-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ED+ULrH1fatV3myffiBDjwUh8R4VSAIHMR9ZLZbA4UcyFOQFrOF3joirTVVAw3U5 7IgklLxKPG/4C1OK0LKYUA== 0000898430-99-002839.txt : 19990716 0000898430-99-002839.hdr.sgml : 19990716 ACCESSION NUMBER: 0000898430-99-002839 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990630 ITEM INFORMATION: FILED AS OF DATE: 19990715 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MATTHEWS STUDIO EQUIPMENT GROUP CENTRAL INDEX KEY: 0000855575 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 951447751 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-18102 FILM NUMBER: 99665075 BUSINESS ADDRESS: STREET 1: 3111 N KENWOOD ST CITY: BURBANK STATE: CA ZIP: 91504 BUSINESS PHONE: 8185255200 MAIL ADDRESS: STREET 1: 2405 EMPIRE AVENUE CITY: BURBANK STATE: CA ZIP: 91504 8-K 1 FORM 8-K (JUNE 30, 1999) United States SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report(Date of earliest event reported) June 30, 1999 MATTHEWS STUDIO EQUIPMENT GROUP ---------------------------------------------------------- (Exact name of registrant as specified in its charter) California --------------------------------------------- (State or other jurisdiction of incorporation) 0-18102 95-1447751 ------------------------------------------------------------- (Commission file number) (I.R.S. Employer Identification Number) 3111 North Kenwood Street, Burbank, CA 91505 ---------------------------------------------------------------- (Address of principal executive office) (Zip Code) (818)525-5200 ----------------------------------------------------- (Registrant's telephone number, including area code) N/A -------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Item 5. Other Events On June 30, 1999, Matthews Studio Equipment Group ("Matthews") sold $10,000,000 of convertible senior subordinated notes ("Notes") to ING Equity Partners, L.P. I ("ING"). Proceeds from the transaction will be used for general corporate purposes, including the funding of further development of Matthews' new Internet Division, ShowbizMart.com and capital expenditures. The Notes, which are secured by a junior and subordinated security interest in Matthews' consolidated assets, will mature on June 30, 2005, and bear interest at twelve percent for the first year and eighteen percent thereafter. At Matthews' option, interest on the Notes may be paid in cash or in kind (i.e., by the issuance of additional notes similar to the Notes). However, upon consummation of an equity offering by Matthews which results in gross proceeds of $25,000,000 or more on or prior to June 30, 2000 (a "Qualified Equity Offering"), the principal amount of the Notes then outstanding plus accrued and unpaid interest thereon will automatically convert into shares of common stock of Matthews ("Common Stock") at the subscription price to investors in such Qualified Equity Offering. If a Qualified Equity Offering has not been consummated on or prior to June 30, 2000, Matthews will issue to the holders of the Notes 500,000 warrants to purchase Common Stock at $0.01 per share for each $10,000,000 of principal outstanding under the Notes. In connection with the issuance of the Notes, Matthews and its subsidiaries also entered into an amendment agreement for Matthews' bank line of credit facility. This amendment agreement modified certain covenants under the bank line of credit and permitted the release of the $3,000,000 letter of credit issued by ING (U.S.) Capital LLC on January 12, 1999, as additional collateral for Matthews' bank line of credit. As part of the transaction, Matthews and ING also agreed that the Common Stock Purchase Warrant dated as of January 12, 1999, which granted ING the right to purchase 150,000 shares of Common Stock at $2.50 per share is not canceled but shall remain outstanding. Copies of the (i) Note Purchase Agreement, (ii) Convertible Senior Subordinated Note, (iii) form of Common Stock Purchase Warrant, and (iv) Amended and Restated Security Agreement entered into with ING are attached hereto as exhibits. A copy of the Waiver and Amendment Agreement No. 4 entered into with Matthews' banks is also attached as an exhibit. A copy of Matthews' press release regarding the transaction is also attached as an exhibit. -2- (2)(c) Exhibits EXHIBIT INDEX Exhibit Document Description - ------- -------------------- 4.9 Convertible Senior Subordinated Note dated June 30, 1999, executed by Matthews Studio Equipment Group in favor of ING Equity Partners, L.P. I. 4.10 Form of Common Stock Purchase Warrant issuable under the Note Purchase Agreement dated June 30, 1999, between Matthews Studio Equipment Group and the Purchasers listed on Schedule I thereto, without schedules, exhibits or annexes thereto. 10.23 Note Purchase Agreement dated June 30, 1999, between Matthews Studio Equipment Group and the Purchasers listed on Schedule I thereto, without schedules, exhibits or annexes thereto except for Schedule I. 10.24 Amended and Restated Security Agreement dated June 30, 1999, among: Matthews Studio Equipment Group; Matthews Studio Sales, Inc.; Hollywood Rental Company, LLC; Matthews Studio Electronics, Inc.; Matthews Acceptance Corporation; Duke City Video, Inc.; HDI Holdings, Inc.; Four Star Lighting, Inc.; Matthews Studio Group Centers, Inc.; Keylite Holdings, Inc.; Reel Wheels, Inc.; Keylite Production Services, Inc.; Duke City Holdings, Inc.; Four Star Holding, Inc.; ShowbizMart.com Inc.; and ING Equity Partners, L.P. I, without schedules, exhibits or annexes thereto. 10.25 Waiver and Amendment Agreement No. 4 dated June 30, 1999 to the Amended and Restated Credit Agreement dated April 1, 1998, among: Matthews Studio Equipment Group; Hollywood Rental Company, LLC; Matthews Studio Electronics, Inc.; Matthews Acceptance Corporation; Duke City Video, Inc.; HDI Holdings, Inc.; Four Star Lighting, Inc.; Matthews Studio Sales, Inc.; Matthews Studio Group Centers, Inc.; Keylite Holdings, Inc.; Reel Wheels Inc.; Keylite Production Services, Inc.; Duke City Holdings, Inc.; Four Star Holding, Inc.; ShowbizMart.com Inc.; The Chase Manhattan Bank; PNC Bank, National Association; Wells Fargo Bank, N.A.; CIBC, Inc.; Mellon Bank, N.A.; -3- and The Chase Manhattan Bank, as agent for the lenders, without schedules, exhibits or annexes thereto. 99.6 Matthews Studio Equipment Group's press release dated June 30, 1999. -4- SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized. MATTHEWS STUDIO EQUIPMENT GROUP (Registrant) Date: July 15, 1999 By: /s/ Carlos D. DeMattos -------------------------------------------------- Carlos D. DeMattos Chairman of the Board, Chief Executive Officer & President -5- EX-4.9 2 CONVERTIBLE SENIOR SUBORDINATED NOTE Exhibit 4.9 ------------ THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND APPLICABLE STATE BLUE SKY LAWS. ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE NOTE PURCHASE AGREEMENT DATED AS OF JUNE 30, 1999 BETWEEN THE ISSUER HEREOF AND CERTAIN OTHER SIGNATORIES THERETO, AND NO TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE FULFILLED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE ISSUER HEREOF. MATTHEWS STUDIO EQUIPMENT GROUP ------------------------------- Convertible Senior Subordinated Note New York, New York June 30, 1999 $10,000,000 SECTION 1. General. (a) For value received, MATTHEWS STUDIO EQUIPMENT GROUP, a California corporation (the "Company"), hereby promises to pay to ING Equity Partners, ------- L.P.I. (together with its permitted transferees, successors and assigns, the "Holder"), the principal sum of $10,000,000, on June 30, 2005 (the "Stated ------ Maturity Date") and to pay interest quarterly on September 30, December 31, March 31 and June 30 of each year (each an "Interest Payment Date"), commencing --------------------- on September 30, 1999, on said principal sum at the rate equal to the Applicable Interest Rate from the most recent Interest Payment Date to which such interest on this Note has been paid or, if no interest has been paid on this Note, the date of this Note. (b) All payments hereunder shall be made in such currency of the United States of America as at the time of payment shall be legal tender therein for the payment of public and private debts or, in the case of payments of interest on this Note, in accordance with Section 2. --------- (c) Interest on this Note shall be calculated based upon a 360-day year, consisting of twelve 30-day months. (d) The principal of and interest on this Note shall (i) in the case of payment in cash, by wire transfer of immediately available funds to the account of the Holder as designated in writing by the Holder to the Company or by certified or official bank check payable to the Holder at the address of the Holder as set forth on the records of the Company or such other address as shall be designated in writing by the Holder to the Company, or (ii) in the case of payment of interest on this Note in accordance with Section 2 hereof, by --------- issuance of Additional Notes, by delivery of such Additional Notes at the address of the Holder as set forth on the records of the Company or such other address as shall be designated in writing by the Holder to the Company. (e) This Note is one of the duly authorized Notes issued by Company pursuant to the Note Purchase Agreement, dated as of June 30, 1999 (the "Purchase Agreement"), among the Company and other signatories thereto and is ------------------ entitled to the benefits of the Purchase Agreement (and the Security Agreement referred to therein (the "Security Agreement")). The Holder's right to payments ------------------ on this Note is subordinated to the extent set forth in the Security Agreement. Capitalized terms used herein but not otherwise defined herein shall have meanings assigned to such terms in the Purchase Agreement. SECTION 2. Payment of Interest by Issuance of Additional Notes. Subject to the provisions hereof, on any Interest Payment Date the Company may, at its option and in its sole discretion in lieu of payment of interest in cash on this Note (other than upon maturity or acceleration of the Note), pay all or any portion of the interest due on this Note in additional Notes ("Additional Notes") in an aggregate principal amount equal to the amount of ---------------- such interest that would otherwise be payable in cash; provided, however, that -------- ------- the Company shall pay cash in lieu of issuing Additional Notes in any denomination of less than $1,000. The Company shall give written notice to the Holder of its intent to pay such interest in cash, not less than 5 nor more than 45 days prior to the date immediately preceding the Interest Payment Date. Any such Additional Notes issued by the Company shall be subject to the same terms (including the interest from time to time payable thereon) as this Note except, as the case may be, with respect to the issuance date and the aggregate principal amount thereof and shall be entitled to the benefits of the Purchase Agreement (and the Security Agreement referred to therein). SECTION 3. Payment. This Note is subject to prepayment by the Company, in whole or in part. SECTION 4. Conversion. Upon the consummation of a Qualified Equity Offering, this Note, without any action on the part of the Company or the Holder thereof, shall be deemed automatically converted into the number of fully paid and nonassessable shares of the Company's Common Stock which is obtained by dividing (x) the outstanding principal amount of the Note (plus accrued but unpaid interest thereon through the date of the consummation of the Qualified Equity Offering) by (y) the subscription price to investors in such Qualified Equity Offering. Upon conversion, the Company will not issue fractional shares in respect of its Common Stock, but shall distribute cash in lieu of any such fractional shares. -2- SECTION 5. Event of Default. If an Event of Default shall occur and be continuing, the aggregate outstanding principal amount of this Note (plus accrued but unpaid interest thereon) may be declared by the Requisite Holders to be due and immediately payable in the amount, in the manner and with the effect provided in the Purchase Agreement and the Security Agreement. SECTION 6. Exchange or Replacement of this Note. (a) The Holder may, at its option, in person or by duly authorized attorney, surrender this Note at the business office of the Company and receive in exchange therefor a new Note in the same amount as the unpaid principal amount of this Note and bearing interest at the same rate specified in this Note, each such new Note to be dated as of the date of this Note and to be in such principal amount as remains unpaid and payable to such person or persons, or order, as the Holder may designate in writing. (b) Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Note, and (in case of theft or destruction) of an indemnity reasonably satisfactory to it, and upon surrender and cancellation of this Note, if mutilated, the Company will deliver a new Note of like tenor in lieu of this Note. Any Note delivered in accordance with the provisions of this Section 6 shall be dated as of the date --------- of this Note. SECTION 7. Extension of Maturity. Should the principal amount payable on this Note become due and payable on other than a Business Day, the payment of such principal amount shall be extended to the next succeeding Business Day, and interest shall be payable thereon at the rate per annum herein specified during such extension. SECTION 8. Attorneys' and Collection Fees. Should the indebtedness evidenced by this Note or any part hereof be collected at law or in equity or in bankruptcy, receivership or other court proceedings, or this Note be placed in the hands of attorneys for collection, the Company agrees to pay, in addition to principal and interest due and payable hereon, all costs of collection, including reasonable attorneys' fees and expenses, incurred by the Holder collecting or enforcing this Note. SECTION 9. Amendments and Waivers. No provision of this Note may be amended or waived without the express written consent of both the Company and the Requisite Holders; provided, -------- however, that any such amendment, modification or waiver that would adversely - ------- affect the rights hereunder of any Holder, without similarly affecting the rights of all Holders of Notes, in their capacity as a Holder of Notes, shall not be effective as to such Holder without its prior written consent. The Company hereby waives presentment, demand for payment, notice of dishonor, notice of protest and all other notices or demands in connection with the delivery, acceptance, performance or default of this Note. No -3- delay by the Holder in exercising any power or right hereunder shall operate as a waiver of any power or right, nor shall any single or partial exercise of any power or right preclude other or further exercise thereof, or the exercise of any other power or right hereunder or otherwise; and no waiver whatsoever or modification of the terms hereof shall be valid unless set forth in writing by the Holder and then only to the extent set forth therein. SECTION 10. Defined Terms. The following terms used in this Note shall have the meanings set forth below. "Additional Note" shall have the meaning given to such term in Section 2. --------------- --------- "Applicable Interest Rate" means, relative to this Note, (i) during the ------------------------ Initial Period, twelve percent (12%) and (ii) following the Initial Period, eighteen percent (18%). "Initial Period" means the period beginning on the Closing Date and ending -------------- at 12:00 midnight on the first anniversary of the Closing Date. "Interest Payment Date" shall have the meaning given to such term in --------------------- Section 1. - --------- SECTION 11. No Set-Off. The Company owes it obligations under this Note without any right of set- off or deduction of any kind. SECTION 12. Governing Law; Waiver of Jury Trial. Each of Sections 12.10, 12.12 and 12.13 of the Purchase Agreement is herein -------------- ----- ----- incorporated by reference and made a part hereof. SECTION 13. Successors and Assigns. This Note is binding upon the successors and assigns of the Company. IN WITNESS WHEREOF, the Company has duly executed and delivered this Note as of the date first written above. MATTHEWS STUDIO EQUIPMENT GROUP By: /s/ Carlos D. DeMattos ----------------------------------------------- Name: Carlos D. DeMattos Title: Chairman of the Board/ Chief Executive Officer -4- EX-4.10 3 FORM OF COMMON STOCK PURCHASE WARRANT Exhibit 4.10 ------------ THIS WARRANT CERTIFICATE AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR FILED OR QUALIFIED UNDER THE STATE SECURITIES LAW OF CALIFORNIA OR ANY OTHER STATE AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS THEY HAVE BEEN REGISTERED OR QUALIFIED UNDER SUCH LAWS OR AN EXEMPTION FROM REGISTRATION OR QUALIFICATION IS AVAILABLE. MATTHEWS STUDIO EQUIPMENT GROUP W-__ Warrant to Purchase [500,000] Shares of Common Stock June 30, 2000 Common Stock Purchase Warrant ----------------------------- THIS Common Stock Purchase Warrant (the "Warrant") CERTIFIES that, for ------- value received, _______________________, or its registered assigns (the "Holder") is entitled to purchase from Matthews Studio Equipment Group, a ------ California corporation (the "Company"), [500,000] shares of the Common Stock, no ------- par value (the "Common Stock"), of the Company (representing ____% of the ------------ Common Stock outstanding on a Fully Diluted Basis at the date hereof) at the price (the "Exercise Price") of $0.01 per share (subject to certain adjustments -------------- as set forth in Section 3.3 hereof), at any time or from time to time during the period commencing on the date hereof and ending at 5:00 P.M. on the fifth anniversary of the date hereof (the "Expiration Date"). --------------- This Warrant is subject to the terms and conditions, and entitled to the benefits, of the Purchase Agreement dated as of June 30, 1999 by and among the Company and the Purchasers (as defined therein) (as amended, supplemented or altered from time to time, the "Purchase Agreement"). ------------------ ARTICLE I DEFINITIONS SECTION 1.1. Definitions. Unless the context shall otherwise require, ----------- capitalized terms used and not defined herein shall have the meanings set forth in the Amended and Restated Credit Agreement, dated as of April 1, 1998, between, among others, the Company and The Chase Manhattan Bank, as agent (as amended or otherwise modified from time to time, the "Credit Agreement"). In ---------------- addition, the following terms shall have the following meanings: "Affiliate" shall mean with respect to any Person, (a) any Person --------- which directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person, or (b) any Person who is a director or executive officer (i) of such Person, (ii) of any Subsidiary of such Person, or (iii) of any Person described in clause (a) above, or with respect to any Stockholder, the Company; provided, that any Affiliate of a corporation shall be deemed an Affiliate of such corporation's stockholders. For purposes of this definition, "control" of a Person shall mean the power, direct or indirect, (i) to vote or direct the voting of more than 5% of the outstanding shares of voting stock of such Person, or (ii) to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Assignment Form" shall mean the assignment form attached as Annex 2 --------------- ------- hereto. "Business Day" shall mean any day other than a Saturday, Sunday or a ------------ day on which banks within New York, New York are authorized or required to be closed. "Closing Date" shall mean the date this Warrant was granted. ------------ "Common Stock" shall mean the Common Stock, no par value, of the ------------ Company, having the terms, conditions, rights and limitations described in the Articles of Incorporation of the Company attached as Exhibit A hereto. --------- "Company" shall have the meaning given to such term in the Preamble. ------- "Convertible Securities" shall have the meaning given to such term in ---------------------- Section 3.3.1(b). - ---------------- "Credit Agreement" shall have the meaning given to such term in the ---------------- introduction to this Section 1.1. ----------- "Delivery Date" shall have the meaning given to such term in Section ------------- ------- 3.2. - --- "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended. "Exchange Form" shall mean the exchange form attached as Annex 3 ------------- ------- hereto. "Excluded Securities" shall mean: ------------------- -2- (i) shares of capital stock issued pursuant to a stock dividend or a stock split or other subdivision of shares; (ii) Common Stock issued upon exercise of the ING Warrants; (iii) Common Stock issued by the Company in any public offering registered under the Securities Act, which offering results in net proceeds to the Company of at least $10,000,000 and a price per share of Common Stock of not less than $2.50 (appropriately adjusted to reflect all recapitalization events); (iv) securities issued upon conversion, exercise or exchange of convertible securities, warrants, options, subscriptions, calls or other rights to acquire Common Stock, provided that the foregoing rights are (x) outstanding on the date hereof and are issued in conformity with such rights as issued and in effect at the date hereof or (y) are issued hereafter in compliance with Section 4.2 hereof; - ----------- (v) securities, convertible securities, warrants, options, subscriptions, calls or other rights to acquire Capital Stock of the Company expressly permitted under the Purchase Agreement, including, but not limited to, Capital Stock issued in a Qualified Equity Offering (as defined in the Purchase Agreement); or (vi) Common Stock issued pursuant to the Company's 1994 Stock Option Plan, the Company's 1994 Stock Option Plan for Directors, options granted to certain employees as set forth on Schedule 1.1, any other employee benefit plan ------------ (including any future adopted employee stock option plan) and pursuant to any acquisition permitted under the Prior Purchase Agreement and the Credit Agreement. "Exercise Form" shall mean the exercise form attached as Annex 1 ------------- ------- hereto. "Exercise Price" shall mean $0.01 per share of Common Stock, subject -------------- to adjustment from time to time in the manner provided in Section 3.3. ----------- "Expiration Date" shall mean June 30, 2005. --------------- "Fully Diluted Basis" means, as applied to the calculation of the ------------------- number of shares of Common Stock outstanding at any time, after giving effect to (a) all shares of Common Stock outstanding at the time of determination, (b) all shares of Common Stock issuable upon the conversion, exercise or exchange of any convertible security, warrant, option, subscriptions, calls or other rights to acquire Common Stock outstanding at the time of determination, irrespective of whether such conversion, exercise or exchange is permitted, restricted or vested at the time of determination, and irrespective of the price or consideration required by such conversion, exercise or exchange, and (c) all other commitments, promises or understandings to issue any shares of Common Stock or any convertible security, warrant, option, subscription, call or other rights outstanding at the time of determination. Such calculation will reflect the ING Warrants, and will not be made in accordance with the "treasury method in accordance with GAAP." "GAAP" shall mean generally accepted accounting principles in the ---- United States of America in effect from time to time. -3- "Governmental Authority" shall mean any federal, state, municipal or ---------------------- other governmental department, commission, board, bureau, agency or instrumentality, or any court, in each case whether of the United States of America or foreign. "Holder" shall have the meaning given to such term in the Preamble. ------ "ING" shall mean ING Equity Partners, L.P. I, a Delaware limited --- partnership. "ING Warrants" shall mean (i) all Common Stock Purchase Warrants and ------------ all Options issued to ING by the Company through January 12, 1999 and (ii) this Warrant. "Market Price" shall mean, with respect to a share of Common Stock on ------------ any Business Day: (a) if the Common Stock is Publicly Traded at the time of determination, the average of the closing prices for the Common Stock on all domestic securities exchanges on which such security may at the time be listed, or, if there have been no sales on any such exchange on such day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted on the Nasdaq Stock Market as of 4:00 P.M., New York time, on such day, or if on any day such security is not quoted on the Nasdaq Stock Market, the average of the highest bid and lowest 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, in each such case averaged over a period of twenty-one (21) days consisting of the day as of which "Market Price" is being determined and the twenty (20) consecutive Business Days prior to such day; or (b) if the Common Stock is not Publicly Traded at the time of determination then, solely for purposes of Section 3, then the Market Price shall be the Market Value Per Share. "Market Value" shall mean the highest price that would be paid for all ------------ of the Common Stock of the Company on a going-concern basis in a single arm's- length transaction between a willing buyer and a willing seller (neither acting under compulsion), using valuation techniques then prevailing in the securities industry and always determined in accordance with the Valuation Procedures, and assuming full disclosure and understanding of all relevant information and a reasonable period of time for effectuating such sale. For the purposes of determining the Market Value, (i) the exercise price of options, warrants or rights to acquire Common Stock which are included for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted Basis shall be deemed to have been received by the Company if and to the extent that the aggregate Market Value of such shares of Common Stock exceeds the aggregate exercise price of such options, warrants or rights, (ii) the liquidation preference or indebtedness, as the case may be, represented by securities which are included for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted Basis shall be deemed to be converted or exchanged if and to the extent that the aggregate Market Value of such shares of Common Stock exceeds the aggregate amount of such liquidation preference or indebtedness, (iii) any contract or legal limitation in respect of the shares of Common Stock, including their transfer, voting and other rights shall be ignored, and -4- (iv) any illiquidity arising by contract or law in respect of the shares of Common Stock and any voting rights or control rights amongst the Stockholders, shall be ignored. "Market Value Per Share" shall mean the price per share of Common ---------------------- Stock obtained by dividing (A) the Market Value by (B) the number of shares of Common Stock outstanding (on a Fully-Diluted Basis) at the time of determination. "Nasdaq Stock Market" shall mean the Nasdaq National Market or the ------------------- Nasdaq SmallCap Market. "Options" shall have the meaning given to such term in Section ------- ------- 3.3.1(b) hereof. - -------- "Other Anti-Dilution Instruments" shall mean any option, warrant, ------------------------------- convertible security, subscription, call or other rights to acquire Common Stock whether outstanding as of the date hereof or hereafter issued, together with any agreements relating thereto, which provide for anti-dilution or other adjustments in the number of shares of Common Stock and/or exercise, exchange or conversion price thereof. "Person" means any individual, sole proprietorship, partnership, joint ------ venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, limited liability company, joint stock company, estate entity or Governmental Authority. "Prior Purchase Agreement" shall mean the Purchase Agreement dated as ------------------------ of July 27, 1995 between, among others, the Company and ING, as amended from time to time. "Proportionate Percentage" shall mean, with respect to any Holder at ------------------------ any time, the quotient obtained by dividing (a) the aggregate number of Warrant Shares and other shares of Common Stock then held by such Holder by (b) the total number of shares of Common Stock then outstanding (on a Fully-Diluted Basis). "Publicly Traded" shall mean, with respect to any security, that such --------------- security is (a) listed on a domestic securities exchange, (b) quoted on the Nasdaq Stock Market or (c) traded in the domestic over-the-counter market, which trades are reported by the National Quotation Bureau, Incorporated, and in the cases of clauses (b) and (c), the average weekly trading volume on the 20 trading days preceding the time of determination equals or exceeds 1/2 of 1% of the outstanding Common Stock on a Fully Diluted Basis. "Purchase Agreement" shall have the meaning given to such term in the ------------------ Preamble. "Refused Securities" shall have the meaning given to such term in ------------------ Section 4.2(c). - -------------- "Requisite Holders" shall mean Holders holding ING Warrants or ----------------- securities representing at least 51% of all securities issued or issuable upon exercise of the ING Warrants outstanding on the date of determination. -5- "Section 4.2 Notice of Acceptance" shall have the meaning given to -------------------------------- such term in Section 4.2 hereof. ----------- "Section 4.2 Offer" shall have the meaning given to such term in ----------------- Section 4.2 hereof. - ----------- "Section 4.2 Offer Notice" shall have the meaning given to such term ------------------------ in Section 4.2 hereof. ----------- "Section 4.2 Offered Securities" shall have the meaning given to such ------------------------------ term in Section 4.2(a). -------------- "Securities Act" shall mean the Securities Act of 1933, as amended. -------------- "Security Agreement" shall mean the Security Agreement, dated as of ------------------ June 30, 1999, between, among others, the Company and ING, as amended, supplemented or altered from time to time. "Valuation Procedure" shall mean, with respect to the determination of ------------------- any amount or value required to be determined in accordance with such procedure, a determination (which shall be final and binding on the Company and the Holders) made (i) by agreement among the Company and the Requisite Holders within thirty (30) days following the event requiring such determination or (ii) in the absence of such an agreement, by an Appraiser (as defined below) selected in accordance with the further provisions of this definition. If required, an Appraiser shall be selected within 10 days following the expiration of the 30- day period referred to above, either by agreement among the Company and the Requisite Holders or, in the absence of such agreement, by lot from a list of four potential Appraisers remaining after the Company nominates three, the Requisite Holders nominate three, and each side eliminates one potential Appraiser. The Appraiser shall be instructed by the Company and the Requisite Holders to make its determination within thirty (30) days of its selection. The fees and expenses of an Appraiser selected hereunder shall be borne fifty percent (50%) by the Company and fifty percent (50%) by the Holders (on a pro --- rata basis) participating in the transaction to which the determination relates. - ---- As used herein, "Appraiser" shall mean (a) with respect to a determination of Market Value, a nationally-recognized investment banking firm and (b) with respect to a determination of Liquidation Value (or any other valuation required hereunder), a firm of the type generally considered to be qualified in making determinations of the type required. "Warrant" shall have the meaning given to such term in the Preamble. ------- "Warrant Register" shall have the meaning given to such term in ---------------- Section 2.1. - ----------- "Warrant Shares" shall mean (a) the shares of Common Stock issued or -------------- issuable upon exercise of a Warrant in accordance with Section 4.1 or upon ----------- exchange of a Warrant in accordance with Section 4.2 and (b) any securities of ----------- the Company distributed with respect to the securities referred to in the preceding clause (a). As used in this Warrant, the phrase "Warrant Shares then ---------- held" by any Holder or Holders shall mean Warrant Shares held at the time of determination by such Holder or Holders, and shall include Warrant Shares issuable upon exercise of ING Warrants held at the time of determination by such Holder or Holders. -6- SECTION 1.2. Interpretation. Unless the context of this Warrant clearly -------------- requires otherwise, references to the plural include the singular, to the singular include the plural, and to the part include the whole. The term "including" is not limiting and the term "or" has the inclusive meaning represented by the term "and/or." The words "hereof," "herein," "hereunder," and similar terms in this Warrant refer to this Warrant as a whole and not to any particular provision of this Warrant. References to "Articles," "Sections," "Subsections," "Exhibits," and "Schedules" are to Articles, Sections, Subsections, Exhibits and Schedules, respectively, of this Warrant, unless otherwise specifically provided. Terms defined herein may be used in the singular or the plural. ARTICLE II FORM; EXCHANGE FOR WARRANTS; TRANSFER; TAXES SECTION 2.1. Warrant Register. Each Warrant issued, exchanged or ---------------- transferred in accordance with the terms hereof shall be registered in a warrant register (the "Warrant Register"). The Warrant Register shall set forth the ---------------- number of each Warrant, the name and address of the Holder thereof, and the original number of Warrant Shares purchasable upon the exercise thereof. The Warrant Register will be maintained by the Company and will be available for inspection by any Holder at the principal office of the Company or such other location as the Company may designate to the Holders in the manner set forth in Section 5.1. The Company shall be entitled to treat the Holder of any Warrant as - ----------- the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other Person. The Company shall not be liable for complying with a request by a fiduciary or nominee of a fiduciary to register a transfer of any Warrant which is registered in the name of such fiduciary or nominee, unless made with the actual knowledge that such fiduciary or nominee is committing a breach of trust in requesting such registration of transfer, or with knowledge of such facts that the Company's participation therein amounts to bad faith. SECTION 2.2. Exchange of Warrants for Warrants. (a) The Holder may --------------------------------- exchange this Warrant for another Warrant or Warrants of like kind and tenor representing in the aggregate the right to purchase the same number of Warrant Shares which could be purchased pursuant to the Warrant being so exchanged. In order to effect an exchange permitted by this Section 2.2, the Holder shall ----------- deliver to the Company such Warrant accompanied by an Exchange Form in the form attached hereto as Annex 3 signed by the Holder thereof specifying the number ------- and denominations of Warrants to be issued in such exchange and the names in which such Warrants are to be issued. Within ten (10) Business Days of receipt of such a request, the Company shall issue, register and deliver to the Holder thereof each Warrant to be issued in such exchange. (b) Upon receipt of evidence reasonably satisfactory to the Company (an affidavit of the Holder being satisfactory) of the ownership and the loss, theft, destruction or mutilation of any Warrant, and in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company (if the Holder is a creditworthy financial institution or other creditworthy institutional investor its own agreement being satisfactory) or, in the case of any such mutilation, upon surrender of such Warrant, the Company shall (at its expense) execute and deliver in lieu of such Warrant a new Warrant of like kind representing the same rights represented by and dated the date of such lost, stolen, destroyed or mutilated -7- Warrant. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by any Person. (c) The Company shall pay all taxes (other than any applicable income or similar taxes payable by a Holder of a Warrant) attributable to an exchange of a Warrant pursuant to this Section 2.2; provided, however, that the Company ----------- -------- ------- shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance of any Warrant in a name other than that of the Holder of the Warrant being exchanged. SECTION 2.3. Transfer of Warrant. (a) Subject to Section 2.3(c) hereof, ------------------- -------------- each Warrant may be transferred by the Holder thereof by delivering to the Company such Warrant accompanied by a properly completed Assignment Form in the form of Annex 2. Within ten (10) Business Days of receipt of such Assignment ------- Form the Company shall issue, register and deliver to the Holder, subject to Section 2.3(c) hereof, a new Warrant or Warrants of like kind and tenor - -------------- representing in the aggregate the right to purchase the same number of Warrant Shares which could be purchased pursuant to the Warrant being transferred. In all cases of transfer by an attorney, the original power of attorney, duly approved, or a copy thereof, duly certified, shall be deposited and remain with the Company. