DEBENTURE PURCHASE AGREEMENT
Between
SIRROM CAPITAL CORPORATION,
d/b/a TANDEM CAPITAL
ARGOSY INVESTMENT PARTNERS, L.P.,
AS PURCHASERS
And
▇▇▇▇▇▇ HOLDINGS, LTD.
December 17, 1997
Table of Contents
ARTICLE I - SALE AND PURCHASE OF DEBENTURES; ISSUANCE OF WARRANTS............1
Section 1.1 Debentures....................................................1
Section 1.2 Warrants; Registration Rights Agreement.......................1
Section 1.3 Commitment; Closing Date......................................2
Section 1.4 Closing Fee...................................................2
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................2
Section 2.1 Corporate Status..............................................2
Section 2.2 Capitalization................................................3
Section 2.3 Authorization; Absence of Conflicts...........................4
Section 2.4 Validity and Binding Effect...................................4
Section 2.5 Financial Statements..........................................4
Section 2.6 SEC Reports...................................................5
Section 2.7 Absence of Changes............................................5
Section 2.8 No Defaults...................................................6
Section 2.9 Compliance With Law...........................................6
Section 2.10 Litigation...................................................6
Section 2.11 Taxes........................................................6
Section 2.12 Certain Transactions.........................................6
Section 2.13 Title to Property............................................7
Section 2.14 Intellectual Property........................................7
Section 2.15 Debt.........................................................8
Section 2.16 Material Contracts...........................................8
Section 2.17 Environmental Matters........................................8
Section 2.18 Accounting Matters...........................................9
Section 2.19 Distributions to Company.....................................9
Section 2.20 Prior Sales.................................................10
Section 2.21 Regulatory Compliance.......................................10
Section 2.22 Margin Regulations..........................................10
Section 2.23 Limited Offering............................................10
Section 2.24 Registration Rights.........................................10
Section 2.25 Insurance...................................................11
Section 2.26 Governmental Consents.......................................11
Section 2.27 Employees...................................................11
Section 2.28 ERISA.......................................................11
Section 2.29 Fees/Commissions............................................12
Section 2.30 Small Business Concern......................................12
Section 2.31 Proposed Acquisition........................................12
Section 2.32 Disclosure..................................................12
Section 2.33 Survival....................................................12
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PURCHASER..................13
Section 3.1 Corporate Status Residence...................................13
Section 3.2 Authorization................................................13
Section 3.3 Validity and Binding Effect..................................13
Section 3.4 Accredited Investor; Investment Intent.......................13
Section 3.5 Survival.....................................................14
ARTICLE IV - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER...........14
Section 4.1 Representations and Warranties...............................14
Section 4.2 Officer's Certificate........................................14
Section 4.3 Satisfactory Proceedings; Secretary's Certificate............14
Section 4.4 Legal Opinion................................................14
Section 4.5 Authorization Agreement......................................15
Section 4.6 The Company's Existence and Authority........................15
Section 4.7 Delivery of Operative Documents..............................15
Section 4.8 Acquisition Transaction......................................15
Section 4.9 Warrant Valuation Letter.....................................15
Section 4.10 Preferred Stock.............................................15
Section 4.11 Senior Credit Agreement; Intercreditor Agreement............16
Section 4.12 SBA Forms...................................................16
Section 4.13 Required Consents...........................................16
Section 4.14 Expenses....................................................16
Section 4.15 Waiver of Conditions........................................16
ARTICLE V - COVENANTS OF COMPANY............................................17
Section 5.1 Use of Proceeds; Certain Prohibited Activities...............17
Section 5.2 Payment of Debentures........................................17
Section 5.3 Optional Redemptions of Debentures; Procedures...............17
Section 5.4 Corporate Existence, Etc.....................................18
Section 5.5 Maintenance, Etc.............................................18
Section 5.6 Nature of Business...........................................18
Section 5.7 Insurance....................................................18
Section 5.8 Taxes, Claims for Labor and Materials........................18
Section 5.9 Compliance with Laws, Agreements, etc........................19
Section 5.10 ERISA Matters...............................................19
Section 5.11 Books and Records; Rights of Inspection.....................19
Section 5.12 Reports.....................................................20
Section 5.13 Limitations on Debt and Obligations.........................21
Section 5.14 Guaranties..................................................22
Section 5.15 Limitation on Liens.........................................22
Section 5.16 Restricted Payments.........................................23
Section 5.17 Investments.................................................23
Section 5.18 Mergers, Consolidations and Sales of Assets.................24
Section 5.19 Transactions with Affiliates................................25
Section 5.20 Notice......................................................25
Section 5.21 Annual Plan.................................................26
Section 5.22 Board of Directors; Observer Rights.........................26
Section 5.23 Key Executives..............................................27
Section 5.24 Further Assurances..........................................27
ARTICLE VI - SUBORDINATION OF DEBENTURES....................................27
Section 6.1 Subordination................................................27
Section 6.2 Liquidation, etc............................................27
Section 6.3 Senior Indebtedness Default..................................28
Section 6.4 Subrogation..................................................28
Section 6.5 Company's Obligations Not Impaired...........................29
ARTICLE VII - RESTRICTIONS ON TRANSFER......................................29
Section 7.1 Legends; Restrictions on Transfer............................29
Section 7.2 Notice of Intention to Transfer; Opinions of Counsel.........29
ARTICLE VIII - EVENTS OF DEFAULT; REMEDIES..................................30
Section 8.1 Events of Default............................................30
Section 8.2 Acceleration of Maturities...................................31
ARTICLE IX - AMENDMENTS, WAIVERS AND CONSENTS...............................32
Section 9.1 Consent Required.............................................32
Section 9.2 Solicitation of Debenture Holders............................32
Section 9.3 Effect of Amendment or Waiver................................32
ARTICLE X - INTERPRETATION OF AGREEMENT; DEFINITIONS........................32
Section 10.1 Definitions.................................................32
Section 10.2 Accounting Principles.......................................35
ARTICLE XI - MISCELLANEOUS..................................................35
Section 11.1 Expenses, Stamp Tax Indemnity...............................35
Section 11.2 Powers and Rights Not Waived; Remedies Cumulative...........36
Section 11.3 Notices.....................................................36
Section 11.4 Successors and Assigns......................................37
Section 11.5 Survival of Covenants and Representations...................38
Section 11.6 Severability................................................38
Section 11.7 Governing Law...............................................38
Section 11.8 Captions; Counterparts......................................38
Section 11.9 Entire Agreement............................................38
DEBENTURE PURCHASE AGREEMENT
This DEBENTURE PURCHASE AGREEMENT (the "Agreement") entered into the
17th day of December, 1997, is by and between SIRROM CAPITAL CORPORATION d/b/a
TANDEM CAPITAL, a Tennessee corporation, ("Tandem"), and ARGOSY INVESTMENT
PARTNERS, L.P., a Pennsylvania limited partnership ("Argosy"), (each of Tandem
and Argosy being referred to as, individually, a "Purchaser" and collectively,
the "Purchasers"), and ▇▇▇▇▇▇ HOLDINGS, LTD., a Pennsylvania corporation (the
"Company").
WITNESSETH:
WHEREAS, the Company desires to obtain additional capital for use in
connection with its business through the issue and sale of certain
obligations, and the Purchasers, severally, are willing to purchase such
obligations from the Company, on the terms and conditions set forth herein.
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.
(a) The Company has authorized the issue and sale of Two Million Five
Hundred Thousand and no/100ths Dollars ($2,500,000.00) aggregate principal
amount of its 12.25% Subordinated Debentures due on the fifth anniversary of
the date of issue (the "Debentures"), to be dated the date of issue and to
bear interest from such date at the rate of 12.25% 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.
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 Tandem its Stock Purchase Warrant
for the purchase of 240,000 shares of Common Stock of the Company and to
Argosy its Stock Purchase Warrant for the purchase of 60,000 shares of Common
Stock of the Company, in each case with an exercise price of $4.25 per share,
dated the Closing Date (as defined in Section 1.3 below) and substantially in
the form attached
1
hereto as Exhibit A-2 (the "Warrants") and an accompanying Registration Rights
Agreement, dated the Closing Date, by and among the Company, Tandem, and
Argosy, 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, (i) the Company agrees
to issue and sell to Tandem, and Tandem agrees to purchase from the Company,
Debentures in the aggregate principal amount of $2,000,000, and (ii) the
Company agrees to issue and sell to Argosy, and Argosy agrees to purchase from
the Company, Debentures in the aggregate principal amount of $500,000, in each
case at a price of 100% of the principal amount thereof.
