xxxxxx, Chief Executive Officer (Telecopier No.: (000) 000-0000), and to any
Holder at his or its address set forth on Schedule 1 hereto, or such other
address as such party may hereafter specify for the purpose by notice to the
other parties. Except as otherwise provided herein, each such notice, request or
other communication to a party shall be effective (a) if given by mail, three
(3) business days after being deposited in the mails registered or certified,
return receipt requested, with postage prepaid, addressed to such party as
aforesaid, or (b) if given by any other means, when delivered to such party at
its address specified as provided in this Section.
6.2 Equitable Relief. The parties hereto agree that legal remedies may be
inadequate to enforce the provisions of this Agreement and that equitable
relief, including specific performance and injunctive relief, may be used to
enforce the provisions of this Agreement.
6.3 Additional Parties. Any Person who hereafter becomes a party hereto as
a Holder shall be bound by all obligations and entitled to all rights and
privileges of a Management Holder or an Investor, as the case may be, as if such
Person had been an original signatory to this Agreement.
6.4 Amendments; Termination. Any provision of this Agreement may be amended
or terminated only by a written agreement signed by (i) Investors holding at
least a majority of the Warrants and Warrant Shares then subject to this
Agreement and (ii) Management Holders holding at least a majority of the Common
Equivalents then subject to this Agreement held by all Management Holders.
6.5 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
personal representatives, heirs, successors and assigns (including any
transferee of Securities).
6.6 Termination. This Agreement shall terminate on May 19, 2009.
6.7 Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Delaware. 6.8 Counterparts; Effectiveness.
This Agreement may be signed in any number of counterparts, each of which shall
be an original, with the same effect as if the signatures thereto and hereto
were upon the same instrument.
6.9 Captions. The captions in this Agreement are included for convenience
of reference only, do not constitute a part hereof and shall be disregarded in
the interpretation or construction hereof.
5
6.10 Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof and
supersedes all previous agreements, whether written or oral, relating to the
same subject matter.
[Rest of page intentionally left blank]
6
IN WITNESS WHEREOF, USHG and the Holders have duly executed this
Stockholders Agreement as of the day and year first above written.
--------------------------------------------------------------------------------
USHG: Investors:
U.S. HOME & GARDEN INC. LEG PARTNERS III SBIC, L.P.
by Xxxxx XX-XX, LLC, its general partner
By: ____________________________
Name: By: _________________________________
Title: Xxxxxxx X. Xxxxxxx, Vice President
--------------------------------------------------------------------------------
Management Holders: LEG CO-INVESTORS, LLC
By: _________________________________
____________________________ Xxxxxxx X. Xxxxxxx, Authorized
Xxxxxx Xxxxxx Signatory
555 MADISON INVESTORS, LLC
____________________________ By: _________________________________
Xxxxxxx Xxxxxxx Xxxxxxx X. Xxxxxxx, Manager
--------------------------------------------------------------------------------
____________________________
Xxxxxxx Xxxxxx
--------------------------------------------------------------------------------
7
SCHEDULE 1
TO STOCKHOLDERS AGREEMENT
U. S. HOME & GARDEN INC.
List of Holders and Securities Owned
--------------------------------------------------------------------------------
Holder Common Stock Options Warrants
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Xxxxxx Xxxxxx 323,788* 2,229,333 263,160
Xxxxxxx Xxxxxxx 2,000 761,911 0
Xxxxxxx Xxxxxx 934,396 150,000 0
c/o U. S. Home & Garden Inc.
000 Xxxxxxxxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Telecopier No.: (000) 000-0000
--------------------------------------------------------------------------------
LEG Partners III SBIC, L.P. 3.6108%
LEG Co-Investors, LLC 0.0342%
555 Madison Investors, LLC 0.1050%
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxx
Telecopier No.: (000) 000-0000
--------------------------------------------------------------------------------
TOTALS
--------------------------------------------------------------------------------
*Includes 208,388 shares whose issuance to Xx. Xxxxxx has been deferred pursuant
to the terms of USHG's Non-Qualified Deferred Compensation Plan for Select
Employees.
