EXHIBIT 10.2
DEBENTURE PURCHASE AGREEMENT
Between
SIRROM CAPITAL CORPORATION,
d/b/a TANDEM CAPITAL
And
TELTRONICS, INC.
February 25, 1998
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DEBENTURE PURCHASE AGREEMENT
This DEBENTURE PURCHASE AGREEMENT (the "Agreement") entered
into the 25th day of February, 1998, is by and between SIRROM
CAPITAL CORPORATION d/b/a TANDEM CAPITAL, a Tennessee corporation
(the "Company") and TELTRONICS, INC., a Delaware corporation (the
"Purchaser," sometimes referred to herein as "Tandem").
WITNESSETH:
WHEREAS, on February 13, 1997, the Company issued and sold
to Tandem its 11% Subordinated Convertible Debenture due February
13, 2002, in the principal amount of $4,250,000 (the "11%
Convertible Debentures"), pursuant to the terms and conditions of
that certain Debenture Purchase Agreement dated February 13,
1997, between the Company and Tandem (the "1997 Debenture
Purchase Agreement");
WHEREAS, for good and valid corporate purposes, the Company
wishes to repurchase the 11% Convertible Debentures and Tandem is
willing to sell to the Company the 11% Convertible Debentures in
consideration for $4,250,000;
WHEREAS, in order to obtain the funds to repurchase the 11%
Convertible Debentures and to obtain additional capital for use
in connection with its business, (a) the Company desires to issue
and sell certain preferred stock of the Company for $2,500,000,
and Purchaser is willing to purchase such shares of preferred
stock from the Company, on the terms on conditions set forth in
that certain Preferred Stock Purchase Agreement between the
Company and Tandem dated the date hereof (the "Preferred Stock
Purchase Agreement"), (b) the Company desires to issue and sell
its 12% Subordinated Secured Debentures, due February 13, 2002,
in the principal amount of $1,750,000, and Purchaser is willing
to purchase such debentures, on the terms and conditions set
forth herein, and (c) Tandem is willing to make a secured loan to
the Company in the amount of $1,280,000, on the terms and
conditions set forth in that certain Loan and Security Agreement
among the Company, certain Subsidiaries of the Company and
Tandem, dated the date hereof (the "Tandem Loan Agreement").
NOW, THEREFORE, in mutual consideration of the premises and
the respective representations, warranties, covenants and
agreements contained herein, the parties agree as follows:
ARTICLE I
SALE AND PURCHASE OF DEBENTURES;
ISSUANCE OF WARRANTS
Section 1.1 Debentures; Security.
(a) The Company has authorized the issue and sale of One
Million Seven Hundred Fifty Thousand and no/100ths Dollars
($1,750,000.00) aggregate principal amount of its 12%
Subordinated Secured Debentures due on February 13, 2002 (the
"Debentures"), to be dated the date
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of issue and to bear interest from such date at the rate of 12% per
annum, subject to increase upon the failure to occur of certain
events described therein. Interest is payable quarterly by
automatic debit on the first day of each February, May, August and
November in each year (commencing February 1, 1998) and at maturity,
to mature on the fifth anniversary of the date of issuance, to bear
such other terms and to be substantially in the form attached hereto as
Exhibit A-1. Interest on the Debentures shall be computed on the
basis of a 360-day year of twelve 30-day months. The Debentures
may be redeemed or repaid at the option of the Company, subject
to the restrictions in Section 5.3 of this Agreement. The term
"Debentures" as used herein shall include each Debenture
delivered pursuant to this Agreement. The terms which are
capitalized herein shall have the meanings set forth in Section
10 hereof unless the context shall otherwise require.
(b) As collateral security for the obligations of the
Company under the Debentures and this Agreement, the Company
hereby grants to Purchaser a security interest in the personal
property of the Company, together with all proceeds thereof, of
the types described on Schedule 1.1(b) attached hereto
(collectively, the "Collateral"). Upon issuance, the Debentures
will be and, until fully paid and performed as provided therein
and under this Agreement, shall continue to be secured by the
Collateral.
Section 1.2 Warrants; Registration Rights Agreement.
(a) Simultaneously with the purchase and sale of the
Debentures, the Company shall grant, issue, and deliver to
Purchaser its Stock Purchase Warrant for the purchase of 525,000
shares of Common Stock of the Company, with an exercise price of
$2.75 per share, dated the Closing Date (as defined in Section
1.3 below) and substantially in the form attached hereto as
Exhibit A-2 (the "Warrant") and an accompanying Registration
Rights Agreement, dated the Closing Date, by and between the
Company and Purchaser, and substantially in the form attached
hereto as Exhibit A-3 (the "Registration Rights Agreement").
Section 1.3 Commitment; Closing Date.
Subject to the terms and conditions hereof and on the basis
of the representations and warranties hereinafter set forth, the
Company agrees to issue and sell to Purchaser, and Purchaser
agrees to purchase from the Company, Debentures in the aggregate
principal amount of $1,750,000 at a price of 100% of the
principal amount thereof.
Delivery of the Debentures will be made at the office of
▇▇▇▇▇▇▇▇ & ▇▇▇, PLC, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, against payment therefor by federal funds wire
transfer in immediately available funds and to the accounts and
in the amounts in accordance with the Company's wire instructions
set forth on Exhibit B hereto, or by the surrender by Purchaser
of 11% Convertible Debentures in an amount equal to the purchase
price hereunder, at 10:00 A.M., Nashville time, on February 25,
1998, or such other date, but no later than February 27, 1998, as
the Company and Purchaser shall agree (the "Closing Date"). The
Debentures delivered to Purchaser on the Closing Date will be
delivered to Purchaser in the form of a single registered
Debenture for the full amount of such purchase (unless different
denominations are specified by Purchaser), registered in
Purchaser's name or in the name of such nominee as Purchaser may
specify and, with appropriate insertions, in the form attached
hereto as Exhibit A-1, all as Purchaser may specify at least 24
hours prior to the date fixed for delivery.
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Section 1.4 Processing Fee.
The Company agrees to pay to Purchaser on or before the
Closing Date a processing fee in an amount equal to $8,750.00.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Purchaser as follows:
Section 2.1 Corporate Status.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware and has the corporate power to own and operate its
properties, to carry on its business as now conducted and to
enter into and to perform its obligations under this Agreement,
the Debentures, the Warrant, the Registration Rights Agreement,
and any other document executed and delivered by the Company in
connection herewith or therewith (collectively, the "Operative
Documents"). The Company is qualified to do business and is in
good standing in each state or other jurisdiction in which such
qualification is necessary under applicable provisions of law.
The states or other jurisdictions in which the Company is so
qualified are set forth on Schedule 2.1(a) hereto.
(b) Schedule 2.1(b) sets forth a complete list of each
corporation, partnership, joint venture, limited liability
company or other business organization in which the Company owns,
directly or indirectly, any capital stock or other equity
interest (the "Subsidiary" or, collectively, the "Subsidiaries"),
or with respect to which the Company or any Subsidiary, alone or
in combination with others, is in a control position, which list
shows the jurisdiction of incorporation or other organization and
the percentage of stock or other equity interest of each
Subsidiary owned by the Company. Each Subsidiary is duly
organized, validly existing and in good standing under the laws
of the jurisdiction of incorporation or other organization as
indicated on Schedule 2.1(b), each has all requisite power and
authority and holds all material licenses, permits and other
required authorizations from government authorities necessary to
own its properties and assets and to conduct its business as it
is now being conducted, and is qualified to do business as a
foreign corporation (or business organization) and is in good
standing in every jurisdiction in which such qualification is
necessary under applicable provisions of law. All of the
outstanding shares of capital stock, or other equity interest, of
each Subsidiary owned, directly or indirectly, by the Company
have been validly issued, are fully paid and nonassessable, and
are owned by the Company free and clear of all liens, charges,
security interests or encumbrances.
Section 2.2 Capitalization.
(a) The authorized capital stock of the Company consists of
(i) 40,000,000 shares of common stock, par value $.001 per share
(the "Common Stock"), of which 3,415,513 shares are issued and
outstanding, and (ii) 5,000,000 shares of non-voting common
stock, par value $.001 per share (the "Non-Voting Common Stock"),
none of which are issued and outstanding, and (iii) 5,000,000
shares of undesignated preferred stock, with rights and
preferences to be fixed by the
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Board of Directors in accordance with the corporate laws of the State
of Delaware and the Company's Restated Certificate of Incorporation,
as amended (the "Restated Certificate"), and 250,000 shares designated
as Series A Preferred Stock bearing the rights and preferences set
forth in the Restated Certificate of which 100,000 shares are issued
and outstanding. All shares of Common Stock and Series A Preferred
Stock outstanding have been validly issued and are fully paid and
nonassessable. As of the Closing Date, the authorized Series A
Preferred Stock shall have been decreased to 100,000 shares and
25,000 shares of the undesignated preferred stock shall have been
designated as "Series B Convertible Preferred Stock" with the
rights, preferences and limitations set forth in the Certificate
of Designations (the "Series B Preferred Stock"). Except as
listed on Schedule 2.2(a), there are no statutory or contractual
pre-emptive rights, rights of first refusal, antidilution rights
or any similar rights held by any party with respect to the
issuance of the Series B Preferred Stock or the issuance of
Common Stock upon the conversion thereof.
(b) The Company has not granted, or agreed to grant or
issue, any options, warrants or rights to purchase or acquire
from the Company any shares of capital stock of the Company,
there are no securities outstanding or committed to be issued by
the Company or any Subsidiary which are convertible into or
exchangeable for any shares of capital stock or other securities
of the Company, and there are no contracts, commitments,
agreements, understandings, arrangements or restrictions as to
which the Company is a party, or by which it is bound, relating
to any shares of capital stock or other securities of the
Company, whether or not outstanding except for (i) the Warrant to
be issued pursuant to this Agreement; (ii) the Stock Purchase
Warrant to purchase 365,000 shares of Common Stock (the "Loan
Warrants") to be issued to Tandem pursuant to the Tandem Loan
Agreement; (iii) such options, warrants and other rights to
acquire capital stock of the Company, together with relevant
exercise prices and dates set forth on Schedule 2.2(b), (iv) the
shares of Series B Preferred Stock to be issued pursuant to the
Preferred Stock Purchase Agreement, and (v) the conversion
privileges of the holders of the Series B Preferred Stock to be
issued pursuant to the Preferred Stock Purchase Agreement.
Except as set forth on Schedule 2.2(b), all such shares have been
duly reserved for issuance, have been duly and validly authorized
and upon issuance in accordance with the terms of the respective
instruments, will be validly issued, fully paid and
nonassessable.
Section 2.3 Authorization; Absence of Conflicts.
The Company has full legal right, power and authority to
enter into and perform its obligations under this Agreement and
any of the other Operative Documents without the consent or
approval of any other person, firm, governmental agency or other
legal entity, except as set forth on Schedule 2.3, each of which
will be obtained prior to closing. The execution and delivery of
this Agreement, the issuance of the Debentures and Warrant
hereunder, the execution and delivery of each other document in
connection herewith or therewith to which the Company is a party,
and the performance by the Company of its obligations hereunder
and/or thereunder are within the corporate powers of the Company
and have been duly authorized by all necessary corporate action
properly taken, have received all necessary governmental
approvals, if any were required, and do not and will not
contravene or conflict with (a) the Articles of Incorporation or
Bylaws of the Company, as amended, (b) any material agreement to
which the Company or any of its Subsidiaries is a party or by
which any of them or their properties is bound, or constitute a
default thereunder, or result in the creation or imposition of
any lien, charge, security interest, or encumbrance of any nature
upon any of the property or assets of the Company or any of its
Subsidiaries pursuant to the terms of any such agreement or
instrument, or
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(c) violate any provision of law or any applicable judgment,
ordinance, regulation or order of any court or governmental agency.