Delivery of the Debentures will be made at the offices 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, at 10:00 A.M., Nashville time, on
January 2, 1998, or such other date, but no later than January 30, 1998, as
the Company shall determine, upon two (2) business days prior notice to
Purchasers (the "Closing Date"). The Debentures delivered to Purchasers on the
Closing Date will be delivered to Purchasers in the form of a single Debenture
as to each Purchaser for the full amount of such purchase (unless different
denominations are specified by Purchaser), registered in the respective
Purchaser's name or in the name of such nominee as each Purchaser may specify
and, with appropriate insertions, in the form attached hereto as Exhibit A-1,
all as each Purchaser may specify at least 24 hours prior to the date fixed
for delivery.
Section 1.4 Closing Fee.
The Company agrees to pay on or before the Closing Date a closing fee
(a) to Tandem, in an amount equal to $45,000, and (b) to Argosy, in an amount
equal to $11,250; provided that if no closing occurs hereunder, no such fee
shall be payable by the Company.
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 Commonwealth of Pennsylvania 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 Warrants, 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, except where the failure to so qualify would not
have a Materially Adverse Effect
2
on the financial condition or results of operations of the Company. 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, except where the failure to so qualify would not have a
Materially Adverse Effect on the financial condition or results of operations
of the Company. 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.
(c) Schedule 2.1(c) sets forth a complete list of "affiliates" (as
that term is defined in ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ Code of Federal Regulations,
Section 121.103) (the "SBA Affiliates"), with a brief statement describing the
basis of each affiliation.
Section 2.2 Capitalization.
(a) The authorized capital stock of the Company consists of (i)
20,000,000 shares of common stock, par value $.01 per share (the "Common
Stock"), of which 5,198,992 shares are issued and outstanding, and (ii)
5,000,000 shares of preferred stock, with rights and preferences to be fixed
by the Board of Directors in accordance with the corporate laws of the
Commonwealth of Pennsylvania and the Company's Articles of Incorporation, as
amended, none of which is issued and outstanding. All shares of Common Stock
outstanding have been validly issued and are fully paid and nonassessable.
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
Debentures or the Warrants.
(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
Warrants to be issued pursuant to this Agreement, (ii) 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), (iii) the
40,000 shares of Series A Convertible Preferred Stock (the "Preferred Stock")
to be issued pursuant
3
to the Preferred Stock Purchase Agreement between the Company, Tandem, and
Argosy, dated as of the date hereof (the "Preferred Stock Purchase
Agreement"), and (iv) the conversion privileges of the holders of the
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 Warrants
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 (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, except as such enforceability may be limited by the effect of
bankruptcy, insolvency or similar laws affecting creditors' rights generally
or by general principles of equity.
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 Purchasers,
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 year-end adjustments (the effect of which will not,
individually or in the
4
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"). Since January 1, 1994, 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
Purchasers true copies of all the SEC Reports, together with all exhibits
thereto that a 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.
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 such a Materially Adverse Effect.
5
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, to the Company's knowledge, 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.
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 in 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 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, 1992, 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
6
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 officers and/or
directors of the Company may own no more than 4.9% 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
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.
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 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
7
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(i) sets forth a complete and correct list of (a) all
contracts, agreements and other documents outside of the ordinary course of
business 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 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 in all
material respects with, and its business, operations, assets, equipment,
property, leaseholds or other facilities of each are in compliance in all
material respects with, the provisions of all federal, state and local
environmental, health, and safety laws, codes and ordinances, and all rules
and regulations promulgated thereunder. Except where not reasonably likely to
result in a Materially Adverse Effect, 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
8
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 material 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. To the Company's knowledge, 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 material 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).
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 in all
material respects, 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.
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
9
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, 1994, 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.
The conduct of the business and the ownership of the assets of the
Company and its Subsidiaries does not require any license, permit, approval,
waiver or other authorization of any federal, state or local governmental or
regulatory body of which the failure to obtain would cause a Materially
Adverse Effect, and except as set forth on Schedule 2.21, such business is not
subject to the material 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 of which the failure to obtain would
cause a Materially Adverse Effect 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 to purchase or carry any equity
security of a class which is registered pursuant to Section 12 of the Exchange
Act.
Section 2.23 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 Warrants 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 2.24 Registration Rights.
Except as described in Schedule 2.24, 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.
10
Section 2.25 Insurance.
The Company has maintained, and has caused each Subsidiary to
maintain the insurance policies set forth on Schedule 2.25.
Section 2.26 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 2.27 Employees.
Schedule 2.27 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. Except as set
forth on Schedule 2.27, 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 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 2.27,
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. Except as described in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, and as described on Schedule 2.27, 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 2.28 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, ▇▇ ▇▇▇▇. ▇▇▇, ▇▇ ▇.▇.▇.▇.
ss. 1001 et seq. (1975), as amended from time to time ("ERISA"). Except as
disclosed in Schedule 2.28, 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
11
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 2.29 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 transactions contemplated hereunder,
except for the processing fee due to Purchaser pursuant to Section 1.3 hereof.
Section 2.30 Small Business Concern.
The Company, together with its SBA Affiliates, if any, is and will be
on the Closing Date a "small business concern" within the meaning of Section
107.50 of Title 13 of the United States Code of Federal Regulations and which
meets the size standards under 13 C.F.R. ss. 121.301(c). The information to be
set forth in the Small Business Administration Form 480, Form 652 and Part A
of Form 1031 regarding the Company is accurate and complete. Neither the
Company nor any of its Subsidiaries presently engage in any activities for
which a small business investment company is prohibited from providing funds
under 13 C.F.R. ss. 107.720.
Section 2.31 Proposed Acquisition.
The Company has entered into the Asset Purchase Agreement, dated as
of December 3, 1997, among the Company, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Incorporated (the
"Seller") and the shareholders of Seller (the "Acquisition Agreement"), in the
form of Schedule 2.31 hereto (the "Obdyke Acquisition").
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.
12
Section 2.33 Survival.
The representations and warranties of the Company contained in this
Agreement shall survive the termination of this Agreement in accordance with
Section 12.5 hereof.
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PURCHASER
Each Purchaser, severally and not jointly, hereby represents to the
Company as follows:
Section 3.1 Corporate Status; Residence.
Purchaser is a corporation or partnership duly organized and validly
existing under the laws of its respective jurisdiction 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. Purchaser is resident in the State set forth under its
name in Section 11.3 below.
Section 3.2 Authorization.
Purchaser has full legal right, power and authority to enter into and
perform its obligations under this Agreement and any other document executed
and delivered by Purchaser in connection herewith, without the consent or
approval of any other person, firm, governmental agency or other legal entity.
The execution and delivery of this Agreement and any other document executed
and delivered by Purchaser in connection herewith, 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.
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 and at the Closing Date will be an "accredited investor"
under Rule 501(a) under the Securities Act. Tandem is, and at the Closing Date
will be, an investment company registered under the Investment Company Act of
1940, as amended and has, and at the Closing Date will have, a net worth in
excess of One Million Dollars ($1,000,000). Argosy is, and at the Closing Date
will be, a Small Business Investment Company, as the term is defined in
Section 103 of the Small Business Investment Act of 1958, 15 U.S.C.A. Section
662, and has, and at the Closing Date will
13
have, a total capital of at least One Million Dollars ($1,000,000). Purchaser
is acquiring the Debentures 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, it being understood that Tandem intends to
transfer and assign the Debentures and all of Tandem's rights and obligations
under this Agreement and the Operative Documents to one or more Wholly-owned
subsidiaries of Tandem, which Wholly-owned subsidiaries are also "accredited
investors" under Rule 501(a).
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 12.5 hereof.
ARTICLE IV - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
The obligation of Purchasers 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 Purchasers or their 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 each Purchaser a certificate,
dated the Closing Date, signed by the President of the Company substantially
in the form attached hereto as Exhibit C.
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 each
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.
Each Purchaser shall have received the opinion of Wolf, Block, ▇▇▇▇▇▇
and ▇▇▇▇▇-▇▇▇▇▇ LLP, counsel for the Company, dated the Closing Date,
addressed to Purchasers, in form and substance satisfactory to Purchasers'
counsel, and covering the matters set forth in Exhibit E hereto.
14
Section 4.5 Authorization Agreement.
The Company shall have delivered to each 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 Purchasers the following
certificates of public officials, in each case as of a date within ten (10)
days of the Closing Date:
(a) the Articles 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; and
(b) a certificate as to the legal existence and subsistence
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.
Section 4.7 Delivery of Operative Documents.
The Company shall have delivered to Purchasers the following
documents, executed by the Company and dated the Closing Date:
(a) the Debentures;
(b) the Warrants; and
(c) the Registration Rights Agreement.