8
CONSULTING AGREEMENT
CONSULTING AGREEMENT, dated as of November 15, 2001 by and between U.S.
Home & Garden Inc. and Easy Gardener, Inc. (collectively, the "Company"), and
Xxxxx Associates, LLC (the "Consultant").
WHEREAS, the Company desires to retain the Consultant to provide, and the
Consultant desires to provide, certain management and financial consulting
services as hereinafter provided;
NOW, THEREFORE, in consideration of the promises and commitments set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending
legally to be bound, hereby agree as follows:
1. Definitions. Capitalized terms used herein without definition having the
meanings given thereto in the Note and Warrant Purchase, Guaranty and Security
Agreement dated as of the date hereof among the Company, its Subsidiaries and
the Purchasers named therein, as amended from time to time.
2. Term. (a) The Company shall retain the Consultant hereunder for a period
commencing on the Closing Date and ending on the Termination Date, unless sooner
terminated by mutual written agreement of the parties hereto. The period during
which this Agreement remains in effect shall be referred to hereinafter as the
"Term".
(b) The "Termination Date" shall mean the earlier of (i) the date on which
the Consultant terminates by notifying the Company of such termination, or (ii)
the date on which the Company terminates by notifying the Consultant of such
termination; provided, that no termination by the Company shall occur so long as
any of the initial Purchasers or any of their respective Affiliates owns any
Notes, Warrants or Warrant Securities.
3. Duties of Consultant. (a) As used in this Section, the term "Consultant"
shall include employees of the Consultant or its Affiliates and any other
individuals providing services on behalf of the Consultant or its Affiliates.
(b) During the Term, the Consultant shall be reasonably available from time
to time to consult with, and provide financial and strategic advice to,
management of the Company on matters involving and relating to the Company's
corporate, financial and management structure and operation, subject to the
limits of the Consultant's experience and expertise. In particular, the
Consultant shall review, and respond to management requests concerning, the
following matters:
(i) the Company's capital and overall financial structure, including
equity and/or debt capitalization, off-balance sheet financing, cash
flow considerations and strategic plans for capital spending and asset
financing;
(ii) acquisition and divestiture opportunities and strategies, but not in
the role of intermediary or investment banker representing the
Company;
(iii) terms and conditions of third-party financing and/or major corporate
transactions (including both acquisitions and dispositions), but not
in the role of a broker, investment banker, financial advisor,
underwriter or similar representative representing the Company in
negotiating and effecting a transaction with third parties;
(iv) review of monthly, quarterly and annual financial results and
development of annual business plans and financial projections; and
(v) such other financial and/or strategic management and financial
consulting services as the parties may agree upon from time to time.
(c) Consultant shall be reasonably available to management of the Company
for telephone consultations and, as reasonably and mutually acceptable to the
parties, periodic meetings with management of the Company.
4. Compensation; Payment of Expenses; Further Retention. (a) The Company
shall pay the Consultant annually in advance for the services of the Consultant
hereunder at the rate of $54,500 per annum, with the first such payment due on
the Closing Date and subsequent payments due on each annual anniversary of the
Closing Date.
(b) If the Company shall perform work or provide services at the Company's
request, and if the cost of performing such work or providing such services,
calculated at the Consultant's standard hourly or per diem rates, as applicable,
would exceed $4,500 in any month, the Consultant shall so notify the Company
(prior to performing such work) and be entitled to additional compensation for
such work or services before having any obligation to continue to perform such
work or provide such services.
(c) If the Company shall engage any employee of the Consultant on a full or
part time basis, the Consultant shall be separately compensated for providing
the services of such employee, on an hourly, per diem or other mutually agreed
basis.
(d) The Company also shall reimburse the Consultant, promptly upon demand,
for reasonable out-of-pocket expenses incurred by the Consultant and/or its
employees and agents in connection with the performance of the Consultant's
duties under this Agreement, including expenses for travel, lodging, meals and
transportation; provided, that, at the Company's request, the Consultant shall
submit to the Company documentation and invoices reasonably acceptable to the
Company prior to reimbursement.