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced and may be required to be deposited and remain with the Company in its discretion. (b) Each Warrant issued in accordance with this Section 2.3 shall ----------- bear the restrictive legend set forth on the face of this Warrant, unless the Holder or transferee thereof supplies to the Company an opinion of counsel, reasonably satisfactory to the Company, that the restrictions described in such legend are no longer applicable to such Warrant. (c) The transfer of Warrants and Warrant Shares shall be permitted, so long as such transfer is pursuant to a transaction that complies with, or is exempt from, the provisions of the Securities Act, and the Company may require an opinion of counsel (which may be internal counsel to a Holder) in form and substance reasonably satisfactory to it to such effect prior to effecting any transfer of Warrants or Warrant Shares. ARTICLE III EXERCISE OF WARRANT; EXCHANGE FOR WARRANT SHARES SECTION 3.1. Exercise of Warrants. On any Business Day prior to the -------------------- Expiration Date, a Holder may exercise a Warrant, in whole or in part, by delivering to the Company such Warrant accompanied by a properly completed Exercise Form in the form of Annex 1 and a check in an aggregate amount equal to ------- the product obtained by multiplying (a) the Exercise Price by (b) the number of Warrant Shares being purchased; provided, however, in the event the Holder -------- ------- exercises this Warrant in connection with or immediately prior to a sale by the Holder of Warrant Shares, in lieu of paying the applicable Exercise Price therefor, the Holder may elect to receive that number of Warrant Shares which is equal to the number of shares for which this Warrant is being exercised less the number of shares having a Market Price equal to such applicable Exercise Price, where such Market Price per share shall be equal to the price per share -8- at which the Holder is selling Warrant Shares. Any partial exercise of a Warrant shall be for a whole number of Warrant Shares only. SECTION 3.2. Issuance of Common Stock. (a) Within ten (10) Business Days ------------------------ following the delivery date (the "Delivery Date") of (i) an Exercise Form or ------------- Exchange Form in accordance with Section 3.1 or 3.2, (ii) a Warrant and (iii) ----------- --- any required payments of the Exercise Price, the Company shall issue and deliver to the Holder a certificate or certificates, registered in the name or names set forth on such notice, representing the Warrant Shares being purchased or to be received upon such exchange. (b) If a Holder shall exercise or exchange a Warrant for less than all of the Warrant Shares which could be purchased or received thereunder, the Company shall issue to the Holder, within ten (10) Business Days of the Delivery Date, a new Warrant evidencing the right to purchase the remaining Warrant Shares. Each Warrant surrendered pursuant to Section 3.1 shall be canceled. ----------- (c) The Company shall not be required to issue fractional shares of Common Stock upon the exercise or exchange of a Warrant. If any fraction of a share of Common Stock would be issuable on the exercise or exchange of any Warrant, the Company may, in lieu of issuing such fractional share, pay to such Holder for any such fraction of a share an amount in cash equal to the product obtained by multiplying (i) such fraction by (ii) the Market Price in effect on the Delivery Date. (d) The Company shall pay all taxes (other than any applicable income or similar taxes payable by a Holder of a Warrant) attributable to the initial issuance of Warrant Shares upon the exercise or exchange of a Warrant; provided, -------- however, that the Company shall not be required to pay any tax which may be - ------- payable in respect of any transfer involved in the issuance of any Warrant or any certificate for Warrant Shares in a name other than that of the Holder of the Warrant being exercised or exchanged. (e) The Person in whose name any certificate for shares of Common Stock is issued upon exercise or exchange of a Warrant shall for all purposes be deemed to have become the holder of record of such shares on the Delivery Date, irrespective of the date of delivery of such certificate, except that, if the Delivery Date is a date when the stock transfer books of the Company are closed, such Person shall be deemed to have become the holder of record of such shares at the close of business on the next succeeding date on which the stock transfer books are open. (f) Any Exercise Form or Exchange Form delivered under Section 3.1 or ----------- 2.2 may condition the exercise or exchange of any Warrant on the consummation of - --- a sale of Warrant Shares pursuant to a public offering registered under the Securities Act, and such exercise or exchange shall not be deemed to have occurred except concurrently with the consummation of any such sale. SECTION 3.3. Adjustment of Exercise Price and Number of Warrant Shares. --------------------------------------------------------- The number and kind of Warrant Shares purchasable upon exercise of each Warrant shall be subject to adjustment from time to time in accordance with this Section ------- 3.3. - --- -9- SECTION 3.3.1. Adjustment upon Issuance of Common Stock. (a) If, at any ---------------------------------------- time after the Closing Date, the Company shall issue or sell (or, in accordance with Section 3.3.1(b), shall be deemed to have issued or sold) any shares of ---------------- Common Stock without consideration or for a consideration per share less than either the Market Price determined as of the date of such issuance or sale or the Exercise Price in effect immediately prior to such issuance or sale, then, effective immediately upon such issuance or sale, the Exercise Price shall be reduced (without regard to any other provisions hereof) to an amount equal to the product obtained by multiplying (A) the Exercise Price in effect immediately prior to such issuance or sale, by (B) a fraction, the numerator of which shall be the sum of (x) the product obtained by multiplying (1) the number of shares of Common Stock outstanding (on a Fully-Diluted Basis) immediately prior to such issuance or sale by (2) the lesser of the Market Price as of the date of such issuance or sale and the Exercise Price in effect immediately prior to such issuance or sale, and (y) the consideration, if any, received by the Company upon such issuance or sale, and the denominator of which shall be the product obtained by multiplying (C) the number of shares of Common Stock outstanding (on a Fully-Diluted Basis) immediately after such issuance or sale, by (D) the lesser of the Market Price as of the date of issuance or sale and the Exercise Price in effect immediately prior to such issuance or sale. Upon each such reduction of the Exercise Price hereunder, the number of Warrant Shares which may be obtained upon exercise of such Warrant shall be increased to the number of shares determined by multiplying (A) the number of Warrant Shares which could be obtained upon exercise of such Warrant immediately prior to such adjustment by (B) a fraction, the numerator of which shall be the Exercise Price in effect immediately prior to such adjustment and the denominator of which shall be the Exercise Price in effect immediately after such adjustment. (b) For the purpose of determining the adjusted Exercise Price under Section 3.3.1(a), the following shall be applicable: ---------------- (i) Issuance of Rights or Options. If the Company in any manner ----------------------------- issues or grants any rights or options to subscribe for or to purchase (A) Common Stock or (B) any stock or other securities convertible into or exchangeable for Common Stock (such rights or options being herein called "Options" and such convertible or exchangeable stock or securities being -------- herein called "Convertible Securities"), and the price per share for which ---------------------- Common Stock is issuable upon the exercise of such Options or upon conversion or exchange of such Convertible Securities is less than either the Market Price determined as of the date of issuance or grant of such Options or the Exercise Price in effect immediately prior to such issuance or grant of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options (or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options) shall be deemed to be outstanding and to have been issued and sold by the Company for such price per share. For purposes of this paragraph, the price per share for which Common Stock is issuable upon exercise of Options or upon conversion or exchange of Convertible Securities issuable upon exercise of Options shall be determined by dividing (A) the total amount, if any, received or receivable by the Company as consideration for the issuing or granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if -10- any, payable to the Company upon issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options. No further adjustment of the Exercise Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the Exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities. (ii) Issuance of Convertible Securities. If the Company in any ---------------------------------- manner issues or sells any Convertible Securities having an exercise or conversion or exchange price per share of Common Stock which is less than either the Market Price determined as of the date of such issuance or sale or the Exercise Price in effect immediately prior to such issuance or sale, then the maximum number of shares of Common Stock issuable upon the conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to have been issued and sold by the Company for such lower price per share. For purposes of this paragraph, the price per share for which Common Stock is issuable upon conversion or exchange of Convertible Securities is determined by dividing (A) the total amount received or receivable by the Company as consideration for the issuance or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment of the Exercise Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities, and if any such issuance or sale of such Convertible Securities is made upon exercise of any Options for which adjustments of the Exercise Price had been or are required to be made pursuant to other provisions of this Section 3.4.1(b), no further ---------------- adjustment of the Exercise Price shall be made by reason of such issuance or sale. (iii) Change in Option Price or Conversion Rate. If the purchase ----------------------------------------- price provided for in any Options, the additional consideration, if any, payable upon the issuance, conversion or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock change at any time, then the Exercise Price in effect at the time of such change shall be readjusted to the Exercise Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold and the number of Warrant Shares shall be correspondingly readjusted. (iv) Treatment of Expired Options and Unexercised Convertible -------------------------------------------------------- Securities. Upon the expiration of any Option or the termination of any ---------- right to convert or exchange any Convertible Securities listed on Schedule -------- 3.3.1(b)(iv) without the exercise of such Option or right, the Exercise ------------ Price then in effect and the number of Warrant Shares acquirable hereunder shall be adjusted to the Exercise Price and the number of shares which would have been in effect at the time of such expiration or termination had such -11- Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued. (v) Calculation of Consideration Received. If any Common Stock, ------------------------------------- Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, then the consideration received therefor shall be deemed to be the net amount received by the Company therefor. If any Common Stock, Options or Convertible Securities are issued or sold for consideration other than cash, then the amount of the consideration other than cash received by the Company shall be the fair value of such consideration determined by the Board of Directors of the Company. (vi) Treasury Shares. The number of shares of Common Stock --------------- outstanding at any given time does not include shares owned or held by or for the account of the Company or any Subsidiary of the Company, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. (vii) Record Date. If the Company takes a record of the holders of ----------- Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issuance or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. SECTION 3.3.2. Subdivisions or Combinations of Common Stock. If, at any -------------------------------------------- time after the Closing Date, (a) the number of shares of Common Stock outstanding is increased by a dividend or other distribution payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock or (b) the number of shares of Common Stock outstanding is decreased by a combination or reverse stock split of shares of Common Stock, then, in each case, effective as of the effective date of such event retroactive to the record date, if any, of such event, (i) the Exercise Price shall be adjusted to a price determined by multiplying (A) the Exercise Price in effect immediately prior to such event by (B) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such event, and (ii) the number of Warrant Shares subject to purchase upon the exercise of any Warrant shall be adjusted effective at such time, to a number equal to the product of (A) the number of Warrant Shares subject to purchase upon the exercise of such Warrant immediately prior to such event by (B) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding after giving effect to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such event. SECTION 3.3.3. Capital Reorganization or Capital Reclassifications. If, --------------------------------------------------- at any time after the Closing Date, there shall be any capital reorganization or any reclassification of the capital stock of the Company (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or -12- combination of shares), then in each case the Company shall cause effective provision to be made so that each Warrant shall, effective as of the effective date of such event retroactive to the record date, if any, of such event, be exercisable or exchangeable for the kind and number of shares of stock, other securities, cash or other property to which a holder of the number of shares of Common Stock deliverable upon exercise or exchange of such Warrant would have been entitled upon such reorganization or reclassification and any such provision shall include adjustments in respect of such stock, securities or other property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant with respect to such Warrant. SECTION 3.3.4. Consolidations and Mergers. If, at any time after the -------------------------- Closing Date, the Company shall consolidate with, merge with or into, or sell all or substantially all of its assets or property to, another corporation, then the Company shall cause effective provision to be made so that each Warrant shall, effective as of the effective date of such event retroactive to the record date, if any, of such event, be exercisable or exchangeable for the kind and number of shares of stock, other securities, cash or other property to which a holder of the number of shares of Common Stock deliverable upon exercise or exchange of such Warrant would have been entitled upon such event. SECTION 3.3.5. Notice; Calculations; Etc. Whenever the Exercise Price and ------------------------- the number of Warrant Shares shall be adjusted as provided in this Section 3.3, ----------- the Company shall provide to each Holder a statement, signed by the President or Chief Financial Officer/Treasurer of the Company, describing in detail the facts requiring such adjustment and setting forth a calculation of the Exercise Price and the number of Warrant Shares applicable to each Warrant after giving effect to such adjustment. All calculations under this Section 3.3 shall be made to ----------- the nearest one hundredth of a cent ($.0001) or to the nearest one-tenth of a share, as the case may be. Adjustments pursuant to Sections 3.3.1, 3.3.2 and -------------- ----- 3.3.3 shall apply to successive events or transactions of the type covered - ----- thereby. SECTION 3.3.6. Certain Adjustments. (a) Subject to the limitations set ------------------- forth in Section 4.5, the Company may make such reductions in the Exercise Price ----------- or increase in the number of Warrant Shares to be received by any Holder upon the exercise or exchange of a Warrant, in addition to those adjustments required by this Section 3.3, as it in its sole discretion shall determine to be ----------- advisable in order that any consolidation or subdivision of the Common Stock, or any issuance wholly for cash of any shares of Common Stock, or any issuance wholly for cash of shares of Common Stock or securities which by their terms are convertible into or exchangeable for shares of Common Stock, or any stock dividend, or any issuance of rights, options or warrants hereinafter made by the Company to the holders of its Common Stock shall not be taxable to such holders. (b) In the event that the Company in any manner issues or grants Options or Convertible Securities, or any other transaction, circumstances or events occur which give rise to anti-dilution adjustments under Other Anti- Dilution Instruments, then the Company will promptly make proportional, equitable and corresponding adjustments in the number of shares of Common Stock issuable upon exercise of the Warrants to protect the Holders against dilution as a result of such events. -13- SECTION 3.3.7. Excluded Transactions. Notwithstanding any other provision --------------------- of this Warrant, no adjustment shall be made pursuant to this Section 3.3 in ----------- respect of the issuance of Excluded Securities. SECTION 3.3.8. Adjustment Rules. (a) Any adjustments pursuant to this ---------------- Section 3.3 shall be made successively whenever an event referred to herein - ----------- shall occur. (b) Notwithstanding any other provision of this Warrant, the actual amount payable by a Holder in connection with the exercise of a Warrant hereunder shall not be less than the par value per share of the Common Stock, unless and until the Exercise Price, as adjusted pursuant to this Section 3.3, ----------- has been reduced to an amount less than 1% of the par value per share of the Common Stock. Before taking any action which would cause an adjustment pursuant to this Section 3.3 which would reduce the Exercise Price below 1% of the par ----------- value per share, the Company shall be required to take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares at the Exercise Price as so adjusted. ARTICLE IV CERTAIN OTHER RIGHTS SECTION 4.1. Payments in Respect of Dividends and Distributions. If, at -------------------------------------------------- any time prior to the Expiration Date, the Company pays any dividend, other than in the ordinary course of business and to the Company's public stockholders, or makes any distribution (whether in cash, property or securities of the Company) on its capital stock which does not result in an adjustment under Section 3.3 ----------- then the Company shall simultaneously pay to the Holder of each Warrant, the dividend or distribution which would have been paid to such Holder on the Warrant Shares receivable upon the exercise in full of such Warrant had such Warrant been fully exercised immediately prior to the record date for such dividend or distribution or, if no record is taken, the date as of which the record holders of Common Stock entitled to such dividend or distribution are to be determined. SECTION 4.2. Preemptive Rights. (a) The Company shall not issue, sell or ----------------- exchange, agree to issue, sell or exchange, or reserve or set aside for issuance, sale or exchange, any (i) Common Stock, (ii) any other equity security of the Company, (iii) any debt security of the Company which by its terms is convertible into or exchangeable for any equity security of the Company or has any other equity feature, (iv) any security of the Company that is a combination of debt and equity or (v) any option, warrant or other right to subscribe for, purchase or otherwise acquire any equity security or any such debt security of the Company, unless, in each case, the Company shall have first offered (the "Section 4.2 Offer") to sell to each Holder its Proportionate Percentage of such - ------------------ securities (the "Section 4.2 Offered Securities") (and to sell thereto Section ------------------------------ 4.2 Offered Securities not subscribed for by other Holders as hereinafter provided), at a price and on such other terms as shall have been specified by the Company in a written notice (the "Section 4.2 Offer Notice") delivered to ------------------------ such Holder, which Offer by its terms shall remain open and irrevocable for a period of ten (10) Business Days from the date it is delivered by the Company to the Holders. -14- (b) Notice of each Holder's intention to accept, in whole or in part, a Section 4.2 Offer shall be evidenced by a writing signed by such Holder and delivered to the Company prior to the end of the 10-day period of such Section 4.2 Offer, setting forth such portion of the Section 4.2 Offered Securities as such Holder elects to purchase (the "Section 4.2 Notice of --------------------- Acceptance"). If any Holder shall subscribe for less than its Proportionate - ---------- Percentage of the Section 4.2 Offered Securities available to such Holder, the other subscribing Holders shall be entitled to purchase the balance of such Holder's Proportionate Percentage in the same proportion in which they were initially entitled to purchase the Section 4.2 Offered Securities (excluding for such purposes such Holder subscribing for less than its Proportionate Percentage). The Company shall notify each other Holder within five (5) Business Days following the expiration of the 10-day period described above of the amount of Section 4.2 Offered Securities which each Holder may purchase pursuant to the foregoing sentence, and each Holder shall then have five (5) Business Days from the delivery of such notice to indicate such additional amount, if any, that such Holder wishes to purchase. (c) In the event that Section 4.2 Notices of Acceptance are not given by the Holders in respect of all the Section 4.2 Offered Securities, the Company shall have ninety (90) days from the expiration of the foregoing 10-day or 20-day period, as applicable, to sell all or any part of such Section 4.2 Offered Securities as to which Section 4.2 Notices of Acceptance have not been given by the Holders (the "Refused Securities") to any other Person or Persons, ------------------ but only upon terms and conditions in all respects (including, without limitation, unit price and interest rates) which are no more favorable, in the aggregate, to such other Person or Persons or less favorable to the Company than those set forth in the Section 4.2 Offer. Upon the closing of the sale of the Refused Securities, the Holders shall purchase from the Company, and the Company shall sell to the Holders, the Section 4.2 Offered Securities in respect of which Section 4.2 Notices of Acceptance were delivered to the Company, at the terms specified in the Section 4.2 Offer. (d) The preemptive rights granted in this Section 4.2 shall not ----------- apply to the issuance or sale of Excluded Securities. (e) The preemptive rights granted in this Section 4.2 shall apply only to Holders who are not parties to the Stockholders Agreement dated as of July 27, 1995 between, among others, the Company and ING, as the same may be amended, supplemented or altered from time to time. SECTION 4.3. Fiduciary Duties of the Company. The Company and its ------------------------------- directors shall owe the holders of the Warrants the same fiduciary duties that the Company and its directors would owe to the Warrant Shares underlying the Warrants. ARTICLE V MISCELLANEOUS SECTION 5.1. Notices. All notices, demands and requests of any kind to be ------- delivered to any party hereto in connection with this Warrant shall be in writing (i) delivered personally, (ii) sent by nationally-recognized overnight courier, (iii) sent by first class, registered or certified -15- mail, return receipt requested or (iv) sent by facsimile, in each case to such party at its address as follows: (a) if to the Company, to: Matthews Studio Equipment Group 3111 North Kenwood Street Burbank, California 91505 Attention: Carlos DeMattos Telephone: (818) 525-5217 Facsimile: (818) 525-5216 with a copy to: Francis W. Costello Whitman Breed Abbott & Morgan 633 West Fifth Street Los Angeles, California 90071 Telephone: (213) 896-2452 Telecopier: (213) 896-2450 (b) if to ING, to: ING Equity Partners, L.P. I c/o Hampshire Equity Partners 520 Madison Avenue, 33rd Floor New York, New York 10022 Attention: Benjamin P. Giess Telephone: (212) 453-1708 Telecopier: (212) 750-2970 with a copy to: James B. Carlson, Esq. Mayer, Brown & Platt 1675 Broadway New York, New York 10019-5820 Telephone: (212) 506-2515 Telecopier: (212) 262-1910 Any notice, demand or request so delivered shall constitute valid notice under this Warrant and shall be deemed to have been received (i) on the day of actual delivery in the case of personal delivery, (ii) on the next Business Day after the date when sent in the case of delivery by nationally-recognized overnight courier, (iii) on the fifth Business Day after the date of deposit -16- in the U.S. mail in the case of mailing or (iv) upon receipt in the case of a facsimile transmission. Any party hereto may from time to time by notice in writing served upon the other as aforesaid designate a different mailing address or a different Person to which all such notices, demands or requests thereafter are to be addressed. SECTION 5.2. Voting Rights; Limitations of Liability. No Warrant shall --------------------------------------- entitle the holder thereof to any voting rights or other rights of a stockholder of the Company, as such. No provision hereof, in the absence of affirmative action by the Holder to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder shall give rise to any liability of such Holder for the Exercise Price of Warrant Shares acquirable by exercise hereof or as a stockholder of the Company. Each Holder agrees this Warrant is not a warrant issued to ING pursuant to the Prior Purchase Agreement, as amended to date. SECTION 5.3. Amendments and Waivers. Any provision of this Warrant may be ---------------------- amended or waived, but only pursuant to a written agreement signed by the Company and the Requisite Holders. SECTION 5.4. Severability. Any provision of this Warrant which is ------------ prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Warrant affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 5.5. Specific Performance. Each Holder shall have the right to -------------------- specific performance by the Company of the provisions of this Warrant, in addition to any other remedies it may have at law or in equity. The Company 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 Company for specific performance of this Warrant by the Holders of the Warrants or Warrant Shares. SECTION 5.6. Binding Effect. This Warrant shall be binding upon and inure -------------- to the benefit of the Company, each Holder and their respective successors and assigns. SECTION 5.7. Counterparts. This Warrant may be executed by the parties ------------ hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. This Warrant shall become effective when counterparts hereof executed on behalf of the Company and each Holder shall have been received. SECTION 5.8. Governing Law; Entire Agreement. THIS WARRANT AND THE ------------------------------- WARRANTS, SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. This Warrant and the Warrants, constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. -17- SECTION 5.9. Benefits of this Warrant. Nothing in this Warrant shall be ------------------------ construed to give to any Person other than the Company and each Holder of a Warrant or a Warrant Share any legal or equitable right, remedy or claim hereunder. SECTION 5.10. Headings. The various headings of this Warrant are inserted -------- for convenience only and shall not affect the meaning or interpretation of this Warrant or any provisions hereof or thereof. SECTION 5.11. Expenses. The Company will promptly (and in any event -------- within thirty (30) days of receiving any statement or invoice therefor) pay all reasonable fees, expenses and costs relating hereto, including, but not limited to, (i) the cost of reproducing this Warrant and the Warrants, (ii) the fees and disbursements of counsel to the Holder in preparing this Warrant, (iii) all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect hereof or any other document referred to herein, (iv) fees and expenses (including, without limitation, reasonable attorneys' fees) incurred in respect of the enforcement by Holders of the rights granted to Holders under this Warrant, and (v) the expenses relating to the consideration, negotiation, preparation or execution of any amendments, waivers or consents requested by the Company pursuant to the provisions hereof, whether or not any such amendments, waivers or consents are executed. SECTION 5.12. Attorneys' Fees. In any action or proceeding brought by a --------------- party to enforce any provision of this Warrant, the prevailing party shall be entitled to recover the reasonable costs and expenses incurred by it in connection with that action or proceeding (including, but not limited to, attorneys' fees). SECTION 5.13. Filings. The Company shall, at its own expense, promptly ------- execute and deliver, or cause to be executed and delivered, to any holder of Warrants all applications, certificates, instruments and all other documents and papers that such holder of Warrants may reasonably request in connection with the obtaining of any consent, approval, qualification, or authorization of any federal, provincial, state or local government (or any agency or commission thereof) necessary or appropriate in connection with, or for the effective exercise of, any Warrants then held by such holder. SECTION 5.14. Other Transactions. Nothing contained herein shall preclude ------------------ the Holder from engaging in any transaction, in addition to those contemplated by this Warrant with the Company or any of its Affiliates in which the Company or such Affiliate is not restricted hereby from engaging with any other Person. SECTION 5.15. Forum Selection and Consent to Jurisdiction. ANY LITIGATION ------------------------------------------- BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS WARRANT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE HOLDERS OR THE COMPANY SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF -18- THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE COMPANY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE COMPANY HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS WARRANT. SECTION 5.16. Jury Trial. THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY, AND ---------- INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS WARRANT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES HERETO PURCHASING THE NOTES AND ENTERING INTO THE PURCHASE AGREEMENT AND THE SECURITY AGREEMENT. THE COMPANY ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF COUNSEL IN THE REVIEW AND EXECUTION OF THIS WARRANT, INCLUDING THIS SECTION 5.16 HEREOF, AND FURTHER ACKNOWLEDGES THAT THE MEANING AND EFFECT OF THE FOREGOING WAIVER OF JURY TRIAL HAVE BEEN FULLY EXPLAINED TO THE COMPANY BY SUCH COUNSEL. -19- IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be duly executed and delivered by their authorized officers, all as of the date and year first above written. MATTHEWS STUDIO EQUIPMENT GROUP By: __________________________________ Name:_____________________________ Title:____________________________ [CORPORATE SEAL] ATTEST: By: ____________________________ Name:_______________________ Title:______________________ -20- EX-10.23 4 NOTE PURCHASE AGREEMENT DATED 06-30-99 Exhibit 10.23 ------------- NOTE PURCHASE AGREEMENT, dated as of June 30, 1999 by and among MATTHEWS STUDIO EQUIPMENT GROUP, as the Company, and THE PURCHASERS LISTED ON SCHEDULE I HERETO with respect to U.S.$10,000,000 principal amount of Convertible Senior Subordinated Notes Due June 30, 2005 NOTE PURCHASE AGREEMENT ----------------------- THIS NOTE PURCHASE AGREEMENT, dated as of June 30, 1999 (this "Agreement"), --------- is by and among MATTHEWS STUDIO EQUIPMENT GROUP, a California corporation (the "Company"), and the Purchasers listed on Schedule I hereto (together with their - -------- ---------- respective successors and assigns, the "Purchasers"). ---------- W I T N E S S E T H: ------------------- WHEREAS, the Company desires that the Purchasers purchase U.S.$10,000,000 principal amount of Notes (such capitalized term and other capitalized terms used in these recitals without definition shall have the meanings provided for in Article I) of the Company, the proceeds of which will be used for general --------- working capital purposes (including capital expenditures); NOW, THEREFORE, based upon the foregoing and the mutual covenants and agreements herein contained, and for other good and sufficient consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I DEFINED TERMS SECTION 1.1 Defined Terms. The following terms (whether or not ------------- underscored) when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings: "Affiliate" means, with respect to any Person, any other Person which, --------- directly or indirectly, controls, is under common control with, or is owned or controlled by, such Person. For purposes of this definition, (i) "control" means, with respect to any Person, either (x) the beneficial -------- ownership of five percent (5%) or more of any class of equity, securities or other beneficial Interests of such Person or (y) the power to direct the management and policies of such Person through the ownership of voting securities, by contract or otherwise, (ii) "controlling", "control with" ----------- ------------ and "controlled by", and similar terms shall have meanings correlative to ------------- the foregoing and (iii) the officers and directors of a Person shall be deemed to be Affiliates of such Person. "Agreement" means this Note Purchase Agreement, as it may be amended, --------- restated, supplemented or otherwise modified from time to time pursuant to Section 12.1. ------------ "Arbitration Procedure" means the following procedure to determine the --------------------- Market Price, as the case may be, in the event that a Significant Holder and the Company cannot resolve any differences they have with respect to the Market Price. The Market Price -2- shall be determined by an investment banking firm of national recognition in the United States, which firm shall be reasonably acceptable to the Company and the Significant Holder. If the Company and the Significant Holder are unable to agree upon an acceptable investment banking firm within ten (10) days after the date either party proposed that one be selected, the investment banking firm will be selected by an arbitrator located in the City of New York, New York selected by the American Arbitration Association (or if such organization ceases to exist, the arbitrator shall be chosen by a court of competent jurisdiction). The arbitrator shall select the investment banking firm (within ten (10) days of his appointment) from a list, jointly prepared by the Company and the Significant Holder, of not more than six investment banking firms of national recognition in the United States, of which no more than three may be named by the Company and no more than three may be named by the Significant Holder. The arbitrator may consider, within the ten-day period allotted, arguments from the parties regarding which investment banking firm to choose, but the selection by the arbitrator shall be made in its sole discretion from the list of six. The Company and the Significant Holder shall submit to the investment banking firm their respective determinations of the Market Price and any supporting arguments and other data as they may desire, within ten (10) days of the appointment of the investment banking firm, and the investment banking firm shall as soon as practicable thereafter make its own determination of the Market Price. The final Market Price for purposes hereof shall be the average of the two Market Prices closest together, as determined by the investment banking firm, from among the Market Prices (i) submitted by the Company, (ii) submitted by the Significant Holder and (iii) calculated by the investment banking firm. The determination by such investment banking firm shall be final and binding upon the parties. The Company and the Significant Holder shall each pay one-half ( 1/2) of the fees and expenses of the investment banking firms and arbitrators (if any) used to determine the Market Price. If required by any such investment banking firm or arbitrator, the Company and the Significant Holder shall execute a retainer and engagement letter containing reasonable terms and conditions, including, without limitations, customary provisions concerning the rights of indemnification and contribution by the Company in favor of such investment banking firm or arbitrator and its officers, directors, partners, employees, agents and Affiliates. "Authorized Officer" means, relative to the Company, those of its ------------------ officers whose signatures and incumbency shall have been certified to the Purchasers pursuant to Section 3.1. ----------- "Bankruptcy Code" shall mean Title 11 of the United States Code, as --------------- amended from time to time, and all rules and regulations promulgated thereunder. "Business Day" means any day excluding Saturday, Sunday and any day ------------ which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close. -3- "Capital Lease" shall mean any lease of any property (whether real, ------------- personal or mixed) by a Person as lessee which, in conformity with generally accepted accounting principles consistently applied, is, or is required to be, accounted for as a capital lease on the balance sheet of such Person. "Capitalized Lease Obligation" shall mean an obligation to pay rent or ---------------------------- other amounts under any Capital Lease, and for purposes hereof the amount of such obligation shall be the capitalized amount thereof determined in accordance with generally accepted accounting principles. "Capital Stock" means, with respect to any Person, any and all shares, ------------- interests, participations or other equivalents (however designated) of such Person's capital stock or equity, whether now outstanding or issued after the date hereof, including all common stock, preferred stock, partnership interests and member interests. "Cash Equivalents" means, as at any time, ---------------- (a) marketable securities (i) issued or directly and unconditionally Guaranteed as to interest and principal by the United States Government or (ii) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one year after such date; (b) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one year after such date and having, at the time of the acquisition thereof, one of the two highest ratings obtainable from either Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc. ("S&P") or Moody's Investors Service, Inc. ("Moody's"); --- ------- (c) commercial paper maturing no more than one year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 (or the equivalent) from S&P or at least P-1 (or the equivalent) from Moody's; (d) certificates of deposit or bankers' acceptances maturing within one year after such date and issued or accepted by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (i) is at least "adequately capitalized" (as defined in the regulations of its primary federal banking regulator) and (ii) has Tier 1 capital (as defined in such regulations) of not less than $100,000,000; and (e) shares of any money market mutual fund that (i) has at least 95% of its assets invested continuously in the types of investments referred to in clauses (a) ----------- -4- and (b) above, (ii) has net assets of not less than $500,000,000, and (iii) has one of the two highest ratings obtainable from either S&P or Moody's. "CERCLA" means the Comprehensive Environmental Response, Compensation ------ and Liability Act of 1980, as amended. "CERCLIS" means the Comprehensive Environmental Response Compensation ------- Liability Information System List. "Change of Control" means: ----------------- (a) the sale, lease or transfer of all or substantially all the assets of the Company to any Person or group (as such term is defined in Section 13(d)(3) of the Exchange Act) other than the Investment Parties; (b) the liquidation or dissolution of (or the adoption of a plan of liquidation by) the Company or any of its Subsidiaries; (c) the acquisition by any Person or group (as such term is defined in Section 13(d)(3) of the Exchange Act) (other than one or more of the Investment Parties) of a direct or indirect majority in interest (more than 50%) of the voting Capital Stock of the Company by way of merger or consolidation or otherwise; or (d) the Company at any time, legally or beneficially (and free of any Liens other than Liens disclosed in the SEC Reports filed prior to the Initial Closing Date and Liens granted under the Security Agreement), owns less than 100% of the outstanding capital stock of the Subsidiaries. "Code" means the Internal Revenue Code of 1986, as amended, reformed ---- or otherwise modified from time to time. "Collateral" shall mean all property of the Company that at the time ---------- is security for the Senior Debt. "Collateral Agency Agreement" means the Collateral Agency Agreement --------------------------- entered into among the Purchasers and acknowledged by the Company, substantially in the form attached as Exhibit E hereto. --------- "Common Stock" means the Common Stock, no par value per share, of the ------------ Company. "Consolidated" means, in respect of any Person, as applied to any ------------ financial or accounting term, such term determined on a consolidated basis in accordance with GAAP for the Person and all consolidated Subsidiaries thereof. -5- "Contaminant" means all Hazardous Materials and all those substances ----------- which are regulated by or form the basis of liability under Federal, state or local environmental, health and safety statutes or regulations, including, without limitation, asbestos, polychlorinated biphenyls ("PCBs") and radioactive substances, or any other material or substance which constitutes a material health, safety or environmental hazard to any Person or property. "Controlled Group" means all members of a controlled group of ---------------- corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with the Company, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA. "Credit Agreement" means, collectively, (i) the Amended and Restated ---------------- Credit Agreement, dated as of April 1, 1998, among the Company, the lenders named therein and The Chase Manhattan Bank, as agent, as such agreement has been and may be further amended, restated, extended, renewed, supplemented or otherwise modified from time to time, or replaced through refinancing and (ii) all other agreements, documents and instruments evidencing, governing, securing or pertaining to all or any portion of the Senior Debt. "Default" means any Event of Default or any condition, occurrence or ------- event which, after notice or lapse of time or both, would constitute an Event of Default. "Disclosure Schedule" means the Disclosure Schedule attached hereto as ------------------- Schedule II, as it may be amended, supplemented or otherwise modified from ----------- time to time by the Company with the written consent of the Requisite Holders. "Dollars" and the sign "$" mean the lawful money of the United States ------- - of America. "Environmental Claim" means any written notice of violation, claim, ------------------- demand, abatement or other order by any governmental authority or any Person for personal injury (including sickness, disease or death), tangible or intangible property damage, damage to the environment, nuisance, pollution, contamination or other adverse effects on the environment, or for fines, penalties or deed or use restrictions, resulting from or based upon (i) the existence, or continuation of the existence of a Release (including without limitation, sudden or non-sudden, accidental or non accidental Releases), of, or exposure to, any Contaminant at, in, by or from any of the properties of the Company or its Subsidiaries, (ii) the environmental aspects of the transportation, storage, treatment or disposal of Contaminants in connection with the operation of any of the properties of the Company or its Subsidiaries or (iii) the violation, or alleged violation by the Company or any of its Subsidiaries, of any statutes, ordinances, orders, rules, regulations, permits or licenses of or from any governmental authority, agency or court relating to environmental -6- matters connected with any of the properties of the Company or its Subsidiaries, under any applicable Environmental Law. "Environmental Laws" means the Comprehensive Environmental Response, ------------------ Compensation, and Liability Act (42 U.S.C. (S) 9601 et seq.), the Hazardous -- --- Materials Transportation Act (49 U.S.C. (S) 1801 et seq.), the Resource -- --- Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.), the Federal -- --- Water Pollution Control Act (33 U.S.C. (S) 1251 et seq.), the Oil Pollution -- --- Act of 1990 (33 U.S.C. (S) 2701 et. seq.), the Safe Drinking Water Act (42 -- --- U.S.C. (S) 300(f), et seq.), the Clean Air Act (42 U.S.C. (S) 7401 et -- --- -- seq.), the Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.), the --- -- --- Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. (S) 136 et -- seq.), the Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.) --- -- --- and the Emergency Planning and Community Right-to-Know Act (42 U.S.C. (S) 11001 et seq.), each as amended or supplemented, and any related or -- --- analogous future or present local, state and federal statutes, rules, regulations, ordinances, licenses, permits and interpretations and orders of regulatory and administrative bodies. "Equity Partners" means ING Equity Partners, L.P. I, a Delaware --------------- limited partnership, and its successors and assigns. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended from time to time, and any successor statute, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. "ERISA Affiliate" shall mean any trade or business (whether or not --------------- incorporated) which together with the Company or any Subsidiary thereof would be treated as a single employer under the provision of Title I or Title IV of ERISA. "Exchange Act" means the Securities Exchange Act of 1934, as amended ------------ from time to time, and any successor statute. "Facilities" means any and all real property (including all buildings, ---------- fixtures or other improvements located thereon) now, hereafter or heretofore owned, leased, operated or used by the Company or any of its predecessors or Affiliates. "Fair Market Value" means (i) with respect to any listed security, its ----------------- Market Price, including as determined pursuant to any Arbitration Procedure and (ii) with respect to any property or assets other than cash or listed securities, the fair value thereof determined in good faith by the Board of Directors of the Company. "Fiscal Quarter" means any quarter of a Fiscal Year. -------------- "Fiscal Year" means any period of twelve consecutive calendar months ----------- ending on September 30; references to a Fiscal Year with a number corresponding to any calendar -7- year (e.g., the "1998 Fiscal Year") refer to the Fiscal Year ending on the September 30 occurring during such calendar year. "Fully Diluted Basis" means, as applied to the calculation of the ------------------- number of shares of Common Stock outstanding at any time, after giving effect to (a) all shares of Common Stock outstanding at the time of determination, (b) all shares of Common Stock issuable upon the conversion, exercise or exchange of any convertible security, warrant, option, subscriptions, calls or other rights to acquire Common Stock outstanding at the time of determination, irrespective of whether such conversion, exercise or exchange is permitted, restricted or vested at the time of determination, and irrespective of the price or consideration required by such conversion, exercise or exchange, and (c) all other commitments, promises or understandings to issue any shares of Common Stock or any convertible security, warrant, option, subscription, call or other rights outstanding at the time of determination. Such calculation will not be made in accordance with the "treasury method in accordance with GAAP". "Governmental Authorization" means any permit, license, authorization, -------------------------- plan, directive, consent order or consent decree of or from any federal, state or local governmental authority, agency or court. "Guarantee" shall mean any obligation, contingent or otherwise, of any --------- Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or obligation of any other Person in any manner, whether directly or indirectly, and shall include, without limitation, any obligation of such Person, direct or indirect, to (i) purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness or obligation, (ii) purchase property, securities or services for the purpose of assuring the owner of such Indebtedness or obligation of the payment of such Indebtedness or obligation, or (iii) maintain working capital, equity capital, available cash or other financial condition of the primary obligor so as to enable the primary obligor to pay such Indebtedness or obligation; provided, however, that the term Guarantee shall not include endorsements -------- ------- for collection or collections for deposit, in either case in the ordinary course of business. "Hazardous Materials" means any pollutant, contaminant, chemical, or ------------------- industrial or hazardous, toxic or dangerous waste, substance or material which is defined or regulated as such in (or for purposes of) any Environmental Law and any other toxic, reactive, or flammable chemicals, including (without limitation) any asbestos, any petroleum (including crude oil or any fraction), any radioactive substance and any ix) polychlorinated biphenyls; provided, in the event that any Environmental -------- Law is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment; and provided, further, to the extent that the applicable laws of -------- ------- any state establish a meaning for "hazardous material," "hazardous substance," "hazardous waste," "solid waste" or "toxic -8- substance" which is broader than that specified in any Environmental Law, such broader meaning shall apply. "Hedging Obligations" means, with respect to any Person, all ------------------- liabilities of such Person under interest rate swap agreements, interest rate cap agreements, interest rate collar agreements, foreign exchange contracts, currency swap agreements, futures contracts, option contracts, and synthetic cap agreements and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates. "Holder" means each Purchaser (or any of its permitted designees, ------ successors or assigns, other than the Company or any of its Subsidiaries) who continues to hold any of the Notes and any other holder of any of the Notes; provided, that for the purposes of Article XI and the Security -------- Agreement, "Holder" includes the Company or any of its Subsidiaries to the extent that such entity holds any of the Notes or otherwise would be deemed a Purchaser hereunder provided, further, that in the event there are any -------- ------- continuing obligations owed to Equity Partners ("Reimbursement ------------- Obligations") in respect of the Company or any of its Subsidiaries in ----------- respect of the Reimbursement Agreement, dated as of January 12, 1999 between such parties and the other parties thereto (the "Reimbursement ------------- Agreement"), Equity Partners shall be deemed to be a Holder of a Note in an --------- aggregate principal amount equal to the amount of such Reimbursement Obligations. "Indebtedness" of any Person means, without duplication: ------------ (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments (including Redeemable Capital Stock); (b) all obligations, contingent or otherwise, relative to the face amount of all letters of credit, whether or not drawn, and banker's acceptances issued for the account of such Person; (c) all obligations of such Person as lessee under leases which have been or should be, in accordance with GAAP, recorded as Capitalized Lease Obligations; (d) all other items which, in accordance with GAAP, would be included as liabilities on the liability side of the balance sheet of such Person as of the date at which Indebtedness is to be determined; (e) net liabilities of such Person under all Hedging Obligations; (f) whether or not so included as liabilities in accordance with GAAP, all obligations of such Person to pay the deferred purchase price of property or -9- services, and indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; and (g) all Guarantees of such Person in respect of any of the foregoing. For all purposes of this Agreement, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer. "Industry" means the entertainment production industry, which -------- includes, but is not limited to, the feature film production industry. "Initial Closing Date" means the first Closing Date at which Notes are -------------------- issued pursuant to this Agreement. "Investment Parties" means shall mean Carlos D. DeMattos and his ------------------ Affiliates (other than the Company and its Subsidiaries) and Equity Partners and, with respect to each of the foregoing, (a) each general partner, each limited partner and employee thereof or any Affiliate thereof as of July 27, 1995; (b) any 50% (or more) owned Subsidiary of any one (or jointly of more than one of any) Person specified in clause (a); and ---------- (c) the spouse or any immediate family member of any Person specified in clause (a) or any trust solely for the benefit of any such Person or the ---------- spouse or any immediate family member of such Person. "Joint Venture" means a joint venture, partnership or other similar ------------- arrangement, whether in corporate, partnership or other legal form; provided that in no event shall any corporate Subsidiary of any Person be -------- considered to be a Joint Venture to which such Person is a party. "Knowledge" means, with respect to any person that is not an --------- individual, the actual knowledge of such Person's officers after reasonable inquiry. "Lien" means with respect to any asset, (i) any mortgage, lien, ---- pledge, encumbrance, charge or security interest in or on such asset, (ii) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset, (iii) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities or (iv) any other right of or -10- arrangement with any creditor to have such creditor's claim satisfied out of such assets, or the proceeds therefrom, prior to the general creditors of the owner thereof. "Margin Stock" has the meaning assigned to that term in Regulation U ------------ of the Board of Governors of the Federal Reserve System as in effect from time to time. "Market Price" means, with respect to any listed Security, its market ------------ price as determined in good faith by the Company and communicated in writing to the Significant Holders, provided, however, that any Significant -------- ------- Holder may, within five (5) Business Days following its receipt of such written notice, dispute the Company's determination of the Market Price by providing the Company with written notice of such disagreement. The Market Price shall be deemed final and accepted by the Significant Holder unless such notice is given. During a period of five (5) Business Days following the aforesaid five-day period, the Company and such Significant Holder shall attempt in good faith to resolve any differences they have with respect to the Market Price. If at the end of such 5-day period the Company and such Significant Holder shall have failed to reach agreement with respect to the Market Price, then the Market Price shall be determined using the Arbitration Procedure. "Material Adverse Effect" means (i) a material adverse effect upon the ----------------------- business, assets, liabilities, condition (financial or otherwise), operations, performance, properties or prospects of the Company, or (ii) the impairment of the ability of the Company to perform, or the Holders to enforce, any material obligation of the Company under any Transaction Document to which it is party (including the Subordinated Debt). "Multiemployer Plan" means a "multiemployer plan" as defined in ------------------ Section 4001(a)(3) of ERISA. "Net Income" means, with respect to any Person for any applicable ---------- period, the net income (or loss) of such Person and its Subsidiaries on a Consolidated basis for such period determined in conformity with GAAP, exclusive of any extraordinary gains or non-cash extraordinary losses. "Net Worth" means, with respect to any Person as at any date of --------- determination, the sum of the capital stock and additional paid-in capital plus retained earnings (or minus accumulated deficits) of such Person and its Subsidiaries on a Consolidated basis determined in conformity with GAAP. "Note" means each convertible senior subordinated promissory note of ---- the Company substantially in the form of Exhibit A hereto (as such --------- promissory note may be amended, endorsed or otherwise modified from time to time), all other promissory notes accepted from time to time in substitution, replacement or renewal therefor, and any payment-in-kind note issued to pay interest thereunder. -11- "Officers' Certificate" means, as applied to any corporation, a --------------------- certificate executed on behalf of such corporation by its chairman of the board (if an officer) or its president or one of its vice presidents and by its chief financial officer or its treasurer; provided that any Officers' Certificate with respect to the compliance with a condition precedent to the issuance and sale of the Notes hereunder shall include (i) a statement that the officer or officers making or giving such Officers' Certificate have read such condition and any definitions or other provisions contained in this Agreement relating thereto, (ii) a statement that, in the opinion of the signers, they have made or have caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such condition has been complied with and (iii) a statement as to whether, in the opinion of the signers, such condition has been complied with. "Organic Document" means, relative to any Person, such Person's ---------------- certificate of incorporation, by-laws and all shareholder agreements, voting trusts and similar arrangements applicable to any of such Person's authorized shares of Capital Stock. "PBGC" means the Pension Benefit Guaranty Corporation and any entity ---- succeeding to any or all of its functions under ERISA. "Pension Plan" means any Plan the provisions of which are subject to ------------ Title IV of ERISA. "Person" means any individual, corporation, general or limited ------ partnership, joint venture, association, limited liability company, joint stock company, trust, business trust, land trust, bank, trust company, estate (including any beneficiaries thereof), unincorporated organization, cooperative, association or government branch, agency or political subdivision thereof. "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 the Company, any Subsidiary thereof or any ERISA Affiliate. "Redeemable Capital Stock" means, as applied to any Person, any ------------------------ Capital Stock of such Person which, either by its terms, by the terms of any security into which it is convertible or exchangeable or otherwise, (i) is or upon the happening of an event or passage of time would be required to be redeemed (for consideration other than shares of the common equity capital of such Person) on or prior to June 30, 2005, (ii) is redeemable at the option of the holder thereof (for consideration other than shares of the common equity capital of such Person) at any time prior to such date or (iii) is convertible into or exchangeable for debt securities at any time prior to such date. "Redemption Date" means (i) in the case of a redemption of Notes --------------- pursuant to Section 9.1 in connection with a Mandatory Redemption Event, ----------- the date 5 days following the occurrence of such Mandatory Redemption Event, unless such date is a day which is not a Business Day, in which case the Redemption Date shall be the next succeeding -12- Business Day, and (ii) in the case of a redemption of Notes pursuant to Section 9.2, the date selected by the Company for such redemption. ----------- "Redemption Price" means, when used with respect to any Note to be ---------------- redeemed, the redemption price fixed for such redemption pursuant to Section 9.1 or 9.2. ----------- --- "Regulation D" means Regulation D of the Board of Governors of the ------------ Federal Reserve System, as in effect from time to time. "Release" means any releasing, spilling, leaking, seepage, pumping, ------- pouring, emptying, discharging, emitting, injecting, escaping, leaching, disposing or dumping, in each case as defined in Environmental Law, and shall include any "Threatened Release" as defined in Environmental Law. "Remedial Work" shall mean any investigation, site monitoring, ------------- containment, cleanup, removal, restoration or other remedial work of any kind or nature with respect to any property of the Company or its Subsidiaries (whether such property is owned, leased, subleased or used), including, without limitation, with respect to Contaminants and the Release thereof required in order to comply with Environmental Laws. "Reportable Event" means a Reportable Event as defined in Section ---------------- 4043(c) of ERISA. "Requisite Holders" means the Holders of Notes representing a majority ----------------- of the aggregate principal amount of the Notes outstanding (including any Notes deemed to be outstanding in respect of any Reimbursement Obligations) at the time in question; provided, that for so long as Equity Partners is a -------- Significant Holder, Equity Partners must be included in such majority. "Requisite Senior Debtholders" means, with respect to any action which ---------------------------- may be taken by the Senior Debtholders in connection with any term of this Agreement, the Senior Debtholder or Senior Debtholders necessary to approve or consent to such action pursuant to the terms of the Credit Agreement. "Securities" means, collectively, the Notes and the Warrants. ---------- "Securities Act" means the Securities Act of 1933, as amended from -------------- time to time, and any successor statute. "Security" means, individually, a Note or Warrant. -------- "Security Agreement" means the Security Agreement, dated as of the ------------------ Initial Closing Date, among the Company, its Subsidiaries and the Purchasers, substantially in the form attached as Exhibit D hereto. --------- -13- "Senior Agent" means The Chase Manhattan Bank, in its capacity as ------------ agent for the lenders under the Credit Agreement, and its successors in such capacity, or, if there is then no acting agent under the Credit Agreement, financial institutions holding a majority in principal amount of the Senior Debt outstanding thereunder, or if no debt is outstanding, a majority in amount of the loan commitments outstanding thereunder. "Senior Debt" means all loans, advances, debts, liabilities and ----------- obligations, for the performance of covenants, tasks or duties or for the payment of monetary amounts (whether or not such performance is then required or contingent, or amounts are liquidated or determinable) owing by the Company or its Subsidiaries to the Senior Agent or any lender under the Credit Agreement, and all covenants and duties regarding such amounts, of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument, arising under the Credit Agreement. Senior Debt includes all principal, interests, fees, expenses, attorneys' fees and any other sum chargeable to the Company under the Credit Agreement or any of the other Loan Documents (as such term is defined in the Credit Agreement), together with, subject to the last sentence hereof, (a) all complete or partial refinancings of the Senior Debt, (b) any amendments, modifications, renewals or extensions of any of the foregoing and (c) any interest accruing on the foregoing after the commencement of any bankruptcy, insolvency or similar proceeding, without regard to whether or not such interest accrues in any such proceeding or is an allowed claim in any such proceeding. Senior Debt shall be considered to be outstanding whenever any loan commitment under the Credit Agreement is outstanding. Notwithstanding the foregoing, however, "Senior Debt" shall not include any loans, advances, debts, liabilities, obligations or other amounts arising out of any partial or complete refinancing of Senior Debt if both (i) such refinancing is with a party or parties other than the existing Senior Agent and the Senior Debtholders for whom the Senior Agent is at the time serving as agent under the Credit Agreement and (ii) the final stated maturity date of such refinancing is later than June 30, 2005. "Senior Debtholder" means a holder of Senior Debt. ----------------- "Significant Holder " means a holder of at least $5,000,000 in ------------------ aggregate principal amount of notes. "Solvent" means, with respect to any Person, that as of the date of ------- determination both (a) (i) the then fair saleable value of the property of such Person is (A) greater than the total amount of liabilities (including contingent liabilities) of such Person and (B) not less than the amount that will be required to pay the probable liabilities on such Person's then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to such Person; (ii) such Person's capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction; and (iii) such Person does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due; and (b) such Person is "solvent" within the meaning given that term -14- and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Stated Maturity Date" means June 30, 2005. -------------------- "Subordinated Debt" means all debts, liabilities and obligations, for ----------------- the performance of covenants, tasks or duties or for the payment of monetary amounts (whether or not such performance is then required or contingent, or amounts are liquidated or determinable) owing by the Company or its Subsidiaries to the Holders under the Subordinated Debt Documents, and all covenants and duties regarding such amounts, of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument, arising under the Subordinated Debt Documents. Subordinated Debt includes all principal, interest, fees, expenses, attorneys' fees, indemnification and any other sum chargeable to the Company under any Subordinated Debt Document, together with, subject to the last sentence hereof, (a) any amendments, modifications, renewals or extensions of any of the foregoing and (b) any interest accruing on the foregoing after the commencement of any bankruptcy, insolvency or similar proceeding, without regard to whether or not such interest accrues in any such proceeding or is an allowed claim in any such proceeding. "Subordinated Debt Documents" means this Agreement, the Notes, the --------------------------- Security Agreement and all agreements, documents and instruments securing the Subordinated Debt pursuant to the Security Agreement. "Subsidiary" means, with respect to any specified Person, any ---------- corporation, partnership, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by such specified Person or one or more of the other Subsidiaries of such specified Person or a combination thereof. "Tax" or "Taxes" means any present or future tax, levy, impost, duty, --- ----- charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed; provided that "Tax on the overall net income" of a Person -------- shall be construed as a reference to a tax imposed by the jurisdiction in which that Person's principal office is located (and/or, in the case of a Holder, the jurisdiction in which the office through which its investment in the Notes is being maintained is located) or in which that Person is deemed to be doing -15- business on all or part of the net income, profits or gains of that Person (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise). "Transaction Costs" means the fees, costs and expenses payable by the ----------------- Company in connection with the transactions contemplated hereby. "Transaction Documents" means the Subordinated Debt Documents and the --------------------- Warrant and each other agreement, document, certificate or instrument delivered in connection with and such agreements and documents, whether or not specifically mentioned herein or therein. "United States" or "U.S." means the United States of America, its ------------- ---- fifty States and the District of Columbia. "Warrants" means the Warrants to be issued by the Company to the -------- Purchasers if a Qualified Equity Offering has not occurred within one year following the Initial Closing Date, which warrants shall be substantially in the form of Exhibit B hereto. --------- "Welfare Plan" means a "welfare plan", as such term is defined in ------------ Section 3(1) of ERISA. SECTION 1.2 Additional Terms. The following terms shall have the meanings ---------------- indicated or referred to in the following Sections of this Agreement: Term Section ---- ------- Audited Financial Statements 3.5 Backstop Facility 8.3 Blue Sky Laws 4.2 Closing 2.2.2 Closing Date 2.2.2 Company Preamble Event of Default 10 Financial Statements 3.5 GAAP 1.5 Indemnified Parties 2.8 Indemnifying Party 2.8 Insurance Policies 4.14 Interim Financial Statements 3.5 Intellectual Property 4.17 Licenses 4.15 Losses 2.8 Note Register 2.3 Notice of Redemption 9.4 Offering 6.13 -16- Pro Forma Balance Sheet 3.5 Purchasers Preamble Qualified Equity Offering 8.1 SEC 4.7 SEC Reports 4.6 Senior Payment Default 11.2 Warrant Shares 2.1(c) SECTION 1.3 Use of Defined Terms. Unless otherwise defined or the context -------------------- otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in the Disclosure Schedule, in each Note, in each other Transaction Document, and in each other notice and other communication delivered from time to time in connection with this Agreement or any other Transaction Document. SECTION 1.4 Cross-References. Unless otherwise specified, references in ---------------- this Agreement and in each other Transaction Document to any Article or Section are references to such Article or Section of this Agreement or such other Transaction Document, as the case may be, and, unless otherwise specified, references in any Article, Section or definition to any clause are references to such clause of such Article, Section or definition. SECTION 1.5 Accounting and Financial Determinations. Unless otherwise --------------------------------------- specified, all accounting terms used herein or in any other Transaction Document shall be interpreted, all accounting determinations and computations hereunder or thereunder shall be made, and all financial statements required to be delivered hereunder or thereunder shall be prepared in accordance with, those generally accepted accounting principles ("GAAP") set forth in opinions and ---- pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, in each case as applied in the preparation of the financial statements referred to in Section 3.5. ----------- SECTION 1.6 Construction. When used herein, the masculine form of words ------------ includes the feminine and the neuter and vice versa, and, unless the context otherwise requires, the singular form of words includes the plural and vice versa. ARTICLE II PURCHASE AND SALE OF NOTES SECTION 2.1 Authorization of Notes. ---------------------- (a) On or before the Initial Closing Date, the Company will have authorized the issue and sale of (i) U.S.$10,000,000 aggregate principal amount of the Notes in accordance with the terms and conditions of this Agreement and the Notes and (ii) the Warrants in accordance with the terms and conditions of this Agreement and the Warrants. -17- (b) The Notes shall be substantially in the form attached hereto as Exhibit A and shall include such notations, legends or endorsements set forth - --------- therefor or required by law. Each Note shall be dated the date of its issuance. The aggregate principal amount of the Notes shall be due and payable on the Stated Maturity Date. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Agreement and, to the extent applicable, the Company and the Purchasers, by their execution and delivery of this Agreement, expressly agree to such terms and provisions and to be bound thereby. (c) Each Warrant shall be evidenced by a certificate substantially in the form attached as Exhibit B (each such certificate being referred to herein as a "Warrant Certificate"). Each Warrant Certificate shall be dated the date ------------------- of its issuance. The Warrants will be exercisable, in the manner provided in the applicable Warrant Certificate, for a number of shares of Common Stock as provided therein (the "Warrant Shares"). The terms and provisions contained in -------------- the Warrant Certificates shall constitute, and are hereby expressly made, a part of this Agreement and, to the extent applicable, the Company and the Purchasers, by their execution and delivery of this Agreement, expressly agree to such terms and provisions and to be bound thereby. SECTION 2.2 Purchase and Sale of Notes. -------------------------- SECTION 2.2.1 Purchase and Sale. (a) The Company agrees to issue and ----------------- sell and, subject to the terms and conditions set forth herein and in reliance on the representations and warranties of the Company contained or incorporated herein, each of the Purchasers agrees, severally but not jointly, to purchase Notes in the principal amount specified opposite such Purchaser's name on Schedule I hereto, at a purchase price of 100% of the aggregate face amount of - ---------- such Notes. SECTION 2.2.2 Closing. The purchase and sale of the Notes shall take ------- place at one or more closings (each, a "Closing") on the date hereof or such ------- other Business Day or Business Days as may be agreed upon by the Purchasers and the Company (each, a "Closing Date"), at the offices of Mayer, Brown & Platt ------------ located at 1675 Broadway, New York, New York. At each Closing, the Company will deliver to each Purchaser the Notes to be purchased by such Purchaser at such Closing (in such permitted denomination or denominations and registered in such Purchaser's name or the name of such nominee or nominees as such Purchaser may reasonably request), dated the applicable Closing Date, against payment of the purchase price therefor by intra-bank or federal funds bank wire transfer of same day funds to such bank account as designated by the Company. SECTION 2.2.3 Fees and Expenses. The Company will pay or reimburse all ----------------- reasonable expenses relating to this Agreement, including: (a) the reasonable fees and other charges of one counsel for the Purchasers appointed by the Requisite Holders in connection herewith; (b) any reasonable out-of-pocket fees and expenses (including the reasonable fees and expenses of one counsel for the Purchasers appointed by the Requisite Holders) in -18- connection with any registration or qualification of the Securities required in connection with the offer and sale of the Securities pursuant to this Agreement under the securities or Blue Sky Laws of any jurisdiction requiring such registration or qualification or in connection with obtaining any exemptions from such requirements; and (c) the reasonable fees and expenses of one counsel for the Purchasers appointed by the Requisite Holders relating to any amendment, supplement or modification of, or any waiver, consent, enforcement or preservation of rights under, this Agreement, the Securities, the Warrants or any other Transaction Document, or any other documents contemplated hereby or thereby, including any refinancing or restructuring of the Subordinated Debt in the nature of a "work-out" or pursuant to bankruptcy or insolvency proceedings. The Company shall deliver to such Purchaser or to such other Persons as such Purchaser shall direct, at Closing, by intra-bank or federal funds bank wire transfer of same day funds payment for the reasonable fees and expenses of one counsel for the Purchasers appointed by the Requisite Holders, or at Purchasers' election shall deduct such amount from the Purchase Price for the Notes. SECTION 2.3 Registration of Securities. The Company shall cause to be -------------------------- kept at its principal office a register for the registration and transfer of the Notes (the "Note Register"). and (ii) a register for the registration and ------------- transfer of the Warrants (the "Warrant Register"). The names and addresses of ---------------- the Holders of Notes, the transfer of Notes, and the names and addresses of the transferees of the Notes shall be registered in the Note Register. The names and addresses of the Holders of Warrants, the transfer of Warrants and the names and addresses of the transferees of Warrants shall be registered in the Warrant Register. The Person in whose name any registered Security shall be registered shall be deemed and treated as the owner and holder thereof for all purposes of this Agreement and the Company shall not be affected by any notice to the contrary, until due presentment of such Security for registration of transfer so provided in this Section 2.3. Payment of or on account of the principal, premium, if ----------- any, and interest on, or any other amount in respect of, any registered Securities shall be made to or upon the written order of such registered holder. SECTION 2.4 Delivery Expenses. If a Holder surrenders any Securities to ----------------- the Company for any reason, the Company agrees to pay the cost of delivering to such Holder's home office or to the office of such Holder's designee from the Company each Security issued in substitution or replacement for the surrendered Security. SECTION 2.5 Issue Taxes. The Company agrees to pay all taxes (other than ----------- taxes in the nature of income, franchise or gift taxes) in connection with the issuance, sale, delivery or transfer by the Company to each Purchaser of the execution and delivery of the agreements and instruments contemplated hereby and any modification of any of such Securities, agreements and instruments and will save such Purchaser harmless without limitation as to time against any and -19- all liabilities with respect to all such taxes. The obligations of the Company under this Section 2.5 shall survive the payment or prepayment of the Notes, the ----------- exercise of the Warrants and the termination of this Agreement. SECTION 2.6 General Provisions Regarding Payments. ------------------------------------- (a) Manner and Time of Payment. All payments by the Company of principal, -------------------------- premium, if any, and other amounts hereunder shall be made in Dollars in same day funds (unless payment is in the form of Additional Notes, as such term is defined in the Notes), without defense, setoff or counterclaim, free of any restriction or condition, and delivered to each Holder's account not later than 12:00 Noon (New York time) on the date due unless such date is a day which is not a Business Day, in which case the Company shall make such payments on the next succeeding Business Day, and interest shall accrue on the aggregate amount of such payments until such amount is paid and payment of such accrued interest shall be made concurrently with the payment of such amount. Funds received by a Holder after 12:00 Noon (New York time) on the date due shall be deemed to have been paid by the Company on the next succeeding Business Day and interest shall accrue on such amount paid until such next succeeding Business Day. (b) Application of Payments to Principal and Interest. All payments in ------------------------------------------------- respect of the principal amount of any Note shall include payment of accrued interest on the principal amount being repaid or prepaid, and all such payments shall be applied to the payment of interest before application to principal. SECTION 2.7 Lost Securities, etc. -------------------- (a) The holder of any Security may, at its option, in person or by duly authorized attorney, surrender a Security at the business office of the Company and receive in exchange therefor a new Security in the same amount as the unpaid face or principal amount of such Security and, if applicable, bearing interest at the same rate applicable to such surrendered Security, each such new Security to be dated as of the date of the surrendered Security and to be in such principal or face amount as remains unpaid and payable to such person or persons, or order, as the surrendering holder may designate in writing. (b) Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of any Security, and (in case of theft or destruction) of an indemnity reasonably satisfactory to it, and upon surrender and cancellation of such Security, if mutilated, the Company will deliver a new Security of like tenor in lieu of lost, stolen, destroyed or mutilated Security. Any Security delivered in accordance with the provisions of this Section 2.7 shall be dated as of the date of the lost, stolen, destroyed or ----------- mutilated Security. Every replacement Note is an obligation of the Company. SECTION 2.8 Indemnification. The Company (the "Indemnifying Party") --------------- ------------------ hereby agrees, without limitation as to time, to indemnify each Holder and each director, officer, partner, member, employee, counsel, agent and Affiliate of such Holder (collectively, the -20- "Indemnified Parties") against, and hold it and them harmless from, all losses, ------------------- claims, damages, liabilities, costs (including reasonable attorneys' fees and disbursements) (collectively, "Losses") incurred by it or them and arising out ------ of or in connection with this Agreement, the Securities, the Credit Agreement or any other Transaction Document, or the transactions contemplated hereby or thereby (or any other document or instrument executed herewith or pursuant hereto or thereto), whether or not the transactions contemplated by this Agreement are consummated and whether or not any Indemnified Party is a formal party to any proceeding, other than to the extent that any Losses result from action on the part of any Indemnified Party which is finally judicially determined to constitute either gross negligence or willful misconduct. For the purpose of the preceding sentence, "Losses" shall not include any losses by any Holder resulting solely from the reduction in value of the Securities or Transaction Documents. The Indemnifying Party agrees to reimburse any Indemnified Party promptly for all such Losses as they are incurred by such Indemnified Party. The obligations of the Indemnifying Party to each Indemnified Party hereunder shall be separate obligations and each Indemnifying Party's liability to any such Indemnified Party hereunder shall not be extinguished solely because any other Indemnified Party is not entitled to indemnity hereunder. The obligations of the Indemnifying Party under this Section 2.8 ----------- shall survive the payment or prepayment of the Notes, at maturity, upon acceleration, redemption or otherwise, the exercise of any Warrants issued to any Purchaser, the redemption or repurchase by the Company of any Warrants, the redemption or repurchase of any Warrant Shares, any transfer of the Securities by any Holder and the termination of this Agreement, the Securities, the Warrants or any other Transaction Document. This indemnity agreement will be in addition to any liability which the Company may otherwise have, including under this Agreement and any other indemnification agreements contained in the Warrants or any other Transaction Document. In case any action shall be brought against any Indemnified Party with respect to which indemnity may be sought against the Indemnifying Party hereunder, such Indemnified Party shall promptly notify the Indemnifying Party in writing and the Indemnifying Party shall, if it so desires, assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party and payment of such counsel's reasonable fees and expenses. The failure to so notify the Indemnifying Party shall not affect any obligation it may have to any Indemnified Party under this Agreement or otherwise unless it is materially adversely affected by such failure. Each Indemnified Party shall have the right to employ separate counsel in such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless: (a) the Indemnifying Party has agreed in writing to pay such expenses, (b) the Indemnifying Party has failed to assume such defense and employ counsel or (c) the named parties to any such action (including any impleaded parties) include any Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by outside counsel that there may be one or more significant legal defenses available to it which are materially inconsistent with or additional to those available to the Indemnifying Party; provided that, -------- if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel in the circumstances described in the preceding clause (b) or (c), the Indemnifying Party shall not have the right to ---------- --- assume the defense of such action or proceeding; provided, however, that the -------- ------- Indemnifying Party shall not, in connection with any one -21- such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be responsible hereunder for the fees and expenses of more than one such firm of separate counsel (in addition to any necessary local counsel), which counsel shall be designated by such Indemnified Party. The Indemnifying Party shall not be liable for any settlement of any such action effected without its written consent. Without limiting the effect of the immediately preceding sentence, the Indemnifying Party agrees that it will not, without the prior written consent of the Indemnified Parties, settle or compromise any pending or threatened claim, action or suit in respect of which indemnification or contribution may be sought hereunder unless the foregoing contains an unconditional release of the Indemnified Parties from all liability and obligation arising therefrom. If the indemnification provided for in this Section 2.8 is unavailable to ----------- any Indemnified Party in respect of any Losses referred to herein, then the Indemnifying Party, in lieu of indemnifying such Persons, shall have an obligation to contribute to the amount paid or payable by such Persons as a result of such Losses in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party, its Subsidiaries and/or any other Person or Persons (other than each Purchaser and the other Indemnified Parties), each Purchaser and the other Indemnified Parties in connection with the actions which resulted in such Losses as well as any other relevant equitable considerations. The amount paid or payable by any such Person as a result of the Losses referred to above shall be deemed to include, subject to the limitations set forth in this Section 2.8, any legal or other fees or expenses ----------- reasonably incurred by such Person in connection with any investigation, lawsuit or legal or administrative action or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 2.8 were determined by pro rata allocation ----------- or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. SECTION 2.9 Use of Proceeds. The net cash proceeds of the Notes, --------------- together with other funds available to the Company, shall be applied by the Company in accordance with the first recital of this Agreement. ------------- SECTION 2.10 Margin Regulations. No portion of the proceeds of any ------------------ Securities under this Agreement shall be used by the Company in any manner that might cause the issuance and sale of the Securities or the application of such proceeds to violate Regulations G, U, T or X of the Board of Governors of the Federal Reserve System or any other regulation of such Board or to violate the Exchange Act, in each case as in effect on the date or dates of such issuance and sale and such use of proceeds. SECTION 2.11 Taxes. ----- (a) All sums payable by the Company under this Agreement and the other Transaction Documents shall be paid free and clear of and (except to the extent required by law) without any -22- deduction or withholding on account of any Tax (other than a Tax on the overall net income of any Holder) imposed, levied, collected, withheld or assessed by or within the United States or any political subdivision in or of the United States or any other jurisdiction from or to which a payment is made by or on behalf of the Company or by any federation or organization of which the United States or any such jurisdiction is a member at the time of payment. (b) If the Company or any other Person is required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by the Company to any Holder under any of the Transaction Documents: (i) the Company shall notify each Holder of any such requirement or any change in any such requirement as soon as the Company becomes aware of it; (ii) the Company shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on the Company) for its own account or (if that liability is imposed on such Holder) on behalf of and in the name of such Holder; provided, that the Company shall be entitled to seek reimbursement for any -------- such amounts so paid, including by seeking setoff against interest