The officer(s) executing this Agreement, the Debentures, the
Operative Documents, and any other document executed and delivered
by Purchaser in connection herewith or therewith, is duly authorized
to act on behalf of the Company.
Section 2.4 Validity and Binding Effect.
Each of the Operative Documents is the legal, valid and
binding obligation of the Company, enforceable against the
Company in accordance with its terms.
Section 2.5 Financial Statements.
The consolidated financial statements of the Company and
its Subsidiaries for the fiscal years ended December 31, 1994,
December 31, 1995, and December 31, 1996, and the unaudited
consolidated financial statements as of and for the nine (9)
months ended September 30, 1997, and the related notes, copies of
which the Company previously has delivered to Purchaser, fairly
present the financial position, results of operations, cash flows
and changes in stockholders' equity of the Company and its
consolidated Subsidiaries, at the respective dates of and for the
periods to which they apply in such financial statements and have
been prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied throughout the periods
indicated, subject, in the case of interim financial statements,
to normal recurring year-end adjustments (the effect of which
will not, individually or in the aggregate, have a Materially
Adverse Effect). No financial statements of any other person(s)
are required by GAAP to be included in the consolidated financial
statements of the Company.
Section 2.6 SEC Reports.
The Company's Common Stock is listed on the NASDAQ Small Cap
Market and has been duly registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
The trading symbol for the Company's Common Stock is "TELT."
Since January 1, 1995, the Company has timely filed all reports,
registrations, proxy or information statements and all other
documents, together with any amendments required to be made
thereto, required to be filed with the SEC under the Securities
Act and the Exchange Act (collectively, the "SEC Reports"). The
Company previously has furnished to Purchaser true copies of all
the SEC Reports, together with all exhibits thereto that
Purchaser has requested, and the Company's annual report to
stockholders for the year ended December 31, 1996, which annual
report meets the requirements of Rule 14a-3 or 14e-3 under the
Exchange Act (the "Annual Report"). The financial statements
contained in the SEC Reports fairly presented (or will fairly
present, as the case may be) the financial position of the
Company as of the dates mentioned and the results of operations,
changes in stockholders' equity and changes in financial position
or cash flows for the periods then ended in conformity with GAAP
applied on a consistent basis throughout the periods involved.
As of their respective dates, the SEC Reports complied (or will
comply, as the case may be) in all material respects with all
rules and regulations promulgated by the SEC and did not (or will
not, as the case may be) contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
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Section 2.7 Absence of Changes.
Except as set forth on Schedule 2.7, since September 30,
1997, (i) neither the Company nor any of its Subsidiaries has
incurred any liabilities or obligations, direct or contingent, or
entered into any transactions, not in the ordinary course of
business, that are material to the Company or any of its
Subsidiaries, (ii) neither the Company nor any of its
Subsidiaries has purchased any of its outstanding capital stock
or declared, or paid any dividend or other distribution or
payment in respect of its capital stock, (iii) there has not been
any change in the authorized or issued capital stock, long-term
debt or short-term debt of the Company, and (iv) there has not
been any Materially Adverse Effect in or affecting the business,
operations, properties, prospects, assets, or condition
(financial or otherwise) of the Company or any Subsidiary, and no
event has occurred or circumstance exists that may result in a
Materially Adverse Effect.
Section 2.8 No Defaults.
Except as set forth on Schedule 2.8 and except where a
default or event of default does not and would not constitute a
Materially Adverse Effect, no default or event of default by the
Company or any Subsidiary exists under this Agreement or under
any instrument or agreement to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary
or its respective properties may be bound or, to the knowledge of
the Company, affected, and no event has occurred and is
continuing that with notice or the passage of time or both would
constitute a default or event of default thereunder.
Section 2.9 Compliance With Law.
To the Company's knowledge, the Company and its Subsidiaries
are in compliance with all federal, state and local laws,
regulations, decrees and orders applicable to them (including but
not limited to occupational and health standards and controls,
antitrust, monopoly, restraint of trade or unfair competition) to
the extent that noncompliance, in the aggregate, cannot
reasonably be expected to cause a Materially Adverse Effect.
Section 2.10 Litigation.
Except as set forth on Schedule 2.10, there is no
litigation, arbitration, claim, proceeding or investigation
pending or threatened in writing to which the Company or any
Subsidiary is a party or to which any of its respective
properties or assets is the subject which, if determined
adversely to the Company or such Subsidiary, would individually
or in the aggregate have a Materially Adverse Effect.
Section 2.11 Taxes.
Except as set forth on Schedule 2.11, the Company and its
Subsidiaries have filed or caused to be filed all federal, state
and local income, excise and franchise tax returns required to be
filed (except for returns that have been appropriately extended),
and have paid, or provided for the payment of, all taxes shown to
be due and payable on said returns and all other taxes,
impositions, assessments, fees or other charges imposed on it by
any governmental authority, agency or instrumentality, prior to
any delinquency with respect thereto (other than taxes,
impositions, assessments, fees and charges currently being
contested in good faith by appropriate proceedings, for
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which appropriate amounts have been reserved), and the Company does
not know of any proposed assessment for additional taxes or any basis
therefor. No tax liens have been filed against the Company, or
its Subsidiaries or any of their properties. The Company's
federal income tax liability has been finally determined by the
Internal Revenue Service and satisfied for all taxable years up
to and including the taxable year ended December 31, 1991, or
closed by applicable statutes of limitation.
Section 2.12 Certain Transactions.
Except as set forth on Schedule 2.12(i) and except as to
indebtedness incurred in the ordinary course of business and
approved by the Board of Directors of the Company, neither the
Company nor any Subsidiary is indebted, directly or indirectly,
to any of its officers or directors, or to their respective
spouses or children, in excess of an aggregate amount of $60,000,
and none of the officers or directors or any members of their
immediate families are indebted to the Company or any Subsidiary
in excess of an aggregate amount of $60,000 or have any direct or
indirect ownership interest in any firm or corporation with which
the Company or any Subsidiary is affiliated or with which the
Company has a business relationship, or any firm or corporation
which competes with the Company or any Subsidiary, except that an
officer and/or director of the Company may own no more than 1.0%
of the outstanding stock of any publicly traded company which
competes directly with the Company. Except as set forth on
Schedule 2.12(ii), no officer or director of the Company or any
Subsidiary or any member of their immediate families is, directly
or indirectly, interested in any material contract with the
Company or any Subsidiary. Except as set forth on
Schedule 2.12(iii), neither the Company nor any Subsidiary is a
guarantor or indemnitor of any indebtedness of any other person,
firm or corporation.
Section 2.13 Title to Property.
The Company and each Subsidiary has good and marketable
title to all of real and personal property owned by it, free and
clear of all liens, security interests, pledges, encumbrances,
equities claims and restrictions of every kind and nature
whatsoever, except as disclosed on Schedule 2.13 and except for
such liens, security interests, pledges, encumbrances, equities
claims and restrictions which are not in the aggregate material
to the business, operations or financial condition of the Company
and its Subsidiaries taken as a whole. Any real property and
buildings held under lease by the Company or any Subsidiary are
held under valid existing and enforceable leases, and no default
has occurred or is continuing thereunder might result in any
Materially Adverse Effect, and the Company and each Subsidiary
enjoys peaceful and undisturbed possession under all such leases,
except as disclosed on Schedule 2.13 or which are not material
and do not interfere with the use to be made of such buildings or
property by the Company.
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Section 2.14 Intellectual Property.
Except as set forth in Schedule 2.14, the Company is the
lawful owner or has a valid right to use the Proprietary
Information in its business free and clear of any claim, right,
trademark, patent or copyright protection of any third party.
The Company has good and marketable title to or has a valid right
to use all patents, trademarks, trade names, service marks,
copyrights or other intangible property rights, and registrations
or applications for registration thereof, owned by the Company or
any Subsidiary or used or required by the Company or any
Subsidiary in the operation of its business as presently being
conducted, which are listed on Schedule 2.14(b)(i), except as set
forth on Schedule 2.14(b)(ii). The Company has no knowledge of
any infringements or conflict with asserted rights of others with
respect to copyrights, patents, trademarks, service marks, trade
names, trade secrets or other intangible property rights or know-
how which would individually or in the aggregate have a
Materially Adverse Effect. To the Company's knowledge, no
products or processes of the Company infringe or conflict with
any rights of patent or copyright, or any discovery, invention
product or process, that is the subject of a patent or copyright
application or registration known to the Company. The Company
has adopted and follows such procedures as the Company deems
necessary or appropriate to provide reasonable protection of the
Company's trade secrets and proprietary rights in intellectual
property of all kinds. To the knowledge of the Company, no
person employed by or affiliated with the Company has employed or
proposes to employ any trade secret or any information or
documentation proprietary to any former employer, and to the
knowledge of the Company, no person employed by or affiliated
with the Company has violated any confidential relationship that
such person may have had with any third person, in connection
with the development, manufacture or sale of any product or
proposed product or the development or sale of any service or
proposed service of the Company.
Section 2.15 Debt.
Schedule 2.15(i) sets forth (i) a complete and correct list
of all loans, credit agreements, indentures, purchase agreements,
promissory notes and other evidences of indebtedness, Guaranties,
capital leases and other instruments, agreements and arrangements
presently in effect providing for or relating to extensions of
credit (including agreements and arrangements for the issuance of
letters of credit or for acceptance financing) in respect of
which the Company, any Subsidiary or any of their properties is
in any manner directly or contingently obligated; (ii) a correct
statement of the maximum principal or face amounts of the credit
in question that are outstanding and that can be outstanding; and
(iii) a correct statement of all liens, pledges or security
interests of any nature given or agreed to be given as security
therefor or in connection therewith. Consummation of the
transactions hereby contemplated and the performance of the
obligations of the Company under the Operative Documents will not
result in any breach of, or constitute a default under, or
require the consent of any person under, any loan, credit
agreement, indenture, purchase agreement, promissory note or
other evidences of indebtedness, Guaranty, capital lease or other
instrument, agreement or arrangement set forth on Schedule
2.15(i) except as set forth on Schedule 2.15(ii).
Section 2.16 Material Contracts.
Schedule 2.16 sets forth a complete and correct list of (a)
all contracts, agreements and other documents pursuant to which
the Company or any Subsidiary either (i) receives revenues or
(ii) makes payment to any third Person(s), in excess of $100,000
per fiscal year, and (b) contracts or other agreements required
to be filed by the Company with the SEC as an exhibit pursuant to Item
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601(b)(10) of Regulation S-K under the Securities Act (each
instrument identified in Schedule 2.16 individually being an
"Applicable Contract" and collectively the "Applicable
Contracts"). Each Applicable Contract is in full force and
effect as of the date hereof and the Company knows of no reason
why such Applicable Contracts would not remain in full force and
effect pursuant to the terms thereof. Consummation of the
transactions hereby contemplated and the performance of the
obligations of the Company under the Operative Documents will not
result in any breach of, or constitute a default under, or
require the consent of any person under, any Applicable Contract
set forth on Schedule 2.16(i) except as set forth on Schedule
2.16(ii).
Section 2.17 Environmental Matters.