(e) The Company shall pay the annual amount referred to in paragraph (a)
above on the due dates specified therein, without the need for any invoice
therefor from the Consultant. The Consultant will submit to the Company invoices
setting forth any additional amounts due hereunder, which shall be payable
within 30 days of the invoice date.
-2-
(f) Any amounts payable pursuant to paragraph (b), (c) or (d) above shall
be in addition to the compensation payable pursuant to paragraph (a) above.
5. Limitation on Liability of Consultant; Indemnification. (a) None of the
Consultant or any of its Affiliates, or any of their respective members,
managers, directors, officers, employees, consultants, contractors, agents or
Affiliates, shall be liable, responsible or accountable in damages or otherwise
to the Company or any of its members, managers, directors, officers, employees,
agents or Affiliates for any error of judgment by the Consultant or for any loss
suffered by the Company arising out of services provided by the Consultant
pursuant to this Agreement, except for such errors or losses resulting from
willful misfeasance or gross negligence of the Consultant in the performance of
its duties under this Agreement.
(b) To the fullest extent permitted by applicable law, the Company shall
indemnify and hold harmless the Consultant and its Affiliates, and each of their
respective members, managers, directors, officers, employees, consultants,
contractors, agents or Affiliates (each such individual or entity to be referred
to hereinafter as an "Indemnified Person"), from and against any loss, claim,
damage or liability, joint or several, and any action in respect thereof, to
which an Indemnified Person may be subject, insofar as such loss, claim, damage,
liability or action relates to, arises out of or results from any Covered Event
(as such term is defined below) or alleged Covered Event, and will reimburse
such Indemnified Person on a current basis for all expenses (including without
limitation reasonable fees and disbursements of not more than one counsel)
incurred by such Indemnified Person in connection with investigating, defending
or preparing to defend against any such loss, claim, damage, liability or
action, as such expenses are incurred or paid.
(c) The term "Covered Event" shall mean (i) any action taken, or services
performed, by an Indemnified Person, related to or consistent with the terms of
this Agreement, or (ii) any action taken, or omitted to be taken, by the Company
or any of its managers, directors, officers, employees, agents or Affiliates, in
connection with any matter in which an Indemnified Person has been involved
pursuant to this Agreement; provided, that the term "Covered Event", with
respect to an Indemnified Person, shall exclude any loss, claim, damage,
liability or expense that is determined by the final judgment of a court of
competent jurisdiction to have been caused primarily from the willful
misfeasance or gross negligence of such Indemnified Person.
6. Non-Solicitation. (a) From the Closing Date until the second anniversary
of the date of termination of this Agreement, neither party shall, without the
prior written consent of the other party, directly or indirectly employ or
engage the services of any employee or consultant of the other party or any of
its Affiliates, or recruit, solicit or otherwise induce or influence any
employee or consultant of the other party or any of its Affiliates to
discontinue his or her relationship with such other party or any of its
Affiliates.
(b) In the event of a breach or a threatened breach of the covenant set
forth in Section 6(a), the affected party shall, in addition to the remedies
provided by law, have the right and remedy to have such covenant specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed that a breach of such covenant will cause irreparable injury to the
affected party, and that money damages will not provide an adequate remedy.
-3-
7. Confidentiality. Except in the course of the performance of its duties
hereunder, the Consultant agrees not to disclose any trade secrets, know-how or
other proprietary or material non-public information not in the public domain
learned as a result of this Agreement unless and until such information becomes
publicly available other than through the actions of the Consultant.
8. Amendments, Etc. Any waiver of any term or condition of, or any consent
or discharge under, this Agreement shall be effective only if in writing and
signed by the party against whom it is sought to be enforced. Any amendment or
supplementation of this Agreement shall be effective only if in writing and
signed by both parties.
9. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of each of the parties hereto and their respective successors and
assigns. No assignment shall be effective without the prior written consent of
the non-assigning party.