due and payable on the Notes; (iii) the sum payable by the Company in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, such Holder receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; provided, that the Company shall be entitled -------- to seek reimbursement for any such amounts so paid, including by seeking setoff against interest due and payable on the Notes; and (iv) within 30 days after paying any sum from which it is required by law to make any deduction or withholding, and within 30 days after the due date of payment of any Tax which it is required by clause ------ (b)(ii) above to pay, the Company shall deliver to such Holder evidence ------ satisfactory to it of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority. ARTICLE III CLOSING CONDITIONS The obligation of each Purchaser to purchase and pay for the Notes to be delivered on the Closing Date shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Article III ----------- (other than Section 3.6, which shall be a condition precedent solely with ----------- respect to Equity Partners' obligation to purchase and pay for the Notes). SECTION 3.1 Organic Documents, Resolutions, etc. On or before each ------------------------------------ Closing Date, the Company shall deliver or cause to be delivered to each Purchaser (with sufficient originally -23- executed copies, where appropriate, for such Purchaser and its counsel) the following, each, unless otherwise specified, dated such Closing Date: (a) certified copies of its articles of incorporation, together with an Officer's Certificate certifying that the Company (i) is in good standing and is duly qualified and licensed in each state wherein the character of its real property or the nature of its business makes such qualification or license necessary (except where the failure to be so qualified or licensed would not have a Material Adverse Effect), and (ii) has paid any applicable franchise or similar taxes which are due and owing as of the Closing Date; (b) copies of its by-laws, certified as of the Closing Date by its corporate secretary or an assistant secretary; (c) resolutions of the members of its Board of Directors approving and authorizing the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party, in form and substance reasonably satisfactory to each Purchaser and its counsel, certified as of the Closing Date by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; and (d) signature and incumbency certificates of its officers executing this Agreement and the other Transaction Documents to which it is a party. SECTION 3.2 Execution of this Agreement and each other Transaction Document. On or before each Closing Date, each Purchaser shall have received original copies of the following: (a) this Agreement duly executed by the Company and each Purchaser purchasing Notes as of such Closing Date; (b) the Notes being issued as of such Closing Date, duly executed by the Company; (c) each other Transaction Document (other than the Warrants) duly executed by the party or parties to it. SECTION 3.3 Capitalization. Each Purchaser shall be reasonably satisfied -------------- with the capital, organization, ownership and management structure of the Company. SECTION 3.4 Necessary Consents. The Company shall have obtained all ------------------ consents necessary in connection with the transactions contemplated by the Transaction Documents (including pursuant to the Credit Agreement), and each of the foregoing shall be in full force and effect and in form and substance reasonably satisfactory to each Purchaser. SECTION 3.5 Financials; Pro Forma Balance Sheets. On or before the ------------------------------------ Closing Date, the Purchaser shall have received from the Company (i) the Company's audited financial statements -24- for the fiscal year ended September 30, 1998 (the "Audited Financial ----------------- Statements"), (ii) the Company's unaudited financial statements for the quarters - ---------- ended December 31, 1998 and March 31, 1999, the month ended April 30, 1999 and May 31, 1999 (collectively, the "Interim Financial Statements" and, together ---------------------------- with the Audited Financial Statements, the "Financial Statements") and (iii) an -------------------- estimated pro forma balance sheet of the Company as at the end of the month --- ----- immediately preceding the Closing Date, prepared in accordance with GAAP and giving effect to all the transactions contemplated hereby and by the other Transaction Documents, which shall be in form and substance reasonably satisfactory to the Purchaser (the "Pro Forma Balance Sheet"). --- ----- ------- ----- SECTION 3.6 Cancellation of Letter of Credit. The Senior Debtholders -------------------------------- shall have surrendered for cancellation the $3,000,000 Irrevocable Standby Letter of Credit issued on January 12, 1999 by ING (U.S.) Capital LLC in favor of the Senior Agent in respect of the Senior Debt. SECTION 3.7 Closing Expenses, etc. Each Purchaser shall have received all ---------------------- costs and expenses due and payable pursuant to Section 2.2.3 (including counsel ------------- fees), if then invoiced. SECTION 3.8 Approvals. Each Purchaser shall have received the approvals --------- of its investment advisory committee and/or other committees needed to approve its investment under this Agreement. SECTION 3.9 Investment by Other Purchasers. On the Closing Date, each ------------------------------ Purchaser shall have purchased and paid for the Securities required to be purchased by it hereunder. SECTION 3.10 Representations and Warranties. The Purchasers shall have ------------------------------ received an Officer's Certificate to the effect that (i) representations and warranties contained in Article IV shall be true, correct and complete on and as ---------- of the Closing Date to the same extent as though such representations and warranties had been made on and as of such date (except to the extent that any such representations and warranties specifically apply to a prior date) and (ii) after giving effect to the transactions set forth in the Transaction Documents, no Default shall exist under the Credit Agreement. SECTION 3.11 Opinions of Counsel to Company. Each Purchaser and its ------------------------------ counsel shall have received originally executed copies of one or more opinions of counsel for the Company, each in form and substance reasonably satisfactory to each Purchaser and its counsel, addressed to each Purchaser, dated the Closing Date. SECTION 3.12 Satisfactory Legal Form. All documents executed or submitted ----------------------- pursuant hereto by or on behalf of the Company shall be satisfactory in form and substance to the Requisite Purchasers and one counsel for the Purchasers appointed by the Requisite Holders; each Purchaser and one counsel for the Purchasers appointed by the Requisite Holders shall have received all information, approvals, opinions or instruments as such Purchaser or counsel may reasonably request. -25- ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY In order to induce the Purchasers to enter into this Agreement and to purchase the Securities, the Company represents and warrants to each Purchaser, as of the Closing Date (except to the extent any of the following representations or warranties specifically apply or relate to a prior date, in which event the Company represents and warrants such representations and warranties to be true and correct as of such prior date), as follows: SECTION 4.1 Corporate Existence. The Company is a corporation duly ------------------- incorporated, validly existing and in good standing under the laws of the State of California and is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the ownership or use of its assets or properties, or the conduct or nature of its business, makes such qualification necessary, except where the failure to so qualify would not have a Material Adverse Effect. SECTION 4.2 Power and Authority. The Company has all requisite corporate ------------------- power and authority, and has taken all required corporate and other action necessary, to execute, deliver and perform this Agreement and all other Transaction Documents and to issue and sell the Notes as herein provided. Except as set forth in Item 4.2 of the Disclosure Schedule, none of the foregoing actions will (i) violate any provision of the Organic Documents of the Company, (ii) result in the breach of or constitute a default under any contract, agreement or instrument to which the Company is a party or by which the Company or any of its properties is bound, (iii) result in the creation or imposition of any material Lien, claim or encumbrance on any properties of the Company, (iv) give any Person rights to terminate any contracts or agreements with the Company or otherwise to exercise rights against the Company or (v) violate any order, writ, judgment, injunction, decree, statute, rule or regulation of any court, tribunal or governmental entity applicable to or bearing upon the Company or any of its respective assets or businesses. Except as set forth in Item 4.2 of the Disclosure Schedule, the Notes to be delivered to each Purchaser will be duly authorized and validly issued and will be delivered to such Purchaser free and clear of any Liens, encumbrances, pre- emptive rights, escrows, options, rights of first refusal or other agreements, arrangements, commitments, understandings or obligations, whether written or oral, or any other restrictions affecting rights and other incidents of record and beneficial ownership, other than (i) as set forth herein or in the other Transaction Documents and (ii) restrictions on transferability imposed generally under the Securities Act and under the securities laws of the several states and the rules and regulations issued in respect thereto (such state laws, rules and regulations, being, collectively, "Blue Sky Laws"). The issuance and delivery ------------- of the Notes is exempt from the registration requirements of the Securities Act and the Blue Sky Laws or has been qualified as may be necessary. SECTION 4.3 Binding Obligation. Each of the Transaction Documents has ------------------ been duly executed and delivered by the Company and is the legally valid and binding obligation of the Company, enforceable against the Company in accordance with its respective terms, except as -26- may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. SECTION 4.4 Capitalization. As of the date hereof, the authorized Capital -------------- Stock of the Company consists of (i) 20,000,000 shares of Common Stock, and (ii) 1,000,000 shares of Preferred Stock, of which 1 share is issued and outstanding. As of June 18, 1999, 9,289,090 shares of the Company's Common Stock were issued and outstanding. All outstanding shares of Capital Stock of the Company are fully paid and nonassessable. The number of subscriptions, warrants, options, convertible securities and other rights (contingent or other) to purchase or otherwise acquire Capital Stock of the Company, and a general description of the holders of such subscriptions, warrants, options, convertible securities, and other such rights, are as set forth in the SEC Reports as of the date of each such SEC Report. The designations, powers, preferences, rights, qualifications, limitations and restrictions in respect of each class and series of authorized Capital Stock of the Company are as set forth in the Company's articles of incorporation, a true and correct copy of which has been delivered to each Purchaser on or prior to the Closing Date, and all such designations, powers, preferences, rights, qualifications, limitations and restrictions are valid, binding and enforceable and in accordance with all applicable laws. Except as set forth in the SEC Reports, (i) no subscription, warrant, option, convertible security or other right (contingent or other) to purchase or otherwise acquire Capital Stock of the Company is authorized or outstanding and (ii) there is no commitment by the Company to issue shares, subscriptions, warrants, options, convertible securities or other such rights or to distribute to holders of any of its Capital Stock any evidence of indebtedness or asset. Except as provided for in the Company's articles of incorporation or as set forth in the SEC Reports, the Company has no obligation (contingent or other) to purchase, redeem or otherwise acquire any of its Capital Stock or any interest therein or to pay any dividend or make any other distribution in respect thereof. Except as set forth in the SEC Reports, there are no voting trusts or agreements, stockholders' agreements, pledge agreements, buy-sell agreements, rights of first refusal, preemptive rights or proxies relating to any securities of the Company or any of its Subsidiaries (whether or not the Company or any of its Subsidiaries is a party thereto). All of the outstanding securities of the Company were issued in compliance with all applicable Federal and state securities laws. SECTION 4.5 Consents, Approvals and Non-Contravention. Other than as set ----------------------------------------- forth in Item 4.5 of the Disclosure Schedule, neither the execution, delivery and performance of this Agreement or any other Transaction Document by the Company, nor the consummation of any transaction related hereto or thereto, nor the issuance, sale or delivery of the Notes will (a) require any consent or approval of, filing or taking of any other action with, or notice to, any Person; (b) violate any contract, agreement, instrument or other arrangement to which the Company is a party or by which it or any of its properties is bound; or -27- (c) violate any order, writ, judgment, injunction, decree, statute, law, rule or regulation of any court, tribunal or governmental entity or authority applicable to or bearing upon the Company or any of its properties or businesses. SECTION 4.6 Disclosure to Governmental Authorities. -------------------------------------- (a) The Company has filed in a timely manner with the Securities and Exchange Commission (the "SEC") all reports and other materials (collectively, --- the "SEC Reports") required to be filed pursuant to the Securities Act and the ----------- Exchange Act, and has previously furnished or made available to the Purchasers true, correct and complete copies of all SEC Reports. The SEC Reports, at the time they were filed, complied in all material respects with the requirements of the Securities Act and the Exchange Act and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (b) The Company is in compliance with all applicable rules and regulations of the National Association of Securities Dealers, Inc. ("NASD") and The Nasdaq ---- Stock Market. The Company has not received any notice of, and is not aware of any basis for, suspension of trading of the Company's quoted securities or the delisting of any such securities on the Nasdaq Small Cap Market. (c) The financial statements contained in the SEC Reports, and the related statements of operations and statements of cash flows for the periods then ended (i) were in accordance with the books and records of the Company, (ii) presented fairly the Consolidated financial condition and results of operations of the Company as of the dates and for the periods indicated and (iii)were prepared in accordance with GAAP (except as set forth in the notes thereto and subject, in the case of financial statements as at the end of or for the periods other than fiscal years, to normal year-end audit adjustments, provided that such adjustments are not material individually or in the aggregate). (d) Such financial statements complied, when filed, as to form in all material respects with the applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. SECTION 4.7 Pro Forma Financial Statements. The Pro Forma Balance Sheet ------------------------------ fairly presents the financial condition of the Company upon consummation of the transactions contemplated hereby and by the other Transaction Documents. SECTION 4.8 Financial Statements. The Financial Statements have been -------------------- prepared in accordance with GAAP, consistently applied, and fairly present the financial position of the Company and the results of its Consolidated operations and cash flows for the periods covered thereby. Since September 30, 1998, there has not been any material change other than as set forth on the face of the Financial Statements and other than pursuant to general conditions of the Industry. The Company is not subject to any liabilities of any nature that have had or can reasonably be expected to result in a Material Adverse Effect except to the extent set forth or -28- provided for in the Financial Statements and except as disclosed in Item 4.8 of the Disclosure Schedule. Except as disclosed in the Financial Statements, the Company is not a Guarantor or indemnitor of any indebtedness of any other Person, firm, or corporation. The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with GAAP. SECTION 4.9 No Material Adverse Effect. Since September 30, 1998, no -------------------------- event or change has occurred that has caused or could cause, or evidences, either in any case or in the aggregate, a Material Adverse Effect, other than pursuant to general conditions of the Industry. SECTION 4.10 Events Subsequent to the Date of the Last Financial --------------------------------------------------- Statement. Since the date of the last Audited Financial Statements, except as - --------- set forth in Item 4.10 of the Disclosure Schedules, contemplated by this Agreement or set forth in the Interim Financial Statements, the Company has not (i) issued any stock, bond or other corporate security, (ii) borrowed any amount or incurred or become subject to any liability (absolute, accrued or contingent), except current liabilities incurred and liabilities under contracts entered into in the ordinary course of business, (iii) discharged or satisfied any Lien or encumbrance or incurred or paid any obligation or liability (absolute, accrued or contingent) other than current liabilities shown on the Interim Financial Statements and current liabilities incurred since the date of the last applicable Interim Financial Statement in the ordinary course of business, (iv) declared or made any payment or distribution to stockholders or purchased or redeemed any of its capital stock, (v) mortgaged, pledged or subjected to any Lien or encumbrance any of its assets, tangible or intangible, other than Liens of current real property taxes not yet due and payable, (vi) sold, assigned or transferred any of its tangible assets except in the ordinary course of business, or cancelled any debt or claim owed to it except in the ordinary course of business, (vii) sold, assigned, transferred or granted any exclusive license with respect to any patent, trademark, trade name, service mark, copyright, trade secret or other intangible asset, (viii) suffered any substantial loss of property or waived any right of substantial value other than in the ordinary course of business, (ix) made any change in officer compensation except in the ordinary course of business and consistent with past practice, (x) made any material change in the manner of its business or operations, (xi) entered into any transaction except in the ordinary course of business or as otherwise contemplated hereby or (xii) entered into any commitment, obligation, understanding or other arrangement, contingent or otherwise, to effect, directly or indirectly, any of the foregoing except, in each case, as would not reasonably be expected to have a Material Adverse Effect. SECTION 4.11 Absence of Undisclosed Liabilities. Except as set forth in ---------------------------------- Item 4.11 of the Disclosure Schedule, since the date of the last Audited Financial Statements the Company has no material liabilities (matured or unmatured, fixed or contingent) which are not fully reflected or provided for on the Interim Financial Statements, or any material loss contingency (as defined in Statement of Financial Accounting Standards No. 5), whether or not required by GAAP to be shown on the Interim Financial Statements, except (i) obligations to perform under commitments incurred in the ordinary course of business, and (ii) tax and related liabilities which have been disclosed pursuant to Section ------- 4.12. - ---- -29- SECTION 4.12 Taxes. The Company has filed all, Federal, state, county, ----- local and foreign tax returns and reports required to be filed by it, except where the failure to file such tax returns or reports would not be material to the Company. These returns and reports conform to the requirements of applicable law in all material respects. Except as set forth in Item 4.12 of the Disclosure Schedule, the Company has paid all taxes and other assessments due. The Company has not made any elections under the Code that would have a Material Adverse Effect and that are not disclosed in the Financial Statements provided to the Purchasers. Since the date of the Financial Statements, the Company has made adequate provisions on its books to account for all taxes, assessments, and governmental charges with respect to its business, properties and operations for such period. The Company has withheld or collected from each payment made to each of its employees, the amount of all necessary taxes and required withholdings, and has paid the same to the proper tax receiving officers or authorized depositories. SECTION 4.13 Litigation. Except as set forth in Item 4.13 of the ---------- Disclosure Schedule, there are no actions, suits or proceedings at law or in equity or by or before any governmental instrumentality or other agency or regulatory authority now pending or, to the Knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries or the businesses, assets or rights of the Company or any of its Subsidiaries (i) which involve any of the transactions contemplated by any Transaction Document or (ii) as to which it is probable (within the meaning of Statement of Financial Accounting Standards No. 5) that there will be an adverse determination and which, if adversely determined, would have a Material Adverse Effect. SECTION 4.14 Insurance. The Company maintains, and causes each of its --------- Subsidiaries to maintain, with insurers of recognized responsibility, insurance (the "Insurance Policies") with respect to its properties and business ------------------ (including business interruption insurance) against such casualties and contingencies and of such types and in such amounts as is normal and customary for Persons operating similar properties and businesses. All of such Insurance Policies are in full force and effect, and neither the Company nor any of its Subsidiaries is in default in any material respect with respect to its obligations under any of such Insurance Policies. To the Knowledge of the Company, no facts or circumstances exist that would relieve any insurer under any such Insurance Policies of their obligations to satisfy in full any claim of the Company thereunder. The Company has not received any notice that (i) any of such Insurance Policies has been or will be canceled or terminated or will not be renewed on substantially the same terms as are now in effect or (ii) the premium on any of such Insurance Policies will be materially increased on the renewal thereof. SECTION 4.15 Licenses, etc. Each of the Company and its Subsidiaries ------------- possesses all licenses, permits, approvals and consents, including, without limitation, all environmental, health and safety licenses, permits, approvals and consents material to the business of the Company or applicable Subsidiary (collectively, "Licenses") of all Federal, state and local governmental -------- authorities as required to conduct properly its business, each such Permit is and will be in full force and effect, the Company and each Subsidiary is in compliance in all material respects with all such Licenses, and no event (including, without limitation, any violation of any law, rule or -30- regulation) has occurred which allows the revocation or termination of any such License or any restriction thereon. SECTION 4.16 Investment Company Act. The Company is not an "investment ---------------------- company" within the meaning of the Investment Company Act of 1940, as amended; or a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 4.17 Brokers, etc. Other than CIBC World Markets and other than ------------- as disclosed in Item 4.17 of the Disclosure Schedule, the Company has not dealt with, nor is the Company obligated to pay any fee or commission in connection with, any broker, finder or other similar Person in connection with the offer or sale of the Securities or any of the transactions contemplated by this Agreement, and the Company hereby indemnifies each Purchaser against, and agrees that it will hold each Purchaser harmless from, any claim, demand or liability for any such broker's or finder's fees incurred or alleged to have been incurred in connection herewith or therewith and any expenses (including reasonable fees, expenses and disbursements of counsel) arising in connection with any such claim, demand or liability. SECTION 4.18 Private Sale. The Company has not, either directly or ------------ through any agent, offered any Security or any other securities to, or solicited any offers to acquire any Securities or any other securities from, or otherwise approached, negotiated or communicated in respect of any Security or any other securities with, any Person in such a manner as to require that the offer or sale of the Securities or any such other securities be registered pursuant to the Securities Act or any Blue Sky Laws. The Purchasers are the sole purchasers of the Securities and no securities have been issued and sold by the Company within the four-month period immediately prior to the date hereof (other than pursuant to the exercise of options previously issued under the Company's stock option plans and other than the issuance of warrants to Raleigh Enterprises disclosed in Item 4.10 of the Disclosure Schedule). SECTION 4.19 Disclosure. Neither this Agreement, nor any other ---------- Transaction Document nor any of the exhibits, schedules, attachments, written or oral statements, documents, certificates or other items prepared or supplied to any of the Purchasers by or on behalf of the Company, with respect to the transactions contemplated hereby or thereby contain any untrue statement of a material fact or omit a material fact necessary to make each statement contained herein or therein not misleading. There is no fact which the Company has not disclosed to any of the Purchasers in writing and of which any of its officers and directors is aware (other than general economic conditions) and which has had or would reasonably be expected to have a Material Adverse Effect. SECTION 4.20 Subsidiaries. The Security Agreement has been executed by ------------ each of the Company's Subsidiaries. -31- SECTION 4.21 Title to Properties; Possession Under Leases; Trademarks. -------------------------------------------------------- (a) Each of the Company and its Subsidiaries has good and marketable title to, or valid leasehold interest in, all of its respective properties and assets shown on the balance sheet part of the May 31, 1999 Interim Financial Statements (referred to in Section 3.5 hereof) and all assets and properties acquired since the date of such balance sheet, except for such properties as are no longer used or useful in the conduct of its business or as have been disposed of in the ordinary course of business, and except for minor defects in title that do not interfere with the ability of the Company or any Subsidiary thereof to conduct its business as now conducted. All such assets and properties are free and clear of all Liens except Liens held by the Senior Debtholders in respect of the Senior Debt and Liens that arise in the ordinary course of business and do not have a Material Adverse Effect. (b) Each of the Company and its Subsidiaries has substantially complied with all material obligations under all leases to which it is a party and under which it is in occupancy, and all such leases are in full force and effect and the Company and each of its Subsidiaries enjoys peaceful and undisturbed possession under all such leases. (c) Each of the Company and its Subsidiaries owns or controls all material trademarks, trademark rights, trade names, trade name rights, copyrights, patents, patent rights and licenses which are necessary for the conduct of the business of the Company and such Subsidiary. Neither the Company nor any Subsidiary thereof is infringing upon or otherwise acting adversely to any of such trademarks, trademark rights, trade names, trade name rights, copyrights, patent rights or licenses owned by any other Person or Persons. There is no claim or action by any such other Person pending, or to the Knowledge of the Company or any Subsidiary thereof, threatened, against the Company or any Subsidiary thereof with respect to any of the rights or property referred to in this Section 4.21. ------------ SECTION 4.22 Employee Benefit Plans. With respect to the provisions of ---------------------- ERISA, except as set forth in Item 4.22 of the Disclosure Schedule (including, without limitation, the Multiemployer Plan to which Four Star Lighting, Inc. is a party): (i) No Reportable Event has occurred or, to our Knowledge, is continuing with respect to any Pension Plan. (ii) To our Knowledge, no prohibited transaction (within the meaning of Section 406 of ERISA for Section 4975 of the Code) has occurred with respect to any Plan subject to Part 4 of Subtitle B of Title 1 of ERISA. (iii) None of the Company or any ERISA Affiliate is now, or has been during the preceding five years, obligated to contribute to a Pension Plan or a Multiemployer Plan. None of the Company or any ERISA Affiliate has (A) ceased operations at a facility so as to become subject to the provisions of Section 4062(e) of ERISA, (B) withdrawn as a substantial employer so as to become subject to the provisions of Section 4063 of ERISA, (C) ceased making contributions to any Pension Plan subject to the -32- provisions of Section 4064(a) of ERISA to which the Company, any Subsidiary or any ERISA Affiliate made contributions, (D) incurred or caused to occur a "complete withdrawal" (within the meaning of Section 4203 of ERISA) or a "partial withdrawal" (within the meaning of Section 4205 of ERISA) from a Multiemployer Plan that is a Pension Plan so as to incur withdrawal liability under Section 4201 of ERISA (without regard to subsequent reduction or waiver of such liability under Section 4207 or 4208 of ERISA), or (E) been a party to any transaction or agreement under which the provisions of Section 4204 of ERISA were applicable. (iv) No notice of intent to terminate a Pension Plan has been filed, nor has any Plan been terminated pursuant to the provisions of Section 4041(e) of ERISA. (v) The PBGC has not instituted proceedings to terminate (or appoint a trustee to administer) a Pension Plan and no event has occurred or condition exists which might constitute grounds under the provisions of Section 4042 of ERISA for the termination of (or the appointment of a trustee to administer) any such Plan. (vi) With respect to each Pension Plan that is subject to the provisions of Title 1, Subtitle B, Part 3 of ERISA, the funding method used in connection with such Plan is acceptable under ERISA, and the actuarial assumptions and methods used in connection with funding such Pension Plan satisfy the requirements of Section 302 of ERISA. The assets of each such Pension Plan (other than the Multiemployer Plans) are at least equal to the present value of the greater of (i) accrued benefits (both vested and non- vested) under such Plan, or (ii) "benefit liabilities" (within the meaning of Section 4001(a)(16) of ERISA) under such Plan, in each case as of the latest actuarial valuation date for such Plan (determined in accordance with the same actuarial assumptions and methods as those used by the Plan's actuary in its valuation of such Plan as of such valuation date). No such Pension Plan has incurred any "accumulated funding deficiency" (as defined in Section 412 of the Code), whether or not waived. (vii) There are no actions, suits or claims pending (other than routine claims for benefits) or, to the Knowledge of the Company, any Subsidiary or any ERISA Affiliate, which could reasonably be expected to be asserted, against any Plan or the assets of any such Plan. No civil or criminal action brought pursuant to the provisions of Title 1, Subtitle B, Part 5 of ERISA is pending or threatened against any fiduciary or any Plan. None of the Plans or any fiduciary thereof (in its capacity as such) has been the direct or indirect subject of any audit, investigation or examination by any governmental or quasi-governmental agency. (viii) In all material respects, all of the Plans comply currently, and have complied in the past, both as to form and operation, with their terms and with the provisions of ERISA and the Code, and all other applicable laws, rules and regulations; all necessary governmental approvals for the Plans have been obtained and a favorable determination as to the qualification under Section 401(a) of the Code of each of the -33- Plans which is an employee pension benefit plan (within the meaning of Section 3(2) of ERISA) has been made by the Internal Revenue Service and a recognition of exemption from federal income taxation under Section 501(c) of the Code of each of the funded employee welfare benefit plans (within the meaning of Section 3(1) of ERISA) has been made by the Internal Revenue Service, and nothing has occurred since the date of each such determination or recognition letter that would adversely affect such qualification. SECTION 4.23 Compliance with Environmental Laws. Except as set forth in ---------------------------------- Item 4.23 of the Disclosure Schedule: - --------- (i) the operations of the Company and its Subsidiaries comply in all material respects with all applicable Environmental Laws; (ii) the Company and its Subsidiaries and all of their present facilities or operations, as well as to the Knowledge of the Company and its Subsidiaries their past facilities or operations, are not subject to any judicial proceedings or administrative proceedings or any outstanding written order or agreement with any governmental authority or private party respecting (a) any Environmental Law, (b) any Remedial Work, or (c) any Environmental Claims arising from the Release of a Contaminant into the environment; (iii) to the best of the Knowledge of the Company and its Subsidiaries, none of their operations is the subject of any Federal or state investigation evaluating whether any Remedial Work is needed to respond to a Release of any Contaminant into the environment; (iv) neither the Company nor any Subsidiaries of the Company nor any predecessor of any Company or any Subsidiary thereof has filed any notice under any Environmental Law indicating past or present treatment, storage, or disposal of a Hazardous Material or reporting a spill or Release of a Contaminant into the environment; (v) to the best of the Knowledge of the Company and its Subsidiaries, neither the Company nor its Subsidiaries has any contingent liability in connection with any Release of any Contaminant into the environment; (vi) none of the operations of the Company or its Subsidiaries involve the generation, transportation, treatment or disposal of Hazardous Materials; (vii) neither the Company nor its Subsidiaries have disposed of any Contaminant by placing it in or on the ground or waters of any premises owned, leased or used by any of them and to the Knowledge of the Company and its Subsidiaries neither has any lessee, prior owner, or other person; (viii) no underground storage tanks or surface impoundments are on any property of the Company or any Subsidiary; and (ix) no Lien in favor of any governmental authority for (A) any liability under any Environmental Law or regulations, or (B) damages arising from or costs incurred by such governmental authority in response to a Release of a Contaminant into the environment, has been filed or attached to the property of the Company and its Subsidiaries. SECTION 4.24 Securities Activities. --------------------- (a) The Company is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. -34- (b) No portion of the proceeds of the issuance of the Notes under this Agreement shall be used by the Company in any manner that might cause such issuance and sale or the application of such proceeds to violate Regulations G, U, T or X of the Board of Governors of the Federal Reserve System or any other regulation of such Board or to violate the Exchange Act, in each case as in effect on the date or dates of such issuance and sale and such use of proceeds. SECTION 4.25 Solvency. The Company is and, upon consummation of the -------- transactions contemplated hereby, will be, Solvent. SECTION 4.26 Year 2000 Compliance. The cost to the Company and its -------------------- Subsidiaries of reprogramming and testing their computer systems and related equipment to permit proper functioning in and following the year 2000 and the reasonably foreseeable consequences of the year 2000 to the Company and its Subsidiaries (including, without limitation, reprogramming errors and the failure to others' systems or equipment) will not result in a Default or have a Material Adverse Effect. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS Each of the Purchasers severally, not jointly, represents and warrants to the Company, at and as of the Closing Date that: SECTION 5.1 Purchase for Own Account. Such Purchaser is purchasing the ------------------------ Notes and Warrants solely for its own account and not as nominee or agent for any other Person and not with a view to, or for offer or sale in connection with, any distribution thereof (within the meaning of the Securities Act) that would be in violation of the securities laws of the United States of America or any state thereof, without prejudice, however, to its right at all times to sell or otherwise dispose of all or any part of said Notes and Warrants pursuant to a registration statement under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act, and subject, nevertheless, to the disposition of its property being at all times within its control. SECTION 5.2 Accredited Investor. Such Purchaser is knowledgeable, ------------------- sophisticated and experienced in business and financial matters; it previously invested in securities similar to the Notes and Warrants and it acknowledges that the Notes and Warrants have not been registered under the Securities Act and understands that the Notes and Warrants must be held indefinitely unless they are subsequently registered under the Securities Act or such sale is permitted pursuant to an available exemption from such registration requirement; it is able to bear the economic risk of its investment in the Notes and Warrants and is presently able to afford the complete loss of such investment; it is an "accredited investor" as defined in Regulation D promulgated under the Securities Act; and it has been afforded access to information about the Company and its respective financial condition, results of operations, business, property, management and prospects sufficient to enable it to evaluate its investment in the Notes. Such Purchaser acknowledges that it has conducted its own analysis of the foregoing factors. -35- ARTICLE VI AFFIRMATIVE COVENANTS The Company covenants and agrees that, until the earliest to occur of (i) the Payment in full of all the Subordinated Debt, (ii) the conversion of the entire principal amount of the Notes plus accrued and unpaid interest thereon into the Backstop Facility and (iii) the conversion of the entire principal amount of the Notes plus accrued and unpaid interest thereon into Common Stock of the Company upon the consummation of a Qualified Equity Offering, the Company shall perform, or cause the performance of, all covenants set forth in this Article VI. - ---------- SECTION 6.1 Financial Statements and Other Reports. The Company will -------------------------------------- maintain, and will cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP. The Company will furnish, or will cause to be furnished, to each Significant Holder unless such Significant Holder has notified the Company that he or it elects not to receive such information, copies of the following financial statements, reports, notices and information: (a) within ninety (90) days after the end of each Fiscal Year of the Company (i) Consolidated and consolidating balance sheets and Consolidated and consolidating income statements showing the financial condition of the Company and its Subsidiaries as of the close of such Fiscal Year and the results of their operations during such year, and (ii) a Consolidated and consolidating statement of shareholders' equity and a Consolidated and consolidating statement of cash flow, as of the close of such Fiscal Year, comparing such financial condition and results of operations to such financial condition and results of operations for the comparable period during the immediately preceding Fiscal Year (except the Company shall only be required to make reasonable best efforts to furnish consolidating cash flow), all the foregoing Consolidated financial statements to be audited by Ernst & Young, LLP or another nationally recognized independent accounting firm (which report shall not contain any qualification except with respect to new accounting principles mandated by the Financial Accounting Standards Board) and all consolidating financial statements to be prepared and certified by the Chief Financial Officer of the Company and its Subsidiaries as presenting fairly the financial condition and results of operations of the Company and its Subsidiaries and as having been prepared in accordance with GAAP, and each to be in form and substance acceptable to the Requisite Holders. (b) within forty-five (45) days after the end of each of the first three (3) Fiscal Quarters of the Company, (i) unaudited Consolidated and consolidating balance sheets and Consolidated and consolidating income statements showing the financial condition and results of operations of the Company and its Subsidiaries as of the end of each such quarter, (ii) a Consolidated and consolidating statement of shareholders' equity and (iii) a Consolidated and consolidating statement of cash flow, in each case for the fiscal quarter -36- just ended and for the period commencing at the end of the immediately preceding Fiscal Year and ending with the last day of such quarter, and comparing such financial condition and results of operations to the projections for the applicable period provided under paragraph (i) below and to the results for the comparable period during the immediately preceding Fiscal Year (except that the Company shall only be required to make best efforts to furnish consolidating cash flows), in each case prepared and certified by the Chief Financial Officer of the Company as presenting fairly the financial condition and results of operations of the Company and its Subsidiaries and as having been prepared in accordance with GAAP, in each case subject to normal year-end audit adjustments; (c) within thirty (30) days after the end of each month (i) unaudited Consolidated and consolidating balance sheets and income statements showing the financial condition and results of operations of the Company and its Subsidiaries as of the end of each such month, and (ii) a Consolidated statement of shareholders' equity and statement of cash flow, in each case for the month just ended and for the period commencing at the end of the immediately preceding Fiscal Year and ending with the last day of such month, and comparing such financial condition and results of operations to the projections for the applicable period provided under paragraph (i) below and to the results for the comparable period during the immediately preceding Fiscal Year, prepared and certified by the Chief Financial Officer of the Company as presenting fairly the financial condition and results of operations of the Company and its Subsidiaries and as having been prepared in accordance with GAAP, in each case subject to normal year- end audit adjustments and adjustments necessary to comply with GAAP accounting regarding the filing of the Company's quarterly reports on Form 10Q with the SEC; (d) promptly after the same become publicly available, copies of such registration statements, annual, period and other reports, and such proxy statements and other information, if any, as shall be filed by the Company or any Subsidiaries with the SEC pursuant to the requirements of the Securities Act or the Exchange Act. (e) concurrently with any delivery under (a), (b) or (c) above, a certificate of the firm or Person referred to therein (x) which certificate shall in the case of the certificate of the Chief Financial Officer of the Company, certify that to the best of his or her Knowledge no Default has occurred and, if such a Default has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto and (y) which report, in the case of the report furnished by the independent public accountants' referred in paragraph (a) above, may be limited to accounting matters and disclaim responsibility for legal interpretations, but shall in any event state that nothing came to the accountants' attention that caused them to believe, as of the dates of the financial statements being furnished, that any Default has occurred and is continuing or, if they believe a Default has occurred and is continuing, describing such Default and the steps, if any, being taken to cure it; -37- (f) Within five (5) days of receipt by the Company thereof a management letter prepared by the independent public accountants who reported on the financial statements delivered under (a) above, with respect to the internal audit and financial controls of the Company and its Subsidiaries; (g) promptly upon any executive officer of the Company obtaining Knowledge (i) of any condition or event that constitutes a Default, or becoming aware that any Holder has given any notice or taken any other action with respect to a claimed Default, (ii) that any Person has given any notice to the Company or taken any other action with respect to a claimed default or event or condition of the type referred to in Section ------- 10.1.2, (iii) of any condition or event that will be required to be ------ disclosed in a current report filed by the Company or its Subsidiaries with the SEC on Form 8-K (Items 1, 2, 4, 5 and 6 of such Form as in effect on the date hereof), or (iv) of the occurrence of any event or change that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, an Officers' Certificate specifying the nature and period of existence of such condition, event or change, or specifying the notice given or action taken by any such Person and the nature of such claimed Event of Default, Default, event or condition, and what action the Company has taken, is taking and proposes to take with respect thereto; (h) within thirty (30) days prior to the beginning of each Fiscal Year, a summary of business plans and financial operation projections (including, without limitation, with respect to capital expenditures) for the Company and its Subsidiaries for such Fiscal Year (including monthly balance sheets, statements of income and of consolidated cash flow) and annual projections through the Stated Maturity Date prepared by management and in form, substance and detail (including, without limitation, principal assumptions) satisfactory to the Requisite Holders. (i) with reasonable promptness, such other information and data with respect to the financial condition, business, property, assets, revenues and operations of the Company as the Requisite Holders may from time to time reasonably request; provided, that the Company shall not be required -------- to deliver any of the information specified in this Section 6.1 to any ----------- Holder which the Company reasonably determines to be in, or be affiliated with a Person in, a line of business which is competitive with the Company's line of business. SECTION 6.2 Corporate Existence, etc. The Company will, and will cause ------------------------- its Subsidiaries to, at all times preserve and keep in full force and effect its corporate existence. SECTION 6.3 Maintenance of Business and Properties. The Company will, and -------------------------------------- will cause its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect the rights, licenses, permits, franchise and Intellectual Property material to the conduct of its businesses; maintain and operate such businesses in the same general manner in which they are presently operated; comply with all laws, rules, regulations and governmental -38- orders (whether federal, state or local) applicable to the operation of such businesses whether now in effect or hereafter enacted. SECTION 6.4 Insurance. The Company will, and will cause each of its --------- Subsidiaries to keep its insurable properties adequately insured at all times by financially sound and reputable insurers, (b) maintain such other insurance, to such extent, in such amount, and against such risks, including fire, theft, fraud, product liability, business interruption and other risks insured against by extended coverage, as is customary with companies similarly situated and in the same or similar businesses, provided, however, that such insurance shall -------- ------- insure the property of the Company and its Subsidiaries against all risk of physical damage, including, without limitation, loss by fire, explosion, theft and fraud, in no event at any time in an amount less than the greater of (i) the Subordinated Debt and (ii) the replacement value of the Collateral (other than receivables, chattel paper, instruments and other general intangibles), (c) maintain in full force and effect public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by the Company or any of its Subsidiaries, in such amount as the Senior Agent shall reasonably deem necessary, and (d) maintain such other insurance as may be required by applicable law. SECTION 6.5 Taxes. Except as set forth in Item 4.12 of the Disclosure ----- Schedule, the Company will, and will cause its Subsidiaries to pay and discharge promptly when due all taxes, assessments and governmental charges, or levies imposed upon it or upon its income or profits or in respect of its property before the same shall become delinquent or in default, as well as all lawful claims for labor, materials and supplies or otherwise, which, if unpaid, might give rise to Liens upon such properties or any part thereof in excess of $200,000 in the aggregate, unless such payment shall be diligently contested by the Company and its Subsidiaries in good faith and appropriate reserves therefor shall have been instituted. SECTION 6.6 Books and Records. The Company will, and will cause its ----------------- Subsidiaries to, keep books and records which accurately reflect all of its business affairs and transactions and permit any designated representative of the Requisite Holders or any of their respective representatives, at reasonable times and intervals, to visit all of its offices, to discuss its financial matters with its officers and independent public accountant (and the Company hereby authorizes such independent public accountant to discuss their financial matters with each such representative whether or not any representative of the Company is present) and to examine (and, at the expense of the Company, photocopy extracts from) any of its books or other corporate records. The Company shall pay reasonable fees of such independent public accountant incurred in connection with the exercise of the Requisite Holders' rights pursuant to this Section 6.6. SECTION 6.7 Environmental Laws. The Company will, and will cause its ------------------ Subsidiaries to, (a) comply, and cause each of their Subsidiaries to comply, in all material respects with the provisions of all Environmental Laws, and shall keep their properties -39- and the properties of their Subsidiaries free of any Lien imposed pursuant to any Environmental Law. The Company shall not cause or suffer or permit, and shall not suffer or permit any of its Subsidiaries to cause or suffer or permit, the property of the Company or its Subsidiaries to be used for the generation, production, processing handling, storage, transporting or disposal of any Hazardous Material, except for Hazardous Materials used by them in the ordinary course of business in which case such Hazardous Materials shall be used, stored, generated, treated and disposed of only in material compliance with Environmental Law. (b) supply to the Significant Holders, with respect to material conditions, copies of all submissions by the Company or any of its Subsidiaries to any governmental body and of the reports of all environmental audits and of all other environmental tests, studies or assessments (including the data derived from any sampling or survey of asbestos, soil, or subsurface or other materials or conditions) that may be conducted or performed (by or on behalf of the Company or any of its Subsidiaries) on or regarding the properties owned, operated, leased or occupied by the Company or any of its Subsidiaries or regarding any conditions that might have been affected by Hazardous Materials on or Released or removed from such properties. The Company shall also permit and authorize, and shall cause its Subsidiaries to permit and authorize, the consultants, attorneys or other Persons that prepare such submissions or reports or perform such audits, tests, studies or assessments to discuss such submissions, reports or audits with the Significant Holders. (c) Promptly (and in no event more than fifteen (15) Business Days after the Company becomes aware or is otherwise informed of such event) provide oral and written notice to the Significant Holders upon the happening of any of the following: (i) the Company, any of its Subsidiaries, or any tenant or other occupant of any property of the Company or any of its Subsidiaries receives notice of material claim, complaint or notice of a violation or potential violation of any Environmental Law; (ii) there has been a spill or other Release of Hazardous Material upon, under or about or affecting any of the properties owned, operated, leased or occupied by the Company or any of its Subsidiaries, or Hazardous Materials at levels or in amounts that may have to be reported, remedied or responded to under Environmental Law are detected on or in the soil or groundwater of any such property; (iii) the Company or any of its Subsidiaries is or may be liable for the costs of cleaning up or otherwise responding to a material Release of Hazardous Materials; -40- (iv) any part of the properties owned, operated, leased or occupied by the Company or any of its Subsidiaries is or may be subject to a Lien under any Environmental Law; or (v) the Company or any of its Subsidiaries undertakes any Remedial Work with respect to any Hazardous Materials. (d) Timely undertake and complete any Remedial Work required by any Environmental Law. SECTION 6.8. ERISA. The Company will, and will cause each of its ----- Subsidiaries to: (a) Pay and discharge promptly any liability imposed upon it pursuant to the provisions of Title IV of ERISA; provided, however, that neither the -------- ------- Company, any Subsidiary, nor any ERISA Affiliate shall be required to pay any such liability if (1) the amount, applicability or validity thereof shall be diligently contested in good faith by appropriate proceedings, and (2) such Person shall have set aside on its books reserves which, in the opinion of the independent certified public accountants of such Person, are adequate with respect thereto; and (b) Deliver to each Significant Holder, promptly, and in any event within 30 days, after (i) the occurrence of any Reportable Event, a copy of the materials that are filed with the PBGC, or the materials that would have been required to be filed if the 30-day notice requirement to the PBGC was not waived, (ii) the Company, any Subsidiary or any ERISA Affiliate or an administrator of any Pension Plan files with participants, beneficiaries or the PBGC a notice of intent to terminate any such Plan, a copy of any such notice, (iii) the receipt of notice by the Company or any ERISA Affiliate or an administrator of any Pension Plan from the PBGC of the PBGC's intention to terminate any Pension Plan or to appoint a trustee to administer any such Plan, a copy of such notice, (iv) the filing thereof with the Internal Revenue Service, copies of each annual report that is filed on Treasury Form 5500 with respect to any Plan, together with certified financial statements (if any) for the Plan and any actuarial statements on Schedule B to such Form 5500, (v) the Company or any ERISA Affiliate knows or has reason to know of any event or condition which might constitute grounds under the provisions of Section 4042 of ERISA for the termination of (or the appointment of a trustee to administer) any Pension Plan, an explanation of such event or condition, (vi) the receipt by the Company or any ERISA Affiliate of an assessment of withdrawal liability under Section 4201 of ERISA from a Multiemployer Plan, a copy of such assessment, (vii) the Company or any ERISA Affiliate knows or has reason to know of any event or condition which might cause any one of them to incur a liability under Section 4062, 4063, 4064 or 4069 of ERISA or Section 412(n) or 4971 of the Code, an explanation of such event or condition, and (viii) the Company or any ERISA Affiliate knows or has reason to know that an application is to be, or has been, made to the Secretary of the Treasury for a waiver of the minimum funding standard under the -41- provisions of Section 412 of the Code, a copy of such application, and in each case described in clauses (i) through (iii) and (v) through (vii) together with a statement signed by the Chief Financial Officer of the Company setting forth details as to such Reportable Event, notice, event or condition and the action which the Company, such Subsidiary or such ERISA Affiliate proposes to take with respect thereto. SECTION 6.9 Litigation and Other Notices. Give the Significant Holders ---------------------------- prompt written notice of the following: (a) the issuance by any court or governmental agency or authority of any injunction, order, proceeding, investigation, audit by federal, state or city taxing authorities, decision or other restraint prohibiting, or having the effect of prohibiting, the issuance of the Notes, or invalidating, or having the effect of invalidating, any provision of this Agreement, the Notes or the other Subordinated Debt Documents, or the initiation of any litigation or similar proceeding seeking any such injunction, order, decision or other restraining; (b) the filing or commencement of any action, suit or proceeding against the Company or any of its Subsidiaries, whether at law or in equity or by or before any court or any Federal, state, municipal or other governmental agency or authority, (i) which is material and is brought by or on behalf of any governmental agency or authority, or in which injunctive or other equitable relief is sought or (ii) as to which it is probable (within the meaning of Statement of Financial Accounting Standards No. 5) that there will be an adverse determination and which, if adversely determined, would (A) reasonably be expected to result in liability of the Company or a Subsidiary thereof in an aggregate amount of $200,000 or more, not reimbursable by insurance, or (B) materially impair the right of the Company or any of its Subsidiaries thereof to perform its obligations under this Agreement, any Note or any other Subordinated Debt Document to which it is a party; (c) any Default specifying the nature and extent thereof and the action (if any) which is proposed to be taken with respect thereto; and (d) any development in the business, affairs or business development of the Company or any of its Subsidiaries which has had or which is reasonably likely to have, a Material Adverse Effect. SECTION 6.10 Maintenance of Office or Agency. The Company will maintain ------------------------------- (a) an office or agency where the applicable Securities may be presented for payment, (b) an office or agency where the applicable Securities may be presented for registration and transfer and for exchange as provided in this Agreement, and (c) an office or agency where notices and demands to or upon the Company in respect of the applicable Securities may be served. The location of such office or agency initially shall be at 3111 North Kenwood Street, Burbank, California -42- 91505. The Company shall give to each applicable Holder written notice of any change of location thereof. SECTION 6.11 Private Offering. The Company agrees that neither it, nor ---------------- anyone acting on its behalf, will offer or sell the Securities, or any portion of them, if such offer or sale might bring the issuance and sale of the Securities to any Purchaser hereunder within the provisions of Section 5 of the Securities Act nor offer any similar securities for issuance or sale to, or solicit any offer to acquire any of the same from, or otherwise approach or negotiate with respect thereto with, anyone if the sale of the Securities and any such securities could be integrated as a single offering for the purposes of the Securities Act, including Regulation D thereunder. SECTION 6.12 Information to Prospective Purchasers. The Company shall, ------------------------------------- upon the request of any Holder, deliver to such Holder and any prospective purchaser designated by such Holder promptly following the request of such Holder or such prospective purchaser, such information which such Holder or such prospective purchaser may reasonably request in order to comply with the information requirements of Rule 144 or Rule 144A under the Securities Act. SECTION 6.13 Further Assurances. At any time and from time to time upon ------------------ the request of the Requisite Holders, the Company will, and will cause each of its Subsidiaries to, at their own expense, promptly execute, acknowledge and deliver such further documents and do such other acts and things as the Requisite Holders may reasonably request in order to effect fully the purposes of the Transaction Documents and to provide for payment of the Subordinated Debt in accordance with the terms of this Agreement, the Notes and the other Transaction Documents. SECTION 6.14 Modification of Senior Credit Agreement. The Company will --------------------------------------- not, and will not permit its Subsidiaries to, consent or agree to any amendment, supplement, waiver or other modification of the Credit Agreement or the notes issued pursuant thereto so as to (a) amend any provision thereof in a manner materially and adversely affecting the ability of the Subsidiaries to make payments to the Company; or (b) amend, supplement or otherwise modify the covenants set forth in Section 7.07, 7.08, 7.09, 7.11, 7.12 or 7.18 of the Credit Agreement if the cumulative effect of such amendment or modification and all other such amendments and modifications to the foregoing covenants, if any, becoming effective concurrently therewith, shall materially and adversely affect the ability of the Company to perform the Subordinated Obligations. ARTICLE VII NEGATIVE COVENANTS The Company covenants and agrees that, until payment in full of all of the Subordinated Debt, the Company shall perform the obligations set forth in this Article VII. - ----------- -43- SECTION 7.1 Modification of Certain Agreements. The Company will not ---------------------------------- consent to any amendment, supplement or other modification of any of the terms or provisions contained in, or applicable to, the Transaction Documents, other than any amendment, supplement or other modification which does not affect the rights of the Holders under the Transaction Documents. SECTION 7.2 Conduct of Business. So long as any Notes remain outstanding, ------------------- the Company will not, and will not permit any of its Subsidiaries to, without the affirmative consent or approval of the Requisite Holders: (a) agree to acquire all or substantially all of the stock or assets of, merge with or into, consolidate with or combine with, any other Person other than The eMarket Group; (b) enter into any arrangement which would reasonably be expected to result in a Change of Control of the Company or any Subsidiary; (c) other than in respect of the Senior Debt or as permitted in the Security Agreement, sell, transfer, convey, assign or otherwise dispose of any of its material assets or properties, or spinoff or splitoff any material assets, properties or securities except sales of inventory and used, obsolete, worn out or unnecessary equipment or fixtures in the ordinary course of business and consistent with past practice; (d) engage in any business other than the lines of business in which the Company and its Subsidiaries are engaged on the date hereof and any line of business substantially similar thereto; (e) amend or modify in any material respect the Organic Documents of the Company or any Subsidiary; (f) other than pursuant to the Company's employee benefit plans (including any future employee stock option plan approved by the Company's shareholders), authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants or exchangeable securities, commitments, subscriptions, rights to purchase or otherwise) any equity or debt securities of the Company or any Subsidiary, or amend any of the terms of any such equity or debt securities; (g) enter into, authorize, or permit (i) any arrangement, contract or transaction with any of its Affiliates (other than Equity Partners) of a nature customarily entered into by persons which are Affiliates of each other (including management or similar contracts or arrangements relating to the allocation of revenues, taxes and expenses or otherwise) requiring any payments to be made by the Company or any of its Subsidiaries to any Affiliate unless such arrangement is fair and equitable to the Company or such Subsidiary; or (ii) any other transaction, arrangements or contract with any of its Affiliates (other than Equity Partners) or any of the Company's stockholders or agents which would not be entered into by a prudent Person in the position of the Company or -44- such Subsidiary with, or which is on terms which are less favorable than are obtainable from, any Person which is not one of its Affiliates or one of the Company's stockholders or agents; (h) split, combine, or reclassify any shares of its capital stock, declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, or redeem or otherwise acquire any capital stock or other Securities of the Company or any Subsidiary; (i) modify in any material respect the employment, compensation or other arrangements with the executive officers of the Company or any Subsidiary; (j) except in the ordinary course of business and consistent with past practice (or in respect of the Senior Debt or in accordance with Section 7.5) make any borrowings, incur any Indebtedness, or assume, ----------- Guarantee, endorse or otherwise become liable (whether directly, contingently or otherwise) for the obligations of any other Person; (k) except in the ordinary course of business and consistent with past practice, waive, release or cancel any material claims against third parties or material debts owing to it, or any material rights which have any material value; (l) take any action, or enter into or authorize any material agreement or material transaction, other than in the ordinary course of business and consistent with past practice; or (m) undertake any Qualified Equity Offering on terms and conditions which are not reasonably acceptable to the Requisite Holders. SECTION 7.3 Inconsistent Agreements. The Company will not, and will not ----------------------- permit any of its Subsidiaries to, enter into any agreement or arrangement which is inconsistent with the obligations of the Company or any of its respective Subsidiaries under this Agreement or any other Transaction Document. SECTION 7.4 Fiscal Year. The Company will not change its Fiscal Year. ----------- SECTION 7.5 Limitation of Ranking of Future Indebtedness. The Company -------------------------------------------- will not, directly or indirectly, incur, create, or suffer to exist any Indebtedness which is subordinate or junior in right of payment (to any extent) to any Senior Debt and which is senior or superior in right of payment (to any extent) to the Notes. SECTION 7.6 Stay, Extension and Usury Laws. The Company covenants and ------------------------------ agrees (to the extent that it may lawfully do so) that it will not, and will not permit any of its Subsidiaries to, at any time insist upon, plead, or in any manner whatsoever claim or take the benefit of or advantage of, and will use its best efforts to resist any attempts to claim or take the benefit of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, which -45- may affect the covenants or the performance of its obligations under this Agreement, the Notes or any other Transaction Document, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holders, but will suffer and permit the execution of every such power as though no such law has been enacted. ARTICLE VIII COVENANTS REGARDING CONVERSION; ISSUANCE OF WARRANTS SECTION 8.1 Qualified Equity Offering. Upon the consummation of an equity ------------------------- offering by the Company which results in gross proceeds of $25,000,000 or more (inclusive of the aggregate outstanding amounts under the Notes converted hereunder) on or prior to the first anniversary of the Initial Closing Date (a "Qualified Equity Offering"), all of the aggregate principal amount of Notes - -------------------------- then outstanding plus accrued and unpaid interest thereon, without any action on the part of the Company or any Holder, shall be deemed automatically converted into the number of fully paid and nonassessable shares of Common Stock which is obtained by dividing (x) the aggregate principal amount of outstanding Notes (plus accrued but unpaid interest thereon through the date of the consummation of the Qualified Equity Offering) by (y) the subscription in price to investors in such Qualified Equity Offering. Upon conversion, the Company will not issue fractional shares in respect of its Common Stock, but shall distribute cash in lieu of any such fractional shares. SECTION 8.2 Issuance of Warrants. If a Qualified Equity Offering has not -------------------- been consummated on or prior to the first anniversary of the Initial Closing Date, the Company shall issue to the Holders, as of the date one year and one day following the Initial Closing Date, 500,000 Warrants to purchase Common Stock of the Company per each $10,000,000 in aggregate principal of Notes then outstanding, which Warrants shall be in substantially the form of Exhibit B --------- attached hereto. The Warrants shall be issued pro rata to each Holder based upon the aggregate principal amount of Notes held by such Holder. If the Notes shall have been redeemed or fully paid on or prior to the first anniversary of the Initial Closing Date, no Warrants shall be issuable under this Section 8.2. ----------- SECTION 8.3 Backstop Facility. Upon the Company's consummation of a ----------------- transaction establishing, on terms reasonably satisfactory to each Significant Holder, a backstop to a Qualified Equity Offering (a "Backstop Facility"), all ----------------- of the aggregate principal of Notes then outstanding plus accrued and unpaid interest thereon shall be automatically converted into the subscription price for such Backstop Facility. -46- ARTICLE IX REDEMPTION SECTION 9.1 Mandatory Redemption. Subject to Article XI, the Company -------------------- ---------- shall offer to redeem all of the then outstanding Notes at a redemption price equal to the aggregate principal amount thereof then outstanding plus accrued and unpaid interest thereon upon the occurrence of any of the following (each, a "Mandatory Redemption Event"): -------------------------- (a) an Event of Default; (b) a Change of Control of the Company; or (c) June 30, 2005. SECTION 9.2 Optional Redemption. Subject to Article XI, the Company, at ------------------- ---------- its option, may redeem, at any time, all of the then outstanding Notes at a redemption price equal to the aggregate principal amount thereof then outstanding plus accrued and unpaid interest. The Company shall not be required to pay any prepayment penalties or fees in connection with a redemption of Notes pursuant to this Section 9.2. ----------- SECTION 9.3 Selection of Notes and Portions of Notes to Be Redeemed. If ------------------------------------------------------- less than all of the then outstanding Notes are being redeemed, the Company shall redeem the Notes pro rata, in such manner as complies with applicable --- ---- legal requirements, if any. Notes in denominations of $1,000 may be redeemed only in whole. The Company may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal of Notes that have denominations larger than $1,000. Provisions of this Agreement that apply to Notes called for redemption also apply to portions of Notes called for redemption. SECTION 9.4 Notice of Redemption. A notice of redemption ("Notice of -------------------- --------- Redemption") shall be sent by the Company to each Holder whose Notes are to be - ---------- redeemed at such Holder's registered address by telecopier (with written confirmation of receipt) or by a nationally recognized overnight delivery service (i) in the event such Notes are being redeemed pursuant to Section 9.1, ----------- promptly after the occurrence of such Mandatory Redemption Event, or (ii) in the event such Notes are being redeemed pursuant to Section 9.2, at least 20 days ----------- but not more than 60 days before the applicable Redemption Date. Each Notice of Redemption shall identify the Notes to be redeemed and shall state: (a) the applicable Redemption Date; (b) the applicable Redemption Price; (c) the name and address of the Company; -47- (d) that the Notes called for redemption must be surrendered to the Company to collect the applicable Redemption Price; (e) that, unless the Company defaults in payment of the Redemption Price, interest on the Notes called for redemption ceases to accrue on and after the applicable Redemption Date, and the only remaining right of the Holders of such Notes is to receive payment of the Redemption Price upon surrender to the Company of the Notes redeemed; (f) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the Redemption Date, and upon surrender of such Note, a new Note or Notes in aggregate principal amount equal to the unredeemed portion thereof will be issued setting forth the remaining principal amount due on the Stated Maturity Date; (g) if less than all the Notes then outstanding are to be redeemed, the identification of the particular Notes (or portion(s) thereof) to be redeemed, as well as the aggregate principal amount of Notes to be redeemed and the aggregate principal amount of Note(s) to be outstanding after such partial redemption; and (h) the Section of this Agreement pursuant to which the Notes are to be redeemed. SECTION 9.5 Effect of Notice of Redemption. Once a Notice of Redemption ------------------------------ is delivered in accordance with Section 9.4 in connection with a redemption ----------- pursuant to Section 9.2, the Notes called for redemption thereunder shall become ----------- due and payable on the applicable Redemption Date at the applicable Redemption Price. SECTION 9.6 Payment of Redemption Price. On presentation and surrender of --------------------------- any Notes in connection with a mandatory redemption in respect of a Change of Control or an optional redemption with respect to which a Notice of Redemption has been given, at the place of payment specified in Section 6.9, such Notes or ----------- specified portions thereof shall be paid and redeemed by the Company on the applicable Redemption Date at the applicable Redemption Price. ARTICLE X EVENTS OF DEFAULT SECTION 10.1 Listing of Events of Default. Each of the following events ---------------------------- or occurrences described in this Section 10.1 shall constitute an "Event of ------------ -------- Default". - ------- SECTION 10.1.1 Non-Payment of Subordinated Debt. The Company shall -------------------------------- default in the payment when due, whether at stated maturity, by acceleration, by notice of optional redemption or prepayment, by mandatory redemption or prepayment or otherwise, of (a) any principal or -48- premium of any Note or (b) any interest on any Note (and the failure to pay such Subordinated Obligation shall remain unremedied for a period of ten days). SECTION 10.1.2 Breach of Warranty. Any representation or warranty of the ------------------ Company made or deemed to be made hereunder or in any other Transaction Document executed by it or any other writing or certificate furnished by or on behalf of the Company to any Purchaser or any Holder for the purposes of or in connection with this Agreement or any such other Transaction Document (including any certificates delivered pursuant to Article III) is or shall be incorrect when ----------- made in any material respect. SECTION 10.1.3 Non-Performance of Certain Covenants and Obligations. The ---------------------------------------------------- Company shall default in the due performance and observance of any of its obligations under Section 6.1, 6.2, 6.12, 6.13 or 8.2 or Article VII. ----------- --- ---- ---- --- ----------- SECTION 10.1.4 Non-Performance of Other Covenants and Obligations. The -------------------------------------------------- Company shall default in the due performance and observance of any other agreement contained herein or in any other Transaction Document executed by it, and such default shall continue unremedied for a period of twenty-five (25) days after the earlier of (i) an executive officer of the Company becoming aware of such default or (ii) notice thereof shall have been given to the Company by the Requisite Holders. SECTION 10.1.5 Default on Other Indebtedness. A default shall occur in ----------------------------- the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Indebtedness (other than Indebtedness described in Section 10.1.1) of the Company having a principal amount, -------------- individually or in the aggregate, in excess of $2,000,000, or a default shall occur in the performance or observance of any obligation or condition with respect to such Indebtedness if the effect of such default is to accelerate the maturity of any such Indebtedness or such default shall continue unremedied for any applicable period of time sufficient to permit the holder or holders of such Indebtedness, or any trustee or agent for such holders, to cause such Indebtedness to become due and payable prior to its expressed maturity. SECTION 10.1.6 Judgments. Any judgment (not reimbursed by insurance --------- policies of the Company and its Subsidiaries) or decree for the payment of money, fine or penalty which when taken together with all other such judgments, decrees, fines and penalties shall exceed $400,000 is rendered by a court or other tribunal against the Company or any of its Subsidiaries and (i) remains undischarged or unbonded for a period of 30 consecutive days during which the execution of such judgment, decree, fine or penalty shall not have been stayed effectively or (ii) any judgment creditor or other Person shall legally commence actions to collect on or enforce such judgment, decree, fine or penalty. SECTION 10.1.7 Pension Plans. Any of the following events shall occur ------------- with respect to any Pension Plan: (i) a Reportable Event shall have occurred with respect to a Pension Plan, (ii) the filing by the Company, any of its Subsidiaries, any ERISA Affiliate, or an -49- administrator of any Plan of a notice of intent to terminate such a Plan in a "distress termination" under the provisions of Section 4041 of ERISA, (iii) the receipt of notice by the Company, any of its Subsidiaries, any ERISA Affiliate, or an administrator of a Plan that the PBGC has instituted proceedings to terminate (or appoint a trustee to administer) such a Pension Plan, (iv) any other event or condition exists which might reasonably be expected to constitute grounds under the provisions of Section 4042 of ERISA for the termination of (or the appointment of a trustee to administer) any Pension Plan by the PBGC, (v) a Pension Plan shall fail to maintain the minimum funding standard required by Section 412 of the Code for any plan year or a waiver of such standard is sought or granted under the provisions of Section 412(d) of the Code, (vi) the Company, any of its Subsidiaries or any ERISA Affiliate has incurred, or is likely to incur, a liability under the provisions of Section 4062, 4063, 4064 or 4201 of ERISA, (vii) the Company, any of its Subsidiaries or any ERISA Affiliate fails to pay the full amount of an installment required under Section 412(m) of the Code, (viii) the occurrence of any other event or condition with respect to any Plan which would constitute an event of default under any other agreement entered into by the Company, any of its Subsidiaries or any ERISA Affiliate, and in each case in clauses (i) through (viii) of this Section 10.1.7, such event or condition, -------------- together with all other such events or conditions, if any, could subject the Company, any of its Subsidiaries or any ERISA Affiliate to any taxes, penalties or other liabilities which could reasonably be expected to have a Material Adverse Effect on the financial condition of the Company, any of its Subsidiaries or any ERISA Affiliate. SECTION 10.1.8 Bankruptcy, Insolvency, etc. ---------------------------- (a) The Company or any of its Subsidiaries shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code or any other Federal, state or foreign bankruptcy, insolvency, liquidation or similar law, (ii) consent to the institution of, or fail to contravene in a timely and appropriate manner, any such proceeding or the filing of any such petition, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator or similar official for the Company or any of its Subsidiaries or for a substantial part of its property or assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take corporate action for the purpose of effecting any of the foregoing; (b) An involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Company or any of its Subsidiaries, or of a substantial part of the property or assets of the Company or any of its Subsidiaries, under Title 11 of the United States Code or any other Federal state or foreign bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, -50- custodian, sequestrator or similar official for the Company or any of its Subsidiaries or for a substantial part of the property of the Company or any of its Subsidiaries, or (iii) the winding-up or liquidation of the Company or any of its Subsidiaries; and such proceeding or petition shall continue undismissed for 45 days or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for 45 days; SECTION 10.1.9 Dissolution. Any order, judgment or decree shall be ----------- entered against the Company decreeing the dissolution or split up of the Company, such order shall remain undischarged or unstayed for a period in excess of 30 days. SECTION 10.1.10 Impairment of Transaction Documents, etc. Any Transaction ----------------------------------------- Document shall (except in accordance with its terms), in whole or in part, terminate, cease to be effective or cease to be the legally valid, binding and enforceable obligation of the Company, or the Company shall, directly or indirectly, contest in any manner such effectiveness, validity, binding nature or enforceability. SECTION 10.2 Action if Bankruptcy. If any Event of Default described in -------------------- Section 10.1.8 shall occur, the outstanding principal amount of all outstanding - -------------- Notes and all other Subordinated Debt shall automatically be and become immediately due and payable, without notice or demand. SECTION 10.3 Action if Other Event of Default. If any Event of Default -------------------------------- (other than any Event of Default described in Section 10.1.8) shall occur for -------------- any reason, whether voluntary or involuntary, and be continuing, the Requisite Holders (or, in the case such Event of Default is an Event of Default described in Section 10.1.1, Holders holding at least 25% of the aggregate principal -------------- amount of the then outstanding Notes) may, upon notice or demand and subject to Article XI, declare all or any portion of the outstanding principal amount of - ---------- the Notes and other Subordinated Debt, to be due and payable, whereupon the full unpaid amount of such Notes and any and all other Subordinated Debt which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand or presentment. ARTICLE XI SUBORDINATION; ADDITIONAL AGREEMENTS SECTION 11.1 Agreement to Subordinate. The Company and each Holder, as of ------------------------ the date such Holder first accepts a Note, shall execute a copy of the Security Agreement. The Company and each Holder, by its acceptance of a Note, covenant and agree that the Subordinated Debt shall, to the extent and in the manner set forth in the Security Agreement, be subordinated in right of payment to the prior payment by the Company of the Senior Debt, whether now outstanding or hereafter created, incurred, assumed or Guaranteed. SECTION 11.2 Collateral Agency Agreement. Each Holder, as of the date --------------------------- such Holder first accepts a Note, shall execute a copy of the Collateral Agency Agreement. -51- ARTICLE XII MISCELLANEOUS SECTION 12.1 Amendments and Waivers. ---------------------- (a) Consent of Holders. No amendment, modification, termination or waiver ------------------ of any provision of this Agreement, the Notes, or consent to any departure by the Company therefrom, shall in any event be effective without the written concurrence of the Requisite Holders; provided, however, that no amendment, -------- ------- modification, termination or waiver of any term or provision of Article XI or ---------- the Security Agreement, or of any definitions used therein, or of the form of any Note issued hereunder, shall be effective without the express written consent of the Requisite Senior Debtholders. Without the consent of each Holder affected, no amendment, modification, termination or waiver may (with respect to any Notes held by a non-consenting Holder of Notes): (i) reduce the principal amount of, or change the Stated Maturity Date of, any Note of such Holder; (ii) amend the provisions with respect to the redemption of any Note of such Holder pursuant to Sections 9.1, 9.2 and 9.3 (including reducing ------------ --- --- any applicable Redemption Price); (iii) reduce the rate of, or change the time for payment of, interest on any Note of such Holder; (iv) waive a Default in the payment of principal of or premium, if any, or interest on the Notes; (v) make the principal of, premium, if any, or the interest on, any Note of such Holder payable in any manner other than that stated in this Agreement and the Notes; (vi) waive a redemption payment with respect to any Note of such Holder; (vii) make any change to the subordination provisions of this Agreement that adversely affects any Holder; (viii) make any change to the definition of "Requisite Holders"; (ix) reduce the percentage of the aggregate outstanding principal amount of Notes necessary to accelerate the Notes under Section 10.3 or ------------ modify the right of a Holder to accelerate its Note under Section 10.3; ------------ (x) make any change to the transfer provisions of Section 12.2 that ------------ adversely affects the ability of a Holder to make any transfer described therein; or -52- (xi) make any change in the foregoing amendment and waiver provisions. After an amendment, modification, termination or waiver under this Section ------- 12.1 becomes effective, the Company shall mail to the Holders affected thereby a - ---- notice briefly describing such amendment, modification, termination or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment, modification, termination or waiver. (b) Solicitation of Noteholders. The Company will not solicit, request or --------------------------- negotiate for or with respect to any proposed amendment, modification, termination or waiver of any of the provisions of this Agreement or the Notes unless each Holder of the Notes (irrespective of the amount of Notes then owned by it) shall be informed thereof by the Company (but only to the extent the Company has been provided with addresses for the Holders) and shall be afforded the opportunity of considering the same and shall be supplied by the Company with sufficient information to enable it to make an informed decision with respect thereto. Executed or true and correct copies of any amendment, modification, termination or waiver effected pursuant to the provisions of this Section 12.1 shall be delivered by the Company to each Holder of outstanding - ------------ Notes forthwith following the date on which the same shall have been executed and delivered by the Holder or Holders of the requisite percentage of outstanding Notes (but only to the extent the Company has been provided with the addresses for the Holders). (c) Revocation and Effect of Consents. Until an amendment, modification, --------------------------------- termination or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of subsequent Holder may revoke the consent as to its Note or portion of its Note by notice to the Company received before the date on which the Requisite Holders have consented (and not theretofore revoked such consent) to such amendment, modification, termination or waiver. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, modification, termination or waiver, which record date shall be at least 30 days prior to the first solicitation of such consent. If a record date is fixed, then notwithstanding the last sentence of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. After an amendment, modification, termination or waiver becomes effective, it shall bind every Holder of a Note, unless it makes a change described in any of clauses (i) through (viii) of Section 12.1(a), in which case, the amendment, ----------- ------ --------------- modification, termination or waiver shall bind only each Holder of a Note who has consented to it and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note; provided that any -------- such waiver shall not impair or affect the right of any Holder to receive payment of principal -53- of, premium (if any) and interest on a Note, on or after the respective due dates expressed in such Note, or to bring suit for the enforcement of any such payment on or after such respective dates without the consent of such Holder. SECTION 12.2 Transfers. Each Holder shall be permitted to transfer any --------- Note or any portion thereof (and the rights relating thereto under this Agreement and the other Transaction Documents) to any Person; provided that -------- (i) such transfer is made pursuant to a registration statement under the Securities Act (it being acknowledged that the Company shall not be obligated to assist in any manner in any such registration) or pursuant to an exemption from the registration requirements of the Securities Act; (ii) if such transfer is being made pursuant to an exemption from such registration requirements and if requested by the Company, counsel for such Holder (which counsel may be internal counsel) furnishes to the Company an opinion to the effect that such transfer is being made pursuant such an exemption; (iii) the applicable transferee is an "accredited investor" as defined in Regulation D promulgated under the Securities Act; (iv) such transferee represents to the Company in writing that it is acquiring such Note solely for its own account and not as nominee or agent for any other Person (other than for such managed accounts, if applicable) and not with a view to, or for offer or sale in connection with, any distribution thereof (within the meaning of the Securities Act) that would be in violation of the securities laws of the United States of America or any state thereof, without prejudice, however, to its right at all times to sell or otherwise dispose of all or any part of said Note pursuant to a registration statement under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act, and subject, nevertheless, to the disposition of its property being at all times within its control; (v) unless the Holder making such transfer is making such transfer to any of its Affiliates or any of its partners or with the Company's prior written consent, such transfer is of (A) all the Notes then held by such Holder or (B) a Note or Notes (or a portion thereof) evidencing an aggregate principal amount outstanding of not less than $1,000,000. Within three Business Days after its receipt of notice that a transfer is being made pursuant to this Section 12.2, but not prior to the effective date of ------------ such transfer, the Company shall deliver to the applicable transferee a new Note evidencing the aggregate principal amount transferred and, if the Holder making such transfer is retaining an interest in the Notes, a replacement Note in the aggregate principal amount being retained by such Holder (such Note to be in exchange for, but not in payment of, the Note then held by such Holder). Each such Note -54- shall be dated the date of the predecessor Note. The Holder making such transfer shall mark the predecessor Note "exchanged" and deliver it to the Company. SECTION 12.3 Notices. Unless otherwise specifically provided herein, any ------- notice or other communication herein required or permitted to be given shall be in writing and shall be made by personal service, facsimile, United States air mail or reputable courier service: (a) if to the Purchasers or any subsequent Holder, at the address or telecopier number set forth on the signature pages hereof, or such other address as shall be designated in a written notice delivered to the Company, with a copy to Mayer, Brown & Platt, 1675 Broadway, New York, New York 10019, Facsimile No. (212) 262-1910, Attention: James B. Carlson; and (b) if to the Company, at the address or telecopy number set forth on the signature pages hereof, or such other address as shall be designated in a written notice delivered to the other parties hereto. Unless otherwise specifically provided herein, any notice or other communication shall be deemed to have been given when delivered in Person or by courier service, upon receipt of facsimile (electronically confirmed), or five Business Days after depositing it in the United States air mail with postage prepaid and properly addressed. SECTION 12.4 Independence of Covenants. All covenants hereunder shall be ------------------------- given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists. SECTION 12.5 Survival of Representations, Warranties and Agreements. ------------------------------------------------------ (a) All representations, warranties and agreements made herein shall survive the execution and delivery of this Agreement and the issuance and sale of the Notes hereunder. (b) Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of the Company set forth in Sections 2.2.3, 2.5, 2.8, -------------- --- --- and 2.11 shall survive the payment of the Notes, the exercise of any Warrants, ---- and the termination of this Agreement. SECTION 12.6 Failure or Indulgence Not Waiver; Remedies Cumulative. No ----------------------------------------------------- failure or delay on the part of any Holder in the exercise of any power, right or privilege hereunder or under any other Transaction Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement and the other Transaction Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available. -55- SECTION 12.7 Severability. Any provision of this Agreement, the Notes or ------------ any other Transaction Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating or impairing the remaining provisions of this Agreement, the Notes or such other Transaction Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 12.8 Obligations Several; Independent Nature of Senior Debtholders' Rights'. The obligations of the Holders hereunder are several and no Holder shall be responsible for the obligations of any other Holder hereunder. Nothing contained herein or in any other Transaction Document, and no action taken by the Holders pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Holder shall be a separate and independent debt, and each Holder shall be entitled to protect and enforce, subject to the express provisions of this Agreement, its rights arising out of this Agreement and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose. SECTION 12.9 Headings. Section and subsection headings in this Agreement -------- are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. SECTION 12.10 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND -------------- SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 12.11 Successors and Assigns. Subject to the provisions of ---------------------- Section 12.2, this Agreement shall be binding upon the parties hereto and their - ------------ respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of each Purchaser (including each Holder). SECTION 12.12 Consent to Jurisdiction and Service of Process. ALL ---------------------------------------------- JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY TRANSACTION PARTY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT OR ANY OBLIGATION MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT AND THE COMPANY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, SUCH OTHER TRANSACTION DOCUMENT OR SUCH OBLIGATION. The Company hereby agrees that service of all process in any such proceeding in any such court may be made by registered or certified mail, return receipt requested, to such Person at its address provided on -56- the signature pages hereto, such service being hereby acknowledged by such Person to be sufficient for personal jurisdiction in any action against such Person in any such court and to be otherwise effective and binding service in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of any Holder to bring proceedings against the Company in the courts of any other jurisdiction. SECTION 12.13 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS AGREEMENT -------------------- HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION. The scope of this waiver is intended to be all- encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each party hereto acknowledges that this waiver is a material inducement to enter into a business relationship, that each has already relied on this waiver in entering into this Agreement, and that each will continue to rely on this waiver in their related future dealings. Each party hereto further warrants and represents that it has reviewed this waiver with its legal counsel and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE SECURITIES ISSUED HEREUNDER. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. SECTION 12.14 Counterparts; Effectiveness. This Agreement and any --------------------------- amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. SECTION 12.15 Understanding Among the Purchasers. The determination of ---------------------------------- each Purchaser to purchase the Notes pursuant to this Agreement has been made by such Purchaser independent of any other Purchaser and independent of any statements (including any projections) or opinions as to the advisability of such purchase or as to the properties, business, prospects or condition (financial or otherwise) of the Company which may have been made or given by any other Purchaser or by any agent or employee of any other Purchaser. In addition, it is acknowledged by each Purchaser that no other Purchaser has acted as an agent of or in concert with such Purchaser in connection with making its investment hereunder and that no other -57- Purchaser will be acting as an agent of such Purchaser in connection with monitoring its investment hereunder. SECTION 12.16 Entire Agreement. This Agreement, together with the Notes, ---------------- the Warrants and the schedules and exhibits hereto and thereto is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding, written or verbal, of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement together with the Notes and the Warrants supersedes all prior agreements and understandings between the parties with respect to such subject matter. ARTICLE XIII SUBORDINATION The Company covenants and each Purchaser and other holder of a Note, by its acceptance of a Note, likewise covenants and agrees for the benefit of the holders of Senior Debt, that, to the extent and in the manner hereinafter set forth in this Article and notwithstanding any other provision of this Agreement, the obligations and other Indebtedness, liabilities and obligations represented by any and all of the Subordinated Debt Documents and any and all Guarantees thereof or collateral secured therefor (collectively, the "Subordinated ------------ Obligations") are hereby expressly made subordinate and subject in right of - ----------- payment, to the prior payment in full of all Senior Debt; provided, however, -------- ------- that the Notes, the Indebtedness represented thereby and the payment of the principal of and interest on the Notes in all respects shall rank prior to all existing and future unsecured indebtedness (including Indebtedness) of the Company that is not Senior Debt. SECTION 13.1. Payment Over Upon Dissolution, etc. In the event of ----------------------------------- (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the Company, the Subsidiaries or to any of their respective creditors, as such, or to any of their respective assets, (b) any liquidation, dissolution or other winding up of the Company, the Subsidiaries, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy (other than in accordance with a Change of Control), or (c) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of the Company or the Subsidiaries, then, and in any such event, the holders of Senior Debt shall be entitled to receive payment in full in cash of all amounts due on or in respect of all Senior Debt, or provision reasonably acceptable to the Senior Agent shall be made for such payment in cash, before any Person is -58- entitled to receive any payment or distribution on account of principal, interest or other amounts with respect to the Subordinated Obligations, and to that end, the holders of Senior Debt shall be entitled to receive, for application to repayment thereof, any payment or distribution of assets of the Company and of Subsidiaries of any kind or character, whether in cash, property or securities, by off-set or otherwise, to which the holders of the Subordinated Obligations would be entitled but for the provisions of this Article, including any such payment or distribution which may be payable or deliverable by reason of the payment of any other indebtedness of the Company or Subsidiaries, being subordinated to the payment of the Subordinated Obligations. In the event that, notwithstanding the foregoing provisions of this Section, the holder of any Subordinated Obligations shall have received any payment or distribution of assets of the Company or Subsidiaries of any kind or character, whether in cash, property or securities, including any such payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of the Company or Subsidiaries being subordinated to the payment of the Subordinated Obligations, before all Senior Debt is paid in full in cash or payment thereof provided for (with such provision being reasonably acceptable to the Senior Agent), then and in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company or Subsidiaries for application to the payment of all Senior Debt remaining unpaid, to the extent necessary to pay all Senior Debt in full in cash, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. SECTION 13.2. Payment Block Upon Senior Default. In the event --------------------------------- (a) of the occurrence and during the continuation of (i) any default in the payment of principal of or interest on any Senior Debt beyond any applicable grace period with respect thereto, or (ii) any event of default with respect to any Senior Debt which shall have resulted in such Senior Debt becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, or (any such default or event of default, being a "Senior Payment -------------- Default"), ------- (b) that any other event of default (other than a Senior Payment Default) with respect to any Senior Debt shall have occurred and be continuing permitting (without regard to whether any notice shall have been given or grace period shall have expired) the holders of such Senior Debt (or a trustee or agent on behalf of the holders thereof) to declare such Senior Debt due and payable prior to the date on which it would have otherwise have become due and payable (a "Senior Performance Default"), -------------------------- -59- then no payment shall be made by the Company or any Subsidiary on account of the principal of, or interest on or any other amounts with respect to the Subordinated Obligations or on account of the purchase or redemption or other acquisition of the Subordinated Obligations (c) in case of any Senior Payment Default, unless and until such Senior Payment Default shall have been cured or waived or shall have ceased to exist or such acceleration shall have been rescinded or annulled, (d) in case of any Senior Performance Default, from the date the Company received written notice of such event of default from a holder of Senior Debt until the earlier of (i) 180 days after such date, and (ii) the date, if any, on which the Senior Debt to which such Senior Performance Default relates is discharged and any commitment to extend credit related thereto is terminated or such default is waived by the holders of such Senior Debt or otherwise cured, or (e) in case of any Senior Payment Default referred to in clause (a)(ii), so long as any judicial proceeding is pending with respect to such event (if such date is later than the date in clause (c) above). In the event that, notwithstanding the foregoing, the Company or any Subsidiary shall make any payment to any holder of Subordinated Obligations prohibited by the foregoing provisions of this Section or by the provisions of Section 8.4, ------- ----------- then and in such event such payment shall be paid over and delivered forthwith to the holders of Senior Debt (pro rata as to each of such holders on the basis of the respective amounts of the Senior Debt held by them). The provisions of this Section shall not apply to any payment with respect to which Section 8.1 ----------- would be applicable. In case of a Senior Payment Default or Senior Performance Default, then, unless an Event of Default of the type referenced in Section 10.1.8 shall have -------------- occurred, then the holders of Subordinated Obligations shall not be entitled to declare all or any portion of the Subordinated Obligations to be due and payable pursuant to Section 10.3 of this Agreement or to otherwise initiate judicial ------------ proceedings or exercise any other rights or remedies with respect to a default hereunder with respect thereto until and after 90 days after the occurrence of such Senior Payment Default or the written notice of such Senior Performance Default; provided, that from and after such 90 day period, then the Requisite -------- Holders shall be so entitled to accelerate payment of the Notes, notwithstanding other or additional Events of Default arising during such 90 day period. SECTION 13.3. Payment Otherwise Permitted. Nothing contained in this --------------------------- Article or elsewhere in this Agreement or in the Notes shall, at any time (except during the pendency of any case, proceeding, dissolution, liquidation or other winding up, assignment for the benefit of -60- creditors or other marshalling of assets and liabilities of the Company referred to in Section 13.1 or except under the conditions and as described in Section ------------ ------- 13.2), - ---- (a) prevent the Company from making payments at any time of principal of or interest on the Notes; or (b) impair the terms of Section 10.2 or 10.3 pursuant to which the ------------ ---- Notes may become due and payable prior to their stated maturity; provided, -------- however, that at any time when the holders of Senior Debt shall have the ------- right pursuant to Section 13.2 as the result of the occurrence and ------------ continuation of a Senior Performance Default or a Senior Payment Default to prevent the Company and any Subsidiary from making payments of principal or interest on the Subordinated Obligations, the holders of Subordinated Obligations shall not be entitled to accelerate the maturity of the Notes pursuant to Section 10.3 without 10 Business Days' prior notice to the ------------ Company and the Senior Agent. SECTION 13.4. Effect of Subordinated Obligations Acceleration. In the ----------------------------------------------- event that Section 13.2 is not applicable and any Subordinated Obligations shall ------------ be declared due and payable as the result of the occurrence of one or more defaults in respect of such Subordinated Obligations, no payment shall be made in respect of any Subordinated Obligations unless and until the holders of the Senior Debt shall have received payment in full in cash of all Senior Debt. SECTION 13.5. Subrogation to Rights of Holders of Senior Debt. Subject to ----------------------------------------------- the payment in full in cash of all Senior Debt, the Purchaser and each other Holder shall be subrogated to the rights of the holders of Senior Debt to receive payments and distributions of cash, property and securities applicable to the Senior Debt until the principal of and interest on the Notes shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of Senior Debt of any cash, property or securities to which the Purchaser and each other Holder would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to the holders of Senior Debt by the Holders, shall, as among the Company, its creditors other than holders of Senior Debt, and the Holders, be deemed to be a payment or distribution by the Company to or on account of the Senior Debt. SECTION 13.6. Provisions Solely to Define Relative Rights. The provisions ------------------------------------------- of this Article are intended solely for the purpose of defining the relative rights of the holders of Subordinated Obligations on the one hand and the holders of Senior Debt on the other hand. Nothing contained in this Article or elsewhere in this Agreement or in the Notes is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Debt and the Holders, the obligation of the Company, which is absolute and unconditional, to pay to the Holders the principal of and interest on the Notes as and when the same shall become due and payable in accordance with their terms; -61- (b) affect the relative rights against the Company or any holder of Subordinated Obligations and creditors of the Company other than the holders of Senior Debt; or (c) prevent any Noteholder from exercising all remedies otherwise permitted by applicable law upon default under this Agreement, subject to the rights, if any, under this Article of the holders of Senior Debt (i) in any case, proceeding, dissolution, liquidation or other winding up, assignment for the benefit of creditors or other marshalling of assets and liabilities of the Company, or any Subsidiary referred to in Section 13.1, to receive, pursuant to and in ------------ accordance with such Section, cash, property and securities otherwise payable or deliverable to any holder of the Subordinated Obligations, (ii) under the conditions specified in Section 13.2, to prevent ------------ any payment prohibited by such Section, or (iii) under the conditions specified in Section 13.3, to ------------ prohibit the exercise of remedies by the holder of the Subordinated Obligations. SECTION 13.7. No Waiver of Subordination Provisions. No right of any ------------------------------------- present or future holder of any Senior Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or any Subsidiary or by any act or failure to act, in good faith, by any such holder, or by any non-compliance by the Company or any Subsidiary with the terms, provisions and covenants of this Agreement, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing, the holders of Senior Debt may, at any time and from time to time, without the consent of or notice to any holder of the Subordinated Obligations, without incurring responsibility to any holder of the Subordinated Obligations and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the holders of the Subordinated Obligations to the holders of Senior Debt, do any one or more of the following: (a) amend or supplement in any manner any document or instrument evidencing Indebtedness; provided, however, that any such amendment or -------- ------- supplement of the Senior Credit Agreement without the consent of the holders of the Subordinated Obligations, if required pursuant to Section ------- 6.14, shall nevertheless constitute a breach of the covenants contained ---- herein, and the holders of the Subordinated Obligations shall not in any way be deemed by the provisions of this Section to have limited or waived any of their rights and remedies against any Person (other than the holders of any Senior Debt) under this Agreement with respect to such Section 6.14; ------------ (b) subject to the provisions of Section 6.1 of the Security ----------- Agreement sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; -62- (c) release any Person liable in any manner for the collection of Senior Debt; and (d) exercise or refrain from exercising any rights against the Company or any Subsidiary and any other Person. SECTION 13.8. Notice to the Holders of Subordinated Obligations. The ------------------------------------------------- Company shall give prompt written notice to the Holders of any fact known to the Company which would prohibit the making of any payment to the Holders in respect of the Notes. Notwithstanding the provisions of this Article or any other provision of this Agreement, the holders of the Subordinated Obligations shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to the holders of the Subordinated Obligations in respect of the Subordinated Obligations, unless and until the holders of the Subordinated Obligations shall have received actual notice thereof, or written notice thereof from the Company or a holder of Senior Debt or from any agent or trustee therefor; and, prior to the receipt of any such written notice, the holders of the Subordinated Obligations shall be entitled in all respects to assume that no such facts exist. SECTION 13.9. Proving, etc. Claims. If the holders of the Subordinated -------------------- Obligations have not filed, proved or voted, as the case may be, in any proceeding of the nature referred to in clauses (a), (b) or (c) of Section 13.1, ---------------- --- ------------ the Senior Agent may, upon five days prior written notice to the Holders, so file, prove or vote, as the case may be, in the name of the holders of the Subordinated Obligations or otherwise, with respect to any and all claims of the holders of the Subordinated Obligations relating to the Obligations of the Company or any Subsidiary. SECTION 13.10. Reliance on Judicial Order or Certificate of Liquidating -------------------------------------------------------- Agent. Upon any payment or distribution of assets of the Company or any - ----- Subsidiary referred to in this Article XIII, the Holders shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Holders, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Debt and other indebtedness of the Company or any Subsidiary, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article; provided, that the foregoing shall apply only if such court has been -------- fully apprised of the provisions of this Article XIII. -63- (signature page to Purchase Agreement) IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. MATTHEWS STUDIO EQUIPMENT GROUP By: /s/ Carlos D. DeMattos ------------------------ Name: Carlos D. DeMattos Title: Chairman of the Board/ Chief Executive Officer Notice Address: 3111 North Kenwood Street Burbank, California 91505 Attention: Carlos D. DeMattos Telephone: 818-525-5217 Facsimile: 818-525-5216 -64- (signature page to Purchase Agreement) ING EQUITY PARTNERS, L.P. I By: Lexington Partners, L.P., its General Partner By: Lexington Partners, Inc., its General Partner By: /s/ Benjamin P. Giess ----------------------- Name: Benjamin P. Giess Title: Authorized Signatory Notice Address: c/o Hampshire Equity Partners 420 Madison Avenue 33rd Floor New York, New York 10022 Attention: Benjamin P. Giess Telephone: 212-453-1708 Facsimile: 212-750-2970 -65- SCHEDULE I Purchasers ----------
Purchasers Securities Purchase Amount - ---------- ---------- --------------- ING Equity Partners L.P. I Note in principal amount of $10,000,000 $10,000,000
-66- EX-10.24 5 AMENDED AND RESTATED SECURITY AGREEMENT Exhibit 10.24 ------------- AMENDED AND RESTATED SECURITY AGREEMENT --------------------------------------- THIS AMENDED AND RESTATED SECURITY AGREEMENT (this "Security Agreement"), ------------------ dated as of June 30, 1999, is made by MATTHEWS STUDIO EQUIPMENT GROUP, a California corporation (the "Parent"), MATTHEWS STUDIO SALES, INC., a California ------ corporation ("MSSI"), HOLLYWOOD RENTAL COMPANY, LLC, a Delaware limited ---- liability company ("HRCL") (as successor by merger to Hollywood Rental Co., ---- Inc., a California corporation), MATTHEWS STUDIO ELECTRONICS, INC., a California corporation ("MSE"), MATTHEWS ACCEPTANCE CORPORATION, a California corporation ---- ("MAC"), DUKE CITY VIDEO, INC., a New Mexico corporation ("Duke"), HDI HOLDINGS, --- ---- INC., a Kentucky corporation ("HDI"), FOUR STAR LIGHTING, INC., a New York --- corporation ("Four Star"), MATTHEWS STUDIO GROUP CENTERS, INC., a California --------- corporation ("MSGC") (f/k/a Matthews Medical Equipment, Inc.), KEYLITE HOLDINGS, ---- INC., California corporation ("KHI"), REEL WHEELS, INC., a California --- corporation ("RWI"), KEYLITE PRODUCTION SERVICES, INC., a California corporation --- ("KPS"), DUKE CITY HOLDINGS, INC., a California corporation ("Duke Holdings"), --- ------------- FOUR STAR HOLDING, INC., a Delaware corporation ("Four Star Holding") and ----------------- ShowbizMart.com, Inc., a Delaware corporation ("ShowbizMart") (each of the ----------- Parent, MSSI, HRCL, MSE, MAC, Duke, HDI, Four Star, MSGC, KHI, RWI, KPS, Duke Holdings, Four Star Holding and ShowbizMart, a "Grantor" and collectively, ------- "Grantors"), in favor of ING EQUITY PARTNERS, L.P. I, a Delaware limited -------- partnership ("Equity Partners"), and the other purchasers of Convertible Senior --------------- Subordinated Notes of the Parent (the "Notes") listed on the signature pages ----- hereto (collectively, "Beneficiaries"). ------------- W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Grantors (other than ShowbizMart) and Equity Partners are parties to that certain Security Agreement dated as of January 12, 1999 (the "Existing Security Agreement") which secures the due and prompt repayment of any and all obligations of Grantors (other than ShowbizMart) to Equity Partners ("Reimbursement Obligations") under a Reimbursement Agreement between Grantors (other than ShowbizMart) and Equity Partners dated as of January 12, 1999 (the "Reimbursement Agreement"); WHEREAS, pursuant to the terms of the Note Purchase Agreement, dated as of the date hereof (as amended or otherwise modified, the "Purchase Agreement") ------------------ among Parent and Beneficiaries, Beneficiaries are purchasing the aggregate principal amount of Notes set forth on Schedule I to the Purchase Agreement; WHEREAS, as a condition precedent to Beneficiaries' executing the Purchase Agreement and purchasing the Notes, each Grantor is required to execute and deliver this amended and restated Security Agreement to secure the due and prompt repayment of any and all Subordinated Debt (as defined below) to Beneficiaries in respect of (i) the Reimbursement Obligations and (ii) the Notes; WHEREAS, each Grantor has duly authorized the execution, delivery and performance of this amended and restated Security Agreement; NOW THEREFORE, in consideration of the premises herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce Beneficiaries to purchase the Notes, Grantors agree, for the benefit of Beneficiaries, that the Existing Security Agreement is hereby amended and restated in its entirety as follows: ARTICLE I DEFINITIONS 1.1. Certain Terms. Unless the context shall otherwise require, ------------- capitalized terms used and not defined herein shall have the meanings set forth in the Credit Agreement. The following terms when used herein shall have the following meanings: "Capital Lease" shall mean any lease of any property (whether real, ------------- personal or mixed) by any Grantor as lessee which, in conformity with generally accepted accounting principles consistently applied, is, or is required to be, accounted for as a capital lease on the balance sheet of the Grantors. "Capitalized Lease Obligation" shall mean an obligation to pay rent or ---------------------------- other amounts under any Capital Lease, and for purposes hereof the amount of such obligation shall be the capitalized amount thereof determined in accordance with generally accepted accounting principles. "Chattel Paper" shall mean all "chattel paper," as such term is defined in ------------- the Uniform Commercial Code as adopted in the State of New York, now owned or hereafter acquired by any Person, wherever located. "Collateral Agency Agreement" shall mean the Collateral Agency Agreement, --------------------------- dated as of June 30, 1999, by and among the Beneficiaries. "Collateral Agent" shall mean ING Equity Partners, L.P. I, or such other ---------------- entity appointed by the Beneficiaries as Collateral Agent pursuant to the Collateral Agency Agreement. "Copyright" shall have the meaning given to it in the Amended and Restated --------- Security Agreement and Mortgage - Patents, Trademarks and Copyrights, dated as of April 1, 1998, among the Grantors and the Senior Agent, as amended from time to time. "Copyright License" shall mean any agreement, whether written or oral, ----------------- providing for the grant by or to a Grantor of any right in or to any Copyright. -2- "Credit Agreement" shall mean the Amended and Restated Credit Agreement, ---------------- dated as of April 1, 1998, among Grantors, the Senior Debtholders and the Senior Agent, as the same has been or may be amended or otherwise modified from time to time. "Equipment" shall have the meaning given to it in the Amended and Restated --------- Security Agreement, dated as of April 1, 1998, among the Grantors and the Senior Agent, as amended from time to time. "Event of Default" shall have the meaning given to it in the Purchase ---------------- Agreement. "Guarantee" shall mean any obligation, contingent or otherwise, of any --------- Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or obligation of any other Person in any manner, whether directly or indirectly, and shall include, without limitation, any obligation of such Person, direct or indirect, to (i) purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness or obligation, (ii) purchase property, securities or services for the purpose of assuring the owner of such Indebtedness or obligation of the payment of such Indebtedness or obligation, or (iii) maintain working capital, equity capital, available cash or other financial condition of the primary obligor so as to enable the primary obligor to pay such Indebtedness or obligation; provided, however, that the term Guarantee shall not include -------- ------- endorsements for collection or collections for deposit, in either case in the ordinary course of business. "Hedging Obligations" shall have the meaning given to it in the Purchase ------------------- Agreement. "Indebtedness" of any Person means, without duplication: ------------ (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments (including Redeemable Capital Stock); (b) all obligations, contingent or otherwise, relative to the face amount of all letters of credit, whether or not drawn, and banker's acceptances issued for the account of such Person; (c) all obligations of such Person as lessee under leases which have been or should be, in accordance with GAAP, recorded as Capitalized Lease Obligations; (d) all other items which, in accordance with GAAP, would be included as liabilities on the liability side of the balance sheet of such Person as of the date at which Indebtedness is to be determined; (e) net liabilities of such Person under all Hedging Obligations; (f) whether or not so included as liabilities in accordance with GAAP, all obligations of such Person to pay the deferred purchase price of property or services, and indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales -3- or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; and (g) all Guarantees of such Person in respect of any of the foregoing. For all purposes of this Security Agreement, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer. "Instrument" shall have the meaning given to it in Section 9105(1)(i) of ---------- the New York Uniform Commercial Code. "Inventory" shall have the meaning given to it in the Amended and Restated --------- Security Agreement, dated as of April 1, 1998, among the Grantors and the Senior Agent, as amended from time to time. "Lien" shall mean, with respect to any asset, (i) any mortgage, lien, ---- pledge, encumbrance, charge or security interest in or on such asset, (ii) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset, (iii) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities or (iv) any other right of or arrangement with any creditor to have such creditor's claim satisfied out of such assets, or the proceeds therefrom, prior to the general creditors of the owner thereof. "Negotiable Collateral" shall have the meaning given to it in Section 2.3 --------------------- ----------- hereof. "Patent" shall have the meaning given to it in the Amended and Restated ------ Security Agreement and Mortgage - Patents, Trademarks and Copyrights, dated as of April 1, 1998, among the Grantors and the Senior Agent, as amended from time to time. "Patent License" shall mean any agreement, whether written or oral, -------------- providing for the grant by or to a Grantor of any right to manufacture, use or sell any invention covered by a Patent, and all rights of a Grantor under such agreement. "Person" shall have the meaning given to it in the Purchase Agreement. ------ "Pledgor" means any Grantor that has Pledged Securities. ------- "Pledged Securities" mean any (a) shares of capital stock and (b) proceeds ------------------ of such capital stock which have been pledged to the Senior Agent, for the benefit of the Senior Debtholders, as security for the Senior Debt. "Possessory Collateral" shall have the meaning given to such term in --------------------- Section 12.1. - ------------ "Requisite Holders" means the Holders (as such term is defined in the ----------------- Purchase Agreement) of Notes representing a majority the aggregate principal amount of the Notes outstanding (including any Notes deemed to be outstanding in respect of any Reimbursement -4- Obligations) at the time in question; provided, that for so long as Equity -------- Partners is a Significant Holder, Equity Partners must be included in such majority. "Requisite Senior Debtholders" means, with respect to any action which may ---------------------------- be taken by the Senior Debtholders in connection with any term of this Security Agreement, the Senior Debtholder or Senior Debtholders necessary to approve or consent to such action pursuant to the terms of the Credit Agreement. "Senior Agent" means The Chase Manhattan Bank, in its capacity as agent for ------------ the lenders under the Credit Agreement, and its successors in such capacity, or, if there is then no acting agent under the Credit Agreement, financial institutions holding a majority in principal amount of the Senior Debt outstanding thereunder, or if no debt is outstanding, a majority in amount of the loan commitments outstanding thereunder. "Senior Debt" means all loans, advances, debts, liabilities and ----------- obligations, for the performance of covenants, tasks or duties or for the payment of monetary amounts (whether or not such performance is then required or contingent, or amounts are liquidated or determinable) owing by Parent or its Subsidiaries to the Senior Agent or any lender under the Credit Agreement, and all covenants and duties regarding such amounts, of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument, arising under the Credit Agreement. Senior Debt includes all principal, interests, fees, expenses, attorneys' fees and any other sums chargeable to Parent under the Credit Agreement or any of the other Loan Documents (as such term is defined in the Credit Agreement), together with, subject to the last sentence hereof, (a) all complete or partial refinancings of the Senior Debt, (b) any amendments, modifications, renewals or extensions of any of the foregoing and (c) any interest accruing on the foregoing after the commencement of any bankruptcy, insolvency or similar proceeding, without regard to whether or not such interest accrues in any such proceeding or is an allowed claim in any such proceeding. Senior Debt shall be considered to be outstanding whenever any loan commitment under the Credit Agreement is outstanding. Notwithstanding the foregoing, however, "Senior Debt" shall not include any loans, advances, debts, liabilities, obligations or other amounts arising out of any partial or complete refinancing of Senior Debt if both (i) such refinancing is with a party or parties other than the existing Senior Agent and the Senior Debtholders for whom the Senior Agent is at the time serving as agent under the Credit Agreement and (ii) the final stated maturity date of such refinancing is later than June 30, 2005. "Senior Debtholder" means a holder of Senior Debt. ----------------- "Subordinated Debt" means all debts, liabilities and obligations, for the ----------------- performance of covenants, tasks or duties or for the payment of monetary amounts (whether or not such performance is then required or contingent, or amounts are liquidated or determinable) owing by Parent or its Subsidiaries to the Holders under the Subordinated Debt Documents, and all covenants and duties regarding such amounts, of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument, arising under the Subordinated Debt Documents. Subordinated Debt includes all principal, interest, fees, expenses, attorneys' fees, indemnification and any other sum chargeable to Parent under any Subordinated Debt Document, together with, subject to the last sentence hereof, (a) any amendments, modifications, renewals or extensions of any of the foregoing and (b) any interest accruing on the foregoing -5- after the commencement of any bankruptcy, insolvency or similar proceeding, without regard to whether or not such interest accrues in any such proceeding or is an allowed claim in any such proceeding. "Subordinated Debt Documents" means this Security Agreement, the Purchase --------------------------- Agreement, the Notes, the Reimbursement Agreement and all agreements, documents and instruments securing the Subordinated Debt pursuant to this Security Agreement. "Trademark" shall have the meaning given to it in the Amended and Restated --------- Security Agreement and Mortgage - Patents, Trademarks and Copyrights dated as of April 1, 1998, among the Grantors and the Senior Agent, as amended from time to time. "Trademark License" shall mean any agreement, whether written or oral, ----------------- providing for the grant by or to a Grantor of any right to use any Trademark. ARTICLE II SECURITY INTEREST 2.1. Grant of Security Interest. Each Grantor hereby assigns to -------------------------- Beneficiaries, and grants to Beneficiaries, its successors and its assigns, a continuing security interest (the "Security Interest") in all currently existing ----------------- and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all Subordinated Debt of the Parent to Beneficiaries. Beneficiaries' Security Interest in the Collateral shall attach to all Collateral without further act on the part of Beneficiaries or any Grantor. 