Section 4.8 Acquisition Transaction.
The closing of the purchase by the Company of the Assets (as defined
in the Acquisition Agreement) from Seller pursuant to the terms of the
Acquisition Agreement shall have occurred simultaneously with the Closing
hereunder.
Section 4.9 Warrant Valuation Letter.
The Company shall have delivered to Purchasers a Warrant Valuation
letter in the form attached as Exhibit G acceptable to Purchasers.
15
Section 4.10 Preferred Stock.
The Company shall have sold to Purchasers, and Purchasers shall have
purchased, an aggregate of 40,000 shares of the Preferred Stock of the Company
pursuant to the terms of the Preferred Stock Purchase Agreement.
Section 4.11 Senior Loan Agreement; Intercreditor Agreement.
The closing of the initial funding pursuant to the Loan and Security
Agreement dated August 21, 1997, among Summit Bank and certain of the
Company's Subsidiaries, as amended or restated as contemplated in that certain
commitment letter dated December 2, 1997, from Summit Bank to the Company and
its Subsidiaries (the "Senior Loan Agreement") shall have occurred
simultaneously with the Closing hereunder; and the Company shall have executed
and delivered to the Purchasers a subordination agreement among the Company,
its Subsidiaries, Purchasers, and Summit Bank, in each case to provide that,
absent the existence any event of default or any event which, with the passage
of time or the giving of notice, or both, would constitute an event of default
under the Senior Loan Agreement, such agreements shall allow regularly
scheduled payments of interest on the Debentures and dividends on the
Preferred Stock; provided, however, that the subordination agreement shall
contain such other terms and provisions as shall be reasonably acceptable to
Purchasers.
Section 4.12 SBA Forms.
The Company shall have delivered to Argosy Form 480, Form 652 and
Form 1031, in each case duly executed (if required), and completed with
respect to information required about, the Company.
Section 4.13 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
Purchasers and Purchasers' counsel.
Section 4.14 Expenses.
The Company shall have reimbursed the Purchasers for all fees and
expenses as provided in Section 11.1 herein.
Section 4.15 Waiver of Conditions.
If on the Closing Date the Company fails to tender to Purchasers the
Debentures to be issued to Purchasers on such date or if the conditions
specified in this Article IV have not been fulfilled, Purchasers 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, Purchasers may waive compliance by the Company with any
such condition to such extent as
16
Purchasers, in Purchasers' sole discretion, may determine; provided, however,
the failure to fulfill any of the conditions specified in Sections 4.8, 4.10
and 4.11 may not be waived. Nothing in this Section 4.15 shall operate to
relieve the Company of any of its obligations hereunder or to waive any of
Purchasers' 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; Certain Prohibited Activities.
(a) The Company shall use the proceeds of the Debentures only for the
purposes set forth on Schedule 5.1 attached hereto. No later than ninety (90)
days after the sale of the Debentures, the Company shall furnish Purchasers a
certificate, executed by the President of the Company, itemizing the use of
proceeds from the Debentures.
(b) Neither the Company nor any of its SBA Affiliates will engage in
any activities or use directly or indirectly the proceeds of the Debentures
for any purpose for which a small business investment company is prohibited
from providing funds under 13 C.F.R. Section 107.720.
(c) The Company will not, without obtaining the prior written
approval of Argosy, change within one (1) year of the Closing, the Company's
business activity to a business activity to which a small business investment
company is prohibited from providing funds under C.F.R. ss.107.720. The
Company agrees that any such changes in its business activity without such
prior written consent of Argosy will constitute a material breach of the
obligations of the Company under this Agreement (an "Activity Event of
Default"). If an Activity Event of Default occurs, Argosy has the right to
demand, in writing, immediate repayment of the Debentures held by it, together
with accrued but unpaid interest, and the Company will immediately make such
payment within three (3) days of receipt of a demand. The payment remedy is in
addition to any and all other rights and remedies against the Company and
others to which Argosy may be entitled.
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, 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
17
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, in all material respects, maintain, preserve and
keep, and will cause each Subsidiary to maintain, preserve and keep, its
properties and assets which are used in the conduct of its business (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,
including the business engaged in by Seller.
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 reasonable.
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
18
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 and each Subsidiary or any of their respective 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.
If the Company or any Subsidiary 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 and/or such Subsidiary's contributions under the Plan
will meet the minimum funding standards required by ERISA and the Company
and/or such Subsidiary will not institute a distress termination of the Plan;
and (ii) the Company and/or such Subsidiary will send to each 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 (and, if
Purchaser is a Small Business Investment Company, a representative of the
United States Small Business Administration (the "SBA Representative")) 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 (or the SBA Representative, if applicable), during
reasonable business hours, at all such times as Purchaser may reasonably
request. The Company will, upon reasonable request, cooperate fully with
Argosy, Argosy's representations and counsel in the preparation of any
document or other material which may be required by the United States Small
Business Administration or any other governmental agency as a predicate to or
result of the transaction herein contemplated. The Company will furnish to any
Purchaser that is a small business investment company information requested by
the United States Small Business Administration concerning the economic impact
of such Purchaser's investment including but not limited to information
concerning taxes paid and number of employees.
19
Section 5.12 Reports.
The Company will furnish to each Purchaser the following:
(a) Monthly Statements. Within thirty (30) days of the end
of each month, beginning the month of January 1998, monthly internal financial
reports which at a minimum shall consist of the key item report in the form
currently prepared by the Company and attached hereto as Schedule 5.12(a), as
well as any additional financial reports for such period (i) distributed to
directors of the Company or (ii) routinely prepared with respect to the
Company and the Subsidiaries subsequent to the date hereof;
(b) Quarterly Statements. As soon as available and in any
event within forty-five (45) days after the end of each quarterly fiscal
period (except the last) of each fiscal year, copies of:
(i) consolidated 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 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 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;
(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 balance sheets of the Company and
Subsidiaries as of the close of such fiscal year, and
(ii) consolidated 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 ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, LLP, or if
such firm is no longer auditors to the Company, a firm of independent public
accountants of recognized national standing;
20
(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;
(f) Press Releases. Promptly upon its release, a copy of
each press release issued by the Company; and
(g) Requested Information. With reasonable promptness, such
financial data and other information relating to the business of the Company
as a Purchaser may from time to time reasonably request.
Section 5.13 Limitations on Debt and Obligations.
For so long as any amounts under the Debentures shall remain
outstanding, neither the Company nor any Subsidiary shall incur additional
Indebtedness, except (i) Indebtedness existing on the Closing Date, after
giving effect to the Obdyke Acquisition and the borrowings under the Senior
Loan Agreement and as otherwise contemplated, as set forth on Schedule 5.13
hereto, as the same Indebtedness may be extended or renewed (but not increased
by more than $1,000,000); (ii) the Indebtedness incurred pursuant to the
Debentures; (iii) accounts payable and other trade payables incurred in the
ordinary course of business; (iv) Indebtedness incurred after the date hereof
which by its terms is expressly stated to be subordinate or junior to the all
other debt of the Company and any Subsidiary, including the Debentures; (v)
Indebtedness senior to or pari passu with the Debentures, with the prior
written consent of Purchasers; (vi) purchase money indebtedness incurred by
the Company in the purchase of office equipment and other property used by the
Company in the ordinary course of business, such purchase money indebtedness
not to exceed an aggregate amount of principal and interest thereon of
$1,000,000 at any time outstanding; (vii) obligations of the Company pursuant
to capitalized leases; (viii) 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; and (ix) other
than the Obdyke Acquisition, 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.
Notwithstanding the foregoing, the aggregate principal amount of any
Indebtedness secured by the accounts receivable and/or inventory of Borrower
and its Subsidiaries (whether such Indebtedness is permitted under clause (i)
or in clause (viii)), may be increased based upon the amount of the accounts
receivable and/or inventory eligible as collateral, so long as the borrowing
base formula does not exceed 85% of "Eligible Accounts," after deducting
therefrom all
21
payments, adjustments and credits applicable thereto, or 50% of "Eligible
Inventory," as the case may be (with such terms bearing the meanings given
them in the Senior Loan Agreement).