The Company and each of its Subsidiaries have duly complied
with, and its business, operations, assets, equipment, property,
leaseholds or other facilities of each are in compliance with,
the provisions of all federal, state and local environmental,
health, and safety laws, codes and ordinances, and all rules and
regulations promulgated thereunder. The Company and each of its
Subsidiaries have been issued and will maintain all required
federal, state and local permits, licenses, certificates and
approvals relating to (i) air emissions; (ii) discharges to
surface water or groundwater; (iii) noise emissions; (iv) solid
or liquid waste disposal; (v) the use, generation, storage,
transportation or disposal of toxic or hazardous substances or
wastes (which shall include any and all such materials listed in
any federal, state or local law, code or ordinance and all rules
and regulations promulgated thereunder as hazardous or
potentially hazardous); or (vi) other environmental, health or
safety matters. Neither the Company nor any Subsidiary has
received notice of, or knows of, or suspects facts which might
constitute any violations of any federal, state or local
environmental, health or safety laws, codes or ordinances, and
any rules or regulations promulgated thereunder with respect to
its businesses, operations, assets, equipment, property,
leaseholds, or other facilities. Except in accordance with a
valid governmental permit, license, certificate or approval,
there has been no emission, spill, release or discharge into or
upon (a) the air; (b) soils, or any improvements located thereon;
(c) surface water or groundwater; or (d) the sewer, septic system
or waste treatment, storage or disposal system servicing the
premises, of any toxic or hazardous substances or wastes at or
from the premises owned or occupied by the Company or its
Subsidiaries. There has been no complaint, order, directive,
claim, citation or notice by any governmental authority or any
person or entity with respect to (I) air emissions; (II) spills,
releases or discharges to soils or improvements located thereon,
surface water, groundwater or the sewer, septic system or waste
treatment, storage or disposal systems servicing the premises;
(III) noise emissions; (IV) solid or liquid waste disposal;
(V) the use, generation, storage, transportation or disposal of
toxic or hazardous substances or waste; or (VI) other
environmental, health or safety matters affecting the Company or
any of its Subsidiaries or their respective businesses,
operations, assets, equipment, property, leaseholds or other
facilities. Neither the Company nor any Subsidiary has any
indebtedness, obligation or liability (absolute or contingent,
matured or not matured), with respect to the storage, treatment,
cleanup or disposal of any solid wastes, hazardous wastes or
other toxic or hazardous substances (including without limitation
any such indebtedness, obligation, or liability with respect to
any current regulation, law or statute regarding such storage,
treatment, cleanup or disposal).
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Section 2.18 Accounting Matters.
The books of account, minute books, stock record books and
other records of the Company and its Subsidiaries are complete
and correct, have been maintained in accordance with sound
business practices and accurately and fairly reflect the
transactions and dispositions of the assets of the Company. The
Company and each of its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions
are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability
for the assets of the Company and each of its Subsidiaries; (iii)
access to the assets of the Company and each of its Subsidiaries
is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for
assets of the Company and each of its Subsidiaries are compared
with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
Section 2.19 Distributions to Company.
The Company is not prohibited from paying cash dividends to
the holders of the Series B Preferred Stock except as set forth
in Schedule 2.19. No Subsidiary of the Company is currently
prohibited, directly or indirectly, from paying any dividends to
the Company, from making any other distributions on such
Subsidiary's capital stock, from repaying to the Company any
loans or advances to such Subsidiary or from transferring any of
such Subsidiary's property or assets to the Company or any other
Subsidiary of the Company.
Section 2.20 Prior Sales.
All offers and sales by the Company of its capital stock
since January 1, 1995, were at all relevant times (i) exempt from
the registration requirements of the Securities Act or were duly
registered under the Securities Act, and (ii) were duly
registered or were the subject of an available exemption from the
registration requirements of all applicable state securities or
Blue Sky laws.
Section 2.21 Regulatory Compliance.
Except as set forth on Schedule 2.21, the conduct of the
business and the ownership of the assets of the Company and its
Subsidiaries is not (and is not intended to be, as hereinafter
conducted) does not require any license, permit approved, waiver
or other authorization of any federal, state or local
governmental or regulatory body, and except as set forth on
Schedule 2.21, such business is not subject to the regulation of
any federal, state or local government or regulatory body by
reason of the nature of the business being conducted (as distinct
from regulation common to commercial enterprises in general).
All licenses, permits and authorizations set forth on Schedule
2.21 are in full force and effect.
Section 2.22 Margin Regulations.
The Company is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock.
No proceeds received pursuant to this Agreement will be used
11
to purchase or carry any equity security of a class which is
registered pursuant to Section 12 of the Exchange Act.
Section 2.23 1940 Act Compliance.
The Company is an "eligible portfolio company" as such term
is defined in Section 2(a)(46) of the Investment Company Act of
1940, as amended (the "Investment Company Act"), and the issuance
and sale by the Company of the Debentures and the Warrant does
not constitute a "public offering" as such term is used in
Section 55(a)(1) thereof.
Section 2.24 Limited Offering.
Subject in part to the truth and accuracy of Purchaser's
representations set forth in this Agreement, the offer, sale and
issuance of the Debentures and the Warrant are exempt from the
registration requirements of the Securities Act, and neither the
Company nor any authorized agent acting on its behalf has taken
or will take any action hereafter that would cause the loss of
such exemption.
Section 2.25 Registration Rights.
Except as described in Schedule 2.25, the Company is not
under any obligation to register under the Securities Act or the
Trust Indenture Act of 1939, as amended, any of its presently
outstanding securities or any of its securities that may
subsequently be issued.
Section 2.26 Insurance.
The Company has maintained, and has caused each Subsidiary
to maintain, insurance coverage by financially sound and
reputable insurers with respect to their respective properties
and business in such forms and amounts and against such risks,
casualties and contingencies as are customary for corporations of
comparable size and condition (financial and otherwise) engaged
in the same or a similar business and owning and operating
similar properties.
Section 2.27 Governmental Consents.
No consent, approval, qualification, order or authorization
of, or filing with, any local, state, or federal governmental
authority is required on the part of the Company in connection
with the Company's valid execution, delivery, or performance of
this Agreement or the offer, sale or issuance of the Debentures
by the Company.
Section 2.28 Employees.
Schedule 2.28 sets forth the number of full-time employees
and full-time equivalent employees of the Company and each Subsidiary
as of the most recent payroll date, which date is set forth therein.
To the best of the Company's knowledge, there is no strike, labor
dispute or union organization activities pending or threatened
between it and its employees. None of the Company's employees
belongs to any union or collective bargaining unit. To the best of
its knowledge, the Company has complied in all material respects
with all applicable state and federal equal opportunity
12
and other laws related to employment. To the best of
the Company's knowledge, no employee of the Company is or will be
in violation of any judgment, decree, or order, or any term of
any employment contract, patent disclosure agreement, or other
contract or agreement relating to the relationship of any such
employee with the Company, or any other party, because of the
nature of the business conducted or presently proposed to be
conducted by the Company or to the use by the employee of his or
her best efforts with respect to such business. Except as
disclosed in Schedule 2.28, the Company is not a party to or
bound by any employment contract, deferred compensation
agreement, bonus plan, incentive plan, profit sharing plan,
retirement agreement, or other employee compensation agreement.
The Company is not aware that any officer or key employee, or
that any group of key employees, intends to terminate their
employment with the Company, nor does the Company have a present
intention to terminate the employment of any of the foregoing.
Subject to general principles related to wrongful termination of
employees, the employment of each officer and employee of the
Company is terminable at the will of the Company.
Section 2.29 ERISA.
The Company is in compliance in all material respects with
all applicable provisions of Title IV of the Employee Retirement
Income Security Act of 1974, Pub. L. No. 93-406, September 2,
1974, 88 Stat. 829, 29 U.S.C.A. Section 1001 et seq. (1975), as amended
from time to time ("ERISA"). Except as disclosed in Schedule
2.29, neither a reportable event nor a prohibited transaction (as
defined in ERISA) has occurred and is continuing with respect to
any "pension plan" (as such term is defined in ERISA, a "Plan");
no notice of intent to terminate a Plan has been filed nor has
any Plan been terminated; no circumstances exist which constitute
grounds entitling the Pension Benefit Guaranty Corporation
(together with any entity succeeding to or all of its functions,
the "PBGC") to institute proceedings to terminate, or appoint a
trustee to administer, a Plan, nor has the PBGC instituted any
such proceedings; neither the Company nor any commonly controlled
entity (as defined in ERISA) has completely or partially
withdrawn from a multiemployer plan (as defined in ERISA); the
Company and each commonly controlled entity has met its minimum
funding requirements under ERISA with respect to all of its Plans
and the present fair market value of all Plan property exceeds
the present value of all vested benefits under each Plan, as
determined on the most recent valuation date of the Plan and in
accordance with the provisions of ERISA and the regulations
thereunder for calculating the potential liability of the Company
or any commonly controlled entity to the PBGC or the Plan under
Title IV or ERISA; and neither the Company nor any commonly
controlled entity has incurred any liability to the PBGC under
ERISA.
Section 2.30 Financing Statements.
Neither (i) that certain Financing Statement filed in the
Office of the Secretary of State of the State of Florida on
August 18, 1997 (File No. 970000184501) nor (ii) that certain
Financing Statement filed in the Office of the Secretary of State
of the State of Florida on July 2, 1997 (File No. 970000146543)
perfect a security interest in any of the assets of Interactive
Solutions, Inc., a Delaware corporation and a subsidiary of the
Company.
Section 2.31 Fees/Commissions.
The Company has not agreed to pay any finder's fee,
commission, origination fee or other fee or charge to any person
or entity with respect to or as a result of the consummation of the
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transactions contemplated hereunder, except for the
processing fee due to Purchaser pursuant to Section 1.3 hereof.
Section 2.32 Disclosure.
No representation or warranty given as of the date hereof by
the Company contained in this Agreement or any Schedule attached
hereto or any statement in any document, certificate or other
instrument furnished or to be furnished to the Purchaser pursuant
hereto, taken as a whole, contains or will (as of the time so
furnished) contain any untrue statement of a material fact, or
omits or will (as of the time so furnished) omit to state any
material fact which is necessary in order to make the statements
contained herein or therein not misleading.
Section 2.33 Survival.
The representations and warranties of the Company contained
in this Agreement shall survive in accordance with Section 11.5
hereof until this Agreement terminates.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser hereby represents to the Company as follows:
Section 3.1 Corporate Status.
Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the State of Tennessee and
has the corporate power to own and operate its properties, to
carry on its business as now conducted and to enter into and to
perform its obligations under this Agreement and any other
document executed or delivered by Purchaser in connection
herewith.
Section 3.2 Authorization.
Purchaser has full legal right, power and authority to enter
into and perform its obligations under the Operative Documents,
without the consent or approval of any other person, firm,
governmental agency or other legal entity. The execution and
delivery of the Operative Documents, and the performance by
Purchaser of its obligations hereunder and/or thereunder are
within the corporate powers of Purchaser, have received all
necessary governmental approvals, if any were required, and do
not and will not contravene or conflict with (a) the Charter or
Bylaws of Purchaser, (b) any material agreement to which
Purchaser is a party or by which it or any of its properties is
bound, or constitute a default thereunder, or result in the
creation or imposition of any lien, charge, security interest or
encumbrance of any nature upon any of the property or assets of
Purchaser pursuant to the terms of any such agreement or
instrument, or (c) violate any provision of law or any applicable
judgment, ordinance, regulation or order of any court or
governmental agency. The officer(s) executing this Agreement and
any other document executed and delivered by Purchaser in
connection herewith, is duly authorized to act on behalf of
Purchaser.
14
Section 3.3 Validity and Binding Effect.
This Agreement and any other document executed and delivered
by Purchaser in connection herewith are the legal, valid and
binding obligations of the Purchaser, enforceable against it in
accordance with their respective terms.
Section 3.4 Accredited Investor; Investment Intent.