2.2. Limitation on Security Interest. ------------------------------- (a) Subordination and Other Liens. The Beneficiaries agree that until the ----------------------------- Grantors have indefeasibly paid in cash in full all Senior Debt, the Security Interest granted hereunder (the "Subordinated Liens") shall be subject, junior ------------------ and subordinate to all security interests and liens granted or purported to be granted by any Grantor in favor of the Senior Agent (all such security interests and liens, and any other security interests and liens granted or purported to be granted, now or hereafter by a Grantor in favor of the Senior Agent are collectively referred to as the "Senior Liens"), irrespective of (i) the order ------------ of perfection of any Senior Liens and any Subordinated Liens, (ii) the failure of Senior Agent to perfect, or to maintain the perfection of, any security interests or liens compromising any of the Senior Liens or (iii) the rules for determining the priority under the Uniform Commercial Code or other relevant law. (b) Subordination upon Payments and Distributions. Other than with --------------------------------------------- respect to Permitted Securities, upon any payment or distribution of cash, securities or other property of any of the Grantors of any kind or character to creditors upon any dissolution, winding up, total or partial liquidation, reorganization or marshaling of assets of any of the Grantors, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership proceedings or upon assignment for the benefit of creditors: (i) all Senior Debt shall first be paid in full in cash before the Beneficiaries (or their respective successors or assigns) may receive or retain any payment or distribution of assets (including assets as to which any such person has a lien or security interest) and (ii) any payment or distribution of cash, securities or other property to which the -6- Beneficiaries (or their respective successors or assigns) would be entitled, except for the provisions of this section, shall be paid directly to the Senior Agent for its benefit and the benefit of the Senior Debtholders to the extent necessary to pay all Senior Debt in full in cash, after giving effect to any concurrent payment or distribution to the Senior Debtholders, before any such payment or distribution is made to the Beneficiaries (or their successors or assigns). For the purposes of this Section 2.2, the term "Permitted Securities" ----------- -------------------- means any securities of any of the Grantors provided for by a plan of reorganization, the payment of which is subordinated to the Senior Debt at least to the extent provided in this Security Agreement, which securities shall be distributed upon any insolvency, bankruptcy, liquidation, dissolution or similar proceeding under any applicable bankruptcy or insolvency law and shall be approved by a court of competent jurisdiction pursuant to a decree or order that states that the effect of such securities and the distribution thereof is to preserve the subordination of the Security Interest granted herein to the Senior Liens. (c) Release of Subordinated Liens; Disposition of Collateral. If the -------------------------------------------------------- Senior Agent consents to any request by a Grantor to sell or otherwise dispose of any Collateral, the Beneficiaries agree to release any Subordinated Liens encumbering any such Collateral sold or otherwise disposed of, and to execute and deliver promptly such lien release documents as Senior Agent may reasonably request in connection therewith. If the Senior Agent agrees with a Grantor to take possession of or otherwise acquire any Collateral in complete or partial satisfaction of any Senior Debt, the Beneficiaries agree to release any Subordinated Liens encumbering any such Collateral acquired by Senior Agent, and to execute and deliver promptly such lien release documents as Senior Agent may reasonably request in connection therewith. The Beneficiaries hereby waive any right they may have by contract or by law to require Senior Agent to give notice of any disposition of Collateral contemplated by this Section 2.2(c) or any such -------------- right the Beneficiaries may have to object to or otherwise contest any such disposition, including, without limitation, any requirement that Senior Agent foreclose upon such Collateral under applicable law. If Senior Agent elects to foreclose upon any Collateral, the Beneficiaries agree not to contest or otherwise challenge any such foreclosure and further agree not to assert any claim or defense that any such foreclosure was not commercially reasonable or otherwise failed to comply with applicable law. (d) Insurance for Collateral. Prior to indefeasible payment in full in ------------------------ cash of the Senior Debt and termination of the Credit Agreement in accordance with its terms, as between the Beneficiaries and the Senior Agent, Senior Agent shall have the sole right, in the exercise of its reasonable credit judgment, to adjust and compromise any claims under any insurance maintained by any of the Grantors insuring any Collateral, to collect and receive the proceeds thereof, and to execute and deliver all proofs of loss, receipts, vouchers and releases in connection with such claims. Upon receipt, the Beneficiaries will deliver to Senior Agent or any such insurer such releases, consents or other instruments as Senior Agent may reasonably request to implement the provisions of this Section ------- 2.2(d). Any insurer shall be entitled to rely on a copy of this Security - ------ Agreement as its irrevocable authorization to deal solely with Senior Agent as hereinabove described, notwithstanding the designation of Beneficiaries as loss payee, mortgagee, additional insured or the like of any such policy of insurance. 2.3. Negotiable Collateral. In the event that any Collateral, including --------------------- proceeds, is evidenced by or consists of negotiable instruments ("Negotiable ---------- Collateral"), the applicable - ----------- -7- Grantor or Grantors shall, immediately upon the request of Beneficiaries, endorse and assign such Negotiable Collateral to Beneficiaries and deliver physical possession of such Negotiable Collateral to Beneficiaries, subject to the respective rights of the Senior Debtholders and Beneficiaries. 2.4. Collection of Receivables. Subject to Section 2.10(a)(i): ------------------------- ------------------ (a) to expedite collection of Receivables of Grantors, Grantors shall, promptly upon the request of Beneficiaries (and subject to the rights of the Senior Debtholders under the Credit Agreement and the other Loan Documents), collect any cash receipts, checks, and other items of payment that it receives on account of the Receivables for deposit into lockboxes or blocked accounts (the "Blocked Accounts") designated by Beneficiaries. All remittances received ---------------- by Grantors shall be held in trust for Beneficiaries and Grantors will immediately deposit such collections in the Blocked Accounts or, if requested by Beneficiaries, deliver to Beneficiaries said collections in the same form as received (but with any endorsements of Grantors necessary for deposit or collection); (b) Beneficiaries shall have the right to take any and all of the actions set forth in paragraph (c) of this Section 2.4, at any time, without ------------- ----------- notice to Grantors, if (1) there then exists an Event of Default; (2) in Beneficiaries' good faith judgment, based upon credible evidence, Beneficiaries believe that: (A) the Blocked Accounts are being circumvented or other circumstances exist which threaten Beneficiaries' ability to maintain its dominion over cash, (B) the proceeds of Beneficiaries' Collateral are being diverted from it, or (C) the Grantors' properties or assets are otherwise being misappropriated; or (3) in Beneficiaries' reasonable judgment, based upon credible evidence, there has occurred a material impairment of the prospect of repayment of Grantors' obligations or a material impairment of the validity, priority, or enforceability of Beneficiaries' Security Interest in the Collateral; Beneficiaries shall additionally have all rights of stoppage in transit, replevin, reclamation and other rights of an unpaid seller and/or lienor under the Uniform Commercial Code. All amounts received by Beneficiaries in payment of Receivables assigned to any of them, including without limitation, all amounts wired to Beneficiaries' respective accounts from the Blocked Accounts in accordance with Beneficiaries' instructions, will be credited to the account of Grantors, for purposes of interest calculations, on the date of receipt of good funds by Beneficiaries; and (c) At the times and upon the occurrence of the events described in paragraph (b) of this Section 2.4, Beneficiaries or Beneficiaries' designee may: - ------------- ----------- (i) notify customers or account debtors of any Grantor that the accounts or Receivables have been assigned to Beneficiaries or that Beneficiaries have a security interest therein; (ii) collect Receivables directly in their own name and charge the collection costs and expenses, including reasonable attorneys' fees, to Grantors, and (iii) receive, open and dispose of all mail addressed to any Grantor. 2.5. Delivery of Additional Documentation Required. Subject to Section --------------------------------------------- ------- 2.10, each Grantor shall execute and deliver to the Collateral Agent, prior to - ---- or concurrently with such Grantor's execution and delivery of this Security Agreement and at any time thereafter at the request of the Collateral Agent, all financing statements, continuation financing statements, -8- fixture filings, security agreements, chattel mortgages, pledges, assignments (of all Receivables and all related documents), endorsements of certificates of title, applications for title, affidavits, reports, notices, schedules of accounts, letters of authority, and all other documents that the Collateral Agent may reasonably request, in form satisfactory to the Collateral Agent, to perfect and continue perfected the Security Interest in the Collateral and in order to fully consummate all of the transactions contemplated under the documents evidencing the Subordinated Debt. 2.6. Power of Attorney. Subject to Section 2.10 and the Collateral Agency ----------------- ------------ Agreement, each Grantor hereby irrevocably makes, constitutes, and appoints the Collateral Agent (and any of the Collateral Agent's officers, employees, or agents designated by the Collateral Agent) as Grantor's true and lawful attorneys, with power to: (a) sign the name of such Grantor on any of the documents described in Section 2.5 or on any other similar documents to be executed, ----------- recorded, or filed in order to perfect or continue perfected the Security Interest; (b) sign such Grantor's name on any invoice or bill of lading relating to any accounts, drafts against account debtors, schedules and assignments of Receivables, verifications of Receivables, and notices to account debtors; (c) send requests for verification of Receivables; (d) endorse such Grantor's name on any checks, notices, acceptances, money orders, drafts, or other item of payment or security that may come into such Beneficiary's possession; (e) at any time that (1) there then exists an Event of Default, (2) in the Collateral Agent's good faith judgment, based upon credible evidence, the Collateral Agent believes that (A) the Blocked Accounts are being circumvented or other circumstances exist which threaten the Collateral Agent's ability to maintain its dominion over cash, (B) the proceeds of the Collateral are being diverted from it, or (C) such Grantor's properties or assets are otherwise being misappropriated, or (3) in the Collateral Agent's reasonable judgment, based upon credible evidence, there has occurred a material impairment of the prospect of repayment of such Grantor's obligations or material impairment of the validity, priority, or enforceability of the Beneficiaries' Security Interest in the Collateral, notify the post office authorities to change the address for delivery of such Grantor's mail to an address designated by the Collateral Agent, receive and open all mail addressed to such Grantor, and retain all mail relating to the Collateral and forward all other mail to such Grantor; (f) at any time that there exists an Event of Default or the Collateral Agent deems the Beneficiaries insecure, make, settle, and adjust all claims under such Grantor's policies of insurance or in respect of condemnation proceedings, and make all determinations and decisions with respect to such policies of insurance or condemnation proceedings; and (g) at any time that there exists an Event of Default or the Collateral Agent deems the Beneficiaries insecure, settle and adjust disputes and claims respecting the -9- Receivables directly with the applicable Debtors, for amounts and upon terms which the Collateral Agent determines to be reasonable, and the Collateral Agent may cause to be executed and delivered any documents and releases which it determine to be necessary. With respect to the matters described in clauses (f) and (g) of this ----------- --- Section 2.6, the Collateral Agent shall not act pursuant to the foregoing power - ----------- of attorney until the Collateral Agent has provided such Grantor with notice of the Collateral Agent's intent so to act not less than ten (10) Business Days prior to any such proposed action and, in the event such Grantor has taken the necessary steps during such period to settle or adjust such disputes or claims in a manner satisfactory to the Collateral Agent, or is otherwise proceeding toward a resolution of such matters in a manner satisfactory to the Collateral Agent, the Collateral Agent shall allow such Grantor to complete such settlement so long as such Grantor continues to diligently prosecute the same toward a conclusion. The appointment of the Collateral Agent as each Grantor's attorney, and each and every one of the Collateral Agent's rights and powers, being coupled with an interest, is irrevocable until all obligations in respect of the Subordinated Debt have been fully repaid and performed and the Beneficiaries' obligations hereunder are terminated. 2.7. Right to Inspect. Each Beneficiary (through any of its officers, ---------------- employees, or agents) shall have the right, from time to time hereafter, at reasonable times and upon reasonable notice, to inspect Grantor's books and to check, test, and appraise the Collateral in order to verify each Grantor's financial condition or the amount, quality, value, condition of, or any other matter relating to, the Collateral. 2.8. Releases Upon Termination. Upon the termination of this Security ------------------------- Agreement and the satisfaction of and payment in full of all Subordinated Debt, each Beneficiary shall deliver to each Grantor upon its request therefor and at such Grantor's expense, releases, reconveyances and satisfactions of all financing statements, mortgages, notices of assignment and other registrations of security, and each Grantor shall also deliver to each Beneficiary an unqualified release of all of such Beneficiary's obligations under all documents evidencing Subordinated Debt and an acknowledgment that the same have been terminated. 2.9. Recourse to Security. Recourse to security shall not be required for -------------------- any of Grantors' obligations in respect of the Subordinated Debt hereunder nor shall Beneficiaries be required to first marshall, dispose of, or realize upon any security or Collateral. 2.10. Standstill Provisions. (a) So long as the Senior Debt has not been --------------------- paid in full, in cash, and any Loan Document remains in effect, whether or not any event or proceeding described in subparagraphs (f) or (g) of Article VIII of the Credit Agreement has been commenced by or against any Grantor: (i) no Beneficiaries will (A) exercise or seek to exercise any rights or exercise any remedies with respect to any Collateral or (B) institute any action or proceeding with respect to such rights or remedies, including without limitation, any action of foreclosure or (C) contest, protest or object to any foreclosure proceeding or action brought by any Senior Debtholder or any other exercise by a Senior Debtholder of any rights and remedies under any Loan Documents; and -10- (ii) the Senior Debtholders shall have the exclusive right to enforce rights and exercise remedies with respect to the Collateral, including, without limitation, the right to notify account debtors. (b) In exercising rights and remedies with respect to the Collateral, the Senior Debtholders may enforce the provisions of the Loan Documents and exercise remedies thereunder, all in such order and in such manner as they may determine in the exercise of their sole business judgment. Such exercise and enforcement shall include, without limitation, the rights to sell or otherwise dispose of Collateral, to incur expenses in connection with such sale or disposition and to exercise all the rights and remedies of a secured lender under the Uniform Commercial Code of any applicable jurisdiction. (c) When all Senior Debt has been paid in full in cash and the Security Documents no longer are in effect, the Beneficiaries shall have the right to enforce the provisions of this Security Agreement and exercise remedies hereunder. 2.11. Voting Rights and Dividends on Pledged Stock. Unless and until an -------------------------------------------- Event of Default shall have occurred and be continuing: (a) Each Pledgor shall be entitled to exercise any and all voting and/or consensual rights and powers accruing to an owner of Pledged Securities or any part thereof for any purpose not inconsistent with the terms of this Security Agreement and the Purchase Agreement, provided that such action would not adversely affect the rights inuring to the Collateral Agent or the Beneficiaries under this Security Agreement or the Purchase Agreement or adversely affect the rights and remedies of the Collateral Agent or the Beneficiaries under this Security Agreement or the Purchase Agreement or the ability of the Collateral Agent or the Beneficiaries to exercise the same. (b) Each Pledgor shall be entitled to receive and retain any and all dividends paid on Pledged Securities only to the extent that such dividends are permitted by, and otherwise paid in accordance with the terms and conditions of, the Purchase Agreement and applicable laws. Any and all (i) noncash dividends, (ii) stock or dividends paid or payable in cash or otherwise in connection with a partial or total liquidation or dissolution of the issuer, and (iii) instruments, securities, other distributions in property, return of capital, return of capital surplus or return of paid-in surplus or other distributions made on or in respect of pledged securities (other than dividends described in the first sentence of this subsection 2.11(b)), whether paid or payable in cash or otherwise, whether resulting from a subdivision, combination or reclassification of the outstanding capital stock of the issuer of any Pledged Securities or any part thereof, or in redemption thereof, as a result of any merger, consolidation, acquisition or other exchange of assets to which such issuer may be a party or otherwise -11- shall be and become part of the collateral in which a Security Interest has been granted under this Security Agreement, and, if received by a Pledgor, shall not be commingled by such Pledgor with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Collateral Agent and the Beneficiaries and shall be forthwith delivered to the Collateral Agent in the same form as so received (with any necessary endorsement). ARTICLE III CONDITIONS PRECEDENT 3.1. Approval of Documents and Security Interest. Beneficiaries shall ------------------------------------------- have received evidence that all approvals and/or consents of, or other action by, any shareholder, government, agency, or other Person whose approval or consent is necessary or required to enable (a) the Grantor to: (1) enter into and perform its obligations under the documents evidencing the Subordinated Debt, and (2) enter into the Subordinated Debt Documents and grant to Beneficiaries the Security Interest; and (b) all other applicable parties to execute and deliver all documents evidencing the Subordinated Debt, have been obtained. 3.2. Perfection of Security Interest. All filings of Uniform Commercial ------------------------------- Code financing statements and all other filings and actions necessary to perfect and maintain the Security Interest as valid and perfected Liens in the property covered thereby, subject only to Senior Liens and those Liens existing on the date hereof which are permitted under the Credit Agreement (collectively, the "Permitted Liens"), shall be filed within 10 days of the date of execution of --------------- this Security Agreement or taken and confirmation thereof shall have been received by Beneficiaries within 10 days of such filing. Beneficiaries shall have received the original of any certificates of title or other instruments necessary to be delivered into Beneficiaries' possession in order to perfect Beneficiaries' Security Interest therein. ARTICLE IV COVENANTS; REPRESENTATIONS 4.1. Consents and Approvals. Except for such filings as are required to ---------------------- perfect Beneficiaries' Security Interest, the consent of the Senior Agent or the Senior Debtholders, the approval of each Grantor's Board of Directors and Beneficiaries and any consents of parties to contracts and agreements under which any Grantor or any of its property is bound, which filings, approvals and consents are set forth on Schedule 4.1 hereto, no approvals and/or consents of, ------------ or other action by, any shareholder, government instrumentality, agency or regulatory authority, or other Person are necessary or required to enable each Grantor to (i) enter into and perform its obligations under the Subordinated Debt Documents, and (ii) enter into the Subordinated Debt Documents and grant to Beneficiaries the Security Interest. 4.2. Covenants. Each Grantor covenants and agrees with the Beneficiaries --------- that, from and after the date of this Security Agreement until the obligations in respect of the Subordinated Debt are paid in full, and subject to Section ------- 2.10: - ---- -12- (a) Maintenance of Perfected Security Interests; Further ---------------------------------------------------- Documentation; Pledge of Instruments and Chattel Paper. Subject to ------------------------------------------------------ Permitted Liens, the Grantor shall maintain the Security Interest created by this Security Agreement hereof and shall defend such Security Interest against the claims and demands of all Persons whomsoever. At any time and from time to time, upon the written request of the Beneficiaries, and at the sole expense of the Grantor, the Grantor will promptly and duly execute and deliver such further instruments and documents and take such further action as the Beneficiaries may reasonably request for the purpose of obtaining or preserving the full benefits of this Security Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements made under the Uniform Commercial Code in effect in any jurisdiction with respect to the Liens created hereby. The Grantor also hereby authorizes the Beneficiaries to file any such financing or continuation statement without the signature of such Grantor to the extent permitted by applicable law. A carbon, photographic or other reproduction of this Security Agreement shall be sufficient as a financing statement for filing in any jurisdiction. Subject to the prior rights of the Senior Debtholders and with their consent, if any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument or Chattel Paper, such Instrument or Chattel Paper shall be immediately delivered to the Beneficiaries, duly endorsed in a manner satisfactory to the Beneficiaries, to be held as Collateral pursuant to this Security Agreement. (b) Indemnification. The Grantor agrees to pay, and to save the --------------- Beneficiaries, harmless from, any and all liabilities, costs and expenses (including, without limitation, legal fees and expenses) (i) with respect to, or resulting from, any delay in paying, any and all excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral, (ii) with respect to, or resulting from, any delay in complying with any requirement of law applicable to any of the Collateral or (iii) in connection with any of the transactions contemplated by this Security Agreement. In any suit, proceeding or action brought by the Beneficiaries in respect of any Receivable or Subordinated Debt Document for any sum owing thereunder, or to enforce any provisions of any Receivable or Subordinated Debt Document, the Grantor will save, indemnify and keep the Beneficiaries harmless from and against all expense, loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction or liability whatsoever of the account debtor or obligor thereunder, arising out of a breach by the Grantor of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such account debtor or obligor or its successors from the Grantor, except where the same is the direct result of the Beneficiaries' gross negligence or willful misconduct. (c) Maintenance of Records. The Grantor will keep and maintain at its ---------------------- own cost and expense satisfactory and complete records of the Collateral, including, without limitation, a record of all payments received and all credits granted with respect to the Receivables. The Grantor will enter a field into its financial records software or otherwise mark its books and records pertaining to the Collateral to evidence this Security Agreement and the Security Interest granted hereby. Subject to Section 2.10, if the ------------ Grantor is then in default under the Purchase Agreement, the Grantor shall turn over -13- any books and records pertaining to the Collateral to the Beneficiaries or to its representatives during normal business hours at the request of the Beneficiaries. (d) Right of Inspection. Upon reasonable notice (which may be ------------------- telephonic), Beneficiaries shall at all times have full and free access during normal business hours to all the books, correspondence and records of the Grantor and the Beneficiaries or its representatives may examine the same, take extracts therefrom and make photocopies thereof, at Beneficiaries' cost and expense, and the Grantor agrees to render to the Beneficiaries, at such Grantor's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. The Beneficiaries and their respective representatives shall at all times also have the right to enter into and upon any premises where any of the Inventory or Equipment is located for the purpose of inspecting the same, observing its use or otherwise protecting its interests therein. (e) Compliance with Laws, etc. The Grantor will comply in all ------------------------- material respects with all requirements of law applicable to the Collateral or any part thereof or to the operation of the Grantor's business; provided, however, that the Grantor may contest any requirement of law in -------- ------- any reasonable manner which shall not, in the reasonable opinion of the Beneficiaries, adversely affect the Beneficiaries' rights or the priority of their Liens on the Collateral. (f) Compliance with Terms of Subordinated Debt Documents. The Grantor ---------------------------------------------------- will perform and comply in all material respects with all its obligations under the Subordinated Debt Documents and all its other obligations relating to the Collateral. (g) Payment of Obligations. The Grantor will pay promptly when due ---------------------- all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of its income or profits therefrom, as well as all claims of any kind (including, without limitation, claims for labor, materials and supplies) against or with respect to the Collateral, except that no such charge need be paid if (i) the validity thereof is being contested in good faith by appropriate proceedings, (ii) such proceedings do not involve any material danger of the sale, forfeiture or loss of any of the Collateral or any interest therein and (iii) such charge is adequately reserved against on the Grantor's books in accordance with GAAP. (h) Limitation on Liens on Collateral. The Grantor will not create, --------------------------------- incur or permit to exist, and the Grantor shall defend the Collateral against, and will take such other action as is necessary to remove, any Lien or claim on or to the Collateral, other than the Liens created hereby, Permitted Liens and Liens expressly permitted under Section 7.01 of the Credit Agreement as in effect on the date hereof, but only for so long as such Credit Agreement is in effect and will defend the right, title and interest of the Beneficiaries in and to any of the Collateral against the claims and demands of all Persons whomsoever, other than Permitted Liens. (i) Limitations on Dispositions of Collateral. The Grantor will not ----------------------------------------- sell, transfer, lease or otherwise dispose of any of the Collateral, or attempt, offer or contract to do so except for (x) sales of Inventory in the ordinary course of its business, (y) so -14- long as no Event of Default has occurred and is continuing, the disposition in the ordinary course of business of property not material to the conduct of its business, or (z) sales, transfers and other dispositions of Collateral permitted or consented to pursuant to the Credit Agreement and the other Loan Documents. (j) Limitations on Modifications of Negotiable Collateral and --------------------------------------------------------- Agreements Giving Rise to Receivables; Exercise of Rights; Notices. Except ------------------------------------------------------------------ to the extent permitted or consented to pursuant to the Loan Documents, the Grantor will not (i) amend, modify, terminate or waive any provision of any Negotiable Collateral or any agreement giving rise to a Receivable in any manner which could reasonably be expected to materially adversely affect the value of such Negotiable Collateral or such Receivable as Collateral, (ii) other than in the ordinary course of business as generally conducted by the Grantor over a period of time, fail to exercise promptly and diligently each and every material right which it may have under each Negotiable Collateral and each agreement giving rise to a Receivable (other than any right of termination) or (iii) fail to deliver to the Beneficiaries a copy of each material demand, notice or document received by it relating in any way to any Negotiable Collateral or any agreement giving rise to a Receivable that questions the validity or enforceability of such Negotiable Collateral or Receivables constituting more than 5 % of the aggregate amount of the Receivables. (k) Limitations on Discounts, Compromises, Extensions of Receivables. ---------------------------------------------------------------- Except to the extent permitted or consented to do otherwise pursuant to the Loan Documents, other than in the ordinary course of business consistent with its past practice, the Grantor will not (i) grant any extension of the time of payment of any Receivable, (ii) compromise, compound or settle any Receivable for less than the full amount thereof, (iii) release, wholly or partially, any Person liable for the payment of any Receivable, or (iv) allow any credit or discount whatsoever on any Receivable. (l) Maintenance of Equipment. Except to the extent permitted to do ------------------------ otherwise pursuant to the Loan Documents, the Grantor will maintain each item of Equipment in good operating condition, ordinary wear and tear and immaterial impairments of value and damage by the elements excepted, and will provide all maintenance, service and repairs necessary for such purpose, except that the Grantor's obligations pursuant to this Section ------- 4(l) shall not extend to obsolete Equipment. ---- (m) Maintenance of Insurance. Except to the extent permitted to do ------------------------ otherwise pursuant to the Loan Documents, the Grantor will maintain, with financially sound and reputable companies, insurance policies as required under the Credit Agreement. All such insurance shall (i) provide that no cancellation, material reduction in amount or material change in coverage thereof shall be effective until at least 30 days after receipt by the Beneficiaries of written notice thereof, (ii) name the Senior Agent as an insured party and loss payee and name Beneficiaries as additional insured parties and loss payees, (iii) include a breach of warranty clause and (iv) be reasonably satisfactory in all other respects to the Beneficiaries. The Grantor shall deliver to the Beneficiaries during the month of April in each calendar year, and from time to time as the Beneficiaries may reasonably request, certificates of insurance or other evidence reasonably satisfactory to Beneficiaries of compliance with the foregoing. -15- (n) Further Identification of Collateral. The Grantor will furnish to ------------------------------------ the Collateral Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Beneficiaries may reasonably request, all in reasonable detail. (o) Notices. The Grantor will advise the Beneficiaries promptly, in ------- reasonable detail, at the address set forth on the signature page hereto, (i) of any Lien (other than Liens created hereby, Permitted Liens or Liens expressly permitted under Section 7.01 of the Credit Agreement as in effect on the date hereof, but only for so long as such Credit Agreement is in effect) on, or claim asserted against, any of the Collateral and (ii) of the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or on the Liens created hereunder. (p) Changes in Locations. The Grantor will not (i) change the -------------------- location of its executive offices, (ii) maintain books and records (including computer printouts and programs) concerning the Receivables or permit any of the Inventory or Equipment to be kept at a location other than those at which the same are presently maintained or kept (except when such Inventory or Equipment are being used in the ordinary course of the Grantor's business) or (iii) change its name, identity or corporate structure to such an extent that any financing statement filed by the Beneficiaries in connection with this Security Agreement would become seriously misleading, unless it shall have given the Beneficiaries at least 30 days prior written notice thereof. (q) Patents, Trademarks and Copyrights. Except to the extent ---------------------------------- permitted to do otherwise pursuant to the Loan Documents, (i) The Grantor (either itself or through licensees) will (A) continue to use each Trademark on each and every trademark class of goods applicable to its current line as reflected in its current catalogs, brochures and price lists in order to maintain such Trademarks in full force free from any claim of abandonment for non- use, (B) maintain as in the past the quality of products and services offered under such Trademark, (C) employ such Trademark with the appropriate notice of registration, (D) not adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark unless the Beneficiaries, shall obtain a perfected security interest in such mark pursuant to this Security Agreement, and (E) not (and not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any Trademark may become invalidated; (ii) The Grantor will not do any act, or omit to do any act, whereby any material Patent may become abandoned or dedicated; (iii) The Grantor (either itself or through licensees) will, for each work covered by a material Copyright, continue to publish, reproduce, display, adopt and distribute the work with appropriate copyright notice as necessary and sufficient to establish and preserve the Grantor's material rights under all applicable copyright laws; -16- (iv) The Grantor will notify the Beneficiaries immediately if it knows, or has reason to know, that any material Patent, Trademark or Copyright or any application or registration relating to any thereof may become abandoned, lost or dedicated, or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court or tribunal or similar office in any country) regarding the Grantor's ownership of any material Patent, Trademark or Copyright or its right to register the same or to keep and maintain the same; (v) The Grantor, either by itself or through any agent, employee, licensee or designee, shall not file (A) any application for the registration of a Patent, Trademark or Copyright, or (B) any assignment of a patent, trademark or copyright which it may acquire from a third party, with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, as the case may be, unless the Grantor reports such filing to the Beneficiaries on or prior to the date of thereof; (vi) The Grantor shall from time to time execute and deliver any and all agreements, instruments, documents, and papers as the Beneficiaries may request to evidence the Beneficiaries' security interest in any Patent, Trademark or Copyright and the goodwill and general intangibles of the Grantor relating thereto or represented thereby, and, subject to the rights of the Senior Debtholders and the Senior Agent, the Grantor hereby constitutes the Beneficiaries its attorney-in-fact to execute and file all such writings for the foregoing purposes, all acts of such attorney being hereby ratified and confirmed; such power being coupled with an interest is irrevocable until the obligations in respect of the Subordinated Debt are paid in full; (vii) The Grantor will take all reasonable and necessary steps, including, without limitation, in any proceeding before the United States Patent and Trademark Office or the United States Copyright Office, or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of the Patents, Trademarks and Copyrights, including, without limitation, timely filing of applications for renewal, affidavits of use and affidavits of incontestability and payment of maintenance fees; (viii) In the event that any Patent, Trademark or Copyright included in the Collateral is infringed, misappropriated or diluted by a third party, the Grantor shall promptly notify the Beneficiaries after it learns thereof and, at the Grantor's sole expense, shall, unless the Grantor shall reasonably determine that such Patent, Trademark or Copyright is of negligible economic value to the Grantor, promptly sue for infringement, misappropriation or dilution, to seek injunctive relief where appropriate and to recover any and all damages for such infringement, misappropriation or dilution, or take such other actions as the -17- Grantor shall reasonably deem appropriate under the circumstances to protect such Patent, Trademark or Copyright; and (ix) Upon and during the continuance of an Event of Default and at the reasonable request of the Beneficiaries, the Grantor shall use its reasonable efforts to obtain all requisite consents or approvals by the licensor of each Copyright License, Patent License or Trademark License to effect the assignment of all of the Grantor's rights, title and interest thereunder to the Beneficiaries or its designee. (r) Vehicles. Except to the extent permitted to do otherwise pursuant -------- to the Loan Documents, the Grantor will maintain each vehicle in good operating condition, ordinary wear and tear and immaterial impairments of value and damage by the elements excepted, and will provide all maintenance, service and repairs reasonably necessary for such purpose. (s) Inventory. None of the Inventory of the Grantor shall be --------- evidenced by a warehouse receipt. ARTICLE V REMEDIES 5.1. Enforcement of Security Interest. Subject to Section 2.10, -------------------------------- ------------ Beneficiaries may enforce their respective rights and remedies with respect to the Subordinated Debt Documents in accordance with their respective terms, and do any one or more of the following, all of which are authorized by each Grantor: (i) terminate this Security Agreement and any of the other Subordinated Debt Documents as to any future liability or obligation of Beneficiaries, but without affecting Beneficiaries' rights and Security Interest in the Collateral and without affecting Grantor's obligations in respect of the Subordinated Debt and Grantor shall continue to assign Receivables and consign Inventory to Beneficiaries and continue to turn over collections to it; (ii) cause Grantor to hold all returned Inventory in trust for Beneficiaries, segregate all returned Inventory from all other property of Grantor or in Grantor's possession and conspicuously label said returned Inventory as the property of Beneficiaries; (iii) without notice to or demand upon Grantor, make such payments and do such acts as Beneficiaries consider necessary or reasonable to protect their Security Interest in the Collateral. Grantor agrees to assemble the Collateral if Beneficiaries so require, and to make the Collateral available to Beneficiaries as Beneficiaries may designate. Grantor authorizes Beneficiaries to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or Lien that in Beneficiaries' determination appears to be prior or superior to their Security Interest and to pay all expenses incurred in connection therewith. With respect to any of Grantor's owned premises, Grantor hereby grants Beneficiaries a license to enter into possession of such premises and to occupy the same, without charge, for up to one hundred -18- twenty (120) days in order to exercise any of Beneficiaries' rights or remedies provided herein, at law, in equity, or otherwise; (iv) ship, reclaim, recover, store, furnish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Beneficiaries are hereby granted a license or other right to use, without charge, Grantor's Patents, Copyrights, rights of use of any name, trade secrets, Trademarks, and advertising matter, and the goodwill associated with any of the foregoing, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and Grantor's rights under all licenses and all franchise agreements shall inure to Beneficiaries' benefit; (v) sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Grantor's premises) as Beneficiaries determines is commercially reasonable. It is not necessary that the Collateral be present at any such sale; (vi) Beneficiaries shall give notice of the disposition of the Collateral as follows: (a) Beneficiaries shall give Grantor, the Senior Agent and each holder of a security interest in the Collateral who has filed with Beneficiaries a written request for notice, a notice in writing of the time and place of public sale, or, if the sale is a private sale or some other disposition other than a public sale is to be made of the Collateral, then the time on or after which the private sale or other disposition is to be made; (b) the notice shall be personally delivered or mailed, postage prepaid, to Grantor as provided in Section 6.14, at least five (5) calendar ------------ days before the date fixed for the sale, or at least five (5) calendar days before the date on or after which the private sale or other disposition is to be made, unless the Collateral is perishable or threatens to decline speedily in value. Notice to persons other than Grantor claiming an interest in the Collateral shall be sent to such addresses as they have furnished to Beneficiaries; (c) if the sale is to be a public sale, Beneficiaries also shall give notice of the time and place by publishing a notice one time at least five (5) calendar days before the date of the sale in a newspaper of general circulation in the county in which the sale is to be held; (vii) Beneficiaries may credit bid and purchase at any public sale; and (viii) any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Grantor. Any excess will be returned, without interest and subject to the rights of third parties, by Beneficiaries to Grantor. 