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 reflected on Schedule 5.14 and 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 those Liens which exist or are contemplated as
of the date hereof as set forth on Schedules 2.15 and 5.13, and except:
(a) Liens for taxes, assessments and governmental charges or
levies which the Company is contesting in good faith by proper proceedings and
as to which appropriate reserves are being maintained in accordance with GAAP
on the books of the Company;
(b) Liens imposed by law, such as materialmen's, mechanics',
carriers', workmen's and repairmen's liens and other similar liens arising in
the ordinary course of business and securing obligations (other than
indebtedness for borrowed money) that (A) are not overdue for a period of more
than 60 days or (B) are being contested in good faith by proper proceedings
and as to which appropriate reserves are being maintained in accordance with
GAAP on the books of the Company;
(c) pledges or deposits to secure obligations under worker's
compensation laws or other similar legislation or to secure public or
statutory obligations;
(d) Liens securing the performance of, or payment in respect
of, bids, tenders, government contracts (other than for the repayment of
borrowed money), surety and appeal bonds and other obligations of a similar
nature incurred in the ordinary course of business;
(e) Liens created in connection with purchase money
financing permitted pursuant to Section 5.15 hereof; and
(f) other encumbrances consisting of zoning restrictions,
easements, restrictions on the use of real property or minor irregularities in
the title thereto, which do not arise in connection
22
with the borrowing of, or any obligation for the payment of, money and which,
in the aggregate, do not materially detract from the value of the premises or
the business, properties or assets of the Company or any Subsidiary.
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 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, other than the purchase of up to 125,000 shares of Common Stock (as
adjusted for stock splits or stock dividends after the date hereof) pursuant
to the "Put Options" contained in the Acquisition Agreement; 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;
(e) receivables arising from the sale of goods and services
in the ordinary course of business of the Company and its Subsidiaries; and
(f) purchases by the Company or any Subsidiary of assets,
property or stock otherwise than in the ordinary course of business of the
Company and its Subsidiaries, in an amount not to exceed $100,000 individually
or $300,000 in the aggregate; and
(g) any Investment permitted under Section 5.18 hereof.
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 (c) 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.
(iii) 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.
(b) 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:
24
(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;
(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.
(c) 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.
Without the prior written consent of Purchaser, 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 pursuant to
the reasonable requirements of the Company's or such Subsidiary's business and
upon fair and reasonable terms no less favorable to the Company or such
Subsidiary than could be obtained in an 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.
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 for at least $100,000,
and which default would cause the
25
obligations under such agreement to be accelerated; (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
involving claims in excess of $100,000 (unless covered by insurance and not
subject to a reservation of rights); 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.
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, commencing on
and after January 1, 1999, a financial plan for the Company and its
Subsidiaries , 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 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 Purchasers, 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 (unless a vacancy on the Board of Directors shall already
exist) and (ii) fill the vacancy created thereby (or such existing vacancy) by
electing or appointing as director a person designated by Purchasers to serve
in such capacity as a member of the Board of Directors of the Company until
the next annual meeting of the shareholders of the Company. Thereafter, for so
long as the initial Purchasers or any Affiliate own at least 25% of the
initial aggregate principal amount of the Debentures, the Company agrees to
include a nominee of Purchasers 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 Purchasers
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, provided, however, that such
directors shall not be entitled to receive in any calendar year options to
purchase more than 5,000 shares of Common Stock (subject to adjustments for
stock splits, stock dividends or recapitalizations after the date hereof), on
the same terms and conditions as stock options granted to all other
non-employee directors.
(b) Purchasers shall not be entitled to exercise the right set forth
in Section 5.22(a) above so long as any of their shares of the Preferred Stock
remains outstanding.
(c) Notwithstanding anything to the contrary in Section 5.21(b)
above, if an Event of Default hereunder exists, the Company shall invite one
representative of Tandem to attend, at the Company's expense, all meetings of
the Company's Board of Directors and all committees of the
26
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.
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 key employee
within ninety (90) days with another executive who shall be reasonably
acceptable to Purchasers.
Section 5.24 Further Assurances.
The Company will take all actions reasonably requested by Purchasers
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) outstanding as of the date of this Agreement and set forth on
Schedule 6.1 hereto (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 including,
without limitation, any and all indebtedness now or hereafter owing by the
Company to Summit Bank, N.A., and its successors and assigns (collectively,
the "Senior Indebtedness").
Section 6.2 Liquidation, etc.
(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
27
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 has occurred and is
continuing with respect to the payment of principal of, premium if any or
interest on any Senior Indebtedness.
Section 6.4 Subrogation.
Upon the prior payment in full of all Senior Indebtedness, the
Purchasers 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 Purchasers 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 Purchasers,
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
Purchasers, on the one hand, and the holders of the Senior Indebtedness, on
the other hand.
28
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 Purchasers, the
obligation of the Company, which is absolute and unconditional, to pay the
Purchasers the principal of and interest on the Debentures as and when 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
Purchasers 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 Purchasers 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
29
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 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, which default shall continue for five (5)
days; 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, which default shall continue for five (5) days; 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 (i) result in liability of more than
$100,000 and (ii) 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 Section 5.2, Sections 5.12 through 5.18, or
Sections 5.22 and 5.23 hereof, and such default shall continue after five (5)
days of notice thereof to the Company; 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
30
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 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 Acceleration of Maturities.
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 expenses, including reasonable attorneys' fees, incurred by them in the
collection of any Debentures upon any default hereunder or thereon.
31
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]; and
further provided that the holders of at least 50% in the aggregate principal
amount of outstanding Debentures may exercise the rights of Purchasers under
Section 5.22(a), subject to the provisions of Section 5.22(b).
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 used 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:
"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)
32
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.
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 to 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.
"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. ss. 1317.1) as amended; (b)
regulated as a hazardous waste under Section 1004 or Section
33
3001 of the Federal Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act (42 U.S.C. ss. 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. ss. 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 Warrants; 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.
"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.
34
"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 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.
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 Purchasers'
out-of-pocket expenses not to exceed $60,000 in the aggregate in connection
with (a) the entering into of this Agreement and the Preferred Stock Purchase
Agreement and the consummation of the transactions contemplated hereby and
thereby, including but not limited to the reasonable fees, expenses and
disbursements of Purchasers' counsel, and (b) so long as a 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
35
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 each Purchaser against any liability for any
and all brokerage fees and commissions payable or claimed to be payable to any
Person retained by the Company 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:
If to Tandem: Tandem Capital, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇▇ & ▇▇▇, PLC
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ I.N. ▇▇▇▇▇▇▇▇, Esq.
If to Argosy: Argosy Investment Partners, L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, III, Principal
36
with a copy to: ▇▇▇▇▇▇▇▇▇▇, Keen & ▇▇▇▇▇▇▇
Radnor Court
▇▇▇ ▇▇▇▇▇▇-▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
If to the Company: ▇▇▇▇▇▇ Holdings, Ltd.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President
with a copy to: Wolf, Block, ▇▇▇▇▇▇, and ▇▇▇▇▇-▇▇▇▇▇ LLP
12th Floor, Packard Building
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
or such other address as a Purchaser or the subsequent holder of any Debenture
initially issued to a Purchaser may designate to the Company in writing, or
such other address as the Company may in writing designate to Purchasers or to
a subsequent holder of the Debenture initially issued to Purchasers, 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 a Purchaser or a subsequent holder of any
Debentures initially issued to a 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 Successors and Assigns.
Purchaser's interest in this Agreement, the Debentures and the other
Operative Documents may be endorsed, assigned and/or transferred by such
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.
37
Section 11.5 Survival of Covenants and Representations.
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 Closing Date, and shall be extinguished and eliminated on the day that
is eighteen (18) months after the Closing Date, except that the
representations and warranties of the Company set forth in Sections 2.11,
2.17, 2.27 and 2.28 shall survive until the expiration of the applicable
statutes of limitation. 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 so long as any amounts are outstanding
under the Debentures.
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 Entire Agreement.
This Agreement constitutes the entire agreement of the parties with
regard to the sale of the Debentures.
38
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:
▇▇▇▇▇▇ HOLDINGS, LTD.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------
Title: C.E.O.
---------------------------------
PURCHASERS:
SIRROM CAPITAL CORPORATION
d/b/a TANDEM CAPITAL
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇, Vice President
ARGOSY INVESTMENT PARTNERS, L.P.