Purchaser is a registered investment company under the
Investment Company Act and as such is, and at the Closing Date
will be, an "accredited investor" under Rule 501(a) under the
Securities Act. Purchaser is acquiring the Debentures and the
Warrant for its own account, for investment, and not with a view
to the distribution or resale thereof, in whole or in part, in
violation of the Securities Act or any applicable state
securities law, and Purchaser has no present intention of
selling, negotiating or otherwise disposing of the Debentures
and/or the Warrant, it being understood that Purchaser intends to
transfer and assign, without consideration, the Debentures and
the Warrant and all of Purchaser's rights and obligations under
this Agreement and the Operative Documents to one or more Wholly-
owned Subsidiaries of Purchaser, which Wholly-owned Subsidiaries
are and will also be "accredited investors" under Rule 501(a).
Purchaser is an "institutional investor" as defined under Section
48-2-102 of the Tennessee Securities Act of 1980 for purposes of
the exemption set forth under Section 48-2-103(b)(3) of such act.
Section 3.5 Survival.
The representations and warranties of the Purchaser
contained in this Agreement shall survive the termination of this
Agreement in accordance with Section 11.5 hereof.
ARTICLE IV
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
The obligation of Purchaser to purchase and pay for the
Debentures on the Closing Date shall be subject to the fulfillment
on or before the Closing Date of each of the following conditions:
Section 4.1 Representations and Warranties.
The representations and warranties of the Company contained
in this Agreement and in any Schedule hereto or any document or
instrument delivered to Purchaser or its representatives
hereunder, shall have been true and correct when made and shall
be true and correct as of the Closing Date as if made on such
date, except to the extent such representations and warranties
expressly relate to a specific date. The Company shall have duly
performed all of the covenants and agreements to be performed by
it hereunder on or prior to the Closing Date.
Section 4.2 Officer's Certificate.
The Company shall have delivered to Purchaser a certificate,
dated the Closing Date, signed by the President of the Company
substantially in the form attached hereto as Exhibit C.
15
Section 4.3 Satisfactory Proceedings; Secretary's Certificate.
All proceedings taken in connection with the transactions
contemplated by this Agreement, and all documents necessary to
the consummation thereof, shall be satisfactory in form and
substance to Purchaser and Purchaser's counsel, and the Company
shall have delivered to Purchaser a certificate, dated the
Closing Date, signed by the Secretary of the Company
substantially in the form attached hereto as Exhibit D.
Section 4.4 Legal Opinion.
Purchaser shall have received the opinion of ▇▇▇▇▇ & ▇▇▇▇▇,
counsel for the Company, dated the Closing Date, addressed to
Purchaser, in form and substance satisfactory to Purchaser's
counsel, and covering the matters set forth in Exhibit E hereto.
Section 4.5 Authorization Agreement.
The Company shall have delivered to Purchaser an
Authorization Agreement for Pre-Authorized Payments (Debit),
dated the Closing Date, executed by a duly authorized officer(s)
of the Company, in the form attached hereto as Exhibit F.
Section 4.6 The Company's Existence and Authority.
The Company shall have delivered to Purchaser the following
certificates of public officials, in each case as of a date
within ten (10) days of the Closing Date:
(a) the certificate of incorporation of the Company
and each of the Subsidiaries, certified by the Secretary of State
or other appropriate official in the jurisdiction each such
entity is incorporated;
(b) a certificate as to the legal existence and good
standing of the Company and each of the Subsidiaries issued by
the Secretary of State or other appropriate official in the
jurisdiction each such entity is incorporated; and
(c) a certificate as to the qualification to do
business as a foreign corporation and good standing of the
Company and each of the Subsidiaries, as appropriate, issued by
the Secretary of State or other appropriate official in each
jurisdiction listed in Schedule 2.1(a).
Section 4.7 Delivery of Operative Documents.
The Company shall have delivered to Purchaser the following
documents, executed by the Company and dated the Closing Date:
(a) the Debenture;
(b) the Warrant; and
(c) the Registration Rights Agreement.
16
Section 4.8 Warrant Valuation Letter.
The Company shall have delivered to Purchaser a Warrant
Valuation letter in the form attached as Exhibit G acceptable to
Purchaser.
Section 4.9 Senior Secured Loan Agreement; Preferred Stock.
(a) Pursuant to the terms of the Tandem Loan Agreement, the
Company shall have borrowed from Tandem $1,280,000, and the
Company shall have issued to Tandem the Loan Warrants to purchase
365,000 shares of Common Stock.
(b) The Company shall have sold to Purchaser, and Purchaser
shall have purchased, 25,000 shares of Series B Preferred Stock
of the Company pursuant to the terms of the Preferred Stock
Purchase Agreement.
(c) If payment of the purchase price shall be made by
delivery of the Company's 11% Convertible Debentures, Purchaser
shall have been paid all interest accrued thereon to the Closing
Date.
Section 4.10 Intercreditor Agreement.
The Company shall have executed and delivered to Purchaser
an Intercreditor Agreement among the Company, its Subsidiaries,
Purchaser and The CIT Group/Credit Finance, Inc. ("CIT"), in the
form attached hereto as Exhibit H.
Section 4.11 Required Consents.
Any consents or approvals required to be obtained from any
third party, including any holder of indebtedness or any
outstanding security of the Company, and any amendments of
agreements which shall be necessary to permit the consummation of
the transactions contemplated hereby on the Closing Date,
including the consents set forth on Schedule 2.3, shall have been
obtained and all such consents or amendments shall be
satisfactory in form and substance to Purchaser and Purchaser's
counsel.
Section 4.12 Expenses.
The Company shall have reimbursed the Purchaser for all fees
and expenses as provided in Section 11.1 herein.
Section 4.13 Waiver of Conditions.
If on the Closing Date the Company fails to tender to
Purchaser the Debentures to be issued to Purchaser on such date
or if the conditions specified in this Article IV have not been
fulfilled, Purchaser may thereupon elect to be relieved of all
further obligations under this Agreement. Without limiting the
foregoing, if the conditions specified in this Article IV have
not been fulfilled, Purchaser may waive compliance by the Company
with any such condition to such extent as
17
Purchaser, in Purchaser's sole discretion, may determine.
Nothing in this Section 4.13 shall operate to relieve the Company
of any of its obligations hereunder or to waive any of Purchaser's
rights against the Company.
ARTICLE V
COVENANTS OF COMPANY
From and after the Closing Date and continuing so long as
any amount remains unpaid on any of the Debentures:
Section 5.1 Use of Proceeds.
The Company shall use the proceeds of the sale of the
Debentures, together with the proceeds from the sale of the
Series B Preferred Stock, only for the purposes of repurchasing
the outstanding 11% Convertible Debentures.
Section 5.2 Payment of Debentures.
The Company shall perform and observe all of its obligations
to the holder(s) of the Debentures set forth herein and in the
Debentures.
Section 5.3 Optional Redemptions of Debentures; Procedures.
The Debentures may be redeemed, repaid or repurchased by the
Company or any Subsidiary or Affiliate, at the option of the
Company, in whole at any time or in part from time to time,
without additional charge or penalty, provided that in the case
of a redemption of part of the Debentures, such redemption shall
be effected pro rata among all holders of Debentures. In case
the Company repurchases or otherwise acquires any Debentures,
such Debentures shall immediately thereafter be canceled, and no
Debentures shall be issued in substitution therefor. Without
limiting the foregoing, upon the purchase or other acquisition of
any Debentures by the Company or any Subsidiary or Affiliate,
such Debentures shall no longer be outstanding for purposes of
any Section of this Agreement relating to the taking by the
holders of the Debentures of any actions with respect hereto,
including, without limitation, Sections 9.3 [Acceleration of
Maturities].
Section 5.4 Corporate Existence, Etc.
The Company will preserve and keep in force and effect, and
will cause each Subsidiary to preserve and keep in force and
effect, its corporate existence and good standing in the state of
incorporation thereof, its qualification and good standing as a
foreign corporation in each jurisdiction where such qualification
is required by applicable law except where the failure to so
qualify would not have a Materially Adverse Effect, and all
licenses and permits necessary to the proper conduct of its
business.
Section 5.5 Maintenance, Etc.
The Company will maintain, preserve and keep, and will cause
each Subsidiary to maintain, preserve and keep, its properties
and assets which are used or useful in the conduct of its business
18
(whether owned in fee or pursuant to a leasehold interest) in good
repair and working order and from time to time will make all
necessary repairs, replacements, renewals and additions so that at
all times the efficiency thereof shall be maintained.
Section 5.6 Nature of Business.
Neither the Company nor any Subsidiary will engage in any
business if, as a result, the general nature of the business,
taken on a consolidated basis, which would then be engaged in by
the Company and its Subsidiaries would be substantially changed
from the general nature of the business engaged in by the Company
and its Subsidiaries on the date of this Agreement.
Section 5.7 Insurance.
The Company will maintain, and will cause each Subsidiary to
maintain, insurance coverage by financially sound and reputable
insurers with respect to their respective properties and business
in such forms and amounts and against such risks, casualties and
contingencies as are customary for corporations of comparable
size and condition (financial and otherwise) engaged in the same
or a similar business and owning and operating similar
properties.
Section 5.8 Taxes, Claims for Labor and Materials.
The Company will promptly pay and discharge, and will cause
each Subsidiary promptly to pay and discharge, (i) all lawful
taxes, assessments and governmental charges or levies imposed
upon the property or business of the Company or such Subsidiary,
respectively, (ii) all trade accounts payable in accordance with
usual and customary business terms, and (iii) all claims for
work, labor or materials, which if unpaid might become a lien or
charge upon any property of the Company or such Subsidiary;
provided the Company or such Subsidiary shall not be required to
pay any such tax, assessment, charge, levy, account payable or
claim if (a) the validity, applicability or amount thereof is
being contested in good faith by appropriate actions or
proceedings which will prevent the forfeiture or sale of any
property of the Company or such Subsidiary or any material
interference with the use thereof by the Company or such
Subsidiary, and (b) the Company or such Subsidiary shall set
aside on its books, reserves deemed by it to be adequate with
respect thereto.
Section 5.9 Compliance with Laws, Agreements, Etc.
Except where failure to do so does not and would not have a
Materially Adverse Effect, the Company and each Subsidiary shall
maintain its business operations and property owned or used in
connection therewith in compliance with (i) all applicable
federal, state and local laws, regulations and ordinances, and
such laws, regulations and ordinances of foreign jurisdictions,
governing such business operations and the use and ownership of
such property, and (ii) all agreements, licenses, franchises,
indentures and mortgages to which the Company and each Subsidiary
is a party or by which the Company or any of their properties are
bound. Without limiting the foregoing, the Company and each
Subsidiary shall pay all of its indebtedness promptly and
substantially in accordance with the terms thereof.
Section 5.10 ERISA Matters.
19
If the Company has in effect, or hereafter institutes, a
pension plan that is subject to the requirements of Title IV of
ERISA (a "Plan"), then the following covenants shall be
applicable during such period as any such Plan shall be in
effect: (i) throughout the existence of the Plan, the Company's
contributions under the Plan will meet the minimum funding
standards required by ERISA and the Company will not institute a
distress termination of the Plan; and (ii) the Company will send
to Purchaser a copy of any notice of a reportable event (as
defined in ERISA) required by ERISA to be filed with the Labor
Department or the PBGC, at the time that such notice is so filed.
Section 5.11 Books and Records; Rights of Inspection.
The Company will keep, and will cause each Subsidiary to
keep, proper books of record and account in which full and
correct entries will be made of all dealings or transactions of
or in relation to the business and affairs of the Company or such
Subsidiary, in accordance with GAAP consistently maintained. The
Company shall permit a representative of Purchaser to visit any
of its properties and inspect its corporate books and financial
records, and will discuss its accounts, affairs and finances with
a representative of Purchaser, during reasonable business hours,
at all such times as Purchaser may reasonably request.