5.2. Collateral Agent. Beneficiaries acknowledge that, pursuant to the ---------------- terms of the Collateral Agency Agreement, they have appointed a Collateral Agent to administer all UCC statements, mortgages or other similar recording documents ("Security Filings") filed in connection with the Security Interest granted to each Beneficiary hereunder. The Grantors shall -19- be entitled to rely on any notice, demand or communication given by the Collateral Agent in respect of the Security Filings. Beneficiaries shall notify Grantors of any new or substitute Collateral Agent within twenty-five (25) days following the date such new Collateral Agent is appointed, provided, that -------- Grantors may continue to rely on any notice, demand or communication given by the previously appointed Collateral Agent in respect of the Security Filings until Grantors have received such notice. ARTICLE VI MISCELLANEOUS 6.1. Possessory Collateral Held By Senior Agent. The Senior Agent hereby ------------------------------------------ agrees to hold, for the benefit of the Beneficiaries, as possessory agent, any Collateral in respect of which a security interest is perfected by possession and has actually been delivered to the Senior Agent (the "Possessory ---------- Collateral"), including without limitation, all Negotiable Collateral so - ---------- delivered and the Senior Agent hereby acknowledges that it will hold all of such Possessory Collateral as agent on behalf of the Beneficiaries in order to perfect the Lien of the Beneficiaries in such Possessory Collateral. The Senior Agent's sole role as agent on behalf of the Beneficiaries in accordance with this Section 6.1 shall be to hold any such Possessory Collateral on behalf of ----------- the Beneficiaries and deliver the same to the Beneficiaries (or any agent of the Beneficiaries designated in writing to the Senior Agent) upon payment in full of the Senior Debt and the termination of the Credit Agreement but subject to its right to release such Collateral pursuant to the Credit Agreement, Section ------- 2.2(c) and this Section 6.1. Notwithstanding anything herein to the contrary, - ------ ----------- the Senior Agent's obligation to hold Possessory Collateral on behalf of the Beneficiaries shall extend only to that Possessory Collateral which the Senior Agent holds on behalf of the Senior Debtholders and the Senior Agent shall have no liability to the Beneficiaries for its failure to hold any Possessory Collateral. 6.2. Attorneys' Fees and Other Fees and Expenses. Whether or not any of ------------------------------------------- the transactions contemplated by this Security Agreement shall be consummated, Grantors agree to pay to Beneficiaries on demand all reasonable and documented expenses incurred by Beneficiaries in connection with the transactions contemplated hereby (including, without limitation, any appraisal fees, title insurance premiums and recording charges) and in connection with any amendments, modifications or waivers (whether or not the same become effective) under or in respect of any of the Subordinated Debt. 6.3. Further Assurances. From time to time, each Grantor shall execute ------------------ and deliver to Beneficiaries such additional documents as Beneficiaries may require to carry out the purposes of all the Subordinated Debt Documents and to protect Beneficiaries' rights thereunder. 6.4. Taxes and Fees. Should any tax (other than taxes based upon the net -------------- income of Beneficiaries), recording or filing fees become payable in respect of any of the Subordinated Debt Documents, or any amendment, modification or supplement thereof, the Grantors agree to pay the same to Beneficiaries on demand, together with any interest or penalties thereon attributable to any delay by Grantors in meeting Beneficiaries' demand, and agrees to hold Beneficiaries harmless with respect thereto. -20- 6.5. Modification of This Security Agreement. No modification or waiver --------------------------------------- of any provision of this Security Agreement shall be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on a Grantor in any case shall entitle such Grantor to any other or further notice or demand in the same, similar or other circumstances. No modification of Section 2.2 or 2.10 which could reasonably be expected to be ----------- ---- adverse to the rights of the Senior Debtholders under the Loan Documents shall be effective without the consent of the Senior Agent. 6.6. Third Party Beneficiaries. The parties hereto acknowledge that the ------------------------- Senior Agent and the Senior Debtholders shall be deemed third party beneficiaries of Sections 2.2, 2.10 and 6.5 hereof, entitled to rely on such ------------ ---- --- provisions as if they were direct signatories to this Security Agreement. 6.7. Headings. The headings in this Security Agreement are for purposes -------- of reference only and shall not limit otherwise affect the meaning hereof. 6.8. Successors and Assigns. This Security Agreement shall be binding ---------------------- upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided, however, that neither this Security -------- ------- Agreement nor any rights or obligations hereunder shall be assignable by a Grantor without the prior express written consent of Beneficiaries, and any purported assignment made in contravention hereof shall be void. No standard of reasonableness shall attach to Beneficiaries' discretion in consenting or not consenting to any assignment. 6.9. Remedies Cumulative. All rights and remedies of Beneficiaries ------------------- pursuant to this Security Agreement, any other Subordinated Debt Documents or otherwise, shall be cumulative and nonexclusive, and may be exercised singularly or concurrently. Beneficiaries shall not be required to prosecute collection, enforcement or other remedies against a Grantor before proceeding to enforce or resort to any security, Liens, collateral or other rights of Beneficiaries. 6.10. Joint and Several Liability. Any obligations of more than one party --------------------------- hereunder, including without limitation, any obligations of a Grantor, shall be joint and several obligations of such parties. 6.11. APPLICABLE LAW. THIS SECURITY AGREEMENT SHALL BE DEEMED TO BE A -------------- CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. FOR PURPOSES OF THIS SECTION 6.11, THIS SECURITY AGREEMENT SHALL BE DEEMED TO BE PERFORMED AND MADE IN THE STATE OF NEW YORK. 6.12. Counterparts. This Security Agreement may be executed by the ------------ parties hereto in two or more counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same agreement. 6.13. Severability. Any provision of this Security Agreement which is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such -21- prohibition or unenforceability without invalidating the remaining provisions of this Security Agreement or affecting the validity or enforceability of such provision in any jurisdiction. 6.14. Notices. All notices required to be given under this Security ------- Agreement shall be sent by overnight courier or by facsimile with same day confirmation or by certified or registered mail, return receipt requested to Grantors at 3111 North Kenwood Street, Burbank, California 91505, to the Collateral Agent at 520 Madison Avenue, New York, New York 10022 and, if any Beneficiary requests all such notices, to such Beneficiary at such address as it may specify to the other parties by like notice. -22- IN WITNESS WHEREOF, this Security Agreement has been executed and delivered by each of the parties hereto by a duly authorized officer of each such party on the date first set forth above. ING EQUITY PARTNERS, L.P. I By: LEXINGTON PARTNERS, L.P. its General Partner By: LEXINGTON PARTNERS, INC. its General Partner By: /s/ Benjamin P. Giess ----------------------------------------------- Name: Benjamin P. Giess Title: Authorized Signatory Solely for purposes of Section 6.1, THE CHASE MANHATTAN BANK By: /s/ Donna M. DiForio ----------------------------------------------- Name: Donna M. DiForio Title: Vice President MATTHEWS STUDIO EQUIPMENT GROUP By: /s/ Carlos D. DeMattos ----------------------------------------------- Name: Carlos D. DeMattos Title: Chairman of the Board & Chief Executive Officer MATTHEWS STUDIO SALES, INC. By: /s/ Carlos D. DeMattos ----------------------------------------------- Name: Carlos D. DeMattos Title: President -23- HOLLYWOOD RENTAL COMPANY, LLC (as successor by merger to Hollywood Rental Co., Inc.) By: /s/ Carlos D. DeMattos ----------------------------------------------- Name: Carlos D. DeMattos Title: Chief Financial Officer MATTHEWS STUDIO ELECTRONICS, INC. By: /s/ Carlos D. DeMattos ----------------------------------------------- Name: Carlos D. DeMattos Title: Chief Executive Officer MATTHEWS ACCEPTANCE CORPORATION By: /s/ Carlos D. DeMattos ----------------------------------------------- Name: Carlos D. DeMattos Title: President DUKE CITY VIDEO, INC. By: /s/ Carlos D. DeMattos ----------------------------------------------- Name: Carlos D. DeMattos Title: President HDI HOLDINGS, INC. By: /s/ Carlos D. DeMattos ----------------------------------------------- Name: Carlos D. DeMattos Title: Chairman of the Board -24- FOUR STAR LIGHTING, INC. By: /s/ Carlos D. DeMattos ----------------------------------------------- Name: Carlos D. DeMattos Title: Chief Executive Officer MATTHEWS STUDIO GROUP CENTERS, INC. (f/k/a Matthews Medical Equipment, Inc.) By: /s/ Carlos D. DeMattos ----------------------------------------------- Name: Carlos D. DeMattos Title: President KEYLITE HOLDINGS, INC. By: /s/ Carlos D. DeMattos ----------------------------------------------- Name: Carlos D. DeMattos Title: Chief Financial Officer REEL WHEELS, INC. By: /s/ Carlos D. DeMattos ----------------------------------------------- Name: Carlos D. DeMattos Title: Chief Financial Officer KEYLITE PRODUCTION SERVICES, INC. By: /s/ Carlos D. DeMattos ----------------------------------------------- Name: Carlos D. DeMattos Title: Chief Financial Officer -25- DUKE CITY HOLDINGS, INC. By: /s/ Carlos D. DeMattos ----------------------------------------------- Name: Carlos D. DeMattos Title: Chief Executive Officer FOUR STAR HOLDING, INC. By: /s/ Carlos D. DeMattos ----------------------------------------------- Name: Carlos D. DeMattos Title: President SHOWBIZMART.COM, INC. By: /s/ Carlos D. DeMattos ----------------------------------------------- Name: Carlos D. DeMattos Title: President -26- EX-10.25 6 WAIVER AND AMENDMENT AGREEMENT NO.4 Exhibit 10.25 ------------- WAIVER AND AMENDMENT AGREEMENT NO. 4 WAIVER AND AMENDMENT AGREEMENT NO. 4 (this "Agreement") dated as of --------- June 30, 1999 to the Amended and Restated Credit Agreement, dated as of April 1, 1998 (as the same has been or may be amended, restated, modified or supplemented from time to time in accordance with its terms, the "Credit Agreement"), among ---------------- Matthews Studio Equipment Group, a California corporation ("Parent"), Matthews ------ Studio Sales, Inc., a California corporation ("MSSI"), Hollywood Rental Company, ---- LLC, a Delaware limited liability company ("HRCL"), Matthews Studio Electronics, ---- Inc., a California corporation ("MSE"), Matthews Acceptance Corporation, a --- California corporation ("MAC"), Duke City Video, Inc., a New Mexico corporation --- ("Duke"), HDI Holdings, Inc., a Kentucky corporation ("HDI"), Four Star ---- --- Lighting, Inc., a New York corporation ("Four Star", and collectively with --------- Parent, MSSI, HRCL, MSE, MAC, Duke and HDI, each a "Borrower" and collectively, -------- the "Borrowers"), the Guarantors named therein, the lenders named therein --------- (collectively, the "Lenders"), and The Chase Manhattan Bank, as agent for the ------- Lenders (in such capacity, the "Agent"). Capitalized terms used herein and not ----- otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement. WHEREAS, Parent is entering into a Note Purchase Agreement, dated as of the date hereof (the "ING Note Purchase Agreement") by and among Parent and --------------------------- the Purchasers (as defined therein) listed on Schedule I thereto; WHEREAS, Parent is executing one or more Convertible Senior Subordinated Notes, dated the date hereof (together with any future Convertible Senior Subordinated Notes issued pursuant to the ING Note Purchase Agreement, the "ING Convertible Senior Subordinated Notes") in connection with the ING Note ----------------------------------------- Purchase Agreement; WHEREAS, the Borrowers and the Guarantors are executing an Amended and Restated Security Agreement, dated as of June 30, 1999 (the "ING Security ------------ Agreement") among the Borrowers, the Guarantors, ING, and the Beneficiaries (as - --------- defined therein) pursuant to which ING shall have a Lien (which Lien shall be junior to the lien of the Agent in all respects on the terms set forth therein) on all of the assets of the Borrowers and the Guarantors; WHEREAS, the Borrowers have requested that the Lenders consent to the formation of a wholly-owned subsidiary of Parent named ShowbizMart.com Inc., a Delaware corporation ("SMC"); --- WHEREAS, the Borrowers have requested that the Lenders agree to waive and amend certain terms and provisions of the Credit Agreement; WHEREAS, the Lenders have agreed to waive certain conditions of the Credit Agreement as described herein; and WHEREAS, the Lenders, Borrowers and Guarantors have agreed to amend the Credit Agreement as described herein; NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and subject to the fulfillment of the conditions set forth below, the parties hereto agree as follows: SECTION 1. CONSENT 1.1 The Lenders hereby consent to the release and termination of the ING Letter of Credit and instruct the Agent to return the original copy of the ING Letter of Credit to ING as of the date hereof. 1.2 The Agent and the Lenders hereby approve the Subordinated Indebtedness (this approval shall constitute "written approval" as contemplated in the definition of "Subordinated Indebtedness" in the Credit Agreement) incurred by Parent under the ING Note Purchase Agreement and the ING Convertible Senior Subordinated Notes; provided, however, that if the amount of -------- ------- interest due and payable under any ING Convertible Senior Subordinated Note exceeds $1,000 the Parent shall pay such interest by issuing additional ING Convertible Senior Subordinated Notes in lieu of making cash payments. The parties hereto agree that the term "Subordinated Indebtedness" does not mean or include any warrants issuable under the ING Note Purchase Agreement. 1.3 The Agent and the Lenders hereby approve the acquisition of the stock or assets, as the case may be, of The eMarket Group on substantially the terms set forth in the letter of intent, dated as of May 13, 1999 for the aggregate consideration of 1,200,000 shares of Parent's common stock and the assumption by the Borrowers of a maximum of $300,000 of the Indebtedness of The eMarket Group (collectively, the "eMarket Transaction"); provided, that all of ------------------- -------- the debt assumed by the Borrowers in connection with the eMarket Transaction shall be subordinate to the Obligations; and provided, further, that upon -------- ------- consummation of the eMarket Transaction, the Borrowers pledge the acquired stock and assets, as the case may be, as required by the terms of the Credit Agreement and the Security Documents, including but not limited to, pledging the acquired stock of The eMarket Group, if any, to the Agent for the benefit of the Lenders, and causing eMarket to become a Grantor under the Security Agreement and the Security Agreement - Patents and Trademarks. SECTION 2. WAIVERS TO CREDIT AGREEMENT 2.1 The Lenders hereby waive Section 7.01 of the Credit Agreement as it applies to the ING Security Agreement. 2.2 The Lenders hereby waive the requirements of Section 7.20 of the Credit Agreement as it applies to the ING Note Purchase Agreement, the ING Convertible Senior Subordinated Note and the ING Security Agreement and any other document executed in connection therewith or transactions contemplated thereby. 2.3 The Lenders hereby waive the requirement, contained in Section 2.09 of the Credit Agreement, that the $10,000,000 to be received by the Borrowers on the date hereof in connection with the ING Note Purchase Agreement be applied to the Term Loan. The Borrowers and the Lenders agree that 100% of such proceeds shall be applied to prepay the -2- Revolving Credit Loan, provided, however, that this waiver shall only be -------- ------- applicable to funds received by the Borrowers on the date hereof and in an amount not to exceed $10,000,000. 2.4 The Lenders hereby waive Section 7.06 of the Credit Agreement as it relates to the formation of SMC. 2.5 Except for the specific waivers set forth in Sections 2.1, 2.2, 2.3 and 2.4 above, nothing herein shall be deemed to be a waiver of any covenant or agreement contained in the Credit Agreement, and the Borrowers and Guarantors hereby agree that all of the covenants and agreements contained in the Credit Agreement are hereby ratified and confirmed in all respects. SECTION 3. AMENDMENTS TO CREDIT AGREEMENT 3.1 By executing and delivering this Agreement, SMC hereby becomes a Guarantor under the Credit Agreement and agrees to be bound by, and to comply with the terms and provisions of the Credit Agreement in the same manner as if it were an original signatory thereto as a Guarantor. 3.2 The grid contained in the definition of "Interest Margin" in Section 1.01 of the Credit Agreement is hereby amended in its entirety to read as follows: Leverage Ratio Alternate Base Rate LIBO Rate - -------------- Interest Margin Interest Margin ------------------------- --------------------- 0 - 2.00 to 1.00 0% 1.50% 2.01 - 2.50 to 1.00 0% 1.75% 2.51 - 3.00 to 1.00 0% 2.00% 3.01 - 3.50 to 1.00 0.25% 2.25% 3.51 - 4.00 to 1.00 0.50% 2.50% 4.01 - 5.00 to 1.00 0.75% 2.75% 5.01 - 6.00 to 1.00 1.25% 3.25% 6.01 or greater to 1.00 1.50% 3.50% 3.3 Section 7.07 of the Credit Agreement (Capital Expenditures) is hereby amended by deleting the amounts "$7,000,000" and "$11,500,000" as they appear opposite the periods ending September 30, 1999 and September 30, 2000 and substituting therefor the amounts "$10,000,000" and "$8,000,000", respectively. 3.4 Section 7.08 of the Credit Agreement (Net Worth) is hereby amended by deleting the period "4/1/1999 through and including 6/30/99" and the corresponding amount "$200,000". Section 7.08 of the Credit Agreement is hereby further amended by deleting the period "7/1/1999 through and including 9/29/00" and substituting therefor the period "12/31/1999 through and including 9/29/2000". 3.5 Section 7.09 of the Credit Agreement (Debt Service Coverage Ratio) is hereby amended in its entirety to read as follows: -3- SECTION 7.09 Debt Service Coverage Ratio. Permit the Debt --------------------------- Service Coverage Ratio of the Parent and its Consolidated subsidiaries at the end of the fiscal quarters ending December 31, 1999 through March 31, 2000 to be less than 1.50:1.00 and thereafter at the end of each fiscal quarter to be less than 1.75:1.00. 3.6 Section 7.11 of the Credit Agreement (Interest Coverage Ratio) is hereby amended by deleting the dates "6/30/99" and "9/30/99" and the Ratios "1.15:1:00" and "1.25:1.00" set forth opposite such dates as they appear in such Section. 3.7 Section 7.12 of the Credit Agreement (Leverage Ratio) is hereby amended by deleting the Leverage Ratios "6.00:1:00" and "5.00:1.00" set forth opposite the dates "6/30/99" and "9/30/99" and substituting therefor, in each case, the Leverage Ratio "8.50:1.00". 3.8 Section 7.13 of the Credit Agreement (EBITDA) is hereby amended in its entirety to read as follows: SECTION 7.13. EBITDA. Permit EBITDA of the Parent and its ------ Consolidated subsidiaries to be less than (i) $7,300,000 for the period October 1, 1998 through June 30, 1999 and (v) $9,750,000 for the Fiscal Year ending 9/30/99. 3.9 Section 7.19(a) of the Credit Agreement is hereby amended in its entirety to read as follows: (a) Except (i) as expressly permitted hereunder or (ii) in accordance with Article XIII of the ING Note Purchase Agreement, directly or indirectly prepay, redeem, purchase or retire any Indebtedness, including, without limitation, any Subordinated Indebtedness, other than Indebtedness incurred hereunder. SECTION 4. AMENDMENT TO THE PLEDGE AGREEMENT 4.1 The Pledgors (as defined in the Pledge Agreement) and the Agent hereby amend Schedule I to the Pledge Agreement by adding the stock of SMC described on Schedule I attached hereto. SECTION 5. AMENDMENTS TO SECURITY AGREEMENT - PATENTS AND TRADEMARKS 5.1 By executing and delivering this Agreement, SMC hereby becomes a Grantor under Security Agreement - Patents and Trademarks and agrees to be bound by, and to comply with the terms and provisions of the Security Agreement - Patents and Trademarks in the same manner as if it were an original signatory thereto as a Grantor. 5.2 Schedules A, B and C to the Security Agreement - Patents and Trademarks are hereby amended by adding the Patents, Trademarks and Copyrights set forth on Schedule II attached hereto. -4- SECTION 6. AMENDMENT TO SECURITY AGREEMENT; CONFIRMATION OF SECURITY INTEREST 6.1 By executing and delivering this Agreement, SMC hereby becomes a Grantor under the Security Agreement and agrees to be bound by, and to comply with the terms and provisions of the Security Agreement in the same manner as if it were an original signatory thereto as a Grantor. SMC hereby confirms the existing grant of a security interest in and lien on the Collateral pursuant to the Security Agreement and further agrees that such security interest and lien are continuing and shall, at all times, continue to be attached, perfected and enforceable pursuant to the terms of the Security Agreement. 6.2 The Grantors and the Agent hereby amend Schedules I and II to the Security Agreement by adding the information set forth on Schedule III attached hereto. SECTION 7. CONFIRMATION OF LOAN DOCUMENTS 7.1 Each Loan Party, by its execution and delivery of this Agreement, irrevocably and unconditionally ratifies and confirms in favor of the Agent that it consents to the terms and conditions of the Credit Agreement as it has been amended by this Agreement and that notwithstanding this Agreement, each Loan Document to which such Loan Party is a party shall continue in full force and effect in accordance with its terms, as it has been amended by this Agreement, and is and shall continue to be applicable to all of the Obligations. SECTION 8. CONDITIONS PRECEDENT This Agreement shall become effective upon the execution and delivery of counterparts hereof by all parties hereto and the fulfillment of the following conditions: 8.1 The Agent shall have received a $10,000,000 prepayment of the Revolving Credit Loan. 8.2 The Agent shall have received (for the ratable benefit of the Lenders) (i) the $30,000 waiver fee incurred by the Borrowers in connection with the Waiver Agreement dated May 21, 1999 and (ii) an amendment fee of $30,000 incurred in connection herewith. 8.3 The Agent shall have received a Borrowing Base Certificate dated the date hereof which shall reflect the Borrowing Base after giving effect to the transactions described herein. 8.4 The Agent shall have received (i) the stock certificate evidencing Parent's ownership of SMC together with a stock power undated and executed in blank and (ii) a certificate from an officer of SMC that the stock certificate delivered pursuant to clause (i) above represents 100% of the issued and outstanding stock of SMC. 8.5 The Lenders shall have received (i) a copy of the certificate of incorporation as amended to date, of SMC, certified as of a recent date by the Secretary of State of the state of its organization, and a certificate as to the good standing from such Secretary of State and from the Secretary of State or other official in each other jurisdiction where such person is qualified to -5- do business, in each case dated as of a recent date; (ii) a certificate of the Secretary of SMC, dated as of the date hereof and certifying (A) that attached thereto is a true and complete copy of such person's By-laws as in effect on the date of such certificate and at all times since a date prior to the date of the resolution described in item (B) below, (B) that attached thereto is a true and complete copy of a resolution adopted by such person's Board of Directors authorizing the execution, delivery and performance of this Agreement, and that such resolution has not been modified, rescinded or amended and is in full force and effect, (C) that such person's certificate of incorporation has not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to (i) above, and (D) as to the incumbency and specimen signature of each of such person's officers executing this Agreement; and (iii) a certificate of another of such person's officers as to incumbency and signature of its Secretary. 8.6 Each document (including, without limitation, each Uniform Commercial Code financing statement) required by law or requested by the Agent to be filed, registered or recorded in order to create in favor of the Agent for the benefit of the Lenders a first priority perfected security interest in the Collateral shall have been properly filed, registered or recorded in each jurisdiction in which the filing, registration or recordation thereof is so required or requested. The Agent shall have received evidence satisfactory to it and its counsel of each such filing, registration or recordation. 8.7 Messrs. Kaye, Scholer, Fierman, Hays & Handler, LLP, counsel to the Agent, shall have received payment in full for all legal fees charged, and all costs and expenses incurred, by such counsel through the date hereof and all legal fees charged, and all costs and expenses incurred, by such counsel in connection with the transactions contemplated under this Agreement and the other Loan Documents and instruments in connection herewith and therewith. 8.8 All legal matters in connection with this Agreement shall be satisfactory to the Agent, the Lenders and their respective counsel in their sole discretion. 8.9 The Agent shall have received a certificate signed by a Financial Officer of each Borrower and Guarantor that (i) immediately after giving effect to the transactions contemplated herein all representations and warranties contained in this Agreement or otherwise made in writing to the Agent in connection herewith shall be true and correct, (ii) after giving effect to the transactions contemplated herein there exists no unwaived Default or Event of Default and (iii) after giving effect to the transactions contemplated herein since September 30, 1998, no event has occurred which would result in a Material Adverse Effect. 8.10 The Agent shall have received fully executed copies of the ING Note Purchase Agreement, the ING Convertible Senior Subordinated Note, the ING Security Agreement and all agreements and other documents executed in connection therewith. 8.11 The Agent shall have received such other documents as the Lenders or the Agent or Agent's counsel shall reasonably deem necessary. -6- SECTION 9. MISCELLANEOUS 9.1 Each Borrower and each Guarantor reaffirms and restates the representations and warranties set forth in Article IV of the Credit Agreement, as amended by this Agreement and after giving effect to the transactions contemplated herein, and all such representations and warranties shall be true and correct on the date hereof with the same force and effect as if made on such date. Each Loan Party represents and warrants (which representations and warranties shall survive the execution and delivery hereof) to the Agent that: (a) It has the corporate power and authority to execute, deliver and carry out the terms and provisions of this Agreement and the transactions contemplated hereby and has taken or caused to be taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby; (b) No consent of any other person (including, without limitation, shareholders or creditors of any Loan Party), and no action of, or filing with any governmental or public body or authority is required to authorize, or is otherwise required in connection with the execution, delivery and performance of this Agreement; (c) This Agreement has been duly executed and delivered on behalf of each Loan Party by a duly authorized officer, and constitutes a legal, valid and binding obligation of each Loan Party enforceable in accordance with its terms, subject to bankruptcy, reorganization, insolvency, moratorium and other similar laws affecting the enforcement of creditors' rights generally and the exercise of judicial discretion in accordance with general principles of equity; and (d) The execution, delivery and performance of this Agreement will not violate any law, statute or regulation, or any order or decree of any court or governmental instrumentality, or conflict with, or result in the breach of, or constitute a default under any contractual obligation of any Loan Party. 9.2 Except, as herein expressly amended, the Credit Agreement is ratified and confirmed in all respects and shall remain in full force and effect in accordance with its terms. 9.3 All references to the Credit Agreement, the Pledge Agreement, the Security Agreement and the Security Agreement - Patents and Trademarks in the Credit Agreement and the other Loan Documents and the other documents and instruments delivered pursuant to or in connection therewith shall mean such Credit Agreement, Pledge Agreement, Security Agreement and Security Agreement - Patents and Trademarks, as amended hereby and as may in the future be amended, restated, supplemented or modified from time to time. 9.4 This Agreement may be executed by the parties hereto individually or in combination, in one or more counterparts, each of which shall be an original and all of which shall constitute one and the same agreement. -7- 9.5 Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. 9.6 THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CHOICE OR CONFLICT OF LAW PRINCIPLES THEREOF. 9.7 The parties hereto shall, at any time and from time to time following the execution of this Agreement, execute and deliver all such further instruments and take all such further actions as may be reasonably necessary or appropriate in order to carry out the provisions of this Agreement. [Remainder of this page intentionally left blank.] -8- IN WITNESS WHEREOF, the parties hereto have executed this Waiver and Amendment Agreement as of the date first above written. THE CHASE MANHATTAN BANK, as Agent By: /s/ Donna M. DiForio --------------------------------------- Name: Donna M. DiForio Title: Vice President THE CHASE MANHATTAN BANK, as Lender By: /s/ Donna M. DiForio --------------------------------------- Name: Donna M. DiForio Title: Vice President PNC BANK, NATIONAL ASSOCIATION, as Lender By: /s/ Rose M. Crump --------------------------------------- Name: Rose M. Crump Title: Vice President WELLS FARGO BANK, N.A., as Lender By: /s/ Kevin McKhann --------------------------------------- Name: Kevin McKhann Title: Vice President CIBC, INC., as Lender By: /s/ Colleen Roux --------------------------------------- Name: Colleen Roux Title: Executive Director CIBC World Markets Corp. as Agent MELLON BANK, N.A., as Lender By: /s/ Roger D. Attix --------------------------------------- Name: Roger D. Attix Title: Vice President -9- MATTHEWS STUDIO EQUIPMENT GROUP, as a Borrower and as a Guarantor By: /s/ Carlos D. DeMattos --------------------------------------- Name: Carlos D. DeMattos Title: Chairman of the Board/ Chief Executive Officer HOLLYWOOD RENTAL COMPANY, LLC., as a Borrower and as a Guarantor By: /s/ Carlos D. DeMattos ------------------------ Name: Carlos D. DeMattos Title: Manager & Chief Financial Officer MATTHEWS STUDIO ELECTRONICS, INC., as a Borrower and as a Guarantor By: /s/ Carlos D. DeMattos --------------------------------------- Name: Carlos D. DeMattos Title: Chief Executive Officer MATTHEWS ACCEPTANCE CORPORATION, as a Borrower and as a Guarantor By: /s/ Carlos D. DeMattos ------------------------------------- Name: Carlos D. DeMattos Title: President DUKE CITY VIDEO, INC., as a Borrower and as a Guarantor By: /s/ Carlos D. DeMattos --------------------------------------- Name: Carlos D. DeMattos Title: President HDI HOLDINGS, INC., as a Borrower and as a Guarantor By: /s/ Carlos D. DeMattos --------------------------------------- Name: Carlos D. DeMattos Title: Chairman of the Board -10- FOUR STAR LIGHTING, INC., as a Borrower and as a Guarantor By: /s/ Carlos D. DeMattos --------------------------------------- Name: Carlos D. DeMattos Title: Chief Executive Officer MATTHEWS STUDIO SALES, INC., as a Borrower and Guarantor By: /s/ Carlos D. DeMattos ---------------------------------------- Name: Carlos D. DeMattos Title: President MATTHEWS STUDIO GROUP CENTERS, INC. (f/k/a Matthews Medical Equipment, Inc.), as a Guarantor By: /s/ Carlos D. DeMattos --------------------------------------- Name: Carlos D. DeMattos Title: President KEYLITE HOLDINGS, INC., as a Guarantor By: /s/ Carlos D. DeMattos --------------------------------------- Name: Carlos D. DeMattos Title: Chief Financial Officer REEL WHEELS, INC., as a Guarantor By: /s/ Carlos D. DeMattos --------------------------------------- Name: Carlos D. DeMattos Title: Chief Financial Officer KEYLITE PRODUCTION SERVICES, INC., as a Guarantor By: /s/ Carlos D. DeMattos --------------------------------------- Name: Carlos D. DeMattos Title: Chief Financial Officer -11- DUKE CITY HOLDINGS, INC., as a Guarantor By: /s/ Carlos D. DeMattos --------------------------------------- Name: Carlos D. DeMattos Title: Chief Executive Officer FOUR STAR HOLDING, INC., as a Guarantor By: /s/ Carlos D. DeMattos --------------------------------------- Name: Carlos D. DeMattos Title: President SHOWBIZMART.COM INC., as a Guarantor and a Grantor By: /s/ Carlos D. DeMattos --------------------------------------- Name: Carlos D. DeMattos Title: President -12- EX-99.6 7 MATTHEWS STUDIO EQUIPMENT GROUP'S PRESS RELEASE Exhibit 99.6 ------------ [LETTERHEAD OF MATTHEWS STUDIO GROUP APPEARS HERE] Matthews Studio Group Announces $10,000,000 Investment By ING Equity Partners BURBANK, CA (June 30, 1999) . . . Matthews Studio Equipment Group (NASDAQ SM: MATT) announced today the closing of a sale of a $10,000,000 senior subordinated promissory note of the company to ING Equity Partners, L.P.I. The note will mature on June 30, 2005 but will be automatically converted to common stock or such other security as may be offered by the company in a qualified equity offering. The proceeds from the transaction will be used for general corporate purposes, including funding of capital expenditures and the further development of Matthews' new Web Division, ShowbizMart.com. In connection with this transaction, Matthews' senior lenders have modified certain financial covenants and other provisions of their credit agreement. ShowbizMart.com, which opened online June 21, 1999, is designed as an online resource of choice for finding production suppliers, crew members, equipment and expendables, selected production items and industry memorabilia, travel and weather data, locations, news, online auctions, and more to help facilitate production coordination and planning in the domestic United States and North America. ShowbizMart.com is being developed as a new network of Web sites built for industry insiders as well as consumers and collectors of entertainment-related production items and memorabilia. "This new investment re-emphasizes ING's strong commitment in Matthews Studio Group's philosophy of building a "One-Stop" service to entertainment producers and professionals nationwide, as well as in our new web division, ShowbizMart.com. ING has been a great partner for our company since 1995, and we believe that their confidence in our strategy enriches our growth potential," said Carlos D. DeMattos, Chairman and CEO of Matthews Studio Group. Matthews Studio Group supplies lighting, grip, transportation, generators, camera equipment, professional video and audio equipment, and complete theatrical equipment and supplies to entertainment producers nationwide. With corporate offices in Burbank, Matthews Studio Group operates from a diverse network of facilities throughout the United States, including locations in California, New York, Arizona, New Mexico, Utah, Nevada, Tennessee, Texas, North Carolina, Ohio, Florida, Washington and Baja California, Mexico. Contact: Carlos D. DeMattos Alan S. Unger Bret N. Weeks (818) 525-5200 -----END PRIVACY-ENHANCED MESSAGE-----