By: Argosy Associates, L.P., its general partner
By: Argosy Associates, Inc., its general partner
Name: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ III
--------------------
Title: Vice President
--------------------
List of Schedules -- Debenture Purchase Agreement
Schedule 2.1(a) -- States in Which Company is Qualified
Schedule 2.1(b) -- Subsidiaries
Schedule 2.1(c) -- SBA Affiliates
Schedule 2.2(a) -- Preemptive Rights, Right of First Refusal, Antidilution
Rights
Schedule 2.2(b) -- Options, Warrants and Other Rights
Schedule 2.3 -- Consents
Schedule 2.7 -- Absence of Changes
Schedule 2.8 -- Defaults
Schedule 2.10 -- Litigation
Schedule 2.11 -- Taxes
Schedule 2.12(i) -- Indebtedness
Schedule 2.12(ii) -- Interested Officers or Directors
Schedule 2.12(iii) -- Guaranties and Indemnities
Schedule 2.13 -- Title
Schedule 2.14 -- Proprietary Information
Schedule 2.14(b)(i) -- Intellectual Property
Schedule 2.14(b)(ii) -- Intellectual Property
Schedule 2.15 -- Debt
Schedule 2.16(i) -- Material Contracts
Schedule 2.16(ii) -- Material Contracts
Schedule 2.21 -- Regulatory Compliance
Schedule 2.24 -- Registration Rights
Schedule 2.25 -- Insurance
Schedule 2.27 -- Employees
Schedule 2.28 -- ERISA
Schedule 2.31 -- Acquisition Agreement
Schedule 5.1 -- Use of Proceeds
Schedule 5.12(a) -- Key Item Report
Schedule 5.13 -- Debt to be Incurred Contemporaneously with Closing or Shortly
Thereafter
Schedule 5.14 -- Guaranties
Schedule 5.23 -- Key Executives
Schedule 6.1 -- Senior Indebtedness
EXHIBIT A-1
FORM OF DEBENTURE
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.
▇▇▇▇▇▇ Holdings, Ltd.
12.25% Subordinated Debenture Due January __, 2003
No. R-1 January _, 1998
$[2,000,000]
For value received, ▇▇▇▇▇▇ Holdings, Ltd., a Pennsylvania corporation
(the "Company"), hereby promises to pay to [Sirrom Capital Corporation at
Tandem Capital, Inc., ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, or registered assigns,] on the __ day of January, 2003, the principal
amount of [Two Million Dollars ($2,000,000)] and to pay interest (computed on
the basis of a 360-day year of twelve 30-day months) on the principal amount
from time to time remaining unpaid hereon at the rate of (a) 12.25% per annum
from the date hereof until [the third anniversary of the date of issuance,]
and (b) 20% per annum from January __, 2001, until maturity, payable quarterly
on the first day of each February, May, August, and November in each year,
commencing February 1, 1998, and at maturity. The Company agrees to pay
interest (computed on the same basis) on overdue principal and premium, if
any, and (to the extent legally enforceable) on any overdue installment of
interest, at the stated rate plus 3% per annum (or, in each case, at the
highest rate permitted by applicable law, whichever is less) until paid.
Both the principal hereof and interest hereon are payable to the
order of the holder hereof at its address registered on the books of the
Company or by federal funds wire transfer to a bank account designated in
writing by the holder to the Company in coin or currency of the United States
of America which at the time of payment shall be legal tender for the payment
of public and private debts. If any amount of principal, premium, if any, or
interest on or in respect of this Debenture becomes due and payable on any
date which is not a Business Day, such amount shall be payable on the next
preceding Business Day. "Business Day" means any day other than a Saturday,
Sunday, statutory holiday or other day on which banks in Tennessee are
required by law to close or are customarily closed.
This Debenture is one of the 12.25% Subordinated Debentures due
January _, 2003 of the Company in the aggregate principal amount of
$2,500,000, issued under and pursuant to the terms and provisions of the
Debenture Purchase Agreement, dated as of December __, 1997 (the
1
"Debenture Agreement"), entered into by the Company with the original
purchasers referred to therein, and this Debenture and the holder hereof are
entitled, equally and ratably with the holders of all other Debentures
outstanding under the Debenture Agreement, to all the benefits provided for
thereby or referred to therein, and to which Debenture Agreement reference is
hereby made for all such terms and provisions.
This Debenture is subordinated to certain other indebtedness of the
Company to the extent and with the effect set forth in the Debenture
Agreement.
If an Event of Default, as defined in the Debenture Agreement, occurs
and is continuing, the principal of this Debenture and the other Debentures
outstanding under the Debenture Agreement may be declared due and payable in
the manner and with the effect provided in the Debenture Agreement.
This Debenture is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the Company
at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or such other
address as the Company shall have advised the holders of the Debenture in
writing, duly endorsed or accompanied by a written instrument of transfer duly
executed by the registered holder of this Debenture or its attorney duly
authorized in writing and in accordance with the provisions of Section 7.2 of
the Debenture Agreement. Payment of or on account of principal, premium, if
any, and interest on this Debenture shall be made only to or upon the order in
writing of the registered holder.
If the indebtedness represented by this Debenture or any part thereof
is placed in the hands of attorneys for collection after an Event of Default,
or the enforcement of any rights under the Debenture Agreement, the Company
agrees to pay the principal, premium if any, and interest due and payable
hereon, and an amount equal to all costs of collecting this Debenture,
including reasonable attorneys' fees and expenses.
This Debenture and said Debenture Agreement are governed by and
construed in accordance with the laws of Tennessee.
[Corporate Seal] ▇▇▇▇▇▇ HOLDINGS, LTD.
ATTEST:
By:
______________________________ __________________________________
Secretary ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, President
2
EXHIBIT A-2
FORM OF WARRANT
See attached
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT UNDER THE ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD
THERETO, OR (II) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER.
Warrant No. S-1
STOCK PURCHASE WARRANT
This Warrant is issued this __ day of January, 1998, by ▇▇▇▇▇▇
HOLDINGS, LTD., a Pennsylvania corporation (the "Company"), to SIRROM CAPITAL
CORPORATION d/b/a Tandem Capital, a Tennessee corporation ("Tandem" which,
together with any subsequent assignee or transferee hereof is hereinafter
referred to collectively as "Holder" or "Holders").
AGREEMENT:
1. Issuance of Warrant; Term. For and in consideration of SIRROM
CAPITAL CORPORATION d/b/a Tandem Capital, purchasing from the Company its
12.25% Subordinated Debenture due January __, 2003, in the initial principal
amount of [Two Million Dollars] (the "Debenture") pursuant to the terms of a
Debenture Purchase Agreement, dated December __, 1997 among the Company, Tandem
and Argosy Investment Partners, L.P. ("Argosy") (the "Debenture Purchase
Agreement"), and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company hereby grants to
Holder the right to purchase [Two Hundred Forty Thousand (240,000)] shares of
the Company's common stock, par value $.01 per share (the "Common Stock"). The
shares of Common Stock issuable upon exercise of this Warrant are hereinafter
referred to as the "Shares." The number of such shares and the Exercise Price
(as defined below) are subject to adjustment as provided herein. The term
"Warrant" as used herein includes this Warrant and any warrants delivered in
exchange therefor as provided herein. This Warrant shall be exercisable at any
time and from time to time during the term commencing on the date hereof and
ending at 5:00 p.m. Eastern time on January __, 2003.
2. Exercise Price. The exercise price (the "Exercise Price") per
share for which all or any of the Shares may be purchased pursuant to the
terms of this Warrant shall be Four Dollars and Twenty-Five Cents ($4.25), as
adjusted from time to time pursuant to Section 7 hereof.
3. Exercise.
(a) Manner of Exercise. This Warrant may be exercised by the Holder
hereof (but only on the conditions hereinafter set forth) as to all or any
increment or increments of one hundred (100) Shares (or the balance of the
Shares if less than 100), upon delivery to the Company at the following
address: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ or such
other
address as the Company shall designate in a written notice to the Holder
hereof, of the Notice of Exercise in the form of Annex A hereto, duly
completed and executed on behalf of the Holder, together with this Warrant and
payment to the Company of the aggregate Exercise Price of the Shares so
purchased. The Exercise Price shall be payable, at the option of the Holder,
(i) by certified or bank check, (ii) by the surrender by the Holder for
cancellation of Debentures or any portion thereof having an outstanding
principal balance at least equal to the aggregate Exercise Price, or (iii) by
a combination of (i) and (ii) above. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable, and in any event
within ten (10) days thereafter, execute and deliver to the Holder of this
Warrant a certificate or certificates for the total number of whole Shares for
which this Warrant is being exercised in such names and denominations as are
requested by such Holder. If this Warrant shall be exercised with respect to
less than all of the Shares, the Holder shall be entitled to receive a new
Warrant covering the number of Shares in respect of which this Warrant shall
not have been exercised, which new Warrant shall in all other respects be
identical to this Warrant. The Company covenants and agrees that it will pay
when due any and all state and federal issue taxes which may be payable in
respect of the issuance of this Warrant or the issuance of any Shares upon
exercise of this Warrant.