Section 5.12 Reports.
The Company will furnish to Purchaser the following:
(a) Monthly Statements. Within twenty (20) days of
the end of each month, beginning the month of March 1998, monthly
internal financial reports which at a minimum shall consist of a
balance sheet of the Company as of the close of such month and
related statements of income and cash flows for the one-month
period then ended, as well as any additional financial reports
for such period routinely prepared with respect to the Company
and the Subsidiaries;
(b) Quarterly Statements. As soon as available and in
any event within thirty (30) days after the end of each quarterly
fiscal period (except the last) of each fiscal year, copies of:
(i) consolidated and consolidating balance sheets
of the Company and Subsidiaries as of the close of the
three-month period then ended, setting forth in
comparative form the consolidated figures at the end of
the preceding fiscal year,
(ii) consolidated and consolidating statements of
income and retained earnings of the Company and
Subsidiaries for the three-month period then ended,
setting forth in comparative form the consolidated
figures for the corresponding period of the preceding
fiscal year, and
(iii) consolidated and consolidating
statements of cash flows of the Company and
Subsidiaries for the portion of the fiscal year ending
with such three-month period, setting forth in
comparative form the consolidated figures for the
corresponding period of the preceding fiscal year,
all in reasonable detail and certified as complete and correct by
an authorized financial officer of the Company;
20
(c) Annual Statements. As soon as available and in
any event within ninety (90) days after the close of each fiscal
year of the Company, copies of:
(i) consolidated and consolidating balance sheets
of the Company and Subsidiaries as of the close of such
fiscal year, and
(ii) consolidated and consolidating statements of
income and retained earnings and cash flows of the
Company and Subsidiaries for such fiscal year,
in each case setting forth in comparative form the consolidated
figures for the preceding fiscal year, all in reasonable detail
and accompanied by an unqualified report thereon of a firm of
independent public accountants of recognized national standing;
(d) Audit Reports. Promptly upon receipt thereof,
one copy of each interim or special audit made by independent
accountants of the books of the Company or any Subsidiary;
(e) SEC and Other Reports. Promptly upon their
becoming available, one copy of each financial statement, report,
notice or proxy statement sent by the Company to stockholders
generally and of each periodic or current report, and any
registration statement or prospectus filed by the Company or any
Subsidiary with any securities exchange or the SEC or any
successor agency, and copies of any orders in any proceedings to
which the Company or any of its Subsidiaries is a party, issued
by any governmental agency, federal or state, having jurisdiction
over the Company or any of its Subsidiaries. The Company
specifically covenants to timely file each such item required to
be filed with the SEC and each state requiring securities laws
filings; and
(f) Press Releases. Promptly upon its release, a copy
of each press release issued by the Company.
(g) Requested Information. With reasonable
promptness, such financial data and other information relating to
the business of the Company as Purchaser may from time to time
reasonably request.
21
Section 5.13 Limitations on Debt and Obligations.
Neither the Company nor any Subsidiary shall issue, assume,
guarantee or otherwise become liable or permit to exist any
Indebtedness except: (i) Indebtedness owing from time to time to
the CIT Group/Credit Finance, Inc. (and its successors and
assigns) by the Company or any Subsidiary, as the same may be
extended, renewed, refunded, amended or modified (but the
principal amount thereof not increased); provided, however, that
if the "Maximum Credit" (as defined in the CIT Credit Agreement)
is reduced from $7,000,000 to $5,500,000 pursuant to the CIT
Credit Agreement, then the principal amount of such Indebtedness
to CIT shall not be increased thereafter above $5,500,000; (ii)
Indebtedness existing on the date hereof and reflected on
Schedule 5.13 hereto; (iii) the indebtedness incurred pursuant to
the Debentures and the Tandem Loan Agreement; (iv) accounts
payable and other trade payables incurred in the ordinary course
of business; (v) obligations of the Company pursuant to
capitalized leases and/or purchase money financing of equipment;
(vi) Indebtedness that refinances secured Indebtedness under
clause (i) above, provided that the collateral for such new
indebtedness is the collateral from the refinanced secured
Indebtedness and the aggregate principal amount of such
Indebtedness does not exceed the principal amount outstanding
under the refinanced Indebtedness; (vii) Indebtedness incurred in
connection with the acquisition of a business (including the
assets of a business) provided such Indebtedness is secured
solely by the assets of the business so acquired; (viii)
additional Indebtedness which is senior to or ranking pari passu
with the Debentures in a principal amount not to exceed $50,000;
or (viii) the indebtedness incurred pursuant to the Tandem Loan
Agreement. Notwithstanding the foregoing, the aggregate
principal amount of any Indebtedness secured by the accounts
receivable and/or inventory of the Company and its Subsidiaries
(whether such Indebtedness is permitted under clause (i) or in
clause (vi)), may be increased based upon the amount of the
accounts receivable and/or inventory eligible as collateral, so
long as the ratio of outstanding principal amount of such
Indebtedness to "eligible receivables" (howsoever defined) and/or
"inventory" remains the same; provided, however, that nothing
contained herein shall restrict the right of any holder of
Indebtedness referred to under clause (i) or (vi) above from
decreasing the advance rates applicable to any inventory or
accounts or thereafter increasing such rates to no more than the
rates in effect on the date hereof.
Section 5.14 Guaranties.
Without the prior written consent of Purchaser, the Company
will not, and will not permit any Subsidiary to, become or be
liable in respect of any Guaranty except Guaranties by the
Company which are limited in maximum financial exposure to the
amounts set forth in, and are incurred in compliance with, the
provisions of Section 5.13 of this Agreement.
Section 5.15 Limitation on Liens.
Without the prior written consent of Purchaser, the Company
will not, and will not permit any Subsidiary to, create or incur,
or suffer to be incurred or to exist, any mortgage, pledge,
security interest, encumbrance, lien or charge of any kind
(collectively, "Liens") on its or their property or assets,
whether now owned or hereafter acquired, or upon any income or
profits therefrom, or transfer any property for the purpose of
subjecting the same to the payment of obligations in priority to
the payment of its or their general creditors, or acquire or
agree to acquire, or permit any Subsidiary to acquire, any
property or assets upon conditional sales agreement or other
title retention devices, except (i) those Liens which exist as of
the date hereof; (ii) Liens hereafter created on
22
Indebtedness which is permitted under Section 5.13(v) or (vi); or
(iii) purchase money security interests on property acquired by the
Company or any Subsidiary in an amount not to exceed in the
aggregate 10% more than the amount approved by the Board of
Directors for such expenditures in the Company's Annual Plan, as
hereinafter defined.
Section 5.16 Restricted Payments.
For so long as the Debentures are outstanding, the Company
will not, without the prior written consent of Purchaser and
except as hereinafter provided:
(a) declare or pay any dividends, either in cash or
property, on any shares of its capital stock of any class except
(i) dividends or other distributions payable solely in shares of
capital stock of Company and (ii) cash dividends payable on the
Series B Preferred Stock, provided that no Event of Default
exists hereunder;
(b) directly or indirectly, or through any Subsidiary,
purchase, redeem or retire any shares of its capital stock of any
class or any warrants, rights or options to purchase or acquire
any shares of its capital stock; or
(c) make any other payment or distribution, either
directly or indirectly or through any Subsidiary, in respect of
its capital stock.
Section 5.17 Investments.
The Company will not, and will not permit any Subsidiary to,
make any Investments outside the ordinary course of business for
the Company or any Subsidiary, without the prior written consent
of Purchaser, except:
(a) Investments in direct obligations of the United
States of America, or any agency or instrumentality of the United
States of America, the payment or guaranty of which constitutes a
full faith and credit obligation of the United States of America,
in either case maturing in twelve months or less from the date of
acquisition thereof;
(b) Investments in certificates of deposit maturing
within one year from the date of origin, issued by a bank or
trust company organized under the laws of the United States or
any state thereof, having capital, surplus and undivided profits
aggregating at least $100,000,000 and whose long-term
certificates of deposit are, at the time of acquisition thereof
by Company or a Subsidiary, rated AA or better by Standard &
Poor's Corporation or Aa or better by ▇▇▇▇▇'▇ Investors Service,
Inc.;
(c) Investments in commercial paper maturing in 270
days or less from the date of issuance which, at the time of
acquisition by the Company or any Subsidiary, is accorded the
highest rating by Standard & Poor's Corporation, ▇▇▇▇▇'▇
Investors Service, Inc. or another nationally recognized credit
rating agency of similar standing;
23
(d) loans or advances in the usual and ordinary course
of business to officers, directors and employees for expenses
(including moving expenses related to a transfer) incidental to
carrying on the business of the Company or any Subsidiary; and
(e) receivables arising from the sale of goods and
services in the ordinary course of business of the Company and
its Subsidiaries.
Section 5.18 Mergers, Consolidations and Sales of Assets.
(a) Without the prior written consent of Purchaser,
the Company will not, and will not permit any Subsidiary to (1)
consolidate with or be a party to a merger or share exchange with
any other corporation or (2) sell, lease or otherwise dispose of
all or any substantial part (as defined in paragraph (d) of this
Section 5.18) of the assets of Company and its Subsidiaries;
provided, however, that:
(i) any Subsidiary may merge or consolidate with
or into the Company or any Wholly-owned Subsidiary so
long as in any merger or consolidation involving the
Company, the Company shall be the surviving or
continuing corporation; and
(ii) any Subsidiary may sell, lease or otherwise
dispose of all or any substantial part of its assets to
the Company or any other Wholly-owned Subsidiary.
(b) Without the prior written consent of Purchaser,
the Company will not permit any Subsidiary to issue or sell any
shares of stock of any class (including as "stock" for the
purposes of this Section 5.18, any warrants, rights or options to
purchase or otherwise acquire stock or other Securities
exchangeable for or convertible into stock) of such Subsidiary to
any Person other than the Company or a Wholly-owned Subsidiary,
except for the purpose of qualifying directors or except in
satisfaction of the validly pre-existing preemptive rights of
minority shareholders in connection with the simultaneous
issuance of stock to the Company and/or a Subsidiary whereby the
Company and/or such Subsidiary maintain their same proportionate
interest in such Subsidiary.
(c) Without the prior written consent of Purchaser,
the Company will not sell, transfer or otherwise dispose of any
shares of stock in any Subsidiary (except to qualify directors)
or any indebtedness of any Subsidiary, and will not permit any
Subsidiary to sell, transfer or otherwise dispose of (except to
the Company or a Wholly-owned Subsidiary) any shares of stock or
any indebtedness of any other Subsidiary, unless all of the
following conditions are met:
(i) simultaneously with such sale, transfer or
disposition, all shares of stock and all indebtedness
of such Subsidiary at the time owned by the Company and
by every other Subsidiary shall be sold, transferred or
disposed of as an entirety;
(ii) the Board of Directors of the Company shall
have determined, as evidenced by a resolution thereof,
that the retention of such stock and indebtedness is no
longer in the best interests of the Company;
24
(iii) such stock and Indebtedness is sold,
transferred or otherwise disposed of to a Person, for a
cash consideration and on terms reasonably deemed by
the Board of Directors to be adequate and satisfactory;
(iv) the Subsidiary being disposed of shall not
have any continuing investment in the Company or any
other Subsidiary not being simultaneously disposed of;
and
(v) such sale or other disposition does not
involve a substantial part (as hereinafter defined) of
the assets of the Company and its Subsidiaries taken as
a whole.