10. Notices. All notices, requests, demands or other communications to or
upon a party hereto shall be in writing and shall be deemed to have been given
or made five (5) days after deposited in the mails, registered or certified with
postage prepaid, addressed to the Company at 000 Xxxxxxxxxx Xxxxxx, Xxx
Xxxxxxxxx, XX 00000, Attn: Xxxxxx Xxxxxx, Chief Executive Officer (Telecopier
No.: (000) 000-0000), and to the Consultant at 000 Xxxxxxx Xxxxxx, 00xx Xxxxx,
Xxx Xxxx, XX 00000, Attn: Xxxxxxx X. Xxxxxxx (Telecopier No.: (000) 000-0000),
or to such other address or addresses as either party shall specify in writing
to the other. No other method of giving notice is hereby precluded.
11. Captions. Captions and section headings appearing herein are included
solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute an original, and all of which taken
together shall constitute one and the same instrument.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to its
conflict of laws principles.
14. Entire Agreement. This Agreement represents the entire agreement and
understanding of the parties hereto with respect to the subject matter and
supersedes all prior agreements and understandings, whether oral or written,
with respect to such subject matter.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
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Company: Consultant:
U.S. HOME & GARDEN INC. XXXXX ASSOCIATES, LLC
By: ___________________________ By: _________________________________
Name/Title: Xxxxxxx X. Xxxxxxx, Vice President
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EASY GARDENER, INC.
By: ___________________________
Name/Title:
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U.S. HOME & GARDEN INC.
Non-Competition and Non-Solicitation Agreement
NON-COMPETITION AND NON-SOLICITATION AGREEMENT dated as of November ___,
2001 between U.S. Home & Garden, Inc. a Delaware corporation ("USHG"), and
___________________ (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive is employed as a senior executive of USHG and/or one
or more of its Subsidiaries (collectively, the "Company") and is an important
and valued employee of the Company; and
WHEREAS, the Company requires certain senior and subordinated financing and
it is a condition to the obtaining of such financing that the Executive enter
into this Agreement, and the Executive is willing to do so because of the
importance of such financing to the success of the Company and the Executive;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and intending to be legally bound hereby, USHG and the
Executive hereby agree as follows:
1. Confidentiality; Noncompetition.
(a) USHG and the Executive acknowledge that the services performed by the
Executive for the Company are unique and extraordinary and, as a result of such
employment, the Executive comes into possession of confidential information
relating to the business practices of the Company. The term "confidential
information" shall mean any and all information (verbal and written) relating to
the Company or any of its affiliates, or any of their respective activities,
other than such information which can be shown by the Executive to be in the
public domain (such information not being deemed to be in the public domain
merely because it is embraced by more general information which is in the public
domain) other than as the result of breach of the provisions of this Section
1(a), including, but not limited to, information relating to: trade secrets,
personnel lists, financial information, research projects, services used,
pricing, customers, customer lists and prospects, product sourcing, marketing
and selling and servicing. The Executive agrees that he will not, during or
after the period of his employment by the Company, except as may be required in
the course of the performance of his duties for the Company, directly or
indirectly, use, communicate, disclose or disseminate to any person, firm or
corporation any confidential information regarding the clients, customers or
business practices of the Company acquired by the Executive, without the prior
written consent of USHG; provided, however, that the Executive understands that
the Executive will be prohibited from misappropriating any trade secret at any
time during or after the termination of employment.
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(b) The Executive hereby agrees that he shall not, during the period of his
employment and for a period of two (2) years following such employment, directly
or indirectly, within any county (or adjacent county) in any State within the
United States or territory outside the United States in which the Company is
engaged in business during the period of the Executive's employment or on the
date of termination of the Executive's employment, engage, have an interest in
or render any services to any business (whether as owner, manager, operator,
licensor, licensee, lender, partner, stockholder, joint venturer, employee,
consultant or otherwise) competitive with the Company's business activities.
Notwithstanding the foregoing, nothing herein shall prevent the Executive from
owning stock in a publicly traded corporation whose activities compete with
those of the Company's, provided that such stock holdings are not greater than
5% of such corporation. The Executive agrees, during the term of his employment,
to disclose to the Company all investments which the Executive has, directly or
indirectly, in an entity which competes with the Company, or an entity which
does business with the Company.