(b) Conversion Rights. In lieu of exercising this Warrant pursuant
to Section 3(a) above, the Holder shall have the right to require the Company
to convert this Warrant, in whole or in part and at any time or times into
Shares (the "Conversion Right"), upon delivery to the Company at its address
in Section 3(a) or such other address as the Company shall designate in a
written notice to the Holder hereof, of the Notice of Exercise, with the
election to convert duly completed and executed on behalf of the Holder,
together with this Warrant. Upon exercise of the Conversion Right, the Company
shall deliver to the Holder (without payment by the Holder of any Exercise
Price) that number of Shares which is equal to the quotient obtained by
dividing (x) the net value of the number of Shares into which this Warrant is
being converted at the time the Conversion Right is exercised (determined by
subtracting the aggregate Exercise Price for the Shares into which this
Warrant is being converted immediately prior to the exercise of the Conversion
Right from a number equal to the product of (i) the Fair Market Value (as such
term is defined in Section 7(e)) per share as at such time, multiplied by (ii)
that number of Shares purchasable upon exercise of this Warrant (or portion
hereof that is being converted at the time the Conversion Right is exercised)
immediately prior to the exercise of the Conversion Right (taking into account
all applicable adjustments pursuant to Section 7)), by (y) the Fair Market
Value per share. Any references in any Warrants to the "exercise" of this
Warrant, and the use of the term exercise herein, shall be deemed to include
(without limitation) any exercise of the Conversion Right.
4. Covenants and Conditions. The above provisions are subject to the
following:
(a) Securities Laws Compliance. Neither this Warrant nor the
Shares have been registered under the Securities Act of 1933, as amended
("Securities Act") or any state securities laws ("Blue Sky Laws"). This
Warrant has been acquired for investment purposes and not with a view to
distribution or resale in violation of the registration provisions of the
Securities Act; [except for the transfer of the Warrant to one or more
wholly-owned subsidiaries of Sirrom Capital Corporation, which subsidiary(s)
shall be an "accredited investor," as defined in Rule 501(a) under the
Securities Act], this Warrant may not be sold or otherwise transferred without
(i) an effective registration statement for such Warrant under the Securities
Act and such applicable Blue Sky Laws, or (ii) an opinion of counsel, which
opinion and counsel shall be reasonably
satisfactory to the Company and its counsel, that registration is not required
under the Securities Act or under any applicable Blue Sky Laws (the Company
hereby acknowledges that [▇▇▇▇▇▇▇▇ & ▇▇▇, PLC] is acceptable counsel).
Transfer of the Shares issued upon the exercise of this Warrant shall be
restricted in the same manner and to the same extent as the Warrant and the
certificates representing such Shares shall bear substantially the following
legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE ACT AND
SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE
WITH REGARD THERETO, OR (II) IN THE OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY, REGISTRATION UNDER SUCH ACT AND SUCH APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect
the compliance of the issuance of this Warrant and any Shares of Common Stock
issued upon exercise hereof with applicable federal and state securities laws.
(b) Covenants of the Company. The Company covenants and agrees
that all shares of Common Stock which may be issued upon exercise of this
Warrant will, upon issuance and payment therefor, be legally and validly
issued and outstanding, fully paid and nonassessable, free from all taxes,
liens, charges with respect to the issuance thereof. The Company further
covenants that it shall at all times during the term of this Warrant reserve
and keep available for issuance upon the exercise of this Warrant such number
of authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of this Warrant and, from time to time, will take
all steps necessary to amend its Articles of Incorporation to provide
sufficient reserves of shares of its Common Stock for issuance upon exercise
of the Warrant.
5. Transfer of Warrant.
(a) Warrant Register. The Company will maintain a warrant register
containing the names and address of the Holder or Holders. Any Holder of this
Warrant or any portion thereof may change its address as shown on the warrant
register by written notice to the Company requesting such change. Any notice
or written communication required or permitted to be given to the Holder may
be delivered or given by registered or certified mail to such Holder as shown
on the warrant register and at the address shown on the warrant register.
Until this Warrant is transferred on the warrant register of the Company, the
Company may treat the Holder as shown on the warrant register as the absolute
owner of this Warrant for all purposes, notwithstanding any notice to the
contrary.
(b) Transferability. Subject to compliance with the provisions of
Section 4(a) hereof, this Warrant may be transferred, in whole or in part, to
any person, by presentation of the
Warrant to the Company together with the Notice of Assignment in the form of
Annex B hereto, duly endorsed for transfer. Upon such presentation for
transfer, the Company shall promptly execute and deliver a new Warrant or
Warrants in the form hereof in the name of the assignee(s) and in the
denominations specified in such instructions in the Assignment Form. The
Company shall pay all expenses incurred by it in connection with the
preparation, issuance and delivery of new Warrants under this Section 5.
6. Warrant Holder Not Shareholder; Rights Offering. Except as
otherwise provided herein, this Warrant does not confer upon the Holder, as
such, any right whatsoever as a shareholder of the Company. Notwithstanding
the foregoing, if the Company should offer to all of the Company's
shareholders the right to purchase any securities of the Company, then all
Shares of Common Stock that are subject to this Warrant shall be deemed to be
outstanding and owned by the Holder and the Holder shall be entitled to
participate in such rights offering.
7. Adjustment of Exercise Price and Number of Shares Issuable. The
Exercise Price and the number of shares purchasable hereunder are subject to
adjustment from time to time as follows:
(a) Stock Splits, Recapitalization, Etc. If all or any portion of
this Warrant shall be exercised subsequent to any stock split, stock dividend,
recapitalization, combination of shares of the Company, or other similar event
occurring after the date hereof, then the Holder exercising this Warrant shall
receive, for the aggregate price paid upon such exercise, the aggregate number
and class of shares which such Holder would have received if this Warrant had
been exercised immediately prior to the record date for such stock split,
stock dividend, recapitalization, combination of shares, or other similar
event.
(b) Merger, Etc. If the Company at any time merges or consolidates
with or into any other corporation or enters into a similar transaction (other
than a merger in which the Company is the surviving corporation and in
connection with which there is no reclassification or other change in the
Common Stock or other securities of the Company or any issuance of stock,
securities or property to the holders of its outstanding shares of Common
Stock), then the Company shall notify the Holder of any such event and,
effective upon the record or other date of determination of persons affected
by such merger, consolidation or similar transaction, the securities which the
Holder would be entitled to receive on the exercise hereof shall include the
kind and amount of securities, cash and property that would have been held by
the Holder if on such determination date the Holder had been the holder of
record of the securities, cash and properties issuable upon exercise of the
Warrant on such determination date (or the right thereto prior to the
effective date thereof). In the event of any merger, consolidation or similar
transaction referred to. above in this Section 7(b), the Company shall, and
shall cause any successor corporation as a condition precedent to such
transaction to, execute and deliver to each Holder a new Warrant (i) providing
that the owner of such Warrant, upon exercise thereof, shall have the right to
purchase the securities as adjusted as described above, and (ii) containing
provisions for subsequent adjustments in a manner and on terms as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 7(b).
(C) Adjustment on Certain Dilutive Issues.
(i) Definitions. For purposes of this Section 7(c), the
following definitions apply:
(1) "Options" shall mean rights, options, or
warrants to subscribe for, purchase or otherwise acquire
either Common Stock or Convertible Securities (as defined
below), except for (A) currently exercisable options and
warrants to purchase an aggregate of 1,539,248 shares of
Common Stock outstanding on January __,1998 (the "Outstanding
Options"); (B) options to purchase an aggregate of 1,270,000
shares of Common Stock granted or provided for but not
exercisable as of January _, 1998 (the "Agreed Options"),
(C) rights or options to acquire up to an aggregate of
250,000 shares of Common Stock which may be granted to
employees, directors or consultants to the Corporation at an
exercise price of no less than the Fair Market Value (as
defined in Section 5(h) below) on the date of grant (the
"Future Options") and (D) warrants to purchase an aggregate
of 350,000 shares of Common Stock granted and reserved for
issuance on January _, 1998 (the "Current Warrants").
(2) "Convertible Securities" shall mean any
evidences of indebtedness, shares of stock (other than
Common Stock and the Company's Series A Convertible
Preferred Stock (the "Series A Preferred") or other
securities convertible into or exchangeable for Common
Stock.
(3) "Additional Shares of Common Stock" shall mean
all shares of Common Stock issued (or deemed to be issued
pursuant to Section 7(c)(iii)) by the Corporation after
January _, 1998, other than shares of Common Stock issued or
issuable upon (i) upon conversion of shares of Series A
Preferred Stock or as a dividend or distribution on Series A
Preferred Stock, (ii) upon the exercise of the Outstanding
Options; (iii) upon the exercise of the Agreed Options, (iv)
upon the exercise of any ISOs, or (y) upon the exercise of
the Current Warrants.