(d) As used in this Section 5.18, a sale, lease or
other disposition of assets shall be deemed to be a "substantial
part" of the assets of the Company and its Subsidiaries only if
the book value of such assets, when added to the book value of
all other assets sold, leased or otherwise disposed of by the
Company and its Subsidiaries (other than in the ordinary course
of business) during the same twelve month period ending on the
date of such sale, lease or other disposition, exceeds 15% of the
consolidated net tangible assets of the Company and its
Subsidiaries determined as of the end of the immediately
preceding fiscal year.
Section 5.19 Transactions with Affiliates.
The Company will not, and will not permit any Subsidiary to,
enter into or be a party to any transaction or arrangement with
any officer, director or Affiliate (including, without
limitation, the purchase from, sale to or exchange of property
with, or the rendering of any service by or for, any Affiliate),
except in the ordinary course of and pursuant to the reasonable
requirements of the Company's or such Subsidiary's business and
upon fair and reasonable terms no less favorable to Company or
such Subsidiary than would obtain in a comparable arm's-length
transaction with a Person other than an Affiliate, in each case
as determined in good faith by a majority of the disinterested
directors of the Company (as the term "disinterested" is used in
Section 144 of the Delaware General Corporation Law).
Section 5.20 Notice.
The Company shall promptly upon the discovery thereof give
written notice to Purchaser of (i) the occurrence of any default
or Event of Default or event which, with the passage of time,
would constitute an Event of Default, under this Agreement, (ii)
the occurrence of any default or event of default under any other
agreement providing for Indebtedness of the Company or any
Subsidiary or under a capitalized lease obligation, (iii) any
actions, suits or proceedings instituted by any Person against
the Company or a Subsidiary or materially affecting any of the
assets of the Company or any Subsidiary, or (iv) any
investigation initiated by, or any dispute between and any
governmental regulatory body, on the one hand, and the Company or
any Subsidiary, on the other hand, which dispute might interfere
with the normal operations of the Company or any Subsidiary;
provided, however, that Purchaser shall not be required by this
Agreement to disclose any such information provided in (iii) or
(iv) above to any third party other than Purchaser's counsel and
except to the extent compelled by law or otherwise authorized by
the Company.
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Section 5.21 Annual Plan.
The Board of Directors shall adopt and the Company will
furnish to Purchaser, in such manner and form as approved by the
Board of Directors of the Company, no later than the first day of
each fiscal year, a financial plan for the Company, which shall
include at least a projection of income and expenses (including
capital expenditures) and a projected cash flows statement for
each month in such fiscal year, and a projected balance sheet as
of the end of each month in such fiscal year (the "Annual Plan").
The Annual Plan may only be amended or revised, in any material
manner, with the approval of the Board of Directors. The Company
shall promptly furnish to Purchaser each amendment or revision to
the Annual Plan.
Section 5.22 Board of Directors; Observer Rights.
(a) At any time or from time to time after the Closing Date
upon the request of Purchaser, the Board of Directors of the
Company shall promptly (i) cause the size of the Board of
Directors of the Company to be increased by one (1) director to
five (5) directors (unless a vacancy on the Board of Directors
shall already exist) and (ii) fill the vacancy created thereby
(or such existing vacancy) by electing as director a person who
shall not be an Affiliate of or associated with any of the
Company, its current directors or the Purchaser and who shall be
mutually agreed upon by the three directors who are not
affiliated with the Purchaser and the Purchaser.
(b) For so long as the initial Purchaser or any Affiliate
owns at least 50% of the original principal amount of the
Debentures, the Company agrees to include a nominee of Purchaser
in management's slate of nominees to be elected to the Board of
Directors and to recommend to the shareholders of the Company the
election of such nominee. Any designee or nominee of Purchaser
hereunder shall be reimbursed for all reasonable expenses
incurred as a director and shall be entitled to receive such
compensation as may be received by other non-employee directors
of the Company. Notwithstanding anything in this Section 5.22(b)
to the contrary, this provision shall not apply to a Purchaser if
any shares of Series B Preferred Stock remain outstanding.
(c) In addition to the right described in Section 5.22(b)
hereof, the Company shall invite one representative of Purchaser
to attend, at the Company's expense, all meetings of the
Company's Board of Directors and all committees of the Company's
Board of Directors in a nonvoting capacity and, in this respect,
shall give such representative copies of all notices and meeting
agenda in advance of such meetings and shall permit such
representative to review all documents and other materials
provided to directors at such meetings. The Company shall also
provide Purchaser, in advance, with copies of all actions
proposed to be taken by the Board of Directors in lieu of
meeting. Notwithstanding anything in this Section 5.22(c) to the
contrary, this provision shall not apply to a Purchaser if such
Purchaser exercises identical observer rights to attend meetings
of the Board of Directors pursuant to the Preferred Stock
Purchase Agreement and/or the Tandem Loan Agreement.
Section 5.23 Key Executives.
The officers and key employees of the Company whose names
and current positions are set forth on Schedule 5.23 hereto shall
continue to be employed by the Company in such position and with
the current duties and responsibilities for at least that
position, unless (i) such employment ceases because of death, or
(ii) the Company replaces such officer or employee within ninety (90)
26
days of the person's notice of resignation with another
executive who shall be reasonably acceptable to Purchaser.
Section 5.24 Funding of Subsidiary.
Without the prior written consent of Purchaser, neither the
Company nor any Subsidiary of the Company, shall make any advance
or capital contribution to, provide funding for, or become
liable, directly or indirectly, by guaranty, endorsement or
otherwise, for any obligation of Interactive Solutions, Inc., a
Delaware corporation and a partly-owned subsidiary of the Company
("ISI"); provided, however, that the Company may loan up to an
aggregate of $300,000 to ISI prior to April 30, 1998; provided
further, that the Company may make additional loans to ISI from
time to time after April 30, 1998 if (i) the Company, on a
consolidated basis, had net profits for the immediately preceding
calendar month as reflected in the financial statements delivered
pursuant to Section 5.12(a) hereof and (ii) the Board of
Directors of the Company approves each such loan prior to the
making thereof; provided further, that any such loan shall be
evidenced by a promissory note by ISI in favor of the Company.
Section 5.25 Further Assurances.
The Company will take all actions reasonably requested by
Purchaser to effect the transactions contemplated by this
Agreement and the other Operative Documents.
ARTICLE VI
SUBORDINATION OF DEBENTURES
Section 6.1 Subordination.
(a) Notwithstanding anything to the contrary in this
Agreement or in the Debentures, the indebtedness evidenced by the
Debentures, including principal and interest, shall be
subordinate and junior to the prior payment of the indebtedness
of the Company for borrowed money (except such indebtedness of
the Company other than the Debentures which is expressly stated
to be subordinate or junior in any respect to other indebtedness
of the Company), whether outstanding as of the date of this
Agreement or hereafter created (including any obligations of the
Company under any guaranty or suretyship agreement relating to
indebtedness for borrowed money by Subsidiaries of the Company),
constituting borrowed money from financial institutions approved
by the Board of Directors of the Company and designated as being
senior to the Debentures (but only to the extent so designated),
together with all obligations issued in renewal, deferral,
extension, refunding, amendment or modification of any such
indebtedness as permitted hereunder including, without
limitation, (i) any and all indebtedness now or hereafter owing
by the Company to The CIT Group/Credit Finance, Inc. and its
successors and assigns and (ii) any and all indebtedness owing to
Tandem under the Tandem Loan Agreement not to exceed the
aggregate principal amount outstanding on the date hereof
(collectively, the "Senior Indebtedness").
Section 6.2 Liquidation, Etc.
27
(a) Upon any distribution of assets of the Company in
connection with any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency,
or receivership proceedings or upon an assignment for the benefit
of creditors or otherwise), the holders of all Senior
Indebtedness shall first be entitled to receive payment in full
of the principal thereof, premium, if any, and interest due
thereon, and all costs and expenses (including attorneys' fees)
related thereto, before the holders of the Debentures shall be
entitled to receive any payment on account of the principal of or
interest on or any other amount owing with respect to the
Debentures (other than payment in shares of capital stock of the
Company as reorganized or readjusted, or securities of the
Company or any other corporation provided for by a plan of
reorganization or readjustment, which stock and securities are
subordinated to the payment of all Senior Indebtedness and
securities received in lieu thereof which may at the time be
outstanding). Under the circumstances provided herein, the
holders of the Senior Indebtedness shall have the right to
receive and collect any distributions made with respect to the
Debentures until such time as the Senior Indebtedness is paid in
full, and shall have the further right to take such actions as
may be deemed necessary or required to so receive and collect
such distributions including making or filing any proofs of claim
relating thereto.
(b) Without in any way modifying the provisions of this
Article VI or affecting the subordination effected hereby if such
notice is not given, the Company shall give prompt written notice
to the Purchaser of any dissolution, winding up, liquidation or
reorganization of maker (whether in bankruptcy, insolvency or
receivership proceedings or upon an assignment for the benefit of
creditors or otherwise).
Section 6.3 Senior Indebtedness Default.
The Company shall not declare or pay any dividends or make
any distributions to the holders of capital stock of the Company,
or purchase or acquire for value, any of the Debentures if any
default or event of default has occurred and is continuing with
respect to any of the Senior Indebtedness.
Section 6.4 Subrogation.
Upon the prior payment in full of all Senior Indebtedness,
the Purchaser shall be subrogated to the rights of the holders of
the Senior Indebtedness to receive payments or distributions of
assets of the Company applicable to the Senior Indebtedness until
all amounts owing on the Debentures shall be paid in full, and
for the purpose of such subrogation, no payments or distributions
to the Purchaser otherwise payable or distributable to the
holders of Senior Indebtedness shall, as between the Company, its
creditors, other than the holders of Senior Indebtedness, and
Purchaser, shall be deemed to be payment by the Company to or on
account of the Debentures, it being understood that the
provisions of this Article VI are and are intended solely for the
purpose of defining the relative rights of Purchaser, on the one
hand, and the holders of the Senior Indebtedness, on the other
hand.
Section 6.5 Company's Obligations Not Impaired.
(a) Nothing contained in this Article VI or in the
Debentures is intended to or shall impair, as between the Company
and Purchaser, the obligation of the Company, which is absolute
and unconditional, to pay the Purchaser the principal of and
interest on the Debentures as and when
28
the same shall become due and payable in accordance with the terms
of the Debentures, or is intended to or shall affect the relative
rights of the Purchaser other than with respect to the holders of
the Senior Indebtedness, nor, except as expressly provided in this
Article VI, shall anything herein or therein prevent the Purchaser
from exercising all remedies otherwise permitted by applicable law
upon the occurrence of an Event of Default under this Agreement
or under the Debentures.
(b) If any payment or distribution shall be received in
respect of the Debentures in contravention of the terms of this
Article VI, such payment or distribution shall be held in trust
for the holders of the Senior Indebtedness, and shall be
immediately delivered to such holders in the same form as
received.
ARTICLE VII
RESTRICTIONS ON TRANSFER
Section 7.1 Legends; Restrictions on Transfer.
The Debentures have not been registered under the Securities
Act or any state securities laws. Each Debenture issued pursuant
to this Agreement (except as permitted by this Article VII) shall
bear a legend in substantially the following form:
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY APPLICABLE STATE SECURITIES LAW AND MAY
NOT BE TRANSFERRED UNLESS (i) THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS, OR (ii) IN THE
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY
REGISTRATION UNDER THE SECURITIES ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN
CONNECTION WITH SUCH TRANSFER.
The provisions of this Article VII shall be binding upon all
subsequent holders of the Debentures unless in the opinion of
counsel to any such holder, specified in Section 7.2 below, the
Debentures are no longer subject to the restrictions described
herein.
Section 7.2 Notice of Intention to Transfer; Opinions of
Counsel.