(c) The Executive hereby agrees that he shall not, during the period of his
employment and for a period of three (3) years following such employment,
directly or indirectly, take any action which constitutes an interference with
or a disruption of any of the Company's business activities including, without
limitation, solicitation of the Company's customers, or persons listed on the
personnel lists of the Company. At no time during the term of his employment, or
thereafter shall the Executive directly or indirectly disparage the commercial,
business or financial reputation of the Company.
(d) For purposes of clarification, but not of limitation, the Executive
hereby acknowledges and agrees that the provisions of subparagraphs 1(b) and (c)
above shall serve as a prohibition against him, during the period referred to
therein, directly or indirectly, hiring, offering to hire, enticing, soliciting
or in any other manner persuading or attempting to persuade any officer,
employee, agent, lessor, lessee, licensor, licensee or customer who has been
previously contacted by either a representative of the Company, including the
Executive (but only those suppliers existing during the time of the Executive's
employment by the Company, or at the termination of his employment), to
discontinue or alter his, her or its relationship with the Company.
(e) Upon the termination of the Executive's employment for any reason
whatsoever, all documents, records, notebooks, equipment, price lists,
specifications, programs, customer and prospective customer lists and other
materials which refer or relate to any aspect of the business of the Company
which are in the possession of the Executive including all copies thereof, shall
be promptly returned to the Company.
(f) (i) The Executive agrees that all processes, technologies and
inventions ("Inventions"), including new contributions, improvements, ideas and
discoveries, whether patentable or not, conceived, developed, invented or made
by him during his employment by the Company shall belong to the Company,
provided that such Inventions grew out of the Executive's work with the Company
are related in any manner to the business (commercial or experimental) of the
Company or are conceived or made on the Company's time or with the use of the
Company's facilities or materials. The Executive shall further: (a) promptly
disclose such Inventions to the Company; (b) assign to the Company, without
-2-
additional compensation, all patent and other rights to such inventions for the
United States and foreign countries; (c) sign all papers necessary to carry out
the foregoing and (d) give testimony in support of his inventorship;
(ii) If any Invention is described in a patent application or is
disclosed to third parties, directly or indirectly, by the Executive within
two years after the termination of his employment by the Company, it is to
be presumed that the invention was conceived or made during the period of
the Executive's employment by the Company; and
(iii) The Executive agrees that he will not assert any rights to any
Invention as having been made or acquired by him prior to the date of his
employment, except for inventions, if any, disclosed to the Company in
writing prior to the date of his employment.
(g) The Company shall be the sole owner of all products and proceeds of the
Executive's services while employed by the Company, including, but not limited
to, all materials, ideas, concepts formats, suggestions, developments,
arrangements, packages, programs and other intellectual properties that the
Executive may acquire, obtain, develop or create in connection with and during
the term of the Executive's employment, free and clear of any claims by the
Executive (or anyone claiming under the Executive) of any kind or character
whatsoever. The Executive shall, at the request of the Company, execute such
assignments, certificates or other instruments as the Company may from time to
time deem necessary or desirable to evidence, establish, maintain, perfect,
protect, enforce or defend its right, or title and interest in or to any such
properties.
(h) The parties hereto hereby acknowledge and agree that (i) the Company
would be irreparably injured in the event of a breach by the Executive of any of
his obligations under this Section 1, (ii) monetary damages would not be an
adequate remedy for any such breach, and (iii) the Company shall be entitled to
injunctive relief, in addition to any other remedy which it may have, in the
event of any such breach.
(i) The parties hereto hereby acknowledge that, in addition to any other
remedies the Company may have under Section 1(h) hereof, the Company shall have
the right and remedy to require the Executive to account for and pay over to the
Company all compensation, profits, monies, accruals, increments or other
benefits (collectively, "Benefits") derived or received by the Executive as the
result of any transactions constituting a breach of any of the provisions of
this Section 1, and the Executive hereby agrees to account for any pay over such
Benefits to the Company.
(j) Each of the rights and remedies enumerated in Section 1(h) and 1(i)
shall be independent of the other, and shall be severally enforceable, and all
of such rights and remedies shall be in addition to, and not in lieu of, any
other rights and remedies available to the Company under law or in equity.
(k) It any provision contained in this Section 1 is hereafter construed to
be invalid or unenforceable, the same shall not affect the remainder of the
covenant or covenants, which shall be given full effect, without regard to the
invalid portions.