(ii) Adjustment of Exercise Price. In the event that the
consideration per share (determined pursuant to Section 7(c)(v) hereof) for an
Additional Share of Common Stock issued or deemed to be issued by the Company
is less than the Exercise Price in effect on the date of, and immediately
prior to, the issue of such Additional Share of Common Stock, then the
Exercise Price and the number of shares shall be adjusted as provided herein.
(iii) Issue of Options and Convertible Securities. In the
event the Company at any time or from time to time after the Warrant Issue
Date shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities then entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto without regard to
any provisions contained therein for a subsequent adjustment of such number)
of Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of
such Convertible Securities, shall be deemed to be Additional Shares of Common
Stock issued as of the time of such issue or, in case such a record date shall
have been fixed, as of the close of business on such record date, provided
that Additional Shares of Common
Stock shall not be deemed to have been issued unless the consideration per
share (determined pursuant to Section 7(c)(v) hereof) of such Additional
Shares of Common Stock would be less than the Exercise Price in effect on the
date of and immediately prior to such issue, or such record date, as the case
may be, and provided that in any such case in which Additional Shares of
Common Stock are deemed to be issued:
(1) no further adjustments in the Exercise Price
shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of
such Options or conversion or exchange of such Convertible
Securities;
(2) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise,
for any increase or decrease in the consideration payable to
the Company, or decrease or increase in the number of shares
of Common Stock issuable upon the exercise, conversion or
exchange thereof, the Exercise Price computed upon the
original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments
based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights
of conversion or exchange under such Convertible Securities,
provided, however, that no such adjustment of the Exercise
Price shall affect Common Stock previously issued upon
exercise or conversion of this Warrant;
(3) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible
Securities that shall not have been exercised, the Exercise
Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(a) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of
Common Stock issued were the shares of Common Stock, if any,
actually issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities and
the consideration received therefor was the consideration
actually received by the Company for the issue of all such
Options, whether or not exercised, plus the consideration
actually received by the Company upon such exercise, or for
the issue of all such Convertible Securities that were
actually converted or exchanged, plus the additional
consideration, if any, actually received by the Company upon
such conversion or exchange, and
(b) in the case of Options for Convertible
Securities, only the Convertible Securities, if any,
actually issued upon the exercise thereof were issued at the
time of issue of such Options, and the consideration
received by the Company for the Additional Shares of Common
Stock deemed to have been then issued was the consideration
actually received by the Company for the issue of all such
Options, whether or not exercised, plus the consideration
deemed to have been received by the Company (determined
pursuant to Section
7(c)(v)) upon the issue of the Convertible Securities with
respect to which such Options were actually exercised;
(4) no readjustment pursuant to Section
7(c)(iii)(2) or (3) above shall have the effect of
increasing the Exercise Price to an amount which exceeds the
lower of (a) the Exercise Price prior to the initial
adjustment to which the readjustment applies, or (b) the
Exercise Price that would have resulted from any issuance of
Additional Shares of Common Stock between the date of the
initial adjustment date and such readjustment date; and
(5) in the event of any change in the number of
shares of Common Stock issuable upon the exercise,
conversion or exchange of any Option or Convertible
Security, including, but not limited to, a change resulting
from the antidilution provisions thereof, the Exercise Price
then in effect shall forthwith be readjusted to such
Exercise Price as would have been obtained had the
adjustment which was initially made upon the issuance of
such unexercised Option or unconverted Convertible Security,
been made upon the basis of such subsequent change, but no
further adjustment shall be made for the actual issuance of
Common Stock upon the exercise or conversion of any such
Option or Convertible Security.
(iv) Adjustment of Exercise Price Upon Issuance of
Additional Shares of Common Stock. In the event the Company at any time after
the Warrant Issue Date shall issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Section 7(c)(iii)), without consideration or for a consideration per share
less than the Exercise Price in effect on the date of and immediately prior to
such issue, then and in such event, the Exercise Price shall be reduced to a
price (calculated to the nearest cent) determined by multiplying the then
current Exercise Price by a fraction the numerator of which shall be the sum
of
(A) the number of shares of Common Stock
outstanding immediately prior to such issue, plus
(B) the number of shares of Common Stock which the
aggregate consideration received by the Company for the
total number of Additional Shares of Common Stock so issued
would purchase at the Exercise Price in effect immediately
prior to such issuance
and the denominator of which shall be the sum of
(x) the number of shares of Common Stock
outstanding immediately prior to such issue, plus
(y) the number of such Additional Shares of Common
Stock so issued.
For the purpose of the above calculation, the number of shares of Common Stock
outstanding shall be calculated on a fully diluted basis, as if all shares of
Series A Preferred and all other Convertible Securities had been fully converted
into shares of Common Stock immediately prior to such issuance, and any
outstanding warrants, options or other rights for the purchase of shares of
stock or
Convertible Securities had been fully exercised immediately prior to such
issuance, and the resulting securities fully converted into shares of Common
Stock, if so convertible as of such date. This calculation shall not include,
however, any Additional Shares of Common Stock issuable with respect to this
Warrant or to shares of Series A Preferred, Convertible Securities or
outstanding options, warrants or other rights for the purchase of shares or
Convertible Securities, solely as a result of adjustment of the Exercise Price
resulting from the issuance of Additional Shares of Common Stock causing such
adjustment.
The provisions of this Section 7(c)(iv) do not apply if the
provisions of any of Section 7(a) or (b) apply.
(v) Determination of Consideration. The consideration received by
the Company for the issue of any Additional Shares of Common Stock shall be
computed as follows:
(1) Cash, Property, and Other Consideration. Such
consideration shall:
(a) insofar as it consists of cash, be computed as
the aggregate amount of cash received by the Company
excluding amounts paid or payable for accrued interest or
accrued dividends;
(b) insofar as it consists of property, services,
or other consideration other than cash, be computed at the
fair value thereof at the time of such issue, as determined
in good faith by the Board of Directors; and
(c) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other
assets of the Company for consideration which covers both,
be the proportion of the consideration so received, computed
as provided in clauses (a) and (b) above, as is determined
in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
consideration per share received by the Company for
Additional Shares of Common Stock deemed to have been issued
pursuant to Options and Convertible Securities, shall be
deemed to be the sum of the consideration paid for such
Option or Convertible Security, if any, plus the lowest
consideration per share then payable upon the exercise of
Options, as set forth in the instruments relating to such
Options, or Convertible Securities, without regard to any
provision contained therein designed to protect against
dilution. If Options or Convertible Securities are issued
together with other securities or instruments of the
Company, the Board of Directors shall determine in good
faith the amount of consideration paid for such Option or
Convertible Securities.
(d) Certificate as to Adjustments. In each case of any
adjustment or readjustment pursuant to Section 7(a)-(c) of the Exercise Price
or the number of shares issuable pursuant to this Warrant, the Company shall
forthwith notify the Holder or Holders of this Warrant
of each such adjustment, setting forth in reasonable detail the event
requiring the adjustment and the method by which such adjustment was
calculated.
(e) No Fractional Shares; Fair Market Value. If any
adjustment pursuant to Section 7(a) - (c) would create a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares subject to this
Warrant shall be the next higher number of shares, rounding all fractions
upward. "Fair Market Value" per share of Common Stock shall mean (i) in the
case of a security listed or admitted to trading on any securities exchange,
the last reported sale price, regular way (as determined in accordance with
the practices of such exchange), on such day, or if no sale takes place on
such day, the average of the closing bid and asked prices on such day (and in
the case of a security traded on more than one national securities exchange,
at such price or such average, upon the exchange on which the volume of
trading during the last calendar year was the greatest), (ii) in the case of a
security not then listed or admitted to trading on any securities exchange,
the last reported sale price on such day, or if no sale takes place on such
day, the average of the closing bid and asked prices on such day, as reported
by a reputable quotation service designated by the Company, (iii) in the case
of a security not then listed or admitted to trading on any securities
exchange and as to which no such reported sale price or bid and asked prices
are available, the average of the reported high bid and low asked prices on
such day, as reported by a reputable quotation service, or the Wall Street
Journal, or if there are no bids and asked prices on such day, the average of
the high bid and low asked prices, as so reported, on the most recent day (not
more than 30 days prior to the date in question) for which prices have been so
reported, and (iv) in the case of a security determined by the Company's Board
of Directors as not having an active quoted market or in the case of other
property, such fair market value as shall be determined by the Board of
Directors.