The Debentures shall not be transferable except upon the
conditions specified in this Article VII. Each holder of any
Debenture, by acceptance thereof, agrees, prior to any transfer
or such Debenture, to give written notice to the Company of such
holder's intention to effect such transfer and briefly describe
the manner of the proposed transfer. Such notice of intended
transfer shall be accompanied by, if applicable, an opinion of
counsel to such holder reasonably satisfactory to the Company, to
the effect that registration under the Securities Act of such
Debenture in connection with such proposed transfer is not required.
If in the opinion of such counsel, the proposed transfer of such
Debenture may be effected without registration of such Debenture,
under the Securities Act, such holder shall be entitled to transfer
such Debenture in accordance with the terms of the notice delivered
by such holder to the Company. The Company will promptly upon such
transfer deliver new Debentures not bearing a legend of the character
set forth in Section 7.1, unless in the opinion of
29
such counsel subsequent disposition by such holder of the Debentures
to be so transferred may require registration under the Securities
Act. If the proposed transfer of such Debenture may not be effected
without registration of such Debenture under the Securities Act,
the holder thereof shall not be entitled to transfer such Debenture,
in the absence of an effective registration statement.
ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES
Section 8.1 Events of Default.
The occurrence of any one of the following shall constitute
an "Event of Default" under this Agreement:
(a) Default shall occur in the payment of interest on any
Debenture when the same shall have become due; or
(b) Default shall occur in the making of any payment of the
principal of any Debenture or the premium, if any, by the Company
thereon at the expressed or any accelerated maturity date or at
any date fixed by the Company for prepayment; or
(c) Default shall be made in the payment of the principal
of or interest on any Indebtedness (other than the Debentures) of
the Company or any Subsidiary and such default shall continue
beyond the period of grace, if any, allowed with respect thereto;
or
(d) Default or the happening of any event shall occur under
any contract, agreement, lease, indenture or other instrument
under which any Indebtedness (other than the Debentures) of the
Company or any Subsidiary may be issued and such default or event
shall continue for a period of time sufficient to permit the
acceleration of the maturity of any such Indebtedness of the
Company or any Subsidiary outstanding thereunder; or
(e) Default shall occur in the observance or performance of
any covenant or agreement contained in Sections 5.2, 5.12 through
5.18, 5.22 or 5.23 hereof; or
(f) Default shall occur in the observance or performance of
any other provision of this Agreement which is not remedied
within thirty (30) days after the earlier of (i) the date on
which the Company first obtains knowledge of such Default and
(ii) the date on which written notice thereof is given to the
Company by the holder of any Debenture; or
(g) Any representation or warranty made by the Company
herein, or made by the Company in any statement or certificate
furnished by the Company in connection with the consummation of
the issuance and delivery of the Debentures or furnished by the
Company pursuant hereto, is untrue in any material respect as of
the date of the issuance or making thereof; or
(h) Final judgment or judgments for the payment of money
aggregating in excess of $100,000, is or are outstanding against
the Company or any Subsidiary or against any property or
30
assets of either and any one of such judgments has remained unpaid,
unvacated, unbonded or unstayed by appeal or otherwise for a
period of thirty (30) days from the date of its entry; or
(i) The Company or any Subsidiary becomes insolvent or
bankrupt, is generally not paying its debts as they become due or
makes an assignment for the benefit of creditors, or the Company
or any Subsidiary applies for or consents to the appointment of a
custodian, trustee, liquidator, or receiver for the Company or
such Subsidiary or for the major part of the property of either;
or
(j) A custodian, trustee, liquidator, or receiver is
appointed for the Company or any Subsidiary or for the major part
of the property of either and is not discharged within sixty (60)
days after such appointment; or
(k) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy
or similar law or laws for the relief of debtors, are instituted
by or against the Company or any Subsidiary and, if instituted
against the company or any Subsidiary, are consented to or are
not dismissed within sixty (60) days after such institution.
Section 8.2 Notice to Holders.
When any Event of Default described in the foregoing Section
8.1 has occurred, or if the holder of any Debenture or of any
other evidence of indebtedness of the Company gives any notice or
takes any other action with respect to a claimed default, the
Company agrees to give notice within three (3) Business Days of
such event to all holders of the Debentures then outstanding.
Section 8.3 Notice to Holders; Acceleration of Maturities.
When any Event of Default described in the foregoing Section
8.1 has occurred, or if the holder of any other evidence of
indebtedness of the Company gives any notice or takes any action
with respect to a claimed default, the Company agrees to give
notice within three (3) Business Days of such event to all
holders of Debentures then outstanding. When any Event of
Default described in paragraph (a), (b) or (c) of Section 8.1 has
happened and is continuing, any holder of any Debenture may, and
when any Event of Default described in paragraphs (d) through
(i), inclusive, of said Section 8.1 has happened and is
continuing, the holder or holders of 50% or more of the principal
amount of Debentures at the time outstanding may, by notice to
the Company, declare the entire principal and all interest
accrued on all Debentures to be, and all Debentures shall
thereupon become, forthwith due and payable, without any
presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived. When any Event of Default
described in paragraph (j) or (k) of Section 8.1 has occurred,
then all outstanding Debentures shall immediately become due and
payable without presentment, demand or notice of any kind, all of
which are hereby expressly waived. Upon the Debentures becoming
due and payable as a result of any Event of Default as aforesaid,
the Company will forthwith pay to the holders of the Debentures
the entire principal and interest accrued on the Debentures. No
course of dealing on the part of any Debentureholder nor any
delay or failure on the part of any Debentureholder to exercise
any right shall operate as a waiver of such right or otherwise
prejudice such holder's rights, powers and remedies. The Company
further agrees, to the extent permitted by law, to pay to the
holder or holders of the Debentures all costs and
31
expenses, including reasonable attorneys' fees, incurred by them in
the collection of any Debentures upon any default hereunder or thereon.
ARTICLE IX
AMENDMENTS, WAIVERS AND CONSENTS
Section 9.1 Consent Required.
Any term, covenant, agreement or condition of this Agreement
may, with the consent of the Company, be amended or compliance
therewith may be waived (either generally or in a particular
instance and either retroactively or prospectively), if the
Company shall have obtained the consent in writing of the holders
of at least 50% in aggregate principal amount of outstanding
Debentures; provided that without the written consent of the
holders of all of the Debentures then outstanding, no such
waiver, modification, alteration or amendment shall be effective
(a) which will change the time of payment of the principal of or
the interest on any Debenture or reduce the principal amount
thereof or change the rate of interest thereon, (b) which will
change any of the provisions hereof with respect to optional
prepayments or (c) which will change the percentage of holders of
the Debentures required to consent to any such amendment,
modification or waiver of any of the provisions of this Article
IX [Amendments, etc.] or Article VIII [Defaults; Remedies].
Section 9.2 Solicitation of Debenture Holders.
The Company will not, directly or indirectly, pay or cause
to be paid by remuneration, whether by way of supplemental or
additional interest, fee or otherwise, to any holder of the
Debentures as consideration for or as an inducement to the
entering into by any holder of the Debentures of any waiver or
amendment of any of the terms and provisions of this Agreement
unless such remuneration is concurrently paid, on the same terms,
ratably to the holders of all of the Debentures then outstanding.
Section 9.3 Effect of Amendment or Waiver.
Any such amendment or waiver shall apply equally to all of
the holders of the Debentures and shall be binding upon them,
upon each future holder of any Debenture and upon the Company,
whether or not such Debenture shall have been marked to indicate
such amendment or waiver. No such amendment or waiver shall
extend to or affect any obligation not expressly amended or
waived or impair any right consequent thereon.
ARTICLE X
INTERPRETATION OF AGREEMENT; DEFINITIONS
Section 10.1 Definitions.
Unless the context otherwise requires, the terms hereinafter
set forth when sued herein shall have the following meanings and
the following definitions shall be equally applicable to both the
singular and plural forms of any of the terms herein defined:
32
"Affiliate" shall mean any Person (a) which directly or
indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, the Company, (b)
which beneficially owns or holds 5% or more of any class of the
Voting Stock of the Company or (c) 5% or more of the Voting Stock
(or in the case of a Person which is not a corporation, 5% or
more of the equity interest) of which is beneficially owned or
held by the Company or a Subsidiary.
"Business Day" shall mean any day other than a Saturday,
Sunday, or other day on which banks in Tennessee are authorized
to close.
"CIT Credit Agreement" shall mean that certain Loan and
Security Agreement dated October 28, 1994 among the Company,
certain subsidiaries of the Company, and the CIT Group/Credit
Finance, Inc., as amended from time to time.
The term "control" (including the terms "controlling,"
"controlled by" and "under common control") shall mean the
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a person,
whether through the ownership of Voting Stock, by contract, or
otherwise.
"Default" shall mean any event or condition, the occurrence
of which would, with the lapse of time or the giving of notice,
or both, constitute an Event of Default as defined in Section
9.1.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended 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
shall be construed to also refer any successor sections.
"Event of Default" shall have the meaning set forth in
Section 9.1 hereof.
"Guaranties" by any Person shall mean all obligations (other
than endorsements in the ordinary course of business of
negotiable instruments for deposit or collection) of such Person
guaranteeing, or in effect guaranteeing, any Indebtedness,
dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly,
including, without limitation, all obligations incurred through
an agreement, contingent or otherwise, by such Person: (a) to
purchase such Indebtedness or obligation or any property or
assets constituting security therefor, (b) to advance or supply
funds (i) for the purchase or payment of such Indebtedness or
obligation, (ii) to maintain working capital or other balance
sheet condition or (iii) otherwise to advance or make available
funds for the purchase or payment of such Indebtedness or
obligation, or (c) to lease property or to purchase Securities or
other property or services primarily for the purpose of assuring
the owner of such Indebtedness or obligation of the ability of
the primary obligor to make payment of the Indebtedness or
obligation, or (d) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in
respect thereof. For the purposes of all computations made under
this Agreement, a Guaranty in respect of any Indebtedness for
borrowed money shall be deemed to be Indebtedness equal to the
principal amount of such Indebtedness for borrowed money which
has been guaranteed, and a Guaranty in respect of any other
obligation or liability or any dividend shall be deemed to be
Indebtedness equal to the maximum aggregate amount of such
obligation, liability or dividend.
33
"Hazardous Substance" shall mean any hazardous or toxic
material, substance or waste, pollutant or contaminant which is
regulated under any statute, law, ordinance, rule or regulation
of any local, state, regional or Federal authority having
jurisdiction over the property of the Company and its
Subsidiaries or its use, including but not limited to any
material, substance or waste which is: (a) defined as a hazardous
substance under Section 311 of the Federal Water Pollution
Control Act (33 U.S.C. Section 1317.1) as amended; (b) regulated as a
hazardous waste under Section 1004 or Section 3001 of the Federal
Solid Waste Disposal Act, as amended by the Resource Conservation
and Recovery Act (42 U.S.C. Section 6901 et seq.) as amended; (c)
defined as a hazardous substance under Section 101 of the
Comprehensive Environmental Response, Compensation and Liability
Act (42 U.S.C. Section 9601 et seq.) as amended; or (d) defined or
regulated as a hazardous substance or hazardous waste under any
rules or regulations promulgated under any of the foregoing
statutes.
"Indebtedness" of any Person shall mean and include all
obligations of such Person which in accordance with GAAP shall be
classified upon a balance sheet of such Person as liabilities of
such Person, and in any event shall include all (a) obligations
of such Person for borrowed money or which have been incurred in
connection with the acquisition of property or assets, (b)
obligations secured by any lien or other charge upon property or
assets owned by such Person, even though such Person has not
assumed or become liable for the payment of such obligations, (c)
obligations created or arising under any conditional sale or
other title retention agreement with respect to property acquired
by such Person, notwithstanding the fact that the rights and
remedies of the seller, lender or lessor under such agreement in
the Event of Default are limited to repossession or sale or
property, (d) capitalized rentals, and (e) Guaranties of
obligations of others of the character referred to in this
definition.