-3-
(l) If any provision contained in this Section 1 is found to be
unenforceable by reason of the extent, duration or scope thereof, or otherwise,
then the court making such determination shall have the right to reduce such
extent, duration, scope or other provision and in its reduced form any such
restriction shall thereafter be enforceable as contemplated hereby.
(m) It is the intent of the parties hereto that the covenants contained in
this Section 1 shall be enforced to the fullest extent permissible under the
laws and public policies of each jurisdiction in which enforcement is sought
(the Executive hereby acknowledging that said restrictions are reasonable
necessary for the protection of the Company). Accordingly, it is hereby agreed
that if any of the provisions of this Section 1 shall be adjudicated to be
invalid or unenforceable for any reason whatsoever, said provision shall be
(only with respect to the operation thereof in the particular jurisdiction in
which such adjudication is made) construed by limiting and reducing it so as to
be enforceable to the extent permissible, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of said
provision in any other jurisdiction.
2. General. This Agreement is further governed by the following provisions:
(a) Notices. All notices relating to this Agreement shall be in writing and
shall be either personally delivered, sent by telecopy (receipt confirmed) or
mailed by certified mail, return receipt requested, to he delivered at such
address as is indicated below, or at such other address or to the attention of
such other person as the recipient has specified by prior written notice to the
sending party. Notice shall be effective when so personally delivered, one
business day after being sent by telecopy or five days after being mailed.
To USHG:
U.S. Home & Garden Inc.
000 Xxxxxxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxxxx, XX 00000
Attention:
To the Executive:
_____________________
_____________________
_____________________
With, in either case, a copy in the same manner to:
Blank Rome Xxxxxx Xxxxxxxxxx
LLP 000 Xxxxxxxxx Xxxxxx Xxx Xxxx, Xxx
Xxxx 00000 Attention:
(b) Parties in Interest. This Agreement shall inure to the benefit of, and
be binding upon, the parties hereto and their respective heirs, legal
representatives,
-4-
successors and permitted assigns. The Subsidiaries of USHG shall be third party
beneficiaries of this Agreement, as shall the parties providing certain senior
and subordinated financing to the Company on or about the date of this
Agreement.
(c) Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the subject matter hereof. Any modification or termination of this Agreement
will be effective only if it is in writing signed by the party to be charged, as
well as by the financing parties referred to in Section 2(b) who are third party
beneficiaries of this Agreement.
(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York.
(e) Warranty. The Executive hereby warrants and represents as follows:
(i) The execution and delivery of this Agreement and the discharge of
the Executive's obligations hereunder will not breach or conflict with any
other contract, agreement or understanding between the Executive and any
other party or parties.
(ii) The Executive has ideas, information and know-how relating to the
type of business conducted by the Company, and the Executive's disclosure
of such ideas, information and know-how to the Company will not conflict
with or violate the rights of any third party or parties.
(f) Severability; etc. Each term and provision of this Agreement shall be
valid and be enforced to the fullest extent permitted by law. If any term,
provision, obligation or agreement contained in this Agreement or the
application thereof to any person or circumstance is held by a court of
competent jurisdiction to be invalid or unenforceable to any extent, then the
remainder of this Agreement, or the application of such term, provision,
obligation or agreement to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected by such holding. To
the maximum extent permitted by law, the Company's rights and remedies provided
for in this Agreement shall be cumulative. If, for any reason, any court of
competent jurisdiction finds any provision of this Agreement to be objectionable
on its face or as applied in any circumstance, the parties agree that they shall
jointly request that such court modify and/or apply such provision in a manner
which makes it enforceable to the maximum extent permitted by law.
(g) Execution in Counterparts. This Agreement may be executed by the
parties in one or more counterparts, each of which shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement, and shall become effective when one or more counterparts has been
signed by each of the parties hereto and delivered to each of the other parties
hereto.
-5-
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Non-Competition and Non-Solicitation Agreement as of the date first above
written.
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U.S. HOME & GARDEN INC. Executive:
By:____________________________ _______________________________
Name/Title:
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