8. Certain Notices. In case at any time the Company shall
propose to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in
stock or make any special dividend or other distribution to the holders of its
Common Stock;
(c) offer for subscription to the holders of any of its
Common Stock any additional shares of stock in any class or series or other
rights;
(d) reorganize, or reclassify the capital stock of the
Company, or consolidate, merge or otherwise combine with, or sell of all or
substantially all of its assets to, another corporation;
(e) voluntarily dissolve, liquidate or wind up of the
affairs of the Company; or
(f) redeem or purchase any shares of its capital stock or
securities convertible into its capital stock;
then, in any one or more of said cases, the Company shall give to the Holder
of the Warrant, by certified or registered mail, (i) at least twenty (20)
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, and (ii) in the case of such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, at least twenty (20) days' prior written notice of the date when
the same shall take place. Any notice required by clause (i) shall also
specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of Common Stock shall be entitled
thereto, and any notice required by clause (ii) shall specify the date on
which the holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
9. Registration Rights. The shares of Common Stock issuable upon
exercise of this Warrant shall be "Registrable Securities" under that certain
Registration Rights Agreement, dated as of the Warrant Issue date, among the
Company, Tandem and Argosy, and the Holder of this Warrant shall be entitled
to the benefits of the Registration Rights Agreement in accordance with its
terms.
10. Governing Law and Amendments. The corporate law of Pennsylvania
shall govern all issues concerning the relative rights of the Company and the
holders of its Common Stock. [In all other matters, this Warrant shall be
construed and enforced under the laws of the State of Tennessee. No amendment
or modification hereof shall be effective except in a writing executed by each
of the Company and the Holder.
11. Equity Participation. This Warrant is issued in connection
with the Debenture Purchase Agreement. It is intended that this Warrant
constitute an equity participation under and pursuant to T.C.A. Section
▇▇-▇▇-▇▇▇, et. seg. and that equity participation be permitted under said
statutes and not constitute interest on the Debenture. If under any
circumstances whatsoever, fulfillment of any obligation of this Warrant, the
Debenture Purchase Agreement, or any other agreement or document executed in
connection with the Debenture Purchase Agreement, shall violate the lawful limit
of any applicable usury statute or any other applicable law with regard to
obligations of like character and amount, then the obligation to be fulfilled
shall be reduced to such lawful limit, such that in no event shall there occur,
under this Warrant, the Debenture Purchase Agreement, or any other document or
instrument executed in connection with the Debenture Purchase Agreement, any
violation of such lawful limit, but such obligation shall be fulfilled to the
lawful limit. If any sum is collected in excess of the lawful limit, such excess
shall be applied to reduce the principal amount of the Debenture.
IN WITNESS WHEREOF, ▇▇▇▇▇▇ Holdings, Ltd. has caused this Warrant to
be executed by its duly authorized officer as of the date first above written.
▇▇▇▇▇▇ HOLDINGS, LTD.
By: _____________________________________
Name: ________________________________
Title: _______________________________
HOLDER:
SIRROM CAPITAL CORPORATION
d/b/a Tandem Capital
By: ____________________________________
▇▇▇▇▇ ▇▇▇▇▇▇, Vice President
ANNEX A
NOTICE OF EXERCISE
To: ▇▇▇▇▇▇ HOLDINGS, LTD.
(1) The undersigned hereby:
[Initial and complete one]
(a)____ elects to purchase ___ shares of Common Stock of ▇▇▇▇▇▇
HOLDINGS, LTD., pursuant to the provisions of Section 3(a)
of the attached Warrant, and tenders herewith payment of
the purchase price in full for such shares in the amount
of $____________; or
(b)____ elects to exercise this Warrant for the purchase of ____ shares
of Common Stock, pursuant to the conversion right set
forth in Section 3(c) of the attached Warrant.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock to be issued upon
conversion thereof are being acquired solely for the account of the
undersigned, and for investment, and that the undersigned will not
offer, sell or otherwise dispose of any such shares of Common Stock
except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any applicable state
securities laws.
(3) Please issue a certificate(s) representing said shares of Common
Stock in the name of the undersigned or in such other name as is
specified below:
___________________________________
(Name)
___________________________________
(Name)
(4) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or in such other
name as is specified below:
___________________________________
(Name)
________________________________ ___________________________________
(Date) (Signature)
ANNEX B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the number
of shares of Common Stock set forth below:
Name of Assignee Address No. of Shares
and does hereby irrevocably constitute and appoint Attorney _________________ to
make such transfer on the books of ▇▇▇▇▇▇ HOLDINGS, LTD.,
maintained for the purpose, with full power of substitution in the premises.
The undersigned also represents that, by assignment hereof, the
Assignee acknowledges that this Warrant and the shares of stock to be issued
upon exercise hereof or conversion thereof are being acquired for investment
and that the Assignee will not offer, sell or otherwise dispose of this
Warrant or any shares of stock to be issued upon exercise hereof or conversion
thereof except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended (the "Securities Act"), or any state
securities laws. Further, the Assignee has acknowledged that upon exercise of
this Warrant, the Assignee shall, if requested by the Company, confirm in
writing, in a form satisfactory to the Company, that the shares of stock so
purchased are being acquired for investment and not with a view toward
distribution or resale in violation of the registration provisions of the
Securities Act or any state securities laws.
Dated: ___________________________
__________________________________
Signature of Holder
EXHIBIT C
OFFICER'S CERTIFICATE
The undersigned, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, the duly elected and authorized
President of ▇▇▇▇▇▇ Holdings, Ltd., a Pennsylvania corporation (the
"Company"), does hereby certify pursuant to Section 4.2 of that certain
Debenture Purchase Agreement (the "Debenture Agreement"), dated December ___,
1997 among the Company and Sirrom Capital Corporation d/b/a Tandem Capital and
Argosy Investment Partners, L.P., as follows:
1. The representations and warranties of the Company contained in the
Debenture Agreement were true and correct when made and are true and correct
on the date hereof as if made on and as of the date hereof, except as such
representations and warranties expressly relate to a specific date.
2. The Company has performed and complied with all covenants and
agreements and conditions contained in the Debenture Agreement required to be
performed or complied with by it prior to or at the time of delivery hereof.
3. Since December __, 1997, no change has occurred in the condition,
financial or otherwise, or prospects of the Company or any Subsidiary which,
either individually or in the aggregate, would have a Materially Adverse
Effect (as defined in the Debenture Agreement).
4. On the date hereof, the Company consummated the acquisition
of _____ ___, a _________ corporation pursuant to the terms of that certain
[Acquisition Agreement] dated December ___, 1997 between the Company and
____________.
Capitalized terms used herein which are defined in the Debenture
Agreement will have the same meaning as provided therein.
IN WITNESS WHEREOF, the undersigned has executed this Officer's
Certificate this ___ day of _______________, 199__.
_________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, President
EXHIBIT D
FORM OF SECRETARY'S CERTIFICATE
The undersigned, ______________, the duly elected and authorized
Secretary of ▇▇▇▇▇▇ Holdings, Ltd., a Pennsylvania corporation (the "Company"),
does hereby certify pursuant to Section 4.3 of that certain Debenture Purchase
Agreement (the "Debenture Agreement"), dated December -, 1997, by and among the
Company and Sirrom Capital Corporation d/b/a Tandem Capital and Argosy
Investment Partners, L.P., as follows:
1. There has not been any amendment or other document affecting the
Articles of Incorporation of the Company filed with the Secretary of State of
Pennsylvania since [date of certified Articles delivered at Closing], or any
action contemplating any such amendment, other than the Statement with Respect
to Shares.
2. No proceedings looking toward the liquidation or dissolution of
the Company or threatening the existence of the Company are pending or
contemplated by the Company.
3. Attached hereto as Exhibit D-1 is a true, complete and correct
copy of the Bylaws of the Company, as amended and/or restated, as such Bylaws
are in full force and effect on the date hereof.
4. Attached hereto as Exhibit D-2 is a true, complete and correct
copy of the resolutions duly adopted by the Board of Directors of the Company
[at a meeting held on _______________] OR [by written consent dated _________],
authorizing the issue and sale of the Debentures and the grant of the
Warrants, the execution and delivery of the Debenture Agreement and the
Warrants, and the consummation of the transactions contemplated thereby, and
such resolutions are in full force and effect on the date hereof and have not
been rescinded or modified in any respect.
5. The following persons are the duly elected, qualified and acting
officers of the Company authorized to execute and deliver on behalf of the
Company, the Debenture Agreement and the other documents and instruments to be
executed by the Company in connection with the transactions contemplated by
the Debenture Agreement, and the signature of each person set forth opposite
his/her name is his/her genuine signature:
Name Office Signature
---- ------ ---------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ President ________________________
_______________________________ Secretary ________________________