"Investments" shall mean all investments, in cash or by
delivery of property made, directly or indirectly in any Person,
whether by acquisition of shares of capital stock, indebtedness
or other obligations or Securities or by loan, advance, capital
contribution or otherwise; provided, however that "Investments"
shall not mean or include routine investments in property to be
used or consumed in the ordinary course of business.
The term "knowledge of the Company" shall mean, with respect
to a particular fact or other matter if a director or executive
officer of the Company or any Subsidiary is actually, or has
been, aware of such fact or other matter, after reasonable
inquiry under the circumstances.
"Materially Adverse Effect" shall mean a materially adverse
effect upon the business, assets, liabilities, financial
condition, results of operations or business prospects, in each
case of the Company and its Subsidiaries taken as a whole, or
upon the ability of the Company to perform its obligations under
this Agreement, the Debentures or the other Operative Documents.
"Multiemployer Plan" shall have the same meaning as in ERISA.
"Operative Documents" shall mean (i) this Debenture Purchase
Agreement; (ii) the Debenture, (iii) the Warrant; and (iv) the
Registration Rights Agreement.
"Person" shall mean an individual, partnership, corporation,
trust or unincorporated organization, and a government or agency
or political subdivision thereof.
34
"Plan" means a "pension plan", as such term is defined in
ERISA, established or maintained by the Company or any ERISA
Affiliate or as to which the Company or any ERISA Affiliate
contributed or is a member or otherwise may have any liability.
"Proprietary Information" includes without limitation
(i) any computer software and related documentation, inventions,
technical and nontechnical data related thereto, and (ii) other
documentation, inventions and data related to patterns, plans,
methods, techniques, drawings, finances, customer lists,
suppliers, products, special pricing and cost information,
designs, processes, procedures, formulas, research data owned or
used by the Company or any Subsidiary or marketing studies
conducted by the Company, all of which the Company considers to
be commercially important and competitively sensitive and which
generally has not been disclosed to third parties other than
customers in the ordinary course of business.
"Security" shall have the same meaning as in Section 2(1) of
the Securities Act of 1933, as amended.
The term "subsidiary" shall mean, as to any particular
parent corporation, any corporation of which more than 50% (by
number of votes) of the Voting Stock shall be owned by such
parent corporation and/or one or more corporations which are
themselves Restricted Subsidiaries of such parent corporation.
The term "Subsidiary" shall mean a subsidiary of the Company.
"Voting Stock" shall mean Securities of any class or classes
the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate
directors (or Persons performing similar functions).
"Wholly-owned" when used in connection with any Subsidiary
shall mean a Subsidiary of which all of the issued and
outstanding shares of stock (except shares required as directors'
qualifying shares) shall be owned by the Company and/or one or
more of its Wholly-owned Subsidiaries.
Section 10.2 Accounting Principles.
Where the character or amount of any asset or liability or
item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be
made for the purposes of this Agreement, the same shall be done
in accordance with GAAP, to the extent applicable, except where
such principles are inconsistent with the requirements of this
Agreement.
Section 10.3 Directly or Indirectly.
Where any provision in this Agreement refers to action to be
taken by any Person, or which such Person is prohibited from
taking such provision shall be applicable whether the action in
question is taken directly or indirectly by such Person.
35
Section 10.4 Disclosure Statement.
The disclosures contained in the Disclosure Statement
attached hereto with respect to any section number hereof shall
be deemed to constitute the contents of the schedule of such
number referenced herein.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Expenses, Stamp Tax Indemnity.
Whether or not the transactions herein contemplated shall be
consummated, the Company agrees to pay directly all of
Purchaser's out-of-pocket expenses in connection with (a) the
entering into of this Agreement, the Preferred Stock Purchase
Agreement, and the Senior Secured Loan Agreement and the
consummation of the transactions contemplated hereby and thereby,
including but not limited to the reasonable fees, expenses and
disbursements of ▇▇▇▇▇▇▇▇ & ▇▇▇, PLC, Purchaser's counsel, and
(b) so long as Purchaser holds any of the Debentures, all such
expenses relating to any amendment, waiver or consent pursuant to
the provisions hereof (whether or not the same are actually
executed and delivered), including, without limitation, any
amendments, waivers or consents resulting from any work-out,
restructuring or similar proceedings relating to the performance
by the Company of its obligations under this Agreement and the
Debentures. The Company also agrees that it will pay and save
Purchaser harmless against any and all liability with respect to
stamp and other taxes, if any, which may be payable in connection
with the execution and delivery of this Agreement or the
Debentures, whether or not any Debentures are then outstanding.
The Company agrees to protect and indemnify Purchaser against any
liability for any and all brokerage fees and commissions payable
or claimed to be payable to any Person in connection with the
transactions contemplated by this Agreement.
Section 11.2 Powers and Rights Not Waived; Remedies Cumulative.
No delay or failure on the part of the holder of any
Debenture in the exercise of any power or right shall operate as
a waiver thereof; nor shall any single or partial exercise of the
same preclude any other of further exercise thereof, or the
exercise of any other power or right, and the rights and remedies
of the holder of any Debenture are cumulative to and are not
exclusive of any rights or remedies any such holder would
otherwise have, and no waiver or consent, given or extended
pursuant to Article VIII hereof, shall extend to or affect any
obligation or right not expressly waived or consented to.
Section 11.3 Notices.
All communications provided for hereunder shall be in
writing and shall be delivered personally, or mailed by
registered mail, or by prepaid overnight air courier, or by
facsimile communication, in each case addressed:
36
If to Purchaser: Tandem Capital, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇▇ & ▇▇▇, PLC
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ I.N. ▇▇▇▇▇▇▇▇, Esq.
If to the Company: Teltronics, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
with a copy to: ▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
or such other address as Purchaser or the subsequent holder of
any Debenture initially issued to Purchaser may designate to the
Company in writing, or such other address as the Company may in
writing designate to Purchaser or to a subsequent holder of the
Debenture initially issued to Purchaser, provided, however, that
a notice sent by overnight air courier shall only be effective if
delivered at a street address designated for such purpose by such
person and a notice sent by facsimile communication shall only be
effective if made by confirmed transmission at a telephone number
designated for such purpose by such person or, in either case, as
Purchaser or a subsequent holder of any Debentures initially
issued to Purchaser may designate to the Company in writing or at
a telephone number herein set forth in the case of the Company.
Section 11.4 Successor and Assigns.
Purchaser's interest in this Agreement, the Debentures and
the other Operative Documents may be endorsed, assigned and/or
transferred in whole or in part by Purchaser, and any such holder
and/or assignee of the same shall succeed to and be possessed of
the rights and powers of Lender under all of the same to the
extent transferred and assigned. The Company shall not assign
any of its rights nor delegate any of its duties under this
Agreement or any of the other Operative Documents by operation of
law or otherwise without the prior express written consent of
Purchaser, and in the event the Company obtains such consent,
this Agreement and the other Operative Documents shall be binding
upon such assignee.
Section 11.5 Survival of Covenants and Representations.
37
All representations and warranties made by the Company
herein and in any certificates delivered pursuant hereto, whether
or not in connection with the Closing Date, shall survive the
closing and the delivery of this Agreement and the Series B
Preferred Stock. All covenants made by the Company herein shall
survive the closing and delivery of this Agreement and the
Operative Documents in accordance with their respective terms.
Section 11.6 Severability.
Should any part of this Agreement for any reason be declared
invalid or unenforceable, such decision shall not affect the
validity of any remaining portion, which remaining portion shall
remain in force and effect as if this Agreement had been executed
with the invalid or unenforceable portion thereof eliminated and
it is hereby declared the intention of the parties hereto that
they would have executed the remaining portion of this Agreement
without including therein any such part, parts or portion which
may for any reason, be hereafter declared invalid or unenforceable.
Section 11.7 Governing Law.
This Agreement and the Debentures issued and sold hereunder
shall be governed by and construed in accordance with Tennessee
law, without regard to its conflict of law rules.
Section 11.8 Captions; Counterparts.
The descriptive headings of the various Sections or parts of
this Agreement are for convenience only and shall not affect the
meaning or construction of any of the provisions hereof. This
Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute
one and the same instrument.
Section 11.9 Third Party Beneficiaries.
The parties hereto hereby acknowledge and agree that, solely
with respect to the subordination provisions contained in Article VI
hereof, The CIT Group/Credit Finance, Inc. and its successors and
assigns shall have the rights and privileges of a third party
beneficiary. Nothing contained herein shall be interpreted to create
any additional rights in The CIT Group/Credit Finance, Inc. or its
successors or assigns or to create any rights whatsoever in any
other Person.
Section 11.10 Entire Agreement.
This Agreement constitutes the entire agreement of the
parties with regard to the sale of the Debentures.
Section 11.11 Disclosure Statement.
The disclosures contained in the Disclosure Statement
attached hereto with respect to any section number hereof shall
be deemed to constitute the contents of the schedule of such
number referenced herein.
[SIGNATURE PAGE TO DEBENTURE PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this
Debenture Purchase Agreement to be executed and delivered by
their duly authorized officers as of the date first written
above.
COMPANY:
TELTRONICS, INC.
By: ▇▇▇▇ ▇▇▇▇▇▇▇, President
PURCHASER:
SIRROM CAPITAL CORPORATION
d/b/a TANDEM CAPITAL
By: ▇▇▇▇▇ ▇▇▇▇▇▇
Its: Vice President
Schedule 1.1(b)
to Debenture Purchase Agreement
(a) Equipment. All machinery and equipment, all data
processing and office equipment, all computer equipment,
hardware, firmware and software, all furniture, fixtures,
appliances and all other goods of every type and description,
whether now owned or hereafter acquired and wherever located,
together with all parts, accessories and attachments and all
replacements thereof and additions thereto;
(b) Inventory. All inventory and goods, whether held for
lease, sale or furnishing under contracts of service, all
agreements for lease of same and rentals therefrom, whether now
in existence or owned or hereafter acquired and wherever located;
(c) General Intangibles. All rights, interests, choses in
action, causes of action, claims and all other intangible
property of every kind and nature, in each instance whether now
owned or hereafter acquired, including, but not limited to, all
corporate and business records; all loans, royalties, and other
obligations receivable; all trade secrets, inventions, designs,
patents, patent applications, registered or unregistered service
marks, trade names, trademarks, copyrights and the goodwill
associated therewith and incorporated therein, and all
registrations and applications for registration related thereto;
all goodwill, licenses, permits, franchises, customer lists and
credit files; all customer and supplier contracts, firm sale
orders, rights under license and franchise agreements, and other
contracts and contract rights; all right, title and interest
under leases, subleases, licenses and concessions and other
agreements relating to real or personal property and any security
agreements relating thereto; all rights to indemnification; all
proceeds of insurance of which the Company is beneficiary; all
letters of credit, guarantees, liens, security interests and
other security held by or granted to the Company; and all other
intangible property, whether or not similar to the foregoing;
(d) Accounts, Chattel Paper, Instruments and Documents.
All accounts, accounts receivable, chattel paper, instruments and
documents, whether now in existence or owned or hereafter
acquired, entered into, created or arising, and wherever located
(provided that the parties agree that except and until an Event
and Default, the Company shall be entitled to collect all
accounts receivable and use the proceeds collected for their own
purposes and in their sole discretion, except as otherwise
restricted by the provisions of this Agreement); and
(e) Other Property. All other personal property or
interests in property now owned or hereafter acquired.